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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-13079
GAYLORD ENTERTAINMENT COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 73-0664379
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE GAYLORD DRIVE, NASHVILLE, TENNESSEE 37214
(Address of Principal Executive Offices) (Zip Code)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (615) 316-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK - $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). [X] Yes [ ] No
As of March 17, 2003, there were 33,789,575 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the registrant based on the closing price of the Common Stock
on the New York Stock Exchange on June 30, 2002 was approximately $503,662,550.
For purposes of the foregoing calculation only, shares of Common Stock held by
non-affiliates exclude only those shares beneficially owned by officers and
directors.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held May 8, 2003 are incorporated by reference
into Part III of this Form 10-K.
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GAYLORD ENTERTAINMENT COMPANY
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business................................................................................ 1
Item 2. Properties.............................................................................. 14
Item 3. Legal Proceedings....................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders..................................... 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 16
Item 6. Selected Financial Data................................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................. 21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.............................. 49
Item 8. Financial Statements and Supplementary Data............................................. 49
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................... 49
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 50
Item 11. Executive Compensation.................................................................. 50
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters............................................................. 50
Item 13. Certain Relationships and Related Transactions.......................................... 50
Item 14. Controls and Procedures................................................................. 50
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 51
SIGNATURES................................................................................................ 52
PART I
Throughout this report, we refer to Gaylord Entertainment Company,
together with its subsidiaries, as "we," "us," "Gaylord Entertainment,"
"Gaylord," or the "Company."
ITEM 1. BUSINESS
We are a diversified hospitality company operating principally in four
groups: (i) Hospitality, (ii) Attractions, (iii) Media, and (iv) Corporate and
Other. The Hospitality segment comprises the operations of the Gaylord Hotel
properties and the Radisson Hotel at Opryland. The Attractions segment
represents all of the Nashville-area attractions, including the Grand Ole Opry,
General Jackson Showboat, Ryman Auditorium, Springhouse Golf Club and the
Wildhorse Saloon. It also includes the results of Corporate Magic, the Company's
corporate event production business. The Media segment includes the Company's
three radio stations. The Corporate and Other segment includes corporate
expenses and results from investments in sports franchises and minority
investments. These four business segments - Hospitality, Attractions, Media,
Corporate and Other - represented 81.9%, 15.3%, 2.7%, and 0.1%, respectively of
total revenues in the calendar year ended December 31, 2002. Financial
information by industry segment and geographic area for each of the three years
in the period ended as of December 31, 2002, appears in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," under
the caption "Results of Operations" and in the Financial Reporting by Business
Segments note to our Consolidated Financial Statements included in this annual
report on Form 10-K.
HOSPITALITY
Gaylord Hotels - Strategic Plan. Gaylord Entertainment's goal is to
become the nation's premier brand in the meetings and convention sector. To
accomplish this, our business strategy is to develop resorts and convention
centers in desirable event destinations that are created based in large part on
the needs of meeting planners and attendees. Using the slogan "All in One
Place," Gaylord Hotels incorporate meeting, convention and exhibition space with
a large hotel property so the attendees never have to leave the location during
their meetings. This concept of a self-contained destination dedicated primarily
to the meetings industry has made our Gaylord Opryland Resort and Convention
Center ("Gaylord Opryland") in Nashville one of the leading convention hotels in
the country. In addition to operating Gaylord Opryland in Nashville, we opened
our Gaylord Palms Resort and Convention Center ("Gaylord Palms") in Kissimmee,
Florida in January 2002, are scheduled to open our new Gaylord hotel in
Grapevine, Texas in April of 2004, and have the option to purchase land for the
development of a hotel in the Washington, D.C. area. The Company believes that
its new convention hotels will enable the Company to capture additional
convention business from groups that currently utilize Gaylord Opryland but must
rotate their meetings to other locations due to their attendees' desires to
visit different areas. The Company also anticipates that its new hotels will
capture new group business that currently does not come to the Nashville market
and will seek to gain additional business at Gaylord Opryland in Nashville once
these groups have experienced a Gaylord hotel in other markets.
Plans for the properties to be developed include the following
components, which the Company believes are the foundation of its success with
Gaylord Opryland: (i) state-of-the-art meeting facilities, including a high
ratio of square footage of meeting and exhibit space per guest room; (ii)
expansive atriums themed to capture geographical and cultural aspects of the
region in which the property is located; and (iii) entertainment components and
innovative venues creating a superior guest experience not typically found in
convention hotels.
In October 2001, the Company announced a re-branding of the Opryland
Hotels under the new brand of "Gaylord Hotels." Opryland Hotel Nashville was
renamed Gaylord Opryland and the Opryland Hotel Florida was renamed the Gaylord
Palms.
Gaylord Opryland Resort and Convention Center - Nashville, Tennessee.
Our flagship, Gaylord Opryland in Nashville, is one of the leading convention
destinations in the United States. Designed with the lavish gardens and
magnificent charm of a glorious Southern mansion, the resort is situated on
approximately 172 acres in the Opryland
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complex. Gaylord Opryland is one of the largest hotels in the United States in
terms of number of guest rooms. Gaylord Opryland attracts convention business
from trade associations and corporations, which accounted for approximately 80%
of the hotel's revenues in each of 2002, 2001, and 2000. It also serves as a
destination resort for vacationers due to its proximity to the Grand Ole Opry,
the General Jackson showboat, the Springhouse Golf Club (the Company's 18-hole
championship golf course), and other attractions in the Nashville area. The
Company believes that the ambiance created at Gaylord Opryland and the
combination of the quality of its convention facilities and availability of live
musical entertainment are factors that differentiate it from other convention
hotels. In late 1999, the Company began a three-year, $54 million renovation and
capital improvement program to refurbish the hotel, and as of December 31, 2002
this renovation program was substantially complete.
The following table sets forth information concerning Gaylord Opryland
in Nashville for each of the five years in the period ended December 31, 2002.
YEARS ENDED DECEMBER 31,
------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Average number of guest rooms............... 2,881 2,883 2,883 2,884 2,884
Occupancy rate.............................. 68.6% 70.3% 75.9% 78.0% 79.1%
Average daily rate ("ADR").................. $ 142.58 $ 140.33 $ 140.03 $ 135.48 $ 137.02
Revenue per available room ("RevPAR")....... $ 97.80 $ 98.65 $ 106.22 $ 105.66 $ 108.33
Food and beverage revenues (in thousands)... $ 66,312 $ 72,800 $ 81,093 $ 85,686 $ 81,518
Total revenues (in thousands)............... $ 206,132 $ 221,953 $ 229,859 $ 234,435 $ 233,645
Gaylord Opryland has 2,881 guest rooms, four ballrooms with
approximately 124,000 square feet, 85 banquet/meeting rooms, and total dedicated
exhibition space of approximately 289,000 square feet. Total meeting, exhibit
and pre-function space in the hotel is approximately 600,000 square feet.
Gaylord Palms Resort and Convention Center - Kissimmee, Florida. We
opened our Gaylord Palms Resort and Convention Center in Kissimmee, Florida in
January 2002. Gaylord Palms has 1,406 signature guest rooms and approximately
400,000 square feet of total meeting and exhibit space. The hotel is situated on
a 65-acre site in Osceola County, Florida and is approximately 5 minutes from
the main gate of the Walt Disney World(R) Resort complex. Gaylord Palms is
designed similarly to Gaylord Opryland, with rooms overlooking large
glass-covered atriums. The three atriums at Gaylord Palms are modeled after
notable areas from the State of Florida: the Everglades, Key West and St.
Augustine. Gaylord Palms also has a full-service spa, which with 20,000-square
feet of dedicated space (over 25 treatment rooms) is one of the largest spas in
Central Florida. The spa, known as the Canyon Ranch Spa Club, is managed by the
Canyon Ranch Spa Company from Arizona, a leader in spa management. Hotel guests
also have golf privileges at the world class Falcon's Fire Golf Club, located a
half-mile from the property.
The following table sets forth information concerning Gaylord Palms in
Kissimmee for the period subsequent to its January 2002 opening.
2002
----
Average number of guest rooms............... 1,406
Occupancy rate.............................. 64.9%
Average daily rate ("ADR").................. $ 168.65
Revenue per available room ("RevPAR")....... $ 109.37
Food and beverage revenues (in thousands)... $ 54,411
Total revenues (in thousands)............... $ 126,473
Gaylord Opryland Texas. We began construction on our new Gaylord hotel
in Grapevine, Texas in June of 2000, and the hotel is scheduled to open in April
of 2004. The 1,508 room hotel and convention center is located eight minutes
from the Dallas/Fort Worth Airport. Like its sister property in Kissimmee,
Florida, our Texas hotel will feature a grand atrium enclosing several acres as
well as over 400,000 square feet of pre-function, meeting and exhibition space
all
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under one roof. The property will also include a number of themed restaurants
with an additional restaurant located on the point overlooking Lake Grapevine.
Total net real estate, construction, and furnishings, fixtures and
equipment and capitalized interest costs for the new Texas hotel are currently
anticipated to be in the range of $515 million. As of December 31, 2002, the
Company has incurred approximately $213 million of these costs.
Gaylord Hotels Development Plan. In January 2000, the Company announced
plans to develop a Gaylord hotel on property to be acquired from The Peterson
Companies on the Potomac River in Prince George's County, Maryland (in the
Washington, D.C. market). This project is subject to the availability of
financing and final approval of the Company's Board of Directors. Management
would also consider other sites in Phoenix, San Diego or Chicago as possible
locations for a future Gaylord hotel.
Radisson Hotel at Opryland. We also own and operate the Radisson Hotel
at Opryland, a Radisson franchise hotel which is located across the street from
Gaylord Opryland. The hotel has 303 rooms and approximately 14,000 square feet
of meeting space. The Company purchased the hotel in April 1998 for
approximately $16 million. A major renovation of the guest rooms and meeting
space was completed in 1999 at a cost of approximately $7 million. In March
2000, the Company entered into a 20-year franchise agreement with Radisson in
connection with the operation of this hotel. The franchise agreement contains
customary terms and conditions.
ATTRACTIONS
The Grand Ole Opry. The Grand Ole Opry, which celebrated its 75th
anniversary in 2000, is one of the most widely known platforms for country music
in the world. The Opry features a live country music show with performances
every Friday and Saturday night, as well as Tuesday Night Opry's on a seasonal
basis. The Opry House, home of the Grand Ole Opry, is located in the Opryland
complex. The Grand Ole Opry moved to the Opry House in 1974 from its most famous
home in the Ryman Auditorium in downtown Nashville.
