FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

GAYLORD ENTERTAINMENT COMPANY

(Exact name of registrant as specified in its charter)

Delaware		73-0664379
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Gaylord Drive
Nashville, Tennessee 37214
(Address of principal executive offices)
(Zip Code)

(615) 316-6000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding as of October 31, 2006
Common Stock, $.01 par value		40,749,534 shares

 

 

GAYLORD ENTERTAINMENT COMPANY

FORM 10-Q

For the Quarter Ended September 30, 2006
INDEX

		Page
Part I — Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations — For the Three Months Ended September 30, 2006 and 2005			3
Condensed Consolidated Statements of Operations — For the Nine Months Ended September 30, 2006 and 2005			4
Condensed Consolidated Balance Sheets — September 30, 2006 and December 31, 2005			5
Condensed Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2006 and 2005			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			40
Item 3. Quantitative and Qualitative Disclosures About Market Risk			69
Item 4. Controls and Procedures			70
Part II — Other Information
Item 1. Legal Proceedings			71
Item 1A. Risk Factors			71
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			71
Item 3. Defaults Upon Senior Securities			71
Item 4. Submission of Matters to a Vote of Security Holders			71
Item 5. Other Information			71
Item 6. Exhibits			71
SIGNATURES			72
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO

Part I – FINANCIAL INFORMATION

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		2006				2005
Revenues		$	231,907			$	207,951
Operating expenses:
Operating costs			152,573				141,993
Selling, general and administrative			47,251				43,536
Preopening costs			2,432				1,213
Impairment and other charges			832				—
Depreciation			18,846				18,288
Amortization			2,840				2,611
Operating income			7,133				310
Interest expense, net of amounts capitalized			(17,761	)			(18,474	)
Interest income			853				662
Unrealized gain on Viacom stock and CBS stock			13,453				10,828
Unrealized loss on derivatives			(5,601	)			(10,753	)
Income from unconsolidated companies			2,571				2,098
Other gains and (losses), net			1,972				1,102
Income (loss) before benefit for income taxes			2,620				(14,227	)
Benefit for income taxes			(3,127	)			(4,753	)
Income (loss) from continuing operations			5,747				(9,474	)
Gain (loss) from discontinued operations, net of income taxes			564				(2,143	)
Net income (loss)		$	6,311			$	(11,617	)
Basic income (loss) per share:
Income (loss) from continuing operations		$	0.14			$	(0.24	)
Gain (loss) from discontinued operations, net of income taxes			0.02				(0.05	)
Net income (loss)		$	0.16			$	(0.29	)
Fully diluted income (loss) per share:
Income (loss) from continuing operations		$	0.14			$	(0.24	)
Gain (loss) from discontinued operations, net of income taxes			0.01				(0.05	)
Net income (loss)		$	0.15			$	(0.29	)

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

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		2006				2005
Revenues		$	708,634			$	645,893
Operating expenses:
Operating costs			456,002				420,854
Selling, general and administrative			141,535				134,517
Preopening costs			4,997				3,329
Impairment and other charges			832				—
Depreciation			56,068				54,022
Amortization			8,219				8,001
Operating income			40,981				25,170
Interest expense, net of amounts capitalized			(53,613	)			(54,449	)
Interest income			2,295				1,820
Unrealized gain (loss) on Viacom stock and CBS stock			820				(37,070	)
Unrealized gain on derivatives			13,730				29,233
Income from unconsolidated companies			8,374				1,980
Other gains and (losses), net			8,698				6,022
Income (loss) before provision (benefit) for income taxes			21,285				(27,294	)
Provision (benefit) for income taxes			9,937				(8,740	)
Income (loss) from continuing operations			11,348				(18,554	)
Gain (loss) from discontinued operations, net of income taxes			2,961				(2,331	)
Net income (loss)		$	14,309			$	(20,885	)
Basic income (loss) per share:
Income (loss) from continuing operations		$	0.28			$	(0.46	)
Gain (loss) from discontinued operations, net of income taxes			0.07				(0.06	)
Net income (loss)		$	0.35			$	(0.52	)
Fully diluted income (loss) per share:
Income (loss) from continuing operations		$	0.27			$	(0.46	)
Gain (loss) from discontinued operations, net of income taxes			0.07				(0.06	)
Net income (loss)		$	0.34			$	(0.52	)

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

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30,				December 31,
		2006				2005
ASSETS
Current assets:
Cash and cash equivalents — unrestricted		$	40,919			$	58,719
Cash and cash equivalents — restricted			12,819				19,688
Short term investments			357,396				—
Trade receivables, less allowance of $1,290 and $2,471, respectively			51,261				37,154
Estimated fair value of derivative assets			236,749				—
Deferred financing costs			17,238				26,865
Deferred income taxes			—				8,861
Other current assets			34,692				29,276
Current assets of discontinued operations			9				7,726
Total current assets			751,083				188,289
Property and equipment, net of accumulated depreciation			1,550,606				1,404,211
Intangible assets, net of accumulated amortization			24,048				27,768
Goodwill			173,323				177,556
Indefinite lived intangible assets			40,315				40,315
Investments			82,710				429,295
Estimated fair value of derivative assets			—				220,430
Long-term deferred financing costs			16,359				29,144
Other long-term assets			20,361				14,135
Long-term assets of discontinued operations			—				1,447
Total assets		$	2,658,805			$	2,532,590
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations		$	2,247			$	1,825
Secured forward exchange contract			613,054				—
Accounts payable and accrued liabilities			220,779				186,540
Deferred income taxes			85,086				—
Current liabilities of discontinued operations			584				7,802
Total current liabilities			921,750				196,167
Secured forward exchange contract			—				613,054
Long-term debt and capital lease obligations, net of current portion			669,423				598,475
Deferred income taxes			89,678				177,652
Estimated fair value of derivative liabilities			2,443				1,994
Other long-term liabilities			91,399				96,488
Long-term liabilities of discontinued operations			279				193
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, 40,741 and 40,307 shares issued and outstanding, respectively			407				403
Additional paid-in capital			690,200				670,828
Retained earnings			212,629				198,320
Unearned compensation			—				(1,673	)
Accumulated other comprehensive loss			(19,403	)			(19,311	)
Total stockholders’ equity			883,833				848,567
Total liabilities and stockholders’ equity		$	2,658,805			$	2,532,590

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

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		2006				2005
Cash Flows from Operating Activities:
Net income (loss)		$	14,309			$	(20,885	)
Amounts to reconcile net income (loss) to net cash flows provided by operating activities:
(Gain) loss from discontinued operations, net of taxes			(2,961	)			2,331
Income from unconsolidated companies			(8,374	)			(1,980	)
Unrealized (gain) loss on Viacom stock and CBS stock and related derivatives			(14,550	)			7,837
Impairment and other charges			832				—
Provision (benefit) for deferred income taxes			9,937				(8,919	)
Depreciation and amortization			64,287				62,023
Amortization of deferred financing costs			22,412				22,143
Stock-based compensation expense			6,828				—
Excess tax benefit from stock-based compensation			(2,474	)			—
Loss (gain) on sales of assets			621				(2,619	)
Dividends received from investments in unconsolidated companies			3,155				—
Changes in (net of acquisitions and divestitures):
Trade receivables			(14,107	)			(8,614	)
Accounts payable and accrued liabilities			3,069				3,543
Other assets and liabilities			(4,765	)			840
Net cash flows provided by operating activities — continuing operations			78,219				55,700
Net cash flows (used in) provided by operating activities — discontinued operations			(3,526	)			1,800
Net cash flows provided by operating activities			74,693				57,500
Cash Flows from Investing Activities:
Purchases of property and equipment			(172,908	)			(87,280	)
Acquisition of businesses, net of cash acquired			—				(20,223	)
Investments in unconsolidated companies			(6,364	)			(4,747	)
Returns of investments in unconsolidated companies			1,592				—
Proceeds from sales of assets			760				10,386
Purchases of short-term investments			—				(15,000	)
Proceeds from sale of short term investments			—				37,000
Other investing activities			(8,704	)			(1,099	)
Net cash flows used in investing activities — continuing operations			(185,624	)			(80,963	)
Net cash flows provided by (used in) investing activities — discontinued operations			541				(211	)
Net cash flows used in investing activities			(185,083	)			(81,174	)
Cash Flows from Financing Activities:
Repayment of long-term debt			(1,000	)			—
Borrowings under credit facility			70,000				—
Deferred financing costs paid			—				(8,451	)
Decrease in restricted cash and cash equivalents			6,869				14,119
Proceeds from exercise of stock option and purchase plans			11,087				8,195
Excess tax benefit from stock-based compensation			2,474				—
Other financing activities, net			(1,111	)			(509	)
Net cash flows provided by financing activities — continuing operations			88,319				13,354
Net cash flows provided by (used in) financing activities — discontinued operations			4,271				(4,905	)
Net cash flows provided by financing activities			92,590				8,449
Net change in cash and cash equivalents			(17,800	)			(15,225	)
Cash and cash equivalents — unrestricted, beginning of period			58,719				43,007
Cash and cash equivalents — unrestricted, end of period		$	40,919			$	27,782

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

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION:

The condensed consolidated financial statements include the accounts of Gaylord Entertainment Company and subsidiaries (the “Company”) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the financial information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim period have been included. All adjustments are of a normal, recurring nature. The results of operations for such interim periods are not necessarily indicative of the results for the full year.

