GAYLORD ENTERTAINMENT CO /DE - 10-Q Quarterly Report

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 March 31, 2004


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		(I.R.S. Employer
incorporation or organization)		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 April 30, 2004

Common Stock, $.01 par value		39,548,748 shares

Part I — Financial Information

Item 1. — Financial Statements

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2004 and 2003

(Unaudited)
(In thousands, except per share data)


			2004			2003

Revenues			$	158,883		$	114,380
Operating expenses:
	Operating costs			96,229			65,696
	Selling, general and administrative			45,439			27,573
	Preopening costs			10,806			1,580
	Depreciation			15,525			13,342
	Amortization			1,170			1,231

		Operating income (loss)		(10,286	)		4,958
Interest expense, net of amounts capitalized				(9,829	)		(9,372	)
Interest income				386			519
Unrealized loss on Viacom stock				(56,886	)		(46,652	)
Unrealized gain on derivatives				45,054			39,466
Other gains and (losses), net				920			222

		Loss before benefit for income taxes and discontinued operations		(30,641	)		(10,859	)
Benefit for income taxes				(11,248	)		(4,236	)

		Loss from continuing operations		(19,393	)		(6,623	)
Income from discontinued operations, net of taxes				—			167

		Net loss	$	(19,393	)	$	(6,456	)

Income (loss) per share:
		Loss from continuing operations	$	(0.49	)	$	(0.20	)
		Income from discontinued operations, net of taxes		—			0.01

		Net loss	$	(0.49	)	$	(0.19	)

Income (loss) per share — assuming dilution:
		Loss from continuing operations	$	(0.49	)	$	(0.20	)
		Income from discontinued operations, net of taxes		—			0.01

		Net loss	$	(0.49	)	$	(0.19	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2004 and December 31, 2003

(Unaudited)
(In thousands, except per share data)


			March 31,			December 31,
			2004			2003

ASSETS
Current assets:
	Cash and cash equivalents — unrestricted		$	80,840		$	120,965
	Cash and cash equivalents — restricted			36,554			37,723
	Trade receivables, less allowance of $1,953 and $1,805, respectively			32,016			26,101
	Deferred financing costs			26,865			26,865
	Deferred income taxes			9,635			8,753
	Other current assets			26,178			20,121
	Current assets of discontinued operations			72			19

		Total current assets		212,160			240,547

Property and equipment, net of accumulated depreciation				1,328,936			1,297,528
Intangible assets, net of accumulated amortization				28,492			29,505
Goodwill				169,411			169,642
Indefinite lived intangible assets				40,591			40,591
Investments				492,025			548,911
Estimated fair value of derivative assets				179,829			146,278
Long-term deferred financing costs				67,746			75,154
Other long term assets				28,744			29,107

		Total assets	$	2,547,934		$	2,577,263

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt and capital lease obligations		$	8,693		$	8,584
	Accounts payable and accrued liabilities			165,884			154,952
	Current liabilities of discontinued operations			2,964			2,930

		Total current liabilities		177,541			166,466

Secured forward exchange contract				613,054			613,054
Long-term debt and capital lease obligations, net of current portion				542,754			540,175
Deferred income taxes				238,764			251,039
Estimated fair value of derivative liabilities				6,056			21,969
Other long term liabilities				80,266			79,226
Long-term liabilities of discontinued operations				828			825
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, 39,508 and 39,403 shares issued and outstanding, respectively			395			394
	Additional paid-in capital			642,938			639,839
	Retained earnings			264,231			283,624
	Unearned compensation			(2,353	)		(2,704	)
	Accumulated other comprehensive loss			(16,540	)		(16,644	)

		Total stockholders’ equity		888,671			904,509

		Total liabilities and stockholders’ equity	$	2,547,934		$	2,577,263

The accompanying notes are an integral part of these condensed consolidated financial statements.

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2003

(Unaudited)
(In thousands)


				2004			2003

Cash Flows from Operating Activities:
	Net loss			$	(19,393	)	$	(6,456	)
	Amounts to reconcile net loss to net cash flows provided by (used in) operating activities:
		Gain on discontinued operations, net of taxes			—			(167	)
		Unrealized loss on Viacom stock and related derivatives			11,832			7,186
		Depreciation and amortization			16,695			14,573
		Benefit for deferred income taxes			(12,022	)		(4,236	)
		Amortization of deferred financing costs			7,793			8,886
		Changes in (net of acquisitions and divestitures):
			Trade receivables		(5,915	)		(11,129	)
			Accounts payable and accrued liabilities		11,791			(8,892	)
			Other assets and liabilities		(3,805	)		361

		Net cash flows provided by operating activities — continuing operations			6,976			126
		Net cash flows used in operating activities — discontinued operations			(16	)		(578	)

		Net cash flows provided by (used in) operating activities			6,960			(452	)

Cash Flows from Investing Activities:
	Purchases of property and equipment				(47,454	)		(49,265	)
	Other investing activities				(386	)		(3,214	)

		Net cash flows used in investing activities — continuing operations			(47,840	)		(52,479	)
		Net cash flows provided by investing activities — discontinued operations			—			696

		Net cash flows used in investing activities			(47,840	)		(51,783	)

Cash Flows from Financing Activities:
	Repayment of long-term debt				(2,001	)		(2,001	)
	Decrease (increase) in restricted cash and cash equivalents				1,169			(14,298	)
	Proceeds from exercise of stock option and purchase plans				1,978			52
	Other financing activities, net				(391	)		140

		Net cash flows provided by (used in) financing activities — continuing operations			755			(16,107	)
		Net cash flows used in financing activities — discontinued operations			—			(94	)

		Net cash flows provided by (used in) financing activities			755			(16,201	)

Net change in cash and cash equivalents					(40,125	)		(68,436	)
Cash and cash equivalents — unrestricted, beginning of period					120,965			98,632

Cash and cash equivalents — unrestricted, end of period				$	80,840		$	30,196

The accompanying notes are an integral part of these condensed consolidated financial statements.

