Red Lion Reports Third Quarter 2008 Results
SPOKANE, Wash., Nov. 5 // PRNewswire-FirstCall // -- Red Lion Hotels Corporation (NYSE: RLH) today announced its results for the third quarter and nine months ended September 30, 2008. Despite a difficult market environment, RevPAR for the quarter at owned and leased hotels decreased by 1.0% while revenue improved 4.3%, primarily due to the addition of the Anaheim and Denver Southeast hotels.
Summary results for the three and nine-month periods follow:
($ in thousands, except per share)
Three months ended Nine months ended
September 30, September 30,
2008 2007 % change 2008 2007 % change
Total revenue, as
reported $56,886 $54,520 4.3% $146,256 $142,818 2.4%
Continuing operations
before 2008 Special
Item: (1)
EBITDA $14,113 $15,271 -7.6% $27,755 $28,425 -2.4%
Net income $4,435 $5,799 -23.5% $4,584 $6,329 -27.6%
Earnings per
share - diluted $0.24 $0.29 -17.2% $0.25 $0.32 -21.9%
Continuing
operations as
reported:
EBITDA $14,113 $15,271 -7.6% $24,101 $28,425 -15.2%
Net income (loss) $4,435 $5,799 -23.5% $2,227 $6,329 -64.8%
Earnings (loss)
per share -
diluted $0.24 $0.29 -17.2% $0.12 $0.32 -62.5%
Total earnings
(loss) per share -
diluted, as
reported $0.24 $0.36 -33.3% $0.12 $0.37 -67.6%
(1) Excludes $3.7 million of separation cost incurred in the first quarter
of 2008 related to the retirement of the company's former President
and CEO, net of its impact on income taxes. A schedule called
"Disclosure of Special Items" is included with this release.
In addition, key hotel operating metrics, on a comparable basis, and
reported hotel operating margins for the third quarter and nine-month
periods ended September 30, 2008 and September 30, 2007 are highlighted
below for owned and leased hotels:
Three months ended Nine months ended
September 30, September 30,
% %
2008 2007 change 2008 2007 change
RevPAR (revenue
per available
room) $72.08 $72.79 -1.0% $59.69 $58.79 1.5%
ADR (average
daily rate) $97.11 $95.43 1.8% $91.57 $89.84 1.9%
Occupancy 74.2% 76.3% -210 bp 65.2% 65.4% -20 bp
Hotel Direct
Operating Margin 30.1% 33.0% -290 bp 25.5% 25.5% flat
President and Chief Executive Officer Anupam Narayan, commenting on the third quarter results, said, "The third quarter of 2008 was a challenge given the difficult economic environment that we have seen, particularly since Labor Day. We have proactively implemented cost-cutting measures with the goal of optimizing our margins, and have adequate liquidity, no near-term debt maturities and a strong balance sheet. We are confident in the underlying fundamentals and asset value of our company."
Narayan continued, "In October, we announced that our review of strategic alternatives had concluded and that we did not receive any definitive offer from the interested parties. We will continue to concentrate on maximizing shareholder value by executing our operational plan and focusing on the basics in these challenging times."
Third Quarter Results
Red Lion's total revenue during the third quarter was $56.9 million, up 4.3% from the prior-year period. Revenue from hotels was $53.5 million, up 6.9% from the third quarter of 2007, primarily related to the addition of the Anaheim hotel -- acquired in October 2007 -- and the Red Lion Hotel Denver Southeast -- acquired in May 2008. On a same-store basis, ADR improved 1.8%, offset by a decline in occupancy of 210 basis points, which resulted in a decline in RevPAR of 1.0%. The overall hotel segment's direct operating margin decreased by 290 basis points to 30.1%. This was driven primarily by spending on additional marketing and advertising to drive hotel revenues and lower than optimal margins at the company's two new hotels that are undergoing renovations. System-wide, RevPAR on a comparable basis for the quarter decreased 0.4%, with a 220 basis point decrease in occupancy partially offset by a 2.6% increase in ADR.
