UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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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
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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201 W. North River Drive, Suite 100
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Spokane Washington
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99201
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(Address of principal executive
offices)
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(Zip
Code)
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Registrants Telephone Number, Including Area Code:
(509) 459-6100
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.01 per share
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New York Stock Exchange
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Preferred Stock Purchase Rights
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New York Stock Exchange
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Guarantee with Respect to 9.5% Trust Preferred
Securities
(Liquidation Amount of $25 per Trust Preferred Security) of
Red Lion Hotels Corporation Capital Trust
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New York Stock Exchange
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Securities registered pursuant to section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company 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
(Do not check if a smaller reporting company)
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Smaller reporting company o
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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
The aggregate market value of the registrants common stock
as of June 30, 2010 was $110.0 million, of which 69.9%
or $76.9 million was held by non-affiliates as of that
date. As of March 8, 2011, there were
18,993,267 shares of the Registrants common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2011
Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to
Regulation 14A within 120 days of the end of the
Registrants 2010 fiscal year, are incorporated by
reference herein in Part III.
PART I
This annual report on
Form 10-K
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 annual
report, these are forward-looking statements. Many possible
events or factors, including those discussed in Risk
Factors under Item 1A of this annual report, 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 annual report.
In this report, we, us,
our, our company, the
company and RLH refer to Red Lion Hotels
Corporation and, as the context requires, all of its wholly and
partially owned subsidiaries, including its 100% ownership of
Red Lion Hotels Holdings, Inc. and Red Lion Hotels Franchising,
Inc. and its more than 99% ownership of Red Lion Hotels Limited
Partnership. Red Lion refers to the Red Lion brand.
The terms the system, system-wide hotels
or system of hotels refer to our entire group of
owned, leased and franchised hotels.
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 our hotels are located. The Red Lion brand is
typically associated with three-star full and select service
hotels.
Our 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, we acquired WestCoast
Hotels, Inc., and rebranded our Cavanaughs hotels to the
WestCoast brand, changing our name to WestCoast Hospitality
Corporation. In 2001, we acquired Red Lion Hotels, Inc. In
September 2005, after rebranding most of our WestCoast hotels to
the Red Lion name, we changed our company name to Red Lion
Hotels Corporation. All of our hotels operate under the Red Lion
brand.
Red Lion has created an environment that allows our customers to
feel at home while they travel. Our product and service culture
is successful in both urban and smaller markets, and our hotels
strive to reflect the character of the local markets in which
they operate while maintaining a consistent, comfortable and
friendly experience. We believe our focus on customer service
and consistent brand touch-points allow guests to Stay
Comfortable. Our goal is to create the most memorable
guest experience possible, through personalized service,
allowing us to be a leader in our markets. We believe that
providing our guests a consistent, comfortable and friendly
experience in the warm, authentic way that Red Lion has
historically been known for will drive our hotels success.
As of December 31, 2010, our system of hotels contained 44
hotels located in eight states and one Canadian province, with
8,557 rooms and 425,397 square feet of meeting space as
provided below:
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Total
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Meeting
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Available
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Space
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Hotels
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Rooms
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(sq. ft.)
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Red Lion Owned and Leased Hotels
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31
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6,121
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304,566
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Red Lion Franchised Hotels
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13
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2,436
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120,831
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Total
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44
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8,557
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425,397
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Operations
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. As of December 31, 2010, we operated 31
hotels, of which 19 are wholly-owned and
3
12 are leased. During 2010, our hotel segment accounted for
approximately 90.9% of total revenues. In September 2010, and as
further discussed in Note 22 of Notes to Consolidated
Financial Statements, we concluded that one of our leased hotels
in Astoria, Oregon had reached the end of its useful life and
the hotel was closed. Accordingly, the operations of that hotel
have been classified as discontinued operations in our financial
statements.
The franchise segment is engaged primarily in licensing
the Red Lion brand to franchisees. This segment generates
revenue from franchise fees that are typically based on a
percent of room revenues and are charged to hotel owners in
exchange for the use of our brand and access to our central
services programs. These programs include our reservation
system, guest loyalty program, national and regional sales,
revenue management tools, quality inspections, advertising and
brand standards. As of December 31, 2010, we had 13
franchised hotels operating under the Red Lion brand. During
2010, our franchise segment accounted for approximately 2.0% of
total revenues.
The franchise segment has also historically reflected revenue
from management fees charged to the owners of managed hotels. We
have not managed any hotels for third parties since January 2008.
The entertainment segment derives revenues primarily from
ticketing services and promotion and presentation of
entertainment productions under the operations of TicketsWest
and WestCoast Entertainment. We offer ticketing inventory
management systems, call center services, and outlet/electronic
channel distribution for event locations. We have developed an
electronic ticketing platform that is integrated with our
electronic hotel distribution system. During 2010, our
entertainment segment accounted for approximately 5.6% of total
revenues.
Our remaining activities, none of which constitutes a reportable
segment, have been aggregated into other.
A summary of our reporting segment revenues is provided below
(in thousands, except for percentages). For further information
regarding our business segments, see Note 4 of Notes to
Consolidated Financial Statements.
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Year Ended December 31,
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2010
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2009
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2008
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Hotels:
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Rooms revenue
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$
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107,489
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65.7
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%
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$
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101,975
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61.5
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%
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$
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115,564
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61.4
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%
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Food and beverage revenue
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36,246
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22.2
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%
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41,484
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25.0
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%
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48,506
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25.8
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%
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Other department revenue
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4,833
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3.0
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%
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4,313
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2.6
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%
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4,540
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2.4
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%
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Total hotels segment revenue
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148,568
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90.9
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%
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147,772
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89.1
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%
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168,610
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89.6
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%
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Franchise revenue
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3,209
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2.0
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%
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3,616
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2.2
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%
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4,442
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2.3
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%
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Entertainment revenue
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9,236
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5.6
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%
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11,690
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7.1
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%
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12,016
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6.4
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%
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Other revenue
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2,481
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1.5
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%
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2,641
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1.6
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%
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3,140
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1.7
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%
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Total revenue
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$
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163,494
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100.0
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%
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$
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165,719
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100.0
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%
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$
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188,208
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100.0
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%
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Revenue per available room (RevPAR) for owned and
leased hotels on a comparable basis for 2010 increased 5.4% due
to a 160 basis point increase in occupancy and a 2.5%
increase in average daily rate (ADR). The increase
in rate was primarily driven by a continued emphasis on
modifications to our food and beverage offerings. System-wide,
which includes franchised hotels, RevPAR on a comparable basis
increased 3.5%
year-over-year
due to a 120 basis point increase in occupancy and a 1.4%
increase in ADR. Average occupancy, ADR and RevPAR statistics
are provided below:
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2010
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2009
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Average
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Average
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Occupancy
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ADR
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RevPAR
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Occupancy
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ADR
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RevPAR
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Owned and Leased Hotels
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57.1
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%
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$
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84.33
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$
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48.11
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55.5
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%
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$
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82.25
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$
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45.64
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Franchised Hotels
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52.1
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%
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$
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76.55
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$
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39.91
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52.2
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%
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$
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78.25
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$
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40.87
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Total System Wide(1)
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55.8
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%
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$
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82.42
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$
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45.96
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54.6
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%
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$
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81.25
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$
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44.39
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4
Change from prior comparative periods:
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2010 vs. 2009
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Owned and Leased Hotels
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1.6
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2.5
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%
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5.4
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%
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Franchised Hotels
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(0.1
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(2.2
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)%
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(2.3
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)%
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Total System Wide
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1.2
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1.4
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%
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3.5
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%
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(1) |
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Includes all hotels owned, leased and franchised, presented on a
comparable basis. |
Average occupancy, ADR and RevPAR, as defined below, are widely
used in the hospitality industry and appear throughout this
document as important measures to the discussion of our
operating performance.
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Average occupancy represents total paid rooms occupied
divided by total available rooms. We use average occupancy as a
measure of the utilization of capacity in our system of hotels.
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RevPAR represents total room and related revenues divided
by total available rooms. We use RevPAR as a measure of
performance yield in our system of hotels.
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ADR represents total room revenues divided by the total
number of paid rooms occupied by hotel guests. We use ADR as a
measure of room pricing in our system of hotels.
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Total available rooms represents the number of rooms
available multiplied by the number of days in the reported
period. We use total available rooms as a measure of capacity in
our system of hotels and do not adjust total available rooms for
rooms temporarily out of service for remodel or other short-term
periods.
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Comparable hotels are hotels that have been owned, leased
or franchised by us and were in operation during each of the
full periods presented.
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Throughout this document and unless otherwise stated, RevPAR,
ADR and average occupancy statistics are calculated using
statistics for comparable hotels. Some of the terms used in this
report, such as full service, upscale
and midscale are consistent with those used by Smith
Travel Research, an independent statistical research service
that specializes in the lodging industry. Our hotels are
typically classified by Smith Travel Research in the upscale and
midscale with food and beverage chain scale.
Company
Strategy
Red Lions strategy is to grow the brand and profitability
through (1) sales and marketing initiatives;
(2) franchising; and (3) leveraging existing assets to
grow franchise business.
Sales &
Marketing Initiatives
We have invested in sales and marketing talent and technology to
grow group and preferred corporate business and provide
additional sales resources for our franchise properties as well
as better market the Red Lion brand. The group market comprises
nearly 30% of total room revenue and serves as a cushion to
offset seasonal transient business. It also heavily influences
our ability to drive higher rated transient business as
compression occurs with available room inventory. We plan to
continue to focus on this market going forward.
Franchising
We believe franchising represents a profitable, non-capital
intensive growth opportunity. Our strategy is to commit adequate
resources to substantially grow the Red Lion brand through
franchising in the coming years. As we have demonstrated with
recent new franchisees, our near term effort will continue in
Red Lions historic geographic footprint in the western
U.S., targeting well located limited, select and full service
hotels. The Red Lion brand has been well known in the geographic
areas in which we currently operate for more than 30 years,
which we feel is attractive to potential franchisees looking for
options to reduce costs and increase flexibility yet offer a
distinct product valued by customers.
5
Todays economy has forced many hotel owners to look for
alternatives in reducing their operating costs and capital
requirements, many of which are brand imposed and believed to be
unnecessary, from an owners viewpoint. By allowing both
limited and full service hotels to operate under the Red Lion
brand, we are uniquely positioned to provide an appealing
alternative for such owners, so our plan will incorporate
pursuing 10 to 20 year old hotels whose owners face what
they perceive to be unreasonable renovation requirements and who
need a strong distribution system. Red Lion features an
owner-friendly approach, based on the following: 1) A high
level of brand support and access to Red Lion decision makers;
2) Flexibility in renovations, 3) Leading distribution
technology and sales support.
As the owner of the Red Lion brand, we offer a strong support
system by providing a full range of franchise services that we
believe are valuable to hotel owners, including (i) central
reservations, (ii) revenue management, (iii) national
and regional sales, (iv) marketing, (v) systems,
operations and customer service training, (vi) corporate
purchasing programs and (vii) quality evaluations.
In 2010, we invested heavily in franchise support and
development resources. We hired a strong development team headed
by an executive with years of experience in the hotel franchise
development business. We also built a support team to ensure
that we can deliver a positive and profitable experience for our
new and existing franchise owners.
Leveraging
Assets
We have also embarked on a program of strategic asset sales to
unlock real estate value by means of very selective reduction in
asset ownership. We are actively marketing three of our owned
assets with the goal of retaining management and franchise
rights with the new owners. Currently, our real estate holdings
that are being marketed include our Red Lion Hotel on Fifth
Avenue in downtown Seattle, Washington, our Red Lion Hotel
Denver Southeast in Aurora, Colorado, and our Red Lion Colonial
Hotel in Helena, Montana.
Proceeds will be used to restructure the Companys balance
sheet, which includes reducing debt. This will create the
financial flexibility necessary to refinance and reposition
remaining hotel properties as the market rebounds while better
positioning the Company for growth through franchising.
Hotel
Operations Strategy
We will continue to seek ways to improve profitability in 2011
through growth in revenue via the following initiatives:
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Business Mix. Our assets provide us with a
stable, positive cash flow. However, on an aggregated basis, we
can improve compared to our competitive set in average rate due
to our occupancy mix. We intend to continue to focus on group
and higher-rated transient business, while at the same time
using revenue management tools that we invested in during the
past year to strategically manage lower-rated on-line travel
agent and permanent business. To achieve this goal, we are
focusing on direct sales, as well as implementing centralized
revenue management across our system of hotels, allowing for
greater consistency in pricing to improve value perception and
capture market share.
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Investment in Marketing and Sales
Resources. In the fourth quarter of 2009 and
first quarter of 2010, we implemented an automated sales and
catering system that provides our properties with a single
customer data base to streamline sales and catering processes,
increase efficiency of sales personnel to capture additional
business and allow for immediate transparency in monitoring
productivity. In addition to this new system, we appointed a new
and seasoned leader as Executive Vice President,
Sales & Marketing to lead the way in expanding our
local and national reach. We have also invested in training and
additional sales personnel to grow our mix of group and
preferred corporate customers.
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Responding to Customer Demand. The Red Lion
brand has always been associated with value oriented
full-service, high-quality lodging, with extensive meeting
facilities and food and beverage operations in the majority of
our locations. In 2010 we introduced a value priced, breakfast
initiative to directly compete with limited and select service
hotels offering free breakfast. We intend to expand our
breakfast offering system-
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wide in 2011 and to continue to assess our operations and focus
to ensure that our guests are provided a clean, comfortable room
at a competitive price, and a place, to which they want to
return.
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Expense Management and Other Revenue. During
2010, we had a 21.5% direct hotel operating margin on slightly
improved hotel revenues of $148.6 million. Our increased
investments in sales, marketing, franchising and related
technologies drove the majority of the margin decline. However,
we believe this same investment will help us to improve our
revenues going forward as we work to increase market share in
the markets in which we compete. We will also seek to maximize
ancillary revenues, including initiatives such as paid parking,
selling reservations services and leasing underutilized real
estate.
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Summary
Our current hotels are primarily located in eight Western
states, with the majority in secondary and tertiary markets. We
believe the current operating environment provides us the
opportunity to grow our business through redeployment of capital
along with franchising, as hotel owners seek to improve
profitability through an affiliation with a strong regional
hotel brand. We will continue to build on the strength and
recognition of the Red Lion brand in the geographic footprint we
have built as a platform for growth and achievement of long-term
profitability and returns to shareholders.
During 2011, we expect overall economic conditions to continue
to improve, although we believe that conditions in the markets
in which we operate will be challenging in the first half of the
year. While our goal is to deliver bottom-line profitability
through the above described initiatives, there can be no
assurance our results of operations will be similar to our
results reported in prior stabilized years if economic
conditions do not improve.
Employees
As of December 31, 2010, we employed 2,463 people on a
full-time or part-time basis, with 2,313 directly related to
hotel operations. We also had 94 employees in other
operating segments, primarily within our entertainment segment,
and 56 employees in our corporate office. Our total number
of employees fluctuates seasonally, and we employ many part-time
employees.
At December 31, 2010, approximately 4.9% of our total
workforce was covered by various collective bargaining
agreements providing, generally, for basic pay rates, working
hours, other conditions of employment and organized settlement
of labor disputes. We believe our employee relations are
satisfactory.
Available
Information
Through our website (www.redlion.com), we make available our
annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, amendments to these filings and all other
reports and documents that we file with the U.S. Securities
and Exchange Commission (SEC) pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934. The public may read and copy the materials we file with
the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet site at
www.sec.gov that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC.
Our internet website also contains our Code of Business Conduct
and Ethics, our Corporate Governance Guidelines; charters for
our Audit, Compensation and Nominating and Corporate Governance
Committees, Accounting and Audit Complaints and Concerns
Procedures, our Statement of Policy with Respect to Related
Party Transactions and information regarding shareholder
communications with our board of directors.
7
We are subject to various risks, including those set forth
below, that could have a negative effect on our financial
condition and could cause results to differ materially from
those expressed in forward-looking statements contained in this
report or other Red Lion communications.
General
economic conditions will continue to negatively impact our
results and liquidity.
Most business has been affected by current economic factors,
including Red Lion. Discretionary travel has been impacted by
economic pressures, which in turn has impacted the hospitality
industry and our company. Higher unemployment, lower family
income, lower corporate earnings, lower business investment and
lower consumer spending all have reduced the demand for hotel
rooms and related lodging services and put pressure on industry
room rates and occupancy. In 2011, we expect our operations and
financial results will continue to be impacted by general
economic conditions, weakened hospitality demand and constraints
on availability of financing. Factors such as continued
unfavorable economic conditions, a significant decline in demand
for lodging, or continued instability of the credit and capital
markets could result in further pressure on credit, which could
negatively impact our ability to obtain future financing on
acceptable terms and our liquidity in general. While we believe
we have adequate sources of liquidity to meet our anticipated
requirements for working capital, debt servicing and capital
expenditures for the foreseeable future, if our operating
results worsen significantly and our cash flow or capital
resources prove inadequate or we do not meet our financial debt
covenants, we could potentially face liquidity problems that
could adversely affect our results of operations and financial
condition.
Due to
the geographic concentration of the hotels in our system, our
results of operations and financial condition are subject to
fluctuations in regional economic conditions.
Of the 44 hotels in our system at December 31, 2010, 34 are
located in Oregon, Washington, Idaho and Montana. Our results of
operations and financial condition may be impacted by the
economy of the Pacific Northwest, which is dependent in large
part on a limited number of major industries, including
agriculture, tourism, technology, timber and aerospace. These
industries may be affected by:
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The rate of national and local unemployment;
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The relative strength of national and local economies; and
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Changes in governmental regulations and economic conditions.
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In addition, companies in these industries may decide to
relocate all or part of their businesses outside the Pacific
Northwest. Any of these factors could materially affect the
local economies in which these industries operate and where we
have a presence. Other adverse events specifically affecting the
Pacific Northwest, such as economic recessions or natural
disasters, could cause a loss of revenues for our hotels in this
region. Our concentration of assets within this region may put
us at greater economic risk. In addition, we operate or market
multiple hotels within several markets. A downturn in general
economic or other relevant conditions in these specific markets
or in any other market in which we operate could lead to a
decline in demand in these markets and cause a loss of revenues
from these hotels.
Our
operating results are subject to conditions affecting the
lodging industry.
Our revenues and operating results may be impacted by and
continue to fluctuate due to a number of factors, including but
not limited to:
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Decreases in demand for transient rooms and related lodging
services, including a reduction in business travel as a result
of general economic conditions;
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Changes in travel patterns, extreme weather conditions and
cancellation of or changes in events scheduled to occur in our
markets;
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The attractiveness of our hotels to consumers and competition
from other hotels;
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The need to periodically repair and renovate the hotels in our
system;
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The lack of availability of capital to allow us to fund
renovations and investments;
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The quality and performance of the employees of our hotels;
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Increases in transportation and fuel costs, the financial
condition of the airline industry and the impact on travel;
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Increases in operating costs, due to inflation and other factors
such as minimum wage requirements, overtime, healthcare, working
conditions, work permit requirements and other labor-related
costs, energy prices, insurance and property taxes, as well as
increases in construction or associated renovation costs;
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Regulations and changes therein relating to the preparation and
sale of food and beverages, liquor service and health and safety
of premises;
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Impact of war, actual or threatened terrorist attacks,
heightened security measures and other national, regional or
international political and geopolitical conditions;
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Travelers fears of exposure to contagious diseases or food
borne illness;
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The impact of internet intermediaries and competitor pricing;
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Oversupply of hotel rooms in markets in which we operate;
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Restrictive changes in zoning and similar land use laws and
regulations, or in health, safety and environmental laws, rules
and regulations;
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Possible requirements to make substantial modifications to our
hotels to comply with the Americans with Disabilities Act of
1990 or other governmental or regulatory actions;
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The financial condition of third-party property owners and
franchisees, which may impact their ability to fund amounts
required for renovations as required under franchise agreements;
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Changes in guest expectations with respect to amenities at our
hotels that require additional capital to meet; and
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Improvements in technology that require capital investment in
infrastructure to implement and maintain.
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Any of these factors could adversely impact hotel room demand
and pricing and thereby reduce occupancy, ADR and RevPAR; give
rise to government imposed fines or private litigants winning
damage awards against us; or otherwise adversely affect our
results of operations and financial condition.
Our
expenses may remain constant or increase even if revenues
decline.
The expenses of owning and operating a hotel are not necessarily
reduced when circumstances such as market factors and
competition cause a reduction in its revenues. Accordingly, a
decrease in our revenues could result in a disproportionately
higher decrease in our earnings because our expenses are
unlikely to decrease proportionately. In addition, we have
recently been investing in sales and marketing, franchising,
technology and personnel resources in an effort to position our
company for future growth. These investments may not produce
returns we anticipate or the returns may take longer to achieve
than expected.
We are
exposed to impairment risk of goodwill, intangibles and other
long-lived assets.
Financial and credit market volatility directly impacts fair
value measurement through our companys estimated weighted
average cost of capital used to determine discount rate, and
through our common stock price that is used to determine market
capitalization. During times of volatility, significant judgment
must be applied to determine whether credit or stock price
changes are a short-term swing or a longer-term trend. At
December 31, 2010 and 2009, our recorded goodwill remained
unchanged at $28.0 million, and other intangible assets
totaled $8.0 million and $10.2 million, respectively.
While we have not previously recorded any impairment losses for
goodwill, continued adverse market conditions could have a
further impact on the fair value of our reporting units that
could result in future impairments of goodwill, intangible and
other long-lived assets. In addition, we recently announced
plans to offer for sale our Red Lion Hotel Fifth Avenue in
Seattle, Washington, our Red Lion Hotel
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Denver Southeast in Aurora, Colorado, and our Red Lion Colonial
Hotel in Helena, Montana. Sales of one or more of these hotels
or other assets may also result in disposal of goodwill,
intangibles and other long-lived assets.
The assessment for possible impairment requires us to make
judgments, including:
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Estimated future cash flows from the respective properties,
which is dependent upon internal forecasts;
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Estimation of the long-term rate of growth for our business;
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The useful life over which our cash flows will occur;
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The determination of real estate and prevailing market values;
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Asset appraisals; and
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Current estimated net sales proceeds from pending offers or net
sales proceeds from previous, comparable transactions, if
available and appropriate.
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In accordance with the guidance for the impairment of long-lived
assets, if the expected undiscounted future cash flows are less
than net book value, the excess of net book value over estimated
fair value is charged to current earnings. As discussed further
in Note 7 of Notes to Consolidated Financial Statements,
assets with a carrying amount of $3.7 million were written down
to their estimated fair value, resulting in a non-cash
impairment charge of $3.7 million for the year ended
December 31, 2010. Additionally, as discussed further in
Note 8 of Notes to Consolidated Financial Statements, an
intangible asset related to a lease contract was written down to
its fair value, resulting in a non-cash impairment charge of
$2.0 million. Both impairment charges related to the
termination of a sublease agreement at our Red Lion Hotel
Sacramento. Changes in our estimates and assumptions as they
relate to valuation of goodwill, intangibles and other
long-lived assets could affect, potentially materially, our
financial condition or results of operations in the future.
We
have incurred debt financing and may incur increased
indebtedness in connection with growth of our system of hotels,
capital expenditures or for other corporate
purposes.
A substantial portion of our outstanding indebtedness is secured
by individual properties. Neither our Articles of Incorporation
nor our Bylaws limit the amount of indebtedness that we may
incur. Subject to limitations in our debt instruments, we may
incur additional debt in the future to finance growth of our
system of hotels, renovations and for general corporate
purposes. Accordingly, we could become highly leveraged,
resulting in an increase in debt service that could adversely
affect our operating cash flow. Our continuing indebtedness
could increase our vulnerability to general economic and lodging
industry conditions, including increases in interest rates, and
could impair our ability to obtain additional financing in the
future and to take advantage of significant business
opportunities that may arise. Our indebtedness is, and will
likely continue to be, secured by mortgages on our owned hotels.
If we are not able to meet our debt service obligations, we risk
the loss of some or all of our assets, including our hotels, to
foreclosure.
Adverse economic conditions could cause the terms on which
borrowings become available to be unfavorable to us. In such
circumstances, if we are in need of capital to repay
indebtedness in accordance with its terms or otherwise, we could
be required to sell one or more of our owned hotels at
unattractive prices. Economic conditions could result in higher
interest rates, which would increase debt service requirements
on our variable rate credit facilities and could reduce the
amount of cash available for general corporate purposes.
Our
business is capital intensive and any potential acquisition,
development, redevelopment and renovation projects might be more
costly than we anticipate.
We are committed to keeping our properties well maintained and
attractive to our customers in order to enhance our
competitiveness within the industry. This creates an ongoing
need for cash, and to the extent we or our franchisees cannot
fund expenditures from cash generated from operations, funds
must be borrowed or otherwise obtained. Hotel redevelopment,
renovation and new project development are subject to a number
of risks, including:
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Construction delays and cost overruns;
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Numerous federal, state and local government regulations
affecting the lodging industry, including building and zoning
requirements and other required governmental permits and
authorizations;
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Uncertainties as to market demand or a loss of market demand
after capital improvements have begun; and
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Potential environmental problems.
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As a result, we could incur substantial costs for projects that
are never completed. Further, financing for these projects may
not be available or, even if available, may not be on terms
acceptable to us. The availability of funds for new investments
and maintenance of existing hotels depends in part on capital
markets and liquidity factors over which we can exert little
control. Any unanticipated delays or expenses incurred in
connection with the acquisition, development, redevelopment or
renovation of the hotels in our system could impact expected
revenues and availability of funds, negatively affect our
reputation among hotel customers, owners and franchisees and
otherwise adversely impact our results of operations and
financial condition, including the carrying costs of our assets.
Failure
to comply with debt covenants could adversely affect our
financial results or condition.
We maintain a $30 million revolving credit facility that
includes customary affirmative and negative covenants, the most
restrictive of which are financial covenants dealing with
leverage, interest coverage and debt service coverage. At
December 31, 2010, we had $18 million outstanding
under the facility and were in compliance with our covenants. We
also have variable rate indebtedness secured by our Red Lion
Bellevue and Templins properties, the principal balance of which
was $12.4 million at December 31, 2010. This
indebtedness has restrictive covenants that mirror those of our
credit facility. There is no assurance that we will be able to
comply with these covenants in the future. Any failure to do so
could result in a demand for immediate repayment of our
obligations under the credit facility and any other indebtedness
for which such failure or repayment demand constitutes an event
of default, which would adversely affect our results of
operation and financial condition, and limit our ability to
obtain financing. For additional information, see Note 3 of
Notes to Consolidated Financial Statements and Note 10 of
Notes to Consolidated Financial Statements.
We
will be required to refinance our revolving credit facility this
year and other indebtedness this year and in 2013, and there is
no assurance that we will be able to refinance that debt on
competitive terms.
Our revolving credit facility matures on September 13,
2011. As a result, we will be required to repay, refinance or
renegotiate the facility prior to that date. Our ability to
refinance the facility on acceptable terms will depend on a
number of factors, including our degree of leverage, the value
of our assets, borrowing restrictions which may be imposed by
lenders and conditions in the credit markets at the time we
refinance. We also have at least $23.4 million in term debt
maturing this year, and $49.9 million maturing in 2013. The
availability of funds for new investments and improvement of
existing hotels depends in large measure on capital markets and
liquidity factors over which we can exert little control. There
is no assurance that we will be able to obtain additional
financing when needed on acceptable terms. For additional
information, see Note 10 of Notes to Consolidated Financial
Statements and Note 11 of Notes to Consolidated Financial
Statements.
The
lodging industry is highly competitive, which may impact our
ability to compete successfully with other hospitality and
leisure companies.
The lodging industry is comprised of numerous national, regional
and local hotel companies and is highly competitive. Competition
for occupancy is focused on three major segments of travelers:
business travelers, convention and group business travelers and
leisure travelers. All three segments are significant occupancy
drivers for our hotel system and our marketing efforts are
geared towards attracting their business.
Competition in the industry is primarily based on service
quality, range of services, brand name recognition, convenience
of location, room rates, guest amenities and quality of
accommodations. We compete against national limited and full
service hotel brands and companies, as well as various regional
and local hotels in the midscale and upscale full-service hotel
segments of the industry. Many of our competitors have greater
name recognition, a larger network of locations and greater
marketing and financial resources than we do. Additionally, new
and existing competitors may offer significantly lower rates,
greater convenience, services or amenities or superior
facilities,
11
which could attract customers away from our hotels. Our ability
to remain competitive and to attract and retain customers
depends on our success in differentiating and enhancing the
quality, value and efficiency of our product and customer
service.
We also compete with other hotel brands and management companies
for hotels to add to our system, including through franchise and
management agreements. Our competitors include management
companies as well as large hotel chains that own and operate
their hotels and franchise their brands. As a result, the terms
of prospective franchise and management agreements may not be as
favorable as our current agreements. In addition, we may be
required to make investments in or guarantee the obligations of
third parties or guarantee minimum income to third parties in
connection with future franchise or management agreements.
If we are unable to compete successfully in these areas, our
market share and operating results could be diminished,
resulting in a decrease in occupancy, ADR and RevPAR for our
hotels. Changes in demographics and other changes in our markets
may also adversely impact the convenience or desirability of our
hotel locations, thereby reducing occupancy, ADR and RevPAR and
otherwise adversely impacting our results of operations and
financial condition.
We may
be unsuccessful in identifying and completing franchise
acquisitions, which could limit our ability to implement our
growth strategy and result in significant expense.
We are currently pursuing the expansion of our franchise
operations in markets where we currently operate and in selected
new markets. This may require considerable management time as
well as
start-up
expenses for market development before any significant revenues
and earnings are generated. There can be no assurance that we
will be successful in achieving our objectives with respect to
growing the number of franchised hotels in our system or that we
will be able to attract qualified franchisees.
The growth in the number of franchised hotels is subject to
numerous risks, many of which are beyond the control of our
franchisees or us. Among other risks, the following factors
affect our ability to achieve growth in the number of franchised
hotels:
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the ability of our franchisees to open and operate additional
hotels profitably. Factors affecting the opening of new hotels,
or the conversion of existing hotels to the Red Lion brand,
include, among others:
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the availability of hotel management, staff and other personnel;
the cost and availability of suitable hotel locations;
the availability and cost of capital to allow hotel owners and
developers to fund investments;
cost effective and timely construction of hotels (which can be
delayed due to, among other reasons, labor and materials
availability, labor disputes, local zoning and licensing
matters, and weather conditions); and
securing required governmental permits;
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competition with other hotel companies;
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our ability to continue to maintain and enhance our central
reservation system to support additional franchisees in a
timely, cost-effective manner;
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the effectiveness and efficiency of our development organization;
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our dependence on our independent franchisees skills and
access to financial resources necessary to open or rebrand
hotels; and
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our ability to attract and retain qualified franchisees.
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Our failure to compete successfully for franchise properties or
to attract and maintain relationships with hotel owners and
hotel investors could adversely affect our ability to expand our
system of hotels. An inability to implement our growth strategy
could limit our ability to grow our revenue base and otherwise
adversely affect our results of operations.
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If our
franchisees terminate or fail to renew their relationship with
our company, or if new franchise hotels are unable to
effectively integrate into our system, our franchise revenue
will decline.
As of December 31, 2010, there were 13 hotels in our system
that were owned by others and operated under franchise
agreements. Franchise agreements generally specify a fixed term
and contain various early termination provisions, such as the
right to terminate upon notice by paying us a termination fee.
There is no assurance that these agreements will be renewed, or
that they will not be terminated prior to the end of their
respective terms.
Government
regulation could impact our franchise business.
The Federal Trade Commission (the FTC), various
states and certain foreign jurisdictions where we market
franchises regulate the sale of franchises. The FTC requires
franchisors to make extensive disclosure to prospective
franchisees but does not require registration. A number of
states in which our franchisees operate require registration or
disclosure in connection with franchise offers and sales. In
addition, several states in which our franchisees operate have
franchise relationship laws or business
opportunity laws that limit the ability of the franchisor
to terminate franchise agreements or to withhold consent to the
renewal or transfer of these agreements. While our business has
not been materially affected by such regulation, there can be no
assurance that this will continue or that future regulation or
legislation will not have such an effect.
The
results of some of our hotels are significantly impacted by
group contract business and other large customers, and the loss
of such customers for any reason could harm our operating
results.
Group contract business and other large customers, or large
events, can significantly impact the results of operations of
our hotels. These contracts and customers vary from hotel to
hotel and change from time to time. Such contracts are typically
for a limited period of time after which they may be eligible
for competitive bidding. The impact and timing of large events
are not always predictable and are often episodic in nature. The
operating results for our hotels can fluctuate as a result of
these factors, possibly in adverse ways, and these fluctuations
can harm our overall operating results.
Our
success depends on the value of our name, image and brand. If
demand for our hotels decreases or the value of our name, image
or brand diminishes, our business and operations would be
harmed.
Our success depends, to a large extent, on our ability to shape
and stimulate consumer tastes and demands by maintaining
innovative, attractive and comfortable properties and services,
as well as our ability to remain competitive in the areas of
design and quality. If we are unable to anticipate and react to
changing consumer tastes and demands in a timely manner, our
results of operations and financial condition could be harmed.
Our business would be harmed if our public image or reputation
were to be diminished by the operations of any of the hotels in
our system. Our brand name and trademarks are integral to our
marketing efforts. If the value of our name, image or brand were
diminished, our business and operations would be harmed.
The
illiquidity of real estate investments and the lack of
alternative uses of hotel properties could significantly limit
our ability to respond to adverse changes in the performance of
our hotels and harm our financial condition.
Real estate investments are relatively illiquid, and therefore
our ability to promptly sell one or more of our hotels in
response to changing economic, financial or investment
conditions is limited. The real estate market, including the
market for our hotels, is affected by many factors, such as
general economic conditions, availability of financing, interest
rates and other factors, including supply and demand, that are
beyond our control. If we decide to sell one or more of our
hotels, we may be unable to do so and, even if we are able to
sell the hotels, it may take us a long time to find willing
purchasers and the sales may be on unfavorable terms. We also
may be required to expend funds to correct defects or to make
improvements before a hotel can be sold. If we do not have funds
available for such purposes, our ability to sell the hotel could
be restricted or the price at which we can sell the hotel may be
less than if these improvements were made.
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In addition, it may be difficult or impossible to convert hotels
to alternative uses if they become unprofitable due to
competition, age of improvements, decreased demand or other
factors. The conversion of a hotel to an alternative use would
also generally require substantial capital expenditures.
This inability to respond promptly to changes in the performance
of our hotels could adversely affect our financial condition and
results of operations as well as our ability to service debt,
including our debentures. In addition, sales of appreciated real
property could generate material adverse tax consequences, which
may make it disadvantageous for us to sell certain of our hotels.
Our
recently announced plans to offer for sale the Red Lion Hotel on
Fifth Avenue in Seattle, Washington, the Red Lion Hotel Denver
Southeast in Aurora, Colorado and the Red Lion Colonial Hotel in
Helena, Montana may not be completed as
anticipated.
Earlier this year we announced plans to offer for sale our Red
Lion Hotel on Fifth Avenue in Seattle, Washington, our Red Lion
Hotel Denver Southeast in Aurora, Colorado, and our Red Lion
Colonial Hotel in Helena, Montana. Sales of one or more of these
hotels may take longer than anticipated, may not occur at all,
or may occur at price points that do not meet all of our
objectives for the sales. In addition, the sale of these
properties may negatively impact the value of the Red Lion brand
or our ability to obtain new franchisees, particularly if the
purchasers do not continue to flag the hotels with the Red Lion
brand or if they do not maintain the hotels in a manner that
meets guest expectations.
Risks
associated with real estate ownership may adversely affect
revenue or increase expenses.
We are subject to varying degrees of risk that generally arise
from the ownership of real property. Revenue and cash flow from
our hotels and other real estate may be adversely affected by,
and costs may increase as a result of, changes beyond our
control, including but not limited to:
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Changes in national, regional and local economic conditions;
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Changes in local real estate market conditions;
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Increases in interest rates, and other changes in the
availability, cost and terms of financing and capital leases;
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Increases in property and other taxes;
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The impact of present or future environmental legislation;
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Adverse changes in other governmental regulations, insurance and
zoning laws; and
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Condemnation or taking of properties by governments or related
entities
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There is currently a proposal to expand light rail to Bellevue,
Washington, which could result in taking of a portion or all of
our property in that city. While we may oppose such actions, if
one or more of our hotels were taken through the eminent domain
process, particularly at a time when hotel prices are depressed,
we might not receive compensation commensurate with the
long-term fair value of the property, and in addition, we may
lose business presence in that market.
These adverse conditions could potentially cause the terms of
our borrowings to change unfavorably. In such circumstances, if
we were in need of capital to repay indebtedness in accordance
with its terms or otherwise, we could be required to sell one or
more hotels at unattractive prices. Unfavorable changes in one
or more of these conditions could also result in unanticipated
expenses and higher operating costs, thereby reducing operating
margins and otherwise adversely affecting our results of
operations and financial condition.
The
increasing use of third-party travel websites by consumers may
adversely affect our profitability.
Some of our hotel rooms may be booked through third-party travel
websites such as Priceline.com, Travelocity.com and Expedia.com.
As internet bookings increase, these intermediaries may be able
to obtain higher commissions, reduced room rates or other
significant contract concessions from us. Moreover, some of
these
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internet travel intermediaries are attempting to offer hotel
rooms as a commodity, by increasing the importance of price and
general indicators of quality (such as three-star downtown
hotel) at the expense of brand identification. We believe
that these internet intermediaries hope that consumers will
eventually develop brand loyalties to their reservation systems.
Although most of the business for our hotels is expected to be
derived from traditional channels, if the amount of sales made
through internet intermediaries increases significantly, our
profitability may be adversely affected.
Our
hotels may be faced with labor disputes which would harm the
operation of our hotels.
We rely heavily on our employees to provide high-quality
personal service at our hotels. At certain of our owned and
leased hotels, employees are covered by collective bargaining
agreements, and attempts could be made in the future to unionize
our employees at other locations. Any labor dispute or stoppage
could harm our ability to provide high-quality personal
services, which could reduce occupancy and room revenue, tarnish
our reputation and harm our results of operations.
We may
have disputes with the owners of the hotels that we manage or
franchise.
The nature of our responsibilities under our franchise
agreements or any hotel management agreements we may enter into
in the future may, in some instances, be subject to
interpretation and may give rise to disagreements. We seek to
resolve any disagreements in order to develop and maintain
positive relations with current and potential franchisees and
hotel owners and joint venture partners; however, we may not
always be able to do so. Failure to resolve such disagreements
may result in franchisees leaving our system of hotels, or
possibly result in litigation, arbitration or other legal
actions.
Our
business is seasonal in nature, and we are likely to experience
fluctuations in our results of operations and financial
condition.
Our business is seasonal in nature, with the period from May
through October generally accounting for the greatest portion of
our annual revenues. Therefore, our results for any quarter may
not be indicative of the results that may be achieved for the
full fiscal year. The seasonal nature of our business increases
our vulnerability to risks during this period, including labor
force shortages, cash flow problems, economic downturns and poor
weather conditions. The adverse impact to our revenues would
likely be greater as a result of our seasonal business.
Our
properties are subject to risks relating to natural disasters,
terrorist activity and war, and any such event could materially
adversely affect our operating results without adequate
insurance coverage or preparedness.
Our financial and operating performance may be adversely
affected by acts of God, such as natural disasters, particularly
in locations where we own
and/or
operate significant properties. We carry comprehensive
liability, public area liability, fire, flood, boiler and
machinery, extended coverage and rental loss insurance for our
properties. However, certain types of catastrophic losses, such
as those from earthquake, volcanic activity, terrorism and
environmental hazards, may exceed or not be covered by our
insurance coverage because it is not economically feasible to
insure against such losses. Should an uninsured loss or a loss
in excess of insured limits occur, we could lose all or a
portion of the capital we have invested in a property, as well
as the anticipated future revenue from the property. In that
event, we might nevertheless remain obligated for any mortgage
debt or other financial obligations related to the property.
Similarly, war and terrorist activity, including the potential
for war and threats of terrorist activity, epidemics,
travel-related accidents, as well as geopolitical uncertainty
and international conflict, which impact domestic and
international travel, have caused in the past, and may cause in
the future, our results to differ materially from anticipated
results. In addition, depending on the severity, a major
incident or crisis may prevent operational continuity and
consequently impact the value of the brand or the reputation of
our business.
Disruption
or malfunction in our information systems could adversely affect
our business.
Our information technology systems are vulnerable to damage or
interruption from:
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earthquakes, fires, floods and other natural disasters;
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15
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power losses, computer systems failures, internet and
telecommunications or data network failures, operator
negligence, improper operation by or supervision of employees,
physical and electronic losses of data and similar
events; and
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computer viruses, penetration by individuals seeking to disrupt
operations or misappropriate information and other breaches of
security.
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We rely on our systems to perform functions critical to our
ability to operate, including our central reservation systems.
Accordingly, an extended interruption in the systems
function could significantly curtail, directly and indirectly,
our ability to conduct our business and generate revenue.
If we
fail to comply with privacy regulations, we could be subject to
fines or other restrictions on our business.
We collect and maintain information relating to our guests for
various business purposes, including credit card information and
information on guest preferences that we use to enhance our
customer service and for marketing and promotion purposes. The
collection and use of personal data are governed by privacy laws
and regulations enacted in the U.S. and by various
contracts under which we operate. Privacy regulation is an
evolving area in which different jurisdictions may subject us to
inconsistent compliance requirements. Compliance with applicable
privacy regulations may increase our operating costs
and/or
adversely impact our ability to service our guests and market
our products, properties and services to our guests. In
addition, noncompliance with applicable privacy regulations,
either by us or in some circumstances by third parties engaged
by us, could result in fines or restrictions on our use or
transfer of data.
Failure
to maintain the security of internal or customer data could
adversely affect us.
Our businesses require collection and retention of large volumes
of internal and customer data, including credit card numbers and
other personally identifiable information of our customers,
which are entered into, processed by, summarized by and reported
by our various information systems and those of our service
providers. We also maintain personally identifiable information
about our employees. The integrity and protection of that
customer, employee and company data is critical to us. Our
customers and employees expect that we will adequately protect
their personal information, and the regulatory environment
surrounding information security and privacy is increasingly
demanding. A theft, loss or fraudulent use of customer, employee
or company data could adversely impact our reputation and could
result in significant remedial and other costs, fines and
litigation.
Any
failure to protect our trademarks could have a negative impact
on the value of our brand names.
The success of our business depends in part upon our continued
ability to use our trademarks, increase brand awareness and
further develop our brand. We have registered the following
trade names and associated trademarks with the U.S. Patent
and Trademark Office: Red Lion, WestCoast, Net4Guests, Stay
Comfortable and TicketsWest. We have also registered some of
these trademarks in Canada and Mexico, and are in the process of
obtaining trademark registrations in Asia and Europe. We also
own various derivatives of these trademarks that are registered
with or have a registration application pending with the
U.S. Patent and Trademark Office. We cannot be assured that
the measures we have taken to protect our trademarks will be
adequate to prevent imitation of our trademarks by others. The
unauthorized reproduction of our trademarks could diminish the
value of our brand and its market acceptance, competitive
advantages or goodwill, which could adversely affect our
business.
We are
subject to environmental regulations.
Our operating costs may be affected by the obligation to pay for
the cost of complying with existing and future environmental
laws, ordinances and regulations. Under current federal, state
and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic
substances. In addition, the presence of contamination from
hazardous or toxic substances, or the failure to remediate such
contaminated property properly, may adversely affect the ability
of the owner of the property to
16
borrow using such property as collateral for a loan or to sell
such property. Environmental laws also may impose restrictions
on the manner in which a property may be used or transferred or
in which businesses may be operated, and may impose remedial or
compliance costs. The costs of defending against claims of
liability or remediating contaminated property and the cost of
complying with environmental laws could have an adverse effect
on our results of operations and financial condition.
In connection with our acquisition of a hotel, a Phase I
environmental assessment is conducted by a qualified independent
environmental engineer. A Phase I environmental assessment
involves an
on-site
inspection and researching historical usages of a property and
databases containing registered underground storage tanks and
other matters to determine whether an environmental issue exists
with respect to the property which needs to be addressed. If the
results of a Phase I environmental assessment reveal potential
issues that warrant further investigation, a Phase II
environmental assessment, which may include soil testing, ground
water monitoring or borings to locate underground storage tanks,
will be ordered. It is possible that Phase I and Phase II
environmental assessments will not reveal all environmental
liabilities or compliance concerns or that there will be
material environmental liabilities or compliance concerns of
which we will not be aware. Phase I environmental assessments
have been performed on all properties owned by us, although they
have not been performed on all of our leased properties.
We have not performed Phase II environmental assessments on
two of our owned properties for which Phase II assessments
were recommended, because we determined that any further
investigation was not warranted for materiality reasons. One of
these properties is located on a former railroad yard, purchased
by us in 1975. In the past five years as we have further
commercially developed the site, construction activities have
excavated contaminated soil remaining from the railroad yard
that we have remediated in accordance with applicable
regulations and at the direction of the applicable environmental
jurisdiction.
In March 2009, odors in the basement of our hotel in Salt Lake
City led to the detection of a release of petroleum from an
adjacent gas station owned by Sinclair Marketing. Petroleum and
constituents of petroleum were identified in sumps on the hotel
property and in both the soil and groundwater samples from the
property that were analyzed. Since the initial detection of
petroleum release, Sinclair has taken steps to remediate the
property by excavating contaminated soils and by pumping and
treating contaminated groundwater. Sinclair, through its
counsel, has agreed to complete any further remediation that may
be necessary to clean up this property. Sinclair has also agreed
to reimburse us for our costs, including attorneys fees,
related to Sinclairs remediation efforts, and has made
periodic payments of those amounts. However, if Sinclair does
not satisfy its commitment to remediate the property in
accordance with applicable State of Utah cleanup standards, we
could be liable to the State of Utah for any remaining soil or
groundwater contamination by virtue of our status as the owner
of the property. The State of Utah has been involved in
Sinclairs cleanup efforts at the hotel property and on
Sinclairs adjacent property, through the Utah Department
of Environmental Quality, the Division of Environmental Response
and Remediation and an Assistant Attorney General representing
those state agencies.
At the request of the Montana Department of Environmental
Quality (DEQ), we recently began to implement a Corrective
Action Work Plan at our Kalispell property. The work plan
consists of utility corridor investigations, municipal water
sampling, monitoring well drilling and installation, and
quarterly groundwater monitoring of an identified petroleum
release site on the property. The purpose of the work plan is to
provide additional documentation of the extent and magnitude of
hydrocarbon contamination at the site. As part of this work,
eight monitoring wells were installed and sampled. A recent
report shows substantially higher than legal levels of
hydrocarbons in ground water in some holes. In order for DEQ to
mandate any corrective action the monitoring wells must be in
place for a full year before a determination is made. At that
time, DEQ may want the wells monitored for another year or may
decide not to have us correct anything.
Other than as disclosed above, we have not been notified by any
governmental authority and we have no other knowledge of any
material noncompliance, material liability or material claim
relating to hazardous or toxic substances or other environmental
substances in connection with any of our properties.
Nevertheless, there is no assurance that these properties do not
have any environmental concerns associated with them. In
addition, there is no assurance that we will not discover
problems that currently exist, but of which we have no current
knowledge, that future laws, ordinances or regulations will not
impose any material environmental liability, or that the current
17
environmental condition of our existing and future properties
will not be affected by the condition of neighboring properties,
such as the presence of leaking underground storage tanks, or by
third parties unrelated to us.
Failure
to comply with the Sarbanes-Oxley Act could impact our
business.
There can be no assurance that the periodic evaluation of our
internal controls required by the Sarbanes-Oxley Act will not
result in the identification of significant deficiencies or
material weaknesses in our internal controls or that our
auditors will be able to attest to the effectiveness of our
internal control over financial reporting. Failure to comply may
have consequences on our business including, but not limited to,
increased risks of financial statement misstatements, SEC
sanctions and negative capital market reactions.
We
face risks relating to litigation.
At any given time, we are subject to claims and actions
incidental to the operation of our business. The outcome of
these proceedings cannot be predicted. If a plaintiff were
successful in a claim against us, we could be faced with the
payment of a material sum of money and we may not be insured for
such a loss. If this were to occur, it could have an adverse
effect on our financial condition.
In addition, our financial condition may be adversely impacted
by legal or governmental proceedings brought by or on behalf of
our employees or customers. In recent years, a number of
hospitality companies have been subject to lawsuits, including
class action lawsuits, alleging violations of federal and state
law regarding workplace and employment matters, discrimination,
accessibility and similar matters. A number of these lawsuits
have resulted in the payment of substantial damages by the
defendants. Similar lawsuits in the future may be instituted
against us and we may incur material damages and expenses which
could have an adverse effect on our results of operations and
financial condition.
If these or other franchise agreements are not renewed, or are
terminated prior to the expiration of their respective terms, or
if new franchise hotels are unable to effectively integrate into
our system, the resulting decrease in revenue and loss of market
penetration could have an adverse effect on our results of
operations and financial condition.
In addition, in recent years there has been increasing activity
by patent holding companies (so-called patent
trolls) that do not use technology but whose sole
business is to enforce patents for monetary gain against
companies in a wide variety of businesses or industries. These
efforts typically involve proposing licenses in exchange for a
substantial sum of money and may also include the threat or
actual initiation of litigation for that purpose. Any such
litigation can be quite costly to defend, even if infringement
is unsubstantiated or speculative. We have been threatened with
one such claim and another claim has actually been recently
filed against us. Each claim relates to separate technology, but
we believe that each such technology is non-proprietary. If we
are ultimately found to have violated a patent, our operations
could be negatively impacted
and/or we
might be subject to substantial financial penalties, licensing
fees and attorneys fees. It is not possible to predict the
potential impact on our business and operations of any future
claims of this type that may be asserted against us.
If any
hotel acquisitions fail to perform in accordance with our
expectations or if we are unable to effectively integrate new
hotels into our operations, our results of operations and
financial condition may suffer.
Based on our experience, newly acquired, developed or converted
hotels typically begin with lower occupancy and room rates,
thereby resulting in lower revenue. Any future expansion within
our existing markets could adversely affect the financial
performance of our hotels in those markets and, as a result,
negatively impact our overall results of operations. Potential
expansion into new markets may also present operating and
marketing challenges that are different from those we currently
encounter in our existing markets. Our inability to anticipate
all of the changing demands that expanding operations will
potentially impose on our management and management information
and reservation systems, or our failure to quickly adapt our
systems and procedures to any new markets could result in lost
revenue and increased expenses and otherwise have an adverse
effect on our results of operations and financial condition.
18
We
rely on our central reservation system for occupancy at our
hotels and any failures in such system could negatively affect
our revenues and cash flows.
The hospitality industry requires the use of technology and
systems for property management, procurement, reservations,
operation of our customer loyalty program, distribution and
other purposes. These technologies can be expected to change
guests expectations, and there is the risk that advanced
new technologies will be introduced requiring further investment
capital. We maintain a hotel reservation system that allows us
to manage our rooms inventory through various distribution
channels, including our websites, and execute rate management
strategies. As part of our marketing strategy, we encourage
guests to book on our website, which guarantees the lowest rate
available compared to third-party travel websites.
The development and maintenance of our central reservation
system and other technologies may require significant capital.
There can be no assurance that as various systems and
technologies become outdated or new technology is required we
will be able to replace or introduce them as quickly as our
competition or within budgeted costs and timeframes. Further,
there can be no assurance that we will achieve the benefits that
may have been anticipated from any new technology or system. If
our systems fail to operate as anticipated, or we fail to keep
up with technological or competitive advances, our revenues and
cash flows could suffer.
Our
current or future joint venture arrangements may not reflect
solely our best interests and may subject these investments to
increased risks.
We may in the future acquire additional interests in other
properties through joint venture arrangements with other
entities. Partnerships, joint ventures and other business
structures involving our co-investment with third parties
generally include some form of shared control over the
operations of the business and create additional risks. Some of
these acquisitions may be financed in whole or in part by loans
under which we are jointly and severally liable for the entire
loan amount along with the other joint venture partners. The
terms of these joint venture arrangements may be more favorable
to the other party or parties than to us. Although we actively
seek to minimize such risks before investing in partnerships,
joint ventures or similar structures, investing in a property
through such arrangements may subject that investment to risks
not present with a wholly owned property, including, among
others, the following:
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The other owner(s) of the investment might become bankrupt;
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The other owner(s) may have economic or business interests or
goals that are inconsistent with ours;
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The other owner(s) may be unable to make required payments on
loans under which we are jointly and severally liable;
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The other owner(s) may be in a position to take action contrary
to our instructions or requests or contrary to our policies or
objectives, such as selling the property at a time when to do so
would have adverse consequences to us;
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Actions by the other owner(s) might subject the property to
liabilities in excess of those otherwise contemplated by
us; and
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It may be difficult for us to sell our interest in the property
at the time we deem a sale to be in our best interests.
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Failure
to retain senior management or other key employees could
adversely affect our business.
We place substantial reliance on the lodging industry experience
and the institutional knowledge of members of our senior
management team. We compete for qualified personnel against
companies with greater financial resources than ours, and the
loss of the services of one or more of these individuals could
hinder our ability to effectively manage our business. Finding
suitable replacements for senior management and other key
employees could be difficult, and there can be no assurance we
will continue to be successful in retaining or attracting
qualified personnel in the future. We do not carry key person
insurance on any of our senior management team.
19
The
market price for our common stock may be volatile.
The stock market has experienced and may in the future
experience extreme volatility unrelated to the operating
performance of particular companies. Many factors could cause
the market price of our common stock to rise or fall, including
but not limited to:
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Changes in general economic conditions, such as the recent
recession, and subsequent fluctuations in stock market prices
and volumes;
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Changes in financial estimates, expectations of future financial
performance or recommendations by analysts;
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Changes in market valuations of companies in the hospitality
industry;
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Actual or anticipated variations in our quarterly results of
operations;
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Issuances of additional common stock or other
securities; and
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Announcements by us or our competitors of acquisitions,
investments or strategic alliances.
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Washington
law and our governing corporate documents contain provisions
that could deter takeover attempts.
Our company is incorporated in the state of Washington and
subject to Washington state law. Some provisions of Washington
state law could interfere with or restrict takeover bids or
other
change-in-control
events affecting us. For example, one statutory provision
prohibits us, except under specified circumstances, from
engaging in any significant business transaction, such as a
merger, with any shareholder who owns 10% or more of our common
stock (which shareholder, under the statute, would be considered
an acquiring person) for a period of five years
following the time that such shareholder becomes an acquiring
person.
Due to
the shareholdings of our significant shareholders, we may be
limited in our ability to undertake transactions requiring
shareholder approval.
As of December 31, 2010, Columbia Pacific Opportunity Fund,
L.P. had sole voting and investment power with respect to 22.0%
of our outstanding shares of common stock. Donald K. Barbieri,
our Chairman of the Board, had sole voting and investment power
with respect to 5.5% of our outstanding shares of common stock.
1.0% of our shares are held in a joint account, with respect to
which Mr. Barbieri has shared voting power. Richard L.
Barbieri, who is also a director and a brother of Donald K.
Barbieri, beneficially owned 0.6% of our outstanding shares of
common stock. In addition, we believe that other members of the
Barbieri family who are not directors, executive officers or 5%
shareholders individually hold our outstanding common stock. As
a result, one or more of these shareholders may have the ability
as a group to substantially influence actions requiring the
approval of our shareholders, including a merger or a sale of
all of our assets or a transaction that results in a change of
control.
The
performance of our entertainment division is particularly
subject to fluctuations in economic conditions.
Our entertainment division, which comprised 5.6% of our total
revenues from continuing operations in 2010, engages in event
ticketing and the presentation of various entertainment
productions. Our entertainment division is vulnerable to risks
associated with changes in general regional and economic
conditions, the potential for significant competition and a
change in consumer trends, among other risks. In addition, we
face the risk that entertainment productions will not tour the
regions in which we operate or that such productions will not
choose us as a presenter or promoter.
If we
are unable to locate lessees for our retail space at our mall,
our revenues and cash flow may be adversely
affected.
We own and lease to others over 162,000 square feet of
retail space in Kalispell, Montana. We are subject to the risk
that leases for this space might not be renewed upon their
expiration, the space may not be relet or the terms of renewal
or reletting such space, including the cost of required
renovations, might be less favorable to us than current lease
terms. Vacancies could result due to the termination of a
tenants tenancy, the tenants financial failure or a
20
breach of the tenants obligations. We may be unable to
locate tenants for rental spaces vacated in the future or we may
be limited to renting space on terms unfavorable to us. Delays
or difficulties in attracting tenants and costs incurred in
preparing for tenant occupancy could reduce cash flow, decrease
the value of a property and jeopardize our ability to pay our
expenses.
If one
or more of our hotel subtenants breach subleases, our income and
cash flow may be adversely affected.
We lease and sublease to others six hotels, including the Red
Lion Hotel Sacramento to an operator in Sacramento, and five
Doubletree and Hilton hotels to Doubletree DTWC Corporation,
including the Doubletree Seattle Airport, the Hilton Salt Lake
City Center, the Doubletree San Diego-Mission Valley, the
Doubletree Durango and the Doubletree Sonoma Wine Country. We
are subject to the risk that these subtenants might breach the
subleases for one or more of these hotels. Such breaches might
include but not be limited to failures to pay rent, failures to
properly maintain the properties or failures to meet the
financial or other obligations set forth in the master lease for
these hotels. Such breaches could result in the loss of income,
decreased cash flow, breach of the master lease for the hotels
and/or loss
of the hotels.
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Item 1B.
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Unresolved
Staff Comments
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None.
Under the Red Lion name as of December 31, 2010, we owned
19 hotels, leased 12, and had franchise arrangements with 13
hotels owned and operated by third parties. To support our
owned, leased and franchised hotels, we provide all the services
typical in our industry: marketing, sales, advertising,
frequency program, revenue management, procurement, quality
assurance, education and training, design and construction
management. We maintain a central reservation call center with
links to various travel agent global distribution systems and
electronic distribution channels on the internet, including our
branded website. The table below reflects our hotel properties
and locations, total available rooms per hotel, as well as
meeting space availability, as of December 31, 2010.
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Total
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Meeting
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Available
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Space
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Property
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Location
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Rooms
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(sq. ft.)
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Red Lion Owned Hotels
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Red Lion Hotel Eureka
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Eureka, California
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175
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4,890
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Red Lion Hotel Redding
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Redding, California
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192
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6,800
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Red Lion Hotel Denver Southeast
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Aurora, Colorado
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478
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25,000
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Red Lion Hotel Pocatello
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Pocatello, Idaho
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150
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13,000
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Red Lion Templins Hotel on the River
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Post Falls, Idaho
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163
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11,000
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Red Lion Hotel Canyon Springs
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Twin Falls, Idaho
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112
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5,085
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Red Lion Colonial Hotel
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Helena, Montana
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149
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15,500
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Red Lion Hotel Salt Lake Downtown
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Salt Lake City, Utah
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393
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12,000
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Red Lion Hotel Columbia Center
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Kennewick, Washington
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162
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|
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9,700
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Red Lion Hotel Olympia
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Olympia, Washington
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192
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|
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16,500
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Red Lion Hotel Pasco
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Pasco, Washington
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|
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279
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|
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17,240
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Red Lion Hotel Port Angeles
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Port Angeles, Washington
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186
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3,010
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Red Lion Hotel Richland Hanford House
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Richland, Washington
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149
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|
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9,247
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Red Lion Bellevue
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Bellevue, Washington
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|
181
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|
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5,700
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Red Lion Hotel on Fifth Avenue
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Seattle, Washington
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297
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|
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13,800
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Red Lion Hotel Seattle Airport
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Seattle, Washington
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144
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|
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4,500
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Red Lion Hotel at the Park
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Spokane, Washington
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400
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30,000
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Red Lion Hotel Yakima Center
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Yakima, Washington
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156
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|
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11,000
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Red Lion Kalispell Center
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Kalispell, Montana
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170
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10,500
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Owned Hotels (19 properties)
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4,128
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224,472
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21
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|
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Total
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Meeting
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Available
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Space
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Property
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Location
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Rooms
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(sq. ft.)
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Red Lion Leased Hotels
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Red Lion Hotel Boise Downtowner
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Boise, Idaho
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182
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|
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8,600
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Red Lion Inn Missoula
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Missoula, Montana
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76
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640
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Red Lion Inn Bend North
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Bend, Oregon
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75
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2,000
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Red Lion Hotel Coos Bay
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Coos Bay, Oregon
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145
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5,000
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Red Lion Hotel Eugene
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Eugene, Oregon
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137
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|
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5,600
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Red Lion Hotel Medford
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Medford, Oregon
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185
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|
|
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9,552
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Red Lion Hotel Pendleton
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Pendleton, Oregon
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170
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|
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9,769
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Red Lion Hotel Kelso/Longview
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Kelso, Washington
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161
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|
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8,670
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Red Lion River Inn
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|
Spokane, Washington
|
|
|
245
|
|
|
|
2,800
|
|
Red Lion Hotel Vancouver (at the Quay)
|
|
Vancouver, Washington
|
|
|
160
|
|
|
|
14,785
|
|
Red Lion Hotel Wenatchee
|
|
Wenatchee, Washington
|
|
|
149
|
|
|
|
7,678
|
|
Red Lion Anaheim
|
|
Anaheim, California
|
|
|
308
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased Hotels (12 properties)
|
|
|
|
|
1,993
|
|
|
|
80,094
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Lion Franchised Hotels
|
|
|
|
|
|
|
|
|
|
|
Red Lion Inn and Suites Victoria
|
|
Victoria, BC Canada
|
|
|
85
|
|
|
|
450
|
|
Red Lion Hotel Denver Central
|
|
Denver, Colorado
|
|
|
297
|
|
|
|
15,206
|
|
Red Lion Hotel Lewiston
|
|
Lewiston, Idaho
|
|
|
183
|
|
|
|
12,259
|
|
Red Lion Hotel & Casino Elko
|
|
Elko, Nevada
|
|
|
222
|
|
|
|
3,000
|
|
Red Lion Inn & Suites McMinnville
|
|
McMinnville, Oregon
|
|
|
67
|
|
|
|
1,312
|
|
Red Lion Inn Portland Airport
|
|
Portland, Oregon
|
|
|
136
|
|
|
|
3,000
|
|
Red Lion Hotel Portland Convention Center
|
|
Portland, Oregon
|
|
|
174
|
|
|
|
6,000
|
|
Red Lion Hotel Salem
|
|
Salem, Oregon
|
|
|
148
|
|
|
|
10,000
|
|
Red Lion Hotel on the River Jantzen Beach
|
|
Portland, Oregon
|
|
|
318
|
|
|
|
35,000
|
|
Red Lion Hotel Tacoma
|
|
Tacoma, Washington
|
|
|
119
|
|
|
|
750
|
|
Red Lion Hotel Idaho Falls
|
|
Idaho Falls, Idaho
|
|
|
138
|
|
|
|
8,800
|
|
Red Lion Hotel Sacramento at Arden Village
|
|
Sacramento, California
|
|
|
376
|
|
|
|
19,644
|
|
Red Lion Hotel Concord Walnut Creek
|
|
Concord, California
|
|
|
173
|
|
|
|
5,410
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised Hotels (13 properties)
|
|
|
|
|
2,436
|
|
|
|
120,831
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Hotels (44 properties)
|
|
|
|
|
8,557
|
|
|
|
425,397
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
and Leased Hotels
Owned hotels are those properties which we operate and manage
and have ownership of the hotel facility, equipment, personal
property, other structures and in most cases, the land. We
recognize revenues and expenses on these properties, including
depreciation where appropriate.
Leased hotels are those properties which we operate and manage
and may have ownership of some or all of the equipment and
personal property on site, however, the hotel facility and
usually underlying land is occupied under an operating lease
from a third party. We recognize revenues and expenses on these
properties, including lease expense. The most significant
leases, with expiration dates ranging from 2011 to 2024 and
having renewal provisions, typically require us to pay fixed
monthly rent and variable rent based on a percentage of revenue
if certain sales thresholds are reached. In addition, we are
responsible for repairs and maintenance, operating expenses and
management of operations. For additional information on leases,
refer to Note 18 of Notes to Consolidated Financial
Statements.
22
Franchised
Hotels
Under our franchise agreements, we receive royalties for the use
of the Red Lion brand name. We also make available certain
services to those hotels including reservation systems,
advertising and national sales, our guest loyalty program,
revenue management tools, quality inspections and brand
standards, as well as administer central services programs for
the benefit of our system hotels and franchisees. We do not have
management or operational responsibility for these hotels.
At December 31, 2010, our system of hotels included 13
hotels under franchise agreements, representing a total of 2,436
rooms and 120,831 square feet of meeting space. During the
second quarter of 2010, the franchise agreement for the Red Lion
Hotel Bakersfield (165 rooms) ended by agreement and was not
renewed, and this property left our system of hotels.
Discontinued
Operations
During the third quarter of 2010, we concluded that one of our
leased hotels in Astoria, Oregon had reached the end of its
useful life and the hotel was closed. The operations of this
hotel have been classified as discontinued operations in
accordance with generally accepted accounting principles and are
separately disclosed on the consolidated statement of operations
comparative for all periods presented. For additional
information, see Note 22 of Notes to Consolidated Financial
Statements.
Other
Operations
In addition to the operations discussed above, we maintain a
direct ownership interest in a retail mall in Kalispell,
Montana, which is attached to our Red Lion hotel at that
location.
|
|
Item 3.
|
Legal
Proceedings
|
At any given time, we are subject to claims and actions incident
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.
|
|
Item 4.
|
[Removed
and Reserved]
|
Executive
Officers of the Registrant
Set forth below is information regarding our executive officers
and certain key employees as of March 8, 2011:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Jon E. Eliassen
|
|
|
64
|
|
|
President and Chief Executive Officer
|
George H. Schweitzer
|
|
|
55
|
|
|
Executive Vice President and Chief Operating Officer, Hotel
Operations
|
Dan R. Jackson
|
|
|
57
|
|
|
Executive Vice President, Chief Financial Officer and Principal
Financial Officer
|
Harry G. Sladich
|
|
|
49
|
|
|
Executive Vice President of Sales and Marketing
|
Thomas L. McKeirnan
|
|
|
42
|
|
|
Senior Vice President, General Counsel and Secretary
|
Jack G. Lucas
|
|
|
58
|
|
|
Vice President and President, TicketsWest
|
Jon E. Eliassen. Mr. Eliassen was
appointed as our Interim President and Chief Executive Officer
on January 13, 2010. He was appointed as our President and
Chief Executive Officer on February 14, 2011, removing the
interim status. He has been a director of the company since
September 2003. Mr. Eliassen was President and CEO of the
Spokane Area Economic Development Council from 2003 until 2007.
Mr. Eliassen retired in 2003 from his position as Senior
Vice President and Chief Financial Officer of Avista Corp., a
publicly-traded diversified utility. Mr. Eliassen spent
33 years at Avista, including the last 16 years as its
Chief Financial Officer. While at Avista, Mr. Eliassen was
an active participant in development of a number of successful
subsidiary company
23
operations including technology related startups Itron, Avista
Labs and Avista Advantage. Mr. Eliassen serves as Chairman
of the Board of Directors of Itron Corporation, serves as a
member of the Board of Directors of IT Lifeline, Inc, and is the
principal of Terrapin Capital Group, LLC.
Mr. Eliassens corporate accomplishments are
complemented by his extensive service to the community in roles
which have included director and President of the Spokane
Symphony Endowment Fund, director of The Heart Institute of
Spokane, Washington State University Research Foundation,
Washington Technology Center and Spokane Intercollegiate
Research and Technology Institute and past director of numerous
other organizations and energy industry associations.
George H. Schweitzer. Mr. Schweitzer
joined us in April 2008 as our Senior Vice President, Hotel
Operations, and was named our Executive Vice President and Chief
Operating Officer, Hotel Operations in November 2009. Prior to
joining our company, Mr. Schweitzer had served since August
2006 as Partner and Executive Vice President of Business
Development at Unifocus, a leading global provider of business
intelligence applications and performance technology for the
hospitality industry. Mr. Schweitzer founded and was
President and CEO of LaborSage, Inc., a software and management
consulting company focused on labor scheduling solutions for the
hospitality industry, from 2001 to 2006, when it was acquired by
Unifocus. Before entering the hospitality software industry,
Mr. Schweitzer served as President and Chief Operating
Officer of VenQuest Hotel Group in Irvine, California. Prior to
VenQuest, Mr. Schweitzer held the position of Vice
President Operations for Sunstone Hotels and Regional Vice
President for Doubletree Hotels. Mr. Schweitzer has worked
for over 30 years in the hospitality industry, including a
period of nearly 20 years where he served in various
positions, including Vice President Operations,
Regional Vice President and General Manager, of various Red Lion
hotels.
Dan R. Jackson. Mr. Jackson was appointed as
our Senior Vice President, Chief Financial Officer in November
2010, and was promoted to Executive Vice President, Chief
Financial Officer in March 2011. Prior to joining us,
Mr. Jackson was Executive Vice President and CFO for
KinderCare Learning Centers, Inc. and its successor, Knowledge
Learning Corporation from November 2002 to June 2006.
Mr. Jackson held the position of Senior Vice President of
Finance for KinderCare Learning Centers, Inc. from October 1999
to October 2002 having joined the Company as Vice President of
Financial Control and Planning in March 1997. Prior to
KinderCare from September 1994 to February 1997,
Mr. Jackson was Vice President and Controller for Red Lion
Hotels, Inc. when it was held by Kohlberg Kravis
Roberts & Co. During his 12 year tenure at Red
Lion, he was responsible for the financial operations of over 50
hotels and was instrumental in the companys initial public
offering and subsequent sale to Doubletree Hotels.
Harry G. Sladich. Mr. Sladich was
appointed Executive Vice President of Sales and Marketing in May
2010. Mr. Sladich is a 33 year veteran of the
hospitality industry with extensive experience in hotel sales
and hotel operations as well as experience in destination
marketing. Prior to his arrival at Red Lion, Mr. Sladich
was President and Chief Executive Officer of the Spokane
Regional Convention and Visitors Bureau and played a key role in
building and selling the Washington State communitys image
nationally, as well as internationally. Prior to the Spokane
CVB, Mr. Sladich was Vice President of Sales and Marketing
for Sterling Hospitality, hotel developers and operators of
several franchises, including Holiday Inn Express, Hampton Inn
and Quality Inn. Before working for Sterling Hospitality,
Mr. Sladich was General Manager of Hotel Lusso, an upscale
boutique hotel in Spokane, and was Vice-President of National
Sales for Guestmark International (GMI), a national hotel
marketing company based in Boston. Mr. Sladich has also
worked for Sheraton Hotels in both hotel operations and food and
beverage. Mr. Sladich started his career in 1977 in Spokane
at the Travelodge River Inn, which is now the Red Lion River
Inn. Washington State Governor Chris Gregoire appointed
Mr. Sladich to two boards including the Motion Picture
Competitiveness Program, WashingtonFilmWorks, and the Washington
State Convention Center. He has also served on the board for the
Western Association of Convention & Visitors Bureaus
(WACVB), is past Chair for the Boys and Girls Club of Spokane
County and is an Honorary Commander at Fairchild Air Force Base.
Thomas L. McKeirnan. Mr. McKeirnan has
been our Senior Vice President, General Counsel and Secretary
since February 2005. Prior to that he served as Vice President,
General Counsel and Secretary from January 2004 through February
2005 and Vice President, Assistant General Counsel from July
2003 to January 2004. Prior to joining us, Mr. McKeirnan
was a partner at the Spokane, Washington law firm of Paine
Hamblen Coffin Brooke & Miller LLP from January 2002
until July 2003 and an associate attorney at the same firm from
1999 to 2001. Mr. McKeirnan was an associate attorney with
the Seattle, Washington law firm of Riddell Williams P.S. from
1995 until 1999. Mr. McKeirnans private legal
practice focused on corporate, transactional, real estate and
securities law,
24
with an emphasis on the hospitality industry. While in private
practice, Mr. McKeirnan represented us as outside counsel
on various strategic and transactional matters and also
represented WestCoast Hotels, Inc. prior to our acquisition of
that company.
Jack G. Lucas. Mr. Lucas serves as Vice
President of Red Lion Hotels Corporation and President of
TicketsWest. He is in charge of overseeing all of the various
departments within our entertainment division. He has been
President of TicketsWest since February 2006 and Vice President
of Red Lion Hotels Corporation since August 1998. Mr. Lucas
has approximately 27 years of experience in the
entertainment industry, and has been employed by us since 1987.
Mr. Lucas previously spent 13 years on the management
staff of the City of Spokane Entertainment Facilities, which
included a 2,700-seat performing arts center, 30,000-seat
stadium, 8,500-seat coliseum, and convention center.
Mr. Lucas was awarded the 2004 International Ticketing
Professional of the Year award from the International Ticketing
Association.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
(a) Our common stock is listed on the New York Stock
Exchange (NYSE) under the symbol RLH.
The following table sets forth for the periods indicated the
high and low closing sale prices for our common stock on the
NYSE:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2010
|
|
|
|
|
|
|
|
|
Fourth Quarter (ended December 31, 2010)
|
|
$
|
8.28
|
|
|
$
|
7.20
|
|
Third Quarter (ended September 30, 2010)
|
|
$
|
7.61
|
|
|
$
|
5.92
|
|
Second Quarter (ended June 30, 2010)
|
|
$
|
7.91
|
|
|
$
|
5.86
|
|
First Quarter (ended March 31, 2010)
|
|
$
|
7.22
|
|
|
$
|
4.71
|
|
2009
|
|
|
|
|
|
|
|
|
Fourth Quarter (ended December 31, 2009)
|
|
$
|
6.00
|
|
|
$
|
4.47
|
|
Third Quarter (ended September 30, 2009)
|
|
$
|
6.34
|
|
|
$
|
4.07
|
|
Second Quarter (ended June 30, 2009)
|
|
$
|
5.03
|
|
|
$
|
2.94
|
|
First Quarter (ended March 31, 2009)
|
|
$
|
3.25
|
|
|
$
|
2.01
|
|
(b) The closing sale price of the common stock on the NYSE
on March 8, 2011 was $8.21, with 122 shareholders of
record of the common stock.
(c) We did not pay any cash dividends on our common stock
during the last two fiscal years. The board of directors
periodically reviews our dividend policy and our longer-term
objectives of maximizing shareholder value. Any determination to
pay cash dividends in the future will be at the discretion of
our board.
25
(d) The following table provides information as of
December 31, 2010 on plans under which equity securities
may be issued to employees, directors or consultants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Equity
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (a))
|
|
|
Equity Compensation Plans Approved by Security Holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Stock Incentive Plan(1)
|
|
|
249,248
|
|
|
$
|
5.55
|
|
|
|
|
|
2006 Stock Incentive Plan
|
|
|
449,615
|
|
|
$
|
8.17
|
|
|
|
1,160,924
|
|
Equity Compensation Plans Not Approved by Security Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
698,863
|
|
|
$
|
7.24
|
|
|
|
1,160,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
No further grants will be made under the 1998 Stock Incentive
Plan. |
(e) The below graph assumes an investment of $100 in our
common stock and depicts its price performance relative to the
performance of the Russell 2000 Index and the
Standard & Poors Hotels, Resorts &
Cruise Lines Index, assuming a reinvestment of all dividends.
The price performance on the graph is not necessarily indicative
of future stock price performance.
|
|
* |
$100 invested on 12/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
|
26
|
|
Item 6.
|
Selected
Financial Data
|
The following table sets forth our selected consolidated
financial data as of and for the years ended December 31,
2010, 2009, 2008, 2007 and 2006. The selected consolidated
statement of operations and balance sheet data are derived from
our audited consolidated financial statements. The audited
consolidated financial statements for certain of these periods
are included elsewhere in this annual report. The selected
consolidated financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, our
consolidated financial statements and related notes,
Managements Discussion and Analysis of Financial Condition
and Results of Operations and other financial information
included elsewhere in this annual report and in our prior
filings with the SEC. Operating activities and the balance sheet
of continuing operations have been reflected on a comparable
basis for all years presented, which includes consolidation of
our Central Program Fund (CPF). See Notes 5 and
22 of Notes to Consolidated Financial Statements for further
detail.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands, except per share data)
|
|
Consolidated Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
163,494
|
|
|
$
|
165,719
|
|
|
$
|
188,208
|
|
|
$
|
187,900
|
|
|
$
|
171,601
|
|
Impairment charge(2)
|
|
|
5,733
|
|
|
|
8,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses(3)
|
|
|
|
|
|
|
136
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
Operating expenses (1,2,3)
|
|
|
167,796
|
|
|
|
168,228
|
|
|
|
182,941
|
|
|
|
172,240
|
|
|
|
159,316
|
|
Operating income (loss) (2,3)
|
|
|
(4,302
|
)
|
|
|
(2,509
|
)
|
|
|
5,267
|
|
|
|
15,660
|
|
|
|
12,285
|
|
Expense of early extinguishment of debt, net(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,266
|
|
Net income (loss) from continuing operations (2,3,4)
|
|
|
(8,230
|
)
|
|
|
(6,597
|
)
|
|
|
(1,817
|
)
|
|
|
5,072
|
|
|
|
(1,526
|
)
|
Net income (loss) from continuing operations attributable to Red
Lion Hotels Corporation (2,3,4)
|
|
|
(8,220
|
)
|
|
|
(6,596
|
)
|
|
|
(1,805
|
)
|
|
|
5,038
|
|
|
|
(1,470
|
)
|
Earnings (loss) per share attributable to Red Lion Hotels
Corporation before discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.45
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.26
|
|
|
$
|
(0.09
|
)
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on disposal of discontinued business units, net
of income tax expense (benefit)(5)
|
|
$
|
(38
|
)
|
|
$
|
(117
|
)
|
|
$
|
|
|
|
$
|
932
|
|
|
$
|
(133
|
)
|
Income (loss) from operations of discontinued business units,
net of income tax expense (benefit)(5)
|
|
|
(351
|
)
|
|
|
50
|
|
|
|
168
|
|
|
|
146
|
|
|
|
283
|
|
Earnings (loss) per share on discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
$
|
0.01
|
|
Net Income (Loss) attributable to Red Lion Hotels
Corporation
|
|
$
|
(8,609
|
)
|
|
$
|
(6,663
|
)
|
|
$
|
(1,637
|
)
|
|
$
|
6,116
|
|
|
$
|
(1,320
|
)
|
Earnings (loss) per share attributable to Red Lion Hotels
Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (2,3,4,5)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.32
|
|
|
$
|
(0.08
|
)
|
Diluted (2,3,4,5)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.31
|
|
|
$
|
(0.08
|
)
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,485
|
|
|
|
18,106
|
|
|
|
18,234
|
|
|
|
19,134
|
|
|
|
16,666
|
|
Diluted
|
|
|
18,485
|
|
|
|
18,106
|
|
|
|
18,234
|
|
|
|
19,506
|
|
|
|
16,666
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Other Non-GAAP Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
16,444
|
|
|
$
|
18,724
|
|
|
$
|
25,762
|
|
|
$
|
34,699
|
|
|
$
|
21,970
|
|
EBITDA from continuing operations (2,3,4)
|
|
|
17,002
|
|
|
|
18,744
|
|
|
|
25,432
|
|
|
|
32,784
|
|
|
|
21,078
|
|
Consolidated Statement of Cash Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
19,487
|
|
|
$
|
15,692
|
|
|
$
|
22,803
|
|
|
$
|
21,230
|
|
|
$
|
18,962
|
|
Net cash used in investing activities
|
|
|
(10,428
|
)
|
|
|
(16,970
|
)
|
|
|
(53,754
|
)
|
|
|
(12,491
|
)
|
|
|
(14,000
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(8,932
|
)
|
|
|
(13,059
|
)
|
|
|
34,129
|
|
|
|
(7,014
|
)
|
|
|
(5,247
|
)
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,012
|
|
|
$
|
3,881
|
|
|
$
|
18,216
|
|
|
$
|
15,026
|
|
|
$
|
13,247
|
|
Working capital(6)
|
|
|
(48,347
|
)
|
|
|
(1,161
|
)
|
|
|
8,353
|
|
|
|
5,781
|
|
|
|
8,350
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
242
|
|
|
|
520
|
|
|
|
477
|
|
|
|
14,988
|
|
Property and equipment, net
|
|
|
272,030
|
|
|
|
285,601
|
|
|
|
298,059
|
|
|
|
260,228
|
|
|
|
250,223
|
|
Total assets
|
|
|
331,482
|
|
|
|
350,636
|
|
|
|
380,240
|
|
|
|
343,926
|
|
|
|
351,131
|
|
Total debt
|
|
|
95,152
|
|
|
|
106,322
|
|
|
|
119,331
|
|
|
|
83,220
|
|
|
|
85,272
|
|
Debentures due Red Lion Hotels Capital Trust
|
|
|
30,825
|
|
|
|
30,825
|
|
|
|
30,825
|
|
|
|
30,825
|
|
|
|
30,825
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
29
|
|
|
|
60
|
|
|
|
88
|
|
|
|
4,182
|
|
Long-term debt included with discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,874
|
|
Total liabilities
|
|
|
160,717
|
|
|
|
175,614
|
|
|
|
199,895
|
|
|
|
162,512
|
|
|
|
168,265
|
|
Total Red Lion Hotels Corporation stockholders equity
|
|
|
170,765
|
|
|
|
175,022
|
|
|
|
180,345
|
|
|
|
181,414
|
|
|
|
182,866
|
|
|
|
|
(1) |
|
Operating expenses include all direct segment expenses,
depreciation and amortization, gain (loss) on asset disposals,
hotel facility and land lease and undistributed corporate
expenses. |
|
(2) |
|
During the fourth quarter of 2010, we recorded a
$5.7 million impairment charge related to the termination
of a sublease agreement. During the fourth quarter of 2009, we
recorded an $8.7 million non-cash impairment charge related
to two hotel properties, as well as $0.1 million in
restructuring expenses. |
|
(3) |
|
During 2009, we recorded $0.1 million in restructuring
expense associated with a reduction in force. During 2008, we
recorded $2.1 million in restructuring expenses, as well as
$3.7 million in separation payments pertaining to the
retirement of our former President and Chief Executive Officer
in February 2008. |
|
(4) |
|
During 2006, we reduced our debt by $59.1 million, some of
which resulted in expenses for early extinguishment. |
|
(5) |
|
In 2007, the balance includes a net gain on the sale of a
commercial office complex of $1.2 million and a net loss of
$0.3 million from the sale of a hotel. In 2006, the balance
includes a loss on disposition of assets of $0.1 million. |
|
(6) |
|
Represents current assets less current liabilities, excluding
assets and liabilities of discontinued operations and assets
held for sale. |
EBITDA is a non-GAAP measure that represents net income (loss)
attributable to Red Lion Hotels Corporation before interest
expense, income tax benefit (expense) and depreciation and
amortization. We utilize EBITDA as a financial measure as
management believes 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, ongoing operations. We believe it is a complement to net
income (loss) attributable to Red Lion Hotels Corporation and
other financial performance measures. EBITDA is not intended to
represent net income (loss) attributable to Red Lion
28
Hotels Corporation as defined by generally accepted accounting
principles in the United States (GAAP), and such
information should not be considered as an alternative to net
income (loss), cash flows from operations or any other measure
of performance prescribed by GAAP.
We use EBITDA to measure the financial performance of our owned
and leased hotels because we believe interest, taxes and
depreciation and amortization bear little or no relationship to
our operating performance. By excluding interest expense, EBITDA
measures our financial performance irrespective of our capital
structure or how we finance our properties and operations. We
generally pay federal and state income taxes on a consolidated
basis, taking into account how the applicable taxing laws apply
to us in the aggregate. By excluding taxes on income, we believe
EBITDA provides a basis for measuring the financial performance
of our operations excluding factors that our hotels cannot
control. By excluding depreciation and amortization expense,
which can vary from hotel to hotel based on historical cost and
other factors unrelated to the hotels financial
performance, EBITDA measures the financial performance of our
hotels without regard to their historical cost. For all of these
reasons, we believe that EBITDA provides us and investors with
information that is relevant and useful in evaluating our
business.
However, because EBITDA excludes depreciation and amortization,
it does not measure the capital we require to maintain or
preserve our fixed assets. In addition, because EBITDA does not
reflect interest expense, it does not take into account the
total amount of interest we pay on outstanding debt nor does it
show trends in interest costs due to changes in our borrowings
or changes in interest rates. EBITDA, as defined by us, may not
be comparable to EBITDA as reported by other companies that do
not define EBITDA exactly as we define the term. Because we use
EBITDA to evaluate our financial performance, we reconcile it to
net income (loss) attributable to Red Lion Hotels Corporation,
which is the most comparable financial measure calculated and
presented in accordance with GAAP. EBITDA does not represent
cash generated from operating activities determined in
accordance with GAAP, and should not be considered as an
alternative to operating income (loss) or net income (loss)
determined in accordance with GAAP as an indicator of
performance or as an alternative to cash flows from operating
activities as an indicator of liquidity.
The following is a reconciliation of EBITDA and EBITDA from
continuing operations to net income (loss) attributable to Red
Lion Hotels Corporation for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
EBITDA from continuing operations
|
|
$
|
17,002
|
|
|
$
|
18,744
|
|
|
$
|
25,432
|
|
|
$
|
32,784
|
|
|
$
|
21,078
|
|
Income tax benefit (expense) continuing operations
|
|
|
4,736
|
|
|
|
4,036
|
|
|
|
1,251
|
|
|
|
(2,112
|
)
|
|
|
2,157
|
|
Interest expense continuing operations
|
|
|
(9,073
|
)
|
|
|
(8,503
|
)
|
|
|
(9,247
|
)
|
|
|
(9,172
|
)
|
|
|
(12,072
|
)
|
Depreciation and amortization continuing operations
|
|
|
(20,885
|
)
|
|
|
(20,873
|
)
|
|
|
(19,241
|
)
|
|
|
(16,462
|
)
|
|
|
(12,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels Corporation
from continuing operations
|
|
|
(8,220
|
)
|
|
|
(6,596
|
)
|
|
|
(1,805
|
)
|
|
|
5,038
|
|
|
|
(1,470
|
)
|
Income (loss) on discontinued operations, net of tax
|
|
|
(389
|
)
|
|
|
(67
|
)
|
|
|
168
|
|
|
|
1,078
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
Corporation
|
|
$
|
(8,609
|
)
|
|
$
|
(6,663
|
)
|
|
$
|
(1,637
|
)
|
|
$
|
6,116
|
|
|
$
|
(1,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
16,444
|
|
|
$
|
18,724
|
|
|
$
|
25,762
|
|
|
$
|
34,699
|
|
|
$
|
21,970
|
|
Income tax benefit (expense)
|
|
|
4,937
|
|
|
|
4,070
|
|
|
|
1,164
|
|
|
|
(2,697
|
)
|
|
|
2,081
|
|
Interest expense
|
|
|
(9,073
|
)
|
|
|
(8,503
|
)
|
|
|
(9,247
|
)
|
|
|
(9,331
|
)
|
|
|
(12,263
|
)
|
Depreciation and amortization
|
|
|
(20,917
|
)
|
|
|
(20,954
|
)
|
|
|
(19,316
|
)
|
|
|
(16,555
|
)
|
|
|
(13,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
Corporation
|
|
$
|
(8,609
|
)
|
|
$
|
(6,663
|
)
|
|
$
|
(1,637
|
)
|
|
$
|
6,116
|
|
|
$
|
(1,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
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.
As of December 31, 2010, our hotel system contained 44
hotels located in eight states and one Canadian province, with
8,557 rooms and 425,397 square feet of meeting space as
provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Meeting
|
|
|
|
|
|
|
Available
|
|
|
Space
|
|
|
|
Hotels
|
|
|
Rooms
|
|
|
(sq. ft.)
|
|
|
Red Lion Owned and Leased Hotels
|
|
|
31
|
|
|
|
6,121
|
|
|
|
304,566
|
|
Red Lion Franchised Hotels
|
|
|
13
|
|
|
|
2,436
|
|
|
|
120,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
44
|
|
|
|
8,557
|
|
|
|
425,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. This segment generates
revenue from franchise fees that are typically based on a
percent of room revenues and are charged to hotel owners in
exchange for the use of our brand and access to our central
services programs. These programs include the reservation
system, guest loyalty program, national and regional sales,
revenue management tools, quality inspections, advertising and
brand standards. It has also historically reflected revenue from
management fees charged to the owners of managed hotels. We have
not managed any hotels for third parties since January 2008.
|
|
|
|
The entertainment segment derives revenue primarily from
ticketing services and promotion and presentation of
entertainment productions.
|
Our remaining activities, none of which constitutes a reportable
segment, have been aggregated into other, and are
primarily related to our direct ownership interest in a retail
mall that is attached to one of our hotels and to other
miscellaneous real estate investments.
Results
of Operations
For the year ended December 31, 2010, our net loss was
$8.6 million (or $0.47 per share), which includes a
non-cash impairment charge of $5.7 million related to the
termination of a franchise and sublease agreement. During the
fourth quarter of 2010, we agreed to terminate the current
sublease and franchise agreement with the operator of the Red
Lion Hotel Sacramento. We subsequently entered into an agreement
with a new franchisee and subtenant. As a result of the contract
termination, the Company recognized an impairment charge of
$5.7 million. Also included in the 2010 net loss is
$1.2 million of expense related to the separation of a
former President and Chief Executive Officer.
During 2009, we reported a net loss of $6.7 million (or
$0.37 per share), which included a non-cash impairment charge of
$8.7 million. Of that amount, $8.5 million was related
to our Red Lion Hotel Denver Southeast which was acquired in May
2008 for $25.3 million. Subsequent to that acquisition, the
Denver market experienced a substantial and sustained decline in
demand for hotel rooms across all market segments. The remaining
$0.2 million impairment charge related to a second property.
During 2008, we reported a net loss of approximately
$1.6 million (or $0.09 per share). Included in this loss
was a $3.7 million charge recorded during the first quarter
of 2008 for separation costs associated with the retirement of a
former President and Chief Executive Officer. In addition,
during the fourth quarter of 2008 we recorded $2.1 million
in restructuring expenses.
30
A summary of our consolidated statement of operations is as
follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total revenue
|
|
$
|
163,494
|
|
|
$
|
165,719
|
|
|
$
|
188,208
|
|
Operating expenses
|
|
|
167,796
|
|
|
|
168,228
|
|
|
|
182,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(4,302
|
)
|
|
|
(2,509
|
)
|
|
|
5,267
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,073
|
)
|
|
|
(8,503
|
)
|
|
|
(9,247
|
)
|
Other income, net
|
|
|
409
|
|
|
|
379
|
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
(12,966
|
)
|
|
|
(10,633
|
)
|
|
|
(3,068
|
)
|
Income tax (benefit) expense
|
|
|
(4,736
|
)
|
|
|
(4,036
|
)
|
|
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(8,230
|
)
|
|
|
(6,597
|
)
|
|
|
(1,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
(389
|
)
|
|
|
(67
|
)
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8,619
|
)
|
|
$
|
(6,664
|
)
|
|
$
|
(1,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
Corporation
|
|
$
|
(8,609
|
)
|
|
$
|
(6,663
|
)
|
|
$
|
(1,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic and diluted
|
|
$
|
(0.47
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
16,444
|
|
|
$
|
18,724
|
|
|
$
|
25,762
|
|
EBITDA from continuing operations
|
|
$
|
17,002
|
|
|
$
|
18,744
|
|
|
$
|
25,432
|
|
The following table details the impact of the $5.7 million
impairment charge recorded for the year ended 2010, as well as a
$1.5 million credit adjustment for the termination of a
sublease and franchise agreement at our Red Lion Hotel
Sacramento. Also detailed is a $1.2 million charge for
separation costs. Additionally detailed is an impairment charge
and restructuring expenses recorded for the year ended
December 31, 2009. Finally, detailed is a $3.7 million
charge for separation costs and $2.1 million in
restructuring expenses recorded in 2008 on net loss, loss per
share and EBITDA (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Impairment charge(1)
|
|
$
|
(5,733
|
)
|
|
$
|
(8,509
|
)
|
|
$
|
|
|
Separation costs(2)
|
|
|
(1,219
|
)
|
|
|
|
|
|
|
(3,654
|
)
|
Restructuring expenses (3,4)
|
|
|
|
|
|
|
(136
|
)
|
|
|
(2,067
|
)
|
Franchise, sublease termination(5)
|
|
|
1,452
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
1,954
|
|
|
|
3,069
|
|
|
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on net loss
|
|
$
|
(3,546
|
)
|
|
$
|
(5,576
|
)
|
|
$
|
(3,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on EBITDA
|
|
$
|
(5,392
|
)
|
|
$
|
(8,645
|
)
|
|
$
|
(5,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charge
|
|
$
|
(0.31
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
|
|
Separation costs
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
(0.20
|
)
|
Restructuring expenses
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.11
|
)
|
Franchise, sublease termination
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
0.11
|
|
|
|
0.17
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on loss per share
|
|
$
|
(0.19
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the fourth quarter of 2010, we recorded an impairment
charge of $5.7 million due to the termination of a sublease
agreement at our Red Lion Hotel Sacramento. During the fourth
quarter of 2009, we recorded an |
31
|
|
|
|
|
impairment charge of $8.5 million for our Red Lion Hotel
Denver Southeast as a result of market conditions at that time. |
|
(2) |
|
During the first quarter of 2010, the Company terminated an
employment agreement with its President and Chief Executive
Officer. As a result, separation costs of $1.2 million were
recorded in that quarter. During the first quarter of 2008, the
then President and Chief Executive Officer of the Company
retired. In connection therewith, we recorded separation payment
and benefit expense of $3.7 million. |
|
(3) |
|
During the fourth quarter of 2008, an employment agreement was
terminated with an Executive Vice President resulting in an
expense of $1.2 million for separation payments and other
benefits, including a $0.3 million non-cash expense for the
unvested portion of the former executives stock options
and restricted stock units that immediately vested upon
termination. |
|
(4) |
|
2008 includes a non-cash charge of $0.7 million reducing
the carrying value of an intangible asset related to a
management contract acquired with the WestCoast and Red Lion
brands. 2009 includes restructuring costs associated with a
reduction in force implemented to manage costs. |
|
(5) |
|
During the fourth quarter of 2010, a sublease agreement was
terminated for our Red Lion Hotel Sacramento. As a result, we
accelerated the recognition of $3.0 million of deferred
lease income associated with that contract. Additional
adjustments in the amount of $1.5 million were necessary to
reflect uncollectible amounts and accrued expenses, which
partially offset the deferred lease income adjustment. |
EBITDA represents net income (loss) attributable to Red Lion
Hotels Corporation before interest expense, income tax expense
(benefit) and depreciation and amortization. We utilize EBITDA
as a financial measure because management believes that
investors find it a useful tool to perform more meaningful
comparisons of past, present and future operating results and as
a means to evaluate the results of core, ongoing operations. We
believe it is a complement to net income (loss) attributable to
Red Lion Hotels Corporation and other financial performance
measures. EBITDA is not intended to represent net income (loss)
attributable to Red Lion Hotels Corporation as defined by
generally accepted accounting principles in the United States
(GAAP), and such information should not be
considered as an alternative to net income (loss), cash flows
from operations or any other measure of performance prescribed
by GAAP.
We use EBITDA to measure the financial performance of our owned
and leased hotels because we believe interest, taxes and
depreciation and amortization bear little or no relationship to
our operating performance. By excluding interest expense, EBITDA
measures our financial performance irrespective of our capital
structure or how we finance our properties and operations. We
generally pay federal and state income taxes on a consolidated
basis, taking into account how the applicable taxing laws apply
to us in the aggregate. By excluding taxes on income, we believe
EBITDA provides a basis for measuring the financial performance
of our operations excluding factors that our hotels cannot
control. By excluding depreciation and amortization expense,
which can vary from hotel to hotel based on historical cost and
other factors unrelated to the hotels financial
performance, EBITDA measures the financial performance of our
hotels without regard to their historical cost. For all of these
reasons, we believe EBITDA provides us and investors with
information that is relevant and useful in evaluating our
business.
However, because EBITDA excludes depreciation and amortization,
it does not measure the capital we require to maintain or
preserve our fixed assets. In addition, because EBITDA does not
reflect interest expense, it does not take into account the
total amount of interest we pay on outstanding debt nor does it
show trends in interest costs due to changes in our borrowings
or changes in interest rates. EBITDA, as defined by us, may not
be comparable to EBITDA as reported by other companies that do
not define EBITDA exactly as we define the term. Because we use
EBITDA to evaluate our financial performance, we reconcile it to
net income (loss) attributable to Red Lion Hotels Corporation,
which is the most comparable financial measure calculated and
presented in accordance with GAAP. EBITDA does not represent
cash generated from operating activities determined in
accordance with GAAP, and should not be considered as an
alternative to operating income (loss) or net income (loss)
determined in accordance with GAAP as an indicator of
performance or as an alternative to cash flows from operating
activities as an indicator of liquidity.
32
The following is a reconciliation of EBITDA and EBITDA from
continuing operations to net income (loss) attributable to Red
Lion Hotels Corporation for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
EBITDA from continuing operations
|
|
$
|
17,002
|
|
|
$
|
18,744
|
|
|
$
|
25,432
|
|
Income tax benefit (expense) continuing operations
|
|
|
4,736
|
|
|
|
4,036
|
|
|
|
1,251
|
|
Interest expense continuing operations
|
|
|
(9,073
|
)
|
|
|
(8,503
|
)
|
|
|
(9,247
|
)
|
Depreciation and amortization continuing operations
|
|
|
(20,885
|
)
|
|
|
(20,873
|
)
|
|
|
(19,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation from continuing operations
|
|
|
(8,220
|
)
|
|
|
(6,596
|
)
|
|
|
(1,805
|
)
|
Income (loss) from discontinued operations
|
|
|
(389
|
)
|
|
|
(67
|
)
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
Corporation
|
|
$
|
(8,609
|
)
|
|
$
|
(6,663
|
)
|
|
$
|
(1,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
16,444
|
|
|
$
|
18,724
|
|
|
$
|
25,762
|
|
Income tax benefit (expense)
|
|
|
4,937
|
|
|
|
4,070
|
|
|
|
1,164
|
|
Interest expense
|
|
|
(9,073
|
)
|
|
|
(8,503
|
)
|
|
|
(9,247
|
)
|
Depreciation and amortization
|
|
|
(20,917
|
)
|
|
|
(20,954
|
)
|
|
|
(19,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
Corporation
|
|
$
|
(8,609
|
)
|
|
$
|
(6,663
|
)
|
|
$
|
(1,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
A breakdown of revenues from continuing operations is as follows
(in thousands, except for percentage changes):
Revenues
From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
$ Change
|
|
|
% Change
|
|
|
Hotels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room revenue
|
|
$
|
107,489
|
|
|
$
|
101,975
|
|
|
$
|
115,564
|
|
|
$
|
5,514
|
|
|
|
5.4
|
%
|
|
$
|
(13,589
|
)
|
|
|
(11.8
|
)%
|
Food and beverage revenue
|
|
|
36,246
|
|
|
|
41,484
|
|
|
|
48,506
|
|
|
|
(5,238
|
)
|
|
|
(12.6
|
)%
|
|
|
(7,022
|
)
|
|
|
(14.5
|
)%
|
Other hotels revenue
|
|
|
4,833
|
|
|
|
4,313
|
|
|
|
4,540
|
|
|
|
520
|
|
|
|
12.1
|
%
|
|
|
(227
|
)
|
|
|
(5.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotels segment revenue
|
|
|
148,568
|
|
|
|
147,772
|
|
|
|
168,610
|
|
|
|
796
|
|
|
|
0.5
|
%
|
|
|
(20,838
|
)
|
|
|
(12.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise revenue
|
|
|
3,209
|
|
|
|
3,616
|
|
|
|
4,442
|
|
|
|
(407
|
)
|
|
|
(11.3
|
)%
|
|
|
(826
|
)
|
|
|
(18.6
|
)%
|
Entertainment revenue
|
|
|
9,236
|
|
|
|
11,690
|
|
|
|
12,016
|
|
|
|
(2,454
|
)
|
|
|
(21.0
|
)%
|
|
|
(326
|
)
|
|
|
(2.7
|
)%
|
Other revenue
|
|
|
2,481
|
|
|
|
2,641
|
|
|
|
3,140
|
|
|
|
(160
|
)
|
|
|
(6.1
|
)%
|
|
|
(499
|
)
|
|
|
(15.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
163,494
|
|
|
$
|
165,719
|
|
|
$
|
188,208
|
|
|
$
|
(2,225
|
)
|
|
|
(1.3
|
)%
|
|
$
|
(22,489
|
)
|
|
|
(11.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
Compared to 2009
Revenues in 2010 from the hotels segment increased
$0.8 million, or 0.5%, compared to 2009, resulting from a
5.4% increase in room revenue which was driven by our focus on
higher-rated transient and preferred corporate guests and
reduced room bookings from discount online travel agent
(OTA) channels. RevPAR for our owned and leased
properties increased 5.4% due to a 2.5% increase in ADR and a
160 basis point increase in occupancy from the prior year.
Food and beverage revenue saw a 12.6% decrease in 2010 compared
to 2009 reflecting the impact of our breakfast inclusive
strategy and the decision to modify food and beverage offerings
in select markets.
33
Revenue from our franchise segment decreased $0.4 million,
or 11.3%, in 2010 compared to 2009, due to a one time settlement
received in 2009. Revenue from our entertainment segment
decreased $2.5 million, or 21.0%, in 2010 compared to 2009
resulting primarily from the impact of one less Best of
Broadway production in 2010. Other segment revenues,
consisting primarily of the operations of a mall, were down 6.1%
to $2.5 million in 2010.
2009
Compared to 2008
Revenues in 2009 from the hotels segment decreased
$20.8 million, or 12.4%, compared to 2008, primarily due to
an 11.8% decrease in room revenue as transient and group
revenues were down $7.0 million and $5.8 million,
respectively,
year-over-year.
RevPAR for our owned and leased properties decreased 12.1% due
to a 6.3% decrease in ADR and a 380 basis point decrease in
occupancy from the prior year. The 14.5% decrease in food and
beverage revenues in 2009 compared to 2008 was driven by a
$4.4 million decrease in banquet and catering related
revenues, and decrease in food outlet revenue commensurate with
occupancy declines.
Revenue from our franchise segment decreased $0.8 million,
or 18.6%, in 2009 compared to 2008, having less hotels in our
system compared to the prior year and lower revenues generated
from existing franchisees. During 2009, we received a
$0.3 million settlement from a franchise that we terminated
from the system in 2008, although we also collected
$0.3 million in termination fees during 2008. Revenue from
our entertainment segment decreased $0.3 million, or 2.7%,
in 2009 compared to 2008, and other segment revenues, consisting
primarily of the operations of a mall, were down 15.9% to
$2.6 million in 2009.
Operating
Expenses
Operating expenses generally 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
2010, operating expenses included a $5.7 million impairment
charge relating to the termination of a sublease and franchise
agreement at our Red Lion Hotel Sacramento. In 2009, operating
expenses included an $8.7 million impairment charge and a
$0.1 million expense for restructuring. During 2008,
operating expenses included $3.7 million in separation
costs and $2.1 million in restructuring expense. In the
aggregate, operating expenses decreased $0.4 million during
2010 when compared to 2009 and they decreased $14.7 million
34
during 2009 versus 2008. The table below provides a breakdown of
our operating expenses, as well as direct margins by segment for
each of the three years in the period ended December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except for percentages)
|
|
|
Operating Expenses From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
116,574
|
|
|
$
|
113,256
|
|
|
$
|
129,372
|
|
Franchise
|
|
|
3,118
|
|
|
|
2,255
|
|
|
|
2,710
|
|
Entertainment
|
|
|
7,769
|
|
|
|
9,466
|
|
|
|
11,234
|
|
Other
|
|
|
1,598
|
|
|
|
2,075
|
|
|
|
2,100
|
|
Depreciation and amortization
|
|
|
20,885
|
|
|
|
20,873
|
|
|
|
19,241
|
|
Hotel facility and land lease
|
|
|
5,840
|
|
|
|
6,707
|
|
|
|
6,738
|
|
Impairment charge
|
|
|
5,733
|
|
|
|
8,509
|
|
|
|
|
|
Gain on asset dispositions, net
|
|
|
(25
|
)
|
|
|
(249
|
)
|
|
|
(164
|
)
|
Separation costs
|
|
|
1,219
|
|
|
|
|
|
|
|
3,654
|
|
Undistributed corporate expenses
|
|
|
5,085
|
|
|
|
5,200
|
|
|
|
5,989
|
|
Restructuring expenses
|
|
|
|
|
|
|
136
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
167,796
|
|
|
$
|
168,228
|
|
|
$
|
182,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels revenue owned(1)
|
|
$
|
107,031
|
|
|
$
|
107,473
|
|
|
$
|
120,502
|
|
Direct margin(2)
|
|
$
|
24,192
|
|
|
$
|
27,717
|
|
|
$
|
30,957
|
|
Direct margin %
|
|
|
22.6
|
%
|
|
|
25.8
|
%
|
|
|
25.7
|
%
|
Hotels revenue leased
|
|
$
|
41,537
|
|
|
$
|
40,299
|
|
|
$
|
48,108
|
|
Direct margin(2)
|
|
$
|
7,802
|
|
|
$
|
6,799
|
|
|
$
|
8,281
|
|
Direct margin %
|
|
|
18.8
|
%
|
|
|
16.9
|
%
|
|
|
17.2
|
%
|
Franchise revenue
|
|
$
|
3,209
|
|
|
$
|
3,616
|
|
|
$
|
4,442
|
|
Direct margin(2)
|
|
$
|
91
|
|
|
$
|
1,361
|
|
|
$
|
1,732
|
|
Direct margin %
|
|
|
2.8
|
%
|
|
|
37.6
|
%
|
|
|
39.0
|
%
|
Entertainment revenue
|
|
$
|
9,236
|
|
|
$
|
11,690
|
|
|
$
|
12,016
|
|
Direct margin(2)
|
|
$
|
1,467
|
|
|
$
|
2,224
|
|
|
$
|
782
|
|
Direct margin %
|
|
|
15.9
|
%
|
|
|
19.0
|
%
|
|
|
6.5
|
%
|
Other revenue
|
|
$
|
2,481
|
|
|
$
|
2,641
|
|
|
$
|
3,140
|
|
Direct margin(2)
|
|
$
|
883
|
|
|
$
|
566
|
|
|
$
|
1,040
|
|
Direct margin %
|
|
|
35.6
|
%
|
|
|
21.4
|
%
|
|
|
33.1
|
%
|
|
|
|
(1) |
|
Continuing operations only |
|
(2) |
|
Revenues less direct operating expenses. |
35
2010
Compared to 2009
As discussed in Note 5 of Notes to Consolidated Financial
Statements, we have determined that our Central Program Fund
(CPF) should be included in our consolidated
financial statements and adopted this change retrospectively on
January 1, 2010. The table below represents the impact on
consolidation of the CPF for the twelve months ended
December 31, 2010 and 2009 (in thousands, except per share
data), which added additional net loss of $1.2 million and
$24,000 respectively, before the impact of income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
Year Ended December 31, 2009
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
148,568
|
|
|
$
|
|
|
|
$
|
148,568
|
|
|
$
|
147,772
|
|
|
$
|
|
|
|
$
|
147,772
|
|
Franchise
|
|
|
1,317
|
|
|
|
1,892
|
|
|
|
3,209
|
|
|
|
1,678
|
|
|
|
1,938
|
|
|
|
3,616
|
|
Entertainment
|
|
|
9,236
|
|
|
|
|
|
|
|
9,236
|
|
|
|
11,690
|
|
|
|
|
|
|
|
11,690
|
|
Other
|
|
|
2,481
|
|
|
|
|
|
|
|
2,481
|
|
|
|
2,641
|
|
|
|
|
|
|
|
2,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
161,602
|
|
|
|
1,892
|
|
|
|
163,494
|
|
|
|
163,781
|
|
|
|
1,938
|
|
|
|
165,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
|
115,946
|
|
|
|
628
|
|
|
|
116,574
|
|
|
|
113,677
|
|
|
|
(421
|
)
|
|
|
113,256
|
|
Franchise
|
|
|
1,055
|
|
|
|
2,063
|
|
|
|
3,118
|
|
|
|
429
|
|
|
|
1,826
|
|
|
|
2,255
|
|
Entertainment
|
|
|
7,769
|
|
|
|
|
|
|
|
7,769
|
|
|
|
9,466
|
|
|
|
|
|
|
|
9,466
|
|
Other
|
|
|
1,598
|
|
|
|
|
|
|
|
1,598
|
|
|
|
2,075
|
|
|
|
|
|
|
|
2,075
|
|
Depreciation and amortization
|
|
|
20,885
|
|
|
|
|
|
|
|
20,885
|
|
|
|
20,873
|
|
|
|
|
|
|
|
20,873
|
|
Hotel facility and land lease
|
|
|
5,840
|
|
|
|
|
|
|
|
5,840
|
|
|
|
6,707
|
|
|
|
|
|
|
|
6,707
|
|
Impairment charge
|
|
|
5,733
|
|
|
|
|
|
|
|
5,733
|
|
|
|
8,509
|
|
|
|
|
|
|
|
8,509
|
|
Gain on asset dispositions, net
|
|
|
(25
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
(249
|
)
|
|
|
|
|
|
|
(249
|
)
|
Undistributed corporate expenses
|
|
|
6,304
|
|
|
|
|
|
|
|
6,304
|
|
|
|
5,200
|
|
|
|
|
|
|
|
5,200
|
|
Restructuring expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
165,105
|
|
|
|
2,691
|
|
|
|
167,796
|
|
|
|
166,823
|
|
|
|
1,405
|
|
|
|
168,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(3,503
|
)
|
|
|
(799
|
)
|
|
|
(4,302
|
)
|
|
|
(3,042
|
)
|
|
|
533
|
|
|
|
(2,509
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,073
|
)
|
|
|
|
|
|
|
(9,073
|
)
|
|
|
(8,503
|
)
|
|
|
|
|
|
|
(8,503
|
)
|
Other income, net
|
|
|
847
|
|
|
|
(438
|
)
|
|
|
409
|
|
|
|
936
|
|
|
|
(557
|
)
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(11,729
|
)
|
|
|
(1,237
|
)
|
|
|
(12,966
|
)
|
|
|
(10,609
|
)
|
|
|
(24
|
)
|
|
|
(10,633
|
)
|
Income tax expense (benefit)
|
|
|
(4,291
|
)
|
|
|
(445
|
)
|
|
|
(4,736
|
)
|
|
|
(4,028
|
)
|
|
|
(8
|
)
|
|
|
(4,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(7,438
|
)
|
|
$
|
(792
|
)
|
|
$
|
(8,230
|
)
|
|
$
|
(6,581
|
)
|
|
$
|
(16
|
)
|
|
$
|
(6,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations
|
|
$
|
(0.40
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted
|
|
|
18,485
|
|
|
|
18,485
|
|
|
|
18,485
|
|
|
|
18,106
|
|
|
|
18,106
|
|
|
|
18,106
|
|
Direct hotel expenses in 2010 were $116.6 million compared
to $113.3 million in 2009, representing a 2.9% increase.
Rooms related expenses increased $4.0 million, partially
offset by a food and beverage cost decrease of $3.4 million
during the comparable periods, reflecting the impact of our
breakfast inclusive sales strategy and the decision to modify
food and beverage offerings in select markets. As part of our
operational strategy, the hotel
36
segment reported a 12.6%, or $1.4 million increase in
expense related to sales personnel and technology expense in
2010. Overall, the segment recorded direct profit during 2010 of
$32.0 million compared to $34.5 million in 2009.
Direct costs from the franchise segment increased
$0.9 million in 2010 from 2009 reflecting increased
investment in that segment to support our operational strategy
of growing through franchise operations. Entertainment direct
costs decreased $1.7 million, or 17.9%, reflecting the
impact of one less Best of Broadway production in
2010 versus 2009.
Depreciation and amortization expense in 2010 of
$20.9 million was flat compared to 2009.
Hotel facility and land lease costs decreased $0.9 million
to $5.8 million in 2010 compared to $6.7 million in
2009. This decrease is primarily the result of an acceleration
of recognition of deferred sublease income of $3.0 million
partially offset by a write off of an uncollectible note
receivable of $1.2 million, both associated with our Red
Lion Hotel Sacramento sublease agreement, which was terminated
in the fourth quarter of 2010.
During the fourth quarter of 2010, we recorded an impairment
charge of $5.7 million related to the termination of a
sublease and franchise agreement with the operator of our Red
Lion Hotel Sacramento. Due to this change in circumstances, a
review of the carrying value of certain long-lived and
intangible assets was conducted and it was determined that the
carrying amount of those assets was not recoverable. The
impairment charge recorded was equal to the amount by which the
carrying amount exceeded the fair value of the assets. Also
during 2010, undistributed corporate expenses included a
$1.2 million charge for separation costs associated with
the departure of our former President and Chief Executive
Officer. Other undistributed corporate expense excluding the
charge for separation costs decreased by $0.1 million,
during 2010 compared to 2009, as a direct result of our efforts
to keep our corporate expense level flat to 2009.
The net gain on asset dispositions reflects the ongoing
recognition of deferred gains on a previously sold hotel for
which we entered into a long-term lease arrangement, offset by
asset disposition losses throughout the year.
Undistributed corporate expenses include general and
administrative charges such as corporate payroll, legal
expenses, director and officers insurance, bank service charges
and outside accountants and various other expenses. 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 to a particular segment are distributed, such as
accounting, human resources and information technology, and are
included in direct expenses.
37
2009
Compared to 2008
As discussed in Note 5 of Notes to Consolidated Financial
Statements, we determined that our Central Program Fund
(CPF) should be included in our consolidated
financial statements and adopted this change retrospectively on
January 1, 2010. The table below represents the impact on
consolidation of the CPF for the twelve months ended
December 31, 2009 and 2008 (in thousands, except per share
data), which added additional net loss of $24,000 and additional
income of $0.1 million respectively, before the impact of
income taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Year Ended December 31, 2008
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
147,772
|
|
|
$
|
|
|
|
$
|
147,772
|
|
|
$
|
168,610
|
|
|
$
|
|
|
|
$
|
168,610
|
|
Franchise
|
|
|
1,678
|
|
|
|
1,938
|
|
|
|
3,616
|
|
|
|
1,862
|
|
|
|
2,580
|
|
|
|
4,442
|
|
Entertainment
|
|
|
11,690
|
|
|
|
|
|
|
|
11,690
|
|
|
|
12,016
|
|
|
|
|
|
|
|
12,016
|
|
Other
|
|
|
2,641
|
|
|
|
|
|
|
|
2,641
|
|
|
|
3,140
|
|
|
|
|
|
|
|
3,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
163,781
|
|
|
|
1,938
|
|
|
|
165,719
|
|
|
|
185,628
|
|
|
|
2,580
|
|
|
|
188,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
|
113,677
|
|
|
|
(421
|
)
|
|
|
113,256
|
|
|
|
129,870
|
|
|
|
(498
|
)
|
|
|
129,372
|
|
Franchise
|
|
|
429
|
|
|
|
1,826
|
|
|
|
2,255
|
|
|
|
355
|
|
|
|
2,355
|
|
|
|
2,710
|
|
Entertainment
|
|
|
9,466
|
|
|
|
|
|
|
|
9,466
|
|
|
|
11,234
|
|
|
|
|
|
|
|
11,234
|
|
Other
|
|
|
2,075
|
|
|
|
|
|
|
|
2,075
|
|
|
|
2,100
|
|
|
|
|
|
|
|
2,100
|
|
Depreciation and amortization
|
|
|
20,873
|
|
|
|
|
|
|
|
20,873
|
|
|
|
19,241
|
|
|
|
|
|
|
|
19,241
|
|
Hotel facility and land lease
|
|
|
6,707
|
|
|
|
|
|
|
|
6,707
|
|
|
|
6,738
|
|
|
|
|
|
|
|
6,738
|
|
Impairment charge
|
|
|
8,509
|
|
|
|
|
|
|
|
8,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on asset dispositions, net
|
|
|
(249
|
)
|
|
|
|
|
|
|
(249
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
(164
|
)
|
Undistributed corporate expenses
|
|
|
5,200
|
|
|
|
|
|
|
|
5,200
|
|
|
|
9,643
|
|
|
|
|
|
|
|
9,643
|
|
Restructuring expenses
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
|
|
2,067
|
|
|
|
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
166,823
|
|
|
|
1,405
|
|
|
|
168,228
|
|
|
|
181,084
|
|
|
|
1,857
|
|
|
|
182,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(3,042
|
)
|
|
|
533
|
|
|
|
(2,509
|
)
|
|
|
4,544
|
|
|
|
723
|
|
|
|
5,267
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,503
|
)
|
|
|
|
|
|
|
(8,503
|
)
|
|
|
(9,247
|
)
|
|
|
|
|
|
|
(9,247
|
)
|
Other income, net
|
|
|
936
|
|
|
|
(557
|
)
|
|
|
379
|
|
|
|
1,530
|
|
|
|
(618
|
)
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(10,609
|
)
|
|
|
(24
|
)
|
|
|
(10,633
|
)
|
|
|
(3,173
|
)
|
|
|
105
|
|
|
|
(3,068
|
)
|
Income tax (benefit) expense
|
|
|
(4,028
|
)
|
|
|
(8
|
)
|
|
|
(4,036
|
)
|
|
|
(1,289
|
)
|
|
|
38
|
|
|
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(6,581
|
)
|
|
$
|
(16
|
)
|
|
$
|
(6,597
|
)
|
|
$
|
(1,884
|
)
|
|
$
|
67
|
|
|
$
|
(1,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations
|
|
$
|
(0.37
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
18,106
|
|
|
|
18,106
|
|
|
|
18,106
|
|
|
|
18,234
|
|
|
|
18,234
|
|
|
|
18,234
|
|
In response to the economic downturn in 2009 and while
continuing our focus on our guests experience and brand
consistency, we implemented significant cost controls throughout
our entire organization. During 2009, hotel revenues decreased
$20.8 million, or 12.4%, while direct operating margin
remained at 23.4%, essentially flat to 2008. Food and beverage
costs decreased $6.2 million, or 15.7%, compared to a
revenue decrease of $7.0 million, or
38
14.5%. However, direct operating margin for food and beverage
improved 120 basis points to 20.0% during 2009 compared to
2008.
Direct costs from the franchise segment decreased
$0.5 million in 2009 from 2008, while entertainment direct
costs decreased $1.8 million, or 15.7%,
year-over-year
compared to a revenue decrease of only 2.7%, or
$0.3 million. Overall, the entertainment segment reported a
direct margin of 19.0% during 2009 compared to 6.5% in 2008.
Depreciation and amortization increased 8.5% to
$20.9 million during 2009 compared to $19.2 million in
2008, directly attributable to the acquisition of the Red Lion
Denver Southeast hotel in May 2008, as well as the improvements
made at our hotels.
During the fourth quarter of 2009, we recorded an asset
impairment charge of $8.7 million primarily related to the
Denver hotel to reflect current market conditions. During the
fourth quarter of 2008, we recorded $2.1 million in
restructuring expenses as the company implemented a reduction in
force and further cost savings in light of the difficult
economic environment impacting current year results. Also during
2008, undistributed corporate expenses included a
$3.7 million charge for separation costs. Other
undistributed corporate expense decreased 13.2%, or
$0.8 million, during 2009 compared to 2008, as a direct
result of cost containment measures.
The net gain on asset dispositions reflects the ongoing
recognition of deferred gains on a previously sold hotel for
which we entered into a long-term lease arrangement, offset by
asset disposition losses throughout the year.
Undistributed corporate expenses include general and
administrative charges such as corporate payroll, legal
expenses, director and officers insurance, bank service charges
and outside accountants and various other expenses. 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 to a particular segment are distributed, such as
accounting, human resources and information technology, and are
included in direct expenses.
Interest
Expense
Interest expense for the year ended December 31, 2010
increased $0.6 million to $9.1 million compared to
$8.5 million recorded in 2009 due to modest rate increases
associated with loan amendments made early in 2010. Our average
pre-tax interest rate on debt during 2010 was 6.8% compared to
6.2% in 2009.
Interest expense for the year ended December 31, 2009
decreased $0.7 million to $8.5 million compared to
$9.2 million recorded in 2008, primarily due to lower
interest rate debt and an increase in recorded capitalized
interest associated with ongoing renovations. Our average
pre-tax interest rate on debt during 2009 was 6.2%, compared to
6.0% in 2008.
Other
Income
Other income primarily consists of interest income, which
decreased during 2010 and 2009 compared to 2008 generally due to
lower cash balances. During 2008, $0.3 million was received
from the extension of an option to purchase a hotel currently
subleased, offsetting the lower interest income recorded that
year.
Income
Taxes
During 2010 and 2009 we reported income tax benefit of
$4.7 million and $4.0 million, respectively, compared
to a $1.3 million income tax benefit in 2008. In 2010, our
income tax benefit included $2.0 million associated with
the $5.7 million impairment charge recorded during the
fourth quarter. In 2009, our income tax benefit included
$3.1 million associated with the $8.7 million
impairment charge recorded during the fourth quarter of that
year. In 2008 and in association with the separation and
restructuring expenses recorded in that year, we recorded a
$2.0 million income tax benefit. Our experienced rate on
pre-tax net income also differs from the statutory combined
federal and state tax rates primarily due to the utilization of
certain incentive tax credits allowed under federal law. A
valuation allowance against the deferred tax assets has not been
established as we believe it is more likely than not that these
assets will be realized.
39
Discontinued
Operations
During the twelve months ended December 31, 2010, we
concluded that our leased hotel in Astoria, Oregon had reached
the end of its useful life and the hotel was closed.
Accordingly, the hotel was closed and the operations of this
hotel have been classified as discontinued operations in our
financial statements. We have segregated assets and liabilities
and operating results of this hotel from continuing operations
on our balance sheet and in the consolidated statements of
operations for this year and any comparable periods presented.
For additional information, see Note 22 of Notes to
Consolidated Financial Statements.
Liquidity
and Capital Resources
As of December 31, 2010 we had total long term debt
maturing within one year of $25.3 million. Additionally,
the outstanding balance under our revolving credit facility at
December 31, 2010 of $18.0 million is included as a
current liability because the facility expires in September 2011.
Our current liabilities at December 31, 2010 exceeded our
current assets by $48.3 million. We are actively pursuing
financing alternatives to address maturing liabilities and to
supplement working capital. While we continue to be in
compliance with our debt covenants, to generate positive cash
flow from operations and to have adequate liquidity to fund our
ongoing operating activities, there can be no assurance that we
will be able to repay or refinance our debts when they mature.
In addition to or in place of a new credit facility and new term
debt, we may seek to raise additional funds through public or
private financings, strategic relationships, sale of assets or
other arrangements. We announced a strategic listing for sale of
some of our real estate assets in January and March 2011. See
Note 23 of Notes to Consolidated Financial Statements for
further detail. We cannot assure that such funds, if needed,
will be available on terms attractive to us, or at all.
Furthermore, any additional equity financings may be dilutive to
shareholders and debt financing, if available, may involve
covenants that place substantial restrictions on our business.
Our failure to secure funding as and when needed could have a
material adverse impact on our financial condition and our
ability to pursue business strategies.
At December 31, 2010, outstanding debt was
$126.0 million. In addition to the $18.0 million
outstanding under the credit facility, we had other outstanding
bank debt of $12.4 million under a variable rate note,
$30.8 million in the form of trust preferred securities and
a total of $64.7 million in 13 fixed-rate notes
collateralized by individual properties. Our average pre-tax
interest rate on debt was 6.8% at December 31, 2010, of
which 75.8% was fixed at an average rate of 7.9% and 24.2% was
at an average variable rate of 3.4%. In July 2010, we extended
the maturity date for the credit facility to September 2011
under the terms of the agreement. Our first fixed-rate term debt
maturity is in September 2011. Only the credit facility and the
variable rate bank note have financial covenants, with which we
were in compliance as of December 31, 2010.
In February 2010, we signed an amendment to our credit facility
in order to increase our financial covenant flexibility. The
amendments to the facility, secured by our Seattle Red Lion
Hotel on Fifth Avenue property, modified our total leverage
ratio and senior leverage ratio covenants for 2010 and 2011,
increased the interest rate on Eurodollar borrowings to LIBOR
plus 3.25% and reduced borrowing capacity to $37.5 million
from the previous $50 million. We also have a variable rate
property note secured by our Red Lion Bellevue location, with a
balance of $12.4 million at December 31, 2010 and due
in 2013. This note has financial covenants that mirror those of
our credit facility, and was also amended in February 2010. The
interest rate on this note was 3.25% at December 31, 2010.
In January 2011 we signed another amendment to our credit
facility in order to further increase our financial covenant
flexibility. The amendments to the facility, secured by our Red
Lion Hotel on Fifth Avenue property, modified our total leverage
ratio and senior leverage ratio covenants for the remaining term
of the facility. We paid an initial fee of $112,500 in
connection with the amendment and increased the rate on
Eurodollar borrowings to LIBOR plus 4.50%, while the interest
rate on base rate loans was increased to 3.50% over the federal
funds rate plus 0.5% or the prime rate, whichever is greater.
The amendment also further reduced borrowing capacity from
$37.5 million to $30.0 million. With respect to
certain other debt obligations in the aggregate amount of
approximately $23.4 million that are scheduled to mature in
2011, we agreed as to each such obligation that,
40
by June 24, 2011, we will either extend the maturity of the
obligation to at least March 13, 2012, repay the obligation
in full, or provide the Administrative Agent with satisfactory
evidence that we have arranged for the repayment of the
obligation by its scheduled maturity date. We agreed that, if we
sell any capital stock or dispose of or refinance any of our
properties, we will apply 80% of the net cash proceeds to prepay
the facility, and the commitment under the facility will be
reduced by the amount of the prepayment. In addition to the
initial amendment fee, we agreed to pay 50 basis points
times the then existing commitment if the facility is still in
place on March 31, 2011 and 87.5 basis points times
the then existing commitment if the facility is still in place
on June 30, 2011. We also have a variable rate property
note that is secured by our Red Lion Bellevue property and will
be secured by our Red Lion Templins property, with a balance of
$12.4 million at December 31, 2010 and due in 2013.
This note has some financial covenants that mirror those of our
credit facility, and was also amended in January 2011. The
interest rate on this note was 3.25% at December 31, 2010.
A comparative summary of balance sheet data at December 31,
2010 and 2009 is provided below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Consolidated balance sheet data (in thousands):
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,012
|
|
|
$
|
3,881
|
|
Working capital(1)
|
|
$
|
(48,347
|
)
|
|
$
|
(1,161
|
)
|
Assets of discontinued operations
|
|
$
|
|
|
|
$
|
242
|
|
Property and equipment, net
|
|
$
|
272,030
|
|
|
$
|
285,601
|
|
Total assets
|
|
$
|
331,482
|
|
|
$
|
350,636
|
|
Assets of discontinued operations
|
|
$
|
|
|
|
$
|
29
|
|
Total debt
|
|
$
|
95,152
|
|
|
$
|
106,322
|
|
Debentures due Red Lion Hotels Capital Trust
|
|
$
|
30,825
|
|
|
$
|
30,825
|
|
Total liabilities
|
|
$
|
160,717
|
|
|
$
|
175,614
|
|
Total stockholders equity
|
|
$
|
170,765
|
|
|
$
|
175,022
|
|
|
|
|
(1) |
|
Represents current assets less current liabilities, excluding
discontinued operations |
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
through net cash provided by operations, debt, strategic asset
sales or equity issuances.
Operating
Activities
Net cash provided by operating activities totaled
$19.5 million in 2010, a $3.8 million increase from
the $15.7 million provided during 2009 and a
$3.3 million decrease from 2008. Working capital changes,
including changes to restricted cash, receivables, inventories,
prepaid expenses, payables and accrued expenses and deferred
income, were favorable in 2010 compared to 2009 by
$12.0 million and unfavorable in 2009 compared with 2008 by
$8.2 million. In 2009, there was an increase in hotel
renovation activities, which drove up the usage of cash, which
is responsible for the favorable variance seen when compared to
2010 and the unfavorable variance seen when compared to 2008.
Investing
Activities
Net cash used in investing activities totaled $10.4 million
in 2010 compared to $17.0 million during 2009 and
$53.8 million used in 2008. Cash additions to property and
equipment decreased $5.8 million during 2010 compared to
2009. Cash additions to property and equipment totaled
$56.4 million in 2008, including the purchase of the Red
Lion Hotel Denver Southeast in May 2008 for $25.3 million.
During 2010, we scaled back our capital expenditures and spent
approximately $10.6 million on essential investments in
maintenance, technology and hotel improvement projects. Of the
capital spent in 2009 and 2008, $12.3 million and
$17.9 million, respectively, was used for renovation
activities.
41
During 2011, we will continue to manage our capital and expect
our cash expenditures to primarily include the funding of
operating activities and interest payments on our outstanding
indebtedness. Capital expenditures in 2011 are expected to be
$10.6 million, although we may further reduce our level of
capital spending to match appropriate needs and circumstances.
Financing
Activities
Net cash used in financing activities totaled $8.9 million
in 2010 compared to $13.1 million used in 2009. During
2010, we paid a net $8.0 million on our credit facility
compared to net payment during 2009 of $10.0 million. Net
cash used in financing activities in 2008 included net
borrowings of $36.0 million, which was used primarily to
finance the acquisition of the hotel in Denver, fund ongoing
renovations and for general corporate purposes. In September
2008, we closed on a $14.0 million loan collateralized by a
181-room hotel in Bellevue, Washington, $8.2 million of
which was used to pay off existing higher-rate debt. Scheduled
long-term debt principal payments totaled $3.2 million,
$3.0 million, and $5.8 million, respectively, during
2010, 2009 and 2008.
At December 31, 2010, we had total debt obligations of
$126.0 million, of which $64.7 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 through 2013. Our average pre-tax interest rate on debt
was 6.8% at December 31, 2010, compared to 6.2% at
December 31, 2009. 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%.
In February 2010, we signed an amendment to our credit facility
in order to increase our financial covenant flexibility. The
facility, secured by our Seattle Red Lion Hotel on Fifth Avenue
property, has certain restricted covenants with which we were in
compliance at the end of 2010. The amendments modified our total
leverage ratio and senior leverage ratio covenants for 2010 and
2011 in exchange for an increased interest rate and a reduction
in borrowing capacity to $37.5 million from the previous
$50 million. We also have one variable rate property note
on our Red Lion Bellevue location, with a balance of
$12.4 million at December 31, 2010. This note has
restrictive covenants that mirror those of our credit facility,
and was also amended in February 2010. The interest rate on this
note was 3.25% at December 31, 2010, and is due in 2013.
In January 2011 we signed another amendment to our credit
facility in order to further increase our financial covenant
flexibility. The amendments to the facility, secured by our Red
Lion Hotel on Fifth Avenue property, modified our total leverage
ratio and senior leverage ratio covenants for the remaining term
of the facility. We paid an initial fee of $112,500 in
connection with the amendment and increased the rate on
Eurodollar borrowings to LIBOR plus 4.50%, while the interest
rate on base rate loans was increased to 3.50% over the federal
funds rate plus 0.5% or the prime rate, whichever is greater.
The amendment also further reduced borrowing capacity from
$37.5 million to $30.0 million. With respect to
certain other debt obligations in the aggregate amount of
approximately $23.4 million that are scheduled to mature in
2011, we agreed as to each such obligation that, by
June 24, 2011, we will either extend the maturity of the
obligation to at least March 13, 2012, repay the obligation
in full, or provide the Administrative Agent with satisfactory
evidence that we have arranged for the repayment of the
obligation by its scheduled maturity date. We agreed that, if we
sell any capital stock or dispose of or refinance any of our
properties, we will apply 80% of the net cash proceeds to prepay
the facility, and the commitment under the facility will be
reduced by the amount of the prepayment. In addition to the
initial amendment fee, we agreed to pay 50 basis points
times the then existing commitment if the facility is still in
place on March 31, 2011 and 87.5 basis points times
the then existing commitment if the facility is still in place
on June 30, 2011. We also have a variable rate property
note secured by our Red Lion Bellevue property and will be
secured by our Red Lion Templins property, with a balance of
$12.4 million at December 31, 2010 and due in 2013.
This note has financial covenants that mirror those of our
credit facility, and was also amended in January 2011. The
interest rate on this note was 3.25% at December 31, 2010.
Of the $126.0 million in total debt obligations, three
pools of cross securitized debt exist: (i) one consisting
of five properties with total borrowings of $19.5 million;
(ii) a second consisting of two properties with total
borrowings of $17.6 million; and (iii) a third
consisting of four properties with total borrowings of
$21.8 million. Each pool of securitized debt and the other
collateralized hotel borrowings include defeasance provisions
for early repayment.
42
No shares were repurchased during 2010 or 2009.
In December 2008, we announced a common stock repurchase program
for up to $10 million through open market purchases, block
purchases or privately negotiated transactions, subject to
certain conditions. During December 2008, we repurchased
303,000 shares at a cost of $0.9 million.
Net cash (used in) provided by financing activities during 2010
benefited from the exercise of stock options by employees
including former executives resulting in proceeds to us of
$2.5 million. No options were exercised during 2009 or 2008.
Contractual
Obligations
The following table summarizes our significant contractual
obligations, including principal and interest on debt, as of
December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
5 years
|
|
|
Long-term debt and credit facility(1)
|
|
$
|
105,078
|
|
|
$
|
48,372
|
|
|
$
|
56,706
|
|
|
$
|
|
|
|
$
|
|
|
Operating and capital leases(2)
|
|
|
72,547
|
|
|
|
9,671
|
|
|
|
17,891
|
|
|
|
16,059
|
|
|
|
28,926
|
|
Service agreements
|
|
|
1,689
|
|
|
|
655
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
Debentures due Red Lion
Hotels Capital Trust(1)
|
|
|
127,949
|
|
|
|
2,928
|
|
|
|
5,857
|
|
|
|
5,857
|
|
|
|
113,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations(3)
|
|
$
|
307,263
|
|
|
$
|
61,626
|
|
|
$
|
81,488
|
|
|
$
|
21,916
|
|
|
$
|
142,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
$10.5 million annually. |
|
(3) |
|
With regard to purchase obligations, we are not party to any
material agreements to purchase goods or services that are
enforceable or legally binding as to fixed or minimum quantities
to be purchased or stated price terms. |
In 2001, we assumed a master lease agreement for 17 hotel
properties, including 12 which were part of the Red Lion
acquisition. Subsequently, we entered into an agreement with
Doubletree DTWC Corporation whereby Doubletree DTWC Corporation
is subleasing five of these hotel properties from Red Lion.
During the second quarter of 2010, we amended the master lease
agreement to exclude the Astoria, Oregon property due to its
closure earlier in the year. Total fees paid to amend the
agreement were $0.3 million. The master lease agreement
requires minimum monthly payments of $1.2 million plus
contingent rents based on gross receipts from the remaining 16
hotels, of which approximately $0.8 million per month is
paid by a
sub-lease
tenant. The lease agreement expires in December 2020, although
we have the option to extend the term on a
hotel-by-hotel
basis for three additional five-year terms.
In July 2007, we entered into an agreement to sublease the Red
Lion Hotel Sacramento to a third party with an initial lease
term expiring in 2020. In connection with the sublease
agreement, as well as an amendment to that agreement entered
into during the second quarter of 2009, we received deferred
lease income of $3.9 million, which was to be amortized
over the life of the sublease agreement. The sublease agreement
provided for annual rent payments of $1.4 million. As part
of the agreements, we committed to reimburse the tenant for up
to $3.9 million in tenant improvement expenses, all of
which had been incurred and reimbursed by December 31,
2009. In December 2010, this sublease agreement was terminated
and the $3.0 million remainder of deferred lease income was
recognized in that month. The table above no longer considers
the annual rent payments of $1.4 million that were to be
received from this subtenant. An agreement with a new subtenant
was finalized on February 22, 2011, which provides for
initial minimum annual rent payments of $0.4 million, which
are not 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 will pay $1.8 million per year in lease
payments through April 2011, the amounts of which have been
reflected in the above table. At our option, we are entitled to
extend the lease for 19 additional terms of five years each,
with increases in lease payments tied directly to the Consumer
Price Index. The Company has
43
exercised the option to extend an additional 5 year term
beginning in May 2011. The monthly payments shown in the table
above extend through April 2016 to reflect this 5 year
extension.
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 $0.6 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.
Off-balance
Sheet Arrangements
As of December 31, 2010, we had no off-balance sheet
arrangements, as defined by SEC regulations, that have, or are
reasonably likely to have, a current or future material effect
on our financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Other
Matters
Franchise
and Management Contracts
At December 31, 2010, our system of hotels included 13
hotels under franchise agreements, representing a total of 2,436
rooms and 120,831 square feet of meeting space. During the
second quarter of 2010, a franchise agreement for the Red Lion
Hotel Bakersfield (165 rooms) ended by agreement and was not
renewed, thus this property left our system of hotels. During
the fourth quarter of 2010, we signed three separate franchise
agreements to bring three more hotels into the Red Lion system.
The three properties are located in California. The first will
be a Red Lion Inn located in Rancho Cordova, a suburb of
Sacramento, California. This 111 room limited service hotel will
be converted to a Red Lion in early 2011. The second is the Red
Lion Hotel, Oakland International Airport. This property is an
independent full service airport hotel with 189 rooms, which was
converted to the Red Lion flag in February 2011. The third was
formerly a Holiday Inn in Concord, California with 173 rooms
which was converted to the Red Lion Hotel Concord
Walnut Creek on December 21, 2010.
Seasonality
Our business is subject to seasonal fluctuations, with more
revenues and profits realized from May through October than
during the rest of the year. During 2010, revenues during the
second and third quarters approximated 26.0% and 30.5%,
respectively, of total revenues for the year, compared to
revenues of 21.0% and 22.5% of total revenues during the first
and fourth quarters.
Inflation
The effect of inflation, as measured by fluctuations in the
U.S. Consumer Price Index, has not had a material impact on
our consolidated financial statements during the periods
presented.
Critical
Accounting Policies and Estimates
The preparation of consolidated financial statements in
conformity with Generally Accepted Accounting Principles
(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; however, we have also
identified our most critical accounting policies and estimates
below. 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 below.
44
Revenue
Recognition and Receivables
Revenue is generally recognized as services are provided. When
we receive payment from customers before our services have been
performed, the amount received is recorded as deferred revenue
until the service has been completed. We recognize revenue from
the following sources:
|
|
|
|
|
Hotels Room rental and food and beverage
sales from owned and leased hotels. Revenues are recognized when
our services have been performed, generally at the time of the
hotel stay or guests visit to the restaurant. This
treatment is consistent with others within our industry. Our
revenues are significantly impacted by global, national and
regional economic conditions affecting the travel and
hospitality industry, as well as the relative market share of
our hotels compared with our competitors.
|
|
|
|
Franchise Fees received in connection with
the franchise of our brand names. Franchise revenues are
recognized as earned in accordance with the contractual terms of
the franchise agreements.
|
|
|
|
Entertainment Computerized event ticketing
services and promotion of Broadway style shows and other special
events. Where we act as an agent and receive a net fee or
commission, it is recognized as revenue in the period the
services are performed. When we are the promoter of an event and
are at-risk for the production, revenues and expenses are
recorded in the period of the event performance.
|
|
|
|
Other Primarily from rental income received
from our direct ownership interest in a retail mall in
Kalispell, Montana that is attached to our Red Lion hotel.
|
We review the ability to collect individual accounts receivable
on a routine basis. We record an allowance for doubtful accounts
based on specifically identified amounts that we believe to be
uncollectible and amounts that are past due beyond a certain
date. A receivable is written off against the allowance for
doubtful accounts if collection attempts fail.
Long-lived
Assets
Property and equipment is stated at cost less accumulated
depreciation. The assessment of long-lived assets for possible
impairment requires us to make judgments regarding estimated
future cash flows from the respective properties, which is
dependent upon internal forecasts, estimation of the long-term
rate of growth for our business, the useful life over which our
cash flows will occur, the determination of real estate and
prevailing market values, asset appraisals and, if available and
appropriate, current estimated net sales proceeds from pending
offers or net sales proceeds from previous, comparable
transactions. If the expected undiscounted future cash flows are
less than the net book value of the assets, the excess of the
net book value over the estimated fair value is charged to
current earnings.
We review the recoverability of our long-lived assets as events
or circumstances indicate that the carrying amount of an asset
may not be recoverable. Changes to our plans, including a
decision to sell, dispose of or change the intended use of an
asset, could have a material impact on the carrying value of the
asset. In accordance with the guidance for the impairment of
long-lived assets, assets held and used with a carrying amount
of $4.1 million were written down to their estimated fair
value of $0.4 million, resulting in a non-cash impairment
charge of $3.7 million for the year ended December 31,
2010. The full amount of $3.7 million was related to the
termination of a sublease and franchise agreement with the
operator of the Red Lion Hotel Sacramento.
During the year ended December 31, 2009, in accordance with
the guidance for the impairment of long-lived assets, assets
held and used with a carrying amount of $28.4 million were
written down to their estimated fair value of
$19.7 million, resulting in a non-cash impairment charge of
$8.7 million. Of that amount, $8.5 million was related
to our Red Lion Hotel Denver Southeast. The remaining
$0.2 million impairment loss related to a second property.
To determine estimated fair value, we used Level 3 inputs
for our discounted cash flow analyses, including growth rate,
property-level preformed financial information and remaining
lives of the assets. Management bases these assumptions on
historical data and experience and future operational
expectations. For certain assets, we used recent asset
appraisals or valuations performed by third-parties, which we
deemed to be Level 3 inputs, to support our estimate of
fair value.
45
Intangible
Assets
Our intangible assets include brands and goodwill, which we do
not amortize. Instead, we test for impairment annually or more
frequently as events or circumstances indicate the carrying
amount of an asset may not be recoverable. Our goodwill and
other intangible asset impairment test requires judgment,
including the identification of reporting units, assignment of
assets and liabilities to reporting units, assignment of
goodwill to reporting units, and determination of the fair value
of each reporting unit, subject to the same general assumptions
discussed above for long-lived assets. At December 31, 2010
and 2009, our recorded goodwill and other intangible assets not
subject to amortization remained unchanged at
$34.9 million. While we have not recognized an impairment
loss since we originally recorded goodwill and other indefinite
lived intangible assets, changes in our estimates and
assumptions could affect, potentially materially, our financial
condition or results of operations in the future. The financial
and credit market volatility directly impacts fair value
measurement through our companys estimated weighted
average cost of capital used to determine discount rate, and
through our common stock price that is used to determine market
capitalization. During times of volatility, significant judgment
must be applied to determine whether credit or stock price
changes are a short-term move or a longer-term trend.
Our other intangible assets include marketing and lease
contracts, the values of which are amortized on a straight-line
basis over the weighted average life of the agreements and
totaled $1.1 million and $3.3 million, respectively,
at December 31, 2010 and 2009. In accordance with the
guidance for the impairment of intangible assets, we recorded an
impairment charge of $2.0 million related to the
termination of a sublease agreement with the subtenant of the
Red Lion Hotel Sacramento. The lease contract intangible asset
for that property was deemed fully impaired as of
December 31, 2010 due to the termination of that sublease
agreement and current market conditions becoming unfavorable to
support the carrying value of the lease contract intangible. The
assessment of these contracts requires us to make certain
judgments, including estimated future cash flow from the
applicable properties.
New and
Future Accounting Pronouncements
Variable Interest Entities In June 2009, the
FASB released Accounting Standards Update (ASU)
No. 2009-17,
Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities issuing changes to the
consolidation guidance applicable to variable interest entities
(VIE). These changes also amended the guidance
governing the determination of whether an enterprise is the
primary beneficiary of a VIE, and is, therefore, required to
consolidate an entity, by requiring a qualitative analysis
rather than a quantitative analysis. The qualitative analysis is
to include, among other things, consideration of who has the
power to direct the activities of the entity that most
significantly impact the entitys economic performance and
who has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the
VIE. Under the new guidance, we determined that our Central
Program Fund (CPF) now meets the definition of a VIE
and should be included in our consolidated financial statements.
We adopted these changes retrospectively on January 1, 2010.
The CPF acts as an agent for our owned and leased hotels and for
our franchisees, and was created to provide services to all
member hotels including certain advertising services, frequent
guest program administration, reservation services, national
sales promotions and brand and revenue management services
intended to increase sales and enhance the reputation of the Red
Lion brand. The activities of the CPF benefit our owned and
leased hotels as well as our franchise properties; however,
historically only the proportionate share of CPF expense for our
owned and leased hotels was recognized in the consolidated
financial statements. Based on the new guidance, we will now
include all of the expenses and other balances of the CPF in our
consolidated financial statements, including revenue received
from franchisees to support CPF activities. There have been no
changes to the organization, structure or operating activities
of the CPF since its inception in 2002.
The adoption of these changes were applied retrospectively,
including the recording to retained earnings of the
$1.0 million net of tax impact of cumulative effect of
change in accounting principle as of January 1, 2008, and
the consolidated financial statements have been adjusted to
conform to the new treatment. On January 1, 2010, total
assets decreased by $0.9 million primarily representing the
consolidation of accounts receivable, and total liabilities
increased $0.1 million. The impact of the CPF for the
twelve months ended December 31, 2010 and 2009, added
additional expense before income tax of $1.2 million and of
$24,000, respectively. The total impact on net loss
46
before income tax for the year ended December 31, 2009
related to the CPF was a negative adjustment of $24,000,
compared to a positive impact of $104,000 for the year ended
December 31, 2008. See Note 5 of Notes to Consolidated
Financial Statements for further detail.
Fair Value Measurements In January 2010, the
FASB released ASU
No. 2010-06,
Fair Value Measurements and Disclosures: Improving
Disclosures about Fair Value Measurements. We
adopted new accounting guidance that requires disclosure of
significant transfers between Level 1 and Level 2 of
the fair value hierarchy, the reasons for these transfers and
the reasons for any transfers in or out of Level 3 of the
fair value hierarchy. In addition, the guidance clarifies
certain existing disclosure requirements. This standard did not
have a material impact on the disclosures in our consolidated
financial statements.
Intangibles Goodwill and Other In
December 2010, the FASB released ASU
No. 2010-28,
Intangibles-Goodwill and Other: When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts. The update requires a company to
perform Step 2 of the goodwill impairment test if the carrying
value of the reporting unit is zero or negative and adverse
qualitative factors indicate that it is more likely than not
that a goodwill impairment exists. The qualitative factors to
consider are consistent with the existing guidance which
requires that goodwill of a reporting unit be tested for
impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of the reporting unit below its carrying amount. The
requirements in ASU
2010-28 are
effective for public companies in the first annual period
beginning after December 15, 2010. ASU
2010-28 is
not expected to materially impact our consolidated financial
statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
At December 31, 2010, $95.6 million of our outstanding
debt was subject to currently fixed interest rates and was not
exposed to market risk from rate changes. We also had
$18.0 million outstanding from our revolving credit
facility at an interest rate of 3.5% based on a
30-day LIBOR
plus 3.25%, as well as $12.4 million outstanding on a
five-year loan at the Prime interest rate of 3.25% at
December 31, 2010.
In January 2011 we signed an amendment to our credit facility in
order to further increase our financial flexibility. The
amendments to the facility, secured by our Red Lion Hotel on
Fifth Avenue property, modified our total leverage ratio and
senior leverage ratio covenants for the remaining term of the
facility. We paid an initial fee of $112,500 in connection with
the amendment and increased the rate on Eurodollar borrowings to
LIBOR plus 4.50%, while the interest rate on base rate loans was
increased to 3.50% over the federal funds rate plus 0.5% or the
prime rate, whichever is greater. The amendment also further
reduced borrowing capacity from $37.5 million to
$30.0 million. With respect to certain other debt
obligations in the aggregate amount of approximately
$23.4 million that are scheduled to mature in 2011, we
agreed as to each such obligation that, by June 24, 2011,
we will either extend the maturity of the obligation to at least
March 13, 2012, repay the obligation in full, or provide
the Administrative Agent with satisfactory evidence that we have
arranged for the repayment of the obligation by its scheduled
maturity date. We agreed that, if we sell any capital stock or
dispose of or refinance any of our properties, we will apply 80%
of the net cash proceeds to prepay the facility, and the
commitment under the facility will be reduced by the amount of
the prepayment. In addition to the initial amendment fee, we
agreed to pay 50 basis points times the then existing
commitment if the facility is still in place on March 31,
2011 and 87.5 basis points times the then existing
commitment if the facility is still in place on June 30,
2011. We also have a variable rate property note secured by our
Red Lion Bellevue property and will be secured by our Red Lion
Templins property, with a balance of $12.4 million at
December 31, 2010 and due in 2013. This note has financial
covenants that mirror those of our credit facility, and was also
amended in January 2011. The interest rate on this note was the
prime rate of 3.25% at December 31, 2010.
Outside of these changes, we do not foresee any other changes of
significance in our exposure to fluctuations in interest rates,
although we will continue to manage our exposure to this risk by
monitoring available financing alternatives.
47
The below table summarizes our debt obligations at
December 31, 2010 on our consolidated balance sheet (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
Total debt
|
|
$
|
43,275
|
|
|
$
|
1,974
|
|
|
$
|
49,903
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
95,152
|
|
|
$
|
95,400
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.8
|
%
|
|
|
|
|
Debentures due Red Lion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels Capital Trust
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,825
|
|
|
$
|
30,825
|
|
|
$
|
31,279
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
%
|
|
|
|
|
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
See Item 15 of this annual report for certain information
with respect to the financial statements filed as a part hereof,
including financial statements filed pursuant to the
requirements of this Item 8.
The following table sets forth supplementary financial data (in
thousands except per share amounts) for each quarter for the
years ended December 31, 2010 and 2009, derived from our
unaudited financial statements. The data set forth below should
be read in conjunction with and is qualified in its entirety by
reference to our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
2010 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room revenue
|
|
$
|
21,282
|
|
|
$
|
27,918
|
|
|
$
|
35,734
|
|
|
$
|
22,555
|
|
|
$
|
107,489
|
|
Food and beverage revenue
|
|
|
8,398
|
|
|
|
9,469
|
|
|
|
9,048
|
|
|
|
9,331
|
|
|
|
36,246
|
|
Other hotel revenue
|
|
|
942
|
|
|
|
1,244
|
|
|
|
1,439
|
|
|
|
1,208
|
|
|
|
4,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotels segment revenue
|
|
|
30,622
|
|
|
|
38,631
|
|
|
|
46,221
|
|
|
|
33,094
|
|
|
|
148,568
|
|
Franchise revenue
|
|
|
558
|
|
|
|
889
|
|
|
|
999
|
|
|
|
763
|
|
|
|
3,209
|
|
Entertainment revenue
|
|
|
2,478
|
|
|
|
2,340
|
|
|
|
2,048
|
|
|
|
2,370
|
|
|
|
9,236
|
|
Other revenue
|
|
|
645
|
|
|
|
594
|
|
|
|
575
|
|
|
|
667
|
|
|
|
2,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
34,303
|
|
|
$
|
42,454
|
|
|
$
|
49,843
|
|
|
$
|
36,894
|
|
|
$
|
163,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
$
|
(4,607
|
)
|
|
$
|
2,376
|
|
|
$
|
6,903
|
|
|
$
|
(8,974
|
)
|
|
$
|
(4,302
|
)
|
Impairment charge(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,733
|
|
|
|
5,733
|
|
Franchise, sublease termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,452
|
)
|
|
|
(1,452
|
)
|
Separation costs(2)
|
|
|
1,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,219
|
|
Income (loss) from continuing operations before income tax
|
|
|
(6,805
|
)
|
|
|
72
|
|
|
|
4,886
|
|
|
|
(11,119
|
)
|
|
|
(12,966
|
)
|
Net income (loss) from continuing operations
|
|
|
(4,225
|
)
|
|
|
65
|
|
|
|
3,157
|
|
|
|
(7,227
|
)
|
|
|
(8,230
|
)
|
Net income (loss) from discontinued operations
|
|
|
(154
|
)
|
|
|
(129
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
(389
|
)
|
Net income (loss) attributable to Red Lion Hotels Corporation
|
|
|
(4,368
|
)
|
|
|
(65
|
)
|
|
|
3,044
|
|
|
|
(7,220
|
)
|
|
|
(8,609
|
)
|
Earnings (loss) per share basic and diluted
|
|
$
|
(0.24
|
)
|
|
$
|
|
|
|
$
|
0.16
|
|
|
$
|
(0.39
|
)
|
|
$
|
(0.47
|
)
|
2009 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room revenue
|
|
$
|
20,287
|
|
|
$
|
28,447
|
|
|
$
|
32,988
|
|
|
$
|
20,253
|
|
|
$
|
101,975
|
|
Food and beverage revenue
|
|
|
9,538
|
|
|
|
11,046
|
|
|
|
10,453
|
|
|
|
10,447
|
|
|
|
41,484
|
|
Other hotel revenue
|
|
|
824
|
|
|
|
1,031
|
|
|
|
1,315
|
|
|
|
1,143
|
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotels segment revenue
|
|
|
30,649
|
|
|
|
40,524
|
|
|
|
44,756
|
|
|
|
31,843
|
|
|
|
147,772
|
|
Franchise revenue
|
|
|
537
|
|
|
|
1,262
|
|
|
|
1,046
|
|
|
|
771
|
|
|
|
3,616
|
|
Entertainment revenue
|
|
|
2,523
|
|
|
|
2,584
|
|
|
|
3,861
|
|
|
|
2,722
|
|
|
|
11,690
|
|
Other revenue
|
|
|
733
|
|
|
|
661
|
|
|
|
592
|
|
|
|
655
|
|
|
|
2,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
34,442
|
|
|
$
|
45,031
|
|
|
$
|
50,255
|
|
|
$
|
35,991
|
|
|
$
|
165,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
Operating income (loss) from continuing operations
|
|
$
|
(3,204
|
)
|
|
$
|
4,292
|
|
|
$
|
7,334
|
|
|
$
|
(10,931
|
)
|
|
$
|
(2,509
|
)
|
Impairment charge(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,509
|
|
|
|
8,509
|
|
Restructuring expenses(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
136
|
|
Income (loss) from continuing operations before income tax
|
|
|
(5,010
|
)
|
|
|
2,133
|
|
|
|
5,115
|
|
|
|
(12,871
|
)
|
|
|
(10,633
|
)
|
Net income (loss) from continuing operations
|
|
|
(3,176
|
)
|
|
|
1,433
|
|
|
|
3,392
|
|
|
|
(8,246
|
)
|
|
|
(6,597
|
)
|
Net income (loss) from discontinued operations
|
|
|
(109
|
)
|
|
|
44
|
|
|
|
248
|
|
|
|
(250
|
)
|
|
|
(67
|
)
|
Net income (loss) attributable to Red Lion Hotels Corporation
|
|
|
(3,281
|
)
|
|
|
1,472
|
|
|
|
3,635
|
|
|
|
(8,489
|
)
|
|
|
(6,663
|
)
|
Earnings (loss) per share basic and diluted
|
|
$
|
(0.18
|
)
|
|
$
|
0.08
|
|
|
$
|
0.20
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.37
|
)
|
|
|
|
(1) |
|
During the fourth quarter of 2010, we recorded a
$5.7 million impairment charge related to the termination
of a sublease and franchise agreement at our Red Lion Hotel
Sacramento. During the fourth quarter of 2009, we recorded an
$8.7 million non-cash impairment charge primarily related
to our Red Lion Hotel Denver Southeast property we acquired in
May 2008, and on a second property. |
|
(2) |
|
During the first quarter of 2010, we recorded $1.2 million
in separation payments pertaining to the termination of our
former President and Chief Executive Officer in January 2010. |
|
(3) |
|
During the fourth quarter of 2009, we recorded $0.1 million
in restructuring expenses as the company implemented a reduction
in force and other cost saving initiatives. |
49
Financial
Statements
The 2010
Consolidated Financial Statements of Red Lion Hotels Corporation
are
presented
on pages 51 to 85 of this annual report.
50
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Red Lion Hotels Corporation
Spokane, Washington
We have audited the accompanying consolidated balance sheets of
Red Lion Hotels Corporation as of December 31, 2010 and
2009 and the related consolidated statements of operations,
changes in stockholders equity and cash flows for each of
the three years in the period ended December 31, 2010.
These financial statements and schedules are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Red Lion Hotels Corporation at December 31,
2010 and 2009, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2010, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 5 to the consolidated financial
statements, the Company has changed its method of accounting for
the Central Program Fund as a result of the adoption of
Accounting Standards Update
No. 2009-17,
Consolidations (Topic 810): Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities, effective January 1, 2010 on a
retrospective basis for all periods presented.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Red
Lion Hotel Corporations internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report
dated March 16, 2011 expressed an unqualified opinion
thereon.
/s/ BDO USA, LLP
BDO USA, LLP
March 16, 2011
Spokane, Washington
51
RED LION
HOTELS CORPORATION
December 31,
2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,012
|
|
|
$
|
3,881
|
|
Restricted cash
|
|
|
4,120
|
|
|
|
3,801
|
|
Accounts receivable, net
|
|
|
5,985
|
|
|
|
6,993
|
|
Inventories
|
|
|
1,328
|
|
|
|
1,341
|
|
Prepaid expenses and other
|
|
|
1,937
|
|
|
|
3,199
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17,382
|
|
|
|
19,276
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
272,030
|
|
|
|
285,601
|
|
Goodwill
|
|
|
28,042
|
|
|
|
28,042
|
|
Intangible assets, net
|
|
|
7,984
|
|
|
|
10,199
|
|
Other assets, net
|
|
|
6,044
|
|
|
|
7,337
|
|
Noncurrent assets of discontinued operations
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
331,482
|
|
|
$
|
350,636
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,146
|
|
|
$
|
6,079
|
|
Accrued payroll and related benefits
|
|
|
4,367
|
|
|
|
2,402
|
|
Accrued interest payable
|
|
|
276
|
|
|
|
318
|
|
Advance deposits
|
|
|
487
|
|
|
|
496
|
|
Other accrued expenses
|
|
|
10,178
|
|
|
|
7,910
|
|
Revolving credit facility
|
|
|
18,000
|
|
|
|
|
|
Long-term debt, due within one year
|
|
|
25,275
|
|
|
|
3,171
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
65,729
|
|
|
|
20,405
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
|
|
|
|
|
26,000
|
|
Long-term debt, due after one year
|
|
|
51,877
|
|
|
|
77,151
|
|
Deferred income
|
|
|
4,859
|
|
|
|
8,638
|
|
Deferred income taxes
|
|
|
7,427
|
|
|
|
12,595
|
|
Debentures due Red Lion Hotels Capital Trust
|
|
|
30,825
|
|
|
|
30,825
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
160,717
|
|
|
|
175,614
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
Red Lion Hotels Corporation stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock 5,000,000 shares authorized;
$0.01 par value; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock 50,000,000 shares authorized;
$0.01 par value; 18,869,254 and 18,180,104 shares
issued and outstanding
|
|
|
189
|
|
|
|
182
|
|
Additional paid-in capital, common stock
|
|
|
146,834
|
|
|
|
142,479
|
|
Retained earnings
|
|
|
23,737
|
|
|
|
32,346
|
|
|
|
|
|
|
|
|
|
|
Total Red Lion Hotels Corporation stockholders equity
|
|
|
170,760
|
|
|
|
175,007
|
|
Noncontrolling interest
|
|
|
5
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
170,765
|
|
|
|
175,022
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
331,482
|
|
|
$
|
350,636
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
52
RED LION
HOTELS CORPORATION
For
the Years Ended December 31, 2010, 2009 and
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
148,568
|
|
|
$
|
147,772
|
|
|
$
|
168,610
|
|
Franchise
|
|
|
3,209
|
|
|
|
3,616
|
|
|
|
4,442
|
|
Entertainment
|
|
|
9,236
|
|
|
|
11,690
|
|
|
|
12,016
|
|
Other
|
|
|
2,481
|
|
|
|
2,641
|
|
|
|
3,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
163,494
|
|
|
|
165,719
|
|
|
|
188,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
|
116,574
|
|
|
|
113,256
|
|
|
|
129,372
|
|
Franchise
|
|
|
3,118
|
|
|
|
2,255
|
|
|
|
2,710
|
|
Entertainment
|
|
|
7,769
|
|
|
|
9,466
|
|
|
|
11,234
|
|
Other
|
|
|
1,598
|
|
|
|
2,075
|
|
|
|
2,100
|
|
Depreciation and amortization
|
|
|
20,885
|
|
|
|
20,873
|
|
|
|
19,241
|
|
Hotel facility and land lease
|
|
|
5,840
|
|
|
|
6,707
|
|
|
|
6,738
|
|
Impairment loss
|
|
|
5,733
|
|
|
|
8,509
|
|
|
|
|
|
Gain on asset dispositions, net
|
|
|
(25
|
)
|
|
|
(249
|
)
|
|
|
(164
|
)
|
Undistributed corporate expenses
|
|
|
6,304
|
|
|
|
5,200
|
|
|
|
9,643
|
|
Restructuring expenses
|
|
|
|
|
|
|
136
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
167,796
|
|
|
|
168,228
|
|
|
|
182,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(4,302
|
)
|
|
|
(2,509
|
)
|
|
|
5,267
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,073
|
)
|
|
|
(8,503
|
)
|
|
|
(9,247
|
)
|
Other income, net
|
|
|
409
|
|
|
|
379
|
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
(12,966
|
)
|
|
|
(10,633
|
)
|
|
|
(3,068
|
)
|
Income tax (benefit) expense
|
|
|
(4,736
|
)
|
|
|
(4,036
|
)
|
|
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(8,230
|
)
|
|
|
(6,597
|
)
|
|
|
(1,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of discontinued business units,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax (benefit) expense of $(181), $26, and $87
respectively
|
|
|
(351
|
)
|
|
|
50
|
|
|
|
168
|
|
Income (loss) on disposal of discontinued business units,
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax (benefit) expense of $(20), $(60), and $0
respectively
|
|
|
(38
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
(389
|
)
|
|
|
(67
|
)
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(8,619
|
)
|
|
|
(6,664
|
)
|
|
|
(1,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to noncontrolling interest
|
|
|
10
|
|
|
|
1
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels
Corporation
|
|
$
|
(8,609
|
)
|
|
$
|
(6,663
|
)
|
|
$
|
(1,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to Red Lion Hotels
Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(0.45
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.10
|
)
|
Income (loss) from discontinued operations
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels Corporation
|
|
$
|
(0.47
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
18,485
|
|
|
|
18,106
|
|
|
|
18,234
|
|
Weighted average shares diluted
|
|
|
18,485
|
|
|
|
18,106
|
|
|
|
18,234
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
53
RED LION
HOTELS CORPORATION
For
the Years Ended December 31, 2010, 2009 and
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Red Lion Hotels Corporation Stockholders Equity
|
|
|
Equity
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Earnings
|
|
|
Interest
|
|
|
Equity
|
|
|
|
(In thousands, except share data)
|
|
|
Balances, January 1, 2008
|
|
|
18,312,756
|
|
|
$
|
183
|
|
|
$
|
140,553
|
|
|
$
|
40,646
|
|
|
$
|
31
|
|
|
$
|
181,413
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,637
|
)
|
|
|
(12
|
)
|
|
|
(1,649
|
)
|
Stock redeemed under repurchase plan
|
|
|
(396,000
|
)
|
|
|
(4
|
)
|
|
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,828
|
)
|
Stock issued under employee stock purchase plan
|
|
|
22,265
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
Stock based compensation
|
|
|
38,184
|
|
|
|
1
|
|
|
|
2,513
|
|
|
|
|
|
|
|
|
|
|
|
2,514
|
|
Tax expense related to expiration of stock options
|
|
|
|
|
|
|
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
17,977,205
|
|
|
|
180
|
|
|
|
141,137
|
|
|
|
39,009
|
|
|
|
19
|
|
|
|
180,345
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,663
|
)
|
|
|
(4
|
)
|
|
|
(6,667
|
)
|
Stock issued under employee stock purchase plan
|
|
|
54,871
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
Stock based compensation
|
|
|
148,028
|
|
|
|
2
|
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
|
|
1,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
18,180,104
|
|
|
|
182
|
|
|
|
142,479
|
|
|
|
32,346
|
|
|
|
15
|
|
|
|
175,022
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,609
|
)
|
|
|
(10
|
)
|
|
|
(8,619
|
)
|
Stock issued under employee stock purchase plan
|
|
|
32,162
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
Stock issued under option plan
|
|
|
429,528
|
|
|
|
4
|
|
|
|
2,482
|
|
|
|
|
|
|
|
|
|
|
|
2,486
|
|
Stock based compensation
|
|
|
227,460
|
|
|
|
3
|
|
|
|
1,743
|
|
|
|
|
|
|
|
|
|
|
|
1,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2010
|
|
|
18,869,254
|
|
|
$
|
189
|
|
|
$
|
146,834
|
|
|
$
|
23,737
|
|
|
$
|
5
|
|
|
$
|
170,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
54
RED LION
HOTELS CORPORATION
For
the Years Ended December 31, 2010, 2009 and
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8,619
|
)
|
|
$
|
(6,664
|
)
|
|
$
|
(1,649
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
|
|
|
|
|
|
|
|
|
|
|
|
|
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,919
|
|
|
|
20,954
|
|
|
|
19,316
|
|
Gain on disposition of property, equipment and other assets, net
|
|
|
(26
|
)
|
|
|
(243
|
)
|
|
|
(156
|
)
|
Restructuring expenses (non-cash)
|
|
|
|
|
|
|
|
|
|
|
1,144
|
|
Impairment charge
|
|
|
5,792
|
|
|
|
8,686
|
|
|
|
|
|
Termination of sublease agreement, net
|
|
|
(2,109
|
)
|
|
|
|
|
|
|
|
|
Deferred income tax (benefit) provision
|
|
|
(5,168
|
)
|
|
|
(3,184
|
)
|
|
|
(1,159
|
)
|
Equity in investments
|
|
|
48
|
|
|
|
(9
|
)
|
|
|
(133
|
)
|
Imputed interest expense
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Stock based compensation expense
|
|
|
1,594
|
|
|
|
1,238
|
|
|
|
2,245
|
|
Provision for doubtful accounts
|
|
|
378
|
|
|
|
212
|
|
|
|
166
|
|
Change in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(319
|
)
|
|
|
89
|
|
|
|
549
|
|
Accounts receivable
|
|
|
209
|
|
|
|
2,505
|
|
|
|
(932
|
)
|
Inventories
|
|
|
22
|
|
|
|
160
|
|
|
|
(7
|
)
|
Prepaid expenses and other
|
|
|
1,308
|
|
|
|
(432
|
)
|
|
|
809
|
|
Accounts payable
|
|
|
1,067
|
|
|
|
(5,388
|
)
|
|
|
7,106
|
|
Accrued payroll and related benefits
|
|
|
2,203
|
|
|
|
(2,798
|
)
|
|
|
(1,515
|
)
|
Accrued interest payable
|
|
|
(42
|
)
|
|
|
4
|
|
|
|
(42
|
)
|
Deferred income
|
|
|
|
|
|
|
900
|
|
|
|
|
|
Other accrued expenses and advance deposits
|
|
|
2,230
|
|
|
|
(338
|
)
|
|
|
(3,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
19,487
|
|
|
|
15,692
|
|
|
|
22,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(10,615
|
)
|
|
|
(16,425
|
)
|
|
|
(56,377
|
)
|
Liquor license purchase
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
Non-current restricted cash for sublease tenant improvements, net
|
|
|
|
|
|
|
|
|
|
|
2,151
|
|
Proceeds from disposition of property and equipment
|
|
|
44
|
|
|
|
16
|
|
|
|
41
|
|
Advances to Red Lion Hotels Capital Trust
|
|
|
(27
|
)
|
|
|
(27
|
)
|
|
|
(27
|
)
|
Other, net
|
|
|
170
|
|
|
|
(34
|
)
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,428
|
)
|
|
|
(16,970
|
)
|
|
|
(53,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
55
RED LION
HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)
For the Years Ended December 31, 2010,
2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facility
|
|
|
15,500
|
|
|
|
11,000
|
|
|
|
38,000
|
|
Repayment of revolving credit facility
|
|
|
(23,500
|
)
|
|
|
(21,000
|
)
|
|
|
(2,000
|
)
|
Repayment of long-term debt
|
|
|
(3,170
|
)
|
|
|
(3,009
|
)
|
|
|
(14,000
|
)
|
Borrowings on long-term debt
|
|
|
|
|
|
|
|
|
|
|
14,000
|
|
Common stock redeemed
|
|
|
(86
|
)
|
|
|
(13
|
)
|
|
|
(1,828
|
)
|
Proceeds from issuance of common stock under employee stock
purchase plan
|
|
|
130
|
|
|
|
119
|
|
|
|
164
|
|
Proceeds from stock option exercises
|
|
|
2,486
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Additions to deferred financing costs
|
|
|
(292
|
)
|
|
|
(153
|
)
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(8,932
|
)
|
|
|
(13,059
|
)
|
|
|
34,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash from operating activities of discontinued
operations
|
|
|
4
|
|
|
|
2
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
131
|
|
|
|
(14,335
|
)
|
|
|
3,190
|
|
Cash and cash equivalents at beginning of period
|
|
|
3,881
|
|
|
|
18,216
|
|
|
|
15,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,012
|
|
|
$
|
3,881
|
|
|
$
|
18,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during periods for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
$
|
9,115
|
|
|
$
|
8,955
|
|
|
$
|
9,777
|
|
Income taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
102
|
|
Cash received during periods for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
672
|
|
|
$
|
296
|
|
|
$
|
978
|
|
Noncash operating, investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of accounts receivable to note receivable
|
|
$
|
377
|
|
|
$
|
771
|
|
|
$
|
|
|
Tax effect on conversion of equity
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(269
|
)
|
Bonuses to employees paid in stock
|
|
$
|
237
|
|
|
$
|
126
|
|
|
$
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
56
RED LION
HOTELS CORPORATION
Red Lion Hotels Corporation (RLH, 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 December 31, 2010, the Red Lion system of
hotels contained 44 hotels located in eight states and one
Canadian province, with 8,557 rooms and 425,397 square feet
of meeting space. As of that date, the Company operated 31
hotels, of which 19 are wholly-owned and 12 are leased, and
franchised 13 hotels that were owned and operated by various
third-party franchisees.
The Company is also engaged in entertainment operations, which
includes TicketsWest.com, Inc., and through which the Company
derives revenues from event ticket distribution and promotion
and presentation of a variety of entertainment productions. In
addition to hotel operations, the Company maintains a direct
ownership interest in a retail mall that is attached to one of
its hotels and in other miscellaneous real estate investments.
The Company was incorporated in the state of Washington in April
1978, and operated hotels until 1999 under various brand names
including Cavanaughs Hotels. In 1999, the Company acquired
WestCoast Hotels, Inc., and rebranded its Cavanaughs hotels to
the WestCoast brand changing the Companys name
to WestCoast Hospitality Corporation. In 2001, the Company
acquired Red Lion Hotels, Inc. In September 2005, after
rebranding most of its WestCoast hotels to the Red Lion brand,
the Company changed its name to Red Lion Hotels Corporation. The
financial statements encompass the accounts of Red Lion Hotels
Corporation and all of its consolidated subsidiaries, including
its 100% ownership of Red Lion Hotels Holdings, Inc., and Red
Lion Hotels Franchising, Inc., and its approximate 99% ownership
of Red Lion Hotels Limited Partnership (RLHLP)
further discussed in Note 14. 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 include an equity method investment in
a 19.9% owned real estate venture, as well as certain cost
method investments in various entities included as other assets,
over which the Company does not exercise significant influence.
In addition, the Company holds a 3% common interest in Red Lion
Hotels Capital Trust (the Trust) that is considered
a variable interest entity. The Company is not the primary
beneficiary of the Trust; thus, it is treated as an equity
method investment. As more fully discussed in Note 5, the
consolidated financial statements include all of the activities
of the Companys cooperative marketing fund, a variable
interest entity. The Company is the primary beneficiary of this
variable interest entity.
All significant inter-company and inter-segment transactions and
accounts have been eliminated upon consolidation. Certain
amounts disclosed in prior period statements have been
reclassified to conform to the current period presentation.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements have been prepared by Red
Lion pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and in accordance with
generally accepted accounting principles in the United States of
America (GAAP), and include all accounts and wholly
and majority-owned subsidiaries accounts. 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.
Cash
and Cash Equivalents
All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash
equivalents. At times, cash balances at banks and other
financial institutions may be in excess of federal insurance
limits.
57
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Cash
In accordance with the Companys various borrowing
arrangements, at December 31, 2010 and 2009, cash of
approximately $4.1 million and $3.8 million,
respectively, was held in escrow for the future payment of
insurance, property taxes, repairs and furniture and fixtures.
Allowance
for Doubtful Accounts
The ability to collect individual accounts receivable is
reviewed on a routine basis. An allowance for doubtful accounts
is recorded based on specifically identified amounts believed to
be uncollectible and for those accounts past due beyond a
certain date, generally 90 days. If actual collection
experience changes, revisions to the allowance may be required
and if all attempts to collect a receivable fail, it is recorded
against the allowance. The estimate of the allowance for
doubtful accounts is impacted by, among other things, national
and regional economic conditions.
The following schedule summarizes the activity in the allowance
account for trade accounts receivable for the past three years
for continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts, continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
592
|
|
|
$
|
525
|
|
|
$
|
384
|
|
Additions to allowance
|
|
|
381
|
|
|
|
224
|
|
|
|
424
|
|
Write-offs, net of recoveries
|
|
|
(430
|
)
|
|
|
(157
|
)
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
543
|
|
|
$
|
592
|
|
|
$
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
Inventories consist primarily of food and beverage products held
for sale at the company operated restaurants and guest supplies.
Inventories are valued at the lower of cost, determined on a
first-in,
first-out basis, or net realizable value.
Property
and Equipment
Property and equipment are stated at cost. The cost of
improvements that extend the life of property and equipment is
capitalized. Interest costs are capitalized as incurred during
the construction period for qualifying assets. The Company did
not record any capitalized interest during the year ended
December 31, 2010. The Company recorded capitalized
interest of approximately $0.4 million and
$0.3 million for the years ended December 31, 2009 and
2008 respectively. Repairs and maintenance charges are expensed
as incurred.
Depreciation is provided using the straight-line method over the
estimated useful life of each asset, which ranges as follows:
|
|
|
Buildings
|
|
25 to 39 years
|
Equipment
|
|
2 to 15 years
|
Furniture and fixtures
|
|
5 to 15 years
|
Landscaping and improvements
|
|
15 years
|
Valuation
of Long-Lived Assets
Management reviews the carrying value of property, equipment and
other long-lived assets upon the occurrence of events or changes
in circumstances that indicate the related carrying amounts may
not be recoverable.
58
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimated undiscounted future cash flows are compared with the
assets current carrying value. Reductions to the carrying
value, if necessary, are recorded to the extent the net book
value of the asset exceeds the greater of estimated future
discounted cash flows or fair value less selling costs.
In accordance with the guidance for the impairment of long-lived
assets, assets held and used with a carrying amount of
$4.1 million were written down to their estimated fair
value of $0.4 million, resulting in a non-cash impairment
charge of $3.7 million for the year ended December 31,
2010. The full amount of $3.7 million was related to the
termination of a sublease and franchise agreement with the
operator of the Red Lion Hotel Sacramento.
In the year ended December 31, 2009 and in accordance with
the guidance for the impairment of long-lived assets, assets
held and used with a carrying amount of $28.4 million were
written down to their fair value of $19.7 million. For the
year ended December 31, 2009, the Companys net loss
attributable to Red Lion Hotels Corporation included an asset
impairment charge of $8.7 million. Of that amount,
$8.5 million was related to the Red Lion Hotel Denver
Southeast. The remaining $0.2 million impairment charge
related to a second property.
As provided in the below tables (in thousands), the Company used
Level 3 inputs for its discounted cash flow analyses,
including growth rate, property-level proforma financial
information and remaining lives of the assets. Management bases
these assumptions on historical data and experience and future
operational expectations. For certain assets, recent asset
appraisals or valuations performed by third-parties were used,
which were deemed to be Level 3 inputs, to support the
Companys estimate of fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Total
|
Description
|
|
2010
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Loss
|
|
Long-lived assets held and used
|
|
$
|
429
|
|
|
|
|
|
|
|
|
|
|
$
|
429
|
|
|
$
|
(3,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Total
|
Description
|
|
2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Loss
|
|
Long-lived assets held and used
|
|
$
|
19,700
|
|
|
|
|
|
|
|
|
|
|
$
|
19,700
|
|
|
$
|
(8,686
|
)
|
Goodwill
and Other Intangible Assets
Certain intangible assets are amortized over their estimated
useful lives. The Company does not amortize goodwill. Goodwill
and unamortized intangible assets are evaluated for impairment
at least annually or more frequently if events and circumstances
indicate that the goodwill and intangible assets might be
impaired.
The Company performs impairment tests using discounted cash
flows, valuation analyses or comparisons to recent sales or
purchase transactions to determine estimated fair value. If
impairment is indicated, the asset is written down to its
estimated fair value based on a discounted cash flow analysis.
See Note 8 for further detail.
Other
Assets
Other assets primarily include deferred loan fees, straight-line
rental income, long-term notes receivable and equity method and
cost method investments discussed in Note 1. Deferred loan
fees are amortized using the effective interest method over the
term of the related loan agreement, and totaled
$0.6 million, $0.5 million and $0.5 million at
December 31, 2010, 2009 and 2008 respectively.
59
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cost method investments are carried at their original purchase
price. Equity method investments are carried at cost, adjusted
for the Companys proportionate share of earnings and any
investment disbursements. At both December 31, 2010 and
2009, the Company had a $0.3 million note receivable that
bore interest at 7.05% related to its 19.9% owned investment in
the Companys corporate office building.
Deferred
Income
In connection with the initial sublease of the Red Lion Hotel
Sacramento, as well as an amendment to that agreement entered
into during the second quarter of 2009, the Company received
$3.9 million in consideration that was being amortized over
the sublease period as deferred lease revenue. During the year
ended December 31, 2010, the sublease agreement was
terminated. As a result, the Company recognized the remaining
deferred lease revenue of $3.0 million. Deferred lease
revenue recognized for the years ended December 31, 2009
and 2008 was $0.3 million and $0.3 million,
respectively.
In 2003, the Company sold a hotel to an unrelated party in a
sale-operating leaseback transaction. The pre-tax gain on the
transaction of approximately $7.0 million was deferred and
is being amortized into income over the period of the lease
term, which expires in November 2018 and is renewable for three,
five-year terms at the Companys option. During 2010, 2009
and 2008, the Company recognized income of approximately
$0.5 million each year for the amortization of the deferred
gain. The remaining balance at December 31, 2010, was
$3.6 million.
Income
Taxes
Deferred tax assets and liabilities and income tax expenses and
benefits are recognized for the expected future income tax
consequences of events that have been recognized in the
consolidated financial statements. Deferred tax assets and
liabilities are determined based on the temporary differences
between the carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the temporary differences are expected to reverse. Certain
wholly or partially-owned entities, including RLHLP, do not
directly pay income taxes. Instead, their taxable income either
flows through to the Company or to the other respective owners
of the entities.
The Company recognizes the financial statement effect of a tax
position when, based on the technical merits of the uncertain
tax position, it is more likely than not to be sustained on a
review by taxing authorities. These estimates are based on
judgments made with currently available information. The Company
reviews these estimates and makes changes to recorded amounts of
uncertain tax positions as facts and circumstances warrant. For
additional information about income taxes, see Note 16.
A valuation allowance against the deferred tax assets has not
been established as the Company believes its more likely
than not that these assets will be realized.
Revenue
Recognition and Receivables
Revenue is generally recognized as services are provided. When
payments from customers are received before services have been
performed, the amount received is recorded as deferred revenue
until the service has been completed. The Company recognizes
revenue from the following sources:
|
|
|
|
|
Hotels Room rental and food and beverage
sales from owned and leased hotels. Revenues are recognized when
services have been performed, generally at the time of the hotel
stay or guests visit to the restaurant.
|
|
|
|
Franchise Fees received in connection with
the franchise of the Red Lion brand name as well as termination
fees. Franchise revenues are recognized as earned in accordance
with the contractual terms of the franchise agreements, while
termination fees are recorded as revenues as if the agreements
were terminated at that date when the provisions of the
franchise agreements provide for receipt of incentive fees upon
termination.
|
60
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Entertainment Computerized event ticketing
services and promotion of Broadway-style shows and other special
events. Where the Company acts as an agent and receives a net
fee or commission, it is recognized as revenue in the period the
services are performed. When the Company is the promoter of an
event and is at-risk for the production, revenues and expenses
are recorded in the period of the event performance.
|
|
|
|
Other Primarily from rental income received
from the Companys direct ownership interest in a retail
mall in Kalispell, Montana that is attached to a hotel property.
|
Restructuring
Expenses
During 2010, the Company did not incur any restructuring
expense. During 2009 and 2008, the Company recorded
$0.1 million and $2.1 million, respectively, in
restructuring expenses as the Company implemented reductions in
force and other cost saving initiatives. The 2009 year
expense primarily reflected severance payments related to
changes made at the end of 2009 in food and beverage outlets at
various owned and leased hotels. The $2.1 million during
the year 2008 consisted primarily of $0.9 million in
separation payments and other benefits upon the termination of
an employment agreement with an Executive Vice President, as
well as a $0.7 million reduction in the carrying values of
certain intangible assets related to management contracts
acquired with the WestCoast and Red Lion brands.
Advertising
and Promotion
Costs associated with advertising and promotional efforts are
generally expensed as incurred. During the years ended
December 31, 2010, 2009 and 2008, the Company incurred
approximately $3.5 million, $2.4 million and
$3.0 million, respectively, in advertising expense from
continuing operations. These amounts include advertising and
promotion spent by the Red Lion Central Program Fund discussed
below.
Central
Program Fund
In 2002, the Company established the Central Program Fund
(CPF) in accordance with the Companys various
domestic franchise agreements. The CPF acts as an agent for
company owned and leased hotels and for the Companys
franchisees, and was created to provide services to all member
hotels, and is responsible for certain advertising services,
frequent guest program administration, reservation services,
national sales promotions and brand and revenue management
services intended to increase sales and enhance the reputation
of the Red Lion brand. CPF contributions by company owned and
managed hotels and those made by the franchisees, based on the
individual franchise agreements, generally total up to 4.5% of
room revenue, frequent guest program dues and other services.
The Company can elect to contribute additional funds to the CPF
in order to accelerate brand awareness or increase marketing and
advertising expense to grow the brand, among other things.
Activities of the CPF are conducted as a service, not as an
operation or business venture.
As a result of changes to the consolidation guidance applicable
to a variable interest entity (VIE), the Company
includes net assets and transactions of the CPF in its
consolidated financial statements effective January 1,
2010. All prior periods in this report are presented on a
comparable basis to reflect the adoption of this guidance. See
Note 5 for further detail.
Basic
and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income
(loss) by the weighted-average number of shares outstanding
during the period. Diluted earnings (loss) per share gives
effect to all dilutive potential shares that are outstanding
during the period and includes outstanding stock options and
other outstanding employee equity grants, as well as the effect
of minority interests related to operating partnership units of
RLHLP (OP Units), by increasing the
weighted-average number of shares outstanding by their effect.
When the Company reports a net loss during the period, basic and
diluted earnings (loss) per share are the same.
61
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Use of
Estimates
The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods.
Actual results could materially differ from those estimates.
New
and Future Accounting Pronouncements
Variable Interest Entities In June 2009, the
FASB released Accounting Standards Update (ASU)
No. 2009-17,
Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities issuing changes to the
consolidation guidance applicable to a variable interest entity
(VIE). These changes also amend the guidance
governing the determination of whether an enterprise is the
primary beneficiary of a VIE, and is, therefore, required to
consolidate an entity, by requiring a qualitative analysis
rather than a quantitative analysis. The qualitative analysis
will include, among other things, consideration of who has the
power to direct the activities of the entity that most
significantly impact the entitys economic performance and
who has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the
VIE. The new guidance also requires continuous reassessments of
whether an enterprise is the primary beneficiary of a VIE, where
previously, reconsideration of whether an enterprise was the
primary beneficiary of a VIE was only required when specific
events had occurred. QSPEs will also be subject to these changes
in consolidation guidance when effective. Enhanced disclosures
about an enterprises involvement with a VIE will be
required.
While there have been no changes to the organization, structure
or operating activities since its inception in 2002, under the
new guidance the Company determined the CPF is a VIE and adopted
these changes on January 1, 2010. Upon adoption of this
rule, net assets and transactions of the CPF are included within
the consolidated financial statements, and increase franchise
segment revenue and expense to represent the contribution from
franchise properties to fund their portion of certain
advertising services, frequent guest program administration,
reservation services, national sales promotions and brand and
revenue management services. The adoption of these changes did
not have a material impact on earnings or EBITDA, and was
applied retrospectively as a cumulative effect of change in
accounting principle. See Note 5 for further detail.
Fair Value Measurements In January 2010, the
FASB released ASU
No. 2010-06,
Fair Value Measurements and Disclosures: Improving
Disclosures about Fair Value Measurements. The Company
adopted this accounting guidance that requires disclosure of
significant transfers between Level 1 and Level 2 of
the fair value hierarchy, the reasons for these transfers and
the reasons for any transfers in or out of Level 3 of the
fair value hierarchy. In addition, the guidance clarifies
certain existing disclosure requirements. This standard did not
have a material impact on the Companys disclosures in its
consolidated financial statements. See Note 21 for further
detail.
Intangibles Goodwill and Other In
December 2010, the FASB released ASU
No. 2010-28,
Intangibles-Goodwill and Other: When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts. The update requires a company to
perform Step 2 of the goodwill impairment test if the carrying
value of the reporting unit is zero or negative and adverse
qualitative factors indicate that it is more likely than not
that a goodwill impairment exists. The qualitative factors to
consider are consistent with the existing guidance which
requires that goodwill of a reporting unit be tested for
impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of the reporting unit below its carrying amount. The
requirements in ASU
2010-28 are
effective for public companies in the first annual period
beginning after December 15, 2010. ASU
2010-28 is
not expected to materially impact our consolidated financial
statements.
62
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Liquidity,
Financial Condition and Risks of Refinancing Debt
|
As of December 31, 2010 the Company had long term debt
maturing within one year of $25.3 million. In addition, the
outstanding balance under the Companys revolving credit
facility at December 31, 2010 of $18.0 million is
included as a current liability because the facility expires in
September 2011.
The Companys current liabilities at December 31, 2010
exceeded its current assets by $48.3 million. The Company
is actively pursuing financing alternatives to address maturing
debts and to supplement working capital. While the Company
continues to be in compliance with its debt agreements, and to
generate positive cash flow from operations, there can be no
assurance that it will be able to repay or refinance its debts
when they mature.
In addition to or in place of a new credit facility and new term
debt, the Company may seek to raise additional funds through
public or private financings, strategic relationships, sale of
assets as discussed in Note 23, or other arrangements. The
Company cannot assure that asset sales will be completed as
anticipated. Sales of one or more assets may take longer than
anticipated, may not occur at all, or may occur at price points
that do not meet all of the Companys objectives for the
sales. The Company cannot assure that such funds, if needed,
will be available on terms attractive to it, or at all.
Furthermore, any additional equity financings may be dilutive to
shareholders and debt financing, if available, may involve
covenants that place substantial restrictions on the
Companys business. The Companys failure to raise
capital as and when needed could have a material adverse impact
on its financial condition and its ability to pursue business
strategies.
In January 2011 the Company signed an amendment to its credit
facility in order to further increase its financial covenant
flexibility. The amendments to the facility, secured by its Red
Lion Hotel on Fifth Avenue property, modified its total leverage
ratio and senior leverage ratio covenants for the remaining term
of the facility. The Company paid an initial fee of $112,500 in
connection with the amendment and increased the rate on
Eurodollar borrowings to LIBOR plus 4.50%, while the interest
rate on base rate loans was increased to 3.50% over the federal
funds rate plus 0.5% or the prime rate, whichever is greater.
The amendment also further reduced borrowing capacity from
$37.5 million to $30.0 million. With respect to
certain other debt obligations in the aggregate amount of
approximately $23.4 million that are scheduled to mature in
2011, the Company agreed as to each such obligation that, by
June 24, 2011, it will either extend the maturity of the
obligation to at least March 13, 2012, repay the obligation
in full, or provide the Administrative Agent with satisfactory
evidence that it has arranged for the repayment of the
obligation by its scheduled maturity date. The Company agreed
that, if it sells any capital stock or disposes of or refinances
any of its properties, it will apply 80% of the net cash
proceeds to prepay the facility, and the commitment under the
facility will be reduced by the amount of the prepayment. In
addition to the initial amendment fee, the Company agreed to pay
50 basis points times the then existing commitment if the
facility is still in place on March 31, 2011 and
87.5 basis points times the then existing commitment if the
facility is still in place on June 30, 2011. The Company
also has a variable rate property note secured by its Red Lion
Bellevue property and will be secured by its Red Lion Templins
property, with a balance of $12.4 million at
December 31, 2010 and due in 2013. This note has some
financial covenants that mirror those of its credit facility,
and was also amended in January 2011. The interest rate on this
note was the prime rate of 3.25% at December 31, 2010.
63
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of 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; therefore, it
has not been allocated to the segments. All balances have been
presented after the elimination of inter-segment and
intra-segment revenues and expenses. Selected information with
respect to continuing operations is as provided below (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
148,568
|
|
|
$
|
147,772
|
|
|
$
|
168,610
|
|
Franchise
|
|
|
3,209
|
|
|
|
3,616
|
|
|
|
4,442
|
|
Entertainment
|
|
|
9,236
|
|
|
|
11,690
|
|
|
|
12,016
|
|
Other
|
|
|
2,481
|
|
|
|
2,641
|
|
|
|
3,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
163,494
|
|
|
$
|
165,719
|
|
|
$
|
188,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
6,891
|
|
|
$
|
1,627
|
|
|
$
|
16,900
|
|
Franchise
|
|
|
(4,895
|
)
|
|
|
1,006
|
|
|
|
1,175
|
|
Entertainment
|
|
|
1,115
|
|
|
|
1,802
|
|
|
|
314
|
|
Other
|
|
|
(7,413
|
)
|
|
|
(6,944
|
)
|
|
|
(13,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,302
|
)
|
|
$
|
(2,509
|
)
|
|
$
|
5,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels(1)
|
|
$
|
9,427
|
|
|
$
|
14,658
|
|
|
$
|
51,729
|
|
Franchise
|
|
|
481
|
|
|
|
986
|
|
|
|
3,088
|
|
Entertainment
|
|
|
188
|
|
|
|
44
|
|
|
|
218
|
|
Other
|
|
|
513
|
|
|
|
731
|
|
|
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,609
|
|
|
$
|
16,419
|
|
|
$
|
56,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
17,791
|
|
|
$
|
17,660
|
|
|
$
|
15,548
|
|
Franchise
|
|
|
749
|
|
|
|
620
|
|
|
|
781
|
|
Entertainment
|
|
|
352
|
|
|
|
421
|
|
|
|
469
|
|
Other
|
|
|
1,993
|
|
|
|
2,172
|
|
|
|
2,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,885
|
|
|
$
|
20,873
|
|
|
$
|
19,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
292,436
|
|
|
$
|
300,880
|
|
Franchise
|
|
|
9,811
|
|
|
|
16,852
|
|
Entertainment
|
|
|
5,115
|
|
|
|
5,143
|
|
Other
|
|
|
24,120
|
|
|
|
27,519
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
331,482
|
|
|
$
|
350,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a hotel asset acquisition in the second quarter of 2008
of $25.3 million. |
64
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Change in
Accounting Principle
|
Variable Interest Entities In June 2009, the FASB
released ASU
No. 2009-17,
Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities issuing changes to the
consolidation guidance applicable to variable interest entities
(VIE). These changes also amended the guidance
governing the determination of whether an enterprise is the
primary beneficiary of a VIE, and is, therefore, required to
consolidate an entity, by requiring a qualitative analysis
rather than a quantitative analysis. The qualitative analysis is
to include, among other things, consideration of who has the
power to direct the activities of the entity that most
significantly impact the entitys economic performance and
who has the obligation to absorb losses or the right to receive
benefits of the VIE that could potentially be significant to the
VIE.
Under the new guidance, the Company determined that the
Companys cooperative marketing fund, the Central Program
Fund (CPF) now meets the definition of a VIE and
should be included in its consolidated financial statements. The
Company adopted these changes retrospectively on January 1,
2010. For additional information on the CPF, see Note 2.
The CPF acts as an agent for the Companys owned and leased
hotels and for its franchisees, and was created to provide
services to all member hotels including certain advertising
services, frequent guest program administration, reservation
services, national sales promotions and brand and revenue
management services intended to increase sales and enhance the
reputation of the Red Lion brand. The activities of the CPF
benefit the Companys owned and leased hotels as well as
its franchise properties; however, historically only the
proportionate share of CPF expense for its owned and leased
hotels was recognized in the consolidated financial statements.
Based on the new guidance, the Company now includes all of the
expenses and other balances of the CPF in its consolidated
financial statements, including revenue received from
franchisees to support CPF activities. There have been no
changes to the organization, structure or operating activities
of the CPF since its inception in 2002.
65
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The adoption of these changes was applied retrospectively,
including the recording to retained earnings of the
$1.0 million net of tax impact of cumulative effect of
change in accounting principle as of January 1, 2008, and
the consolidated financial statements have been adjusted to
conform to the new treatment. The impact of the CPF for the year
ended December 31, 2009 added additional expense before
income tax of $24,000 and the impact of the CPF for the year
ended December 31, 2008 was a reduction of expense before
income tax of $0.1 million. The activities of the CPF are
cyclical throughout any one year. The tables below show the
impact of the consolidation of the CPF for the years ended
December 31, 2009 and 2008 (in thousands):
Income
Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Year Ended December 31, 2008
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
147,772
|
|
|
$
|
|
|
|
$
|
147,772
|
|
|
$
|
168,610
|
|
|
$
|
|
|
|
$
|
168,610
|
|
Franchise
|
|
|
1,678
|
|
|
|
1,938
|
|
|
|
3,616
|
|
|
|
1,862
|
|
|
|
2,580
|
|
|
|
4,442
|
|
Entertainment
|
|
|
11,690
|
|
|
|
|
|
|
|
11,690
|
|
|
|
12,016
|
|
|
|
|
|
|
|
12,016
|
|
Other
|
|
|
2,641
|
|
|
|
|
|
|
|
2,641
|
|
|
|
3,140
|
|
|
|
|
|
|
|
3,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
163,781
|
|
|
|
1,938
|
|
|
|
165,719
|
|
|
|
185,628
|
|
|
|
2,580
|
|
|
|
188,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
|
113,677
|
|
|
|
(421
|
)
|
|
|
113,256
|
|
|
|
129,870
|
|
|
|
(498
|
)
|
|
|
129,372
|
|
Franchise
|
|
|
429
|
|
|
|
1,826
|
|
|
|
2,255
|
|
|
|
355
|
|
|
|
2,355
|
|
|
|
2,710
|
|
Entertainment
|
|
|
9,466
|
|
|
|
|
|
|
|
9,466
|
|
|
|
11,234
|
|
|
|
|
|
|
|
11,234
|
|
Other
|
|
|
2,075
|
|
|
|
|
|
|
|
2,075
|
|
|
|
2,100
|
|
|
|
|
|
|
|
2,100
|
|
Depreciation and amortization
|
|
|
20,873
|
|
|
|
|
|
|
|
20,873
|
|
|
|
19,241
|
|
|
|
|
|
|
|
19,241
|
|
Hotel facility and land lease
|
|
|
6,707
|
|
|
|
|
|
|
|
6,707
|
|
|
|
6,738
|
|
|
|
|
|
|
|
6,738
|
|
Impairment charge
|
|
|
8,509
|
|
|
|
|
|
|
|
8,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on asset dispositions, net
|
|
|
(249
|
)
|
|
|
|
|
|
|
(249
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
(164
|
)
|
Undistributed corporate expenses
|
|
|
5,200
|
|
|
|
|
|
|
|
5,200
|
|
|
|
9,643
|
|
|
|
|
|
|
|
9,643
|
|
Restructuring expenses
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
|
|
2,067
|
|
|
|
|
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
166,823
|
|
|
|
1,405
|
|
|
|
168,228
|
|
|
|
181,084
|
|
|
|
1,857
|
|
|
|
182,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(3,042
|
)
|
|
|
533
|
|
|
|
(2,509
|
)
|
|
|
4,544
|
|
|
|
723
|
|
|
|
5,267
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(8,503
|
)
|
|
|
|
|
|
|
(8,503
|
)
|
|
|
(9,247
|
)
|
|
|
|
|
|
|
(9,247
|
)
|
Other income, net
|
|
|
936
|
|
|
|
(557
|
)
|
|
|
379
|
|
|
|
1,530
|
|
|
|
(618
|
)
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(10,609
|
)
|
|
|
(24
|
)
|
|
|
(10,633
|
)
|
|
|
(3,172
|
)
|
|
|
105
|
|
|
|
(3,068
|
)
|
Income tax (benefit) expense
|
|
|
(4,028
|
)
|
|
|
(8
|
)
|
|
|
(4,036
|
)
|
|
|
(1,289
|
)
|
|
|
38
|
|
|
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(6,581
|
)
|
|
$
|
(16
|
)
|
|
$
|
(6,597
|
)
|
|
$
|
(1,884
|
)
|
|
$
|
67
|
|
|
$
|
(1,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share from continuing operations
|
|
$
|
(0.37
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
18,106
|
|
|
|
18,106
|
|
|
|
18,106
|
|
|
|
18,234
|
|
|
|
18,234
|
|
|
|
18,234
|
|
66
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,881
|
|
|
$
|
|
|
|
$
|
3,881
|
|
Restricted cash
|
|
|
3,801
|
|
|
|
|
|
|
|
3,801
|
|
Accounts receivable, net
|
|
|
8,098
|
|
|
|
(1,105
|
)
|
|
|
6,993
|
|
Inventories
|
|
|
1,272
|
|
|
|
69
|
|
|
|
1,341
|
|
Prepaid expenses and other
|
|
|
3,089
|
|
|
|
110
|
|
|
|
3,199
|
|
Assets of discontinued operations
|
|
|
61
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
20,202
|
|
|
|
(926
|
)
|
|
|
19,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
285,601
|
|
|
|
|
|
|
|
285,601
|
|
Goodwill
|
|
|
28,042
|
|
|
|
|
|
|
|
28,042
|
|
Intangible assets, net
|
|
|
10,199
|
|
|
|
|
|
|
|
10,199
|
|
Other assets, net
|
|
|
7,337
|
|
|
|
|
|
|
|
7,337
|
|
Noncurrent assets of discontinued operations
|
|
|
181
|
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
351,562
|
|
|
$
|
(926
|
)
|
|
$
|
350,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,715
|
|
|
$
|
364
|
|
|
$
|
6,079
|
|
Accrued payroll and related benefits
|
|
|
2,313
|
|
|
|
89
|
|
|
|
2,402
|
|
Accrued interest payable
|
|
|
318
|
|
|
|
|
|
|
|
318
|
|
Advance deposits
|
|
|
496
|
|
|
|
|
|
|
|
496
|
|
Other accrued expenses
|
|
|
7,634
|
|
|
|
276
|
|
|
|
7,910
|
|
Revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, due within one year
|
|
|
3,171
|
|
|
|
|
|
|
|
3,171
|
|
Liabilities of discontinued operations
|
|
|
29
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
19,676
|
|
|
|
729
|
|
|
|
20,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
|
26,000
|
|
|
|
|
|
|
|
26,000
|
|
Long-term debt, due after one year
|
|
|
77,151
|
|
|
|
|
|
|
|
77,151
|
|
Deferred income
|
|
|
8,638
|
|
|
|
|
|
|
|
8,638
|
|
Deferred income taxes
|
|
|
12,603
|
|
|
|
(8
|
)
|
|
|
12,595
|
|
Debentures due Red Lion Hotels Capital Trust
|
|
|
30,825
|
|
|
|
|
|
|
|
30,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
174,893
|
|
|
|
721
|
|
|
|
175,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
Red Lion Hotels Corporation stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock 5,000,000 shares authorized;
$0.01 par value; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock 50,000,000 shares authorized;
$0.01 par value; 18,869,254 and 18,180,104 shares
issued and outstanding
|
|
|
182
|
|
|
|
|
|
|
|
182
|
|
Additional paid-in capital, common stock
|
|
|
142,479
|
|
|
|
|
|
|
|
142,479
|
|
Retained earnings
|
|
|
33,993
|
|
|
|
(1,647
|
)
|
|
|
32,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Red Lion Hotels Corporation stockholders equity
|
|
|
176,654
|
|
|
|
(1,647
|
)
|
|
|
175,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
176,669
|
|
|
|
(1,647
|
)
|
|
|
175,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
351,562
|
|
|
$
|
(926
|
)
|
|
$
|
350,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Statement
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
Year Ended December 31, 2008
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
before
|
|
|
Impact of
|
|
|
|
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
CPF
|
|
|
CPF
|
|
|
As reported
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,648
|
)
|
|
$
|
(16
|
)
|
|
$
|
(6,664
|
)
|
|
$
|
(1,716
|
)
|
|
$
|
67
|
|
|
$
|
(1,649
|
)
|
Deferred income tax provision (benefit)
|
|
|
(3,176
|
)
|
|
|
(8
|
)
|
|
|
(3,184
|
)
|
|
|
(1,197
|
)
|
|
|
38
|
|
|
|
(1,159
|
)
|
Change in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,306
|
|
|
|
199
|
|
|
|
2,505
|
|
|
|
(947
|
)
|
|
|
15
|
|
|
|
(932
|
)
|
Inventories
|
|
|
93
|
|
|
|
67
|
|
|
|
160
|
|
|
|
82
|
|
|
|
(89
|
)
|
|
|
(7
|
)
|
Prepaid expenses and other
|
|
|
(560
|
)
|
|
|
128
|
|
|
|
(432
|
)
|
|
|
786
|
|
|
|
23
|
|
|
|
809
|
|
Accounts payable
|
|
|
(5,274
|
)
|
|
|
(114
|
)
|
|
|
(5,388
|
)
|
|
|
6,801
|
|
|
|
305
|
|
|
|
7,106
|
|
Accrued payroll and related benefits
|
|
|
(2,610
|
)
|
|
|
(188
|
)
|
|
|
(2,798
|
)
|
|
|
(1,243
|
)
|
|
|
(272
|
)
|
|
|
(1,515
|
)
|
Other accrued expenses and advance deposits
|
|
|
(270
|
)
|
|
|
(68
|
)
|
|
|
(338
|
)
|
|
|
(2,963
|
)
|
|
|
(87
|
)
|
|
|
(3,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
15,692
|
|
|
|
|
|
|
|
15,692
|
|
|
|
22,803
|
|
|
|
|
|
|
|
22,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(14,335
|
)
|
|
|
|
|
|
|
(14,335
|
)
|
|
|
3,190
|
|
|
|
|
|
|
|
3,190
|
|
Cash, January 1,
|
|
|
18,216
|
|
|
|
|
|
|
|
18,216
|
|
|
|
15,026
|
|
|
|
|
|
|
|
15,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, December 31,
|
|
$
|
3,881
|
|
|
$
|
|
|
|
$
|
3,881
|
|
|
$
|
18,216
|
|
|
$
|
|
|
|
$
|
18,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Recent
Accounting Pronouncements
|
Fair Value Measurements In January 2010, the FASB
released ASU
No. 2010-06,
Fair Value Measurements and Disclosures: Improving
Disclosures about Fair Value Measurements. The Company
adopted this accounting guidance that requires disclosure of
significant transfers between Level 1 and Level 2 of
the fair value hierarchy, the reasons for these transfers and
the reasons for any transfers in or out of Level 3 of the
fair value hierarchy. In addition, the guidance clarifies
certain existing disclosure requirements. This standard did not
have a material impact on the Companys disclosures in its
consolidated financial statements.
Intangibles Goodwill and Other In
December 2010, the FASB released ASU
No. 2010-28,
Intangibles-Goodwill and Other: When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts. The update requires a company to
perform Step 2 of the goodwill impairment test if the carrying
value of the reporting unit is zero or negative and adverse
qualitative factors indicate that it is more likely than not
that a goodwill impairment exists. The qualitative factors to
consider are consistent with the existing guidance which
requires that goodwill of a reporting unit be tested for
impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of the reporting unit below its carrying amount. The
requirements in ASU
2010-28 are
effective for public companies in the first annual period
beginning after December 15, 2010. ASU
2010-28 is
not expected to materially impact the Companys
consolidated financial statements.
68
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Property
and Equipment
|
Property and equipment used in continuing operations is
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Buildings and equipment
|
|
$
|
301,766
|
|
|
$
|
295,704
|
|
Furniture and fixtures
|
|
|
47,316
|
|
|
|
46,226
|
|
Landscaping and land improvements
|
|
|
9,821
|
|
|
|
8,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358,903
|
|
|
|
350,889
|
|
Less accumulated depreciation and amortization
|
|
|
(153,373
|
)
|
|
|
(134,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
205,530
|
|
|
|
216,826
|
|
Land
|
|
|
63,581
|
|
|
|
66,146
|
|
Construction in progress
|
|
|
2,919
|
|
|
|
2,629
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
272,030
|
|
|
$
|
285,601
|
|
|
|
|
|
|
|
|
|
|
In accordance with the guidance for the impairment of long-lived
assets, assets held and used with a carrying amount of
$4.1 million were written down to their estimated fair
value of $0.4 million, resulting in a non-cash impairment
charge of $3.7 million for the year ended December 31,
2010. The full amount of $3.7 million was related to the
termination of a sublease and franchise agreement with the
operator of the Red Lion Hotel Sacramento.
In the year ended December 31, 2009 and in accordance with
the guidance for the impairment of long-lived assets, assets
held and used with a carrying amount of $28.4 million were
written down to their fair value of $19.7 million. For the
year ended December 31, 2009, the Companys net loss
attributable to Red Lion Hotels Corporation included an asset
impairment charge of $8.7 million. Of that amount,
$8.5 million was related to the Red Lion Denver Southeast
hotel. The remaining $0.2 million impairment charge related
to a second property.
As discussed above in Note 2, the Company used Level 3
inputs for its discounted cash flow analyses, including growth
rate, property-level proforma financial information and
remaining lives of the assets. Management bases these
assumptions on historical data and experience and future
operational expectations.
|
|
8.
|
Goodwill
and Other Intangible Assets
|
Goodwill represents the excess of the estimated fair value of
the net assets acquired during business combinations over the
net tangible and identifiable intangible assets acquired.
Goodwill is not amortized.
The Red Lion brand name is an identifiable, indefinite life
intangible asset that represents the separable legal right to a
trade name and associated trademarks acquired in a business
combination the Company entered into in 2001. Remaining
intangible assets consist primarily of the net amortized cost of
lease and franchise contracts acquired in business combinations,
including the one in 2001. The costs of these contracts are
amortized over the weighted-average remaining term of the
related agreements.
69
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the cost and accumulated
amortization of goodwill and other intangible assets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Goodwill
|
|
$
|
28,042
|
|
|
|
n/a
|
|
|
$
|
28,042
|
|
|
$
|
28,042
|
|
|
|
n/a
|
|
|
$
|
28,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand name
|
|
$
|
6,878
|
|
|
|
n/a
|
|
|
$
|
6,878
|
|
|
$
|
6,878
|
|
|
|
n/a
|
|
|
$
|
6,878
|
|
Lease contracts(1)
|
|
|
1,417
|
|
|
|
(425
|
)
|
|
|
992
|
|
|
|
4,332
|
|
|
|
(1,156
|
)
|
|
|
3,176
|
|
Franchise and management contracts
|
|
|
313
|
|
|
|
(313
|
)
|
|
|
|
|
|
|
313
|
|
|
|
(282
|
)
|
|
|
31
|
|
Trademarks
|
|
|
114
|
|
|
|
n/a
|
|
|
|
114
|
|
|
|
114
|
|
|
|
n/a
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
8,722
|
|
|
$
|
(738
|
)
|
|
$
|
7,984
|
|
|
$
|
11,637
|
|
|
$
|
(1,438
|
)
|
|
$
|
10,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In December 2010, there was an event that caused the Company to
review its lease contract intangible asset balance for potential
impairment. A sublease agreement at the Companys Red Lion
Hotel Sacramento was terminated, thus eliminating
$1.4 million of annual sublease income. The Company has
subsequently subleased this property to a new subtenant,
however, for an amount of $0.4 million in initial minimum
annual sublease payments. After analysis, the Company concluded
that the full amount of the lease contract intangible asset was
impaired and recorded a $2.0 million impairment charge. |
Amortization expense related to intangible assets was
approximately $0.2 million, $0.2 million and
$0.5 million during the years ended December 31, 2010,
2009 and 2008, respectively. Estimated amortization expense for
intangible assets over the next five years is as follows (in
thousands):
|
|
|
|
|
Year Ending
|
|
|
|
December 31,
|
|
Amount
|
|
|
2011
|
|
$
|
47
|
|
2012
|
|
|
47
|
|
2013
|
|
|
47
|
|
2014
|
|
|
47
|
|
2015
|
|
|
47
|
|
|
|
|
|
|
|
|
$
|
235
|
|
|
|
|
|
|
Goodwill and other intangible assets attributable to each of the
Companys business segments at December 31, 2010 and
2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
Goodwill
|
|
|
Intangibles
|
|
|
Goodwill
|
|
|
Intangibles
|
|
|
Hotels
|
|
$
|
19,530
|
|
|
$
|
5,631
|
|
|
$
|
19,530
|
|
|
$
|
7,815
|
|
Franchise
|
|
|
5,351
|
|
|
|
2,347
|
|
|
|
5,351
|
|
|
|
2,378
|
|
Entertainment
|
|
|
3,161
|
|
|
|
6
|
|
|
|
3,161
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,042
|
|
|
$
|
7,984
|
|
|
$
|
28,042
|
|
|
$
|
10,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the Companys measurement date of October 1, 2010,
the book value of its net assets exceeded the market
capitalization of the Company. Goodwill and indefinite life
intangible assets are tested for impairment at least
70
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
annually, or upon the occurrence of events or changes in
circumstances that indicate the associated carrying values may
not be recoverable. The Company tests goodwill and its
intangible assets for impairment by first comparing the book
value of net assets to the fair value of the related operations.
If the fair value is determined to be less than book value, a
second step is performed to compute the amount of impairment.
Fair value is estimated using discounted cash flows of each of
the three reporting units. The Company bases its calculation of
fair value of its reporting units on a combination of the income
and market approaches. Forecasts of future cash flow to develop
fair value of its reporting units are based on managements
best estimate of future revenue and operating expenses based
primarily on projected rate and occupancy growth, market
penetration and current and future economic conditions. In this
process, a fair value of goodwill is estimated and compared to
its carrying value. Any shortfall of fair value below carrying
value would represent the amount of impairment loss. Changes in
these forecasts could significantly change the amount of
impairment recorded, if any.
In performing this analysis, the financial and credit market
volatility directly impacted fair value measurement through the
Companys estimated weighted average cost of capital used
to determine discount rate, and through the Companys
common stock price that is used to determine market
capitalization. During times of volatility, significant judgment
must be applied to determine whether credit or stock price
changes are a short term swing or a longer-term trend. The
Company performed an annual test of its goodwill and indefinite
life intangible assets as of October 1, 2010, and concluded
that the recorded values were not impaired based on its
analysis. The key assumption used in its analysis included that
the Companys assets are still producing operating income
and the fair value of its existing assets, based on the company
analysis, remains sufficient to support the carrying value of
the related assets.
In December 2010, there was an event that caused the Company to
review its lease contract intangible asset balance for potential
impairment. A sublease agreement at the Companys Red Lion
Hotel Sacramento was terminated, thus eliminating
$1.4 million of annual sublease income. The Company signed
an agreement on February 22, 2011 with another subtenant,
however for an initial minimum amount of $0.4 million in
annual sublease income. After analysis, the Company concluded
that the full amount of the lease contract intangible asset was
not recoverable and recorded a $2.0 million impairment
charge. There were no other impairments of intangible assets
recorded in 2010. As provided in the table below (in thousands),
the Company used Level 3 inputs for its discounted cash
flow analysis, including growth rate, property-level proforma
financial information and remaining lives of the assets.
Management bases these assumptions on historical data and
experience and future operational expectations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Total
|
Description
|
|
2010
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Loss
|
|
Lease Contract Intangible Asset
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(2,039
|
)
|
Aggregate investments recorded as noncurrent assets on the
consolidated balance sheet totaled $1.2 million and
$1.2 million, respectively, as of December 31, 2010
and 2009. During 2010, the Company recorded a loss from
investments of $48,000, compared to a loss of $16,000 and income
of $133,000, respectively, in 2009 and 2008.
The Company owns a 19.9% partnership interest in its corporate
office building as discussed above in Note 1. The
Companys investment balance was approximately
$0.8 million as December 31, 2010 and
$0.7 million as of
71
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009. Summarized unaudited financial
information with respect to the office building, on a 100%
basis, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
Current assets
|
|
$
|
224
|
|
|
$
|
370
|
|
Total assets
|
|
$
|
11,510
|
|
|
$
|
11,800
|
|
Current liabilities
|
|
$
|
120
|
|
|
$
|
106
|
|
Total liabilities
|
|
$
|
8,828
|
|
|
$
|
9,150
|
|
Total equity
|
|
$
|
2,681
|
|
|
$
|
2,650
|
|
Revenues
|
|
$
|
1,532
|
|
|
$
|
1,801
|
|
Net income
|
|
$
|
149
|
|
|
$
|
88
|
|
The Company maintains a 3% common security interest in the Red
Lion Hotels Capital Trust (the Trust), as discussed
below in Note 12, which represents all of the common
ownership of the Trust. The Trust is considered a variable
interest entity and the Company is not considered its primary
beneficiary. At December 31, 2010 and 2009, the
Companys equity method investment in the Trust had a
balance of $0.4 million and $0.5 million,
respectively, after adjusting for trust earnings and operating
expenses.
The Company has a revolving credit facility with a syndicate of
banks led by Credit Agricole Corporate and Investment Bank.
Borrowings under the facility may be used to finance
acquisitions or capital expenditures, for working capital and
for other general corporate purposes. The obligations under the
facility are collateralized by its Red Lion Hotel on Fifth
Avenue property, including a deed of trust and security
agreement covering all of its assets. Because the facility
expires in less than a year on September 13, 2011, the
amount owed under the facility at December 31, 2010 is
reflected as a current liability.
The credit facility requires the Company to comply with certain
customary affirmative and negative covenants, the most
restrictive of which are financial covenants dealing with
leverage, interest coverage and debt service coverage. In
February 2010, the Company amended the terms of the facility to
modify the total leverage ratio and senior leverage ratio
covenants, increase the interest rate on Eurodollar borrowings
to LIBOR plus 3.25% and reduce borrowing capacity to
$37.5 million. At December 31, 2010,
$18.0 million was outstanding under the facility at an
interest rate of 3.52%, and the Company was in compliance with
all of its covenants.
In January 2011 the Company signed an amendment to its credit
facility in order to further increase its financial covenant
flexibility. The amendments to the facility, secured by its Red
Lion Hotel on Fifth Avenue property, modified its total leverage
ratio and senior leverage ratio covenants for the remaining term
of the facility. The Company paid an initial fee of $112,500 in
connection with the amendment and increased the rate on
Eurodollar borrowings to LIBOR plus 4.50%, while the interest
rate on base rate loans was increased to 3.50% over the federal
funds rate plus 0.5% or the prime rate, whichever is greater.
The amendment also further reduced borrowing capacity from
$37.5 million to $30.0 million. With respect to
certain other debt obligations in the aggregate amount of
approximately $23.4 million that are scheduled to mature in
2011, the Company agreed as to each such obligation that, by
June 24, 2011, it will either extend the maturity of the
obligation to at least March 13, 2012, repay the obligation
in full, or provide the Administrative Agent with satisfactory
evidence that it has arranged for the repayment of the
obligation by its scheduled maturity date. The Company agreed
that, if it sells any capital stock or disposes of or refinances
any of its properties, it will apply 80% of the net cash
proceeds to prepay the facility, and the commitment under the
facility will be reduced by the amount of the prepayment. In
addition to the initial amendment fee, the Company agreed to pay
50 basis points times the then existing commitment if the
facility is still in place on March 31, 2011 and
87.5 basis points times the then existing commitment if the
facility is still in place on June 30, 2011.
72
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the credit facility discussed above in
Note 10 and the debentures discussed below in Note 12,
the Company has long-term debt consisting of mortgage notes
payable and notes and contracts payable, collateralized by real
property, equipment and the assignment of certain rental income.
A summary of long-term debt as of December 31, 2010 and
2009, monthly installment and interest amounts, if applicable,
interest rate and maturity date is as provided in the below
table (in thousands, except monthly payment amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Last
|
|
|
Last
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Applicable
|
|
|
Applicable
|
|
|
|
|
|
Maturity/
|
|
|
|
|
|
December 31,
|
|
|
Monthly
|
|
|
Interest
|
|
|
|
|
|
Balloon
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Installment
|
|
|
Rate
|
|
|
Type
|
|
|
Payment Due
|
|
Security
|
|
|
Notes Payable(1)
|
|
$
|
12,425
|
|
|
$
|
13,125
|
|
|
$
|
93,269
|
|
|
|
3.25
|
%
|
|
|
Variable
|
|
|
September 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
11,822
|
|
|
|
12,144
|
|
|
|
108,797
|
|
|
|
8.08
|
%
|
|
|
Fixed
|
|
|
September 2011
|
|
|
Real Property
|
|
Notes Payable
|
|
|
8,863
|
|
|
|
9,102
|
|
|
|
70,839
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
7,830
|
|
|
|
8,042
|
|
|
|
62,586
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
5,742
|
|
|
|
5,899
|
|
|
|
52,844
|
|
|
|
8.08
|
%
|
|
|
Fixed
|
|
|
September 2011
|
|
|
Real Property
|
|
Notes Payable
|
|
|
5,163
|
|
|
|
5,302
|
|
|
|
41,265
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
5,111
|
|
|
|
5,251
|
|
|
|
46,695
|
|
|
|
8.00
|
%
|
|
|
Fixed
|
|
|
October 2011
|
|
|
Real Property
|
|
Notes Payable
|
|
|
4,388
|
|
|
|
4,507
|
|
|
|
35,076
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
4,263
|
|
|
|
4,381
|
|
|
|
34,353
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
3,528
|
|
|
|
3,623
|
|
|
|
28,198
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
2,581
|
|
|
|
2,651
|
|
|
|
20,633
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
2,581
|
|
|
|
2,651
|
|
|
|
20,633
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Notes Payable
|
|
|
2,151
|
|
|
|
2,209
|
|
|
|
17,194
|
|
|
|
6.70
|
%
|
|
|
Fixed
|
|
|
July 2013
|
|
|
Real Property
|
|
Industrial revenue bonds payable
|
|
$
|
704
|
|
|
$
|
1,435
|
|
|
$
|
66,560
|
|
|
|
5.90
|
%
|
|
|
Fixed
|
|
|
October 2011
|
|
|
Real Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
77,152
|
|
|
|
80,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
(25,275
|
)
|
|
|
(3,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt due after one year
|
|
$
|
51,877
|
|
|
$
|
77,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rate based on Prime rate |
Contractual maturities for long-term debt outstanding at
December 31, 2010, excluding the $18.0 million
outstanding under the revolving credit facility discussed above
in Note 10, are summarized by year as follows (in
thousands):
|
|
|
|
|
Year Ending
|
|
|
|
December 31,
|
|
Amount
|
|
|
2011
|
|
|
25,275
|
|
2012
|
|
|
1,974
|
|
2013
|
|
|
49,903
|
|
2014
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
$
|
77,152
|
|
|
|
|
|
|
73
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys $12.4 million variable rate property
note contains restrictive covenants that mirror those of the
credit facility discussed above in Note 10. At
December 31, 2010, the Company was in compliance with those
covenants. In connection with the amendments to the credit
facility in February 2010 and January 2011, the terms of this
note were also amended. The interest rate on the outstanding
$12.4 million at December 31, 2010 was the prime rate
of 3.25%.
|
|
12.
|
Debentures
of Red Lion Hotels Capital Trust
|
Together with the Trust, the Company completed a public offering
of $46.0 million of trust preferred securities in 2004. The
securities are listed on the New York Stock Exchange and entitle
holders to cumulative cash distributions at a 9.5% annual rate
with maturity in February 2044. The cost of the offering totaled
$2.3 million, which the Trust paid through an advance by
the Company. The advance to the Trust is included with other
noncurrent assets on the consolidated balance sheets.
The Company borrowed all of the proceeds from the offering,
including the Companys original 3% trust common investment
of $1.4 million, on the same day through
9.5% debentures that are included as a long-term liability
on the consolidated balance sheets. The debentures mature in
2044 and their payment terms mirror the distribution terms of
the trust securities. The debenture agreement required the
mandatory redemption of 35% of the then-outstanding trust
securities at 105% of issued value if the Company completed an
offering of common shares with gross proceeds of greater than
$50 million. In accordance therewith and in connection with
a common stock offering in May 2006, the Company repaid
approximately $16.6 million of the debentures due the
Trust. The Trust then redeemed 35% of the outstanding trust
preferred securities and trust common securities at a price of
$26.25 per share, a 5% premium over the issued value of the
securities. Of the $16.6 million, approximately
$0.5 million was received back by the Company for its trust
common securities and was reflected as a reduction of its
investment in the Trust. At December 31, 2010 and 2009,
debentures due the Trust totaled $30.8 million.
|
|
13.
|
Commitments
and Contingencies
|
At any given time the Company is subject to claims and actions
incidental to the operations of its business. During the second
quarter of 2010, a federal court ruled in favor of the Company
in a lawsuit the Company filed against the owner of a former
franchisee. The court awarded to the Company approximately
$0.6 million in damages, which will accrue interest at 18%
per annum pending the defendants appeal. During the year
2010, the Company incurred approximately $0.3 million in
legal expense in connection with this matter. The Company is
actively pursuing this action and cannot at this time reasonably
predict the ultimate outcome of the proceedings. The Company 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.
The Company is authorized to issue 50 million common
shares, par value $0.01 per share, and five million shares of
preferred stock, par value $0.01 per share. As of
December 31, 2010, there were 18,869,254 shares of
common stock issued and outstanding and no shares of preferred
stock issued and outstanding. The board of directors has the
authority, without action by the shareholders, to designate and
issue preferred stock in one or more series and to designate the
rights, preferences and privileges of each series, which may be
greater than the rights of the common stock.
Each holder of common stock is entitled to one vote for each
share held on all matters to be voted upon by the shareholders
with no cumulative voting rights. Holders of common stock are
entitled to receive ratably the dividends, if any, that are
declared from time to time by the board of directors out of
funds legally available for that purpose. The rights,
preferences and privileges of the holders of common stock are
subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that the
Company may designate in the future.
74
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share
Repurchases
No shares were repurchased during 2010 or 2009.
In December 2008, the Company announced a common stock
repurchase program for up to $10.0 million. Any stock
repurchases under the current plan are to be made through open
market purchases, block purchases or privately negotiated
transactions. The timing and actual number of share repurchases
are dependent on several factors including price, corporate and
regulatory requirements and other market conditions. During
December 2008, the Company repurchased 303,000 shares at a
cost of $0.9 million, and in January 2008, the Company
purchased 93,000 shares for $0.9 million under a
repurchase program announced in September 2007.
Stock
Incentive Plans
As approved by the shareholders of the Company, the 1998 Stock
Incentive Plan and the 2006 Stock Incentive Plan, as amended
(the Plans), authorize the grant or issuance of
various option or other awards including restricted stock grants
and other stock-based compensation. The 2006 plan allows awards
up to a maximum number of two million shares, subject to
adjustments for stock splits, stock dividends and similar
events. The 1998 plan allowed for a maximum number of
1.4 million shares, although as a condition to the approval
of the 2006 plan, the Company no longer grants or issues awards
under the 1998 plan. The compensation committee of the board of
directors administers the 2006 plan and establishes to whom
awards are granted and the type and terms and conditions,
including the exercise period, of the awards. As of
December 31, 2010, there were 1,160,924 shares of
common stock available for issuance pursuant to future stock
option grants or other awards under the 2006 plan.
Stock based compensation expense reflects the fair value of
stock based awards measured at grant date, including an
estimated forfeiture rate, and is recognized over the relevant
service period. Stock-based compensation expense recognized
during 2010, 2009 and 2008 was approximately $1.1 million,
$1.2 million and $2.5 million, respectively.
Stock-based compensation expense recorded in 2010 includes
$0.5 million of expense recorded upon the termination of
the Companys former President and Chief Executive Officer
in January 2010. Stock-based compensation expense recorded in
2008 includes expense recorded upon the retirement of the
Companys former President and Chief Executive Officer at
the time and the separation of an Executive Vice President, as
discussed below in Note 19.
During the year ended December 31, 2010, 429,528 options
were exercised. No options were exercised during the years ended
December 31, 2009 or 2008. As options and restricted stock
units vest, the Company expects to recognize approximately
$0.5 million in additional compensation expense in 2011.
During the years ended December 31, 2010, 2009 and 2008;
78,873 , 86,625 and 17,160 shares of common stock,
respectively, were issued in aggregate to non-management
directors as compensation for service. During the years ended
December 31, 2010, 2009 and 2008, the Company recognized
compensation expense of approximately $0.5 million,
$0.4 million and $0.2 million, respectively, upon
issuance.
Stock
Options
Stock options issued are valued based upon the Black-Scholes
option pricing model and the Company recognizes this value as an
expense over the periods in which the options vest. Use of the
Black-Scholes option-pricing model requires that the Company
make certain assumptions, including expected volatility,
forfeiture rate, risk-free interest rate, expected dividend
yield and expected life of the options, based on historical
experience. Volatility is based on historical information with
terms consistent with the expected life of the option. The risk
free interest rate is based on the quoted daily treasury yield
curve rate at the time of grant, with terms consistent with the
75
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expected life of the option. During 2010 and 2008, the following
weighted average assumptions were used. No stock options were
granted during 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended
|
|
|
2010
|
|
2009
|
|
2008
|
|
Options granted
|
|
|
5,864
|
|
|
|
|
|
|
|
334,212
|
|
Weighted-average grant date fair value of options granted
|
|
$
|
7.10
|
|
|
|
|
|
|
$
|
8.52
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
|
|
|
|
0
|
%
|
Expected volatility
|
|
|
61
|
%
|
|
|
|
|
|
|
34
|
%
|
Forfeiture rate
|
|
|
2
|
%
|
|
|
|
|
|
|
4
|
%
|
Risk free interest rates
|
|
|
3.36
|
%
|
|
|
|
|
|
|
4.12
|
%
|
Expected option lives
|
|
|
4 years
|
|
|
|
|
|
|
|
4 years
|
|
A summary of stock option activity for the year ended
December 31, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Balance, January 1, 2010
|
|
|
1,194,460
|
|
|
$
|
7.36
|
|
Options granted
|
|
|
5,864
|
|
|
$
|
7.10
|
|
Options exercised
|
|
|
(429,528
|
)
|
|
$
|
5.79
|
|
Options forfeited
|
|
|
(292,749
|
)
|
|
$
|
9.23
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
478,047
|
|
|
$
|
7.62
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2010
|
|
|
395,244
|
|
|
$
|
7.34
|
|
|
|
|
|
|
|
|
|
|
Additional information regarding stock options outstanding and
exercisable as of December 31, 2010, is presented below.
Excluding the impact that was recognized during the first
quarter due to the separation of the Companys former
President and Chief Executive Officer, total unrecognized
stock-based compensation expense related to non-vested stock
options, as of December 31, 2010, was approximately
$0.1 million before the impact of income taxes and is
expected to be recognized over a weighted average period of
18 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Range of
|
|
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
Exercise
|
|
Number
|
|
|
Contractual
|
|
|
Expiration
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Number
|
|
|
Exercise
|
|
|
Intrinsic
|
|
Prices
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Date
|
|
|
Price
|
|
|
Value(1)
|
|
|
Exercisable
|
|
|
Price
|
|
|
Value(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
$5.10 $6.07
|
|
|
227,248
|
|
|
|
1.33
|
|
|
|
2011-2014
|
|
|
$
|
5.36
|
|
|
$
|
595,235
|
|
|
|
227,248
|
|
|
$
|
5.36
|
|
|
$
|
595,235
|
|
$7.10 $7.80
|
|
|
27,864
|
|
|
|
5.56
|
|
|
|
2011-2020
|
|
|
|
7.39
|
|
|
|
16,520
|
|
|
|
22,000
|
|
|
|
7.46
|
|
|
|
11,360
|
|
$8.74 $8.80
|
|
|
151,100
|
|
|
|
7.35
|
|
|
|
2011-2018
|
|
|
|
8.76
|
|
|
|
|
|
|
|
80,705
|
|
|
|
8.76
|
|
|
|
|
|
$10.88
|
|
|
5,974
|
|
|
|
5.56
|
|
|
|
2016
|
|
|
|
10.88
|
|
|
|
|
|
|
|
5,974
|
|
|
|
10.88
|
|
|
|
|
|
$12.21 $13.00
|
|
|
65,861
|
|
|
|
6.14
|
|
|
|
2016-2017
|
|
|
|
12.61
|
|
|
|
|
|
|
|
59,317
|
|
|
|
12.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478,047
|
|
|
|
4.20
|
|
|
|
2011-2020
|
|
|
$
|
7.62
|
|
|
$
|
611,755
|
|
|
|
395,244
|
|
|
$
|
7.34
|
|
|
$
|
606,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2010, or December 31, 2010, based upon the
Companys closing stock price of $7.98. |
76
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock Units, Shares Issued as Compensation
During 2010, 2009 and 2008, the Company granted 165,439, 213,282
and 36,125 unvested restricted stock units, respectively, to
executive officers and other key employees, the majority of
which vest 25% each year for four years on each anniversary of
the grant date. While all of the shares are considered granted,
they are not considered issued or outstanding until vested.
Since the Company began issuing restricted stock units,
approximately 13.6% of total restricted stock units granted have
been forfeited.
A summary of restricted stock unit activity at December 31,
2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number
|
|
|
Grant Date
|
|
|
|
|
|
|
of Shares
|
|
|
Fair Value
|
|
|
|
|
|
Balance, January 1, 2010
|
|
|
239,318
|
|
|
$
|
5.24
|
|
|
|
|
|
Granted
|
|
|
165,439
|
|
|
$
|
7.14
|
|
|
|
|
|
Vested
|
|
|
(125,367
|
)
|
|
$
|
5.36
|
|
|
|
|
|
Forfeited
|
|
|
(58,574
|
)
|
|
$
|
6.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
220,816
|
|
|
$
|
6.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2010, 125,367 restricted stock units vested, 84,433 of
those related to the Companys former President and Chief
Executive Officer who terminated in January of 2010. The
remaining shares were issued to employees.
In addition, 35,937 shares of common stock were issued to
employees in 2010 as compensation. Under the terms of the plan
and upon issuance, the Company authorized a net settlement of
distributable shares to employees after consideration of
individual employees tax withholding obligations, at the
election of each employee. During 2010, the Company repurchased
12,717 shares at a weighted average of $6.74 per share to
cover the participants tax liability.
During 2010, 2009 and 2008, the Company recognized approximately
$0.8 million, $0.3 million and $0.1 million,
respectively, in compensation expense related to these grants,
and expects to record an additional $1.1 million in
compensation expense over the remaining vesting periods.
Employee
Stock Purchase Plan
In 2008, the Company adopted a new employee stock purchase plan
(ESPP) upon expiration of its previous plan. Under
the ESPP, 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, or more than 10,000 total shares, in any calendar year.
As allowed under the 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. During
2010, 2009 and 2008, 32,162, 54,871 and 22,265 shares,
respectively, were issued, and approximately $20,000, $22,000
and $38,000 was recorded in compensation expense associated with
the plan.
Non-controlling
Interest and Operating Partnership Units
As discussed above in Note 1, the Company is a general
partner of RLHLP and at December 31, 2010, held more than a
99% interest in that entity. Partners who hold operating
partnership units (OP Units) have the right to
put those units to RLHLP, in which event either (i) RLHLP
must redeem the units for cash, or (ii) the Company, as
general partner, may elect to acquire the OP Units for cash
or in exchange for a like number of shares of its common stock.
At December 31, 2010 and 2009, 44,837 OP Units held by
limited partners remained outstanding.
77
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
Earnings
(Loss) Per Share
|
The following table presents a reconciliation of the numerators
and denominators used in the basic and diluted earnings (loss)
per common share computations for the years ended
December 31, 2010, 2009 and 2008 (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(8,230
|
)
|
|
$
|
(6,597
|
)
|
|
$
|
(1,817
|
)
|
Net (income) loss attributable to noncontrolling interest
|
|
|
10
|
|
|
|
1
|
|
|
|
12
|
|
Net Income (loss) on discontinued operations
|
|
|
(389
|
)
|
|
|
(67
|
)
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels Corporation
|
|
$
|
(8,609
|
)
|
|
$
|
(6,663
|
)
|
|
$
|
(1,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
18,485
|
|
|
|
18,106
|
|
|
|
18,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
18,485
|
|
|
|
18,106
|
|
|
|
18,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to Red Lion Hotels
Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) from continuing operations
|
|
$
|
(0.45
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.10
|
)
|
Net (Income) loss attributable to noncontrolling interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net Income (loss) on discontinued operations
|
|
$
|
(0.02
|
)
|
|
$
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Red Lion Hotels Corporation
|
|
$
|
(0.47
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, 2009 and 2008, the effect of
converting the 44,837 outstanding OP Units during those
periods was considered anti-dilutive due to reported net losses
attributable to Red Lion Hotels Corporation and excluded from
the above calculations.
At December 31, 2010, 2009 and 2008, 478,047, 1,194,460 and
1,311,215 options to purchase common shares, respectively, were
outstanding. At December 31, 2010, 2009 and 2008, all of
the options to purchase common shares were considered
anti-dilutive and excluded from the above calculations. At
December 31, 2010, 2009 and 2008, all 220,816, 239,318 and
48,866 outstanding but unvested restricted stock units,
respectively, were considered anti-dilutive.
78
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Major components of the income tax (benefit) expense for the
years ended December 31, 2010, 2009 and 2008, are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal (benefit) expense
|
|
$
|
179
|
|
|
$
|
(886
|
)
|
|
$
|
(225
|
)
|
State (benefit) expense
|
|
|
32
|
|
|
|
|
|
|
|
(49
|
)
|
Deferred (benefit) expense
|
|
|
(5,148
|
)
|
|
|
(3,184
|
)
|
|
|
(890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense attributable to Red Lion Hotels
Corporation
|
|
|
(4,937
|
)
|
|
|
(4,070
|
)
|
|
|
(1,164
|
)
|
Less: tax impact of discontinued operations
|
|
|
201
|
|
|
|
34
|
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense from continuing operations
|
|
$
|
(4,736
|
)
|
|
$
|
(4,036
|
)
|
|
$
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax (benefit) expense shown in the consolidated
statements of operations differs from the amounts calculated
using the federal statutory rate applied to income before income
taxes as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
(Benefit) provision at federal statutory rate
|
|
$
|
(4,605
|
)
|
|
|
(34.0
|
)%
|
|
$
|
(3,649
|
)
|
|
|
(34.0
|
)%
|
|
$
|
(950
|
)
|
|
|
(33.8
|
)%
|
State tax (benefit) expense
|
|
|
(200
|
)
|
|
|
(1.5
|
)%
|
|
|
(371
|
)
|
|
|
(3.4
|
)%
|
|
|
(49
|
)
|
|
|
(1.7
|
)%
|
Effect of tax credits
|
|
|
(422
|
)
|
|
|
(3.1
|
)%
|
|
|
(343
|
)
|
|
|
(3.2
|
)%
|
|
|
(274
|
)
|
|
|
(9.7
|
)%
|
Tax exempt interest
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
(39
|
)
|
|
|
(1.4
|
)%
|
Other
|
|
|
290
|
|
|
|
2.2
|
%
|
|
|
293
|
|
|
|
2.7
|
%
|
|
|
148
|
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense attributable to Red Lion Hotels
Corporation
|
|
|
(4,937
|
)
|
|
|
(36.4
|
)%
|
|
|
(4,070
|
)
|
|
|
(37.9
|
)%
|
|
|
(1,164
|
)
|
|
|
(41.3
|
)%
|
Less: tax impact of discontinued operations
|
|
|
201
|
|
|
|
1.5
|
%
|
|
|
34
|
|
|
|
0.3
|
%
|
|
|
(87
|
)
|
|
|
(3.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense from continuing operations
|
|
$
|
(4,736
|
)
|
|
|
(34.9
|
)%
|
|
$
|
(4,036
|
)
|
|
|
(37.6
|
)%
|
|
$
|
(1,251
|
)
|
|
|
(44.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the net deferred tax assets and
liabilities at December 31, 2010 and 2009, are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Property and equipment
|
|
$
|
|
|
|
$
|
13,514
|
|
|
$
|
|
|
|
$
|
16,652
|
|
Brand name
|
|
|
|
|
|
|
2,491
|
|
|
|
|
|
|
|
2,490
|
|
Other intangible assets
|
|
|
124
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
Rental income
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
248
|
|
Gain on sale leaseback
|
|
|
1,760
|
|
|
|
|
|
|
|
1,928
|
|
|
|
|
|
Tax credit carryforwards
|
|
|
3,311
|
|
|
|
|
|
|
|
2,689
|
|
|
|
|
|
Federal net operating losses
|
|
|
1,566
|
|
|
|
|
|
|
|
658
|
|
|
|
|
|
Impact of CPF consolidation
|
|
|
1,038
|
|
|
|
|
|
|
|
594
|
|
|
|
|
|
Other
|
|
|
799
|
|
|
|
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,598
|
|
|
$
|
16,025
|
|
|
$
|
6,795
|
|
|
$
|
19,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 and 2009, the Company had federal
gross operating loss carryforwards of approximately
$4.9 million and $1.5 million, respectively; state
gross operating loss carryforwards of approximately
$5.4 million and $5.4 million, respectively; and
federal and state tax credit carryforwards of approximately
$3.3 million and $2.7 million. The net operating loss
carryforwards will expire beginning in 2028; the federal credits
will begin to expire in 2025; and the state credits will carry
forward indefinitely. A valuation allowance against the deferred
tax assets has not been established as the Company believes
its more likely than not that these assets will be
realized.
The Company recognizes the financial statement effect of a tax
position when, based on the technical merits of the uncertain
tax position, it is more likely than not to be sustained on a
review by taxing authorities. These estimates are based on
judgments made with currently available information. The Company
reviews these estimates and makes changes to recorded amounts of
uncertain tax positions as facts and circumstances warrant. The
Company has no material uncertain tax positions at
December 31, 2010 and 2009, and does not anticipate a
significant change in any unrecognized tax benefits over the
next twelve months. Accordingly, the Company has not provided
for any unrecognized tax benefits or related interest and
penalties. The Company accounts for penalties and interest
related to unrecognized tax benefits as a component of income
tax expense. With limited exception, the Company is no longer
subject to U.S. federal, state and local income tax
examinations by taxing authorities for years prior to 2004.
|
|
17.
|
Operating
Lease Income
|
The Company leases commercial retail and office space to various
tenants over terms ranging through 2047. The leases generally
provide for fixed minimum monthly rent as well as tenants
payments for their pro rata share of taxes and insurance and
common area maintenance and expenses. Rental income for the
years ended December 31, 2010, 2009 and 2008, from
continuing operations was approximately $3.1 million,
$3.6 million and $3.6 million, respectively, which
included contingent rents of approximately $0.2 million,
$0.2 million and $0.4 million,
80
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
respectively. Future minimum lease income under existing
non-cancelable leases as of December 31, 2010, is
anticipated to be as follows (in thousands):
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
$
|
2,338
|
|
2012
|
|
|
1,720
|
|
2013
|
|
|
441
|
|
2014
|
|
|
335
|
|
2015
|
|
|
261
|
|
Thereafter
|
|
|
1,463
|
|
|
|
|
|
|
Total
|
|
$
|
6,558
|
|
|
|
|
|
|
|
|
18.
|
Operating
Lease Commitments
|
Total future minimum payments due under all current term
operating leases at December 31, 2010, were as indicated
below (in thousands). Through 2012, the amounts shown are net of
$10.5 million of sublease income to be earned annually.
Thereafter, annual sublease income will be $9.9 million
through 2020. Total rent expense from continuing operations, net
of sublease income under the leases for the years ended
December 31, 2010, 2009, and 2008 was $7.2 million,
$8.1 million, and $7.9 million, respectively, which
included $5.8 million, $6.7 million, and
$6.7 million of hotel facility and land lease expense, as
presented on the Consolidated Statements of Operations.
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
$
|
9,439
|
|
2012
|
|
|
9,363
|
|
2013
|
|
|
8,397
|
|
2014
|
|
|
8,029
|
|
2015
|
|
|
8,029
|
|
Thereafter
|
|
|
28,926
|
|
|
|
|
|
|
Total
|
|
$
|
72,183
|
|
|
|
|
|
|
In 2001, the Company assumed a master lease agreement for 17
hotel properties, including 12 which were part of the Red Lion
acquisition. Subsequently, the Company 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, the Company amended
the master lease agreement to exclude the Astoria, Oregon
property due to its closure earlier in the year. Total fees paid
to amend the agreement were $0.3 million. The master lease
agreement requires minimum monthly payments of $1.2 million
plus contingent rents based on gross receipts from the remaining
16 hotels, of which approximately $0.8 million per month is
paid by a
sub-lease
tenant. The lease agreement expires in December 2020, although
the Company has the option to extend the term on a
hotel-by-hotel
basis for three additional five-year terms.
In July 2007, the Company entered into an agreement to sublease
the Red Lion Hotel Sacramento to a third party with an initial
lease term expiring in 2020. In connection with the sublease
agreement, as well as an amendment to that agreement entered
into during the second quarter of 2009, the Company received
deferred lease income of $3.9 million, which was to be
amortized over the life of the sublease agreement. The sublease
agreement provided for annual rent payments of
$1.4 million. As part of the agreements, the Company
committed to reimburse the tenant for up to $3.9 million in
tenant improvement expenses, all of which had been incurred and
reimbursed by December 31, 2009. In December 2010, this
sublease agreement was terminated and the $3.0 million
remainder of deferred lease income was recognized in that month.
The table above no longer considers the annual rent payments
81
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of $1.4 million that were to be received from this
subtenant. An agreement with a new subtenant was finalized on
February 22, 2011, which provides for initial minimum
annual rent payments of $0.4 million, which are not
reflected in the table above.
In October 2007 the Company 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 the acquisition. As required under the terms of the
leasehold agreement, the Company will pay $1.8 million per
year in lease payments through April 2011. At the Companys
option, the initial five-year term of the lease may be extended
for 19 additional terms of five years each, with the increases
in lease payments tied directly to the Consumer Price Index. The
Company has exercised the option to extend an additional
5 year term beginning in May 2011. The monthly payments
shown in the table above extend through April 2016 to reflect
this 5 year extension.
In May 2008, the Company completed an acquisition of a hotel in
Denver, Colorado. In connection with the purchase agreement, the
Company assumed an office lease used by guests contracted to
stay at the hotel for $0.6 million annually. As part of
this contract business, the Company is reimbursed the lease
expense. The lease expires in August 2012, and its expense has
been included in the table above.
|
|
19.
|
Change in
Executive Officers
|
In January 2010, the Company terminated an employment agreement
with its President and Chief Executive Officer, who was also a
director. In connection therewith, the Company recorded
$1.2 million for separation and other benefits during the
first quarter of 2010, including $0.4 million in
stock-based compensation expense. Under the terms of the
agreement, 84,433 of the former executives restricted
stock vested. Pursuant to a separate agreement entered into in
connection with the termination, the exercise period for 80,000
vested stock options was extended for six months.
In February 2008, the President and Chief Executive Officer of
the Company at the time, who was also a director of the Company,
retired. In connection therewith, the Company entered into a
written retirement agreement with the executive that included
separation payments and benefits of $2.2 million in value.
Under the terms of the agreement, the unvested portion of the
former executives 545,117 stock options and 12,990
restricted stock units immediately vested, resulting in expense
of $1.0 million during the first quarter of 2008. In
addition, under the terms of the retirement agreement, the
exercise period for 414,191 of the options was extended to
February 2011 or until the earlier expiration of their original
10-year
term. The remaining 130,926 stock options expired in May 2008.
The modification to the terms of the previously granted equity
awards resulted in additional stock based compensation expense
of $0.4 million. In total, the Company recognized
$3.7 million in expense during the first quarter of 2008
related to this retirement.
In October 2008, the Company terminated an employment agreement
with an Executive Vice President resulting in an expense of
$0.9 million for separation payments and other benefits.
The $0.9 million was recorded as a component of
restructuring expenses on the consolidated statement of
operations for the year ending December 31, 2008. Under the
terms of the agreement, the unvested portion of the former
executives 157,900 stock options and 5,549 restricted
stock units immediately vested, resulting in expense of
$0.3 million during the fourth quarter of 2008.
|
|
20.
|
Related-Party
Transactions
|
The Company conducted various business transactions during 2010,
2009 and 2008 in which the counterparty was considered a related
party due to the relationships between the Company and the
counterpartys officers, directors
and/or
equity owners. The nature of the transactions was limited to
performing certain management and administrative functions for
the related entities, commissions for real estate sales and
leased office space. The total aggregate value of these
transactions in 2010, 2009 and 2008 was $0.4 million,
$0.4 million and $0.3 million, respectively.
82
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2010 and 2009, the Company held certain cash and
investment accounts in, and had notes payable to, a bank whose
chairman and chief executive officer is a member of the
Companys board of directors. At December 31, 2010 and
2009, total cash and investments held was approximately
$0.05 million and $0.1 million, respectively, with
outstanding notes payable totaling approximately
$0.7 million and $1.4 million, respectively. Net
interest expense of $0.06 million, $0.1 million and
$0.1 million, respectively, related to an outstanding note
payable to this bank was recorded during 2010, 2009 and 2008.
|
|
21.
|
Fair
Value of Financial Instruments
|
Estimated fair values of financial instruments are as indicated
below (in thousands). The carrying amounts for cash and cash
equivalents, current investments, 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 December 31, 2010, of the underlying trust
preferred securities, as discussed in Note 12, on the New
York Stock Exchange, plus the face value of the debenture amount
representing the trust common securities held by the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash
|
|
$
|
8,132
|
|
|
$
|
8,132
|
|
|
$
|
7,682
|
|
|
$
|
7,682
|
|
Accounts receivable
|
|
$
|
5,985
|
|
|
$
|
5,985
|
|
|
$
|
6,993
|
|
|
$
|
6,993
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities, excluding debt
|
|
$
|
22,454
|
|
|
$
|
22,454
|
|
|
$
|
17,205
|
|
|
$
|
17,205
|
|
Total debt
|
|
$
|
95,152
|
|
|
$
|
95,400
|
|
|
$
|
106,322
|
|
|
$
|
105,073
|
|
Debentures
|
|
$
|
30,825
|
|
|
$
|
31,279
|
|
|
$
|
30,825
|
|
|
$
|
25,897
|
|
The fair values provided above are not necessarily indicative of
the amounts the Company or the debt holders could realize in a
current market exchange. In addition, potential income tax
ramifications related to the realization of gains and losses
that would be incurred in an actual sale or settlement have not
been taken into consideration.
|
|
22.
|
Discontinued
Operations
|
During the fourth quarter of 2010, the Company concluded that
one of its leased hotels 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 assets and liabilities and operating results of this hotel
from continuing operations on the Companys balance sheet
and in the consolidated statements of operations for the year
2010 and any comparable periods presented.
83
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes results of discontinued
operations for the periods indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
1,607
|
|
|
$
|
1,942
|
|
Operating expenses
|
|
|
(498
|
)
|
|
|
(1,450
|
)
|
|
|
(1,612
|
)
|
Depreciation and amortization
|
|
|
(34
|
)
|
|
|
(81
|
)
|
|
|
(75
|
)
|
Income tax benefit (expense)
|
|
|
181
|
|
|
|
(26
|
)
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
|
(351
|
)
|
|
|
50
|
|
|
|
168
|
|
Loss on disposal of discontinued business units
|
|
|
(58
|
)
|
|
|
(177
|
)
|
|
|
|
|
Income tax benefit
|
|
|
20
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on disposal of discontinued business units
|
|
|
(38
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued operations
|
|
$
|
(389
|
)
|
|
$
|
(67
|
)
|
|
$
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following assets and liabilities have been segregated and
classified as assets and liabilities of discontinued operations
in the consolidated balance sheets as of December 31, 2010
and December 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
4
|
|
Accounts receivable, net
|
|
|
|
|
|
|
2
|
|
Inventory
|
|
|
|
|
|
|
9
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Total current assets of discontinued operations
|
|
$
|
|
|
|
$
|
61
|
|
Property and equipment, net
|
|
|
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
Total assets of discontinued operations
|
|
$
|
|
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable
|
|
$
|
|
|
|
$
|
1
|
|
Accrued payroll and related benefits
|
|
|
|
|
|
|
2
|
|
Other accrued expenses
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations
|
|
$
|
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
On January 10, 2011, the Company signed an amendment to its
credit facility in order to further increase its financial
covenant flexibility. The amendments to the facility, secured by
its Red Lion Hotel on Fifth Avenue property, modified its total
leverage ratio and senior leverage ratio covenants for the
remaining term of the facility. The Company paid an initial fee
of $112,500 in connection with the amendment and increased the
rate on Eurodollar borrowings to LIBOR plus 4.50%, while the
interest rate on base rate loans was increased to 3.50% over the
federal funds rate plus 0.5% or the prime rate, whichever is
greater. The amendment also further reduced borrowing capacity
from $37.5 million to $30.0 million. With respect to
certain other debt obligations in the aggregate amount of
approximately $23.4 million that are scheduled to mature in
2011, the Company agreed as to
84
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
each such obligation that, by June 24, 2011, it will either
extend the maturity of the obligation to at least March 13,
2012, repay the obligation in full, or provide the
Administrative Agent with satisfactory evidence that it has
arranged for the repayment of the obligation by its scheduled
maturity date. The Company agreed that, if it sells any capital
stock or disposes of or refinances any of its properties, it
will apply 80% of the net cash proceeds to prepay the facility,
and the commitment under the facility will be reduced by the
amount of the prepayment. In addition to the initial amendment
fee, the Company agreed to pay 50 basis points times the
then existing commitment if the facility is still in place on
March 31, 2011 and 87.5 basis points times the then
existing commitment if the facility is still in place on
June 30, 2011.
On January 18, 2011, the Company announced a plan for the
strategic sale of two hotel properties, its Red Lion Hotel on
Fifth Avenue, located in Seattle, Washington and its Red Lion
Hotel Denver Southeast located in Aurora, Colorado.
Both of the above listed for sale transactions were reviewed in
accordance with accounting guidance on the topic of property,
plant and equipment to determine whether or not they met the
criteria to be classified as an asset held for sale,
and neither one of the proposed transactions met all of the
criteria necessary to classify the assets as held for sale as of
the balance sheet date of December 31, 2010.
On February 14, 2011, the Company announced that its board
of directors appointed Jon E. Eliassen to the position of
President and Chief Executive Officer, removing his previous
interim status. Mr. Eliassen had served as Interim
President and Chief Executive Officer since January 2010.
Mr. Eliassen has served on the Companys board of
directors since 2003 and continues to serve as a member of the
board.
On March 10, 2011, the Company announced a plan for the
strategic sale of its Red Lion Colonial Hotel located in Helena,
Montana.
85
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosures
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
As of December 31, 2010, we carried out an evaluation,
under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief
Financial Officer (CEO and CFO), of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, our
management, including the CEO and CFO, concluded that our
disclosure controls and procedures were effective to ensure that
material information required to be disclosed by us in the
reports filed or submitted by us under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within time periods specified in Securities and Exchange
Commission rules and forms.
There were no changes in internal control over financial
reporting, as defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f),
during the fourth fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal
controls over financial reporting.
Managements
Annual Report on Internal Control Over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over our financial reporting, which is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles in the United States of
America.
Because of its inherent limitations, any system of internal
controls over financial reporting, no matter how well designed,
may not prevent or detect misstatements due to the possibility
that a control can be circumvented or overridden or that
misstatements due to error or fraud may occur that are not
detected. Also, because of changes in conditions, internal
control effectiveness may vary over time.
Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2010, using
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and concluded that we
have maintained effective internal control over financial
reporting as of December 31, 2010, based on these criteria.
Our assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2010, has been
audited by BDO USA, LLP, an independent registered public
accounting firm, as stated in its report which is included
herein.
There have been no changes in our internal control over
financial reporting (as defined in Exchange Act
rules 13a-15(f))
during our fourth fiscal quarter of 2010, that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
86
Report of
Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Red Lion Hotels Corporation
Spokane, Washington
We have audited Red Lion Hotels Corporations internal
control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Red Lion Hotels Corporations management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Item 9A, Managements Annual Report on Internal
Control Over Financial Reporting. Our responsibility is to
express an opinion on the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Red Lion Hotels Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Red Lion Hotels Corporation as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, changes in stockholders equity,
and March 16, 2011, expressed an unqualified opinion
thereon.
/s/ BDO USA, LLP
BDO USA, LLP
Spokane, Washington
March 16, 2011
87
|
|
Item 9B.
|
Other
Information
|
Not applicable.
PART III
|
|
Item 10.
|
Directors
and Executive Officers and Corporate Governance
|
The information required by this Item 10 is incorporated by
reference to the information set forth in the Companys
definitive proxy statement, to be filed with the SEC within
120 days after the end of the Companys fiscal year
ended December 31, 2010 pursuant to Regulation 14A
under the Exchange Act in connection with our 2011 annual
meeting of stockholders. Pursuant to Item 401(b) of
Regulation S-K,
information about our executive officers is reported under the
caption Executive Officers of the Registrant in
Part I of this report.
A portion of the information required by this item is contained
in, and incorporated by reference from, the proxy statement for
our 2010 Annual Meeting of Shareholders under the captions
Proposal 1: Election of Directors,
Section 16(a) Beneficial Ownership Reporting
Compliance and Corporate Governance. We make
available free of charge on our website (www.redlion.com) the
charters of all of the standing committees of our board of
directors (including those of the audit, nominating and
corporate governance and compensation committees), the code of
business conduct and ethics for our directors, officers and
employees, and our corporate governance guidelines. We will
furnish copies of these documents to any shareholder upon
written request sent to our General Counsel,
201 W. North River Drive, Suite 100, Spokane,
Washington
99201-2293.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is contained in, and
incorporated by reference from, the Proxy Statement for our 2011
Annual Meeting of Shareholders under the captions
Compensation Discussion and Analysis,
Executive Compensation and Director
Compensation.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
A portion of the information required by this item is contained
in, and incorporated by reference from, the Proxy Statement for
our 2011 Annual Meeting of Shareholders under the captions
Security Ownership of Certain Beneficial Owners and
Management.
See Item 5 of this Annual Report on
Form 10-K
for information regarding our equity compensation plans.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is contained in, and
incorporated by reference from, the Proxy Statement for our 2011
Annual Meeting of Shareholders under the captions Certain
Relationships and Related Transactions, and
Corporate Governance Director
Independence.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is contained in, and
incorporated by reference from, the Proxy Statement for our 2011
Annual Meeting of Shareholders under the caption Principal
Accountant Fees and Services.
88
PART
IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
List of documents filed as part of this report:
1. Index to Red Lion Hotels Corporation financial
statements:
2. Index to financial statement schedules:
All schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable or the information is contained in the Financial
Statements and therefore has been omitted.
3. Index to exhibits:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1(1)
|
|
Amended and Restated Articles of Incorporation, as amended.
|
|
3
|
.2(2)
|
|
Amended and Restated By-Laws
|
|
4
|
.1(3)
|
|
Specimen Common Stock Certificate
|
|
4
|
.2(4)
|
|
Certificate of Trust of Red Lion Hotels Capital Trust
|
|
4
|
.3(4)
|
|
Declaration of Trust of Red Lion Hotels Capital Trust
|
|
4
|
.4(5)
|
|
Amended and Restated Declaration of Trust of Red Lion Hotels
Capital Trust
|
|
4
|
.5(5)
|
|
Indenture for 9.5% Junior Subordinated Debentures Due February
24, 2044
|
|
4
|
.6(5)
|
|
Form of Certificate for 9.5% Trust Preferred Securities
(Liquidation Amount of $25 per Trust Preferred Security) of Red
Lion Hotels Capital Trust (included in Exhibit 4.5 as Exhibit
A-1)
|
|
4
|
.7(5)
|
|
Form of 9.5% Junior Subordinated Debenture Due February 24, 2044
(included in Exhibit 4.6 as Exhibit A)
|
|
4
|
.8(5)
|
|
Trust Preferred Securities Guarantee Agreement dated February
24, 2004
|
|
4
|
.9(5)
|
|
Trust Common Securities Guarantee Agreement dated February 24,
2004
|
|
|
|
|
Executive Compensation Plans and Agreements
|
|
10
|
.1(6)
|
|
1998 Stock Incentive Plan
|
|
10
|
.2(7)
|
|
Form of Restricted Stock Award Agreement for the 1998 Stock
Incentive Plan
|
|
10
|
.3(8)
|
|
Form of Notice of Grant of Stock Options and Option Agreement
for the 1998 Stock Incentive Plan
|
|
10
|
.4(9)
|
|
2006 Stock Incentive Plan
|
|
10
|
.5(10)
|
|
Form of Restricted Stock Unit Agreement -- Notice of Grant for
the 2006 Stock Incentive Plan
|
|
10
|
.6(11)
|
|
Form of Notice of Grant of Stock Options and Option Agreement
for the 2006 Stock Incentive Plan
|
|
10
|
.7(12)
|
|
2008 Employee Stock Purchase Plan
|
|
10
|
.8(13)
|
|
First Amendment to 2008 Employee Stock Purchase Plan
|
|
10
|
.9(14)
|
|
Executive Officers Variable Pay Plan Effective January 1, 2005
|
|
10
|
.10
|
|
Summary Sheet for Director Compensation
|
|
10
|
.11(15)
|
|
Executive Employment Agreement dated April 22, 2008 between the
Registrant and Thomas L. McKeirnan
|
|
10
|
.12(15)
|
|
Executive Employment Agreement dated April 22, 2008 between the
Registrant and Anupam Narayan
|
|
10
|
.13(15)
|
|
Executive Employment Agreement dated June 5, 2008 between the
Registrant and John M. Taffin
|
89
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.14(15)
|
|
Executive Employment Agreement dated June 5, 2008 between the
Registrant and Anthony F. Dombrowik
|
|
10
|
.15(15)
|
|
Executive Employment Agreement dated June 5, 2008 between the
Registrant and George H. Schweitzer
|
|
10
|
.16(16)
|
|
Letter Agreement dated January 29, 2010 between the Registrant
and Anupam Narayan
|
|
|
|
|
Other Material Contracts
|
|
10
|
.17(17)
|
|
Amended and Restated Agreement of Limited Partnership of Red
Lion Hotels Limited Partnership dated November 1, 1997
|
|
10
|
.18(4)
|
|
First Amendment dated January 1, 1998 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.19(4)
|
|
Second Amendment dated April 20, 1998 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.20(4)
|
|
Third Amendment dated April 28, 1998 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.21(4)
|
|
Fourth Amendment dated June 14, 1999 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.22(4)
|
|
Fifth Amendment dated January 1, 2000 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.23(4)
|
|
Sixth Amendment dated June 30, 2000 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.24(4)
|
|
Seventh Amendment dated January 1, 2001 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.25(18)
|
|
Eighth Amendment dated September 20, 2005 to Amended and
Restated Agreement of Limited Partnership of Red Lion Hotels
Limited Partnership dated November 1, 1997
|
|
10
|
.26(18)
|
|
Ninth Amendment dated February 2, 2006 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.27(19)
|
|
Tenth Amendment dated February 15, 2006 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
|
10
|
.28(20)
|
|
Promissory Note dated effective as of June 27, 2003, in the
original principal amount of $5,100,000 issued by WHC807, LLC, a
Delaware limited liability company indirectly controlled by the
Registrant (WHC807), to Column Financial, Inc.
(Column) (the WHC807 Promissory Note).
Nine other Delaware limited liability companies indirectly
controlled by the Registrant (the Other LLCs)
simultaneously issued nine separate Promissory Notes to Column
in an aggregate original principal amount of $50,100,000 and
otherwise on terms and conditions substantially similar to those
of the WHC807 Promissory Note (these Promissory Notes and their
respective issuers and principal amounts are identified in
Exhibit D to the Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing filed as Exhibit 10.44).
|
|
10
|
.29(20)
|
|
Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing dated effective as of June 27,
2003, with WHC807 as grantor and Column as beneficiary (the
WHC807 Deed of Trust). Each of the Other LLCs
simultaneously executed a separate Deed of Trust, Assignment of
Leases and Rents, Security Agreement and Fixture Filing as
grantor with Column as beneficiary and otherwise on terms and
conditions substantially similar to those of the WHC807 Deed of
Trust (these nine other documents and their respective grantors
and the respective parcels of real property encumbered thereby
are identified in Exhibit E to the WHC807 Deed of Trust).
|
|
10
|
.30(20)
|
|
Indemnity and Guaranty Agreement dated effective as of June 27,
2003, between the Registrant and Column with respect to the
WHC807 Promissory Note and the WHC807 Deed of Trust. The
Registrant and Column have entered into nine separate Indemnity
and Guaranty Agreements on substantially similar terms and
conditions with respect to the Other LLCs Promissory Notes
and Deeds of Trust, Assignments of Leases and Rents, Security
Agreements and Fixture Filings referred to in Exhibits 10.43 and
10.44, respectively.
|
90
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.31(21)
|
|
Credit Agreement dated September 13, 2006 among the Registrant,
Credit Agricole Corporate and Investment Bank (formerly Calyon
New York Branch), Sole Lead Arranger and Administrative Agent,
KeyBank National Association, Documentation Agent, CIBC, Inc.,
Union Bank of California, N.A. and Wells Fargo Bank, N.A.
|
|
10
|
.32(22)
|
|
First Amendment dated February 8, 2010 to Credit Agreement among
the Registrant, Credit Agricole Corporate and Investment Bank,
Sole Lead Arranger and Administrative Agent, KeyBank National
Association, Documentation Agent, CIBC, Inc., Union Bank, N.A.
and Wells Fargo Bank, National Association
|
|
10
|
.33(23)
|
|
Second Amendment dated January 10, 2011 to Credit Agreement
among the Registrant, Credit Agricole Corporate and Investment
Bank, Sole Lead Arranger and Administrative Agent, KeyBank
National Association, Documentation Agent, CIBC, Inc., Union
Bank, N.A. and Wells Fargo Bank, National Association
|
|
21
|
|
|
List of Subsidiaries of Red Lion Hotels Corporation
|
|
23
|
|
|
Consent of BDO USA, LLP
|
|
24
|
|
|
Powers of Attorney (included on signature page)
|
|
31
|
.1
|
|
Certification of principal executive officer pursuant to
Exchange Act Rule 13a-14(a)
|
|
31
|
.2
|
|
Certification of principal financial officer pursuant to
Exchange Act Rule 13a-14(a)
|
|
32
|
.1
|
|
Certification of principal executive officer pursuant to
Exchange Act Rule 13a-14(b)
|
|
32
|
.2
|
|
Certification of principal financial officer pursuant to
Exchange Act Rule 13a-14(b)
|
|
|
|
(1) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
10-K filed
by us on March 12, 2009. |
|
(2) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
10-K filed
by us on March 31, 2003. |
|
(3) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
S-3/A filed
by us on May 15, 2006. |
|
(4) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
S-1 filed by
us on November 4, 2003. |
|
(5) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
8-K filed by
us on March 19, 2004. |
|
(6) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
10-Q filed
by us on May 15, 2001. |
|
(7) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
S-1 filed by
us on January 20, 1998. |
|
(8) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit the
Form 8-K
filed by us on November 15, 2005. |
|
(9) |
|
Previously filed with the Securities and Exchange Commission as
an appendix to the Schedule 14A filed by us on
April 20, 2006. |
|
|
|
(10) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
8-K filed by
us on November 22, 2006. |
|
(11) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
10-Q filed
by us on August 14, 2006. |
|
(12) |
|
Previously filed with the Securities and Exchange Commission as
an appendix to the Schedule 14A filed by us on
April 22, 2008. |
|
(13) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
10-K filed
by us on March 11, 2010. |
91
|
|
|
(14) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
8-K filed by
us on March 23, 2005. |
|
(15) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
10-Q filed
by us on August 7, 2008. |
|
(16) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
10-K filed
by us on March 11, 2010. |
|
(17) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
S-1/A filed
by us on February 27, 1998. |
|
(18) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
8-K filed by
us on February 8, 2006. |
|
(19) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
8-K filed by
us on February 22, 2006. |
|
(20) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
10-Q filed
by us on August 14, 2003. |
|
(21) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
8-K filed by
us on September 18, 2006. |
|
(22) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
8-K filed by
us on February 9, 2010. |
|
(23) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the Form
8-K filed by
us on January 13, 2011. |
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Jon E. Eliassen
President and Chief Executive Officer
Date: March 16, 2011
POWERS OF
ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Jon E. Eliassen and Dan R. Jackson and each of them
severally, such persons true and lawful attorneys-in-fact
and agents, with full power to act without the other and with
full power of substitution and resubstitution, to execute in the
name and on behalf of such person, individually and in each
capacity stated below, any and all amendments to this report,
and any and all other instruments necessary or incidental in
connection herewith, and to file the same with the Securities
and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ JON
E. ELIASSEN
Jon
E. Eliassen
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
March 16, 2011
|
|
|
|
|
|
/s/ DAN
R. JACKSON
Dan
R. Jackson
|
|
Executive Vice President, Chief Financial Officer (Principal
Financial Officer)
|
|
March 16, 2011
|
|
|
|
|
|
/s/ SANDRA
J. HEFFERNAN
Sandra
J. Heffernan
|
|
Vice President, Corporate Controller (Principal Accounting
Officer)
|
|
March 16, 2011
|
|
|
|
|
|
/s/ DONALD
K. BARBIERI
Donald
K. Barbieri
|
|
Chairman of the Board of Directors
|
|
March 16, 2011
|
|
|
|
|
|
/s/ RICHARD
L. BARBIERI
Richard
L. Barbieri
|
|
Director
|
|
March 16, 2011
|
|
|
|
|
|
/s/ RYLAND
P. DAVIS
Ryland
P. Davis
|
|
Director
|
|
March 16, 2011
|
|
|
|
|
|
/s/ RAYMOND
R. BRANDSTROM
Raymond
R. Brandstrom
|
|
Director
|
|
March 16, 2011
|
93
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ PETER
F. STANTON
Peter
F. Stanton
|
|
Director
|
|
March 16, 2011
|
|
|
|
|
|
/s/ RONALD
R. TAYLOR
Ronald
R. Taylor
|
|
Director
|
|
March 16, 2011
|
|
|
|
|
|
/s/ MELVIN
L. KEATING
Melvin
L. Keating
|
|
Director
|
|
March 16, 2011
|
94