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, 2011
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
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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201 W. North River Drive, Suite 100 |
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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 þ 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
July 28, 2011, there were 19,088,769 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, 2011 and December 31, 2010
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June 30, |
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December 31, |
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2011 |
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2010 |
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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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$ |
46,818 |
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$ |
4,012 |
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Restricted cash |
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4,707 |
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4,120 |
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Accounts receivable, net |
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6,532 |
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5,985 |
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Inventories |
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1,519 |
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1,328 |
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Prepaid expenses and other |
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3,090 |
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1,937 |
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Assets held for sale |
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9,805 |
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Total current assets |
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72,471 |
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17,382 |
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Property and equipment, net |
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227,574 |
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272,030 |
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Goodwill |
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22,749 |
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28,042 |
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Intangible assets, net |
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7,961 |
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7,984 |
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Other assets, net |
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5,991 |
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6,044 |
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Total assets |
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$ |
336,746 |
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$ |
331,482 |
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LIABILITIES |
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Current liabilities: |
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Accounts payable |
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$ |
4,893 |
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$ |
7,146 |
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Accrued payroll and related benefits |
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5,023 |
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4,367 |
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Accrued interest payable |
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255 |
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276 |
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Advance deposits |
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931 |
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487 |
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Other accrued expenses |
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11,554 |
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10,178 |
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Revolving credit facility, due within one year |
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18,000 |
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Current portion of long-term debt |
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24,594 |
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25,275 |
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Total current liabilities |
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47,250 |
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65,729 |
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Long-term debt, due after one year |
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50,901 |
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51,877 |
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Deferred income |
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4,891 |
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4,859 |
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Deferred income taxes |
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16,955 |
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7,427 |
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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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150,822 |
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160,717 |
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Commitments and contingencies |
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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; $0.01 par value;
19,067,541 and 18,869,254 shares issued and outstanding |
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191 |
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189 |
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Additional paid-in capital, common stock |
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148,002 |
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146,834 |
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Retained earnings |
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37,624 |
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23,737 |
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Total Red Lion Hotels Corporation
stockholders equity |
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185,817 |
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170,760 |
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Noncontrolling interest |
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107 |
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5 |
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Total equity |
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185,924 |
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170,765 |
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Total liabilities and stockholders equity |
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$ |
336,746 |
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$ |
331,482 |
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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, 2011 and 2010
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Three months ended June 30, |
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Six months ended June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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(In thousands, except per share data) |
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Revenue: |
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Hotels |
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$ |
39,276 |
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$ |
38,632 |
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$ |
69,434 |
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$ |
69,253 |
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Franchise |
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945 |
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889 |
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1,652 |
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1,447 |
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Entertainment |
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4,640 |
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2,340 |
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7,440 |
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4,818 |
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Other |
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519 |
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594 |
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1,126 |
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1,239 |
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Total revenues |
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45,380 |
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42,455 |
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79,652 |
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76,757 |
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Operating expenses: |
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Hotels |
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30,613 |
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28,620 |
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57,782 |
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55,212 |
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Franchise |
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1,070 |
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810 |
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1,964 |
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1,388 |
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Entertainment |
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4,138 |
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1,986 |
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6,752 |
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3,999 |
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Other |
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435 |
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413 |
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828 |
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835 |
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Depreciation and amortization |
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4,757 |
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5,164 |
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10,063 |
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10,374 |
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Hotel facility and land lease |
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2,187 |
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1,779 |
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4,298 |
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3,526 |
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Loss (Gain) on asset dispositions, net |
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(33,497 |
) |
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(57 |
) |
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(33,583 |
) |
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(155 |
) |
Undistributed corporate expenses |
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1,553 |
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1,362 |
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2,897 |
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3,805 |
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Total expenses |
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11,256 |
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40,077 |
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51,001 |
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78,984 |
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Operating income (loss) |
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34,124 |
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2,378 |
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28,651 |
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(2,227 |
) |
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Other income (expense): |
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Interest expense |
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(2,272 |
) |
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(2,314 |
) |
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(4,573 |
) |
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(4,550 |
) |
Other income, net |
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381 |
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9 |
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|
385 |
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46 |
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Income (loss) before taxes |
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32,233 |
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|
73 |
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24,463 |
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(6,731 |
) |
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|
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|
|
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Income tax expense (benefit) |
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|
13,473 |
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|
6 |
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10,474 |
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(2,573 |
) |
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Net income (loss) from continuing operations |
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18,760 |
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67 |
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13,989 |
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(4,158 |
) |
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Discontinued operations |
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Income (loss) from discontinued business units, net of income tax
(benefit) expense of $0 and ($66) for the three months ended and
$0 and ($142) for the six months ended June 30, 2011 and 2010
respectively |
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(129 |
) |
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(283 |
) |
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Net income (loss) from discontinued operations |
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(129 |
) |
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|
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(283 |
) |
Net income (loss) |
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18,760 |
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(62 |
) |
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13,989 |
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(4,441 |
) |
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Less: Net income or loss attributable to noncontrolling interest |
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(112 |
) |
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(2 |
) |
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(102 |
) |
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9 |
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Net income (loss) attributable to Red Lion Hotels
Corporation |
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$ |
18,648 |
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$ |
(64 |
) |
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$ |
13,887 |
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$ |
(4,432 |
) |
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Earnings per share basic |
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Net income (loss) from continuing operations |
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$ |
0.99 |
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$ |
0.00 |
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$ |
0.74 |
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$ |
(0.23 |
) |
Net income (loss) from discontinued operations |
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$ |
0.00 |
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$ |
0.00 |
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$ |
0.00 |
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$ |
(0.01 |
) |
Net income (loss) attributable to Red Lion Hotels Corporation |
|
$ |
0.98 |
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|
$ |
0.00 |
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$ |
0.73 |
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$ |
(0.24 |
) |
Weighted average shares -basic |
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19,023 |
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|
18,420 |
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18,999 |
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|
18,345 |
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Earnings per share diluted |
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Net income (loss) from continuing operations |
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$ |
0.98 |
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$ |
0.00 |
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$ |
0.73 |
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|
$ |
(0.23 |
) |
Net income (loss) from discontinued operations |
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$ |
0.00 |
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$ |
0.00 |
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|
$ |
0.00 |
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|
$ |
(0.01 |
) |
Net income (loss) attributable to Red Lion Hotels Corporation |
|
$ |
0.97 |
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$ |
0.00 |
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$ |
0.72 |
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$ |
(0.24 |
) |
Weighted average shares -diluted |
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|
19,182 |
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|
18,651 |
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|
|
19,163 |
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|
18,345 |
|
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, 2011 and 2010
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Six months ended June 30, |
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2011 |
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2010 |
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(In thousands) |
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Operating activities: |
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|
|
|
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|
|
Net income (loss) |
|
$ |
13,989 |
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|
$ |
(4,441 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
|
|
10,063 |
|
|
|
10,400 |
|
Gain on disposition of property, equipment and other assets, net |
|
|
(33,583 |
) |
|
|
(155 |
) |
Deferred income tax provision (benefit) |
|
|
9,589 |
|
|
|
(2,926 |
) |
Equity in investments |
|
|
23 |
|
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|
25 |
|
Stock based compensation expense |
|
|
655 |
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|
|
1,050 |
|
Provision for doubtful accounts |
|
|
65 |
|
|
|
131 |
|
Change in current assets and liabilities: |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
(587 |
) |
|
|
(1,422 |
) |
Accounts receivable |
|
|
(612 |
) |
|
|
(1,851 |
) |
Inventories |
|
|
(229 |
) |
|
|
69 |
|
Prepaid expenses and other |
|
|
(1,153 |
) |
|
|
(600 |
) |
Accounts payable |
|
|
(2,253 |
) |
|
|
3,501 |
|
Accrued payroll and related benefits |
|
|
656 |
|
|
|
2,868 |
|
Accrued interest payable |
|
|
(21 |
) |
|
|
(17 |
) |
Deferred income |
|
|
275 |
|
|
|
|
|
Other accrued expenses and advance deposits |
|
|
1,812 |
|
|
|
2,733 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(1,311 |
) |
|
|
9,365 |
|
|
|
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|
|
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Investing activities: |
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|
|
Purchases of property and equipment |
|
|
(3,070 |
) |
|
|
(3,832 |
) |
Proceeds from disposition of property and equipment |
|
|
68,331 |
|
|
|
8 |
|
Advances to Red Lion Hotels Capital Trust |
|
|
(27 |
) |
|
|
(27 |
) |
Other, net |
|
|
(694 |
) |
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
64,540 |
|
|
|
(3,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Borrowings on revolving credit facility |
|
|
10,000 |
|
|
|
4,500 |
|
Repayment of revolving credit facility |
|
|
|
|
|
|
(9,500 |
) |
Retirement of revolving credit facility |
|
|
(28,000 |
) |
|
|
|
|
Repayment of long-term debt |
|
|
(1,657 |
) |
|
|
(1,570 |
) |
Proceeds from stock options exercised |
|
|
513 |
|
|
|
304 |
|
Proceeds from issuance of common stock under employee stock
purchase plan |
|
|
63 |
|
|
|
71 |
|
Additions to deferred financing costs |
|
|
(1,220 |
) |
|
|
(171 |
) |
Common stock redeemed |
|
|
(122 |
) |
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(20,423 |
) |
|
|
(6,450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash from operating activities of discontinued operations |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents: |
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
42,806 |
|
|
|
(737 |
) |
Cash and cash equivalents at beginning of period |
|
|
4,012 |
|
|
|
3,882 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
46,818 |
|
|
$ |
3,145 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during periods for: |
|
|
|
|
|
|
|
|
Interest on long-term debt |
|
$ |
4,595 |
|
|
$ |
4,567 |
|
Noncash operating, investing and financing activities: |
|
|
|
|
|
|
|
|
Tax effect on conversion of equity |
|
$ |
61 |
|
|
$ |
|
|
Reclassification of property and other assets to assets held for sale |
|
$ |
9,219 |
|
|
$ |
|
|
Reclassification of goodwill to assets held for sale |
|
$ |
586 |
|
|
$ |
|
|
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, 2011, the Red Lion system of hotels contained 44 hotels located in eight states and one
Canadian province, with 8,457 rooms and 424,387 square feet of meeting space. As of that date, the
Company operated 30 hotels, of which 18 are wholly owned and 12 are leased, and the Company
franchised 14 hotels that were owned and operated by various third-party franchisees.
