UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission file number 1-13079

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
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company 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 o

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 April 30, 2010
Common Stock, $.01 par value		47,099,190 shares

 

 

GAYLORD ENTERTAINMENT COMPANY

FORM 10-Q

For the Quarter Ended March 31, 2010
INDEX

		Page
Part I — Financial Information
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations - For the Three Months Ended March 31, 2010 and 2009		3
Condensed Consolidated Balance Sheets - March 31, 2010 and December 31, 2009		4
Condensed Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2010 and 2009		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		31
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		51
Item 4. Controls and Procedures.		52
Part II — Other Information
Item 1. Legal Proceedings.		53
Item 1A. Risk Factors.		53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		54
Item 3. Defaults Upon Senior Securities.		54
Item 5. Other Information.		54
Item 6. Exhibits.		54
SIGNATURES		55
EX-31.1
EX-31.2
EX-32.1

Part I — FINANCIAL INFORMATION

Item 1. — FINANCIAL STATEMENTS.

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2010				2009
Revenues		$	216,690			$	212,319
Operating expenses:
Operating costs			131,993				131,365
Selling, general and administrative			42,772				44,861
Depreciation and amortization			27,076				28,071
Operating income			14,849				8,022
Interest expense, net of amounts capitalized			(20,115	)			(18,600	)
Interest income			3,222				3,846
(Loss) income from unconsolidated companies			(73	)			129
Net gain on extinguishment of debt			1,199				16,557
Other gains and (losses), net			(13	)			(150	)
(Loss) income before provision for income taxes and discontinued operations			(931	)			9,804
Provision for income taxes			940				6,286
(Loss) income from continuing operations			(1,871	)			3,518
Income (loss) from discontinued operations, net of income taxes			21				(91	)
Net (loss) income		$	(1,850	)		$	3,427
Basic (loss) income per share:
(Loss) income from continuing operations		$	(0.04	)		$	0.09
Income (loss) from discontinued operations, net of income taxes			—				(0.01	)
Net (loss) income		$	(0.04	)		$	0.08
Fully diluted (loss) income per share:
(Loss) income from continuing operations		$	(0.04	)		$	0.09
Income (loss) from discontinued operations, net of income taxes			—				(0.01	)
Net (loss) income		$	(0.04	)		$	0.08

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

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)

		March 31,				December 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents — unrestricted		$	179,495			$	180,033
Cash and cash equivalents — restricted			1,150				1,150
Trade receivables, less allowance of $874 and $977, respectively			49,834				40,917
Deferred income taxes			1,740				2,525
Other current assets			82,921				80,888
Current assets of discontinued operations			63				63
Total current assets			315,203				305,576
Property and equipment, net of accumulated depreciation			2,128,572				2,149,814
Notes receivable, net of current portion			132,233				142,311
Long-term deferred financing costs			16,528				18,081
Other long-term assets			46,803				45,241
Total assets		$	2,639,339			$	2,661,023
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations		$	2,279			$	1,814
Accounts payable and accrued liabilities			150,365				151,863
Estimated fair value of derivative liabilities			270				—
Current liabilities of discontinued operations			571				669
Total current liabilities			153,485				154,346
Long-term debt and capital lease obligations, net of current portion			1,152,291				1,176,874
Deferred income taxes			101,151				100,590
Estimated fair value of derivative liabilities			24,397				25,661
Other long-term liabilities			128,506				124,421
Long-term liabilities of discontinued operations			451				447
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, 47,050 and 46,990 shares issued and outstanding, respectively			470				470
Additional paid-in capital			883,102				881,512
Treasury stock of 385 shares, at cost			(4,599	)			(4,599	)
Retained earnings			232,878				234,728
Accumulated other comprehensive loss			(32,793	)			(33,427	)
Total stockholders’ equity			1,079,058				1,078,684
Total liabilities and stockholders’ equity		$	2,639,339			$	2,661,023

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

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2010 and 2009
(Unaudited)
(In thousands)

		2010				2009
Cash Flows from Operating Activities:
Net (loss) income		$	(1,850	)		$	3,427
Amounts to reconcile net (loss) income to net cash flows provided by (used in) operating activities:
(Income) loss from discontinued operations, net of taxes			(21	)			91
Loss (income) from unconsolidated companies			73				(129	)
Provision for deferred income taxes			1,424				7,573
Depreciation and amortization			27,076				28,071
Amortization of deferred financing costs			1,314				1,138
Amortization of discount on convertible notes			2,802				—
Stock-based compensation expense			1,675				1,752
Excess tax benefit from stock-based compensation			(134	)			—
Net gain on extinguishment of debt			(1,199	)			(16,557	)
Loss on sales of long-lived assets			13				236
Changes in:
Trade receivables			(8,917	)			(11,929	)
Interest receivable			4,866				(3,741	)
Accounts payable and accrued liabilities			(528	)			(10,221	)
Other assets and liabilities			1,139				(4,392	)
Net cash flows provided by (used in) operating activities — continuing operations			27,733				(4,681	)
Net cash flows (used in) provided by operating activities — discontinued operations			(55	)			5
Net cash flows provided by (used in) operating activities			27,678				(4,676	)
Cash Flows from Investing Activities:
Purchases of property and equipment			(5,181	)			(21,821	)
Collection of notes receivable			4,025				12,715
Other investing activities			(2,307	)			(344	)
Net cash flows used in investing activities — continuing operations			(3,463	)			(9,450	)
Net cash flows provided by investing activities — discontinued operations			—				—
Net cash flows used in investing activities			(3,463	)			(9,450	)
Cash Flows from Financing Activities:
Net borrowings under credit facility			—				75,000
Repurchases of senior notes			(25,082	)			(37,180	)
Purchases of treasury stock			—				(4,599	)
Proceeds from exercise of stock option and purchase plans			381				—
Excess tax benefit from stock-based compensation			134				—
Other financing activities, net			(186	)			(144	)
Net cash flows (used in) provided by financing activities — continuing operations			(24,753	)			33,077
Net cash flows provided by financing activities — discontinued operations			—				—
Net cash flows (used in) provided by financing activities			(24,753	)			33,077
Net change in cash and cash equivalents			(538	)			18,951
Cash and cash equivalents — unrestricted, beginning of period			180,033				1,043
Cash and cash equivalents — unrestricted, end of period		$	179,495			$	19,994

     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 its subsidiaries (the “Company”) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). 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 as of and for the year ended December 31, 2009 filed with the SEC. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim periods 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 because of seasonal and short-term variations.

The Company analyzes its variable interests, including loans, guarantees, and equity investments, to determine if an entity in which it has a variable interest is a variable interest entity (“VIE”). This analysis primarily includes a qualitative review, which is based on a review of the design of the entity, its organizational structure, including decision-making ability, and relevant financial agreements. This analysis is also used to determine if the Company must consolidate the VIE as the primary beneficiary.

Certain amounts in previously issued financial statements have been reclassified to conform to the 2010 presentation. Intangible assets (net of accumulated amortization), goodwill, indefinite lived intangible assets and investments in the amounts of $0.1 million, $0.3 million, $1.5 million and $0.1 million, respectively, at December 31, 2009 have been included in other long-term assets in the accompanying condensed consolidated balance sheet.

