Red Lion Hotels CORP - FORM 8-K - EX-99.2

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EX-99.1 - EX-99.1 - Red Lion Hotels CORP	d528635dex991.htm
8-K - 8-K - Red Lion Hotels CORP	d528635d8k.htm

Exhibit 99.2

Unaudited Proforma Financial Statements

The following Unaudited Pro Forma Financial Statements are based on Red Lion Hotels Corporation’s (the “Company’s”) historical consolidated results of operations and financial position, adjusted to give effect to the asset sales described in Item 2.01 of this Form 8-K, as if they had been completed on September 30, 2017 with respect to the pro forma unaudited condensed balance sheet and as of January 1, 2014 with respect to the pro forma unaudited condensed statements of operations.

The Unaudited Pro Forma Financial Statements and the accompanying notes should be read together with the Company’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2016, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”) and its unaudited condensed consolidated financial statements and accompanying notes as of and for the nine months ended September 30, 2017 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Quarterly Report on Form 10-Q (“Quarterly Report”) for the nine months ended September 30, 2017. The Unaudited Pro Forma Financial Statements may differ materially from the future financial position or results of operations due to a number of factors described in “Risk Factors” under Item 1A of Part 1 of our Annual Report and “Forward-Looking Statements” under Item 1 of Part 1 of our Annual Report.

Red Lion Hotels Corporation

Unaudited Pro Forma Condensed Consolidated Balance Sheet

September 30, 2017


	As Reported			Adjustments from sale of the Entertainment Segment (j)			Less: Redding and Eureka Hotel Assets Sold (m)			Less: Hotel Assets Sold				Add: Pro Forma Adjustments				Pro Forma
							(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	36,179		$	(2,928	)	$	1,565		$	6,494		(a)	$	148		(f)	$	39,312
															948		(g)
															(3,094	)	(h)
Restricted cash		12,946						(964	)						(948	)	(g)		11,034
Accounts receivable, net		14,450						(266	)						(923	)	(f)		13,261
Accounts receivable from related parties		1,824									—								1,824
Notes receivable, net		1,572									—								1,572
Inventories		631						(65	)		(113	)	(b)						453
Prepaid expenses and other		5,156			300			(115	)						(165	)	(f)		5,176
Assets held for sale		4,285			(4,285	)													—

Total current assets		77,043			(6,913	)		155			6,381				(4,034	)			72,632

Property and equipment, net		204,131						(10,814	)		(21,355	)	(b)		—				171,962
Goodwill		9,404													—				9,404
Intangible assets		51,306													—				51,306
Other assets, net		1,843			300														2,143

Total assets	$	343,727		$	(6,613	)	$	(10,659	)	$	(14,974	)		$	(4,034	)		$	307,447

LIABILITIES
Current liabilities:
Accounts payable	$	5,555					$	(76	)					$	(139	)	(f)		5,340
Accrued payroll and related benefits		5,516						(128	)						(278	)	(f)		5,110
Other accrued entertainment liabilities held for sale		6,757			(6,757	)													—
Other accrued liabilities		6,087						(337	)		(43	)	(c)		(358	)	(f)		5,349
Long-term debt, due within one year		24,422						(148	)		(242	)	(d)		—				24,032
Contingent consideration for acquisition due to related party, due within one year		7,581									—				—				7,581
Liabilities related to assets held for sale		739			(739	)													—

Total current liabilities		56,657			(7,496	)		(689	)		(285	)			(775	)			47,412

Long-term debt, due after one year, net of debt issuance costs		87,040						(15,156	)		(22,581	)	(d)		—				49,303
Contingent consideration for acquisition due to related party, due after one year		4,944									—				—				4,944
Deferred income and other long term liabilities		1,666						(84	)		(145	)	(c)		—				1,437
Deferred income taxes		6,132									—				—				6,132

Total liabilities		156,439			(7,496	)		(15,929	)		(23,011	)			(775	)			109,228

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; 23,611,519 and 23,434,480 shares issued and outstanding		236									—				—				236
Additional paid-in capital, common stock		173,341									—				—				173,341
Accumulated deficit		(16,901	)		883			6,093			8,037		(e)		(165	)	(e)		(2,053	)