2. INCOME (LOSS) PER SHARE:

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

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2006				2005				2006				2005
Weighted average shares outstanding			40,655				40,234				40,521				40,126
Effect of dilutive stock options			981				—				1,042				—
Weighted average shares outstanding — assuming dilution			41,636				40,234				41,563				40,126

For the three months and nine months ended September 30, 2005, the effect of dilutive stock options was the equivalent of approximately 1,231,000 and 1,131,000 shares of common stock outstanding, respectively. Because the Company had a loss from continuing operations in the three months and nine months ended September 30, 2005, these incremental shares were excluded from the computation of diluted earnings per share for those periods as the effect of their inclusion would have been anti-dilutive.

3. COMPREHENSIVE INCOME (LOSS):

Comprehensive income (loss) is as follows for the three months and nine months of the respective periods:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2006				2005				2006				2005
Net income (loss)		$	6,311			$	(11,617	)		$	14,309			$	(20,885	)
Unrealized loss on interest rate hedges			—				—				—				(19	)
Foreign currency translation			(112	)			1				(92	)			(45	)
Comprehensive income (loss)		$	6,199			$	(11,616	)		$	14,217			$	(20,949	)

4. INSURANCE RECOVERY

During the third quarter of 2006, the Company received $5.3 million in cash in full settlement of its claim under its business interruption insurance policies for profits lost by ResortQuest as a result of hurricanes Ivan, Dennis, and Charley. The Company has recorded the net recovery of $4.9 million as revenue in the accompanying condensed consolidated statements of operations for the three months and nine months ended September 30, 2006.

5. IMPAIRMENT CHARGE

As a result of a significant adverse change in the business climate at one of the markets of its ResortQuest business, the Company assessed the recoverability of the carrying value of certain long lived assets in this market and recorded an impairment loss of $0.8 million related to goodwill and $0.1 million related to certain intangible assets during the third quarter of 2006. These losses reflect the amounts by which the carrying values of the related reporting unit or intangible asset exceed their estimated fair values determined by their estimated future discounted cash flows.

6. INVESTMENTS

On June 20, 2006, the Company entered into a joint venture arrangement with RREEF Global Opportunities Fund II, LLC, a private real estate fund managed by DB Real Estate Opportunities Group (“RREEF”), and acquired a 19.9% ownership interest in the joint venture, Waipouli Holdings, LLC, in exchange for the Company’s capital contribution of $3.8 million to Waipouli Holdings, LLC. On June 20, 2006, through a wholly-owned subsidiary named Waipouli Owner, LLC, Waipouli Holdings, LLC acquired the 311-room ResortQuest Kauai Beach at Makaiwa Hotel and related assets located in Kapaa, Hawaii (“the Kauai Hotel”) for an aggregate purchase price of $68.8 million. Both the Company and RREEF will contribute additional funds as needed for their pro-rata share of specified construction costs associated with the redevelopment of the Kauai Hotel. Waipouli Owner, LLC financed the purchase of the Kauai Hotel by entering into a series of loan transactions with Morgan Stanley Mortgage Capital, Inc. (the “Kauai Hotel Lender”) consisting of a $52.0 million senior loan secured by the Kauai Hotel, an $8.2 million senior mezzanine loan secured by the ownership interest of Waipouli Owner, LLC, and an $8.2 million junior mezzanine loan secured by the ownership interest of Waipouli Owner, LLC (collectively, the “Kauai Hotel Loans”). RREEF is the managing member of Waipouli Holdings, LLC, but certain actions initiated by RREEF require the approval of the Company. In addition, under the joint venture arrangement, the Company’s ResortQuest subsidiary secured a five year hotel management agreement from Waipouli Owner, LLC. Pursuant to the terms of the hotel management agreement,

ResortQuest will be responsible for the day-to-day operations of the Kauai Hotel in accordance with Waipouli Owner LLC’s business plan. The Company accounts for its investment in Waipouli Holdings, LLC under the equity method of accounting in accordance with Emerging Issues Task Force (“EITF”) Issue No. 03-16, Accounting for Investments in Limited Liability Companies, American Institute of Certified Public Accountants Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, and EITF Abstracts Topic No. D-46, Accounting for Limited Partnership Investment.

On May 31, 2005, the Company, through a wholly-owned subsidiary named RHAC, LLC, entered into an agreement to purchase the 716-room Aston Waikiki Beach Hotel and related assets located in Honolulu, Hawaii (“the Waikiki Hotel”) for an aggregate purchase price of $107.0 million. Simultaneously with this purchase, G.O. IB-SIV US, a private real estate fund managed by DB Real Estate Opportunities Group (“IB-SIV”), acquired an 80.1% ownership interest in the parent company of RHAC, LLC, RHAC Holdings, LLC, in exchange for its capital contribution of $19.1 million to RHAC Holdings, LLC. As a part of this transaction, the Company entered into a joint venture arrangement with IB-SIV and retained a 19.9% ownership interest in RHAC Holdings, LLC in exchange for its $4.7 million capital contribution to RHAC Holdings, LLC. Both the Company and IB-SIV will contribute additional funds as needed for their pro-rata share of specified construction costs associated with the redevelopment of the Waikiki Hotel. RHAC, LLC financed the purchase of the Waikiki Hotel by entering into a series of loan transactions with Greenwich Capital Financial Products, Inc. (the “Waikiki Hotel Lender”) consisting of a $70.0 million senior loan secured by the Waikiki Hotel and a $16.3 million mezzanine loan secured by the ownership interest of RHAC, LLC (collectively, the “Waikiki Hotel Loans”). IB-SIV is the managing member of RHAC Holdings, LLC, but certain actions of RHAC Holdings, LLC initiated by IB-SIV require the approval of the Company as a member. In addition, under the joint venture arrangement, the Company’s ResortQuest subsidiary secured a 20-year hotel management agreement from RHAC, LLC. Pursuant to the terms of the hotel management agreement, ResortQuest is responsible for the day-to-day operations of the Waikiki Hotel in accordance with RHAC, LLC’s business plan. The Company is accounting for its investment in RHAC Holdings, LLC under the equity method of accounting in accordance with EITF Issue No. 03-16, “Accounting for Investments in Limited Liability Companies”, American Institute of Certified Public Accountants Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures”, and EITF Abstracts Topic No. D-46, “Accounting for Limited Partnership Investments”. Subsequent to its purchase by RHAC, LLC, the Aston Waikiki Beach Hotel was renamed the ResortQuest Waikiki Beach Hotel.

On September 29, 2006, RHAC, LLC refinanced the Waikiki Hotel Loans with the Waikiki Hotel Lender, which resulted in the mezzanine loan increasing from $16.3 million to $34.9 million. RHAC, LLC used the proceeds from this refinancing primarily to fund a renovation project at the Waikiki Hotel.

On December 14, 2005, the shareholders of Bass Pro, Inc. contributed their equity in Bass Pro, Inc. to a newly formed limited liability company, Bass Pro Group, LLC (“Bass Pro”) in exchange for ownership interests in Bass Pro Group, LLC. The majority owner of Bass Pro, Inc. also contributed (simultaneously with the contributions of the Bass Pro, Inc. stock) his equity interest in Tracker Marine, LLC and Big Cedar LLC to Bass Pro Group, LLC. As a result, Bass Pro, Inc., Tracker Marine, LLC and Big Cedar, LLC are all wholly-owned subsidiaries of Bass Pro Shops, LLC. Because the new entity owns these additional businesses, the Company’s ownership interest in Bass Pro decreased from 26.6% to 13.0%. However, the Company will continue to account for its investment in Bass Pro under the equity method of accounting in accordance with EITF Issue No. 03-16, Accounting for Investments in Limited Liability Companies, American Institute of Certified Public Accountants Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, and EITF Abstracts Topic No. D-46, Accounting for Limited Partnership Investment.

In the second quarter of 2005, Bass Pro restated its previously issued historical financial statements to reflect certain non-cash changes, which resulted primarily from a change in the manner in which Bass Pro accounts for its long term leases. This restatement resulted in a cumulative reduction in Bass Pro’s net income of $8.6 million through December 31, 2004, which resulted in a pro-rata cumulative reduction in the Company’s income from unconsolidated companies of $1.7 million. The Company determined that the impact of the adjustments recorded by Bass Pro were immaterial to the Company’s consolidated financial statements in all prior periods. Therefore, the Company reflected its $1.7 million share of the re-statement adjustments as a one-time adjustment to loss from unconsolidated companies during the second quarter of 2005.

7. DISCONTINUED OPERATIONS:

The Company has reflected the following businesses as discontinued operations, consistent with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and Accounting Principles Board (“APB”) Opinion No. 30, Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, and Unusual and Infrequently Occurring Events and Transactions. The results of operations, net of taxes, and the carrying value of the assets and liabilities of these businesses have been reflected in the accompanying condensed consolidated financial statements as discontinued operations in accordance with SFAS No. 144 for all periods presented.

ResortQuest Discontinued Markets

During the third quarter of 2005, the Company committed to a plan of disposal of certain markets of its ResortQuest business that were considered to be inconsistent with the Company’s long term growth strategy. In connection with this plan of disposal, the Company recorded pre-tax restructuring charges of $0 and $44,000 during the three months and nine months ended September 30, 2006, respectively, related to employee severance benefits in the discontinued markets. The Company completed the sale of four of these markets in the fourth quarter of 2005, two of these markets in the first quarter of 2006, and the remaining two markets in the second quarter of 2006.

