Red Lion Hotels Reports Fourth Quarter and Full Year 2012 Results

Red Lion Hotels Corporation

Consolidated Statements of Operations

(unaudited)

($ in thousands, except footnotes and per share amounts)

Three months ended December 31,

2012

2011

$ Change

% Change

Revenue:

Hotels

$         27,552

$       29,113

$       (1,561)

-5.4%

Franchise

1,224

1,085

139

12.8%

Entertainment

2,809

2,440

369

15.1%

Other

116

102

14

13.7%

Total revenues

31,701

32,740

(1,039)

-3.2%

Operating expenses:

Hotels

25,278

25,112

166

0.7%

Franchise 

1,271

941

330

35.1%

Entertainment

2,775

2,348

427

18.2%

Other

228

184

44

23.9%

Depreciation and amortization 

3,711

4,239

(528)

-12.5%

Hotel facility and land lease 

1,226

1,289

(63)

-4.9%

Goodwill impairment

-

14,236

(14,236)

-100.0%

Asset impairment

644

6,715

(6,071)

-90.4%

Loss (gain) on asset dispositions, net 

64

319

255

79.9%

Undistributed corporate expenses

1,137

1,148

(11)

-1.0%

Total expenses

36,334

56,531

(20,197)

-35.7%

Operating income (loss)

(4,633)

(23,791)

19,158

80.5%

Other income (expense):

Interest expense

(1,571)

(1,802)

231

12.8%

Other income, net

154

22

132

n/m

Income (loss) before income taxes

(6,050)

(25,571)

19,521

76.3%

Income tax (benefit) expense

(2,281)

(5,100)

(2,819)

-55.3%

Net income (loss) from continuing operations

(3,769)

(20,471)

16,702

81.6%

Discontinued operations ^(3,4,5):

Income (loss) from operations of discontinued business units, net of income tax (benefit) expense of $75 and $(47) respectively

132

(82)

214

n/m

Loss on disposal and impairment of the assets of the discontinued business units, net income tax (benefit) expense of $0 and $(210) respectively

-

(369)

369

100.0%

Net income (loss) from discontinued operations

132

(451)

583

129.3%

Net income (loss)

(3,637)

(20,922)

17,285

82.6%

Less net income or loss attributable to noncontrolling interest

-

(9)

9

100.0%

Net income (loss) attributable to Red Lion Hotels Corporation 

$         (3,637)

$      (20,913)

$      17,276

82.6%

Earnings per share - basic and diluted

Net income (loss) from continuing operations 

$          (0.20)

$         (1.07)

Net Income (loss) from discontinued operations

$            0.01

$         (0.02)

Net income (loss) attributable to Red Lion Hotels Corporation

$          (0.19)

$         (1.09)

Weighted average shares - basic

19,426

19,123

Weighted average shares - diluted

19,426

19,123

Non-GAAP Financial Measures:

EBITDA  ⁽¹⁾   

$           (560)

$      (19,941)

$      19,381

97.2%

EBITDA as a percentage of revenues 

-1.8%

-60.9%

Comparable EBITDA from continuing operations before special items ⁽²⁾   

$             154

$         1,330

$       (1,176)

-88.4%

⁽¹⁾

The definition of "EBITDA" and how that measure relates to net income (loss) attributable to Red Lion Hotels Corporation is discussed further in this release under Non-GAAP Financial Measures.

⁽²⁾

The definition of "Comparable EBITDA from continuing operations before special items" can be found in the table named "Comparable Operating Results and Data From Continuing Operations".

⁽³⁾

During the fourth quarter 2011, the company listed for sale its hotel in Medford, Oregon, a non-core asset in which the company does not expect to maintain significant continuing involvement following a sale.  Accordingly, the operations of this property have been classified as discontinued operations for all periods presented.

⁽⁴⁾

During the second quarter 2012, based on the company's right to sell its hotel in Sacramento, California to its tenant and on negotiations regarding transaction terms, the operating results from the ownership of this real estate and land were classified as discontinued operations for all periods presented.  This hotel sale was completed in the third quarter of 2012.

⁽⁵⁾

During the third quarter 2012, the company listed for sale its commercial mall in Kalispell, Montana.   The company does not expect to maintain significant continuing involvement in the property following a sale.  Accordingly, the operations of this property have been classified as discontinued operations for all periods presented.

