Red Lion Hotels Reports Second Quarter 2010 Results

($ in thousands, except per share)

Three months ended June 30,

Six months ended June 30,

2010

2009

% change

2010

2009

% change

Total revenue, as reported

$     42,455

$     45,463

-6.6%

$     76,757

$     80,060

-4.1%

Results before Special Items: (1)

 EBITDA

$       7,365

$       9,683

-23.9%

$       9,021

$     11,316

-20.3%

 Net income (loss)

$          (62)

$       1,477

nm

$     (3,656)

$     (1,809)

nm

 Earnings per share - diluted

$            -

$         0.08

nm

$       (0.19)

$       (0.10)

nm

Results as reported:

 EBITDA

$       7,365

$       9,683

-23.9%

$       7,802

$     11,316

-31.1%

 Net income (loss)

$          (62)

$       1,477

nm

$     (4,442)

$     (1,809)

nm

 Earnings per share - diluted

$            -

$         0.08

nm

$       (0.24)

$       (0.10)

nm

(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 June 30,

Six months ended June 30,

2010

2009

change

2010

2009

change

RevPAR (revenue per available room)

$       50.13

$       51.07

-1.8%

$       44.41

$       43.98

1.0%

ADR (average daily rate)

$       84.58

$       84.40

0.2%

$       82.59

$       82.54

0.1%

Occupancy

59.3%

60.5%

-1.2%

53.8%

53.3%

0.5%

Hotels Revenue:

Rooms

$     27,919

$     28,877

-3.3%

$     49,199

$     49,317

-0.2%

Food and Beverage

9,469

11,046

-14.3%

17,867

20,583

-13.2%

Other Revenue

1,244

1,033

20.4%

2,187

1,860

17.6%

Total Hotels Revenue

$     38,632

$     40,956

-5.7%

$     69,253

$     71,760

-3.5%

Hotel Direct Operating Margin

25.6%

29.3%

-3.7%

19.9%

22.5%

-2.6%

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 June 30,

2010

2009

$ Change

% Change

Revenue:

Hotels

$ 38,632

$ 40,956

$ (2,324)

-5.7%

Franchise

889

1,262

(373)

-29.6%

Entertainment

2,340

2,584

(244)

-9.4%

Other

594

661

(67)

-10.1%

Total revenues

42,455

45,463

(3,008)

-6.6%

Operating expenses:

Hotels

28,759

28,969

(210)

-0.7%

Franchise

810

502

308

61.4%

Entertainment

1,986

2,273

(287)

-12.6%

Other

413

544

(131)

-24.1%

Depreciation and amortization

5,175

5,306

(131)

-2.5%

Hotel facility and land lease

1,824

1,834

(10)

-0.5%

Gain on asset dispositions, net

(57)

(45)

12

26.7%

Undistributed corporate expenses

1,362

1,721

(359)

-20.9%

Total expenses

40,272

41,104

(832)

-2.0%

Operating income

2,183

4,359

(2,176)

-49.9%

Other income (expense):

Interest expense

(2,314)

(2,182)

(132)

-6.0%

Other income, net

9

23

(14)

-60.9%

Income (loss) before income taxes

(122)

2,200

(2,322)

nm

Income tax (benefit) expense

(60)

723

(783)

nm

Net income (loss)

(62)

1,477

(1,539)

nm

Net income attributable to noncontrolling interest

(2)

(5)

3

60.0%

Net income (loss) attributable to Red Lion Hotels Corporation

(64)

1,472

(1,536)

nm

Earnings per share attributable to Red Lion Hotels Corporation:

Basic

$         -

$     0.08

Diluted

$         -

$     0.08

Weighted average shares - basic (1)

18,420

18,095

Weighted average shares - diluted (1)

18,420

18,140

EBITDA  (2)  

$   7,365

$   9,683

$ (2,318)

-23.9%

EBITDA as a percentage of revenues

17.3%

21.3%

(1)  For the three months ended June 30, 2010, all of the 904,189 options to purchase common shares outstanding as of that date 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 262,684 restricted stock units outstanding. For the three months ended June 30, 2009, none of the 1,213,691 options to purchase common shares outstanding as of that date were considered dilutive, as the grant date stock price of all options outstanding were below the Company's stock price at June 30, 2009.  Similarly, none of the 246,396 restricted stock units outstanding were considered dilutive during the second quarter of 2009.  For the three months ended June 30, 2009, all of the 44,837 convertible operating partnership units were considered dilutive.  

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

Six months ended June 30,

2010

2009

$ Change

% Change

Revenue:

Hotels

$ 69,253

$ 71,760

$ (2,507)

-3.5%

Franchise

1,447

1,799

(352)

-19.6%

Entertainment

4,818

5,107

(289)

-5.7%

Other

1,239

1,394

(155)

-11.1%

Total revenues

76,757

80,060

(3,303)

-4.1%

Operating expenses:

Hotels

55,499

55,631

(132)

-0.2%

Franchise

1,388

1,116

272

24.4%

Entertainment

3,999

4,388

(389)

-8.9%

Other

835

1,081

(246)

-22.8%

Depreciation and amortization

10,400

10,263

137

1.3%

Hotel facility and land lease

3,640

3,650

(10)

-0.3%

Gain on asset dispositions, net

(155)

(47)

108

nm

Undistributed corporate expenses (1)

3,804

2,987

817

27.4%

Total expenses

79,410

79,069

341

0.4%

Operating income (loss)

(2,653)

991

(3,644)

nm

Other income (expense):

Interest expense

(4,550)

(4,029)

(521)

-12.9%

Other income, net

46

62

(16)

-25.8%

Loss before income taxes

(7,157)

(2,976)

(4,181)

nm

Income tax benefit

(2,715)

(1,167)

1,548

nm

Net loss

(4,442)

(1,809)

(2,633)

nm

Net (income) loss attributable to noncontrolling interest

9

-

(9)

nm

Net loss attributable to Red Lion Hotels Corporation (1)

$ (4,433)

$ (1,809)

(2,624)

nm

Loss per share attributable to Red Lion Hotels Corporation:

Basic and diluted (2)

$   (0.24)

$   (0.10)

Weighted average shares - basic and diluted

18,345

18,054

EBITDA (1,3)  

$   7,802

$ 11,316

$ (3,514)

-31.1%

EBITDA as a percentage of revenues

10.2%

14.1%

(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 six months ended June 30, 2010 and 2009, all of the 904,189 and 1,213,691 options to purchase common shares, respectively, and the 262,684 and 246,396 restricted stock units outstanding as of those dates were considered anti-dilutive due to the loss for the period.  In addition, all of the 44,837 convertible operating partnership units outstanding during both periods were anti-dilutive.    

(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)

June 30,

December 31,

2010

2009

Assets:

Current assets:

Cash and cash equivalents

$     3,146

$          3,885

Restricted cash

5,223

3,801

Accounts receivable, net

8,400

6,995

Inventories

1,281

1,350

Prepaid expenses and other

3,845

3,245

Total current assets

21,895

19,276

Property and equipment, net

279,469

285,782

Goodwill

28,042

28,042

Intangible assets, net

10,111

10,199

Other assets, net

7,373

7,337

Total assets

$ 346,890

$      350,636

Liabilities:

Current liabilities:

Accounts payable

$     9,581

$          6,080

Accrued payroll and related benefits

5,034

2,404

Accrued interest payable

301

318

Advance deposits

974

496

Other accrued expenses

10,337

7,936

Long-term debt, due within one year

3,258

3,171

Total current liabilities

29,485

20,405

Revolving credit facility

21,000

26,000

Long-term debt, due after one year

75,494

77,151

Deferred income

8,258

8,638

Deferred income taxes

9,669

12,595

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

Total liabilities

174,731

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;  

18,452,656 and 18,180,104 shares issued and outstanding

185

182

Additional paid-in capital, common stock

144,055

142,479

Retained earnings

27,913

32,346

Total Red Lion Hotels Corporation stockholders' equity

172,153

175,007

Noncontrolling interest

6

15

Total equity

172,159

175,022

Total liabilities and stockholders' equity

$ 346,890

$      350,636

Red Lion Hotels Corporation

Consolidated Statement of Cash Flows

(unaudited)

($ in thousands)

Six months ended June 30,

2010

2009

Operating activities:

Net loss

$                (4,442)

$              (1,809)

Adjustments to reconcile net loss attributable to Red Lion Hotels Corporation

 to net cash provided by operating activities:

   Depreciation and amortization

10,400

10,263

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

(155)

(47)

   Deferred income tax benefit

(2,926)

(1,323)

   Equity in investments

25

31

   Stock based compensation expense

1,050

554

   Provision for doubtful accounts

131

64

   Change in current assets and liabilities:

      Restricted cash

(1,422)

1,224

      Accounts receivable

(1,851)

2,256

      Inventories

69

115

      Prepaid expenses and other

(600)

(831)

      Accounts payable

3,501

(4,674)

      Accrued payroll and related benefits

2,868

(423)

      Accrued interest payable

(17)

(30)

      Deferred lease income

-

900

      Other accrued expenses and advance deposits

2,733

3,235

   Net cash provided by operating activities

9,364

9,505

Investing activities:

Purchases of property and equipment

(3,832)

(12,479)

Non-current restricted cash for sublease tenant improvements, net

-

(576)

Proceeds from disposition of property and equipment

8

8

Advances to Red Lion Hotels Capital Trust

(27)

(27)

Other, net

198

(423)

  Net cash used in investing activities

(3,653)

(13,497)

Financing activities:

Borrowings on revolving credit facility

4,500

-

Repayment of revolving credit facility

(9,500)

(6,000)

Repayment of long-term debt

(1,570)

(1,491)

Proceeds from stock options exercised

304

Proceeds from issuance of common stock under employee stock

purchase plan

71

51

Additions to deferred financing costs

(171)

-

Common stock redeemed

(84)

(11)

  Net cash used in financing activities

(6,450)

(7,451)

Change in cash and cash equivalents:

Net decrease in cash and cash equivalents

(739)

(11,443)

Cash and cash equivalents at beginning of period

3,885

18,222

Cash and cash equivalents at end of period

$                  3,146

$               6,779

Red Lion Hotels Corporation

Additional Hotel Statistics

(unaudited)

System-wide Hotels as of June 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 June 30, 2010

Three months ended June 30, 2009

Average

Average

Occupancy (2)

ADR (3)

RevPAR (4)

Occupancy (2)

ADR (3)

RevPAR (4)

Owned and Leased Hotels

59.3%

$ 84.58

$           50.13

60.5%

$ 84.40

$    51.07

Franchised Hotels

53.8%

$ 78.15

$           42.04

55.4%

$ 80.29

$    44.46

Total System Wide

57.8%

$ 83.01

$           48.01

59.2%

$ 83.39

$    49.34

Change from prior comparative period:

 Owned and Leased Hotels

(1.2)

0.2%

-1.8%

 Franchised Hotels

(1.6)

-2.7%

-5.4%

 Total System Wide

(1.4)

-0.5%

-2.7%

Six months ended June 30, 2010

Six months ended June 30, 2009

Average

Average

Occupancy (2)

ADR (3)

RevPAR (4)

Occupancy (2)

ADR (3)

RevPAR (4)

Owned and Leased Hotels

53.8%

$ 82.59

$           44.41

53.3%

$ 82.54

$    43.98

Franchised Hotels

49.3%

$ 76.59

$           37.79

50.8%

$ 79.12

$    40.20

Total System Wide

52.6%

$ 81.11

$           42.67

52.6%

$ 81.67

$    42.99

Change from prior comparative period:

 Owned and Leased Hotels

0.5

0.1%

1.0%

 Franchised Hotels

(1.5)

-3.2%

-6.0%

 Total System Wide

-

-0.7%

-0.7%

(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 six months ended June 30, 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.

Six months ended June 30, 2010

Six months ended June 30, 2009

($ in thousands except per share data)

Net Loss

EBITDA

Diluted EPS

Net Loss

EBITDA

Diluted EPS

Amount before special item

$ (3,656)

$ 9,021

$      (0.19)

$ (1,809)

$ 11,316

$      (0.10)

Special items:

Separation costs (1)

(1,219)

(1,219)

(0.07)

-

-

-

Income tax expense of special item (2)

433

-

0.02

-

-

-

Amount per consolidated statement of operations

$ (4,442)

$ 7,802

$      (0.24)

$ (1,809)

$ 11,316

$      (0.10)

Change from the comparative period:

Amount before special item

102.2%

-20.3%

91.3%

Amount per consolidated statement of operations

145.6%

-31.1%

141.2%

(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 six months ended June 30, 2010 and 2009, which added additional expense before impact of income tax of $606 thousand and $450 thousand, respectively, during the second quarter periods, and $951 thousand and $1.1 million, respectively, during the first six months of 2010 and 2009.