The Grand Ole Opry is broadcast live on the Company's WSM-AM radio
station every Friday and Saturday night, and the broadcast of the Opry is also
streamed on the Internet via www.opry.com and www.wsmonline.com. The show has
been broadcast since 1925 on WSM-AM, making it the longest running live radio
program in the world. In 2001, the Company entered into an agreement (the "CMT
Opry Live Agreement") with Viacom, Inc. pursuant to which Viacom agreed to move
the exhibition of the Opry Live from its TNN channel to CMT. Under the CMT Opry
Live Agreement, Viacom will air the Opry Live on CMT each week through September
30, 2003 and will re-air the Opry Live show twice each week for a total of three
airings per week.
The Grand Ole Opry currently has approximately 70 performing members
who are stars or other notables in the country music field. There are no
financial inducements attached to membership in the Grand Ole Opry other than
the prestige associated with membership. In addition to performances by members,
the Grand Ole Opry presents performances by many other country music artists.
Members include traditional favorites, such as Loretta Lynn and George Jones, as
well as contemporary artists, like Alan Jackson, Vince Gill, and Martina
McBride.
The Opry House contains a 45,000 square foot auditorium with 4,424
seats, a television production center that includes a 300-seat studio and
lighting, audio, and video control rooms, and set design and scenery shops. The
Opry House is used by the Company for the production of television and other
programming and by third parties such as national television networks and the
Public Broadcasting System. The Opry House is also rented for concerts,
theatrical productions, and special events and is used by Gaylord Opryland for
convention entertainment and other events such as the Radio City Christmas
Spectacular featuring the world famous Rockettes(TM).
Ryman Auditorium. The Ryman Auditorium, which was built in 1892 and
seats approximately 2,300, was recently designated as a National Historic
Landmark. The former home of the Grand Ole Opry, the Ryman Auditorium was
renovated and re-opened in 1994 for concerts and musical productions. Recent
concert performers have included Ricky Skaggs, Bruce Springsteen, Coldplay, The
Pretenders, Dixie Chicks, Willie Nelson, Alison Krauss and Elvis
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Costello. The Ryman Auditorium consistently has received local awards as a venue
for live music performances, and in January 2001, CitySearch editors listed the
Ryman Auditorium among the top five concert venues in the United States for the
second year in a row.
Since its reopening, the Ryman Auditorium has featured musicals
produced by the Company such as Always . . . Patsy Cline, Lost Highway - The
Music & Legend of Hank Williams, Bye Bye Love - The Everly Brothers Musical, and
Stand By Your Man: The Tammy Wynette Story. The Grand Ole Opry returns to the
Ryman Auditorium periodically, most recently from November 2002 to February
2003. The Ryman Auditorium is also host to a number of special events.
The General Jackson Showboat. The Company operates the General Jackson,
a 300-foot, four-deck paddle wheel showboat, on the Cumberland River, which
flows past the Opryland complex. Its Victorian Theatre can seat 620 people for
banquets and 1,000 people for theater-style presentations. The showboat stages
Broadway-style shows and other theatrical productions. The General Jackson is
one of many sources of entertainment that the Company makes available to
conventions held at Gaylord Opryland. It contributes to the Company's revenues
from convention participants as well as local business. During the day it
operates cruises, primarily serving tourists visiting the Opryland complex and
the Nashville area.
The Springhouse Golf Club. Home to a Senior PGA Tour event since 1994
and minutes from Gaylord Opryland, the Springhouse Golf Club was designed by
former U.S. Open and PGA Champion Larry Nelson. The 43,000 square-foot
antebellum-style clubhouse offers meeting space for up to 450 guests.
The Wildhorse Saloon. Since 1994, the Company has owned and operated
the Wildhorse Saloon, a country music performance venue on historic Second
Avenue in downtown Nashville. The three story, 66,000 square-foot facility
includes a dance floor of approximately 2,500 square feet, a restaurant and
banquet facility which can accommodate up to 2,000 guests, and a 15' x 22'
television screen which features country music videos and sporting events. The
Wildhorse Saloon has featured performers such as Tim McGraw and the Dixie
Chicks. The club has a broadcast-ready stage and facilities to house mobile
production units from which broadcasts of live concerts may be distributed
nationwide.
Corporate Magic. In March 2000, the Company acquired Corporate Magic,
Inc., a company specializing in the production of creative and entertainment
events in support of the corporate and meeting marketplace, for $9.0 million. We
believe the event and corporate entertainment planning function of Corporate
Magic complements the meeting and convention aspects of our Gaylord Hotels
business.
MEDIA
WSM-AM and WSM-FM. WSM-AM and WSM-FM commenced broadcasting in 1925 and
1967, respectively. The involvement of the Company's predecessors with country
music dates back to the creation of the Grand Ole Opry, which has been broadcast
live on WSM-AM since 1925.
WSM-AM and WSM-FM are each broadcast from the Opryland complex and have
country music formats. WSM-AM went on the air in 1925 and is one of the nation's
25 "clear channel" stations, meaning that no other station in a 750-mile radius
uses the same frequency for nighttime broadcasts. As a result, the station's
signal, transmitted by a 50,000 watt transmitter, can be heard at night in much
of the United States and parts of Canada. The Company also has radio broadcast
studios in Gaylord Opryland, the Wildhorse Saloon, the Ryman Auditorium, and the
Opry Mills retail complex in Nashville.
WWTN-FM. In 1995, the Company acquired the assets of radio station
WWTN-FM, which operates out of Nashville, Tennessee. WWTN-FM has a
news/talk/sports format and is the flagship station of the Nashville Predators,
a National Hockey League club of which the Company owns a minority interest.
On March 25, 2003, the Company, through its wholly-owned subsidiary
Gaylord Investments, Inc., entered into an agreement to sell the assets
primarily used in the operations of WSM-FM and WWTN(FM) to Cumulus Broadcasting,
Inc. ("Cumulus"), and the Company entered into a joint sales agreement with
Cumulus for WSM-AM
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in exchange for approximately $65 million in cash. Consummation of the sale of
assets is subject to customary closing conditions, including regulatory
approvals, and is expected to take place in the third quarter of 2003. In
connection with this agreement, we also entered into a local marketing agreement
with Cumulus pursuant to which, from the second business day after the
expiration or termination of the waiting period under the Hart-Scott-Rodino
Improvements Act of 1976 until the closing of the sale of the assets, we will,
for a fee, make available to Cumulus substantially all of the broadcast time on
WSM-FM and WWTN(FM). In turn, Cumulus will provide programming to be broadcast
during such broadcast time and will collect revenues from the advertising that
it sells for broadcast during this programming time. The Company will continue
to own and operate WSM-AM and under the joint sales agreement with Cumulus,
Cumulus will sell all of the commercial advertising on WSM-AM and provide
certain sales promotion and billing and collection services relating to WSM-AM,
all for a specified fee. The joint sales agreement has a term of five years.
CORPORATE AND OTHER
Bass Pro Shops. From 1993 to December 1999, the Company owned a
minority interest in Bass Pro, L.P. As part of a reorganization of Bass Pro in
December 1999, the Company contributed its limited partnership interest to a
newly formed Delaware corporation, Bass Pro, Inc. for a 19% interest in the new
entity. Bass Pro, Inc. owns and operates Bass Pro Shops, a retailer of premium
outdoor sporting goods and fishing tackle. Bass Pro Shops serves its customers
through an extensive mail order catalog operation, a retail center in
Springfield, Missouri, and additional retail stores at Opry Mills in Nashville
and in various other U.S. locations.
Nashville Predators. The Company owns a 12.84% interest in the
Nashville Hockey Club Limited Partnership, a limited partnership that owns the
Nashville Predators, a National Hockey League franchise which began its fifth
season in the fall of 2002. In July of 2002, we exercised the first of our three
put options, each of which gives us the right to require that the Predators
repurchase one-third (1/3) of our interest in the partnership. To date, the
Predators have not completed this repurchase. We are engaged in continuing
discussions with the Predators' partnership regarding our right to have our
interest repurchased. In our accompanying financial statements, the value of our
investment in the Predators' partnership has been reduced to zero. In August
1999, the Company entered into a Naming Rights Agreement with the limited
partnership whereby the Company purchased the right to name the Nashville Arena
the "Gaylord Entertainment Center" and to place certain advertising within the
arena. Under the agreement, which has a 20-year term, the Company is required to
make annual payments, beginning at $2,050,000 in the first year and with a 5%
escalation each year thereafter, and to purchase a minimum number of tickets to
Predators games each year.
RECENT DEVELOPMENTS AND STRATEGIC DIRECTION
During the second quarter of 2001, the Company hired a new Chairman of
the Board and a new Chief Executive Officer. Once the new senior management team
was in place, they devoted a significant portion of 2001 to reviewing the many
different businesses they inherited when they joined the Company. After
significant review, it was determined that, while the Company had four business
segments for financial reporting purposes (Hospitality, Attractions, Media and
Corporate and Other - all described above), the future direction of the Company
would be based on two core asset groups, which were aligned as follows:
Hospitality Core Asset Group: consisting of the Gaylord Hotels, the
Corporate Magic meeting and event planning business and the various attractions
that provide entertainment to guests of the hotels.
Opry Core Asset Group: consisting of the Grand Ole Opry, WSM-AM radio,
and the Ryman Auditorium.
It was thus determined that Acuff-Rose Music Publishing, Word
Entertainment, Music Country/CMT International, Opry Mills and GET Management
were not core assets of the Company, and as a result each has either been sold
or otherwise disposed of by the Company. Gaylord Digital, Pandora Films, Gaylord
Films, Gaylord Sports Management, Gaylord Event Television, Gaylord Production
Company, Z Music and the Opryland River Taxis, also not core assets of the
Company, had previously been sold or otherwise disposed of by the Company.
Remaining businesses to be sold include the Company's interests in the Nashville
Predators and the Oklahoma Redhawks, and certain
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miscellaneous real estate holdings. Management has yet to make a final decision
as to whether to sell its minority interest in Bass Pro Shops, which it has
determined to be a non-core asset. Following the decision to divest certain
businesses, we restructured the corporate organization to streamline operations
and remove duplicative costs. The Opryland Hospitality management group was
combined with the Corporate management group and all Nashville management
employees were consolidated into the Company's Wendell Office Building.
Highlights of some of the key developments resulting from this corporate
redirection are set forth below.
