Red Lion Hotels Reports First Quarter 2011 Results

($ in thousands, except per share)

Three months ended March 31,

2011

2010

% change

Total revenue, as reported

$          34,272

$           34,302

-0.1%

Results before special items: (1)

 EBITDA from continuing operations

$             (153)

$             1,872

-108.2%

 Net income (loss) from continuing operations

$          (4,771)

$            (3,439)

-38.7%

 Earnings (loss) per share from continuing operations

$            (0.25)

$              (0.18)

-38.9%

Results as reported:

 EBITDA from continuing operations

$             (153)

$                653

-123.4%

 Net income (loss) from continuing operations

$          (4,771)

$            (4,225)

-12.9%

 Earnings (loss) per share from continuing operations

$            (0.25)

$              (0.23)

-8.7%

 (1) Excludes $1.2 million of expense related to the separation of the company's former President and Chief Executive Officer recorded in the first quarter of 2010.    

Three months ended March 31,

2011

2010

change

RevPAR (revenue per available room)

$            38.69

$             38.63

0.2%

ADR (average daily rate)

$            80.34

$             80.10

0.3%

Occupancy

48.2%

48.2%

-

Hotels revenue:

Rooms

$          21,314

$           21,281

0.2%

Food and beverage

7,831

8,398

-6.8%

Other revenue

1,013

942

7.5%

Total hotels revenue

$          30,158

$           30,621

-1.5%

Hotel direct operating margin

9.9%

13.2%

-25.0%

Red Lion Hotels Corporation

Consolidated Statements of Operations

(unaudited)

($ in thousands, except footnotes)

Three months ended March 31,

2011

2010

$ Change

% Change

Revenue:

Hotels

$                         30,158

$                     30,621

$              (463)

-1.5%

Franchise

707

558

149

26.7%

Entertainment

2,800

2,478

322

13.0%

Other

607

645

(38)

-5.9%

Total revenues

34,272

34,302

(30)

-0.1%

Operating expenses:

Hotels

27,169

26,592

577

2.2%

Franchise

894

578

316

54.7%

Entertainment

2,614

2,013

601

29.9%

Other

393

422

(29)

-6.9%

Depreciation and amortization

5,306

5,210

96

1.8%

Hotel facility and land lease

2,111

1,747

364

20.8%

Loss (gain) on asset dispositions, net

(86)

(98)

12

12.2%

Undistributed corporate expenses (1)

1,344

2,443

(1,099)

-45.0%

Total expenses

39,745

38,907

838

2.2%

Operating income (loss)

(5,473)

(4,605)

868

18.8%

Other income (expense):

Interest expense

(2,301)

(2,236)

65

2.9%

Other income, net

4

37

(33)

-89.2%

Income (loss) before income taxes

(7,770)

(6,804)

966

14.2%

Income tax (benefit) expense

(2,999)

(2,579)

420

16.3%

Net income (loss) from continuing operations

(4,771)

(4,225)

546

12.9%

Discontinued operations:

Income (loss) from operations of discontinued business units,

 net of income tax (benefit) expense of ($79)

-

(154)

154

100.0%

Net income (loss) from discontinued operations

-

(154)

154

100.0%

Net income (loss)

(4,771)

(4,379)

392

9.0%

Less: Net income (loss) attributable to noncontrolling interest

10

11

(1)

9.1%

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

$                         (4,761)

$                     (4,368)

$               393

9.0%

Earnings per share - basic and diluted

Net income (loss) from continuing operations

$                           (0.25)

$                       (0.23)

Net Income (loss) from discontinued operations

$                                  -

$                       (0.01)

Net income (loss) attributable to Red Lion Hotels Corporation

$                           (0.25)

$                       (0.24)

Weighted average shares - basic and diluted (2)

18,974

18,269

EBITDA  (1,3)  

$                            (153)

$                          436

$              (589)

-135.1%

EBITDA as a percentage of revenues

-0.4%

1.3%

EBITDA from continuing operations (1,3)  

$                            (153)

$                          653

$              (806)

-123.4%

EBITDA from continuing operations

-0.4%

1.9%

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 three months ended March 31, 2011 and 2010, all of the 350,381 and 995,027 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 214,496 and 154,885 units of unissued restricted stock outstanding.  

(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)

March 31,

December 31,

2011

2010

Assets:

Current assets:

Cash and cash equivalents

$                      5,607

$                 4,012

Restricted cash

4,792

4,120

Accounts receivable, net

5,992

5,985

Inventories

1,322

1,328

Prepaid expenses and other

1,920

1,937

Deferred income taxes

7,377

-

Assets held for sale

43,944

-

Total current assets

70,954

17,382

Property and equipment, net

229,458

272,030

Goodwill

22,730

28,042

Intangible assets, net

7,972

7,984

Other assets, net

6,732

6,044

Total assets

$                  337,846

$             331,482

Liabilities:

Current liabilities:

Accounts payable

$                      5,504

$                 7,146

Accrued payroll and related benefits

3,239

4,367

Accrued interest payable

291

276

Advance deposits

1,079

487

Other accrued expenses

11,991

10,178

Revolving credit facility

25,000

18,000

Long-term debt, due within one year

24,928

25,275

Total current liabilities

72,032

65,729

Long-term debt, due after one year

51,391

51,877

Deferred income

5,015

4,859

Deferred income taxes

11,789

7,427

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

Total liabilities

171,052

160,717

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;  

18,993,267 and 18,869,254 shares issued and outstanding

190

189

Additional paid-in capital, common stock

147,633

146,834

Retained earnings

18,975

23,737

Total Red Lion Hotels Corporation stockholders' equity

166,798

170,760

Noncontrolling interest

(4)

