<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 June 30, 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 July 31, 1997
----- -------------------------------
<S> <C>
Class A Common Stock, $.01 par value 46,468,313 shares
Class B Common Stock, $.01 par value 50,932,624 shares
</TABLE>
<PAGE> 2
GAYLORD ENTERTAINMENT COMPANY
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Part I - Financial Information
Item 1. Financial Statements 3
Condensed Consolidated Statements of Income -
For the Three Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Income -
For the Six Months Ended June 30, 1997 and 1996 5
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 6
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1997 and 1996 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II - Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE> 3
Part I - Financial Information
Item 1.
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 periods 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 JUNE 30, 1997 AND 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues $ 249,736 $ 209,280
Operating expenses:
Operating costs 143,735 118,516
Selling, general and administrative 45,952 35,190
Depreciation and amortization 15,707 12,651
--------- ---------
Operating income 44,342 42,923
Interest expense (7,342) (4,353)
Interest income 5,933 5,707
Other gains (losses) 143,067 (1,131)
--------- ---------
Income before provision for income taxes 186,000 43,146
Provision for income taxes 64,068 14,238
--------- ---------
Net income $ 121,932 $ 28,908
========= =========
Net income per share $ 1.25 $ 0.30
========= =========
Weighted average shares outstanding, including equivalent shares 97,439 97,969
========= =========
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 STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues $ 434,804 $ 348,137
Operating expenses:
Operating costs 259,636 207,460
Selling, general and administrative 87,461 62,739
Depreciation and amortization 28,246 21,286
--------- ---------
Operating income 59,461 56,652
Interest expense (14,924) (7,553)
Interest income 11,714 11,268
Other gains (losses) 142,609 72,882
--------- ---------
Income before provision for income taxes 198,860 133,249
Provision for income taxes 68,312 49,963
--------- ---------
Net income $ 130,548 $ 83,286
========= =========
Net income per share $ 1.34 $ 0.85
========= =========
Weighted average shares outstanding, including equivalent shares 97,449 97,892
========= =========
Dividends per share $ 0.200 $ 0.171
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE> 6
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 13,095 $ 13,720
Trade receivables, less allowance of $5,750 and $3,276, respectively 164,288 108,702
Program rights 10,165 14,072
Inventories 37,495 15,436
Other assets 57,319 35,342
----------- -----------
Total current assets 282,362 187,272
----------- -----------
Program rights 15,116 26,472
Property and equipment, net of accumulated depreciation 635,640 640,319
Intangible assets, net of accumulated amortization 104,292 39,363
Investments 72,745 66,037
Long-term notes and interest receivable 222,397 203,514
Other assets 35,014 19,271
----------- -----------
Total assets $ 1,367,566 $ 1,182,248
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 37,420 $ 37,350
Accounts payable and accrued liabilities 139,144 108,004
Income taxes payable 73,994 3,669
Program contracts payable 15,309 14,943
----------- -----------
Total current liabilities 265,867 163,966
----------- -----------
Long-term debt 316,544 326,059
Program contracts payable 9,936 24,661
Deferred income taxes 109,519 117,947
Other liabilities 23,844 21,805
Minority interest 15,478 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, 45,751
and 44,987 shares issued, 45,451 and 44,687 shares outstanding, respectively 458 450
Class B common stock, $.01 par value, 150,000 shares authorized, 50,941
and 51,684 shares issued and outstanding, respectively 509 517
Additional paid-in capital 483,074 483,287
Retained earnings 150,759 39,494
Treasury stock (5,938) (5,938)
Other stockholders' equity (2,484) (4,847)
----------- -----------
Total stockholders' equity 626,378 512,963
----------- -----------
Total liabilities and stockholders' equity $ 1,367,566 $ 1,182,248
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
<PAGE> 7
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 130,548 $ 83,286
Amounts to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 28,246 21,286
Provision (benefit) for deferred income taxes (1,927) 1,120
