Red Lion Hotels Reports Third Quarter 2010 Results

($ in thousands, except per share)

Three months ended September 30,

Nine months ended September 30,

2010

2009

% change

2010

2009

% change

Total revenue, as reported

$ 49,843

$ 50,255

-0.8%

$ 126,600

$ 129,728

-2.4%

Results before special items: (1)

 EBITDA from continuing operations

$ 12,377

$ 12,700

-2.5%

$   21,798

$   24,072

-9.4%

 Net income (loss) from continuing operations

$   3,157

$   3,392

-6.9%

$      (217)

$     1,647

n/m

 Earnings per share - diluted

$     0.17

$     0.19

-8.9%

$     (0.01)

$       0.09

n/m

Results as reported:

 EBITDA from continuing operations

$ 12,377

$ 12,700

-2.5%

$   20,579

$   24,072

-14.5%

 Net income (loss) from continuing operations

$   3,157

$   3,392

-6.9%

$   (1,003)

$     1,647

n/m

 Earnings per share - diluted

$     0.17

$     0.19

-8.9%

$     (0.05)

$       0.09

n/m

(1)

Excludes $1.2 million of cash and non-cash costs recorded in the first quarter of 2010 related to the separation of the company's former President and Chief Executive Officer included with undistributed corporate expenses.

Three months ended September 30,

Nine months ended September 30,

2010

2009

change

2010

2009

change

RevPAR (revenue per available room)

$   63.46

$   58.58

8.3%

$     50.83

$     48.90

3.9%

ADR (average daily rate)

$   90.50

$   85.57

5.8%

$     85.74

$     83.74

2.4%

Occupancy

70.1%

68.5%

1.6%

59.3%

58.4%

0.9%

Hotels revenue:

Rooms

$ 35,734

$ 32,988

8.3%

$   84,934

$   81,722

3.9%

Food and beverage

9,048

10,453

-13.4%

26,914

31,037

-13.3%

Other revenue

1,439

1,315

9.4%

3,625

3,170

14.4%

Total hotels revenue

$ 46,221

$ 44,756

3.3%

$ 115,473

$ 115,929

-0.4%

Hotel direct operating margin

31.5%

32.4%

-0.9%

24.8%

26.4%

-1.6%

Investor Relations:

Company Contact:

Stacy Feit, Vice President

Pam Scott

Financial Relations Board

Director of Corporate Communications

(213) 486-6549

(509) 777-6393

Red Lion Hotels Corporation

Consolidated Statements of Operations

(unaudited)

($ in thousands, except footnotes)

Three months ended September 30,

2010

2009

$ Change

% Change

Revenue:

Hotels

$ 46,221

$ 44,756

$   1,465

3.3%

Franchise

999

1,046

(47)

-4.5%

Entertainment

2,048

3,861

(1,813)

-47.0%

Other

575

592

(17)

-2.9%

Total revenues

49,843

50,255

(412)

-0.8%

Operating expenses:

Hotels

31,652

30,233

1,419

4.7%

Franchise

789

646

143

22.1%

Entertainment

1,545

2,987

(1,442)

-48.3%

Other

438

528

(90)

-17.0%

Depreciation and amortization

5,216

5,322

(106)

-2.0%

Hotel facility and land lease

1,987

1,750

237

13.5%

Gain on asset dispositions, net

(118)

(85)

33

38.8%

Undistributed corporate expenses

1,431

1,540

(109)

-7.1%

Total expenses

42,940

42,921

19

0.0%

Operating income (loss)

6,903

7,334

(431)

-5.9%

Other income (expense):

Interest expense

(2,282)

(2,268)

(14)

-0.6%

Other income, net

265

49

216

-440.8%

Income (loss) before income taxes

4,886

5,115

(229)

-4.5%

Income tax expense (benefit)

1,729

1,723

6

0.3%

Net Income (loss) from continuing operations

3,157

3,392

(235)

-6.9%

Discontinued operations:

Income (loss) from operations of discontinued business units,

 net of income tax benefit (expense) of $36 and $(128)

(68)

248

(316)

nm

Income (loss) on disposal of discontinued business units,

 net of income tax benefit (expense) of $20 and $0

(38)

-

(38)

nm

Net Income (loss) from discontinued operations

(106)

248

(354)

nm

Net income (loss)

3,051

3,640

(589)

-16.2%

Net Income (loss) attributable to noncontrolling interest

(7)

(5)

(2)

40.0%

Net income (loss) attributable to Red Lion Hotels Corporation

$   3,044

$   3,635

$    (591)

