<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 1-10881
GAYLORD ENTERTAINMENT COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-0383730
- ----------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Gaylord Drive
Nashville, Tennessee 37214
- ----------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
(615) 316-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding as of April 30, 1997
----- --------------------------------
<S> <C>
Class A Common Stock, $.01 par value 45,253,792 shares
Class B Common Stock, $.01 par value 51,162,571 shares
</TABLE>
<PAGE> 2
GAYLORD ENTERTAINMENT COMPANY
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements 3
Condensed Consolidated Statements of Income -
For the Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 5
Condensed Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE> 3
Part I - Financial Information
Item 1. Financial Statements
GAYLORD ENTERTAINMENT COMPANY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements include the accounts of Gaylord
Entertainment Company and subsidiaries (the "Company") and have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the financial information presented
not misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, filed with the Securities and
Exchange Commission. In the opinion of management, all adjustments necessary
for a fair statement of the results of operations for the interim period have
been included. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
3
<PAGE> 4
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Revenues $185,068 $138,857
Operating expenses:
Operating costs 115,901 88,944
Selling, general and administrative 41,509 27,549
Depreciation and amortization 12,539 8,635
-------- --------
Operating income 15,119 13,729
Interest expense (7,582) (3,200)
Interest income 5,781 5,561
Other gains (losses) (458) 74,013
-------- --------
Income before provision for income taxes 12,860 90,103
Provision for income taxes 4,244 35,725
-------- --------
Net income $ 8,616 $ 54,378
======== ========
Net income per share $ 0.09 $ 0.56
======== ========
Weighted average shares outstanding, including equivalent shares 97,460 97,823
======== ========
Dividends per share $ 0.100 $ 0.086
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE> 5
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
---------- -------------
<S> <C> <C>
Current assets:
Cash $ 8,327 $ 13,720
Trade receivables, less allowance of $5,295 and $3,276, respectively 152,872 108,702
Program rights 17,666 14,072
Inventories 36,483 15,436
Other assets 59,280 35,342
---------- ----------
Total current assets 274,628 187,272
---------- ----------
Program rights 20,011 26,472
Property and equipment, net of accumulated depreciation 643,297 640,319
Intangible assets, net of accumulated amortization 105,529 39,363
Investments 65,761 66,037
Long-term notes and interest receivable 216,701 203,514
Other assets 38,349 19,271
---------- ----------
Total assets $1,364,276 $1,182,248
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 37,420 $ 37,350
Accounts payable and accrued liabilities 138,574 111,673
Program contracts payable 21,676 14,943
---------- ----------
Total current liabilities 197,670 163,966
---------- ----------
Long-term debt 482,890 326,059
Program contracts payable 16,664 24,661
Deferred income taxes 115,700 117,947
Other liabilities 23,274 21,805
Minority interest 14,782 14,847
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares authorized, no shares
issued or outstanding - -
Class A common stock, $.01 par value, 300,000 shares authorized,
45,556 and 44,987 shares issued, 45,256 and 44,687 shares
outstanding, respectively 456 450
Class B common stock, $.01 par value, 150,000 shares authorized,
51,163 and 51,684 shares issued and outstanding, respectively 512 517
Additional paid-in capital 483,635 483,287
Retained earnings 38,468 39,494
Treasury stock (5,938) (5,938)
Other stockholders' equity (3,837) (4,847)
---------- ----------
Total stockholders' equity 513,296 512,963
---------- ----------
Total liabilities and stockholders' equity $1,364,276 $1,182,248
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 8,616 $ 54,378
Amounts to reconcile net income to net cash flows
used in operating activities:
Depreciation and amortization 12,539 8,635
Provision for deferred income taxes 4,254 3,627
Noncash interest income (5,567) (4,971)
Gain on sale of television station - (73,850)
Changes in:
Trade receivables (9,680) (5,353)
Program rights and program contracts payable 1,603 (224)
Accounts payable and accrued liabilities 1,208 18,198
Other, net (24,733) (9,879)
-------- --------
Net cash flows used in operating activities (11,760) (9,439)
-------- --------
Cash Flows from Investing Activities:
Purchase of Word Entertainment (119,702) -
Proceeds from sale of television station, net of direct selling costs paid - 98,544
Purchases of property and equipment (13,576) (31,551)
Payment upon disposal of Fiesta Texas partnership interest - (12,976)
Investments in, advances to and distributions from affiliates, net (1,226) (1,338)
Other, net (6,917) (2,472)
-------- --------
Net cash flows provided by (used in) investing activities (141,421) 50,207
-------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt (38,808) (37,050)
Proceeds from issuance of long-term debt 420 151
Net borrowings under revolving credit agreements 195,289 4,102
Proceeds from exercise of stock options 529 547
Dividends paid (9,642) (8,282)
-------- --------
Net cash flows provided by (used in) financing activities 147,788 (40,532)
-------- --------
Net change in cash (5,393) 236
Cash, beginning of period 13,720 12,062
-------- --------
Cash, end of period $ 8,327 $ 12,298
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE> 7
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. NET INCOME PER SHARE
The computations of net income per share are based on the weighted average
number of common and equivalent (stock options) shares assumed to be
outstanding during the periods. The share amounts used in the computation of
net income per share for the quarters ended March 31, 1997 and 1996 were
97,460,000 and 97,823,000, respectively. Net income per share has been
restated to reflect the effect of a 5% stock dividend paid in June 1996.