Noncash interest income (11,135) (9,942)
Gain on sale of television stations (144,259) (73,850)
Changes in:
Trade receivables (21,096) (28,573)
Program rights and program contracts payable 547 (887)
Accounts payable and accrued liabilities (168) 6,470
Income taxes payable 70,325 (5,376)
Other, net (19,270) (9,445)
--------- --------
Net cash flows provided by (used in) operating activities 31,811 (15,911)
--------- --------
Cash Flows from Investing Activities:
Purchase of Word Entertainment (119,901) --
Proceeds from sale of television stations, net of direct selling costs paid 156,301 98,544
Purchases of property and equipment (23,590) (76,541)
Payment upon disposal of Fiesta Texas partnership interest -- (12,976)
Investments in, advances to and distributions from affiliates, net (9,027) (3,465)
Other, net (8,020) (4,629)
--------- --------
Net cash flows provided by (used in) investing activities (4,237) 933
--------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt (38,531) (37,475)
Proceeds from issuance of long-term debt 420 --
Net borrowings under revolving credit agreements 28,666 70,896
Proceeds from exercise of stock options 529 1,214
Dividends paid (19,283) (16,569)
--------- --------
Net cash flows provided by (used in) financing activities (28,199) 18,066
--------- --------
Net change in cash (625) 3,088
Cash, beginning of period 13,720 12,062
--------- --------
Cash, end of period $ 13,095 $ 15,150
========= ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
<PAGE> 8
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 three months ended June 30, 1997 and 1996 were 97,439,000 and
97,969,000, respectively, and for the six months ended June 30, 1997 and 1996
were 97,449,000 and 97,892,000, respectively.
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
("SFAS 128"), has been issued and is 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 earnings per share would have been $1.27
and $0.30 for the three months ended June 30, 1997 and 1996, respectively, and
$1.35 and $0.86 for the six months ended June 30, 1997 and 1996, respectively.
Diluted earnings per share as if SFAS 128 had been adopted would have been
unchanged from the reported amounts for the three months ended June 30, 1997
and 1996 and for the six months ended June 30, 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 95% of Z Music,
Inc., will be transferred to or retained by a wholly owned subsidiary of the
Company ("New Gaylord"). As a result of the Restructuring and the Merger,
substantially all of the assets of the Company's cable networks business,
consisting primarily of The Nashville Network and the U.S. and Canadian
operations of Country Music Television, and certain other related businesses
(collectively, the "Cable Networks Business") and its liabilities to the extent
that they arise out of or relate to the Cable Networks Business, will be held by
the Company or one of its subsidiaries (other than New Gaylord or its
subsidiaries after giving effect to the Restructuring) 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 Class A Common Stock, $0.01 par
value, and Class B Common Stock, $0.01 par value (collectively, the "Company
Common Stock"), of the Company on the record date for the Distribution will
receive a number of shares of Common Stock, $0.01 par value, of New Gaylord
equal to one-third the number of shares of the Company Common Stock held by such
holder. Cash will be distributed in lieu of any fractional shares of New Gaylord
common stock.
8
<PAGE> 9
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 average market price of the Westinghouse common
stock for a period ending shortly before the date on which the Merger occurs and
the number of outstanding shares of the Company's common stock prior to the
Merger, subject to certain limitations and termination rights contained in the
Merger Agreement. The Distribution and the Merger are subject to the
satisfaction or waiver of a number of conditions, including Company stockholder
approval of the Merger, and certain regulatory approvals, including an Internal
Revenue Service ruling that the Distribution, the Merger, and certain aspects
of the Restructuring will be tax-free transactions. The Distribution and the
Merger are currently expected to occur during the third quarter of 1997.
In connection with the Merger, New Gaylord and the Company (or one or more of
their respective subsidiaries) plan to enter into agreements pertaining to their
ongoing business relationship. In addition, each party will agree not to compete
with the other in certain areas of the cable networks industry.