Sale of Acuff-Rose Music Publishing to Sony/ATV Music Publishing. On
August 27, 2002, the Company completed the sale of its Acuff-Rose Music
Publishing operations through the sale of substantially all of the assets (with
certain exceptions) and the assumption of certain liabilities and obligations of
Acuff-Rose Music Publishing, LLC, Acuff-Rose Music, LLC, Milene Music, LLC,
Springhouse Music, LLC and Hickory Records, LLC (collectively, the "Sellers"),
to Sony/ATV Music Publishing LLC. The Sellers engaged in the business of
acquiring, publishing and exploiting musical compositions and producing,
distributing and exploiting sound recordings. The proceeds from the sale totaled
approximately $157 million in cash, before royalties payable to Sony for the
period beginning July 1, 2002. The net proceeds were used to pay down amounts
outstanding under the Company's credit facility with Deutsche Bank, Citibank and
CIBC and to continue to build its core hospitality brand, Gaylord Hotels.
Sale of Opry Mills Partnership Interest to The Mills Corporation.
During 1998, the Company entered into a partnership with The Mills Corporation
to develop the Opry Mills Shopping Center in Nashville, Tennessee. The Company
held a one-third interest in the partnership as well as the title to the land on
which the shopping center was constructed, which was being leased to the
partnership. During the second quarter of 2002, the Company sold its partnership
share to The Mills Corporation for approximately $30.8 million in cash.
Sale of Word Entertainment to Warner Music Group. On January 4, 2002,
the Company completed the sale of its Word Entertainment operations through the
contribution of substantially all of the assets and liabilities of Gaylord
Creative Group, Inc. ("GCG"), a wholly-owned subsidiary of the Company, to Idea
Entertainment LLC ("Idea"), a wholly-owned subsidiary of GCG, and the sale of
all of the outstanding membership interests of Idea to WMGA LLC, an affiliate of
Warner Music Group Inc. GCG and its subsidiaries, operating under the trade name
"Word Entertainment," engaged in the business of producing, distributing and
marketing recorded music and related products, music publishing and creating
audio-visual work. The proceeds to the Company from the sale totaled
approximately $84 million in cash.
Closing of International Cable Operations. On February 25, 2002, the
Company closed its cable network operations in Brazil, Asia and Australia by
selling its assets associated with MusicCountry Asia and MusicCountry Brazil to
the Sound Track Channel ("STC"), a privately owned California limited liability
company. In exchange for the assets, STC delivered to the Company promissory
notes totaling approximately $3 million and a 5% equity interest in STC. In
addition, as a part of the transaction with STC, STC assumed a portion of the
Company's obligations under the Transponder Agreement with PanAmSat Corporation.
The Company also closed its international cable operations in Argentina under an
agreement with its joint venture partners pursuant to which the Company
transferred its equity in Solo Tango, S.A. and Latin America MusicCountry, S.A.
in exchange for cancellation of future obligations the Company had to its
minority partners. In January of 2003, the Company completed its exit from the
international cable business by selling its minority investment in Video Rola in
Mexico for $650,000.
Sale of Five Businesses to OPUBCO. On March 9, 2001, the Company sold
its stock and equity interests in five of its businesses to The Oklahoma
Publishing Company ("OPUBCO") for a purchase price of $22 million in cash and
the assumption of approximately $20 million in debt. The businesses sold were
Gaylord Production Company, Gaylord Films, Pandora Films, Gaylord Sports
Management Group, and Gaylord Event Television. OPUBCO beneficially owns 6.2% of
the Company's common stock. Three of the Company's directors, who are the
beneficial owners of an additional 13.6% of the Company's common stock, are also
directors of OPUBCO and voting trustees of a voting trust that controls OPUBCO.
The transaction was reviewed and approved by a special committee of the
independent directors of the Company. The Company received an appraisal from a
firm that specializes in valuations related to films, entertainment and service
businesses as well as a fairness opinion from an investment bank in connection
with this transaction.
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Shortly after the closing, the Company received notification from
OPUBCO asserting that the Company breached certain representations and
warranties in the purchase agreement and OPUBCO demanded indemnification from
the Company in the amount of $3.1 million. The Company's board of directors
referred this matter to a special committee of independent directors for its
consideration, and the special committee retained independent counsel to advise
it on the merits of OPUBCO's indemnification request. After (i) reviewing the
matters related to the indemnification request with counsel, (ii) considering
the costs and uncertainties associated with litigation and (iii) considering the
results of settlement negotiations with OPUBCO, the special committee authorized
the Company to enter into a settlement pursuant to which the Company paid OPUBCO
an aggregate of $825,000 and OPUBCO released the Company from any claims
associated with the Company's indemnification obligations.
Financing Activities. In February 2003, the Company received a
commitment for a $225 million credit facility from Deutsche Bank, Bank of
America and CIBC. The facility will consist of a $200 million term loan and a
$25 million revolving credit facility. The Company expects definitive agreements
with respect to this credit facility will be executed in the second quarter of
2003. Funding of the credit facility is subject to customary closing conditions
and the lenders have the right to revise the credit facility structure and/or
decline to perform under the commitment if the lenders determine that certain
conditions exist within the Company's operations or if certain changes occur
within the financial markets. Proceeds of the new credit facility will be used
to pay off the Company's existing $60 million Term Loan, described below, and to
complete the construction of Gaylord Opryland Texas.
On October 9, 2001, the Company entered into a three-year $210 million
delayed-draw senior term loan (the "Term Loan") with Deutsche Banc Alex. Brown
Inc., Salomon Smith Barney, Inc. and CIBC World Markets Corp. Proceeds of the
Term Loan were used to finance the completion of Gaylord Palms and for general
operating needs of the Company. The Term Loan is primarily secured by the
Company's ground lease interest in Gaylord Palms. The amounts outstanding under
the term loan at March 21, 2003 were $60 million.
On March 27, 2001, the Company entered into two new loan agreements, a
$275 million senior loan (the "Senior Loan") and a $100 million mezzanine loan
(the "Mezzanine Loan") (collectively, the "Nashville Hotel Loans"). The Senior
Loan is secured by a first mortgage lien on the Gaylord Opryland hotel. The
Mezzanine Loan is secured by the equity interest in the wholly-owned subsidiary
that owns Gaylord Opryland.
During May 2000, the Company entered into a seven-year secured forward
exchange contract with an affiliate of Credit Suisse First Boston with respect
to approximately 10.9 million shares of the Company's Viacom, Inc. Class B
non-voting common stock ("Viacom Stock"). The contract has a notional amount of
$613.1 million and required contract payments based upon a stated 5% rate. The
secured forward exchange contract protects the Company against decreases in the
fair market value of the Viacom Stock while providing for participation in
increases in the fair market value. By entering into the secured forward
exchange contract, the Company realized cash proceeds of $506.3 million, net of
discounted prepaid contract payments related to the first 3.25 years of the
contract and transaction costs totaling $106.7 million. During October 2000, the
Company prepaid the remaining contract payments related to the final 3.75 years
of the contract for $83.2 million. As a result of the prepayment of the
remaining contract payments, the Company was released from the covenants in the
secured forward exchange contract which limited the Company's right to sales of
assets, to incur additional indebtedness and to grant liens. The Company
utilized $394.1 million of the net proceeds from the secured forward exchange
contract to repay all outstanding indebtedness under its revolving credit
facility.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," for a more complete description of the Company's
financing activities.
EMPLOYEES
As of December 31, 2002, the Company had approximately 4,215 full-time
and 513 part-time and temporary employees. Of these, approximately 3,535
full-time and 176 part-time employees were employed in Hospitality;
approximately 360 full-time and 305 part-time employees were employed in
Attractions; approximately 83 full-time and 23 part-time employees were employed
in Media; and approximately 237 full-time and 9 part-time employees were
employed in Corporate and Other. The Company believes its relations with its
employees are good.
7
COMPETITION
Hospitality. The Gaylord Hotel properties compete with numerous other
hotels throughout the United States and abroad, particularly the approximately
84 convention hotels located outside of Las Vegas, Nevada that have more than
800 rooms each, as well as the Las Vegas hotel/casinos. Many of these hotels are
operated by companies with greater financial, marketing, and human resources
than the Company. The Company believes that competition among convention hotels
is based on, among other things, factors which include: (i) the hotel's
reputation, (ii) the quality of the hotel's facility, (iii) the quality and
scope of a hotel's meeting and convention facilities and services, (iv) the
desirability of a hotel's location, (v) travel distance to a hotel for meeting
attendees, (vi) a hotel facility's accessibility to a recognized airport, (vii)
the amount of entertainment and recreational options available in and in the
vicinity of the hotel, and (viii) price. The Company's hotels also compete
against civic convention centers. These include the largest convention centers
(e.g., Orlando, Chicago and Atlanta) as well as, for Gaylord Opryland, mid-size
convention centers (between 100,000 and 500,000 square feet of meeting space
located in second-tier cities).
The hotel business is management and marketing intensive. The Gaylord
Hotels compete with other hotels throughout the United States for high quality
management and marketing personnel. There can be no assurance that the Company's
hotels will be able to attract and retain employees with the requisite
managerial and marketing skills.
Attractions. The Grand Ole Opry and other attractions businesses of the
Company compete with all other forms of entertainment and recreational
activities. The success of the Attractions group is dependent upon certain
factors beyond the Company's control including economic conditions, the amount
of available leisure time, transportation cost, public taste, and weather
conditions.
Media. The Company's radio stations compete with numerous other types
of entertainment businesses, and success is often dependent on taste and
fashion, which may fluctuate from time to time. WSM-AM, WSM-FM, and WWTN-FM
compete for advertising revenues with other radio stations in the Nashville
market on the basis of formats, ratings, market share, and the demographic
makeup of their audiences. Advertising rates of the radio stations are based
principally on the size, market share, and demographic profile of their
listening audiences. The Company's radio stations primarily compete for both
audience share and advertising revenues. They also compete with the Internet,
newspapers, billboards, cable networks, local cable channels, and magazines for
advertising revenues. Management competence and experience, station frequency
signal coverage, network affiliation, effectiveness of programming format, sales
effort, and level of customer service are all important factors in determining
competitive position.
REGULATION AND LEGISLATION
The Gaylord Hotels are subject to certain federal, state, and local
governmental regulations including, without limitation, health, safety, and
environmental regulations applicable to hotel and restaurant operations. The
Company believes that it is in substantial compliance with such regulations. In
addition, the sale of alcoholic beverages by a hotel requires a license and is
subject to regulation by the applicable state and local authorities. The
agencies involved have the power to limit, condition, suspend, or revoke any
such license, and any disciplinary action or revocation could have an adverse
effect upon the results of operations of the Company's Hospitality and
Attractions segments.