During the second quarter of 2006, the Company completed the sale of one additional market of its ResortQuest business that was not included in the plan of disposal described above, but was later determined to be inconsistent with the Company’s long term growth strategy. The Company did not record any restructuring charges in connection with the sale of this market.

The following table reflects the results of operations of businesses accounted for as discontinued operations for the three months and nine months ended September 30, 2006 and 2005:

		Three Months Ended								Nine Months Ended
		Sepetmber 30,								September 30,
(in thousands)		2006				2005				2006				2005
Revenues:
ResortQuest Discontinued Markets		$	—			$	4,680			$	2,320			$	14,810
Operating loss:
ResortQuest Discontinued Markets		$	(25	)		$	(218	)		$	(593	)		$	(505	)
International Cable Networks			—				—				6				—
Impairment charges			—				(2,749	)			—				(2,749	)
Restructuring charges			—				(434	)			(44	)			(434	)
Total operating loss			(25	)			(3,401	)			(631	)			(3,688	)
Interest income			—				7				11				22
Other gains and (losses):
ResortQuest Discontinued Markets			(123	)			(14	)			(115	)			(12	)
Radio Operations			—				136				—				136
Word Entertainment			—				—				25				—
International Cable Networks			—				—				(19	)			—
Loss before benefit for income taxes			(148	)			(3,272	)			(729	)			(3,542	)
Benefit for income taxes			(712	)			(1,129	)			(3,690	)			(1,211	)
Gain (loss) from discontinued operations, net of income taxes		$	564			$	(2,143	)		$	2,961			$	(2,331	)

Included in other gains and (losses) in the three months and nine months ended September 30, 2006 is a pre-tax loss of $0 and $17,000, respectively, on the sale of certain ResortQuest Discontinued Markets. The remaining gains and (losses) in the three months and nine months ended September 30, 2006 are primarily comprised of gains and losses recognized on the resolution of various contingent items subsequent to the sale of the ResortQuest Discontinued Markets, as well as miscellaneous income and expense. Other gains and (losses) in the three months and nine months ended September 30, 2005 are primarily comprised of the reversal of certain previously established indemnification reserves associated with the sale of businesses in prior periods and miscellaneous income and expense. The benefit for income taxes for the three months and nine months ended September 30, 2006 primarily results from the Company settling certain ResortQuest issues with the Internal Revenue Service related to periods prior to the acquisition of ResortQuest, as well as the writeoff of taxable goodwill associated with the ResortQuest Discontinued Markets sold in these periods.

The assets and liabilities of the discontinued operations presented in the accompanying condensed consolidated balance sheets are comprised of:

		September 30,				December 31,
(in thousands)		2006				2005
Current assets:
Cash and cash equivalents — unrestricted		$	(17	)		$	1,376
Cash and cash equivalents — restricted			33				5,490
Trade receivables, net			(7	)			644
Prepaid expenses			—				96
Other current assets			—				120
Total current assets			9				7,726
Property and equipment, net of accumulated depreciation			—				773
Intangible assets, net of accumulated amortization			—				139
Goodwill			—				532
Other long-term assets			—				3
Total long-term assets			—				1,447
Total assets		$	9			$	9,173
Current liabilities:
Accounts payable and accrued liabilities		$	584			$	7,802
Total current liabilities			584				7,802
Other long-term liabilities			279				193
Total long-term liabilities			279				193
Total liabilities		$	863			$	7,995

8. ACQUISITIONS:

Whistler Lodging Company, Ltd.

On February 1, 2005, the Company acquired 100% of the outstanding common shares of Whistler Lodging Company, Ltd. (“Whistler”) from O’Neill Hotels and Resorts Whistler, Ltd. for an aggregate purchase price of $0.1 million in cash plus the assumption of Whistler’s liabilities as of February 1, 2005 of $4.9 million. Whistler manages approximately 600 vacation rental units located in Whistler, British Columbia. The results of operations of Whistler have been included in the Company’s financial results beginning February 1, 2005. As of September 30, 2006 and December 31, 2005, goodwill related to the Whistler acquisition totaled $3.3 million.

East West Resorts

On January 1, 2005, the Company acquired 100% of the outstanding membership interests of East West Resorts at Summit County, LLC, Aspen Lodging Company, LLC, Great Beach Vacations, LLC, East West Realty Aspen, LLC, and Sand Dollar Management Investors, LLC (collectively, “East West Resorts”) from East West Resorts, LLC for an aggregate purchase price of $20.7 million in cash plus the assumption of East West Resorts’ liabilities as of January 1, 2005 of $7.8 million. East West Resorts manages approximately 2,000 vacation rental units located in Colorado ski destinations and South Carolina beach destinations. The results of operations of East West Resorts have been included in the Company’s financial results beginning January 1, 2005. As of September 30, 2006 and December 31, 2005, goodwill related to the East West Resorts acquisition totaled $11.7 million.

ResortQuest International, Inc.

On November 20, 2003, pursuant to the Agreement and Plan of Merger dated as of August 4, 2003, the Company acquired 100% of the outstanding common shares of ResortQuest International, Inc. in a tax-free, stock-for-stock merger. Under the terms of the agreement, ResortQuest stockholders received 0.275 shares of the Company’s common stock for each outstanding share of ResortQuest common stock, and the ResortQuest option holders received 0.275 options to purchase the Company’s common stock for each outstanding option to purchase one share of ResortQuest common stock. Based on the number of shares of ResortQuest common stock outstanding as of November 20, 2003 (19,339,502) and the exchange ratio (0.275 of the Company common share for each ResortQuest common share), the Company issued 5,318,363 shares of the Company’s common stock. In addition, based on the total number of ResortQuest options outstanding at November 20, 2003, the Company exchanged ResortQuest options for options to purchase 573,863 shares of the Company’s common stock. Based on the average market price of the Company’s common stock ($19.81), which was based on an average of the closing prices for two days before, the day of, and two days after the date of the definitive agreement, August 4, 2003), together with the direct merger costs, this resulted in an aggregate purchase price of approximately $114.7 million plus the assumption of ResortQuest’s outstanding indebtedness as of November 20, 2003, which totaled $85.1 million.

During 1998, ResortQuest recorded a note receivable of $4.0 million as a result of cash advances made to a primary stockholder (“Debtor”) of the predecessor company who is no longer an affiliate of ResortQuest. The note was collateralized by a third mortgage on residential real estate owned by the Debtor. Due to the failure to make interest payments, the note receivable was in default. The Company accelerated the note and demanded payment in full. The Company also contracted an independent external third party to appraise the property by which the note was secured, confirm the outstanding senior claims on the property and assess the associated credit risk. Based on this assessment, the

Company assigned no value to the note receivable in the purchase price allocation associated with the ResortQuest acquisition. On January 23, 2006, the bankruptcy court approved a plan to restructure the note receivable, and the Company received $5.7 million in cash and a secured administrative claim of $0.5 million in full settlement of the note receivable, accrued interest, and other related amounts due to the Company. Because the Company assigned no value to this note receivable as part of the ResortQuest purchase price allocation, the collection of this note receivable resulted in the Company recording a gain of $5.4 million in other gains and losses in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2006. In July 2006, the Company received $0.5 million in cash in full settlement of the secured administrative claim. The Company recorded a gain of $0.5 million in other gains and losses related to this receipt in the accompanying condensed consolidated statement of operations for the three months and nine months ended September 30, 2006.

As of September 30, 2006 and December 31, 2005, goodwill related to the ResortQuest acquisition in continuing operations totaled $151.4 million and $155.6 million, respectively. During the nine months ended September 30, 2006, the Company made adjustments to deferred taxes associated with the ResortQuest acquisition as a result of the Company settling certain issues with the Internal Revenue Service related to periods prior to the acquisition of ResortQuest. These adjustments resulted in a net decrease in goodwill of $3.5 million. As further discussed in Note 5, the Company also recorded an impairment loss of $0.8 million related to ResortQuest goodwill during the third quarter of 2006.

As of November 20, 2003, the Company recorded approximately $4.0 million of reserves and adjustments related to the Company’s plans to consolidate certain support functions, to adjust for employee benefits and to account for outstanding legal claims filed against ResortQuest as an adjustment to the purchase price allocation. The following table summarizes the activity related to these reserves for the nine months ended September 30, 2006 (amounts in thousands):

Balance at		Charges and								Balance at
December 31, 2005		Adjustments				Payments				September 30, 2006
$242		$	—			$	242			$	—

The Company has accounted for these acquisitions under the purchase method of accounting. Under the purchase method of accounting, the total purchase prices of each acquisition was allocated to the net tangible and identifiable intangible assets based upon their estimated fair value as of the date of completion of each of the acquisitions. The Company determined these fair values with the assistance of a third party valuation expert. The excesses of the purchase prices over the fair values of the net tangible and identifiable intangible assets were recorded as goodwill. Goodwill is not amortized and will be tested for impairment on an annual basis and whenever events or circumstances occur indicating that the goodwill may be impaired. The final allocations of the purchase prices are subject to adjustments for a period not to exceed one year from the consummation date (the allocation period of each acquisition) in accordance with SFAS No. 141 “Business Combinations” and EITF Issue No. 95-3 Recognition of Liabilities in Connection with a Purchase Business Combination. The allocation period is intended to differentiate between amounts that are determined as a result of the identification and valuation process required by SFAS No. 141 for all assets acquired and liabilities assumed and amounts that are determined because information that was not previously obtainable becomes obtainable.

