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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NO. 1-13079
(GAYLORD ENTERTAINMENT LOGO)
GAYLORD ENTERTAINMENT COMPANY
(Exact name of registrant as specified in its charter)
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)
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, 1998, 32,802,584 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, 1998 was approximately $699,835,000. 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 Proxy Statement for the Annual Meeting of
Stockholders to be held May 8, 1998 are incorporated by reference into Part III
of this Form 10-K.
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GAYLORD ENTERTAINMENT COMPANY
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
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................................. 17
Item 8 Financial Statements and Supplementary Data................. 26
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 49
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 49
Item 11 Executive Compensation...................................... 49
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................ 49
Item 13 Certain Relationships and Related Transactions.............. 49
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 49
SIGNATURES........................................................... 50
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PART I
ITEM 1. BUSINESS
INTRODUCTION AND HISTORY
Gaylord Entertainment Company (the "Company" or "New Gaylord") is a
diversified entertainment company emphasizing family values and its country
music roots, 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. From the date of TNN's
formation and CMT's acquisition until the CBS Merger (described below), TNN and
CMT were marketed by Westinghouse Electric Corporation, now known as CBS
Corporation ("CBS"), through certain of CBS's divisions and subsidiaries, and an
affiliate of CBS owned the remaining 33% interest in CMT. 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 acquired an
option to purchase 95% of the outstanding common stock of Z Music, a cable
network currently featuring contemporary Christian music videos. The Company
currently manages the operations of Z Music. In January 1997, New Gaylord's
predecessor 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, New Gaylord was a wholly owned subsidiary of
its former parent, which was then known as Gaylord Entertainment Company ("Old
Gaylord"). On October 1, 1997, Old Gaylord consummated a transaction with 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 and CMT (U.S. and
Canadian operations), and certain other related assets and liabilities (the
"Cable Networks Business"), to New Gaylord 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 New Gaylord. In connection with these transactions, New Gaylord and Old
Gaylord entered into various agreements relating to the future relationship
between New Gaylord 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 New Gaylord. Immediately following the CBS Merger,
New Gaylord changed its name to Gaylord Entertainment Company.
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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.
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 the seventh largest hotel in the United States in
terms of number of guest rooms and has more 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 1997, 1996, and 1995, 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, as well as to
other attractions in the Nashville area. The Company believes that the ambience
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, 1997.
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Average number of guest rooms........... 2,866 2,613 1,907 1,878 1,891
Occupancy rate.......................... 85.4% 84.7% 87.5% 87.9% 85.5%
Average room rate....................... $ 135.03 $ 131.21 $ 132.99 $ 130.15 $ 126.27
Food and beverage revenues (in
thousands)............................ $ 76,408 $ 59,904 $ 50,418 $ 48,694 $ 46,870
Total revenues (in thousands)........... $231,354 $196,226 $153,062 $147,049 $140,573
To serve conventions, the Opryland Hotel has 2,883 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 shops. 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. Springhouse Golf Club,
the Company's 18-hole championship golf course, attracts conventions requiring
the availability of golf and makes the hotel more attractive to vacationers. The
Springhouse Golf Club also hosts an annual Senior 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 that cancel are contractually required to pay certain
penalties and face
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the possible loss of future convention space at the hotel. As of February 28,
1998, convention bookings for the balance of 1998 and for 1999 were for
approximately 653,000 and 632,900 guest room nights, respectively, representing
approximately 74% and 60%, respectively, of the available guest room nights for
such periods, and the hotel had advance convention bookings extending into the
year 2018.
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. 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 a "Country Winter Celebration," "Spring into
Summer," the International Country Music Fan Fair Celebration in June of each
year, and "A Country Christmas," which runs each year from early November
through Christmas Day. The Country Christmas program has contributed to the
hotel's high occupancy rate during the month of December, traditionally a slow
period for the hotel industry.
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. The Company's strategy is for the
Opryland Lodging Group to develop properties to serve meetings and conventions,
as does the Opryland Hotel at resort and convention centers across the U.S., as
well as explore opportunities to acquire and manage existing properties, provide
consulting services and pursue joint ventures with other businesses.
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.
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 new 1.1 million square foot Opry Mills retail complex is
expected to enhance the Opryland properties, which will consist of the Company's
five existing entertainment areas -- the Opryland Hotel, the Grand Ole Opry and
Opry Plaza, the redeveloped Opryland theme park area, the General Jackson, and
the broadcast area of the Opryland complex, which will continue to house CBS's
TNN and CMT cable networks. Unlike the Opryland theme park which operated
full-time only in the summer, part-time during the Christmas season, and on
weekends in the spring and autumn, Opry Mills will provide shopping,
entertainment, and dining experiences to visitors of 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 radio
broadcast by WSM-AM 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 for at least five years. The show has been radio broadcast
since 1925 on WSM-AM, making it the longest running live radio program in the
world.
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The Grand Ole Opry currently has 70 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 Reba McEntire. 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 Emmylou Harris-1992 Ray Pillow-1966
Ernie Ashworth-1964 Jan Howard-1971 Charley Pride-1993
Clint Black-1991 Alan Jackson-1991 Jeanne Pruett-1973
Garth Brooks-1990 Stonewall Jackson-1969 Del Reeves-1966
Jim Ed Brown-1963 Jim & Jesse-1964 Riders In The Sky-1982
Bill Carlisle-1953 George Jones*-1969 Johnny Russell-1985
Roy Clark-1987 Hal Ketchum-1994 Jeannie Seely-1967
Jerry Clower-1973 Alison Krauss-1993 Ricky Van Shelton-1988
John Conlee-1981 Hank Locklin-1960 Jean Shepard-1955
Wilma Lee Cooper-1957 Charlie Louvin-1955 Ricky Skaggs-1982
Skeeter Davis-1959 Patty Loveless-1988 Connie Smith-1971
Little Jimmy Dickens*-1948 Loretta Lynn*-1962 Mike Snider-1990
Joe Diffie-1993 Barbara Mandrell-1972 Hank Snow*-1950
Roy Drusky-1958 Martina McBride-1995 Marty Stuart-1992
Holly Dunn-1989 Mel McDaniel-1986 Randy Travis-1986
The 4 Guys-1967 Reba McEntire-1986 Travis Tritt-1992
Larry Gatlin & The Gatlin Ronnie Milsap-1976 Porter Wagoner-1957
Brothers Band-1976 Lorrie Morgan-1984 Billy Walker-1960
Don Gibson-1958 Jimmy C. Newman-1956 Charlie Walker-1967
Vince Gill-1991 The Osborne Brothers-1964 Steve Wariner-1996
Billy Grammer-1959 Bashful Brother Oswald-1995 The Whites-1984
Jack Greene-1967 Dolly Parton-1969 Teddy Wilburn-1953
Tom T. Hall-1980 Johnny PayCheck-1997 Boxcar Willie-1981
George Hamilton IV-1960 Stu Phillips-1967
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* Members of the Country Music Hall of Fame.
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 for the next five years.
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, a 190-seat restaurant and banquet facility, and a
15 x 22 foot 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. The Company also owns 51% of a joint venture with Levy Restaurants
Group ("Levy"), which was established to expand the Wildhorse Saloon concept
beyond Nashville to major, high-profile tourism
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cities around the country. Levy provides restaurant management expertise and
oversees day-to-day operations, site selections, and lease negotiations for the
restaurants. In August 1997, the Company and Levy announced the first such
Wildhorse Saloon expansion at the Walt Disney Resort at Downtown Disney Pleasure
Island near Orlando, Florida. The planned two-level 27,000 square foot
entertainment venue and restaurant is expected to open during 1998. Pursuant to
the CBS Transitional Agreements, the Wildhorse Saloon will continue to receive
exposure and promotion on TNN for a period of five years, including the airing
of four shows annually on TNN to originate from the Wildhorse Saloon.
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 will open 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, Shawn Colvin, Bob Dylan, Amy Grant, Lyle Lovett, Ricky Skaggs, and
Bruce Springsteen.
BROADCASTING AND MUSIC
The Company's broadcasting and music operations during 1997 consisted
primarily of two television stations, three radio stations, Word and the
Opryland Music Group ("OMG"). In March 1997 the Company acquired Blanton Harrell
Entertainment and in June 1997 the Company sold its Seattle-area television
station. 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, 1997, 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. In
June 1997, the Company consummated the sale of KSTW in Seattle-Tacoma,
Washington, also affiliated with the CBS television network, for $160 million in
cash.
As of November 1997, 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"), which 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 1.9 million television
households, is the eighth largest DMA in the United States. KTVT's broadcast
license issued by the Federal Communications Commission (the "FCC") expires in
August 1998, but is expected to be renewed. 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.
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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, New Gaylord 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 recording labels featuring artists such
as Amy Grant, Shirley Caesar, Sandi Patty, Point of Grace, and Jaci Velasquez.
Other significant Word operations include print music and hymnal sales,
children's video sales, sales of music and video products owned by third parties
under various exclusive distribution agreements, and music publishing, including
a 40,000 song catalog. 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, inspirational, and family values themes. 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.
In March 1997, the Company acquired Blanton Harrell Entertainment, an
international management company which, together with Word and Z Music, anchor
New Gaylord's family values entertainment offerings. Blanton Harrell
Entertainment manages primarily Christian music artists, including Word artist
Amy Grant, the top-selling contemporary Christian music artist of all time,
Michael W. Smith, and Gary Chapman.
Opryland Music Group. OMG is primarily engaged in the music publishing
business and owns one of the world's largest catalogs of copyrighted country
music songs. The OMG catalog also includes popular music, with songs of
legendary writers such as Hank Williams, Pee Wee King, Roy Orbison, and Don and
Phil Everly. Songs in the OMG catalog have accumulated more country "Song of the
Year" awards from the major performing rights organizations than the songs of
any other publisher, and the OMG 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 OMG songs. In addition to commercially recorded music, OMG
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 OMG collects a significant percentage of
royalties on licenses granted in a number of foreign countries.
CABLE NETWORKS
Following the CBS Merger, the Company's cable networks operations consist
primarily of CMT International and the management of 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
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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. At
December 31, 1997, CMT International had 7.4 million subscribers. 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 currently expects to halt its CMT Europe
satellite feed on March 31, 1998. At December 31, 1997, CMT Europe accounted for
approximately 5.9 million subscribers. The Company is currently exploring
programming opportunities in selected European markets, including the potential
for block programming through existing cable channels.
Z Music. In 1994, the Company entered into an agreement to manage Z Music
in exchange for an option to purchase 95% of Z Music's outstanding capital
stock. Z Music is a cable network featuring contemporary Christian music videos.
Z Music'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. Z Music has recently expanded its programming to include positive,
uplifting music by artists that are not necessarily categorized as Christian.
The Company anticipates that it will exercise its option to purchase Z Music in
1998.
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
center in Springfield, Missouri, and additional retail stores in Atlanta,
Georgia, Gurnee, Illinois (near Chicago) and Islamorada, Florida. Bass Pro Shops
has announced plans to build three 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 40 million Bass Pro Shops catalogs published
annually. The Company also provides hotel consulting services to Bass Pro Shops'
Big Cedar Lodge, a 1,250 acre resort development on Table Rock Lake located in
the Ozark Mountains in southern Missouri.
Texas Rangers Baseball Club. The Company currently owns a 10% interest in
B/R Rangers Associates, Ltd., a limited partnership that owns the Texas Rangers
major league baseball club. In January 1998, B/R Rangers Associates, Ltd. agreed
to sell the Texas Rangers and certain other assets to Hicks, Inc. for
consideration valued at approximately $250 million. The sale is subject to the
approval of Major League Baseball.
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
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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 make-up 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, format effectiveness of programming, 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 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.
For a period of five years following the CBS Merger, 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 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."
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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 employment
practices of broadcasting stations.
The FCC has adopted rules to implement a provision of the 1996
Communications Act Amendments (the "1996 Amendments") pursuant to which licenses
issued for radio renewal applications filed on or after June 1, 1995 and for
television renewal applications filed on or after June 3, 1996, will have terms
of eight years. (The maximum periods were formerly five years and seven years,
respectively.) Television and radio broadcast licenses are renewable upon
application to the FCC and in the past usually have been renewed except in rare
cases. In a departure from past practice, the 1996 Amendments provide that
competing applications will not be accepted at the time of license renewal, and
will not be entertained 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 prohibit 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). Pursuant
to the 1996 Amendments, however, the FCC's liberal waiver policy for joint
television and radio ownership in the top 25 markets has been expanded to
include the top 50 markets. The 1996 Amendments also increase the number of
radio stations a single entity may own in the same market area (depending 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. Pursuant to the 1996 Amendments, FCC
regulations no longer will 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%, up
from the prior cap of 25%, and no more than 12 stations. The 1996 Amendments
also eliminated previous limits on the total number of radio stations commonly
owned on a national basis. The FCC has amended and is in the process of amending
certain of its regulations to implement the 1996 Amendments.
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. The 1996 Amendments have
deleted prior restrictions on communications companies having non-citizen
officers and directors.
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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,
including those made by the 1996 Amendments.
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, the Cable Television Consumer Protection and
Competition Act of 1992 and the regulations thereunder have required cable
networks to, in certain instances, lower charges for their programming for
certain distributors. Although the recently enacted 1996 Amendments did not have
such an effect, any future legislation or regulatory actions that increase rate
regulation or effect structural changes on the Company's cable networks could
have such an effect. For example, 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 January 3, 1998, the Company had approximately 5,000 full-time and
1,350 part-time and seasonal employees. The Company believes that its
relationship with its employees is good.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding executive
officers of the Company as of date hereof. All officers serve at the discretion
of the Board of Directors.
NAME AGE POSITION
- ---- --- --------
Edward L. Gaylord............................ 78 Chairman of the Board
E. K. Gaylord II............................. 40 Vice-Chairman of the Board
Terry E. London.............................. 48 Director, President and Chief Executive Officer
Joseph B. Crace.............................. 43 Senior Vice President and Chief Financial Officer
Jerry O. Bradley............................. 58 President -- Opryland Music Group
Jack L. Gaines............................... 56 President -- Opryland Hospitality and Attractions
Group
Dan E. Harrell............................... 49 President -- Idea Entertainment Group
Carl W. Kornmeyer............................ 45 President -- Communications Group
Jack J. Vaughn............................... 60 Chairman -- Opryland Lodging Group
Robert F. Whittaker.......................... 56 President -- Grand Ole Opry
Rod F. Connor, Jr............................ 45 Senior Vice President and Chief Administrative
Officer
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 speciality products and business development and president and
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chief executive officer of its Hickory Specialties, Inc. subsidiary, a
manufacturer of barbeque grills and accessories, charcoal briquettes, and liquid
smoke.
Mr. Bradley has served as President of Opryland Music Group since September
1993 and, prior to that time, as General Manager of Opryland Music Group since
July 1986. Prior to joining Opryland Music Group, Mr. Bradley operated Bradley
Productions, an independent production company for three years and worked for
RCA Records for 16 years. Mr. Bradley is a director of Logan's Roadhouse, Inc.
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, 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. Vaughn has been the Chairman of the newly formed Opryland Lodging Group
since February 1998. From November 1993 until February 1998, Mr. Vaughn was
President of the Opryland Hospitality and Attractions Group. He has served as
Vice President of the Company since October 1991 and was the General Manager of
the Opryland Hotel from 1975 to November 1993. He has been a member and served
on committees of the American Hotel and Motel Association since 1972.
Mr. Whittaker has been the President and General Manager of the Grand Ole
Opry since November 1996. From September 1993 until November 1996, Mr. Whittaker
served as Vice President of the Grand Ole Opry and Opryland Productions, and
from August 1990 until September 1993, he was the General Manager of the
Opryland theme park. Mr. Whittaker has been employed by the Opryland USA
businesses since 1971.
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 approximately 800 acres of land in Nashville, Tennessee
and the improvements thereon that comprise the Opryland complex. The Opryland
complex is comprised of the Opryland Hotel, the former site of the Opryland
theme park, the General Jackson showboat's docking facility, the TNN/CMT
production and administration facilities, the Opry House, and WSM Radio's
offices and studios. The Company also owns the Springhouse Golf Club, an 18-hole
golf course situated on approximately 240 acres,
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and a 26-acre KOA campground, both of which are located near the Opryland
complex. In addition, the Company owns the Ryman Auditorium in downtown
Nashville; the Wildhorse Saloon, a dance hall/production facility, on Company
property in downtown Nashville; and a 100,000 square foot warehouse in Old
Hickory, Tennessee.
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. In addition, the Company owns the Opryland
Music Group building located on Nashville's "Music Row" and adjacent real
estate. The Company leases approximately 34,000 square feet on various floors in
a Nashville office building, which space is primarily used for Word's executive
and administrative offices. These leases expire on various dates ranging from
October 1998 to June 2001. Word also leases sales office and warehouse space in
Waco, Texas; Richmond, Canada; and Milton Keynes, United Kingdom.
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 Europe 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.
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 New Gaylord, 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 Company's current estimates of these
liabilities, OPUBCO has sufficient financial resources to fulfill its
indemnification obligations under the OPUBCO Distribution Agreement.
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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.
HIGH LOW
------ ------
Fourth Quarter 1997......................................... $33.25 $28.38
First Quarter 1998 (through March 26)....................... 36.81 29.88
(b) Holders
At March 18, 1998, the approximate number of record holders of the Common
Stock was 3,214.
(c) Cash Dividends
In the fourth quarter of 1997 and the first quarter of 1998, the Company
paid a dividend of $.15 per share with respect to its Common Stock. Although the
Credit Agreement among the Company and a syndicate of banks with NationsBank of
Texas, N.A., acting as agent (the "1997 Credit Facility") does not specifically
limit the Company's ability to pay dividends, the 1997 Credit Facility does
require the Company to maintain certain financial ratios and minimum
stockholders' equity levels, and the Company would be prohibited from paying
dividends if it were in default under such 1997 Credit Facility.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial data for the five years ended
December 31, 1997 is derived from the Company's audited consolidated financial
statements. The unaudited selected consolidated pro forma income statement data
for the years ended December 31, 1997 and 1996 are presented as if the
Distribution and the CBS Merger had occurred on January 1, 1996. 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.
