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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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
COMMISSION FILE NO. 1-13079
GAYLORD ENTERTAINMENT COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 73-0664379
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
ONE GAYLORD DRIVE, NASHVILLE, TENNESSEE 37214
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (615) 316-6000
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK - $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 18, 2002, there were 33,829,600 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the registrant based on the closing price of the
Common Stock on the New York Stock Exchange on March 18, 2002 was approximately
$595,029,906. For purposes of the foregoing calculation only, shares of Common
Stock held by non-affiliates exclude only those shares beneficially owned by
officers and directors.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held May 14, 2002 are incorporated by reference
into Part III of this Form 10-K.
GAYLORD ENTERTAINMENT COMPANY
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business..................................................................................... 1
Item 2. Properties................................................................................... 13
Item 3. Legal Proceedings............................................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................ 14
Item 6. Selected Financial Data...................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................... 37
Item 8. Financial Statements and Supplementary Data.................................................. 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 37
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 37
Item 11. Executive Compensation....................................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 37
Item 13. Certain Relationships and Related Transactions............................................... 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 38
SIGNATURES............................................................................................. 39
PART I
Throughout this report, we refer to Gaylord Entertainment Company,
together with its subsidiaries, as "we," "us," "Gaylord Entertainment,"
"Gaylord," or the "Company."
ITEM 1. BUSINESS
We are a diversified hospitality company operating principally in four
groups: (i) Hospitality, (ii) Attractions, (iii) Media, and (iv) Corporate and
Other. The Hospitality segment comprises the operations of the Gaylord Hotel
properties and the Radisson Hotel at Opryland. The Attractions segment
represents all of the Nashville-area attractions, including the Grand Ole Opry,
General Jackson Showboat, Ryman Auditorium, Springhouse Golf Club and the
Wildhorse Saloon. It also includes the results of Corporate Magic, the Company's
corporate event production business. The Media segment includes Acuff-Rose Music
Publishing and the Company's three radio stations. The Corporate and Other
segment includes corporate expenses and results from investments in sports
franchises and minority investments. These four business segments - Hospitality,
Attractions, Media, Corporate and Other - represented 70.3%, 20.3%, 7.4%, and
2.0%, respectively of total revenues in the calendar year ended December 31,
2001. Financial information by industry segment and geographic area for each of
the three years in the period ended and as of December 31, 2001, appears in Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," under the caption "Results of Operations" and in the Financial
Reporting by Business Segments note to our Consolidated Financial Statements
included in this annual report on Form 10-K. All periods presented in this
annual report on Form 10-K have been restated to conform to the new reporting
format of four business segments (as opposed to the three segments - (i)
Hospitality and Attractions, (ii) Music, Media and Entertainment, and (iii)
Corporate and Other that were used in last year's annual report on Form 10-K).
HOSPITALITY
GAYLORD HOTELS - STRATEGIC PLAN. Gaylord Entertainment's goal is to
become the nation's premier brand in the meetings and convention sector. To
accomplish this, our business strategy is to develop resorts and convention
centers in desirable event destinations that are created based in large part on
the needs of meeting planners and attendees. Using the slogan "Everything under
one roof," Gaylord Hotels incorporate meeting, convention and exhibition space
with a large hotel property so the attendees never have to leave the location
during their meetings. This concept of a self-contained destination dedicated
primarily to the meetings industry has made our Gaylord Opryland Resort and
Convention Center in Nashville one of the leading convention hotels in the
country. In addition to operating Gaylord Opryland in Nashville, we opened our
Gaylord Palms Resort and Convention Center in Kissimmee, Florida in January
2002, are scheduled to open our new Gaylord hotel in Grapevine, Texas in
mid-2004, and have announced plans to develop a Gaylord hotel in the Washington,
D.C. area. The Company believes that its new convention hotels will enable the
Company to capture additional convention business from groups that currently
utilize Gaylord Opryland but must rotate their meetings to other locations due
to their attendees' desires to visit different areas. The Company also
anticipates that its new hotels will capture new group business that currently
does not come to the Nashville market and will seek to gain additional business
at Gaylord Opryland in Nashville once these groups have experienced a Gaylord
hotel in other markets.
Plans for the properties to be developed include the following
components, which the Company believes are the foundation of its success with
Gaylord Opryland: (i) state-of-the-art meeting facilities, including a high
ratio of square footage of meeting and exhibit space per guest room; (ii)
expansive atriums themed to capture geographical and cultural aspects of the
region in which the property is located; and (iii) entertainment components and
innovative venues creating a superior guest experience not typically found in
convention hotels.
In October 2001, the Company announced a re-branding of the Opryland
Hotels under the new brand of "Gaylord Hotels." Opryland Hotel Nashville was
renamed Gaylord Opryland and the Opryland Hotel Florida was renamed the Gaylord
Palms.
GAYLORD OPRYLAND RESORT AND CONVENTION CENTER - NASHVILLE, TENNESSEE.
Our flagship Gaylord Opryland in Nashville is one of the leading convention
destinations in the United States. Designed with the lavish
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gardens and magnificent charm of a glorious Southern mansion, the resort is
situated on approximately 172 acres in the Opryland complex. Gaylord Opryland is
one of the largest hotels in the United States in terms of number of guest
rooms. Gaylord Opryland attracts convention business from trade associations and
corporations, which accounted for approximately 80% of the hotel's revenues in
each of 2001, 2000, and 1999. It also serves as a destination resort for
vacationers due to its proximity to the Grand Ole Opry, the General Jackson
showboat, the Springhouse Golf Club (the Company's 18-hole championship golf
course), and other attractions in the Nashville area. The Company believes that
the ambiance created at Gaylord Opryland and the combination of the quality of
its convention facilities and availability of live musical entertainment are
factors that differentiate it from other convention hotels. In late 1999, the
Company began a three-year renovation and capital improvement program to
refurbish the hotel. Of the anticipated cost of $54 million, approximately $39
million had been spent or committed as of December 31, 2001.
The following table sets forth information concerning the Gaylord
Opryland hotel in Nashville for each of the five years in the period ended
December 31, 2001.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Average number of guest rooms 2,883 2,883 2,884 2,884 2,866
Occupancy rate 70.3% 75.9% 78.0% 79.1% 85.4%
Average daily rate ("ADR") $140.33 $140.03 $135.48 $137.02 $130.86
Revenue per available room ("RevPAR") $98.65 $106.22 $105.66 $108.33 $111.81
Food and beverage revenues (in thousands) $72,800 $81,093 $85,686 $81,518 $85,186
Total revenues (in thousands) $221,953 $229,859 $234,435 $233,645 $240,969
Gaylord Opryland has 2,883 guest rooms, four ballrooms with
approximately 124,000 square feet, 85 banquet/meeting rooms, and total dedicated
exhibition space of approximately 289,000 square feet. Total meeting, exhibit
and pre-function space in the hotel is approximately 600,000 square feet.
GAYLORD PALMS RESORT AND CONVENTION CENTER - KISSIMMEE, FLORIDA. We
opened our Gaylord Palms Resort and Convention Center in Kissimmee, Florida in
January 2002. Gaylord Palms has 1,406 signature guest rooms and approximately
400,000 square feet of total meeting and exhibit space. The hotel is situated on
a 65-acre site in Osceola County, Florida and is approximately 5 minutes from
the main gate of the Walt Disney World(R) Resort complex. Gaylord Palms is
designed similar to Gaylord Opryland, with rooms overlooking large glass-covered
atriums. The three atriums at Gaylord Palms are modeled after famous areas from
the State of Florida: the Everglades, Key West and St. Augustine. Gaylord Palms
also has a full-service spa, which with 20,000-square feet of dedicated space
(over 25 treatment rooms) is one of the largest spas in Central Florida. The
spa, known as the Canyon Ranch Spa Club, is managed by the Canyon Ranch Spa
Company from Arizona, a leader in spa management. Hotel guests also have golf
privileges at the world class Falcon's Fire Golf Club, located a half-mile from
the property. Total net real estate, construction, and furnishings, fixtures and
equipment and capitalized interest costs incurred for Gaylord Palms through
December 31, 2001 was $361 million, $181.5 million of which was incurred in the
year ended December 31, 2001.
THE NEW GAYLORD HOTEL IN GRAPEVINE, TEXAS. We began construction on our
new Gaylord hotel in Grapevine, Texas in June of 2000, and the hotel is
scheduled to open in mid-2004. The 1,508 room hotel and convention center is
located eight minutes from the Dallas/Fort Worth Airport. Like its sister
property in Kissimmee, Florida, our Texas hotel will feature a grand atrium
enclosing several acres as well as over 400,000 square feet of pre-function,
meeting and exhibition space all under one roof. The property will also include
a number of themed restaurants with an additional restaurant located on the
point overlooking Lake Grapevine. Situated directly on Lake Grapevine, this
hotel will be surrounded by 36 holes of golf.
Total net real estate, construction, and furnishings, fixtures and
equipment and capitalized interest costs for the new Texas hotel are currently
anticipated to be in the range of $415 million. As of December 31, 2001, the
Company has incurred approximately $86 million of these costs. This property is
still in the development phase, and decisions pertaining to the final design of
the hotel could impact its estimated cost. Following the September 11, 2001
terrorist attacks, we elected to slow down the construction of our Texas hotel
and reduce construction spending in the short term. See "Management's Discussion
and Analysis of Financial Condition and Results of
2
Operations - Terrorist Attacks," for a discussion of the terrorist attacks and
the schedule for construction of our Texas property.
GAYLORD HOTELS DEVELOPMENT PLAN. In January 2000, the Company announced
plans to develop a Gaylord hotel on property to be acquired from The Peterson
Companies on the Potomac River in Prince George's County, Maryland (in the
Washington, D.C. market). This project is subject to the availability of
financing and final approval of the Company's Board of Directors. Management
would also consider other sites in Phoenix, San Diego or Chicago as possible
locations for a future Gaylord hotel.
RADISSON HOTEL AT OPRYLAND. We also own and operate the Radisson Hotel
at Opryland, a Radisson franchise hotel which is located across the street from
Gaylord Opryland. The hotel has 303 rooms and approximately 14,000 square feet
of meeting space. The Company purchased the hotel in April 1998 for
approximately $16 million. A major renovation of the guest rooms and meeting
space was completed in 1999 at a cost of approximately $7 million. In March
2000, the Company entered into a 20-year franchise agreement with Radisson in
connection with the operation of this hotel. The franchise agreement contains
customary terms and conditions. Pursuant to the franchise agreement, the Company
will make additional capital expenditures of approximately $2 million to be
completed during 2002.