Three months ended June 30, 2010

Three months ended June 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

$ 38,632

$        -

$     38,632

$ 40,956

$        -

$     40,956

Franchise

364

525

889

733

529

1,262

Entertainment

2,340

-

2,340

2,584

-

2,584

Other

594

-

594

661

-

661

Total revenues

41,930

525

42,455

44,934

529

45,463

Operating expenses:

Hotels

28,251

508

28,759

28,633

336

28,969

Franchise

297

513

810

8

494

502

Entertainment

1,986

-

1,986

2,273

-

2,273

Other

413

-

413

544

-

544

Depreciation and amortization

5,175

-

5,175

5,306

-

5,306

Hotel facility and land lease

1,824

-

1,824

1,834

-

1,834

Gain on asset dispositions, net

(57)

-

(57)

(45)

-

(45)

Undistributed corporate expenses

1,362

-

1,362

1,721

-

1,721

Total expenses

39,251

1,021

40,272

40,274

830

41,104

Operating income (loss)

2,679

(496)

2,183

4,660

(301)

4,359

Other income (expense):

Interest expense

(2,314)

-

(2,314)

(2,182)

-

(2,182)

Other income, net

119

(110)

9

172

(149)

23

Income (loss) before income taxes

484

(606)

(122)

2,650

(450)

2,200

Income tax (benefit) expense

(60)

-

(60)

723

-

723

Net income (loss)

$      544

$   (606)

$          (62)

$   1,927

$    (450)

$       1,477

Net income (loss) per share

$     0.03

$  (0.03)

$            -

$     0.11

$   (0.03)

$         0.08

Weighted-average shares - diluted

18,420

18,420

18,420

18,140

18,140

18,140

EBITDA

$   7,971

$   (606)

$       7,365

$ 10,133

$    (450)

$       9,683

Six months ended June 30, 2010

Six months ended June 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

$ 69,253

$        -

$     69,253

$ 71,760

$        -

$     71,760

Franchise

629

818

1,447

1,008

791

1,799

Entertainment

4,818

-

4,818

5,107

-

5,107

Other

1,239

-

1,239

1,394

-

1,394

Total revenues

75,939

818

76,757

79,269

791

80,060

Operating expenses:

Hotels

54,920

579

55,499

55,036

595

55,631

Franchise

436

952

1,388

144

972

1,116

Entertainment

3,999

-

3,999

4,388

-

4,388

Other

835

-

835

1,081

-

1,081

Depreciation and amortization

10,400

-

10,400

10,263

-

10,263

Hotel facility and land lease

3,640

-

3,640

3,650

-

3,650

Gain on asset dispositions, net

(155)

-

(155)

(47)

-

(47)

Undistributed corporate expenses

3,804

-

3,804

2,987

-

2,987

Total expenses

77,879

1,531

79,410

77,502

1,567

79,069

Operating income (loss)

(1,940)

(713)

(2,653)

1,767

(776)

991

Other income (expense):

Interest expense

(4,550)

-

(4,550)

(4,029)

-

(4,029)

Other income, net

284

(238)

46

348

(286)

62

Loss before income taxes

(6,206)

(951)

(7,157)

(1,914)

(1,062)

(2,976)

Income tax benefit

(2,715)

-

(2,715)

(1,167)

-

(1,167)

Net loss

$ (3,491)

$   (951)

$     (4,442)

$    (747)

$ (1,062)

$     (1,809)

Net loss per share

$   (0.19)

$  (0.05)

$       (0.24)

$   (0.04)

$   (0.06)

$       (0.10)

Weighted-average shares outstanding

18,345

18,345

18,345

18,054

18,054

18,054

EBITDA

$   8,753

$   (951)

$       7,802

$ 12,378

$ (1,062)

$     11,316

The activities of the CPF are cyclical throughout any one year.  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 Income (Loss) Attributable to Red Lion Hotels Corporation

(unaudited)

($ in thousands)