The Company's radio stations are subject to regulation under the
Communications Act of 1934, as amended (the "Communications Act"). Under the
Communications Act, the FCC, among other things, assigns frequency bands for
broadcasting; determines the frequencies, location, and signal strength of
stations; issues, renews, revokes, and modifies station licenses; regulates
equipment used by stations; and adopts and implements regulations and policies
that directly or indirectly affect the ownership, operation, and other practices
of broadcasting stations.
Licenses issued for radio stations have terms of eight years. Radio
broadcast licenses are renewable upon application to the FCC and in the past
have been renewed except in rare cases. Competing applications will not be
accepted at the time of license renewal, and will not be entertained at all
unless the FCC first concludes that renewal of the license would not serve the
public interest. A station will be entitled to renewal in the absence of serious
violations of
8
the Communications Act or the FCC regulations or other violations which
constitute a pattern of abuse. The Company is not aware of any reason why its
radio station licenses should not be renewed.
The foregoing is only a brief summary of certain provisions of the
Communications Act and FCC regulations. The Communications Act and FCC
regulations may be amended from time to time, and the Company cannot predict
whether any such legislation will be enacted or whether new or amended FCC
regulations will be adopted, or the effect on the Company of any such changes.
ADDITIONAL INFORMATION
Our web site address is www.gaylordentertainment.com. Please note that
our web site address is provided as an inactive textual reference only. We make
available free of charge through our web site, the annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments
to those reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC. The information provided on
our web site is not part of this report, and is therefore not incorporated by
reference unless such information is otherwise specifically referenced elsewhere
in this report.
RISK FACTORS
You should carefully consider the following specific risk factors as
well as the other information contained or incorporated by reference in this
annual report on Form 10-K as these are important factors, among others, that
could cause our actual results to differ from our expected or historical
results. It is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a complete statement
of all our potential risks or uncertainties. Some statements in this "Business"
section and elsewhere in this annual report on Form 10-K are "forward-looking
statements."
WE MAY NOT BE ABLE TO IMPLEMENT SUCCESSFULLY OUR BUSINESS STRATEGY.
We have refocused our business strategy on the development of
additional resort and convention center hotels in selected locations in the
United States and our attractions and media properties which are engaged
primarily in the country music genres. The success of our future operating
results depends on our ability to implement our business strategy by completing
and successfully operating the recently-opened Gaylord Palms, our new Gaylord
hotel in Grapevine, Texas, which is under construction, and further exploiting
our attractions and media assets. Our ability to do this depends upon many
factors, some of which are beyond our control. These include:
- Our ability to finance and complete the construction of our
new Gaylord hotel in Grapevine, Texas on schedule and to
achieve positive cash flow from operations within the
anticipated ramp-up period.
- Our ability to generate cash flows from existing operations.
- Our ability to hire and retain hotel management, catering and
convention-related staff for our hotels.
- Our ability to capitalize on the strong brand recognition of
certain of our media assets.
OUR HOTEL AND CONVENTION BUSINESS IS SUBJECT TO SIGNIFICANT MARKET RISKS.
Our ability to continue successfully to operate Gaylord Opryland,
Gaylord Palms, and our new Gaylord hotel in Grapevine, Texas upon its completion
is subject to factors beyond our control which could adversely impact these
properties. These factors include:
- The desirability and perceived attractiveness of Nashville,
Tennessee, Kissimmee, Florida and Grapevine, Texas as tourist
and convention destinations.
9
- Adverse changes in the national economy and in the levels of
tourism and convention business that would affect our hotels.
- Increased competition for convention and tourism business in
Nashville, Tennessee and Kissimmee, Florida.
- Gaylord Palms is operating and our new Texas hotel will
operate in highly competitive markets for convention and
tourism business.
- Our group convention business is subject to reduced levels of
demand during the year-end holiday periods, and we may not be
able to attract sufficient general tourism guests to offset
this seasonality.
WE REQUIRE ADDITIONAL FINANCING TO COMPLETE OUR NEW HOTEL PROJECTS.
We require additional financing to complete the construction for our
new Gaylord hotel in Grapevine, Texas. Our ability to obtain additional debt
financing for this capital project has been limited by our existing level of
indebtedness and limitations on our ability to grant liens on unencumbered
assets. Although we have received a commitment for a new credit facility which
we expect will be sufficient to fund completion of the construction of Gaylord
Opryland Texas, the closing of the new credit facility is subject to the
fulfillment of certain conditions, which we believe are customary; but there can
be no assurance that the facility, which is expected to close in the second
quarter of 2003, will ultimately close and be funded. These financing efforts
will be subject to market conditions prevailing from time to time as well as our
financial condition and prospects. We may also need to divest certain non-core
businesses in order to finance additional hotel development, and there can be no
guarantee that such divestitures, if required, can be successfully completed. If
we are unable to obtain additional financing or divest non-core assets on terms
acceptable to us to complete the construction of our hotel projects as currently
scheduled, our future prospects could be adversely affected in a material way.
OUR MEDIA ASSETS DEPEND UPON POPULAR TASTES.
The success of our operations in our media division depends to a large
degree on popular tastes. There has been a reduction in the popularity and
demand for country music over recent years. A continued decline in the
popularity of this genre could adversely affect our revenues and operations.
OUR BUSINESS PROSPECTS DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN SENIOR LEVEL
EXECUTIVES.
During 2001, the Company named a new chairman and a new chief executive
officer and had numerous changes in senior management. Our future performance
depends upon our ability to attract qualified senior executives and to retain
their services. Our future financial results also will depend upon our ability
to attract and retain highly skilled managerial and marketing personnel in our
different areas of operation. Competition for qualified personnel is intense and
is likely to increase in the future. We compete for qualified personnel against
companies with significantly greater financial resources than ours.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY OUR LEVERAGE.
As of February 28, 2003, the total amount of our long-term debt,
including the current portion, was approximately $339.3 million. We intend to
continue to make additional borrowings under our credit facilities in connection
with the development of new hotel properties and for other general corporate
purposes, and the aggregate amount of our indebtedness will likely increase,
perhaps substantially. The amount of our indebtedness could have important
consequences to investors, including the following:
- Our ability to obtain additional financing in the future may
be impaired;
10
- A substantial portion of our cash flow from operations must be
applied to pay principal and interest on our indebtedness,
thus reducing funds available for other purposes;
- Some of our borrowings, including borrowings under our credit
facilities are and will continue to be at variable rates based
upon prevailing interest rates, which will expose us to the
risk of increased interest rates;
- We may be further constrained by financial covenants and other
restrictive provisions contained in credit agreements and
other financing documents;
- We may be substantially more leveraged than some of our
competitors, which may place us at a competitive disadvantage;
and
- Our leverage may limit our flexibility to adjust to changing
market conditions, reduce our ability to withstand competitive
pressures and make us more vulnerable to a downturn in general
economic conditions or our business.
UNANTICIPATED EXPENSES COULD AFFECT THE RESULTS OF HOTELS WE OPEN IN NEW
MARKETS.
As part of our growth plans, we may open new hotels in geographic areas
in which we have little or no operating experience and in which potential
customers may not be familiar with our business. As a result, we may have to
incur costs relating to the opening, operation and promotion of those new hotel
properties that are substantially greater than those incurred in other areas.
Even though we may incur substantial additional costs with these new hotel
properties, they may attract fewer customers than our existing hotels. As a
result, the results of operations at new hotel properties may be inferior to
those of our existing hotels. The new hotels may even operate at a loss. Even if
we are able to attract enough customers to our new hotel properties to operate
them at a profit, it is possible that those customers could simply be moving
future meetings or conventions from our existing hotel properties to our new
hotel properties. Thus, the opening of a new hotel property could reduce the
revenue of our existing hotel properties.
FLUCTUATIONS IN OUR OPERATING RESULTS AND OTHER FACTORS MAY RESULT IN DECREASES
IN OUR STOCK PRICE.
In recent periods, the market price for our common stock has fluctuated
substantially. From time to time, there may be significant volatility in the
market price of our common stock. We believe that the current market price of
our common stock reflects expectations that we will be able to continue to
operate our existing hotels profitably and to develop new hotel properties
profitably. If we are unable to accomplish this, investors could sell shares of
our common stock at or after the time that it becomes apparent that the
expectations of the market may not be realized, resulting in a decrease in the
market price of our common stock. In addition to our operating results, the
operating results of other hospitality companies, changes in financial estimates
or recommendations by analysts, adverse weather conditions, increased
construction costs, changes in general conditions in the economy or the
financial markets or other developments affecting us or our industry, such as
the recent terrorist attacks, could cause the market price of our common stock
to fluctuate substantially. In recent years, the stock market has experienced
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to their operating performance.
OUR HOTEL PROPERTIES ARE CONCENTRATED GEOGRAPHICALLY.
Our existing hotel properties are located predominately in the
southeastern United States. As a result, our business and our financial
operating results may be materially affected by adverse economic, weather or
business conditions in the Southeast.
11
HOSPITALITY COMPANIES HAVE BEEN THE TARGET OF CLASS ACTIONS AND OTHER LAWSUITS
ALLEGING VIOLATIONS OF FEDERAL AND STATE LAW.
We are subject to the risk that our results of operations may be
adversely affected by legal or governmental proceedings brought by or on behalf
of our employees or customers. In recent years, a number of hospitality
companies have been subject to lawsuits, including class action lawsuits,
alleging violations of federal and state law regarding workplace and employment
matters, discrimination and similar matters. A number of these lawsuits have
resulted in the payment of substantial damages by the defendants. Similar
lawsuits have been instituted against us from time to time, and we cannot assure
you that we will not incur substantial damages and expenses resulting from
lawsuits of this type, which could have a material adverse effect on our
business.
THE VALUE OF THE VIACOM STOCK WE OWN IS SUBJECT TO MARKET RISKS.