ATTRACTIONS
THE GRAND OLE OPRY. The Grand Ole Opry, which celebrated its 75th
anniversary in 2000, is the most widely known platform for country music in the
world. The Opry features a live country music show with performances every
Friday and Saturday night, as well as Tuesday Night Opry's in the summer. The
Opry House, home of the Grand Ole Opry, is located in the Opryland complex. The
Grand Ole Opry moved to the Opry House in 1974 from its original home in the
Ryman Auditorium in downtown Nashville.
The Grand Ole Opry is broadcast live on the Company's WSM-AM radio
station every Friday and Saturday night, and the broadcast of the Opry is also
streamed on the Internet via www.opry.com and www.wsmonline.com. The show has
been broadcast since 1925 on WSM-AM, making it the longest running live radio
program in the world. In 2001, the Company entered into an agreement (the "CMT
Opry Live Agreement") with Viacom, Inc. pursuant to which Viacom agreed to move
the exhibition of the Opry Live from its TNN channel to CMT. Under the CMT Opry
Live Agreement, Viacom will air the Opry Live on CMT each week through September
30, 2003 and will re-air the Opry Live show twice each week for a total of three
airings per week.
The Grand Ole Opry currently has approximately 70 performing members
who are stars or other notables in the country music field. There are no
financial inducements attached to membership in the Grand Ole Opry other than
the prestige associated with membership. In addition to performances by members,
the Grand Ole Opry presents performances by many other country music artists.
Members include traditional favorites, such as Loretta Lynn and George Jones, as
well as contemporary artists, like Garth Brooks, Vince Gill, and Trisha
Yearwood.
The Opry House contains a 45,000 square foot auditorium with 4,424
seats, a television production center that includes a 300-seat studio and
lighting, audio, and video control rooms, and set design and scenery shops. The
Opry House is used by the Company for the production of television and other
programming and by third parties such as national television networks and the
Public Broadcasting System. The Opry House is also rented for concerts,
theatrical productions, and special events and is used by Gaylord Opryland for
convention entertainment and other events such as the Radio City Christmas
Spectacular featuring the world famous Rockettes(TM).
RYMAN AUDITORIUM. The Ryman Auditorium, which was built in 1892 and
seats approximately 2,300, was recently designated as a National Historic
Landmark. The former home of the Grand Ole Opry, the Ryman Auditorium was
renovated and re-opened in 1994 for concerts and musical productions. Recent
concert performers have included Harry Connick, Jr., Bob Dylan, The Doobie
Brothers, Ricky Skaggs, Bruce Springsteen, Alison Krauss and Gladys Knight. The
Ryman Auditorium consistently has received local awards as a venue for live
music performances, and in January 2001, CitySearch editors listed the Ryman
Auditorium among the top five concert venues in the United States for the second
year in a row.
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Since its reopening, the Ryman Auditorium has featured musicals
produced by the Company such as Always . . . Patsy Cline, Lost Highway - The
Music & Legend of Hank Williams, and Bye Bye Love - The Everly Brothers Musical.
In the fall of 2001, the Ryman Auditorium premiered Stand By Your Man: The Tammy
Wynette Story, a new bio-musical based on the life of country music legend Tammy
Wynette, and that musical will appear again at the Ryman Auditorium during the
fall of 2002. The Grand Ole Opry returns to the Ryman Auditorium periodically,
most recently from November 2001 to February 2002. The Ryman Auditorium is also
host to a number of special events.
THE GENERAL JACKSON SHOWBOAT. The Company operates the General Jackson,
a 300-foot, four-deck paddle wheel showboat, on the Cumberland River, which
flows past the Opryland complex. Its Victorian Theatre can seat 620 people for
banquets and 1,000 people for theater-style presentations. The showboat stages
Broadway-style shows and other theatrical productions. The General Jackson is
one of many sources of entertainment that the Company makes available to
conventions held at Gaylord Opryland. It contributes to the Company's revenues
from convention participants as well as local business. During the day it
operates cruises, primarily serving tourists visiting the Opryland complex and
the Nashville area.
THE SPRINGHOUSE GOLF CLUB. Home to a Senior PGA Tour event since 1994
and minutes from Gaylord Opryland, the Springhouse Golf Club was designed by
former U.S. Open and PGA Champion Larry Nelson. The 43,000 square-foot
antebellum-style clubhouse offers meeting space for up to 450 guests.
THE WILDHORSE SALOON. Since 1994, the Company has owned and operated
the Wildhorse Saloon, a country music performance venue on historic Second
Avenue in downtown Nashville. The three story, 66,000 square-foot facility
includes a dance floor of approximately 2,500 square feet, a restaurant and
banquet facility which can accommodate up to 2,000 guests, and a 15' x 22'
television screen which features country music videos and sporting events. The
Wildhorse Saloon has featured performers such as Tim McGraw and the Dixie
Chicks. The club has a broadcast-ready stage and facilities to house mobile
production units from which broadcasts of live concerts may be distributed
nationwide.
CORPORATE MAGIC. In March 2000, the Company acquired Corporate Magic,
Inc., a company specializing in the production of creative and entertainment
events in support of the corporate and meeting marketplace, for $9.0 million. We
believe the event and corporate entertainment planning function of Corporate
Magic complements the meeting and convention aspects of our Gaylord Hotels
business.
MEDIA
ACUFF-ROSE MUSIC PUBLISHING. Acuff-Rose Music Publishing is primarily
engaged in the music publishing business and owns one of the world's largest, as
well as Nashville's oldest, catalog of copyrighted country music songs. The
Acuff-Rose catalog also includes popular music, with songs by legendary writers
such as Hank Williams, Pee Wee King, Roy Orbison, and Don and Phil Everly. The
Acuff-Rose catalog contains at least 70 songs that have been publicly performed
over a million times. The roster of Acuff-Rose songs includes standards such as
"Oh, Pretty Woman," "Blue Eyes Cryin' in the Rain," and "When Will I Be Loved."
Acuff-Rose licenses the use of its songs in films, plays, print, commercials,
videos, cable, television and toys. In addition to its U.S.-based business,
through various subsidiaries and sub-publishers, Acuff-Rose collects royalties
on licenses granted in a number of foreign countries. Management has determined
that our Acuff-Rose Music Publishing business is not one of our core assets, and
as a result, we are considering strategic alternatives with respect to this
business. See "Recent Developments and Strategic Direction" below direction for
a discussion of this decision.
WSM-AM AND WSM-FM. WSM-AM and WSM-FM commenced broadcasting in 1925 and
1967, respectively. The involvement of the Company's predecessors with country
music dates back to the creation of the Grand Ole Opry, which has been broadcast
live on WSM-AM since 1925.
WSM-AM and WSM-FM are each broadcast from the Opryland complex and have
country music formats. WSM-AM went on the air in 1925 and is one of the nation's
25 "clear channel" stations, meaning that no other station in a 750-mile radius
uses the same frequency for nighttime broadcasts. As a result, the station's
signal, transmitted by a 50,000 watt transmitter, can be heard at night in much
of the United States and parts of Canada. The Company also has radio broadcast
studios in Gaylord Opryland, the Wildhorse Saloon, the Ryman Auditorium, and the
Opry Mills retail complex in Nashville.
WWTN-FM. In 1995, the Company acquired the assets of radio station
WWTN-FM, which operates out of Nashville, Tennessee. WWTN-FM has a
news/talk/sports format and is the flagship station of the Nashville Predators,
a National Hockey League club in which the Company owns a minority interest.
4
CORPORATE AND OTHER
OPRY MILLS. The Company owns a one-third partnership interest in Opry
Mills, an entertainment/retail complex with 1.2 million square feet of leasable
space, located next to Gaylord Opryland. Opened in May 2000, Opry Mills
includes more than 200 stores, restaurants and entertainment venues. The Mills
Corporation owns the remaining two-thirds interest in the partnership.
BASS PRO SHOPS. From 1993 to December 1999, the Company owned a
minority interest in Bass Pro, L.P. As part of a reorganization of Bass Pro in
December 1999, the Company contributed its limited partnership interest to a
newly formed Delaware corporation, Bass Pro, Inc. for a 19% interest in the new
entity. Bass Pro, Inc. owns and operates Bass Pro Shops, a retailer of premium
outdoor sporting goods and fishing tackle. Bass Pro Shops serves its customers
through an extensive mail order catalog operation, a retail center in
Springfield, Missouri, and additional retail stores at Opry Mills in Nashville
and in various other U.S. locations.
NASHVILLE PREDATORS. The Company owns a 16.5% interest in the Nashville
Hockey Club Limited Partnership, a limited partnership that owns the Nashville
Predators, a National Hockey League franchise which began its fourth season in
the fall of 2001. In August 1999, the Company entered into a Naming Rights
Agreement with the limited partnership whereby the Company purchased the right
to name the Nashville Arena as the "Gaylord Entertainment Center" and to place
certain advertising within the arena. Under the agreement, which has a 20-year
term, the Company is required to make annual payments, beginning at $2,050,000
in the first year and with a 5% escalation each year thereafter, and to purchase
a minimum number of tickets to Predators games each year.
OKLAHOMA REDHAWKS. Since 1993, the Company has owned an interest in OKC
Athletic Club Limited Partnership, a limited partnership that owns the Oklahoma
Redhawks, a minor league baseball club located in Oklahoma City, and in certain
concession rights for the club. In a series of transactions in 1999 and 2000,
the Company acquired an additional 10% interest for $875,000, increasing its
position to 75.2% of the interests in OKC Athletic Club Limited Partnership.
RECENT DEVELOPMENTS AND STRATEGIC DIRECTION
During the second quarter of 2001, the Company hired a new Chairman of
the Board and a new Chief Executive Officer. Once the new senior management team
was in place, they devoted a significant portion of 2001 to reviewing the many
different businesses they inherited when they joined the Company. After
significant review, it was determined that, while the Company had four business
segments for financial reporting purposes (Hospitality, Attractions, Media and
Corporate and Other - all described above), the future direction of the Company
would be based on two core asset groups, which were aligned as follows:
HOSPITALITY CORE ASSET GROUP: consisting of the Gaylord Hotels, the
Corporate Magic meeting and event planning business and the various
attractions that provide entertainment to guests of the hotels.
OPRY CORE ASSET GROUP: consisting of the Grand Ole Opry, WSM radio, and
the Ryman Auditorium.
It was thus determined that Word Entertainment, Music Country/CMT
International and GET Management were not core assets of the Company, and as a
result each has either been sold or otherwise disposed of by the Company.
Gaylord Digital, Pandora Films, Gaylord Films, Gaylord Sports Management,
Gaylord Event Television, Gaylord Production Company, Z Music and the Opryland
River Taxis, also not core assets of the Company, had previously been sold or
otherwise disposed of by the Company. Remaining businesses to be sold include
the Company's interests in the Nashville Predators, Opry Mills and the Oklahoma
Redhawks, and certain miscellaneous real estate holdings. Management has yet to
make a final decision as to whether to sell its Acuff-Rose Music Publishing
business or its minority interest in Bass Pro Shops, both of which have been
determined to be non-core assets. Following the decision to divest certain
businesses, we restructured the corporate organization to streamline operations
and remove duplicative costs. The Opryland Hospitality management group was
collapsed into the Corporate management group and all Nashville management
employees were consolidated into the Company's Wendell Office Building.
