Red Lion Hotels Reports First Quarter 2010 Results

($ in thousands, except per share)

Three months ended March 31,

2010

2009

% change

Total revenue, as reported

$ 34,302

$ 34,597

-0.9%

Results before Special Items: (1)

 EBITDA

$   1,655

$   1,633

1.3%

 Net loss

$ (3,582)

$ (3,281)

-9.2%

 Loss per share - diluted

$   (0.19)

$   (0.18)

-2.2%

Results as reported:

 EBITDA

$      436

$   1,633

-73.3%

 Net loss

$ (4,368)

$ (3,281)

-33.1%

 Loss per share - diluted

$   (0.24)

$   (0.18)

-31.3%

(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 CEO included with undistributed corporate expenses.

Three months ended March 31,

2010

2009

change

RevPAR (revenue per available room)

$   38.63

$   36.81

4.9%

ADR (average daily rate)

$   80.10

$   80.06

0.0%

Occupancy

48.2%

46.0%

2.2%

Hotels Revenue:

Rooms

$ 21,281

$ 20,439

4.1%

Food and Beverage

8,398

9,538

-12.0%

Other Revenue

942

827

13.9%

Total Hotels Revenue

$ 30,621

$ 30,804

-0.6%

Hotel Direct Operating Margin

12.7%

13.4%

-0.7%

Red Lion Hotels Corporation

Consolidated Statements of Operations

(unaudited)

($ in thousands, except footnotes)

Three months ended March 31,

2010

2009

$ Change

% Change

Revenue:

Hotels

$          30,621

$          30,804

$              (183)

-0.6%

Franchise

558

537

21

3.9%

Entertainment

2,478

2,523

(45)

-1.8%

Other

645

733

(88)

-12.0%

Total revenues

34,302

34,597

(295)

-0.9%

Operating expenses:

Hotels

26,740

26,662

78

0.3%

Franchise

578

614

(36)

-5.9%

Entertainment

2,013

2,115

(102)

-4.8%

Other

422

537

(115)

-21.4%

Depreciation and amortization

5,226

4,957

269

5.4%

Hotel facility and land lease

1,816

1,816

-

0.0%

Gain on asset dispositions, net

(98)

(2)

(96)

         nm

Undistributed corporate expenses (1)

2,443

1,266

1,177

93.0%

Total expenses

39,140

37,965

1,175

3.1%

Operating loss

(4,838)

(3,368)

(1,470)

-43.6%

Other income (expense):

Interest expense

(2,236)

(1,847)

(389)

-21.1%

Other income, net

37

39

(2)

-5.1%

Loss before income taxes

(7,037)

(5,176)

(1,861)

-36.0%

Income tax benefit

(2,658)

(1,890)

(768)

-40.6%

Net loss

(4,379)

(3,286)

(1,093)

-33.3%

Net loss attributable to noncontrolling interest

11

5

6

         nm

Net loss attributable to Red Lion Hotels Corporation (1)

$           (4,368)

$           (3,281)

$           (1,087)

-33.1%

Net loss per share attributable to Red Lion Hotels Corporation-

basic and diluted (2)

$             (0.24)

$             (0.18)

$             (0.06)

Weighted-average shares outstanding - basic and diluted

18,269

18,014

EBITDA (1,3)  

$               436

$            1,633

$           (1,197)

-73.3%

EBITDA as a percentage of revenues

1.3%

4.7%

(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 three months ended March 31, 2010 and 2009, all of the 995,027 and 1,220,943 options to purchase common stock shares outstanding as of those dates, respectively, were considered anti-dilutive due to the loss for the period.  Likewise, all of the 44,837 convertible operating partnership units were considered anti-dilutive, as were the 154,885 and 46,018 units of unissued restricted stock outstanding.  

(3)  The definition of "EBITDA" and how that measure relates to net loss 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)

March 31,

December 31,

2010

2009

Assets:

Current assets:

Cash and cash equivalents

$     4,300

$          3,885

Restricted cash

5,025

3,801

Accounts receivable, net

8,023

6,995

Inventories

1,341

1,350

Prepaid expenses and other

3,235

3,245

Total current assets

21,924

19,276

Property and equipment, net

282,221

285,782

Goodwill

28,042

28,042

Intangible assets, net

10,155

10,199

Other assets, net

7,284

7,337

Total assets

$ 349,626

$      350,636

Liabilities:

Current liabilities:

Accounts payable

$     4,722

$          6,080

Accrued payroll and related benefits

3,589

2,404

Accrued interest payable

335

318

Advance deposits

854

496

Other accrued expenses

12,635

7,936

Long-term debt, due within one year

3,214

3,171

Total current liabilities

25,349

20,405

Revolving credit facility

27,000

26,000

Long-term debt, due after one year

76,315

77,151

Deferred income

8,448

8,638

Deferred income taxes

9,913

12,595

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

Total liabilities

177,850

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;  

