e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13957
Red Lion Hotels Corporation
(Exact name of registrant as specified in its charter)
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Washington
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91-1032187 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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201 W. North River Drive, Suite 100
Spokane Washington
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99201 |
(Address of principal executive offices)
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(Zip Code) |
Registrants Telephone Number, Including Area Code: (509) 459-6100
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
As of August 2, 2010, there were 18,520,557 shares of the registrants common stock
outstanding.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
RED LION HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, 2010 and December 31, 2009
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June 30, |
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December 31, |
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2010 |
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2009 |
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(In thousands, except share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
3,146 |
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$ |
3,885 |
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Restricted cash |
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5,223 |
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3,801 |
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Accounts receivable, net |
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8,400 |
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6,995 |
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Inventories |
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1,281 |
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1,350 |
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Prepaid expenses and other |
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3,845 |
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3,245 |
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Total current assets |
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21,895 |
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19,276 |
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Property and equipment, net |
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279,469 |
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285,782 |
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Goodwill |
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28,042 |
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28,042 |
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Intangible assets, net |
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10,111 |
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10,199 |
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Other assets, net |
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7,373 |
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7,337 |
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Total assets |
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$ |
346,890 |
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$ |
350,636 |
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LIABILITIES |
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Current liabilities: |
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Accounts payable |
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$ |
9,581 |
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$ |
6,080 |
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Accrued payroll and related benefits |
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5,034 |
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2,404 |
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Accrued interest payable |
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301 |
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318 |
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Advance deposits |
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974 |
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496 |
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Other accrued expenses |
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10,337 |
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7,936 |
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Long-term debt, due within one year |
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3,258 |
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3,171 |
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Total current liabilities |
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29,485 |
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20,405 |
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Revolving credit facility |
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21,000 |
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26,000 |
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Long-term debt, due after one year |
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75,494 |
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77,151 |
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Deferred income |
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8,258 |
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8,638 |
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Deferred income taxes |
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9,669 |
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12,595 |
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Debentures due Red Lion Hotels Capital Trust |
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30,825 |
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30,825 |
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Total liabilities |
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174,731 |
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175,614 |
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STOCKHOLDERS EQUITY |
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Red Lion Hotels Corporation stockholders equity |
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Preferred stock - 5,000,000 shares authorized; $0.01 par value;
no shares issued or outstanding |
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Common stock - 50,000,000 shares authorized; $0.01 par value;
18,452,656 and 18,180,104 shares issued and outstanding |
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185 |
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182 |
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Additional paid-in capital, common stock |
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144,055 |
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142,479 |
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Retained earnings |
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27,913 |
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32,346 |
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Total Red Lion Hotels Corporation stockholders equity |
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172,153 |
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175,007 |
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Noncontrolling interest |
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6 |
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15 |
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Total equity |
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172,159 |
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175,022 |
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Total liabilities and stockholders equity |
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$ |
346,890 |
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$ |
350,636 |
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The accompanying condensed notes are an integral part of the consolidated financial statements.
3
RED LION HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three and Six Months Ended June 30, 2010 and 2009
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Three months ended June 30, |
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Six months ended June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(In thousands, except per share data) |
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Revenue: |
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Hotels |
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$ |
38,632 |
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$ |
40,956 |
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$ |
69,253 |
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$ |
71,760 |
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Franchise |
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889 |
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1,262 |
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1,447 |
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1,799 |
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Entertainment |
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2,340 |
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2,584 |
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4,818 |
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5,107 |
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Other |
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594 |
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661 |
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1,239 |
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1,394 |
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Total revenues |
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42,455 |
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45,463 |
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76,757 |
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80,060 |
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Operating expenses: |
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Hotels |
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28,759 |
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28,969 |
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55,499 |
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55,631 |
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Franchise |
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810 |
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502 |
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1,388 |
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1,116 |
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Entertainment |
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1,986 |
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2,273 |
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3,999 |
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4,388 |
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Other |
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413 |
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544 |
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835 |
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1,081 |
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Depreciation and amortization |
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5,175 |
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5,306 |
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10,400 |
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10,263 |
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Hotel facility and land lease |
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1,824 |
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1,834 |
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3,640 |
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3,650 |
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Gain on asset dispositions, net |
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(57 |
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(45 |
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(155 |
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(47 |
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Undistributed corporate expenses |
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1,362 |
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1,721 |
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3,804 |
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2,987 |
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Total expenses |
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40,272 |
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41,104 |
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79,410 |
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79,069 |
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Operating income (loss) |
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2,183 |
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4,359 |
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(2,653 |
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991 |
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Other income (expense): |
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Interest expense |
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(2,314 |
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(2,182 |
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(4,550 |
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(4,029 |
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Other income, net |
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9 |
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23 |
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46 |
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62 |
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Income (loss) before taxes |
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(122 |
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2,200 |
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(7,157 |
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(2,976 |
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Income tax expense (benefit) |
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(60 |
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723 |
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(2,715 |
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(1,167 |
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Net income (loss) |
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(62 |
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1,477 |
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(4,442 |
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(1,809 |
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Net (income) loss attributable to noncontrolling interest |
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(2 |
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(5 |
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9 |
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Net income (loss) attributable
to Red Lion Hotels Corporation |
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$ |
(64 |
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$ |
1,472 |
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$ |
(4,433 |
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$ |
(1,809 |
) |
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Earnings (loss) per share attributable
to Red Lion Hotels Corporation: |
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Basic |
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$ |
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$ |
0.08 |
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$ |
(0.24 |
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$ |
(0.10 |
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Diluted |
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$ |
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$ |
0.08 |
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$ |
(0.24 |
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$ |
(0.10 |
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Weighted average shares basic |
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18,420 |
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18,095 |
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18,345 |
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18,054 |
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Weighted average shares diluted |
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18,420 |
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18,140 |
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18,345 |
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18,054 |
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The accompanying condensed notes are an integral part of the consolidated financial statements.
4
RED LION HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, 2010 and 2009
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Six months ended June 30, |
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2010 |
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2009 |
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(In thousands) |
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Operating activities: |
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Net loss |
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$ |
(4,442 |
) |
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$ |
(1,809 |
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Adjustments to reconcile net loss attributable to Red Lion Hotels Corporation
to net cash provided by operating activities: |
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Depreciation and amortization |
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10,400 |
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10,263 |
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Gain on disposition of property, equipment and other assets, net |
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(155 |
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(47 |
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Deferred income tax benefit |
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(2,926 |
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(1,323 |
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Equity in investments |
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25 |
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31 |
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Stock based compensation expense |
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1,050 |
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554 |
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Provision for doubtful accounts |
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131 |
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64 |
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Change in current assets and liabilities: |
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Restricted cash |
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(1,422 |
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1,224 |
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Accounts receivable |
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(1,851 |
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2,256 |
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Inventories |
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69 |
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115 |
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Prepaid expenses and other |
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(600 |
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(831 |
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Accounts payable and related benefits |
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3,501 |
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(4,674 |
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Accrued payroll and related benefits |
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2,868 |
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(423 |
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Accrued interest payable |
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(17 |
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(30 |
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Deferred lease income |
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900 |
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Other accrued expenses and advance deposits |
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2,733 |
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3,235 |
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Net cash provided by operating activities |
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9,364 |
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9,505 |
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Investing activities: |
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Purchases of property and equipment |
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(3,832 |
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(12,479 |
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Non-current restricted cash for sublease tenant improvements, net |
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(576 |
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Proceeds from disposition of property and equipment |
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8 |
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8 |
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Advances to Red Lion Hotels Capital Trust |
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(27 |
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(27 |
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Other, net |
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198 |
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(423 |
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Net cash used in investing activities |
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(3,653 |
) |
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(13,497 |
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Financing activities: |
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Borrowings on revolving credit facility |
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4,500 |
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Repayment of revolving credit facility |
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(9,500 |
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(6,000 |
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Repayment of long-term debt |
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(1,570 |
) |
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(1,491 |
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Proceeds from stock options exercised |
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304 |
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Proceeds from issuance of common stock under employee stock purchase plan |
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71 |
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51 |
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Additions to deferred financing costs |
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(171 |
) |
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Common stock redeemed |
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(84 |
) |
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(11 |
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Net cash used in financing activities |
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(6,450 |
) |
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(7,451 |
) |
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Change in cash and cash equivalents: |
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Net decrease in cash and cash equivalents |
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(739 |
) |
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(11,443 |
) |
Cash and cash equivalents at beginning of period |
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3,885 |
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18,222 |
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Cash and cash equivalents at end of period |
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$ |
3,146 |
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$ |
6,779 |
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Supplemental disclosure of cash flow information: |
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Cash paid during periods for: |
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Interest on long-term debt |
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$ |
4,567 |
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$ |
4,515 |
|
Noncash investing activities: |
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Conversion of accounts receivable to note receivable |
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$ |
322 |
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$ |
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|
The accompanying condensed notes are an integral part of the consolidated financial statements.