Highlights of some of the key developments resulting from this corporate
redirection are set forth below.
SALE OF WORD ENTERTAINMENT TO WARNER MUSIC GROUP. On January 4, 2002,
the Company completed the sale of its Word Entertainment operations through the
contribution of substantially all of the assets and liabilities of
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Gaylord Creative Group, Inc. ("GCG"), a wholly-owned subsidiary of the Company,
to Idea Entertainment LLC ("Idea"), a wholly-owned subsidiary of GCG, and the
sale of all of the outstanding membership interests of Idea to WMGA LLC, an
affiliate of Warner Music Group Inc. GCG and its subsidiaries, operating under
the trade name "Word Entertainment," engaged in the business of producing,
distributing and marketing recorded music and related products, music publishing
and creating audio-visual work. The proceeds to the Company from the sale
totaled approximately $84 million in cash.
CLOSING OF INTERNATIONAL CABLE OPERATIONS. On February 25, 2002, the
Company closed its cable network operations in Brazil, Asia and Australia by
selling its assets associated with MusicCountry Asia and MusicCountry Brazil to
the Sound Track Channel ("STC"), a privately owned California limited liability
company. In exchange for the assets, STC delivered to the Company promissory
notes totaling approximately $3 million and a 5% equity interest in STC. In
addition, as a part of the transaction with STC, STC assumed a portion of the
Company's obligations under the Transponder Agreement with PanAmSat Corporation.
The Company also closed its international cable operations in Argentina under an
agreement with its joint venture partners pursuant to which the Company
transferred its equity in Solo Tango, S.A. and Latin America MusicCountry, S.A.
in exchange for cancellation of future obligations the Company had to its
minority partners. The Company continues to own a minority investment in Video
Rola in Mexico.
SALE OF FIVE BUSINESSES TO OPUBCO. On March 9, 2001, the Company sold
its stock and equity interests in five of its businesses to The Oklahoma
Publishing Company ("OPUBCO") for a purchase price of $22 million in cash and
the assumption of approximately $20 million in debt. The businesses sold were
Gaylord Production Company, Gaylord Films, Pandora Films, Gaylord Sports
Management Group, and Gaylord Event Television. OPUBCO beneficially owns 6.2% of
the Company's common stock. Four of the Company's directors, who are the
beneficial owners of an additional 26.6% of the Company's common stock, are also
directors of OPUBCO and voting trustees of a voting trust that controls OPUBCO.
The transaction was reviewed and approved by a special committee of the
independent directors of the Company. The Company received an appraisal from a
firm that specializes in valuations related to films, entertainment and service
businesses as well as a fairness opinion from an investment bank in connection
with this transaction.
FINANCING ACTIVITIES. On March 27, 2001, the Company entered into two
new loan agreements, a $275 million senior loan (the "Senior Loan") and a $100
million mezzanine loan (the "Mezzanine Loan") (collectively, the "Nashville
Hotel Loans"). The Senior Loan is secured by a first mortgage lien on the
Gaylord Opryland hotel. The Mezzanine Loan is secured by the equity interest in
the wholly-owned subsidiary that owns Gaylord Opryland.
On October 9, 2001, the Company entered into a three-year $210 million
delayed-draw senior term loan (the "Term Loan") with Deutsche Banc Alex. Brown
Inc., Salomon Smith Barney, Inc. and CIBC World Markets Corp. Proceeds of the
Term Loan were used to finance the completion of Gaylord Palms and for general
operating needs of the Company. The Term Loan is primarily secured by the
Company's ground lease interest in Gaylord Palms.
During May 2000, the Company entered into a seven-year secured forward
exchange contract with an affiliate of Credit Suisse First Boston with respect
to approximately 10.9 million shares of the Company's Viacom, Inc. Class B
non-voting common stock ("Viacom Stock"). The contract has a face amount of
$613.1 million and required contract payments based upon a stated 5% rate. The
secured forward exchange contract protects the Company against decreases in the
fair market value of the Viacom Stock while providing for participation in
increases in the fair market value. By entering into the secured forward
exchange contract, the Company realized cash proceeds of $506.3 million, net of
discounted prepaid contract payments related to the first 3.25 years of the
contract and transaction costs totaling $106.7 million. During October 2000, the
Company prepaid the remaining contract payments related to the final 3.75 years
of the contract for $83.2 million. As a result of the prepayment of the
remaining contract payments, the Company was released from the covenants in the
secured forward exchange contract which limited the Company's right to sales of
assets, to incur additional indebtedness and to grant liens. The Company
utilized $394.1 million of the net proceeds from the secured forward exchange
contract to repay all outstanding indebtedness under its revolving credit
facility.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," for a description of both the Nashville Hotel Loans and
the Term Loan and the monetization of the Viacom Stock.
6
EMPLOYEES
As of December 31, 2001, the Company had approximately 4,495 full-time
and 507 part-time and temporary employees. Of these, approximately 3,461
full-time and 181 part-time employees were employed in Hospitality;
approximately 416 full-time and 287 part-time employees were employed in
Attractions; approximately 320 full-time and 29 part-time employees were
employed in Media; and approximately 298 full-time and 10 part-time employees
were employed in Corporate and Other. The Company believes its relations with
its employees are good.
COMPETITION
HOSPITALITY. The Gaylord Hotel properties compete with numerous other
hotels throughout the United States and abroad, particularly the approximately
125 convention hotels located outside of Las Vegas, Nevada that have more than
800 rooms each, as well as the Las Vegas hotel/casinos. Many of these hotels are
operated by companies with greater financial, marketing, and human resources
than the Company. The Company believes that competition among convention hotels
is based on, among other things, factors which include: (i) the hotel's
reputation, (ii) the quality of the hotel's facility, (iii) the quality and
scope of a hotel's meeting and convention facilities and services, (iv) the
desirability of a hotel's location, (v) travel distance to a hotel for meeting
attendees, (vi) a hotel facility's accessibility to a recognized airport, (vii)
the amount of entertainment and recreational options available in and in the
vicinity of the hotel, and (viii) price. The Company's hotels also compete
against civic convention centers. These include the largest convention centers
(e.g., Orlando, Chicago and Atlanta) as well as, for Gaylord Opryland, mid-size
convention centers (between 100,000 and 500,000 square feet of meeting space
located in second-tier cities).
The hotel business is management and marketing intensive. The Gaylord
Hotels compete with other hotels throughout the United States for high quality
management and marketing personnel. There can be no assurance that the Company's
hotels will be able to attract and retain employees with the requisite
managerial and marketing skills.
ATTRACTIONS. The Grand Ole Opry and other attractions businesses of the
Company compete with all other forms of entertainment and recreational
activities. The success of the Attractions group is dependent upon certain
factors beyond the Company's control including economic conditions, the amount
of available leisure time, transportation cost, public taste, and weather
conditions.
MEDIA. The Company's media businesses compete with numerous other types
of entertainment businesses, and success is often dependent on taste and
fashion, which may fluctuate from time to time. Acuff-Rose competes with other
record and music publishing companies to sign songwriters. The Company's ability
to sign and re-sign successful songwriters depends on a number of factors,
including marketing capabilities and the royalty and advance arrangements
offered.
WSM-AM, WSM-FM, and WWTN-FM compete for advertising revenues with other
radio stations in the Nashville market on the basis of formats, ratings, market
share, and the demographic makeup of their audiences. Advertising rates of the
radio stations are based principally on the size, market share, and demographic
profile of their listening audiences. The Company's radio stations primarily
compete for both audience share and advertising revenues. They also compete with
the Internet, newspapers, billboards, cable networks, local cable channels, and
magazines for advertising revenues. Management competence and experience,
station frequency signal coverage, network affiliation, effectiveness of
programming format, sales effort, and level of customer service are all
important factors in determining competitive position.
7
REGULATION AND LEGISLATION
The Gaylord Hotels are subject to certain federal, state, and local
governmental regulations including, without limitation, health, safety, and
environmental regulations applicable to hotel and restaurant operations. The
Company believes that it is in substantial compliance with such regulations. In
addition, the sale of alcoholic beverages by a hotel requires a license and is
subject to regulation by the applicable state and local authorities. The
agencies involved have the power to limit, condition, suspend, or revoke any
such license, and any disciplinary action or revocation could have an adverse
effect upon the results of operations of the Company's Hospitality and
Attractions segments.
The Company's radio stations are subject to regulation under the
Communications Act of 1934, as amended (the "Communications Act"). Under the
Communications Act, the FCC, among other things, assigns frequency bands for
broadcasting; determines the frequencies, location, and signal strength of
stations; issues, renews, revokes, and modifies station licenses; regulates
equipment used by stations; and adopts and implements regulations and policies
that directly or indirectly affect the ownership, operation, and other practices
of broadcasting stations.
Licenses issued for radio stations have terms of eight years. Radio
broadcast licenses are renewable upon application to the FCC and in the past
have been renewed except in rare cases. Competing applications will not be
accepted at the time of license renewal, and will not be entertained at all
unless the FCC first concludes that renewal of the license would not serve the
public interest. A station will be entitled to renewal in the absence of serious
violations of the Communications Act or the FCC regulations or other violations
which constitute a pattern of abuse. The Company is not aware of any reason why
its radio station licenses should not be renewed.
The foregoing is only a brief summary of certain provisions of the
Communications Act and FCC regulations. The Communications Act and FCC
regulations may be amended from time to time, and the Company cannot predict
whether any such legislation will be enacted or whether new or amended FCC
regulations will be adopted, or the effect on the Company of any such changes.
RISK FACTORS
You should carefully consider the following specific risk factors as
well as the other information contained or incorporated by reference in this
annual report on Form 10-K as these are important factors, among others, that
could cause our actual results to differ from our expected or historical
results. It is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a complete statement
of all our potential risks or uncertainties. Some statements in this "Business"
section and elsewhere in this annual report on Form 10-K are "forward-looking
statements." For a discussion of those statements and of other factors to
consider see "Forward-Looking Statements," in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
WE MAY NOT BE ABLE TO IMPLEMENT SUCCESSFULLY OUR BUSINESS STRATEGY.
We have refocused our business strategy on the development of
additional resort and convention center hotels in selected locations in the
United States and our attractions and media properties which are engaged
primarily in the country music genres. The success of our future operating
results depends on our ability to implement our business strategy by completing
and successfully operating the recently-opened Gaylord Palms, our new Gaylord
hotel in Grapevine, Texas, which is under construction, and further exploiting
our attractions and media assets. Our ability to do this depends upon many
factors, some of which are beyond our control. These include:
o Our ability to finance and complete the construction of our new Gaylord
hotel in Grapevine, Texas on schedule and to achieve positive cash flow
from operations within the anticipated ramp-up period.
o Our ability to hire and retain hotel management, catering and
convention-related staff for our hotels.
o Our ability to capitalize on the strong brand recognition of certain of our
media assets.