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
("SFAS 128"), has been issued effective for fiscal periods ending after
December 15, 1997. SFAS 128 establishes standards for computing and presenting
earnings per share. The Company is required to adopt the provisions of SFAS
128 in the fourth quarter of 1997. Under the standards established by SFAS
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. On a pro forma basis as if the
Company had adopted SFAS 128, basic and diluted earnings per share would have
been unchanged from the reported amounts for the quarters ended March 31, 1997
and 1996.
2. WESTINGHOUSE MERGER
On February 9, 1997, the Company entered into an agreement (the "Merger
Agreement") with Westinghouse Electric Corporation ("Westinghouse") and G
Acquisition Corp., a wholly owned subsidiary of Westinghouse ("Sub"), pursuant
to which Sub will be merged (the "Merger") with and into the Company, with the
Company continuing as the surviving corporation and a wholly owned subsidiary
of Westinghouse. Prior to the Merger, the Company will be restructured (the
"Restructuring") so that certain assets and liabilities that are part of the
Company's hospitality, attractions, music, television and radio businesses,
including all of the Company's long term debt, as well as the Country Music
Television cable networks outside of the United States and Canada ("CMT
International") and the management of and option to acquire Z Music, Inc., will
be transferred to or retained by a wholly owned subsidiary of the Company ("New
Gaylord"), or one of New Gaylord's wholly owned subsidiaries. As a result of
the Restructuring and the Merger, substantially all of the assets of the
Company's cable networks business (other than CMT International and Z Music),
consisting primarily of The Nashville Network and the domestic and Canadian
operations of Country Music Television, and certain other related businesses
(collectively, the "Cable Networks Business"), and certain liabilities related
thereto will be held by the Company or one of its subsidiaries (other than New
Gaylord) and will be acquired by Westinghouse in the Merger.
Following the Restructuring and on the day prior to the effective time of the
Merger, the Company will distribute (the "Distribution") pro rata to its
stockholders all of the outstanding capital stock of New Gaylord. As a result
of the Distribution, each holder of record of the Company's common stock on the
record date for the Distribution will receive a number of shares of New Gaylord
common stock equal to one-third the number of shares of the Company's common
stock held by such holder, and cash in lieu of any fractional shares.
7
<PAGE> 8
In the Merger, the Company's stockholders will receive shares of Westinghouse
common stock valued at the agreed upon transaction price of $1,550,000, at a
per share consideration to be determined in accordance with the Merger
Agreement that will be based upon the market price of the Westinghouse common
stock and the number of outstanding shares of the Company's common stock;
provided that Westinghouse will not be required to issue more than 110 million
shares of Westinghouse common stock (or 88 million shares in the event that
Westinghouse consummates the anticipated separation of its media and industrial
businesses into two companies prior to the effective time of the Merger). The
Distribution and the Merger are subject to the satisfaction or waiver of a
number of conditions, including Company stockholder approval of the Merger,
certain regulatory approvals, and Internal Revenue Service rulings that the
Distribution, Merger, and certain of the transactions comprising the
Restructuring will be tax-free transactions.
3. ACQUISITION OF WORD ENTERTAINMENT
On January 7, 1997, the Company purchased all of the assets of Word
Entertainment ("Word") for approximately $120,000 in cash. The purchase price
included approximately $40,000 of working capital. The acquisition was
financed through borrowings under the Company's revolving credit agreement and
has been accounted for using the purchase method of accounting. The operating
results of Word have been included in the condensed consolidated financial
statements from the date of acquisition. The excess of purchase price over the
fair values of the net assets acquired was approximately $61,000 and has been
recorded as goodwill, which is being amortized on a straight-line basis over 40
years. The purchase price allocation has been completed on a preliminary
basis, subject to adjustment should new or additional facts about Word become
known.
