FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
| (Mark One) | ||
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended June 30, 2003 | ||
| or | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission file number 1-13079
| GAYLORD ENTERTAINMENT COMPANY |
| (Exact name of registrant as specified in its charter) |
| Delaware | 73-0664379 | |
|
|
||
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
One Gaylord Drive
Nashville, Tennessee 37214
(Address of principal executive offices)
(Zip Code)
| (615) 316-6000 |
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding as of July 31, 2003 | |
| Common Stock, $.01 par value | 33,849,087 shares |
GAYLORD ENTERTAINMENT COMPANY
FORM 10-Q
For the Quarter Ended June 30, 2003
INDEX
| Page No. | ||||||
| Part I — Financial Information | ||||||
| Item 1. | Financial Statements | |||||
| Condensed Consolidated Statements of Operations - For the Three Months Ended June 30, 2003 and 2002 | 3 | |||||
| Condensed Consolidated Statements of Operations - For the Six Months Ended June 30, 2003 and 2002 | 4 | |||||
| Condensed Consolidated Balance Sheets - June 30, 2003 and December 31, 2002 | 5 | |||||
| Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2003 and 2002 | 6 | |||||
| Notes to Condensed Consolidated Financial Statements | 7 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36 | ||||
| Item 4. | Controls and Procedures | 37 | ||||
| Part II — Other Information | ||||||
| Item 1. | Legal Proceedings | 38 | ||||
| Item 2. | Changes in Securities and Use of Proceeds | 38 | ||||
| Item 3. | Defaults Upon Senior Securities | 38 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 38 | ||||
| Item 5. | Other Information | 39 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 39 | ||||
| Signatures | 40 | |||||
2
Part I — Financial Information
Item 1. — Financial Statements
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2003 and 2002
(Unaudited)
(In thousands, except per share data)
| 2003 | 2002 | ||||||||||
Revenues |
$ | 105,470 | $ | 95,937 | |||||||
Operating expenses: |
|||||||||||
Operating costs |
62,710 | 61,326 | |||||||||
Selling, general and administrative |
27,747 | 22,967 | |||||||||
Preopening costs |
2,248 | 650 | |||||||||
Gain on sale of assets |
— | (10,567 | ) | ||||||||
Restructuring charges, net |
— | 50 | |||||||||
Depreciation |
13,084 | 11,960 | |||||||||
Amortization |
1,220 | 802 | |||||||||
Operating income (loss) |
(1,539 | ) | 8,749 | ||||||||
Interest expense, net of amounts capitalized |
(11,291 | ) | (12,749 | ) | |||||||
Interest income |
512 | 550 | |||||||||
Unrealized gain (loss) on Viacom stock |
78,562 | (44,012 | ) | ||||||||
Unrealized gain (loss) on derivatives |
(48,426 | ) | 49,835 | ||||||||
Other gains and losses |
60 | 496 | |||||||||
Income before income taxes and discontinued operations |
17,878 | 2,869 | |||||||||
Provision (benefit) for income taxes |
7,334 | (1,584 | ) | ||||||||
Income from continuing operations |
10,544 | 4,453 | |||||||||
Income from discontinued operations, net of taxes |
809 | 1,425 | |||||||||
Net income |
$ | 11,353 | $ | 5,878 | |||||||
Income per share: |
|||||||||||
Income from continuing operations |
$ | 0.31 | $ | 0.13 | |||||||
Income from discontinued operations, net of taxes |
0.03 | 0.04 | |||||||||
Net income |
$ | 0.34 | $ | 0.17 | |||||||
Income per share — assuming dilution: |
|||||||||||
Income from continuing operations |
$ | 0.31 | $ | 0.13 | |||||||
Income from discontinued operations, net of taxes |
0.02 | 0.04 | |||||||||
Net income |
$ | 0.33 | $ | 0.17 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2003 and 2002
(Unaudited)
(In thousands, except per share data)
| 2003 | 2002 | ||||||||||
Revenues |
$ | 219,850 | $ | 195,594 | |||||||
Operating expenses: |
|||||||||||
Operating costs |
128,406 | 129,508 | |||||||||
Selling, general and administrative |
