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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NO. 1-13079
GAYLORD ENTERTAINMENT COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE 73-0664379
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
ONE GAYLORD DRIVE, NASHVILLE, TENNESSEE 37214
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (615) 316-6000
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK -- $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of exchange on which registered)
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Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 18, 1999, 32,809,448 shares of Common Stock were outstanding.
The aggregate market value of the shares of Common Stock held by non-affiliates
of the registrant based on the closing price of the Common Stock on the New York
Stock Exchange on March 18, 1999 was approximately $464,664,000. 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 Annual Report to Stockholders for the year
ended December 31, 1998 are incorporated by reference into Part II of this Form
10-K. Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 13, 1999 are incorporated by reference into Part III
of this Form 10-K.
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GAYLORD ENTERTAINMENT COMPANY
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 12
Item 3 Legal Proceedings........................................... 13
Item 4 Submission of Matters to a Vote of Security Holders......... 14
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6 Selected Financial Data..................................... 15
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Item 7A Quantitative and Qualitative Disclosures About Market
Risk...................................................... 15
Item 8 Financial Statements and Supplementary Data................. 15
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 15
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 15
Item 11 Executive Compensation...................................... 15
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................ 16
Item 13 Certain Relationships and Related Transactions.............. 16
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 16
SIGNATURES........................................................... 17
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PART I
ITEM 1. BUSINESS
INTRODUCTION AND HISTORY
Gaylord Entertainment Company (the "Company") is a diversified
entertainment company operating principally in three industry segments: (i)
hospitality and attractions; (ii) broadcasting and music; and (iii) cable
networks.
The Company traces its origins to a newspaper publishing business founded
in 1903 in the Oklahoma Territory by a group including the Gaylord and Dickinson
families. In 1928, the Company entered the radio broadcasting business and, in
1949, expanded its broadcasting interests to include television stations. The
Company currently owns a television station that is affiliated with the CBS
television network and three radio stations. See "-- Broadcasting and Music."
In 1983, the Company acquired Opryland USA, an interrelated group of
businesses tracing their origins to the Grand Ole Opry music radio show created
in 1925, which has become the cornerstone of the company's hospitality and
attractions businesses. Opryland USA has developed an entertainment and
convention/resort complex in Nashville, Tennessee, that is anchored by the Opry
House (the current home of the Grand Ole Opry), the Opryland Hotel, which is one
of the nation's largest convention/resort hotels, and, until the end of 1997,
the Opryland theme park. Beginning in 2000, the former Opryland theme park site
will be home to Opry Mills, a $200 million entertainment/retail complex to be
built in partnership with The Mills Corporation. See "-- Hospitality and
Attractions."
Also in 1983, Opryland USA entered the cable networks business by launching
The Nashville Network ("TNN"), a cable network with a national audience
featuring country lifestyles, entertainment, and sports, and, in 1991, the
Company acquired a 67% interest in Country Music Television ("CMT"), a cable
network with a 24-hour country music video format. The Company subsequently
expanded CMT outside the U.S., and the first of the CMT International cable
networks was launched in Europe in 1992. CMT International, which programs
primarily country music videos, was later expanded into Asia and the Pacific
Rim, as well as Latin America. In 1994, the Company entered into an agreement to
manage the operations of Z Music, a cable network currently featuring
contemporary Christian music videos. During 1998, the Company obtained a
controlling interest in Z Music. In January 1997, the Company acquired the
assets of Word Entertainment ("Word"), one of the largest contemporary Christian
music companies in the world. See "-- Cable Networks" and "-- Broadcasting and
Music."
Prior to September 30, 1997, the Company was a wholly owned subsidiary of a
corporation which was then known as Gaylord Entertainment Company ("Old
Gaylord"). On October 1, 1997, Old Gaylord consummated a transaction with CBS
Corporation ("CBS") and G Acquisition Corp., a wholly owned subsidiary of CBS
("Sub"), pursuant to which Sub was merged (the "CBS Merger") with and into Old
Gaylord, with Old Gaylord continuing as the surviving corporation and a wholly
owned subsidiary of CBS. Prior to the CBS Merger, Old Gaylord was restructured
(the "Restructuring") by transferring its assets and liabilities, other than
TNN, the U.S. and Canadian operations of CMT, and certain other related assets
and liabilities (collectively, the "Cable Networks Business"), to the Company
and its subsidiaries. Following the Restructuring, on September 30, 1997, Old
Gaylord distributed (the "Distribution") pro rata to its stockholders all of the
outstanding capital stock of the Company. In connection with these transactions,
the Company and Old Gaylord entered into various agreements relating to the
future relationship between the Company and Old Gaylord (as a subsidiary of CBS)
after the CBS Merger (the "CBS Transitional Agreements"), the net cost of which,
if any, is expected to be immaterial to the Company. Immediately following the
CBS Merger, the Company changed its name to Gaylord Entertainment Company.
Unless the context otherwise requires, references in this Annual Report on
Form 10-K to the "Company" for periods prior to the Distribution are to Old
Gaylord.
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HOSPITALITY AND ATTRACTIONS
The Company's hospitality and attractions operations consist primarily of
an interrelated group of businesses including the Grand Ole Opry, the Opryland
Hotel, the Wildhorse Saloon, the Ryman Auditorium, the General Jackson (an
entertainment showboat), and other related businesses. See Note 14 to the
Company's Consolidated Financial Statements for the amounts of revenues,
operating income, and identifiable assets attributable to the Company's
hospitality and attractions operations.
Convention/Resort Hotel Operations
The Opryland Hotel. The Opryland Hotel, situated on approximately 120
acres in the Opryland complex, is one of the largest hotels in the United States
in terms of number of guest rooms, and it has more meeting and exhibit space per
room than any other convention hotel in the world. The Opryland Hotel attracts
convention business, which accounted for approximately 80% of the hotel's
revenues in each of 1998, 1997, and 1996, from major trade associations and
corporations. It also serves as a destination resort for vacationers seeking
accommodations in close proximity to the Grand Ole Opry and the Springhouse Golf
Club, the Company's 18-hole championship golf course, as well as to other
attractions in the Nashville area. The Company believes that the ambiance
created at the Opryland Hotel by combining a state of the art convention
facility, live musical entertainment, and old-fashioned Southern hospitality and
charm are factors that differentiate it from other convention/resort hotels.
The following table sets forth information concerning the Opryland Hotel
for each of the five years in the period ended December 31, 1998.
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YEARS ENDED DECEMBER 31,
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1998 1997 1996 1995 1994
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Average number of guest rooms........... 2,884 2,866 2,613 1,907 1,878
Occupancy rate.......................... 79.1% 85.4% 84.7% 87.5% 87.9%
Average room rate....................... $ 141.28 $ 135.03 $ 131.21 $ 132.99 $ 130.15
Food and beverage revenues (in
thousands)............................ $ 72,659 $ 76,408 $ 59,904 $ 50,418 $ 48,694
Total revenues (in thousands)........... $223,781 $231,354 $196,226 $153,062 $147,049
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To serve conventions, the Opryland Hotel has 2,884 guest rooms, four
ballrooms with approximately 123,900 square feet, 85 banquet/meeting rooms, and
total dedicated exhibition space of approximately 289,000 square feet. In
addition to extensive convention facilities, the Opryland Hotel features the
Delta, a 4.5 acre atrium containing a New Orleans street scene with shops; a 1.5
acre garden conservatory; a 1.5 acre water-oriented interior space called the
Cascades; fifteen food and beverage outlets including a food court featuring a
variety of cuisines; three swimming pools; and twenty-nine retail outlets. In
the Delta, hotel guests and visitors can take boat rides on the Delta's indoor
river. Live entertainment is featured in the Cascades and in the hotel's
restaurants and lounges, and special productions for conventions are often
staged in the hotel or on the General Jackson showboat. The Springhouse Golf
Club attracts conventions requiring the availability of golf and makes the hotel
more attractive to vacationers. The Springhouse Golf Club also hosts an annual
PGA Tour event, the BellSouth Senior Classic at Opryland, which is televised on
NBC.
The Opryland Hotel directs its convention marketing efforts primarily to
major trade, industry, and professional associations and corporations. The
Company believes that the primary factors in successfully marketing the Opryland
Hotel to meeting planners have been the reputation of the Opryland Hotel's
services and facilities; the Opryland Hotel's ability to offer comprehensive
convention services at a single facility; the quality and variety of
entertainment and activities available at the hotel and in the Opryland complex
generally; and the central location of Nashville within the United States. The
Opryland Hotel typically enters into contracts for conventions several years in
advance. To date, Opryland Hotel has experienced a minimal number of
cancellations. Conventions under contract that cancel are required to pay
certain penalties and face the possible loss of future convention space at the
hotel. As of February 28, 1999, convention bookings for the balance of 1999 and
for 2000 were approximately 597,706 and 600,973 guest room nights, respectively,
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representing approximately 67.7% and 57.1%, respectively, of available guest
room nights for such periods, and the hotel had advance convention bookings
extending into the year 2020.
The Company also markets the Opryland Hotel as a destination resort through
national and local advertising and a variety of promotional activities. As part
of its marketing activities, the Company advertises promotional "packages" on
TNN and CMT and through other media, including KTVT in Dallas. Pursuant to the
CBS Transitional Agreements, the Company continues to have access to promotional
spots on TNN and CMT, consistent with past practices, allowing the Company to
promote the Opryland Hotel and other properties on these cable networks for a
period of five years. Such promotions include "Springtime Getaway," the
International Country Music Fan Fair Celebration in June of each year, "Opryland
Summer Vacation" and "A Country Christmas," which begins each year in November
and runs through Christmas Day. The Country Christmas program has contributed to
the hotel's high occupancy rate during the months of November and December,
traditionally a slow period for the hotel industry.
The Inn at Opryland. During 1998 the Company purchased a 307-room hotel
facility with approximately 6,500 square feet of meeting space and a 175-seat
restaurant adjacent to the Opryland complex for approximately $16 million and
renamed the facility the Inn at Opryland.
The General Jackson. The General Jackson, a 300-foot, four-deck paddle
wheel showboat, operates 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. It is one of many sources of entertainment that
the Company makes available to conventions held at the Opryland Hotel and
contributes to the Company's revenues from convention participants. During the
day it serves primarily tourists visiting the Opryland complex and the Nashville
area.
Opryland Lodging Group. In February 1998, the Company announced the
formation of a new hotel management company (the "Opryland Lodging Group") to
expand the Opryland Hotel concept to other areas of the country. Opryland
Lodging Group's business strategy is to develop properties in selected locations
across the U.S. to serve meetings and conventions in the same manner as the
Opryland Hotel, as well as to explore opportunities to acquire and manage
existing properties, provide consulting services and pursue joint ventures with
other businesses.
Plans for the properties to be developed include the following components
which the Company believes are the foundation of its success with the Opryland
Hotel in Nashville: (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 venues creating a guest experience not typically found in convention hotels.
Opryland Lodging Group has researched various markets in the United States
and has determined that those markets in the southern half of the country are
most desirable to convention planners due to more favorable year-round weather
conditions. Two markets, Osceola County, Florida, near Orlando, and Grapevine,
Texas, near Dallas-Fort Worth, have been chosen for the first two properties to
be developed. Opryland Lodging Group has entered into contracts to acquire real
property (subject to contingencies) for the Grapevine location and is currently
negotiating a lease to occupy a specific site in Osceola County. Conceptual and
schematic design work is in progress for the hotels to be developed in these
markets. Initial plans for each of the properties include 1,400-1,600 guest
rooms and approximately 350,000 square feet of meeting and exhibit space.
The Company intends to commence construction on the Osceola County property
during the second quarter of 1999 with an anticipated opening in 2002. The
Grapevine property construction is expected to commence in late 1999 or early
2000 with an anticipated opening in 2003. Total development costs for each of
the hotels is expected to be in excess of $300 million. The Company is currently
evaluating various financing alternatives for these projects.
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Opry Mills
From 1972 until the end of 1997, the Company operated the Opryland theme
park, a musical show park that emphasized live productions of country, rock 'n'
roll, gospel, bluegrass, and Broadway show tunes. In November 1997, the Company
announced plans to close the Opryland theme park and to develop Opry Mills, a
$200 million entertainment/retail complex, in partnership with The Mills
Corporation. The Company owns a one-third interest in the partnership. The new
1.2 million leasable square foot Opry Mills retail complex is expected to
enhance the Opryland properties, particularly the Opryland Hotel, the Grand Ole
Opry, and the General Jackson. Unlike the Opryland theme park, which operated
full-time only in the summer and part-time during the Christmas season and on
weekends in the spring and autumn, Opry Mills will provide shopping,
entertainment, and dining experiences for visitors to the Company's existing
properties on a year-round basis. The Company currently expects that Opry Mills
will open in the spring of 2000.
Country Music Entertainment
The Grand Ole Opry. The Grand Ole Opry, the most widely known platform for
country music in the world, is a live country music show with performances every
Friday and Saturday night and frequent summer matinees. The Opry House, home of
the Grand Ole Opry, is located in the Opryland complex. The show is broadcast by
WSM-AM radio every Friday and Saturday night from the Opry House, and TNN
telecasts a 30-minute live segment every Saturday night. Pursuant to the CBS
Transitional Agreements, this live segment of the Grand Ole Opry will continue
to be shown on TNN until at least September of 2002. The show has been radio
broadcast since 1925 on WSM-AM, making it the longest running live radio program
in the world.
The Grand Ole Opry currently has 71 performing members who are stars or
other notables in the country music field. Members perform at the Grand Ole
Opry, and there are no financial inducements attached to membership in the Grand
Ole Opry other than the prestige associated with membership. In addition, the
Grand Ole Opry presents performances by many other country music artists.
Members include traditional favorites such as Loretta Lynn and George Jones
along with contemporary artists like Garth Brooks, Vince Gill, and Lorrie
Morgan. The following is a list of the current members of the Grand Ole Opry
(including year of membership).
MEMBERS OF THE GRAND OLE OPRY
Bill Anderson-1961
Ernie Ashworth-1964
Clint Black-1991
Garth Brooks-1990
Jim Ed Brown-1963
Bill Carlisle-1953
Roy Clark-1987
John Conlee-1981
Wilma Lee Cooper-1957
Skeeter Davis-1959
Diamond Rio-1998
Little Jimmy Dickens*-1948
Joe Diffie-1993
Roy Drusky-1958
Holly Dunn-1989
The 4 Guys-1967
Larry Gatlin & The Gatlin
Brothers Band-1976
Don Gibson-1958
Vince Gill-1991
Billy Grammer-1959
Jack Greene-1967
Tom T. Hall-1980
George Hamilton IV-1960
Emmylou Harris-1992
Jan Howard-1971
Alan Jackson-1991
Stonewall Jackson-1969
Jim & Jesse-1964
George Jones*-1969
Hal Ketchum-1994
Alison Krauss-1993
Hank Locklin-1960
Charlie Louvin-1955
Patty Loveless-1988
Loretta Lynn*-1962
Barbara Mandrell-1972
Martina McBride-1995
Mel McDaniel-1986
Reba McEntire-1986
Ronnie Milsap-1976
Lorrie Morgan-1984
Jimmy C. Newman-1956
The Osborne Brothers-1964
Bashful Brother Oswald-1995
Dolly Parton-1969
Johnny PayCheck-1997
Stu Phillips-1967
Ray Pillow-1966
Charley Pride-1993
Jeanne Pruett-1973
Del Reeves-1966
Riders in the Sky-1982
Johnny Russell-1985
Jeannie Seely-1967
Ricky Van Shelton-1988
Jean Shepard-1955
Ricky Skaggs-1982
Connie Smith-1971
Mike Snider-1990
Hank Snow*-1950
Marty Stuart-1992
Randy Travis-1986
Travis Tritt-1992
Porter Wagoner-1957
Billy Walker-1960
Charlie Walker-1967
Steve Wariner-1996
The Whites-1984
Teddy Wilburn-1953
Boxcar Willie-1981
Trisha Yearwood-1999
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* Members of the Country Music Hall of Fame.
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The Opry House, which was built in 1974 to replace the Ryman Auditorium as
the home of the Grand Ole Opry, contains a 45,000 square foot auditorium with
4,400 seats, a television production center that includes a 300-seat studio as
well as 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 for 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 the Opryland Hotel for
convention entertainment and events. Pursuant to the CBS Transitional
Agreements, TNN and CMT will have access to and use of the Opry House and
certain other properties owned by the Company until at least September of 2002.
The Wildhorse Saloon. Since 1994, the Company has owned and operated the
Wildhorse Saloon, a country music dance club on historic Second Avenue in
downtown Nashville. The three story, 56,000 square-foot facility includes a
3,000 square-foot dance floor, 190-seat restaurant and banquet facility, and a
15' x 22' television screen featuring, among other things, country music videos.
The club also has a broadcast-ready stage and facilities to house mobile
production units from which broadcasts of live concerts may be distributed
nationwide. In April, 1998, a second Wildhorse Saloon was opened at the Walt
Disney World(R) Resort near Orlando, Florida by a joint venture created in 1995
to expand the Wildhorse Saloon concept beyond Nashville to major, high-profile
tourism cities around the country. The joint venture was originally owned 51% by
the Company and 49% by The Levy Restaurant Group ("Levy"). Effective December
31, 1998, the Company purchased Levy's interest in the partnership. The Orlando
Wildhorse entertainment venue and restaurant comprises approximately 27,000
square feet.
Ryman Auditorium. In 1994, the Company re-opened the renovated Ryman
Auditorium, the former home of the Grand Ole Opry, for concerts and musical
productions, including musicals produced by the Company such as "Always . . .
Patsy Cline" and "Lost Highway," a tribute to the life and music of Hank
Williams. In 1998, the Ryman Auditorium presented a new production called "Bye
Bye Love," based on the lives and music of the Everly Brothers. The Ryman
Auditorium, built in 1892, is listed on the National Register of Historic Places
and seats approximately 2,100. Recent performers at the Ryman Auditorium include
James Brown, Bob Dylan, Amy Grant, Lyle Lovett, The Dave Matthews Band, Ricky
Skaggs, and Bruce Springsteen.
Other Attractions
Oklahoma City Redhawks. In 1998, the Company acquired additional interests
in OKC Athletic Club Limited Partnership, a limited partnership that owns the
Oklahoma City Redhawks, a minor league baseball club, and in certain concession
rights. The additional interests were acquired in exchange for cash
consideration of approximately $2.2 million. The Company currently owns a
combined 65% interest in OKC Athletic Club Limited Partnership.
BROADCASTING AND MUSIC
The Company's broadcasting and music operations during 1998 consisted
primarily of one television station, three radio stations, Word and Acuff-Rose
Music Publishing, Inc. ("Acuff-Rose") (formerly known as Opryland Music Group).
See Note 14 to the Company's Consolidated Financial Statements for the amounts
of revenues, operating income, and identifiable assets attributable to the
Company's broadcasting and music operations.
KTVT
The Company has been engaged in television broadcasting since 1949, at one
time owning as many as seven television stations. As of December 31, 1998, the
Company owned and operated one television station: KTVT, in Dallas-Fort Worth,
Texas, which has been affiliated with the CBS television network since 1995.
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As of November 1998, based on the Nielsen Station Index produced by the
A.C. Nielsen Company ("Nielsen"), KTVT, broadcasting on channel 11, was the
fourth ranked station out of 13 commercial stations in the Dallas-Fort Worth
Designated Market Area ("DMA"). A DMA is an exclusive geographic area consisting
of all counties in which the local stations receive a preponderance of total
viewing hours. The Dallas-Fort Worth DMA, consisting of 1.95 million television
households, is the seventh largest DMA in the United States. KTVT's broadcast
license issued by the Federal Communications Commission (the "FCC") expires in
2006. See "-- Regulation and Legislation."
KTVT has historically generated revenues from local, regional, and national
spot advertising. The majority of local, regional, and national spot advertising
contracts are short-term, generally running for only a few weeks. Advertising
rates charged by a television station are based primarily upon the demographics
and number of television households in the area served by the station, as well
as the station's ability to attract audiences as reflected in surveys made by
Nielsen. DMA data, which is published by Nielsen, is a significant factor in
determining television advertising rates. Rates are highest during the most
desirable viewing hours (generally between 5:00 p.m. and midnight). The rates
for local and national advertising are determined by KTVT. Local advertising
spots are sold by KTVT's sales personnel and national advertising spots are sold
by HRP, Inc., the national advertising sales agent for KTVT. Pursuant to an
affiliation agreement with CBS, KTVT receives cash compensation and network
programming from CBS (which represents the majority of the programming for
KTVT). In turn, the affiliation agreement entitles CBS to a portion of the
advertising spots on KTVT.
Radio Stations
WSM-AM and WSM-FM. The Company's radio stations WSM-AM and WSM-FM
commenced broadcasting in 1925 and 1967, respectively. The Company's involvement
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 has radio broadcast
studios in the Opryland Hotel and at the Wildhorse Saloon.
WWTN-FM. In 1995, The Company acquired the assets of radio station
WWTN-FM, operated out of Nashville, Tennessee, which has a news/talk/sports
format.
Music
Word Entertainment. Word is one of the largest contemporary Christian
music companies in the world, with six proprietary record labels featuring
artists such as Amy Grant (the top-selling contemporary Christian music artist
of all time), Shirley Caesar, Bryan Duncan, Point Of Grace, and Jaci Velasquez.