Red Lion Hotels Corporation

Consolidated Statements of Operations

(unaudited)

($ in thousands, except footnotes and per share amounts)

Year ended December 31,

2012

2011

$ Change

% Change

Revenue:

Hotels

$       135,923

$      139,424

$     (3,501)

-2.5%

Franchise

5,177

3,955

1,222

30.9%

Entertainment

9,165

11,379

(2,214)

-19.5%

Other

442

423

19

4.5%

Total revenues

150,707

155,181

(4,474)

-2.9%

Operating expenses:

Hotels

110,614

112,382

(1,768)

-1.6%

Franchise 

4,758

3,838

920

24.0%

Entertainment

9,020

10,584

(1,564)

-14.8%

Other

828

706

122

17.3%

Depreciation and amortization 

15,195

17,869

(2,674)

-15.0%

Hotel facility and land lease 

4,859

6,599

(1,740)

-26.4%

Goodwill impairment

-

14,236

(14,236)

-100.0%

Asset impairment

9,440

8,871

569

6.4%

Loss (gain) on asset dispositions, net 

(159)

(33,379)

(33,220)

-99.5%

Undistributed corporate expenses

6,022

5,503

519

9.4%

Total expenses

160,577

147,209

13,368

9.1%

Operating income (loss)

(9,870)

7,972

(17,842)

n/m

Other income (expense):

Interest expense

(6,959)

(8,355)

1,396

16.7%

Other income, net

229

432

(203)

-47.0%

Income (loss) before income taxes

(16,600)

49

(16,649)

n/m

Income tax (benefit) expense

(6,133)

5,697

11,830

n/m

Net income (loss) from continuing operations

(10,467)

(5,648)

(4,819)

-85.3%

Discontinued operations ^(3,4,5):

Income (loss) from operations of discontinued business units, net of income tax (benefit) expense of $176 and $(593) respectively

312

(1,045)

1,357

129.9%

Loss on disposal and impairment of the assets of the discontinued business units, net of income tax (benefit) expense of $(2,566) and $(210) respectively

(4,526)

(369)

(4,157)

n/m

Net income (loss) from discontinued operations

(4,214)

(1,414)

(2,800)

n/m

Net income (loss)

(14,681)

(7,062)

(7,619)

n/m

Less net income or loss attributable to noncontrolling interest

(7)

86

(93)

n/m

Net income (loss) attributable to Red Lion Hotels Corporation 

$        (14,674)

$        (7,148)

$     (7,526)

n/m

Earnings per share - basic and diluted

Net income (loss) from continuing operations 

$           (0.54)

$         (0.30)

Net Income (loss) from discontinued operations

$           (0.22)

$         (0.08)

Net income (loss) attributable to Red Lion Hotels Corporation

$           (0.76)

$         (0.38)

Weighted average shares - basic 

19,327

19,053

Weighted average shares - diluted

19,327

19,053

Non-GAAP Financial Measures:

EBITDA  ⁽¹⁾   

$            (423)

$        25,139

$   (25,562)

n/m

EBITDA as a percentage of revenues 

-0.3%

16.2%

Comparable EBITDA from continuing operations before special items ⁽²⁾   

$         14,210

$        12,496

$      1,714

13.7%

⁽¹⁾

The definition of "EBITDA" and how that measure relates to net income (loss) attributable to Red Lion Hotels Corporation is discussed further in this release under Non-GAAP Financial Measures.

⁽²⁾

The definition of "Comparable EBITDA from continuing operations before special items" can be found in the table named "Comparable Operating Results and Data From Continuing Operations".

⁽³⁾

During the fourth quarter 2011, the company listed for sale its hotel in Medford, Oregon, a non-core asset in which the company does not expect to maintain significant continuing involvement following a sale.  Accordingly, the operations of this property have been classified as discontinued operations for all periods presented.

⁽⁴⁾

During the second quarter 2012, based on the company's right to sell its hotel in Sacramento, California to its tenant and on negotiations regarding transaction terms, the operating results from the ownership of this real estate and land were classified as discontinued operations for all periods presented.  This hotel sale was completed in the third quarter of 2012.

⁽⁵⁾

During the third quarter 2012, the company listed for sale its commercial mall in Kalispell, Montana.   The company does not expect to maintain significant continuing involvement in the property following a sale.  Accordingly, the operations of this property have been classified as discontinued operations for all periods presented.

Red Lion Hotels Corporation

Consolidated Balance Sheets

(unaudited)

($ in thousands, except share data)

December 31, 

December 31, 

2012

2011

Assets:

Current assets:

Cash and cash equivalents

$           6,477

$           1,981

Restricted cash

2,417

3,358

Accounts receivable, net

5,774

7,381

Notes receivable

4,112

210

Inventories

1,329

1,346

Prepaid expenses and other

2,648

1,973

Deferred income taxes

2,342

4,291

Assets held for sale

18,288

30,380

Total current assets

43,387

50,920

Property and equipment, net

195,012

232,589

Goodwill

8,512

8,512

Intangible assets

6,992

6,992

Notes receivable, long term

2,902

628

Other assets, net

4,137

5,255

Total assets

$       260,942

$       304,896

Liabilities:

Current liabilities:

Accounts payable

$           5,967

$           4,928

Accrued payroll and related benefits

2,504

2,103

Accrued interest payable

190

231

Advance deposits

248

380

Other accrued expenses

9,286

9,249

Revolving credit facility

-

844

Long-term debt, due within one year

49,178

3,274

Total current liabilities

67,373

21,009

Long-term debt, due after one year

-

66,378

Deferred income

3,923

4,643

Deferred income taxes

5,913

16,176

Debentures due Red Lion Hotels Capital Trust

30,825

30,825

Total liabilities

108,034

139,031

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;  

19,451,849 and 19,172,670 shares issued and outstanding

195

192

Additional paid-in capital, common stock

150,798

149,027

Retained earnings

1,915

16,589

Total Red Lion Hotels Corporation stockholders' equity

152,908

165,808

Noncontrolling interest

-

57

Total stockholders' equity

152,908

165,865

Total liabilities and stockholders' equity

$       260,942

$       304,896

⁽¹⁾

Includes all hotels owned, leased and franchised, presented on a comparable basis for hotel statistics. The Seattle, Helena and Denver Southeast properties have been excluded from the owned and leased hotel statistics and included in the franchised statistics for all periods shown.

⁽²⁾

Excludes one hotel identified as a discontinued operation.

⁽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

Comparable Operating Results and Data From Continuing Operations

(unaudited)

($ in thousands)

Certain operating results for the periods included in this report are shown on a comparable hotel basis.  Comparable hotels are defined as properties that are owned or leased by the company and the operations of which are included in the consolidated results from continuing operations for the entirety of the reporting periods being compared.

Three months ended December 31,

Year ended December 31,

2012

2011

2012

2011

Comparable total revenue⁽²⁾

$        31,264

$        30,174

$        141,353

$        136,785

Comparable hotel revenue ⁽²⁾

27,115

26,547

126,569

121,028

Comparable hotel operating expense⁽³⁾

24,520

22,649

102,064

96,897

Comparable hotel direct operating profit⁽¹⁾

2,595

3,898

24,505

24,131

Comparable hotel direct operating margin ⁽¹⁾

9.6%

14.7%

19.4%

19.9%

Comparable total EBITDA from continuing operations before special items⁽⁴⁾

$             154

$          1,330

$          14,210

$          12,496

(1)

Operating profit margins are calculated by dividing the applicable operating profit  by the related revenue amount.  GAAP margins are calculated using amounts presented in the consolidated statements of operations. Comparable margins are calculated using amounts presented in the table above.

(2)

The reconciliation of total and hotel revenue per the consolidated statements of operations to comparable total and hotel revenue is as follows:

Three months ended December 31,

Year ended December 31,

2012

2011

2012

2011

Total revenue per the consolidated statements of operations

$         31,701

$          32,740

$          150,707

$          155,181

less: Revenue from Seattle, Helena and Denver Southeast properties

(437)

(2,566)

(9,354)

(18,396)

Comparable total revenue

$        31,264

$        30,174

$        141,353

$        136,785

Hotel revenue per the consolidated statements of operations

$         27,552

$          29,113

$          135,923

$          139,424

less: Revenue from Seattle, Helena and Denver Southeast properties

(437)

(2,566)

(9,354)

(18,396)

Comparable hotel revenue

$        27,115

$        26,547

$        126,569

$        121,028

(3)

The reconciliation of hotel operating expense per the consolidated statements of operations to comparable hotel operating expense is as follows:

Three months ended December 31,

Year ended December 31,

2012

2011

2012

2011

Hotel operating expense per the consolidated statements of operations

$         25,278

$          25,112

$          110,614

$          112,382

less: Operating expense from Seattle, Helena and Denver Southeast properties

(758)

(2,463)

(8,550)

(15,485)

Comparable hotel operating expense

$        24,520

$        22,649

$        102,064

$          96,897

(4)

The reconciliation of EBITDA from continuing operations before special items per the table entitled "Disclosure of Special Items" to comparable total EBITDA before special items is as follows:

Three months ended December 31,

Year ended December 31,

2012

2011

2,012

2011

EBITDA before special items per the table "Disclosure of Special Items"

$            (124)

$            1,430

$            15,001

$           15,745

less: EBITDA of Seattle, Helena and Denver Southeast properties

278

(100)

(791)

(3,249)

Comparable total EBITDA from continuing operations before special items

$             154

$          1,330

$          14,210

$          12,496

Comparable operating results from continuing operations and comparable operating results from continuing operations before special items represent reported operating results less the impact of the Seattle, Helena and Denver Southeast properties' results and less the impact of certain non-recurring charges that do not allow for a meaningful comparison between periods.  We utilize these measures because management finds them 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 also believe that investors will find them to be 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 they are a complement to reported operating results.  Comparable operating results from continuing operations and comparable operating results from continuing operations before special items are not intended to represent reported operating results defined by generally accepted accounting principles in the United States ("GAAP"), and such information should not be considered as an alternative to reported information or any other measure of performance prescribed by GAAP.