Total Red Lion Hotels Corporation stockholders’ equity		156,676			883			6,093			8,037				(165	)			171,524
Noncontrolling interest		30,612						(823	)		—				(3,094	)	(i)		26,695

Total stockholders’ equity		187,288			883			5,270			8,037				(3,259	)			198,219

Total liabilities and stockholders’ equity	$	343,727		$	(6,613	)	$	(10,659	)	$	(14,974	)		$	(4,034	)		$	307,447

Red Lion Hotels Corporation

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Nine Months Ended September 30, 2017


	As Reported			Less: Redding and Eureka Hotel Assets Sold (m)			Less: Hotel Assets Sold				Pro Forma
							(in thousands)
Revenue:
Company operated hotels	$	94,214		$	(7,718	)	$	(12,978	)	(k)	$	73,518
Other revenues from managed properties		3,047			—							3,047
Franchised hotels		36,045			737			1,074		(l)		37,856
Entertainment		—			—							—
Other		128			—							128

Total revenues		133,434			(6,981	)		(11,904	)			114,549

Operating expenses:
Company operated hotels		70,450			(6,253	)		(10,257	)	(k)		53,940
Other costs from managed properties		3,047			—							3,047
Franchised hotels		26,300			435			642		(n)		27,377
Entertainment		—			—							—
Other		(2	)		—							(2	)
Depreciation and amortization		13,742			(664	)		(1,298	)	(k)		11,780
Hotel facility and land lease		3,604			(1	)		(51	)	(k)		3,552
Gain on asset dispositions, net		(334	)		5							(329	)
General and administrative expenses		11,348			263			436		(o)		12,047
Acquisition and integration costs		1,246			—			—				1,246

Total operating expenses		129,401			(6,215	)		(10,528	)			112,658

Operating income (loss)		4,033			(766	)		(1,376	)			1,891
Other income (expense):
Interest expense		(6,114	)		391			668		(p)		(5,055	)
Other income, net		562			—							562

Total other income (expense)		(5,552	)		391			668				(4,493	)

Income (loss) from continuing operations before taxes		(1,519	)		(375	)		(708	)			(2,602	)
Income tax expense		513			—			—				513

Net income (loss) from continuing operations		(2,032	)		(375	)		(708	)			(3,115	)
Net (income) loss attributable to noncontrolling interest		507			(11	)		51		(i)		547

Net income (loss) attributable to RLH Corporation from continuing operations	$	(1,525	)	$	(386	)	$	(657	)		$	(2,568	)

Earnings (loss) per share — basic
Income (loss) from continuing operations attributable to RLH Corporation	$	(0.06	)								$	(0.11	)
Earnings (loss) per share — diluted
Income (loss) from continuing operations attributable to RLH Corporation	$	(0.06	)								$	(0.11	)
Weighted average shares — basic		23,542										23,542
Weighted average shares — diluted		23,542										23,542

Red Lion Hotels Corporation

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Year Ended December 31, 2016


	As Reported			Less: Deconsolidation of the Entertainment Segment (j)			Less: Redding and Eureka Hotel Assets Sold (m)			Less: Hotel Assets Sold				Pro Forma
				(in thousands)						(in thousands)
Revenue:
Company operated hotels	$	117,641		$	—		$	(9,845	)	$	(16,315	)	(k)	$	91,481
Other revenues from managed properties		5,948			—			—							5,948
Franchised hotels		24,634			—			915			1,291		(l)		26,840
Entertainment		15,719			(15,719	)		—							—
Other		128			—			—							128