-16.3%

Earnings per share - Basic

Net income (loss) from continuing operations

$     0.17

$     0.19

Net income (loss) from discontinued operations

$   (0.01)

$     0.01

Net income (loss) attributable to Red Lion Hotels Corporation

$     0.16

$     0.20

Weighted average shares - basic (1)

18,514

18,157

Earnings per share - Diluted

Net income (loss) from continuing operations

$     0.17

$     0.19

Net income (loss) from discontinued operations

$   (0.01)

$     0.01

Net income (loss) attributable to Red Lion Hotels Corporation

$     0.16

$     0.20

Weighted average shares - diluted (1)

18,710

18,306

EBITDA  (2)  

$ 12,221

$ 13,094

$    (873)

-6.7%

EBITDA as a percentage of revenues

24.5%

26.1%

EBITDA from continuing operations (2)  

$ 12,377

$ 12,700

$    (323)

-2.5%

EBITDA from continuing operations

as a percentage of revenues

24.8%

25.3%

(1)  For the three months ended September 30, 2010, 109,924 of the 793,083 options to purchase common shares outstanding as of that date were considered dilutive, as were 42,619 of the 229,547 restricted stock units outstanding.  For the three months ended September 30, 2009, 72,258 of the 1,212,771 options to purchase common shares outstanding as of that date were considered dilutive.  Of the 250,195 restricted stock units outstanding, 31,310 shares were considered dilutive during the third quarter of 2009.  For both comparative periods, all of the 44,837 convertible operating partnership units, respectively, were considered dilutive.  

(2)  The definition of "EBITDA" and how that measure relates to net income attributable to Red Lion Hotels Corporation is discussed further in this release under Non-GAAP Financial Measures.  

Red Lion Hotels Corporation

Consolidated Statements of Operations

(unaudited)

($ in thousands, except footnotes)

Nine months ended September 30,

2010

2009

$ Change

% Change

Revenue:

Hotels

$ 115,473

$ 115,929

$    (456)

-0.4%

Franchise

2,446

2,845

(399)

-14.0%

Entertainment

6,866

8,968

(2,102)

-23.4%

Other

1,815

1,986

(171)

-8.6%

Total revenues

126,600

129,728

(3,128)

-2.4%

Operating expenses:

Hotels

86,864

85,357

1,507

1.8%

Franchise

2,177

1,764

413

23.4%

Entertainment

5,544

7,375

(1,831)

-24.8%

Other

1,275

1,609

(334)

-20.8%

Depreciation and amortization

15,590

15,544

46

0.3%

Hotel facility and land lease

5,512

5,271

241

4.6%

Gain on asset dispositions, net

(273)

(140)

133

95.0%

Undistributed corporate expenses (1)

5,237

4,526

711

15.7%

Total expenses

121,926

121,306

620

0.5%

Operating income

4,674

8,422

(3,748)

-44.5%

Other income (expense):

Interest expense

(6,832)

(6,297)

(535)

-8.5%

Other income, net

312

111

201

-181.1%

Income (loss) before income taxes

(1,846)

2,236

(4,082)

nm

Income tax (benefit) expense

(843)

589

(1,432)

nm

Net income (loss) from continuing operations

(1,003)

1,647

(2,650)

nm

Discontinued operations:

Income (loss) from operations of discontinued business units,

 net of income tax benefit (expense) of $181 and $(97)

(351)

188

(539)

nm

Income (loss) on disposal of discontinued business units,

 net of income tax benefit (expense) of $20 and $3

(38)

(5)

(33)

nm

Net Income (loss) from discontinued operations

(389)

183

(572)

nm

Net income (loss)

(1,392)

1,830

(3,222)

nm

Net income (loss) attributable to noncontrolling interest

3

(5)

8

nm

Net income (loss) attributable to Red Lion Hotels Corporation (1)

$   (1,389)

$     1,825

$ (3,214)

nm

Earnings per share - Basic

Net income (loss) from continuing operations

$     (0.05)

$       0.09

Net Income (loss) from discontinued operations

$     (0.02)

$       0.01

Net income (loss) attributable to Red Lion Hotels Corporation

$     (0.07)

$       0.10

Weighted average shares - basic (2)

18,402

18,089

Earnings per share - Diluted

Net income (loss) from continuing operations

$     (0.05)

$       0.09

Net Income (loss) from discontinued operations

$     (0.02)

$       0.01

Net income (loss) attributable to Red Lion Hotels Corporation

$     (0.07)

$       0.10

Weighted average shares - diluted (2)

18,402

18,119

EBITDA  (1,3)  

$   20,021

$   24,409

$ (4,388)

-18.0%

EBITDA as a percentage of revenues

15.8%

18.8%

EBITDA from continuing operations (1,3)  

$   20,579

$   24,072

$ (3,493)

-14.5%

EBITDA from continuing operations

16.3%

18.6%

as a percentage of revenues

(1)  Includes $1.2 million of cash and non-cash expense recorded in the first quarter of 2010 related to the separation of the company's former President and CEO, as discussed further in this release under Disclosure of Special Items.  