18,361,743 and 18,180,104 shares issued and outstanding

184

182

Additional paid-in capital, common stock

143,610

142,479

Retained earnings

27,978

32,346

Total Red Lion Hotels Corporation stockholders' equity

171,772

175,007

Noncontrolling interest

4

15

Total equity

171,776

175,022

Total liabilities and stockholders' equity

$ 349,626

$      350,636

Red Lion Hotels Corporation

Consolidated Statement of Cash Flows

(unaudited)

($ in thousands)

Three months ended March 31,

2010

2009

Operating activities:

Net loss

$ (4,379)

$ (3,286)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

   Depreciation and amortization

5,226

4,957

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

(98)

(2)

   Change in deferred net income tax liability

(2,682)

(1,895)

   Equity in investments

11

19

   Stock based compensation expense

672

151

   Provision for doubtful accounts

37

45

   Change in current assets and liabilities:

      Restricted cash

(1,224)

(472)

      Accounts receivable

(1,218)

2,478

      Inventories

9

140

      Prepaid expenses and other

10

(22)

      Accounts payable

(1,358)

(3,343)

      Accrued payroll and related benefits

1,423

(1,552)

      Accrued interest payable

17

(7)

      Other accrued expenses and advance deposits

4,984

1,651

   Net cash provided by (used in) operating activities

1,430

(1,138)

Investing activities:

Purchases of property and equipment

(1,518)

(7,869)

Advances to Red Lion Hotels Capital Trust

(27)

(27)

Other, net

271

42

  Net cash used in investing activities

(1,274)

(7,854)

Financing activities:

Borrowings on revolving credit facility

3,000

-

Repayment of revolving credit facility

(2,000)

-

Repayment of long-term debt

(793)

(754)

Proceeds from stock options exercised

152

-

Proceeds from issuance of common stock under employee stock

purchase plan

71

51

Additions to deferred financing costs

(171)

-

  Net cash provided by (used in) financing activities

259

(703)

Change in cash and cash equivalents:

Net increase (decrease) in cash and cash equivalents

415

(9,695)

Cash and cash equivalents at beginning of period

3,885

18,222

Cash and cash equivalents at end of period

$  4,300

$  8,527

Red Lion Hotels Corporation

Additional Hotel Statistics

(unaudited)

System-wide Hotels as of March 31, 2010

Meeting Space

Hotels

Rooms

(sq. ft.)

Red Lion Owned and Leased Hotels

32

6,243

309,684

Red Lion Franchised Hotels

13

2,428

121,560

Total Red Lion Hotels

45

8,671

431,244

Comparable Hotel Statistics (1)

Three months ended March 31, 2010

Three months ended March 31, 2009

Average

Average

Occupancy (2)

ADR (3)

RevPAR (4)

Occupancy (2)

ADR (3)

RevPAR (4)

Owned and Leased Hotels

48.2%

$ 80.10

$           38.63

46.0%

$ 80.06

$    36.81

Franchised Hotels

46.2%

$ 71.97

$           33.26

47.5%

$ 75.40

$    35.83

Total System Wide

47.7%

$ 77.92

$           37.15

46.4%

$ 78.74

$    36.54

Change from prior comparative period:

 Owned and Leased Hotels

2.2

0.0%

4.9%

 Franchised Hotels

(1.3)

-4.5%

-7.2%

 Total System Wide

1.3

-1.0%

1.7%

(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 in expense from the separation of the Company's former President and Chief Executive Officer.  As a result, the operations as presented in the accompanying financial statements for the three months ended March 31, 2010 compared to 2009 do not reflect a meaningful comparison between periods.  The follow table represents a reconciliation of certain earnings measures before special items to loss after special items.

Three months ended March 31, 2010

Three months ended March 31, 2009

($ in thousands except per share data)

Net Loss

EBITDA

Diluted EPS

Net Loss

EBITDA

Diluted EPS

Amount before special item

$ (3,582)

$ 1,655

$      (0.19)

$ (3,281)

$ 1,633

$      (0.18)

Special items:

Separation costs (1)

(1,219)

(1,219)

(0.07)

-

-

-

Income tax benefit of special item (2)

433

-

0.02

-

-

-

Amount per consolidated statement of operations

$ (4,368)

$    436

$      (0.24)

$ (3,281)

$ 1,633

$      (0.18)

Change from the comparative period:

Amount before special item

-9.2%

1.3%

-2.2%

Amount per consolidated statement of operations

-33.1%

-73.3%

-31.3%

(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 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 months ended March 31, 2010 and 2009, which added additional expense before impact of income tax of $346 thousand and $612 thousand, respectively.