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
UNAUDITED PRO FORMA(1) ACTUAL
----------------------- --------------------------------------------------------------------
1997 1996 1997(2)(3) 1996 1995 1994 1993
-------- -------- ---------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues:
Hospitality and attractions... $346,931 $313,023 $346,931 $313,023 $276,638 $274,494 $243,460
Broadcasting and music........ 202,680 102,368 202,680 102,368 148,175 169,538 170,255
Cable networks................ 11,921 11,155 276,384 331,767 282,647 243,899 208,869
-------- -------- -------- -------- -------- -------- --------
Total revenues.............. 561,532 426,546 825,995 747,158 707,460 687,931 622,584
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Operating costs............... 363,369(4)(5) 261,175 511,162(4)(5) 443,236 442,208(4) 427,903 392,151
Selling, general and
administrative.............. 132,511 95,586 161,280 125,459 115,361 108,624 92,849
Merger costs.................. 22,645(6) -- 22,645(6) -- -- -- --
Restructuring charge.......... 13,654(6) -- 13,654(6) -- -- -- --
Theme park closing charge..... 42,006(7) -- 42,006(7) -- -- -- --
Depreciation and amortization:
Hospitality and
attractions............... 31,998 28,861 31,998 28,861 21,782 19,041 16,959
Broadcasting and music...... 6,945 4,421 6,945 4,421 3,954 3,854 3,936
Cable networks.............. 1,763 1,991 10,924 12,406 9,522 7,758 6,608
Corporate................... 3,530 3,168 3,530 3,168 2,828 2,293 1,420
-------- -------- -------- -------- -------- -------- --------
Total depreciation and
amortization............ 44,236 38,441 53,397 48,856 38,086 32,946 28,923
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses................ 618,421 395,202 804,144 617,551 595,655 569,473 513,923
-------- -------- -------- -------- -------- -------- --------
Operating income (loss):
Hospitality and attractions... 52,024 45,938 52,024 45,938 40,178 38,254 41,195
Broadcasting and music........ 18,056(4) 23,846 18,056(4) 23,846 19,578(4) 37,837 34,107
Cable networks................ (21,875)(5) (13,379) 56,865(5) 84,884 74,459 63,343 50,869
Corporate..................... (26,789) (25,061) (26,789) (25,061) (22,410) (20,976) (17,510)
Merger costs.................. (22,645)(6) -- (22,645)(6) -- -- -- --
Restructuring charge.......... (13,654)(6) -- (13,654)(6) -- -- -- --
Theme park closing charge..... (42,006)(7) -- (42,006)(7) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating income
(loss).................... (56,889) 31,344 21,851 129,607 111,805 118,458 108,661
Interest expense............... (26,994) (18,976) (27,177) (19,538) (4,200) (1,292) (1,076)
Interest income................ 23,726 22,904 24,022 22,904 7,011 950 225
Other gains (losses)........... 146,193(8) 74,281(11) 143,532(8) 71,741(11) (8,264)(12) (15,579)(12)(14) 1,116
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before provision
(benefit) for income
taxes....................... 86,036 109,553 162,228 204,714 106,352 102,537 108,926
Provision (benefit) for income
taxes......................... (19,788)(9) 35,770 10,792(9) 73,549 40,945 39,477 45,967
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations.................. 105,824 73,783 151,436 131,165 65,407 63,060 62,959
Discontinued operations, net of
taxes(13)..................... -- -- -- -- 42,998 -- (26,905)
Cumulative effect of accounting
change, net of taxes.......... (7,537)(10) -- (7,537)(10) -- -- -- (8,406)(15)
-------- -------- -------- -------- -------- -------- --------
Net income.................. $ 98,287 $ 73,783 $143,899 $131,165 $108,405 $ 63,060 $ 27,648
======== ======== ======== ======== ======== ======== ========
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YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
UNAUDITED PRO FORMA ACTUAL
----------------------- --------------------------------------------------------------------
1997(1) 1996(1) 1997(2)(3) 1996 1995 1994 1993
-------- -------- ---------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Income per share:
Income from continuing
operations.................... $ 3.27 $ 2.29 $ 4.68 $ 4.07 $ 2.04 $ 1.98 $ 2.04
======== ======== ======== ======== ======== ======== ========
Net income..................... $ 3.04 $ 2.29 $ 4.45 $ 4.07 $ 3.38 $ 1.98 $ 0.90
======== ======== ======== ======== ======== ======== ========
Income per share, assuming
dilution:
Income from continuing
operations.................... $ 3.24 $ 2.26 $ 4.64 $ 4.02 $ 2.01 $ 1.96 $ 2.02
======== ======== ======== ======== ======== ======== ========
Net income..................... $ 3.01 $ 2.26 $ 4.41 $ 4.02 $ 3.33 $ 1.96 $ 0.89
======== ======== ======== ======== ======== ======== ========
Dividends per share............ N/A N/A $ 1.05 $ 1.08 $ 0.89 $ 0.71 $ 0.57
======== ======== ======== ======== ======== ======== ========
AS OF DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
BALANCE SHEET DATA:
Total assets................................................ $1,117,562 $1,182,248 $1,095,812 $1,015,806 $ 915,803
Net assets of discontinued operations (13).................. -- -- -- 214,649 222,830
Total long-term debt, including current portion............. 388,397 363,409 340,044 361,894 388,866
Total stockholders' equity.................................. 516,224 512,963 419,106 338,606 221,999
- ---------------
(1) Reflects the unaudited pro forma results of operations as if the CBS Merger
had occurred on January 1, 1996.
(2) 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.
(3) 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.
(4) 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.
(5) Includes a pretax charge of $5,000 related to plans to cease the European
operations of CMT International effective March 31, 1998.
(6) Pretax merger costs and the pretax restructuring charge are related to the
CBS Merger.
(7) Pretax charge related to the closing of the Opryland theme park at the end
of the 1997 operating season.
(8) Includes a pretax gain of $144,259 on sale of Tacoma-Seattle television
station KSTW.
(9) Includes a deferred tax benefit of $55,000 related to the revaluation of
certain reserves as a result of the Restructuring and the CBS Merger.
(10) 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.
(11) Includes a pretax gain of $73,850 on sale of Houston television station
KHTV.
(12) 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.
(13) In November 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.
(14) Includes a pretax gain of $10,689 on sale of Milwaukee television station
WVTV.
(15) Reflects the adoption of Statement of Financial Accounting Standards No.
106, "Employers' Accounting of Postretirement Benefits Other Than
Pensions," which resulted in a charge of $12,736, net of a related tax
benefit of $4,330.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
REORGANIZATION AND CBS MERGER
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 so that 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, Inc., 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.
On September 30, 1997, Old Gaylord completed the Distribution, on a pro
rata basis, of all of the outstanding capital stock of the Company to its
stockholders. 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 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 Company's common stock. All income per share and dividend per
share amounts have been restated to reflect the retroactive application of the
Distribution.
ACQUISITION OF WORD ENTERTAINMENT
In January 1997, the net assets of Word were purchased by the Company for
approximately $120.0 million in cash. The purchase price included approximately
$40.0 million 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
$64.1 million and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
OPRYLAND THEME PARK CLOSING
During 1997, the Company signed a letter of agreement with The Mills
Corporation to create a partnership to develop a $200 million
entertainment/retail complex located on land previously used for the Opryland
theme park. The Company will hold a one-third interest in the partnership.
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 are 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.
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RESULTS OF OPERATIONS
The following table contains selected income statement data for each of the
three years ended December 31, 1997, 1996 and 1995 (in thousands). The unaudited
pro forma data for the years ended December 31, 1997 and 1996 is presented as if
the CBS Merger had occurred on January 1, 1996. 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,
--------------------------------------------------------------------------------------------
UNAUDITED PRO FORMA ACTUAL
----------------------------------- ------------------------------------------------------
1997 % 1996 % 1997 % 1996 % 1995 %
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Revenues:
Hospitality and attractions..... $346,931 61.8% $313,023 73.4% $346,931 42.0% $313,023 41.9% $276,638 39.1%
Broadcasting and music.......... 202,680 36.1 102,368 24.0 202,680 24.5 102,368 13.7 148,175 20.9
Cable networks.................. 11,921 2.1 11,155 2.6 276,384 33.5 331,767 44.4 282,647 40.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total revenues................ 561,532 100.0 426,546 100.0 825,995 100.0 747,158 100.0 707,460 100.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating expenses:
Operating costs................. 363,369 64.7 261,175 61.2 511,162 61.9 443,236 59.3 442,208 62.5
Selling, general and
administrative................ 132,511 23.6 95,586 22.4 161,280 19.5 125,459 16.8 115,361 16.3
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... 31,998 28,861 31,998 28,861 21,782
Broadcasting and music........ 6,945 4,421 6,945 4,421 3,954
Cable networks................ 1,763 1,991 10,924 12,406 9,522
Corporate..................... 3,530 3,168 3,530 3,168 2,828
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total depreciation and
amortization.............. 44,236 7.9 38,441 9.0 53,397 6.5 48,856 6.5 38,086 5.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total operating expenses.... 618,421 110.1 395,202 92.7 804,144 97.4 617,551 82.7 595,655 84.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income (loss):
Hospitality and attractions..... 52,024 15.0 45,938 14.7 52,024 15.0 45,938 14.7 40,178 14.5
Broadcasting and music.......... 18,056 8.9 23,846 23.3 18,056 8.9 23,846 23.3 19,578 13.2
Cable networks.................. (21,875) -- (13,379) -- 56,865 20.6 84,884 25.6 74,459 26.3
Corporate....................... (26,789) -- (25,061) -- (26,789) -- (25,061) -- (22,410) --
Merger costs.................... (22,645) -- -- -- (22,645) -- -- -- -- --
Restructuring charge............ (13,654) -- -- -- (13,654) -- -- -- -- --
Theme park closing charge....... (42,006) -- -- -- (42,006) -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total operating income
(loss)...................... $(56,889) (10.1)% $ 31,344 7.3% $ 21,851 2.6% $129,607 17.3% $111,805 15.8%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
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. 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. On a pro forma basis,
assuming the CBS Merger had occurred on January 1, 1996, total revenues in 1997
would have increased $135.0 million, or 31.6%, to $561.5 million.
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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. At
December 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. 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. As mentioned above, the Company closed the
Opryland theme park at the end of the 1997 operating season.
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 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.
On a pro forma basis, 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 $186.7
million, or 30.2%, to $804.1 million in 1997, a substantial portion of which was
attributable to the acquisition of Word 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 is also due to corporate operating expenses,
consisting primarily of senior management salaries and benefits, legal, human
resources, accounting, data processing and other administrative costs, which
increased $1.7 million to $26.8 million in 1997. On a pro forma basis, assuming
the CBS Merger had occurred on January 1, 1996, total operating expenses in 1997
would have increased $223.2 million, or 56.5%, to $618.4 million.
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 date of the Word acquisition, 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. This write-down related
primarily to movie packages and certain syndicated programming whose value has
been impaired as a result of the operating decision to purchase more first-run
programming. 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 by a decrease of $9.9 million related to the 1997 sale of television
station KSTW. On a pro forma basis, assuming the CBS Merger had occurred on
January 1, 1996, operating costs in 1997 would have increased $102.2 million, or
39.1%, to $363.4 million.
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 date
of the Word acquisition, 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
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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 by a decrease related to
the 1997 sale of television station KSTW of $2.5 million. On a pro forma basis,
assuming the CBS Merger had occurred on January 1, 1996, selling, general and
administrative expenses in 1997 would have increased $36.9 million, or 38.6%, to
$132.5 million.
Merger Costs and Restructuring Charge -- In connection with the CBS Merger,
Restructuring and Distribution, 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, 1997, the Company had recorded charges of $7.6 million against the
restructuring accrual of which $3.0 million represents actual cash expenditures
and $4.6 million represents non-cash asset write-downs and other restructuring
costs. At December 31, 1997, the restructuring accrual had a remaining balance
of $6.1 million, which is included in accounts payable and accrued liabilities
in the consolidated balance sheet. The Company expects the restructuring to be
completed in the next six months and to be funded from the Company's cash flows
from operating activities.
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 increased
$4.5 million, or 9.3%, to $53.4 million in 1997. The increase was primarily
attributable to the acquisition of Word. 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 is
primarily attributable to increased depreciation and amortization expense of
$2.9 million related to the expansion of the Opryland Hotel. On a pro forma
basis, assuming the CBS Merger had occurred on January 1, 1996, depreciation and
amortization expense in 1997 would have increased $5.8 million, or 15.1%, to
$44.2 million.
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 date of the Word acquisition, 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. On a pro
forma basis, assuming the CBS Merger had occurred on January 1, 1996, total
operating income in 1997 would have decreased $88.2 million to an operating loss
of $56.9 million.
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23
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. 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. On a pro forma
basis, assuming the CBS Merger had occurred on January 1, 1996, interest expense
in 1997 would have increased $8.0 million to $27.0 million.
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. On a pro forma basis, assuming the
CBS Merger had occurred on January 1, 1996, interest income in 1997 would have
increased $0.8 million to $23.7 million.
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 1997.
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 1996.
Income Taxes
The Company's provision for income taxes on income from continuing
operations 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 from continuing
operations 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 and decreased net income by $2.7 million, or
$0.08 per share, for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues
Total Revenues -- Total revenues increased $39.7 million, or 5.6%, to
$747.2 million in 1996. The increases were primarily attributable to continued
growth in the cable networks segment and increased revenues in the hospitality
and attractions segment resulting from the expansion of the Opryland Hotel. The
average number of guest rooms at the hotel increased from 1,907 in 1995 to 2,613
in 1996. These increases were partially offset by a decrease in revenues from
the broadcasting and music segment due to the sale of a television station in
January 1996 and a decline in revenues at the Company's two other television
stations.
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24
Hospitality and Attractions -- Revenues in the hospitality and attractions
segment increased $36.4 million, or 13.2%, to $313.0 million in 1996. Opryland
Hotel revenues increased $43.2 million, or 28.2%, to $196.2 million in 1996,
principally because of the hotel expansion. The hotel's occupancy rate decreased
to 84.7% in 1996 compared to 87.5% in 1995 because of the additional rooms which
became available in 1996. The hotel sold 780,300 rooms in 1996 compared to
587,200 rooms sold in 1995 reflecting a 32.9% increase. The hotel's average
guest room rate declined to $131.21 in 1996 from $132.99 in 1995. Opryland theme
park revenues decreased $5.4 million in 1996 due primarily to a 5.7% decrease in
theme park attendance and a 3.4% decrease in per guest spending as compared with
1995.
Broadcasting and Music -- Revenues decreased $45.8 million, or 30.9%, to
$102.4 million in 1996. Broadcasting and music revenues were impacted by the
Company's sale of KHTV, a Houston, Texas television station in January 1996.
Excluding the operations of KHTV from the 1995 results, broadcasting and music
revenues decreased 10.8% in 1996. The decline in broadcasting and music revenues
reflected a decrease in advertising inventory available for sale at the
Company's Dallas and Seattle-area television stations resulting from their
affiliation with the CBS television network. The affiliation with CBS was
effective on March 13, 1995 at KSTW and on July 2, 1995 at KTVT. Advertising
revenues at KSTW also decreased in 1996 due to a decline in ratings.
Cable Networks -- Revenues increased $49.1 million, or 17.4%, to $331.8
million in 1996. Advertising revenues increased 19.6% during 1996 at TNN.
Subscriber revenues at TNN increased 12.2% in 1996 due to an increase in the
number of U.S. subscribers to 68.3 million in December 1996 from 64.4 million in
December 1995 and increased revenues from satellite customers. Revenues related
to the United States distribution of CMT increased 19.3% in 1996 due to growth
in both advertising and subscriber revenues. CMT subscribers increased to 37.3
million in December 1996 from 31.7 million in December 1995. CMT International
revenues increased to $10.1 million in 1996 from $8.9 million in 1995.
Operating Expenses
Total Operating Expenses -- Total operating expenses increased $21.9
million, or 3.7%, to $617.6 million in 1996. Operating costs, as a percentage of
revenues, decreased to 59.3% during 1996 as compared to 62.5% during 1995.
Selling, general and administrative expenses, as a percentage of revenues,
increased to 16.8% in 1996 from 16.3% in 1995. Total operating expenses for 1995
include operating expenses of KHTV of $30.1 million.
Operating Costs -- Operating costs increased $1.0 million, or 0.2%, to
$443.2 million in 1996. During 1995, the Company recorded a nonrecurring pretax
charge of $13.3 million for the write-down of certain program rights at the
Company's Dallas and Seattle-area television stations. This write-down was
primarily related to excess program rights resulting from the affiliations of
these stations with CBS. Excluding the effect of the 1995 write-down of program
rights and the operating costs of KHTV, operating costs increased $37.8 million,
or 9.3%, in 1996. The increase was attributable to operating costs increases of
$23.6 million during 1996 at the Opryland Hotel, primarily as a result of the
hotel expansion. In addition, increased operating costs were attributable to the
continued growth in the cable networks segment, including an $11.6 million
increase in CBS commissions at TNN; a $9.3 million increase in programming costs
at TNN; a $4.5 million increase in operating costs related to the expansion of
CMT International; and a $1.1 million operating cost increase relating to the
opening of a chain of racing themed retail stores. These increases were
partially offset by a $10.4 million decrease in operating costs during 1996 at
KTVT and KSTW due to lower programming costs resulting from their affiliation
with CBS; a $3.5 million decrease in operating costs at the Opryland theme park;
and a $2.4 million decrease in operating costs of the Nashville On Stage concert
series.