The Company is also engaged in entertainment operations, which includes TicketsWest.com, Inc.,
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. The consolidated financial statements include all of the activities
of the Companys cooperative marketing fund, a variable interest entity, of which the Company is
the primary beneficiary.
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 the
Company 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, 2010 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, 2010, 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, 2011, the consolidated results of operations for the
three and six months ended June 30, 2011 and 2010, and the consolidated cash flows for the six
months ended June 30, 2011 and 2010. 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. Liquidity
On June 14, 2011, the Company completed a sale of its Red Lion Hotel on Fifth Avenue in
Seattle, Washington for $71 million in cash and used $28 million of the proceeds to retire its
revolving credit facility. See Note 6 for further details.
As of June 30, 2011 the Company had long term debt of $24.6 million maturing within one year.
The Company is in compliance with
its debt covenants and believes it has adequate liquidity to repay this debt when due and to fund
its ongoing operating activities for the foreseeable future.
Nevertheless, the Company is exploring options to refinance this debt in order to have the additional financial flexibility that increased working capital would provide.
4. Property and Equipment
Property and equipment used in continuing operations is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Buildings and equipment |
|
$ |
252,035 |
|
|
$ |
301,766 |
|
Furniture and fixtures |
|
|
43,374 |
|
|
|
47,316 |
|
Landscaping and land improvements |
|
|
9,304 |
|
|
|
9,821 |
|
|
|
|
|
|
|
|
|
|
|
304,713 |
|
|
|
358,903 |
|
Less accumulated depreciation and
amortization |
|
|
(137,055 |
) |
|
|
(153,373 |
) |
|
|
|
|
|
|
|
|
|
|
167,658 |
|
|
|
205,530 |
|
Land |
|
|
57,141 |
|
|
|
63,581 |
|
Construction in progress |
|
|
2,775 |
|
|
|
2,919 |
|
|
|
|
|
|
|
|
|
|
$ |
227,574 |
|
|
$ |
272,030 |
|
|
|
|
|
|
|
|
During the first quarter of 2011, the Company determined that two of its properties, the Red
Lion Hotel on Fifth Avenue in Seattle, Washington (Seattle property), and the Red Lion
Colonial Hotel in Helena, Montana, met the criteria to be classified as assets held for sale.
During the second quarter the Company completed the sale of the Seattle property.
See Note 6 for further details.
5. Goodwill and Intangibles
Under generally accepted accounting principles, when a portion of a reporting unit is disposed
of, a company must allocate a portion of the reporting units goodwill to the disposal. In the
second quarter, the Company completed the sale of its Seattle property to a third party for $71
million. The Company completed an evaluation of its goodwill allocated to the hotel reporting unit during the quarter and determined
that $4.7 million of the $19.5 million allocated to the reporting unit should be disposed of as
part of the sale of the Seattle property. This disposal amount of $4.7 million is included in the
$33.5 million pretax gain on the sale of the Seattle property. See Note 6 for further details.
6. Assets Held for Sale
The Company considers a property to be an asset held for sale when management approves and
commits to a formal plan to actively market the property for sale, the sale of the property is
probable, and transfer of the property is expected to qualify for recognition as a completed sale
within one year. Upon designation as an asset held for sale, the Company records the carrying
value of the property at the lower of its carrying value, which includes allocable goodwill, or
its estimated fair value, less estimated costs to sell, and the Company stops recording
depreciation expense. The operations of a property held for sale prior to the sale date are
recorded in discontinued operations unless the Company will have continuing involvement after the
sale.
During the first quarter of 2011, the Company determined that two of its hotel properties, the
Seattle property and the Red Lion Colonial Hotel in Helena, Montana, met the criteria to be
classified as assets held for sale, but did not meet the criteria for treatment as discontinued
operations. During the second quarter the Company completed the sale of the Seattle property to a
third party for $71 million. The Company recognized a pretax gain on the sale of $33.5 million.
Approximately $6.1 million of the taxable gain attributable to the sale of the property is expected
to be deferred.
The Company plans to sell the Red Lion Colonial Hotel in Helena within one year and
anticipates that it will maintain significant continuing involvement in it, either through a
management or franchise agreement. The Helena, Montana property remains classified as held
7
for sale in the accompanying condensed consolidated balance sheet. Included in assets held for sale is
the estimate of the goodwill attributable to the property. The Company will complete an evaluation
of its goodwill in the period that the sale of the property occurs, and will dispose of
the appropriate amount of goodwill as determined by the valuation analysis. The assets classified
as assets held for sale on the consolidated balance sheet as of June 30, 2011 are detailed in the
table below.
|
|
|
|
|
|
|
June 30, |
|
|
|
2011 |
|
Buildings and equipment |
|
$ |
8,396 |
|
Furniture and fixtures |
|
|
1,367 |
|
Landscaping and land improvements |
|
|
99 |
|
|
|
|
|
|
|
|
9,862 |
|
Less accumulated depreciation and amortization |
|
|
(4,374 |
) |
|
|
|
|
|
|
|
5,488 |
|
Land |
|
|
3,145 |
|
Construction in progress |
|
|
81 |
|
|
|
|
|
Total property and equipment |
|
|
8,714 |
|
|
|
|
|
|
Goodwill |
|
|
586 |
|
Other assets, net |
|
|
505 |
|
|
|
|
|
Assets held for sale |
|
$ |
9,805 |
|
|
|
|
|
7. Credit Facility and Long Term Debt
On June 14, 2011 the Company retired its credit facility using a portion of the proceeds from
the sale of the Seattle property, which secured the facility. The facility had an expiration date
in September 2011.
The Company owes $12.1 million to a bank under a property note, collateralized by two
properties, bearing interest at prime rate plus .075%. The note has certain customary covenants,
the most restrictive of which are financial covenants relating to total leverage, senior leverage
and minimum debt service coverage ratios. The interest rate on the outstanding balance at June 30,
2011 was 4.00% and the Company was in compliance with all covenants. This note matures in
September 2012.
The Company has other debt totaling $22.6 million that will mature in September and October of
2011 and is therefore classified as a current liability on the Companys balance sheet at June 30,
2011. The Company also has another $40.8 million in fixed rate notes collateralized by individual
properties and $30.8 million in the form of trust preferred securities. The Company is currently
exploring options for raising additional funds to address maturing debts and supplement working
capital.
8. Business Segments
As of June 30, 2011 and December 31, 2010, 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 and income taxes;
therefore, they have 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
continuing operations is provided below (in thousands).