Word produces a wide variety of contemporary Christian and inspirational music,
including adult contemporary, pop, country, rock, gospel, praise and worship,
rap, metal, and rhythm and blues, with an emphasis on positive and inspirational
themes. Other significant Word operations include the creation of print music,
congregational hymnals, and children's videos. Word's music publishing division
includes a catalog of over 40,000 songs. In addition, Word has entered into
various exclusive distribution agreements for the sale of music and video
products owned by third parties. Word's products are distributed through both
the Christian bookstore market by its own dedicated sales force and other
mainstream retail stores through its distribution agreement with Epic Records.
In addition, Word produces acoustical and instrumental entertainment recordings
for distribution through the mass market and sells its product line directly to
churches and related educational institutions.
Blanton Harrell Entertainment. In March 1997, the Company acquired Blanton
Harrell Entertainment, an international management company which, together with
Word and Z Music, anchor the Company's
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entertainment offerings. Blanton Harrell Entertainment manages primarily
Christian music artists, including Amy Grant, Michael W. Smith, and CeCe Winans.
Acuff-Rose Music Publishing. Acuff-Rose is primarily engaged in the music
publishing business and owns one of the world's largest and Nashville's oldest
catalog of copyrighted country music songs. The Acuff-Rose catalog also includes
popular music, with songs of legendary writers such as Hank Williams, Pee Wee
King, Roy Orbison, and Don and Phil Everly. The Acuff-Rose catalog contains at
least 70 songs that have been publicly performed over a million times. Standards
such as "Oh, Pretty Woman," "Blue Eyes Cryin' in the Rain," and "When Will I Be
Loved" are included in the roster of Acuff-Rose songs. In addition to
commercially recorded music, Acuff-Rose issues licenses for the use of its songs
in films, plays, print, commercials, videos, cable, and television. In addition
to its U.S.-based business, through various subsidiaries and sub-publishers
Acuff-Rose collects a significant percentage of royalties on licenses granted in
a number of foreign countries.
Film Distribution
Pandora. In July 1998, the Company acquired Pandora Investment S.A., a
Paris-based film production and distribution company. Pandora is a worldwide
distributor of feature films and syndicated television programming, and conducts
most of its business outside of the United States.
CABLE NETWORKS
Following the CBS Merger, the Company's cable networks operations consist
primarily of CMT International and Z Music. See Note 14 to the Company's
Consolidated Financial Statements for the amounts of revenues, operating income,
and identifiable assets attributable to the Company's cable networks operations.
CMT International. In October 1992, the Company launched CMT International
in Europe. CMT International expanded its reach to include portions of Asia and
the Pacific Rim, including Australia and New Zealand, with the launch of a
second cable network in 1994. In 1995, CMT International launched its third
cable network in Latin America. The programming for CMT International currently
consists primarily of country music videos. In February 1998, the Company
announced its plans to expand the operations of CMT International in Asia and
the Pacific Rim and Latin America and to cease 24-hour operations in Europe. The
Company ceased its CMT Europe satellite feed on March 31, 1998. The Company is
currently exploring programming opportunities in selected European markets,
including the potential for block programming through existing cable channels.
At December 31, 1998, CMT International had 2.3 million subscribers.
Z Music. In 1994, the Company entered into an agreement to manage Z Music,
Inc. in exchange for an option to purchase 95% of Z Music's outstanding capital
stock. The Company funded Z Music's operations with advances under a note
receivable. During 1998, the Company foreclosed on the assets of Z Music
securing the note receivable and took possession of such assets. The foreclosure
was completed in fourth quarter 1998. In connection with the Company's
assumption of control of Z Music's assets, the Company recognized a charge of
$14.5 million net of taxes in 1998 due to the write-off of the note receivable.
The Z Music cable network features contemporary Christian music videos and
is currently available in approximately 6.4 million U.S. broadcast and cable
homes. The network's video programming covers a spectrum of musical styles,
ranging from inspirational, country and rock videos to spiritual music videos
with more overt Christian messages. The Z Music network also programs music news
and artists' interviews, featuring artists with strong convictions and a passion
for their message. The network's programming includes positive, uplifting music
by artists that are not necessarily categorized as Christian.
ADDITIONAL INTERESTS
Bass Pro Shops. In 1993, the Company purchased a minority interest in a
partnership that owns and operates Bass Pro Shops, a leading retailer of premium
outdoor sporting goods and fishing tackle. Bass Pro Shops serves its customers
through an extensive mail order catalog operation, a 185,000-square-foot retail
7
<PAGE> 10
center in Springfield, Missouri, and additional retail stores in Atlanta,
Georgia, Gurnee, Illinois (near Chicago), Ft. Lauderdale, Florida, Islamorada,
Florida and Grapevine, Texas, near the planned site for development of a new
Opryland Hotel. Bass Pro Shops has announced plans to build five additional
stores, including one to be located in the new Opry Mills complex. The
partnership also owns a two-thirds interest in Tracker Marine, a manufacturer of
fiberglass and aluminum fishing boats, which are sold through the Bass Pro Shops
catalogs and by means of wholesale distribution to authorized dealers. The
Company's properties are featured in the approximately 34 million Bass Pro Shops
catalogs published annually. Bass Pro Shops also owns Big Cedar Lodge, a 1,250
acre resort development on Table Rock Lake located in the Ozark Mountains in
southern Missouri.
Nashville Predators. In 1997, the Company acquired a 19.9% interest in
Nashville Hockey Club Limited Partnership, a limited partnership that owns the
Nashville Predators, an expansion franchise of the National Hockey League that
began its inaugural season in the fall of 1998, in exchange for cash
consideration of approximately $12.8 million.
COMPETITION
Hospitality and Attractions
The Company's hospitality and attractions operations compete with all other
forms of entertainment, lodging, and recreational activities. In addition to the
competitive factors outlined below for each of the Company's businesses within
the hospitality and attractions segment, the success of the hospitality and
attractions segment is dependent upon certain factors beyond the Company's
control including economic conditions, amount of available leisure time,
transportation costs, public taste, and weather conditions.
The Opryland Hotel competes with other hotels throughout the United States
and abroad, including many hotels operated by companies with greater financial,
marketing, and human resources than the Company. Principal factors affecting
competition within the convention/resort hotel industry include the hotel's
reputation, quality of facilities, location and convenience of access, price,
and entertainment. The hotel business is management and marketing intensive, and
the Opryland Hotel competes with other hotels throughout the United States for
high quality management and marketing personnel. Although the Opryland Hotel has
historically enjoyed a relatively low rate of turnover among its managerial and
marketing personnel, there can be no assurance that it will continue to be able
to attract and retain high quality employees with managerial and marketing
skills. The hotel also competes with other employers for non-managerial
employees in the Middle Tennessee labor market, which recently has had a low
level of unemployment. The low unemployment rate makes it difficult to attract
qualified non-managerial employees and has been a substantial factor in the high
turnover rate among those employees.
Broadcasting and Music
KTVT competes for advertising revenues primarily with television stations
serving the Dallas-Fort Worth DMA, including both independent stations and
network-affiliated stations. Advertising rates of KTVT are based principally on
the size, market share, and demographic profile of its viewing audience. WSM-AM,
WSM-FM, and WWTN-FM similarly 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. The Company's television and
radio stations also compete with cable networks and local cable channels for
both audience share and advertising revenues and with the Internet, radio,
newspapers, billboards, and magazines for advertising revenues. Other sources of
present and potential competition are prerecorded video cassettes, direct
broadcast satellite services, and multi-channel, multi-point distribution
services. 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.
Word competes with numerous other companies that publish and distribute
Christian inspirational music, many of which have longer operating histories and
certain of which are tax exempt organizations. Word and Blanton Harrell
Entertainment compete with other record and music publishing companies, both
Christian
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<PAGE> 11
and secular, to sign top artists and songwriters, and new talent. The Company's
ability to sign and re-sign popular recording artists and successful songwriters
depends on a number of factors, including distribution and marketing
capabilities, Word's management team, and the royalty and advance arrangements
offered.
Cable Networks
CMT International and Z Music compete for viewer acceptance with all forms
of video entertainment, including other basic cable services, premium cable
services, commercial television networks, independent television stations, and
products distributed for the home video markets, in addition to the motion
picture industry and other communications, media, and entertainment services.
CMT International and Z Music compete with other nationally and internationally
distributed cable networks and local broadcast television stations for available
channel space on cable television systems, with other cable networks for
subscriber fees from cable systems operators, and with all forms of
advertiser-supported media for advertising revenues. The Company also competes
to obtain creative talents, properties, and market share, which are essential to
the success of its cable networks business.
The principal competitive factors in obtaining viewer acceptance, on which
cable subscriber fees and advertiser support ultimately depend, are the appeal
of the networks' programming focus and the quality of their programming. Music
videos constitute substantially all of CMT International's and Z Music's
programming. These videos are currently provided to the Company for promotional
purposes by record companies and may also be distributed to other programming
services as well as to other media.
Until September of 2002, pursuant to the CBS Transitional Agreements, the
Company is prohibited from owning or operating a cable network featuring country
music videos or a significant amount of musical, sports, variety, or other
entertainment features or series, the theme of which is perceived by the viewing
public as "country entertainment." The Company is also generally prohibited,
during such five-year period, from providing, or making available for viewing,
"country entertainment" programming on a cable network or an over-the-air
broadcast television station. Notwithstanding the foregoing, the Company can own
and operate CMT International in any area outside of the United States and
Canada, provided that CMT International's programming, other than country music
videos, will not primarily consist of programming featuring or related to
"country entertainment."
REGULATION AND LEGISLATION
Hospitality and Attractions
The Opryland Hotel is 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 the Opryland Hotel requires a
license and is subject to regulation by the applicable state and local
authorities. The agencies involved have full 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 the operations of the Company's
hospitality and attractions segment.
Broadcasting and Music
Radio and television broadcasting is 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 and television stations have terms of eight
years. Television and radio broadcast licenses are renewable upon application to
the FCC and in the past usually have been renewed except in rare cases.
Competing applications will not be accepted at the time of license renewal, and
will not be entertained
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<PAGE> 12
at all unless the FCC first concludes that renewal of the license would not
serve the public interest. A station will be entitled to renewal in the absence
of serious violations of the Communications Act or the FCC regulations or other
violations which constitute a pattern of abuse. The Company is aware of no
reason why its radio and television station licenses should not be renewed.
FCC regulations also limit concentrations of media ownership on both the
local and national levels. FCC regulations prohibit the common ownership or
control of most communications media serving the same market areas (i.e., (i)
television and radio ownership; (ii) television and daily newspapers; (iii)
radio and daily newspapers; and (iv) television and cable television). The FCC's
liberal waiver policy for joint television and radio ownership now covers the
top 50 markets. The number of radio stations a single entity may own in the same
market area depends on the number of stations operating in the local radio
market, and the FCC is conducting a rulemaking proceeding to consider whether
owning more than one television station in the same market area may be
permitted. The FCC has also issued a notice of inquiry for the purpose of
reevaluating the restriction on radio/newspaper cross ownership. FCC regulations
do not limit the total number of television broadcast stations held by any
single entity so long as all of the stations under common control do not attain
an aggregate national audience reach exceeding 35%. There are no limits on the
total number of radio stations commonly owned on a national basis.
The Communications Act also places certain limitations on alien ownership
or control of entities holding broadcast licenses. The Restated Certificate of
Incorporation of the Company (the "Restated Certificate") contains a provision
permitting the Company to redeem common stock from certain holders if the Board
of Directors deems such redemption necessary to prevent the loss or secure the
reinstatement of any of its licenses or franchises. Communications companies may
have non-citizen officers and directors.
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.
Cable Networks
CMT International's programming and uplink services are handled in the
United States. Although the operations of the Company's cable networks are not
directly subject to regulation, any future legislation or regulatory actions
that increase rate regulation or effect structural changes on the Company's
cable networks could require cable networks to lower charges for their
programming. Increased rate regulation could, among other things, affect the
ability or willingness of cable system operators to establish or retain Z Music
as a basic tier cable service.
EMPLOYEES
As of December 31, 1998, the Company had approximately 4,860 full-time and
1,380 part-time and seasonal employees. The Company believes that its
relationship with its employees is good.
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<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding executive
officers of the Company as of the date hereof. All officers serve at the
discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Edward L. Gaylord............................ 79 Chairman of the Board
E. K. Gaylord II............................. 41 Vice-Chairman of the Board
Terry E. London.............................. 49 Director, President and Chief Executive Officer
Joseph B. Crace.............................. 44 Senior Vice President and Chief Financial Officer
Jerry O. Bradley............................. 59 President -- Acuff-Rose Music Publishing
Jack L. Gaines............................... 57 President -- Opryland Hospitality and Attractions
Group
Dan E. Harrell............................... 50 President -- Idea Entertainment
Carl W. Kornmeyer............................ 46 President -- Communications Group
David B. Jones............................... 55 President -- Opryland Lodging Group
Rod F. Connor, Jr............................ 46 Senior Vice President and Chief Administrative
Officer
</TABLE>
The following is additional information with respect to the above-named
executive officers and directors.
Mr. Edward L. Gaylord served as President and Chief Executive Officer of
the Company from 1974 until October 1991, and has served as Chairman of the
Board of the Company since October 1991. Mr. Gaylord has been a director of the
Company since 1946. Mr. Gaylord is currently the chairman and a director of The
Oklahoma Publishing Company ("OPUBCO"). Mr. Gaylord is active in numerous civic
and charitable organizations, and is (among others) chairman of the Oklahoma
Industries Authority, director and past president (ten years) of the State Fair
of Oklahoma, chairman and director of The Oklahoma Medical Research Foundation
and chairman and director of the National Cowboy Hall of Fame & Western Heritage
Center. Mr. Gaylord is the father of Mr. E. K. Gaylord II and Mrs. Christine
Gaylord Everest, both of whom are directors of the Company.
Mr. E. K. Gaylord II has served as Vice-Chairman of the Board of the
Company since May 1996 and as a director since 1977. Mr. Gaylord has been the
president of OPUBCO since June 1994 and is a director of OPUBCO. He served as
executive vice president and assistant secretary of OPUBCO from June 1993 until
June 1994. He also owns and operates the Lazy E Ranch in Guthrie, Oklahoma. Mr.
Gaylord is a director of the National Cowboy Hall of Fame & Western Heritage
Center and is a director of BASSGEC Management Company. Mr. Gaylord is the son
of Mr. Edward L. Gaylord and the brother of Mrs. Christine Gaylord Everest, both
of whom are directors of the Company.
Mr. London has been the President and Chief Executive Officer and a
director of the Company since May 1997. Mr. London was also the acting Chief
Financial Officer of the Company until February 1998. Prior to May 1997, Mr.
London had served, since March 1997, as Executive Vice President and Chief
Operating Officer and, from September 1993 until March 1997, as Senior Vice
President and Chief Financial and Administrative Officer of the Company. He
served as Vice President and Chief Financial Officer of the Company from October
1991 until September 1993, and has been employed by the Company in various
capacities since 1978. Mr. London is a certified public accountant.
Mr. Crace has served as the Senior Vice President and Chief Financial
Officer of the Company since February 1998. From June 1997 to February 1998, Mr.
Crace was the chief executive officer of Blue Sky Group, Inc., a venture capital
firm and a marketing and business development resource for entertainment, sports
and health care companies. Prior to founding Blue Sky Group, Inc., Mr. Crace
served in various capacities beginning in 1992 at Bob Evans Farms, Inc., a
restaurant and consumer products company, including group vice president in
charge of specialty products and business development and president and chief
executive officer of its Hickory Specialties, Inc. subsidiary, a manufacturer of
barbecue grills and accessories, charcoal briquettes, and liquid smoke.
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<PAGE> 14
Mr. Bradley has served as President of Acuff-Rose Music Publishing since
September 1993 and, prior to that time, as General Manager of Acuff-Rose Music
Publishing since July 1986. Prior to joining Acuff-Rose Music Publishing, Mr.
Bradley operated Bradley Productions, an independent production company for
three years and worked for RCA Records for 16 years.
Mr. Gaines has served as the President of the Opryland Hospitality and
Attractions Group since February 1998. From 1994 until February 1998, Mr. Gaines
operated JLG Consulting, a hotel consulting business. From 1993 until 1994, Mr.
Gaines was the general manager of La Cantera Resort in San Antonio, Texas. From
1990 until 1993, Mr. Gaines was senior vice president and director of operations
for Omni Hotels.
Mr. Harrell has been President of Idea Entertainment, the Company's family
entertainment subsidiary that includes the operations of Word, since the
Company's March 1997 acquisition of Blanton Harrell Entertainment, an artist
management company that manages the careers of several prominent contemporary
Christian music artists. For over 17 years prior to such acquisition, Mr.
Harrell was co-owner of Blanton Harrell Entertainment.
Mr. Kornmeyer has been President of the Communications Group since October
1997. He served as Senior Vice President of Broadcast and Business Affairs of
the Company's broadcasting and cable networks operations from March 1996 until
October 1997. He served as Vice President of Business Affairs of the Company's
broadcasting and cable networks operations from March 1994 until February 1996,
and, from August 1989 through February 1994, he was Executive Director of
Business and Financial Affairs of the Company's broadcasting and cable networks
operations.
Mr. Jones has been the President of the newly formed Opryland Lodging Group
since May 1998. From 1993 until May 1998, Mr. Jones served as President and
Chief Operating Officer of John Q. Hammons Hotels, Inc.
Mr. Connor has served as the Senior Vice President and Chief Administrative
Officer of the Company since December 1997. From February 1995 to December 1997,
Mr. Connor was the Vice President and Corporate Controller of the Company. For
over three years prior to February 1995, Mr. Connor was the Corporate Controller
of the Company. Mr. Connor has been employed by the Opryland USA businesses
since 1972.
ITEM 2. PROPERTIES
The Company owns its executive offices and headquarters located at One
Gaylord Drive, Nashville, Tennessee, which consists of a four-story office
building comprising approximately 80,000 square feet. The Company believes that
its present facilities for each of its business segments as described below are
generally well maintained and currently sufficient to serve each segment's
particular needs.
HOSPITALITY AND ATTRACTIONS
The Company owns land in Nashville, Tennessee and the improvements thereon
that comprise the Opryland complex. The Opryland complex includes the site of
the Opryland Hotel (approximately 120 acres), the former site of the Opryland
theme park (approximately 200 acres), the General Jackson showboat's docking
facility, the production and administration facilities that are currently being
leased to CBS for TNN and CMT, the Opry House, and WSM Radio's offices and
studios. The Company has entered into 99-year lease agreements with The Mills
Corporation for approximately 124 acres of the Opryland complex in exchange for
a one-third interest in a partnership formed for the development of Opry Mills,
together with other consideration. The Company also owns the Springhouse Golf
Club, an 18-hole golf course situated on approximately 240 acres, a 26-acre KOA
campground, and the 6.7-acre site of the Inn at Opryland, all of which are
located near the Opryland complex. In addition, the Company owns the Ryman
Auditorium and a Wildhorse Saloon dance hall and production facility in downtown
Nashville. The Company also owns a 100,000 square foot warehouse in Old Hickory,
Tennessee. The Company leases its Wildhorse Saloon site in Orlando. The Company
has entered into contracts to acquire real property (subject to contingencies)
for its
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<PAGE> 15
planned hotel in the Dallas-Fort Worth area and is currently negotiating a real
property lease for its planned Orlando-area hotel.
BROADCASTING AND MUSIC
The Company owns all of KTVT's business facilities which are comprised of
an office and two studios containing an aggregate of approximately 48,000 square
feet in Fort Worth, Texas and an additional building of approximately 19,000
square feet in Dallas, Texas containing sales and news operations. KTVT owns its
transmitter facilities and tower. The Company owns the Acuff-Rose Music
Publishing building located on Nashville's "Music Row" and adjacent real estate.
In August 1998, the Company acquired an office building of approximately 40,000
square feet, also located on Music Row, for use by Word for executive and
administrative office space. Word leases approximately 34,000 additional square
feet on various floors of a Nashville office building, which space is primarily
used for sales and administrative offices. These leases expire on various dates
ranging from July 1999 to November 2003. Word also leases sales offices and
warehouse space in Richmond, Canada and Milton Keynes, United Kingdom.
Additionally, the Company and Word guarantee the lease of warehouse space in
Smyrna, Tennessee, by Menlo Logistics, Inc. for use in connection with the
distribution by Menlo of Word's products.
CABLE NETWORKS
The Company owns the offices and three television studios of TNN and CMT,
all of which are located within the Opryland complex and contain approximately
87,000 square feet of space. Pursuant to the CBS Transitional Agreements, these
facilities are being leased to CBS. Master control and satellite uplink
operations for CMT International and Z Music are also located in the facilities
being leased to CBS. The services for the satellite uplink operations are being
provided by CBS to the Company pursuant to the CBS Transitional Agreements. CMT
International has offices in the executive office building and currently leases
its transponders. Additionally, CMT International leases office space in Sydney,
Australia and Miami, Florida.
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 its 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 Old Gaylord. In 1991, Old
Gaylord and OPUBCO, a former subsidiary of Old Gaylord, entered into a
distribution agreement (the "OPUBCO Distribution Agreement"), pursuant to which
OPUBCO assumed such liabilities and agreed to indemnify Old Gaylord for any
losses, damages, or other liabilities incurred by Old Gaylord in connection with
such matters. Under the OPUBCO Distribution Agreement, OPUBCO is required to
maintain adequate reserves to cover potential Superfund liabilities. In
connection with the Restructuring, Old Gaylord assigned its rights under the
OPUBCO Distribution Agreement to the Company, and Old Gaylord has a right of
subrogation to the Company's right to indemnification from OPUBCO. To date, no
litigation has been commenced against the Company, Old Gaylord or OPUBCO with
respect to these two Superfund sites.
