e10vk
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, 2008
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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
Spokane Washington
(Address of principal
executive offices)
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99201
(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
(Note Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13
or 15(d) of the Exchange Act from their obligations under those
Sections.)
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 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
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
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, 2008 was $145.4 million, of which 89.8%
or $130.6 million was held by non-affiliates as of that
date. As of March 2, 2009, there were
18,050,754 shares of the Registrants common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2009
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 2008 fiscal year, are incorporated by
reference herein in Part III.
(This page
intentionally left blank)
1
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, managed and franchised hotels.
Hospitality
Industry Performance Measures and Definitions
The following performance measures appear throughout this
document and are widely used in the hospitality industry. These
measures are important to our discussion of operating
performance:
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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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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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Revenue per available room, or 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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Average daily rate, or 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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Comparable hotels are hotels that have been owned,
leased, managed or franchised by us for each of the 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. When presented, the above
performance measures will be identified as belonging to a
particular market segment, system-wide, or for continuing
operations versus discontinued operations or total combined
operations. 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. Smith Travel Research
categorizes hotels into seven chain scales primarily based on
ADR. Our hotels are typically classified by Smith Travel
Research in the upscale and midscale with food and beverage
chain scale.
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 and upscale, full 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
most of our hotels are located. The Red Lion brand is typically
associated with three star full-service hotels.
Our company was incorporated in the state of Washington in April
1978, and has operated hotels under various brand names
including, until 1999, 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,
3
we acquired Red Lion Hotels, Inc. In September 2005, after
rebranding most of our WestCoast hotels to the Red Lion name, we
changed our corporate name to Red Lion Hotels Corporation. All
of our hotels operate under the Red Lion brand.
As of December 31, 2008, our system of hotels contained 47
hotels located in nine states and one Canadian province, with
8,910 rooms and 437,626 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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5,935
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304,684
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Other Leased Hotel(1)
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1
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310
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5,000
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Red Lion Franchised Hotels
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15
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2,665
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127,942
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Total
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47
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8,910
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437,626
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Total Red Lion Hotels
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46
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8,600
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432,626
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(1) |
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Represents a hotel acquired in the fourth quarter of 2007 that
was repositioned as a Red Lion in January 2009. As of
December 31, 2008, this hotel was flagged as an independent. |
Company
Strategy
Our company strategy in this difficult market is to focus on
streamlining operations and maximizing the value of our existing
portfolio. This will be accomplished through careful cost
controls and a focus on brand consistency, which may result in a
change to our asset mix. Our goal over the next several years is
to maximize shareholder value and return it to shareholders.
Red Lion has created a unique guest experience by establishing
an environment that allows our customers to feel at home while
they are away from home. Our product and service culture is
successful in both large urban and smaller markets. Our hotels
strive to reflect the character of the local markets in which
they operate, while maintaining a consistent experience. We
believe our adherence to consistent customer service standards
and brand touch-points allow guests to Stay
Comfortable. Red Lion hotels have always been known for
providing a comfortable lodging experience complemented by
genuine service. Our goal is to create the most memorable guest
experience possible, through personalized, exuberant service,
allowing us to be a leader in our markets. We believe that
leveraging the uniqueness of our physical assets and interacting
with our guests in the warm, authentic way that Red Lion has
historically been known for will drive our hotels success.
To achieve these goals, we have focused our
resources monetary, capital and human on:
Infrastructure We have improved the
foundation of our company by focusing on our core competencies
and by investing in the infrastructure we use to manage the
distribution of our room inventory through online and
traditional reservation channels. We seek to maximize centrally
sourced reservations through our state-of-the-art website and
central reservation systems, enhanced revenue management
strategy and sophisticated interactions with our on-line travel
agency (OTA) partners. Centrally sourced
reservations (i.e. voice, redlion.com, travel agent and
third-party on-line travel agencies) have remained consistent
and accounted for 47.2% of total room revenues at owned and
leased hotels in 2008.
In October 2008, we completed the final installation of MICROS
Opera Property Management Systems, which are now used throughout
our portfolio of owned and leased hotels. This upgraded system
provides us with a single image database for managing, analyzing
and reporting our customer activity, greatly enhancing both our
customer service levels and ability to
e-market
using sophisticated customer relations management tools and
tactics.