9. DEBT:

8% Senior Notes

On November 12, 2003, the Company completed its offering of $350 million in aggregate principal amount of senior notes due 2013 (the “8% Senior Notes”) in an institutional private placement. The Company filed an exchange offer registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”) with respect to the 8% Senior Notes and subsequently exchanged the existing senior notes for publicly registered senior notes with the same terms after the registration statement was declared effective in April 2004. The interest rate on these notes is 8%, although the Company has entered into fixed to variable interest rate swaps with respect to $125 million principal amount of the 8% Senior Notes, which swaps result in an effective interest rate of LIBOR plus 2.95% with respect to that portion of the 8% Senior Notes. The 8% Senior Notes, which mature on November 15, 2013, bear interest semi-annually in arrears on May 15 and November 15 of each year, starting on May 15, 2004. The 8% Senior Notes are redeemable, in whole or in part by the Company, at any time on or after November 15, 2008 at a designated redemption amount, plus accrued and unpaid interest. In addition, the Company may redeem up to 35% of the 8% Senior Notes before November 15, 2006 with the net cash proceeds from certain equity offerings. The 8% Senior Notes rank equally in right of payment with the Company’s other unsecured unsubordinated debt, but are effectively subordinated to all the Company’s secured debt to the extent of the assets securing such debt. The 8% Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by generally all of the Company’s active domestic subsidiaries. In connection with the offering and subsequent registration of the 8% Senior Notes, the Company paid approximately $10.1 million in deferred financing costs. The net proceeds from the offering of the 8% Senior Notes, together with $22.5 million of the Company’s cash on hand, were used as follows:

	•		$275.5 million was used to repay the $150 million senior term loan portion and the $50 million subordinated term loan portion of a senior secured credit facility secured by the Company’s Florida and Texas hotel properties, as well as the remaining $66 million of a mezzanine loan secured by the equity interest in a wholly-owned subsidiary that owned Gaylord Opryland and to pay certain fees and expenses related to the ResortQuest acquisition; and
	•		$79.2 million was placed in escrow pending consummation of the ResortQuest acquisition. As of November 20, 2003, the $79.2 million together with $8.2 million of the available cash, was used to repay (i) ResortQuest’s senior notes and its credit facility, the principal amount of which aggregated $85.1 million at closing, and (ii) a related prepayment penalty.

The 8% Senior Notes indenture contains certain covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, capital expenditures, mergers and consolidations, liens and encumbrances and other matters customarily restricted in such agreements. The 8% Senior Notes are cross-defaulted to the Company’s other indebtedness.

6.75% Senior Notes

On November 30, 2004, the Company completed its offering of $225 million in aggregate principal amount of senior notes due 2014 (the “6.75% Senior Notes”) in an institutional private placement. In April 2005, the Company filed an exchange offer registration statement on Form S-4 with the SEC with respect to the 6.75% Senior Notes and subsequently exchanged the existing senior notes for publicly registered senior notes with the same terms after the registration statement was declared effective in

15

May 2005. The interest rate of these notes is 6.75%. The 6.75% Senior Notes, which mature on November 15, 2014, bear interest semi-annually in cash in arrears on May 15 and November 15 of each year, starting on May 15, 2005. The 6.75% Senior Notes are redeemable, in whole or in part by the company, at any time on or after November 15, 2009 at a designated redemption amount, plus accrued and unpaid interest. In addition, the Company may redeem up to 35% of the 6.75% Senior Notes before November 15, 2007 with the net cash proceeds from certain equity offerings. The 6.75% Senior Notes rank equally in right of payment with the Company’s other unsecured unsubordinated debt, but are effectively subordinated to all of the Company’s secured debt to the extent of the assets securing such debt. The 6.75% Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by generally all of the Company’s active domestic subsidiaries. In connection with the offering of the 6.75% Senior Notes, the Company paid approximately $4.2 million in deferred financing costs. The net proceeds from the offering of the 6.75% Senior Notes, together with cash on hand, were used to repay a senior loan that was secured by a first mortgage lien on the assets of Gaylord Opryland and to provide capital for growth of the Company’s other businesses and other general corporate purposes. In addition, the 6.75% Senior Notes indenture contains certain covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, capital expenditures, mergers and consolidations, liens and encumbrances and other matters customarily restricted in such agreements. The 6.75% Senior Notes are cross-defaulted to the Company’s other indebtedness.

$600.0 Million Credit Facility

On March 10, 2005, the Company entered into a $600.0 million credit facility with Bank of America, N.A. acting as the administrative agent. The Company’s new credit facility, which replaced a $100.0 million revolving credit facility, consists of the following components: (a) a $300.0 million senior secured revolving credit facility, which includes a $50.0 million letter of credit sublimit, and (b) a $300.0 million senior secured delayed draw term loan facility, which may be drawn on in one or more advances during its term. The credit facility also includes an accordion feature that will allow the Company, on a one-time basis, to increase the credit facilities by a total of up to $300.0 million, subject to securing additional commitments from existing lenders or new lending institutions. The revolving loan, letters of credit and term loan mature on March 9, 2010. At the Company’s election, the revolving loans and the term loans may have an interest rate of LIBOR plus 2% or the lending banks’ base rate plus 1%, subject to adjustments based on the Company’s financial performance. Interest on the Company’s borrowings is payable quarterly, in arrears, for base rate loans and at the end of each interest rate period for LIBOR rate-based loans. Principal is payable in full at maturity. The Company is required to pay a commitment fee ranging from 0.25% to 0.50% per year of the average unused portion of the credit facility.

The purpose of the credit facility is for working capital and capital expenditures and the financing of the costs and expenses related to the construction of the Gaylord National hotel. Construction of the Gaylord National hotel is required to be substantially completed by June 30, 2008 (subject to customary force majeure provisions).

The credit facility is (i) secured by a first mortgage and lien on the real property and related personal and intellectual property of the Company’s Gaylord Opryland hotel, Gaylord Texan hotel, Gaylord Palms hotel and Gaylord National hotel (to be constructed) and pledges of equity interests in the entities that own such properties and (ii) guaranteed by each of the four wholly-owned subsidiaries that own the four hotels as well as ResortQuest International, Inc. Advances are subject to a 60% borrowing base, based on the appraisal values of the hotel properties (reducing to 50% in the event a hotel property is sold). The Company’s 2003 revolving credit facility has been paid in full and the related mortgages and liens have been released.

In addition, the $600.0 million credit facility contains certain covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances and other matters customarily restricted in such agreements. The material financial covenants, ratios or tests contained in the new credit facility are as follows:

	•		the Company must maintain a consolidated leverage ratio of not greater than (i) 7.00 to 1.00 for calendar quarters ending during calendar year 2007, and (ii) 6.25 to 1.00 for all other calendar quarters ending during the term of the credit facility, which levels are subject to increase to 7.25 to 1.00 and 7.00 to 1.00, respectively, for three (3) consecutive quarters at the Company’s option if the Company makes a leverage ratio election.
	•		the Company must maintain a consolidated tangible net worth of not less than the sum of $550.0 million, increased on a cumulative basis as of the end of each calendar quarter, commencing with the calendar quarter ending March 31, 2005, by an amount equal to (i) 75% of consolidated net income (to the extent positive) for the calendar quarter then ended, plus (ii) 75% of the proceeds received by the Company or any of its subsidiaries in connection with any equity issuance.
	•		the Company must maintain a minimum consolidated fixed charge coverage ratio of not less than (i) 1.50 to 1.00 for any reporting calendar quarter during which the leverage ratio election is effective; and (ii) 2.00 to 1.00 for all other calendar quarters during the term hereof.
	•		the Company must maintain an implied debt service coverage ratio (the ratio of adjusted net operating income to monthly principal and interest that would be required if the outstanding balance were amortized over 25 years at an interest rate equal to the then current seven year Treasury Note plus 0.25%) of not less than 1.60 to 1.00.
	•		the Company’s investments in entities which are not wholly-owned subsidiaries (other than any such investment in any subsidiary of the Company in existence as of March 10, 2005) may not exceed an amount equal to ten percent (10.0%) of the Company’s consolidated total assets.

As of September 30, 2006, the Company was in compliance with all covenants. As of September 30, 2006, $90.0 million in borrowings were outstanding under the $600.0 million credit facility, and the lending banks had issued $12.6 million of letters of credit under the credit facility for the Company. The credit facility is cross-defaulted to the Company’s other indebtedness.

10. SECURED FORWARD EXCHANGE CONTRACT:

During May 2000, the Company entered into a seven-year secured forward exchange contract (“SFEC”) with an affiliate of Credit Suisse First Boston with respect to 10,937,900 shares of Viacom, Inc. Class B common stock. Effective January 3, 2006, Viacom Inc. completed a transaction to separate Viacom Inc. into two publicly traded companies named Viacom Inc. and CBS Corporation by converting (i) each outstanding share of Viacom Class A common stock into 0.5 shares of Viacom Inc. Class A common stock and 0.5 shares of CBS Corporation Class A common stock and (ii) each outstanding share of Viacom Class B common stock into 0.5 shares of Viacom Inc. Class B common stock and 0.5 shares of CBS Corporation Class B common stock. As a result of this transaction, the Company exchanged its 10,937,900 shares of Viacom Class B common stock for 5,468,950 shares of Viacom, Inc. Class B common stock (“Viacom Stock”) and 5,468,950 shares of CBS Corporation Class B common stock (“CBS Stock”) effective January 3, 2006.