The shares of Viacom Stock we own represent a significant asset of the
Company. However, we have no right to vote on matters affecting Viacom or to
otherwise participate in the direction of the affairs of that corporation. Our
investment in Viacom is subject to the risks of declines in the market value of
Viacom equity securities. While we have mitigated our exposure to declines in
the stock market valuation below $56.04 per share by entering into the secured
forward exchange contract described under the subheading "Financing Activities"
under the heading "Corporate and Other" in this Item 1 and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
value of this asset ultimately is subject to the success of Viacom and its value
in the securities markets. Further, accounting principles generally accepted in
the United States applicable to the treatment of this contract will require us
to record, and to reflect in our Company's financial statements, gains or losses
based upon changes in the fair value of the derivatives associated with the
secured forward exchange contract and the changes in the fair value of our
Viacom Stock. The effect of this accounting treatment could be material to our
results reflected in our consolidated financial statements for relevant periods.
WE HAVE CERTAIN OTHER MINORITY EQUITY INTERESTS OVER WHICH WE HAVE NO
SIGNIFICANT CONTROL.
We have certain minority investments which are not liquid and over
which we have no rights, or ability, to exercise the direction or control of the
respective enterprises. These include our equity interests in Bass Pro and the
Nashville Predators. The ultimate value of each of these investments will be
dependent upon the efforts of others over an extended period of time. The nature
of our interests and the absence of a market for those interests restricts our
ability to dispose of them.
RISKS RELATING TO ACTS OF GOD, TERRORIST ACTIVITY AND WAR.
Our financial and operating performance may be adversely affected by
acts of God, such as natural disasters, in locations where we own and/or operate
significant properties and areas of the world from which we draw a large number
of customers. Some types of losses, such as from earthquake, hurricane,
terrorism and environmental hazards may be either uninsurable or too expensive
to justify insuring against. Should an uninsured loss or a loss in excess of
insured limits occur, we could lose all or a portion of the capital we have
invested in a hotel, as well as the anticipated future revenue from the hotel.
In that event, we might nevertheless remain obligated for any mortgage debt or
other financial obligations related to the property. Similarly, wars (including
the potential for war), terrorist activity (including threats of terrorist
activity), political unrest and other forms of civil strife as well as
geopolitical uncertainty have caused in the past, and may cause in the future,
our results to differ materially from anticipated results.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company as of December 31, 2002. All officers serve at
the discretion of the Board of Directors.
NAME AGE POSITION
---- --- --------
Michael D. Rose............. 61 Chairman of the Board
Colin V. Reed............... 55 President and Chief Executive Officer
David C. Kloeppel........... 33 Executive Vice President and Chief Financial Officer
Jay D. Sevigny.............. 43 President, Gaylord Opryland Resort and Convention Center
Karen L. Spacek............. 43 Senior Vice President, Communications and Human Resources
John P. Caparella........... 45 Senior Vice President; General Manager, Gaylord Palms Resort and
Convention Center
Carter R. Todd.............. 45 Senior Vice President, General Counsel and Secretary
- -----------------
The following is additional information with respect to the above-named
executive officers.
Mr. Rose has served as Chairman of the Board of the Company since April
2001. Prior to that time he was a private investor and prior to December 1997,
he was Chairman of the Board of Promus Hotel Corporation, Memphis, Tennessee, a
franchiser and operator of hotel brands. Prior to January 1997, Mr. Rose was
also Chairman of the Board of Harrah's Entertainment, Inc., an owner and manager
of casinos in the United States. Mr. Rose is a director of four other public
companies, Darden Restaurants, Inc., FelCor Lodging Trust, Inc., First Tennessee
National Corporation, and Stein Mart, Inc.
Mr. Reed was elected President and Chief Executive Officer and a
director of the Company in April 2001. Prior to that time, he was a member of
the three-executive Office of the President of Harrah's Entertainment, Inc., an
owner and manager of casinos in the United States, since May 1999 and the Chief
Financial Officer of Harrah's since April 1997. Mr. Reed was a director of
Harrah's Entertainment from 1998 to May 2001. He was Executive Vice President of
Harrah's Entertainment from September 1995 to May 1999 and has served in several
other management positions with Harrah's and its predecessor, Holiday Corp.,
since 1977. As part of his duties at Harrah's, Mr. Reed served as a director and
Chairman of the Board of JCC Holding Company, an entity in which Harrah's held a
minority interest. On January 4, 2001, JCC Holding Company filed a petition for
reorganization relief under Chapter 11 of the United States Bankruptcy Code. Mr.
Reed is a director of Rite Aid Corporation.
Mr. Kloeppel is the Company's Chief Financial Officer and Executive
Vice President. Prior to joining the Company in September of 2001, Mr. Kloeppel
worked in the Mergers and Acquisitions Department at Deutsche Bank in New York,
where he was responsible for that department's activities in the lodging,
leisure and real estate sectors. Mr. Kloeppel earned an MBA from Vanderbilt
University's Owen Graduate School of Management, graduating with highest honors.
He received his bachelor of science degree from Vanderbilt University, majoring
in economics.
Mr. Sevigny was hired in October 2001 as the Senior Vice President in
charge of the Company's Marketing and Attractions. In February of 2002, Mr.
Sevigny was named President of the Company's Gaylord Opryland Resort
13
and Convention Center in Nashville. Prior to joining the Company, Mr. Sevigny
worked in different capacities for Harrah's Entertainment, most recently as
Division President Hotel/Casino in Las Vegas during 2000 and 2001, and as
President and Chief Operating Officer of Harrah's New Orleans casino operations
from 1998 to 2000. From 1997 to 1998, Mr. Sevigny was President of Midwest
Operations for Station Casino in Kansas City, Missouri. Mr. Sevigny has a
finance degree from the University of Nevada.
Ms. Spacek is the Company's Senior Vice President for Communications
and Human Resources. Prior to joining Gaylord in August of 2001, Ms. Spacek
worked for more than five years in different positions with Harrah's
Entertainment, most recently as Vice President of Strategic Sourcing. Ms. Spacek
earned both her MBA degree (with honors) and her undergraduate degree from the
University of Texas.
Mr. Caparella is a Senior Vice President of the Company and the General
Manager of Gaylord Palms. Prior to joining the Company in November 2000, Mr.
Caparella served as Executive Vice President, Planning, Development and
Administration and President of PlanetHollywood.com for Planet Hollywood
International, Inc., a creator and developer of consumer brands relating to
movies, sports and other entertainment-based themes, in Orlando, Florida since
September 1997. Before joining Planet Hollywood, Mr. Caparella was with ITT
Sheraton, an owner and operator of hotel brands, for 17 years in convention,
resort, business and 4-star luxury properties, as well as ITT Sheraton's
corporate headquarters. Mr. Caparella is a graduate of the State University of
New York at Dehli.
Mr. Todd joined Gaylord Entertainment Company in July 2001 as the
Company's Senior Vice President, General Counsel and Secretary. Prior to that
time, he was a Corporate and Securities partner in the Nashville office of the
regional law firm Baker, Donelson, Bearman & Caldwell. Mr. Todd has practiced
law in Nashville since 1982 and is a graduate of Vanderbilt University School of
Law and Davidson College.
ITEM 2. PROPERTIES
The Company owns its executive offices and headquarters located at One
Gaylord Drive, Nashville, Tennessee, which consists of a four-story office
building comprising approximately 80,000 square feet. The Company owns the land
and improvements that comprise the Opryland complex in Nashville, Tennessee
which are composed of the following properties and the properties listed below.
The Company also owns the former offices and three television studios of TNN and
CMT, all of which are located within the Opryland complex and contain
approximately 87,000 square feet of space. These facilities were previously
leased to CBS through September 30, 2002. The Company believes that its present
facilities for each of its business segments are generally well maintained.
Hospitality. The Opryland complex includes the site of Gaylord Opryland
(approximately 172 acres). In connection with the Nashville Hotel Loans, a first
mortgage lien was granted on Gaylord Opryland, including the site on which it
stands. The Company has executed a 75-year lease with a 24-year renewal option
on a 65-acre tract in Osceola County, Florida, on which Gaylord Palms is
located. The Company has acquired approximately 100 acres in Grapevine, Texas,
through ownership (approximately 75 acres) or ground lease (approximately 25
acres), on which our new Gaylord hotel in Grapevine, Texas is being constructed.
Attractions. The Company owns the General Jackson showboat's docking
facility and the Opry House, both are located within the Opryland complex. The
Company also owns the Springhouse Golf Club, an 18-hole golf course situated on
approximately 240 acres, and the 6.7-acre site of the Radisson Hotel at
Opryland, both located near the Opryland complex. In downtown Nashville, the
Company owns the Ryman Auditorium and the Wildhorse Saloon dance hall and
production facility.
Media. The Company owns WSM Radio's offices and studios, which are also
located within the Opryland complex.
14
ITEM 3. LEGAL PROCEEDINGS
The Company maintains various insurance policies, including general
liability and property damage insurance, as well as product liability, workers'
compensation, business interruption, and other policies, which it believes
provide adequate coverage for the risks associated with its range of operations.
Various subsidiaries of the Company are involved in lawsuits incidental to the
ordinary course of their businesses, such as personal injury actions by guests
and employees and complaints alleging employee discrimination. The Company
believes that it is adequately insured against these claims by its existing
insurance policies and that the outcome of any pending claims or proceedings
will not have a material adverse effect upon its financial position or results
of operations.
The Company may have potential liability under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA" or "Superfund"), for response costs at two Superfund sites. The
liability relates to properties formerly owned by Gaylord's predecessor. In
1991, OPUBCO assumed these liabilities and agreed to indemnify the Company for
any losses, damages, or other liabilities incurred by it in connection with
these matters. The Company believes that OPUBCO's indemnification will fully
cover the Company's Superfund liabilities, if any, and that, based on the
Company's current estimates of these liabilities, OPUBCO has sufficient
financial resources to fulfill its indemnification obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of 2002.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) MARKET INFORMATION
The Company's common stock is listed on the New York Stock Exchange
under the symbol GET. The following table sets forth the high and low sales
prices for the Company's common stock as reported by the NYSE for the last two
years:
HIGH LOW
---- ---
2001
First Quarter.......................................................... $ 26.60 $ 20.00
Second Quarter......................................................... 29.15 24.95
Third Quarter.......................................................... 29.05 19.60
Fourth Quarter......................................................... 25.50 18.49
HIGH LOW
---- ---
2002
First Quarter.......................................................... $ 26.98 $ 22.10
Second Quarter......................................................... 29.26 21.76
Third Quarter.......................................................... 23.05 17.90
Fourth Quarter......................................................... 21.35 16.16
(b) HOLDERS
The approximate number of record holders of the Company's common stock
on March 17, 2003 was 2,430.