Although statutorily liable private parties cannot contractually transfer
liability so as to render themselves no longer liable, CERCLA permits private
parties to indemnify one another against CERCLA liability pursuant to a
contract, and to enforce such a contract in an appropriate court. The Company
believes that OPUBCO's indemnification will fully cover the Company's Superfund
liabilities, if any, and that, based on the
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<PAGE> 16
Company's current estimates of these liabilities, OPUBCO has sufficient
financial resources to fulfill its indemnification obligations under the OPUBCO
Distribution Agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Prior to October 1, 1997, the Company was a wholly owned subsidiary of Old
Gaylord. On October 1, 1997, the Company's Common Stock began trading on the New
York Stock Exchange under the symbol "GET." The table below lists the high and
low sales prices for the Common Stock as reported on the New York Stock Exchange
for each full quarterly period since the Common Stock began trading on October
1, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Fourth Quarter............................................ $33.25 $28.38
YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................. $36.81 $29.88
Second Quarter............................................ 37.50 32.00
Third Quarter............................................. 34.19 25.25
Fourth Quarter............................................ 30.75 22.00
YEAR ENDED DECEMBER 31, 1999:
First Quarter (through March 26, 1999).................... $31.13 $24.25
</TABLE>
(b) Holders
At March 18, 1999, the approximate number of record holders of the Common
Stock was 2,981.
(c) Cash Dividends
The following table sets forth cash dividends paid by the Company per share
of Common Stock for the periods indicated:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1997:
Fourth Quarter............................................ $0.15
YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................. 0.15
Second Quarter............................................ 0.15
Third Quarter............................................. 0.15
Fourth Quarter............................................ 0.20
YEAR ENDED DECEMBER 31, 1999:
First Quarter............................................. 0.20
</TABLE>
Although a revolving credit agreement among the Company and a syndicate of
banks with NationsBank, N.A. acting as agent (the "1997 Credit Facility") does
not specifically limit the Company's ability to pay dividends, the 1997 Credit
Facility requires the Company to maintain certain financial ratios and minimum
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<PAGE> 17
stockholders' equity levels, and the Company would be prohibited from paying
dividends if it were in default under such provisions of the 1997 Credit
Facility.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
information under the caption "Selected Financial Data" in the Company's Annual
Report to Stockholders for the year ended December 31, 1998 and is included in
Exhibit 13.1 to this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to the
information under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report to
Stockholders for the year ended December 31, 1998 and is included in Exhibit
13.1 to this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference to the
information on page 34 of the Company's Annual Report to Stockholders for the
year ended December 31, 1998 and is included in Exhibit 13.1 to this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to the
information on pages 35 through 52 of the Company's Annual Report to
Stockholders for the year ended December 31, 1998 and is included in Exhibit
13.1 to this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of the Company is included under the
caption "PROPOSAL ONE -- ELECTION OF CLASS II DIRECTORS" and information
required by Item 405 of Regulation S-K is included under the caption "SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE," in each case of the Company's
Proxy Statement for Annual Meeting of Stockholders to be held May 13, 1999, to
be filed with the Securities and Exchange Commission pursuant to Rule 14a-6, and
are incorporated herein by reference.
Pursuant to General Instruction G(3) of Form 10-K, certain information
concerning executive officers of the Company is included in Part I of this Form
10-K under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held May 13, 1999, to be
filed with the Securities and Exchange Commission pursuant to Rule 14a-6, and is
incorporated by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held May 13, 1999, to be
filed with the Securities and Exchange Commission pursuant to Rule 14a-6, and is
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held May 13, 1999, to be
filed with the Securities and Exchange Commission pursuant to Rule 14a-6, and is
incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following financial statements are filed
as a part of this report, with reference to the applicable pages of Exhibit 13.1
to this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT 13.1
PAGE
------------
<S> <C>
Consolidated Statements of Income For the Years Ended
December 31, 1998, 1997, and 1996......................... 13
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... 14
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997, and 1996......................... 15
Consolidated Statements of Stockholders' Equity For the
Years Ended December 31, 1998, 1997, and 1996............. 16
Notes to Consolidated Financial Statements.................. 17
</TABLE>
(a)(2) Financial Statement Schedules. The following financial statement
schedules are filed as a part of this report, with reference to the applicable
pages of this Form 10-K:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts For the
Year Ended December 31, 1998.............................. S-2
Schedule II -- Valuation and Qualifying Accounts For the
Year Ended December 31, 1997.............................. S-3
</TABLE>
All other financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and, therefore,
have been omitted.
(a)(3) Exhibits. See Index to Exhibits, pages 18 through 21.
(b) Reports on Form 8-K. No current reports on Form 8-K were filed during
the last quarter of the period covered by this report on Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GAYLORD ENTERTAINMENT COMPANY
By: /s/ EDWARD L. GAYLORD
------------------------------------
Edward L. Gaylord
Chairman of the Board
March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD L. GAYLORD Chairman of the Board March 31, 1999
- -----------------------------------------------------
Edward L. Gaylord
/s/ TERRY E. LONDON Director, President and Chief March 31, 1999
- ----------------------------------------------------- Executive Officer (Principal
Terry E. London Executive Officer)
/s/ JOSEPH B. CRACE Senior Vice President and Chief March 31, 1999
- ----------------------------------------------------- Financial Officer (Principal
Joseph B. Crace Accounting and Financial
Officer)
/s/ MARTIN C. DICKINSON Director March 31, 1999
- -----------------------------------------------------
Martin C. Dickinson
/s/ CHRISTINE GAYLORD EVEREST Director March 31, 1999
- -----------------------------------------------------
Christine Gaylord Everest
/s/ E. K. GAYLORD II Vice-Chairman of the Board March 31, 1999
- -----------------------------------------------------
E. K. Gaylord II
/s/ CRAIG L. LEIPOLD Director March 31, 1999
- -----------------------------------------------------
Craig L. Leipold
/s/ JOE M. RODGERS Director March 31, 1999
- -----------------------------------------------------
Joe M. Rodgers
/s/ MARY AGNES WILDEROTTER Director March 31, 1999
- -----------------------------------------------------
Mary Agnes Wilderotter
/s/ HOWARD L. WOOD Director March 31, 1999
- -----------------------------------------------------
Howard L. Wood
</TABLE>
17
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1+ Basic Agreement, dated as of December 15, 1993, among
BASSGEC Management Company, Bass Pro Shops, Inc., Trackmar
Corporation, Finley River Properties, Inc., John L. Morris,
Trustee of the John L. Morris Revocable Living Trust, U/T/A
dated December 23, 1986, as amended, Hospitality and Leisure
Management, Inc., John L. Morris, and the Registrant's
former parent Gaylord Entertainment Company ("Old Gaylord")
(incorporated by reference to Exhibit 2.1 to Old Gaylord's
Registration Statement on Form S-3 (Registration No.
33-74552))
2.2+ Asset Purchase Agreement by and among Cencom Cable
Television, Inc., Lenoir TV Cable, Inc., CCT Holdings
Corporation and CCA Holdings Corporation dated as of March
30, 1995 (incorporated by reference to Exhibit 2 to Old
Gaylord's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995)
2.3 Amendment 1 to the Asset Purchase Agreement by and among
Cencom Cable Television, Inc., Lenoir TV Cable, Inc., CCT
Holdings Corporation and CCA Holdings Corporation dated as
of May 24, 1995 (incorporated by reference to Exhibit 2.2 to
Old Gaylord's Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 13, 1995)
2.4 Amendment 2 to the Asset Purchase Agreement by and among
Cencom Cable Television, Inc., Lenoir TV Cable, Inc., CCT
Holdings Corporation and CCA Holdings Corporation dated as
of September 29, 1995 (incorporated by reference to Exhibit
2.3 to Old Gaylord's Current Report on Form 8-K filed with
the Securities and Exchange Commission on October 13, 1995)
2.5+ Asset Purchase Agreement, dated as of November 21, 1996 by
and among Thomas Nelson, Inc., Word, Incorporated and Word
Direct Partners, L.P. as Sellers and Old Gaylord as Buyer
(incorporated by reference to Exhibit 2.1 to the Current
Report on Form 8-K, dated January 6, 1997, of Thomas Nelson,
Inc.)
2.6+ Amendment No. 1 to the Asset Purchase Agreement dated as of
January 6, 1997, by and among Thomas Nelson, Inc., Word
Incorporated and Word Direct Partners, L.P. as Sellers and
Old Gaylord as Buyer (incorporated by reference to Exhibit
2.2 to the Current Report on Form 8-K, dated January 6,
1997, of Thomas Nelson, Inc.)
2.7+ Asset Purchase Agreement, dated as of January 6, 1997, by
and between Nelson Word Limited and Word Entertainment
Limited (incorporated by reference to Exhibit 2.3 to the
Current Report on Form 8-K, dated January 6, 1997, of Thomas
Nelson, Inc.)
2.8+ Subsidiary Asset Purchase Agreement executed on January 6,
1997 and dated as of November 21, 1996 between Word
Communications, Ltd. and Word Entertainment (Canada), Inc.
(incorporated by reference to Exhibit 2.4 to the Current
Report on Form 8-K, dated January 6, 1997, of Thomas Nelson,
Inc.)
2.9+ Asset Purchase Agreement by and between Cox Broadcasting,
Inc. and Gaylord Broadcasting Company, L.P. dated January
20, 1997 (incorporated by reference to Exhibit 2.10 to Old
Gaylord's Annual Report on Form 10-K, as amended by Form
10-K/A, for the year ended December 31, 1996)
2.10+ Agreement and Plan of Merger dated February 9, 1997 by and
among Westinghouse Electric Corporation ("Westinghouse"), G
Acquisition Corp. and Old Gaylord (incorporated by reference
to Exhibit 2.1 to Old Gaylord's Current Report on Form 8-K
dated February 9, 1997)
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3 to the Registrant's
Current Report on Form 8-K dated October 7, 1997)
3.2 Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on
Form 10, as amended (File No. 1-13079))
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.1 Specimen of Common Stock certificate (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form 10, as amended (File No. 1-13079))
4.2 Credit Agreement dated as of August 19, 1997 among Old
Gaylord, the banks named therein and NationsBank of Texas,
N.A., ("NationsBank") as Administrative Lender (including
form of Swing Line Note, form of Revolving Credit Note, and
form of Assumption Agreement)(incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form
10, as amended (File No. 1-13079))
4.3 First Amendment to Credit Agreement, dated as of September
30, 1997, among Old Gaylord, the Registrant, the banks named
therein, and NationsBank (incorporated by reference to
Exhibit 4.3 to Gaylord's Annual Report on Form 10-K for the
year ended December 31, 1997)
4.4 Second Amendment to Credit Agreement, dated as of March 24,
1998 but effective as of October 1, 1997, among the
Registrant, the banks named therein, and NationsBank
(incorporated by reference to Exhibit 4.4 to Gaylord's
Annual Report on Form 10-K for the year ended December 31,
1997)
4.5* Third Amendment to Credit Agreement, dated as of March 22,
1999 but effective as of December 31, 1998, among the
Registrant, the banks named therein, and NationsBank, N.A.
(successor by merger to NationsBank)
9.1 Voting Trust Agreement ("Voting Trust Agreement") dated as
of October 3, 1990 between certain stockholders of The
Oklahoma Publishing Company and Edward L. Gaylord, Edith
Gaylord Harper, Christine Gaylord Everest, and E. K. Gaylord
II as Voting Trustees (incorporated by reference to Exhibit
9.1 to Old Gaylord's Registration Statement on Form S-1
(Registration No 33-42329))
9.2 Amendment No. 1 to Voting Trust Agreement dated as of
October 7, 1991 between certain stockholders of The Oklahoma
Publishing Company and Edward L. Gaylord, Edith Gaylord
Harper, Christine Gaylord Everest, and E. K. Gaylord II as
Voting Trustees (incorporated by reference to Exhibit 9.2 to
Old Gaylord's Registration Statement on Form S-1
(Registration No. 33-42329))
10.1 Senior Subordinated Note issued on September 29, 1995 by CCT
Holdings Corporation in the original principal amount of
$165,687,890 (incorporated by reference to Exhibit 10.1 to
Old Gaylord's Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 13, 1995)
10.2 Senior Subordinated Loan Agreement, dated as of September
29, 1995, between CCT Holdings and Cencom Cable Television,
Inc. (incorporated by reference to Exhibit 10.2 to Old
Gaylord's Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 13, 1995)
10.3 Contingent Payment Agreement, dated as of September 29,
1995, between Charter Communications Entertainment, L.P.,
CCT Holdings Corporation and Cencom Cable Television, Inc.
(incorporated by reference to Exhibit 10.3 to Old Gaylord's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 13, 1995)
10.4 Letter Agreement dated September 14, 1994 between CBS, Inc.
and the Registrant (d/b/a KTVT, Fort Worth Dallas) as
modified by the Affiliation Agreement dated December 2, 1994
between the parties as amended by the letter agreement
between the parties dated December 29, 1994 (incorporated by
reference to Exhibit 10.20 of Old Gaylord's Annual Report on
Form 10-K for the year ended December 31, 1994)
10.5 Amended and Restated Limited Partnership Agreement of Bass
Pro, L.P. (incorporated by reference to Exhibit 2.3 to Old
Gaylord's Registration Statement on Form S-3 (Registration
No. 33-74552))
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.6 Tax Disaffiliation Agreement by and among Old Gaylord, the
Registrant and Westinghouse, dated September 30, 1997
(incorporated by reference to Exhibit 10.3 to the
Registrant's Current Report on Form 8-K, dated October 7,
1997)
10.7 Post-Closing Covenants Agreement among Westinghouse, Old
Gaylord, the Registrant and certain subsidiaries of the
Registrant dated September 30, 1997 (incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report
on Form 8-K, dated October 7, 1997)
10.8 Agreement and Plan of Distribution, dated September 30,
1997, between Old Gaylord and the Registrant (incorporated
by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated October 7, 1997)
10.9 Opry Mills Limited Partnership Agreement, executed as of
March 31, 1998, by and among Opry Mills, L.L.C., The Mills
Limited Partnership, and Opryland Attractions, Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998)
10.10 Contract for a Space Segment Service on the Eutelsat Hotbird
3 Satellite dated April 25, 1995 by and between British
Telecommunications plc and Country Music Television, Inc.
(including schedules and exhibits material to an
understanding of the Agreement) (incorporated by reference
to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998)
EXECUTIVE COMPENSATION PLANS AND MANAGEMENT CONTRACTS
10.11 1997 Stock Option and Incentive Plan Amended and Restated as
of August 15, 1998 (incorporated by reference to Exhibit 10
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998)
10.12 The Opryland USA Inc. Supplemental Deferred Compensation
Plan (incorporated by reference to Exhibit 10.11 to Old
Gaylord's Registration Statement on Form S-1 (Registration
No. 33-42329))
10.13 The Opryland USA Inc. Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.22 to Old Gaylord's
Annual Report on Form 10-K for the year ended December 31,
1992)
10.14 Gaylord Entertainment Company Excess Benefit Plan
(incorporated by reference to Exhibit 10.30 to Old Gaylord's
Annual Report on Form 10-K for the year ended December 31,
1994)
10.15 Gaylord Entertainment Company Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10.31
to Old Gaylord's Annual Report on Form 10-K for the year
ended December 31, 1994)
10.16 Gaylord Entertainment Company Directors' Unfunded Deferred
Compensation Plan (incorporated by reference to Exhibit
10.32 to Old Gaylord's Annual Report on Form 10-K for the
year ended December 31, 1994)
10.17 Form of Severance Agreement between the Registrant and
certain of its executive officers (incorporated by reference
to Exhibit 10.23 to Old Gaylord's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.18 Form of Indemnity Agreement between the Registrant and its
directors (incorporated by reference to Exhibit 10.24 to Old
Gaylord's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.19 Executive Employment Agreement of Dan E. Harrell, dated
March 24, 1997, with Word Entertainment Group, Inc., a
subsidiary of the Registrant (incorporated by reference to
Exhibit 10.17 to Gaylord's Annual Report on Form 10-K for
the year ended December 31, 1997)
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.20 Letter Agreement, dated March 26, 1998, regarding employment
of Jerry O. Bradley, by the Registrant (incorporated by
reference to Exhibit 10.18 to Gaylord's Annual Report on
Form 10-K for the year ended December 31, 1997)
10.21* Letter Agreement, dated June 4, 1998, regarding change of
status of Jack J. Vaughn, by the Registrant
10.22* Senior Advisor Agreement, dated June 10, 1998, between Jack
J. Vaughn and the Registrant
13.1* Portions of the Registrant's Annual Report to Stockholders
for the year ended December 31, 1998
21* Subsidiaries of Gaylord Entertainment Company
23* Consent of Independent Auditors
27* Financial Data Schedule for year ended December 31, 1997
(for SEC use only)
</TABLE>
- ---------------
+ As directed by Item 601(b)(2) of Regulation S-K, certain schedules and
exhibits to this exhibit are omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted schedule or exhibit to the
Commission upon request.
* Filed herewith.
21
<PAGE> 24
To Gaylord Entertainment Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Gaylord Entertainment Company as of
December 31, 1998 and 1997 and for the three years in the period ended December
31, 1998 included in this Annual Report on Form 10-K and have issued our report
thereon dated February 5, 1999. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The financial
statement schedules listed in response to Item 14(a)(2) of this Annual Report on
Form 10-K are the responsibility of the Company's management and are presented
for purposes of complying with the Securities and Exchange Commission's rules
and regulations under the Securities and Exchange Act of 1934 and are not
otherwise a required part of the basic financial statements. The financial
statement schedules have been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, fairly state,
in all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 25, 1999
S-1
<PAGE> 25
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO
BALANCE AT -------------------- BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Restructuring charge.......................... $6,073 -- -- 3,779 $2,294
====== == == ===== ======
</TABLE>
S-2
<PAGE> 26
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO
BALANCE AT -------------------- BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Restructuring charge.......................... $ -- 13,654 -- 7,581 $6,073
==== ====== == ===== ======
</TABLE>
S-3
<PAGE> 1
Exhibit 4.5
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment"),
dated as of March 22, 1999 but effective as of December 31, 1998, is entered
into among GAYLORD ENTERTAINMENT COMPANY, a Delaware corporation ("Borrower"),
the banks listed on the signature pages hereof (collectively, "Lenders"), and
NATIONSBANK, N.A. (successor by merger to NationsBank of Texas, N.A.), as
Administrative Lender (in said capacity, "Administrative Lender").
BACKGROUND
A. Borrower, Lenders and Administrative Lender are parties to that
certain Credit Agreement, dated as of August 19, 1997, as amended by that
certain First Amendment to Credit Agreement, dated as of September 30, 1997, and
that certain Second Amendment to Credit Agreement, dated as of March 24, 1998
(said Credit Agreement, as amended, the "Credit Agreement"; the terms defined in
the Credit Agreement and not otherwise defined herein shall be used herein as
defined in the Credit Agreement).
B. Borrower, Lender and Administrative Lender desire to make an
amendment to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, Borrower, Lenders
and Administrative Lender covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) The definition of "Index Debt Rating" set forth in Section
1.1 of the Credit Agreement is hereby amended to read as follows:
"Index Debt Rating" means the rating applicable to Borrower's
senior, unsecured, non-credit enhanced long-term indebtedness for
borrower money; provided, however, for the Index Debt Rating to be
available for determination of the pricing of an interest rate or fees
hereunder, the rating shall not have been issued and outstanding for
more than twelve months.
(b) Section 4.2 of the Credit Agreement is hereby amended to read as
follows:
"4.2 EBITDA to Interest Charges. Borrower shall not permit the
ratio of EBITDA to Interest Charges to be less than (a) 2.50 to 1 at
any time during the period from the Agreement Date to and including
September 30, 1998, (b) 2.80 to 1 at any time after September 30, 1998
to and including December 31, 1998, (c) 3.00 to 1 at any time after
<PAGE> 2
December 31, 1998 to and including September 30, 1999, and (d) 3.25 at
any time thereafter."
(c) The Officer's Certificate-Financial in the form of Exhibit N to the
Credit Agreement is hereby amended to be in the form of Exhibit N to this Third
Amendment.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, Borrower represents and warrants that after
giving effect to the amendments contemplated by the foregoing Section 1:
(a) the representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct on and as of the
date hereof as though made on and as of such date, except to the extent that any
such representation or warranty relates expressly to a specified date or is no
longer correct because of a change in circumstances permitted by the Loan
Documents;
(b) no event has occurred and is continuing which constitutes a
Default or Event of Default;
(c) Borrower has full power and authority to execute and deliver this
Third Amendment and the Credit Agreement, as amended hereby, and this Third
Amendment and the Credit Agreement, as amended hereby, constitute the legal,
valid and binding obligations of Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable debtor
relief laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights
to indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Third
Amendment or the Credit Agreement, as amended by this Third Amendment, will
contravene or conflict with any Law to which Borrower or any of its Subsidiaries
is subject or any indenture, agreement or other instrument to which Borrower or
any of its Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice to,
or filing with, any Tribunal or other Person, is required for the execution,
delivery or performance by Borrower of this Third Amendment or the
acknowledgment of this Third Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be
effective as of December 31, 1998, subject to the following:
(a) Administrative Lender shall have received counterparts of this
Third Amendment executed by Determining Lenders;
(b) Administrative Lender shall have received counterparts of this
Third Amendment executed by Borrower and acknowledged by each Guarantor; and
-2-
<PAGE> 3
(c) Administrative Lender shall have received, in form and substance
satisfactory to Administrative Lender and its counsel, such other documents,
certificates and instruments as Administrative Lender reasonably shall require.