Selling, General and Administrative -- Selling, general and administrative
expenses increased $10.1 million, or 8.8%, to $125.5 million in 1996. Excluding
the selling, general and administrative expenses of KHTV from the 1995 results,
selling, general and administrative expenses increased $16.0 million, or 14.7%,
in 1996. The increases for the year were primarily attributable to
administrative cost increases of $4.8 million at the Opryland Hotel, $3.7
million at TNN and $1.2 million at the Opryland theme park. Selling and
promotion costs at CMT and CMT International increased $1.5 million and $1.8
million, respectively. KTVT
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and KSTW also had increased selling and promotion costs, which were $1.1 million
greater than the corresponding 1995 amounts. In addition, the Company had
nonrecurring expenses of $1.1 million during 1996 related to its obligations
under an employment agreement with its departing chief operating officer which
is included in the increases discussed above.
Depreciation and Amortization -- Depreciation and amortization increased
$10.8 million, or 28.3%, to $48.9 million in 1996. The increase was primarily
attributable to the expansion of the Opryland Hotel and continued growth in the
cable networks segment.
Operating Income
Total operating income increased $17.8 million, or 15.9%, to $129.6 million
during 1996. This increase reflected higher operating income in all segments.
The hospitality and attractions segment increase was primarily related to
greater operating income generated by the Opryland Hotel expansion. The
broadcasting and music segment increase resulted from the 1995 write-down of
television program rights. Excluding the impact of this write-down, broadcasting
and music segment operating income decreased primarily due to the sale of KHTV
and the decline in revenues at KSTW as discussed above. The cable networks
increase was a result of the continued growth of TNN and CMT offset, in part, by
increased operating losses associated with CMT International's expansion.
Operating losses of CMT International increased to $13.0 million in 1996 from
$7.1 million in 1995.
Interest Expense
Interest expense increased $15.3 million to $19.5 million in 1996. A
significant portion of the Company's interest expense for 1995 was attributable
to the Systems prior to their sale in September 1995. In accordance with
generally accepted accounting principles, such interest was allocated to the
Systems and was therefore not included in income from continuing operations. The
Company's weighted average interest rate on its bank debt and senior notes
combined was 6.9% in 1996 compared to 7.3% in 1995.
Interest Income
Interest income increased $15.9 million to $22.9 million in 1996. This
increase primarily resulted from an additional $15.5 million of noncash interest
income in 1996 recorded on the long-term note receivable from the sale of the
Systems.
Other Gains (Losses)
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 1996.
In 1995, the Company recorded a pretax loss of $5.5 million to reflect the
loss upon the disposal of its 14% limited partnership interest in the Fiesta
Texas theme park. The loss was based on the permanent impairment in the value of
the investment and the Company's guarantee on certain indebtedness related to
the original construction of Fiesta Texas. The Company paid $13.0 million to
transfer its partnership interest and related obligations to a subsidiary of
USAA, the majority investor, in January 1996. In connection with the Company's
termination of its interest in Fiesta Texas, the Company was released from the
loan guarantee.
Income Taxes
The Company's provision for income taxes on income from continuing
operations was $73.5 million for 1996 compared to $40.9 million for 1995. The
Company's effective tax rate on its income from continuing operations before
provision for income taxes was 35.9% for 1996 compared to 38.5% for 1995.
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26
Discontinued Operations
On September 29, 1995, the Company sold the Systems to CCT Holdings Corp.
("CCTH"), an entity jointly owned by investment partnerships affiliated with
Kelso & Company, Inc. and by Charter Communications, Inc. ("Charter"), an owner
and manager of cable systems. Proceeds from the sale, after a working capital
adjustment, consisted of $198.8 million in cash and a 10-year, $165.7 million
note (the "Note") with an interest rate of 12% per year which increases to 15%
in September 2000 and increases 2% per year thereafter, with principal and
interest payable at maturity in 2005. The Note was recorded at $150.7 million,
net of a $15.0 million discount. In addition, the Company received the
contractual right to 15% of the net distributable proceeds, as defined, from
certain future sales by Charter Communications Entertainment, L.P., a newly
formed joint venture created to operate cable television systems, to which CCTH
contributed certain of the Systems' assets which were purchased from the
Company. Immediately prior to the closing of the sale, the Company paid Charter
$10.6 million to acquire the remaining 2.9% interest in the Systems.
The Company recorded a gain of $43.0 million, net of tax of $30.8 million,
on the sale of the Systems during 1995. The Systems have been accounted for as
discontinued operations and, accordingly, the Systems' losses including interest
expense (based upon debt that can be specifically attributed to the Systems)
subsequent to the November 1993 measurement date were deferred and reflected as
a reduction in the gain on the sale of the Systems. The 1995 net loss from
discontinued operations prior to the sale of the Systems was $19.5 million,
including interest expense of $17.1 million, which was deferred and reflected as
a reduction in the gain on the sale of the Systems.
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.
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.
Old Gaylord prepaid the remaining $90 million of its outstanding fixed-rate
senior notes as well as its $21 million term loan during 1997 by utilizing
borrowings under the 1997 Credit Facility.
The purchase of Word for approximately $120 million in 1997 was financed
through borrowings under the Company's prior revolving line of credit. The
proceeds from the sale of KSTW in 1997 were used to reduce indebtedness. At
February 28, 1998, the Company had approximately $192 million in available
borrowing capacity under the 1997 Credit Facility.
The Company currently projects capital expenditures of approximately $45
million for 1998. 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.
24
27
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. The Company has assessed its computer systems to
determine which computer programs will not operate properly using the year 2000
dates. A plan to correct these programs has been developed and is scheduled to
be implemented by the end of 1998. The Company does not expect the year 2000
concerns to have a material adverse effect on its results of operations,
financial position or liquidity.
SEASONALITY
Certain of the Company's operations are subject to seasonal fluctuation.
Many of the operations in the hospitality and attractions segment 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 typically weakest in the first calendar
quarter following the Christmas buying season.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("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
will adopt the provisions of SFAS No. 130 effective January 1, 1998 and does not
anticipate that the adoption of SFAS No. 130 will have a material effect on the
Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," effective
for fiscal years beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company will adopt the provisions of SFAS No. 131 effective
January 1, 1998 and does not anticipate that the adoption of SFAS No. 131 will
have a material effect on the Company's financial statements.
FORWARD-LOOKING STATEMENTS/RISK FACTORS
This Form 10-K 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.
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; continued growth in the popularity of Christian music; the ability to
integrate the operations of Word into the Company's business; the Company's
ability to implement its growth strategy relating to the development or
management of hotel properties; the acceptability of the Company's product
offerings to international audiences; 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
entertainment offerings; competition; and consolidation in the broadcasting and
cable distribution industries.
25
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.................... 27
Consolidated Statements of Income For the Years Ended
December 31, 1997, 1996, and 1995......................... 28
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 29
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1997, 1996, and 1995......................... 30
Consolidated Statements of Stockholders' Equity For the
Years Ended December 31, 1997, 1996, and 1995............. 31
Notes to Consolidated Financial Statements.................. 32
SCHEDULES
The 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.
26
29
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, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 6, 1998
27
30
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995
-------- -------- --------
Revenues.................................................... $825,995 $747,158 $707,460
Operating expenses:
Operating costs........................................... 511,162 443,236 442,208
Selling, general and administrative....................... 161,280 125,459 115,361
Merger costs.............................................. 22,645 -- --
Restructuring charge...................................... 13,654 -- --
Theme park closing charge................................. 42,006 -- --
Depreciation and amortization............................. 53,397 48,856 38,086
-------- -------- --------
Operating income....................................... 21,851 129,607 111,805
Interest expense............................................ (27,177) (19,538) (4,200)
Interest income............................................. 24,022 22,904 7,011
Other gains (losses)........................................ 143,532 71,741 (8,264)
-------- -------- --------
Income from continuing operations before provision for
income taxes........................................... 162,228 204,714 106,352
Provision for income taxes.................................. 10,792 73,549 40,945
-------- -------- --------
Income from continuing operations......................... 151,436 131,165 65,407
Discontinued operations, net of taxes....................... -- -- 42,998
-------- -------- --------
Income before cumulative effect of accounting change...... 151,436 131,165 108,405
Cumulative effect of accounting change, net of taxes........ (7,537) -- --
-------- -------- --------
Net income............................................. $143,899 $131,165 $108,405
======== ======== ========
Income per share:
Income from continuing operations........................... $ 4.68 $ 4.07 $ 2.04
Discontinued operations, net of taxes....................... -- -- 1.34
-------- -------- --------
Income before cumulative effect of accounting change...... 4.68 4.07 3.38
Cumulative effect of accounting change, net of taxes........ (0.23) -- --
-------- -------- --------
Net income............................................. $ 4.45 $ 4.07 $ 3.38
======== ======== ========
Income per share -- assuming dilution:
Income from continuing operations........................... $ 4.64 $ 4.02 $ 2.01
Discontinued operations, net of taxes....................... -- -- 1.32
-------- -------- --------
Income before cumulative effect of accounting change...... 4.64 4.02 3.33
Cumulative effect of accounting change, net of taxes........ (0.23) -- --
-------- -------- --------
Net income............................................. $ 4.41 $ 4.02 $ 3.33
======== ======== ========
The accompanying notes are an integral part of these statements.
28
31
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996
---------- ----------
ASSETS
Current assets:
Cash...................................................... $ 8,712 $ 13,720
Trade receivables, less allowance of $4,031 and $3,276,
respectively........................................... 82,152 108,702
Inventories............................................... 23,206 15,436
Other assets.............................................. 37,311 49,414
---------- ----------
Total current assets................................. 151,381 187,272
---------- ----------
Property and equipment, net of accumulated depreciation..... 550,267 640,319
Intangible assets, net of accumulated amortization.......... 84,419 39,363
Investments................................................. 73,991 66,037
Long-term notes and interest receivable..................... 233,112 203,514
Other assets................................................ 24,392 45,743
---------- ----------
Total assets......................................... $1,117,562 $1,182,248
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ -- $ 37,350
Accounts payable and accrued liabilities.................. 127,694 126,616
---------- ----------
Total current liabilities............................ 127,694 163,966
---------- ----------
Long-term debt.............................................. 388,397 326,059
Deferred income taxes....................................... 32,579 117,947
Other liabilities........................................... 42,710 46,466
Minority interest........................................... 9,958 14,847
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,
32,741 shares issued and outstanding at December 31,
1997................................................... 327 --
Class A common stock, $.01 par value, 300,000 shares
authorized, 44,987 shares issued, 44,687 shares
outstanding at December 31, 1996....................... -- 450
Class B common stock, $.01 par value, 150,000 shares
authorized, 51,684 shares issued and outstanding at
December 31, 1996...................................... -- 517
Additional paid-in capital................................ 498,504 483,287
Retained earnings......................................... 16,837 39,494
Treasury stock............................................ -- (5,938)
Other stockholders' equity................................ 556 (4,847)
---------- ----------
Total stockholders' equity........................... 516,224 512,963
---------- ----------
Total liabilities and stockholders' equity........... $1,117,562 $1,182,248
========== ==========
The accompanying notes are an integral part of these statements.
29
32
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
1997 1996 1995
--------- --------- ---------
Cash Flows from Operating Activities:
Net income................................................ $ 143,899 $ 131,165 $ 108,405
Amounts to reconcile net income to net cash flows provided
by operating activities:
Depreciation and amortization........................... 53,397 48,856 38,086
Discontinued operations, net of taxes................... -- -- (42,998)
Cumulative effect of accounting change, net of taxes.... 7,537 -- --
Provision (benefit) for deferred income taxes........... (80,570) 2,119 (684)
Theme park closing charge............................... 42,006 -- --
Write-down of television program rights................. 11,740 -- 13,302
Noncash interest income................................. (22,936) (20,479) (4,970)
Provision for losses on disposal of Fiesta Texas
partnership interest.................................. -- -- 5,529
Gain on sale of television stations..................... (144,259) (73,850) --
Changes in:
Trade receivables..................................... (6,744) (8,914) (6,720)
Income taxes payable.................................. 3,056 (10,462) (69,464)
Accounts payable and accrued liabilities.............. 21,450 2,181 5,674
Other assets and liabilities.......................... (2,195) (5,273) 8,621
--------- --------- ---------
Net cash flows provided by operating activities.... 26,381 65,343 54,781
--------- --------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (49,239) (115,542) (175,225)
Purchase of Word Entertainment............................ (120,191) -- --
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) -- --
Proceeds from sale of discontinued operations, net of
direct selling costs.................................... -- -- 190,838
Purchase of minority interest in discontinued
operations.............................................. -- -- (10,585)
Investments in, advances to and distributions from
affiliates.............................................. (10,880) (7,893) (6,143)
Payment upon disposal of Fiesta Texas partnership
interest................................................ -- (12,976) --
Other investing activities................................ (7,123) (7,954) (4,401)
--------- --------- ---------
Net cash flows used in investing activities........ (39,648) (47,525) (5,516)
--------- --------- ---------
Cash Flows from Financing Activities:
Net borrowings (payments) under revolving credit
agreements.............................................. 178,935 61,446 (21,797)
Proceeds from issuance of long-term debt.................. 420 -- 400
Repayment of long-term debt............................... (149,762) (38,081) (453)
Dividends paid............................................ (33,929) (34,946) (28,685)
Proceeds from exercise of stock options................... 14,304 1,359 128
Purchase of treasury stock................................ (1,709) (5,938) --
--------- --------- ---------
Net cash flows provided by (used in) financing
activities....................................... 8,259 (16,160) (50,407)
--------- --------- ---------
Cash Flows from Discontinued Operations:
Operating activities...................................... -- -- 16,758
Investing activities...................................... -- -- (12,985)
Increase in cash balance.................................. -- -- 2,856
--------- --------- ---------
Net cash flows provided by discontinued
operations....................................... -- -- 6,629
--------- --------- ---------
Net change in cash.......................................... (5,008) 1,658 5,487
Cash, beginning of year..................................... 13,720 12,062 6,575
--------- --------- ---------
Cash, end of year........................................... $ 8,712 $ 13,720 $ 12,062
========= ========= =========
The accompanying notes are an integral part of these statements.
30
33
GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
CLASS A CLASS B ADDITIONAL OTHER TOTAL
COMMON COMMON COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS' STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL EARNINGS STOCK EQUITY EQUITY
------ ------- ------- ---------- --------- -------- ------------- -------------
Balance, December 31,
1994..................... $ -- $ 369 $ 534 $340,739 $ 58,820 $(61,856) $ -- $ 338,606
Net income............... -- -- -- -- 108,405 -- -- 108,405
Cash dividends ($0.89 per
share)................. -- -- -- -- (28,685) -- -- (28,685)
5% stock dividend........ -- 19 26 70,142 (70,187) -- -- --
Conversion of common
stock.................. -- 24 (24) -- -- -- -- --
Issuance of restricted
stock.................. -- 1 -- 3,564 -- -- (3,565) --
Compensation expense..... -- -- -- -- -- -- 767 767
Other.................... -- -- -- 13 -- -- -- 13
---- ----- ----- -------- --------- -------- ------- ---------
Balance, December 31,
1995..................... -- 413 536 414,458 68,353 (61,856) (2,798) 419,106
Net income............... -- -- -- -- 131,165 -- -- 131,165
Cash dividends ($1.08 per
share)................. -- -- -- -- (34,946) -- -- (34,946)
Conversion of common
stock.................. -- 13 (13) -- -- -- -- --
Issuance of restricted
stock.................. -- 2 -- 4,318 -- -- (4,320) --
Compensation expense..... -- -- -- -- -- -- 2,271 2,271
5% stock dividend........ -- 21 26 125,031 (125,078) -- -- --
Exercise of stock
options................ -- 1 -- 1,358 -- -- -- 1,359
Retirement of treasury
stock.................. -- -- (32) (61,824) -- 61,856 -- --
Purchase of treasury
stock.................. -- -- -- -- -- (5,938) -- (5,938)
Other.................... -- -- -- (54) -- -- -- (54)
---- ----- ----- -------- --------- -------- ------- ---------
Balance, December 31,
1996..................... -- 450 517 483,287 39,494 (5,938) (4,847) 512,963
Net income............... -- -- -- -- 143,899 -- -- 143,899
Cash dividends ($1.05 per
share) ................ -- -- -- -- (33,929) -- -- (33,929)
New Gaylord stock
distribution........... 324 (466) (509) 651 -- -- -- --
Cable Networks Business
net assets............. -- -- -- -- (132,627) -- -- (132,627)
Conversion of common
stock.................. -- 8 (8) -- -- -- -- --
Exercise of stock
options................ 2 12 -- 14,290 -- -- -- 14,304
Tax benefit on stock
option exercises....... -- -- -- 6,598 -- -- -- 6,598
Issuance of restricted
stock.................. 1 -- -- 1,321 -- -- (1,322) --
Compensation expense..... -- -- -- -- -- -- 3,954 3,954
Purchase of treasury
stock.................. -- -- -- -- -- (1,709) -- (1,709)
Retirement of treasury
stock.................. -- (4) -- (7,643) -- 7,647 -- --
Unrealized gain on
investments............ -- -- -- -- -- -- 2,887 2,887
Foreign currency
translation............ -- -- -- -- -- -- (116) (116)
---- ----- ----- -------- --------- -------- ------- ---------
Balance, December 31,
1997..................... $327 $ -- $ -- $498,504 $ 16,837 $ -- $ 556 $ 516,224
==== ===== ===== ======== ========= ======== ======= =========
The accompanying notes are an integral part of these statements.
31
34
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"), formerly Westinghouse Electric Corporation, whereby
certain assets and liabilities of the Company's cable networks segment were
merged with CBS (the "Merger") as further described in Note 2. The Company sold
its cable television systems segment (the "Systems") on September 29, 1995.
Prior to the sale, the Systems were accounted for as discontinued operations in
the accompanying consolidated financial statements as further described in Note
5.