The seven-year SFEC has a notional amount of $613.1 million and required contract payments based upon a stated 5% rate. The SFEC protects the Company against decreases in the combined fair market value of the Viacom Stock and CBS Stock while providing for participation in increases in the combined fair market value, as discussed below. The Company realized cash proceeds from the SFEC of $506.5 million, net of discounted prepaid contract payments and prepaid interest related to the first 3.25 years of the contract and transaction costs totaling $106.6 million. In October 2000, the Company prepaid the remaining 3.75 years of contract interest payments required by the SFEC of $83.2 million. As a result of the prepayment, the Company is not required to make any further contract interest payments during the seven-year term of the SFEC. Additionally, as a result of the prepayment, the Company was released from certain covenants of the SFEC, which related to sales of assets, additional indebtedness and liens. The unamortized balances of the prepaid contract interest are classified as current assets of $17.2 million and $26.9 million as of September 30, 2006 and December 31, 2005, respectively, and long-term assets of $0 and $10.5 million as of September 30, 2006 and December 31, 2005, respectively, in the accompanying condensed consolidated balance sheets. The Company is recognizing the prepaid contract payments and deferred financing charges associated with the SFEC as interest expense over the seven-year contract period using the effective interest method, which resulted in non-cash interest expense of $6.8 million for the three months ended September 30, 2006 and 2005 and $20.1 million for the nine months ended September 30, 2006 and 2005. The Company utilized $394.1 million of the net proceeds from the SFEC to repay all outstanding indebtedness under a 1997 revolving credit facility, and the 1997 revolving credit facility was terminated.

The Company’s obligation under the SFEC is collateralized by a security interest in the Company’s Viacom Stock and CBS Stock. At the end of the seven-year contract term, the Company may, at its option, elect to pay in cash rather than by delivery of all or a portion of the Viacom Stock and CBS Stock. The SFEC protects the Company against decreases in the combined fair market value of the Viacom Stock and CBS Stock below $56.05 per share by way of a put option; the SFEC also provides for participation in the increases in the combined fair market value of the Viacom Stock and CBS Stock in that the Company receives 100% of the appreciation between $56.05 and $64.45 per share and, by way of a call option, 25.93% of the appreciation above $64.45 per share, as of September 30, 2006.

The secured forward exchange contract matures in May 2007. Therefore, the Company has classified the debt, derivative liability, and net deferred tax liability associated with the secured forward exchange contract as current liabilities and the investments in Viacom Stock and CBS Stock and the derivative asset associated with the secured forward exchange contract as current assets in the accompanying condensed consolidated balance sheet as of September 30, 2006.

In accordance with the provisions of SFAS No. 133, as amended, certain components of the secured forward exchange contract are considered derivatives, as discussed in Note 11.

11. DERIVATIVE FINANCIAL INSTRUMENTS:

The Company utilizes derivative financial instruments to reduce certain of its interest rate risks and to manage risk exposure to changes in the value of its Viacom Stock and CBS Stock.

Upon adoption of SFAS No. 133, the Company valued the SFEC based on pricing provided by a financial institution and reviewed by the Company. The financial institution’s market prices are prepared for each quarter close period on a mid-market basis by reference to proprietary models and do not reflect any bid/offer spread. For the three months and nine months ended September 30, 2006, the Company recorded net pretax (losses) gains in the Company’s condensed consolidated statements of operations of ($5.6) million and $13.7 million, respectively, related to the (decrease) increase in the fair value of the derivatives associated with the SFEC. For the three months and nine months ended September 30, 2005,

the Company recorded net pretax (losses) gains in the Company’s condensed consolidated statement of operations of ($10.8) million and $29.2 million, respectively, related to the (decrease) increase in the fair value of the derivatives associated with the SFEC.

Upon issuance of the 8% Senior Notes, the Company entered into two interest rate swap agreements with a notional amount of $125.0 million to convert the fixed rate on $125.0 million of the 8% Senior Notes to a variable rate in order to access the lower borrowing costs that were available on floating-rate debt. Under these swap agreements, which mature on November 15, 2013, the Company receives a fixed rate of 8% and pays a variable rate, in arrears, equal to six-month LIBOR plus 2.95%. The terms of the swap agreement mirror the terms of the 8% Senior Notes, including semi-annual settlements on the 15^th of May and November each year. Under the provisions of SFAS No. 133, as amended, changes in the fair value of this interest rate swap agreement must be offset against the corresponding change in fair value of the 8% Senior Notes through earnings. The Company has determined that there will not be an ineffective portion of this fair value hedge and therefore, no impact on earnings. As of September 30, 2006, the Company determined that, based upon dealer quotes, the fair value of these interest rate swap agreements was ($2.4) million. The Company has recorded a derivative liability and an offsetting reduction in the balance of the 8% Senior Notes accordingly. As of December 31, 2005, the Company determined that, based upon dealer quotes, the fair value of these interest rate swap agreements was ($1.8) million. The Company recorded a derivative liability and an offsetting reduction in the balance of the 8% Senior Notes accordingly.

12. SUPPLEMENTAL CASH FLOW DISCLOSURES:

Cash paid for interest related to continuing operations for the three months and nine months ended September 30, 2006 and 2005 was comprised of:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2006				2005				2006				2005
Debt interest paid		$	1,794			$	818			$	26,102			$	21,271
Deferred financing costs paid			—				—				—				8,451
Capitalized interest			(1,794	)			(668	)			(6,794	)			(1,764	)
Cash interest paid, net of capitalized interest		$	—			$	150			$	19,308			$	27,958

Total capitalized interest for the three months ended September 30, 2006 was $3.0 million. Income taxes (paid) received were ($1.4) million and $0.4 million for the nine months ended September 30, 2006 and 2005, respectively.

Certain transactions have been reflected as non-cash activities in the accompanying condensed consolidated statement of cash flows for the nine months ended September 30, 2005, as further discussed below.

In March 2005, the Company donated 65,100 shares of Viacom stock with a market value of $2.3 million to a charitable foundation established by the Company, which was recorded as selling, general and administrative expense in the accompanying condensed consolidated statement of operations. This donation is reflected as an increase in net loss and a corresponding decrease in other assets and liabilities in the accompanying condensed consolidated statement of cash flows.

In connection with the settlement of litigation with the Nashville Hockey Club Limited Partnership (“NHC”) on February 22, 2005, as further discussed in Note 18, the Company issued to NHC a 5-year, $5 million promissory note. Because the Company continued to accrue expense under the naming rights agreement throughout the course of this litigation, the issuance of this promissory note resulted in an increase in long term debt and capital lease obligations and a decrease in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheet and statement of cash flows.

13. GOODWILL AND INTANGIBLES:

The changes in the carrying amounts of goodwill by business segment for the nine months ended September 30, 2006 are as follows (amounts in thousands):

														Purchase
		Balance as of				Impairment								Accounting				Balance as of
		December 31, 2005				Losses				Acquisitions				Adjustments				September 30, 2006
Hospitality		$	—			$	—			$	—			$	—			$	—
Opry and Attractions			6,915				—				—				—				6,915
ResortQuest			170,641				(761	)			—				(3,472	)			166,408
Corporate and Other			—				—				—				—				—
Total		$	177,556			$	(761	)		$	—			$	(3,472	)		$	173,323

During the nine months ended September 30, 2006, the Company made adjustments to deferred taxes associated with the ResortQuest acquisition as a result of the Company settling certain issues with the Internal Revenue Service related to periods prior to the acquisition of ResortQuest. These adjustments resulted in a net decrease in goodwill of $3.5 million. Also, as more fully discussed in Note 5, as a result of a significant adverse change in the business climate at one of the markets of its ResortQuest business, the Company recorded an impairment loss of $0.8 million related to goodwill during the three months ended September 30, 2006.

The carrying amount of indefinite-lived intangible assets not subject to amortization was $40.3 million at September 30, 2006 and December 31, 2005. The gross carrying amount of amortized intangible assets in continuing operations was $37.7 million and $37.8 million at September 30, 2006 and December 31, 2005, respectively. The related accumulated amortization of amortized intangible assets in continuing operations was $13.7 million and $10.1 million at September 30, 2006 and December 31, 2005, respectively. The amortization expense related to intangible assets from continuing operations during the three months and nine months ended September 30, 2006 was $1.2 million and $3.6 million, respectively. The amortization expense related to intangible assets from continuing operations during the three months and nine months ended September 30, 2005 was $1.4 million and $4.0 million, respectively. The estimated amounts of amortization expense for the next five years are as follows (in thousands):

Year 1		$	4,796
Year 2			4,796
Year 3			4,796
Year 4			4,657
Year 5			2,489
Total		$	21,534

14. STOCK PLANS:

At September 30, 2006, the Company has one stock-based employee compensation plan, which is described more fully below. Prior to January 1, 2006, the Company accounted for stock options granted under this plan under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation. No stock-based employee compensation cost was recognized in the accompanying condensed consolidated statement of operations related to stock options granted under this plan for the three months and nine months ended September 30, 2005, as all options granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition method, compensation cost recognized in the three months and nine months ended September 30, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for prior periods have not been restated.

As a result of adopting Statement 123(R) on January 1, 2006, the Company’s income before benefit for income taxes and net income for the three months ended September 30, 2006, are $1.6 million and $1.0 million lower, respectively, and the Company’s income before provision for income taxes and net income for the nine months ended September 30, 2006, are $4.8 million and $2.9 million lower, respectively, than if the Company had continued to account for share-based compensation under APB Opinion 25. Basic and diluted earnings per share for the three months ended September 30, 2006 are $0.02 lower, and basic and diluted earnings per share for the nine months ended September 30, 2006 are $0.07 lower, than if the Company had continued to account for share-based compensation under APB Opinion 25.