3. SALE OF TELEVISION STATION
In June 1997, the Company sold KSTW, its Tacoma-Seattle, Washington television
station, for $160,000 in cash. The sale resulted in a pretax gain of
$144,259, which is included in other gains (losses) in the condensed
consolidated statements of income. The Company utilized the net proceeds from
the sale to reduce outstanding indebtedness under its revolving lines of credit.
4. ACQUISITION OF WORD ENTERTAINMENT
In January 1997, the Company purchased all of the assets of Word Entertainment
("Word") for approximately $120,000 in cash, which is subject to a final
working capital adjustment. 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 has been preliminarily estimated at 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 months
ended June 30, 1996 and for the six months ended June 30, 1996, as if the
acquisition had occurred on January 1, 1996:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
-------------- --------------
<S> <C> <C>
Revenues $ 226,569 $ 381,776
============== ==============
Net income $ 26,924 $ 75,850
============== ==============
Net income per share $ 0.27 $ 0.77
============== ==============
</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.
9
<PAGE> 10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTRUCTURING AND 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 95% of Z Music,
Inc., will be transferred to or retained by a wholly owned subsidiary of the
Company ("New Gaylord"). As a result of the Restructuring and the Merger,
substantially all of the assets of the Company's cable networks business,
consisting primarily of The Nashville Network ("TNN") and the U.S. and Canadian
operations of Country Music Television ("CMT"), and certain other related
businesses (collectively, the "Cable Networks Business") and its liabilities to
the extent that they arise out of or relate to the Cable Networks Business, will
be held by the Company or one of its subsidiaries (other than New Gaylord or its
subsidiaries after giving effect to the Restructuring) 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 Class A Common Stock, $0.01 par
value, and Class B Common Stock, $0.01 par value (collectively, the "Company
Common Stock"), of the Company on the record date for the Distribution will
receive a number of shares of Common Stock, $0.01 par value, of New Gaylord
equal to one-third the number of shares of the Company Common Stock held by such
holder. Cash will be distributed in lieu of any fractional shares of New Gaylord
common stock.
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 average market price of the Westinghouse common
stock for a period ending shortly before the date on which the Merger occurs and
the number of outstanding shares of the Company's common stock prior to the
Merger, subject to certain limitations and termination rights contained in the
Merger Agreement. The Distribution and the Merger are subject to the
satisfaction or waiver of a number of conditions, including Company stockholder
approval of the Merger, and certain regulatory approvals, including an Internal
Revenue Service ruling that the Distribution, the Merger, and certain aspects
of the Restructuring will be tax-free transactions. The Distribution and the
Merger are currently expected to occur during the third quarter of 1997.
In connection with the Merger, New Gaylord and the Company (or one or more of
their respective subsidiaries) plan to enter into agreements pertaining to their
ongoing business relationship. In addition, each party will agree not to compete
with the other in certain areas of the cable networks industry.
SALE OF TELEVISION STATION
In June 1997, the Company sold KSTW, its Tacoma-Seattle, Washington television
station, for $160.0 million in cash. The sale resulted in a pretax gain of
$144.3 million, which is included in other gains (losses) in the condensed
consolidated statements of income. The Company utilized the net proceeds from
the sale to reduce outstanding indebtedness under its revolving lines of credit.