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels |
|
$ |
39,276 |
|
|
$ |
38,632 |
|
|
$ |
69,434 |
|
|
$ |
69,253 |
|
Franchise |
|
|
945 |
|
|
|
889 |
|
|
|
1,652 |
|
|
|
1,447 |
|
Entertainment |
|
|
4,640 |
|
|
|
2,340 |
|
|
|
7,440 |
|
|
|
4,818 |
|
Other |
|
|
519 |
|
|
|
594 |
|
|
|
1,126 |
|
|
|
1,239 |
|
|
|
|
|
|
|
|
$ |
45,380 |
|
|
$ |
42,455 |
|
|
$ |
79,652 |
|
|
$ |
76,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels |
|
$ |
36,235 |
|
|
$ |
3,816 |
|
|
$ |
33,042 |
|
|
$ |
1,671 |
|
Franchise |
|
|
(372 |
) |
|
|
(14 |
) |
|
|
(892 |
) |
|
|
(127 |
) |
Entertainment |
|
|
430 |
|
|
|
263 |
|
|
|
527 |
|
|
|
634 |
|
Other |
|
|
(2,169 |
) |
|
|
(1,687 |
) |
|
|
(4,026 |
) |
|
|
(4,405 |
) |
|
|
|
|
|
|
|
$ |
34,124 |
|
|
$ |
2,378 |
|
|
$ |
28,651 |
|
|
$ |
(2,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2011 |
|
2010 |
|
|
|
Identifiable assets: |
|
|
|
|
|
|
|
|
Hotels |
|
$ |
256,147 |
|
|
$ |
292,436 |
|
Franchise |
|
|
10,244 |
|
|
|
9,811 |
|
Entertainment |
|
|
5,339 |
|
|
|
5,115 |
|
Other |
|
|
65,016 |
|
|
|
24,120 |
|
|
|
|
|
|
$ |
336,746 |
|
|
$ |
331,482 |
|
|
|
|
9. Net Income (Loss) Per Share
The following table presents a reconciliation of the numerators and denominators used in the
basic and diluted net income (loss) per share computations for the three and six months ended June
30, 2011 and 2010 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
Numerator basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
18,760 |
|
|
$ |
67 |
|
|
$ |
13,989 |
|
|
$ |
(4,158 |
) |
Net income (loss) from discontinued operations |
|
$ |
|
|
|
$ |
(129 |
) |
|
$ |
|
|
|
$ |
(283 |
) |
Less: Net income or loss attributable to noncontrolling interest |
|
$ |
(112 |
) |
|
$ |
(2 |
) |
|
$ |
(102 |
) |
|
$ |
9 |
|
Net income (loss) attributable to Red Lion Hotels Corporation |
|
$ |
18,648 |
|
|
$ |
(64 |
) |
|
$ |
13,887 |
|
|
$ |
(4,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
19,023 |
|
|
|
18,420 |
|
|
|
18,999 |
|
|
|
18,345 |
|
Weighted average shares diluted |
|
|
19,182 |
|
|
|
18,651 |
|
|
|
19,163 |
|
|
|
18,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.99 |
|
|
$ |
0.00 |
|
|
$ |
0.74 |
|
|
$ |
(0.23 |
) |
Diluted |
|
$ |
0.98 |
|
|
$ |
0.00 |
|
|
$ |
0.73 |
|
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) per share from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
Diluted |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) per share attributable to Red Lion Hotels Corporation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.98 |
|
|
$ |
0.00 |
|
|
$ |
0.73 |
|
|
$ |
(0.24 |
) |
Diluted |
|
$ |
0.97 |
|
|
$ |
0.00 |
|
|
$ |
0.72 |
|
|
$ |
(0.24 |
) |
9
For the three months ended June 30, 2011, 40,157 of the 335,926 options to purchase
common shares outstanding as of that date were considered dilutive, as were 74,740 of the 303,974
restricted stock units outstanding. In addition, all of the 44,837 convertible operating
partnership units of RLHLP (OP units) were considered dilutive for the period. For the three
months ended June 30, 2010, 125,834 of the 904,189 options to purchase common shares outstanding as
of that date were considered dilutive as were 60,738 of the 262,684 restricted stock units outstanding
and all of the 44,837 OP units.
For the six months ended June 30, 2011, 42,260 of the 335,926 options to purchase common
shares outstanding as of that date were considered dilutive, as were 99,670 of the 303,974
restricted stock units outstanding. In addition, 22,542 of the 44,837 OP units were considered
dilutive for the period. Due to the loss for the six months ended June 30, 2010, all of the
904,189 options to purchase common shares and the 262,684 restricted stock units outstanding as of
that date were considered anti-dilutive as were the 44,837 OP units.
10. Income Taxes
The Company makes estimates and judgments in determining income tax expense or benefit for
financial statement purposes. These estimates and judgments occur in the calculation of certain
tax assets and liabilities, which typically arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes, and the determination of tax credits
and other items that impact the Companys income tax expense.
At June 30, 2011, the Company was not able to reliably estimate the full year effective tax
rate. Accordingly, the Company has recognized interim income tax expense or benefit using the
discrete method based on actual results for the three and six months ended June 30, 2011. The
difference in the effective tax rate of 43% at June 30, 2011 from the statutory rate of 34.0% is
primarily driven by the impact of state income taxes, federal tax credits, non-deductible expenses
and goodwill write off related to the sale of the Companys Seattle property during the quarter. See
Note 6 for further details.
The Company assessed its ability to realize its deferred tax assets at June 30, 2011. The
Company continues to have a net deferred tax liability position that includes sufficient taxable
temporary differences scheduled to reverse prior to the expiration of its tax credit carryovers.
Accordingly, at June 30, 2011, the Company concluded that no valuation allowance is necessary and
that it is more likely than not that its deferred tax assets will be realized.
11. 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. As of June 30, 2011, there were 1,022,871
shares of common stock available for issuance pursuant to future stock option grants or other
awards under the 2006 plan.
In the first six months of 2011, the Company recognized approximately $0.1 million in
compensation expense related to options, compared to $0.2 million during the same period in 2010.
As outstanding options vest, the Company expects to recognize approximately $0.1 million in
additional compensation expense, before the impact of income taxes, over a weighted average period
of 15 months, including $40,000 during the remaining six months of 2011.
A summary of stock option activity for the six months ended June 30, 2011, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Number |
|
|
Exercise |
|
|
|
of Shares |
|
|
Price |
|
Balance, January 1, 2011 |
|
|
478,047 |
|
|
$ |
7.62 |
|
Options granted |
|
|
|
|
|
$ |
|
|
Options exercised |
|
|
(100,652 |
) |
|
$ |
5.10 |
|
Options forfeited |
|
|
(41,469 |
) |
|
$ |
10.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011 |
|
|
335,926 |
|
|
$ |
7.99 |
|
|
|
|
|
|
|
|
Exercisable, June 30, 2011 |
|
|
298,430 |
|
|
$ |
7.92 |
|
|
|
|
|
|
|
|
Additional information regarding stock options outstanding and exercisable as of June 30, 2011, is
as follows:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
126,596 |
|
|
|
1.75 |
|
|
|
2011-2014 |
|
|
$ |
5.57 |
|
|
$ |
295,230 |
|
|
|
126,596 |
|
|
$ |
5.57 |
|
|
$ |
295,230 |
|
$7.10 - $7.80 |
|
|
27,864 |
|
|
|
5.07 |
|
|
|
2011-2020 |
|
|
|
7.39 |
|
|
|
14,291 |
|
|
|
23,467 |
|
|
|
7.44 |
|
|
|
10,774 |
|
$8.74 - $8.80 |
|
|
133,652 |
|
|
|
6.85 |
|
|
|
2011-2018 |
|
|
|
8.76 |
|
|
|
|
|
|
|
100,553 |
|
|
|
8.76 |
|
|
|
|
|
$12.21-$13.00 |
|
|
47,814 |
|
|
|
5.64 |
|
|
|
2016-2017 |
|
|
|
12.61 |
|
|
|
|
|
|
|
47,814 |
|
|
|
12.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
335,926 |
|
|
|
4.61 |
|
|
|
2011-2020 |
|
|
$ |
7.99 |
|
|
$ |
309,521 |
|
|
|
298,430 |
|
|
$ |
7.92 |
|
|
$ |
306,004 |
|
|
|
|
|
|
|
|
|
(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 2011, or June 30, 2011, based upon the Companys closing
stock price of $7.90. |
As of June 30, 2011 and 2010, there were 303,974 and 262,684 unvested restricted stock units
outstanding, respectively. Since the Company began issuing restricted stock units, approximately
12.1% of total units granted have been forfeited. In the second quarter and first
six months of 2011, the Company recognized approximately $0.1 million and $0.2 million,
respectively, in compensation expense related to restricted stock units compared to $0.1 million
and $0.5 million, respectively, in the comparable periods in 2010. The 2010 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 $2.0 million in
additional compensation expense over a weighted average period of 40 months, including $0.3 million
during the remainder of 2011.
A summary of restricted stock unit activity for the six months ended June 30, 2011, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Number |
|
|
Grant Date |
|
|
|
of Shares |
|
|
Fair Value |
|
Balance, January 1, 2011 |
|
|
220,816 |
|
|
$ |
6.40 |
|
Granted |
|
|
149,962 |
|
|
$ |
8.12 |
|
Vested |
|
|
(55,738 |
) |
|
$ |
5.04 |
|
Forfeited |
|
|
(11,066 |
) |
|
$ |
6.24 |
|
|
|
|
|
|
|
|
Balance, June 30,
2011 |
|
|
303,974 |
|
|
$ |
7.27 |
|
|
|
|
|
|
|
|
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 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 2011, there were 12,606 shares issued under the terms of the plan
to participants.
12. Fair Value of Financial Instruments
Estimated fair values of financial instruments (in thousands) are shown 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,
2011, of the underlying trust preferred securities on the New York Stock Exchange.