Franchise and management revenue was $0.8 million, up $0.1 million from the prior-year period due to franchise termination fees of $0.3 million received in the quarter, which more than offset the impact of the fewer number of franchisees in the system. Entertainment revenue was $1.9 million, a decrease of $1.2 million from the same quarter in 2007 due to the economic slowdown and because there were no major shows in the third quarter.
EBITDA from continuing operations for the third quarter of 2008 was $14.1 million, a decrease of 7.6% from the third quarter of 2007. Net income from continuing operations was $4.4 million -- a decrease of $1.4 million from the prior-year period. Earnings per fully diluted share from continuing operations was $0.24, down $0.05 per fully diluted share from the third quarter of 2007.
Nine Months 2008 Results
Red Lion's total revenue for the nine-month period ended September 30, 2008, was $146.3 million, up 2.4% from the same period in 2007. Reported revenue from hotels was $135.4 million, up 4.8% from the prior-year period in 2007, driven by a 1.5% increase in RevPAR at owned and leased hotels. Hotel direct operating profit increased 4.9% to $34.6 million, while margins were 25.5%, flat with the prior-year quarter.
The RevPAR increase for owned and leased hotels on a comparable basis for the first nine months of 2008 was driven by a 1.9% increase in ADR, partially offset by a 20 basis point decrease in occupancy. System-wide, RevPAR on a comparable basis increased 0.5% year-over-year led by a 2.8% increase in ADR, partially offset by a 150 basis point decrease in occupancy primarily resulting from renovations at a number of franchised hotels.
Results for the first nine months of 2008 included revenue from the Anaheim hotel, acquired in October 2007, and the Red Lion Hotel Denver Southeast, acquired in May 2008. Results for the first nine months of 2008 did not include revenue from the Red Lion Hotel Sacramento, which was subleased to a franchisee in July 2007.
Franchise and management revenue was $1.5 million, down from the prior year primarily due to fewer franchisees in the system and non-recurring termination fees of $0.3 million received in 2007 from franchises that are no longer in the system. Entertainment revenue was $7.0 million, down 22.7% from the prior-year period primarily related to attendance and the mix of shows presented during the first nine months of 2008.
EBITDA from continuing operations for the nine-month period ended September 30, 2008 (excluding the 2008 special item for separation costs) was $27.8 million, a decrease of 2.4% from the prior-year period, while net income from continuing operations excluding the 2008 special item was $4.6 million, down $1.7 million from the prior-year period. Earnings per fully diluted share for the nine-month period ended September 30, 2008 (excluding the 2008 special item) was $0.25, down $0.07 from the prior-year period.
Red Lion System Update
The company continues the complete renovation of its 310-room Anaheim hotel acquired in October 2007. Refurbished rooms will start to come on line in November and the renovation should be substantially completed by the end of 2008. Renovations have also commenced on the recently acquired 478-room Red Lion Hotel Denver Southeast. The company waited until after the Democratic National Convention and the end of the summer travel season to start its work. Red Lion will continue to operate the hotel while it makes over $8 million in renovations, primarily to guest rooms and public spaces, and anticipates completion by the end of the first quarter of 2009.
At the end of September 2008, the company had 15 franchised hotels in the Red Lion system. As part of the strategy to enhance the Red Lion Brand, during the quarter, the company removed three hotels from the franchise system for insufficient progress in completing required property improvements. Those hotels were the former Red Lion Hotel Modesto (186 rooms), the Red Lion Hotel Hillsboro (123 rooms) and the Red Lion Hotel Klamath Falls (108 rooms). The company believes all but two of its current franchisees are either in full compliance with the company's enhanced brand standards or making sufficient progress to be in full compliance in the near term.
Liquidity and Balance Sheet
As of September 30, 2008, the company had approximately $16.0 million in cash and cash equivalents. The company continues to maintain a $50 million credit facility with $21 million outstanding as of September 30, 2008.
On October 13, 2008, the company announced that it had closed on a $14 million loan from Wells Fargo Bank, National Association on its hotel in Bellevue, Washington. The loan provides for a five-year term and a variable spread over LIBOR based on certain financial ratios. The current pricing is 1.75% over LIBOR. Red Lion used part of the proceeds of the loan to pay off the previous 9% loan of approximately $8.2 million and will use the remainder for general corporate purposes.