Total revenues		164,070			(15,719	)		(8,930	)		(15,024	)			124,397

Operating expenses:
Company operated hotels		91,572			—			(8,111	)		(12,934	)	(k)		70,527
Other costs from managed properties		5,948			—			—							5,948
Franchised hotels		19,315			—			642			900		(n)		20,857
Entertainment		13,635			(13,635	)		—							—
Other		42			—			—							42
Depreciation and amortization		16,281			(186	)		(938	)		(1,884	)	(k)		13,273
Hotel facility and land lease		4,740			—			(2	)		(68	)	(k)		4,670
Gain on asset dispositions, net		(2,437	)		1			3			14		(k)		(2,419	)
General and administrative expenses		11,109			—			337			559		(o)		12,005
Acquisition and integration costs		2,112			—			—							2,112

Total operating expenses		162,317			(13,820	)		(8,069	)		(13,413	)			127,015

Operating income (loss)		1,753			(1,899	)		(861	)		(1,611	)			(2,618	)
Other income (expense):
Interest expense		(6,764	)		—			452			744		(p)		(5,568	)
Other income, net		483			158			—							641

Total other income (expense)		(6,281	)		158			452			744				(4,927	)

Income from operations before taxes		(4,528	)		(1,741	)		(409	)		(867	)			(7,545	)
Income tax expense		312			—			—			—				312

Net income		(4,840	)		(1,741	)		(409	)		(867	)			(7,857	)
Net (income) loss attributable to noncontrolling interest		163			—			(44	)		90		(i)		209

Net income (loss) attributable to Red Lion Hotels Corporation	$	(4,677	)	$	(1,741	)	$	(453	)	$	(777	)		$	(7,648	)

Earnings (loss) per share — basic	$	(0.23	)											$	(0.37	)
Earnings (loss) per share — diluted	$	(0.23	)											$	(0.37	)
Weighted average shares — basic		20,427													20,427
Weighted average shares — diluted		20,427													20,427

Red Lion Hotels Corporation

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Year Ended December 31, 2015


	As Reported			Less: Deconsolidation of the Entertainment Segment (j)			Less: Redding and Eureka Hotel Assets Sold (m)			Less: Hotel Assets Sold				Pro Forma
				(in thousands)						(in thousands)
Revenue:
Company operated hotels	$	116,187		$	—		$	(9,300	)	$	(16,953	)	(k)	$	89,934
Other revenues from managed properties		3,586			—			—							3,586
Franchised hotels		12,039			—			825			1,266		(l)		14,130
Entertainment		11,057			(11,057	)		—							—
Other		51			—			—							51

Total revenues		142,920			(11,057	)		(8,475	)		(15,687	)			107,701

Operating expenses:
Company operated hotels		92,057			—			(7,947	)		(13,512	)	(k)		70,598
Other costs from managed properties		3,586			—			—							3,586
Franchised hotels		11,233			—			658			1,028		(n)		12,919
Entertainment		10,118			(10,118	)		—							—
Other		35			—			—							35
Depreciation and amortization		13,315			(254	)		(967	)		(1,654	)	(k)		10,440
Hotel facility and land lease		6,569			—			(1	)		(68	)	(k)		6,500
Gain on asset dispositions, net		(17,692	)		—			(36	)		(20	)	(k)		(17,748	)
General and administrative expenses		9,819			—			304			489		(o)		10,612
Acquisition and integration costs		779			—			—			—				779

Total operating expenses		129,819			(10,372	)		(7,989	)		(13,737	)			97,721

Operating income		13,101			(685	)		(486	)		(1,950	)			9,980
Other income (expense):
Interest expense		(6,979	)		—			396			628		(p)		(5,955	)
Loss on early retirement of debt		(2,847	)		—			—							(2,847	)
Other income, net		826			(46	)		—			—				780

Total other income (expense)		(9,000	)		(46	)		396			628				(8,022	)

Income from operations before taxes		4,101			(731	)		(90	)		(1,322	)			1,958
Income tax expense		85			—			—			—				85

Net income		4,016			(731	)		(90	)		(1,322	)			1,873
Net (income) loss attributable to noncontrolling interest		(1,297	)		—			113			(406	)	(i)		(1,590	)

Net income attributable to Red Lion Hotels Corporation	$	2,719		$	(731	)	$	23		$	(1,728	)		$	283