Physical Assets At the end of 2008, we owned
and leased 32 hotel properties, including hotels in key markets
in the western U.S. We also continue to hold properties
with strong development potential like our Bellevue, Washington,
Post Falls, Idaho and Kalispell, Montana locations. Combined
with our other owned and leased properties, these assets provide
a strong foundation for our business.
4
We have completed major room and public space renovations at all
of our owned and leased hotels, which have enhanced the
performance of our system. The condition and presentation of
these assets is one key to our success and we remain committed
to maintaining our properties to enhance our guests
experience.
The Red Lion Way We want our guests to feel
our commitment to their memorable experience through our
associates. We are investing in our future by developing leaders
throughout all levels of our organization who understand that a
culture of associate satisfaction and excellent service is an
integral component of our long-term success. This includes
ongoing service training, leadership programs and an overall
commitment to both operational excellence and guest
satisfaction. Our goal is to be known in our industry for
leadership excellence, superior guest satisfaction and a
positive work environment, and to be profitable under all
economic climates.
Liquidity and Profitability Given the state
of the hospitality and travel markets, our focus will be on
maintaining liquidity and profitability. This means intensifying
a focused sales and marketing effort and maximizing revenue
management programs to capture market share. We will also
continue to streamline operations where possible and remain
scalable given the market environment.
2008
Update
Significant events during 2008 included:
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The acquisition of a 478-room hotel in Denver, Colorado;
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Change in management leadership following the retirement of our
former President and Chief Executive Officer;
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10-year
anniversary as a public company traded on the New York Stock
Exchange;
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Rebranding of our customer loyalty program to the Red Lion
R&R (Rewards and Recognition) Club;
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Substantially completed the renovation of our Anaheim property;
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Implementation of new ticketing application software at all
TicketsWest locations;
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Refinance of the 181-room hotel in Bellevue, Washington for
$14.0 million; and
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The completion of the installation of the MICROS Opera Property
Management System at our owned and leased hotels.
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Our assets provide us with a stable, positive cash flow
operation and a strong base from which to operate the Red Lion
brand. From 2005 to 2007, we experienced RevPAR increases.
However, similar to others in our industry and in light of the
difficult economic conditions that have impacted our business,
particularly during the fourth quarter of 2008, RevPAR for 2008
was essentially flat year-over-year with a 130 basis point
drop in occupancy offset by an increase in rate of 1.7% at our
owned and leased hotels. Our franchise properties experienced
negative RevPAR growth and a 450 basis point decrease in
occupancy during 2008 compared to 2007, partially offset by a
4.2% increase in rate. Average occupancy, average daily rate and
revenue per available room statistics provided below include all
owned, leased and franchised hotels on a comparable basis.
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2008
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2007
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2006
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Average
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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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Occupancy
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ADR
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RevPAR
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Owned and Leased Hotels
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61.1
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%
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$
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90.12
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$
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55.08
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62.4
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%
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$
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88.64
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$
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55.33
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59.3
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%
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$
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83.14
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$
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49.29
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Franchised Hotels
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58.3
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%
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$
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78.13
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$
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45.56
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62.8
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%
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$
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74.96
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$
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47.06
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64.8
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%
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$
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72.30
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$
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46.83
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Total System Wide(1)
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60.3
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$
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86.88
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$
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52.41
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62.5
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%
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$
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84.82
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$
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53.04
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60.8
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%
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$
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80.05
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$
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48.63
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5
Change from prior comparative periods:
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2008 vs. 2007
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2008 vs. 2006
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Owned and Leased Hotels
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(1.3
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1.7
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%
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(0.5
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)%
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1.8
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8.4
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%
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11.7
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%
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Franchised Hotels
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(4.5
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4.2
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(3.2
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(6.5
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8.1
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(2.7
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)%
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Total System Wide
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(2.2
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2.4
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%
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(1.2
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)%
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(0.5
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8.5
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%
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7.8
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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 for hotel statistics. |
At December 31, 2008, in addition to $18.2 million in
cash, we had unused capacity of $14 million under our
$50 million revolving credit facility. This credit facility
can be increased by an additional $50 million to a maximum
of $100 million, subject to satisfaction of various
conditions. In September we closed on a $14.0 million loan
from Wells Fargo Bank collateralized by our 181-room hotel in
Bellevue, Washington, $8.2 million of which was used to pay
off existing higher-rate debt. The loan provides for a five-year
term and a spread over LIBOR that was 1.75% at closing but may
vary based on certain financial ratios.