HOSPITALITY AND ATTRACTIONS
At December 31, 1997, the Company owns and operates the Opryland Hotel, the
Grand Ole Opry, and various other tourist attractions located in Nashville,
Tennessee. During 1997, the Company ceased operations of the Opryland theme park
and announced its intent to develop an entertainment/retail complex located on
land previously used for the Opryland theme park. 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, 1997, the Company owns and operates one broadcast
television station, KTVT (Fort Worth-Dallas, Texas). 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 4. The Company
affiliated KTVT and KSTW with the CBS television network during 1995. The
Company acquired the assets of Word Entertainment ("Word"), a contemporary
Christian music company, in January 1997 as further described in Note 3. In
addition, the Company owns and operates three radio stations and a music
publishing company in Nashville, Tennessee.
CABLE NETWORKS
At December 31, 1997, the Company owns the CMT International cable
television networks operating in Europe, Asia and the Pacific Rim, and Latin
America. CMT International is ceasing its European operations as of March 31,
1998 as further described in Note 4. 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 2. In addition, the Company manages and holds an option to
acquire 95% of the capital stock of Z Music, Inc., a cable network featuring
contemporary Christian music videos.
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. All significant intercompany
accounts and transactions have been eliminated in consolidation.
32
35
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 or amortized using straight-line and accelerated methods over the
following estimated useful lives:
Buildings................................................... 20-40 years
Leasehold and land improvements............................. 20 years
Attractions-related equipment............................... 15-20 years
Furniture, equipment and vehicles........................... 3-10 years
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 1997, 1996 and 1995
was $4,743, $3,212 and $2,445, respectively. At December 31, 1997 and 1996,
accumulated amortization of intangible assets was $5,346 and $14,817,
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 $62,344 and $62,852 at December
31, 1997 and 1996, 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 are considered available-for-sale investments and
are carried at market value, with the difference between cost and market value
recorded as a component of stockholders' equity.
OTHER ASSETS
Other current and long-term assets consisted of:
1997 1996
------- -------
Other current receivables................................... $23,207 $ 5,497
Music catalogs.............................................. 16,476 2,827
Prepaid expenses............................................ 10,839 10,492
Program rights.............................................. 5,236 40,544
Program inventories......................................... 536 20,175
Deferred preopening expenses................................ -- 12,335
Prepaid pension cost........................................ 2,702 1,292
Other assets................................................ 2,707 1,995
------- -------
Total other assets..................................... $61,703 $95,157
======= =======
33
36
Other current receivables result primarily from non-operating income and
are due within one year. Music catalogs consisted of the costs to acquire music
publishing rights and are amortized on a straight-line basis over fifteen years.
Program inventories are amortized at a rate based upon the broadcast periods of
the programs and the revenues estimated to be earned over these periods.
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, 1996, the Company had commitments for program rights and related program
contracts payable of $8,850 which were not available for telecast until a future
date. These amounts are not included in the accompanying consolidated balance
sheet.
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 has
been impaired by an operating decision to purchase more first-run programming.
During 1995, the Company recorded a pretax charge of $13,302 for the write-down
to net realizable value of certain program rights. The write-down in 1995 was
primarily related to excess program rights resulting from the affiliation of
KTVT and KSTW with CBS. These write-downs are included in operating costs in the
consolidated statements of income.
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 $7,537 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 and decreased net income by $2,726, or $0.08 per share,
for the year ended December 31, 1995.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of:
1997 1996
-------- --------
Trade accounts payable...................................... $ 24,210 $ 20,128
Commissions payable......................................... 1,020 16,877
Income taxes payable........................................ 6,725 3,669
Accrued royalties........................................... 13,057 10,153
Deferred revenues........................................... 11,430 15,174
Program contracts payable................................... 8,826 14,943
Accrued salaries and benefits............................... 5,614 7,431
Accrued interest payable.................................... 1,462 4,500
Property and other taxes payable............................ 13,379 11,293
Other accrued liabilities................................... 41,971 22,448
-------- --------
Total accounts payable and accrued liabilities......... $127,694 $126,616
======== ========
Accrued royalties consisted primarily of music royalties and licensing
fees. Deferred revenues consisted 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.
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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" ("APB Opinion No. 25"), 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", has been 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.
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:
1997 1996 1995
------------------------- ------------------------- ------------------------
PER PER PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
-------- ------ ----- -------- ------ ----- ------- ------ -----
Income from continuing
operations............ $151,436 32,341 $4.68 $131,165 32,193 $4.07 $65,407 32,121 $2.04
======== ===== ======== ===== ======= =====
Effect of dilutive stock
options............... 308 406 420
------ ------ ------
Income from continuing
operations assuming
dilution.............. $151,436 32,649 $4.64 $131,165 32,599 $4.02 $65,407 32,541 $2.01
======== ====== ===== ======== ====== ===== ======= ====== =====
The Company completed a common stock distribution in 1997 associated with
the Merger as further described in Note 2. In addition, the Company paid 5%
stock dividends in 1996 and 1995 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 dividends.
FINANCIAL INSTRUMENTS
Estimated fair values and carrying amounts of the Company's financial
instruments at December 31, 1997 and 1996 are as follows:
1997 1996
------------------- -------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
-------- -------- -------- --------
Long-term notes and interest receivable....... $234,433 $233,112 $206,655 $203,514
-------- -------- -------- --------
Debt.......................................... $388,397 $388,397 $369,907 $363,409
-------- -------- -------- --------
The fair value estimates were determined using discounted cash flow
analyses. For long-term notes receivable, the discount rate was determined based
upon similar instruments. The discount rate for fixed-rate debt was based on the
Company's incremental borrowing rates for similar types of borrowing
arrangements. The Company's carrying value of its variable-rate debt
approximates fair value. The carrying amount of short-term financial instruments
(cash, trade receivables, accounts payable and accrued liabilities) approximates
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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 STANDARDS
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 will adopt the provisions of SFAS No. 130
effective January 1, 1998 and does not anticipate the adoption of SFAS No. 130
will have a material effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information", effective
for fiscal years beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company will adopt the provisions of SFAS No. 131 effective
January 1, 1998 and does not anticipate the adoption of SFAS No. 131 will have a
material effect on the Company's financial statements.
RECLASSIFICATIONS
Certain reclassifications of 1996 and 1995 amounts have been made to
conform with the 1997 presentation.
2. 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") so that 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,
Inc., 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 and 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
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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.
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:
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
========
The operating results of the Cable Networks Business are included in the
consolidated statements of income through September 30, 1997 and are as follows:
NINE TWELVE TWELVE
MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
Revenues............................................. $264,463 $320,612 $273,824
======== ======== ========
Depreciation and amortization........................ $ 9,161 $ 10,415 $ 8,677
======== ======== ========
Operating income, excluding allocated corporate
expenses........................................... $ 78,740 $ 98,605 $ 81,988
======== ======== ========
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,
$86,600 and $73,700 in 1997, 1996 and 1995, respectively. Commissions payable to
CBS at December 31, 1996 were approximately $15,300 and are included in accounts
payable and accrued liabilities in the accompanying consolidated balance sheet.
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 included 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, 1997, the Company had recorded charges of $7,581 against the
restructuring accrual of which $2,956 represents actual cash expenditures and
$4,625 represents non-cash asset write-downs and other restructuring costs. At
December 31, 1997, the restructuring accrual had a remaining balance of $6,073,
which is included in accounts payable and accrued liabilities in the
consolidated balance sheet. The Company expects the restructuring to be
completed in the next six months and to be funded from the Company's cash flows
from operating activities.
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3. ACQUISITION OF WORD ENTERTAINMENT:
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:
Revenues.................................................... $837,226
========
Net income.................................................. $124,338
========
Net income per share........................................ $ 3.86
========
Net income per share -- assuming dilution................... $ 3.81
========
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.
4. DIVESTITURES:
During 1997, the Company signed a letter of agreement with The Mills
Corporation to create a partnership to develop a $200,000 entertainment/retail
complex located on land previously used for the Opryland theme park. The Company
will hold a one-third interest in the partnership. 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, 1997, the
Company had a remaining accrual of $6,439 related to the closing of the theme
park, which is included in accounts payable and accrued liabilities in the
consolidated balance sheet.
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.
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 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.
In January 1996, the Company sold KHTV, its Houston, Texas television
station, to Tribune Broadcasting Company 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 (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.
In December 1995, the Company recorded a pretax loss of $5,529, which is
included in other gains (losses) in the consolidated statements of income, to
reflect the loss upon the disposal of its 14% limited partnership interest in
the Fiesta Texas theme park. The loss was based on the permanent impairment in
the value of the investment and the Company's guarantee on certain indebtedness
related to the original
38
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construction of Fiesta Texas. The Company paid $12,976 to transfer its
partnership interest and related obligations to a subsidiary of USAA, the
majority investor, in January 1996. In connection with the Company's termination
of its interest in Fiesta Texas, the Company was released from the loan
guarantee.
5. DISCONTINUED OPERATIONS:
On September 29, 1995, the Company completed the sale of the Systems to CCT
Holdings Corp. ("CCTH"). Net proceeds, after a working capital adjustment of
$5,512, consisted of $198,800 in cash and a 10-year note receivable with a face
amount of $165,688. The note receivable and related accrued interest are
included in long-term notes and interest receivable in the accompanying
consolidated balance sheets in the amount of $199,074 and $176,138, for 1997 and
1996, respectively, net of a $15,000 discount in both years. The note is
currently classified as held to maturity and bears interest at an initial rate
of 12% which increases to 15% in September 2000 and 2% each year thereafter with
principal and interest payable at maturity in 2005. The Company recorded
$22,936, $20,479 and $4,970 of interest income related to the note receivable
during 1997, 1996 and 1995, respectively. Immediately prior to the sale, the
Company purchased the remaining 2.9% minority interest in the Systems for
$10,585. In addition, the Company received the contractual right to 15% of the
net distributable proceeds, as defined, from certain future asset sales by the
buyer of the Systems. A significant stockholder and certain directors of the
Company own, indirectly, less than a 5% interest of CCTH.
The Company recorded a gain in 1995 on the sale of the Systems of $42,998,
net of applicable income taxes of $30,824. The Systems have been accounted for
as discontinued operations and, accordingly, the Systems' losses subsequent to
the November 1993 measurement date, including interest expense on debt that can
be specifically attributed to the Systems, were deferred and are reflected as a
reduction in the gain on the sale of the Systems.
Selected results of operations related to the Systems prior to their sale
are summarized below for the period ended September 29, 1995:
Revenues.................................................... $ 67,157
========
Depreciation and amortization............................... $ 39,178
========
Interest expense............................................ $ 17,051
========
Loss before income taxes.................................... $(29,344)
Benefit for income taxes.................................... 9,831
Loss deferred subsequent to measurement date................ 19,513
--------
Net loss.................................................. $ --
========
Net cash flows related to the Systems for the period ended September 29,
1995 were:
Cash flows from operating activities:
Net losses from discontinued operations................... $(19,513)
Depreciation and amortization............................. 39,178
Other, net................................................ (2,907)
--------
Net cash flows provided by operating activities........ 16,758
--------
Cash flows from investing activities:
Purchases of property and equipment....................... (12,924)
Other, net................................................ (61)
--------
Net cash flows used in investing activities............ (12,985)
--------
Increase in cash balance.................................... 2,856
--------
Net cash flows............................................ $ 6,629
========
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6. PROPERTY AND EQUIPMENT:
Property and equipment at December 31 is recorded at cost and summarized as
follows:
1997 1996
-------- --------
Land and improvements....................................... $ 89,782 $105,669
Buildings................................................... 452,661 478,955
Furniture, fixtures and equipment........................... 232,834 379,822
Construction in progress.................................... 12,292 9,742
-------- --------
787,569 974,188
Accumulated depreciation.................................... 237,302 333,869
-------- --------
Property and equipment, net................................. $550,267 $640,319
======== ========
Depreciation expense for 1997, 1996, and 1995 was $44,839, $42,101, and
$33,416, respectively. Capitalized interest for 1997, 1996, and 1995 was $186,
$3,383, and $5,308, respectively.
7. INCOME TAXES:
The provision for income taxes for the years ended December 31 consisted
of:
1997 1996 1995
------- ------- -------
Current:
Federal................................................. $86,342 $69,585 $37,768
State................................................... 5,020 1,845 3,861
------- ------- -------
Total current provision.............................. 91,362 71,430 41,629
------- ------- -------
Deferred:
Federal................................................. (79,496) 1,771 (1,712)
State................................................... (1,074) 348 1,028
------- ------- -------
Total deferred provision (benefit)................... (80,570) 2,119 (684)
------- ------- -------
Total provision for income taxes..................... $10,792 $73,549 $40,945
======= ======= =======
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:
1997 1996 1995
---- ---- ----
Statutory federal rate...................................... 35% 35% 35%
State taxes................................................. 2 2 3
Merger related revaluation of reserves...................... (37) -- --
Non-deductible expenses..................................... 7 -- --
Other items, net............................................ -- (1) 1
--- -- --
7% 36% 39%
=== == ==
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The components of the net deferred tax liability as of December 31 were:
1997 1996
------- --------
Deferred tax assets:
Amortization.............................................. $13,733 $ 11,861
Accounting reserves and accruals.......................... 35,153 16,827
Other, net................................................ 2,463 3,810
------- --------
Total deferred tax assets.............................. 51,349 32,498
------- --------
Deferred tax liabilities:
Depreciation.............................................. 38,296 43,916
Accounting reserves and accruals.......................... 45,632 106,529
------- --------
Total deferred tax liabilities......................... 83,928 150,445
------- --------
Net deferred tax liability............................. $32,579 $117,947
======= ========
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 benefit associated with the exercise of stock options reduced
income taxes payable by $6,598 and is reflected as an increase in additional
paid-in capital in 1997. 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 $81,700, $83,400, and
$95,700 (including payments related to the sale of the Systems of approximately
$84,400) in 1997, 1996 and 1995, respectively.
8. LONG-TERM DEBT:
Long-term debt at December 31 consisted of:
1997 1996
-------- --------
Revolving credit agreements................................. $387,977 $209,042
Senior Notes................................................ -- 120,000
Term Loan................................................... -- 28,000
Other....................................................... 420 6,367
-------- --------
388,397 363,409
Less amounts due in one year................................ -- 37,350
-------- --------
$388,397 $326,059
======== ========
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.
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, 1997, 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, also
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 1997, 1996 and 1995 were 6.4%, 6.4% and 7.3%,
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
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affiliates. At December 31, 1997, 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.
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, 1996 and 1995 were 6.2%, 6.1% and 6.8%, respectively. The Term
Loan and Senior Notes were prepaid during 1997 by utilizing borrowings under the
1997 Credit Facility.
Accrued interest payable for 1997 and 1996 was $1,462 and $4,500,
respectively, and is included in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets. Cash paid for interest for 1997, 1996
and 1995, excluding amounts capitalized, was $30,747, $20,564 and $21,110,
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 and 1995, subject to
which retained earnings were reduced by $125,078 and $70,187, respectively.
Approximately 4,742,000 and 4,519,000 additional shares of Old Gaylord Common
Stock were issued in 1996 and 1995, respectively, as a result of the stock
dividends.
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 dividends.
10. STOCK PLANS:
At December 31, 1997 and 1996, 2,111,445 shares of Common Stock and
2,864,184 shares of Old Gaylord Common Stock, respectively, 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 New Gaylord employees 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
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45
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 three 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:
1997 1996 1995
-------- -------- --------
Net income:
As reported.......................................... $143,899 $131,165 $108,405
======== ======== ========
Pro forma............................................ $142,146 $130,503 $108,030
======== ======== ========
Income per share:
As reported.......................................... $ 4.45 $ 4.07 $ 3.38
======== ======== ========
Pro forma............................................ $ 4.40 $ 4.05 $ 3.36
======== ======== ========
Income per share -- assuming dilution:
As reported.......................................... $ 4.41 $ 4.02 $ 3.33
======== ======== ========
Pro forma............................................ $ 4.35 $ 4.00 $ 3.32
======== ======== ========
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 1997, 1996 and 1995, respectively: risk-free
interest rates of 6.0%, 6.2% and 6.2%; expected volatility of 32.0%, 32.4% and
32.4%; expected lives of 6.9, 8.9 and 8.9 years. The assumed dividend rate used
in estimating fair value was 2% in all three years. The weighted average fair
value of options granted was $8.77, $10.32 and $9.34 in 1997, 1996 and 1995,
respectively.
The plans also provide for the award of restricted stock. At December 31,
1997 and 1996, awards of restricted stock of 131,940 shares of Common Stock and
332,523 shares of Old Gaylord Common Stock, respectively, were outstanding.
Restricted stock issued prior to the Distribution and Merger vested under the
change in control provisions under the plans. Subsequent to the Distribution and
Merger, 131,940 shares of restricted stock were awarded. 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.
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46
During 1996 and 1995, the number and exercise prices of all options
outstanding were adjusted to recognize the effect of the stock dividends
described in Note 9. The stock dividend adjustments 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, 1997 and
1996 were 581,323 shares of Common Stock and 1,799,873 shares of Old Gaylord
Common Stock, respectively. Stock option transactions under the plans are
summarized as follows:
1997 1996 1995
--------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
---------- -------- --------- -------- --------- --------
Outstanding at beginning of
year..................... 2,864,184 $14.03 2,779,265 $12.98 2,513,131 $11.77
Granted.................... 998,924 28.24 286,612 25.09 321,047 22.72
Exercised.................. (1,363,834) 10.49 (128,614) 10.57 (13,781) 9.30
Effect of option
conversions.............. (249,548) -- -- -- -- --
Canceled................... (138,281) 23.74 (73,079) 23.38 (41,132) 16.60
---------- ------ --------- ------ --------- ------
Outstanding at end of
year..................... 2,111,445 $23.06 2,864,184 $14.03 2,779,265 $12.98
========== ====== ========= ====== ========= ======
Exercisable at end of
year..................... 1,112,973 $18.41 2,329,297 $11.96 1,535,703 $10.25
========== ====== ========= ====== ========= ======
A summary of stock options outstanding as of December 31, 1997 is as
follows:
WEIGHTED
OPTION WEIGHTED AVERAGE
EXERCISE AVERAGE REMAINING
PRICE EXERCISE NUMBER CONTRACTUAL
RANGE PRICE OF SHARES EXERCISABLE LIFE
------------ -------- --------- ----------- -----------
$ 10.17 $10.17 362,579 362,579 3.8 years
19.47-26.05 21.18 606,214 606,214 5.8 years
27.35-28.24 28.15 1,142,652 144,180 9.6 years
------------ ------ --------- --------- ---------
$10.17-28.24 $23.06 2,111,445 1,112,973 7.5 years
============ ====== ========= ========= =========
11. COMMITMENTS AND CONTINGENCIES:
Rental expense was $14,552, $11,771 and $8,965 for 1997, 1996 and 1995,
respectively. Future minimum lease commitments under all noncancelable operating
leases in effect as of December 31, 1997 are as follows:
1998........................................................ $ 8,067
1999........................................................ 8,021
2000........................................................ 7,563
2001........................................................ 7,304
2002........................................................ 6,179
Years thereafter............................................ 49,633
-------
Total..................................................... $86,767
=======
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.