Earnings per share — basic	$	0.14												$	0.01
Earnings per share — diluted	$	0.13												$	0.01
Weighted average shares — basic		19,983													19,983
Weighted average shares — diluted		20,200													20,200

Red Lion Hotels Corporation

Unaudited Pro Forma Condensed Consolidated Statement of Operations

Year Ended December 31, 2014


	As Reported			Less: Deconsolidation of the Entertainment Segment (j)			Less: Redding and Eureka Hotel Assets Sold (m)			Less: Hotel Assets Sold				Pro Forma
				(in thousands)						(in thousands)
Revenue:
Company operated hotels	$	118,616		$	—		$	(8,944	)	$	(16,892	)	(k)	$	92,780
Franchised hotels		9,618			—			743			1,161		(l)		11,522
Entertainment		17,115			(17,115	)		—							—
Other		77			—			—							77

Total revenues		145,426			(17,115	)		(8,201	)		(15,731	)			104,379

Operating expenses:
Company operated hotels		94,241			—			(7,599	)		(13,442	)	(k)		73,200
Franchised hotels		7,004			—			622			999		(n)		8,625
Entertainment		14,785			(14,785	)		—							—
Other		318			—			—							318
Depreciation and amortization		12,762			(349	)		(954	)		(1,672	)	(k)		9,787
Hotel facility and land lease		5,210			—			(1	)		(68	)	(k)		5,141
Gain on asset dispositions, net		(4,006	)		—			(1	)		(7	)	(k)		(4,014	)
General and administrative expenses		8,353			—			271			451		(o)		9,075
Acquisition and integration costs		—			—			—							—

Total operating expenses		138,667			(15,134	)		(7,662	)		(13,739	)			102,132

Operating income		6,759			(1,981	)		(539	)		(1,992	)			2,247
Other income (expense):
Interest expense		(4,575	)		—			—							(4,575	)
Loss on early retirement of debt		—			—			—							—
Other income, net		339			(17	)		—			—				322

Total other income (expense)		(4,236	)		(17	)		—			—				(4,253	)

Income from operations before taxes		2,523			(1,998	)		(539	)		(1,992	)			(2,006	)
Income tax expense		31			—			—			—				31

Net income from continuing operations		2,492			(1,998	)		(539	)		(1,992	)			(2,037	)

Earnings (loss) per share — basic:
Income from continuing operations attributable to RLHC	$	0.13												$	(0.10	)
Earnings (loss) per share — diluted
Income from continuing operations attributable to RLHC	$	0.13												$	(0.10	)
Weighted average shares — basic		19,785													19,785
Weighted average shares — diluted		19,891													19,891

Notes to Unaudited Pro Forma Condensed Financial Information

Note 1 — Basis of presentation

The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed financial statements to give effect to pro forma events that are (1) directly attributable to the sale of the assets, (2) factually supportable and (3) with respect to the unaudited pro forma condensed statements of operations, expected to have a continuing impact on the results following the sale of the assets. These proforma financial statements also reflect the impact of the sale of the entertainment division as disclosed in the 8-K and related proforma financial statements filed on October 10, 2017 and the sale of two hotels as disclosed in the 8-K and related proforma financial statements filed on February 27, 2018.

Note 2 — The transaction

On February 28, 2018, RL Pasco, LLC completed the sale of the Red Lion Hotel in Pasco, Washington and an adjacent lot to JODH’s Development, LLC, a Washington limited liability company, and RRR Investment, LLC, a Washington limited liability company (collectively, the “Pasco Purchasers”). The purchase price for the hotel and adjacent property was $13.1 million, which was paid in cash at closing. At closing, Sunrise Hotel’s, LLC, an affiliate of the Pasco Purchasers, entered into a franchise agreement with Red Lion Hotels Franchising, Inc., a wholly owned subsidiary of Red Lion Hotels Corporation (“RL Franchising”), and will continue to operate the Pasco hotel under the Red Lion brand. The franchise agreement provides for a 20 year term and the payment of monthly royalty and program fees set at a percentage of the hotel’s gross room revenue. Either party may terminate the franchise agreement without penalty on the 10th anniversary of the hotel’s opening date, by providing at least 180 days’ notice of termination. Termination of the franchise agreements by RL Franchising upon default of the franchisee, or termination of the agreement by the franchisee without cause, will require the franchisee to pay a termination fee. The obligations of the franchisee under the franchise agreement has been guaranteed by its manager, Kamaljit Singh, and his wife Sukhbans Shahi.