Our operating results and access to capital are subject to
conditions affecting the lodging industry, including any impact
from the continuing downturn of the economy. While we
experienced positive RevPAR and operating margin growth in the
first and second quarters of 2008, we did see a significant
slowdown in demand during the third quarter, primarily
commencing in September after the Labor Day weekend. This trend
intensified during the fourth quarter, where we reported an 8.3%
decrease in RevPAR from our owned and leased hotels
quarter-over-quarter. Industry-wide, transient business
decreased year-over-year and we expect that trend to continue
throughout 2009. We have undertaken a review of activities in an
effort to implement cost-cutting measures and maintain or
improve our margins, including a reduction in our work force,
consolidation of management teams at the corporate office and at
various properties and a company-wide wage and hiring freeze,
among other measures. We are aggressively managing our mix of
businesses and have launched several marketing programs in an
effort to boost revenues and maintain or increase our market
share.
Our goal during these difficult times is to maintain or improve
profit margins through cost controls while maintaining the Red
Lion culture so that our guests continue to Stay Comfortable. We
believe that we are positioned to achieve our strategic goals.
However, we believe the current economic period and its effect
on our industry have created an uncertain operating environment
for 2009. There can be no assurance our results of operations
will be similar to our results reported during 2008 and in prior
years if changes in travel patterns continue or economic
conditions do not improve.
Competitive
Strengths
Own
and control a strong proprietary brand with a long operating
history.
The Red Lion brand, which we believe projects comfort and
memorable experiences for our hotel guests, has been well known
in the western United States for more than 30 years. As the
owner and operator of many of our hotels, we have been able to
exert substantial control of brand standards across the system.
We control the focus of marketing and revenue management
strategies. In addition, as the owner of the Red Lion brand, we
have diversified our revenue base by franchising the brand to
third-party hotel owners.
Strong
value proposition.
Our Red Lion brand is associated with full-service, high-quality
lodging, including extensive meeting facilities and food and
beverage operations in the majority of our locations. Our hotels
provide exceptional and friendly service and accommodations at
competitive prices within the markets we serve. We seek to
ensure consistent quality across our hotel portfolio, offering
valuable services such as dining, fitness centers, business
services and other ancillary services. In addition, our guest
room standards include products that are important to both
leisure and business travelers, including free wireless
high-speed internet service, comfortable work space and
high-quality furnishings, including pillow-top beds.
6
We believe we are well positioned to successfully compete with
other hotel owners and operators in the midscale and upscale
segments of the lodging industry. In our hub
markets, we believe our primary competitors include Crowne
Plaza®,
Doubletree®,
Four
Points®
and
Radisson®.
In our secondary markets, we believe our competitors include
Courtyard®,
Holiday
Inn®
and Hilton Garden
Inn®.
Attractiveness
to franchisees.
We offer a strong support system to our franchisees by providing
a full range of franchise services, 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. As such,
our Red Lion brand may be attractive to potential franchisees by
offering a distinct product valued by customers. During 2008,
approximately 45% of our system-wide total room revenues were
delivered through our reservation channels. We believe that our
reservation systems, sales and marketing initiatives and our
support services are valuable to hotel owners.
Experienced
senior management team.
We have an experienced senior management team led by our
President and Chief Executive Officer, Anupam Narayan, who has
been in the industry over 25 years. Our senior executive
officers have decades of hospitality industry experience, with
strengths in several key areas, including hotel development,
ownership and management; finance;
e-commerce;
franchising; sales and marketing; food and beverage management;
human resources; entertainment and real estate. This extensive
and diverse expertise provides us with a broad perspective from
which we can make strategic management and operational decisions.