44
47
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:
1997 1996
------- -------
Actuarial present value of accumulated benefit obligation,
including vested benefits of $33,714 and $30,936,
respectively.............................................. $36,632 $31,708
======= =======
Projected benefit obligation................................ $41,167 $36,601
Plan assets at fair value................................... 41,048 34,084
------- -------
Projected benefit obligation in excess of plan assets..... (119) (2,517)
Unrecognized net loss....................................... 3,299 3,730
Prior service cost not yet recognized....................... (478) 79
------- -------
Prepaid pension cost...................................... $ 2,702 $ 1,292
======= =======
Net pension expense included the following components for the years ended
December 31:
1997 1996 1995
------ ------ ------
Service cost................................................ $2,058 $1,827 $1,479
Interest cost............................................... 2,697 2,550 2,381
Actual return on plan assets ............................... (6,840) (4,377) (6,431)
Net deferral and amortization............................... 4,861 2,523 4,934
------ ------ ------
Total net pension expense................................. $2,776 $2,523 $2,363
====== ====== ======
The weighted-average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.5% and 4%, respectively, in both 1997 and
1996. The expected long-term rate of return on plan assets was 8% in both 1997
and 1996.
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 $2,142, $2,055 and $1,929 for 1997, 1996 and 1995,
respectively.
45
48
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 funded status of the plans to the
accrued postretirement liability as reflected in other liabilities in the
accompanying consolidated balance sheets at December 31:
1997 1996
------- -------
Retirees.................................................... $ 5,162 $ 5,271
Other fully eligible participants........................... 2,395 2,266
Other active participants................................... 10,487 10,621
Unrecognized actuarial gain................................. 4,007 1,618
------- -------
Accrued postretirement cost............................... $22,051 $19,776
======= =======
Net postretirement benefit expense for the years ended December 31 included
the following components:
1997 1996
------- -------
Service cost................................................ $ 1,488 $ 1,174
Interest cost............................................... 1,270 1,185
------- -------
Net postretirement benefit expense........................ $ 2,758 $ 2,359
======= =======
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered health care claims was assumed for 1997. 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, 1997 by
approximately 14% and the aggregate of the service and interest cost components
of net postretirement benefit expense would increase approximately 16%. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in both 1997 and 1996.
46
49
14. FINANCIAL REPORTING BY BUSINESS SEGMENTS:
During 1997, the Company realigned its financial segment reporting in an
attempt to provide more useful and beneficial information. In addition to
changing the operating segments, the Company began reporting its unallocated
corporate expenses separately, all of which were previously allocated to the
Company's financial reporting segments. The 1996 and 1995 information has been
restated to conform to the new presentation. The following reflects the
Company's revenues, operating income, depreciation and amortization, capital
expenditures and identifiable assets by business segment for the years ended or
as of December 31:
1997 1996 1995
---------- ---------- ----------
Revenues:
Hospitality and attractions...................... $ 346,931 $ 313,023 $ 276,638
Broadcasting and music........................... 202,680 102,368 148,175
Cable networks................................... 276,384 331,767 282,647
---------- ---------- ----------
Total......................................... $ 825,995 $ 747,158 $ 707,460
========== ========== ==========
Operating income:
Hospitality and attractions...................... $ 52,024 $ 45,938 $ 40,178
Broadcasting and music........................... 18,056 23,846 19,578
Cable networks................................... 56,865 84,884 74,459
Corporate........................................ (26,789) (25,061) (22,410)
Merger costs and restructuring charge............ (36,299) -- --
Theme park closing charge........................ (42,006) -- --
---------- ---------- ----------
Total......................................... $ 21,851 $ 129,607 $ 111,805
========== ========== ==========
Depreciation and amortization:
Hospitality and attractions...................... $ 31,998 $ 28,861 $ 21,782
Broadcasting and music........................... 6,945 4,421 3,954
Cable networks................................... 10,924 12,406 9,522
Corporate........................................ 3,530 3,168 2,828
---------- ---------- ----------
Total......................................... $ 53,397 $ 48,856 $ 38,086
========== ========== ==========
Capital expenditures:
Hospitality and attractions...................... $ 27,770 $ 85,692 $ 147,826
Broadcasting and music........................... 9,110 4,572 8,506
Cable networks................................... 9,477 21,522 17,229
Corporate........................................ 2,882 3,756 1,664
---------- ---------- ----------
Total......................................... $ 49,239 $ 115,542 $ 175,225
========== ========== ==========
Identifiable assets:
Hospitality and attractions...................... $ 592,159 $ 644,132 $ 566,459
Broadcasting and music........................... 214,184 86,960 130,742
Cable networks................................... 10,160 208,482 174,931
Corporate........................................ 301,059 242,674 223,680
---------- ---------- ----------
Total......................................... $1,117,562 $1,182,248 $1,095,812
========== ========== ==========
47
50
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- ---- -------- -------- -------- --------
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) from continuing operations.............. $ 8,616 $121,932 $ 42,316 $(21,428)
======== ======== ======== ========
Net income (loss)..................................... $ 1,079 $121,932 $ 42,316 $(21,428)
======== ======== ======== ========
Income per share:
Income (loss) from continuing operations.............. $ 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) from continuing operations.............. $ 0.27 $ 3.75 $ 1.30 $ (0.65)
======== ======== ======== ========
Net income (loss)..................................... $ 0.03 $ 3.75 $ 1.30 $ (0.65)
======== ======== ======== ========
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- ---- -------- -------- -------- --------
Revenues.............................................. $138,857 $209,280 $205,011 $194,010
======== ======== ======== ========
Depreciation and amortization......................... $ 8,635 $ 12,651 $ 13,942 $ 13,628
======== ======== ======== ========
Operating income...................................... $ 13,729 $ 42,923 $ 31,452 $ 41,503
======== ======== ======== ========
Net income............................................ $ 54,378 $ 28,908 $ 20,433 $ 27,446
======== ======== ======== ========
Net income per share.................................. $ 1.69 $ 0.90 $ 0.63 $ 0.85
======== ======== ======== ========
Net income per share -- assuming dilution............. $ 1.67 $ 0.89 $ 0.63 $ 0.84
======== ======== ======== ========
Certain of the Company's operations are subject to seasonal fluctuation.
Many of the operations in the hospitality and attractions segment 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 typically weakest in the first calendar
quarter following the Christmas buying season.
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 also recorded a pretax charge of $5,000
related to plans to cease the European operations of CMT International. 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.
During the second quarter of 1997 the Company recorded a pretax gain of $144,259
on the sale of television station KSTW. The Company also recorded a change in
accounting principle of $7,537, net of taxes of $4,798, effective January 1,
1997 related to preopening expenses. In the first quarter of 1996, the Company
recorded a pretax gain of $73,850 on the sale of television station KHTV.
48
51
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 and information
required by Item 405 of Regulation S-K are included under the caption "PROPOSAL
ONE -- ELECTION OF CLASS I DIRECTORS" of the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held May 8, 1998, to be filed with the
Securities and Exchange Commission pursuant to Rule 14a-6(c), and are
incorporated herein by reference.
Pursuant to General Instruction G(3), 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
Information required by this item is contained in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held May 8, 1998, to be
filed with the Securities and Exchange Commission pursuant to Rule 14a-6(c), and
is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held May 8, 1998, to be
filed with the Securities and Exchange Commission pursuant to Rule 14a-6(c), and
is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held May 8, 1998, to be
filed with the Securities and Exchange Commission pursuant to Rule 14a-6(c), and
is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. See Item 8.
(a)(2) Financial Statement Schedules. Inapplicable.
(a)(3) Exhibits. See Index to Exhibits, pages 51 through 53.
(b) Reports on Form 8-K. A Current Report on Form 8-K, dated October 7,
1997, reporting the completion of the Distribution and the CBS Merger was filed
with the Securities and Exchange Commission.
49
52
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 30, 1998
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EDWARD L. GAYLORD Chairman of the Board March 30, 1998
- -----------------------------------------------------
Edward L. Gaylord
/s/ TERRY E. LONDON Director, President and Chief March 30, 1998
- ----------------------------------------------------- Executive Officer (Principal
Terry E. London Executive Officer)
/s/ JOSEPH B. CRACE Senior Vice President and Chief March 30, 1998
- ----------------------------------------------------- Financial Officer (Principal
Joseph B. Crace Accounting and Financial
Officer)
/s/ MARTIN C. DICKINSON Director March 30, 1998
- -----------------------------------------------------
Martin C. Dickinson
/s/ CHRISTINE GAYLORD EVEREST Director March 30, 1998
- -----------------------------------------------------
Christine Gaylord Everest
/s/ E. K. GAYLORD II Vice-Chairman of the Board March 30, 1998
- -----------------------------------------------------
E. K. Gaylord II
/s/ JOE M. RODGERS Director March 30, 1998
- -----------------------------------------------------
Joe M. Rodgers
/s/ MARY AGNES WILDEROTTER Director March 30, 1998
- -----------------------------------------------------
Mary Agnes Wilderotter
50
53
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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).
51
54
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.2 Restated By-laws 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)).
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.
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.
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)).
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).
52
55
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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).
EXECUTIVE COMPENSATION PLANS AND MANAGEMENT CONTRACTS
10.9 1997 Stock Option and Incentive Plan (incorporated by
reference to Annex VII to Old Gaylord's definitive Proxy
Statement relating to the Special Meeting held on August 15,
1997).
10.10 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)).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17* Executive Employment Agreement of Dan E. Harrell, dated
March 24, 1997, with Word Entertainment Group, Inc., a
subsidiary of the Registrant.
10.18* Letter Agreement, dated March 26, 1998, regarding employment
of Jerry O. Bradley by the Registrant.
21 Subsidiaries of Gaylord Entertainment Company (incorporated
by reference to Exhibit 21 to the Company's Registration
Statement on Form 10, as amended (File No. 1-13079)).
23* Consent of Independent Auditors.
27* Financial Data Schedule for year ended December 31, 1997
(for SEC use only).
- ---------------
+ 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.
53
1
EXHIBIT 4.3
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment"),
dated to be effective as of September 30, 1997, is entered into among GAYLORD
ENTERTAINMENT COMPANY, a Delaware corporation, NEW GAYLORD ENTERTAINMENT
COMPANY, a Delaware corporation (collectively, for purposes of this First
Amendment, "Borrower"), the banks listed on the signature pages hereof
(collectively, "Lenders"), and NATIONSBANK OF TEXAS, N.A., as Administrative
Lender (in said capacity, "Administrative Lender").
BACKGROUND
A. Borrower, Lenders and Administrative Lender heretofore entered into
that certain Credit Agreement, dated as of August 19, 1997 (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, Lenders 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. AMENDMENT TO CREDIT AGREEMENT. The definition of "Permitted Debt"
set forth in Article I of the Credit Agreement is hereby amended to read in its
entirety as follows:
"`Permitted Debt' means, without duplication, (a) unsecured
Debt not to exceed $20,000,000 in aggregate principal amount, (b) Debt
secured by Liens permitted by clause (g) of the definition of
"Permitted Liens", provided, such Debt does not exceed $20,000,000 in
aggregate principal amount, (c) Existing Debt and extensions, renewals
and refinancings (but not increases) thereof, (d) Debt pursuant to or
in connection with Film Contracts, (e) trade payables incurred in the
ordinary course of the Companies' respective businesses, (f) Debt and
Contingent Debt pursuant to this Agreement, (g) intercompany Debt
between Companies, (h) Debt in respect of interest swap agreements and
other similar agreements designed to hedge against fluctuations in
interest rates, (i) Acquisition Consideration consisting of Debt
incurred to the seller of assets acquired in an Acquisition or assumed
pursuant to any single Acquisition not to exceed (A) during fiscal year
1997, the remainder of (1) $100,000,000 minus (2) the aggregate
2
amount of cash Acquisition Consideration paid for any such Acquisition
during such fiscal year, (B) during fiscal year 1998, the remainder of
(1) $125,000,000 minus (2) the aggregate amount of cash Acquisition
Consideration paid for any such Acquisition during such fiscal year,
and (C) during each fiscal year thereafter, the remainder of (1)
$150,000,000 minus (2) the aggregate amount of cash Acquisition
Consideration paid for any such Acquisition during such fiscal year,
and (j) Contingent Debt in respect of operating lease obligations and
other obligations (excluding Debt other than Permitted Debt) of any
Company incurred in the ordinary course of business."
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, Borrower represents and warrants that, as of the
date hereof and after giving effect to the amendment 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
First Amendment and the Credit Agreement, as amended hereby, and this First
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 First
Amendment or the Credit Agreement, as amended by this First 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 First Amendment or the
acknowledgement of this First Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall be effective
as of September 30, 1997, subject to the following:
- 2 -
3
(a) Administrative Lender shall have received counterparts of this
First Amendment executed by Determining Lenders;
(b) Administrative Lender shall have received counterparts of this
First Amendment executed by Borrower, and within 10 Business Days of the
effective date hereof, acknowledged by each Guarantor (after giving effect to
the Gaylord Restructuring and the Westinghouse Merger); and
(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
First 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 First 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 First 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 First
Amendment.
(b) The Credit Agreement, as amended by this First 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 First 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 First
Amendment).
7. EXECUTION IN COUNTERPARTS. This First 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 First 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.
- 3 -
4
9. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
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.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
- 4 -
5
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to be effective as of the date first above written.
GAYLORD ENTERTAINMENT COMPANY
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEW GAYLORD ENTERTAINMENT
COMPANY
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NATIONSBANK OF TEXAS, 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:
---------------------------------
- 5 -
6
THE FUJI BANK, LIMITED, ATLANTA
AGENCY
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SUNTRUST BANK, NASHVILLE, N.A.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FIRST AMERICAN NATIONAL BANK
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- 6 -
7
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:
---------------------------------
- 7 -
8
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, ATLANTA AGENCY
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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:
---------------------------------
- 8 -
9
WACHOVIA BANK, N.A.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
BANK OF TOKYO MITSUBISHI TRUST
COMPANY
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- 9 -
10
ACKNOWLEDGED AND AGREED:
IDEA ENTERTAINMENT, INC.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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:
---------------------------------
- 10 -
11
OLH, L.P.
By: Opryland Hospitality, Inc.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
OPRYLAND MUSIC GROUP, INC.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- 11 -
1
EXHIBIT 4.4
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"),
dated as of March 24, 1998 but effective as of October 1, 1997, is entered into
among GAYLORD ENTERTAINMENT COMPANY, a Delaware corporation ("Borrower"), the
banks listed on the signature pages hereof (collectively, "Lenders"), and
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
(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, Lenders 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 "EBITDA" set forth in Article I of the Credit
Agreement is hereby amended to read as follows:
"`EBITDA' means, for the Companies, on a consolidated basis,
for the twelve (12) month period preceding any date of determination,
the sum of (a) operating income plus (b) depreciation expense, plus (c)
amortization expense (not including amortization expense related to
program rights and inventories), plus (d) to the extent not already
included in operating income, the lesser of (i) earnings or (ii) cash
distributions received from unconsolidated Subsidiaries, plus (e) for
any period beginning January 1, 1998, to the extent included in
determining operating income, but without duplication with respect to
any non-cash charges set forth in the immediately succeeding proviso,
non-recurring, non-cash charges, if any, minus (f) for any period
beginning January 1, 1998, to the extent included in determining
operating income, non-recurring, non-cash credits, if any; provided,
however, for purposes of calculation of EBITDA for any period of
determination including the month of (y) September, 1997, there shall
be added to EBITDA (to the extent included in determining operating
income) the sum of cash and
2
non-cash charges related to (A) the Westinghouse Merger not to exceed
$36,300,000, plus (B) the write-down of television program inventories
at KTVT not to exceed $11,740,000, and (z) December, 1997, there shall
be added to EBITDA (to the extent included in determining operating
income) the sum of cash and non-cash charges related to (A) the
write-down of property, equipment and inventory and for severance and
termination benefits related to the closing of the Opryland theme park
not to exceed $42,006,000, plus (B) the cessation of operations of CMT
Europe not to exceed $5,000,000."