10
<PAGE> 11
WORD ENTERTAINMENT ACQUISITION
In January 1997, the Company purchased all of the assets of Word
Entertainment ("Word") for approximately $120.0 million in cash, which is
subject to a final working capital adjustment. The purchase price included
approximately $40.0 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 has been preliminarily estimated at approximately $61.0
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, music publishing business, and Word. The cable networks segment
primarily consists of TNN, CMT and CMT International. In addition to changing
the operating segments, the Company's unallocated corporate expenses are now
reported separately, all of which were previously allocated to the Company's
financial reporting segments. The 1996 results of operations have been restated
to conform to the new presentation.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following table contains unaudited selected summary financial data for the
three month and six month periods ended June 30, 1997 and 1996 (amounts in
thousands, except operating data). The table also shows the percentage
relationships to total revenues and, in the case of segment operating income,
its relationship to segment revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------- ----------------------------------------
1997 % 1996 % 1997 % 1996 %
--------- ------- --------- ------ --------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Hospitality and attractions $ 97,352 39.0 $ 88,606 42.3 $ 154,656 35.6 $ 131,953 37.9
Broadcasting and music 51,760 20.7 27,996 13.4 96,462 22.2 49,211 14.1
Cable networks 100,624 40.3 92,678 44.3 183,686 42.2 166,973 48.0
--------- ----- --------- ----- --------- ----- --------- -----
Total revenues 249,736 100.0 209,280 100.0 434,804 100.0 348,137 100.0
--------- ----- --------- ----- --------- ----- --------- -----
Operating expenses:
Operating costs 143,735 57.6 118,516 56.6 259,636 59.7 207,460 59.6
Selling, general & administrative 45,952 18.4 35,190 16.8 87,461 20.1 62,739 18.0
Depreciation and amortization:
Hospitality and attractions 9,212 7,649 15,795 11,880
Broadcasting and music 1,815 1,105 3,693 2,142
Cable networks 3,739 3,112 7,072 5,741
Corporate 941 785 1,686 1,523
--------- ----- --------- ----- --------- ----- --------- -----
Total depreciation and amortization 15,707 6.2 12,651 6.1 28,246 6.5 21,286 6.1
--------- ----- --------- ----- --------- ----- --------- -----
Total operating expenses 205,394 82.2 166,357 79.5 375,343 86.3 291,485 83.7
--------- ----- --------- ----- --------- ----- --------- -----
Operating income:
Hospitality and attractions 14,911 15.3 15,934 18.0 16,319 10.6 15,693 11.9
Broadcasting and music 8,644 16.7 7,681 27.4 10,583 11.0 9,931 20.2
Cable networks 27,674 27.5 25,483 27.5 45,277 24.6 43,415 26.0
Corporate (6,887) - (6,175) - (12,718) - (12,387) -
--------- ----- --------- ----- --------- ----- --------- -----
Total operating income $ 44,342 17.8 $ 42,923 20.5 $ 59,461 13.7 $ 56,652 16.3
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------------
Operating data: 1997 1996 % change
- --------------- ------- ------- ----------
<S> <C> <C> <C>
Hospitality and attractions:
Opryland Hotel:
Occupancy rate 82.2% 81.2%
Average guest room rate $131.36 $127.27 3.2
Opryland theme park:
Attendance (in thousands) 625 675 (7.4)
Revenue per guest $29.07 $29.60 (1.8)
Cable networks:
Number of U.S. subscribers (in thousands):
The Nashville Network 69,436 65,345 6.3
Country Music Television 39,385 33,477 17.6
</TABLE>
12
<PAGE> 13
PERIODS ENDED JUNE 30, 1997 COMPARED TO PERIODS ENDED JUNE 30, 1996
Revenues
Total Revenues - Total revenues increased $40.5 million, or 19.3%, to $249.7
million in the second quarter of 1997, and increased $86.7 million, or 24.9%, to
$434.8 million in the first six months of 1997, a substantial portion of which
was attributable to the acquisition of Word. Excluding the revenues of Word
subsequent to the date of the Word acquisition, total revenues increased $15.3
million, or 7.3%, to $224.5 million in the second quarter of 1997, and increased
$39.8 million, or 11.4%, to $388.0 million in the first six months of 1997. The
increases are primarily attributable to the expansion of the Opryland Hotel in
the hospitality and attractions segment and continued growth in the cable
networks segment.