For the remainder of 2008, the company is projecting capital expenditures of $15.0 million for ongoing hotel improvement projects and the renovations at the Anaheim and Denver hotels.
Outlook for 2008
Consistent with others in the industry, and given the current challenging economic conditions, the company is revising its 2008 guidance as follows:
- 2008 RevPAR for company owned and leased hotels is expected to be flat to down 2%
- 2008 direct hotel operating margins expected to be flat to down 150 basis points
- EBITDA from continuing operations in the range of $29.0 to $32.0 million
Red Lion's 2008 EBITDA guidance does not include the impact of the $3.7 million special item for separation costs incurred in the first quarter of 2008.
Conference Call Information
The company will hold a conference call at 9:00 a.m. Pacific Time (12:00 p.m. Eastern Time) on November 6, 2008, to discuss the results for interested investors, analysts and portfolio managers. Management on the call will include President and CEO Anupam Narayan and Chief Financial Officer Anthony Dombrowik.
To participate in the conference call, please dial the following number ten minutes prior to the scheduled time: (800) 230-1096. International callers should dial (612) 332-0228.
This conference call will also be webcast live at http://www.redlion.com in the Investor Relations section of the website. To listen to the live call, please go to the Red Lion website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available at 2:00 p.m. PST on November 6, 2008, through December 6, 2008 at (800) 475-6701 or (320) 365-3844 (International) access code -- 965898. The replay will also be available shortly after the call on the Red Lion website.
About Red Lion Hotels Corporation:
Red Lion Hotels Corporation is a hospitality and leisure company primarily engaged in the ownership, operation and franchising of upscale and midscale hotels under its Red Lion(R) brand. As of September 30, 2008, the RLH hotel network was comprised of 47 hotels located in nine states and one Canadian province, with 8,910 rooms and 437,626 square feet of meeting space. The company also owns and operates an entertainment and event ticket distribution business. For more information, please visit the company's website at http://www.redlion.com.
This press release contains forward-looking statements within the meaning of federal securities law, including statements concerning plans, objectives, goals, strategies, projections of future events or performance and underlying assumptions (many of which are based, in turn, upon further assumptions). The forward-looking statements in this press release are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed. Such risks and uncertainties include, among others, economic cycles; international conflicts; changes in future demand and supply for hotel rooms; competitive conditions in the lodging industry; relationships with franchisees and properties; impact of government regulations; ability to obtain financing; changes in energy, healthcare, insurance and other operating expenses; ability to sell non-core assets; ability to locate lessees for rental property; dependency upon the ability and experience of executive officers and ability to retain or replace such officers as well as other matters discussed in the company's annual report on Form 10-K for the year ended December 31, 2007 and in other documents filed by the company with the Securities and Exchange Commission.
Contact:
Red Lion Hotels Corporation
Julie Langenheim, Investor Relations Manager
(509) 777-6322
Investor Relations:
ICR Inc.
William Schmitt
(203) 682-8200
Red Lion Hotels Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands, except footnotes)
Three months ended
September 30,
2008 2007 $ Change % Change
Revenue:
Hotels $53,472 $50,039 $3,433 6.9%
Franchise and management 769 701 68 9.7%
Entertainment 1,869 3,030 (1,161) -38.3%
Other 776 750 26 3.5%
Total revenues 56,886 54,520 2,366 4.3%
Operating expenses:
Hotels 37,375 33,546 3,829 11.4%
Franchise and management 81 190 (109) -57.4%
Entertainment 1,712 2,519 (807) -32.0%
Other 483 454 29 6.4%
Depreciation and amortization 4,966 4,194 772 18.4%
Hotel facility and land lease 1,850 1,513 337 22.3%
Gain on asset dispositions, net (64) (188) 124 66.0%
Undistributed corporate expenses 1,746 1,555 191 12.3%
Total expenses 48,149 43,783 4,366 10.0%
Operating income 8,737 10,737 (2,000) -18.6%
Other income (expense):
Interest expense (2,321) (2,320) (1) 0.0%
Minority interest in partnerships,
net (10) (39) 29 74.4%
Other income, net 420 379 41 10.8%
Income from continuing operations
before income taxes 6,826 8,757 (1,931) -22.1%
Income tax expense 2,391 2,958 (567) -19.2%
Net income from continuing operations 4,435 5,799 (1,364) -23.5%
Discontinued operations:
Loss from operations of discontinued
business units, net of income tax
benefit of $17 - (32) 32 100.0%
Gain on disposal of discontinued
business units, net of income tax
expense of $736 - 1,338 (1,338) -100.0%
Income from discontinued operations - 1,306 (1,306) -100.0%
Net income $4,435 $7,105 $(2,670) -37.6%
EBITDA (1) $14,113 $17,401 $(3,288) -18.9%
EBITDA as a percentage of revenues(2) 24.8% 31.8%
EBITDA from continuing operations (1) $14,113 $15,271 $(1,158) -7.6%
EBITDA from continuing operations as a
percentage of revenues (2) 24.8% 28.0%
(1) The definition of "EBITDA" and how that measure relates to net income
is discussed further in this release under Non-GAAP Financial
Measures.
(2) The calculation of EBITDA as a percentage of revenues is based upon
total operating revenues, from both continuing and discontinued
operations, of $56,886,000 and $54,747,000 for the three months ended
September 30, 2008 and 2007, respectively. EBITDA from continuing
operations as a percentage of revenues is based upon the operating
results of continuing business units as presented in the financial
statements.
Red Lion Hotels Corporation
Earnings Per Share and Hotel Statistics
(unaudited)
(shares in thousands)
Three months ended
September 30,
2008 2007 $ Change
Earnings per share - basic: (1)
Net income from continuing
operations $0.24 $0.30 $(0.06)
Income from discontinued
operations - 0.07 (0.07)
Net income $0.24 $0.37 $(0.13)
Earnings per share - diluted: (1)
Net income from continuing
operations $0.24 $0.29 $(0.05)
Income from discontinued
operations - 0.07 (0.07)
Net income $0.24 $0.36 $(0.12)
Weighted average shares - basic 18,267 19,226
Weighted average shares - diluted 18,551 19,574
(1) For the three months ended September 30, 2008, 234,658 of the
1,429,794 options to purchase common shares outstanding as of that
date were considered dilutive. Of the 55,715 restricted stock units
outstanding, 4,298 shares were considered dilutive during the third
quarter of 2008. For the three months ended September 30, 2007,
258,594 of the 1,306,617 options to purchase common shares outstanding
as of that date were considered dilutive, as were the 44,473 units of
unissued restricted stock outstanding. For both comparable periods,
all of the 44,837 convertible operating partnership units were
considered dilutive.
Red Lion Hotels Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands, except footnotes)
Nine months ended
September 30,
2008 2007 $ Change % Change
Revenue:
Hotels $135,401 $129,259 $6,142 4.8%
Franchise and management 1,549 2,272 (723) -31.8%
Entertainment 6,975 9,019 (2,044) -22.7%
Other 2,331 2,268 63 2.8%
Total revenues 146,256 142,818 3,438 2.4%
Operating expenses:
Hotels 100,827 96,311 4,516 4.7%
Franchise and management 226 586 (360) -61.4%
Entertainment 6,886 7,978 (1,092) -13.7%
Other 1,547 1,402 145 10.3%
Depreciation and amortization 13,993 12,210 1,783 14.6%
Hotel facility and land lease 5,496 4,964 532 10.7%
Gain on asset dispositions, net (204) (427) 223 52.2%
Undistributed corporate expenses 8,710 4,510 4,200 93.1%
Total expenses 137,481 127,534 9,947 7.8%
Operating income 8,775 15,284 (6,509) -42.6%
Other income (expense):
Interest expense (6,955) (6,871) (84) -1.2%
Minority interest in partnerships,
net 2 (40) 42 105.0%
Other income, net 1,331 971 360 37.1%
Income from continuing operations
before income taxes 3,153 9,344 (6,191) -66.3%
Income tax expense 926 3,015 (2,089) -69.3%
Net income from continuing
operations 2,227 6,329 (4,102) -64.8%
Discontinued operations:
Loss from operations of
discontinued business units, net
of income tax benefit of $62 - (113) 113 100.0%
Net gain on disposal of
discontinued business units, net
of income tax expense of $596 - 1,082 (1,082) -100.0%
Income from discontinued operations - 969 (969) -100.0%
Net income $2,227 $7,298 $(5,071) -69.5%
EBITDA (1) $24,101 $30,113 $(6,012) -20.0%
EBITDA as a percentage of revenues(2) 16.5% 20.9%
EBITDA from continuing operations (1) $24,101 $28,425 $(4,324) -15.2%
EBITDA from continuing operations as
a percentage of revenues (2) 16.5% 19.9%
(1) The definition of "EBITDA" and how that measure relates to net income
(loss) is discussed further in this release under Non-GAAP Financial
Measures.