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, 2008, we operated 32
hotels, of which 19 are wholly-owned and 13 are leased. During
2008, our hotel segment accounted for approximately 90.9% of
total revenues.
The franchise segment is engaged primarily in licensing
the Red Lion brand to franchisees and managing hotels for
third-party owners. 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. As of December 31, 2008, we had 15
franchised hotels. We have not managed any hotels for third
parties since January 2008. During 2008, our franchise segment
accounted for approximately 1% of total revenues.
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 2008, our
entertainment segment accounted for approximately 6.4% of total
revenues.
Our remaining activities, none of which constitutes a reportable
segment, have been aggregated into other. In
September 2007, and as discussed further in Note 19 of
Notes to Consolidated Financial Statements, we sold the
remaining commercial office building held for sale that had been
included within discontinued operations. There were no remaining
discontinued operations after December 31, 2007.
A summary of our reporting segment revenues is provided below
(in thousands, except for percentages). For further information
regarding our business segments, see Note 16 of Notes to
Consolidated Financial Statements.
7
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Year Ended December 31,
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2008
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2007
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2006
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Hotels:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Rooms revenue
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$
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117,485
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|
|
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62.6
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%
|
|
$
|
114,312
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|
|
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61.2
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%
|
|
$
|
103,677
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|
|
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60.9
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%
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Food and beverage revenue
|
|
|
48,506
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|
|
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25.9
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%
|
|
|
48,061
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|
|
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25.7
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%
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|
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47,517
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|
|
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27.9
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%
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Other department revenue
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4,561
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|
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2.4
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%
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|
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3,795
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|
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2.0
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%
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|
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3,623
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|
|
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2.1
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%
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Total hotels segment revenue
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170,552
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|
|
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90.9
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%
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|
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166,168
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|
|
|
88.9
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%
|
|
|
154,817
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|
|
|
90.9
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%
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|
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|
|
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|
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Franchise revenue
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1,862
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|
|
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1.0
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%
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|
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2,756
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|
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1.5
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%
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|
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2,853
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|
|
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1.7
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%
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Entertainment revenue
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12,016
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|
|
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6.4
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%
|
|
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14,839
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|
|
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7.9
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%
|
|
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10,791
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|
|
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6.3
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%
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Other revenue
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|
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3,140
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|
|
|
1.7
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%
|
|
|
3,130
|
|
|
|
1.7
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%
|
|
|
1,907
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|
|
|
1.1
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%
|
|
|
|
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|
|
|
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Total revenue
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$
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187,570
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|
|
|
100.0
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%
|
|
$
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186,893
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|
|
|
100.0
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%
|
|
$
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170,368
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|
|
|
100.0
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%
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|
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|
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Employees
As of December 31, 2008, we employed approximately
2,860 people on a full-time or part-time basis, with 2,601
in hotel operations and the remainder in our administrative
office and our entertainment division. At December 31,
2008, approximately 5.1% 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,
amendments to these reports and all other reports filed with the
U.S. Securities and Exchange Commission (SEC),
pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934. These reports may also be obtained at no
cost through the SEC (www.SEC.gov or 800-SEC-0330 or the
SECs Public Reference Room, 100 F Street, N.E.,
Washington D.C. 20549).
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.
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
Recessionary conditions in the national economy have resulted in
economic pressures on the hospitality industry in general and on
our operations and expansion plans. Higher unemployment, lower
family income, lower corporate earnings, lower business
investment and lower consumer spending all reduce the demand for
hotel rooms and related lodging services and put pressure on
room rates. We saw a substantial drop in occupancy during the
fourth quarter of 2008. In 2009, we expect our operations and
financial results will continue to be adversely affected by
general economic conditions, weak hospitality demand and
constraints on availability of financing. Moreover, reduced
revenues as a result of a continued deterioration of the economy
may also reduce our working capital and impact our business
strategy. 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 future pressure on credit ratings, 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
8
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 47 hotels in our system at December 31, 2008, 35 are
located in Oregon, Washington, Idaho and Montana. Our results of
operations and financial condition may be significantly affected
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 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 puts 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 adversely impacted by
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, philosophy 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 air 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;
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9
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The impact of internet intermediaries on 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; and
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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.
|
Any of these factors could adversely impact hotel room demand
and pricing and result in reduced occupancy, ADR and RevPAR, or
could otherwise adversely affect our results of operations and
financial condition including government imposed fines or
private litigants winning damage awards against us.