8
o Our ability to develop new avenues of revenue and to exploit further our
music catalogs.
OUR HOTEL AND CONVENTION BUSINESS IS SUBJECT TO SIGNIFICANT MARKET RISKS.
Our ability to continue successfully to operate Gaylord Opryland,
Gaylord Palms, and our new Gaylord hotel in Grapevine, Texas upon its completion
is subject to factors beyond our control which could adversely impact these
properties. These factors include:
o The desirability and perceived attractiveness of Nashville, Tennessee,
Kissimmee, Florida and Grapevine, Texas as tourist and convention
destinations.
o Adverse changes in the national economy and in the levels of tourism and
convention business that would affect our hotels.
o Increased competition for convention and tourism business in Nashville,
Tennessee and Kissimmee, Florida.
o Gaylord Palms is operating and our new Texas hotel will operate in highly
competitive markets for convention and tourism business.
o Our group convention business is subject to reduced levels of demand during
the year-end holiday periods, and we may not be able to attract sufficient
general tourism guests to offset this seasonality.
WE REQUIRE ADDITIONAL FINANCING TO COMPLETE OUR NEW HOTEL PROJECTS.
We require additional financing to complete the construction for our
new Gaylord hotel in Grapevine, Texas. Our ability to obtain additional debt
financing for this capital project is limited by our existing level of
indebtedness and limitations on our ability to grant liens on unencumbered
assets. Accordingly, it is likely that we will need to seek alternative sources
of debt capital as well as equity capital. These financing efforts will be
subject to market conditions prevailing from time to time as well as our
financial condition and prospects. We may also need to divest certain non-core
businesses in order to finance additional hotel development, and there can be no
guarantee that such divestitures, if required, can be successfully completed. If
we are unable to obtain additional financing or divest non-core assets on terms
acceptable to us to complete the construction of our hotel projects as currently
scheduled, our future prospects could be adversely affected in a material way.
OUR MEDIA ASSETS DEPEND UPON POPULAR TASTES.
The success of our operations in our media division depends to a large
degree on popular tastes. There has been a reduction in the popularity and
demand for country music over recent years. A continued decline in the
popularity of this genre could adversely affect our revenues and operations.
OUR BUSINESS PROSPECTS DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN SENIOR LEVEL
EXECUTIVES.
During 2001, the Company named a new chairman, a new chief executive
officer and had numerous changes in senior management. Our future performance
depends upon our ability to attract qualified senior executives and to retain
their services. Our future financial results also will depend upon our ability
to attract and retain highly skilled managerial and marketing personnel in our
different areas of operation. Competition for qualified personnel is intense and
is likely to increase in the future. We compete for qualified personnel against
companies with significantly greater financial resources than ours.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY OUR LEVERAGE.
As of February 28, 2002, the total amount of our long-term debt,
including the current portion, was approximately $403 million. We intend to
continue to make additional borrowings under our credit facilities in connection
with the development of new hotel properties and for other general corporate
purposes, and the aggregate
9
amount of our indebtedness will likely increase, perhaps substantially. The
amount of our indebtedness could have important consequences to investors,
including the following:
o Our ability to obtain additional financing in the future may be
impaired;
o A substantial portion of our cash flow from operations must be applied
to pay principal and interest on our indebtedness, thus reducing funds
available for other purposes;
o Some of our borrowings, including borrowings under our credit
facilities are and will continue to be at variable rates based upon
prevailing interest rates, which will expose us to the risk of
increased interest rates;
o We may be further constrained by financial covenants and other
restrictive provisions contained in credit agreements and other
financing documents;
o We may be substantially more leveraged than some of our competitors,
which may place us at a competitive disadvantage; and
o Our leverage may limit our flexibility to adjust to changing market
conditions, reduce our ability to withstand competitive pressures and
make us more vulnerable to a downturn in general economic conditions
or our business.
UNANTICIPATED EXPENSES COULD AFFECT THE RESULTS OF HOTELS WE OPEN IN NEW
MARKETS.
As part of our growth plans, we may open new hotels in geographic areas
in which we have little or no operating experience and in which potential
customers may not be familiar with our business. As a result, we may have to
incur costs relating to the opening, operation and promotion of those new hotel
properties that are substantially greater than those incurred in other areas.
Even though we may incur substantial additional costs with these new hotel
properties, they may attract fewer customers than our existing hotels. As a
result, the results of operations at new hotel properties may be inferior to
those of our existing hotels. The new hotels may even operate at a loss. Even if
we are able to attract enough customers to our new hotel properties to operate
them at a profit, it is possible that those customers could simply be moving
future meetings or conventions from our existing hotel properties to our new
hotel properties. Thus, the opening of a new hotel property could reduce the
revenue of our existing hotel properties.
FLUCTUATIONS IN OUR OPERATING RESULTS AND OTHER FACTORS MAY RESULT IN DECREASES
IN OUR STOCK PRICE.
In recent periods, the market price for our common stock has fluctuated
substantially. From time to time, there may be significant volatility in the
market price of our common stock. We believe that the current market price of
our common stock reflects expectations that we will be able to continue to
operate our existing hotels profitably and to develop new hotel properties
profitably. If we are unable to accomplish this, investors could sell shares of
our common stock at or after the time that it becomes apparent that the
expectations of the market may not be realized, resulting in a decrease in the
market price of our common stock. In addition to our operating results, the
operating results of other hospitality companies, changes in financial estimates
or recommendations by analysts, adverse weather conditions, increased
construction costs, changes in general conditions in the economy or the
financial markets or other developments affecting us or our industry, such as
the recent terrorist attacks, could cause the market price of our common stock
to fluctuate substantially. In recent years, the stock market has experienced
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to their operating performance.
OUR HOTEL PROPERTIES ARE CONCENTRATED GEOGRAPHICALLY.
Our existing hotel properties are located predominately in the
southeastern United States. As a result, our business and our financial
operating results may be materially effected by adverse economic, weather or
business conditions in the Southeast.
10
HOSPITALITY COMPANIES HAVE BEEN THE TARGET OF CLASS ACTIONS AND OTHER LAWSUITS
ALLEGING VIOLATIONS OF FEDERAL AND STATE LAW.
We are subject to the risk that our results of operations may be
adversely affected by legal or governmental proceedings brought by or on behalf
of our employees or customers. In recent years, a number of hospitality
companies have been subject to lawsuits, including class action lawsuits,
alleging violations of federal and state law regarding workplace and employment
matters, discrimination and similar matters. A number of these lawsuits have
resulted in the payment of substantial damages by the defendants. Similar
lawsuits have been instituted against us from time to time, and we cannot assure
you that we will not incur substantial damages and expenses resulting from
lawsuits of this type, which could have a material adverse effect on our
business.
THE VALUE OF THE VIACOM STOCK WE OWN IS SUBJECT TO MARKET RISKS.
The shares of Viacom Stock we own represent a significant asset of the
Company. However, we have no right to vote on matters affecting Viacom or to
otherwise participate in the direction of the affairs of that corporation. Our
investment in Viacom is subject to the risks of declines in the market value of
Viacom equity securities. While we have mitigated our exposure to declines in
the stock market valuation below $56.04 per share by entering into the secured
forward exchange contract described under the subheading "Financing Activities"
under the heading "Corporate and Other" in this Item 1 and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
value of this asset ultimately is subject to the success of Viacom and its value
in the securities markets. Further, accounting principles generally accepted in
the United States applicable to the treatment of this contract will require us
to record, and to reflect in our Company's financial statements, gains or losses
based upon changes in the fair value of the derivatives associated with the
secured forward exchange contract and the changes in the fair value of our
Viacom Stock. The effect of this accounting treatment could be material to our
results reflected in our consolidated financial statements for relevant periods.
WE HAVE A NUMBER OF OTHER MINORITY EQUITY INTERESTS OVER WHICH WE HAVE NO
SIGNIFICANT CONTROL.
We have a number of minority investments which are not liquid and over
which we have no rights, or ability, to exercise the direction or control of the
respective enterprises. These include our equity interests in Bass Pro, Opry
Mills and the Nashville Predators. The ultimate value of each of these
investments will be dependent upon the efforts of others over an extended period
of time. The nature of our interests and the absence of a market for those
interests restricts our ability to dispose of them.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers and certain other officers of the Company as of December 31,
2001. All officers serve at the discretion of the Board of Directors.
Name Age Position
- ---- --- --------
Michael D. Rose.................. 60 Chairman of the Board*
Colin V. Reed.................... 54 President and Chief Executive Officer*
David C. Kloeppel................ 32 Executive Vice President and Chief
Financial Officer*
Jay D. Sevigny................... 42 Senior Vice President, Marketing and
Attractions; President, Gaylord
Opryland Resort and Convention Center*
Karen L. Spacek.................. 42 Senior Vice President, Communications,
Human Resources and Systems
John P. Caparella................ 44 Senior Vice President; General
Manager, Gaylord Palms Resort and
Convention Center
Carter R. Todd................... 44 Senior Vice President, General Counsel
and Secretary*
Roderick F. Connor, Jr........... 49 Senior Vice President and Chief
Administrative Officer*
* Subject to the reporting and other requirements of Section 16 of the
Securities Exchange Act of 1934, as amended, as of December 31, 2001.
The following is additional information with respect to the above-named
executive officers.
Mr. Rose has served as Chairman of the Board of the Company since April
2001. Prior to that time he was a private investor and prior to December 1997,
he was Chairman of the Board of Promus Hotel Corporation, Memphis, Tennessee, a
franchiser and operator of hotel brands. Prior to January 1997, Mr. Rose was
also Chairman of the Board of Harrah's Entertainment, Inc., an owner and manager
of casinos in the United States. Mr. Rose is a director of four other public
companies, Darden Restaurants, Inc., FelCor Lodging Trust, Inc., First Tennessee
National Corporation, and Stein Mart, Inc.
Mr. Reed was elected President and Chief Executive Officer and a
director of the Company in April 2001. Prior to that time, he was a member of
the three-executive Office of the President of Harrah's Entertainment, Inc., an
owner and manager of casinos in the United States, since May 1999 and the Chief
Financial Officer of Harrah's since April 1997. Mr. Reed was a director of
Harrah's Entertainment from 1998 to May 2001. He was Executive Vice President of
Harrah's Entertainment from September 1995 to May 1999 and has served in several
other management positions with Harrah's and its predecessor, Holiday Corp.,
since 1977. As part of his duties at Harrah's, Mr. Reed served as a director and
Chairman of the Board of JCC Holding Company, an entity in which Harrah's held a
minority interest. On January 4, 2001, JCC Holding Company filed a petition for
reorganization relief under Chapter 11 of the United States Bankruptcy Code. He
is also a director of ResortQuest International, Inc.