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 generally accepted accounting principles 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. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2003, filed with the Securities and Exchange Commission. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim period have been included. All adjustments are of a normal, recurring nature. The results of operations for such interim period are not necessarily indicative of the results for the full year.

2. INCOME PER SHARE:

The weighted average number of common shares outstanding is calculated as follows:


	Three Months Ended March 31,

	2004		2003

	(in thousands)
Weighted average shares outstanding		39,458		33,784
Effect of dilutive stock options		—		—

Weighted average shares outstanding - assuming dilution		39,458		33,784

For the three months ended March 31, 2004 and 2003, the effect of dilutive stock options was the equivalent of approximately 442,000 and 345 shares of common stock outstanding, respectively. Because the Company had a loss from continuing operations in the three months ended March 31, 2004 and 2003, these incremental shares were excluded from the computation of diluted earnings per share for those periods as the effect of their inclusion would have been anti-dilutive.

3. COMPREHENSIVE LOSS:

Comprehensive loss is as follows for the three months ended March 31, 2004 and 2003:


		Three Months Ended
		March 31,

		2004			2003

		(in thousands)
Net loss		$	(19,393	)	$	(6,456	)
Unrealized gain on interest rate hedges			—			75
Foreign currency translation			104			—

	Comprehensive loss	$	(19,289	)	$	(6,381	)

4. DISCONTINUED OPERATIONS:

The Company has reflected the following businesses as discontinued operations, consistent with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144 and Accounting Principles Board (“APB”) No. 30. The results of operations, net of taxes, (prior to their disposal, where applicable) and the carrying value of the assets and liabilities of these businesses have been reflected in the accompanying consolidated financial statements as discontinued operations in accordance with SFAS No. 144 for all periods presented. These required revisions to the prior year financial statements did not impact cash flows from operating, investing or financing activities.

WSM-FM and WWTN(FM)

During the first quarter of 2003, the Company committed to a plan of disposal of WSM-FM and WWTN(FM). Subsequent to committing to a plan of disposal during the first quarter of 2003, the Company, through a wholly-owned subsidiary, entered into an agreement to sell the assets primarily used in the operations of WSM-FM and WWTN(FM) to Cumulus Broadcasting, Inc. (“Cumulus”) in exchange for approximately $62.5 million in cash. In connection with this agreement, the Company also entered into a local marketing agreement with Cumulus pursuant to which, from April 21, 2003 until the closing of the sale of the assets, the Company, for a fee, made available to Cumulus substantially all of the broadcast time on WSM-FM and WWTN(FM). In turn, Cumulus provided programming to be broadcast during such broadcast time and collected revenues from the advertising that it sold for broadcast during this programming time. On July 22, 2003, the Company finalized the sale of WSM-FM and WWTN(FM) for approximately $62.5 million. Concurrently, the Company also entered into a joint sales agreement with Cumulus for WSM-AM in exchange for $2.5 million in cash. The Company will continue to own and operate WSM-AM, and under the terms of the joint sales agreement with Cumulus, Cumulus will be responsible for all sales of commercial advertising on WSM-AM and provide certain sales promotion, billing and collection services relating to WSM-AM, all for a specified commission. The joint sales agreement has a term of five years.

The following table reflects the results of operations of businesses accounted for as discontinued operations for the three-months ended March 31:


				Three Months Ended
				March 31,

				2004		2003

				(in thousands)
Revenues:
	Radio operations			$	—	$	2,731
	Redhawks				—		81

			Total revenues	$	—	$	2,812

Operating income (loss):
	Radio operations			$	—	$	425
	Redhawks				—		(647	)

			Total operating loss		—		(222	)

Interest expense					—		—
Interest income					—		2
Other gains and (losses):
	Radio operations				—		—
	Redhawks				—		155

		Total other gains and (losses)			—		155

Loss before benefit for income taxes					—		(65	)
Benefit for income taxes					—		(232	)

Income from discontinued operations				$	—	$	167

There were no gains or losses from the sale of discontinued businesses during the three months ended March 31, 2004 and 2003. Other gains and losses in 2003 are primarily comprised of miscellaneous income and expenses.


Part I — Financial Information
	Item 1. — Financial Statements
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 2004 and 2003
		CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2004 and December 31, 2003
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2004 and 2003
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER REPURCHASES OF EQUITY SECURITIES
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Ex-10.1 Loan Extension and Guarantee Ratification
EX-31.1 RULEa-14(a) CERTIFICATION OF THE CEO
EX-31.2 RULEa-14(a) CERTIFICATION OF THE CFO
EX-32.1 SECTION 1350 CERTIFICATION OF THE CEO/CFO


	Page No.
Part I — Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - For the Three Months Ended March 31, 2004 and 2003		3
Condensed Consolidated Balance Sheets - March 31, 2004 and December 31, 2003		4
Condensed Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2004 and 2003		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3. Quantitative and Qualitative Disclosures About Market Risk		50
Item 4. Controls and Procedures		51
Part II — Other Information
Item 1. Legal Proceedings		52
Item 2. Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities		53
Item 3. Defaults Upon Senior Securities		53
Item 4. Submission of Matters to a Vote of Security Holders		53
Item 5. Other Information		53
Item 6. Exhibits and Reports on Form 8-K		53

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