The following unaudited pro forma information presents a summary of
consolidated results of the combined operations of the Company and Word for the
three month period ended March 31, 1996, as if the acquisition was in effect on
January 1, 1996:
<TABLE>
<S> <C>
Revenues $155,207
========
Net income $ 48,926
========
Net income per share $ 0.50
========
</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 been in effect on January 1, 1996, or of future results of
operations of the consolidated entities.
8
<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTRUCTURING AND MERGER
On February 9, 1997, Gaylord Entertainment Company (the "Company") entered into
an agreement (the "Merger Agreement") with Westinghouse Electric Corporation
("Westinghouse") and G Acquisition Corp., a wholly owned subsidiary of
Westinghouse ("Sub"), pursuant to which Sub will be merged (the "Merger") with
and into the Company, with the Company continuing as the surviving corporation
and a wholly owned subsidiary of Westinghouse. Prior to the Merger, the
Company will be restructured (the "Restructuring") so that certain assets and
liabilities that are part of the Company's hospitality, attractions, music,
television and radio businesses, including all of the Company's long term debt,
as well as the Country Music Television cable networks outside of the United
States and Canada ("CMT International") and the management of and option to
acquire Z Music, Inc., will be transferred to or retained by a wholly owned
subsidiary of the Company ("New Gaylord"), or one of New Gaylord's wholly owned
subsidiaries. As a result of the Restructuring and the Merger, substantially
all of the assets of the Company's cable networks business (other than CMT
International and Z Music), consisting primarily of The Nashville Network
("TNN") and the domestic and Canadian operations of Country Music Television
("CMT"), and certain other related businesses (collectively, the "Cable
Networks Business"), and certain liabilities related thereto will be held by
the Company or one of its subsidiaries (other than New Gaylord) and will be
acquired by Westinghouse in the Merger.
Following the Restructuring and on the day prior to the effective time of the
Merger, the Company will distribute (the "Distribution") pro rata to its
stockholders all of the outstanding capital stock of New Gaylord. As a result
of the Distribution, each holder of record of the Company's common stock on the
record date for the Distribution will receive a number of shares of New Gaylord
common stock equal to one-third the number of shares of the Company's common
stock held by such holder, and cash in lieu of any fractional shares.
In the Merger, the Company's stockholders will receive shares of Westinghouse
common stock valued at the agreed upon transaction price of $1.55 billion, at a
per share consideration to be determined in accordance with the Merger
Agreement that will be based upon the market price of the Westinghouse common
stock and the number of outstanding shares of the Company's common stock;
provided that Westinghouse will not be required to issue more than 110 million
shares of Westinghouse common stock (or 88 million shares in the event that
Westinghouse consummates the anticipated separation of its media and industrial
businesses into two companies prior to the effective time of the Merger). The
Distribution and the Merger are subject to the satisfaction or waiver of a
number of conditions, including Company stockholder approval of the Merger,
certain regulatory approvals, and Internal Revenue Service rulings that
the Distribution, Merger, and certain of the transactions comprising the
Restructuring will be tax-free transactions.
9
<PAGE> 10
WORD ENTERTAINMENT ACQUISITION
On January 7, 1997, the Company purchased all of the assets of Word
Entertainment ("Word") for approximately $120 million in cash. The purchase
price included approximately $40 million of working capital. The acquisition
was financed through borrowings under the Company's revolving credit agreement
and has been accounted for using the purchase method of accounting. The
operating results of Word have been included in the condensed consolidated
financial statements from the date of acquisition. The excess of purchase
price over the fair values of the net assets acquired was approximately $61
million and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years. The purchase price allocation has been
completed on a preliminary basis, subject to adjustment should new or
additional facts about Word become known.
BUSINESS SEGMENTS
The Company operates in the following business segments: hospitality and
attractions, broadcasting and music, and cable networks. The Company has
realigned its financial segment reporting in an attempt to provide stockholders
with more useful and beneficial information beginning with the first quarter of
1997. The hospitality and attractions segment primarily consists of operations
formerly included in the Company's entertainment segment, including the
Opryland Hotel, the Opryland theme park and other Nashville-based attractions.