2. NEWLY ISSUED ACCOUNTING STANDARDS:

In June 2009, the Financial Accounting Standards Board (“FASB”) modified FASB Accounting Standards Codification (“ASC”) 810, “Consolidation” (“Topic 810”) to amend the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE. This modification requires a qualitative analysis, rather than a quantitative analysis, that considers who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance, as well as an assessment of who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This modification also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. Before this modification, reconsideration of whether an enterprise is the primary beneficiary of a VIE was required only when specific events occurred. The Company adopted the provisions of this statement in the first quarter of 2010, and the adoption of Topic 810 did not have a material impact on its consolidated financial position or results of operations. See Note 1 and Note 13 for additional disclosures.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Topic 820, “Fair Value Measurements and Disclosures,” to require more detailed disclosures regarding transfers in and out of Level 1 and Level 2 fair value measurements, including the amounts and reasons for the transfers. Level 3 fair value measurements should present separate information about purchases, sales, issuances and settlements. In addition, this ASU requires that a reporting entity should provide fair value measurement disclosures for each class of assets and liabilities, defined as a subset of assets or liabilities within a line item in the statement of

financial position, as well as disclosures about the valuation techniques and inputs used to measure fair value in either Level 2 or Level 3. The disclosure requirements related to the Level 3 fair value measurement activities will be effective for the Company beginning in the first quarter of 2011, and the Company does not expect this requirement to have a material impact on its consolidated financial statements. The Company adopted the remaining disclosure requirements of this ASU in the first quarter of 2010, and the adoption did not have a material impact on the Company’s consolidated financial statements.

3. INCOME PER SHARE:

The weighted average number of common shares outstanding is calculated as follows (in thousands):

		Three Months Ended March 31,
		2010				2009
Weighted average shares outstanding			47,011				40,906
Effect of dilutive stock options			—				216
Weighted average shares outstanding - assuming dilution			47,011				41,122

For the three months ended March 31, 2010, the effect of dilutive stock options was the equivalent of approximately 434,000 shares of common stock outstanding. Because the Company had a loss from continuing operations in the three months ended March 31, 2010, these incremental shares were excluded from the computation of dilutive earnings per share for that period as the effect of their inclusion would have been anti-dilutive.

The Company had stock-based compensation awards outstanding with respect to approximately 3,047,000 and 5,266,000 shares of common stock as of March 31, 2010 and 2009, respectively, that could potentially dilute earnings per share in the future but were excluded from the computation of diluted earnings per share for the three months ended March 31, 2010 and 2009, respectively, as the effect of their inclusion would have been anti-dilutive.

As discussed in Note 7, during September 2009, the Company issued 3.75% Convertible Senior Notes (the “Convertible Notes”) due 2014. In connection with the issuance of these notes, the Company entered into a warrant transaction with the note underwriters to sell common stock warrants. The initial strike price of these warrants is $32.70 per share of the Company’s common stock and the warrants cover an aggregate of 13.2 million shares of the Company’s common stock. If the average closing price of the Company’s stock during the reporting period exceeds this strike price, these warrants will be dilutive. It is the Company’s intention to settle the face value of the Convertible Notes in cash upon conversion/maturity. The warrants may only be settled in shares of the Company’s common stock.

4. COMPREHENSIVE (LOSS) INCOME:

Comprehensive (loss) income is as follows for the respective periods (in thousands):

		Three Months Ended
		March 31,
		2010				2009
Net (loss) income		$	(1,850	)		$	3,427
Unrealized loss on natural gas swaps, net of deferred income tax provision (benefit) of $(105) and $(142)			(166	)			(224	)
Unrealized gain (loss) on interest rate swaps, net of deferred income tax provision (benefit) of $452 and $(90)			812				(302	)
Other			(12	)			(66	)
Comprehensive (loss) income		$	(1,216	)		$	2,835

A rollforward of the amounts included in accumulated other comprehensive loss related to the fair value of financial derivative instruments that qualify for hedge accounting, net of taxes, for the three months ended March 31, 2010 is as follows (in thousands):

		Interest				Natural
		Rate				Gas				Total
		Derivatives				Derivatives				Derivatives
Balance at December 31, 2009		$	(16,481	)		$	—			$	(16,481	)
2010 changes in fair value, net of deferred taxes			812				(166	)			646
Reclassification to earnings			—				—				—
Balance at March 31, 2010		$	(15,669	)		$	(166	)		$	(15,835	)

5. PROPERTY AND EQUIPMENT:

Property and equipment of continuing operations at March 31, 2010 and December 31, 2009 is recorded at cost and summarized as follows (in thousands):

		March 31,				December 31,
		2010				2009
Land and land improvements		$	212,805			$	212,953
Buildings			2,194,600				2,195,367
Furniture, fixtures and equipment			513,144				507,454
Construction in progress			33,675				34,664
			2,954,224				2,950,438
Accumulated depreciation			(825,652	)			(800,624	)
Property and equipment, net		$	2,128,572			$	2,149,814

Depreciation expense of continuing operations, including amortization of assets under capital lease obligations, was $25.1 million and $26.4 million for the three months ended March 31, 2010 and 2009, respectively.

6. NOTES RECEIVABLE:

In connection with the development of the Gaylord National Resort and Convention Center (“Gaylord National”), the Company is currently holding two issuances of bonds and will receive the debt service thereon, which is payable from tax increments, hotel taxes and special hotel rental taxes generated from the development of the Gaylord National. The Company is recording the amortization of discount on these notes receivable as interest income over the life of the notes.

During the three months ended March 31, 2010 and 2009, the Company recorded interest income of $3.2 million and $3.7 million, respectively, on these bonds, which each included $3.1 million of interest that accrued on the bonds subsequent to their delivery to the Company and $0.1 million and $0.6 million, respectively, related to amortization of the discount on the bonds. The Company received payments of $11.8 million and $12.6 million during the three months ended March 31, 2010 and 2009, respectively, relating to this note receivable.

7. DEBT:

The Company’s debt and capital lease obligations related to continuing operations at March 31, 2010 and December 31, 2009 consisted of (in thousands):

		March 31,				December 31,
		2010				2009
$1.0 Billion Credit Facility, interest and maturity as described below		$	700,000			$	700,000
Convertible Senior Notes, interest and maturity as described below, net of debt discount of $62,334 and $65,136			297,666				294,864
Senior Notes, interest at 6.75%, maturing November 15, 2014			154,180				180,700
Nashville Predators Promissory Note, interest at 6.00%, maturing October 5, 2010			1,000				1,000
Capital lease obligations			1,724				2,124
Total debt			1,154,570				1,178,688
Less amounts due within one year			(2,279	)			(1,814	)
Total long-term debt		$	1,152,291			$	1,176,874

As of March 31, 2010, the Company was in compliance with all of its covenants related to its debt.

$1.0 Billion Credit Facility

On July 25, 2008, the Company refinanced its previous $1.0 billion credit facility by entering into a Second Amended and Restated Credit Agreement (the “New $1.0 Billion Credit Facility”) by and among the Company, certain subsidiaries of the Company party thereto, as guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent. The New $1.0 Billion Credit Facility consists of the following components: (a) $300.0 million senior secured revolving credit facility, which includes a $50.0 million letter of credit sublimit and a $30.0 million sublimit for swingline loans, and (b) a $700.0 million senior secured term loan facility. The term loan facility was fully funded at closing. The New $1.0 Billion Credit Facility also includes an accordion feature that will allow the Company to increase the New $1.0 Billion Credit Facility by a total of up to $400.0 million in no more than three occasions, subject to securing additional commitments from existing lenders or new lending institutions. The revolving loan, letters of credit, and term loan mature on July 25, 2012. At the Company’s election, the revolving loans and the term loans will bear interest at an annual rate of LIBOR plus 2.50% or a base rate (the higher of the lead bank’s prime rate and the federal funds rate) plus 0.50%. As further discussed in Note 8, the Company entered into interest rate swaps with respect to $500.0 million aggregate principal amount of borrowings under the term loan portion to convert the variable rate on those borrowings to a fixed weighted average interest rate of 3.94% plus the applicable margin on these borrowings during the term of the swap agreements. 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 will be required to pay a commitment fee of 0.25% per year of the average unused portion of the New $1.0 Billion Credit Facility.