(c) CASH DIVIDENDS
No cash dividends were paid during 2001 or 2002 and we do not presently
intend to declare any cash dividends. Our Board of Directors may reevaluate this
dividend policy in the future in light of our results of operations, financial
condition, cash requirements, future prospects, loan agreements and other
factors deemed relevant by our Board. Currently, we are prohibited from paying
dividends by the terms of our Term Loan.
16
ITEM 6. SELECTED FINANCIAL DATA.
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following selected historical financial data for the three years
ended December 31, 2002 is derived from the Company's audited consolidated
financial statements. The selected financial data for the two years ended
December 31, 1999 is derived from previously issued financial statements
adjusted for unaudited revisions for discontinued operations and restatements of
income tax, partnership investments and other less significant items. The
information in the following table should be read in conjunction with the
Company's audited consolidated financial statements and related notes included
herein.
The Company has restated its results for the four year period from
1998-2001. This restatement resulted from items noted during a required re-audit
based on applicable auditing standards which require a re-audit of prior year
financial statements if a company's prior auditors have ceased operations and
the historical financial statements include reclassifications to separately
reflect the impact of discontinued operations. During 2002, the Company
committed to plans of disposal for Acuff-Rose Music Publishing and the Oklahoma
City Redhawks resulting in the reclassification of balances and operating
results of those two businesses as discontinued operations in the Company's
historical financial statements. Based on the requirements of applicable
auditing standards, the Company engaged Ernst & Young LLP ("Ernst & Young"), the
Company's current auditors, to perform the required re-audits of the Company's
2001 and 2000 consolidated financial statements since the Company's prior
auditors, Arthur Andersen LLP, had ceased operations. The specific principles
and accounts affected are discussed in more detail in Note 3 in the Company's
consolidated financial statements.
17
INCOME STATEMENT DATA:
YEARS ENDED DECEMBER 31,
------------------------
(Restated) (Restated) (Restated) (Restated)
(in thousands, except per share data) 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Revenues:
Hospitality............................... $ 339,380 $228,712 $ 237,260 $ 239,248 $ 237,076
Attractions............................... 63,512 65,878 63,235 57,760 56,602
Media..................................... 11,194 9,393 14,913 48,814 61,480
Corporate and other....................... 272 290 64 5,318 5,797
--------- -------- --------- --------- ---------
Total revenues......................... 414,358 304,273 315,472 351,140 360,955
--------- -------- --------- --------- ---------
Operating expenses:
Operating costs........................... 260,357 205,421 213,725 223,627 219,547
Selling, general and administrative....... 110,619 68,913 90,806 76,977 69,560
Preopening costs (1)...................... 8,913 15,927 5,278 1,892 --
Gain on sale of assets (2)................ (30,529) -- -- -- --
Impairment and other charges.............. -- 14,262(6) 75,712(6) -- --
Restructuring charges..................... 3(4) 2,182(4) 12,952(4) 2,786(4) --
Merger costs.............................. -- -- -- (1,741)(9) --
Depreciation and amortization:
Hospitality............................ 44,924 25,593 24,447 22,828 21,390
Attractions............................ 5,295 5,810 6,443 6,396 5,525
Media.................................. 623 660 7,716 4,945 2,675
Corporate and other.................... 5,778 6,542 6,257 6,870 5,262
--------- -------- --------- --------- ---------
Total depreciation and amortization.... 56,620 38,605 44,863 41,039 34,852
--------- -------- --------- --------- ---------
Total operating expenses............... 405,983 345,310 443,336 344,580 323,959
--------- -------- --------- --------- ---------
Operating income (loss):
Hospitality............................... 25,972 34,270 45,478 43,859 47,031
Attractions............................... 3,094 (2,372) (8,025) (6,063) (3,059)
Media..................................... (193) (454) (33,188)(8) (79) 16,480
Corporate and other....................... (42,111) (40,110) (38,187) (30,112) (23,456)
Preopening costs (1)...................... (8,913) (15,927) (5,278) -- --
Gain on sale of assets (2)................ 30,529 -- -- -- --
Impairment and other charges.............. -- (14,262)(6) (75,712)(6) -- --
Restructuring charges..................... (3)(4) (2,182)(4) (12,952)(4) (2,786)(4) --
Merger costs.............................. -- -- -- 1,741(9) --
--------- -------- --------- --------- ---------
Total operating income (loss)............. 8,375 (41,037) (127,864) 6,560 36,996
Interest expense, net of amounts capitalized. (46,960) (39,365) (30,319) (15,047) (28,742)
Interest income.............................. 2,808 5,554 4,046 5,922 25,067
Unrealized gain (loss) on Viacom stock, net.. (37,300) 782 -- -- --
Unrealized gain on derivatives............... 86,476 54,282 -- -- --
Other gains and losses....................... 1,163 2,661 (3,514) 586,371(10)(11) 19,351(11)(12)
--------- -------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes....................... 14,562 (17,123) (157,651) 583,806 52,672
Provision (benefit) for income taxes......... 1,806 (8,313) (51,140) 173,437 20,580
--------- -------- --------- --------- ---------
Income (loss) from continuing operations..... 12,756 (8,810) (106,511) 410,369 32,092
Gain (loss) from discontinued operations, net
of taxes (3).............................. 84,960 (50,188) (49,545) (16,715) (2,471)
Cumulative effect of accounting change,
net of taxes.............................. (2,572)(5) 11,202(7) -- -- --
--------- -------- --------- --------- ---------
Net income (loss)......................... $ 95,144 $(47,796) $(156,056) $ 393,654 $ 29,621
========= ======== ========= ========= =========
18
YEARS ENDED DECEMBER 31,
------------------------
(Restated) (Restated) (Restated) (Restated)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Income (loss) per share:
Income (loss) from continuing operations.... $ 0.38 $ (0.26) $ (3.19) $ 12.47 $ 0.98
Income (loss) from discontinued
operations............................... 2.52 (1.49) (1.48) (0.51) (0.08)
Cumulative effect of accounting change...... (0.08) 0.33 -- -- --
---------- --------- --------- ---------- ----------
Net income (loss)..................... $ 2.82 $ (1.42) $ (4.67) $ 11.96 $ 0.90
========== ========= ========= ========== ==========
Income (loss) per share - assuming dilution:
Income (loss) from continuing operations.... $ 0.38 $ (0.26) $ (3.19) $ 12.35 $ 0.96
Income (loss) from discontinued operations.. 2.52 (1.49) (1.48) (0.50) (0.07)
Cumulative effect of accounting change...... (0.08) 0.33 -- -- --
----------- --------- --------- ---------- ----------
Net income (loss)..................... $ 2.82 $ (1.42) $ (4.67) $ 11.85 $ 0.89
========== ========= ========= ========== ==========
Dividends per share......................... $ -- $ -- $ -- $ 0.80 $ 0.65
========== ========= ========= ========== ==========
BALANCE SHEET DATA:
(IN THOUSANDS)
AS OF DECEMBER 31,
------------------
(Restated) (Restated) (Restated) (Restated)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total assets............................ $2,192,196(10) $2,177,644(10) $1,930,805(10) $1,741,215 $1,012,624
Total debt.............................. 340,638(13) 468,997(13) 175,500 297,500(8) 261,328
Secured forward exchange contract....... 613,034(10) 613,054(10) 613,054(10) -- --
Total stockholders' equity.............. 787,579 696,988 765,937(7) 1,007,149(7) 523,587
- ---------------
(1) Preopening costs are related to the Company's Gaylord Palms Resort and
Convention Center hotel in Kissimmee, Florida and its new Gaylord hotel
under construction in Grapevine, Texas. Gaylord Palms opened in January
2002 and the Texas hotel is anticipated to open in April 2004.
(2) During 2002, the Company sold its one-third interest in the Opry Mills
Shopping Center in Nashville, Tennessee and the related land lease
interest between the Company and the Mills Corporation.
(3) In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". In accordance with the
provisions of SFAS No. 144, the Company has presented the operating
results and financial position of the following businesses as
discontinued operations: Acuff-Rose Music; OKC Redhawks; Word
Entertainment; GET Management, the Company's artist management
business; the Company's international cable networks; the businesses
sold to affiliates of The Oklahoma Publishing Company ("OPUBCO") in
2001 consisting of Pandora Films, Gaylord Films, Gaylord Sports
Management, Gaylord Event Television and Gaylord Production Company;
and the Company's water taxis.
(4) Related primarily to employee severance and contract termination costs.
(5) Reflects the cumulative effect of the change in accounting method
related to adopting the provisions of SFAS No. 142. The Company
recorded an impairment loss related to impairment of the goodwill of
the Radisson Hotel at Opryland. The impairment loss was $4.2 million,
less taxes of $1.6 million.
19
(6) Reflects the divestiture of certain businesses and reduction in the
carrying values of certain assets.
(7) Reflects the cumulative effect of the change in accounting method
related to recording the derivatives associated with the secured
forward exchange contract at fair value as of January 1, 2001, of $18.3
million less a related tax provision of $7.1 million.
(8) Includes operating losses of $27.5 million related to Gaylord Digital,
the Company's internet initiative, and operating losses of $6.1 million
related to country record label development, both of which were closed
during 2000.
(9) The merger costs relate to the reversal of merger costs associated with
the October 1, 1997 merger when TNN and CMT were acquired by CBS.
(10) Includes a pretax gain of $459.3 million on the divestiture of
television station KTVT in Dallas-Ft. Worth in exchange for CBS Series
B preferred stock (which was later converted into 11,003,000 shares of
Viacom, Inc. Class B common stock), $4.2 million of cash, and other
consideration. The CBS Series B preferred stock was included in total
assets at its market value of $648.4 million at December 31, 1999. The
Viacom, Inc. Class B common stock was included in total assets at its
market values of $448.5 million, $485.8 million and $514.4 million at
December 31, 2002, 2001 and 2000, respectively. During 2000, the
Company entered into a seven-year forward exchange contract for a
notional amount of $613.1 million with respect to 10,937,900 shares of
the Viacom, Inc. Class B common stock. Prepaid interest related to the
secured forward exchange contract of $118.1 million, $145.0 million and
$171.9 million was included in total assets at December 31, 2002, 2001
and 2000, respectively.
(11) In 1995, the Company sold its cable television systems. Net proceeds
were $198.8 million in cash and a note receivable with a face amount of
$165.7 million, which was recorded at $150.7 million, net of a $15.0
million discount. As part of the sale transaction, the Company also
received contractual equity participation rights (the "Rights") equal
to 15% of the net distributable proceeds from future asset sales.