55,320 | 49,454 | |||||||||
Preopening costs |
3,828 | 6,079 | |||||||||
Gain on sale of assets |
— | (10,567 | ) | ||||||||
Restructuring charges, net |
— | 50 | |||||||||
Depreciation |
26,426 | 26,253 | |||||||||
Amortization |
2,451 | 1,739 | |||||||||
Operating income (loss) |
3,419 | (6,922 | ) | ||||||||
Interest expense, net of amounts capitalized |
(20,663 | ) | (24,350 | ) | |||||||
Interest income |
1,031 | 1,077 | |||||||||
Unrealized gain on Viacom stock |
31,909 | 2,421 | |||||||||
Unrealized gain (loss) on derivatives |
(8,960 | ) | 20,138 | ||||||||
Other gains and losses |
283 | (122 | ) | ||||||||
Income (loss) before income taxes and discontinued operations |
7,019 | (7,758 | ) | ||||||||
Provision (benefit) for income taxes |
3,098 | (5,678 | ) | ||||||||
Income (loss) from continuing operations |
3,921 | (2,080 | ) | ||||||||
Income from discontinued operations, net of taxes |
976 | 2,383 | |||||||||
Cumulative effect of accounting change, net of taxes |
— | (2,572 | ) | ||||||||
Net income (loss) |
$ | 4,897 | $ | (2,269 | ) | ||||||
Income (loss) per share: |
|||||||||||
Income (loss) from continuing operations |
$ | 0.11 | $ | (0.06 | ) | ||||||
Income from discontinued operations, net of taxes |
0.03 | 0.07 | |||||||||
Cumulative effect of accounting change, net of taxes |
— | (0.08 | ) | ||||||||
Net income (loss) |
$ | 0.14 | $ | (0.07 | ) | ||||||
Income (loss) per share — assuming dilution: |
|||||||||||
Income (loss) from continuing operations |
$ | 0.11 | $ | (0.06 | ) | ||||||
Income from discontinued operations, net of taxes |
0.03 | 0.07 | |||||||||
Cumulative effect of accounting change, net of taxes |
— | (0.08 | ) | ||||||||
Net income (loss) |
$ | 0.14 | $ | (0.07 | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2003 and December 31, 2002
(Unaudited)
(In thousands, except per share data)
| June 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents — unrestricted |
$ | 49,919 | $ | 98,632 | ||||||||
Cash and cash equivalents — restricted |
122,956 | 19,323 | ||||||||||
Trade receivables, less allowance of $695 and $467, respectively |
24,750 | 22,374 | ||||||||||
Deferred financing costs |
29,475 | 26,865 | ||||||||||
Deferred income taxes |
20,553 | 20,553 | ||||||||||
Other current assets |
26,883 | 25,889 | ||||||||||
Current assets of discontinued operations |
5,289 | 4,095 | ||||||||||
Total current assets |
279,825 | 217,731 | ||||||||||
Property and equipment, net of accumulated depreciation |
1,190,286 | 1,110,163 | ||||||||||
Goodwill |
6,915 | 6,915 | ||||||||||
Amortized intangible assets, net of accumulated amortization |
1,980 | 1,996 | ||||||||||
Investments |
540,988 | 509,080 | ||||||||||
Estimated fair value of derivative assets |
188,204 | 207,727 | ||||||||||
Long-term deferred financing costs |
87,127 | 100,933 | ||||||||||
Other long-term assets |
24,506 | 24,323 | ||||||||||
Long-term assets of discontinued operations |
12,686 | 13,328 | ||||||||||
Total assets |
$ | 2,332,517 | $ | 2,192,196 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Current portion of long-term debt |
$ | 74,544 | $ | 8,526 | ||||||||
Accounts payable and accrued liabilities |
89,453 | 80,685 | ||||||||||
Current liabilities of discontinued operations |
6,274 | 6,652 | ||||||||||
Total current liabilities |
170,271 | 95,863 | ||||||||||
Secured forward exchange contract |
613,054 | 613,054 | ||||||||||
Long-term debt, net of current portion |
396,188 | 332,112 | ||||||||||
Deferred income taxes, net |
246,957 | 244,372 | ||||||||||
Estimated fair value of derivative liabilities |
38,084 | 48,647 | ||||||||||
Other long-term liabilities |
70,716 | 67,895 | ||||||||||
Long-term liabilities of discontinued operations |
792 | 789 | ||||||||||
Minority interest of discontinued operations |
1,899 | 1,885 | ||||||||||
Stockholders’ equity: |
||||||||||||