The broadcasting and music segment includes the Company's television stations,
radio stations and Word. In addition to changing the operating segments, the
Company's unallocated corporate expenses are reported separately, all of which
were previously allocated to the Company's financial reporting segments. The
first quarter 1996 results of operations have been restated to conform to the
new presentation.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following table contains selected summary financial data for the three
month periods ended March 31, 1997 and 1996 (in thousands, except operating
data):
<TABLE>
<CAPTION>
Three Months Ended
March 31, %
---------------------------
1997 1996 change
---- ---- ------
<S> <C> <C> <C>
Revenues:
- ---------
Hospitality and attractions $ 57,304 $ 43,347 32.2
Broadcasting and music 44,702 21,215 110.7
Cable networks 83,062 74,295 11.8
-------- -------- -----
Total revenues $185,068 $138,857 33.3
======== ======== ====
Operating cash flow:*
- ---------------------
Hospitality and attractions $ 7,991 $ 3,990 100.3
Broadcasting and music 3,817 3,287 16.1
Cable networks 20,936 20,561 1.8
Corporate (5,086) (5,474) 7.1
-------- -------- -----
Total operating cash flow * $ 27,658 $ 22,364 23.7
======== ======== =====
Operating income:
- -----------------
Hospitality and attractions $ 1,408 $ (241) -
Broadcasting and music 1,939 2,250 (13.8)
Cable networks 17,603 17,932 (1.8)
Corporate (5,831) (6,212) 6.1
-------- -------- -----
Total operating income $ 15,119 $ 13,729 10.1
======== ======== =====
Operating data:
- ---------------
Hospitality and attractions:
Opryland Hotel:
Occupancy rate 78.1% 74.3%
Average guest room rate $ 124.63 $ 120.31 3.6
Opryland theme park:
Attendance (in thousands) 15 29 (48.3)
Revenue per guest $ 27.00 $ 29.07 (7.1)
Cable networks:
Number of U.S. subscribers (in thousands):
The Nashville Network 68,979 64,820 6.4
Country Music Television 38,278 32,988 16.0
</TABLE>
* Operating income plus depreciation and amortization. Operating cash flow
represents an alternative method of measuring cash flows and is not intended
to represent cash available for dividends, reinvestment, or other
discretionary uses. Operating cash flow is not adjusted for noncash expenses
or changes in working capital and is not derived pursuant to generally
accepted accounting principles.
11
<PAGE> 12
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES
Total Revenues - Total revenues increased $46.2 million, or 33.3%, to $185.1
million in the first quarter of 1997. Excluding the revenues of Word, total
revenues increased $24.6 million, or 17.7%, to $163.4 million in the first
quarter of 1997. The increase is primarily attributable to the expansion of
the Opryland Hotel in the hospitality and attractions segment and continued
growth in the cable networks segment. Revenues in the broadcasting and music
segment also increased, after adjustment for the Word acquisition, due
primarily to increased revenues at the Company's two television stations.
Hospitality and Attractions - Revenues in the hospitality and attractions
segment increased $14.0 million, or 32.2%, to $57.3 million in the first
quarter of 1997. Opryland Hotel revenues increased $14.4 million, or 41.9%, to
$48.8 million in the first three months of 1997, principally because of the
hotel expansion. The hotel's occupancy rate increased to 78.1% in the first
three months of 1997 compared to 74.3% in the first three months of 1996. The
hotel sold 191,900 rooms in the first three months of 1997 compared to 142,600
rooms sold in the same period of 1996 reflecting a 34.6% increase over 1996.
The hotel's average guest room rate increased to $124.63 in the first three
months of 1997 from $120.31 in the first three months of 1996. At March 31,
1997, the hotel's advanced bookings were in excess of $1 billion of future
revenues at current rates with a significant portion of these advanced bookings
relating to the next three years.
Broadcasting and Music - Revenues increased $23.5 million, or 110.7%, to $44.7
million in the first quarter of 1997. Excluding the revenues of Word
subsequent to the 1997 acquisition date, broadcasting and music revenues
increased $1.8 million, or 8.7%, to $23.1 million in the first quarter of 1997.
The increase in broadcasting and music revenues reflects higher advertising
revenues at the Company's two television stations of $1.8 million. In January
1997, the Company entered into a definitive agreement to sell KSTW, its
Tacoma-Seattle, Washington, television station, for $160.0 million in cash.