4. GUARANTOR ACKNOWLEDGEMENT. By signing below, each of the Guarantors
(i) acknowledges, consents and agrees to the execution and delivery of this
Third Amendment, (ii) acknowledges and agrees that its obligations in respect of
its Guaranty are not released, diminished, waived, modified, impaired or
affected in any manner by this Third Amendment or any of the provisions
contemplated herein, (iii) ratifies and confirms its obligations under its
Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Guaranty.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Third Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", or words of like import
shall mean and be a reference to the Credit Agreement, as amended by this Third
Amendment.
(b) The Credit Agreement, as amended by this Third Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all
costs and expenses of the Administrative Lender in connection with the
preparation, reproduction, execution and delivery of this Third Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender with respect thereto and with respect to advising the Lenders as to their
rights and responsibilities under the Credit Agreement, as amended by this Third
Amendment).
7. EXECUTION IN COUNTERPARTS. This Third Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
8. GOVERNING LAW: BINDING EFFECT. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon Borrower and each Lender and their respective successors
and assigns.
9. HEADINGS. Section headings in this Third Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Third Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS THIRD
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
-3-
<PAGE> 4
==============================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
=============================================================================
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment to be effective as of the date first above written.
GAYLORD ENTERTAINMENT COMPANY
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
NATIONSBANK, N.A.
as a Lender, Swing Line Bank, Issuing
Bank and as Administrative Lender
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE BANK OF NEW YORK
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE FUJI BANK, LIMITED, ATLANTA AGENCY
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
SUNTRUST BANK, NASHVILLE, N.A.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
FIRST AMERICAN NATIONAL BANK
By:
----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
-4-
<PAGE> 5
CREDIT LYONNAIS NEW YORK BRANCH
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
BANQUE PARIBAS
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
FIRST UNION NATIONAL BANK
By:
-----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE SAKURA BANK, LIMITED
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
ATLANTA AGENCY
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
-5-
<PAGE> 6
COMERICA BANK
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE SANWA BANK, LIMITED
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
THE BANK OF NOVA SCOTIA
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
WACHOVIA BANK, N.A.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
BANK OF TOKYO MITSUBISHI TRUST COMPANY
By:
-----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
ACKNOWLEDGED AND AGREED:
IDEA ENTERTAINMENT, INC.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
<PAGE> 7
CNR, INC.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
GAYLORD BROADCASTING COMPANY, L.P.
By: Gaylord Communications, Inc.,
its General Partner
By:
-----------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
OPRYLAND ATTRACTIONS, INC.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
OLH, L.P.
By: Opryland Hospitality, Inc.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
ACUFF-ROSE MUSIC PUBLISHING, INC.
(formerly known as OPRYLAND MUSIC GROUP, INC.)
By:
-----------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
-7-
<PAGE> 1
Exhibit 10.21
June 4, 1998
Mr. Jack J. Vaughn
Chairman, Opryland Lodging Group
2800 Opryland Drive
Nashville, TN 37214
Re: Revised Benefit Package
Dear Jack:
In connection with our various discussions regarding your change of
status to Senior Advisor beginning on January 1, 1999, and the alterations to
your overall benefit package, I am enclosing with this letter the following
documents for your review and approval:
1. Senior Advisor Agreement, whereby the terms of your
relationship with the Company for the two years commencing on January
1, 1999 are set forth.
2. Amended and Restated Restricted Stock Agreement which
reflects the agreement under which you have been awarded 50,000 shares
of the Company's common stock. As you know, 10,000 shares vested on
April 1, 1998, and this Amended Agreement provides for the vesting of
the remaining 40,000 shares on February 1, 1999.
3. Stock Option Agreement providing you with options to
purchase 50,000 shares of the Company's common stock at a strike price
of $33.63, which represents the closing price of the stock on
May 6, 1998.
4. A Memorandum to you from Rod Connor providing you with a
summary of the benefits to which you will be entitled from the Company
upon your retirement.
In view of the revised benefit package reflected in the documents referenced
above, it is agreed that you will no longer be entitled to invoke the provisions
of the Severance Agreement between you and the Company dated August 8, 1994.
All of these attachments, together with this letter, constitute what I
understand to be our complete agreement on all matters affecting your current
and future relationship with the Company. Jack, you have rendered invaluable
service to the Company over your many years with us, and I trust you will agree
that this package of Agreements and benefits reflects not only our appreciation
for your past service to the Company, but also looks forward to the value you
can bring it in your role as Senior Advisor.
<PAGE> 2
Jack J. Vaughn
June 4, 1998
Page 2
The Senior Advisor Agreement, the Amended and Restated Restricted Stock
Agreement, and the Stock Option Agreement each requires your signature. In
addition, I would request that you execute and date this letter at the place set
forth below to reflect that this letter and the documents referred to above
represent a full and complete understanding of arrangements made between you and
the Company.
I look forward to your continued valuable assistance to all of us.
Sincerely yours,
GAYLORD ENTERTAINMENT COMPANY
BY:
-------------------------------------
Terry E. London, President and
Chief Executive Officer
Acknowledged and agreed this 10th day of June 1998.
------------------------------------------
Jack J. Vaughn
<PAGE> 1
Exhibit 10.22
SENIOR ADVISOR AGREEMENT
This Senior Advisor Agreement (the "Agreement") made this 10th day of
June, 1998, by and between GAYLORD ENTERTAINMENT COMPANY (the "Company") and
JACK J. VAUGHN ("Vaughn").
RECITALS:
As of February 28, 1998 Vaughn relinquished his title and
responsibilities as President, Opryland Hotel and Attractions, and became
Chairman, Opryland Lodging Group, while retaining his position as Vice President
of the Company.
Vaughn has indicated his intentions of retiring from his various
positions with the Company effective December 31, 1998, but has agreed, pursuant
to the terms of this Agreement, to continue to serve as a senior advisor to the
Company. This Agreement sets forth the terms and conditions under which Vaughn
will be retained by the Company.
AGREEMENT
1. Vaughn shall retire from all currently held positions with the
Company effective December 31, 1998. During the remainder of 1998, Vaughn will
retain his current salary and will be entitled to the use of a luxury car and
all other benefits and perquisites available to members of the Executive
Committee. The Company will also make available to Vaughn a financial planning
allowance of up to $25,000 to be utilized with respect to financial and estate
planning. It is anticipated that all financial planning to which this allowance
applies shall be undertaken and billed for prior to December 31, 1998.
2. Commencing January 1, 1999, Vaughn shall serve as a senior advisor
to the Company for a period of two years, ending on December 31, 2000. During
this two-year period Vaughn will provide counseling and advisory assistance as
may be requested from time to time by Jack Gaines or David Jones, or by the
Chief Executive Officer of the Company; provided that Vaughn shall not be
required to spend in excess of two days per week on any such matters relating to
the Company; and provided further that the particular hours for rendering the
services called for hereunder shall be within Vaughn's discretion. Vaughn's
compensation as senior advisor for this two-year period will be $200,000 per
year, payable monthly, and Vaughn shall be entitled to reimbursement (in
accordance with the policies and procedures established by the Company) for all
reasonable and necessary expenses incurred by him in performing services as
senior advisor, provided that the Company shall be entitled to approve such
expenses in advance.
3. The Company will have the right to terminate the senior advisory
arrangement at any time without cause by paying out the balance of the
compensation due to Vaughn under the senior advisory arrangement for the
remainder of the two-year period. In the event of Vaughn's death prior to the
expiration of the two-year period, the balance due for the remainder of the
period shall be payable to Vaughn's estate. During the period of the senior
advisory relationship, Vaughn and the Chief Executive Officer will jointly
determine whether an official title should be associated with Vaughn's position.
1
<PAGE> 2
4. For the period of the senior advisory arrangement, Vaughn will not,
directly or indirectly, without the Company's prior written approval, own,
manage, operate, control, or participate in the ownership, management, operation
or control of, or be connected as an officer, employee, consultant, partner,
director or otherwise with, or have any financial interest in, or aid or assist
anyone else in the conduct of, any Competitive Business (as defined below);
provided that the ownership of five (5%) percent or less of the voting stock of
any publicly held corporation shall not constitute a violation of this
Agreement. For purposes of this Agreement, Competitive Business shall mean any
hotel or hospitality company or business operation located in the United States
or Canada.
5. Vaughn agrees to keep the terms of this Agreement confidential and
to refrain from disclosing to any person the provisions hereof unless otherwise
required by law.
6. This Agreement expresses the entire understanding of the parties
hereto, and shall be governed by the laws of the State of Tennessee.
Entered and agreed to as of the day and year first above written.
COMPANY
GAYLORD ENTERTAINMENT COMPANY
BY:
-----------------------------------
Terry E. London, President and
Chief Executive Officer
VAUGHN
-----------------------------------------
Jack J. Vaughn
2
<PAGE> 1
Exhibit 13.1
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following selected historical financial data for the five years
ended December 31, 1998 is derived from the Company's audited consolidated
financial statements. The unaudited selected consolidated pro forma income
statement data for the year ended December 31, 1997 is presented as if the
Distribution and the CBS Merger had occurred on January 1, 1997. The unaudited
selected consolidated pro forma information does not purport to represent what
the Company's results of operations would have been had such transactions, in
fact, occurred on such date or to project the Company's financial position or
results of operations for any future period. The information in the following
table should be read in conjunction with the Company's consolidated financial
statements and related notes included herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
UNAUDITED
ACTUAL PRO FORMA ACTUAL
--------- ---------- -----------------------------------------------------
1998 1997(3) 1997(4)(5) 1996 1995 1994
--------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Hospitality and attractions $ 294,504 $ 346,931 $ 346,931 $ 313,023 $ 276,638 $ 274,494
Broadcasting and music 223,743 202,680 202,680 102,368 148,175 169,538
Cable networks 6,228 11,921 276,384 331,767 282,647 243,899
--------- --------- --------- --------- --------- ---------
Total revenues 524,475 561,532 825,995 747,158 707,460 687,931
--------- --------- --------- --------- --------- ---------
Operating expenses:
Operating costs 315,077 363,369(6)(7) 511,162(6)(7) 443,236 442,208(6) 427,903
Selling, general and
administrative 123,681 132,511 161,280 125,459 115,361 108,624
Merger costs -- 22,645(8) 22,645(8) -- -- --
Restructuring charge -- 13,654(8) 13,654(8) -- -- --
Theme park closing charge -- 42,006(9) 42,006(9) -- -- --
Depreciation and amortization:
Hospitality and attractions 28,590 31,998 31,998 28,861 21,782 19,041
Broadcasting and music 8,037 6,945 6,945 4,421 3,954 3,854
Cable networks 1,817 1,763 10,924 12,406 9,522 7,758
Corporate 4,340 3,530 3,530 3,168 2,828 2,293
--------- --------- --------- --------- --------- ---------
Total depreciation and
amortization 42,784 44,236 53,397 48,856 38,086 32,946
--------- --------- --------- --------- --------- ---------
Total operating expenses 481,542 618,421 804,144 617,551 595,655 569,473
--------- --------- --------- --------- --------- ---------
Operating income:
Hospitality and attractions 46,094 52,024 52,024 45,938 40,178 38,254
Broadcasting and music 32,647 18,056(6) 18,056(6) 23,846 19,578(6) 37,837
Cable networks (11,511) (21,875)(7) 56,865(7) 84,884 74,459 63,343
Corporate (24,297) (26,789) (26,789) (25,061) (22,410) (20,976)
Merger costs -- (22,645)(8) (22,645)(8) -- -- --
Restructuring charge -- (13,654)(8) (13,654)(8) -- -- --
Theme park closing charge -- (42,006)(9) (42,006)(9) -- -- --
--------- --------- --------- --------- --------- ---------
Total operating income 42,933 (56,889) 21,851 129,607 111,805 118,458
Interest expense (30,031) (26,994) (27,177) (19,538) (4,200) (1,292)
Interest income 25,606 23,726 24,022 22,904 7,011 950
Other gains and losses 11,359(1)(2) 146,193(10) 143,532(10) 71,741(13) (8,264)(14) (15,579)(14)(15)
--------- --------- --------- --------- --------- ---------
Income from continuing
operations before provision
for income taxes 49,867 86,036 162,228 204,714 106,352 102,537
Provision for income taxes 18,673 (19,788)(11) 10,792(11) 73,549 40,945 39,477
--------- --------- --------- --------- --------- ---------
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations 31,194 105,824 151,436 131,165 65,407 63,060
Discontinued operations,
net of taxes(1) -- -- -- -- 42,998 --
Cumulative effect of accounting
change, net of taxes -- (7,537)(12) (7,537)(12) -- -- --
--------- --------- --------- --------- --------- ---------
Net income $ 31,194 $ 98,287 $ 143,899 $ 131,165 $ 108,405 $ 63,060
========= ========= ========= ========= ========= =========
Income per share:
Income from continuing
operations $ 0.95 $ 3.27 $ 4.68 $ 4.07 $ 2.04 $ 1.98
========= ========= ========= ========= ========= =========
Net income $ 0.95 $ 3.04 $ 4.45 $ 4.07 $ 3.38 $ 1.98
========= ========= ========= ========= ========= =========
Income per share - assuming
dilution:
Income from continuing
operations $ 0.94 $ 3.24 $ 4.64 $ 4.02 $ 2.01 $ 1.96
========= ========= ========= ========= ========= =========
Net income $ 0.94 $ 3.01 $ 4.41 $ 4.02 $ 3.33 $ 1.96
========= ========= ========= ========= ========= =========
Dividends per share $ 0.65 N/A $ 1.05 $ 1.08 $ 0.89 $ 0.71
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Total assets $1,011,992 $1,117,562 $1,182,248 $1,095,812 $1,015,806
Net assets of discontinued operations (1) -- -- -- -- 214,649
Total debt, including current portion 282,981(1) 388,397 363,409 340,044 361,894
Total stockholders' equity 525,160 516,224 512,963 419,106 338,606
</TABLE>
(1) In 1993, the Company formalized plans to sell its cable television
systems segment (the "Systems") and began accounting for the Systems as
discontinued operations. The Systems were sold in September 1995, which
resulted in a gain of $42,998, net of income taxes of $30,824. Net
proceeds were $198,800 in cash and a note receivable with a face amount
of $165,688, which was recorded at $150,688, net of a $15,000 discount.
During 1998, the Company collected the full amount of the note
receivable and recorded a pretax gain of $15,000 related to the note
receivable discount. The proceeds from the note receivable were used to
reduce outstanding bank indebtedness.
(2) Comprised of:
(a) a pretax gain of $16,072 on the sale of the Company's
investment in the Texas Rangers Baseball Club, Ltd.;
(b) a pretax gain totaling $8,538 primarily related to the
settlement of contingencies from the sales of television
stations KHTV in Houston and KSTW in Seattle;
(c) a pretax loss of $23,616 on the write-off of a note receivable
from Z Music; and
(d) a pretax loss of $9,200 related to the termination of an
operating lease for a satellite transponder for CMT
International.
(3) Reflects the unaudited pro forma results of operations as if the CBS
Merger had occurred on January 1, 1997.
(4) Includes the results of operations of the Cable Networks Business for
the first nine months of 1997. On October 1, 1997, the Cable Networks
Business was acquired by CBS in the CBS Merger.
(5) In January 1997, the Company purchased the net assets of Word for
approximately $120,000. The results of operations of Word have been
included from the date of acquisition.
(6) Includes pretax charges of $11,740 and $13,302 for 1997 and 1995,
respectively, for the write-down to net realizable value of certain
television program rights.
(7) Includes a pretax charge of $5,000 related to plans to cease the
European operations of CMT International effective March 31, 1998.
(8) The merger costs and restructuring charge are related to the CBS
Merger.
(9) Charge related to the closing of the Opryland theme park at the end of
the 1997 operating season.
(10) Includes a pretax gain of $144,259 on the sale of television station
KSTW in Seattle.
(11) Includes a deferred tax benefit of $55,000 related to the revaluation
of certain reserves as a result of the Restructuring and CBS Merger.
2
<PAGE> 3
(12) Reflects the cumulative effect of the change in accounting method for
deferred preopening expenses to expense these costs as incurred,
effective January 1, 1997, of $12,335, net of a related tax benefit of
$4,798.
(13) Includes a pretax gain of $73,850 on the sale of television station
KHTV in Houston.
(14) Includes pretax losses of $5,529 and $26,000 for 1995 and 1994,
respectively, to reflect the loss upon the disposal of the Company's
14% limited partnership interest in the Fiesta Texas theme park.
(15) Includes a pretax gain of $10,689 on the sale of television station
WVTV in Milwaukee.
3
<PAGE> 4
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Certain events occurring during 1997 and 1998 affect the comparability
of the Company's results of operations among the periods under review. The
principal events are as follows:
REORGANIZATION AND CBS MERGER
Prior to September 30, 1997, the Company was a wholly owned subsidiary
of Old Gaylord. On October 1, 1997, Old Gaylord consummated a transaction with
CBS and Sub, a wholly owned subsidiary of CBS, pursuant to which Sub was merged
with and into Old Gaylord, with Old Gaylord continuing as the surviving
corporation and a wholly owned subsidiary of CBS. Prior to the CBS Merger, Old
Gaylord completed the Restructuring whereby certain assets and liabilities that
were part of Old Gaylord's hospitality, attractions, music, television and radio
businesses, including all of its long-term debt, as well as CMT International
and the management of and option to acquire 95% of Z Music, were transferred to
or retained by the Company. As a result of the Restructuring and the CBS Merger,
substantially all of the assets of the Cable Networks Business and its
liabilities, to the extent that they arose out of or related to the Cable
Networks Business, were acquired by CBS. The operating results of the Cable
Networks Business are included in the consolidated statements of income through
September 30, 1997.
OPRYLAND THEME PARK CLOSING
The Company closed the Opryland theme park at the end of the 1997
operating season. During 1998, the Company created a partnership with The Mills
Corporation to develop Opry Mills, a $200 million entertainment / retail complex
located on land previously used for the Opryland theme park. The Company holds a
one-third interest in the partnership.
ACQUISITION OF WORD ENTERTAINMENT
In January 1997, the net assets of Word were purchased by the Company
for approximately $120 million in cash. The purchase price included
approximately $40 million of working capital.
DIVESTITURE OF KSTW
In June 1997, the Company sold television station KSTW in Seattle for
$160 million in cash.
4
<PAGE> 5
RESULTS OF OPERATIONS
The following table contains selected income statement data for each of
the three years ended December 31, 1998, 1997 and 1996 (in thousands). The
unaudited pro forma data for the year ended December 31, 1997 is presented as if
the CBS Merger had occurred on January 1, 1997. The table also shows the
percentage relationships to total revenues and, in the case of segment operating
income, its relationship to segment revenues.
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Unaudited Actual
Actual Pro Forma -------------------------------------------
1998 % 1997 % 1997 % 1996 %
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hospitality and attractions $ 294,504 56.1% $ 346,931 61.8% $ 346,931 42.0% $ 313,023 41.9%
Broadcasting and music 223,743 42.7 202,680 36.1 202,680 24.5 102,368 13.7
Cable networks 6,228 1.2 11,921 2.1 276,384 33.5 331,767 44.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 524,475 100.0 561,532 100.0 825,995 100.0 747,158 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Operating costs 315,077 60.1 363,369 64.7 511,162 61.9 443,236 59.3
Selling, general and
administrative 123,681 23.6 132,511 23.6 161,280 19.5 125,459 16.8
Merger costs -- -- 22,645 4.0 22,645 2.7 -- --
Restructuring charge -- -- 13,654 2.4 13,654 1.7 -- --
Theme park closing charge -- -- 42,006 7.5 42,006 5.1 -- --
Depreciation and amortization:
Hospitality and attractions 28,590 31,998 31,998 28,861
Broadcasting and music 8,037 6,945 6,945 4,421
Cable networks 1,817 1,763 10,924 12,406
Corporate 4,340 3,530 3,530 3,168
- -----------------------------------------------------------------------------------------------------------------------------------
Total depreciation and
amortization 42,784 8.1 44,236 7.9 53,397 6.5 48,856 6.6
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 481,542 91.8 618,421 110.1 804,144 97.4 617,551 82.7
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss):
Hospitality and attractions 46,094 15.7 52,024 15.0 52,024 15.0 45,938 14.7
Broadcasting and music 32,647 14.6 18,056 8.9 18,056 8.9 23,846 23.3
Cable networks (11,511) -- (21,875) -- 56,865 20.6 84,884 25.6
Corporate (24,297) -- (26,789) -- (26,789) -- (25,061) --
Merger costs -- -- (22,645) -- (22,645) -- -- --
Restructuring charge -- -- (13,654) -- (13,654) -- -- --
Theme park closing charge -- -- (42,006) -- (42,006) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating income (loss) $ 42,933 8.2% $ (56,889) (10.1)% $ 21,851 2.6% $ 129,607 17.3%
===================================================================================================================================
</TABLE>
YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
TOTAL REVENUES - Total revenues decreased $301.5 million, or 36.5%, to
$524.5 million in 1998 primarily due to the effect of the CBS Merger. On a pro
forma basis, assuming the CBS Merger had occurred on January 1, 1997, total
revenues would have decreased $37.1 million, or 6.6%, in 1998. The decrease on a
pro forma basis is primarily attributable to the closing of the Opryland theme
park at the end of the 1997 operating season and the sale of television station
KSTW in June 1997. Excluding the total revenues of the Cable Networks Business,
the Opryland theme park and KSTW from the 1997 results, total revenues increased
$33.7 million, or 6.9%, in 1998. The increase was primarily attributable to
increased revenues in the broadcasting and music segment, principally from Word.