During 1998, the Company collected the full amount of the note
receivable and recorded a pretax gain of $15.0 million related to the
note receivable discount. During 1999, the Company received cash and
recognized a pretax gain of $129.9 million representing the value of
the Rights. The proceeds from the note receivable prepayment and the
Rights were used to reduce outstanding bank indebtedness.
(12) Includes a pretax gain of $16.1 million on the sale of the Company's
investment in the Texas Rangers Baseball Club, Ltd. and a pretax gain
totaling $8.5 million primarily related to the settlement of
contingencies from the sales of television stations KHTV in Houston and
KSTW in Seattle.
(13) Related primarily to the construction of the Company's Gaylord Palms
Resort and Convention Center hotel in Kissimmee, Florida and its new
Gaylord hotel development in Grapevine, Texas.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
Gaylord Entertainment Company (the "Company") is a diversified hospitality and
entertainment company operating, through its subsidiaries, principally in four
business segments: hospitality; attractions; media; and corporate and other.
During 2001, the Company restated its reportable segments for all periods
presented based upon new management and an internal realignment of operational
responsibilities. The Company is managed using the four business segments
described above. Due to management's decision during 2002 to pursue plans to
dispose of certain businesses, those businesses have been presented as
discontinued operations as described in more detail below.
CONSTRUCTION COMMITMENTS
Additional long-term financing is required to fund the Company's construction
commitments related to its hotel development projects and to fund its overall
anticipated operating losses in 2003. As of December 31, 2002, the Company had
$98.6 million in unrestricted cash in addition to the net cash flows from
certain operations to fund its cash requirements including the Company's 2003
construction commitments related to its hotel construction projects. These
resources are not adequate to fund all of the Company's 2003 construction
commitments. As a result of these required future financing requirements, the
Company is currently negotiating with its lenders and others regarding the
Company's future financing arrangements.
In February 2003, the Company received a commitment for a $225 million credit
facility arranged by Deutsche Bank Trust Company Americas, Bank of America,
N.A., and CIBC Inc. (collectively, the "Lenders"). However, the commitment is
subject to the completion of certain remaining due diligence by the Lenders and
the Lenders have the right to revise the credit facility structure and/or
decline to perform under the commitment if certain conditions are not fulfilled
or if certain changes occur within the financial markets. The proceeds of this
financing will be used to repay the Company's existing $60 million Term Loan, to
complete the construction of the Texas hotel and fund any operating losses in
2003.
Management currently anticipates securing the long-term financing under the
existing commitment from the Lenders and expects to close the financing in the
second quarter of 2003. If the Company is unable to secure a portion of the
additional financing it is seeking, or if the timing of such financing is
significantly delayed, the Company will be required to curtail certain of its
development expenditures on current and future construction projects to ensure
adequate liquidity to fund the Company's operations.
RE-AUDIT AND RESTATEMENT OF FINANCIAL STATEMENTS
During 2002, the Company committed to plans of disposal for Acuff-Rose Music
Publishing and the Oklahoma City Redhawks resulting in the reclassification of
balances and operating results of those two businesses as discontinued
operations in the Company's historical financial statements. Based on the
requirements of applicable auditing standards, the Company engaged Ernst & Young
LLP ("Ernst & Young"), the Company's current auditors, to perform the required
re-audits of the Company's 2001 and 2000 consolidated financial statements since
the Company's prior auditors, Arthur Andersen LLP, had ceased operations.
As a part of the re-audit process, Ernst & Young raised certain issues for the
Company's consideration and after review of the relevant information, the
Company determined that certain changes were necessary to the Company's
historical consolidated financial statements. The revisions, which result
primarily from a change to the Company's income tax accrual and to accounting
for its investment in the Nashville Predators limited partnership ("Predators"),
as well as certain other less significant items, increased retained earnings at
January 1, 2000 by approximately $40.5 million, increased net loss for the year
ended December 31, 2000 by approximately $2.6 million, increased the net loss
for the year ended December 31, 2001 by approximately $53,000, and decreased
unaudited net income for the first six months of 2002 by approximately $13.0
million. Information related to the Company's unaudited quarterly financial
information for the years 2002 and 2001 is contained in Note 23 in the Company's
consolidated financial
21
statements. These restatements did not impact cash flows from operating,
investing or financing activities.
The first principal issue relates to income tax reserves maintained for certain
tax related items as a result of a corporate reorganization in 1999. Upon
further consideration of the facts and circumstances existing at the time of the
reorganization, the Company has determined that the income tax reserves should
not have been maintained. As a result of these changes, retained earnings at
January 1, 2000 has increased by approximately $47.0 million. In addition,
because $14.0 million of the income tax reserve was reversed during 2002 due to
the expiration of the applicable statute of limitations, as a result of the
restatement management was required to decrease previously reported unaudited
net income for the first six months of 2002 by approximately $14.0 million to
reflect the elimination of the income tax reserve.
The second principal issue relates to the Company's accounting for its
investment in the Predators. The Company purchased a limited partnership
interest in the Predators during 1997. The Company's limited partnership
interest includes an 8% preferred return and the right to put the investment
back to the Predators over three annual installments beginning in 2002, but does
not provide the Company with any right to receive any distributions in excess of
its stated return and does not require the Company to fund any capital or
operating shortfalls in the partnership. The Company had not previously recorded
its pro-rata share of losses of the Predators in its historical statement of
operations. However, after consultation with Ernst & Young concerning the
accounting for the Company's investment in the Predators, the Company determined
that it would be appropriate to recognize its pro-rata share of the Predators'
operating results, which have been primarily losses. The revisions associated
with the Company's investment in the Predators decreased retained earnings at
January 1, 2000 by approximately $4.0 million, increased net loss by
approximately $1.0 million and $2.0 million for the years ended December 31,
2000 and 2001, respectively, and decreased unaudited net income for the first
six months of 2002 by approximately $1.0 million. During 2002, the investment
in the Predators reached zero. The Company has not reduced the investment below
zero as the Company is under no obligation to fund additional amounts to the
Predators.
The Company also revised its historical financial statements for other, less
significant items by decreasing retained earnings by approximately $2.0 million
at January 1, 2000, by increasing the net loss for the year ended December 31,
2000 by approximately $2.0 million, by reducing the net loss for the year ended
December 31, 2001 by approximately $2.0 million, and by increasing unaudited net
income for the first six months of 2002 as previously reported by approximately
$3.0 million.
The restated consolidated financial statements include both the impact of
reclassifying discontinued operations as required by SFAS No. 144 (as discussed
in Note 6 to the consolidated financial statements) and the restatement changes
discussed above. Please refer to Note 3 to the consolidated financial statements
for schedules reconciling the restatement related changes and the
reclassification of discontinued operations with previously released financial
data for 2001 and 2000.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. Accounting estimates are an integral part of the preparation of
the consolidated financial statements and the financial reporting process and
are based upon current judgments. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported period. Certain
accounting estimates are particularly sensitive because of their complexity and
the possibility that future events affecting them may differ materially from the
Company's current judgments and estimates.
This listing of critical accounting policies is not intended to be a
comprehensive list of all of the Company's accounting policies. In many cases,
the accounting treatment of a particular transaction is specifically dictated by
22
generally accepted accounting principles, with no need for management's judgment
regarding accounting policy. The Company believes that of its significant
accounting policies, as discussed in Note 1 to the consolidated financial
statements, the following may involve a higher degree of judgment and
complexity.
REVENUE RECOGNITION
The Company recognizes revenue from its rooms as earned on the close of business
each day. Revenues from concessions and food and beverage sales are recognized
at the time of the sale. The Company recognizes revenues from the attractions
and media segment when services are provided or goods are shipped, as
applicable. Provision for returns and other adjustments are provided for in the
same period the revenues are recognized. The Company defers revenues related to
deposits on advance room bookings and advance ticket sales at the Company's
tourism properties until such amounts are earned.
IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL
In accounting for the Company's long-lived assets other than goodwill, the
Company applies the provisions of Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". The Company adopted the provisions of SFAS No. 144 during 2001 with an
effective date of January 1, 2001. The Company previously accounted for goodwill
using SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". In June 2001, SFAS No. 142, "Goodwill and
Other Intangible Assets" was issued. SFAS No. 142 is effective January 1, 2002.
Under SFAS No. 142, goodwill and other intangible assets with indefinite useful
lives will not be amortized but will be tested for impairment at least annually
and whenever events or circumstances occur indicating that these intangibles may
be impaired. The determination and measurement of an impairment loss under these
accounting standards require the significant use of judgment and estimates. The
determination of fair value of these assets and the timing of an impairment
charge are two critical components of recognizing an asset impairment charge
that are subject to the significant use of judgment and estimation. Future
events may indicate differences from these judgments and estimates.
RESTRUCTURING CHARGES
The Company has recognized restructuring charges in accordance with Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)" in its consolidated financial
statements. Restructuring charges are based upon certain estimates of
liabilities related to costs to exit an activity. Liability estimates may change
as a result of future events, including negotiation of reductions in contract
termination liabilities and expiration of outplacement agreements.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to reduce interest rate
risks and to manage risk exposure to changes in the value of certain owned
marketable securities. The Company records derivatives in accordance with SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
was subsequently amended by SFAS No. 138. SFAS No. 133, as amended, established
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires all derivatives to be recognized in the
statement of financial position and to be measured at fair value. Changes in the
fair value of those instruments will be reported in earnings or other
comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. The measurement of the derivative's fair value
requires the use of estimates and assumptions. Changes in these estimates or
assumptions could materially impact the determination of the fair value of the
derivatives.
ASSESSMENT OF STRATEGIC ALTERNATIVES
As part of the Company's ongoing assessment and streamlining of operations, the
Company identified certain duplication of duties during 2002 within divisions
and realized the need to streamline those tasks and duties. Related to this
assessment, the Company adopted a plan of restructuring during 2002 as discussed
in Results of Operations.
In 2001, the Company named a new chairman and a new chief executive officer, and
had numerous changes in senior
23
management, primarily because of certain 2000 events discussed below. During
2001, the new management team instituted a corporate reorganization,
re-evaluated the Company's businesses and other investments and employed certain
cost savings initiatives (the "2001 Strategic Assessment"). As a result of the
2001 Strategic Assessment, the Company recorded impairment and other charges and
restructuring charges as discussed in Results of Operations.
During 2000, the Company experienced a significant number of departures from its
senior management, including the Company's president and chief executive
officer. In addition, the Company continued to produce weaker than anticipated
operating results during 2000 while attempting to fund its capital requirements
related to its hotel construction project in Florida and hotel development
activities in Texas. As a result of these factors, during 2000, the Company
assessed its strategic alternatives related to its operations and capital
requirements and developed a strategic plan designed to refocus the Company's
operations, reduce its operating losses and reduce its negative cash flows (the
"2000 Strategic Assessment"). As a result of the 2000 Strategic Assessment, the
Company sold or ceased operations of several businesses and recorded impairment
and other charges and restructuring charges as discussed in Results of
Operations.
TERRORIST ATTACKS
As a result of the September 11, 2001 terrorist attacks and a slowdown in the
U.S. economy, the hospitality industry has experienced occupancy rates that were
significantly lower than those experienced in the first eight months of 2001 and
during 2000 due to decreased tourism and travel activity. Although the Company
experienced a slight increase of occupancy, average daily rate and revenue per
available room in the fourth quarter of 2002 over fourth quarter of 2001, there
is no guarantee that this increase will continue. The September 11 terrorist
attacks were dramatic in scope and in their impact on the hospitality industry
and it is currently not possible to accurately predict if and when travel
patterns will be restored to pre-September 11 levels.
DISCONTINUED OPERATIONS
In August 2001, the FASB issued SFAS No. 144, which superseded SFAS No. 121 and
the accounting and reporting provisions for the disposal of a segment of a
business of APB Opinion No. 30, "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions". SFAS No. 144 retains the
requirements of SFAS No. 121 for the recognition and measurement of an
impairment loss and broadens the presentation of discontinued operations to
include a component of an entity (rather than a segment of a business).
In accordance with the provisions of SFAS No. 144, the Company has presented the
operating results, financial position and cash flows of the following businesses
as discontinued operations in the accompanying financial statements as of
December 31, 2002 and 2001 and for each of the three years ended December 31,
2002: Word Entertainment ("Word"), the Company's contemporary Christian music
business; the Acuff-Rose Music Publishing catalog entity; GET Management, the
Company's artist management business which was sold during 2001; the Company's
ownership interest in the Redhawks, a minor league baseball team based in
Oklahoma City, Oklahoma; the Company's international cable networks; the
businesses sold to affiliates of The Oklahoma Publishing Company ("OPUBCO") in
2001 consisting of Pandora Films, Gaylord Films, Gaylord Sports Management,
Gaylord Event Television and Gaylord Production Company; and the Company's water
taxis sold in 2001.
DERIVATIVES
The Company utilizes derivative financial instruments to reduce interest rate
risks and to manage risk exposure to changes in the value of certain owned
marketable securities. Effective January 1, 2001, the Company records
derivatives in accordance with SFAS No. 133, as amended. SFAS No. 133, as
amended, established accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires all derivatives to be
recognized in the statement of financial position and to be measured at fair
value. Changes in the fair value of those instruments will be reported in
earnings or other comprehensive income depending on the use of the derivative
and whether it qualifies for treatment as cash flow hedges in accordance with
the provisions of SFAS No. 133. During
24
2000, the Company entered into a seven-year secured forward exchange contract
with respect to 10,937,900 shares of its Viacom, Inc. ("Viacom") stock
investment acquired, indirectly, as a result of the divestiture of television
station KTVT in Dallas-Fort Worth as discussed below. Under SFAS No. 133,
components of the secured forward exchange contract are considered derivatives.
The adoption of SFAS No. 133 has had a material impact on the Company's results
of operations and financial position.
During 2001, the Company entered into three contracts to cap its interest rate
risk exposure on its long-term debt. Two of the contracts cap the Company's
exposure to one-month LIBOR rates on up to $375.0 million of outstanding
indebtedness at 7.5%. Another interest rate cap, which caps the Company's
exposure on one-month Eurodollar rates on up to $100.0 million of outstanding
indebtedness at 6.625%, expired in October 2002. These interest rate caps
qualify for hedge accounting and changes in the values of these caps are
recorded as other comprehensive income and losses in the consolidated statements
of stockholders' equity.
GAYLORD PALMS
The Company's Gaylord Palms Resort and Convention Center ("Gaylord Palms") in
Kissimmee, Florida commenced operations in January 2002. The Company recorded
$4.5 million and $12.2 million of preopening expenses during 2002 and 2001,
respectively.
GAYLORD OPRYLAND TEXAS
The Company's hotel in Texas, which is currently under construction and is
expected to open in April of 2004, recorded $4.0 million and $3.1 million of
preopening expenses during 2002 and 2001, respectively. The Company expects
increases in preopening costs related to the Texas hotel until its completion.
DIVESTITURE OF KTVT
In October 1999, CBS Corporation ("CBS") acquired KTVT from the Company in
exchange for $485.0 million of CBS Series B convertible preferred stock, $4.2
million of cash and other consideration. The Company recorded a pretax gain of
$459.3 million, which is included in other gains and losses in the consolidated
statements of operations, based upon the disposal of the net assets of KTVT of
$29.9 million, including related selling costs. CBS merged with Viacom in May
2000, resulting in the conversion of CBS convertible preferred stock into Viacom
stock.
SUBSEQUENT EVENT
On March 25, 2003, the Company, through its wholly-owned subsidiary Gaylord
Investments, Inc., entered into an agreement to sell the assets primarily used
in the operations of WSM-FM and WWTN(FM) to Cumulus Broadcasting, Inc.
("Cumulus") and the Company entered into a joint sales agreement with Cumulus
for WSM-AM in exchange for approximately $65 million in cash. Consummation of
the sale of assets is subject to customary closing conditions, including
regulatory approvals, and is expected to take place in the third quarter of
2003. In connection with this agreement, the Company also entered into a local
marketing agreement with Cumulus pursuant to which, from the second business day
after the expiration or termination of the waiting period under the
Hart-Scott-Rodino Improvements Act of 1976 until the closing of the sale of the
stations, the Company will, for a fee, make available to Cumulus substantially
all of the broadcast time on WSM-FM and WWTN(FM). In turn, Cumulus will provide
programming to be broadcast during such broadcast time and will collect revenues
from the advertising that it sells for broadcast during this programming time.
The Company will continue to own and operate WSM-AM, and under the terms of the
joint sales agreement with Cumulus, Cumulus will sell all of the commercial
advertising on WSM-AM and provide certain sales promotion and billing and
collection services relating to WSM-AM, all for a specified fee. The joint sales
agreement has a term of five years.
25
RESULTS OF OPERATIONS
The following table contains selected results of operations data for each of the
three years ended December 31, 2002, 2001 and 2000. The table also shows the
percentage relationships to total revenues and, in the case of segment operating
income, its relationship to segment revenues.
(Restated) (Restated)
(in thousands) 2002 % 2001 % 2000 %
---------- ----- ---------- ----- --------- -----
REVENUES:
Hospitality $ 339,380 81.9 $ 228,712 75.2 $ 237,260 75.2
Attractions 63,512 15.3 65,878 21.6 63,235 20.1
Media 11,194 2.7 9,393 3.1 14,913 4.7
Corporate and other 272 0.1 290 0.1 64 -
---------- ----- ---------- ----- --------- -----
Total revenues 414,358 100.0 304,273 100.0 315,472 100.0
---------- ----- ---------- ----- --------- -----
OPERATING EXPENSES:
Operating costs 260,357 62.8 205,421 67.5 213,725 67.7
Selling, general and administrative 110,619 26.7 68,913 22.7 90,806 28.8
Preopening costs 8,913 2.2 15,927 5.2 5,278 1.7
Gain on sale of assets (30,529) (7.4) - - - -
Impairment and other charges - - 14,262 4.7 75,712 24.0
Restructuring charges 3 - 2,182 0.7 12,952 4.1
Depreciation and amortization:
Hospitality 44,924 25,593 24,447
Attractions 5,295 5,810 6,443
Media 623 660 7,716
Corporate and other 5,778 6,542 6,257
---------- ----- ---------- ----- --------- -----
Total depreciation and amortization 56,620 13.7 38,605 12.7 44,863 14.2
---------- ----- ---------- ----- --------- -----
Total operating expenses 405,983 98.0 345,310 113.5 443,336 140.5
---------- ----- ---------- ----- --------- -----
OPERATING INCOME (LOSS):
Hospitality 25,972 7.7 34,270 15.0 45,478 19.2
Attractions 3,094 4.9 (2,372) (3.6) (8,025) (12.7)
Media (193) (1.7) (454) (4.8) (33,188) -
Corporate and other (42,111) - (40,110) - (38,187) -
Preopening costs (8,913) - (15,927) - (5,278) -
Gain on sale of assets 30,529 - - - - -
Impairment and other charges - - (14,262) - (75,712) -
Restructuring charges (3) - (2,182) - (12,952) -
---------- ----- ---------- ----- --------- -----
Total operating income (loss) 8,375 2.0 (41,037) (13.5) (127,864) (40.5)
Interest expense, net of amounts capitalized (46,960) - (39,365) - (30,319) -
Interest income 2,808 - 5,554 - 4,046 -
Gain on Viacom stock and derivatives 49,176 - 55,064 - - -
Other gains and losses 1,163 - 2,661 - (3,514) -
(Provision) benefit for income taxes (1,806) - 8,313 - 51,140 -
Gain (loss) on discontinued operations, net 84,960 - (50,188) - (49,545) -
Cumulative effect of accounting change, net (2,572) - 11,202 - - -
---------- ----- ---------- ----- --------- -----
Net income (loss) $ 95,144 - $ (47,796) - $(156,056) -
========== ===== ========== ===== ========= =====
26
The Company considers Revenue per Available Room (RevPAR) to be a meaningful
indicator of our hospitality segment performance because it measures the period
over period change in room revenues. The Company calculates RevPAR by dividing
room sales for comparable properties by room nights available to guests for the
period. RevPAR is not comparable to similarly titled measures such as revenues.
Occupancy, average daily rate and RevPAR for the Gaylord Opryland Resort and
Convention Center ("Gaylord Opryland") and the Gaylord Palms Resort and
Convention Center ("Gaylord Palms"), subsequent to its January 2002 opening, are
shown in the following table.
2002 2001 2000
----------- --------- ---------
Gaylord Opryland Resort
Occupancy 68.59% 70.30% 75.85%
Average Daily Rate $ 142.58 $ 140.33 $ 140.03
RevPAR $ 97.80 $ 98.65 $ 106.22
Gaylord Palms
Occupancy 64.85% - -
Average Daily Rate $ 168.65 - -
RevPAR $ 109.37 - -