Hospitality and Attractions - Revenues in the hospitality and attractions
segment increased $8.7 million, or 9.9%, to $97.4 million in the second quarter
of 1997, and increased $22.7 million, or 17.2%, to $154.7 million for the first
six months of 1997. Opryland Hotel revenues increased $24.8 million, or 29.8%,
to $108.1 million in the first six months of 1997 principally because of the
hotel expansion. The hotel's occupancy rate increased to 82.2% in the first six
months of 1997 compared to 81.2% in the first six months of 1996. The hotel sold
408,900 rooms in the first six months of 1997 compared to 339,500 rooms sold in
the same period of 1996 reflecting a 20.4% increase over 1996. The hotel's
average guest room rate increased to $131.36 in the first six months of 1997
from $127.27 in the first six months of 1996. At June 30, 1997, the hotel's
advanced bookings were approximately $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 $23.8 million, or 84.9%, to $51.8
million in the second quarter of 1997, and increased $47.3 million, or 96.0%, to
$96.5 million for the first six months of 1997. Excluding the revenues of Word
subsequent to the date of the Word acquisition, broadcasting and music revenues
decreased $1.4 million, or 5.1%, to $26.6 million in the second quarter of 1997,
and increased $0.4 million, or 0.8%, to $49.6 million for the first six months
of 1997. The decrease for the second quarter is primarily the result of the
early June 1997 sale of television station KSTW.
Cable Networks - Revenues increased $7.9 million, or 8.6%, to $100.6 million in
the second quarter of 1997, and increased $16.7 million, or 10.0%, to $183.7
million for the first six months of 1997. Advertising revenues increased 8.8%
during the second quarter of 1997 and increased 9.5% for the first six months of
1997 at TNN. Subscriber revenues at TNN increased 6.7% in the second quarter of
1997 and 6.5% for the first six months of 1997 as the number of U.S. subscribers
increased to 69.4 million in June 1997 from 65.3 million in June 1996. Revenues
related to CMT increased 23.8% in the second quarter of 1997 and 22.9% for the
first six months of 1997 due to growth in both advertising and subscriber
revenues. CMT subscribers increased to 39.4 million in June 1997 from 33.5
million in June 1996. CMT International revenues increased to $5.6 million in
the first six months of 1997 from $4.6 million in the first six months of 1996.
13
<PAGE> 14
Operating Expenses
Total Operating Expenses - Total operating expenses increased $39.0 million, or
23.5%, to $205.4 million in the second quarter of 1997 and increased $83.9
million, or 28.8%, to $375.3 million for the first six months of 1997, a
substantial portion of which was attributable to the acquisition of Word.
Excluding the total operating expenses of Word subsequent to the date of the
Word acquisition, total operating expenses increased $14.6 million, or 8.8%, to
$181.0 million in the second quarter of 1997 and increased $37.3 million, or
12.8%, to $328.8 million for the first six months of 1997. A portion of the
increase is due to corporate total operating expenses, consisting primarily of
senior management salaries and benefits, legal, human resources, accounting,
data processing and other administrative costs, which increased $0.7 million to
$6.9 million in the second quarter of 1997, and increased $0.3 million to $12.7
million in the first six months of 1997. Operating costs, as a percentage of
revenues, increased slightly to 59.7% during the first six months of 1997 as
compared to 59.6% during the first six months of 1996. Selling, general and
administrative expenses, as a percentage of revenues, increased to 20.1% in the
first six months of 1997 from 18.0% in the first six months of 1996, for the
reasons explained below.
Operating Costs - Operating costs increased $25.2 million, or 21.3%, to $143.7
million in the second quarter of 1997 and increased $52.2 million, or 25.1%, to
$259.6 million in the first six months of 1997. Excluding the operating costs of
Word subsequent to the date of the Word acquisition, operating costs increased
$9.7 million, or 8.2%, in the second quarter of 1997 and increased $23.6
million, or 11.4%, in the first six months of 1997. The increases are
attributable to increased operating costs at the Opryland Hotel of $16.5 million
for the first six months of 1997 primarily related to the hotel expansion. In
addition, operating costs increased during the first six months of 1997 due to
the continued growth in the cable networks segment, including a $3.4 million
increase in Westinghouse commissions at TNN, a $2.8 million increase in
programming costs at TNN, and a $2.8 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. These increases were
partially offset by decreases in operating costs for the first six months of
1997 of $1.1 million at the Opryland theme park due to cost-cutting measures and
$1.3 million at KSTW.