The transaction requires the approval of the Federal Communications Commission
and will result in the recognition of a gain. Management expects the
transaction to be completed during 1997.
Cable Networks - Revenues increased $8.8 million, or 11.8%, to $83.1 million in
the first quarter of 1997. Advertising revenues increased 10.5% during the
first quarter of 1997 at TNN. Subscriber revenues at TNN increased 6.2% in the
first quarter of 1997 as the number of U.S. subscribers increased to 69.0
million in March 1997 from 64.8 million in March 1996. Revenues related to CMT
increased 21.9% in the first quarter of 1997 due to growth in both advertising
and subscriber revenues. CMT subscribers increased to 38.3 million in March
1997 from 33.0 million in March 1996. CMT International revenues increased to
$3.1 million in the first quarter of 1997 from $2.0 million in the first
quarter of 1996.
OPERATING EXPENSES
Total Operating Expenses - Total operating expenses increased $44.8 million, or
35.8%, to $169.9 million in the first quarter of 1997. Excluding the operating
expenses of Word, total operating expenses increased $22.7 million, or 18.1%,
to $147.8 million in the first quarter of 1997. Operating costs, as a
percentage of revenues, decreased to 62.6% during the first three months of
1997 as compared to 64.1% during the first three months of 1996. Selling,
general and administrative expenses, as a percentage of revenues, increased to
22.4% in the first three months of 1997 from 19.8% in the first three months of
1996, as explained below.
12
<PAGE> 13
Operating Costs - Operating costs increased $27.0 million, or 30.3%, to $115.9
million in the first quarter of 1997. Excluding the operating costs of Word,
operating costs increased $13.9 million, or 15.6%, in the first quarter of
1997. The increase is attributable to increased operating costs at the
Opryland Hotel of $8.1 million primarily as a result of the hotel expansion.
In addition, operating costs increased due to the continued growth in the cable
networks segment, including a $1.5 million increase in Westinghouse commissions
at TNN, a $1.2 million increase in programming costs at TNN, and a $2.0 million
increase in operating costs related to the expansion of CMT International
including increased costs for a 24-hour transponder for CMT International's
European operations.
Selling, General and Administrative - Selling, general and administrative
expenses increased $14.0 million, or 50.7%, to $41.5 million in the first
quarter of 1997. Excluding the selling, general and administrative expenses of
Word included in 1997, selling, general and administrative expenses increased
$5.6 million, or 20.4%, in the first quarter of 1997. The increase is
primarily attributable to higher promotional expenses related to CMT and CMT
International of $1.2 million and $1.3 million, respectively. In addition,
administrative costs increased by $1.1 million at the Opryland Hotel during the
first quarter of 1997 related to the hotel expansion.
Depreciation and Amortization - Depreciation and amortization increased $3.9
million, or 45.2%, to $12.5 million in the first quarter of 1997. Excluding
the depreciation and amortization related to Word, depreciation and
amortization increased $3.2 million to $11.8 million in the first quarter of
1997. The increase is primarily attributable to capital improvements at the
Opryland Hotel.
OPERATING INCOME
Total Operating Income - Total operating income increased $1.4 million, or
10.1%, to $15.1 million in the first quarter of 1997. Excluding the operating
losses of Word, total operating income increased $1.9 million to $15.6 million.
The hospitality and attractions segment increase is primarily related to
greater operating income generated by the Opryland Hotel expansion. The
broadcasting and music segment decrease is a result of the operating losses of
Word in the first quarter of 1997. Excluding the impact of Word's operating
losses, the broadcasting and music segment operating income improved slightly.
The cable networks segment decrease reflects increased operating losses
associated with CMT International's expansion, which losses were offset,
in part, by continued growth of TNN and CMT. The operating losses of CMT
International increased to $4.0 million in the first quarter of 1997 from $1.5
million in the first quarter of 1996.
INTEREST EXPENSE
Interest expense increased $4.4 million to $7.6 million in the first quarter of
1997. The increase is attributable to higher debt levels, due primarily to the
financing of the acquisition of Word. The Company's weighted average interest
rate on its bank debt and senior notes combined was 6.4% in the first three
months of 1997 compared to 7.0% in the first three months of 1996.
INTEREST INCOME
Interest income increased $0.2 million to $5.8 million in the first quarter of
1997. Interest income primarily results from noncash interest income recorded
on a long-term note receivable.
OTHER GAINS (LOSSES)
In January 1996, the Company sold its Houston, Texas, television station, KHTV,
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 (losses) for the first three months of
1996.