Three months ended March 31, 2010

Three months ended March 31, 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

$ 30,621

$        -

$     30,621

$ 30,804

$        -

$     30,804

Franchise

265

293

558

275

262

537

Entertainment

2,478

-

2,478

2,523

-

2,523

Other

645

-

645

733

-

733

Total revenues

34,009

293

34,302

34,335

262

34,597

Operating expenses:

Hotels

26,668

72

26,740

26,403

259

26,662

Franchise

138

440

578

136

478

614

Entertainment

2,013

-

2,013

2,115

-

2,115

Other

422

-

422

537

-

537

Depreciation and amortization

5,226

-

5,226

4,957

-

4,957

Hotel facility and land lease

1,816

-

1,816

1,816

-

1,816

Gain on asset dispositions, net

(98)

-

(98)

(2)

-

(2)

Undistributed corporate expenses

2,443

-

2,443

1,266

-

1,266

Total expenses

38,628

512

39,140

37,228

737

37,965

Operating loss

(4,619)

(219)

(4,838)

(2,893)

(475)

(3,368)

Other income (expense):

Interest expense

(2,236)

-

(2,236)

(1,847)

-

(1,847)

Other income, net

164

(127)

37

176

(137)

39

Loss before income taxes

(6,691)

(346)

(7,037)

(4,564)

(612)

(5,176)

Income tax benefit

(2,531)

(127)

(2,658)

(1,681)

(209)

(1,890)

Net loss

$ (4,160)

$   (219)

$     (4,379)

$ (2,883)

$   (403)

$     (3,286)

Net loss per share

$   (0.23)

$  (0.01)

$       (0.24)

$   (0.16)

$  (0.02)

$       (0.18)

Weighted-average shares outstanding

18,269

18,269

18,269

18,014

18,014

18,014

EBITDA

$      782

$   (346)

$          436

$   2,245

$   (612)

$       1,633

The activities of the CPF are cyclical throughout any one year.  For the quarter ended June 30, 2009, the activities of the CPF negatively impact EBITDA by $450 thousand as restated.  However, for the quarters ended September 30, 2009 and December 31, 2009, EBITDA was positively impacted by $646 thousand and $394 thousand, respectively.  The total impact on EBITDA for the year ended December 31, 2009 related to the CPF will be a negative adjustment of $24 thousand, compared to a positive impact of $105 thousand for the year ended December 31, 2008.  We expect the net impact to be immaterial to full year 2010 results as well.  

Red Lion Hotels Corporation

Reconciliation of EBITDA to Net Loss Attributable to Red Lion Hotels Corporation

(unaudited)

($ in thousands)

The following is a reconciliation of EBITDA to net loss attributable to Red Lion Hotels Corporation for the periods presented:

Three months ended March 31,

2010

2009

EBITDA

$     436

$  1,633

Income tax benefit

2,658

1,890

Interest expense

(2,236)

(1,847)

Depreciation and amortization

(5,226)

(4,957)

Net loss attributable to Red Lion Hotels Corporation

$ (4,368)

$ (3,281)

NON-GAAP FINANCIAL MEASURES

EBITDA is defined as net loss attributable to Red Lion Hotels Corporation before interest, taxes, depreciation and amortization.  EBITDA is considered a non-GAAP financial measurement.  We believe it is a useful financial performance measure for us and for our shareholders and is a complement to net loss attributable to Red Lion Hotels Corporation and other financial performance measures provided in accordance with generally accepted accounting principles in the United States ("GAAP").  

We use EBITDA to measure the financial performance of our owned and leased hotels because it excludes interest, taxes, depreciation and amortization, which bear little or no relationship to operating performance.  By excluding interest expense, EBITDA measures our financial performance irrespective of our capital structure or how we finance our properties and operations. We generally pay federal and state income taxes on a consolidated basis, taking into account how the applicable taxing laws apply to our company in the aggregate.  By excluding taxes on income, we believe EBITDA provides a basis for measuring the financial performance of our operations excluding factors that our hotels and other operations cannot control.  By excluding depreciation and amortization expense, which can vary from hotel to hotel based on historical cost and other factors unrelated to the hotels’ financial performance, EBITDA measures the financial performance of our hotels without regard to their historical cost. For all of these reasons, we believe that EBITDA provides us and investors with information that is relevant and useful in evaluating our business.

However, because EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our long-lived assets. In addition, because EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our borrowings or changes in interest rates. EBITDA, as defined by us, may not be comparable to EBITDA as reported by other companies that do not define EBITDA exactly as we define the term.  Because we use EBITDA to evaluate our financial performance, we reconcile all EBITDA measures to net loss attributable to Red Lion Hotels Corporation, which is the most comparable financial measure calculated and presented in accordance with GAAP.  EBITDA does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net loss attributable to Red Lion Hotels Corporation determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity.