Red Lion Hotels Reports Fourth Quarter and Full Year 2010 Results

($ in thousands, except per share)

Three months ended December 31,

Year ended December 31,

2010

2009

% change

2010

2009

% change

Total revenue, as reported

$     36,894

$   35,991

2.5%

$ 163,494

$ 165,719

-1.3%

Results before special items: (1)

 EBITDA from continuing operations

$          597

$     3,316

-82.0%

$   22,394

$   27,389

-18.2%

 Net income (loss) from continuing operations

$     (4,466)

$    (2,670)

-67.3%

$   (4,684)

$   (1,021)

-358.7%

 Earnings (loss) per share from continuing operations

$       (0.24)

$      (0.14)

-71.4%

$     (0.25)

$     (0.06)

-316.7%

Results as reported:

 EBITDA from continuing operations

$     (3,576)

$    (5,329)

32.9%

$   17,002

$   18,744

-9.3%

 Net income (loss) from continuing operations

$     (7,227)

$    (8,246)

12.4%

$   (8,230)

$   (6,597)

-24.8%

 Earnings (loss) per share from continuing operations

$       (0.39)

$      (0.45)

13.3%

$     (0.45)

$     (0.37)

-21.6%

(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.  Additionally excludes an impairment charge of $5.7 million and a $1.5 million credit both related to the termination of a franchise and sublease agreement recorded in the fourth quarter of 2010.  The year 2009 excludes an impairment charge of $8.5 million for an owned hotel and restructuring expenses of $0.1 million recorded in the fourth quarter.

Three months ended December 31,

Year ended December 31,

2010

2009

change

2010

2009

change

RevPAR (revenue per available room)

$       40.05

$     35.96

11.4%

$     48.11

$     45.64

5.4%

ADR (average daily rate)

$       79.41

$     76.75

3.5%

$     84.33

$     82.25

2.5%

Occupancy

50.4%

46.9%

3.50

57.1%

55.5%

1.60

Hotels revenue:

Rooms

$     22,555

$   20,252

11.4%

$ 107,489

$ 101,975

5.4%

Food and beverage

9,331

10,447

-10.7%

36,246

41,484

-12.6%

Other revenue

1,208

1,144

5.6%

4,833

4,313

12.1%

Total hotels revenue

$     33,094

$   31,843

3.9%

$ 148,568

$ 147,772

0.5%

Hotel direct operating margin

10.2%

12.4%

-2.2%

21.5%

23.4%

-1.9%

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 per share amounts and footnotes)

Three months ended December 31,

2010

2009

$ Change

% Change

Revenue:

Hotels

$             33,094

$           31,843

$   1,251

3.9%

Franchise

763

771

(8)

-1.0%

Entertainment

2,370

2,722

(352)

-12.9%

Other

667

655

12

1.8%

Total revenues

36,894

35,991

903

2.5%

Operating expenses:

Hotels

29,710

27,899

1,811

6.5%

Franchise (1)

940

492

448

91.1%

Entertainment

2,225

2,092

133

6.4%

Other

321

465

(144)

-31.0%

Depreciation and amortization (1)

5,295

5,329

(34)

-0.6%

Hotel facility and land lease (1)

328

1,436

(1,108)

-77.2%

Impairment charge (1)

5,733

8,509

(2,776)

-32.6%

Loss (gain) on asset dispositions, net

248

(111)

(359)

323.4%

Undistributed corporate expenses

1,068

675

(393)

-58.2%

Restructuring expenses (1)

-

136

(136)

-100.0%

Total expenses

45,868

46,922

(1,054)

-2.2%

Operating income (loss)

(8,974)

(10,931)

(1,957)

-17.9%

Other income (expense):

Interest expense

(2,241)

(2,206)

35

-1.6%

Other income, net

96

266

(170)

-63.9%

Income (loss) before income taxes

(11,119)

(12,871)

(1,752)

-13.6%

Income tax expense (benefit)

(3,892)

(4,625)

733

-15.8%

Net Income (loss) from continuing operations

(7,227)

(8,246)

(1,019)

-12.4%

Discontinued operations:

Income (loss) from operations of discontinued business units, net of income tax (benefit) expense of $(71)

-

(133)

(133)

-100.0%

Income (loss) on disposal of discontinued business units,  net of income tax (benefit) expense of $(57)

-

(117)

(117)

-100.0%

Net Income (loss) from discontinued operations

-

(250)

(250)

-100.0%

Net income (loss)

(7,227)

(8,496)

(1,269)

-14.9%

Net Income (loss) attributable to noncontrolling interest

7

7

-

0.0%

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

$              (7,220)

$           (8,489)

$ (1,269)

-14.9%

Earnings per share - basic and diluted

Net income (loss) from continuing operations

$                (0.39)

$             (0.45)

Net income (loss) from discontinued operations

$                     -

$             (0.02)

Net income (loss) attributable to Red Lion Hotels Corporation

$                (0.39)

$             (0.47)

Weighted average shares - basic and diluted (2)

18,732

18,177

EBITDA  (1,3)  

$              (3,576)

$           (5,686)

$   2,110

37.1%

EBITDA as a percentage of revenues

-9.7%

-15.8%

EBITDA from continuing operations (1,3)  

$              (3,576)

$           (5,329)

$   1,753

32.9%

EBITDA from continuing operations

as a percentage of revenues

-9.7%

-14.8%

(1)  The three months ended 2010 includes an impairment charge of $5.7 million and a $1.5 million credit; both are related to the termination of a franchise and sublease agreement.  The three months ended December 31,2009 includes an impairment charge of $8.5 million for an owned hotel and restructuring expenses of $0.1 million. These items are discussed further in this release under Disclosure of Special Items.  

(2)  For the three months ended December 31, 2010 and 2009, all of the 478,047 and 1,194,460 options to purchase common shares outstanding as of those dates were considered anti-dilutive due to the loss for the periods and excluded from the calculations of loss per share.  Additionally, as of those dates, all of the 220,816 and 239,318 restricted stock units outstanding, respectively, were considered anti-dilutive due to the losses, as were all of the 44,837 convertible operating partnership units outstanding during both periods.  

(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 Statements of Operations

(unaudited)

($ in thousands, except footnotes)

Year ended December 31,

2010

2009

$ Change

% Change

Revenue:

Hotels

$   148,568

$    147,772

$          796

0.5%

Franchise

3,209

3,616

(407)

-11.3%

Entertainment

9,236

11,690

(2,454)

-21.0%

Other

2,481

2,641

(160)

-6.1%

Total revenues

163,494

165,719

(2,225)

-1.3%

Operating expenses:

Hotels

116,574

113,256

3,318

2.9%

Franchise (1)

3,118

2,255

863

38.3%

Entertainment

7,769

9,466

(1,697)

-17.9%

Other

1,598

2,075

(477)

-23.0%

Depreciation and amortization (1)

20,885

20,873

12

0.1%

Hotel facility and land lease (1)

5,840

6,707

(867)

-12.9%

Impairment charge (1)

5,733

8,509

(2,776)

-32.6%

Loss (gain) on asset dispositions, net

(25)

(249)

(224)

-90.0%

Undistributed corporate expenses (1)

6,304

5,200

(1,104)

21.2%

Restructuring expenses (1)

-

136

(136)

-100.0%

Total expenses

167,796

168,228

(432)

-0.3%

Operating income

(4,302)

(2,509)

1,793

71.5%

Other income (expense):

Interest expense

(9,073)

(8,503)

570

6.7%

Other income, net

409

379

30

7.9%

Income (loss) before income taxes

(12,966)

(10,633)

2,333

21.9%

Income tax (benefit) expense

(4,736)

(4,036)

700

17.3%

Net income (loss) from continuing operations

(8,230)

(6,597)

1,633

24.8%

Discontinued operations:

Income (loss) from operations of discontinued business units, net of income tax (benefit) expense of $(181) and $26

(351)

50

(401)

nm

Income (loss) on disposal of discontinued business units, net of income tax (benefit) expense of $(20) and $(60)

(38)

(117)

79

67.5%

Net Income (loss) from discontinued operations

(389)

(67)

322

nm

Net income (loss)

(8,619)

(6,664)

1,955

29.3%

Net income (loss) attributable to noncontrolling interest

10

1

9

nm

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

$      (8,609)

$      (6,663)

$       1,946

29.2%

Earnings per share - basic and diluted

Net income (loss) from continuing operations

$        (0.45)

$        (0.37)

Net Income (loss) from discontinued operations

$        (0.02)

$        (0.00)

Net income (loss) attributable to Red Lion Hotels Corporation

$        (0.47)

$        (0.37)

Weighted average shares - basic and diluted (2)

18,485

18,106

EBITDA  (1,3)  

$     16,444

$      18,724

$      (2,280)

-12.2%

EBITDA as a percentage of revenues

10.1%

11.3%

EBITDA from continuing operations (1,3)  

$     17,002

$      18,744

$      (1,742)

-9.3%

EBITDA from continuing operations

10.4%

11.3%

as a percentage of revenues

(1)  The year ended December 31, 2010, includes $1.2 million of expense related to the separation of the company's former President and Chief Executive Officer.  Additionally, the year 2010 includes an impairment charge of $5.7 million and a $1.5 million  credit both related to the termination of a franchise and sublease agreement.  The year ended December 31, 2009 includes an impairment charge of $8.5 million for an owned hotel and restructuring expenses of $0.1 million. These items are discussed further in this release under Disclosure of Special Items.    

(2)  For the year ended December 31, 2010 and 2009, all of the 478,047 and 1,194,460 options to purchase common shares outstanding as of those dates were considered anti-dilutive, due to the loss for the periods and excluded from the calculations of loss per share.  Additionally, as of those dates, all of the 220,816 and 239,318 restricted stock units outstanding, respectively, were considered anti-dilutive due to the losses, as were all of the 44,837 convertible operating partnership units outstanding during both periods.  

(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)

December 31,

December 31,

2010

2009

Assets:

Current assets:

Cash and cash equivalents

$                      4,012

$                 3,881

Restricted cash

4,120

3,801

Accounts receivable, net

5,985

6,993

Inventories

1,328

1,341

Prepaid expenses and other

1,937

3,199

Assets of discontinued operations

-

61

Total current assets

17,382

19,276

Property and equipment, net

272,030

285,601

Goodwill

28,042

28,042

Intangible assets, net

7,984

10,199

Other assets, net

6,044

7,337

Noncurrent assets of discontinued operations

-

181

Total assets

$                  331,482

$             350,636

Liabilities:

Current liabilities:

Accounts payable

$                      7,146

$                 6,079

Accrued payroll and related benefits

4,367

2,402

Accrued interest payable

276

318

Advance deposits

487

496

Other accrued expenses

10,178

7,910

Revolving credit facility

18,000

-

Long-term debt, due within one year

25,275

3,171

Liabilities of discontinued operations

-

29

Total current liabilities

65,729

20,405

Revolving credit facility

-

26,000

Long-term debt, due after one year

51,877

77,151

Deferred income

4,859

8,638

Deferred income taxes

7,427

12,595

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

Total liabilities

160,717

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;  

   18,869,254 and 18,180,104 shares issued and outstanding

189

182

Additional paid-in capital, common stock

146,834

142,479

Retained earnings

23,737

32,346

Total Red Lion Hotels Corporation stockholders' equity

170,760

175,007

Noncontrolling interest

5

15

Total equity

170,765

175,022

Total liabilities and stockholders' equity

$                  331,482

$             350,636

Red Lion Hotels Corporation

Consolidated Statement of Cash Flows

(unaudited)

($ in thousands)

Year ended December 30,

2010

2009

Operating activities:

Net income (loss)

$            (8,619)

$             (6,664)

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

 to net cash provided by operating activities:

   Depreciation and amortization

20,919

20,954

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

(26)

(243)

   Impairment charge

5,792

8,686

   Termination of sublease agreement

(2,109)

-

   Deferred income tax provision (benefit)

(5,168)

(3,184)

   Equity in investments

48

(9)

   Stock based compensation expense

1,594

1,238

   Provision for doubtful accounts

378

212

   Change in current assets and liabilities:

      Restricted cash

(319)

89

      Accounts receivable

209

2,505

      Inventories

22

160

      Prepaid expenses and other

1,308

(432)

      Accounts payable

1,067

(5,388)

      Accrued payroll and related benefits

2,203

(2,798)

      Accrued interest payable

(42)

4

      Deferred income

-

900

      Other accrued expenses and advance deposits

2,230

(338)

   Net cash (used in) provided by operating activities

19,487

15,692

Investing activities:

Purchases of property and equipment

(10,615)

(16,425)

Liquor License Purchase

-

(500)

Proceeds from disposition of property and equipment

44

16

Advances to Red Lion Hotels Capital Trust

(27)

(27)

Other, net

170

(34)

  Net cash (used in) provided by investing activities

(10,428)

(16,970)

Financing activities:

Borrowings on revolving credit facility

15,500

11,000

Repayment of revolving credit facility

(23,500)

(21,000)

Repayment of long-term debt

(3,170)

(3,009)

Proceeds from stock options exercised

2,486

-

Proceeds from issuance of common stock under employee stock

purchase plan

130

119

Additions to deferred financing costs

(292)

(153)

Distributions to noncontrolling interests

-

(3)

Common stock redeemed

(86)

(13)

  Net cash (used in) provided by financing activities

(8,932)

(13,059)

Net cash provided by discontinued operations

4

2

Change in cash and cash equivalents:

Net increase (decrease) in cash and cash equivalents

131

(14,335)

Cash and cash equivalents at beginning of period

3,881

18,216

Cash and cash equivalents at end of period

$             4,012

$               3,881

Red Lion Hotels Corporation

Additional Hotel Statistics

(unaudited)

System-wide Hotels as of December 31, 2010

Meeting Space

Hotels

Rooms

(sq. ft.)

Red Lion Owned and Leased Hotels

31

6,121

304,566

Red Lion Franchised Hotels

13

2,436

120,831

Total Red Lion Hotels

44

8,557

425,397

Comparable Hotel Statistics  (1)

Three months ended December 31, 2010

Three months ended December 31, 2009

Average

Average

Occupancy (2)

ADR (3)

RevPAR (4)

Occupancy (2)

ADR (3)

RevPAR (4)

Owned and Leased Hotels

50.4%

$ 79.41

$           40.05

46.9%

$ 76.75

$    35.96

Franchised Hotels

46.3%

$ 73.29

$           33.96

44.7%

$ 77.68

$    34.68

Total System Wide

49.4%

$ 77.90

$           38.45

46.3%

$ 76.99

$    35.63

Change from prior comparative period:

 Owned and Leased Hotels

3.5

3.5%

11.4%

 Franchised Hotels

1.6

-5.7%

-2.1%

 Total System Wide

3.1

1.2%

7.9%

Year ended December 31, 2010

Year ended December 31, 2009

Average

Average

Occupancy (2)

ADR (3)

RevPAR (4)

Occupancy (2)

ADR (3)

RevPAR (4)

Owned and Leased Hotels

57.1%

$ 84.33

$           48.11

55.5%

$ 82.25

$    45.64

Franchised Hotels

52.1%

$ 76.55

$           39.91

52.2%

$ 78.25

$    40.87

Total System Wide

55.8%

$ 82.42

$           45.96

54.6%

$ 81.25

$    44.39

Change from prior comparative period:

 Owned and Leased Hotels

1.6

2.5%

5.4%

 Franchised Hotels

(0.1)

-2.2%

-2.3%

 Total System Wide

1.2

1.4%

3.5%

(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)

During the year ended December 31, 2010, the Company recorded an expense of $1.2 million from the separation of its former President and Chief Executive Officer.  Additionally, the Company recorded an impairment charge of $5.7 million and a $1.5 million credit both related to the termination of a franchise and sublease agreement for the Red Lion Hotel Sacramento at Arden Village.  During the year ended December 31, 2009, the Company recorded an impairment charge of $8.5 million related to Red Lion Denver Southeast and also recorded restructuring expenses primarily related to initiatives to streamline operations and eliminate costs of approximately $0.1 million.  As a result, the operations as presented in the accompanying financial statements for the years ended December 31, 2010 compared to 2009 do not reflect a meaningful comparison between periods.  The following table represents a reconciliation of certain earnings measures before special items to income (loss) after special items.  