5
<PAGE> 6
HOSPITALITY AND ATTRACTIONS - Revenues in the hospitality and
attractions segment decreased $52.4 million, or 15.1%, to $294.5 million in
1998, primarily due to the closing of the Opryland theme park at the end of the
1997 operating season. Excluding the revenues of the Opryland theme park from
1997, revenues in the hospitality and attractions segment increased $6.1
million, or 2.1%, in 1998. The increase relates primarily to increased revenues
from the Oklahoma City Redhawks baseball team of $5.9 million, consulting and
other services fee revenues related to the Opry Mills partnership of $5.0
million, and revenues of $4.1 million from the Inn at Opryland, which was
acquired in April 1998. This increase is partially offset by a decrease in
Opryland Hotel revenues of $7.6 million, or 3.3%, to $223.8 million in 1998
principally because of fewer rooms sold to convention groups and a slowdown in
the Nashville tourism market. The hotel's occupancy rate decreased to 79.1% in
1998 compared to 85.4% in 1997. The hotel sold 801,900 rooms in 1998 compared to
862,300 rooms sold in 1997, reflecting a 7.0% decrease from 1997. The hotel's
average guest room rate increased to $141.28 in 1998 from $135.03 in 1997.
BROADCASTING AND MUSIC - Revenues in the broadcasting and music segment
increased $21.1 million, or 10.4%, to $223.7 million in 1998. The Company sold
television station KSTW in June 1997. Excluding the revenues of KSTW from 1997,
revenues in the broadcasting and music segment increased $33.3 million, or
17.5%, in 1998. The increase results primarily from increased revenues from Word
of $19.9 million and revenues from Pandora subsequent to the date of its
acquisition of $11.3 million.
CABLE NETWORKS - Revenues in the cable networks segment decreased
$270.2 million to $6.2 million in 1998 due to the effect of the CBS Merger. On a
pro forma basis, assuming the CBS Merger had occurred on January 1, 1997,
revenues in the cable networks segment would have decreased $5.7 million in
1998, primarily as the result of CMT International ceasing its European
operations effective March 31, 1998.
OPERATING EXPENSES
TOTAL OPERATING EXPENSES - Total operating expenses decreased $322.6
million, or 40.1%, to $481.5 million in 1998. On a pro forma basis, assuming the
CBS Merger had occurred on January 1, 1997, total operating expenses would have
decreased $136.9 million, or 22.1%, in 1998. The decrease is primarily
attributable to the closing of the Opryland theme park at the end of the 1997
operating season and the sale of television station KSTW in June 1997. Excluding
the total operating expenses of the Cable Networks Business, the Opryland theme
park, and KSTW from the 1997 results, total operating expenses decreased $67.1
million, or 12.2%, in 1998, which is primarily attributable to nonrecurring
charges in 1997, as discussed below. Operating costs, as a percentage of
revenues, decreased to 60.1% during 1998 as compared to 64.7% during 1997 on a
pro forma basis, assuming the CBS Merger had occurred on January 1, 1997.
Selling, general and administrative expenses, as a percentage of revenues,
remained unchanged at 23.6% during 1998 as compared to 1997 on a pro forma
basis, assuming the CBS Merger had occurred on January 1, 1997.
OPERATING COSTS - Operating costs decreased $196.1 million, or 38.4%,
to $315.1 million in 1998. On a pro forma basis, assuming the CBS Merger had
occurred on January 1, 1997, operating costs would have decreased $48.3 million,
or 13.3%, in 1998. The decrease on a pro forma basis is primarily the result of
the December 1997 closing of the Opryland theme park and the June 1997 sale of
television station KSTW. In addition, during 1997 the Company recorded
nonrecurring charges to operations of $11.7 million for the write-down to net
realizable value of certain program rights at television station KTVT and $5.0
million related to plans to cease the European operations of CMT International.
Excluding the write-down of television program rights, the CMT International
European charge and the operating costs of the Cable Networks Business, the
Opryland theme park and KSTW from the 1997 results, operating costs increased
$13.8 million, or 4.6%, in 1998. The increase during 1998 is primarily
attributable to increased operating costs of Word of $11.3 million related to
increased sales and the operating costs of the newly-opened Wildhorse Saloon in
Orlando, Florida of $3.5 million. The acquisition of Pandora in July 1998
increased operating costs by $8.4 million during 1998. Additionally, operating
costs increased $3.2 million related to the Oklahoma City Redhawks baseball team
and increased $2.7 million related to the Company's efforts to expand the
Opryland Hotel concept into other cities. These increases were partially offset
during 1998 by decreased operating expenses of $12.0 million related to the
European operations of CMT International, which ceased operations effective
March 31, 1998, as well as decreased operating costs at the Opryland Hotel of
$2.5 million.
6
<PAGE> 7
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses decreased $37.6 million, or 23.3%, to $123.7 million in
1998. On a pro forma basis, assuming the CBS Merger had occurred on January 1,
1997, selling, general and administrative expenses would have decreased $8.8
million, or 6.7%, during 1998. The decrease is primarily the result of the
closing of the Opryland theme park at the end of the 1997 operating season and
the June 1997 sale of television station KSTW. Excluding the selling, general
and administrative expenses of the Cable Networks Business, the Opryland theme
park and KSTW from the 1997 results, selling, general and administrative
expenses increased $8.8 million, or 7.7%, in 1998. The increase is primarily
attributable to higher selling, general and administrative expenses of Word and
Blanton Harrell Entertainment, an artist management company, of $7.7 million and
increased valuation reserves of $2.9 million related to a long-term note
receivable from Z Music, as discussed below. Additionally, selling, general and
administrative expenses increased $2.3 million related to the newly-opened
Wildhorse Saloon in Orlando, Florida. Corporate general and administrative
expenses, consisting primarily of senior management salaries and benefits,
legal, human resources, accounting, and other administrative costs, decreased
$3.6 million in 1998.
MERGER COSTS AND RESTRUCTURING CHARGE - In connection with the CBS
Merger, the Company recognized nonrecurring merger costs and a restructuring
charge in 1997 of $22.6 million and $13.7 million, respectively. Merger costs
included professional and registration fees, debt refinancing costs, and
incentive compensation associated with the CBS Merger. The restructuring charge
included estimated costs for employee severance and termination benefits of $6.5
million, asset write-downs of $3.7 million, and other costs associated with the
restructuring of $3.5 million. As of December 31, 1998, the Company has recorded
charges of $11.4 million against the restructuring accrual of which $6.1 million
represents actual cash expenditures, $4.6 million represents non-cash asset
write-downs and other restructuring costs, and $0.7 million represents reversal
of restructuring costs based upon favorable settlement of contingencies. The
restructuring accrual has a remaining balance at December 31, 1998 of $2.3
million and is included in accounts payable and accrued liabilities in the
consolidated balance sheet.
THEME PARK CLOSING CHARGE - During 1997, the Company recorded a pretax
charge of $42.0 million related to the closing of the Opryland theme park at the
end of the 1997 operating season. Included in this charge were asset write-downs
of $32.0 million related primarily to property, equipment and inventory,
estimated costs for employee severance and termination benefits of $5.1 million,
and other costs related to the closing of the park of $4.9 million.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization decreased
$10.6 million, or 19.9%, to $42.8 million in 1998. On a pro forma basis,
assuming the CBS Merger had occurred on January 1, 1997, depreciation and
amortization would have decreased $1.5 million, or 3.3%, during 1998. The
decrease is primarily related to the closing of the Opryland theme park at the
end of the 1997 operating season and the June 1997 sale of television station
KSTW. Excluding the depreciation and amortization of the Cable Networks
Business, the Opryland theme park and KSTW from the 1997 results, depreciation
and amortization increased $5.3 million, or 14.0%, in 1998. The increase is
primarily attributable to the depreciation expense of new acquisitions and
capital expenditures.
OPERATING INCOME
Total operating income increased $21.1 million to $42.9 million during
1998. On a pro forma basis, assuming the CBS Merger had occurred on January 1,
1997, total operating income would have increased $99.8 million in 1998.
Excluding merger costs, the restructuring charge, the Opryland theme park
closing charge, the write-down of television program rights, the CMT
International European charge and the operating results of the Cable Networks
Business, the Opryland theme park and KSTW from the 1997 results, total
operating income increased $5.8 million, or 15.5%, in 1998.
Excluding the operating income of the Opryland theme park during 1997,
hospitality and attractions segment operating income decreased $5.4 million in
1998 primarily related to lower operating income produced by the Opryland Hotel.
Excluding the operating income of KSTW and the write-down of television program
rights at KTVT during 1997, broadcasting and music segment operating income
increased $3.3 million in 1998 primarily related to greater operating income
generated by Word and the acquisition of Pandora. Excluding the operating income
of the Cable Networks Business and the CMT International charge related to
ceasing European operations in 1997, the operating loss of the cable networks
segment decreased $5.4 million in 1998 primarily as a result of CMT
International ceasing its European operations effective March 31, 1998.
INTEREST EXPENSE
Interest expense increased $2.9 million to $30.0 million in 1998. The
increase in 1998 was primarily attributable to higher average debt levels as
compared to 1997. During the fourth quarter of 1998, the Company used proceeds
of $238.4 million from a long-term note receivable to reduce outstanding
indebtedness. See "Liquidity and Capital Resources" The Company utilized the net
proceeds from the sale of KSTW in June 1997 to reduce outstanding indebtedness.
The Company's weighted average interest rate on its borrowings was 6.6% in 1998
and 1997.
7
<PAGE> 8
INTEREST INCOME
Interest income increased $1.6 million to $25.6 million in 1998.
Interest income primarily resulted from interest income earned on a long-term
note receivable, which was paid in full during the fourth quarter of 1998. See
"Liquidity and Capital Resources"
OTHER GAINS AND LOSSES
Other gains and losses during 1998 were comprised of the following
pretax amounts, in millions:
<TABLE>
<CAPTION>
GAIN /
(LOSS)
-------
<S> <C>
Write-off of Z Music note receivable $ (23.6)
Gain on sale of Texas Rangers investment 16.1
Gain on long-term note receivable discount 15.0
Loss on termination of transponder operating lease (9.2)
Settlement of contingencies from television station sales 8.5
Other gains, net 4.6
-------
$ 11.4
=======
</TABLE>
The Company recorded a pretax loss of $23.6 million during 1998 related
to the write-off of a note receivable from Z Music. The Company foreclosed on
the note receivable and took a controlling interest in the assets of Z Music.
Also during 1998, the Company sold its investment in the Texas Rangers Baseball
Club, Ltd. for $16.1 million and recognized a gain of the same amount.
During 1995, the Company sold its cable television systems (the
"Systems"). Net proceeds consisted of $198.8 million in cash and a 10-year note
receivable with a face amount of $165.7 million. The note receivable was
recorded net of a $15.0 million discount to reflect the note at fair value.
During 1998, the Company received $238.4 million representing prepayment of the
entire balance of the note receivable and related accrued interest. The Company
recorded a $15.0 million pretax gain during 1998 related to the note receivable
discount recorded as part of the Systems sale transaction.
During 1998, the Company terminated an operating lease for a satellite
transponder related to the European operations of CMT International. The
termination of the satellite transponder lease resulted in a pretax charge of
$9.2 million during 1998. Additionally, the Company recorded a gain of $8.5
million during 1998 primarily related to the settlement of contingencies arising
from the sale of television stations KHTV in Houston and KSTW in Seattle.
In June 1997, the Company sold television station KSTW in Seattle for
$160.0 million in cash. The sale resulted in a pretax gain of $144.3 million,
which is included in other gains and losses in 1997.
INCOME TAXES
The Company's provision for income taxes was $18.7 million in 1998
compared to $10.8 million in 1997. During 1997, the Company recorded a deferred
tax benefit of $55.0 million related to the revaluation of certain reserves as a
result of the Restructuring and CBS Merger. The Company's effective tax rate on
its income before provision for income taxes was 37.4% for 1998 compared to 6.7%
for 1997.
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
TOTAL REVENUES - Total revenues increased $78.8 million, or 10.6%, to
$826.0 million in 1997. The increase was primarily attributable to the
acquisition of Word in January 1997. Excluding the revenues of Word subsequent
to the date of the Word acquisition, total revenues decreased $33.4 million, or
4.5%, to $713.7 million in 1997, primarily as a result of the CBS Merger.
Revenues of the Cable Networks Business were $264.5 million in 1997 prior to the
CBS Merger and $320.6 million in 1996. Excluding the revenues of Word and the
Cable Networks Business from 1997 and 1996, total revenues increased $22.7
million, or 5.3%, to $449.3 million in 1997. This increase was primarily
attributable to increased revenues in the hospitality and attractions segment,
principally the Opryland Hotel, offset in part by decreased revenues in the
broadcasting and music segment resulting from the 1997 sale of television
station KSTW.
8
<PAGE> 9
HOSPITALITY AND ATTRACTIONS - Revenues in the hospitality and
attractions segment increased $33.9 million, or 10.8%, to $346.9 million in
1997. Opryland Hotel revenues increased $35.1 million, or 17.9%, to $231.4
million in 1997, principally due to the hotel expansion. The hotel's occupancy
rate increased to 85.4% in 1997 compared to 84.7% in 1996. The hotel sold
862,300 rooms in 1997 compared to 780,300 rooms in 1996, reflecting a 10.5%
increase. The hotel's average guest room rate increased to $135.03 in 1997 from
$131.21 in 1996. Opryland theme park revenues decreased $1.5 million in 1997 due
primarily to a 6.8% decrease in theme park attendance as compared with 1996.
BROADCASTING AND MUSIC - Revenues increased $100.3 million, or 98.0%,
to $202.7 million in 1997. The increase was primarily attributable to the
acquisition of Word in January 1997. Excluding the revenues of Word subsequent
to the date of the Word acquisition, total revenues decreased $12.0 million, or
11.7%, to $90.4 million. The decrease results primarily from the June 1997 sale
of television station KSTW. Revenues of KSTW were $12.2 million and $25.7
million in 1997 and 1996, respectively.
CABLE NETWORKS - Revenues decreased $55.4 million, or 16.7%, to $276.4
million in 1997. This decrease resulted from the CBS Merger on October 1, 1997.
Excluding the revenues of the Cable Networks Business from 1997 and 1996,
revenues increased $0.8 million, or 6.9%, to $11.9 million. CMT International
revenues increased $1.8 million, or 17.8%, to $11.9 million in 1997.
OPERATING EXPENSES
TOTAL OPERATING EXPENSES - Total operating expenses increased $186.6
million, or 30.2%, to $804.1 million in 1997, a substantial portion of which was
attributable to the acquisition of Word in January 1997 and the nonrecurring
charges discussed below. Operating costs, as a percentage of revenues, increased
to 61.9% during 1997 as compared to 59.3% during 1996. Selling, general and
administrative expenses, as a percentage of revenues, increased to 19.5% in 1997
from 16.8% in 1996. A portion of the increase was also due to corporate
operating expenses, which increased $1.7 million to $26.8 million in 1997.
OPERATING COSTS - Operating costs increased $67.9 million, or 15.3%, to
$511.2 million in 1997. A significant portion of the increase resulted from the
operating costs of Word in 1997. Excluding the operating costs of Word
subsequent to the January 1997 Word acquisition date, operating costs decreased
$0.3 million to $443.0 million in 1997. Excluding the operating costs of the
Cable Networks Business from 1997 and 1996 and the operating costs of Word
subsequent to the date of the Word acquisition, operating costs increased $34.0
million, or 13.0%, to $295.2 million. During 1997, the Company recorded a
nonrecurring charge to operations of $11.7 million for the write-down to net
realizable value of certain program rights at television station KTVT. In
addition, the Company recorded a $5.0 million charge to operations related to
its plans to cease the European operations of CMT International effective March
31, 1998. Operating costs increased $20.0 million during 1997 at the Opryland
Hotel, primarily as a result of the hotel expansion, and increased $3.6 million
during 1997 at CMT International. These increases were offset, in part, by a
decrease of $9.9 million related to the 1997 sale of television station KSTW.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and
administrative expenses increased $35.8 million, or 28.6%, to $161.3 million in
1997. Excluding the selling, general and administrative expenses of Word
subsequent to the January 1997 Word acquisition date, selling, general and
administrative expenses increased $2.9 million, or 2.3%, to $128.4 million in
1997. Excluding the selling, general and administrative expenses of the Cable
Networks Business from 1997 and 1996 and the selling, general and administrative
expenses of Word subsequent to the date of the Word acquisition, selling,
general and administrative expenses increased $3.7 million, or 3.9%, to $99.6
million. The increase for the year was primarily attributable to administrative
cost increases of $3.2 million and selling and promotional cost increases of
$2.0 million at the Opryland Hotel. This increase was offset, in part, by a
decrease related to the 1997 sale of television station KSTW of $2.5 million.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization increased
$4.5 million, or 9.3%, to $53.4 million in 1997. The increase was primarily
attributable to the acquisition of Word in January 1997. Excluding the
depreciation and amortization of Word subsequent to the date of the Word
acquisition, depreciation and amortization increased $1.5 million, or 3.0%, to
$50.3 million in 1997. Excluding the depreciation and amortization of the Cable
Networks Business from 1997 and 1996 and the depreciation and amortization of
Word subsequent to the date of the Word acquisition, depreciation and
amortization increased $2.7 million, or 7.1%, to $41.2 million. The increase in
1997 was primarily attributable to increased depreciation and amortization
expense of $2.9 million related to the expansion of the Opryland Hotel.
9
<PAGE> 10
OPERATING INCOME
Total operating income decreased $107.8 million to $21.9 million during
1997. Excluding the non-recurring charges related to the write-down of
television program rights at television station KTVT, the charge to operations
related to CMT International's plan to cease operations in Europe, merger costs
and restructuring charge, and the Opryland theme park closing charge, total
operating income decreased $12.7 million to $116.9 million. This decrease was
primarily attributable to the CBS Merger. The operating income of the Cable
Networks Business was $78.7 million and $98.6 million in 1997 and 1996,
respectively. Excluding the non-recurring items discussed above, the operating
income of the Cable Networks Business in 1997 and 1996 and the operating income
of Word subsequent to the January 1997 Word acquisition date, total operating
income decreased $1.0 million, or 3.1%, to $30.0 million in 1997. This decrease
was primarily attributable to increased operating losses of CMT International
offset, in part, by increased operating income of the Opryland Hotel.
INTEREST EXPENSE
Interest expense increased $7.6 million to $27.2 million in 1997. The
increase was attributable to higher average debt levels, due primarily to the
financing of the Word acquisition in January 1997. The Company utilized the net
proceeds from the sale of television station KSTW in June 1997 to reduce
outstanding indebtedness. The Company's weighted average interest rate on its
bank debt and senior notes combined was 6.6% in 1997 compared to 6.9% in 1996.
INTEREST INCOME
Interest income increased $1.1 million to $24.0 million in 1997.
Interest income primarily resulted from noncash interest income earned on a
long-term note receivable from the sale of the Systems.
OTHER GAINS AND LOSSES
In June 1997, the Company sold television station KSTW in Seattle for
$160.0 million in cash. The sale resulted in a pretax gain of $144.3 million,
which is included in other gains and losses in 1997.
In January 1996, the Company sold television station KHTV in Houston
for $97.8 million, including certain working capital and other adjustments of
approximately $4.3 million. The sale resulted in a pretax gain of $73.9 million,
which is included in other gains and losses in 1996.
INCOME TAXES
The Company's provision for income taxes was $10.8 million in 1997
compared to $73.5 million in 1996. During 1997, the Company recorded a deferred
tax benefit of $55.0 million related to the revaluation of certain reserves as a
result of the Restructuring and CBS Merger. The Company's effective tax rate on
its income before provision for income taxes was 6.7% for 1997 compared to 35.9%
for 1996.
ACCOUNTING CHANGE
Effective January 1, 1997, the Company changed its method of accounting
for deferred preopening expenses to expense these costs as incurred. Prior to
1997, preopening expenses were deferred and amortized over five years on a
straight-line basis. The Company recorded a $7.5 million charge, net of taxes of
$4.8 million, to record the cumulative effect of this accounting change. This
change did not have a significant impact on results of operations before the
cumulative effect of this accounting change for 1997. On a pro forma basis, this
change would have decreased net income by $3.0 million, or $0.09 per share, for
the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to the Restructuring, the Company assumed all of Old Gaylord's
long-term indebtedness, including Old Gaylord's obligations under a revolving
credit facility entered into by Old Gaylord in August 1997 (the "1997 Credit
Facility"). The lenders under the 1997 Credit Facility are a syndicate of banks
with NationsBank of Texas, N.A. acting as agent (the "Agent"). The maximum
amount that can be borrowed under the 1997 Credit Facility is $600 million. The
final maturity of the 1997 Credit Facility is July 2002. The 1997 Credit
Facility is unsecured and is guaranteed by certain of the Company's
subsidiaries.
10
<PAGE> 11
Amounts outstanding under the 1997 Credit Facility bear interest at a
rate, at the Company's option, equal to either (i) the higher of the Agent's
prime rate or the federal funds rate plus 0.5%, or (ii) LIBOR plus a margin
ranging from 0.4% to 1% depending on the Company's debt ratings or ratio of debt
to capitalization. In addition, the Company is required to pay a commitment fee
ranging between 0.125% and 0.25% per year, also depending on the Company's debt
ratings or ratio of debt to capitalization, on the average unused portion of the
1997 Credit Facility, as well as an annual administrative fee.
The 1997 Credit Facility requires the Company to maintain certain
financial ratios and minimum stockholders' equity levels and subjects the
Company to limitations on, among other things, mergers and sales of assets,
additional indebtedness, capital expenditures, investments, acquisitions, liens,
and transactions with affiliates. At December 31, 1998, the Company was in
compliance with all financial covenants under the 1997 Credit Facility.