On February 28, 2018, RL Boise, LLC completed the sale of the Red Lion Hotel in Boise, ID to Boise Downtowner Hospitality, LLC, an Idaho limited liability company, and RL Richland, LLC completed the sale of the Red Lion Hotel in Richland, WA to Hanford House Hospitality, LLC, a Washington limited liability company, in related transactions. The purchase price for the two hotels was $16.75 million, which was paid in cash at closing. At closing, each purchaser entered into a franchise agreement with RL Franchising and will continue to operate the hotels under the Red Lion brand. The franchise agreements each provide for a 20 year term and the payment of monthly royalty and program fees set at a percentage of the hotel’s gross room revenue. Either party may terminate the franchise agreement without penalty on the 5^th or 10^th anniversary of the hotel’s opening date, by providing at least 180 days’ notice of termination. Termination of the franchise agreements by RL Franchising upon default of the franchisee, or termination of the agreement by the franchisee without cause, will require the franchisee to pay a termination fee. The obligations of Boise Downtowner Hospitality under the franchise agreement have been guaranteed by Sukhbir and Rajbir Sandhu, husband and wife, and owners of Boise Downtowner Hospitality. The obligations of Hanford House Hospitality, LLC under the franchise agreement have been guaranteed by Gurbir Sandhu, its owner. Both Sukhbir Sandhu and Gurbir Sandhu are existing franchisees of Red Lion, owning and franchising the Red Lion Hotel Wenatchee and Red Lion Hotel Columbia Center, Kennewick. Gurbir Sandhu also owns and franchises the Red Lion Hotel and Suites, Kennewick.

Each of RL Pasco, LLC, RL Richland, LLC and RL Boise, LLC is a wholly owned subsidiary of RL Venture, LLC. RL Venture, LLC is a variable interest entity in which Red Lion Hotels Corporation holds a 55% interest, and therefore the registrant consolidates the assets, liabilities and results of operations of this entity.

Note 3 — Pro forma adjustments

The following adjustments have been reflected in the unaudited pro forma condensed financial information:

(a)

Reflects the cash from the sale of assets less selling costs and repayment of debt.

(b)

Reflects the basis of the assets sold.

(c)

Reflects the capital leases assumed by the purchaser.

(d)

Represents the related debt payment made at the closing of the sale of the assets.

(e)

Reflects the gain on sale and/or settlement of the assets.

(f)

Reflects the settlement of all other assets and liabilities related to the assets sold.

(g)

Represents the release of restricted cash related to the assets sold.

(h)

Represents the proforma distribution of cash to the noncontrolling interest.

(i)

Reflects the removal of the noncontrolling interest portion of the transaction.

(j)

As reflected in the 8-K filed on October 10, 2017 describing the sale of certain specified liabilities and substantially all of the assets of our entertainment division.

(k)

Reflects the elimination of direct revenues and expenses related to the assets sold.

(l)

Represents the franchise income that would have been received under the existing intercompany franchise agreement. Does not represent the impact of the franchise agreements with the new owners of the assets.

(m)

As reflected in the 8-K filed on February 27, 2018 describing the sale of two hotels in Eureka, CA and Redding, CA.

(n)

Represents the marketing and other costs to support the franchise income that would have been received under the under the existing intercompany franchise agreement. Does not represent the impact of the franchise agreements with the new owners of the assets.

(o)

Reflects the corporate and administrative expenses which were previously allocated to the assets sold.

(p)

Reflects interest expense on allocated debt related to assets sold.

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