(2)  For the nine months ended September 30, 2010, all of the 793,083 options to purchase common shares outstanding as of that date were considered anti-dilutive due to the loss for the period, as were the 229,547 restricted stock units outstanding.  For the nine months ended September 30, 2009, none of the 1,212,771 options to purchase common shares outstanding as of that date were considered dilutive, as the grant date stock price of all options outstanding was above the weighted average price of the Company's common stock during that period.  Similarly, none of the 250,195 restricted stock units outstanding were considered dilutive.  For the nine months ended September 30, 2010 all of the 44,837 convertible operating partnership units were considered anti-dilutive due to the loss for the period.  For the nine months ended September 30, 2009 29,946 of the 44,837 convertible operating partnership units were considered dilutive.  

(3)  The definition of "EBITDA" and how that measure relates to net income attributable to Red Lion Hotels Corporation is discussed further in this release under Non-GAAP Financial Measures.  

Red Lion Hotels Corporation

Consolidated Balance Sheets

(unaudited)

($ in thousands, except share data)

September 30,

December 31,

2010

2009

Assets:

Current assets:

Cash and cash equivalents

$                      3,046

$                 3,881

Restricted cash

5,643

3,801

Accounts receivable, net

8,626

6,993

Inventories

1,329

1,341

Prepaid expenses and other

2,564

3,199

Assets of discontinued operations

-

61

Total current assets

21,208

19,276

Property and equipment, net

278,340

285,601

Goodwill

28,042

28,042

Intangible assets, net

10,067

10,199

Other assets, net

7,211

7,337

Noncurrent assets of discontinued operations

-

181

Total assets

$                  344,868

$             350,636

Liabilities:

Current liabilities:

Accounts payable

$                      9,570

$                 6,079

Accrued payroll and related benefits

3,417

2,402

Accrued interest payable

263

318

Advance deposits

725

496

Other accrued expenses

10,638

7,910

Revolving credit facility

16,000

-

Long-term debt, due within one year

20,481

3,171

Liabilities of discontinued operations

-

29

Total current liabilities

61,094

20,405

Revolving credit facility

-

26,000

Long-term debt, due after one year

57,483

77,151

Deferred income

8,068

8,638

Deferred income taxes

11,341

12,595

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

Total liabilities

168,811

175,614

Stockholders' equity:

Red Lion Hotels Corporation stockholders' equity

Preferred stock - 5,000,000 shares authorized;  $0.01 par value;

no shares issued or outstanding

-

-

Common stock - 50,000,000 shares authorized; $0.01 par value;  

18,578,423 and 18,180,104 shares issued and outstanding

186

182

Additional paid-in capital, common stock

144,901

142,479

Retained earnings

30,957

32,346

Total Red Lion Hotels Corporation stockholders' equity

176,044

175,007

Noncontrolling interest

13

15

Total equity

176,057

175,022

Total liabilities and stockholders' equity

$                  344,868

$             350,636

Red Lion Hotels Corporation

Consolidated Statement of Cash Flows

(unaudited)

($ in thousands)

Nine months ended September 30,

2010

2009

Operating activities:

Net income (loss)

$ (1,392)

$  1,830

Adjustments to reconcile net income (loss) attributable to Red Lion Hotels Corporation

 to net cash provided by operating activities:

   Depreciation and amortization

15,624

15,603

   Gain on disposition of property, equipment and other assets, net

(273)

(132)

   Impairment Loss

58

-

   Deferred income tax provision (benefit)

(1,254)

872

   Equity in investments

11

16

   Stock based compensation expense

1,341

941

   Provision for doubtful accounts

196

103

   Change in current assets and liabilities:

      Restricted cash

(1,842)

178

      Accounts receivable

(2,171)

1,531

      Inventories

21

123

      Prepaid expenses and other

680

(679)

      Accounts payable

3,490

(5,344)

      Accrued payroll and related benefits

1,252

(1,011)

      Accrued interest payable

(55)