Prior to the adoption of Statement 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the condensed consolidated statement of cash flows. Statement 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The $2.5 million excess tax benefit classified as a financing cash inflow in the accompanying condensed consolidated statement of cash flows for the nine months ended September 30, 2006 would have been classified as an operating cash inflow if the Company had not adopted Statement 123(R).

The following table illustrates the effect on net (loss) income and (loss) income per share if the Company had applied the fair value recognition provisions of Statement 123 to options granted under the Company’s stock-based employee compensation plan in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ vesting periods.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except per share data)		2006				2005				2006				2005
Net income (loss):
As reported		$	6,311			$	(11,617	)		$	14,309			$	(20,885	)
Add: Stock option employee compensation expense included in reported net income (loss), net of related tax effects			1,004				—				2,925				—
Deduct: Total stock option employee compensation expense determined under fair value based method for all awards, net of related tax effects			(1,004	)			(1,048	)			(2,925	)			(3,409	)
Pro forma		$	6,311			$	(12,665	)		$	14,309			$	(24,294	)
Net income (loss) per share:
As reported		$	0.16			$	(0.29	)		$	0.35			$	(0.52	)
Pro forma		$	0.16			$	(0.31	)		$	0.35			$	(0.61	)
Net income (loss) per share assuming dilution:
As reported		$	0.15			$	(0.29	)		$	0.34			$	(0.52	)
Pro forma		$	0.15			$	(0.31	)		$	0.34			$	(0.61	)

The compensation cost that has been charged against pre-tax income for all of the Company’s stock-based compensation plans was $2.7 million and $0.9 million for the three months ended September 30, 2006 and 2005, respectively, and $6.8 million and $2.8 million for the nine months ended September 30, 2006 and 2005, respectively. The total income tax benefit recognized in the accompanying condensed consolidated statement of operations for all of the Company’s stock-based employee compensation plans was $1.1 million and $0.4 million for the three months ended September 30, 2006 and 2005, respectively, and $2.6 million and $1.1 million for the nine months ended September 30, 2006 and 2005, respectively.

Stock Option and Restricted Stock Plan

The Company has adopted, and the Company’s shareholders have approved, the 2006 Omnibus Incentive Plan (the “Plan”) to replace the Company’s 1997 Omnibus Stock Option and Incentive Plan. The Plan permits the grant of stock options, restricted stock, and restricted stock units to its directors and employees for up to 2,690,000 shares of common stock, which includes approximately 2,000,000 newly authorized shares and 690,000 shares that were authorized and available for grant under the Company’s 1997 plan. The Plan also provides that no more than 1,350,000 of those shares may be granted for awards other than options or stock appreciation rights. The Company believes that such awards better align the interests of its directors and employees with those of its shareholders. Stock option awards are generally granted with an exercise price equal to the market price of the Company’s stock 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 after one year from the date of grant, while options granted to employees are exercisable one to four years from the date of grant.

The Company records compensation expense equal to the fair value of each stock option award granted on a straight line basis over the option’s vesting period. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing formula that uses the assumptions noted in the following table. Because the Black-Scholes-Merton option pricing formula incorporates ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option

exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Expected volatility			30.7% - 30.8	%			32.7% - 33.5	%			25.1% - 30.8	%			32.7% - 34.9	%
Weighted-average expected volatility			30.8	%			33.2	%			25.5	%			34.7	%
Expected dividends			—				—				—				—
Expected term (in years)			4.5				4.7				4.1 - 4.5				4.7 - 5.3
Risk-free rate			4.8% - 5.0	%			4.2% - 4.3	%			4.3% - 5.0	%			3.8% - 4.3	%

A summary of stock option activity under the Company’s equity incentive plans as of September 30, 2006, and changes during the nine months then ended is presented below:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
Stock Options		Shares				Price				Term				Value
Outstanding at January 1, 2006			3,757,855			$	28.17
Granted			585,640				43.42
Exercised			(422,958	)			24.66
Forfeited			(89,853	)			37.25
Cancelled			(8,924	)			39.12
Outstanding at September 30, 2006			3,821,760				30.69				6.1			$	50,368,867
Exercisable at September 30, 2006			2,543,037				26.87				5.0			$	42,969,996

The weighted-average grant-date fair value of options granted during the nine months-ended September 30, 2006 and 2005 was $12.49 and $14.86, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2006 and 2005 was $8.6 million and $5.9 million, respectively.

The Plan also provides for the award of restricted stock and restricted stock units (“Restricted Stock Awards”). Restricted Stock Awards granted to employees are exercisable one to four years from the date of grant. The fair value of Restricted Stock Awards is determined based on the market price of the Company’s stock at the date of grant. The Company records compensation expense equal to the fair value of each Restricted Stock Award granted over the vesting period. The weighted-average grant-date fair value of Restricted Stock Awards granted during the nine months ended September 30, 2006 and 2005 was $43.61 and $42.95, respectively. A summary of the status of the Company’s Restricted Stock Awards as of September 30, 2006 and changes during the nine months ended September 30, 2006, is presented below:

						Weighted
						Average
						Grant-Date
Restricted Stock Awards		Shares				Fair Value
Nonvested shares at January 1, 2006			74,035			$	33.78
Granted			39,000				43.61
Vested			(16,300	)			30.54
Forfeited			(2,835	)			31.13
Nonvested shares at September 30, 2006			93,900				38.51

The grant date fair value of all Restricted Stock Awards that vested during the nine months ended September 30, 2006 was $0.5 million.

As of September 30, 2006, there was $14.5 million of total unrecognized compensation cost related to stock options, restricted stock and restricted stock units granted under the Company’s equity incentive plans. That cost is expected to be recognized over a weighted-average period of 2.6 years.

Under its Performance Accelerated Restricted Stock Unit Program (“PARSUP”) pursuant to the Plan, the Company may also grant selected executives and other key employees restricted stock units, the vesting of which occurs upon the earlier of February 2008 or the achievement of various company-wide performance goals.

The fair value of PARSUP awards are determined based on the market price of the Company’s stock at the date of grant. The Company records compensation expense equal to the fair value of each PARSUP award granted on a straight line basis over a period beginning on the grant date and ending February 2008. The weighted-average grant-date fair value of PARSUP awards granted during the nine months ended September 30, 2006 and 2005 was $44.24 and $45.39, respectively. A summary of the status of the Company’s PARSUP awards as of September 30, 2006 and changes during the nine months ended September 30, 2006, is presented below:

						Weighted
						Average
						Grant-Date
PARSUP Awards		Shares				Fair Value
Nonvested awards at January 1, 2006			583,500			$	22.22
Granted			17,500				44.24
Vested			—				—
Forfeited			(80,000	)			22.77
Nonvested awards at September 30, 2006			521,000				22.87

As of September 30, 2006, there was $3.9 million of total unrecognized compensation cost related to PARSUP awards granted under the Company’s equity incentive plans. That cost is expected to be recognized over a weighted-average period of 1.3 years.

     Cash received from option exercises under all stock-based employee compensation arrangements for the nine months ended September 30, 2006 and 2005 was $11.1 million and $8.2 million, respectively. The actual tax benefit realized for the tax deductions from option exercise of the stock-based employee

compensation arrangements totaled $2.9 million and $1.6 million for the nine months ended September 30, 2006 and 2005, respectively.

The Company also has an employee stock purchase plan whereby substantially all employees are eligible to participate in the purchase of designated shares of the Company’s common stock. Participants in the plan purchase these shares at a price equal to 95% of the closing price at the end of each quarterly stock purchase period. The Company issued 2,750 and 2,257 shares of common stock at an average price per share of $41.66 and $45.27 pursuant to this plan during the three months ended September 30, 2006 and 2005, respectively.

15. RETIREMENT AND POSTRETIREMENT BENEFITS OTHER THAN PENSION PLANS:

Net periodic pension expense reflected in the accompanying condensed consolidated statements of operations included the following components for the three months and nine months ended September 30 (in thousands):

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Service cost		$	48			$	109			$	142			$	327
Interest cost			1,215				1,201				3,645				3,603
Expected return on plan assets			(1,058	)			(960	)			(3,174	)			(2,880	)
Amortization of net actuarial loss			747				648				2,243				1,944
Amortization of prior service cost			1				1				3				3
Total net periodic pension expense		$	953			$	999			$	2,859			$	2,997

Net postretirement benefit expense reflected in the accompanying condensed consolidated statements of operations included the following components for the three months and nine months ended September 30 (in thousands):

		Three months ended								Nine months ended
		September 30,								September 30,
		2006				2005				2006				2005
Service cost		$	48			$	52			$	143			$	156
Interest cost			258				198				774				594
Amortization of net actuarial gain			—				(126	)			—				(377	)
Amortization of net prior service cost			(245	)			(250	)			(735	)			(750	)
Amortization of curtailment gain			(61	)			(61	)			(183	)			(183	)
Total net postretirement benefit expense		$	—			$	(187	)		$	(1	)		$	(560	)
										-

16. INCOME TAXES

The Company’s effective tax rate as applied to pre-tax income (loss) for the three months ended September 30, 2006 and 2005 was (119%) and 33%, respectively. The Company’s lower effective tax rate was due primarily to the impact of permanent differences relative to pre-tax income for each respective period coupled with the effect of adjustments to the state effective tax rate on existing deferred tax assets and liabilities.