During 1995, the Company sold the Systems to CCT Holdings Corp
("CCTH"). Net proceeds consisted of $198.8 million in cash and a 10-year note
receivable with a face amount of $165.7 million. In addition as part of the sale
transaction, the Company received contractual equity participation rights equal
to 15% of the net distributable proceeds, as defined, from certain future asset
sales by the buyer of the Systems. During the fourth quarter of 1998, the
Company received $238.4 million representing prepayment of the entire balance of
the CCTH note receivable and related accrued interest. Subsequent to December
31, 1998, the Company received cash and recognized a pretax gain of
approximately $130 million representing the value of the 15% contractual equity
participation rights upon the sale of the Systems. The proceeds from the note
receivable prepayment and the equity participation rights were used to reduce
outstanding indebtedness under the 1997 Credit Facility.
The Company owns a minority limited partnership interest in Bass Pro,
L.P. Subsequent to December 31, 1998, the Company advanced Bass Pro
approximately $28 million under an unsecured note agreement which bears interest
at 8% and is due in 2003. Interest under the note agreement is payable annually.
At February 28, 1999, the Company had approximately $440 million in
available borrowing capacity under the 1997 Credit Facility.
The Company currently projects capital expenditures of approximately
$48 million for 1999. The Company's management believes that the net cash flows
from operations, together with the amount expected to be available for borrowing
under the 1997 Credit Facility, will be sufficient to satisfy anticipated future
cash requirements of the Company on both a short-term and long-term basis.
YEAR 2000
Without programming modifications, certain computer programs will not
operate properly when using the two digits used in date calculations for the
year 2000. These computer programs interpret the "00" used in date calculations
to represent the year 1900. During 1996, the Company formed an internal task
force responsible for assessing, testing and correcting the Company's
information technology and systems risks associated with the year 2000. The task
force has substantially completed its assessment of the Company's systems, has
identified the Company's hardware, software and equipment that will not operate
properly in the year 2000, and is taking the appropriate action to ensure
compliance. In certain instances, hardware, software and equipment that will not
operate properly in the year 2000 are being replaced.
As of December 31, 1998, the task force has determined that the
majority of the Company's systems, in certain circumstances following already
completed programming changes, will operate properly in the year 2000. As of
December 31, 1998, sixty-two of the Company's sixty-three internally developed
software applications are considered year 2000 compliant.
As to systems not currently determined to be year 2000 compliant, the
Company is currently replacing or repairing hardware, software and equipment
that it anticipates will not work properly in the year 2000. The Company expects
that replacements and repairs of hardware, software and equipment for systems
that are not currently considered year 2000 compliant will be substantially
completed during the first and second quarters of 1999. The Company is testing
all of its systems to ensure their proper operation upon the arrival of the year
2000. The Company expects that the testing phase of its year 2000 remediation
effort will be substantially completed by the end of the second quarter of 1999.
The Company has requested written documentation from vendors and
suppliers with whom the Company has a material relationship regarding their
ability to operate properly in the year 2000. In many cases, the Company is
considering alternatives related to vendors and suppliers that do not confirm
their year 2000 readiness. There can be no assurance that the Company's
significant vendors and suppliers will have remedied their year 2000 issues in a
timely manner. The failure of a significant supplier to remedy its year 2000
issues could have a material adverse effect on the Company's operations,
financial position or liquidity. The Company will continue to monitor its
significant vendors and suppliers to mitigate its risks.
11
<PAGE> 12
Based upon the Company's current estimates, the costs of the Company's
year 2000 remediation efforts will be between $7 million and $9 million.
Included in the Company's cost estimates are the costs of replacing hardware and
software of approximately $6 million, which are capitalized and amortized over
their estimated useful lives. Certain software replacements included in these
cost estimates were planned prior to the assessment of the year 2000 issue and
were accelerated as part of the Company's year 2000 remediation effort. The
remaining costs are expensed as incurred. These projected costs are based upon
management's best estimates, which were derived utilizing numerous assumptions
of future events. There can be no guarantee, however, that these cost estimates
will be achieved and actual results could differ materially.
Management's estimate of the Company's most reasonably likely worst
case scenario involves the replacement of hardware, software or equipment during
the third and fourth quarters of 1999 that is determined during the testing
phase of the remediation effort to not be correctable. The foregoing
notwithstanding, management does not currently believe that the costs of
assessment, remediation or replacement of the Company's systems, or the
potential failure of third parties' systems, will have a material adverse effect
on the Company's business, financial condition, results of operations or
liquidity.
SEASONALITY
Certain of the Company's operations are subject to seasonal
fluctuation. The first calendar quarter is the weakest quarter for most
television and radio broadcasters, including the Company, as advertising
revenues are lower in the post-Christmas period. Revenues in the music business
are typically weakest in the first calendar quarter following the Christmas
buying season.
NEWLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes 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. The Company will adopt the provisions of SFAS No. 133
effective January 1, 2000 and does not anticipate the adoption of SFAS No. 133
to have a material effect on the Company's financial statements.
FORWARD-LOOKING STATEMENTS / RISK FACTORS
This report contains certain forward-looking statements regarding,
among other things, the anticipated financial and operating results of the
Company. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions investors that
future financial and operating results may differ materially from those
projected in forward-looking statements made by, or on behalf of, the Company.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors that may cause the actual results, performance, or
achievements of the Company to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. The Company's future operating results depend on a number of factors
which were derived utilizing numerous assumptions and other important factors
that, if altered, could cause actual results to differ materially from those
projected in forward-looking statements. These factors, many of which are beyond
the Company's control, include growth in the popularity of country music and
country lifestyles; growth in the popularity of Christian music and family
values lifestyles; the ability to control costs relating to the development of
the Opry Mills retail complex; the ability to integrate acquired operations into
the Company's businesses; the ability of the Opryland Lodging Group to develop
successfully hotel properties in other markets; the advertising market in the
United States in general and in the Company's Dallas television and Nashville
radio markets in particular; the perceived attractiveness of Nashville,
Tennessee and the Company's properties as convention and tourist destinations;
consumer tastes and preferences for the Company's programming and other
entertainment offerings; competition; the impact of weather on construction
schedules; and consolidation in the broadcasting and cable distribution
industries.
In addition, investors are cautioned not to place undue reliance on
forward-looking statements contained in this report because they speak only as
of the date hereof. The Company undertakes no obligation to release publicly any
modifications or revisions to forward-looking statements contained in this
report to reflect events or circumstances occurring after the date hereof or to
reflect the occurrence of unanticipated events.
12
<PAGE> 13
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 524,475 $ 825,995 $ 747,158
Operating expenses:
Operating costs 315,077 511,162 443,236
Selling, general and administrative 123,681 161,280 125,459
Merger costs -- 22,645 --
Restructuring charge -- 13,654 --
Theme park closing charge -- 42,006 --
Depreciation and amortization 42,784 53,397 48,856
--------- --------- ---------
Operating income 42,933 21,851 129,607
Interest expense (30,031) (27,177) (19,538)
Interest income 25,606 24,022 22,904
Other gains and losses 11,359 143,532 71,741
--------- --------- ---------
Income before provision for income taxes 49,867 162,228 204,714
Provision for income taxes 18,673 10,792 73,549
--------- --------- ---------
Income before cumulative effect of accounting change 31,194 151,436 131,165
Cumulative effect of accounting change, net of taxes -- (7,537) --
--------- --------- ---------
Net income $ 31,194 $ 143,899 $ 131,165
========= ========= =========
Income per share:
Income before cumulative effect of accounting change $ 0.95 $ 4.68 $ 4.07
Cumulative effect of accounting change, net of taxes -- (0.23) --
--------- --------- ---------
Net income $ 0.95 $ 4.45 $ 4.07
========= ========= =========
Income per share - assuming dilution:
Income before cumulative effect of accounting change $ 0.94 $ 4.64 $ 4.02
Cumulative effect of accounting change, net of taxes -- (0.23) --
--------- --------- ---------
Net income $ 0.94 $ 4.41 $ 4.02
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 18,746 $ 8,712
Trade receivables, less allowance of $5,517 and $4,031, respectively 94,429 82,152
Inventories 27,018 23,206
Other assets 49,009 37,311
----------- ----------
Total current assets 189,202 151,381
----------- ----------
Property and equipment, net of accumulated depreciation 586,898 550,267
Intangible assets, net of accumulated amortization 117,529 84,419
Investments 78,140 73,991
Long-term notes and interest receivable 9,015 233,112
Other assets 31,208 24,392
----------- ----------
Total assets $ 1,011,992 $1,117,562
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6,269 $ --
Accounts payable and accrued liabilities 115,837 127,694
----------- ----------
Total current liabilities 122,106 127,694
----------- ----------
Long-term debt 276,712 388,397
Deferred income taxes 52,747 32,579
Other liabilities 33,039 42,710
Minority interest 2,228 9,958
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares authorized, no shares
issued or outstanding -- --
Common stock, $.01 par value, 150,000 shares authorized, 32,808 and
32,741 shares issued and outstanding, respectively 328 327
Additional paid-in capital 500,434 498,504
Retained earnings 26,699 16,837
Other stockholders' equity (2,301) 556
----------- ----------
Total stockholders' equity 525,160 516,224
----------- ----------
Total liabilities and stockholders' equity $ 1,011,992 $1,117,562
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 31,194 $ 143,899 $ 131,165
Amounts to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization 42,784 53,397 48,856
Provision (benefit) for deferred income taxes 20,168 (80,570) 2,119
Gain on long-term note receivable (15,000) -- --
Gain on sale of investments (20,118) -- --
Write-off of Z Music note receivable 23,616 -- --
Cumulative effect of accounting change, net of taxes -- 7,537 --
Theme park closing charge -- 42,006 --
Write-down of television program rights -- 11,740 --
Noncash interest income -- (22,936) (20,479)
Gain on sale of television stations -- (144,259) (73,850)
Changes in:
Trade receivables (4,485) (6,744) (8,914)
Interest receivable on long-term note 48,385 -- --
Accounts payable and accrued liabilities (19,521) 24,506 (8,281)
Other assets and liabilities (28,782) (2,195) (5,273)
--------- --------- ---------
Net cash flows provided by operating activities 78,241 26,381 65,343
--------- --------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (51,193) (49,239) (115,542)
Acquisition of businesses, net of cash acquired (31,796) (120,191) --
Proceeds from sale of property and equipment 6,336 4,228 185
Proceeds from sale of investments 20,130 -- --
Principal proceeds from collection of long-term note receivable 165,688 -- --
Proceeds from sale of television stations, net of direct selling costs paid -- 155,266 96,840
Cash acquired by CBS in the Merger -- (7,481) --
Investments in, advances to and distributions from affiliates (9,852) (10,880) (7,893)
Payment upon disposal of Fiesta Texas partnership interest -- -- (12,976)
Other investing activities (10,783) (11,351) (8,139)
--------- --------- ---------
Net cash flows provided by (used in) investing activities 88,530 (39,648) (47,525)
--------- --------- ---------
Cash Flows from Financing Activities:
Net borrowings (payments) under revolving credit agreements (134,690) 178,935 61,446
Proceeds from issuance of long-term debt 500 420 --
Repayment of long-term debt (1,547) (149,762) (38,081)
Dividends paid (21,332) (33,929) (34,946)
Proceeds from exercise of stock options 332 14,304 1,359
Purchase of treasury stock -- (1,709) (5,938)
--------- --------- ---------
Net cash flows provided by (used in) financing activities (156,737) 8,259 (16,160)
--------- --------- ---------
Net change in cash 10,034 (5,008) 1,658
Cash, beginning of year 8,712 13,720 12,062
--------- --------- ---------
Cash, end of year $ 18,746 $ 8,712 $ 13,720
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 16
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Additional Other Total
Common Paid-in Retained Treasury Unearned Comprehensive Stockholders'
Stock Capital Earnings Stock Compensation Income Equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 949 $ 414,458 $ 68,353 $(61,856) $(2,798) $ -- $ 419,106
Comprehensive income:
Net income -- -- 131,165 -- -- -- 131,165
---------
Comprehensive income 131,165
Cash dividends ($1.08 per share) -- -- (34,946) -- -- -- (34,946)
Exercise of stock options 1 1,358 -- -- -- -- 1,359
Issuance of restricted stock 2 4,318 -- -- (4,320) -- --
Compensation expense -- -- -- -- 2,271 -- 2,271
5% stock dividend 47 125,031 (125,078) -- -- -- --
Retirement of treasury stock (32) (61,824) -- 61,856 -- -- --
Purchase of treasury stock -- -- -- (5,938) -- -- (5,938)
Other -- (54) -- -- -- -- (54)
--------------------------------------------------------------------------------------
Balance, December 31, 1996 967 483,287 39,494 (5,938) (4,847) -- 512,963
Comprehensive income:
Net income -- -- 143,899 -- -- -- 143,899
Unrealized gain on investments -- -- -- -- -- 2,887 2,887
Foreign currency translation -- -- -- -- -- (116) (116)
---------
Comprehensive income 146,670
Cash dividends ($1.05 per share) -- -- (33,929) -- -- -- (33,929)
Exercise of stock options 14 14,290 -- -- -- -- 14,304
Tax benefit on stock options -- 6,598 -- -- -- -- 6,598
Issuance of restricted stock 1 1,321 -- -- (1,322) -- --
Compensation expense -- -- -- -- 3,954 -- 3,954
Old Gaylord stock retirement (975) -- -- -- -- -- (975)
New Gaylord stock distribution 324 651 -- -- -- -- 975
Cable Networks Business net assets -- -- (132,627) -- -- -- (132,627)
Purchase of treasury stock -- -- -- (1,709) -- -- (1,709)
Retirement of treasury stock (4) (7,643) -- 7,647 -- -- --
--------------------------------------------------------------------------------------
Balance, December 31, 1997 327 498,504 16,837 -- (2,215) 2,771 516,224
Comprehensive income:
Net income -- -- 31,194 -- -- -- 31,194
Realized gain on investments -- -- -- -- -- (2,887) (2,887)
Foreign currency translation -- -- -- -- -- (323) (323)
---------
Comprehensive income 27,984
Cash dividends ($0.65 per share) -- -- (21,332) -- -- -- (21,332)
Exercise of stock options -- 332 -- -- -- -- 332
Tax benefit on stock options -- 60 -- -- -- -- 60
Issuance of restricted stock 1 1,538 -- -- (1,539) -- --
Compensation expense -- -- -- -- 1,892 -- 1,892
--------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 328 $ 500,434 $ 26,699 $ -- $(1,862) $ (439) $ 525,160
======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Gaylord Entertainment Company (the "Company"), formerly New Gaylord
Entertainment Company, is a diversified entertainment and communications company
operating, through its subsidiaries, principally in three business segments:
hospitality and attractions, broadcasting and music, and cable networks. During
1997, the Company's former parent ("Old Gaylord") consummated a transaction with
CBS Corporation ("CBS") whereby certain assets and liabilities of the Company's
cable networks segment were merged with CBS (the "Merger") as further described
in Note 3.
Hospitality and Attractions
At December 31, 1998, the Company owns and operates the Opryland Hotel,
the Grand Ole Opry, the Wildhorse Saloon, and various other tourist attractions
located in Nashville, Tennessee. During 1998, the Company formed the Opryland
Lodging Group to expand the Opryland Hotel concept into other cities. The
Company has announced plans for hotel development projects in the Orlando,
Florida and Dallas, Texas markets. During 1998, the Company created a
partnership with The Mills Corporation to develop Opry Mills, a $200,000
entertainment/retail complex located on land previously used for the Opryland
theme park. Opry Mills is anticipated to open in 2000. The Company closed the
Opryland theme park at the end of the 1997 operating season. During 1998, the
Company purchased the remaining 49% minority interest in a joint venture created
to expand the Wildhorse Saloon concept beyond Nashville to other cities. The
Company also owns a minority limited partnership interest in Bass Pro, L.P.
("Bass Pro"), which is a leading retailer of premium outdoor sporting goods and
fishing products.
Broadcasting and Music
At December 31, 1998, the Company owns and operates one broadcast
television station, KTVT (Fort Worth-Dallas, Texas), which is affiliated with
the CBS television network. The Company sold its television stations, KSTW
(Tacoma-Seattle, Washington) in June 1997 and KHTV (Houston, Texas) in January
1996, as further described in Note 5. During 1998, the Company acquired Pandora
Investments, S.A. ("Pandora"), a Luxembourg-based company which acquires,
distributes and produces theatrical feature film and television programming
primarily for markets outside of the United States, as further described in Note
4. The Company acquired the assets of Word Entertainment ("Word"), a
contemporary Christian music company, in January 1997, also as further described
in Note 4. In addition, the Company owns and operates three radio stations and a
music publishing company in Nashville, Tennessee.
Cable Networks
At December 31, 1998, the Company owns the CMT International cable
television networks operating in Asia and the Pacific Rim, and Latin America.
CMT International ceased its European operations as of March 31, 1998, as
further described in Note 5. Prior to October 1997, the Company also owned The
Nashville Network ("TNN"), a national basic cable television network, and
operated and owned 67% of the outstanding stock of Country Music Television,
Inc. ("CMT"), a country music video cable network operated in the United States
and Canada. During October 1997, TNN and CMT were acquired by CBS as further
described in Note 3. In addition, during 1998 the Company acquired a controlling
interest in the assets of Z Music, Inc. ("Z Music"), a cable network featuring
contemporary Christian music videos, as further described in Note 2.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its majority-owned subsidiaries. For accounting purposes, the
consolidated financial statements include Old Gaylord and its subsidiaries,
including the Company, prior to the merger with CBS. All significant
intercompany accounts and transactions have been eliminated in consolidation.
17
<PAGE> 18
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, including interest on funds
borrowed to finance the construction of major capital additions, and are
depreciated using straight-line and accelerated methods over the following
estimated useful lives:
Buildings 40 years
Land improvements 20 years
Attractions-related equipment 16 years
Furniture, equipment and vehicles 3-8 years
Leasehold improvements Life of lease
Depreciation expense includes amortization of capital leases which is
computed on a straight-line basis over the term of the lease. Maintenance and
repairs are charged to expense as incurred.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill which is amortized
using the straight-line method over a period not to exceed 40 years. The Company
continually evaluates whether later events and circumstances have occurred that
indicate the remaining balance of goodwill may not be recoverable. In evaluating
possible impairment, the Company uses the most appropriate method of evaluation
given the circumstances surrounding the particular acquisition, which has
generally been an estimate of the related business unit's undiscounted operating
income before interest and taxes over the remaining life of the goodwill.
Amortization expense related to intangible assets for 1998, 1997 and
1996 was $3,823, $4,743 and $3,212, respectively. At December 31, 1998 and 1997,
accumulated amortization of intangible assets was $9,169 and $5,346,
respectively.
INVESTMENTS
Investments consist primarily of a minority interest in Bass Pro, a
supplier of premium outdoor sporting goods and fishing tackle which distributes
its products through retail centers and an extensive mail order catalog
operation. Bass Pro also owns and operates a resort hotel and development in
southern Missouri. The Company accounts for the Bass Pro investment using the
equity method of accounting. The Company's original investment exceeded its
share of the underlying equity in the net assets of Bass Pro by approximately
$36,000, which is being amortized on a straight-line basis over 40 years. The
Company's recorded investment in Bass Pro was $61,568 and $62,344 at December
31, 1998 and 1997, respectively.
During 1998, the Company created a partnership with The Mills
Corporation to develop Opry Mills, a $200,000 entertainment/retail complex
located on land previously used for the Opryland theme park. The Company holds a
one-third interest in the partnership through a non-cash capital contribution of
$2,049 reflecting the book value of the land where Opry Mills will be located.
The Company accounts for the Opry Mills partnership using the equity method of
accounting.
The Company holds a minority interest investment in the Nashville
Predators, a National Hockey League professional team, of $12,095 and $6,398 at
December 31, 1998 and 1997, respectively.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
certain of the Company's investments were considered available-for-sale
investments at December 31, 1997 and were carried at market value, with the
difference between cost and market value recorded as a component of
stockholders' equity. These investments were sold during 1998, with a pretax
gain of $3,296 recognized in other gains and losses in the consolidated
statements of income.
18
<PAGE> 19
OTHER ASSETS
Other current and long-term assets consist of:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Other current assets:
Other current receivables $34,192 $23,207
Prepaid expenses 12,695 10,839
Program rights 1,719 2,991
Other current assets 403 274
------- -------
Total other current assets $49,009 $37,311
======= =======
Other long-term assets:
Music and film catalogs $16,757 $16,476
Deferred software costs 5,122 346
Prepaid pension cost 5,274 2,702
Program rights 352 2,245
Other long-term assets 3,703 2,623
------- -------
Total other long-term assets $31,208 $24,392
======= =======
</TABLE>
Other current receivables result primarily from non-operating income
and are due within one year. Music and film catalogs consist of the costs to
acquire music and film rights and are amortized over their estimated useful
lives.
The Company acquires television exhibition rights for certain
theatrical and television programs. The program rights are recorded at the gross
contract amount when certain conditions are met, including availability of the
program for broadcast, and are amortized using an accelerated method over the
shorter of the estimated number of program showings or the contract periods. At
December 31, 1998, the Company had commitments for program rights and related
program contracts payable of $1,667 which were not available for telecast until
a future date. These amounts are not included in the accompanying consolidated
balance sheets.
During 1997, the Company recorded a pretax charge of $11,740 to
write-down certain program rights at KTVT to net realizable value. This
write-down relates primarily to movie packages and certain syndicated
programming whose value was impaired by an operating decision to purchase more
first-run programming and is included in operating costs in the consolidated
statements of income.