(b) Section 4.4 of the Credit Agreement is hereby amended to read as
follows:
"4.4 Net Worth. Borrower shall not permit Net Worth (a) as of
October 1, 1997 (taking into account the effect of the Westinghouse
Merger) and thereafter up to but not including December 31, 1997 to be
less than an amount equal to the sum of (i) the greater of 90% of Net
Worth on October 1, 1997 (taking into account the effect of the
Westinghouse Merger) or $425,000,000, plus (ii) 50% of the cumulative
Net Income from and including October 1, 1997 through the date of
calculation (but excluding from the calculation of cumulative Net
Income the effect, if any, of any fiscal quarter (or any portion of a
fiscal quarter not yet ended) for which Net Income was a negative
number), plus (iii) 75% of the Net Proceeds received by Borrower or any
of its Subsidiaries from any Equity Issuance occurring on and after
October 1, 1997 up to but not including December 31, 1997, plus (iv)
any increase in stockholders' equity of Borrower pursuant to the
conversion or exchange of preferred Capital Stock of Borrower into
common Capital Stock of Borrower, plus (v) an amount equal to 75% of
the net worth of any Person that becomes a Subsidiary of Borrower or
substantially all of the assets of which are acquired by Borrower or
any of its Subsidiaries to the extent the purchase price therefor is
paid in Capital Stock of Borrower or any of its Subsidiaries, and (b)
as of December 31, 1997 and thereafter to be less than an amount equal
to the sum of (i) 90% of Net Worth on December 31, 1997, plus (ii) 50%
of the cumulative Net Income from and including January 1, 1998 (but
excluding from the calculation of cumulative Net Income the effect, if
any, of any fiscal quarter (or any portion of a fiscal quarter not yet
ended) for which Net Income was a negative number), plus (iii) 75% of
the Net Proceeds received by Borrower or any of its Subsidiaries from
any Equity Issuance occurring on and after January 1, 1998, plus (iv)
any increase in stockholders' equity of Borrower pursuant to the
conversion or exchange of preferred Capital Stock of Borrower into
common Capital Stock of Borrower, plus (v) an amount equal to 75% of
the net worth of any Person that becomes a Subsidiary of Borrower or
substantially all of the assets of which are acquired by Borrower or
any of its Subsidiaries to the extent the purchase price therefor is
paid in Capital Stock of Borrower or any of its Subsidiaries."
(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 Second
Amendment.
- 2 -
3
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
Second Amendment and the Credit Agreement, as amended hereby, and this Second
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 Second
Amendment or the Credit Agreement, as amended by this Second 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 Second Amendment or the
acknowledgement of this Second Amendment by any Guarantor.
3. CONDITIONS OF EFFECTIVENESS. This Second Amendment shall be
effective as of October 1, 1997, subject to the following:
(a) Administrative Lender shall have received counterparts of this
Second Amendment executed by Determining Lenders;
(b) Administrative Lender shall have received counterparts of this
Second Amendment executed by Borrower and acknowledged by each Guarantor; and
(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.
- 3 -
4
4. GUARANTOR ACKNOWLEDGEMENT. By signing below, each of the Guarantors
(i) acknowledges, consents and agrees to the execution and delivery of this
Second 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 Second 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 Second 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 Second
Amendment.
(b) The Credit Agreement, as amended by this Second 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 Second 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
Second Amendment).
7. EXECUTION IN COUNTERPARTS. This Second 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 Second Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR
- 4 -
5
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
- 5 -
6
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to be effective as of the date first above written.
GAYLORD ENTERTAINMENT COMPANY
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
NATIONSBANK OF TEXAS, 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:
----------------------------------
- 6 -
7
SUNTRUST BANK, NASHVILLE, N.A.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
FIRST AMERICAN NATIONAL BANK
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BANQUE PARIBAS
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
- 7 -
8
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:
----------------------------------
COMERICA BANK
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
- 8 -
9
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:
----------------------------------
- 9 -
10
ACKNOWLEDGED AND AGREED:
IDEA ENTERTAINMENT, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
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:
----------------------------------
- 10 -
11
OLH, L.P.
By: Opryland Hospitality, Inc.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
OPRYLAND MUSIC GROUP, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
- 11 -
1
EXHIBIT 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
OF DAN E. HARRELL
AGREEMENT, dated March 24, 1997, by and between WORD
ENTERTAINMENT GROUP, INC., a Delaware corporation having its corporate
headquarters at One Gaylord Drive, Nashville, Tennessee 37214 ("WEG") and DAN E.
HARRELL residing at 4411 Truxton, Nashville, Tennessee ("Executive").
W I T N E S S E T H:
WHEREAS, WEG desires to employ Executive as its Co-President;
WHEREAS, Executive desires to serve as the Co-President of
WEG;
NOW, THEREFORE, in consideration of the covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Employment; Term. WEG hereby employs Executive, and
Executive hereby accepts employment with WEG, upon the terms and conditions
contained in this Agreement. The term of Executive's employment hereunder (the
"Employment Period") shall commence on the date hereof (the "Effective Date")
and shall continue for a period of seven (7) years from and after the Effective
Date, unless sooner terminated as hereinafter provided.
2
2. Duties.
(a) (i) During the Employment Period, Executive shall serve as
the Co-President of WEG. Executive, together with E. Michael Blanton, the other
Co-President of WEG (the "Co-President"), shall be responsible for the
management, operations, growth and development of WEG and its subsidiaries,
which, as of the date hereof, include Word Entertainment, Inc., operating as
Word Records and Music, and Blanton/Harrell Entertainment ("BHE"), and will
include such cable broadcasting services (through Z-TV and/or other program
services), syndicated television programming, film, merchandising, sports,
retail, video, hospitality, resorts, publishing and other new ventures as
determined from time to time by the Company (as hereinafter defined) and the
Board of Directors of WEG. Executive shall report directly to the Chief
Operating Officer of the Company or such other more senior officer of the
Company as is determined by the Company from time to time. During the
Executive's employment hereunder, (A) other than E. Michael Blanton, no other
officer of WEG shall perform the duties of a President, Chief Executive Officer,
Chief Operating Officer or other officer of WEG senior to Executive and E.
Michael Blanton, (B) Executive's duties shall not be reduced without his
consent, unless such reduction occurs in connection with a restructuring of the
business of WEG, such as a disposition or discontinuation of an undesirable
business (as determined by the Company) or other action not intended to reduce
Executive's role in WEG's business (as the Company determines it should be
conducted), (C) all employees of WEG shall report, directly or indirectly, to
either Executive or the other Co-President of WEG, other than: (w) the Chief
Financial Officer of WEG, who shall report to such officers as provided in
Section 2(d), (x) all employees of WEG
2
3
performing accounting, finance, budgeting and administration functions related
thereto, who shall report, directly or indirectly, to the CFO of WEG, (y) all
employees of the Company or any subsidiary other than WEG who perform services
for Company subsidiaries generally (such as employees of the Human Resources
Department and the Legal Department) and (z) employees of Company subsidiaries
other than WEG and its wholly-owned subsidiaries utilized by WEG from time to
time in furtherance of its business.
(ii) Executive, the other Co-President of WEG and the Company
shall jointly develop a strategic plan for WEG (the "Strategic Plan"). The
parties will endeavor to develop the Strategic Plan for presentation to and
approval by the Company within one hundred twenty (120) days after the Effective
Date. In furtherance of the Strategic Plan, the Company intends to provide
significant capital to enable the growth and development of WEG.
(iii) On an annual basis, at such time as is consistent with
the Company's overall planning and budgeting process, as determined by the
Company, Executive and the other Co-President shall update the Strategic Plan in
writing for presentation to, and approval by the Company.
(iv) Executive shall faithfully and as a fiduciary perform
the duties of his office and shall perform such other duties of an executive,
managerial and administrative nature as shall be required of his office and be
consistent with the position of President. Subject to Section 2(b) below,
Executive shall devote substantially all of his business time and effort to the
performance of his duties to WEG hereunder.
3
4
(v) If E. Michael Blanton is not employed as Co-President of
WEG at any time in which he has joint duties with the Executive as described in
this Section 2, subject to WEG and the Company's rights under Section 6,
Executive shall be solely responsible for the performance of such duties.
(vi) As used in this Agreement, "Company" shall mean either
Gaylord Entertainment Company ("Gaylord Entertainment") or Gaylord Broadcasting
Company ("Gaylord"), whichever is the ultimate corporate parent of WEG at the
time the determination is made.
(b) Notwithstanding anything to the contrary contained in Section 2(a)
above:
(i) Executive shall continue to perform, or supervise the
performance of, his existing duties at BHE for no additional compensation;
(ii) Executive shall be permitted to engage in the following
activities, provided that such activities do not, individually or in the
aggregate, materially interfere or conflict with Executive's duties and
responsibilities to WEG:
(w) Executive may serve on the governing boards of,
or otherwise participate in, a reasonable number of trade associations
and/or charitable organizations;
(x) Executive may engage in a reasonable amount of
charitable activities and community affairs;
(y) Executive may manage his personal investments
and affairs; and
4
5
(z) subject to the approval of the Chief Executive
Officer of the Company in his sole discretion, Executive may serve on
the Board of Directors of one or more business corporations.
(c) Executive shall comply with all personnel policies and
procedures of the Company applicable to senior executives of the Company and its
subsidiaries as in effect from time to time.
(d) Relationship with the Chief Financial Officer of WEG.
Executive, the Co-President (if then employed by WEG) and the Company shall,
from time to time, jointly select a candidate for appointment as Chief Financial
Officer of WEG. The Chief Financial Officer shall have dual reporting duties to
the Executive and the Co-President (if then employed by WEG), on the one hand,
and the Chief Financial Officer of the Company (or such other senior officer of
the Company as is determined by the Company from time to time), on the other
hand. The Chief Financial Officer of WEG may be terminated either by (i) the
Chief Financial Officer of the Company (or such other senior officer as
aforesaid) with the consent of the Executive and the Co-President (if then
employed by WEG) or (ii) by the Executive and the Co-President (if then employed
by WEG), with the consent of the Chief Financial Officer of the Company (or such
senior officer as aforesaid); provided that any consent required hereunder shall
not be unreasonably withheld or delayed.
3. Compensation.
(a) Base Salary. During the Employment Period, WEG shall pay
to Executive an aggregate annual salary of $300,000 (as increased as described
in this clause (a), the "Base Salary"). The Base Salary shall be payable in
accordance with the Company's
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payroll practices as in effect from time to time. The Base Salary shall be
increased on or about the anniversary of the date hereof by an amount determined
by the Compensation Committee of the Board of Directors of the Company in its
sole discretion, but not less than an amount equal to the percentage increase in
the Consumer Price Index (as hereinafter defined), during the prior year
(measured from December to December). For purposes hereof, "Consumer Price
Index" means the Consumer Price Index South Urban Consumer, All Items (1982-84 =
100), as reported by the Bureau of Labor Statistics of the U.S. Department of
Labor. In the event the Consumer Price Index shall be superseded or shall be
published by a different agency, the superseding index shall be substituted for
this Consumer Price Index in such a manner as to implement the intentions of the
parties in this Agreement.
(b) Annual Cash Bonus. During the Employment Period, Executive
shall be entitled to an annual cash bonus of up to 60% of his Base Salary in
effect during the fiscal year of the Company for which such bonus is awarded
(the "Cash Bonus"). The percentage of the total Cash Bonus for which the
Executive is eligible during any fiscal year shall be based upon performance
measures determined by the Compensation Committee of the Board of Directors of
the Company in its sole discretion. Such performance measures shall be allocated
among various performance criteria determined by the Board of Directors of the
Company in its sole discretion. Such criteria are currently proposed to be
initially allocated as follows:
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Initial
Percentage of
Total Eligible
Criteria Cash Bonus
-------- ----------
(i) Achievement by the Company of operating cash flow goals
fixed by its Board of Directors 25%
(ii) Achievement by WEG of operating cash flow goals fixed by the Board of
Directors of the Company (such cash flow to be (x) subject to a six percent (6%)
charge for the cost of capital invested in WEG, whether before or after the date
hereof, and whether such capital was funded by the Company or otherwise and (y)
adjusted to offset negative cash flow results from losses
incurred by Z-TV, if any) 60%
(iii) Operation by WEG within its capital budget established by
the Board of Directors of the Company 5%
(iv) Executive's individual contribution to WEG during the year, as determined
by the Board of Directors of the Company
10%
---
100%
The Cash Bonus for the portion of each of (x) the first fiscal year of the
Company during which Executive is employed hereunder and, (y) if Executive's
employment with WEG terminates on the last day of the Employment Period, the
last fiscal year of the Employment Period during which Executive is employed
hereunder, shall be equal to the total Cash Bonus which Executive would have
been entitled to receive had he been employed hereunder for such entire fiscal
year multiplied by a fraction, the numerator of which is the number of days in
such calendar year in which Executive was employed hereunder, and the
denominator of which is 365.
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4. Long Term Incentives.
(a) Grants, Adjustment for Economic Equivalents. Gaylord
Entertainment has entered into an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of February 9, 1997, with Westinghouse Electric Company
("Westinghouse"), and G Acquisition Corp ("Sub") providing for a merger of
Gaylord Entertainment with Sub (the "Merger") and a restructuring of certain
other assets of Gaylord Entertainment (the "Distribution") pursuant to an
Agreement and Plan of Distribution to be entered into between Gaylord
Entertainment and Gaylord. Pursuant to the Distribution, certain continuing
assets and businesses of Gaylord and certain continuing liabilities of Gaylord
Entertainment will be assumed by Gaylord. The number of shares of stock
available to Executive for purchase under the option grants and restricted stock
awards provided in Section 4 is based on the number of shares of Class A Common
Stock, $0.01 par value, of Gaylord Entertainment ("Gaylord Entertainment Common
Stock") which would be issued to Executive if the options provided in Section 4
were granted by Gaylord Entertainment. Following the completion of the Merger
and the Distribution, current holders of options to acquire Gaylord
Entertainment Common Stock granted under Gaylord Entertainment's 1993 Stock
Option and Incentive Plan (the "Plan") will receive, in lieu of such options,
options to purchase shares of Common Stock, $0.01 par value, of Gaylord
("Gaylord Common Stock") with an economic value substantially equivalent to the
shares of Gaylord Entertainment Common Stock available to such current holders
under the Plan. In light of the foregoing, the parties agree that the number of
shares of restricted Gaylord Common Stock and the number of shares of Gaylord
Common Stock which may be purchased upon exercise of the options granted
pursuant to Section 4 shall be adjusted
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on the same basis as the number of shares of Gaylord Entertainment Common Stock
which may be purchased by members of Gaylord senior management who are current
holders of options under the Plan as such options are adjusted following
completion of the Merger and the Distribution. In the event the Merger Agreement
terminates and the Merger does not occur, WEG shall cause Gaylord Entertainment
to issue the options set forth in Section 4(b) to purchase the number of shares
of Gaylord Entertainment Common Stock provided herein without adjustment. In no
event shall any adjustment for the benefit of Executive hereunder include any
right (or the economic equivalent of any right) to receive any securities of
Westinghouse in the Merger.
(b) Eligibility for Annual Option and Restricted Stock Grants.
During the Employment Period, Executive shall be entitled to a grant of (and WEG
shall cause the Company to grant) annual options and restricted stock (e.g.,
performance shares) (together, the "Annual Options") relating to 23,000 shares
of Gaylord Entertainment Common Stock or, subject to adjustment as provided in
Section 4(a), Gaylord Common Stock. The Annual Options shall be granted as and
when grants are made to similarly situated executives of the Company, provided
that, any failure by the Company to grant options to similarly situated
executives shall not relieve WEG of its obligation to cause the Company to issue
the Annual Options required hereunder. The Annual Options shall be granted
pursuant to and shall be governed by the terms of the applicable stock option
and incentive plan of the Company. Each Annual Option shall include options to
purchase 18,500 shares of Gaylord Entertainment Common Stock or, subject to
adjustment pursuant to Section 4(a), Gaylord Common Stock and shall (i) vest in
equal amounts at the second through the fifth anniversaries of the grant, (ii)
be
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exercisable at fair market value at the time of grant, (iii) be subject to
accelerated vesting upon the occurrence of an event described in Section 7(e)
and (f), (iv) have a term of ten years from the date of grant, and (vi)
otherwise be subject to the terms of a stock option agreement between the
Company and the Executive in the form prescribed by the Compensation Committee
of the Board of Directors of the Company for its executives generally. Each
Annual Option shall also include a grant of 4,500 restricted shares (i.e.,
performance shares) of Gaylord Entertainment Common Stock or, subject to
adjustment as provided in Section 4(a), Gaylord Common Stock ("Restricted
Stock"). Under the Plan as currently in effect, the restrictions on the
Restricted Stock shall be removed on the third anniversary of grant, based on
the Company's earnings per share growth target (the "Target") established with
respect to such Restricted Stock by the Compensation Committee of the Board of
Directors of the Company in accordance with the following formula:
(i) Restrictions shall be removed as to one-third
of the Restricted Stock on the third anniversary of grant if 90% but less than
100% of the Target is achieved;
(ii) Restrictions shall be removed as to two-thirds
of the Restricted Stock on the third anniversary of the grant if 100% but less
than 110% of the Target is achieved; and
(iii) Restrictions shall be removed as to all of the
Restricted Stock on the third anniversary of its grant if 110% or more of the
Target is achieved.
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In the event the Company shall at any time or from time to time modify
the restricted stock award program for its executives generally under or
pursuant to the Plan or a successor stock option or incentive plan, such
modifications shall apply to the Annual Option Award of Restricted Stock under
this Agreement.
(c) Mega-Grant. Executive shall be entitled to a grant of an
additional 40,000 restricted shares (e.g., performance shares) of Gaylord
Entertainment Common Stock or, subject to adjustment as provided in Section
4(a), Gaylord Common Stock (the "Mega-Grant"). The Mega-Grant shall be made on
or about the date of termination of the Merger Agreement or the consummation of
the Merger and the Distribution, as the case may be. The Mega-Grant shall become
eligible for elimination of restrictions (i.e., become available for
distribution to Executive) as to one-third of the shares exercisable thereunder
beginning on each of the fifth, sixth and seventh anniversaries of the Effective
Date (each a "Mega-Grant Eligibility Date"). Elimination of restrictions on
eligible Mega-Grant shares shall occur upon WEG achieving, on the Mega-Grant
Eligibility Date to which such target and eligible shares relate, or on any
subsequent Mega-Grant Eligibility Date, the cumulative operating cash flow
target (adjusted for losses of ZTV and charges for the cost of capital invested
in WEG as described in Section 3(b)(ii)) determined by the Compensation
Committee of the Board of Directors of the Company. All restrictions on
Mega-Grant shares shall be removed, without achievement of any of the
performance criteria described herein, upon the occurrence of an event described
in Section 7(f) and shall be subject to the terms of the existing or successor
stock option and incentive plans of the Company (including the form of grant
agreement), applicable at the time of grant.