The New $1.0 Billion 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, 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. Advances are subject to a 55% borrowing base, based on the appraisal value of the hotel properties (reduced to 50% in the event a hotel property is sold).

As of March 31, 2010, $700.0 million of borrowings were outstanding under the New $1.0 Billion Credit Facility, and the lending banks had issued $8.9 million of letters of credit under the facility for the Company,

which left $291.1 million of availability under the credit facility (subject to the satisfaction of debt incurrence tests under the indentures governing the Company’s senior notes).

Convertible Senior Notes

During September 2009, the Company issued $360 million, including the exercise of an overallotment option, of 3.75% Convertible Senior Notes (the “Convertible Notes”). The Convertible Notes have a maturity date of October 1, 2014, and interest is payable semiannually in cash in arrears on April 1 and October 1, beginning April 1, 2010. The Notes are convertible, under certain circumstances as described below, at the holder’s option, into shares of the Company’s common stock, at an initial conversion rate of 36.6972 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $27.25 per share. The Company may elect, at its option, to deliver shares of its common stock, cash or a combination of cash and shares of its common stock in satisfaction of its obligations upon conversion of the Convertible Notes.

The Company accounts for the liability (debt) and the equity (conversion option) components of the Convertible Notes in a manner that reflects the Company’s nonconvertible debt borrowing rate. Accordingly, the Company recorded a debt discount and corresponding increase to additional paid-in capital of $68.0 million as of the date of issuance. The Company is amortizing the debt discount utilizing the effective interest method over the life of the Convertible Notes, which increases the effective interest rate of the Convertible Notes from its coupon rate of 3.75% to 8.46%. During the three months ended March 31, 2010, the Company incurred cash interest expense of $3.4 million relating to the interest coupon on the Convertible Notes and non-cash interest expense of $2.8 million related to the amortization of the debt discount on the Convertible Notes. In addition, transaction costs of approximately $10.0 million were proportionally allocated between the liability and equity components.

The Convertible Notes are convertible under any of the following circumstances: (1) during any calendar quarter ending after September 30, 2009 (and only during such calendar quarter), if the closing price of the Company’s common stock for at least 20 trading days during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the applicable conversion price per share of common stock on the last trading day of such preceding calendar quarter; (2) during the ten business day period after any five consecutive trading day period in which the Trading Price (as defined in the Indenture) per $1,000 principal amount of Convertible Notes, as determined following a request by a Convertible Note holder, for each day in such five consecutive trading day period was less than 98% of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate, subject to certain procedures; (3) if specified corporate transactions or events occur; or (4) at any time on or after July 1, 2014, until the second scheduled trading day immediately preceding October 1, 2014. As of March 31, 2010, none of the conditions permitting conversion had been satisfied.

The Convertible Notes are guaranteed, jointly and severally, on an unsecured unsubordinated basis by generally all of the Company’s active domestic subsidiaries. Each guarantee will rank equally in right of payment with such subsidiary guarantor’s existing and future senior unsecured indebtedness and senior in right of payment to all future subordinated indebtedness, if any, of such subsidiary guarantor. The Convertible Notes will be effectively subordinated to any secured indebtedness and effectively subordinated to all indebtedness and other obligations of the Company’s subsidiaries that do not guarantee the Convertible Notes.

Concurrently with the offering of the Convertible Notes, the Company entered into convertible note hedge transactions with respect to its common stock (the “Purchased Options”) with counterparties affiliated with the initial purchasers of the Convertible Notes, for purposes of reducing the potential dilutive effect upon conversion of the Convertible Notes. The initial strike price of the Purchased Options is $27.25 per share of the Company’s common stock (the same as the initial conversion price of the Convertible Notes) and is subject to certain customary adjustments. The Purchased Options cover, subject to anti-dilution adjustments substantially similar to the Convertible Notes, approximately 13.2 million shares of common stock. The Company may settle

the Purchased Options in shares, cash or a combination of cash and shares, at the Company’s option. The cost of the Purchased Options was approximately $76.7 million, which was recorded as a reduction to additional paid-in capital. The Purchased Options will expire on October 1, 2014.

Separately and concurrently with entering into the Purchased Options, the Company also entered into warrant transactions whereby it sold warrants to each of the hedge counterparties to acquire, subject to anti-dilution adjustments, up to approximately 13.2 million shares of common stock at an initial exercise price of $32.70 per share. The warrants may only be settled in shares of the Company’s common stock. The aggregate proceeds from the warrant transactions were approximately $43.7 million, which was recorded as an increase to additional paid-in capital.

Repurchase of Senior Notes

During the three months ended March 31, 2010, the Company repurchased $26.5 million in aggregate principal amount of its outstanding 6.75% senior notes for $25.1 million. After adjusting for the write-off of $0.2 million in deferred financing costs and other costs, the Company recorded a pretax gain of $1.2 million as a result of the repurchases, which is recorded as a net gain on extinguishment of debt in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2010.

During the three months ended March 31, 2009, the Company repurchased $59.9 million in aggregate principal amount of its outstanding senior notes ($39.9 million of 8% senior notes and $20.0 million of 6.75% senior notes) for $42.4 million, of which a portion was accrued at March 31, 2009. After adjusting for the write-off of $0.8 million in deferred financing costs and other costs, the Company recorded a pretax gain of $16.6 million as a result of the repurchases, which is recorded as a net gain on extinguishment of debt in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2009.

8. DERIVATIVE FINANCIAL INSTRUMENTS:

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk and commodity price risk. Interest rate swaps are entered into to manage interest rate risk associated with portions of the Company’s fixed and variable rate borrowings. Natural gas price swaps are entered into to manage the price risk associated with forecasted purchases of natural gas and electricity used by the Company’s hotels. The Company designates its interest rate swaps as cash flow hedges of variable rate borrowings and its natural gas price swaps as cash flow hedges of forecasted purchases of natural gas and electricity. The Company had designated certain interest rate swaps of its fixed rate borrowings as fair value hedges prior to the termination of these interest rate swaps in the second quarter of 2009. All of the Company’s derivatives are held for hedging purposes. Prior to July 2009, a portion of the Company’s natural gas price swap contracts were considered economic hedges and did not qualify for hedge accounting. The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes. All of the counterparties to the Company’s derivative agreements are financial institutions with at least investment grade credit ratings.

Cash Flow Hedging Strategy

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “interest expense” when the hedged transactions are interest cash flows associated with variable rate debt). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, or ineffectiveness, if any, is recognized in the statement of operations during the current period.

The interest rate swap agreement currently utilized by the Company effectively modifies the Company’s exposure to interest rate risk by converting $500.0 million, or 71%, of the Company’s variable rate debt outstanding under the term loan portion of the Company’s New $1.0 Billion Credit Facility to a weighted average fixed rate of 3.94% plus the applicable margin on these borrowings, thus reducing the impact of interest rate changes on future interest expense. This agreement involves the receipt of variable rate amounts in exchange for fixed rate interest payments through July 25, 2011, without an exchange of the underlying principal amount. The critical terms of the swap agreements match the critical terms of the borrowings under the term loan portion of the New $1.0 Billion Credit Facility. Therefore, the Company has designated these interest rate swap agreements as cash flow hedges. As the terms of these derivatives match the terms of the underlying hedged items, there should be no gain (loss) from ineffectiveness recognized in income on derivatives unless there is a termination of the derivative or the forecasted transaction is determined to be unlikely to occur.

The Company has entered into natural gas price swap contracts to manage the price risk associated with a portion of the Company’s forecasted purchases of natural gas and electricity used by the Company’s hotels. The objective of the hedge is to reduce the variability of cash flows associated with the forecasted purchases of these commodities. At March 31, 2010, the Company had nine variable to fixed natural gas price swap contracts that mature from April 2010 to December 2010 with an aggregate notional amount of approximately 792,000 dekatherms. The Company has designated these natural gas price swap contracts as cash flow hedges. The Company assesses the correlation of the terms of these derivatives with the terms of the underlying hedged items on a quarterly basis. As these terms are currently highly correlated, there should be no gain (loss) from ineffectiveness recognized in income on these derivatives unless there is a termination of the derivative or the forecasted transaction is determined to be unlikely to occur.

Fair Value Hedging Strategy

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, is recognized in the same line item associated with the hedged item in current earnings (e.g., in “interest expense” when the hedged item is fixed-rate debt).

The Company previously entered into two interest rate swap agreements to manage interest rate risk exposure on its fixed rate debt. The interest rate swap agreements utilized by the Company effectively modified the Company’s exposure to interest rate risk by converting $125.0 million of the Company’s fixed rate debt outstanding under its previously outstanding 8% senior notes to a variable rate equal to six-month LIBOR plus 2.95%, thus reducing the impact of interest rate changes on the fair value of the underlying fixed rate debt. These agreements involved the receipt of fixed rate amounts in exchange for variable rate interest payments through November 15, 2013, without an exchange of the underlying principal amount. The critical terms of the swap agreements mirrored the terms of the 8% senior notes. Therefore, the Company designated these interest rate swap agreements as fair value hedges. The counterparties, as permitted by the agreements, each opted to terminate its portion of the $125.0 million swap agreement effective May 15, 2009. As stated in the agreement, the two counterparties each paid a $2.5 million termination fee, plus accrued interest, to the Company on May

15, 2009. Prior to the redemption of the 8% senior notes in 2009, the Company amortized the resulting $5.0 million gain on the swap agreements over the remaining term of the 8% senior notes using the effective interest method. As a result of the redemption of the 8% senior notes in 2009, the Company recognized the remaining unamortized gain on the swap agreement during the fourth quarter of 2009.

The fair value of the Company’s derivative instruments based upon quotes, with appropriate adjustments for non-performance risk of the parties to the derivative contracts, at March 31, 2010 and December 31, 2009 is as follows (in thousands):

		Liability Derivatives
		March 31,				December
		2010				31, 2009
Derivatives designated as hedging instruments:
Interest rate swaps — cash flow hedges		$	24,397			$	25,661
Natural gas swaps			270				—
Total derivatives designated as hedging instruments		$	24,667			$	25,661
Total derivatives not designated as hedging instruments		$	—			$	—
Total derivatives		$	24,667			$	25,661

The effect of derivative instruments on the statement of operations for the respective periods is as follows (in thousands):

				Amount of Loss
				Recognized in Income
Derivatives in Fair Value		Location of Loss Recognized in Income on		Three Months Ended
Hedging Relationships		Derivative		March 31, 2009
Interest rate swaps		Interest expense, net of amounts capitalized		$(1,235)

				Amount of Gain
				Recognized in Income
Hedged Items in Fair Value		Location of Gain Recognized in Income on		Three Months Ended
Hedging Relationships		Related Hedged Item		March 31, 2009
Fixed Rate Debt		Interest expense, net of amounts capitalized		$1,235

		Amount of Gain (Loss)
		Recognized in OCI on										Amount Reclassified from
		Derivative (Effective Portion)										Accumulated OCI into Income
		Three				Three						Three				Three
Derivatives in		Months				Months						Months				Months
Cash Flow		Ended				Ended				Location of Amount		Ended				Ended
Hedging		March 31,				March 31,				Reclassified from		March 31,				March 31,
Relationships		2010				2009				Accumulated OCI into Income		2010				2009
Interest rate swaps		$	1,264			$	(392	)		Interest expense, net of amounts capitalized		$	—			$	—
Natural gas swaps			(270	)			(367	)		Operating costs			—				—
Total		$	994			$	(759	)		Total		$	—			$	—

				Amount of Loss Recognized in Income on
				Derivative
Derivatives Not		Location of Loss		Three Months
Designated		Recognized in Income on		Ended March 31,		Three Months Ended
as Hedging Instruments		Derivative		2010		March 31, 2009
Natural gas swaps		Other gains and (losses), net		$—		$(98)

9. SUPPLEMENTAL CASH FLOW DISCLOSURES:

Cash paid for interest related to continuing operations for the respective periods was comprised of (in thousands):

		Three Months Ended
		March 31,
		2010				2009
Debt interest paid		$	10,279			$	10,657
Capitalized interest			(209	)			(419	)
Cash interest paid, net of capitalized interest		$	10,070			$	10,238

Net cash refunds of income tax payments for the three months ended March 31, 2010 and 2009 were $0.1 million and $3.9 million, respectively (net of cash payments of income taxes of $0 and $0, respectively).

10. STOCK PLANS:

The Company’s 2006 Omnibus 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. 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 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 unless the option award contains a market provision, in which case the Company records compensation expense equal to the fair value of each award on a straight line basis over the requisite service period for each separately vesting portion of the award. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing formula. During the three months ended March 31, 2010, the Company granted 497,996 stock options with a weighted-average grant-date fair value of $11.47. Including shares permitted under previous plans, at March 31, 2010 and December 31, 2009, there were 3,738,732 and 3,364,183 shares, respectively, of the Company’s common stock reserved for future issuance pursuant to the exercise of outstanding stock options.

The Plan also provides for the award of restricted stock and restricted stock units (“Restricted Stock Awards”). 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. During the three months ended March 31, 2010, the Company granted

210,480 Restricted Stock Awards with a weighted-average grant-date fair value of $20.08. At March 31, 2010 and December 31, 2009, Restricted Stock Awards of 471,750 and 318,768 shares, respectively, were outstanding.

Under its long term incentive plan for key executives (“LTIP”) pursuant to the Plan, in February 2008, the Company granted selected executives and other key employees 449,500 restricted stock units (“LTIP Restricted Stock Units”), which cliff vest at the end of their four-year term. The number of LTIP Restricted Stock Units that vest will be determined at the end of their term based on the achievement of various company-wide performance goals. Based on current projections, the Company expects that portions of the performance goals will be achieved and only one-half of the LTIP Restricted Stock Units granted will vest at the end of their term. The Company is currently recording compensation expense equal to the fair value of one-half of the LTIP Restricted Stock Units granted on a straight-line basis over the vesting period. If there are changes in the expected achievement of the performance goals, the Company will adjust compensation expense accordingly. The fair value of the LTIP Restricted Stock Units was determined based on the market price of the Company’s stock at the date of grant. At both March 31, 2010 and December 31, 2009, LTIP Restricted Stock Units of 365,750 shares were outstanding.

Under the LTIP, in February 2008, the Company also granted selected executives and other key employees 650,000 stock options (“LTIP Stock Options”), which vested two to four years from the date of grant and had a term of ten years. The LTIP Stock Options were granted with an exercise price of $38.00, while the market price of the Company’s common stock on the grant date was $31.02. As a result of this market condition, prior to August 6, 2009, the Company recorded compensation expense equal to the fair value of each LTIP Stock Option granted on a straight-line basis over the requisite service period for each separately vesting portion of the award.