(2) The calculation of EBITDA as a percentage of revenues is based upon
total operating revenues, from both continuing and discontinued
operations, of $146,256,000 and $144,226,000 for the nine months ended
September 30, 2008 and 2007, respectively. EBITDA from continuing
operations as a percentage of revenues is based upon the operating
results of continuing business units as presented in the financial
statements.
Red Lion Hotels Corporation
Earnings Per Share and Hotel Statistics
(unaudited)
(shares in thousands)
Nine months ended
September 30,
2008 2007 $ Change
Earnings per share - basic: (1)
Net income from continuing
operations $0.12 $0.33 $(0.21)
Income from discontinued
operations - 0.05 (0.05)
Net income $0.12 $0.38 $(0.26)
Earnings per share - diluted: (1)
Net income from continuing
operations $0.12 $0.32 $(0.20)
Income from discontinued
operations - 0.05 (0.05)
Net income $0.12 $0.37 $(0.25)
Weighted average shares - basic 18,245 19,191
Weighted average shares - diluted 18,508 19,573
(1) For the nine months ended September 30, 2008, 227,037 of the 1,429,794
options to purchase common shares and 5,805 of the 55,715 restricted
stock units outstanding as of that date were considered dilutive. In
addition, 29,946 of the 44,837 convertible operating partnership units
were dilutive during the nine-month period. For the nine months ended
September 30, 2007, 301,568 of the 1,306,617 options to purchase
common shares outstanding as of that date were considered dilutive, as
were 35,175 units of unissued restricted stock outstanding and 44,837
convertible operating partnership units.
Red Lion Hotels Corporation
Consolidated Balance Sheets
(unaudited)
($ in thousands, except share data)
September 30, December 31,
2008 2007
Assets:
Current assets:
Cash and cash equivalents $15,974 $15,044
Restricted cash 3,916 4,439
Accounts receivable, net 11,729 10,330
Inventories 1,469 1,416
Prepaid expenses and other 2,429 3,352
Total current assets 35,517 34,581
Property and equipment, net 290,659 260,574
Goodwill 28,042 28,042
Intangible assets, net 11,195 11,582
Other assets, net 6,905 9,730
Total assets $372,318 $344,509
Liabilities:
Current liabilities:
Accounts payable $8,245 $4,189
Accrued payroll and related benefits 4,459 6,166
Accrued interest payable 296 356
Advance deposits 850 345
Other accrued expenses 10,580 10,419
Long-term debt, due within one year 2,967 5,547
Total current liabilities 27,397 27,022
Revolving credit facility 21,000 -
Long-term debt, due after one year 81,130 77,673
Deferred income 8,649 9,169
Deferred income taxes 17,223 17,294
Minority interest in partnerships 29 31
Debentures due Red Lion Hotels
Capital Trust 30,825 30,825
Total liabilities 186,253 162,014
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;
18,274,498 and 18,312,756 shares
issued and outstanding 183 183
Additional paid-in capital, common stock 141,896 140,553
Retained earnings 43,986 41,759
Total stockholders' equity 186,065 182,495
Total liabilities and
stockholders' equity $372,318 $344,509
Red Lion Hotels Corporation
Consolidated Statement of Cash Flows
(unaudited)
($ in thousands)
Nine months ended September 30,
2008 2007
Operating activities:
Net income $2,227 $7,298
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 13,993 12,237
Gain on disposition of property,
equipment and other assets, net (204) (427)
Gain on disposition of
discontinued operations, net - (1,678)