Red Lion Hotels Corporation

Reconciliation of EBITDA to Net Income Attributable to Red Lion Hotels Corporation

(unaudited)

($ in thousands)

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:

Three months ended December 31,

Year ended December 31,

2012

2011

2012

2011

 EBITDA from continuing operations

$      (768)

$    (19,521)

$       5,561

$    26,187

Income tax benefit (expense) - continuing operations

2,281

5,100

6,133

(5,697)

Interest expense - continuing operations

(1,571)

(1,802)

(6,959)

(8,355)

Depreciation and amortization - continuing operations

(3,711)

(4,239)

(15,195)

(17,869)

Net income (loss) attributable to Red Lion Hotels Corporation from continuing operations

(3,769)

(20,462)

(10,460)

(5,734)

Income (loss) on discontinued operations, net of tax

132

(451)

(4,214)

(1,414)

 Net income (loss) attributable to Red Lion Hotels Corporation

$    (3,637)

$    (20,913)

$   (14,674)

$    (7,148)

Three months ended December 31,

Year ended December 31,

2012

2011

2012

2011

 EBITDA 

$      (560)

$    (19,941)

$        (423)

$    25,139

Income tax benefit (expense) 

2,206

5,357

8,523

(4,894)

Interest expense

(1,571)

(1,802)

(6,959)

(8,372)

Depreciation and amortization

(3,712)

(4,527)

(15,815)

(19,021)

 Net income (loss) attributable to Red Lion Hotels Corporation

$    (3,637)

$    (20,913)

$   (14,674)

$    (7,148)

NON-GAAP FINANCIAL MEASURES

EBITDA is defined as net income attributable to Red Lion Hotels Corporation, 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 attributable to Red Lion Hotels Corporation and other financial performance measures provided in accordance with generally accepted accounting principles in the United States ("GAAP").

We use EBITDA to measure financial performance 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 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 provided by operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income attributable to Red Lion Hotels Corporation 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. 

Red Lion Hotels Corporation

Disclosure of Special Items

(unaudited)

During the fourth quarter of 2012, the Company recorded $0.4 million and $0.2 million in pre-tax impairment charges in continuing operations related to its properties held for sale in Pendleton, Oregon and Missoula, Montana, respectively.  During the third quarter of 2012, the Company recorded a $1.9 million pre-tax impairment charge in continuing operations related to its property held for sale in Pendleton, Oregon.   During the second quarter of 2012, the Company recorded a $0.3 million pre-tax impairment charge in continuing operations related to its sold property in Helena, Montana.  During the first quarter of 2012, the Company recorded $3.9 million, $2.0 million and $0.7 million, in pre-tax impairment charges in continuing operations related to its sold Denver Southeast property, its sold property in Helena, Montana and its held for sale property in Missoula, Montana, respectively.  During the fourth quarter of 2011, the Company recorded $4.6 million, $0.4 million, $1.7  million in pre-tax impairment charges in continuing operations related to its sold Denver Southeast property and its held for sale property in Missoula, Montana, and its property in Vancouver, Washington, respectively.  During the third quarter of 2011, the Company recorded a $2.1 million pre-tax impairment charge in continuing operations related to its sold property in Helena, Montana.  In addition, during the second quarter 2011, the Company recorded a $33.5 million gain from the sale of its hotel  in Seattle, Washington.  As a result, the operations as presented in the accompanying financial statements for the three months and year ended December 31, 2012 compared to 2011 do not reflect a meaningful comparison between periods.  The following table represents a reconciliation of EBITDA from continuing operations before special items to EBITDA from continuing operations per the consolidated statement of operations.

Three months ended December 31,

Year ended December 31,

2012

2011

2012

2011

($ in thousands)

EBITDA from continuing operations ⁽¹⁾

EBITDA from continuing operations ⁽¹⁾

EBITDA from continuing operations ⁽¹⁾

EBITDA from continuing operations ⁽¹⁾

Amount before special items

$          (124)

$            1,430

$        15,001

$        15,745

Special items:

Asset impairment charges ⁽²⁾

(644)

(6,715)

(9,440)

(8,871)

Goodwill impairment charge ⁽²⁾

(14,236)

(14,236)

Gain on asset disposal ⁽³⁾

-

-

-

33,549

EBITDA from continuing operations 

$          (768)

$         (19,521)

$          5,561

$        26,187

⁽¹⁾

Amount defined on the preceding table "Reconciliation of EBITDA to Net Income Attributable to Red Lion Hotels Corporation".

⁽²⁾

Amounts as included in the line items "Asset impairment" and "Goodwill impairment" on the accompanying consolidated statements of operations.

⁽³⁾

Amount as included in the line item "Loss (gain) on asset dispositions, net" on the accompanying consolidated statements of operations.