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5. Expenses; Benefits.
(a) During the Employment Period, WEG will reimburse
Executive, in accordance with the Company's policies and procedures, for all
reasonable expenses paid or incurred by Executive, including reimbursement for
first class travel and accommodations expenses, in connection with the
performance of his duties for WEG hereunder.
(b) During the Employment Period, Executive shall be
reimbursed for monthly dues for membership in one country club of his choosing.
(c) During the Employment Period, Executive shall be entitled
to the use of a corporate motor vehicle in accordance with the Company's policy.
In lieu of such a vehicle, Executive may elect to receive from WEG a vehicle
allowance of $1,000 per month. The parties agree to continue any existing auto
lease of BHE relating to Executive's corporate motor vehicle in use on the
Effective Date in such a manner that WEG's cost of making such vehicle available
to Executive does not exceed $1,000 a month. The vehicle allowance shall be
subject to annual increase by an amount equal to the percentage increase of the
Consumer Price Index during the prior year.
(d) During the Employment Period, Executive shall be entitled
to four (4) weeks vacation annually.
(e) During the Employment Period, Executive shall be entitled
to participate in and enjoy the benefits of any health, life, disability,
retirement, pension, group insurance, or other similar plan or plans which may
be in effect or instituted by the Company for the benefit of senior executive
employees of the Company and its subsidiaries generally, upon such terms as may
be therein provided. Such benefits as in effect on the date hereof are
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summarized in Exhibit A hereto, provided that, notwithstanding Exhibit A,
Executive shall be entitled to a life insurance benefit equal to three times his
Base Salary.
6. Termination. Executive's employment hereunder may be terminated
prior to the expiration of the Employment Period only as follows:
(a) Death or Permanent Disability. At the option of the
Company or the Board of Directors of WEG, by written notice to Executive or his
personal representative in the event of either (i) the death of Executive
("Death"), or (ii) the Permanent Disability (as hereinafter defined) of
Executive. As used herein, the term "Permanent Disability" shall mean a physical
or mental incapacity or disability which renders Executive unable substantially
to render the services required hereunder for a period of one hundred
thirty-five (135) consecutive days or one hundred eighty (180) days during any
twelve (12) month period, as certified by a licensed physician retained by the
Company for the purposes of making such determination. Executive shall be
entitled to have his physician present during any examination of Executive by a
Company physician pursuant hereto.
(b) Cause. At the option of the Company or the Board of
Directors of WEG, by written notice to Executive upon the occurrence of any one
or more of the following events (each, a "Cause"):
(i) any action by Executive constituting fraud,
embezzlement or dishonesty in the course of his employment hereunder;
(ii) any conviction of Executive of a crime
involving moral turpitude;
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(iii) gross neglect by Executive in the performance
his duties hereunder for a period of two (2) days following receipt by
Executive of written notice from the Company of such gross neglect;
(iv) failure or refusal by Executive, for a period
of twenty-four hours after receipt by Executive of written notice from
the Company, to perform his duties hereunder or to comply with any
valid and legal directive of the Board of Directors of WEG or the
officer of the Company to whom Executive reports pursuant to Section
2(a);
(v) a breach by Executive of any of his material
obligations under this Agreement and failure to cure such breach within
ten (10) days of receipt by Executive of written notice thereof from
the Company or WEG; or
(vi) upon notice to Executive delivered not later
than six (6) months following the voluntary termination (the
"Co-President Termination") by E. Michael Blanton of his Employment
Agreement, of even date herewith, with the Companies (the "Blanton
Employment Agreement").
(c) By Executive. At the option of Executive, by written
notice to the Company and WEG at any time for any of the following reasons:
(i) by notice to the Company and WEG given within a
reasonable time after the occurrence of a material breach by WEG of any
of its material obligations under this Agreement and the failure by WEG
to cure such breach within thirty (30) days of such notice;
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(ii) by notice to the Company and WEG given within a
reasonable time after failure to pay Executive his Base Salary in
accordance with Section 3 and failure to cure such breach within
fifteen (15) days of such notice (this clause (ii), together with
clause (i) hereof, hereinafter sometimes referred to as "Good Reason");
or
(iii) upon the occurrence of a Change of Control (as
defined in Section 7(f)); provided that (x) notice of termination by
Executive pursuant to this Section 6(c)(iii) shall have been given
before the expiration of the one hundred twentieth (120th) day
following such Change of Control and (y) if employed by WEG at the
time, E. Michael Blanton shall simultaneously give the Company notice
of termination pursuant to Section 6(c)(iii) of the Blanton Employment
Agreement.
(d) Without Cause. In addition to its rights of termination
pursuant to Sections 6(a) and (b), the Company or the Board of Directors of WEG
may terminate this Agreement at any time without cause, subject to WEG's
obligations under Section 7(e) and 7(f); provided that, unless (i) E. Michael
Blanton is not at the time employed by WEG pursuant to the Blanton Employment
Agreement or (ii) E. Michael Blanton's employment pursuant to the Blanton
Employment Agreement is not otherwise simultaneously terminated pursuant to a
provision other than Section 6(d) thereof, Executive's employment may not be
terminated pursuant to this Section 6(d) unless E. Michael Blanton's employment
is simultaneously terminated pursuant to Section 6(d) of the Blanton Employment
Agreement. Termination pursuant to this Section 6(d) is sometimes hereinafter
referred to as termination "Without Cause."
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7. Effect of Termination.
(a) Effect Generally. In the event of termination of
Executive's employment hereunder prior to the expiration of the Employment
Period for any reason, neither the Company nor WEG shall have any liability or
obligation to Executive other than as specifically set forth in this Section 7.
(b) Upon Death. Upon the termination of Executive's employment
hereunder as a result of Death (pursuant to Section 6(a)(i)), Executive or his
legal representatives shall be entitled to receive an amount equal to the Base
Salary accrued through the date of termination and a pro rata portion of
Executive's bonus, if any, in respect of the fiscal year of the Company in which
termination occurs, which is based on the Executive's performance during the
period through the date of termination, as reasonably determined by the Board of
Directors of Company at the time bonuses are determined for Company executives
generally. In addition, Executive or his legal representatives shall be entitled
to any accrued and unpaid vacation pay, unreimbursed expenses incurred pursuant
to Section 5(a), (b) or (c) or other benefits which may be owing to Executive
pursuant to any applicable written employee benefit plan or policy of the
Company in effect at the time.
(c) Upon Permanent Disability. Upon the termination of
Executive's employment hereunder as a result of Permanent Disability (pursuant
to Section 6(a)(ii)), Executive or his legal representatives shall be entitled
to receive an amount equal to the Base Salary accrued through the date of
termination and a pro rata portion of Executive's bonus, if any, in respect of
the fiscal year of the Company in which Executive's termination occurs which is
based on the Executive's performance through the date of termination, as
reasonably
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determined by the Board of Directors of Company at the time bonuses are
determined for Company executives generally. Executive's payments hereunder
shall be reduced by any payments received by Executive under any worker's
compensation or similar law. In addition, Executive or his legal representatives
shall be entitled to long-term disability benefits, accrued and unpaid vacation
pay, unreimbursed expenses incurred pursuant to Section 5(a), (b) or (c) and any
other benefits which may be owing to Executive pursuant to any applicable
written employee benefit plan or policy of the Company in effect at the time.
(d) For Cause or by Executive Without Good Reason. Upon the
termination of Executive's employment hereunder (i) by the Company or WEG for
Cause (pursuant to Section 6(b)), or (ii) by Executive for any reason other than
Good Reason (pursuant to Section 6(c)(i) or (ii)), then Executive shall be
entitled to an amount equal to the Base Salary accrued through the date of
termination plus unpaid vacation pay, unreimbursed expenses incurred pursuant to
Section 5(a), (b) or (c) and any other benefits which may be owing to Executive
pursuant to any applicable written employee benefit plan or policy of the
Company in effect at the time; provided, however, that if Executive terminates
his employment hereunder pursuant to Section 6(c)(iii), all unvested Annual
Options shall immediately vest.
(e) Without Cause or For Good Reason. Upon the termination of
Executive's employment hereunder either: (i) by the Company or WEG Without Cause
(pursuant to Section 6(d)), or by Executive for Good Reason (pursuant to Section
6(c)(i) or (ii)), Executive shall be entitled to (x) an amount equal to 100% of
the Annual Base Salary then in effect, less $185,910.50 ("Severance
Compensation"), (y) Base Salary accrued through the date of termination, and (z)
unpaid vacation pay, unreimbursed expenses incurred pursuant
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to Section 5(a), (b) or (c) and any other benefits which may be owing to
Executive pursuant to any applicable written employee benefit plan or policy of
the Company in effect at the time. In addition, upon the occurrence of any such
event, all unvested Annual Options shall immediately vest. The Severance
Compensation shall be payable in a lump sum within ninety (90) days of
termination of Executives employment hereunder.
(f) Upon a Change of Control. In the event that Executive's
termination Without Cause (pursuant to Section 6(d)) occurs within ninety (90)
days following a Change of Control, Executive's Severance Compensation shall be
increased such that total Severance Compensation shall be an amount equal 200%
of Annual Base Salary then in effect, less $185,910.50. In addition, (i)
Executive shall be entitled to (y) Base Salary accrued through the date of
termination, and (z) unpaid vacation pay, unreimbursed expenses incurred
pursuant to Section 5(a), (b) or (c) and any other benefits which may be owing
to Executive pursuant to any applicable written employee benefit plan or policy
of the Company in effect at the time, and (ii) upon such event, all Annual
Options and Mega-Grants shall immediately vest. A "Change of Control" shall be
deemed to have taken place if (i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, other than
the Company, a wholly-owned subsidiary thereof, or any
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employee benefit plan of the Company or any of its subsidiaries becomes the
beneficial owner of Company securities having 33-1/3% or more of the combined
voting power of the then outstanding securities of the Company that may be cast
for the election of directors of the Company (other than as a result of the
issuance of securities initiated by the Company in the ordinary course of
business); or (ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions less than a
majority of the combined voting power of the then-outstanding securities of the
Company or any successor corporation or entity entitled to vote generally in the
election of the directors of the Company or such other corporation or entity
after such transactions are held in the aggregate by the holders of the Company
securities entitled to vote generally in the election of directors of the
Company immediately prior to such transaction; or (iii) during any period of two
consecutive years after completion of the Merger or termination of the Merger
Agreement, individuals who at the beginning of any such period constitute the
Board of Directors of the Company cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by the
Company's shareholders, of each director of the Company first elected during
such period was approved by a vote of at least two-thirds of the directors of
the Company then still in office who were directors of the Company at the
beginning of any such period; provided that, notwithstanding the foregoing
clauses (i)-(iii), neither the Merger nor the Distribution shall constitute a
Change of Control.
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8. Purchase Option.
(a) In the event that Executive's employment terminates for
any Qualifying Reason (as hereinafter defined), then, upon joint written notice
given by Executive (jointly, if applicable as provided herein, with E. Michael
Blanton) not later than thirty (30) days after such termination (the "Purchase
Notice"), Executive (and, if applicable as provided herein, E. Michael Blanton,)
shall have the right to purchase the artist management business of WEG (subject
to assumption of its liabilities) (the "Management Business") for one hundred
dollars ($100).
(b) It shall be a "Qualifying Reason" for Executive and E.
Michael Blanton to have the right to purchase the Management Business if both
Executive and E. Michael Blanton cease employment with WEG for any reason
specified under Section 6(c) or 6(d) hereunder and under the Blanton Employment
Agreement. It shall be a Qualifying Reason for purposes of this subsection (b)
even if the reason for termination of Executive hereunder differs from the
reason for termination of E. Michael Blanton under the Blanton Employment
Agreement.
(c) It shall be a "Qualifying Reason" for Executive to have
the right to purchase the Management Business without E. Michael Blanton if:
(i) Executive's employment is terminated for Cause
as a result of a Co-President Termination (pursuant to Section
6(b)(vi)); or
(ii) Following the termination of E. Michael
Blanton's employment for any reason:
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(x) Executive shall have terminated employment with
WEG for Good Reason (pursuant to Section 6(c)(i) or (ii));
(y) Executive shall have terminated employment with
WEG upon a Change of Control pursuant to Section 6(c)(iii); or
(z) The Company or WEG shall have terminated
Executive's employment with WEG Without Cause (pursuant to Section
6(d)).
(d) Within sixty (60) days following receipt of the Purchase
Notice, the Company shall deliver to the Executive and E. Michael Blanton (i) a
balance sheet, dated as of a recent date, of the Management Business, prepared
in accordance with generally accepted accounting principles, and (ii) a proposed
assignment and assumption agreement executed by WEG and providing for the sale
of the Management Business for the above purchase price and containing such
other terms as are reasonably required by WEG to effect the sale of the
Management Business without liability, cost or expense to WEG (the
"Assumption").
(e) Closing of the purchase of the Management Business shall
occur on a date selected by Executive and E. Michael Blanton not more than
thirty (30) days following receipt of the documents provided in Section 8(d). At
the Closing, Executive, (and, if applicable, E. Michael Blanton) shall execute
and deliver the Assumption to WEG.
(f) This Section shall not be amended if, at the time, E.
Michael Blanton is employed by WEG, without (i) E. Michael Blanton's written
consent and (ii) simultaneous identical amendment to Section 8 of the Blanton
Employment Agreement.
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9. Confidential Information.
(a) Executive agrees that he will not commit any act, or in
any way assist others to commit any act, which could reasonably be expected to
injure WEG, the Company or any of their businesses. Without limiting the
generality of the foregoing, Executive recognizes and acknowledges that all
information about WEG and the Company or relating to any of their respective
products, services or any phase of their operations, business or financial
affairs which is not a matter of public record, including without limitation,
trade secrets, customers, suppliers, inventions, computer programs, price and
rate information, plans and strategies ("Confidential Information"), is not
generally known to WEG's or the Company's competitors and is valuable, special
and unique to the business of WEG and the Company. Accordingly, Executive will
not, directly or indirectly, use any such Confidential Information for his own
benefit, divulge, disclose or make accessible any such Confidential Information
or any part thereof to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever (other than in the course of
carrying out his duties hereunder) or render any services to any person, firm,
corporation, association or other entity to whom any such Confidential
Information, in whole or in part, has been disclosed or is threatened to be
disclosed by or at the instance of Executive. Confidential Information shall not
include any information which is or becomes generally available to the public
other than as a result of disclosure in violation of this Agreement.
(b) All memoranda, notes, lists, records and other documents
(and all copies thereof) constituting Confidential Information made or compiled
by Executive or made available to Executive shall be WEG's or the Company's
property, as the case may be, shall be
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kept confidential in accordance with the provisions of this Section 9 and shall
be delivered to WEG or the Company, as appropriate, at any time on request and
in any event upon the termination of Executive's employment with WEG for any
reason.
(c) Since WEG and the Company will be irreparably damaged if
the provisions of this Section 9 are not specifically enforced, each of WEG and
the Company shall be entitled to an injunction or any other appropriate decree
of specific performance (without the necessity of posting any bond or other
security in connection therewith) restraining any violation or non-fulfillment
of Executive's covenants under this Section 9. Such remedies shall not be
exclusive and shall be in addition to any other remedy, at law or in equity,
which WEG or the Company may have for any breach or threatened breach of this
Section 9 by Executive.
10. Covenant Against Competition. Executive covenants and agrees that:
(a) During the Non-Compete Period (as hereinafter defined),
Executive shall not, directly or indirectly, in any Geographic Area (as
hereinafter defined): (i) engage for his own account in the Company Business;
(ii) render any services in any capacity to any person or entity (other than the
Company or its Affiliates) engaged in the Company Business; or (iii) become
interested in any person or entity engaged in the Company Business (other than
the Company or its Affiliates) as a partner, shareholder, director, officer,
employee, principal, member, manager, agent, trustee, consultant or in any other
relationship or capacity; provided, however, Executive may own, directly or
indirectly, solely as a passive investment, securities of any such entity which
are traded on any national securities exchange if Executive (A) is not a
controlling person of, or a member of a group which controls, such
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entity, and (B) does not, directly or indirectly, own 1% or more of any class of
securities of such entity.
(b) During the Non-Compete Period, Executive shall not,
without the prior written consent of the Company, directly or indirectly,
solicit or encourage any employee of the Company or any of its Affiliates to
leave the employment of the Company or any of its Affiliates, hire any employee
who has left the employment of the Company or any of its Affiliates based on or
as a result of any direct or indirect, express or implied, inducements offered
by Executive or anyone affiliated with Executive within one year of the
termination of such employee's employment with either of WEG, the Company or any
of their Affiliates; provided, however, that nothing contained herein shall
prevent Executive from soliciting or hiring any individual(s) who was his
personal assistant or personal secretary while an employee of WEG.
(c) During any portion of the Non-Compete Period during which
Executive is not employed by WEG, Executive shall not, in any Geographic Area,
directly or indirectly, knowingly solicit or encourage any customer, client or
account of WEG, the Company or any of their Affiliates to engage the services of
Executive or any person or entity (other than the Company or its Affiliates) in
which Executive is a partner, shareholder, director, officer, employee,
principal, member, manager, agent, trustee, consultant or engaged in any other
relationship or capacity.
(d) Since WEG and the Company will be irreparably damaged if
the provisions of this Section 10 are not specifically enforced, each of WEG and
the Company shall be entitled to an injunction or any other appropriate decree
of specific performance
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(without the necessity of posting any bond or other security in connection
therewith) restraining any violation or non-fulfillment of Executive's covenants
under this Section 10. Such remedies shall not be exclusive and shall be in
addition to any other remedy, at law or in equity, which WEG or the Company may
have for any breach or threatened breach of this Section 10 by Executive.
(e) If any provision of this Section 10 is held to be
unenforceable because of the scope, duration, area of its applicability or
otherwise, it is the intention of the parties that the court making such
determination shall modify such scope, duration or area, or all of them, and
that such provision shall then be applicable in such modified form.