1

      Deferred lease income

-

900

      Other accrued expenses and advance deposits

2,713

4,316

   Net cash (used in) provided by operating activities

18,399

19,248

Investing activities:

Purchases of property and equipment

(7,902)

(15,106)

Proceeds from disposition of property and equipment

100

16

Advances to Red Lion Hotels Capital Trust

(27)

(27)

Other, net

395

(1,021)

  Net cash (used in) provided by investing activities

(7,434)

(16,138)

Financing activities:

Borrowings on revolving credit facility

10,500

5,000

Repayment of revolving credit facility

(20,500)

(19,000)

Repayment of long-term debt

(2,358)

(2,237)

Proceeds from stock options exercised

800

-

Proceeds from issuance of common stock under employee stock

purchase plan

130

119

Additions to deferred financing costs

(292)

(153)

Common stock redeemed

(84)

(11)

  Net cash (used in) provided by financing activities

(11,804)

(16,282)

Net cash in discontinued operations

4

(15)

Change in cash and cash equivalents:

Net increase (decrease) in cash and cash equivalents

(835)

(13,187)

Cash and cash equivalents at beginning of period

3,881

18,216

Cash and cash equivalents at end of period

$  3,046

$  5,029

Red Lion Hotels Corporation

Additional Hotel Statistics

(unaudited)

System-wide Hotels as of September 30, 2010

Meeting Space

Hotels

Rooms

(sq. ft.)

Red Lion Owned and Leased Hotels

31

6,121

304,566

Red Lion Franchised Hotels

12

2,263

115,421

Total Red Lion Hotels

43

8,384

419,987

Comparable Hotel Statistics  (1)

Three months ended September 30, 2010

Three months ended September 30, 2009

Average

Average

Occupancy (2)

ADR (3)

RevPAR (4)

Occupancy (2)

ADR (3)

RevPAR (4)

Owned and Leased Hotels

70.1%

$ 90.50

$           63.46

68.5%

$ 85.57

$    58.58

Franchised Hotels

63.9%

$ 78.24

$           50.03

62.6%

$ 77.26

$    48.39

Total System Wide

68.5%

$ 87.50

$           59.93

66.9%

$ 83.53

$    55.90

Change from prior comparative period:

 Owned and Leased Hotels

1.6

5.8%

8.3%

 Franchised Hotels

1.3

1.3%

3.4%

 Total System Wide

1.6

4.8%

7.2%

Nine months ended September 30, 2010

Nine months ended September 30, 2009

Average

Average

Occupancy (2)

ADR (3)

RevPAR (4)

Occupancy (2)

ADR (3)

RevPAR (4)

Owned and Leased Hotels

59.3%

$ 85.74

$           50.83

58.4%

$ 83.74

$    48.90

Franchised Hotels

54.1%

$ 77.49

$           41.91

54.8%

$ 78.40

$    42.96

Total System Wide

57.9%

$ 83.72

$           48.49

57.5%

$ 82.40

$    47.34

Change from prior comparative period:

 Owned and Leased Hotels

0.9

2.4%

3.9%

 Franchised Hotels

(0.7)

-1.2%

-2.4%

 Total System Wide

0.4

1.6%

2.4%

(1)  Includes all hotels owned, leased and franchised, presented on a comparable basis for hotel statistics.  

(2)  Average occupancy represents total paid rooms divided by total available rooms.  Total available rooms represents the number of rooms available multiplied by the number of days in the reported period and includes rooms taken out of service for renovation.  

(3)  Average daily rate ("ADR") represents total room revenues divided by the total number of paid rooms occupied by hotel guests.  

(4)  Revenue per available room ("RevPAR") represents total room and related revenues divided by total available rooms.  

Red Lion Hotels Corporation

Disclosure of Special Items

(unaudited)

In the first quarter of 2010, the Company recorded an expense of $1.2 million from the separation of its former President and Chief Executive Officer.  As a result, the operations as presented in the accompanying financial statements for the nine months ended September 30, 2010 compared to 2009 do not reflect a meaningful comparison between periods.  The following table represents a reconciliation of certain earnings measures from continuing operations before special items to a loss after special items.