Three months ended December 31, 2010

Three months ended December 31, 2009

($ in thousands except per share data)

Net income / loss

EBITDA

Diluted EPS

Net income / loss

EBITDA

Diluted EPS

Amount before special items

$             (4,466)

$      597

$      (0.24)

$             (2,670)

$   3,316

$      (0.14)

Special items:

Impairment charge (2)

(5,733)

(5,733)

(0.31)

(8,509)

(8,509)

(0.47)

Franchise, sublease termination (3)

1,452

1,560

0.08

-

-

-

Restructuring expenses (4)

-

-

-

(136)

(136)

(0.01)

Income tax benefit of special items, net (5)

1,520

-

0.08

3,069

-

0.17

Amount per consolidated statement of continuing operations

$             (7,227)

$ (3,576)

$      (0.39)

$             (8,246)

$ (5,329)

$      (0.45)

Change from the comparative period:

Amount before special items

-67.3%

-82.0%

-71.4%

Amount per consolidated statement of operations

12.4%

32.9%

13.3%

Year ended December 31, 2010

Year ended December 31, 2009

($ in thousands except per share data)

Net income / loss

EBITDA

Diluted EPS

Net income / loss

EBITDA

Diluted EPS

Amount before special items

$             (4,684)

$ 22,394

$      (0.25)

$             (1,021)

$ 27,389

$      (0.06)

Special items:

Separation costs (1)

(1,219)

(1,219)

(0.07)

-

-

-

Impairment charge (2)

(5,733)

(5,733)

(0.31)

(8,509)

(8,509)

(0.47)

Franchise, sublease termination (3)

1,452

1,560

0.08

-

-

-

Restructuring expenses (4)

-

-

-

(136)

(136)

(0.01)

Income tax benefit of special items, net (5)

1,954

-

0.10

3,069

-

0.17

Amount per consolidated statement of continuing operations

$             (8,230)

$ 17,002

$      (0.45)

$             (6,597)

$ 18,744

$      (0.37)

Change from the comparative period:

Amount before special items

-358.7%

-18.2%

-316.7%

Amount per consolidated statement of operations

-24.8%

-9.3%

-21.6%

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

(2)  Amount as included in the line item "Impairment charge" on the accompanying consolidated statements of operations.  

(3)  Amounts as included in the following (expense) line items on the accompanying consolidated statements of operations.  

                       Franchise

$                (257)

                       Depreciation and amortization

(108)

                       Hotel facility and land lease

1,817

                                     Total

$               1,452

(4)  Amount as included in the line item "Restructuring expenses" on the accompanying consolidated statements of operations.

(5)  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 shows the impact on income (loss) before income taxes from the consolidation of the CPF for the three months and years ended December 31, 2010 and 2009.

Three months ended December 31, 2010

Three months ended December 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

$        33,094

$        -

$              33,094

$       31,843

$          -

$      31,843

Franchise

296

467

763

281

490

771

Entertainment

2,370

-

2,370

2,722

-

2,722

Other

667

-

667

655

-

655

Total revenues

36,427

467

36,894

35,501

490

35,991

Operating expenses:

Hotels

29,595

115

29,710

28,295

(396)

27,899

Franchise

459

481

940

132

360

492

Entertainment

2,225

-

2,225

2,092

-

2,092

Other

321

-

321

465

-

465

Depreciation and amortization

5,295

-

5,295

5,329

-

5,329

Hotel facility and land lease

328

-

328

1,436

-

1,436

Impairment charge

5,733

-

5,733

8,509

-

8,509

Gain on asset dispositions, net

248

-

248

(111)

-

(111)

Undistributed corporate expenses

1,068

-

1,068

675

-

675

Restructuring expenses

-

-

-

136

-

136

Total expenses

45,272

596

45,868

46,958

(36)

46,922