Mr. Kloeppel is the Company's Chief Financial Officer and Executive
Vice President. Prior to joining the Company in September of 2001, Mr. Kloeppel
worked in the Mergers and Acquisitions Department at Deutsche Bank in New York,
where he was responsible for that department's activities in the lodging,
leisure and real estate sectors. Mr. Kloeppel earned an MBA from Vanderbilt
University's Owen Graduate School of Management, graduating with highest honors.
He received his bachelor of science degree from Vanderbilt University, majoring
in economics.
Mr. Sevigny was hired in October 2001 as the Senior Vice President in
charge of the Company's Marketing and Attractions. In February of 2002, Mr.
Sevigny was also named President of the Company's Gaylord Opryland Resort and
Convention Center in Nashville. Prior to joining the Company, Mr. Sevigny worked
in different capacities for Harrah's Entertainment, most recently as Division
President Hotel/Casino in Las Vegas during 2000 and 2001, and as President and
Chief Operating Officer of Harrah's New Orleans casino operations from 1998 to
2000. From 1997 to 1998, Mr. Sevigny was President of Midwest Operation Station
Casino in Kansas City, Missouri. Mr. Sevigny has a finance degree from the
University of Nevada.
Ms. Spacek is the Company's Senior Vice President for Communications,
Human Resources and Systems. Prior to joining Gaylord in August of 2001, Ms.
Spacek worked for more than five years in different positions with
12
Harrah's Entertainment, most recently as Vice President of Strategic Sourcing.
Ms. Spacek earned both her MBA degree (with honors) and her undergraduate degree
from the University of Texas.
Mr. Caparella is a Senior Vice President of the Company and the General
Manager of Gaylord Palms. Prior to joining the Company in November 2000, Mr.
Caparella served as Executive Vice President, Planning, Development and
Administration and President of PlanetHollywood.com for Planet Hollywood
International, Inc., a creator and developer of consumer brands relating to
movies, sports and other entertainment-based themes, in Orlando, Florida since
September 1997. Before joining Planet Hollywood, Mr. Caparella was with ITT
Sheraton, an owner and operator of hotel brands, for 17 years in convention,
resort, business and 4-star luxury properties, as well as ITT Sheraton's
corporate headquarters. Mr. Caparella is a graduate of the State University of
New York at Delhi.
Mr. Todd joined Gaylord Entertainment in July 2001 as the Company's
Senior Vice President, General Counsel and Secretary. Prior to that time, he was
a Corporate and Securities partner in the Nashville office of the regional law
firm Baker, Donelson, Bearman & Caldwell. Mr. Todd has practiced law in
Nashville since 1982 and is a graduate of Vanderbilt University School of Law
and Davidson College.
Mr. Connor has served as the Senior Vice President and Chief
Administrative Officer of the Company since December 1997. From February 1995 to
December 1997, Mr. Connor was the Vice President and Corporate Controller of the
Company. Prior to February 1995, Mr. Connor was the Corporate Controller of the
Company.
ITEM 2. PROPERTIES
The Company owns its executive offices and headquarters located at One
Gaylord Drive, Nashville, Tennessee, which consists of a four-story office
building comprising approximately 80,000 square feet. The Company believes that
its present facilities for each of its business segments are generally well
maintained.
HOSPITALITY. The Company owns the land and improvements that comprise
the Opryland complex in Nashville, Tennessee. The Opryland complex includes the
site of Gaylord Opryland (approximately 172 acres), the site of the Opry Mills
retail complex, the General Jackson showboat's docking facility, the production
and administration facilities that are currently being leased to CBS for TNN and
CMT, the Opry House, and WSM Radio's offices and studios. In connection with the
Nashville Hotel Loans, a first mortgage lien was granted on Gaylord Opryland,
including the site on which it stands. The Company has executed a 75-year lease
with a 24-year renewal option on a 65-acre tract in Osceola County, Florida, on
which Gaylord Palms is located. The Company has acquired approximately 100 acres
in Grapevine, Texas, through ownership (approximately 75 acres) or ground lease
(approximately 25 acres), on which our new Gaylord hotel in Grapevine, Texas is
being constructed.
ATTRACTIONS. The Company has entered into 99-year lease agreements with
The Mills Corporation for approximately 124 acres of the Opryland complex in
exchange for, among other consideration, a one-third interest in the partnership
formed for the development of Opry Mills. The Company owns the Springhouse Golf
Club, an 18-hole golf course situated on approximately 240 acres, and the
6.7-acre site of the Radisson Hotel at Opryland, both located near the Opryland
complex. In downtown Nashville, the Company owns the Ryman Auditorium, the
Wildhorse Saloon dance hall and production facility, and an office building. The
office building, which has approximately 38,800 square feet, was acquired by the
Company in September 1999 to serve as administrative and executive office space
for Gaylord Digital. The Company currently has this building listed with a real
estate broker and is attempting to sell it.
MEDIA. The Company owns the Acuff-Rose Music Publishing building (and
adjacent real estate) located on "Music Row" near downtown Nashville [SQ. FT.?].
The Company owns the offices and three television studios of TNN and CMT, all of
which are located within the Opryland complex and contain approximately 87,000
square feet of space. These facilities are leased to CBS through September 30,
2002, and the Company has received notice that CBS will not renew the lease.
13
ITEM 3. LEGAL PROCEEDINGS
The Company maintains various insurance policies, including general
liability and property damage insurance, as well as product liability, workers'
compensation, business interruption, and other policies, which it believes
provide adequate coverage for the risks associated with its range of operations.
Various subsidiaries of the Company are involved in lawsuits incidental to the
ordinary course of their businesses, such as personal injury actions by guests
and employees and complaints alleging employee discrimination. The Company
believes that it is adequately insured against these claims by its existing
insurance policies and that the outcome of any pending claims or proceedings
will not have a material adverse effect upon its financial position or results
of operations.
The Company may have potential liability under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA" or "Superfund"), for response costs at two Superfund sites. The
liability relates to properties formerly owned by Gaylord's predecessor. In
1991, OPUBCO assumed these liabilities and agreed to indemnify the Company for
any losses, damages, or other liabilities incurred by it in connection with
these matters. The Company believes that OPUBCO's indemnification will fully
cover the Company's Superfund liabilities, if any, and that, based on the
Company's current estimates of these liabilities, OPUBCO has sufficient
financial resources to fulfill its indemnification obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's common stock is listed on the New York Stock Exchange
under the symbol GET. The following table sets forth the high and low sales
prices for the Company's common stock as reported by the NYSE for the last two
years:
2000 HIGH LOW
---- ------ ------
First Quarter $30.44 $24.50
Second Quarter 27.38 20.25
Third Quarter 28.00 19.50
Fourth Quarter 25.50 19.31
2001 HIGH LOW
---- ------ ------
First Quarter $26.60 $20.00
Second Quarter 29.15 24.95
Third Quarter 29.05 19.60
Fourth Quarter 25.50 18.49
(b) HOLDERS
The approximate number of record holders of the Company's common stock
on March 18, 2002, was 2,498.
14
(c) CASH DIVIDENDS
During 1999, the Company distributed a quarterly cash dividend of $0.20
per share of the Company's common stock. At its quarterly meeting in February
2000, the Company's Board of Directors voted to discontinue the payment of
dividends on its common stock. Accordingly, no dividends were paid during 2000
or 2001 and we do not presently intend to declare any cash dividends. Our Board
of Directors may reevaluate this dividend policy in the future in light of our
results of operations, financial condition, cash requirements, future prospects,
loan agreements and other factors deemed relevant by our Board. Currently, we
are prohibited from paying dividends by the terms of our Term Loan.
15
ITEM 6. SELECTED FINANCIAL DATA.
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
The following selected historical financial data for the five years
ended December 31, 2001 is derived from the Company's audited consolidated
financial statements. The information in the following table should be read in
conjunction with the Company's audited consolidated financial statements and
related notes included herein.
INCOME STATEMENT DATA:
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2001 2000 1999 1998 1997(10)
--------- --------- --------- --------- ---------
Revenues:
Hospitality $ 228,712 $ 237,260 $ 239,248 $ 237,076 $ 240,969
Attractions 65,878 63,235 57,760 56,602 114,645
Media 24,157 29,013 62,059 75,412 353,161
Corporate and other 6,412 5,954 10,784 11,512 1,425
--------- --------- --------- --------- ---------
Total revenues 325,159 335,462 369,851 380,602 710,200
--------- --------- --------- --------- ---------
Operating expenses:
Operating costs 218,357 226,126 234,645 230,425 430,761
Selling, general and administrative 71,718 93,958 80,489 72,195 116,971
Preopening costs (1) 15,141 5,278 1,892 -- --
Impairment and other charges 14,262(3) 76,597(3) -- -- 42,006(11)
Restructuring charges 2,182(4) 13,098(4) 2,786(4) -- 13,654(12)
Merger costs -- -- (1,741) -- 22,645(12)
Depreciation and amortization:
Hospitality 25,593 24,447 22,828 21,390 19,910
Attractions 5,810 6,443 6,396 5,525 10,979
Media 2,578 9,650 5,918 3,293 13,330
Corporate and other 7,294 7,040 7,591 5,849 4,430
--------- --------- --------- --------- ---------
Total depreciation and amortization 41,275 47,580 42,733 36,057 48,649
--------- --------- --------- --------- ---------
Total operating expenses 362,935 462,637 360,804 338,677 674,686
--------- --------- --------- --------- ---------
Operating income (loss):
Hospitality 33,915 45,949 43,700 47,031 50,897
Attractions (2,372) (8,025) (6,063) (3,059) 1,048
Media 1,665 (31,500)(6) 2,153 19,834 88,418
Corporate and other (39,399) (38,626) (27,806) (21,881) (26,544)
Preopening costs (1) (15,141) (5,278) (1,892) -- --
Impairment and other charges (14,262)(3) (76,597)(3) -- -- (42,006)(11)
Restructuring charges (2,182)(4) (13,098)(4) (2,786)(4) -- (13,654)(12)
Merger costs -- -- 1,741 -- (22,645)(12)
--------- --------- --------- --------- ---------
Total operating income (loss) (37,776) (127,175) 9,047 41,925 35,514
Interest expense, net of amounts
capitalized (39,365) (30,319) (15,047) (28,942) (24,215)
Interest income 5,625 4,173 6,090 25,253 24,022
Unrealized gain on Viacom stock, net 782 -- -- -- --
Unrealized gain on derivatives 54,282 -- -- -- --
Other gains and losses 5,976 (1,277) 589,882(7)(8) 21,369(8)(9) 145,888(13)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (10,476) (154,598) 589,972 59,605 181,209
Provision (benefit) for income taxes (3,188) (49,867) 222,342 22,315 16,721(14)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations (7,288) (104,731) 367,630 37,290 164,488
Loss from discontinued operations,
net of taxes (2) (52,364) (48,739) (17,838) (6,096) (13,052)
Cumulative effect of accounting change,
net of taxes 11,909(5) -- -- -- (7,537)(15)
--------- --------- --------- --------- ---------
Net income (loss) $ (47,743) $(153,470) $ 349,792 $ 31,194 $ 143,899
========= ========= ========= ========= =========
Income (loss) per share:
Income (loss) from continuing operations $ (0.22) $ (3.14) $ 11.17 $ 1.20 $ 5.31
Income (loss) from discontinued
operations (1.55) (1.46) (0.54) (0.25) (0.63)
Cumulative effect of accounting change 0.35 -- -- -- (0.23)
--------- --------- --------- --------- ---------
Net income (loss) $ (1.42) $ (4.60) $ 10.63 $ 0.95 $ 4.45
========= ========= ========= ========= =========
Income (loss) per share - assuming
dilution:
Income (loss) from continuing operations $ (0.22) $ (3.14) $ 11.07 $ 1.18 $ 5.26
Income (loss) from discontinued
operations (1.55) (1.46) (0.54) (0.24) (0.62)
Cumulative effect of accounting change 0.35 -- -- -- (0.23)
--------- --------- --------- --------- ---------
Net income (loss) $ (1.42) $ (4.60) $ 10.53 $ 0.94 $ 4.41
========= ========= ========= ========= =========
Dividends per share $ -- $ -- $ 0.80 $ 0.65 $ 1.05
========= ========= ========= ========= =========
16
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
BALANCE SHEET DATA:
AS OF DECEMBER 31,
---------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Total assets $2,167,822 $1,939,553 $1,732,384(7) $1,011,992 $1,117,562
Total debt 468,997(16) 175,500(7) 297,500 264,078(8) 388,397
Secured forward exchange contract 613,054(7) 613,054(7) -- -- --
Total stockholders' equity 658,479 727,865 961,159(7) 525,160 516,224
(1) Preopening costs are related to the Company's Gaylord Palms Resort and
Convention Center hotel in Kissimmee, Florida and its new Gaylord hotel
under construction in Grapevine, Texas.
(2) In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". In accordance with the
provisions of SFAS No. 144, the Company has presented the operating results
and financial position of the following businesses as discontinued
operations: Word Entertainment; GET Management, the Company's artist
management business; the Company's international cable networks; the
businesses sold to affiliates of The Oklahoma Publishing Company ("OPUBCO")
in 2001 consisting of Pandora Films, Gaylord Films, Gaylord Sports
Management, Gaylord Event Television and Gaylord Production Company; and
the Company's water taxis.
(3) Reflects the divestiture of certain businesses and reduction in the
carrying values of certain assets.
(4) Related primarily to employee severance and contract termination costs.
(5) Reflects the cumulative effect of the change in accounting method related
to recording the derivatives associated with the secured forward exchange
contract at fair value as of January 1, 2001, of $18,322 less a related tax
provision of $6,413.
(6) Includes operating losses of $27,479 related to Gaylord Digital, the
Company's internet initiative, and operating losses of $6,083 related to
country record label development, both of which were closed during 2000.
(7) Includes a pretax gain of $459,307 on the divestiture of television station
KTVT in Dallas-Ft. Worth in exchange for CBS Series B preferred stock
(which was later converted into 11,003,000 shares of Viacom, Inc. Class B
common stock), $4,210 of cash, and other consideration. The CBS Series B
preferred stock was included in total assets at its market value of
$648,434 at December 31, 1999. The Viacom, Inc. Class B common stock was
included in total assets at its market values of $485,782 and $514,391 at
December 31, 2001 and 2000, respectively. During 2000, the Company entered
into a seven-year forward exchange contract with respect to 10,937,900
shares of the Viacom, Inc. Class B common stock. Prepaid interest related
to the secured forward exchange contract of $144,975 and $171,863 was
included in total assets at December 31, 2001 and 2000, respectively.
(8) In 1995, the Company sold its cable television systems. Net proceeds were
$198,800 in cash and a note receivable with a face amount of $165,688,
which was recorded at $150,688, net of a $15,000 discount. As part of the
sale transaction, the Company also received contractual equity
participation rights (the "Rights") equal to 15% of the net distributable
proceeds from future asset sales. During 1998, the Company collected the
full amount of the note receivable and recorded a pretax gain of $15,000
related to the note receivable discount. During 1999, the Company received
cash and recognized a pretax gain of $129,875 representing the value of the
Rights. The proceeds from the note receivable prepayment and the Rights
were used to reduce outstanding bank indebtedness.
(9) Includes a pretax gain of $16,072 on the sale of the Company's investment
in the Texas Rangers Baseball Club, Ltd. and a pretax gain totaling $8,538
primarily related to the settlement of contingencies from the sales of
television stations KHTV in Houston and KSTW in Seattle.
(10) Includes the results of operations of TNN: The Nashville Network and the
U.S. and Canadian operations of CMT: Country Music Television for the first
nine months of 1997. On October 1, 1997, TNN and CMT were acquired by CBS
in a merger (the "Merger"). Also includes the results of the Opryland theme
park which was closed at the end of 1997.
(11) Charge related to the closing of the Opryland theme park at the end of the
1997 operating season.
(12) The merger costs and the 1997 restructuring charge are related to the
Merger.
(13) Includes a pretax gain of $144,259 on the sale of television station KSTW
in Seattle.
(14) Includes a deferred tax benefit of $55,000 related to the revaluation of
certain reserves as a result of the Merger.
(15) Reflects the cumulative effect of the change in accounting method for
deferred preopening costs to expense these costs as incurred, effective
January 1, 1997, of $12,335 less a related tax benefit of $4,798.
(16) Related primarily to the construction of the Company's Gaylord Palms Resort
and Convention Center hotel in Kissimmee, Florida and its new Gaylord hotel
development in Grapevine, Texas.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Gaylord Entertainment Company is a diversified hospitality and entertainment
company operating, through its subsidiaries, principally in four business
segments: hospitality; attractions; media; and corporate and other. During 2001,
the Company restated its reportable segments for all periods presented based
upon new management and an internal realignment of operational responsibilities.
The Company is managed using the four business segments described above. Certain
events that occurred during 2001, 2000 and 1999 affect the comparability of the
Company's results of operations among the periods presented.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. Accounting estimates are an integral part of the preparation of
the consolidated financial statements and the financial reporting process and
are based upon current judgements. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported period. Certain
accounting estimates are particularly sensitive because of their complexity and
the possibility that future events affecting them may differ materially from the
Company's current judgements and estimates.
This listing of critical accounting policies is not intended to be a
comprehensive list of all of the Company's accounting policies. In many cases,
the accounting treatment of a particular transaction is specifically dictated
by generally accepted accounting principles, with no need for management's
judgement regarding accounting policy. The Company believes that of its
significant accounting policies, as discussed in Note 1 of the consolidated
financial statements, the following may involve a higher degree of judgement
and complexity.
Revenue Recognition
Revenues are recognized when services are provided or goods are shipped, as
applicable. Provision for returns and other adjustments are provided for in the
same period the revenues are recognized. The Company defers revenues related to
deposits on advance room bookings, advance ticket sales at the Company's tourism
properties and music publishing advances until such amounts are earned.
Impairment Of Long-Lived Assets And Goodwill
In accounting for the Company's long-lived assets other than goodwill, the
Company applies the provisions of Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". The Company adopted the provisions of SFAS No. 144 during 2001 with an
effective date of January 1, 2001. The Company previously accounted for goodwill
using SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". In June 2001, SFAS No. 142, "Goodwill and
Other Intangible Assets" was issued. SFAS No. 142 is effective January 1, 2002.
Under SFAS No. 142, goodwill and other intangible assets with indefinite useful
lives will not be amortized but will be tested for impairment at least annually
and whenever events or circumstances occur indicating that these intangibles may
be impaired. The determination and measurement of an impairment loss under these
accounting standards require the significant use of judgement and estimates. The
determination of fair value of these assets and the timing of an impairment
charge are two critical components of recognizing an asset impairment charge
that are subject to the significant use of judgement and estimation. Future
events may indicate differences from these judgements and estimates.
Restructuring Charges
The Company has recognized restructuring charges in accordance with Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)" in its consolidated financial
statements. Restructuring charges are based
18
upon certain estimates of liability related to costs to exit an activity.
Liability estimates may change as a result of future events, including
negotiation of reductions in contract termination liabilities.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to reduce interest rate
risks and to manage risk exposure to changes in the value of certain owned
marketable securities. The Company records derivatives in accordance with SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
was subsequently amended by SFAS No. 138. SFAS No. 133, as amended, established
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires all derivatives to be recognized in the
statement of financial position and to be measured at fair value. Changes in the
fair value of those instruments will be reported in earnings or other
comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. The measurement of the derivative's fair value
requires the use of estimates and assumptions. Changes in these estimates or
assumptions could materially impact the determination of the fair value of the
derivatives.
ASSESSMENT OF STRATEGIC ALTERNATIVES
During 2001, the Company named a new chairman, a new chief executive officer,
and had numerous changes in senior management, primarily because of certain 2000
events discussed below. The new management team instituted a corporate
reorganization, re-evaluated the Company's businesses and other investments and
is employing certain cost savings initiatives (the "2001 Strategic Assessment").
As a result of the 2001 Strategic Assessment, the Company recorded impairment
and other charges and restructuring charges as discussed below.
During 2000, the Company experienced a significant number of departures from its
senior management, including the Company's president and chief executive
officer. In addition, the Company continued to produce weaker than anticipated
operating results during 2000 while attempting to fund its capital requirements
related to its hotel construction project in Florida and hotel development
activities in Texas. As a result of these factors, during 2000, the Company
assessed its strategic alternatives related to its operations and capital
requirements and developed a strategic plan designed to refocus the Company's
operations, reduce its operating losses and reduce its negative cash flows (the
"2000 Strategic Assessment"). As a result of the 2000 Strategic Assessment, the
Company sold or ceased operations of several businesses and recorded impairment
and other charges and restructuring charges as discussed below.
TERRORIST ATTACKS
As a result of the September 11, 2001 terrorist attacks and a slowdown in the
U.S. economy, the hospitality industry has experienced occupancy rates that were
significantly lower than those experienced in 2000 due to decreased tourism and
travel activity. Specifically, the Company received over 30 group cancellations
as a result of the terrorist attacks, the majority of which were for bookings in
the months of September and October 2001. These cancellations led to a
significant decrease in hotel occupancy for that period and had a negative
impact on our operations in the third and fourth quarters of 2001. The September
11 terrorist attacks were dramatic in scope and in their impact on the
hospitality industry and it is currently not possible to accurately predict if
and when travel patterns will be restored to pre-September 11 levels. However,
some of the groups that cancelled during 2001 have rescheduled for dates in
2002.
In response to the new economic environment following the September 11, 2001
terrorist attacks, the Company has elected a strategy of capital conservation.
Accordingly, the Company is extending the construction period for a new Gaylord
hotel in Grapevine, Texas for up to nine months and reducing its construction
spending in the short term. The Gaylord hotel in Grapevine, Texas, previously
scheduled to open in August 2003, is now scheduled to open in mid-2004. The
Company has also elected to divest certain non-core assets, with the expected
proceeds to be utilized as a source of capital. In addition, the Company has
implemented certain cost control measures.
DISCONTINUED OPERATIONS
In August 2001, the FASB issued SFAS No. 144, which superceded SFAS No. 121 and
the accounting and reporting provisions for the disposal of a segment of a
business of APB Opinion No. 30, "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions". SFAS No. 144 retains the
requirements of SFAS No. 121 for the recognition
19
and measurement of an impairment loss and broadens the presentation of
discontinued operations to include a component of an entity (rather than a
segment of a business).
In accordance with the provisions of SFAS No. 144, the Company has presented the
operating results, financial position and cash flows of the following businesses
as discontinued operations in its financial statements as of December 31, 2001
and 2000 and for each of the three years ended December 31, 2001: Word
Entertainment ("Word"), the Company's contemporary Christian music business
which was sold in January 2002; GET Management, the Company's artist management
business which was sold during 2001; the Company's international cable networks;
the businesses sold to affiliates of The Oklahoma Publishing Company ("OPUBCO")
in 2001 consisting of Pandora Films, Gaylord Films, Gaylord Sports Management,
Gaylord Event Television and Gaylord Production Company; and the Company's water
taxis sold in 2001.
DERIVATIVES
The Company utilizes derivative financial instruments to reduce interest rate
risks and to manage risk exposure to changes in the value of certain owned
marketable securities. Effective January 1, 2001, the Company records
derivatives in accordance with SFAS No. 133, as amended. SFAS No. 133, as
amended, established accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires all derivatives to be
recognized in the statement of financial position and to be measured at fair
value. Changes in the fair value of those instruments will be reported in
earnings or other comprehensive income depending on the use of the derivative
and whether it qualifies for hedge accounting. During 2000, the Company entered
into a seven-year secured forward exchange contract with respect to 10,937,900
shares of its Viacom, Inc. ("Viacom") stock investment acquired, indirectly, as
a result of the divestiture of television station KTVT in Dallas-Fort Worth as
discussed below. Under SFAS No. 133, components of the secured forward exchange
contract are considered derivatives. The adoption of SFAS No. 133 has had a
material impact on the Company's results of operations and financial position.
During 2001, the Company entered into three contracts to cap its interest rate
risk exposure on its long-term debt. These contracts cap the Company's exposure
to one-month LIBOR rates on up to $375 million of outstanding indebtedness at
7.5% and cap the Company's exposure on one-month Eurodollar rates on up to $100
million of outstanding indebtedness at 6.625%. These interest rate caps qualify
for hedge accounting and changes in the values of these caps are recorded as
other comprehensive income and losses.
GAYLORD PALMS
The Company's Gaylord Palms Resort and Convention Center hotel ("Gaylord Palms")
in Kissimmee, Florida commenced operations in January 2002. The Company recorded
$12.2 million of preopening expenses related to Gaylord Palms in 2001 that will
not recur in 2002. Gaylord Palms, with 1,406 rooms and approximately 400,000
square feet of meeting and convention space, will have a material impact on the
Company's results of operations during 2002.
DIVESTITURE OF KTVT
In October 1999, CBS Corporation ("CBS") acquired KTVT from the Company in
exchange for $485.0 million of CBS Series B convertible preferred stock, $4.2
million of cash and other consideration. The Company recorded a pretax gain of
$459.3 million, which is included in other gains and losses in the consolidated
statements of operations, based upon the disposal of the net assets of KTVT of
$29.9 million, including related selling costs. CBS merged with Viacom in May
2000, resulting in the conversion of CBS convertible preferred stock into Viacom
stock. The operating results of KTVT reflected in the consolidated statements of
operations through the disposal date of October 12, 1999 include revenues of
$36.0 million, depreciation and amortization of $2.4 million, and operating
income of $8.4 million.
RESULTS OF OPERATIONS
The following table contains selected results of continuing operations data for
each of the three years ended December 31, 2001, 2000 and 1999 (in thousands).
The table also shows the percentage relationships to total revenues and, in the
case of segment operating income, its relationship to segment revenues.
20
2001 % 2000 % 1999 %
--------- ----- --------- ----- --------- -----
REVENUES:
Hospitality $ 228,712 70.3% $ 237,260 70.7% $ 239,248 64.7%
Attractions 65,878 20.3 63,235 18.9 57,760 15.6
Media 24,157 7.4 29,013 8.6 62,059 16.8
Corporate and other 6,412 2.0 5,954 1.8 10,784 2.9
--------- ----- --------- ----- --------- -----
Total revenues 325,159 100.0 335,462 100.0 369,851 100.0
--------- ----- --------- ----- --------- -----
OPERATING EXPENSES:
Operating costs 218,357 67.1 226,126 67.4 234,645 63.4
Selling, general and administrative 71,718 22.0 93,958 28.0 80,489 21.8
Preopening costs 15,141 4.7 5,278 1.6 1,892 0.5
Impairment and other charges 14,262 4.4 76,597 22.8 -- --
Restructuring charges 2,182 0.7 13,098 3.9 2,786 0.8
Merger costs -- -- -- -- (1,741) (0.5)
Depreciation and amortization:
Hospitality 25,593 24,447 22,828
Attractions 5,810 6,443 6,396
Media 2,578 9,650 5,918
Corporate and other 7,294 7,040 7,591
--------- ----- --------- ----- --------- -----
Total depreciation and
amortization 41,275 12.7 47,580 14.2 42,733 11.6
--------- ----- --------- ----- --------- -----
Total operating expenses 362,935 111.6 462,637 137.9 360,804 97.6
--------- ----- --------- ----- --------- -----
OPERATING INCOME (LOSS):
Hospitality 33,915 14.8 45,949 19.4 43,700 18.3
Attractions (2,372) (3.6) (8,025) (12.7) (6,063) (10.5)
Media 1,665 6.9 (31,500) -- 2,153 3.5
Corporate and other (39,399) -- (38,626) -- (27,806) --
Preopening costs (15,141) -- (5,278) -- (1,892) --
Impairment and other charges (14,262) -- (76,597) -- -- --
Restructuring charges (2,182) -- (13,098) -- (2,786) --
Merger costs -- -- -- -- 1,741 --
--------- ----- --------- ----- --------- -----
Total operating income (loss) $ (37,776) (11.6)% $(127,175) (37.9)% $ 9,047 2.4%
========= ===== ========= ===== ========= =====
YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000
REVENUES
Total revenues decreased $10.3 million, or 3.1%, to $325.2 million in 2001.
Excluding the revenues of businesses divested in 2000, including the
Orlando-area Wildhorse Saloon, KOA Campground, Gaylord Digital and country music
record label development (collectively, the "2000 Divested Businesses") from
2000, total revenues decreased $1.0 million, or 0.3%, in 2001.
Revenues in the hospitality segment decreased $8.5 million, or 3.6%, to $228.7
million in 2001. Revenues of the Gaylord Opryland Resort and Convention Center
hotel decreased $7.9 million to $222.0 million in 2001. Gaylord Opryland's
occupancy rate decreased to 70.3% in 2001 compared to 75.9% in 2000. Revenue per
available room (RevPAR) for Gaylord Opryland decreased 7.1% to $98.65 for 2001
compared to $106.22 for 2000. This decrease was primarily attributable to the
impact of a softer economy and decreased occupancy levels in the weeks following
the September 11 terrorist attacks. In the four month period from November 2001
to February 2002, Gaylord Opryland's occupancy rate was 68.8% compared to 72.4%
in the corresponding year-ago four month period, while average daily room rates
were $141.92 compared to $138.18. The collection of a $2.2 million cancellation
fee in 2000 also adversely affects comparisons with the prior year period.
Gaylord Opryland's average daily rate increased to $140.33 in 2001 from $140.03
in 2000.
21
Revenues in the attractions segment increased $2.6 million, or 4.2%, to $65.9
million in 2001. Excluding the revenues of the Orlando-area Wildhorse Saloon and
the KOA Campground from 2000, revenues in the attractions segment increased $8.0
million, or 13.8% due to increased revenues of $10.1 million at Corporate Magic,
a company specializing in the production of creative events in the corporate
entertainment marketplace that was acquired in March 2000. Revenues of the Grand
Ole Opry increased $1.4 million, or 11.6%, to $13.4 million in 2001. These
increases in revenues were partially offset by decreased revenues of the General
Jackson, which decreased $1.5 million in 2001 as a result of an attendance
decline of 16.3% partially offset by an increase in per capita spending of
16.3%.
Revenues in the media segment decreased $4.9 million, or 16.7%, to $24.2 million
in 2001. Excluding the revenues of Gaylord Digital from 2000, revenues in the
media segment decreased $0.9 million, or 3.7%. Revenues of the Company's radio
stations decreased $1.2 million during 2001 as a result of a weak advertising
market and significant competition within the Nashville-area radio broadcasting
market.
Revenues in the corporate and other segment increased $0.5 million to $6.4
million in 2001. Corporate and other segment revenues consisted primarily of the
Company's ownership interest in a minor league baseball team.
OPERATING EXPENSES
Total operating expenses decreased $99.7 million, or 21.6%, to $362.9 million in
2001. Excluding impairment and other charges and restructuring charges, total
operating expenses decreased $26.5 million, or 7.1%, to $346.5 million in 2001.
Operating costs, as a percentage of revenues, decreased to 67.1% during 2001 as
compared to 67.4% during 2000. Selling, general and administrative expenses, as
a percentage of revenues, decreased to 22.0% during 2001 as compared to 28.0% in
2000.
Operating costs decreased $7.8 million, or 3.4%, to $218.4 million in 2001.
Excluding the operating costs of the 2000 Divested Businesses from 2000,
operating costs decreased $9.8 million, or 4.7%, to $208.6 million in 2001.