Deferred income tax provision (71) 2,830
Minority interest in
partnerships (2) 40
Equity in investments (147) (62)
Imputed interest expense 111 157
Stock based compensation expense 2,104 666
Provision for doubtful accounts 65 19
Change in current assets and
liabilities:
Restricted cash 523 (1,431)
Accounts receivable (1,230) (1,238)
Inventories (12) 158
Prepaid expenses and other 931 (813)
Accounts payable 4,056 (2,082)
Accrued payroll and related
benefits (1,707) (1,613)
Accrued interest payable (60) (98)
Other accrued expenses and
advance deposits 368 3,380
Net cash provided by operating
activities 20,945 17,343
Investing activities:
Purchases of property and equipment (43,306) (14,002)
Non-current restricted cash for
sublease tenant improvements 2,072 -
Proceeds from disposition of
property and equipment 5 18
Proceeds from disposition of
discontinued operations - 7,918
Proceeds from short-term liquid
investments - 7,635
Advances to Red Lion Hotels Capital
Trust (27) (17)
Other, net 429 (284)
Net cash provided by (used in)
investing activities (40,827) 1,268
Financing activities:
Borrowings on revolving credit
facility 23,000 -
Repayment of revolving credit
facility (2,000) -
Repayment of long-term debt (13,234) (1,894)
Borrowings on long-term debt 14,000 3,926
Common stock redeemed (926) -
Proceeds from issuance of common
stock under employee stock
purchase plan 164 196
Proceeds from stock option exercises - 488
Distributions to operating
partnership unit holders - (1)
Additions to deferred financing
costs (192) (27)
Net cash provided by financing
activities 20,812 2,688
Net cash in discontinued operations - 57
Change in cash and cash equivalents:
Net increase in cash and cash
equivalents 930 21,356
Cash and cash equivalents at
beginning of period 15,044 13,262
Cash and cash equivalents at end of
period $15,974 $34,618
Red Lion Hotels Corporation
Additional Hotel Statistics
(unaudited)
System-wide Hotels as of September 30, 2008
Meeting Space
Hotels Rooms (sq. ft.)
Red Lion Owned and Leased
Hotels 31 5,935 304,684
Other Leased Hotel (1) 1 310 5,000
Red Lion Franchised
Hotels 15 2,665 127,942
Total 47 8,910 437,626
Total Red Lion Hotels 46 8,600 432,626
Comparable Hotel
Statistics (2)
Three months ended Three months ended
September 30, 2008 September 30, 2007
Average Average
Occupancy RevPAR Occupancy RevPAR
(3) ADR (4) (5) (3) ADR (4) (5)
Owned and Leased Hotels 74.2% $97.11 $72.08 76.3% $95.43 $72.79
Franchised Hotels 70.1% $81.72 $57.26 72.4% $77.56 56.12
Total System Wide 72.9% $92.37 $67.33 75.1% $90.06 67.60
Change from prior
comparative period:
Owned and Leased Hotels (2.1) 1.8% -1.0%
Franchised Hotels (2.3) 5.4% 2.0%
Total System Wide (2.2) 2.6% -0.4%
Nine months ended Nine months ended
September 30, 2008 September 30, 2007
Average Average
Occupancy RevPAR Occupancy RevPAR
(3) ADR (4) (5) (3) ADR (4) (5)
Owned and Leased Hotels 65.2% $91.57 $59.69 65.4% $89.84 $58.79
Franchised Hotels 60.6% $78.22 $47.43 64.8% $74.81 48.50
Total System Wide 63.8% $87.75 $55.99 65.3% $85.39 55.72
Change from prior
comparative period:
Owned and Leased Hotels (0.2) 1.9% 1.5%
Franchised Hotels (4.2) 4.6% -2.2%
Total System Wide (1.5) 2.8% 0.5%
(1) Represents a hotel acquired in the fourth quarter of 2007 that is
being repositioned as a Red Lion, although until that time has been
flagged as an independent.
(2) Includes all hotels owned, leased and franchised, presented on a
comparable basis for hotel statistics.