5
RED LION HOTELS CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Red Lion Hotels Corporation (Red Lion or the Company) is a NYSE-listed hospitality and leisure
company (ticker symbols RLH and RLH-pa) primarily engaged in the ownership, operation and franchising of
midscale full, select and limited service hotels under the Red Lion brand. As of June 30,
2010, the Red Lion system of hotels
contained 43 hotels located in eight states and one Canadian province, with 8,384 rooms and 419,987
square feet of meeting space. As of
that date, the Company operated 31 hotels, of which 19 are wholly owned and 12 are leased, and
franchised 12 hotels that were owned and
operated by various third-party franchisees.
The Company is also engaged in entertainment operations, which includes TicketsWest.com, Inc., and through
which the Company derives
revenues from event ticket distribution and promotion and presentation of a variety of entertainment productions.
In addition to hotel operations,
the Company maintains a direct ownership interest in a retail mall that is attached to one of its hotels and in
other miscellaneous real estate investments.
The Company was incorporated in the state of Washington in April 1978, and operated hotels until 1999 under various
brand names including
Cavanaughs Hotels. In 1999, the Company acquired WestCoast Hotels, Inc., and rebranded its Cavanaughs hotels
to the WestCoast brand changing the
Companys name to WestCoast Hospitality Corporation. In 2001, the Company acquired Red Lion Hotels, Inc.
In September 2005, after rebranding most
of its WestCoast hotels to the Red Lion brand, the Company changed its name to Red Lion Hotels Corporation.
The financial statements encompass the
accounts of Red Lion Hotels Corporation and all of its consolidated subsidiaries, including its 100% ownership
of Red Lion Hotels Holdings, Inc., and Red
Lion Hotels Franchising, Inc., and its approximately 99% ownership of Red Lion Hotels Limited Partnership
(RLHLP). The 1% noncontrolling interest in RLHLP has
been classified as a component of equity separate from equity of Red Lion Hotels Corporation.
The financial statements also include an equity method investment in a 19.9% owned real estate venture,
as well as certain cost method investments
in various entities included as other assets, over which the Company does not exercise significant
influence. In addition, the Company holds a 3%
common interest in Red Lion Hotels Capital Trust (the Trust) that is considered a variable interest
entity. The Company is not the primary beneficiary of the
Trust; thus, it is treated as an equity method investment. As more fully discussed in Note 10, the
consolidated financial statements also include all of the activities
of the Companys cooperative marketing fund, also a variable interest entity.
All significant inter-company and inter-segment transactions and accounts have been eliminated upon
consolidation. Certain amounts disclosed in prior period
statements have been reclassified to conform to the current period presentation.
2. Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared by Red
Lion pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) and in accordance with generally accepted accounting
principles in the United States of America (GAAP). Certain
information and footnote disclosures normally included in financial statements have been condensed
or omitted as permitted by such rules and regulations.
The consolidated balance sheet as of December 31, 2009 has been compiled from the audited balance
sheet as of such date. The Company believes the
disclosures included herein are adequate; however, they should be read in conjunction with the
consolidated financial statements and the notes thereto
for the year ended December 31, 2009, previously filed with the SEC on Form 10-K.
In the opinion of management, these unaudited consolidated financial statements contain
all of the adjustments of a normal and recurring nature necessary
to present fairly the consolidated financial position of the Company at June 30, 2010, the
consolidated results of operations for the three and six months
ended June 30, 2010 and 2009, and the consolidated cash flows for the six months ended June
30, 2010 and 2009. The results of operations for the periods
presented may not be indicative of those which may be expected for a full year.
Management makes estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, the
reported amounts of revenues and expenses during the reporting period and the disclosures
of contingent liabilities. Actual results could materially differ from those estimates.
6
3. Property and Equipment
Property and equipment used in operations is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Buildings and equipment |
|
$ |
300,100 |
|
|
$ |
296,032 |
|
Furniture and fixtures |
|
|
46,640 |
|
|
|
46,383 |
|
Landscaping and land improvements |
|
|
8,959 |
|
|
|
8,967 |
|
|
|
|
|
|
|
|
|
|
|
355,699 |
|
|
|
351,382 |
|
Less accumulated depreciation and amortization |
|
|
(143,954 |
) |
|
|
(134,375 |
) |
|
|
|
|
|
|
|
|
|
|
211,745 |
|
|
|
217,007 |
|
Land |
|
|
63,430 |
|
|
|
66,146 |
|
Construction in progress |
|
|
4,294 |
|
|
|
2,629 |
|
|
|
|
|
|
|
|
|
|
$ |
279,469 |
|
|
$ |
285,782 |
|
|
|
|
|
|
|
|
4. Notes Payable to Bank and Long-Term Debt
In September 2006, the Company entered into a revolving credit facility with a syndication of
banks led by Credit Agricole Corporate and Investment Bank, formerly named Calyon, New York Branch.
The initial maturity date for the facility was September 13, 2009, which the Company extended for
an additional year under the terms of the facility to September 13, 2010. The Company has the
unilateral right to extend the maturity for an additional one-year term, which it exercised in July 2010. As such, the amount owed under the facility has been recorded as a long-term liability.
Borrowings under the facility may be used to finance acquisitions or capital expenditures, for
working capital and for other general corporate purposes. The obligations under the facility are
collateralized by a company owned hotel, including a deed of trust and security agreement covering
all of its assets. In connection with this facility, the Company has paid loan fees and related
costs of approximately $1.3 million as of June 30, 2010, which have been deferred and are being amortized over the
remaining term of the facility.
The credit facility requires the Company to comply with certain customary affirmative and
negative covenants, the most restrictive of which are financial covenants dealing with leverage,
interest coverage and debt service coverage. In February 2010, the Company amended the terms of
the facility to modify the total leverage ratio and senior leverage ratio covenants, increase the
interest rate on Eurodollar borrowings to LIBOR plus 3.25% and reduce borrowing capacity to $37.5
million. At June 30, 2010, $21.0 million was outstanding under the facility at an interest rate of
3.60%, and the Company was in compliance with all of its covenants.
In connection with the amendment to the credit facility, the Company also amended its $13.0
million variable rate property note with a bank to mirror the new covenants in the credit facility.
The interest rate on the outstanding balance at June 30, 2010 was 3.25%, based on LIBOR plus 3.0%,
and the Company was in compliance with all covenants.
7
5. Business Segments
As of June 30, 2010 and December 31, 2009, the Company had three operating segments hotels,
franchise and entertainment. The other segment consists primarily of a retail mall and
miscellaneous revenues and expenses, cash and cash equivalents, certain receivables and certain
property and equipment which are not specifically associated with an operating segment. Management
reviews and evaluates the operating segments exclusive of interest expense; therefore, it has not
been allocated to the segments. All balances have been presented after the elimination of
inter-segment and intra-segment revenues. Selected information with respect to operations is as
provided below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels |
|
$ |
38,632 |
|
|
$ |
40,956 |
|
|
$ |
69,253 |
|
|
$ |
71,760 |
|
Franchise |
|
|
889 |
|
|
|
1,262 |
|
|
|
1,447 |
|
|
|
1,799 |
|
Entertainment |
|
|
2,340 |
|
|
|
2,584 |
|
|
|
4,818 |
|
|
|
5,107 |
|
Other |
|
|
594 |
|
|
|
661 |
|
|
|
1,239 |
|
|
|
1,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,455 |
|
|
$ |
45,463 |
|
|
$ |
76,757 |
|
|
$ |
80,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels |
|
$ |
3,621 |
|
|
$ |
5,634 |
|
|
$ |
1,245 |
|
|
$ |
3,762 |
|
Franchise |
|
|
(14 |
) |
|
|
677 |
|
|
|
(127 |
) |
|
|
505 |
|
Entertainment |
|
|
263 |
|
|
|
203 |
|
|
|
634 |
|
|
|
504 |
|
Other |
|
|
(1,687 |
) |
|
|
(2,155 |
) |
|
|
(4,405 |
) |
|
|
(3,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,183 |
|
|
$ |
4,359 |
|
|
$ |
(2,653 |
) |
|
$ |
991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
Identifiable assets: |
|
|
|
|
|
|
|
|
Hotels |
|
$ |
300,387 |
|
|
$ |
301,122 |
|
Franchise |
|
|
17,422 |
|
|
|
16,853 |
|
Entertainment |
|
|
5,731 |
|
|
|
5,143 |
|
Other |
|
|
23,350 |
|
|
|
27,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
346,890 |
|
|
$ |
350,636 |
|
|
|
|
8
6. Earnings (Loss) Per Share
The following table presents a reconciliation of the numerators and denominators used in the
basic and diluted income (loss) per share computations for the three and six months ended June 30,
2010 and 2009 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Numerator basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(62 |
) |
|
|
1,477 |
|
|
|
(4,442 |
) |
|
|
(1,809 |
) |
Net (income) loss attributable to noncontrolling interest |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
Corporation |
|
|
(64 |
) |
|
|
1,472 |
|
|
|
(4,433 |
) |
|
|
(1,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
18,420 |
|
|
|
18,095 |
|
|
|
18,345 |
|
|
|
18,054 |
|
Weighted average shares diluted |
|
|
18,420 |
|
|
|
18,140 |
|
|
|
18,345 |
|
|
|
18,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to Red Lion Hotels Corporation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
0.08 |
|
|
$ |
0.24 |
) |
|
$ |
(0.10 |
) |
Diluted |
|
$ |
|
|
|
$ |
0.08 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.10 |
) |
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 of RLHLP (OP units) were
considered anti-dilutive, as were the 262,684 unissued 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 prices of all options
outstanding were below the Companys 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 OP units were considered
dilutive.
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 losses for the periods. In
addition, all of the 44,837 OP units outstanding during both periods were anti-dilutive.
7. Change in Executive Officers
In January 2010, the Company terminated the employment agreement of its President and Chief
Executive Officer, who was also a director. In connection therewith, the Company recorded expense
of $1.2 million for separation and other benefits during the first quarter of 2010, including $0.4
million in stock-based compensation expense. Under the terms of the agreement, 84,433 of the
former executives restricted stock units vested. Pursuant to a separate agreement entered into in
connection with the termination, the exercise period for 80,000 vested stock options was extended
for six months. Cash amounts due related to this transaction were paid in July 2010.
8. Stock Based Compensation
The 2006 Stock Incentive Plan authorizes the grant or issuance of various option and other
awards including restricted stock units and other stock-based compensation. The plan was approved
by the shareholders of the Company and allows awards of 2.0 million shares, subject to adjustments
for stock splits, stock dividends and similar events. In May 2010, the board of directors granted
to executive officers and other key employees 5,864 options to purchase common stock and 147,039
unvested restricted stock units, all of which will vest 25% each year for four years. In addition,
directors of the Company were granted an aggregate of 23,415 shares of common stock with a fair
value of $0.2 million as part of the existing director compensation arrangement. As of June 30,
2010, there
were 1,080,945 shares of common stock available for issuance pursuant to future stock option
grants or other awards under the 2006 plan.
In the second quarter and first six months of 2010, the Company recognized approximately $0.1
million and $0.2 million, respectively, in compensation expense related to options, compared to
$0.1 million and $0.2 million, respectively, during the same periods in 2009. The 2010 six-month
period included expense recorded upon the separation of the Companys former President and Chief
Executive Officer, as discussed above in Note 7. As outstanding options vest, the Company expects
to recognize approximately $0.3 million in additional compensation expense, before the impact of
income taxes, over a weighted average period of 21 months, including $0.1 million during the
remaining six months of 2010.
9
A summary of stock option activity at June 30, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Exercise |
|
|
|
of Shares |
|
|
Price |
|
Balance, December 31, 2009 |
|
|
1,194,460 |
|
|
$ |
7.36 |
|
Options granted |
|
|
5,864 |
|
|
$ |
7.10 |
|
Options exercised |
|
|
(58,197 |
) |
|
$ |
5.24 |
|
Options forfeited |
|
|
(237,938 |
) |
|
$ |
9.32 |
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
|
904,189 |
|
|
$ |
6.98 |
|
|
|
|
|
|
|
|
Exercisable, June 30, 2010 |
|
|
770,478 |
|
|
$ |
6.62 |
|
|
|
|
|
|
|
|
Additional information regarding stock options outstanding and exercisable as of June 30,
2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
Range of |
|
|
|
|
|
Remaining |
|
|
|
|
|
|
Average |
|
|
Intrinsic |
|
|
|
|
|
|
Average |
|
|
Intrinsic |
|
Exercise |
|
Number |
|
|
Contractual |
|
|
Expiration |
|
|
Exercise |
|
|
Value(1) |
|
|
Number |
|
|
Exercise |
|
|
Value(1) |
|
Prices |
|
Outstanding |
|
|
Life (Years) |
|
|
Date |
|
|
Price |
|
|
(in thousands) |
|
|
Exercisable |
|
|
Price |
|
|
(in thousands) |
|
5.10 - 6.07 |
|
|
499,516 |
|
|
|
1.30 |
|
|
|
2010-2014 |
|
|
$ |
5.31 |
|
|
$ |
334,834 |
|
|
|
499,516 |
|
|
$ |
5.31 |
|
|
$ |
334,834 |
|
7.10 - 7.80 |
|
|
150,256 |
|
|
|
2.55 |
|
|
|
2010-2020 |
|
|
|
7.45 |
|
|
|
|
|
|
|
123,196 |
|
|
|
7.46 |
|
|
|
|
|
8.74 - 8.80 |
|
|
172,286 |
|
|
|
7.85 |
|
|
|
2010-2018 |
|
|
|
8.76 |
|
|
|
|
|
|
|
86,159 |
|
|
|
8.76 |
|
|
|
|
|
10.88 |
|
|
5,974 |
|
|
|
6.07 |
|
|
|
2016 |
|
|
|
10.88 |
|
|
|
|
|
|
|
4,481 |
|
|
|
10.88 |
|
|
|
|
|
12.21-13.00 |
|
|
76,157 |
|
|
|
6.64 |
|
|
|
2010-2017 |
|
|
|
12.61 |
|
|
|
|
|
|
|
57,126 |
|
|
|
12.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
904,189 |
|
|
|
3.24 |
|
|
|
2010-2020 |
|
|
$ |
6.98 |
|
|
$ |
334,834 |
|
|
|
770,478 |
|
|
$ |
6.62 |
|
|
$ |
334,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The aggregate intrinsic value is before applicable income taxes and represents the amount option recipients would have received if all options
had been available to be exercised on the last trading day of the first six months of 2010, or June 30, 2010, based upon the Companys closing
stock price of $5.97. |
As of June 30, 2010 and 2009, there were 262,684 and 246,396 unvested restricted stock
units outstanding, respectively. Since the Company began issuing restricted stock units,
approximately 6.2% of total units granted have been forfeited. In the second quarter and first six
months of 2010, the Company recognized approximately $0.1 million and $0.5 million, respectively,
in compensation expense related to restricted stock units compared to $0.1 million and $0.1
million, respectively, during the same periods in 2009. The 2010 six-month expense reflects $0.4
million recorded upon the separation of the Companys former President and Chief Executive Officer.
As the restricted stock units vest, the Company expects to recognize approximately $1.5 million in
additional compensation expense over a weighted average period of 42 months, including $0.2 million
during the remaining six months of 2010.
A summary of restricted stock unit activity as of June 30, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Number |
|
|
Exercise |
|
|
|
of Shares |
|
|
Price |
|
Balance, December 31, 2009 |
|
|
239,318 |
|
|
$ |
5.24 |
|
Granted |
|
|
147,039 |
|
|
$ |
7.10 |
|
Vested |
|
|
(123,673 |
) |
|
$ |
5.32 |
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
|
262,684 |
|
|
$ |
6.24 |
|
|
|
|
|
|
|
|
In March 2010, the Company issued 35,937 shares of common stock to non-executive
employees as compensation for 2009 bonuses earned. Pursuant to the terms of the 2006 plan, this
issuance was net of 16,741 shares repurchased at $6.59 per share in order to cover the employees
tax withholding obligations.
In January 2008, the Company adopted the 2008 employee stock purchase plan (the 2008 ESPP)
upon the expiration of its previous plan. Under the 2008 ESPP, a total of 300,000 shares of common
stock are authorized for purchase by eligible employees at a discount through payroll deductions.
No employee may purchase more than $25,000 worth of shares in any calendar year, or more
10
than
10,000 shares during any six-month purchase period under the plan. As allowed under the 2008 ESPP,
a participant may elect to withdraw from the plan, effective for the purchase period in progress at
the time of the election with all accumulated payroll deductions returned to the participant at the
time of withdrawal. In January and July 2010, 17,791 and 14,371 shares, respectively, were issued
to participants under the terms of the plan.
9. Fair Value of Financial Instruments
Estimated fair values of financial instruments (in thousands) are as indicated in the table
below. The carrying amounts for cash and cash equivalents, accounts receivable and current
liabilities are reasonable estimates of their fair values. The fair value of long-term debt is
estimated based on the discounted value of contractual cash flows using the estimated rates
currently offered for debt with similar remaining maturities. The debentures are valued at the
closing price on June 30, 2010, of the underlying trust preferred securities on the New York Stock
Exchange, plus the face value of the debenture amount representing the trust common securities held
by the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and
restricted cash |
|
$ |
8,369 |
|
|
$ |
8,369 |
|
|
$ |
7,686 |
|
|
$ |
7,686 |
|
Accounts receivable |
|
$ |
8,400 |
|
|
$ |
8,400 |
|
|
$ |
6,995 |
|
|
$ |
6,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities, excluding debt |
|
$ |
26,227 |
|
|
$ |
26,227 |
|
|
$ |
17,234 |
|
|
$ |
17,234 |
|
Long-term debt |
|
$ |
99,752 |
|
|
$ |
96,221 |
|
|
$ |
106,322 |
|
|
$ |
105,073 |
|
Debentures |
|
$ |
30,825 |
|
|
$ |
30,574 |
|
|
$ |
30,825 |
|
|
$ |
25,897 |
|
The fair values provided above are not necessarily indicative of the amounts the Company or
the debt holders could realize in a current market exchange. In addition, potential income tax
ramifications related to the realization of gains and losses that would be incurred in an actual
sale or settlement have not been taken into consideration.
10. Commitments and Contingencies
At any given time, the Company is subject to claims and actions incidental to the operations
of our business. During the second quarter of 2010, a federal court ruled in favor of the Company
in a lawsuit the Company filed against the owner of a former franchisee. The court awarded to the
Company approximately $0.6 million in damages, which will accrue interest at 18% per annum pending
the defendants appeal. During the first six months of 2010, the Company has incurred
approximately $0.2 million in legal expense in connection with this matter. The Company is
actively pursuing this action and cannot at this time reasonably predict the ultimate outcome of
the proceedings. The Company does not expect that any sums it may receive or have to pay in
connection with this or any other legal proceeding would have a materially adverse effect on its
consolidated financial position or net cash flows.
11. Change in Accounting Principle
Variable Interest Entities In June 2009, the FASB issued changes to the consolidation
guidance applicable to variable interest entities (VIE). These changes also amended the guidance
governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is,
therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a
quantitative analysis. The qualitative analysis is to include, among other things, consideration
of who has the power to direct the activities of the entity that most significantly impact the
entitys economic performance and who has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the VIE.
Under the new guidance, the Company determined that the Central Program Fund (CPF) now meets
the definition of a VIE and should be included in its consolidated financial statements. The
Company adopted these changes retrospectively on January 1, 2010. 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 in the Companys annual report on Form 10-K.
The CPF acts as an agent for the Companys owned and leased hotels and for its 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 the Companys owned and leased hotels as well as its
franchise properties; however, historically only the proportionate share of CPF expense for its
owned and leased hotels was recognized in the consolidated financial statements. Based on the new
guidance, the Company will now include all of the expenses and other balances of the CPF in its
consolidated
11
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 was applied retrospectively, including the recording to retained
earnings of the $1.0 million net of tax impact of cumulative effect of change in accounting
principle as of January 1, 2008, and the consolidated financial statements have been adjusted to
conform to the new treatment. On January 1, 2010, total assets decreased by $0.9 million primarily
representing the consolidation of accounts receivable, and total liabilities increased $0.1
million. The impact of the CPF for the three and six months ended June 30, 2010, added additional
expense before income tax of $0.6 million and $1.0 million, respectively, compared to $0.5 million
and $1.1 million during the prior year comparable periods. The activities of the CPF are cyclical
throughout any one year. For the quarters ended September 30, 2009 and December 31, 2009, net
income (loss) before income tax was positively impacted by $0.6 million and $0.4 million,
respectively. The total impact on net loss before income tax for the year ended December 31, 2009
related to the CPF was a negative adjustment of $24,000, compared to a positive impact of $105,000
for the year ended December 31, 2008.
12. Recent Accounting Pronouncements
Fair Value Measurements On January 1, 2010, the Company adopted new accounting guidance
that requires disclosure of significant transfers between Level 1 and Level 2 of the fair value
hierarchy, the reasons for these transfers and the reasons for any transfers in or out of Level 3
of the fair value hierarchy. In addition, the guidance clarifies certain existing disclosure
requirements. This standard did not have a material impact on the Companys disclosures in its
consolidated financial statements.
12
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
This quarterly report on Form 10-Q includes forward-looking statements. We have based these
statements on our current expectations and projections about future events. When words such as
anticipate, believe, estimate, expect, intend, may, plan, seek, should, will
and similar expressions or their negatives are used in this quarterly report, these are
forward-looking statements. Many possible events or factors, including those discussed in Risk
Factors under Item 1A of our annual report filed on Form 10-K for the year ended December 31,
2009, could affect our future financial results and performance, and could cause actual results or
performance to differ materially from those expressed. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of this quarterly
report.
In this report, we, us, our, our company and the company refer to Red Lion Hotels
Corporation and, as the context requires, all of its wholly and partially owned subsidiaries,
including, but not limited to, its 100% ownership of Red Lion Hotels Holdings, Inc. and Red Lion
Hotels Franchising, Inc. and its approximate 99% ownership of Red Lion Hotels Limited Partnership.
Red Lion refers to the Red Lion brand. The term the system, system-wide hotels or system of
hotels refers to our entire group of owned, leased and franchised hotels.
The following discussion and analysis should be read in connection with our unaudited
consolidated financial statements and the condensed notes thereto and other financial information
included elsewhere in this quarterly report, as well as in conjunction with the consolidated
financial statements and the notes thereto for the year ended December 31, 2009, previously filed
with the SEC on Form 10-K.
Introduction
We are a NYSE-listed hospitality and leisure company (ticker symbols RLH and RLH-pa) primarily
engaged in the ownership, operation and franchising of midscale, full, select and limited service
hotels under our proprietary Red Lion brand. Established over 30 years ago, the Red Lion brand is
nationally recognized and particularly well known in the western United States, where most of our
hotels are located. The Red Lion brand is typically associated with three star, full and select
service hotels.
As of June 30, 2010, our hotel system contained 43 hotels located in eight states and one
Canadian province, with 8,384 rooms and 419,987 square feet of meeting space as provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Meeting |
|
|
|
|
|
|
|
Available |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We operate in three reportable segments:
|
|
|
The hotels segment derives revenue primarily from guest room rentals and food and
beverage operations at our owned and leased hotels. |
|
|
|
The franchise segment is engaged primarily in licensing the Red Lion brand to
franchisees, and generates revenue from franchise fees that are typically based on a
percent of room revenues and are charged to hotel owners. It has also historically
reflected revenue from management fees charged to the owners of managed hotels, although
we have not managed any hotels for third parties since January 2008. |
|
|
|
The entertainment segment derives revenue primarily from ticketing services and
promotion and presentation of entertainment productions. |
Our remaining activities, none of which constitute a reportable segment, have been aggregated
into other, and are primarily related to our retail mall direct ownership interest that is
attached to one of our hotels and other miscellaneous real estate investments.
13
Executive Summary
Our company strategy is to focus on initiatives to grow revenues at our owned and leased
hotels and expand our current franchise base, with an ongoing commitment to cost management and
margin control. During the first quarter we announced the addition of resources to support our
objectives, including executive leadership to concentrate on franchise development in markets
where we have strong brand awareness which may augment our sales and marketing capabilities.
During the second quarter, we experienced some margin erosion
compared to the prior year period due to revenue
challenges combined with
our investments made in sales, marketing and franchising that we
believe will position us for long-term profitability and growth for
shareholders.
Our hotel operational strategy is to increase group, preferred corporate and higher-rated
transient business to reduce reliance on discount on-line travel agent (OTA) and permanent
business. We are also implementing centralized revenue management across our system of hotels to
create greater consistency in pricing, to improve value perception and capture market share. We
have added sales personnel at our properties and at the corporate office to expand our local and
national reach in an effort to grow our mix of group and preferred corporate customer base.
Non-qualified retail and preferred corporate room business increased during the first six months
of 2010 compared to the prior year, offset by targeted declines in OTA room nights. While these
efforts are in their early stages, and pricing and guest capture continues to be highly
competitive, we are encouraged by the gains we are reporting compared to the prior year period.
RevPAR in the second quarter of 2010 for our owned and leased properties decreased 1.8% from
the second quarter of 2009, although for the first six months of 2010 it increased 1.0% over the
prior year period. Similarly, occupancy was down 120 points quarter-on-quarter although up 50
points year-over-year. ADR continues to hold steady to the prior year at $84.58 during the
second quarter of 2010 and $82.59 during the first six months. Average occupancy, average daily
rate and revenue per available room statistics are provided below on a comparable basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, |
|
|
For the six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
Average (1) |
|
|
|
|
|
|
|
|
|
|
Average (1) |
|
|
|
|
|
|
|
|
|
|
Average(1) |
|
|
|
|
|
|
|
|
|
|
Average(1) |
|
|
|
|
|
|
|
|
|
|
Occupancy |
|
|
ADR (2) |
|
|
RevPAR(3) |
|
|
Occupancy |
|
|
ADR (2) |
|
|
RevPAR(3) |
|
|
Occupancy |
|
|
ADR (2) |
|
|
RevPAR(3) |
|
|
Occupancy |
|
ADR (2) |
|
RevPAR(3) |
|
Owned and Leased Hotels |
|
|
59.3 |
% |
|
$ |
84.58 |
|
|
$ |
50.13 |
|
|
|
60.5 |
% |
|
$ |
84.40 |
|
|
$ |
51.07 |
|
|
|
53.8 |
% |
|
$ |
82.59 |
|
|
$ |
44.41 |
|
|
|
53.3 |
% |
|
$ |
82.54 |
|
|
$ |
43.98 |
|
Franchised Hotels |
|
|
53.8 |
% |
|
$ |
78.15 |
|
|
$ |
42.04 |
|
|
|
55.4 |
% |
|
$ |
80.29 |
|
|
$ |
44.46 |
|
|
|
49.3 |
% |
|
$ |
76.59 |
|
|
$ |
37.79 |
|
|
|
50.8 |
% |
|
$ |
79.12 |
|
|
$ |
40.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Red Lion Hotels |
|
|
57.8 |
% |
|
$ |
83.01 |
|
|
$ |
48.01 |
|
|
|
59.2 |
% |
|
$ |
83.39 |
|
|
$ |
49.34 |
|
|
|
52.6 |
% |
|
$ |
81.11 |
|
|
$ |
42.67 |
|
|
|
52.6 |
% |
|
$ |
81.67 |
|
|
$ |
42.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from prior comparative period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and Leased
Hotels |
|
|
(1.2 |
) |
|
|
0.2 |
% |
|
|
-1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
0.1 |
% |
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Franchised Hotels |
|
|
(1.6 |
) |
|
|
-2.7 |
% |
|
|
-5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
-3.2 |
% |
|
|
-6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Red Lion Hotels |
|
|
(1.4 |
) |
|
|
-0.5 |
% |
|
|
-2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0.7 |
% |
|
|
-0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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. |
|
(2) |
|
Average daily rate (ADR) represents total room revenues divided by the total number of paid rooms occupied by hotel guests. |
|
(3) |
|
Revenue per available room (RevPAR) represents total room and related revenues divided by total available rooms. |
We expect economic conditions will continue to challenge our industry and create a difficult
operating environment through 2010. While our goal is to deliver bottom-line profitability
through the above described initiatives, there can be no assurance that we will achieve this goal
if economic conditions do not improve.
Results of Operations
During the second quarter of 2010, we reported a net loss attributable to Red Lion Hotels
Corporation of $0.1 million compared to net income of $1.5 million, or $0.08 per share, during the
second quarter of 2009. EBITDA decreased $2.3 million to $7.4 million, impacted primarily by our investments
in direct sales and franchise development activities; a franchise termination settlement received during the second quarter of 2009 that did not recur; the 2010 closure of a leased hotel in
Astoria, Oregon; and a reduction in group business and competitive rate pressures.
For the first six months of 2010, we reported a net loss attributable to
Red Lion Hotels Corporation of $4.4 million (or $0.24 per share) compared to a net loss of $1.8
million (or $0.10 per share) during the first six months of 2009.
In January 2010, we terminated the employment agreement of our President and Chief Executive
Officer, which resulted in recorded expense of $1.2 million for separation and other benefits. The
$1.2 million recorded during the first quarter of 2010 included $0.4 million in stock-based
compensation expense related to the immediate vesting of 84,433 of the former executives
restricted stock units, as well as for the extension of the exercise period for certain vested
stock options. The following table details the impact of the $1.2 million in separation costs for
the six months ended June 30, 2010 on net loss, loss per share and EBITDA:
14
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, 2010 |
|
|
|
(in thousands) |
|
Separation costs |
|
$ |
(1,219 |
) |
Income tax benefit |
|
|
433 |
|
|
|
|
|
Impact of separation costs on net loss |
|
$ |
(786 |
) |
|
|
|
|
|
|
|
|
|
Separation costs |
|
$ |
(0.07 |
) |
Income tax benefit |
|
|
0.02 |
|
|
|
|
|
Impact of separation costs on loss per share |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
Impact of separation costs on EBITDA |
|
$ |
(1,219 |
) |
|
|
|
|
A summary of our consolidated statement of operations is as provided below (in thousands,
except per share data). Certain amounts disclosed in the prior period have been reclassified to
conform to the current period presentation as it relates to the consolidation of the Central
Program Fund (CPF) as discussed in Note 10 in Condensed Notes to Consolidated Financial
Statements. As a result, franchise segment revenue increased $0.5 million during the second
quarter of both 2010 and 2009, and hotel and franchise segment expenses increased $1.0 million in
the 2010 period compared to $0.8 million during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Total revenue |
|
$ |
42,455 |
|
|
$ |
45,463 |
|
|
$ |
76,757 |
|
|
$ |
80,060 |
|
Operating expenses |
|
|
40,272 |
|
|
|
41,104 |
|
|
|
79,410 |
|
|
|
79,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,183 |
|
|
|
4,359 |
|
|
|
(2,653 |
) |
|
|
991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2,314 |
) |
|
|
(2,182 |
) |
|
|
(4,550 |
) |
|
|
(4,029 |
) |
Other income, net |
|
|
9 |
|
|
|
23 |
|
|
|
46 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes |
|
|
(122 |
) |
|
|
2,200 |
|
|
|
(7,157 |
) |
|
|
(2,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
(60 |
) |
|
|
723 |
|
|
|
(2,715 |
) |
|
|
(1,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(62 |
) |
|
|
1,477 |
|
|
|
(4,442 |
) |
|
|
(1,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss attributable to noncontrolling interest |
|
|
(2 |
) |
|
|
(5 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
Corporation |
|
$ |
(64 |
) |
|
$ |
1,472 |
|
|
$ |
(4,433 |
) |
|
$ |
(1,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
7,365 |
|
|
$ |
9,683 |
|
|
$ |
7,802 |
|
|
$ |
11,316 |
|
EBITDA as a percentage of revenues |
|
|
17.3 |
% |
|
|
21.3 |
% |
|
|
10.2 |
% |
|
|
14.1 |
% |
EBITDA represents net income (loss) attributable to Red Lion Hotels Corporation before
interest expense, income tax expense (benefit) and depreciation and amortization. We utilize
EBITDA as a financial measure because management believes that investors find it a useful tool to
perform more meaningful comparisons of past, present and future operating results and as a means to
evaluate the results of core, on-going operations. We believe it is a complement to net income
(loss) attributable to Red Lion Hotels Corporation and other financial performance measures.
EBITDA is not intended to represent net income (loss) attributable to Red Lion Hotels Corporation
as defined by generally accepted accounting principles in the United States (GAAP), and such
information should not be considered as an alternative to net income (loss), cash flows from
operations or any other measure of performance prescribed by GAAP.
We use EBITDA to measure the financial performance of our owned and leased hotels because we
believe interest, taxes and depreciation and amortization bear little or no relationship to our
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 us 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
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 EBITDA provides us and investors with information that is
relevant and useful in evaluating our business.
15
However, because EBITDA excludes depreciation and amortization, it does not measure the
capital we require to maintain or preserve our fixed 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 it to net income (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 income (loss) 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.
The following is a reconciliation of EBITDA to net income (loss) attributable to Red Lion
Hotels Corporation for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
EBITDA |
|
$ |
7,365 |
|
|
$ |
9,683 |
|
|
$ |
7,802 |
|
|
$ |
11,316 |
|
Income tax (expense) benefit |
|
|
60 |
|
|
|
(723 |
) |
|
|
2,715 |
|
|
|
1,167 |
|
Interest expense |
|
|
(2,314 |
) |
|
|
(2,182 |
) |
|
|
(4,550 |
) |
|
|
(4,029 |
) |
Depreciation and amortization |
|
|
(5,175 |
) |
|
|
(5,306 |
) |
|
|
(10,400 |
) |
|
|
(10,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels Corporation |
|
$ |
(64 |
) |
|
$ |
1,472 |
|
|
$ |
(4,433 |
) |
|
$ |
(1,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Revenue
A breakdown of our revenues for the three and six months ended June 30, 2010 and 2009 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
Operating revenue |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Hotels: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
$ |
27,919 |
|
|
$ |
28,877 |
|
|
$ |
49,199 |
|
|
$ |
49,317 |
|
Food and beverage |
|
|
9,469 |
|
|
|
11,046 |
|
|
|
17,867 |
|
|
|
20,583 |
|
Other department |
|
|
1,244 |
|
|
|
1,033 |
|
|
|
2,187 |
|
|
|
1,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotels segment |
|
|
38,632 |
|
|
|
40,956 |
|
|
|
69,253 |
|
|
|
71,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise |
|
|
889 |
|
|
|
1,262 |
|
|
|
1,447 |
|
|
|
1,799 |
|
Entertainment |
|
|
2,340 |
|
|
|
2,584 |
|
|
|
4,818 |
|
|
|
5,107 |
|
Other |
|
|
594 |
|
|
|
661 |
|
|
|
1,239 |
|
|
|
1,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenue |
|
$ |
42,455 |
|
|
$ |
45,463 |
|
|
$ |
76,757 |
|
|
$ |
80,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 and 2009
During the second quarter of 2010, revenue from the hotels segment decreased $2.3 million, or
5.7%, compared to the second quarter of 2009. Overall, room revenues in the current period were
negatively impacted by a $1.3 million drop in group revenues and our planned shift away from
discount OTA channels in favor of higher-rated transient business. The current period reflects a
1.8% drop in RevPAR for owned and leased properties, due to a 120 basis point drop in occupancy on
flat ADR. Food and beverage revenues declined $1.6 million, or 14.3%, during the second quarter of
2010 compared to the second quarter of 2009, reflecting the impact of our breakfast-inclusive sales
strategy and the decision to modify food and beverage offerings in select markets.
Hotel revenues during the second quarter of 2010 also reflect a $0.4 million impact from the
closure of the Astoria, Oregon leased property. As previously announced, the property was closed
earlier in 2010 as the hotel building had reached the end of its useful life. In July 2010, we
entered into an agreement with the Port of Astoria to evaluate the potential re-development of this
hotel, with discussions ongoing.
Revenue from the franchise segment decreased $0.4 million due to a one-time settlement
received in the second quarter of 2009. Revenues from the entertainment segment decreased $0.2
million, or 9.4%, quarter-over-quarter due to the mix of shows presented during both periods and an
increase in ticketing revenues.
Six Months Ended June 30, 2010 and 2009
In the first six months of 2010, revenue from the hotels segment decreased $2.5 million, or
3.5%, compared to the first six months of 2009, driven by a $2.7 million, or 13.2%, drop in food
and beverage revenue. Room revenues in the first six months of 2010 were positively impacted by
our focus on higher-rated transient and preferred corporate guests and reduced room bookings from
discount OTA channels. Compared to the first six months of 2009, RevPAR increased 1.0% for owned
and leased hotels on a 50 basis point increase in occupancy on flat ADR. Current period results
were also impacted by the introduction of our Variable Dining Option concept that includes a
system-wide breakfast initiative to compete with the limited and select service hotels that offer
free breakfast in our markets.
Revenue from the franchise segment decreased $0.4 million compared to the first six months of
2009, due to a one-time settlement received in the second quarter of 2009. Entertainment revenue
was down 5.7% to $4.8 million.
Operating Expenses
Operating expenses include direct operating expenses for each of the operating segments, hotel
facility and land lease expense, depreciation and amortization, gain or loss on asset dispositions
and undistributed corporate expenses. In the aggregate, operating expenses during the second
quarter of 2010 compared to the 2009 period decreased $0.8 million, while during the first six
months they increased $0.3 million year-over-year, as provided below:
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
Operating Expenses |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
Hotels |
|
$ |
28,759 |
|
|
$ |
28,969 |
|
|
$ |
55,499 |
|
|
$ |
55,631 |
|
Franchise |
|
|
810 |
|
|
|
502 |
|
|
|
1,388 |
|
|
|
1,116 |
|
Entertainment |
|
|
1,986 |
|
|
|
2,273 |
|
|
|
3,999 |
|
|
|
4,388 |
|
Other |
|
|
413 |
|
|
|
544 |
|
|
|
835 |
|
|
|
1,081 |
|
Depreciation and amortization |
|
|
5,175 |
|
|
|
5,306 |
|
|
|
10,400 |
|
|
|
10,263 |
|
Hotel facility and land lease |
|
|
1,824 |
|
|
|
1,834 |
|
|
|
3,640 |
|
|
|
3,650 |
|
Gain on asset dispositions, net |
|
|
(57 |
) |
|
|
(45 |
) |
|
|
(155 |
) |
|
|
(47 |
) |
Undistributed corporate expenses |
|
|
1,362 |
|
|
|
1,721 |
|
|
|
3,804 |
|
|
|
2,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
40,272 |
|
|
$ |
41,104 |
|
|
$ |
79,410 |
|
|
$ |
79,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels revenue owned |
|
$ |
27,893 |
|
|
$ |
29,287 |
|
|
$ |
50,266 |
|
|
$ |
52,190 |
|
Direct margin (1) |
|
$ |
7,539 |
|
|
$ |
9,197 |
|
|
$ |
10,937 |
|
|
$ |
13,397 |
|
Direct margin % |
|
|
27.0 |
% |
|
|
31.4 |
% |
|
|
21.8 |
% |
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels revenue leased |
|
$ |
10,739 |
|
|
$ |
11,669 |
|
|
$ |
18,987 |
|
|
$ |
19,570 |
|
Direct margin (1) |
|
$ |
2,334 |
|
|
$ |
2,790 |
|
|
$ |
2,817 |
|
|
$ |
2,731 |
|
Direct margin % |
|
|
21.7 |
% |
|
|
23.9 |
% |
|
|
14.8 |
% |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise revenue |
|
$ |
889 |
|
|
$ |
1,262 |
|
|
$ |
1,447 |
|
|
$ |
1,799 |
|
Direct margin (1) |
|
$ |
79 |
|
|
$ |
760 |
|
|
$ |
59 |
|
|
$ |
683 |
|
Direct margin % |
|
|
8.9 |
% |
|
|
60.2 |
% |
|
|
4.1 |
% |
|
|
38.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment revenue |
|
$ |
2,340 |
|
|
$ |
2,584 |
|
|
$ |
4,818 |
|
|
$ |
5,107 |
|
Direct margin (1) |
|
$ |
354 |
|
|
$ |
311 |
|
|
$ |
819 |
|
|
$ |
719 |
|
Direct margin % |
|
|
15.1 |
% |
|
|
12.0 |
% |
|
|
17.0 |
% |
|
|
14.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue |
|
$ |
594 |
|
|
$ |
661 |
|
|
$ |
1,239 |
|
|
$ |
1,394 |
|
Direct margin (1) |
|
$ |
181 |
|
|
$ |
117 |
|
|
$ |
404 |
|
|
$ |
313 |
|
Direct margin % |
|
|
30.5 |
% |
|
|
17.7 |
% |
|
|
32.6 |
% |
|
|
22.5 |
% |
|
|
|
(1) |
|
Revenues less direct operating expenses. |
Three Months Ended June 30, 2010 and 2009
Direct hotel expenses in the second quarter of 2010 decreased slightly by $0.2 million, or
less than 1%, compared to the second quarter of 2009. Room related expenses increased $0.6
million, or 7.9%, compared with a room revenue decrease of $1.0 million. Food and beverage costs
decreased $1.2 million, or 13.6%, compared with a food and beverage revenue decrease of $1.6
million. Quarter-on-quarter, the hotel segment reported a 14.7% increase in expense related to
sales personnel and technology expense. Overall, the hotels segment had a direct profit of $9.9
million during the second quarter of 2010 compared to $12.0 million during the second quarter of
2009, providing for a direct operating margin in the current period of 25.6%, a 370 basis point
decline compared to 29.3% during the same period in 2009.
As discussed in Note 10 of Condensed Notes to Consolidated Financial Statements, in June 2009,
the FASB issued changes to the consolidation guidance applicable to variable interest entities
(VIE). Under the new guidance, we determined that our Central Program Fund (CPF) now meets the
definition of a VIE and should be included in our consolidated financial statements. We adopted
these changes retrospectively on January 1, 2010.
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.
Historically, only the proportionate share of CPF expense for our owned and leased hotels was
recognized in the consolidated financial statements. Based on the new guidance, we 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 to
retained earnings of the $1.0 million impact of cumulative effect of change in accounting principle
as of the earliest period presented, and the consolidated financial statements have been adjusted
to conform to the new treatment. The table below represents the impact on consolidation of the CPF
18
for the three months ended June 30, 2010 and 2009 (in thousands, except per share data), which
added additional net expense of $0.6 million and $0.5 million, respectively, before the impact of
income tax expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2010 |
|
|
Three months ended June 30, 2009 |
|
|
|
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 expense |
|
|
(60 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
723 |
|
|
|
|
|
|
|
723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
544 |
|
|
$ |
(606 |
) |
|
$ |
(62 |
) |
|
$ |
1,927 |
|
|
$ |
(450 |
) |
|
$ |
1,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
0.03 |
|
|
$ |
(0.03 |
) |
|
$ |
|
|
|
$ |
0.11 |
|
|
$ |
(0.03 |
) |
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
18,420 |
|
|
|
18,420 |
|
|
|
18,420 |
|
|
|
18,140 |
|
|
|
18,140 |
|
|
|
18,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
7,971 |
|
|
$ |
(606 |
) |
|
$ |
7,365 |
|
|
$ |
10,133 |
|
|
$ |
(450 |
) |
|
$ |
9,683 |
|
Direct costs for the franchise segment increased $0.3 million in the second quarter of 2010
compared to the second quarter of 2009, resulting in a direct margin decrease of $0.7 million from
the decreased revenue as discussed above, due to an increase in legal fees quarter-over-quarter and
the addition of personnel as part of our operating strategy of growing our franchise base. The
entertainment segment reported decreased expenses of $0.3 million, or 12.6%, in-line with the
revenue decrease of 9.4% during the second quarter of 2010 compared to the same period in 2009.
Overall, the entertainment segment reported a direct margin profit of $0.4 million during the
second quarter of 2010, a 13.8% improvement over the second quarter of 2009.
Depreciation and amortization expense decreased 2.5% quarter-over-quarter to $5.2 million, and
total undistributed corporate expenses decreased 20.8% to $1.4 million. Undistributed corporate
expenses include general and administrative charges such as corporate payroll, legal expenses,
charitable contributions, director and officers insurance, bank service charges and outside
accountants and various other consultants expense. We consider these expenses to be
undistributed because the costs are not directly related to our business segments and therefore
are not further distributed. However, costs that can be identified with a particular segment are
distributed, such as accounting, human resources and information technology, and are included in
direct expenses.
19
Six Months Ended June 30, 2010 and 2009
Direct hotel expenses during the first six months of 2010 were relatively flat compared to the
first six months of 2009 at $55.5 million, a $0.1 million decrease to the prior year period.
Rooms-related expenses increased $1.4 million, offset by a food and beverage cost decrease of $2.0
million during the comparable periods, reflecting the impact of our breakfast-inclusive sales
strategy and the decision to modify food and beverage offerings in select markets. As part of our
operations strategy, the hotel segment reported a 15.2%, or $0.8 million, increase in expense
related to sales personnel and technology expense during the first six months of 2010 compared to
the 2009 period. Overall, the segment recorded direct profit during the first six months of 2010
of $13.8 million compared to $16.1 million during the first six months of 2009, for a
year-over-year direct margin decrease of 262 basis points.
As discussed above and in Note 10 of Condensed Notes to Consolidated Financial Statements, we
have included our CPF in our consolidated financial statements retrospectively on January 1, 2010.
The table below represents the impact on consolidation of the CPF for the six months ended June 30,
2010 and 2009 (in thousands, except per share data), which added additional net expense of $1.0
million and $1.1 million, respectively, before the impact of income tax benefit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2010 |
|
|
Six months ended June 30, 2009 |
|
|
|
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 |
|
Direct costs for the franchise segment increased $0.3 million during the first six months of
2010 over the 2009 period, for a segment margin decline of $0.6 million year-over-year.
Entertainment costs decreased $0.4 million, or 8.9%, on a revenue decline of $0.3 million from the
prior year period. Overall, the entertainment segment reported a direct margin profit increase of
13.9% to $0.8 million during the first six months of 2010 compared to the first six months of 2009.
20
Undistributed corporate expenses during the first six months of 2010 increased $0.8 million,
or 27.5%, over the prior year period, although they included the $1.2 million expense recorded
during the first quarter of 2010 upon the separation of our former President and Chief Executive
Officer as discussed above.
Income Taxes
During the second quarter of 2010, we reported an income tax benefit of $0.1 million compared
to income tax expense of $0.7 million during the second quarter of 2009. During the first six
months of 2010, we recognized an income tax benefit of $2.7 million, compared to a $1.2 million
income tax benefit during the same period in 2009. The experienced rate on pre-tax net income
differed from the statutory combined federal and state rates primarily due to the utilization of
certain incentive tax credits allowed under federal law.
Liquidity and Capital Resources
We believe that our assets provide us with a stable, positive cash flow and we have the
financial flexibility to manage our business. We expect to meet our short-term liquidity needs
over the next twelve months using funds generated from operating activities, existing cash and cash
equivalents and utilization of our credit facility, which was amended in February 2010 to reduce
our total borrowing capacity from $50 million to $37.5 million. As of June 30, 2010, our
outstanding balance on the facility was $21.0 million.
At June 30, 2010, outstanding debt was $130.6 million. In addition to the $21.0 million
outstanding under the credit facility, we had other outstanding debt of $12.8 million under a
variable rate note with a bank, $30.8 million in the form of trust preferred securities and a total
of $66.0 million in 13 fixed-rate notes collateralized by individual properties. Our average
pre-tax interest rate on debt was 6.8% at June 30, 2010, of which 74.1% was fixed at an average
rate of 7.9% and 25.9% was at an average variable rate of 3.5%. In
July 2010, we extended the maturity date for the credit
facility to September 2011 under the terms of the agreement. Our first fixed-rate term debt maturity is in September 2011.
Only the credit facility and variable rate bank note have financial covenants, with which we were
in compliance as of June 30, 2010.
In February 2010, we signed an amendment to our credit facility in order to increase our
financial flexibility. The amendments to the facility, secured by our Seattle Red Lion Hotel on
Fifth Avenue property, modified our total leverage ratio and senior leverage ratio covenants for
2010 and 2011, increased the interest rate on Eurodollar borrowings to LIBOR plus 3.25% and reduced
borrowing capacity to $37.5 million from the previous $50 million. We also have one variable rate
property note secured by our Red Lion Bellevue location, with a balance of $12.8 million at June
30, 2010 and due in 2013. This note has financial covenants that mirror those of our credit
facility, and was also amended in February 2010. Our average variable interest rate on this debt
was 3.3% at June 30, 2010.
A comparative summary of our balance sheets at June 30, 2010 and December 31, 2009 is provided
below:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Consolidated balance sheet data (in thousands): |
|
|
|
|
|
|
|
|
Cash and cash equivalent |
|
$ |
3,146 |
|
|
$ |
3,885 |
|
Working capital (1) |
|
$ |
(7,590 |
) |
|
$ |
(1,129 |
) |
Property and equipment, net |
|
$ |
279,469 |
|
|
$ |
285,782 |
|
Total assets |
|
$ |
346,890 |
|
|
$ |
350,636 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
99,752 |
|
|
$ |
106,322 |
|
Debentures due Red Lion Hotels Capital Trust |
|
$ |
30,825 |
|
|
$ |
30,825 |
|
Total liabilities |
|
$ |
174,731 |
|
|
$ |
175,614 |
|
Total stockholders equity |
|
$ |
172,153 |
|
|
$ |
175,022 |
|
|
|
|
(1) |
|
Represents current assets less current liabilities. |
During the remaining six months of 2010, we expect cash expenditures to primarily include the
funding of operating activities, interest payments on our outstanding indebtedness and capital
expenditures. We expect to meet our long-term liquidity requirements for future investments and
continued hotel and other various capital improvements through net cash provided by operations,
debt or equity issuances.
21
Operating Activities
Net cash provided by operations totaled $9.4 million during the first six months of 2010, a
1.5% decrease from the net cash provided of $9.5 million during the first six months of 2009. The
net income, adjusted for non-cash income statement expenses, including depreciation and
amortization, provision for deferred tax and stock based compensation, generated cash from
operations of $4.1 million compared to $7.7 million during the first six months of 2009. Working
capital changes, including restricted cash, receivables, accruals, payables and inventories, were
$5.3 million positive during the first six months of 2010 compared with a positive change of $1.8
million during the comparable period. During the first six months of 2010, the changes in accounts
payable and accrued payroll balances of $3.5 million and $2.9 million, respectively, were due to
timing of payments, offset by an increase in our accounts receivable and restricted cash balances
of $1.9 million and $1.4 million, respectively. We realized a $4.7 million negative change in
accounts payable in the first six months of 2009, primarily as a result of renovation activities
that were completed at our Red Lion Anaheim property in February 2009, offset by a $2.3 million
positive change in accounts receivable in 2009. In June 2009, we received $0.9 million in deferred
lease income pursuant to an amendment to the sublease agreement for the Red Lion Hotel Sacramento.
The $0.9 million will be recognized over the life of the sublease agreement.
Investing Activities
Net cash used in investing activities totaled $3.7 million during the first six months of 2010
compared to $13.5 million during 2009. Cash additions to property and equipment decreased $8.6
million from the first six months of 2009, as the prior year period included the completion of
renovations at our Red Lion Anaheim, Seattles Fifth Avenue and Denver properties. Capital
expenditures in 2010 are expected to be $12.7 million, and will primarily support essential
investments in maintenance, technology and basic hotel improvement projects. For the remainder of
2010, we will continue to manage our capital and expect our cash expenditures to primarily include
the funding of operating activities and interest payments on our outstanding indebtedness. We may
reduce our anticipated level of capital spending to match appropriate needs and circumstances.
During the second quarter of 2009, we utilized $0.3 million of restricted cash to fulfill our
commitment of $0.9 million in tenant improvements at the Red Lion Hotel Sacramento in connection
with an amendment to the sublease agreement. This commitment was completed by the end of 2009.
Financing Activities
Net cash used in financing activities was $6.5 million during the first six months of 2010
compared to $7.5 million used during the first six months of 2009. Net financing activities during
the first six months of 2010 benefited from the exercise by employees of stock options resulting in
proceeds to us of $0.3 million, with no options having been exercised during 2009. During the
current period, we had a net repayment on our credit facility of $5.0 million, and made scheduled
long-term debt principal payments similar to the prior year period of $1.6 million.
At June 30, 2010, we had total debt obligations of $130.6 million, of which $66.0 million was
under 13 notes collateralized by individual hotels with fixed interest rates ranging from 5.9% to
8.1%. These 13 notes mature beginning in 2011 and continuing through 2013. Included within
outstanding debt are debentures due to the Red Lion Hotels Capital Trust of $30.8 million, which
are uncollateralized and due to the trust in 2044 at a fixed rate of 9.5%. Our average pre-tax
interest rate on debt was 6.8% at June 30, 2010.
Of the $130.6 million in total debt obligations, three pools of cross securitized debt exist:
(i) one consisting of five properties with total borrowings of $19.8 million; (ii) a second
consisting of two properties with total borrowings of $17.8 million; and (iii) a third consisting
of four properties with total borrowings of $22.1 million. Each pool of securitized debt and the
other collateralized hotel borrowings include defeasance provisions for early repayment.
22
Contractual Obligations
The following table summarizes our significant contractual obligations as of June 30, 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
After |
|
|
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
4-5 years |
|
|
5 years |
|
Long-term debt (1) |
|
$ |
112,747 |
|
|
$ |
9,154 |
|
|
$ |
54,444 |
|
|
$ |
49,149 |
|
|
$ |
|
|
Operating leases (2) |
|
|
53,186 |
|
|
|
7,831 |
|
|
|
11,681 |
|
|
|
9,344 |
|
|
|
24,330 |
|
Service agreements |
|
|
1,879 |
|
|
|
655 |
|
|
|
1,034 |
|
|
|
190 |
|
|
|
|
|
Debentures due Red Lion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels Capital Trust (1) |
|
129,413 |
|
|
2,928 |
|
|
5,857 |
|
|
5,857 |
|
|
114,771 |
|
Total contractual obligations (3) |
|
$ |
297,225 |
|
|
$ |
20,568 |
|
|
$ |
73,016 |
|
|
$ |
64,540 |
|
|
$ |
139,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including estimated interest payments and commitment fees over the life of the debt agreement. |
|
(2) |
|
Operating lease amounts are net of estimated sublease income of $11.9 million annually. |
|
(3) |
|
With regard to purchase obligations, we are not party to any material agreements to purchase goods or services that are enforceable
or legally binding as to fixed or minimum quantities to be purchased or stated price terms. |
In 2001, we assumed a master lease agreement for 17 hotel properties, including 12 which were
part of the Red Lion acquisition. Subsequently, we entered into an agreement with Doubletree DTWC
Corporation whereby Doubletree DTWC Corporation is subleasing five of these hotel properties from
Red Lion. During the second quarter of 2010, we amended the master lease agreement to exclude the
Astoria, Oregon property due to its closure earlier in the year.
Total fees paid to amend the agreement were $0.3 million. The master lease agreement
requires minimum monthly payments of $1.2 million plus contingent rents based on gross receipts
from the 16 hotels, of which approximately $0.8 million per month is paid by a sub-lease tenant.
The lease agreement expires in December 2020, although we have the option to extend the term on a
hotel-by-hotel basis for three additional five-year terms.
In July 2007, we entered into an agreement to sublease the Red Lion Hotel Sacramento to a
third party with an initial lease term expiring in 2020. In connection with the sublease agreement
and a subsequent amendment, we have received deferred lease income of $3.9 million that will be
amortized over the life of the sublease agreement. The sublease agreement provides for annual rent
payments of $1.4 million, which we have netted against lease amounts payable by us in computing the
operating lease amounts shown in the above table.
In October 2007, we completed an acquisition of a 100-year (including extension periods)
leasehold interest in a hotel in Anaheim, California for $8.3 million, including costs of
acquisition. As required under the terms of the leasehold agreement, we will pay $1.8 million per
year in lease payments through April 2011, the amounts of which have been reflected in the above
table. At our option, we are entitled to extend the lease for 19 additional terms of five years
each, with increases in lease payments tied directly to the Consumer Price Index. Beyond the
monthly payments through April 2011, we have not included any additional potential future lease
commitment related to the Anaheim property in the table above.
In May 2008, we completed an acquisition of a hotel in Denver, Colorado. In connection
with the purchase agreement, we assumed an office lease used by guests contracted to stay at the
hotel for approximately $0.7 million annually. As part of this contract business, we are reimbursed
the entire lease expense amount. The lease expires in August 2012, and its expense has been
included in the table above.
Franchise Contracts
At June 30, 2010, our system of hotels included 12 hotels under franchise agreements,
representing a total of 2,263 rooms and 115,421 square feet of meeting space. During the second
quarter of 2010, a franchise agreement for the Red Lion Hotel Bakersfield (165 rooms) ended by
agreement and was not renewed, and this property left our system of hotels.
Off-balance Sheet Arrangements
As of June 30, 2010, we had no off-balance sheet arrangements, as defined by SEC regulations,
which have or are reasonably likely to have a current or future effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that are material to investors.
23
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect: (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial statements, and (ii)
the reported amounts of revenues and expenses during the reporting periods. Actual results could
differ materially from those estimates. We consider a critical accounting policy to be one that is
both important to the portrayal of our financial condition and results of operations and requires
managements most subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. Our significant accounting policies are
described in Note 2 of Notes to Consolidated Financial Statements included in our annual report on
Form 10-K for the year ended December 31, 2009.
Management has discussed the development and selection of our critical accounting policies and
estimates with the audit committee of our board of directors, and the audit committee has reviewed
the disclosures presented on Form 10-K for the year ended December 31, 2009. Since the date of our
2009 Form 10-K, there have been no material changes to our critical accounting policies, nor have
there been any changes to our methodology and assumptions applied to these policies.
New Accounting Pronouncements
Variable Interest Entities In June 2009, the FASB issued changes to the consolidation
guidance applicable to variable interest entities (VIE). These changes also amended the guidance
governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is,
therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a
quantitative analysis. The qualitative analysis is to include, among other things, consideration
of who has the power to direct the activities of the entity that most significantly impact the
entitys economic performance and who has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the VIE. Under the new guidance, we
determined that our Central Program Fund (CPF) now meets the definition of a VIE and should be
included in our consolidated financial statements. We adopted these changes retrospectively on
January 1, 2010.
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 expense for our owned and leased hotels
was recognized in the 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 to
retained earnings of the $1.0 million net of tax impact of cumulative effect of change in
accounting principle as of January 1, 2008, and the consolidated financial statements have been
adjusted to conform to the new treatment. On January 1, 2010, total assets decreased by $0.9
million primarily representing the consolidation of accounts receivable, and total liabilities
increased $0.1 million. The impact of the CPF for the three and six months ended June 30, 2010 and
2009, added additional expense before income tax of $0.6 million and $0.5 million, and $1.0 million
and $1.1 million, respectively. The activities of the CPF are cyclical throughout any one year.
For the quarters ended September 30, 2009 and December 31, 2009, net income (loss) before income
tax was positively impacted by $0.6 million and $0.4 million, respectively. The total impact on
net loss before income tax for the year ended December 31, 2009 related to the CPF was a negative
adjustment of $24,000, compared to a positive impact of $105,000 for the year ended December 31,
2008. We anticipate the activities of the CPF will not have a material impact on the consolidated
financial statements for the full year 2010.
Fair Value Measurements On January 1, 2010, we adopted new accounting guidance that
requires disclosure of significant transfers between Level 1 and Level 2 of the fair value
hierarchy, the reasons for these transfers and the reasons for any transfers in or out of Level 3
of the fair value hierarchy. In addition, the guidance clarifies certain existing disclosure
requirements. This standard did not have a material impact on our disclosures in the consolidated
financial statements.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
At June 30, 2010, $96.8 million of our outstanding debt was subject to currently fixed
interest rates and was not exposed to market risk from rate changes. In February 2010, we amended
the terms of our credit facility to modify our total leverage ratio and senior leverage ratio
covenants for 2010 and 2011, increase the interest rate on Eurodollar borrowings to LIBOR plus
3.25% and reduce
borrowing capacity to $37.5 million from the previous $50 million. At the same time, we also
amended the variable rate property note secured by our Red Lion Bellevue location. The interest
rate on the $12.8 million outstanding under that note is now based on LIBOR plus 3.0%. Outside of
these changes, we do not foresee any other changes of significance in our exposure to fluctuations
in interest rates, although we will continue to manage our exposure to this risk by monitoring
available financing alternatives.
24
The below table summarizes our debt obligations at June 30, 2010 on our consolidated balance
sheet (in thousands). During the first six months of 2010, principal payments of $6.6 million were
made that were included as debt obligations at December 31, 2009, including $5.0 million in net
repayments on our credit facility.
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|
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|
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|
|
|
|
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
|
Fair Value |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate |
|
$ |
1,600 |
|
|
$ |
46,274 |
|
|
$ |
1,975 |
|
|
$ |
49,903 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
99,752 |
|
|
$ |
96,221 |
|
Average interest
rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures due Red Lion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels Capital Trust |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
30,825 |
|
|
$ |
30,825 |
|
|
$ |
30,574 |
|
Average interest
rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5 |
% |
|
|
|
|
|
|
|
Item 4. |
|
Controls and Procedures |
As of June 30, 2010, we carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer (CEO) and our Chief
Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, our management, including the CEO and CFO,
concluded that our disclosure controls and procedures were effective to ensure that material
information required to be disclosed by us in the reports filed or submitted by us under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within time periods
specified in Securities and Exchange Commission rules and forms.
There were no changes in internal control over financial reporting, as defined in Exchange Act
Rules 13a-15(f), during the first six months of 2010 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial reporting.
25
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
At any given time, we are subject to claims and actions incidental to the operation of our
business. For additional information on our commitments and
contingencies, see Note 10 of Condensed Notes to Consolidated
Financial Statements. While the outcome of these proceedings cannot be predicted, it is the opinion of
management that none of such proceedings, individually or in the aggregate, will have a material
adverse effect on our business, financial condition, cash flows or results of operations.
Item 1A.Risk Factors
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A Risk Factors in our annual report on Form 10-K for the
year ended December 31, 2009, which could materially affect our business, financial condition or
future results. The risks described in our annual report may not be the only risks facing our
company. Additional risks and uncertainties not currently known to us or that we currently deem to
be immaterial also may materially adversely affect our business, financial condition and/or
operating results in the future.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
|
|
|
Item 3. |
|
Defaults Upon Senior Securities |
None.
|
|
|
Item 5. |
|
Other Information |
None.
26
Index to Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) |
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) |
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13(a)-14(b) |
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13(a)-14(b) |
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Red Lion Hotels Corporation
Registrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date |
|
|
|
|
|
|
|
|
By:
|
|
/s/ Jon E. Eliassen
|
|
President and Chief Executive Officer
|
|
August 5, 2010 |
|
|
Jon E. Eliassen
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Anthony F. Dombrowik
|
|
Senior Vice President, Chief Financial Officer
|
|
August 5, 2010 |
|
|
Anthony F. Dombrowik
|
|
(Principal Financial and Accounting Officer) |
|
|
28