Preferred stock, $.01 par value, 100,000 shares authorized, no shares
issued or outstanding |
— | — | ||||||||||
Common stock, $.01 par value, 150,000 shares authorized,
33,845 and 33,782 shares issued and outstanding, respectively |
339 | 338 | ||||||||||
Additional paid-in capital |
522,614 | 520,796 | ||||||||||
Retained earnings |
287,695 | 282,798 | ||||||||||
Other stockholders’ equity |
(16,092 | ) | (16,353 | ) | ||||||||
Total stockholders’ equity |
794,556 | 787,579 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 2,332,517 | $ | 2,192,196 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2003 and 2002
(Unaudited)
(In thousands)
| 2003 | 2002 | ||||||||||
Cash Flows from Operating Activities: |
|||||||||||
Net income (loss) |
$ | 4,897 | $ | (2,269 | ) | ||||||
Amounts to reconcile net income (loss) to net cash flows
provided by operating activities: |
|||||||||||
Gain on discontinued operations, net of taxes |
(976 | ) | (2,383 | ) | |||||||
Cumulative effect of accounting change, net of taxes |
— | 2,572 | |||||||||
Unrealized gain on Viacom stock and related derivatives |
(22,949 | ) | (22,559 | ) | |||||||
Gain on sale of assets |
— | (10,567 | ) | ||||||||
Depreciation and amortization |
28,877 | 27,992 | |||||||||
Provision for deferred income taxes |
3,098 | 58,920 | |||||||||
Amortization of deferred financing costs |
19,182 | 17,940 | |||||||||
Changes in (net of acquisitions and divestitures): |
|||||||||||
Trade receivables |
(2,376 | ) | (21,554 | ) | |||||||
Accounts payable and accrued liabilities |
(6,470 | ) | (9,328 | ) | |||||||
Other assets and liabilities |
1,673 | 11,281 | |||||||||
Net cash flows provided by operating activities — continuing operations |
24,956 | 50,045 | |||||||||
Net cash flows provided by (used in) operating activities — discontinued operations |
(510 | ) | 1,503 | ||||||||
Net cash flows provided by operating activities |
24,446 | 51,548 | |||||||||
Cash Flows from Investing Activities: |
|||||||||||
Purchases of property and equipment |
(91,242 | ) | (84,871 | ) | |||||||
Sale of assets |
— | 30,850 | |||||||||
Other investing activities |
(2,749 | ) | 1,733 | ||||||||
Net cash flows used in investing activities — continuing operations |
(93,991 | ) | (52,288 | ) | |||||||
Net cash flows provided by investing activities — discontinued operations |
606 | 80,720 | |||||||||
Net cash flows provided by (used in) investing activities |
(93,385 | ) | 28,432 | ||||||||
Cash Flows from Financing Activities: |
|||||||||||
Repayment of long-term debt |
(70,002 | ) | (150,773 | ) | |||||||
Proceeds from issuance of long-term debt |
200,000 | 85,000 | |||||||||
Deferred financing costs paid |
(7,808 | ) | — | ||||||||
(Increase) decrease in restricted cash and cash equivalents |
(103,633 | ) | 47,910 | ||||||||
Proceeds from exercise of stock option and purchase plans |
1,900 | 758 | |||||||||
Other financing activities, net |
(137 | ) | 1,776 | ||||||||
Net cash flows provided by (used in) financing activities — continuing operations |
20,320 | (15,329 | ) | ||||||||
Net cash flows used in financing activities — discontinued operations |
(94 | ) | (637 | ) | |||||||
Net cash flows provided by (used in) financing activities |
20,226 | (15,966 | ) | ||||||||
Net change in cash and cash equivalents |
(48,713 | ) | 64,014 | ||||||||
Cash and cash equivalents — unrestricted, beginning of period |
98,632 | 9,194 | |||||||||
Cash and cash equivalents — unrestricted, end of period |
$ | 49,919 | $ | 73,208 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements include the accounts of Gaylord Entertainment Company and subsidiaries (the “Company”) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the financial information presented not misleading. It is recommended that these condensed consolidated financial statements be read in conjunction with the audited consolidated finan