Operating costs in the hospitality segment increased $1.5 million in 2001
primarily as a result of increased operating costs at Gaylord Opryland of $2.2
million. During 2000, the Company recorded certain nonrecurring operating costs
associated primarily with the settlement of tax and utility contingencies
related to prior years totaling $5.0 million in the hospitality segment, $4.5
million of which was related to Gaylord Opryland. Excluding these nonrecurring
costs, operating costs at Gaylord Opryland increased $6.7 million, or 5.2% due
primarily to costs associated with various new shows and exhibits at the hotel
in 2001.
Operating costs in the attractions segment increased $1.0 million, or 2.1%, in
2001. Excluding the operating costs of the Orlando-area Wildhorse Saloon and the
KOA Campground from 2000, operating costs in the attractions segment increased
$6.7 million in 2001. The operating costs of Corporate Magic increased $9.8
million in 2001 as compared to 2000 subsequent to its acquisition in March 2000
due to the fact that a large share of its annual business occurs in the first
quarter of each year. This increase was partially offset by a decrease in
operating costs of the Acuff Theater, a venue for concerts and theatrical
performances, which had reduced operating costs in 2001 as compared to 2000 of
$1.2 million due to decreased utilization of this venue.
Operating costs in the media segment declined $11.3 million, or 45.5%, in 2001.
The decline in costs is almost entirely attributable to operating costs of
Gaylord Digital and country music record label development costs in 2000.
Excluding these costs, operating costs in the media segment increased $0.7
million, or 5.2% in 2001.
The operating costs in the corporate and other segment increased $1.0 million in
2001 as compared to 2000 due to increased overhead and administrative costs
related to the management of the Company's hotels.
Selling, general and administrative expenses decreased $22.2 million, or 23.7%,
to $71.7 million in 2001. Excluding the selling, general and administrative
expenses of the 2000 Divested Businesses from 2000, selling, general and
administrative expenses decreased $3.4 million, or 4.5%, in 2001.
Selling, general and administrative expenses in the hospitality segment
increased $0.8 million, or 3.0%, in 2001. Selling, general and administrative
expenses at Gaylord Opryland increased $0.6 million, or 2.1%, in 2001. Selling
and promotion expense at Gaylord Opryland increased $1.9 million due to
increased advertising offset by lower general and administrative costs at
Gaylord Opryland of $1.3 million due to cost controls.
22
Selling, general and administrative expenses in the attractions segment
decreased $3.4 million, or 21.2%, in 2001. Excluding the selling, general and
administrative expenses of the Orlando-area Wildhorse Saloon and the KOA
Campground from 2000, selling, general and administrative expenses in the
attractions segment decreased $3.0 million, or 19.0%, in 2001. The decrease in
2001 is primarily attributable to nonrecurring bad debt expense recognized in
2000 of $2.4 million related to the Company's live entertainment business. In
addition, the selling, general and administrative expenses of the Ryman
Auditorium decreased $1.2 million in 2001 as compared to 2000 due to reductions
in marketing expenses, fewer shows being produced in 2001 compared to 2000 and a
shift to more co-produced shows in 2001 compared to 2000.
Corporate selling, general and administrative expenses, consisting primarily of
senior management salaries and benefits, legal, human resources, accounting, and
other administrative costs remained unchanged at $23.3 million in both 2001 and
2000.
Effective December 31, 2001, the Company amended its retirement plan and its
retirement savings plan whereby the retirement cash balance benefit was frozen
and whereby future Company contributions to the retirement savings plan will
include 2% to 4% of the employee's salary, based upon the Company's financial
performance, in addition to a one-half match of the employee's salary up to a
maximum Company contribution of 3%. As a result of these changes to the
retirement plan, the Company expects to record a pretax charge to operations of
approximately $5.7 million in the first quarter of 2002 related to the write-off
of unamortized prior service cost in accordance with SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits", and related interpretations.
The Company has amended its postretirement benefit plans effective December 31,
2001 such that only active employees whose age plus years of service total at
least 60 and who have at least 10 years of service as of December 31, 2001
remain eligible. In connection with the amendment and curtailment of the plans
and in accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and related interpretations, the Company measured
a gain of $6.8 million, which will be recognized in future periods.
Preopening costs increased $9.9 million to $15.1 million in 2001 related to the
Company's hotel development activities in Florida and Texas. In accordance with
AICPA SOP 98-5, "Reporting on the Costs of Start-Up Activities", the Company
expenses the costs associated with start-up activities and organization costs as
incurred.
Depreciation and amortization decreased $6.3 million, or 13.3%, to $41.3 million
in 2001. Excluding the depreciation and amortization of the 2000 Divested
Businesses from 2000, depreciation and amortization increased $1.7 million, or
4.3%, in 2001. The increase is primarily attributable to increased depreciation
expense at Gaylord Opryland of $0.9 million related to capital expenditures and
increased software amortization of $0.8 million.
IMPAIRMENT AND OTHER CHARGES
The Company recognized pretax impairment and other charges as a result of the
2001 and 2000 Strategic Assessments. The components of these charges for the
years ended December 31 are as follows (in thousands):
2001 2000
-------- --------
Programming, film and other content $ 6,858 $ 8,295
Gaylord Digital and other technology investments 4,576 48,127
Property and equipment 2,828 3,398
Orlando-area Wildhorse Saloon - 15,854
Other - 923
-------- --------
Total impairment and other charges $ 14,262 $ 76,597
======== ========
Additional impairment and other charges of $28.9 million during 2000 are
included in discontinued operations.
23
2001 Impairment and Other Charges
The Company began production of an IMAX movie during 2000 to portray the history
of country music. As a result of the 2001 Strategic Assessment, the carrying
value of the IMAX film asset was reevaluated on the basis of its estimated
future cash flows resulting in an impairment charge of $6.9 million. At December
31, 2000, the Company held a minority investment in a technology start-up
business. During 2001, the unfavorable environment for technology businesses
created difficulty for this business to obtain adequate capital to execute its
business plan and, subsequently, the Company was notified that this technology
business had been unsuccessful in arranging financing, resulting in an
impairment charge of $4.6 million. The Company also recorded an impairment
charge related to idle real estate of $2.0 million during 2001 based upon an
assessment of the value of the property. In addition, the Company recorded an
impairment charge for other idle property and equipment totaling $0.8 million
during 2001 primarily due to the consolidation of offices resulting from
personnel reductions.
2000 Impairment and Other Charges
The Company's 2000 Strategic Assessment of its programming, film and other
content assets resulted in pretax impairment and other charges of $8.3 million
based upon the projected cash flows for these assets. This charge included
investments of $5.0 million, other receivables of $3.0 million and music and
film catalogs of $0.3 million.
The Company closed Gaylord Digital, its Internet-related business in 2000.
During 1999 and 2000, Gaylord Digital was unable to produce the operating
results initially anticipated and required an extensive amount of capital to
fund its operating losses, investments and technology infrastructure. As a
result of the closing, the Company recorded a pretax charge of $48.1 million in
2000 to reduce the carrying value of Gaylord Digital's assets to their fair
value based upon estimated selling prices. The Gaylord Digital charge included
the write-down of intangible assets of $25.8 million, property and equipment
(including software) of $14.8 million, investments of $7.0 million and other
assets of $0.6 million. The operating results of Gaylord Digital are included in
continuing operations. Excluding the effect of the impairment and other charges,
Gaylord Digital had revenues of $3.9 million and $1.6 million, and operating
losses of $27.5 million and $7.3 million, for the years ended December 31, 2000
and 1999, respectively.
During the course of conducting the 2000 Strategic Assessment, other property
and equipment of the Company was reviewed to determine whether the change in the
Company's strategic direction resulted in additional impaired assets. This
review indicated that certain property and equipment would not be recovered by
projected cash flows. The Company recorded pretax impairment and other charges
related to its property and equipment of $3.4 million. These charges included
property and equipment write-downs in the hospitality segment of $1.4 million,
in the attractions segment of $0.3 million, in the media segment of $0.2
million, and in the corporate and other segment of $1.5 million.
During November 2000, the Company ceased the operations of the Orlando-area
Wildhorse Saloon. Walt Disney World(R) Resort paid the Company approximately
$1.8 million for the net assets of the Orlando-area Wildhorse Saloon and
released the Company from its operating lease for the Wildhorse Saloon location.
As a result of this divestiture, the Company recorded pretax charges of $15.9
million to reflect the impairment and other charges related to the divestiture.
The Orlando-area Wildhorse Saloon charges included the write-off of equipment of
$9.4 million, intangible assets of $8.1 million and other working capital items
of $0.1 million offset by the $1.8 million of proceeds received from Disney. The
operating results of the Orlando-area Wildhorse Saloon are included in
continuing operations. Excluding the effect of the impairment and other charges,
the Orlando-area Wildhorse Saloon had revenues of $4.4 million, and operating
losses of $1.6 million for the year ended December 31, 2000.
RESTRUCTURING CHARGES
During 2001, the Company recognized pretax restructuring charges from continuing
operations of $2.2 million related to streamlining operations and reducing
layers of management. The Company recognized additional pretax restructuring
charges from discontinued operations of $3.0 million in 2001. These
restructuring charges were recorded in accordance with EITF No. 94-3. The
restructuring costs from continuing operations consist of $4.7 million related
to severance and other employee benefits and $1.1 million related to contract
termination costs, offset by the reversal of restructuring charges recorded in
2000 of $3.7 million primarily related to negotiated reductions in certain
contract termination costs. The restructuring costs from discontinued operations
consist of $1.6 million related to severance and other employee benefits and
$1.8 million related to contract termination costs offset by the reversal of
restructuring charges recorded in 2000 of $0.4 million. The 2001 restructuring
charges primarily resulted from the Company's
24
strategic decisions to exit certain businesses and reduce corporate overhead and
administrative costs. The 2001 restructuring plan resulted in the termination or
notification of pending termination of approximately 150 employees. As of
December 31, 2001, the Company has recorded cash charges of $1.7 million against
the 2001 restructuring accrual, all of which related to continuing operations.
The remaining balance of the 2001 restructuring accrual related to continuing
operations at December 31, 2001 of $4.2 million is included in accounts payable
and accrued liabilities in the accompanying consolidated balance sheets. The
remaining balance of the 2001 restructuring accrual related to discontinued
operations at December 31, 2001 of $3.3 million is included in current
liabilities of discontinued operations in the consolidated balance sheets. The
Company expects the remaining balances of the restructuring accruals for both
continuing and discontinued operations to be paid in 2002.
As part of the Company's 2000 Strategic Assessment, the Company recognized
pretax restructuring charges of $13.1 million related to continuing operations
during 2000, in accordance with EITF Issue No. 94-3. Additional restructuring
charges of $3.1 million during 2000 are included in discontinued operations.
Restructuring charges related to continuing operations consist of contract
termination costs of $8.0 million to exit specific activities and employee
severance and related costs of $5.4 million offset by the reversal of the
remaining restructuring accrual from the restructuring charges recorded in 1999
of $0.2 million. The 2000 restructuring charges relate to the Company's
strategi