(3) Average occupancy represents total paid rooms divided by total
available rooms. Total available rooms represents the number of rooms
available multiplied by the number of days in the reported period and
includes rooms taken out of service for renovation.
(4) Average daily rate ("ADR") represents total room revenues divided by
the total number of paid rooms occupied by hotel guests.
(5) Revenue per available room ("RevPAR") represents total room and
related revenues divided by total available rooms.
Red Lion Hotels Corporation
Disclosure of Special Items
(unaudited)
As previously announced, the Company's former President and Chief
Executive Officer retired in February 2008. In connection with the
retirement agreement, the Company recorded an expense of $3.7 million in
separation costs during the first quarter of 2008. As a result, the
operations as presented in the accompanying financial statements for the
nine months ended September 30, 2008 compared to 2007 do not reflect a
meaningful comparison of continuing operations between periods. The
follow table represents a reconciliation of certain earnings measures
from continuing operations before special items to income from
continuing operations after special items.
Nine months ended Nine months ended
September 30, 2008 September 30, 2007
($ in thousands except Net Diluted Net Diluted
per share data) Income EBITDA EPS Income EBITDA EPS
from from from from from from
Cont- Cont- Cont- Cont- Cont- Cont-
inuing inuing inuing inuing inuing inuing
Opera- Opera- Opera- Opera- Opera- Opera-
tions tions tions tions tions tions
Amount before special
item $4,584 $27,755 $0.25 $6,329 $28,425 $0.32
Special items:
Separation costs (1) (3,654) (3,654) (0.20) - - -
Income tax expense of
special item (2) 1,297 - 0.07 - - -
Amount per consolidated
statement of operations $2,227 $24,101 $0.12 $6,329 $28,425 $0.32
Change from the
comparative period:
Amount before special
item -27.6% -2.4% -21.8%
Amount per consolidated
statement of
operations -64.8% -15.2% -62.4%
(1) Amount as included in the line item "Undistributed corporate expenses"
on the accompanying consolidated statements of operations.
(2) Represents taxes on special items at the Company's expected
incremental tax rate as applicable.
Red Lion Hotels Corporation
Reconciliation of EBITDA to Net Income
(unaudited)
($ in thousands)
The following is a reconciliation of EBITDA and EBITDA from continuing
operations to net income for the periods presented:
Three months ended Nine months ended
September 30, September 30,
2008 2007 2008 2007
EBITDA from continuing operations $14,113 $15,271 $24,101 $28,425
Income tax expense - continuing
operations (2,391) (2,958) (926) (3,015)
Interest expense - continuing
operations (2,321) (2,320) (6,955) (6,871)
Depreciation and amortization -
continuing operations (4,966) (4,194) (13,993) (12,210)
Net income from continuing operations 4,435 5,799 2,227 6,329
Income from discontinued operations - 1,306 - 969
Net income $4,435 $7,105 $2,227 $7,298
EBITDA $14,113 $17,401 $24,101 $30,113
Income tax expense (2,391) (3,676) (926) (3,548)
Interest expense (2,321) (2,417) (6,955) (7,030)
Depreciation and amortization (4,966) (4,203) (13,993) (12,237)
Net income $4,435 $7,105 $2,227 $7,298
NON-GAAP FINANCIAL MEASURES
EBITDA is defined as net income before interest, taxes, depreciation
and amortization. EBITDA is considered a non-GAAP financial measurement. We
believe it is a useful financial performance measure for us and for our
shareholders and is a complement to net income and other financial
performance measures provided in accordance with generally accepted
accounting principles in the United States ("GAAP"). EBITDA from continuing
operations is calculated in the same manner, but excludes the operating
results of business units identified as discontinued under GAAP.
We use EBITDA to measure the financial performance of our owned and
leased hotels because it excludes interest, taxes, depreciation and
amortization, which bear little or no relationship to 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 our company 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 and other operations
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 long-lived
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 all EBITDA measures to net
income, which is the most comparable financial measure calculated and
presented in accordance with GAAP. EBITDA does not represent cash generated
from operating activities determined in accordance with GAAP, and should
not be considered as an alternative to operating income or net income
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.
SOURCE Red Lion Hotels Corporation
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