Nine months ended September 30, 2010

Nine months ended September 30, 2009

($ in thousands except per share data)

Net Income

EBITDA

Diluted EPS

Net Income

EBITDA

Diluted EPS

Amount before special item

$      (217)

$ 21,798

$      (0.01)

$     1,647

$ 24,072

$       0.09

Special items:

Separation costs (1)

(1,219)

(1,219)

(0.06)

-

-

-

Income tax expense of special item (2)

433

-

0.02

-

-

-

Amount per consolidated statement of continuing operations

$   (1,003)

$ 20,579

$      (0.05)

$     1,647

$ 24,072

$       0.09

Change from the comparative period:

Amount before special item

-113.2%

-9.4%

-113.1%

Amount per consolidated statement of operations

-160.9%

-14.5%

-160.6%

(1)  Amount as included in the line item "Undistributed corporate expenses" on the accompanying consolidated statements of operations.  

(2)  Represents taxes on special items at the Company's expected incremental tax rate as applicable.  

Red Lion Hotels Corporation

Impact of Change in Accounting Principle on Consolidated Financial Statements

(unaudited)

In June 2009, the FASB issued changes to the consolidation guidance applicable to variable interest entities ("VIE") that became effective for us on January 1, 2010.  Under the new guidance, we have determined that our cooperative marketing fund, referred to as the Central Program Fund ("CPF"), now meets the definition of a VIE and should be included in our consolidated financial statements.  For additional information on the CPF, see Note 2 of Notes to Consolidated Financial Statements for the year ended December 31, 2009, previously filed with the SEC on Form 10-K.

The CPF acts as an agent for our owned and leased hotels and for our franchisees, and was created to provide services to all member hotels including certain advertising services, frequent guest program administration, reservation services, national sales promotions and brand and revenue management services intended to increase sales and enhance the reputation of the Red Lion brand.  The activities of the CPF benefit our owned and leased hotels as well as our franchise properties, however, historically only the proportionate share of CPF expenses for our owned and leased hotels were recognized in our consolidated financial statements.  Based on the new guidance, we will now include all of the expenses and other balances of the CPF in our consolidated financial statements, including revenue received from franchisees to support CPF activities.  There have been no changes to the organization, structure or operating activities of the CPF since its inception in 2002.

The adoption of these changes were applied retrospectively, including the recording of the $1.0 million net of tax impact of cumulative effect of change in accounting principle as of the earliest period presented in this release.  The consolidated financial statements included in this release have been adjusted to conform to the new treatment.  The table below represents the impact on consolidation of the CPF for the three and nine months ended September 30, 2010 and 2009, which added additional income (expense) before impact of income tax of $(59) thousand and $646 thousand, respectively, during the third quarter periods, and $(1.0) million and $(416) thousand, respectively, during the first nine months of 2010 and 2009.

Three months ended September 30, 2010

Three months ended September 30, 2009

($ in thousands except per share data)

Amounts

Amounts

before

Impact of

before

Impact of

CPF

CPF

As reported

CPF

CPF

As reported

Revenue:

Hotels

$   46,221

$        -

$     46,221

$   44,756

$        -

$     44,756

Franchise

393

606

999

389

657

1,046

Entertainment

2,048

-

2,048

3,861

-

3,861

Other

575

-

575

592

-

592

Total revenues

49,237

606

49,843

49,598

657

50,255

Operating expenses:

Hotels

31,720

(68)

31,652

30,854

(621)

30,233

Franchise

159

630

789

154

492

646

Entertainment

1,545

-

1,545

2,987

-

2,987

Other

438

-

438

528

-

528

Depreciation and amortization

5,216

-

5,216

5,322

-

5,322

Hotel facility and land lease

1,987

-

1,987

1,750

-

1,750

Gain on asset dispositions, net

(118)

-

(118)

(85)

-

(85)

Undistributed corporate expenses

1,431

-

1,431

1,540

-

1,540

Total expenses

42,378

562

42,940

43,050

(129)

42,921

Operating income (loss)

6,859

44

6,903

6,548

786

7,334

Other income (expense):

Interest expense

(2,282)

-

(2,282)

(2,268)

-

(2,268)

Other income, net

368

(103)

265

189

(140)

49

Income (loss) before income taxes

4,945

(59)

4,886

4,469

646

5,115

Income tax (benefit) expense

1,729

-

1,729

1,723

-

1,723

Income (loss) from continuing operations

3,216

(59)

3,157

2,746

646

3,392

Net income (loss) per share from continuing operations

$       0.17

$   (0.00)

$         0.17

$       0.16

$    0.03

$         0.19

Weighted-average shares - diluted

18,710

18,710

18,710

18,306

18,306

18,306

EBITDA from continuing operations

$   12,436

$      (59)

$     12,377

$   12,054

$     646

$     12,700

Nine months ended September 30, 2010

Nine months ended September 30, 2009