The Company’s effective tax rate as applied to pre-tax income (loss) for the nine months ended September 30, 2006 and 2005 was 47% and 32%, respectively. The Company’s higher effective tax rate was due primarily to the impact of permanent differences relative to pre-tax income for each respective period coupled with the effect of adjustments to the state effective tax rate on existing deferred tax assets and liabilities.

17. NEWLY ISSUED ACCOUNTING STANDARDS:

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. Under FIN 48, the Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109. The interpretation clearly scopes out income tax positions related to FASB Statement No. 5, Accounting for Contingencies. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006 and are to be applied to all tax positions upon initial adoption of this standard. The Company will adopt the provisions of this statement beginning in the first quarter of 2007. The cumulative effect of applying the provisions of FIN 48 will be reported as an adjustment to the opening balance of retained earnings on January 1, 2007. The Company is assessing the impact the adoption of FIN 48 will have on its consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” to define fair value, establish a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expand disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company will adopt the provisions of this statement beginning in the first quarter of 2008. The Company is assessing the impact the adoption of SFAS No. 157 will have on its financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS 158 requires an entity to recognize in its statement of financial position an asset for a defined benefit pension or postretirement plan’s overfunded status or a liability for a plan’s underfunded status, and to recognize changes in that funded status through other comprehensive income in the year in which the changes occur. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. SFAS 158 will not change the amount of net periodic benefit expense recognized in an entity’s results of operations. The requirement to recognize the funded status of a defined benefit postretirement plan and the disclosure requirements are effective for the Company for fiscal years ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the Company’s fiscal year-end statement of financial position is effective for the Company for fiscal years ending after December 15, 2008. The Company is assessing the impact the adoption of SFAS No. 158 will have on its consolidated financial position.

18. COMMITMENTS AND CONTINGENCIES:

On February 22, 2005, the Company concluded the settlement of litigation with NHC, which owns the Nashville Predators NHL hockey team, over (i) NHC’s obligation to redeem the Company’s ownership interest, and (ii) the Company’s obligations under the Nashville Arena Naming Rights Agreement dated November 24, 1999. Under the Naming Rights Agreement, which had a 20-year term through 2018, the Company was required to make annual payments to NHC, beginning at $2,050,000 in 1999 and with a 5% escalation each year thereafter, and to purchase a minimum number of tickets to Predators games each year. At the closing of the settlement, NHC redeemed all of the Company’s outstanding limited partnership units in the Predators pursuant to a Purchase Agreement dated February 22, 2005 effectively terminating the Company’s ownership interest in the Predators. In addition, the Naming Rights Agreement was cancelled pursuant to the Acknowledgment of Termination of Naming Rights Agreement. As a part of the settlement, the Company made a one-time cash payment to NHC of $4 million and issued to NHC a 5-year, $5 million promissory note bearing interest at 6% per annum. The note is payable at $1 million per year for 5 years, with the first payment due on the first anniversary of the resumption of NHL Hockey in Nashville, Tennessee, which occurred on October 5, 2005. The Company’s obligation to pay the outstanding amount under the note shall terminate immediately if, at any time before the note is paid in full, the Predators cease to be an NHL team playing their home games in Nashville, Tennessee. In addition, if the Predators cease to be an NHL team playing its home games in Nashville after the first payment but prior to the second payment under the note (October 5, 2007), then in addition to the note being cancelled, the Predators will pay the Company $2 million. In addition, pursuant to a Consent Agreement among the Company, the National Hockey League and owners of NHC, the Company’s guaranty described below has been limited as described below. The Company continued to recognize the expense under the Naming Rights Agreement throughout the course of this litigation. As a result, the net effect of the settlement resulted in the Company reversing $2.4 million of expense previously accrued under the Naming Rights Agreement during the first quarter of 2005.

In connection with the Company’s execution of the Agreement of Limited Partnership of NHC on June 25, 1997, the Company, its subsidiary CCK, Inc., Craig Leipold, Helen Johnson-Leipold (Mr. Leipold’s wife) and Samuel C. Johnson (Mr. Leipold’s father-in-law) entered into a guaranty agreement executed in favor of the National Hockey League (“NHL”). This agreement provides for a continuing guarantee of the following obligations for as long as any of these obligations remain outstanding: (i) all obligations under the expansion agreement between NHC and the NHL; and (ii) all operating expenses of NHC. The maximum potential amount which the Company and CCK, collectively, could be liable under the guaranty agreement is $15.0 million, although the Company and CCK would have recourse against the other guarantors if required to make payments under the guarantee. In connection with the legal settlement with the Nashville Predators consummated on February 22, 2005, as described above, this guaranty has been limited so that the Company is not responsible for any debt, obligation or liability of NHC that arises from any act, omission or circumstance occurring after the date of the legal settlement. As of September 30, 2006, the Company had not recorded any liability in the condensed consolidated balance sheet associated with this guarantee.

In connection with Waipouli Owner, LLC’s execution of the Kauai Hotel Loans as described in Note 6, RREEF entered into three separate Guaranties of Recourse Obligations with the Kauai Hotel Lender whereby it guaranteed Waipouli Owner, LLC’s obligations under the Kauai Hotel Loans for as long as those loans remain outstanding (i) in the event of certain types of fraud, breaches of environmental representations or warranties, or breaches of certain “special purpose entity” covenants by Waipouli Owner, LLC, on the one hand, or (ii) in the event of bankruptcy or reorganization proceedings of Waipouli Owner, LLC, on the other hand. As a part of the joint venture arrangement and simultaneously with the closing of the purchase of the Kauai Hotel, the Company entered into a Contribution Agreement

with RREEF, whereby the Company agreed that, in the event that RREEF is required to make any payments pursuant to the terms of these guarantees, it will contribute to RREEF an amount equal to 19.9% of any such guaranty payments. The Company estimates that the maximum potential amount that the Company could be liable under this contribution agreement is $13.6 million, which represents 19.9% of the $68.4 million of total debt that Waipouli Owner, LLC owes to the Kauai Hotel Lender as of September 30, 2006. As of September 30, 2006, the Company had not recorded any liability in the condensed consolidated balance sheet associated with this guarantee.

In connection with RHAC, LLC’s execution of the Waikiki Hotel Loans as described in Note 6, IB-SIV, the parent company of the Company’s joint venture partner, entered into two separate Guaranties of Recourse Obligations with the Waikiki Hotel Lender whereby it guaranteed RHAC, LLC’s obligations under the Waikiki Hotel Loans for as long as those loans remain outstanding (i) in the event of certain types of fraud, breaches of environmental representations or warranties, or breaches of certain “special purpose entity” covenants by RHAC, LLC, on the one hand, or (ii) in the event of bankruptcy or reorganization proceedings of RHAC, LLC, on the other hand. As a part of the joint venture arrangement and simultaneously with the closing of the purchase of the Waikiki Hotel, the Company entered into a Contribution Agreement with IB-SIV, whereby the Company agreed that, in the event that IB-SIV is required to make any payments pursuant to the terms of these guarantees, it will contribute to IB-SIV an amount equal to 19.9% of any such guaranty payments. The Company estimates that the maximum potential amount for which the Company could be liable under this contribution agreement is $20.9 million, which represents 19.9% of the $104.9 million of total debt that RHAC, LLC owes to the Waikiki Hotel Lender as of September 30, 2006. As of September 30, 2006, the Company had not recorded any liability in the consolidated balance sheet associated with this guarantee.

Also in connection with RHAC, LLC’s execution of the Waikiki Hotel Loans, IB-SIV and the Company were required to execute an irrevocable letter of credit in favor of the Waikiki Hotel Lender with a total notional amount of $7.9 million in order to secure RHAC, LLC’s obligation to perform certain capital upgrades on the Waikiki Hotel and to provide additional security for payment of the Waikiki Hotel Loans. This letter of credit is required to remain outstanding until all required capital upgrades have been completed. However, the notional amount of this letter of credit will be reduced by the amount of funds actually expended by RHAC, LLC on the capital upgrades. Under the terms of the Waikiki Hotel Loans, the Waikiki Hotel Lender may draw up to the notional amount of this letter of credit and apply the proceeds to the Waikiki Hotel Loans upon the occurrence of an event of default. Pursuant to the Contribution Agreement described above, the Company agreed to initially execute a letter of credit for the full $7.9 million notional amount required by the Lender, and IB-SIV agreed that, in the event that any amounts are drawn by Lender under the letter of credit, it will contribute an amount equal to 80.1% of any such letter of credit draw to the Company. IB-SIV further agreed to execute a separate letter of credit subsequent to closing with a notional amount of $6.3 million to allow the Company to reduce the notional amount of its letter of credit to $1.6 million. During the third quarter of 2005, IB-SIV executed this replacement letter of credit with a notional amount of $6.3 million, and the Company reduced the notional amount of its letter of credit to $1.6 million. As of September 30, 2006, the notional amount of the Company’s letter of credit had decreased to $1.2 million as a result of expenditures made by RHAC, LLC on the capital upgrades. The Company estimates that the maximum potential amount for which the Company could be liable under this obligation is $1.2 million as of September 30, 2006. As of September 30, 2006, the Company had not recorded any liability in the consolidated balance sheet associated with this obligation.