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2011 |
|
2010 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash |
|
$ |
51,525 |
|
|
$ |
51,525 |
|
|
$ |
8,132 |
|
|
$ |
8,132 |
|
Accounts receivable |
|
$ |
6,532 |
|
|
$ |
6,532 |
|
|
$ |
5,985 |
|
|
$ |
5,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities, excluding debt |
|
$ |
22,656 |
|
|
$ |
22,656 |
|
|
$ |
22,454 |
|
|
$ |
22,454 |
|
Total debt |
|
$ |
75,495 |
|
|
$ |
75,642 |
|
|
$ |
95,152 |
|
|
$ |
95,400 |
|
Debentures |
|
$ |
30,825 |
|
|
$ |
31,411 |
|
|
$ |
30,825 |
|
|
$ |
31,279 |
|
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.
13. Commitments and Contingencies
At any given time the Company is subject to claims and actions incidental to the operations of
its business. During 2010, a federal court ruled in favor of the Company in a lawsuit the Company
filed against the owner of a former franchisee. The defendant appealed the ruling,
and the Company is actively responding. The Company cannot at this time reasonably predict
the outcome of the proceedings. The Company has not recorded a receivable for this contingent
gain. 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.
14. Discontinued Operations
During the third quarter of 2010, the Company concluded that its leased hotel in Astoria,
Oregon had reached the end of its useful life. Accordingly, the operations of this hotel have been
classified as discontinued operations in the Companys financial statements. The Company has
segregated the operating results of this hotel from continuing operations on the Companys
consolidated statements of operations for the three and six months ended June 30, 2011 and any
comparable periods presented. During the first quarter of 2011, the Company terminated the lease
with the Port of Astoria. At June 30, 2011 and December 31, 2010, there were no remaining assets
or liabilities of this hotel to report on the Companys consolidated balance sheets.
The following table summarizes results of discontinued operations for the periods indicated
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Operating expenses |
|
|
|
|
|
|
(184 |
) |
|
|
|
|
|
|
(399 |
) |
Depreciation and amortization |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
(26 |
) |
Income tax benefit (expense) |
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations |
|
|
|
|
|
|
(129 |
) |
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of discontinued business units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on disposal of discontinued business
units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations |
|
$ |
|
|
|
$ |
(129 |
) |
|
$ |
|
|
|
$ |
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 with the Securities and Exchange Commission
(SEC) on Form 10-K for the year ended December 31, 2010, 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, 2010, 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 all of our
hotels are located. The Red Lion brand is typically associated with three star, full and select
service hotels.
The discussion and information given below excludes the results related to our leased hotel in
Astoria, Oregon. The results related to the Astoria hotel have been segregated from continuing
operations and reflected as discontinued operations for all periods presented. See Note 14 of
Condensed Notes to Consolidated Financial Statements.
As of June 30, 2011, our hotel system contained 44 hotels located in eight states and one
Canadian province, with 8,457 rooms and 424,387 square feet of meeting space as provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Meeting |
|
|
|
|
|
|
Available |
|
Space |
|
|
Hotels |
|
Rooms |
|
(sq. ft.) |
|
|
|
Owned and Leased Hotels |
|
|
30 |
|
|
|
5,824 |
|
|
|
290,766 |
|
Franchised Hotels |
|
|
14 |
|
|
|
2,633 |
|
|
|
133,621 |
|
|
|
|
Total Red Lion Hotels |
|
|
44 |
|
|
|
8,457 |
|
|
|
424,387 |
|
|
|
|
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 marketing fees and 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 the
promotion and presentation of entertainment productions. |
Our remaining activities, which are primarily related to our ownership interest in a retail
mall attached to one of our hotels and to other miscellaneous real estate investments, do not
constitute a reportable segment and have been aggregated into other.
13
Executive Summary
Our company strategy is to grow the Red Lion brand and our profitability through (1) sales
and marketing initiatives; (2) franchising; and (3) leveraging existing assets to grow the
business. We have embarked on a program of strategic asset sales to unlock real estate value by
means of selective reductions in asset ownership. We successfully completed the sale of our Red
Lion Hotel on Fifth Avenue in Seattle, Washington (Seattle property) for $71 million during the
second quarter of 2011. We are currently marketing our Red Lion Colonial Hotel in Helena,
Montana with the expectation of retaining management and/or franchise rights.
We plan to use the majority of net proceeds from asset sales to reduce debt (we retired our
revolving credit facility in the second quarter of 2011 using a portion of the proceeds from the
sale of the Seattle property) and improve working capital. This restructuring of our balance
sheet should create the financial flexibility necessary to refinance and reposition our remaining
hotel properties and to position us for strategic growth opportunities.
Our hotel operational strategy is to increase group, preferred corporate and higher-rated
transient business, while using revenue management tools that we have invested in during the past
year to strategically manage lower-rated online travel agent and permanent business. 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.
During the first six months of 2011, we saw a decline in our group business when compared to the
first six months of 2010. This decline was expected as we had several citywide events in some of
our key markets in the first six months of 2010 that did not recur in the first six months of
2011. We managed to largely offset this decline by focusing on growth in our transient segment.
For our owned and leased properties, RevPAR increased 6.3% in the second quarter of 2011
from the second quarter of 2010 and 3.2% in the first six months of 2011 compared to the same
period in 2010. Occupancy increased 290 basis points in the second quarter of 2011 from the
second quarter of 2010. Year to date occupancy increased 140 basis points versus the same period
of the prior year. ADR was up 1.2% in the second quarter of 2011 versus the second quarter of
2010, to $82.20 from $81.23, and increased 0.6% in the first six months of 2011 as compared to
the first six months of 2010. Average occupancy, ADR and RevPAR statistics are provided below on
a comparable basis. Comparable hotels are defined as properties whose operations are included in
the consolidated results for the entirety of the reporting periods being compared. The Seattle
property is excluded from the owned and leased hotel statistics
and it is included in the franchised hotel statistics below for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, |
|
For the six months ended June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
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 |
|
|
61.3 |
% |
|
$ |
82.20 |
|
|
$ |
50.43 |
|
|
|
58.4 |
% |
|
$ |
81.23 |
|
|
$ |
47.44 |
|
|
|
54.4 |
% |
|
$ |
80.11 |
|
|
$ |
43.56 |
|
|
|
53.0 |
% |
|
$ |
79.64 |
|
|
$ |
42.21 |
|
Franchised Hotels |
|
|
68.7 |
% |
|
$ |
86.19 |
|
|
$ |
59.19 |
|
|
|
62.2 |
% |
|
$ |
88.79 |
|
|
$ |
55.23 |
|
|
|
61.9 |
% |
|
$ |
84.64 |
|
|
$ |
52.42 |
|
|
|
56.3 |
% |
|
$ |
86.10 |
|
|
$ |
48.48 |
|
|
|
|
|
|
|
|
|
|
Total Red Lion Hotels |
|
|
63.3 |
% |
|
$ |
83.35 |
|
|
$ |
52.75 |
|
|
|
59.4 |
% |
|
$ |
83.32 |
|
|
$ |
49.51 |
|
|
|
56.4 |
% |
|
$ |
81.43 |
|
|
$ |
45.91 |
|
|
|
53.9 |
% |
|
$ |
81.43 |
|
|
$ |
43.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from prior comparative period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and Leased
Hotels |
|
|
2.9 |
|
|
|
1.2 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
|
|
0.6 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Franchised Hotels |
|
|
6.5 |
|
|
|
-2.9 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6 |
|
|
|
-1.7 |
% |
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Red Lion Hotels |
|
|
3.9 |
|
|
|
0.0 |
% |
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
|
|
0.0 |
% |
|
|
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 overall economic conditions to continue to improve, although we believe that
conditions in the specific markets in which we operate will continue to be challenging through
the remainder of the year. While our goal is to deliver bottom line profitability through the
above described initiatives, there can be no assurance that our results of operations will be
similar to our results reported in prior stabilized years if economic conditions do not improve.
Results of Operations
Our reported numbers for the interim and year to date periods presented in this report reflect
results of our Seattle property for the full second quarter and six months ended June 30, 2010, but
not the full second quarter and six months ended June 30, 2011 as the sale of that property closed
on June 14, 2011. In order to help investors distinguish true results from operations versus
changes due to the sale of the
Seattle property, we will discuss operating results as reported and also discuss certain
operating results for the periods included in this report
14
on a comparable hotel basis. As
mentioned above, comparable hotels are properties that are owned or leased by us and the operations
of which are included in the consolidated results for the entirety of the reporting periods being
compared.
During the second quarter of 2011 and 2010, we reported net income from continuing operations
of $18.8 million or $0.99 per diluted share and $0.1 million or $0.00 per diluted share,
respectively. The sale of our Seattle property generated a gain of $33.5 million. This gain is
the main driver of the year over year increase in net income from continuing operations. For the
second quarter of 2011, total revenue increased $3.0 million to $45.4 million when compared to the
second quarter of 2010. Operating expenses in the second quarter of 2011 were $44.8 million
excluding the impact of the $33.5 million gain on the sale of the Seattle property, compared to
operating expenses of $40.1 million in the second quarter of 2010. The increase in expenses is
driven by higher lease, energy, maintenance and labor costs. For the second quarter of 2011, EBITDA from
continuing operations before special items was $5.6 million excluding the $33.5 million gain on the
sale of the Seattle property compared to $7.5 million for the second quarter of 2010. EBITDA from
continuing operations before special items can be found in a separate table below.
For the first six months of 2011, we reported net income from continuing operations of $14.0
million or $0.74 per diluted share compared to a net loss from continuing operations for the same
period in 2010 of $4.2 million or $0.23 per share. The sale of our Seattle property generated a
gain of $33.5 million, which is the main driver of the year over year increase in net income from
continuing operations. Revenue for the first six months of 2011 increased $2.9 million from the
first six months of 2010. Our entertainment segment drove most of this increase. Operating
expenses for the first six months of 2011 were $84.5 million excluding the impact of the $33.5
million gain on the sale of the Seattle property, compared to operating expenses of $79.0 million
for the first six months of 2010. The increase in expenses is driven by higher costs in the
entertainment segment and higher lease, energy, maintenance and labor costs. For the first six months of
2011, EBITDA from continuing operations before special items was $5.4 million, excluding the $33.5
million gain on the sale of the Seattle property, compared to $9.4 million for the first six months
of 2010. The $9.4 million excludes a $1.2 million charge related to the
departure of our former President and Chief Executive Officer. EBITDA from continuing operations
before special items can be found in a separate table below.
A summary of our consolidated statements of operations is provided below (in thousands, except
per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Total revenue |
|
$ |
45,380 |
|
|
$ |
42,455 |
|
|
$ |
79,652 |
|
|
$ |
76,757 |
|
Operating expenses |
|
|
11,256 |
|
|
|
40,077 |
|
|
|
51,001 |
|
|
|
78,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
34,124 |
|
|
|
2,378 |
|
|
|
28,651 |
|
|
|
(2,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2,272 |
) |
|
|
(2,314 |
) |
|
|
(4,573 |
) |
|
|
(4,550 |
) |
Other income, net |
|
|
381 |
|
|
|
9 |
|
|
|
385 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes |
|
|
32,233 |
|
|
|
73 |
|
|
|
24,463 |
|
|
|
(6,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
13,473 |
|
|
|
6 |
|
|
|
10,474 |
|
|
|
(2,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) from continuing operations |
|
|
18,760 |
|
|
|
67 |
|
|
|
13,989 |
|
|
|
(4,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued business units,
net of income tax (benefit) expense of $(66) and $(142) for the three and six months ended June 30, 2010 respectively |
|
|
|
|
|
|
(129 |
) |
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations |
|
|
|
|
|
|
(129 |
) |
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
18,760 |
|
|
|
(62 |
) |
|
|
13,989 |
|
|
|
(4,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income or loss attributable to noncontrolling
interest |
|
|
(112 |
) |
|
|
(2 |
) |
|
|
(102 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels Corporation |
|
$ |
18,648 |
|
|
$ |
(64 |
) |
|
$ |
13,887 |
|
|
$ |
(4,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
39,150 |
|
|
$ |
7,365 |
|
|
$ |
38,997 |
|
|
$ |
7,803 |
|
EBITDA as a percentage of revenues |
|
|
86.3 |
% |
|
|
17.3 |
% |
|
|
49.0 |
% |
|
|
10.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA from continuing operations |
|
$ |
39,150 |
|
|
$ |
7,549 |
|
|
$ |
38,997 |
|
|
$ |
8,202 |
|
EBITDA from continuing operations
as a percentage of revenues |
|
|
86.3 |
% |
|
|
17.8 |
% |
|
|
49.0 |
% |
|
|
10.7 |
% |
EBITDA represents net income attributable to Red Lion Hotels Corporation before interest
expense, income tax 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 attributable to Red Lion
Hotels Corporation and other financial performance measures. EBITDA is not intended to represent
net income attributable to Red Lion Hotels Corporation as defined by generally accepted
15
accounting
principles in the United States (GAAP), and such information should not be considered as an
alternative to net income, cash flows from operations or any other measure of performance
prescribed by GAAP.
We use EBITDA to measure financial performance 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.
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 attributable to Red Lion
Hotels Corporation, which is the most comparable financial measure calculated and presented in
accordance with GAAP.
The following is a reconciliation of EBITDA to net loss attributable to Red Lion Hotels
Corporation for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
EBITDA |
|
$ |
39,150 |
|
|
$ |
7,365 |
|
|
$ |
38,997 |
|
|
$ |
7,803 |
|
Income tax (expense) benefit |
|
|
(13,473 |
) |
|
|
60 |
|
|
|
(10,474 |
) |
|
|
2,715 |
|
Interest expense |
|
|
(2,272 |
) |
|
|
(2,314 |
) |
|
|
(4,573 |
) |
|
|
(4,550 |
) |
Depreciation and amortization |
|
|
(4,757 |
) |
|
|
(5,175 |
) |
|
|
(10,063 |
) |
|
|
(10,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion
Hotels Corporation |
|
$ |
18,648 |
|
|
$ |
(64 |
) |
|
$ |
13,887 |
|
|
$ |
(4,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
EBITDA from continuing operations |
|
$ |
39,150 |
|
|
$ |
7,549 |
|
|
$ |
38,997 |
|
|
$ |
8,202 |
|
Income tax (expense) benefit |
|
|
(13,473 |
) |
|
|
(6 |
) |
|
|
(10,474 |
) |
|
|
2,573 |
|
Interest expense |
|
|
(2,272 |
) |
|
|
(2,314 |
) |
|
|
(4,573 |
) |
|
|
(4,550 |
) |
Depreciation and amortization |
|
|
(4,757 |
) |
|
|
(5,164 |
) |
|
|
(10,063 |
) |
|
|
(10,374 |
) |
Discontinued operations, net of tax |
|
|
|
|
|
|
(129 |
) |
|
|
|
|
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion
Hotels Corporation |
|
$ |
18,648 |
|
|
$ |
(64 |
) |
|
$ |
13,887 |
|
|
$ |
(4,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
16
During
the second quarter 2011, we recorded a $33.5 million gain from the sale of our
Red Lion Hotel on Fifth Avenue in Seattle, Washington and in the first quarter of 2010, we
recorded an expense of $1.2 million resulting from the separation of our former President
and Chief Executive Officer. As a result, the operations as presented in the accompanying
financial statements for the three and six months ended June 30, 2011 compared to 2010 do not
reflect a meaningful comparison between periods. The following table represents a reconciliation
of certain earnings measures before special items to net income / (loss) from continuing operations
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2011 |
|
Three months ended June 30, 2010 |
|
|
Net income / (loss) |
|
|
|
|
|
|
|
|
|
Net income / (loss) |
|
|
|
|
|
|
from continuing |
|
|
|
|
|
|
|
|
|
from continuing |
|
|
|
|
($ in thousands except per share data) |
|
operations |
|
EBITDA |
|
Diluted EPS |
|
operations |
|
EBITDA |
|
Diluted EPS |
|
|
|
|
|
Amount before special items |
|
$ |
(363 |
) |
|
$ |
5,601 |
|
|
$ |
(0.02 |
) |
|
$ |
67 |
|
|
$ |
7,549 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on asset disposition (1) |
|
|
33,549 |
|
|
|
33,549 |
|
|
|
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) of special
items, net (3) |
|
|
(14,426 |
) |
|
|
|
|
|
|
(0.75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount per consolidated statement of operations |
|
$ |
18,760 |
|
|
$ |
39,150 |
|
|
$ |
0.98 |
|
|
$ |
67 |
|
|
$ |
7,549 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2011 |
|
Six months ended June 30, 2010 |
|
|
Net income / (loss) |
|
|
|
|
|
|
|
|
|
Net income / (loss) |
|
|
|
|
|
|
from continuing |
|
|
|
|
|
|
|
|
|
from continuing |
|
|
|
|
($ in thousands except per share data) |
|
operations |
|
EBITDA |
|
Diluted EPS |
|
operations |
|
EBITDA |
|
Diluted EPS |
|
|
|
|
|
Amount before special items |
|
$ |
(5,134 |
) |
|
$ |
5,448 |
|
|
$ |
(0.27 |
) |
|
$ |
(3,372 |
) |
|
$ |
9,421 |
|
|
$ |
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on asset disposition (1) |
|
|
33,549 |
|
|
|
33,549 |
|
|
|
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Separation costs (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,219 |
) |
|
|
(1,219 |
) |
|
|
(0.07 |
) |
Income tax benefit (expense) of special
items, net (3) |
|
|
(14,426 |
) |
|
|
|
|
|
|
(0.75 |
) |
|
|
433 |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount per consolidated statement of operations |
|
$ |
13,989 |
|
|
$ |
38,997 |
|
|
$ |
0.73 |
|
|
$ |
(4,158 |
) |
|
$ |
8,202 |
|
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
(1) |
|
Amount as included in the line item Loss (gain) on asset dispositions, net on the
accompanying consolidated statements of operations. |
|
(2) |
|
Amount as included in the line item Undistributed corporate expenses on the
accompanying consolidated statements of operations. |
|
(3) |
|
Represents taxes on special items at our expected incremental tax rate as
applicable. |
Revenue
A breakdown of our revenues from operations for the three and six months ended June 30, 2011
and 2010 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Operating revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms |
|
$ |
28,989 |
|
|
$ |
27,919 |
|
|
$ |
50,303 |
|
|
$ |
49,199 |
|
Food and beverage |
|
|
9,177 |
|
|
|
9,469 |
|
|
|
17,008 |
|
|
|
17,867 |
|
Other department |
|
|
1,110 |
|
|
|
1,244 |
|
|
|
2,123 |
|
|
|
2,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotels segment |
|
|
39,276 |
|
|
|
38,632 |
|
|
|
69,434 |
|
|
|
69,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise |
|
|
945 |
|
|
|
889 |
|
|
|
1,652 |
|
|
|
1,447 |
|
Entertainment |
|
|
4,640 |
|
|
|
2,340 |
|
|
|
7,440 |
|
|
|
4,818 |
|
Other |
|
|
519 |
|
|
|
594 |
|
|
|
1,126 |
|
|
|
1,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenue |
|
$ |
45,380 |
|
|
$ |
42,455 |
|
|
$ |
79,652 |
|
|
$ |
76,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Our reported numbers for the interim and year to date periods presented in this report reflect
results of our Seattle property for the full second quarter and six months ended June 30, 2010, but
not the full second quarter and six months ended June 30, 2011 as the sale of that property closed
on June 14, 2011. In order to help investors distinguish true results from operations versus
changes due to the sale of the Seattle property, we will discuss operating results as reported and
also discuss certain operating results for the periods included in this report on a comparable
hotel basis. Comparable hotels are defined as properties that are owned or leased by us and the
operations of which are included in the consolidated results for the entirety of the reporting
periods being compared.
A breakdown of our comparable hotel revenues for the three and six months ended June 30, 2011
and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Hotel revenue from operations |
|
$ |
39,276 |
|
|
$ |
38,632 |
|
|
$ |
69,434 |
|
|
$ |
69,253 |
|
less: Hotel revenue from Seattle Fifth Avenue property |
|
|
(3,146 |
) |
|
|
(3,827 |
) |
|
|
(5,987 |
) |
|
|
(6,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable hotel revenue |
|
$ |
36,130 |
|
|
$ |
34,805 |
|
|
$ |
63,447 |
|
|
$ |
62,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms revenue from operations |
|
$ |
28,989 |
|
|
$ |
27,919 |
|
|
$ |
50,303 |
|
|
$ |
49,199 |
|
less: Rooms revenue from Seattle Fifth Avenue property |
|
|
(2,264 |
) |
|
|
(2,775 |
) |
|
|
(4,379 |
) |
|
|
(4,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable rooms revenue |
|
$ |
26,725 |
|
|
$ |
25,144 |
|
|
$ |
45,924 |
|
|
$ |
44,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and beverage revenue from operations |
|
$ |
9,177 |
|
|
$ |
9,469 |
|
|
$ |
17,008 |
|
|
$ |
17,867 |
|
less: Food and beverage revenue from Seattle Fifth
Avenue property |
|
|
(619 |
) |
|
|
(663 |
) |
|
|
(992 |
) |
|
|
(1,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable food and beverage revenue |
|
$ |
8,558 |
|
|
$ |
8,806 |
|
|
$ |
16,016 |
|
|
$ |
16,685 |
|
Three months Ended June 30, 2011 and 2010
As Reported
During the second quarter of 2011, revenue from the hotel segment increased $0.6 million
compared to the second quarter of 2010. Room revenues in the second quarter of 2011 were up $1.1
million to $29.0 million compared to the same period a year ago. Increases in occupancy and rate
for the second quarter of 2011 primarily drove the increase in revenue. Food and beverage revenues
declined by $0.3 million when compared to the second quarter of 2010, primarily as a result of a
decline in banquet revenue associated with a decline in group business in the second quarter of
2011.
Comparable Basis
On a comparable basis, during the second quarter of 2011, revenue from the hotel segment
increased $1.3 million compared to the second quarter of 2010. Comparable room revenues in the
second quarter of 2011 were up $1.6 million to $26.7 million compared to the same period a year
ago. Increases in occupancy and rate for the second quarter of 2011 primarily drove the increase
in revenue. Comparable food and beverage revenues declined by $0.2 million when compared to the
second quarter of 2010, primarily as a result of a decline in banquet revenue associated with a
decline in group business in the second quarter of 2011.
Revenues in the franchise segment were essentially flat at $0.9 million in the second quarter
of 2011 compared to the second quarter of 2010. Revenues in the entertainment segment increased to
$4.6 million in the second quarter of 2011 compared to $2.3 million in the second quarter of 2010.
This variance is mainly driven by the successful two week production of the Broadway show, Wicked, during the second quarter of 2011. Revenues derived from our other segment were down
slightly to $0.5 million.
Six months Ended June 30, 2011 and 2010
As Reported
During the first six months of 2011, revenue from the hotels segment increased $0.2 million
compared to the first six months of 2010. Room revenues in the first six months of 2011 of $50.3
million were up $1.1 million compared to the same period one year ago. As expected, we experienced
a decline in group revenue when compared to the same six months in the prior year. The first six
months in the prior year included group revenue related to several citywide events in some of our
key markets that did not recur in the first six months of 2011. The Spokane market had nationally
focused citywide events in 2010 that did not repeat in 2011. The Denver and Salt Lake City markets
were impacted by the reduction in government travel and reduced flight schedules.
We managed to largely offset this decline by focusing on growth in our transient segment.
Food and beverage revenues declined by $0.8 million when compared to the first six months of 2010,
primarily as a result of a decline in banquet revenue which resulted from the decline in group
business in the first six months of 2011.
Comparable Basis
On a comparable basis, during the first six months of 2011, revenue from the hotels segment
increased $0.8 million compared to the first six months of 2010. Comparable room revenues in the
first six months of 2011 of $45.9 million were up $1.4 million compared to the same
18
period one year
ago. As expected, we experienced a decline in group revenue when compared to the same six months
in the prior year. The first six months in the prior year included group revenue related to
several citywide events in some of our key markets that did not recur in the first six months of
2011. The Spokane market had nationally focused citywide events in 2010 that did not repeat in
2011. The Denver and Salt Lake City markets were impacted by the reduction in government travel
and reduced flight schedules. We managed to largely offset this decline
by focusing on growth in our transient segment. Comparable food and beverage revenues declined by
$0.7 million when compared to the first six months of 2010, primarily as a result of a decline in
banquet revenue which resulted from the decline in group business in the first six months of 2011.
Revenues in the franchise segment increased to $1.7 million in the first six months of 2011
compared to $1.4 million in the first six months of 2010. The increase seen in the first six
months of 2011 is attributable to the fact the first six months of 2010 included a rate holiday for
franchisees that did not recur in the first six months of 2011. Revenues in the entertainment
segment increased to $7.4 million in the first six months of 2011 compared to $4.8 million in the
first six months of 2010, driven by the fact that we had a successful two week production of the
Broadway show, Wicked, in the first six months of 2011. Revenues derived from our other segment
were down slightly from $1.2 million to $1.1 million compared to the prior year.
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 2011 compared to the 2010 period increased $4.7 million, excluding the impact of the
$33.5 million gain on the sale of the Seattle property. During the first six months of 2011,
operating expenses increased $5.6 million year over year, excluding the impact of the $33.5 million
gain on the sale of the Seattle property. Operating expenses as well as direct margin by segment
for the three and six months ended June 30, 2011 and 2010 can be seen below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels |
|
$ |
30,613 |
|
|
$ |
28,620 |
|
|
$ |
57,782 |
|
|
$ |
55,212 |
|
Franchise |
|
|
1,070 |
|
|
|
810 |
|
|
|
1,964 |
|
|
|
1,388 |
|
Entertainment |
|
|
4,138 |
|
|
|
1,986 |
|
|
|
6,752 |
|
|
|
3,999 |
|
Other |
|
|
435 |
|
|
|
413 |
|
|
|
828 |
|
|
|
835 |
|
Depreciation and amortization |
|
|
4,757 |
|
|
|
5,164 |
|
|
|
10,063 |
|
|
|
10,374 |
|
Hotel facility and land lease |
|
|
2,187 |
|
|
|
1,779 |
|
|
|
4,298 |
|
|
|
3,526 |
|
Gain on asset dispositions, net |
|
|
(33,497 |
) |
|
|
(57 |
) |
|
|
(33,583 |
) |
|
|
(155 |
) |
Undistributed corporate expenses |
|
|
1,553 |
|
|
|
1,362 |
|
|
|
2,897 |
|
|
|
3,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
11,256 |
|
|
$ |
40,077 |
|
|
$ |
51,001 |
|
|
$ |
78,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels revenue owned |
|
$ |
27,799 |
|
|
$ |
27,893 |
|
|
$ |
49,523 |
|
|
$ |
50,266 |
|
Direct margin (1) |
|
$ |
6,191 |
|
|
$ |
7,539 |
|
|
$ |
8,589 |
|
|
$ |
10,937 |
|
Direct margin % |
|
|
22.3 |
% |
|
|
27.0 |
% |
|
|
17.3 |
% |
|
|
21.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels revenue leased |
|
$ |
11,477 |
|
|
$ |
10,739 |
|
|
$ |
19,911 |
|
|
$ |
18,987 |
|
Direct margin (1) |
|
$ |
2,472 |
|
|
$ |
2,473 |
|
|
$ |
3,063 |
|
|
$ |
3,104 |
|
Direct margin % |
|
|
21.5 |
% |
|
|
23.0 |
% |
|
|
15.4 |
% |
|
|
16.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise revenue |
|
$ |
945 |
|
|
$ |
889 |
|
|
$ |
1,652 |
|
|
$ |
1,447 |
|
Direct margin (1) |
|
$ |
(125 |
) |
|
$ |
79 |
|
|
$ |
(312 |
) |
|
$ |
59 |
|
Direct margin % |
|
|
-13.2 |
% |
|
|
8.9 |
% |
|
|
-18.9 |
% |
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment revenue |
|
$ |
4,640 |
|
|
$ |
2,340 |
|
|
$ |
7,440 |
|
|
$ |
4,818 |
|
Direct margin (1) |
|
$ |
502 |
|
|
$ |
354 |
|
|
$ |
688 |
|
|
$ |
819 |
|
Direct margin % |
|
|
10.8 |
% |
|
|
15.1 |
% |
|
|
9.2 |
% |
|
|
17.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue |
|
$ |
519 |
|
|
$ |
594 |
|
|
$ |
1,126 |
|
|
$ |
1,239 |
|
Direct margin (1) |
|
$ |
84 |
|
|
$ |
181 |
|
|
$ |
298 |
|
|
$ |
404 |
|
Direct margin % |
|
|
16.2 |
% |
|
|
30.5 |
% |
|
|
26.5 |
% |
|
|
32.6 |
% |
|
|
|
(1) |
|
Revenues less direct operating expenses. |
19
A
breakdown of our comparable hotel operating expenses and direct margin for the three and six
months ended June 30, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Hotel operating expenses per consolidated statement of
operations |
|
$ |
30,613 |
|
|
$ |
28,620 |
|
|
$ |
57,782 |
|
|
$ |
55,212 |
|
less: Hotel operating expenses from Seattle Fifth Avenue
property |
|
|
(2,496 |
) |
|
|
(2,383 |
) |
|
|
(4,639 |
) |
|
|
(4,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable hotel operating expenses |
|
$ |
28,117 |
|
|
$ |
26,237 |
|
|
$ |
53,143 |
|
|
$ |
50,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel direct margin per operations |
|
$ |
8,663 |
|
|
$ |
10,012 |
|
|
$ |
11,652 |
|
|
$ |
14,041 |
|
less: Hotel direct margin from Seattle Fifth Avenue property |
|
|
(650 |
) |
|
|
(1,446 |
) |
|
|
(1,348 |
) |
|
|
(2,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable hotel direct margin |
|
$ |
8,013 |
|
|
$ |
8,566 |
|
|
$ |
10,304 |
|
|
$ |
12,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable hotel direct margin % |
|
|
22.2 |
% |
|
|
24.6 |
% |
|
|
16.2 |
% |
|
|
19.2 |
% |
Three months Ended June 30, 2011 and 2010
As Reported
Direct hotel expenses in the second quarter of 2011 increased by $2.0 million, or 6.9%,
compared to the second quarter of 2010. Room related expenses increased $0.9 million, or 10.3%.
Food and beverage costs increased $0.2 million, or 2.7% quarter over quarter. Overall, the hotels
segment had a direct margin of $8.7 million in the second quarter of 2011 compared to $10.0 million
during the second quarter of 2010, providing for a direct operating margin in the current period of
22.1%, compared to 25.9% during the same period in 2010. The year over year comparison for the
hotel segment was primarily impacted by increased energy, maintenance and labor costs.
Comparable Basis
On a comparable basis, direct hotel expenses in the second quarter of 2011 increased by $1.9
million, or 7.1%, compared to the second quarter of 2010. On a comparable basis overall, the
hotels segment had a direct margin of $8.0 million in the second quarter of 2011 compared to $8.6
million during the second quarter of 2010, providing for a direct operating margin in the current
period of 22.2%, compared to 24.6% during the same period in 2010. The comparable year over year
comparison for the hotel segment was primarily impacted by increased energy, maintenance and labor
costs.
Direct expenses for the franchise segment in the second quarter of 2011 increased by $0.3
million compared to the second quarter of 2010, primarily driven by investment to grow this
segment. Direct expenses for the entertainment segment increased $2.2 million year over year
driven by an increase in the number of shows in the second quarter of 2011, namely a two week
production of the Broadway hit, Wicked during the second quarter of 2011.
Depreciation and amortization expenses decreased $0.4 million in the second quarter of 2011,
which resulted from the discontinuation of depreciation expense on our assets classified as held
for sale. See Note 6 of Condensed Notes to Consolidated Financial Statements. Undistributed
corporate expenses increased $0.2 million in the second quarter of 2011 compared to the second
quarter of 2010. Undistributed corporate expenses include general and administrative charges such
as corporate payroll, stock compensation expense, directors fees, 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, such as accounting, human
resources and information technology, are distributed and included in direct expenses.
Six months Ended June 30, 2011 and 2010
As Reported
Direct hotel expenses in the first six months of 2011 increased by $2.6 million, or 4.7%,
compared to the first six months of 2010. Room related expenses increased $1.1 million, or 7.2%.
Food and beverage costs decreased $0.1 million, or 0.3% year over year. Overall, the hotels
segment had a direct margin of $11.7 million in the first six months of 2011 compared to $14.0
million during the first six months of 2010, providing for a direct operating margin in the current
period of 16.8%, compared to 20.3% during the same period in 2010. The year over year comparison
for the hotel segment was primarily impacted by increased energy, maintenance and labor costs.
Comparable Basis
On a comparable basis, direct hotel expenses in the first six months of 2011 increased by $2.5
million, or 5.0%, compared to the first six months of 2010. On a comparable basis overall, the
hotels segment had a direct margin of $10.3 million in the first six months of 2011 compared to
$12.0 million during the first six months of 2010, providing for a comparable direct operating
margin in the current period of 16.2%, compared to 19.2% during the same period in 2010. The year
over year comparison for the hotel segment was primarily impacted by increased energy, maintenance
and labor costs.
Direct expenses for the franchise segment in the first six months of 2011 increased by $0.6
million compared to the first six months of 2010, driven by investment to grow this segment.
Direct expenses for the entertainment segment increased $2.8 million year over year
20
driven by an
increase in the number of shows in the first quarter of 2011, namely a two week production of the
Broadway hit, Wicked during the first six months of 2011.
Depreciation and amortization expenses decreased $0.3 million in the first six months of 2011,
which resulted from the discontinuation of depreciation expense on our assets classified as held
for sale. See Note 6 of Condensed Notes to Consolidated Financial Statements. Undistributed
corporate expenses decreased $0.9 million in the first six months of 2011, because the first six
months of 2010 included $1.2 million of expense recorded upon the separation of our former
President and Chief Executive Officer. Undistributed corporate expenses include general and
administrative charges such as corporate payroll, stock compensation expense, directors fees,
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, such
as accounting, human resources and information technology, are distributed and included in direct
expenses.
Income Taxes
During
the second quarter of 2011, we reported an income tax expense from continuing operations of $13.5 million compared
to an income tax expense of $6,000 during the second quarter of 2010. For the first six months of
2011, we reported an income tax expense of $10.5 million compared to an income tax benefit of $2.6
million during the first six months of 2010. The increase for both comparative periods was due to
the gain on the sale of our Seattle property. We expect to defer approximately $6.1 million of the
taxable gain attributable to the sale of the property.
We make estimates and judgments in determining income tax expense or benefit for financial
statement purposes. These estimates and judgments occur in the calculation of certain tax assets
and liabilities, which typically arise from differences in the timing of recognition of revenue and
expense for tax and financial statement purposes, and in the determination of tax credits and other
items that impact our income tax expense or benefit.
We assessed our ability to realize our deferred tax assets at June 30, 2011. We continue to
have a net deferred tax liability position that includes sufficient taxable temporary differences
scheduled to reverse prior to the expiration of any of our tax credit carryovers. Accordingly, at
June 30, 2011, we concluded that no valuation allowance was necessary and that it is more likely
than not that our deferred tax assets will be realized.
21
Liquidity and Capital Resources
On June 14, 2011, we completed a sale of our Red Lion Hotel on Fifth Avenue in Seattle,
Washington for $71 million in cash and used $28 million of the proceeds to retire our revolving
credit facility, which was scheduled to expire in September 2011.
As of June 30, 2011 we had long term debt of $24.6 million maturing within one year.
We are in compliance with our debt covenants and
believe we have adequate liquidity to repay this debt when due and to fund our ongoing operating
activities for the foreseeable future.
Nevertheless, we are exploring options to refinance this debt in order to have the additional financial flexibility that increased working capital would provide.
At June 30, 2011, outstanding debt was $106.3 million. We have outstanding bank debt of $12.1
million under a variable rate bank note, $30.8 million in the form of trust preferred securities
and a total of $63.4 million in 13 fixed-rate notes collateralized by individual properties. Our
average pre-tax interest rate on debt was 7.5% at June 30, 2011, of which 88.6% was fixed at an
average rate of 7.9% and 11.4% was at an average variable rate of 4.0%. Our first fixed-rate term
debt maturity is in September 2011.
The variable rate property note is secured by our Red Lion Bellevue and Red Lion Templins
properties, and matures in 2012. This note has financial covenants, including covenants relating to
the total leverage, senior leverage and minimum debt service coverage ratios. We were in
compliance with all covenants at June 30, 2011 and expect to continue to comply with all covenants
in future periods. The interest rate on this note was 4.0% at June 30, 2011.
A comparative summary of balance sheet data at June 30, 2011 and December 31, 2010 is provided
below:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2011 |
|
2010 |
Consolidated balance sheet data (in thousands): |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
46,818 |
|
|
$ |
4,012 |
|
Working capital (1) |
|
$ |
15,416 |
|
|
$ |
(48,347 |
) |
Assets held for sale |
|
$ |
9,805 |
|
|
$ |
|
|
Property and equipment, net |
|
$ |
227,574 |
|
|
$ |
272,030 |
|
Total assets |
|
$ |
336,746 |
|
|
$ |
331,482 |
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
75,495 |
|
|
$ |
95,152 |
|
Debentures due Red Lion Hotels Capital Trust |
|
$ |
30,825 |
|
|
$ |
30,825 |
|
Total liabilities |
|
$ |
150,822 |
|
|
$ |
160,717 |
|
Total stockholders equity |
|
$ |
185,924 |
|
|
$ |
170,765 |
|
|
|
|
(1) |
|
Represents current assets less current liabilities, excluding assets held for sale. |
During 2011, 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 using existing cash or through net cash provided by operations, debt,
strategic asset sales or equity issuances.
Operating Activities
Net cash used in operating activities during the first six months of 2011 totaled $1.3
million, a $10.7 million decrease from net cash provided by operating activities of $9.4 million
during the first six months of 2010. The primary drivers of the decrease are a higher net loss
plus the payment timing of accounts payable and other accrued expenses of $6.7 million.
Investing Activities
Net cash provided by investing activities totaled $64.5 million during the first six months of
2011 compared to net cash used of $3.7 million during the first six months of 2010. The primary
driver of the increase was the net proceeds from the sale of our Seattle property of $68.3 million.
Cash additions to property and equipment decreased by $0.8 million. Capital expenditures in 2011
are expected to be between $11.0 and $13.0 million, and will primarily support investments in
maintenance, technology and basic hotel improvement projects.
22
Financing Activities
Net cash used in financing activities was $20.4 million during the first six months of 2011,
compared to $6.5 million during the first six months of 2010. Net financing activities during the
first six months of 2011 included the retirement of our revolving credit facility with $28 million
of the cash proceeds from the sale of our Seattle property, which secured the facility. Also
impacting financing activities during the first six months were the fees associated with the
amendment to the, now retired, facility in March 2011, which allowed us to maintain our borrowing
capacity.
At June 30, 2011, we had total debt obligations of $106.3 million, of which $63.4 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 7.5% at June 30, 2011.
Of the $106.3 million in total debt obligations, three pools of cross securitized debt exist:
(i) one consisting of five properties with total borrowings of $19.3 million; (ii) a second
consisting of two properties with total borrowings of $17.3 million; and (iii) a third consisting
of four properties with total borrowings of $21.5 million. Each pool of securitized debt and the
other collateralized hotel borrowings include defeasance provisions for early repayment.
Contractual Obligations
The following table summarizes our significant contractual obligations, including principal
and interest on debt, as of June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
After |
|
|
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
4-5 years |
|
|
5 years |
|
Debt (1) |
|
$ |
82,174 |
|
|
$ |
25,738 |
|
|
$ |
56,436 |
|
|
$ |
|
|
|
$ |
|
|
Operating and capital leases (2) |
|
|
62,375 |
|
|
|
4,327 |
|
|
|
24,061 |
|
|
|
13,663 |
|
|
|
20,324 |
|
Service agreements |
|
|
1,414 |
|
|
|
380 |
|
|
|
1,034 |
|
|
|
|
|
|
|
|
|
Debentures due Red Lion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels Capital Trust (1) |
|
|
126,485 |
|
|
|
1,464 |
|
|
|
8,785 |
|
|
|
5,857 |
|
|
|
110,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations (3) |
|
$ |
272,448 |
|
|
$ |
31,909 |
|
|
$ |
90,316 |
|
|
$ |
19,520 |
|
|
$ |
130,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $11.1 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 agreement to terminate the master lease
as to the Astoria, Oregon property due to its closure. The master lease agreement requires minimum
monthly payments of $1.2 million plus contingent rents based on gross receipts from the remaining
16 hotels, of which approximately $0.8 million per month is paid by a sublease 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 February 2011, we reached an agreement with a new subtenant of our Red Lion Hotel
Sacramento. The agreement provides for initial minimum annual rent payments of $0.4 million during
the first three years with increases in future years, which are reflected in the table above.
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 paid $1.8 million per year
in lease payments through April 2011. 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. We exercised the option to extend for one additional 5 year term beginning in May
2011, leaving us with 18 remaining options to extend the lease for additional terms of five years
each. Effective starting May 2011, we will pay $2.2 million per year through the extension period
ending in April 2016, which is reflected 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.
23
Franchise Update
At June 30, 2011, our system of hotels included 14 hotels under franchise agreements,
representing a total of 2,633 rooms and 133,621 square feet of meeting space. During the second
quarter we sold our Seattle property and entered into a franchise agreement with the buyer who will
continue to operate the property as a Red Lion Hotel. In addition, the previously announced Red
Lion Inn Rancho Cordova near Sacramento opened in May 2011.
Off-balance Sheet Arrangements
As of June 30, 2011, 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.
Critical Accounting Policies and Estimates
The preparation of consolidated 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, 2010.
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, 2010. Since the date of our
2010 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 and Future Accounting Pronouncements
During the six months ended June 30, 2011 there were no new accounting pronouncements published
that were applicable to us.
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At June 30, 2011, $94.2 million of our outstanding debt was subject to currently fixed
interest rates and was not exposed to market risk from rate changes. In March 2011, we amended
the covenants of the variable rate property note secured by our Red Lion Bellevue and Red Lion
Templins locations. We amended the terms to modify our total leverage ratio, senior leverage ratio
and minimum debt service coverage ratio. The interest rate on the $12.1 million outstanding under
that note is now based on prime rate plus 0.075%. Outside of this change, 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.
The table below shows (in thousands) the principal amounts of the debt obligations on our
consolidated balance sheet at June 30, 2011, that are payable during the last six months of 2011,
during each of the years 2012 through 2015 and thereafter. During the first six months of 2011,
recurring scheduled principal payments of $1.7 million were made that were included as debt
obligations at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
Thereafter |
|
Total |
|
Fair Value |
Total debt |
|
$ |
23,618 |
|
|
$ |
12,999 |
|
|
$ |
38,878 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
75,495 |
|
|
$ |
75,642 |
|
Average interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures due Red Lion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels Capital Trust |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
30,825 |
|
|
$ |
30,825 |
|
|
$ |
31,411 |
|
Average interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5 |
% |
|
|
|
|
Item 4. Controls and Procedures
As of June 30, 2011, 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
Rule 13a-15(f), during the first six months of 2011 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. 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. See Note
13 of Condensed Notes to Consolidated Financial Statements.
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, 2010, 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 4. (Removed and Reserved)
Item 5. Other Information
None.
26
Item 6. Exhibits
Index to Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
10.1
|
|
Agreement to Purchase Hotel between WHC809, LLC and LCP Seattle, LLC |
|
|
|
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) |
|
|
|
101.INS
|
|
XBRL Instance Document |
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation
Linkbase Document |
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label
Linkbase Document |
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension
Presentation Linkbase Document |
|
|
|
|
|
|
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
Jon E. Eliassen
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
August 8, 2011 |
|
|
|
|
|
|
|
By:
|
|
/s/ Dan R. Jackson
Dan R. Jackson
|
|
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
|
|
August 8, 2011 |
|
|
|
|
|
|
|
By:
|
|
/s/ Sandra J. Heffernan
Sandra J. Heffernan
|
|
Vice President, Corporate Controller
(Principal Accounting Officer)
|
|
August 8, 2011 |
28