5

Total equity

166,794

170,765

Total liabilities and stockholders' equity

$                  337,846

$             331,482

Red Lion Hotels Corporation

Consolidated Statement of Cash Flows

(unaudited)

($ in thousands)

Three months ended March 31,

2011

2010

Operating activities:

Net income (loss)

$                    (4,771)

$                    (4,379)

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

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

   Depreciation and amortization

5,306

5,226

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

(86)

(98)

   Deferred income tax provision (benefit)

(3,015)

(2,682)

   Equity in investments

10

11

   Stock based compensation expense

225

672

   Provision for doubtful accounts

(16)

37

   Change in current assets and liabilities:

      Restricted cash

(672)

(1,224)

      Accounts receivable

9

(1,218)

      Inventories

6

9

      Prepaid expenses and other

17

10

      Accounts payable

(1,642)

(1,358)

      Accrued payroll and related benefits

(1,128)

1,423

      Accrued interest payable

15

17

      Deferred income

275

-

      Other accrued expenses and advance deposits

2,405

4,984

   Net cash (used in) provided by operating activities

(3,062)

1,430

Investing activities:

Purchases of property and equipment

(386)

(1,518)

Proceeds from disposition of property and equipment

1

-

Advances to Red Lion Hotels Capital Trust

(27)

(27)

Other, net

(507)

271

  Net cash (used in) provided by investing activities

(919)

(1,274)

Financing activities:

Borrowings on revolving credit facility

7,000

3,000

Repayment of revolving credit facility

-

(2,000)

Repayment of long-term debt

(833)

(793)

Proceeds from stock options exercised

512

152

Proceeds from issuance of common stock under employee stock

purchase plan

63

71

Additions to deferred financing costs

(1,166)

(171)

  Net cash (used in) provided by financing activities

5,576

259

Net change in cash from operating activities of discontinued operations

-

3

Change in cash and cash equivalents:

Net increase (decrease) in cash and cash equivalents

1,595

418

Cash and cash equivalents at beginning of period

4,012

3,881

Cash and cash equivalents at end of period

$                      5,607

$                      4,299

Red Lion Hotels Corporation

Additional Hotel Statistics

(unaudited)

System-wide Hotels as of March 31, 2011

Meeting Space

Hotels

Rooms

(sq. ft.)

Red Lion Owned and Leased Hotels

31

6,121

304,566

Red Lion Franchised Hotels

14

2,509

125,231

Total Red Lion Hotels

45

8,630

429,797

Comparable Hotel Statistics  (1)

Three months ended March 31, 2011

Three months ended March 31, 2010

Average

Average

Occupancy (2)

ADR (3)

RevPAR (4)

Occupancy (2)

ADR (3)

RevPAR (4)

Owned and Leased Hotels

48.2%

$            80.34

$                 38.69

48.2%

$               80.10

$              38.63

Franchised Hotels

53.6%

$            74.69

$                 40.05

48.5%

$               75.60

$              36.65

Total System Wide

49.4%

$            78.94

$                 39.00

48.3%

$               79.07

$              38.18

Change from prior comparative period:                

 Owned and Leased Hotels

-

0.3%

0.2%

 Franchised Hotels

5.1

-1.2%

9.3%

 Total System Wide

1.1

-0.2%

2.1%

(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 resulting 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, 2011 compared to 2010 do not reflect a meaningful comparison between periods.  The following table represents a reconciliation of certain earnings measures before special items to net income / (loss) from continuing operations.

Three months ended March 31, 2011

Three months ended March 31, 2010

($ in thousands except per share data)

Net income / (loss)
from continuing
operations

EBITDA

Diluted EPS

Net income / (loss)
from continuing
operations

EBITDA

Diluted EPS

Amount before special items

$                         (4,771)

$                       (153)

$                      (0.25)

$                         (3,439)

$                      1,872

$                      (0.18)

Special items:

Separation costs (1)

-

-

-

(1,219)

(1,219)

(0.07)

Income tax benefit of special items, net (2)

-

-

-

433

-

0.02

Amount per consolidated statement of operations

$                         (4,771)

$                       (153)

$                      (0.25)

$                         (4,225)

$                         653

$                      (0.23)

Change from the comparative period:

Amount before special items

-38.7%

-108.2%

-38.9%

Amount per consolidated statement of operations

-12.9%

-123.4%

-8.7%

(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

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

(unaudited)

($ in thousands)

The following is a reconciliation of EBITDA and EBITDA from continuing operations to net income (loss) attributable to Red Lion Hotels Corporation for the periods presented:

Three months ended March 31,

2011

2010

EBITDA

$                        (153)

$                          436

Income tax benefit (expense)

2,999

2,658

Interest expense

(2,301)

(2,236)

Depreciation and amortization

(5,306)

(5,226)

Net income (loss) attributable to Red Lion Hotels Corporation

$                     (4,761)

$                      (4,368)

Three months ended March 31,

2011

2010

EBITDA from continuing operations

$                        (153)

$                          653

Income tax benefit (expense)

2,999

2,579

Interest expense

(2,301)

(2,236)

Depreciation and amortization

(5,306)

(5,210)

Discontinued operations, net of tax

-

(154)

Net income (loss) attributable to Red Lion Hotels Corporation

$                     (4,761)

$                      (4,368)

NON-GAAP FINANCIAL MEASURES

EBITDA is defined as net income 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 income 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 income 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 provided by operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income 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.