On August 6, 2009, the Company entered into Stock Option Cancellation Agreements with certain members of its management team, pursuant to which such individuals surrendered and cancelled 510,000 LTIP Stock Options with an exercise price of $38.00 per share, as well as 472,200 stock options with exercise prices ranging from $40.22 to $56.14 per share, to purchase shares of the Company’s common stock (the “Cancelled Stock Options”), in order to make additional shares available under the Company’s 2006 Omnibus Incentive Plan for future equity grants to Company personnel. Pursuant to the terms of the Stock Option Cancellation Agreements, these individuals and the Company acknowledged and agreed that the surrender and cancellation of the Cancelled Stock Options was without any expectation to receive, and was without any obligation on the Company to pay or grant, any cash payment, equity awards or other consideration presently or in the future in regard to the cancellation of the Cancelled Stock Options. The Company determined that because the Cancelled Stock Options were cancelled without a concurrent grant of a replacement award, the cancellation should be accounted for as a settlement for no consideration. Therefore, the Company recorded the previously unrecognized compensation cost related to the Cancelled Stock Options of $3.0 million during the third quarter of 2009. At both March 31, 2010 and December 31, 2009, LTIP Stock Options of 76,666 shares were outstanding.

The compensation cost that has been charged against pre-tax income for all of the Company’s stock-based compensation plans was $1.7 million and $1.8 million for the three months ended March 31, 2010 and 2009, respectively.

11. 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 respective periods (in thousands):

		Three months ended
		March 31,
		2010				2009
Interest cost		$	1,188			$	1,254
Expected return on plan assets			(1,197	)			(962	)
Amortization of net actuarial loss			519				906
Amortization of prior service cost			—				1
Total net periodic pension expense		$	510			$	1,199

Net postretirement benefit expense reflected in the accompanying condensed consolidated statements of operations included the following components for the respective periods (in thousands):

		Three months ended
		March 31,
		2010				2009
Service cost		$	17			$	21
Interest cost			244				312
Amortization of net gain			(3	)			—
Amortization of curtailment gain			(61	)			(61	)
Total net postretirement benefit expense		$	197			$	272

12. INCOME TAXES:

The Company’s effective tax rate as applied to pre-tax (loss) income was (101)% and 64% for the three months ended March 31, 2010 and 2009, respectively. Under the Patient Protection and Affordable Care Act, which became law on March 23, 2010, as amended by the Health Care and Education Reconciliation Act of 2010, the Company and other companies that receive a subsidy under Medicare Part D to provide retiree prescription drug coverage will no longer receive a Federal income tax deduction for the expenses incurred in connection with providing the subsidized coverage to the extent of the subsidy received. Because future anticipated retiree health care liabilities and related subsidies were already reflected in the Company’s financial statements, this change required the Company to reduce the value of the related tax benefits recognized in its financial statements during the period the law was enacted. As a result, the Company recorded a one-time, non-cash tax charge of $0.8 million during the three months ended March 31, 2010 to reflect the impact of this change. This charge, as well as changes in the Company’s valuation allowances during the 2010 period, resulted in the change to the effective tax rate noted above.

As of March 31, 2010 and December 31, 2009, the Company had $16.0 million and $16.1 million of unrecognized tax benefits, respectively, of which $9.1 million and $8.0 million, respectively, would affect the Company’s effective tax rate if recognized. These liabilities are recorded in other long-term liabilities in the accompanying condensed consolidated balance sheets. It is expected that the unrecognized tax benefits will change in the next twelve months; however, the Company does not expect the change to have a significant impact on the results of operations or the financial position of the Company. As of March 31, 2010 and December 31, 2009, the Company had accrued $1.3 million and $1.1 million, respectively, of interest and $0.1 million of penalties related to uncertain tax positions.

13. COMMITMENTS AND CONTINGENCIES:

On September 3, 2008, the Company announced it had entered into a land purchase agreement with DMB Mesa Proving Grounds LLC, an affiliate of DMB Associates, Inc. (“DMB”), to create a resort and convention hotel at the Mesa Proving Grounds in Mesa, Arizona, which is located approximately 30 miles from downtown Phoenix. The DMB development is planned to host an urban environment that features a Gaylord resort property, a retail development, a golf course, office space, residential offerings and significant other mixed-use components. The Company’s purchase agreement includes the purchase of 100 acres of real estate within the 3,200-acre Mesa Proving Grounds. The project is contingent on the finalization of entitlements and incentives, and final approval by the Company’s board of directors. The Company made an initial deposit of a portion of the land purchase price upon execution of the agreement with DMB, and additional deposit amounts are due upon the occurrence of various development milestones, including required governmental approvals of the entitlements and incentives. These deposits are refundable to the Company upon a termination of the agreement with DMB during a specified due diligence period, except in the event of a breach of the agreement by the Company. The timing of this development is uncertain, and the Company has not made any financing plans or, except as described above, made any commitments in connection with the proposed development.

The Company is considering other potential hotel sites throughout the country. The timing and extent of any of these development projects is uncertain, and the Company has not made any commitments, received any government approvals or made any financing plans in connection with these development projects.

Through a joint venture arrangement with RREEF Global Opportunities Fund II, LLC, a private real estate fund managed by DB Real Estate Opportunities Group (“RREEF”), the Company holds an 18.1% ownership interest in Waipouli Holdings, LLC, which it acquired in exchange for its initial capital contribution of $3.8 million to Waipouli Holdings, LLC in 2006. Through a wholly-owned subsidiary, Waipouli Owner, LLC, Waipouli Holdings, LLC owns the 311-room ResortQuest Kauai Beach at Makaiwa Hotel and related assets located in Kapaa, Hawaii (“the Kauai Hotel”). Waipouli Owner, LLC financed the purchase of the Kauai Hotel in 2006 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”). In connection with Waipouli Owner, LLC’s execution of the Kauai Hotel Loans, 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, or (ii) in the event of bankruptcy or reorganization proceedings of Waipouli Owner, LLC. 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 its pro rata share of any such guaranty payments. The guarantee of the $52.0 million senior loan was terminated in July 2009. The Company estimates that the maximum potential amount that the Company could be liable for under this contribution agreement is $3.0 million, which represents 18.1% of the $16.4 million of total debt that is subject to the guarantees. As of March 31, 2010, the Company had not recorded any liability in the condensed consolidated balance sheet associated with this guarantee. The Company has determined that Waipouli Holdings, LLC is a VIE, as the voting rights of the Company are not proportional to its right to receive the expected residual returns of the entity. The Company has determined that it is not the primary beneficiary of this VIE, as it does not have the power to direct the activities that most significantly impact the VIE’s economic performance.

Through a joint venture arrangement with G.O. IB-SIV US, a private real estate fund managed by DB Real Estate Opportunities Group (“IB-SIV”), the Company holds a 19.9% ownership interest in RHAC Holdings,

LLC, which it acquired in exchange for its initial capital contribution of $4.7 million to RHAC Holdings, LLC in 2005. Through a wholly-owned subsidiary, RHAC, LLC, RHAC Holdings LLC owns the 716-room Aston Waikiki Beach Hotel and related assets located in Honolulu, Hawaii (“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”). 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. In connection with RHAC, LLC’s execution of the Waikiki Hotel Loans, IB-SIV, 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, or (ii) in the event of bankruptcy or reorganization proceedings of RHAC, LLC. 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 March 31, 2010. As of March 31, 2010, the Company had not recorded any liability in the condensed consolidated balance sheet associated with this guarantee.

On February 22, 2005, the Company concluded the settlement of litigation with Nashville Hockey Club Limited Partnership (“NHC”), which owned 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 and has an outstanding balance of $1.0 million as of March 31, 2010. 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, 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.

In connection with the Company’s execution of an Agreement of Limited Partnership with 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 either of these obligations remains 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, 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 March 31, 2010, the Company had not recorded any liability in the condensed consolidated balance sheet associated with this guarantee.

The Company has purchased stop-loss coverage in order to limit its exposure to any significant levels of claims relating to workers’ compensation, employee medical benefits and general liability for which it is self-insured.

The Company has entered into employment agreements with certain officers, which provides for severance payments upon certain events, including certain terminations in connection with a change of control.

As of March 31, 2010, approximately 16% of the Company’s employees were represented by labor unions and are working pursuant to the terms of the collective bargaining agreements which have been negotiated with the four unions representing these employees.

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.

14. FAIR VALUE MEASUREMENTS:

The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of March 31, 2010, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included the Company’s derivative instruments related to interest rates and natural gas prices and investments held in conjunction with the Company’s non-qualified contributory deferred compensation plan.

The Company’s interest rate and natural gas derivative instruments consist of over-the-counter swap contracts, which are not traded on a public exchange. See Note 8 for further information on the Company’s derivative instruments and hedging activities. The Company determines the fair values of these swap contracts based on quotes, with appropriate adjustments for any significant impact of non-performance risk of the parties to the swap contracts. Therefore, the Company has categorized these swap contracts as Level 2. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds.

The investments held by the Company in connection with its deferred compensation plan consist of mutual funds traded in an active market. The Company determined the fair value of these mutual funds based on the net asset value per unit of the funds or the portfolio, which is based upon quoted market prices in an active market. Therefore, the Company has categorized these investments as Level 1. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of investments it holds.

The Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2010, were as follows (in thousands):

						Markets for				Observable				Unobservable
		March 31,				Identical Assets				Inputs				Inputs
		2010				(Level 1)				(Level 2)				(Level 3)
Deferred compensation plan investments		$	11,895			$	11,895			$	—			$	—
Total assets measured at fair value		$	11,895			$	11,895			$	—			$	—
Variable to fixed natural gas swaps		$	270			$	—			$	270			$	—
Variable to fixed interest rate swaps			24,397				—				24,397				—
Total liabilities measured at fair value		$	24,667			$	—			$	24,667			$	—

The remainder of the assets and liabilities held by the Company at March 31, 2010 are not required to be measured at fair value. The carrying value of certain of these assets and liabilities do not approximate fair value, as described below.

As further discussed in Note 6, in connection with the development of Gaylord National, the Company received two notes receivable from Prince George’s County, Maryland which had an aggregate carrying value of $132.6 million as of March 31, 2010. The aggregate fair value of these notes receivable, based upon current market interest rates of notes receivable with comparable market ratings and current expectations about the timing of debt service payments under the notes, was approximately $159 million as of March 31, 2010.

As more fully discussed in Note 7, the Company has $700.0 million in borrowings outstanding under the New $1.0 Billion Credit Facility that accrue interest at a rate of LIBOR plus 2.50%. Because the margin of 2.50% is fixed, the carrying value of borrowings outstanding do not approximate fair value. The fair value of the $700.0 million in borrowings outstanding under the New $1.0 Billion Credit Facility, based upon the present value of cash flows discounted at current market interest rates, was approximately $663 million as of March 31, 2010.

As more fully discussed in Note 7, the Company has outstanding $360.0 million in aggregate principal amount of Convertible Notes due 2014 that accrue interest at a fixed rate of 3.75%. The carrying value of these notes on March 31, 2010 was $297.7 million, net of discount. The fair value of the Convertible Notes, based upon the present value of cash flows discounted at current market interest rates, was approximately $316 million as of March 31, 2010.

As shown in Note 7, the Company has outstanding $154.2 million in aggregate principal amount of senior notes due 2014 that accrue interest at a fixed rate of 6.75%. The fair value of these notes, based upon quoted market prices, was $149.2 million as of March 31, 2010.

The carrying amount of short-term financial instruments (cash, short-term investments, trade receivables, accounts payable and accrued liabilities) approximates fair value due to the short maturity of those instruments. The concentration of credit risk on trade receivables is minimized by the large and diverse nature of the Company’s customer base.

15. STOCKHOLDERS’ EQUITY:

Shareholder Rights Plan

On August 12, 2008, the Company’s Board of Directors adopted a shareholder rights plan, as set forth in the Rights Agreement dated as of August 12, 2008 (the “Original Rights Agreement”), by and between the Company and Computershare Trust Company, N.A., as rights agent (“Computershare”). Pursuant to the terms of the Original Rights Agreement, the Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $.01 per share. The dividend was payable on August 25, 2008 to the shareholders of record as of the close of business on August 25, 2008.

The Rights initially trade with, and are inseparable from, the Company’s common stock. The Rights are evidenced only by the balances indicated in the book-entry account system of the transfer agent for the Company’s common stock or, in the case of certificated shares, the certificates that represent such shares of common stock. New Rights will accompany any new shares of common stock the Company issues after August 25, 2008 until the earlier of the Distribution Date, the redemption date or the final expiration date of the Original Rights Agreement, each as described below.

Each Right will allow its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock (“Preferred Share”) for $95.00, once the Rights become exercisable. This portion of a Preferred Share will give the shareholder approximately the same dividend, voting, and liquidation rights as would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.

Based on the terms of the Original Rights Agreement, as amended, the Rights will not be exercisable until the earlier of the following (the “Distribution Date”):

	•		10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 22% or more of the Company’s outstanding common stock; or
	•		10 business days (or a later date determined by the Board before any person or group becomes an Acquiring Person) after a person or group begins a tender or exchange offer (other than a Qualified Offer as defined) which, if completed, would result in that person or group becoming an Acquiring Person.

After the Distribution Date, each Right will generally entitle the holder, except the Acquiring Person or any associate or affiliate thereof, to acquire, for the exercise price of $95.00 per Right (subject to adjustment as provided in the Rights Agreement), shares of the Company’s common stock (or, in certain circumstances, Preferred Shares) having a market value equal to twice the Right’s then-current exercise price. In addition, if, the Company is later acquired in a merger or similar transaction after the Distribution Date, each Right will generally entitle the holder, except the Acquiring Person or any associate or affiliate thereof, to acquire, for the exercise price of $95.00 per Right (subject to adjustment as provided in the Rights Agreement), shares of the acquiring corporation having a market value equal to twice the Right’s then-current exercise price.

Each one one-hundredth of a Preferred Share, if issued:

	•		will not be redeemable;
	•		will entitle holders to quarterly dividend payments of $.01 per one one-hundredth of a share, or an amount equal to the dividend paid on one share of common stock, whichever is greater;
	•		will entitle holders upon liquidation either to receive $1 per one one-hundredth of a share or an amount equal to the payment made on one share of common stock, whichever is greater;

	•		will have the same voting power as one share of common stock; and
	•		if shares of the Company’s common stock are exchanged via merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to the payment made on one share of common stock.

The value of one one-hundredth of a Preferred Share will generally approximate the value of one share of common stock.

The Rights will expire on August 12, 2011, unless previously redeemed, or such later date as determined by the Board (so long as such determination is made prior to the earlier of the Distribution Date or August 12, 2011).

The Board may redeem the Rights for $.001 per Right at any time prior to the Distribution Date. If the Board redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $.001 per Right. The redemption price will be adjusted if the Company has a stock split or stock dividends of the Company’s common stock.

After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the Company’s outstanding common stock, the Board may extinguish the Rights by exchanging one share of common stock or an equivalent security for each Right, other than Rights held by the Acquiring Person and its associates and affiliates.

Agreements with Stockholders

During the three months ended March 31, 2009, the Company incurred various costs in connection with preparing for a proxy contest, reaching agreements with two of its larger stockholders, and reimbursing certain expenses pursuant to one of the agreements of $0.9 million. In addition, the Company incurred costs of $0.9 million in connection with the settlement of the Company’s shareholder rights plan litigation. These costs are included in selling, general and administrative expense in the accompanying condensed consolidated statement of operations.

Treasury Stock

On December 18, 2008, following approval by the Human Resources Committee and the Board of Directors, the Company and the Company’s Chairman of the Board of Directors and Chief Executive Officer (“Executive”) entered into an amendment to Executive’s employment agreement. The amendment provided Executive with the option of making an irrevocable election to invest his existing Supplemental Employee Retirement Plan (“SERP”) benefit in Company common stock, which election Executive subsequently made. The investment was made by a rabbi trust in which, during January 2009, the independent trustee of the rabbi trust purchased shares of Company common stock in the open market in compliance with applicable law. Executive is only entitled to a distribution of the Company common stock held by the rabbi trust in satisfaction of his SERP benefit. As such, the Company believes that the ownership of shares of common stock by the rabbi trust and the distribution of those shares to Executive in satisfaction of his SERP benefit meets the requirements necessary so that the Company will not recognize any increase or decrease in expense as a result of subsequent changes in the value of the Company common stock and the purchased shares are treated as treasury stock and the SERP benefit is included in additional paid-in capital in the Company’s accompanying condensed consolidated financial statements.

16. EMPLOYEE SEVERANCE COSTS:

In the three months ended March 31, 2009, as part of the Company’s cost containment initiative, the Company eliminated approximately 350 employee positions, which included positions in all segments of the organization. As a result, the Company recognized approximately $4.5 million in severance costs in the three months ended March 31, 2009. These costs are comprised of operating costs and selling, general and administrative costs of $2.8 million and $1.7 million, respectively, for the three months ended March 31, 2009, in the accompanying condensed consolidated statements of operations.

17. FINANCIAL REPORTING BY BUSINESS SEGMENTS:

The Company’s continuing operations are organized into three principal business segments:

	•		Hospitality, which includes the Gaylord Opryland Resort and Convention Center, the Gaylord Palms Resort and Convention Center, the Gaylord Texan Resort and Convention Center, the Gaylord National Resort and Convention Center and the Radisson Hotel at Opryland, as well as the Company’s ownership interests in two joint ventures;
	•		Opry and Attractions, which includes the Grand Ole Opry, WSM-AM, Corporate Magic, and the Company’s Nashville-based attractions; and
	•		Corporate and Other, which includes the Company’s corporate expenses.

The following information from continuing operations is derived directly from the segments’ internal financial reports used for corporate management purposes (amounts in thousands).

		Three Months Ended
		March 31,
		2010				2009
Revenues:
Hospitality		$	203,695			$	200,647
Opry and Attractions			12,970				11,644
Corporate and Other			25				28
Total		$	216,690			$	212,319
Depreciation and amortization:
Hospitality		$	23,219			$	24,589
Opry and Attractions			1,367				1,114
Corporate and Other			2,490				2,368
Total		$	27,076			$	28,071
Operating income (loss):
Hospitality		$	30,246			$	26,151
Opry and Attractions			(868	)			(2,508	)
Corporate and Other			(14,529	)			(15,621	)
Total operating income			14,849				8,022
Interest expense, net of amounts capitalized			(20,115	)			(18,600	)
Interest income			3,222				3,846
(Loss) income from unconsolidated companies			(73	)			129
Net gain on extinguishment of debt			1,199				16,557
Other gains and (losses), net			(13	)			(150	)
(Loss) income before provision for income taxes		$	(931	)		$	9,804

18. SUBSEQUENT EVENTS:

The Gaylord Opryland Resort and Convention Center, which is located adjacent to the Cumberland River and is protected by levees accredited by the Federal Emergency Management Agency (“FEMA”) (which, according to FEMA, was based on information provided by the Company), and built to sustain a 100-year flood, suffered flood damage on May 3, 2010 as the river rose to levels that over-topped the levees. The resort is currently closed. While it is too early to determine how long the hotel will be closed, and thus, the financial impact on the Company, the Company believes it is reasonable to conclude that the hotel will likely be closed for several months. The Company carries business interruption and property insurance associated with flood damage with an aggregate limit of $50.0 million.

19. INFORMATION CONCERNING GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:

Not all of the Company’s subsidiaries have guaranteed the Company’s 6.75% senior notes. The Company’s 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 joint ventures and certain discontinued operations and inactive subsidiaries (the “Non-Guarantors”) do not guarantee the Company’s 6.75% senior notes.

The following 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 March 31, 2010

										Non-
(in thousands)		Issuer				Guarantors				Guarantors				Eliminations				Consolidated
Revenues		$	1,592			$	216,732			$	—			$	(1,634	)		$	216,690
Operating expenses:
Operating costs			—				132,003				—				(10	)			131,993
Selling, general and administrative			5,334				37,475				—				(37	)			42,772
Management fees			—				1,587				—				(1,587	)			—
Depreciation and amortization			1,284				25,792				—				—				27,076
Operating (loss) income			(5,026	)			19,875				—				—				14,849
Interest expense, net of amounts capitalized			(20,465	)			(28,939	)			—				29,289				(20,115	)
Interest income			24,068				4,808				3,635				(29,289	)			3,222
Loss from unconsolidated companies			—				(73	)			—				—				(73	)
Net gain on extinguishment of debt			1,199				—				—				—				1,199
Other gains and (losses), net			3				(16	)			—				—				(13	)
(Loss) income before (benefit) provision for income taxes			(221	)			(4,345	)			3,635				—				(931	)
(Provision) benefit for income taxes			(656	)			1,507				(1,791	)			—				(940	)
Equity in subsidiaries’ losses, net			(973	)			—				—				973				—
(Loss) income from continuing operations			(1,850	)			(2,838	)			1,844				973				(1,871	)
Income from discontinued operations, net of taxes			—				—				21				—				21
Net (loss) income		$	(1,850	)		$	(2,838	)		$	1,865			$	973			$	(1,850	)

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2009

										Non-
(in thousands)		Issuer				Guarantors				Guarantors				Eliminations				Consolidated
Revenues		$	2,056			$	212,311			$	—			$	(2,048	)		$	212,319
Operating expenses:
Operating costs			—				131,365				—				—				131,365
Selling, general and administrative			5,436				39,425				—				—				44,861
Management fees			—				2,048				—				(2,048	)			—
Depreciation and amortization			1,379				26,692				—				—				28,071
Operating (loss) income			(4,759	)			12,781				—				—				8,022
Interest expense, net of amounts capitalized			(19,148	)			(28,891	)			(82	)			29,521				(18,600	)
Interest income			6,223				23,689				3,455				(29,521	)			3,846
Income from unconsolidated companies			—				129				—				—				129
Net gain on extinguishment of debt			16,557				—				—				—				16,557
Other gains and (losses), net			(1	)			(149	)			—				—				(150	)
(Loss) income before (benefit) provision for income taxes			(1,128	)			7,559				3,373				—				9,804
Benefit (provision) for income taxes			524				(5,361	)			(1,449	)			—				(6,286	)
Equity in subsidiaries’ earnings, net			4,031				—				—				(4,031	)			—
Income from continuing operations			3,427				2,198				1,924				(4,031	)			3,518
Income (loss) from discontinued operations, net of taxes			—				23				(114	)			—				(91	)
Net income		$	3,427			$	2,221			$	1,810			$	(4,031	)		$	3,427

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

March 31, 2010

										Non-
(in thousands)		Issuer				Guarantors				Guarantors				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents — unrestricted		$	176,183			$	3,312			$	—			$	—			$	179,495
Cash and cash equivalents — restricted			1,150				—				—				—				1,150
Trade receivables, net			—				49,834				—				—				49,834
Deferred income taxes			331				646				763								1,740
Other current assets			29,596				53,451				—				(126	)			82,921
Intercompany receivables, net			1,625,714				—				283,192				(1,908,906	)			—
Current assets of discontinued operations			—				—				63				—				63
Total current assets			1,832,974				107,243				284,018				(1,909,032	)			315,203
Property and equipment, net of accumulated depreciation			45,415				2,083,157				—				—				2,128,572
Notes receivable, net of current portion			—				132,233				—				—				132,233
Long-term deferred financing costs			16,528				—				—				—				16,528
Other long-term assets			743,850				353,779				—				(1,050,826	)			46,803
Total assets		$	2,638,767			$	2,676,412			$	284,018			$	(2,959,858	)		$	2,639,339
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations		$	1,000			$	1,279			$	—			$	—			$	2,279
Accounts payable and accrued liabilities			28,838				121,948				—				(421	)			150,365
Estimated fair value of derivative liabilities			270				—				—				—				270
Intercompany payables, net			—				1,826,465				82,441				(1,908,906	)			—
Current liabilities of discontinued operations			—				—				571				—				571
Total current liabilities			30,108				1,949,692				83,012				(1,909,327	)			153,485
Long-term debt and capital lease obligations, net of current portion			1,151,847				444				—				—				1,152,291
Deferred income taxes			(26,368	)			126,785				734				—				101,151
Estimated fair value of derivative liabilities			24,397				—				—				—				24,397
Other long-term liabilities			54,731				73,480				—				295				128,506
Long-term liabilities of discontinued operations			—				—				451				—				451
Stockholders’ equity:
Preferred stock			—				—				—				—				—
Common stock			470				2,388				1				(2,389	)			470
Additional paid-in capital			883,102				1,088,457				(47,521	)			(1,040,936	)			883,102
Treasury stock			(4,599	)			—				—				—				(4,599	)
Retained earnings			557,872				(564,834	)			247,341				(7,501	)			232,878
Other stockholders’ equity			(32,793	)			—				—				—				(32,793	)
Total stockholders’ equity			1,404,052				526,011				199,821				(1,050,826	)			1,079,058
Total liabilities and stockholders’ equity		$	2,638,767			$	2,676,412			$	284,018			$	(2,959,858	)		$	2,639,339

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

December 31, 2009

										Non-
(in thousands)		Issuer				Guarantors				Guarantors				Eliminations				Consolidated
ASSETS:
Current assets:
Cash and cash equivalents — unrestricted		$	175,871			$	4,162			$	—			$	—			$	180,033
Cash and cash equivalents — restricted			1,150				—				—				—				1,150
Trade receivables, net			—				40,917				—				—				40,917
Deferred income taxes			331				1,431				763				—				2,525
Other current assets			29,653				51,361				—				(126	)			80,888
Intercompany receivables, net			1,629,974				—				279,626				(1,909,600	)			—
Current assets of discontinued operations			—				—				63				—				63
Total current assets			1,836,979				97,871				280,452				(1,909,726	)			305,576
Property and equipment, net of accumulated depreciation			47,317				2,102,497				—				—				2,149,814
Notes receivable, net of current portion			—				142,311				—				—				142,311
Long-term deferred financing costs			18,081				—				—				—				18,081
Other long-term assets			743,157				353,883				—				(1,051,799	)			45,241
Total assets		$	2,645,534			$	2,696,562			$	280,452			$	(2,961,525	)		$	2,661,023
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Current portion of long-term debt and capital lease obligations		$	1,000			$	814			$	—			$	—			$	1,814
Accounts payable and accrued liabilities			13,585				138,568				—				(290	)			151,863
Intercompany payables, net			—				1,828,124				81,476				(1,909,600	)			—
Current liabilities of discontinued operations			—				—				669				—				669
Total current liabilities			14,585				1,967,506				82,145				(1,909,890	)			154,346
Long-term debt and capital lease obligations, net of current portion			1,175,564				1,310				—				—				1,176,874
Deferred income taxes			(28,574	)			129,260				(96	)			—				100,590
Estimated fair value of derivative liabilities			25,661				—				—				—				25,661
Other long-term liabilities			54,620				69,637				—				164				124,421
Long-term liabilities of discontinued operations			—				—				447				—				447
Commitments and contingencies
Stockholders’ equity:
Preferred stock			—				—				—				—				—
Common stock			470				2,388				1				(2,389	)			470
Additional paid-in capital			881,512				1,088,457				(47,521	)			(1,040,936	)			881,512
Treasury stock			(4,599	)			—				—				—				(4,599	)
Retained earnings			559,722				(561,996	)			245,476				(8,474	)			234,728
Accumulated other comprehensive loss			(33,427	)			—				—				—				(33,427	)
Total stockholders’ equity			1,403,678				528,849				197,956				(1,051,799	)			1,078,684
Total liabilities and stockholders’ equity		$	2,645,534			$	2,696,562			$	280,452			$	(2,961,525	)		$	2,661,023

GAYLORD ENTERTAINMENT COMPANY AND SUBSIDIARIES

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2010

										Non-
(in thousands)		Issuer				Guarantors				Guarantors				Eliminations				Consolidated
Net cash provided by continuing operating activities		$	25,988			$	1,690			$	55			$	—			$	27,733
Net cash used in discontinued operating activities			—				—				(55	)			—				(55	)
Net cash provided by operating activities			25,988				1,690				—				—				27,678
Purchases of property and equipment			(15	)			(5,166	)			—				—				(5,181	)
Collection of notes receivable			—				4,025				—				—				4,025
Other investing activities			(1,094	)			(1,213	)			—				—				(2,307	)
Net cash used in investing activities — continuing operations			(1,109	)			(2,354	)			—				—				(3,463	)
Net cash provided by investing activities — discontinued operations			—				—				—				—				—
Net cash used in investing activities			(1,109	)			(2,354	)			—				—				(3,463	)
Repurchases of senior notes			(25,082	)			—				—				—				(25,082	)
Proceeds from exercise of stock option and purchase plans			381				—				—				—				381
Excess tax benefit from stock based compensation			134				—				—				—				134
Other financing activities, net			—				(186	)			—				—				(186	)
Net cash used in financing activities — continuing operations			(24,567	)			(186	)			—				—				(24,753	)
Net cash provided by financing activities — discontinued operations			—				—				—				—				—
Net cash provided by (used in) financing activities			(24,567	)			(186	)			—				—				(24,753	)
Net change in cash and cash equivalents			312				(850	)			—				—				(538	)
Cash and cash equivalents at beginning of year			175,871				4,162				—				—				180,033
Cash and cash equivalents at end of year		$	176,183			$	3,312			$	—			$	—			$	179,495