13
<PAGE> 14
INCOME TAXES
The Company's provision for income taxes was $4.2 million for the first quarter
of 1997 compared to $35.7 million for the first quarter of 1996 which included
the tax provision on the gain from the sale of KHTV. The Company's effective
tax rate on its income before provision for income taxes was 33.0% for the
first quarter of 1997 compared to 39.6% for the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently projects capital expenditures of approximately $45
million for 1997, approximately $13.6 million of which had been spent as of
March 31, 1997. The Company believes that net cash flows from operations will
exceed its net investing and financing activities.
The Company has an unsecured revolving loan (the "Revolver") which provides for
borrowings of up to $400 million until its maturity on December 31, 2000. At
April 30, 1997, the Company had approximately $4 million in available borrowing
capacity under the Revolver. The Company's purchase of Word for approximately
$120 million was financed through borrowings under the Revolver. The proceeds
from the sale of KSTW in 1997 will be used to reduce indebtedness under the
Revolver.
In March 1997, the Company negotiated an additional $50 million short term line
of credit which the Company expects to utilize until the sale of KSTW is
completed in 1997. This short term line of credit has the same interest rate
options as the Revolver and incorporates the same covenants, restrictions, and
conditions to borrowings as the Revolver. The Company expects the short term
line of credit, together with its net cash flows from operations, will fund its
anticipated cash requirements. At April 30, 1997, the Company had
approximately $45 million available borrowing capacity under this short term
line of credit. The Company is currently negotiating with its primary lenders
a new credit facility for New Gaylord following the Merger and Distribution.
SEASONALITY
Certain of the Company's businesses are subject to seasonal fluctuation. In
general, lower revenues and operating income are generated in the first
quarter, which is the off-peak season for the Company's entertainment and
tourism properties. The Opryland theme park produces most of its revenues in
the summer months. Revenues from the Company's broadcasting and music segment
have also been weakest in the first quarter.
FORWARD-LOOKING STATEMENTS / RISK FACTORS
This Form 10-Q contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the Company.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release any modifications or revisions to these
forward-looking statements to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events.
14
<PAGE> 15
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. The
Company's future operating results depend on a number of factors that could
cause the Company's actual results to differ materially from those projected in
forward-looking statements. These factors, many of which are beyond the
Company's control, include the continued growth in the popularity of country
music and country lifestyles; growth in the popularity of Christian music and
family values lifestyles; diversion of management's attention from the
Company's operations to matters attendant to the Merger and Distribution; the
ability to integrate the operations of Word into the Company's business; the
advertising market in the United States in general and in the Company's local
television markets in particular; the perceived attractiveness of Nashville,
Tennessee, as a convention and tourist destination; consumer tastes and
preferences for the Company's programming and other entertainment offerings;
competition; and consolidation in the broadcasting and cable distribution
industries.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Inapplicable.
15
<PAGE> 16
Part II - Other Information
Item 1. Legal Proceedings
Inapplicable
Item 2. Changes in Securities
Inapplicable
Item 3. Defaults Upon Senior Securities
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable
Item 5. Other Information
Inapplicable
Item 6. Exhibits and Reports on Form 8-K
(a) See Index to Exhibits on page 18.
(b) A Current Report on Form 8-K, dated February 9, 1997, reporting
the proposed Westinghouse Merger was filed with the Securities and
Exchange Commission.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements 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
Date: May 14, 1997 By: /s/ Terry E. London
--------------------- --------------------------------
Terry E. London
President and Chief Executive Officer
17
<PAGE> 18
INDEX TO EXHIBITS
27 Financial Data Schedule (for SEC use only)
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GAYLORD ENTERTAINMENT COMPANY FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,327
<SECURITIES> 0
<RECEIVABLES> 158,167
<ALLOWANCES> 5,295
<INVENTORY> 36,483
<CURRENT-ASSETS> 274,628
<PP&E> 643,297
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,364,276
<CURRENT-LIABILITIES> 197,670
<BONDS> 520,310
0
0
<COMMON> 968
<OTHER-SE> 512,328
<TOTAL-LIABILITY-AND-EQUITY> 1,364,276
<SALES> 185,068
<TOTAL-REVENUES> 185,068
<CGS> 0
<TOTAL-COSTS> 169,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,582
<INCOME-PRETAX> 12,860
<INCOME-TAX> 4,244
<INCOME-CONTINUING> 8,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,616
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0
</TABLE>