DEFERRED PREOPENING COSTS
Effective January 1, 1997, the Company changed its method of accounting
for deferred preopening expenses to expense these costs as incurred in
accordance with AICPA Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities". Prior to 1997, preopening expenses were deferred and
amortized over five years on a straight-line basis. The Company recorded a
$7,537 charge, net of taxes of $4,798, to record the cumulative effect of this
accounting change. This change did not have a significant impact on results of
operations before the cumulative effect of this accounting change for 1997. On a
pro forma basis, this change would have decreased net income by $3,043, or $0.09
per share, for the year ended December 31, 1996.
19
<PAGE> 20
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Trade accounts payable $ 31,198 $ 24,210
Income taxes payable 4,476 6,725
Accrued royalties 14,709 13,057
Deferred revenues 11,076 11,430
Program contracts payable 5,418 8,826
Accrued salaries and benefits 8,202 5,614
Accrued interest payable 1,176 1,462
Property and other taxes payable 13,638 13,379
Other accrued liabilities 25,944 42,991
-------- --------
Total accounts payable and accrued liabilities $115,837 $127,694
======== ========
</TABLE>
Accrued royalties consist primarily of music royalties and licensing
fees. Deferred revenues consist primarily of deposits on advance room bookings
at the Opryland Hotel, advance ticket sales at the Company's tourism properties
and music publishing advances.
INCOME TAXES
In accordance with SFAS No. 109, "Accounting for Income Taxes", the
Company establishes deferred tax assets and liabilities based on the difference
between the financial statement and income tax carrying amounts of assets and
liabilities using existing tax rates.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages,
but does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method as
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related Interpretations, under which no compensation
cost related to stock options has been recognized as further described in Note
10.
INCOME PER SHARE
SFAS No. 128, "Earnings per Share", was issued and is effective for
fiscal periods ending after December 15, 1997. SFAS No. 128 establishes
standards for computing and presenting earnings per share. The Company adopted
the provisions of SFAS No. 128 in the fourth quarter of 1997. Under the
standards established by SFAS No. 128, earnings per share is measured at two
levels: basic earnings per share and diluted earnings per share. Basic earnings
per share is computed by dividing net income by the weighted average number of
common shares outstanding during the year. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares
outstanding after considering the additional dilution related to stock options,
calculated using the treasury stock method. All income per share amounts in the
accompanying consolidated financial statements have been restated to reflect the
retroactive application of the provisions of SFAS No. 128.
Income per share amounts are calculated as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- ----------------------------- ---------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
------ ------ ----- ------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before cumulative effect
of accounting change $31,194 32,805 $ 0.95 $ 151,436 32,341 $ 4.68 $ 131,165 32,193 $ 4.07
======= ====== ========= ====== ========= ======
Effect of dilutive stock options 353 308 406
------ ------ ------
Income before cumulative effect of
accounting change - assuming
dilution $31,194 33,158 $ 0.94 $ 151,436 32,649 $ 4.64 $ 131,165 32,599 $ 4.02
======= ====== ====== ========= ====== ====== ========= ====== ======
</TABLE>
20
<PAGE> 21
The Company completed a common stock distribution in 1997 associated
with the Merger as further described in Note 3. In addition, the Company paid a
5% stock dividend in 1996 as further described in Note 9. All income per share
and dividend per share amounts in the accompanying consolidated financial
statements have been restated to reflect the retroactive application of the
common stock distribution and stock dividend.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 requires that changes in the amounts of
certain items, including gains and losses on certain securities, be shown in the
financial statements. The Company adopted the provisions of SFAS No. 130 on
January 1, 1998. The Company's comprehensive income is presented in the
consolidated statements of stockholders' equity.
FINANCIAL INSTRUMENTS
Estimated fair values and carrying amounts of the Company's financial
instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Fair Carrying Fair Carrying
Value Amount Value Amount
----------------------- -----------------------
<S> <C> <C> <C> <C>
Long-term notes and interest receivable $ 9,015 $ 9,015 $234,433 $233,112
----------------------- -----------------------
Debt $282,981 $282,981 $388,397 $388,397
----------------------- -----------------------
</TABLE>
The fair value estimates were determined using discounted cash flow
analyses. For fixed-rate long-term notes receivable, the discount rate was
determined based upon similar instruments. The Company's carrying value of its
variable-rate debt and long-term notes receivable approximates fair value. The
carrying amount of short-term financial instruments (cash, trade receivables,
accounts payable and accrued liabilities) approximates fair value due to the
short maturity of those instruments. Credit risk on trade receivables is
minimized by the large and diverse nature of the Company's customer base.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
NEWLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", effective
for fiscal years beginning after June 15, 1999. SFAS No. 133 establishes
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. The Company
will adopt the provisions of SFAS No. 133 effective January 1, 2000 and does not
anticipate the adoption of SFAS No. 133 to have a material effect on the
Company's financial statements.
RECLASSIFICATIONS
Certain reclassifications of 1997 and 1996 amounts have been made to
conform with the 1998 presentation.
21
<PAGE> 22
2. LONG-TERM NOTES AND INTEREST RECEIVABLE:
During 1995, the Company sold its cable television systems (the
"Systems") to CCT Holdings Corp. ("CCTH"). Net proceeds consisted of $198,800 in
cash and a 10-year note receivable with a face amount of $165,688. The note
receivable was recorded net of a $15,000 discount to reflect the note at fair
value based upon financial instruments of comparable credit risk and interest
rates. At December 31, 1997, the note receivable and related accrued interest
were included in the consolidated balance sheet in the amount of $199,074. The
note receivable was classified as held to maturity and earned interest at an
initial rate of 12% with a scheduled increase to 15% in September 2000 and 2%
increases each year thereafter with principal and interest payable at maturity
in 2005. The Company recorded $24,376, $22,936 and $20,479 of interest income
related to the note receivable during 1998, 1997 and 1996, respectively. In
addition as part of the sale transaction, the Company received contractual
equity participation rights equal to 15% of the net distributable proceeds, as
defined, from certain future asset sales by the buyer of the Systems.
During the fourth quarter of 1998, the Company received $238,449
representing prepayment of the entire balance of the CCTH note receivable and
related accrued interest. The Company recorded a $15,000 pretax gain during 1998
related to the note receivable discount recorded as part of the Systems sale
transaction. The gain is included in other gains and losses in the consolidated
statements of income. Subsequent to December 31, 1998, the Company received cash
and recognized a pretax gain of approximately $130,000 in 1999 representing the
value of the 15% contractual equity participation rights upon the sale of the
Systems. The proceeds from the note receivable prepayment and the equity
participation rights were used to reduce outstanding bank indebtedness.
During 1998, the Company recognized a pretax loss of $23,616 related to
the write-off of a note receivable from Z Music. The Company foreclosed on the
note receivable and took a controlling interest in the assets of Z Music during
the fourth quarter of 1998. Prior to the foreclosure, the Company managed the
operations of Z Music, had an option to acquire 95% of the common stock of Z
Music, and funded Z Music's operations through advances under the note
receivable. The Company is restructuring the operations of Z Music, including
changing the mode of transmission from an analog to a digital signal.
3. CBS MERGER:
On October 1, 1997, Old Gaylord consummated the Merger with CBS and G
Acquisition Corp., a wholly owned subsidiary of CBS ("Sub"), pursuant to which
Sub was merged with and into Old Gaylord, with Old Gaylord continuing as the
surviving corporation and a wholly owned subsidiary of CBS. Prior to the Merger,
Old Gaylord was restructured (the "Restructuring") whereby certain assets and
liabilities that were part of Old Gaylord's hospitality, attractions, music,
television and radio businesses, including all of its long-term debt, as well as
CMT International and the management of and option to acquire 95% of Z Music,
were transferred to or retained by the Company. As a result of the Restructuring
and the Merger, substantially all of the assets of Old Gaylord's cable networks
business, consisting primarily of TNN and CMT, and certain other related
businesses (collectively, the "Cable Networks Business") and its liabilities, to
the extent that they arose out of or related to the Cable Networks Business,
were acquired by CBS. In connection with the Merger, the Company and CBS (or one
or more of their respective subsidiaries) entered into an agreement which
provides that the Company will not engage in certain specified activities which
would constitute competition with the Cable Networks Business and CBS will not
engage in certain activities which would constitute competition with CMT
International.
Following the Restructuring, on September 30, 1997, Old Gaylord
distributed (the "Distribution") pro rata to its stockholders all of the
outstanding capital stock of the Company. As a result of the Distribution, each
holder of record of the Class A Common Stock, $0.01 par value, and Class B
Common Stock, $0.01 par value (collectively, the "Old Gaylord Common Stock"), of
Old Gaylord on the record date for the Distribution received a number of shares
of Common Stock, $0.01 par value, of the Company ("Common Stock") equal to
one-third the number of shares of Old Gaylord Common Stock held by such holder.
Cash was distributed in lieu of any fractional shares of Common Stock.
22
<PAGE> 23
At the time of the Merger, the book value of the net assets of the
Cable Networks Business was $132,627, which has been reflected in the
consolidated financial statements as a charge against retained earnings. The
following is a summary of the net assets acquired by CBS:
<TABLE>
<S> <C>
Cash $ 7,481
Accounts receivable, net 67,030
Other current assets 20,332
Property and equipment, net 53,386
Intangible assets, net 31,148
Other assets 10,532
Accounts payable and accrued expenses (35,855)
Long-term debt (4,605)
Minority interest (15,048)
Other liabilities (1,774)
---------
Cable Networks Business net assets $ 132,627
=========
</TABLE>
The operating results of the Cable Networks Business are included in
the consolidated statements of income through September 30, 1997 and are as
follows:
<TABLE>
<CAPTION>
Nine
Months Ended Year Ended
September 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Revenues $264,463 $320,612
======== ========
Depreciation and amortization $ 9,161 $ 10,415
======== ========
Operating income, excluding allocated
corporate expenses $ 78,740 $ 98,605
======== ========
</TABLE>
Prior to the Merger, CBS was responsible for promoting and marketing
TNN, CMT and CMT International, selling advertising time on TNN and CMT,
marketing TNN and CMT to cable operators, and providing a satellite transponder
to deliver TNN programming to cable systems. In addition, CBS owned 33% of CMT
and CMT International prior to the Merger. CBS received a commission of 33% of
TNN's applicable gross receipts, net of agency commissions, and a commission of
10% of CMT's gross receipts, net of agency commissions, for its services prior
to the Merger. CBS commissions under these agreements were approximately $70,600
and $86,600 in 1997 and 1996, respectively.
In connection with the Merger, Restructuring and Distribution, the
Company recognized nonrecurring merger costs and a restructuring charge in 1997
of $22,645 and $13,654, respectively. Merger costs included professional and
registration fees, debt refinancing costs, and incentive compensation associated
with the Merger. The Company recognized merger costs of $1,363 related to
restricted stock issued under stock option and incentive plans which vested at
the time of the Merger. The restructuring charge includes estimated costs for
employee severance and termination benefits of $6,500, asset write-downs of
$3,653, and other costs associated with the restructuring of $3,501. As of
December 31, 1998, the Company has recorded charges of $11,360 against the
restructuring accrual of which $6,035 represents actual cash expenditures,
$4,625 represents non-cash asset write-downs and other restructuring costs, and
$700 represents reversal of restructuring costs based upon favorable settlement
of contingencies. At December 31, 1998 and 1997, the Company had a remaining
restructuring accrual of $2,294 and $6,073, respectively, which is included in
accounts payable and accrued liabilities in the consolidated balance sheets.
23
<PAGE> 24
4. ACQUISITIONS:
In July 1998, the Company purchased Pandora for approximately $17,000
in cash. The acquisition was financed through borrowings under a revolving
credit agreement and has been accounted for using the purchase method of
accounting. The operating results of Pandora have been included in the
consolidated financial statements from the date of acquisition. The purchase
price allocation has been completed on a preliminary basis, subject to
adjustment should additional facts about Pandora become known.
In April 1998, the Company purchased the assets of a 307-room hotel
located adjacent to the Opryland Hotel for approximately $16,000 in cash. The
hotel was renamed the Inn at Opryland. The acquisition was financed through
borrowings under a revolving credit agreement and has been accounted for using
the purchase method of accounting. The operating results of the Inn at Opryland
have been included in the consolidated financial statements from the date of
acquisition.
In January 1997, the net assets of Word were purchased for
approximately $120,000 in cash. The purchase price included approximately
$40,000 of working capital. The acquisition was financed through borrowings
under a revolving credit agreement and has been accounted for using the purchase
method of accounting. The operating results of Word have been included in the
consolidated financial statements from the date of acquisition. The excess of
purchase price over the fair values of the net assets acquired was $64,143 and
has been recorded as goodwill, which is being amortized on a straight-line basis
over 40 years.
The following unaudited pro forma information presents a summary of
consolidated results of the combined operations of the Company and Word for the
year ended December 31, 1996, as if the acquisition had occurred on January 1,
1996:
<TABLE>
<S> <C>
Revenues $ 837,226
============
Net income $ 124,338
============
Net income per share $ 3.86
============
Net income per share - assuming dilution $ 3.81
============
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, including additional amortization
expense as a result of goodwill and other intangible assets, increased interest
expense on acquisition debt, and an adjustment to the provision for income taxes
for such items. The pro forma amounts are not necessarily indicative of what the
actual consolidated results of operations might have been if the acquisition had
occurred on January 1, 1996, or of future results of operations of the
consolidated entities.
5. DIVESTITURES:
During 1998, the Company sold its investment in the Texas Rangers
Baseball Club, Ltd. for $16,072 and recognized a pretax gain of the same amount.
Also during 1998, the Company recorded pretax gains totaling $8,538
primarily related to the settlement of contingencies arising from the sales of
television stations KHTV in Houston and KSTW in Seattle.
During 1997, the Company recorded a pretax charge of $42,006 related to
the closing of the Opryland theme park at the end of the 1997 operating season.
Included in this charge are asset write-downs of $32,020 related primarily to
property, equipment and inventory, estimated costs for employee severance and
termination benefits of $5,100, and other costs related to closing of the park
of $4,886. At December 31, 1998 and 1997, the Company had a remaining accrual of
$258 and $6,439, respectively, related to the closing of the theme park, which
is included in accounts payable and accrued liabilities in the consolidated
balance sheets.
Also during 1997, the Company recorded a $5,000 pretax charge to
operations related to its plans to cease the European operations of CMT
International effective March 31, 1998. The Company fully utilized this accrual
during 1998.
In addition, the Company sold television station KSTW in Seattle in
1997 for $160,000 in cash. The sale resulted in a pretax gain of $144,259, which
is included in other gains and losses in the consolidated statements of income.
The Company utilized the net proceeds from the sale to reduce outstanding
indebtedness. The sale of the television station included program rights of
$10,625 and related program contracts payable of $10,269.
24
<PAGE> 25
In 1996, the Company sold television station KHTV in Houston for
$97,800, including certain working capital and other adjustments of
approximately $4,300. The sale resulted in a pretax gain of $73,850, which is
included in other gains and losses in the consolidated statements of income. The
sale of the television station included program rights of $32,235 and related
program contracts payable of $23,766.
6. PROPERTY AND EQUIPMENT:
Property and equipment at December 31 is recorded at cost and
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land and land improvements $ 95,300 $ 89,782
Buildings 472,804 452,661
Furniture, fixtures and equipment 261,286 232,834
Construction in progress 15,101 12,292
-------- --------
844,491 787,569
Accumulated depreciation 257,593 237,302
-------- --------
Property and equipment, net $586,898 $550,267
======== ========
</TABLE>
Depreciation expense for 1998, 1997 and 1996 was $35,602, $44,839 and
$42,101, respectively. Capitalized interest for 1997 and 1996 was $186 and
$3,383, respectively. The Company recorded capital leases during 1998 of $9,743,
which are included in furniture, fixtures and equipment.
7. INCOME TAXES:
The provision for income taxes for the years ended December 31 consists
of:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal $ (2,810) $ 86,342 $69,585
State 1,315 5,020 1,845
-------- -------- -------
Total current provision (benefit) (1,495) 91,362 71,430
-------- -------- -------
Deferred:
Federal 19,747 (79,496) 1,771
State 421 (1,074) 348
-------- -------- -------
Total deferred provision (benefit) 20,168 (80,570) 2,119
-------- -------- -------
Total provision for income taxes $ 18,673 $ 10,792 $73,549
======== ======== =======
</TABLE>
Provision is made for deferred federal and state income taxes in
recognition of certain temporary differences in reporting items of income and
expense for financial statement purposes and income tax purposes. The effective
tax rate as applied to income from continuing operations for the years ended
December 31 differed from the statutory federal rate due to the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate 35% 35% 35%
State taxes 1 2 2
Merger related revaluation of reserves -- (37) --
Non-deductible losses 1 7 --
Other items, net -- -- (1)
---- ---- ----
37% 7% 36%
==== ==== ====
</TABLE>
25
<PAGE> 26
The components of the net deferred tax liability as of December 31 are:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Amortization $ 6,546 $13,733
Accounting reserves and accruals 23,495 35,153
Other, net 4,780 2,463
------- -------
Total deferred tax assets 34,821 51,349
------- -------
Deferred tax liabilities:
Depreciation 42,257 38,296
Accounting reserves and accruals 45,311 45,632
------- -------
Total deferred tax liabilities 87,568 83,928
------- -------
Net deferred tax liability $52,747 $32,579
======= =======
</TABLE>
During 1997, the Company recorded a deferred tax benefit of $55,000
related to the revaluation of certain reserves as a result of the Restructuring
and Merger. The tax benefits associated with the exercise of stock options
reduced income taxes payable by $60 and $6,598 in 1998 and 1997, respectively,
and are reflected as an increase in additional paid-in capital. In addition, the
Company reached settlements of routine Internal Revenue Service audits of the
Company's 1991-1993 tax returns during 1997. These settlements had no material
impact on the Company's financial position or results of operations.
Cash payments for income taxes were approximately $11,400, $81,700 and
$83,400 in 1998, 1997 and 1996, respectively.
8. LONG-TERM DEBT:
Long-term debt at December 31 consists of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
1997 Credit Facility $252,828 $387,977
Capital lease obligations 9,384 --
Other debt 20,769 420
-------- --------
Total debt 282,981 388,397
Less amounts due in one year 6,269 --
-------- --------
Total long-term debt $276,712 $388,397
======== ========
</TABLE>
Annual maturities of long-term debt, including capital lease
obligations, are as follows:
<TABLE>
<S> <C>
1999 $ 6,269
2000 9,318
2001 4,128
2002 259,225
2003 1,577
Years thereafter 2,464
--------
Total $282,981
========
</TABLE>
In August 1997, the Company entered into a revolving credit facility
(the "1997 Credit Facility") and utilized the proceeds to retire outstanding
indebtedness. The lenders under the 1997 Credit Facility are a syndicate of
banks with NationsBank of Texas, N.A. acting as agent (the "Agent"). The maximum
amount that can be borrowed under the 1997 Credit Facility is $600,000. The
final maturity of the 1997 Credit Facility is July 2002. The 1997 Credit
Facility is unsecured and is guaranteed by certain of the Company's
subsidiaries.
26
<PAGE> 27
Amounts outstanding under the 1997 Credit Facility bear interest at a
rate, at the Company's option, equal to either (i) the higher of the Agent's
prime rate or the federal funds rate plus 0.5%, or (ii) LIBOR plus a margin
ranging from 0.4% to 1% depending on the Company's debt ratings or ratio of debt
to capitalization. At December 31, 1998, the Company's borrowing rate under the
1997 Credit Facility was LIBOR plus 0.75%. In addition, the Company is required
to pay a commitment fee ranging between 0.125% and 0.25% per year, depending on
the Company's debt ratings or the ratio of debt to capitalization, on the
average unused portion of the 1997 Credit Facility, as well as an annual
administrative fee. The weighted average interest rates for borrowings under
revolving credit agreements for 1998, 1997 and 1996 were 6.6%, 6.4% and 6.4%,
respectively.
The 1997 Credit Facility requires the Company to maintain certain
financial ratios and minimum stockholders' equity levels and subjects the
Company to limitations on, among other things, mergers and sales of assets,
additional indebtedness, capital expenditures, investments, acquisitions, liens,
and transactions with affiliates. At December 31, 1998, the Company was in
compliance with all financial covenants under the 1997 Credit Facility.
During 1995, the Company amended its unsecured revolving credit
agreement (the "1995 Credit Facility") to provide for an unsecured revolving
loan of up to $400,000 until its expiration on December 31, 2000. According to
the 1995 Credit Facility's terms, at the time borrowings were made, the Company
elected an interest rate of the prime rate or LIBOR plus 0.5% to 1.0%, depending
on certain of the Company's financial ratios. Additionally, the Company was
required to pay annual commitment fees based on 0.25% or 0.1875% of the average
daily unused portion of the total commitment available as determined by certain
of the Company's financial ratios. The 1995 Credit Facility was retired with
borrowings under the 1997 Credit Facility.
Capital lease obligations provide for aggregate payments, including
interest, of approximately $1,900 each year. At December 31, 1998, future
minimum payments for capital leases were $12,013, including $2,629 representing
interest.
Other debt consists primarily of revolving lines of credit utilized by
Pandora in the production of films. At December 31, 1998, Pandora's revolving
lines of credit had $9,519 outstanding, provide for additional borrowings of
approximately $10,000, and bear interest at LIBOR plus a margin ranging from
1.4% to 1.6%. The weighted average interest rate related to Pandora's revolving
lines of credit subsequent to the acquisition of Pandora during 1998 was 7.0%.