Selling, General and Administrative - Selling, general and administrative
expenses increased $10.8 million, or 30.6%, to $46.0 million in the second
quarter of 1997 and increased $24.7 million, or 39.4%, to $87.5 million for the
first six months of 1997. Excluding the selling, general and administrative
expenses of Word subsequent to the date of the Word acquisition, selling,
general and administrative expenses increased $2.5 million, or 7.2%, in the
second quarter of 1997 and $8.2 million, or 13.0%, for the first six months of
1997. The increases are primarily attributable to higher promotional expenses
related to CMT and CMT International of $1.5 million and $2.0 million,
respectively, for the first six months of 1997. Administrative costs increased
$2.2 million at the Opryland Hotel during the first six months of 1997
primarily because of the hotel expansion. In addition, selling and
administrative expenses increased $1.6 million in the first six months of 1997
as a result of the expansion of the NASCAR Thunder Stores, a chain of auto
racing-themed retail stores, which will be acquired by Westinghouse in the
Merger.
Depreciation and Amortization - Depreciation and amortization increased $3.1
million, or 24.2%, to $15.7 million in the second quarter of 1997 and increased
$7.0 million, or 32.7%, to $28.2 million for the first six months of 1997.
Excluding the depreciation and amortization related to Word subsequent to the
date of the Word acquisition, depreciation and amortization increased $2.3
million to $15.0 million in the second quarter of 1997 and increased $5.5
million to $26.8 million for the first six months of 1997. The increases are
primarily attributable to increased depreciation and amortization expense of
$3.9 million for the six months ended June 30, 1997 related to the expansion of
the Opryland Hotel.
14
<PAGE> 15
Operating Income
Total Operating Income - Total operating income increased $1.4 million, or 3.3%,
to $44.3 million in the second quarter of 1997 and increased $2.8 million, or
5.0%, to $59.5 million for the first six months of 1997. Excluding the operating
income of Word subsequent to the date of the Word acquisition, total operating
income increased $0.6 million to $43.6 million in the second quarter of 1997 and
increased $2.5 million to $59.2 million for the first six months of 1997. The
increase in operating income in the hospitality and attractions segment for the
first six months of 1997 is primarily related to greater operating income
generated by the Opryland Hotel and the reduction in operating expenses at the
Opryland theme park. Excluding the impact of Word's operating income subsequent
to the date of the Word acquisition, the broadcasting and music segment
operating income improved slightly for the first six months of 1997. The cable
networks segment increase reflects continued growth of TNN and CMT, which was
offset, in part, by increased operating losses associated with CMT
International's expansion. The operating losses of CMT International increased
to $7.6 million in the first six months of 1997 from $3.7 million in the first
six months of 1996. Although CMT International has yet to operate profitably,
the Company believes that its operating results can be improved. If CMT
International's results of operations do not improve, however, the Company will
consider various possible courses of action, including seeking a joint venture
partner, pursuing a sale of CMT International, or ceasing its operations. The
Company's ability to improve CMT International's operating results may be
negatively impacted by certain restrictions contained in its agreements with
Westinghouse on its ability to change CMT International's programming content
for the five-year period immediately following the Merger.
Interest Expense
Interest expense increased $3.0 million to $7.3 million in the second quarter of
1997 and increased $7.4 million to $14.9 million for the first six months of
1997. These increases are attributable to higher average debt levels, due
primarily to the financing of the Word acquisition. The Company utilized the net
proceeds from the sale of KSTW in June 1997 to reduce outstanding indebtedness
under its revolving lines of credit. The Company's weighted average interest
rate on its bank debt and senior notes combined was 6.5% in the first six months
of 1997 compared to 6.9% in the first six months of 1996.
Interest Income
Interest income increased $0.2 million to $5.9 million in the second quarter of
1997 and increased $0.4 million to $11.7 million in the first six months of
1997. Interest income primarily results from noncash interest income earned on a
long-term note receivable.
Other Gains (Losses)
In June 1997, the Company sold KSTW, its Tacoma-Seattle, Washington television
station, for $160.0 million in cash. The sale resulted in a pretax gain of
$144.3 million, which is included in other gains (losses) in the condensed
consolidated statements of income.