(f) As used herein:
(i) "Affiliate" shall mean any entity directly or
indirectly controlling, controlled by, or under common control with the
Company and any entity in which either of WEG or the Company, directly
or indirectly is a general partner, member, manager or holder of
greater than a 10% common equity, partnership or membership interest.
(ii) "Company Business" shall mean the business of
WEG on the date hereof, and any business which WEG is engaged in or
under development or proposed to be engaged in, as set forth in the
Strategic Plan, as updated and in effect, at the earlier to occur of
the time of the alleged violation of this Section 10 or the termination
of Executive's employment under this Agreement, whichever occurs
earlier.
25
26
(iii) "Geographic Area" shall mean North America and
the United Kingdom.
(iv) "Non-Compete Period" shall mean the period of
Executive's employment hereunder and (other than in the event of
termination for cause pursuant to Section 6(b)(vi)) additional period
of one year following the termination of Executive's employment
hereunder; provided, however, that, in the event Executive purchases
the Management Business pursuant to Section 8, the Noncompete Period as
it relates to the Management Business shall terminate on the date of
such purchase.
(g) Notwithstanding any other provision of this Section 10, if
Executive's employment terminates at the end of the Employment Period then, for
the remainder of the Non-Compete Period, (i) the provisions of Section 10(a)
shall be inapplicable, (ii) Executive may provide management services to Amy
Grant, Michael W. Smith, Gary Chapman, Frank Peretti and Wayne Kirkpatrick so
long as Executive has not directly solicited such clients of WEG, and (iii)
Executive may hire any personnel primarily responsible for the management of the
foregoing artists even though they may be employed by the Company or an
Affiliate at the time, so long as Executive has not directly solicited such
employees.
11. Executive's Representations and Warranties.
(a) Executive represents and warrants that no lawsuits or
claims are pending or, to Executive's knowledge, threatened against Executive.
(b) Executive represents and warrants that he (i) has not
committed any acts inconsistent with the moral or ethical standards expected of
senior executives in the
26
27
Christian music business in the United States, (ii) has never been subject to
bankruptcy, insolvency or similar proceedings, (iii) has never been convicted
of a felony; and (iv) has never been subject to an investigation or proceeding
by or before the Securities and Exchange Commission or any state securities
commission.
12. Notices. Any and all notices or other communications
required or permitted to be given under any of the provisions of this Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or mailed by first class registered mail, return receipt requested, or
by commercial courier or delivery service, or by facsimile, addressed to the
parties at the addresses set forth below (or at such other address as any party
may specify by notice to all other parties given as aforesaid):
(a) if to the Company or WEG, to them at:
Gaylord Entertainment Company
One Gaylord Drive
Nashville, Tennessee 37214
Attention: F.M. Wentworth, Jr., Esq.
Senior Vice President,
Legal Counsel and Secretary
Telecopier Number: (615) 316 6530
(b) if to Executive, to:
Dan E. Harrell
4411 Truxton
Nashville, Tennessee
27
28
With a copy to:
Manatt, Phelps & Phillips
1233 17th Avenue South
Nashville, Tennessee 37212
Attention: Kenneth L. Kraus, Esq.
Telecopier Number: (615) 327-2044
and/or to such other persons and addresses as any party shall have specified in
writing to the other by notice as aforesaid.
13. Mediation and Arbitration.
(a) If a dispute or controversy arises out of or in any way
relates to this Agreement or the breach hereof ("Dispute"), the Dispute shall be
settled exclusively through the mediation and binding arbitration provisions of
this Section 13. If the Dispute cannot be settled through direct discussions,
the parties agree to endeavor to settle the Dispute through mediation
administered by the American Arbitration Association ("AAA") under the AAA's
National Rules for the Resolution of Employment Disputes ("AAA Rules"). If the
Dispute is not resolved in mediation pursuant to the AAA Rules and the further
provisions of this Section, the Dispute shall be submitted to and settled
through binding arbitration administered by the AAA in accordance with the AAA
Rules, and judgment upon the arbitration award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.
(b) Any party hereto may initiate a mediation proceeding or,
following mediation, an arbitration proceeding by serving a written mediation or
arbitration request to the AAA in conformity with the AAA Rules and tendering
the appropriate administrative fee. Copies of the mediation or arbitration
request shall be served on all other
28
29
parties to the Dispute. The mediation or arbitration request shall describe the
nature of the dispute, the amount involved, if any, and in the case of
arbitration, the remedy sought. The AAA shall review the mediation or
arbitration request and appoint a mediator or arbitrator, as applicable,
pursuant to the AAA Rules.
(c) In the event of a mediation request, the mediator selected
will schedule the mediation conference between the parties within thirty (30)
days of the date it receives the mediation request.
(d) A party who has previously submitted a Dispute to
mediation as set forth in this Section 13 may initiate arbitration proceedings
under the AAA Rules before a single arbitrator within nine (9) months of the
date of the event which gave rise to the Dispute or nine (9) months of the date
the party became aware or should have been aware of the event that gave rise to
the Dispute. Failure of a party to timely initiate a proceeding hereunder shall
bar the party from any relief, and any such Dispute shall be deemed to have been
finally and completely resolved.
(e) The parties on whom the arbitration notice is served shall
file an answering statement within twenty-one (21) days of receiving notice of
intent to arbitrate or a specification of claims, which shall include any
counter-claims and any request that the arbitrator (if any) prepare a statement
of reasons for the award.
(f) Each party shall bear its or his own fees and expenses in
connection with any mediation or arbitration. The fees and expenses of the AAA
and the cost of any transcripts incurred in connection with any arbitration
shall be borne by the parties in such manner as the arbitrator shall determine
in proportion to the relative liability or fault of
29
30
the parties in the Dispute, as determined by the arbitrator. Any mediation or
arbitration to resolve a Dispute shall be held in the City of Nashville,
Tennessee.
14. Company Obligations. Promptly following completion of the Merger
and the Distribution, WEG shall cause Gaylord to execute an instrument agreeing
to be bound by the provisions of this Agreement relating to the Annual Options
and the Mega-Grant and the provisions of Section 15. In the event that the
Merger and the Distribution shall not occur and the Merger Agreement shall
terminate, WEG shall cause Gaylord Entertainment to execute an instrument
agreeing to be bound by the provisions of this Agreement relating to the Annual
Options, the Mega-Grant and the provisions of Section 15.
15. Miscellaneous.
(a) This writing constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be modified,
amended or terminated except by a written agreement signed by all of the parties
hereto.
(b) This Agreement shall not be assignable by Executive, but
it shall be binding upon, and shall inure to the benefit of, his heirs,
executors, administrators and legal representatives. This Agreement shall be
binding upon WEG and inure to the benefit of WEG, Gaylord and Gaylord
Entertainment and their respective successors and permitted assigns. This
Agreement may only be assigned by WEG, Gaylord or Gaylord Entertainment to any
entity controlling, controlled by or under common control with the Company in
connection with an assignment of WEG's business to such other entity.
30
31
(c) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
(d) If any provision of this Agreement shall be held invalid
or unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein, unless the invalidity or unenforce-ability of such provision
substantially impairs the benefits of the remaining portions of this Agreement.
(e) The section headings contained herein are for the purposes
of convenience only and are not intended to define or limit the contents of said
sections.
(f) This Agreement may be executed in two or more
counterparts, all of which taken together shall be deemed one original.
(g) The parties agree that the terms of this Agreement as they
relate to compensation, benefits, termination, and repurchase of the Management
Business, shall, unless otherwise required by law (including, in the Company's
reasonable judgment, as required by federal and state securities laws), be kept
confidential; provided, however, that any party hereto shall be permitted to
disclose this Agreement or the terms hereof with any of its legal, accounting or
financial advisors provided that such party ensures that the recipient will
comply with the provisions of this Section 15(g).
31
32
(h) This Agreement shall be deemed to be a contract under the
laws of the State of Tennessee and for all purposes shall be construed and
enforced in accordance with the internal laws of said state.
(i) This Agreement shall not confer any rights or remedies
upon any person or entity other than the parties hereto and their respective
successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
WORD ENTERTAINMENT GROUP, INC.
By:
-----------------------------
Terry E. London
Chairman
EXECUTIVE:
--------------------------------
Dan E. Harrell
32
1
EXHIBIT 10.18
March 26, 1998
Jerry Bradley, President
Opryland Music Group
65 Music Square West
Nashville, TN 37203
Dear Jerry:
This letter agreement (the "Agreement"), dated as of the date above, is
between Gaylord Entertainment Company (the "Company"), a Delaware corporation,
and you. Upon the terms and conditions of this Agreement, the Company will
employ you and you accept employment with the Company and agree to perform the
duties required of you to the best of your ability. The term of this Agreement
will begin on the date above and will terminate at the close of business on
February 28, 2003, unless otherwise extended or earlier terminated (the
"Employment Period").
1. In return for the services rendered by you, you will be
entitled to the following compensation:
(a) A base salary of $200,000 per annum (the "Base Salary"),
subject to such increases as may from time to time be determined by the
Board of Directors and/or the Chief Executive Officer of the Company,
payable in monthly installments in accordance with the ordinary payroll
payment schedule of the Company. Your Base Salary will be subject to
all applicable withholding and payroll taxes plus other withholdings
authorized by you.
(b) A cash bonus payable annually in the amount of 3% of
the three-year average of the net publishers' share of Opryland
Music Group, Inc. to be calculated in a manner consistent with
previous computations by the Company of the net publishers' share.
(c) A cash bonus payable annually in the discretion of the
Company and at such time and upon such terms and conditions as that
paid to other key executives of the Company not to exceed nine percent
(9%) of Base Salary.
(d) Options to acquire 25,000 shares of Gaylord Entertainment
Company common stock under the Company's 1997 Stock Option and
Incentive Plan, with an exercise price equal to the closing price of
the Company's stock on February 19, 1998, to vest over three (3) years
in increments on each date set forth below on which you are an employee
of the Company:
33 1/3% on February 28, 2001
33 1/3% on February 28, 2002
33 1/3% on February 28, 2003.
2
Jerry Bradley, President
March 26, 1998
Page 2
Notwithstanding the foregoing, 100% of such options shall vest
immediately upon your death or Disability (as defined in Section 2 of
this Agreement), or upon termination of employment with the Company
pursuant to the terms of the Severance Agreement between you and the
Company dated August 8, 1994.
(e) Use of a luxury automobile provided by the Company.
(f) All other benefits and perquisites as are customarily
provided to other executive officers of the Company.
In return for the compensation and benefits described above (the
"Compensation"), you agree that you will provide substantially all of your
working time, attention and energies to the business of the Company in your
position as President, Opryland Music Group, and will perform services at the
request of the Chief Executive Officer or the Board of Directors of the Company;
you will use your best efforts to advance the best interests of the Company; and
you will not engage in outside business activities which would interfere with
the performance of your duties. Notwithstanding the foregoing, it is
acknowledged by the Company that you may continue your association with Forrest
Hills Music and Bradley's Barn, and that such continued involvement in a manner
and extent consistent with previous involvement will not be deemed to interfere
with the duties described in this letter. You will not be required at any time
as a condition of continued employment to relocate your domicile from Nashville,
Tennessee, to any other location.
2. Your employment with the Company may be terminated before the
end of the Employment Period, as follows:
(a) You may be terminated by the Company for cause upon oral
notification by the Company. If you are terminated for cause, you will
not be entitled to receive any Compensation beyond the date of your
termination for cause. Termination for cause, as used here, means
termination of your employment by the Company because: (i) you are
convicted of or plead guilty or nolo contendere to any felony or any
misdemeanor involving moral turpitude, (ii) you engage in self-dealing
or fraud with respect to the Company, (iii) you engage in competition
with the Company. To engage in competition means to 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 business engaged in
music publishing or any similar or related business. Ownership of one
percent or less of the voting stock of any publicly held corporation or
involvement with Forrest Hills Music or Bradley's Barn will not be a
violation of this noncompetition covenant.
(b) You may be terminated by the Company without cause upon
oral notification by the Company. If you are terminated without cause,
you will be entitled to receive your Base Salary and bonuses for the
period prior to termination, the Company will continue to pay your Base
Salary and bonuses for the balance of the Employment Period, and the
3
Jerry Bradley, President
March 26, 1998
Page 3
unvested options provided to you under paragraph 1(d) above and all
other unvested options shall vest upon the date of such termination.
For purposes of this Section 2(b), the bonus of net publishers' share
payable to you for each year (including any partial year) during the
balance of the Employment Period shall be identical to the bonus of net
publishers' share actually paid to you for 1997 (prorated for any
partial year). You will not be entitled to any other Compensation
beyond the date of such termination.
(c) You may be terminated by the Company on account of
disability upon oral notification by the Company. Disability means your
absence from or inability to perform your duties on a full-time basis
for ninety (90) consecutive days due to physical or mental illness, as
determined by the Company. If the Company terminates this Agreement due
to Disability, you will not be entitled to Compensation except amounts
you are entitled to receive under the Company's long term disability
benefits plan (payable in accordance with the terms of that plan as of
the date of your Disability) and except as set forth in Sections 1(d)
and 2(f) of this Agreement.
(d) If you should die during the Employment Period, the
Company will pay an amount equal to three (3) monthly installments of
your Base Salary in effect at the time of your death directly to your
Beneficiary (as set forth on the attached Designation of Beneficiary
form). Neither your Beneficiary nor your estate will be entitled to any
other Compensation beyond the date of your death except as set forth in
Sections 1(d) and 2(f) of this Agreement.
(e) You may resign at any time upon ninety (90) days prior
written notice to the Company. If you resign, you will be entitled only
to the payment of your Base Salary up to and including the date of your
resignation. You will not be entitled to any other Compensation except
as set forth in Section 2(f) of this Agreement.
(f) Upon termination of your employment for any reason, you
(or your beneficiary) will be entitled to receive any Company
retirement benefits from employee benefit plans sponsored by the
Company to which you are entitled by virtue of your age and length of
service under the terms of those employee benefit plans. Those benefits
include: Retirement Plan and 401(k) Savings Plan benefits; nonqualified
plan benefits from those plans in which you participate at the time of
your termination of employment; and retiree medical benefits. These
benefits are fully described in the employee benefit plan documents
and, where applicable, in the summary plan descriptions for those
plans.
You also agree to keep confidential all trade secrets, proprietary
information, and confidential information (the "Confidential Information") which
you have learned during your employment with the Company, which you acknowledge
to be the property of the Company. You will use your best efforts and utmost
diligence to guard and protect the Confidential Information. Furthermore, you
agree that you will not take with you but will leave with the Company all
records
4
Jerry Bradley, President
March 26, 1998
Page 4
and papers on all matter of whatever kind which bear on this Confidential
Information, regardless of the reason your employment is terminated.
3. There are also several miscellaneous matters in connection
with this Agreement to which you and the Company agree. They are as follows:
(a) During the Employment Period, you will be eligible for and
entitled to participate in all employee benefit plans that are provided
to other key executives of the Company.
(b) You may incur reasonable expenses for promoting the
Company's business, including expenses for entertainment, travel and
similar items. The Company will reimburse you for all such expenses
upon your periodic presentation of an itemized account or voucher of
such expenditures consistent with Company policy.
(c) The validity, interpretation, construction and performance
of this Agreement (and every other issue arising under it) will be
governed by the laws of the State of Tennessee, without giving effect
to the principles of conflict of laws of such State. Since the
Agreement is made, negotiated and executed between you, a resident of
Davidson County, Tennessee, and the Company which has its principal
executive offices located in Davidson County, Tennessee, you and the
Company each agree and consent to the jurisdiction of, and agree that
any controversy between you and the Company arising out of this
Agreement will be brought in: the United States District Court for the
Middle District of Tennessee, Nashville Division; the Davidson County,
Tennessee Circuit Court; or such other court located within Davidson
County, Tennessee, as may have subject matter jurisdiction over the
controversy.
(d) You acknowledge that the services to be rendered by you
are unique and personal and therefore may not be assigned or delegated.
The rights and duties of the Company under this Agreement will inure to
the benefit of and will be binding upon the successors and assigns of
the Company.
(e) You and the Company entered into a Severance Agreement
dated August 8, 1994. As a result of the Merger Agreement between
Westinghouse Electric Corporation and the Company dated February 9,
1997, which merger was consummated on September 30, 1997, the Severance
Agreement provides to you certain rights and benefits for a period of
two years ending on September 30, 1999. The Severance Agreement shall
remain in full force and effect in accordance with its terms. You will
be entitled to the benefits of this letter agreement and the Severance
Agreement; provided that any monetary payments to be made to you
pursuant to Sections 2(b) or 2(d) of this letter agreement shall offset
or be offset by any Severance Compensation payable to you under the
Severance Agreement.
5
Jerry Bradley, President
March 26, 1998
Page 5
(f) You acknowledge and agree that there are no agreements,
representations or other promises about employment that are not set
forth in this Agreement, and that this Agreement embodies the entire
Agreement between you and the Company on this subject. This Agreement
may be amended only by a subsequent agreement in writing signed by you
and the Company.
I apologize for the length of this letter agreement, but I wanted to
make sure that it is clear about everything. If this satisfactorily expresses
our agreement, please sign both of the originals I have enclosed. Keep one for
your files and send the second to my attention.
I look forward to our continued working relationship for at least the
next five years.
Sincerely,
Terry E. London
President and Chief Executive Officer
I, Jerry Bradley, by signing below, signify that I have read this
letter agreement, understand its terms and conditions, and agree to be bound.
- -------------------------------
Jerry Bradley
- -------------------------------
Date
1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 6, 1998 included in this Form 10-K into the Company's
previously filed Registration Statement File Numbers 333-37051 and 333-37053.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 26, 1998
5
1,000
YEAR
DEC-31-1997
JAN-01-1997
DEC-31-1997
8,712
0
86,183
4,031
23,206
151,381
550,267
0
1,117,562
127,694
388,397
0
0
327
515,897
1,117,562
825,995
825,995
0
804,144
0
0
27,177
162,228
10,792
151,436
0
0
(7,537)
143,899
4.45
4.41