During 1993, the Company entered into an agreement for a $35,000 term
loan ("Term Loan") and issued $150,000 of 7.19% fixed-rate senior notes ("Senior
Notes"). The weighted average interest rates for the borrowings under the Term
Loan for 1997 and 1996 were 6.2% and 6.1%, respectively. The Term Loan and
Senior Notes were prepaid during 1997 by utilizing borrowings under the 1997
Credit Facility.
Accrued interest payable for 1998 and 1997 was $1,176 and $1,462,
respectively, and is included in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets. Cash paid for interest for 1998, 1997
and 1996, excluding amounts capitalized, was $30,217, $30,747 and $20,564,
respectively.
9. STOCKHOLDERS' EQUITY:
As a result of the Distribution during 1997, each holder of record of
Old Gaylord Common Stock on the record date for the Distribution received a
number of shares of Common Stock of the Company equal to one-third the number of
shares of Old Gaylord Common Stock held by such holder. Cash was distributed in
lieu of any fractional shares of the Common Stock. Holders of Common Stock are
entitled to one vote per share. Holders of Class A Common Stock and Class B
Common Stock of Old Gaylord were entitled to one vote per share and five votes
per share, respectively.
At December 31, 1995, treasury stock consisted of 3,110,000 Class B
shares of Old Gaylord Common Stock. In August 1996, the Company's Board of
Directors retired the Old Gaylord Common Stock held in treasury. The cost of the
treasury stock in excess of par value was charged to additional paid-in capital.
In October 1996, Old Gaylord's Board of Directors authorized the repurchase of
up to $100,000 of the outstanding Old Gaylord Class A Common Stock over a three
year period. Treasury stock of $7,647 held by Old Gaylord immediately prior to
the Merger was retired and the cost of the treasury stock in excess of par value
was charged to additional paid-in capital.
A 5% stock dividend was paid by Old Gaylord in 1996, subject to which
retained earnings were reduced by $125,078. Approximately 4,742,000 additional
shares of Old Gaylord Common Stock were issued in 1996 as a result of the stock
dividend.
All income per share and dividend per share amounts in the consolidated
financial statements have been restated to reflect the retroactive application
of the Distribution and stock dividend.
27
<PAGE> 28
10. STOCK PLANS:
At December 31, 1998 and 1997, 2,491,081 and 2,111,445 shares,
respectively, of Common Stock were reserved for future issuance pursuant to the
exercise of stock options under stock option and incentive plans for directors
and key employees. As a result of the Distribution, the Company adopted a new
stock option plan whereby all options to acquire Old Gaylord Common Stock that
were held by persons who, following the Distribution, were employees, former
employees or directors of the Company were converted into fully vested and
exercisable options to acquire Common Stock. As a result of the conversion of
options to acquire Old Gaylord Common Stock into options to acquire Common
Stock, the number of options issued was adjusted with an offsetting adjustment
in option price to maintain the same intrinsic value and original term of the
option. Under the terms of these plans, stock options are granted with an
exercise price equal to the fair market value at the date of grant and generally
expire ten years after the date of grant. Generally, stock options granted to
non-employee directors are exercisable one year from the date of grant, while
options granted to employees are exercisable two to five years from the date of
grant. The Company accounts for these plans under APB Opinion No. 25 under which
no compensation expense for employee stock options has been recognized. If
compensation cost for these plans had been determined consistent with SFAS No.
123, the Company's net income and income per share for the years ended December
31 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Net income:
As reported $ 31,194 $ 143,899 $ 131,165
========== =========== ===========
Pro forma $ 29,778 $ 142,146 $ 130,503
========== =========== ===========
Income per share:
As reported $ 0.95 $ 4.45 $ 4.07
========== =========== ===========
Pro forma $ 0.91 $ 4.40 $ 4.05
========== =========== ===========
Income per share - assuming dilution:
As reported $ 0.94 $ 4.41 $ 4.02
========== =========== ===========
Pro forma $ 0.90 $ 4.35 $ 4.00
========== =========== ===========
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: risk-free
interest rates of 5.5%, 6.0% and 6.2%; expected volatility of 26.6%, 32.0% and
32.4%; expected lives of 7.1, 6.9 and 8.9 years; expected dividend rates of
2.7%, 2% and 2%. The weighted average fair value of options granted was $9.52,
$8.77 and $10.32 in 1998, 1997 and 1996, respectively.
The plans also provide for the award of restricted stock. At December
31, 1998 and 1997, awards of restricted stock of 81,940 and 131,940 shares,
respectively, of Common Stock were outstanding. Restricted stock issued prior to
the Distribution and Merger vested under the change in control provisions under
the plans. The market value at the date of grant of these restricted shares was
recorded as unearned compensation as a component of stockholders' equity.
Unearned compensation is amortized over the vesting period of the restricted
stock.
28
<PAGE> 29
During 1996, the number and exercise prices of all options outstanding
were adjusted to recognize the effect of the stock dividend described in Note 9.
The stock dividend adjustment resulted in an increase in the number of stock
options and a reduction of the exercise prices. Stock option awards available
for future grant under the stock plans at December 31, 1998 and 1997 were
185,873 and 581,323 shares of Common Stock, respectively. Stock option
transactions under the plans are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price of Shares Price of Shares Price
----------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,111,445 $ 23.06 2,864,184 $ 14.03 2,779,265 $ 12.98
Granted 400,500 31.90 998,924 28.24 286,612 25.09
Exercised (15,814) 20.96 (1,363,834) 10.49 (128,614) 10.57
Effect of option conversions -- -- (249,548) -- -- --
Canceled (5,050) 28.24 (138,281) 23.74 (73,079) 23.38
--------------------------- ------------------------- --------------------------
Outstanding at end of year 2,491,081 $ 24.42 2,111,445 $ 23.06 2,864,184 $ 14.03
=========================== ========================= ==========================
Exercisable at end of year 1,312,159 $ 19.99 1,112,973 $ 18.41 2,329,297 $ 11.96
=========================== ========================= ==========================
</TABLE>
A summary of stock options outstanding as of December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Weighted
Option Weighted Average
Exercise Average Remaining
Price Exercise Number Contractual
Range Price of Shares Exercisable Life
------------ ------ --------- ----------- ----------
<S> <C> <C> <C> <C>
$ 10.17 $10.17 362,579 362,579 2.8 years
19.47-26.05 21.33 626,462 592,640 5.0 years
27.35-34.00 29.15 1,502,040 356,940 8.8 years
------------ ------ --------- --------- ----------
$10.17-34.00 $24.42 2,491,081 1,312,159 7.0 years
============ ====== ========= ========= ==========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
Rental expense related to operating leases was $5,234, $14,552 and
$11,771 for 1998, 1997 and 1996, respectively. Future minimum lease commitments
under all noncancelable operating leases in effect as of December 31, 1998 are
as follows:
<TABLE>
<S> <C> <C>
1999 $ 3,051
2000 2,691
2001 2,100
2002 899
2003 608
Years thereafter 1,558
-------
Total $10,907
=======
</TABLE>
During 1998, the Company terminated an operating lease for a satellite
transponder related to the European operations of CMT International. The
termination of the satellite transponder lease resulted in a pretax charge of
$9,200 during 1998, which is included in other gains and losses in the
consolidated statements of income.
29
<PAGE> 30
The Company was notified during 1997 by Nashville governmental
authorities of an increase in appraised value and property tax rates related to
the Opryland Hotel resulting in an increased tax assessment. The Company has
contested the increases and has been awarded a partial reduction in the assessed
values. The Company is in the process of appealing the appraised values. At
December 31, 1998, the Company's cumulative disputed property taxes are $2,800,
which have not been reflected in the consolidated financial statements. The
Company believes it has adequately provided for its property taxes and intends
to vigorously contest the increased tax assessment.
The Company is involved in certain legal actions and claims on a
variety of matters. It is the opinion of management that such legal actions will
not have a material effect on the results of operations, financial condition or
liquidity of the Company.
12. RETIREMENT PLANS:
The Company has a noncontributory defined benefit pension plan in which
substantially all of its employees are eligible to participate upon meeting the
pension plan's participation requirements. The benefits are based on years of
service and compensation levels. The funding policy of the Company is to
contribute annually an amount which equals or exceeds the minimum required by
applicable law.
The following table sets forth the funded status at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 41,167 $ 36,601
Service cost 2,124 2,058
Interest cost 3,036 2,697
Amendments -- (523)
Actuarial loss 4,578 4,396
Benefits paid (4,425) (4,062)
-------- --------
Benefit obligation at end of year 46,480 41,167
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 41,048 34,084
Actual return on plan assets 7,348 6,840
Employer contributions 4,428 4,186
Benefits paid (4,425) (4,062)
-------- --------
Fair value of plan assets at end of year 48,399 41,048
-------- --------
Funded status 1,919 (119)
Unrecognized net actuarial loss 3,758 3,299
Unrecognized prior service cost (403) (478)
-------- --------
Prepaid pension cost $ 5,274 $ 2,702
======== ========
</TABLE>
Net periodic pension expense reflected in the consolidated statements
of income included the following components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost $ 2,124 $ 2,058 $ 1,827
Interest cost 3,036 2,697 2,550
Expected return on plan assets (3,229) (2,837) (2,420)
Recognized net actuarial loss -- 824 566
Amortization of prior service cost (74) 34 --
------- ------- -------
Total net periodic pension expense $ 1,857 $ 2,776 $ 2,523
======= ======= =======
</TABLE>
30
<PAGE> 31
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% and 7.5% in 1998 and
1997, respectively. The rate of increase in future compensation levels and the
expected long-term rate of return on plan assets were 4% and 8%, respectively,
in both 1998 and 1997.
The Company also has contributory retirement savings plans in which
substantially all employees are eligible to participate. The Company contributes
an amount equal to the lesser of one-half of the amount of the employee's
contribution or 3% of the employee's salary. Company contributions under the
retirement savings plans were $1,860, $2,142 and $2,055 for 1998, 1997 and 1996,
respectively.
13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company sponsors unfunded defined benefit postretirement health
care and life insurance plans for certain employees. The Company contributes
toward the cost of health insurance benefits and contributes the full cost of
providing life insurance benefits. In order to be eligible for these
postretirement benefits, an employee must retire after attainment of age 55 and
completion of 15 years of service, or attainment of age 65 and completion of 10
years of service.
Generally, for employees who retired prior to January 1, 1993 and who
met the other age and service requirements, the Company contributes 100% of the
employee and spouse's health care premium, and provides a life insurance benefit
of 100% of pay up to $50. For employees retiring on or after January 1, 1993 and
who meet the other age and service requirements, the Company contributes from
50% to 90% of the health care premium based on years of service, 50% of the
health care premium for the spouses of eligible retirees regardless of service,
and provides a life insurance benefit of $12.
The following table reconciles the change in benefit obligation of the
postretirement plans to the accrued postretirement liability as reflected in
other liabilities in the accompanying consolidated balance sheets at December
31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 18,044 $ 18,158
Service cost 1,565 1,488
Interest cost 1,288 1,270
Actuarial (gain) loss 2,245 (2,400)
Contributions by plan participants 77 48
Benefits paid (623) (520)
-------- --------
Benefit obligation at end of year 22,596 18,044
Unrecognized net actuarial gain 1,569 4,007
-------- --------
Accrued postretirement liability $ 24,165 $ 22,051
======== ========
</TABLE>
Net postretirement benefit expense reflected in the consolidated
statements of income included the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Service cost $1,565 $1,488 $1,174
Interest cost 1,288 1,270 1,185
Recognized net actuarial gain (194) -- --
------ ------ ------
Net postretirement benefit expense $2,659 $2,758 $2,359
====== ====== ======
</TABLE>
31
<PAGE> 32
For measurement purposes, an 8% annual rate of increase in the per
capita cost of covered health care claims was assumed for 1998. The health care
cost trend is projected to decline by 1% every two years to an ultimate level
trend rate of 6% per year in 2002. The health care cost trend rates are not
applicable to the life insurance benefit plan. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate, a 1%
increase in the assumed health care cost trend rate each year would increase the
accumulated postretirement benefit obligation as of December 31, 1998 by
approximately 19% and the aggregate of the service and interest cost components
of net postretirement benefit expense would increase approximately 23%.
Conversely, a 1% decrease in the assumed health care cost trend rate each year
would decrease the accumulated postretirement benefit obligation as of December
31, 1998 by approximately 17% and the aggregate of the service and interest cost
components of net postretirement benefit expense would decrease approximately
22%. The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% and 7.5% in 1998 and 1997,
respectively.
14. FINANCIAL REPORTING BY BUSINESS SEGMENTS:
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information",
which the Company adopted on January 1, 1998. The Company is organized and
managed based upon its products and services. The following information is
derived directly from the segments' internal financial reports used for
corporate management purposes. The expenses, capital expenditures and
identifiable assets attributable to corporate activities are not allocated to
the operating segments.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Hospitality and attractions $ 294,504 $ 346,931 $ 313,023
Broadcasting and music 223,743 202,680 102,368
Cable networks 6,228 276,384 331,767
----------- ----------- -----------
Total $ 524,475 $ 825,995 $ 747,158
=========== =========== ===========
Operating income:
Hospitality and attractions $ 46,094 $ 52,024 $ 45,938
Broadcasting and music 32,647 18,056 23,846
Cable networks (11,511) 56,865 84,884
Corporate (24,297) (26,789) (25,061)
Merger costs and restructuring charge -- (36,299) --
Theme park closing charge -- (42,006) --
----------- ----------- -----------
Total $ 42,933 $ 21,851 $ 129,607
=========== =========== ===========
Depreciation and amortization:
Hospitality and attractions $ 28,590 $ 31,998 $ 28,861
Broadcasting and music 8,037 6,945 4,421
Cable networks 1,817 10,924 12,406
Corporate 4,340 3,530 3,168
----------- ----------- -----------
Total $ 42,784 $ 53,397 $ 48,856
=========== =========== ===========
Capital expenditures:
Hospitality and attractions $ 27,537 $ 27,770 $ 85,692
Broadcasting and music 17,906 9,110 4,572
Cable networks 538 9,477 21,522
Corporate 5,212 2,882 3,756
----------- ----------- -----------
Total $ 51,193 $ 49,239 $ 115,542
=========== =========== ===========
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Identifiable assets:
Hospitality and attractions $ 619,894 $ 592,159 $ 644,132
Broadcasting and music 287,188 214,184 86,960
Cable networks 13,596 10,160 208,482
Corporate 91,314 301,059 242,674
----------- ----------- -----------
Total $ 1,011,992 $ 1,117,562 $ 1,182,248
=========== =========== ===========
</TABLE>
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
1998
Revenues $108,021 $126,963 $ 134,904 $ 154,587
======== ======== ========= =========
Depreciation and amortization $ 9,830 $ 10,600 $ 11,171 $ 11,183
======== ======== ========= =========
Operating income $ 462 $ 13,010 $ 11,402 $ 18,059
======== ======== ========= =========
Net income $ 2,039 $ 7,322 $ 7,143 $ 14,690
======== ======== ========= =========
Net income per share $ 0.06 $ 0.22 $ 0.22 $ 0.45
======== ======== ========= =========
Net income per share - assuming dilution $ 0.06 $ 0.22 $ 0.22 $ 0.44
======== ======== ========= =========
1997
Revenues $185,068 $249,736 $ 245,481 $ 145,710
======== ======== ========= =========
Depreciation and amortization $ 12,539 $ 15,707 $ 14,460 $ 10,691
======== ======== ========= =========
Operating income (loss) $ 15,119 $ 44,342 $ (8,054) $ (29,556)
======== ======== ========= =========
Income (loss) before cumulative effect
of accounting change $ 8,616 $121,932 $ 42,316 $ (21,428)
======== ======== ========= =========
Net income (loss) $ 1,079 $121,932 $ 42,316 $ (21,428)
======== ======== ========= =========
Income per share:
Income (loss) before cumulative effect
of accounting change $ 0.27 $ 3.79 $ 1.30 $ (0.66)
======== ======== ========= =========
Net income (loss) $ 0.03 $ 3.79 $ 1.30 $ (0.66)
======== ======== ========= =========
Income per share - assuming dilution:
Income (loss) before cumulative effect
of accounting change $ 0.27 $ 3.75 $ 1.30 $ (0.65)
======== ======== ========= =========
Net income (loss) $ 0.03 $ 3.75 $ 1.30 $ (0.65)
======== ======== ========= =========
</TABLE>
Certain of the Company's operations are subject to seasonal
fluctuation. The first calendar quarter is the weakest quarter for most
television and radio broadcasters, including the Company, as advertising
revenues are lower in the post-Christmas period. Revenues in the music business
are typically weakest in the first calendar quarter following the Christmas
buying season.
33
<PAGE> 34
During the first quarter of 1998, the Company recognized a pretax gain
of $3,296 on the sale of investments. During the second quarter of 1998, the
Company recognized a pretax gain related to the sale of its investment in the
Texas Rangers Baseball Club, Ltd. of $15,109; a pretax loss of $23,616 related
to the write-off of a note receivable from Z Music; and pretax gains totaling
$8,538 primarily related to the settlement of contingencies arising from the
sales of television stations KHTV in Houston and KSTW in Seattle. In the fourth
quarter of 1998, the Company recorded a pretax gain of $15,000 related to a
long-term note receivable and a pretax charge of $9,200 related to the
termination of an operating lease for a satellite transponder.
The Company recorded a change in accounting principle of $7,537, net
of taxes of $4,798, effective January 1, 1997 related to deferred preopening
expenses. During the second quarter of 1997, the Company recorded a pretax gain
of $144,259 on the sale of television station KSTW in Seattle. During the third
quarter of 1997, the Company recorded pretax merger costs and a restructuring
charge of $22,645 and $13,654, respectively, related to the Merger; a non-cash
pretax charge of $11,740 to write-down program rights at television station
KTVT; and a deferred income tax benefit of $55,000 related to the revaluation of
certain reserves as a result of the Restructuring and Merger. In the fourth
quarter of 1997, the Company recorded a pretax charge of $42,006 related to
asset write-downs and related charges in conjunction with the closing of the
Opryland theme park and recorded a pretax charge of $5,000 related to plans to
cease the European operations of CMT International.
34
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gaylord Entertainment Company:
We have audited the accompanying consolidated balance sheets of Gaylord
Entertainment Company (a Delaware corporation) and its subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Gaylord Entertainment Company and subsidiaries as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 5, 1999
35
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF GAYLORD ENTERTAINMENT COMPANY
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
- ---------------------------------- ----------------------------
<S> <C>
Acuff-Rose Music, Inc. Tennessee
Acuff-Rose Music, Ltd. England
Acuff-Rose Musikverlag GmbH Germany
Acuff-Rose Scandia AB Sweden
Acuff-Rose Music Publishing, Inc. Tennessee
CCK, Inc. Texas
Celebration Hymnal, LLC Tennessee
CNR, Inc. Delaware
Country Music Television Australia Pty. Ltd. Australia
Country Music Television International, GmbH Germany
Country Music Television International, Inc. Delaware
Dayspring Music, Inc. Tennessee
Editions Acuff Rose France SARL France
Gaylord Broadcasting Company, L.P. Texas
Gaylord Communications, Inc. Texas
Gaylord Investments, Inc. Delaware
Gaylord Production Company Tennessee
Gaylord Program Services, Inc. Delaware
Gaylord Television Company Delaware
Grand Ole Opry Tours, Inc. Tennessee
Hickory Records, Inc. Tennessee
Idea Entertainment, C.V. Netherlands
Idea Entertainment, Inc. Delaware
Idea Films, LLC Delaware
KSTW, Inc. Washington
Milene Music, Inc. Tennessee
OKC Athletic Club Limited Partnership Oklahoma
OKC Concession Service Limited Partnership Oklahoma
Oklahoma City Athletic Club, Inc. Oklahoma
OLH, L.P. Tennessee
Opryland Attractions, Inc. Delaware
Opryland Hospitality, Inc. Tennessee
Opryland Productions, Inc. Tennessee
Opryland Theatricals, Inc. Delaware
Pandora EURL France
Pandora Investment (SARL) Luxemborg
Showpark Management, Inc. Delaware
Springhouse Music, Inc. Tennessee
Wildhorse Saloon Entertainment Ventures, Inc. Tennessee
Word Entertainment (Canada), Ltd. Canada
Word Entertainment Direct, LLC Tennessee
Word Entertainment, Ltd. UK
Word Music Group, Inc. Tennessee
Word Music, Inc. Tennessee
Wordspring Music, Inc. Tennessee
Z Music Management, Inc. Delaware
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 5, 1999 and March 25, 1999 included in this Annual
Report on Form 10-K of Gaylord Entertainment Company into the Company's
previously filed Registration Statement File Numbers 333-37051 and 333-37053.
It should be noted that we have not audited any financial statements of the
Company subsequent to December 31, 1998, or performed any audit procedures
subsequent to the date of our reports.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 18,746
<SECURITIES> 0
<RECEIVABLES> 99,946
<ALLOWANCES> 5,517
<INVENTORY> 27,018
<CURRENT-ASSETS> 189,202
<PP&E> 586,898
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,011,992
<CURRENT-LIABILITIES> 122,106
<BONDS> 282,981
0
0
<COMMON> 328
<OTHER-SE> 524,832
<TOTAL-LIABILITY-AND-EQUITY> 1,011,992
<SALES> 524,475
<TOTAL-REVENUES> 524,475
<CGS> 0
<TOTAL-COSTS> 481,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,031
<INCOME-PRETAX> 49,867
<INCOME-TAX> 18,673
<INCOME-CONTINUING> 31,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,194
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.94
</TABLE>