Certain of the ResortQuest subsidiary’s property management agreements in Hawaii contain provisions for guaranteed levels of returns to the owners. These agreements, which have remaining terms of up to approximately 6 years, also contain force majeure clauses to protect the Company from forces or occurrences beyond the control of management. Assuming that the properties under these management

agreements break even, the Company estimates that the maximum potential amount of future payments which the Company could be required to make under these guarantees is approximately $26.1 million as of September 30, 2006. As of September 30, 2006, the Company had not recorded any liability in the consolidated balance sheet associated with these guarantees.

On February 23, 2005, the Company acquired approximately 42 acres of land and related land improvements in Prince George’s County, Maryland (Washington D.C. area) for approximately $29 million on which the Company is developing the Gaylord National Resort & Convention Center (the “Gaylord National”). Approximately $17 million of this was paid in the first quarter of 2005, with the remainder payable upon completion of various phases of the project. The project was originally planned to include a 1,500 room hotel, but the Company has expanded the planned hotel to a total of 2,000 rooms. The Company currently expects to open the hotel in 2008. Prince George’s County, Maryland has approved three bond issues related to the development of this hotel project. The first bond issuance, in the amount of $65 million, was issued by Prince George’s County, Maryland in April 2005 to support the cost of infrastructure being constructed by the project developer, such as roads, water and sewer lines. The second bond issuance, in the amount of $95 million, was issued by Prince George’s County, Maryland in April 2005 and placed into escrow until completion of the convention center and 1,500 rooms within the hotel, at which time the bonds will be released to the Company. In addition, on July 18, 2006, Prince George’s County, Maryland approved an additional $50 million of bonds, which will be issued to the Company upon completion of the entire project. The Company will initially hold the $95 million and $50 million bond issuances and receive the debt service thereon, which is payable from tax increment, hotel tax and special hotel rental taxes generated from the development. The Company has entered into several agreements with a general contractor and other suppliers for the provision of certain construction services at the site. As of September 30, 2006, the Company had committed to pay $370.9 million under those agreements for construction services and supplies ($189.2 million of which was outstanding). Construction costs to date for this project have exceeded the Company’s initial estimates. The Company currently estimates the total cost of the project, including the cost increases and the costs of the 500-room expansion, to be in the range of $790 million to $840 million (excluding capitalized interest, preopening costs and government incentives in connection with the Gaylord National hotel project), of which the Company has spent approximately $182 million (including capitalized interest but excluding preopening costs) as of September 30, 2006.

On July 25, 2006, the Unified Port of San Diego Board of Commissioners and the City of Chula Vista approved a non-binding letter of intent with the Company, outlining the general terms of the Company’s development of a 1,500 to 2,000 room convention hotel in Chula Vista, California (located in the San Diego area). The Company is also considering other potential hotel sites throughout the country. The timing and extent of any of these development projects is uncertain.

The Company, in the ordinary course of business, is involved in certain legal actions and claims on a variety of other 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.

19. FINANCIAL REPORTING BY BUSINESS SEGMENTS:

The Company’s continuing operations are organized and managed based upon its products and services. The following information from continuing operations is derived directly from the segments’ internal financial reports used for corporate management purposes.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2006				2005				2006				2005
Revenues:
Hospitality		$	142,250			$	122,623			$	464,903			$	412,802
Opry and Attractions			21,461				19,727				58,045				51,272
ResortQuest			68,149				65,464				185,482				181,407
Corporate and Other			47				137				204				412
Total		$	231,907			$	207,951			$	708,634			$	645,893
Depreciation and amortization:
Hospitality		$	16,115			$	15,861			$	48,281			$	47,040
Opry and Attractions			1,404				1,375				4,255				3,927
ResortQuest			2,894				2,677				8,379				8,009
Corporate and Other			1,273				986				3,372				3,047
Total		$	21,686			$	20,899			$	64,287			$	62,023
Operating income:
Hospitality		$	12,095			$	4,123			$	72,718			$	50,060
Opry and Attractions			2,965				1,577				3,150				1,574
ResortQuest			8,964				4,850				9,480				5,803
Corporate and Other			(13,627	)			(9,027	)			(38,538	)			(28,938	)
Preopening costs			(2,432	)			(1,213	)			(4,997	)			(3,329	)
Impairment and other charges			(832	)			—				(832	)			—
Total operating income			7,133				310				40,981				25,170
Interest expense, net of amounts capitalized			(17,761	)			(18,474	)			(53,613	)			(54,449	)
Interest income			853				662				2,295				1,820
Unrealized gain (loss) on Viacom stock and CBS stock			13,453				10,828				820				(37,070	)
Unrealized (loss) gain on derivatives			(5,601	)			(10,753	)			13,730				29,233
Income from unconsolidated companies			2,571				2,098				8,374				1,980
Other gains and (losses), net			1,972				1,102				8,698				6,022
Income (loss) before provision (benefit) for income taxes		$	2,620			$	(14,227	)		$	21,285			$	(27,294	)

20. INFORMATION CONCERNING GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:

Not all of the Company’s subsidiaries have guaranteed the 8% Senior Notes and 6.75% Senior Notes. The 8% Senior Notes and 6.75% Senior Notes are guaranteed on a senior unsecured basis by generally all of the Company’s active domestic subsidiaries (the “Guarantors”). The Company’s investment in Bass Pro and certain other discontinued operations (the “Non-Guarantors”) do not guarantee the 8% Senior Notes and 6.75% Senior Notes.

Prior to January 1, 2006, Gaylord Entertainment Company (the “Issuer”) charged Gaylord Opryland, Gaylord Palms and Gaylord Texan a management fee equal to 3% of revenues. This management fee, which totaled $3.6 million and $12.0 million during the three months and nine months ended September 30, 2005, was recorded as revenues by the Issuer and operating costs by the Guarantors in the condensed consolidating financial information presented below. Effective January 1, 2006, this management fee is no longer charged.

The condensed consolidating financial information includes certain allocations of revenues and expenses based on management’s best estimates, which are not necessarily indicative of financial position, results of operations and cash flows that these entities would have achieved on a stand alone basis.

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2006

										Non-
		Issuer				Guarantors				Guarantors				Eliminations				Consolidated
										(In thousands)
Revenues		$	18,121			$	222,711			$	—			$	(8,925	)		$	231,907
Operating expenses:
Operating costs			6,322				146,251				—				—				152,573
Selling, general and administrative			12,348				34,903				—				—				47,251
Management fees			—				8,925				—				(8,925	)			—
Preopening costs			—				2,432				—				—				2,432
Impairment and other charges			—				832				—				—				832
Depreciation			1,512				17,334				—				—				18,846
Amortization			456				2,384				—				—				2,840
Operating (loss) income			(2,517	)			9,650				—				—				7,133
Interest expense, net of amounts capitalized			(21,209	)			(16,751	)			(1,558	)			21,757				(17,761	)
Interest income			18,567				1,904				2,139				(21,757	)			853
Unrealized gain on Viacom stock and CBS stock			13,453				—				—				—				13,453
Unrealized loss on derivatives			(5,601	)			—				—				—				(5,601	)
(Loss) income from unconsolidated companies			—				(1,068	)			3,639				—				2,571
Other gains and (losses), net			1,151				821				—				—				1,972
Income (loss) before provision (benefit) for income taxes			3,844				(5,444	)			4,220				—				2,620
Provision (benefit) for income taxes			3,255				(6,562	)			180				—				(3,127	)
Equity in subsidiaries’ (earnings) losses, net			(5,722	)			—				—				5,722				—
Income (loss) from continuing operations			6,311				1,118				4,040				(5,722	)			5,747
Income (loss) from discontinued operations, net of taxes			—				568				(4	)			—				564
Net income (loss)		$	6,311			$	1,686			$	4,036			$	(5,722	)		$	6,311

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2005

										Non-
		Issuer				Guarantors				Guarantors				Eliminations				Consolidated
										(In thousands)
Revenues		$	21,456			$	199,332			$	—			$	(12,837	)		$	207,951
Operating expenses:
Operating costs			5,915				139,660				—				(3,582	)			141,993
Selling, general and administrative			8,926				34,610				—				—				43,536
Management fees			—				9,255				—				(9,255	)			—
Preopening costs			—				1,213				—				—				1,213
Depreciation			1,344				16,944				—				—				18,288
Amortization			347				2,264				—				—				2,611
Operating income (loss)			4,924				(4,614	)			—				—				310
Interest expense, net of amounts capitalized			(19,614	)			(14,138	)			(1,333	)			16,611				(18,474	)
Interest income			14,678				779				1,816				(16,611	)			662
Unrealized gain on Viacom stock			10,828				—				—				—				10,828
Unrealized loss on derivatives			(10,753	)			—				—				—				(10,753	)
Income from unconsolidated companies			—				124				1,974				—				2,098
Other gains and (losses), net			743				359				—				—				1,102
Income (loss) before (benefit) provision for income taxes			806				(17,490	)			2,457				—				(14,227	)
(Benefit) provision for income taxes			(145	)			(5,567	)			959				—				(4,753	)
Equity in subsidiaries’ (earnings) losses, net			12,568				—				—				(12,568	)			—
(Loss) income from continuing operations			(11,617	)			(11,923	)			1,498				12,568				(9,474	)
(Loss) income from discontinued operations, net			—				(2,230	)			87				—				(2,143	)
Net (loss) income		$	(11,617	)		$	(14,153	)		$	1,585			$	12,568			$	(11,617	)