In January 1996, the Company sold KHTV, its Houston, Texas television station,
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) in the condensed consolidated
statements of income.
15
<PAGE> 16
Income Taxes
The Company's provision for income taxes was $64.1 million for the second
quarter of 1997, which included the tax provision of $50.3 million on the gain
from the sale of KSTW, compared to $14.2 million for the second quarter of 1996.
The provision for income taxes was $68.3 million for the first six months of
1997 compared to $50.0 million for the first six months of 1996. The Company's
effective tax rate on its income before provision for income taxes was 34.4% for
the second quarter of 1997 compared to 33.0% for the second quarter of 1996, and
34.4% for the first six months of 1997 compared to 37.5% for the first six
months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently projects capital expenditures of approximately $52 million
for 1997, approximately $23.6 million of which had been spent as of June 30,
1997. The Company believes that net cash flows from operations will exceed its
net investing and financing activities on both a short-term and long-term basis.
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. In
March 1997, the Company negotiated an additional $50 million short-term line of
credit which expires on September 30, 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's purchase of Word for approximately $120 million was financed through
borrowings under the Revolver. The proceeds from the sale of KSTW in 1997 were
used to reduce the indebtedness under the Revolver and the short-term line of
credit. At July 31, 1997, the Company had approximately $236 million in
available borrowing capacity under the Revolver and the short-term line of
credit. On August 1, 1997, the Company utilized $90 million of borrowing
capacity under the Revolver to prepay all of its outstanding fixed-rate senior
notes.
The Company is currently negotiating with its primary lenders a new $600 million
credit facility which will replace the Revolver and the short-term line of
credit. In connection with the Merger, New Gaylord will assume all of the
Company's indebtedness. The Company's management believes that the net cash
flows from operations, together with the amount expected to be available for
borrowing under the new credit facility (or alternative borrowing arrangements)
will be sufficient to satisfy anticipated future cash requirements of the
Company and New Gaylord, as applicable, on both a short-term and long-term
basis.
SEASONALITY
Certain of the Company's businesses are subject to seasonal fluctuation. Many of
the operations in the hospitality and attractions segment are either closed or
operate on a limited basis during the first quarter of the year and conduct most
of their business during the summer tourism season. The first calendar quarter
is also 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 also typically weakest in the first
calendar quarter following the Christmas buying season.
RECENT DEVELOPMENTS
The Company was notified recently by Nashville governmental authorities of an
increase in appraised value and property tax rates on the Opryland Hotel and
Opryland theme park resulting in a potential tax assessment of approximately
$4.1 million more than was originally anticipated by the Company. The Company
is in the process of appealing the appraisal. The Company intends to
vigorously contest the increased tax assessment, but believes that, even if the
appeal is determined unfavorably, the increased tax will not have a material
adverse effect on the Company's results of operations or financial position.
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.
16
<PAGE> 17
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. When used
herein, the words "estimate," "project," "intend," "expect," "anticipate," and
similar expressions are intended to identify 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 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 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
and radio 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
17
<PAGE> 18
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 20.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
18
<PAGE> 19
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: August 13, 1997 By: /s/ Terry E. London
--------------- ---------------------------------------
Terry E. London
President, Chief Executive Officer, and
Chief Financial Officer
19
<PAGE> 20
INDEX TO EXHIBITS
PAGE NO.
--------
27 Financial Data Schedule (for SEC use only) 21
20
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,095
<SECURITIES> 0
<RECEIVABLES> 170,038
<ALLOWANCES> 5,750
<INVENTORY> 37,495
<CURRENT-ASSETS> 282,362
<PP&E> 635,640
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<CURRENT-LIABILITIES> 265,867
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<COMMON> 967
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<TOTAL-LIABILITY-AND-EQUITY> 1,367,566
<SALES> 434,804
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<INCOME-PRETAX> 198,860
<INCOME-TAX> 68,312
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