Our
expenses may remain constant or increase even if revenues
decline.
The expenses of owning property are not necessarily reduced when
circumstances such as market factors and competition cause a
reduction in revenues to a hotel. Accordingly, a decrease in our
revenues could result in a disproportionately higher decrease in
our earnings because our expenses are unlikely to decrease
proportionately.
We
have incurred debt financing and may incur increased
indebtedness in connection with potential acquisitions in the
future, 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 potential
acquisitions and 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 times
that may not permit realization of the maximum potential return
on our investments. 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 owners of any of 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 or 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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10
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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.
|
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.
In September 2006, we entered into a $50 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, 2008, we had $36.0 million
outstanding under the facility and were in compliance with our
covenants. We also have one variable rate property note on our
Red Lion Bellevue location, with a balance of $13.8 million
at December 31, 2008. This note has restrictive covenants
that mirror those of our credit facility. There is no assurance
that we will be able to comply with such requirements 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 5 of Notes to Consolidated Financial
Statements.
We
will be required to refinance our credit facility and other debt
maturities in 2011, including extension options, and there is no
assurance that we will be able to refinance our maturing debt on
acceptable terms.
Our revolving credit facility, including extension options,
matures in September 2011, which we will be required to repay,
refinance or renegotiate the facility prior to that date. Our
ability to refinance our credit facility on acceptable terms
will be dependent upon 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
$26.0 million in other debt maturing in 2011. 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. Events
over the past several months, including recent failures and near
failures of a number of large financial service companies and
the contraction of available liquidity and leverage, have
impaired the capital markets for hotel and real estate
investments. As a result, many current and prospective hotel
owners are finding hotel financing on commercially viable terms
to be extremely difficult to obtain. There is no assurance that
we will be able to obtain additional financing on acceptable
terms.
The
lodging industry is highly competitive, which may impact our
ability to compete successfully with other hospitality and
leisure companies in the future.
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, which could attract customers away from our hotels.
Our ability to remain competitive and to attract and retain
11
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 management
and franchise 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 management or franchise 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.
The
results of some of our individual 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.
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.
12
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.
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:
|
|
|
|
|
Changes in national, regional and local economic conditions;
|
|
|
|
Changes in local real estate market conditions;
|
|
|
|
Increases in interest rates, and other changes in the
availability, cost and terms of financing and capital leases;
|
|
|
|
Increases in property and other taxes;
|
|
|
|
The impact of present or future environmental legislation;
|
|
|
|
Adverse changes in other governmental regulations, insurance and
zoning laws; and
|
|
|
|
Governmental entities, or entities involved with governmental
authority, have the right to take real property in certain
circumstances. Specifically, in Bellevue, Washington, a proposal
to expand light rail in that community could in the future
result in taking of our hotel in that city. While we may oppose
such actions, if one or more of our hotels were taken through
the eminent domain process, we might not receive compensation
that we believe is commensurate with the 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 times that might not permit realization of the
maximum return on our investments. 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 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 its possible 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.
13
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, poor
weather conditions, actual or threatened terrorist attacks and
international conflicts. 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.
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 maintaining guest
preferences to enhance our customer service and for marketing
and promotion purposes and credit card information. 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 noncompliance 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, that
are entered into, processed by, summarized by and reported by
our various information systems and those of our service
providers. We also
14
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 environmental laws,
ordinances and regulations, as well as the cost of compliance
with future environmental legislation. 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 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. We
cannot assure you that these properties do not have any
environmental risks associated with them. While 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, we cannot assure you that these properties do not
have any environmental concerns associated with them. We cannot
assure you 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 environmental
condition of our
15
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.
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 our
franchisees terminate or fail to renew their relationship with
our company, our franchise revenue will decline.
As of December 31, 2008, there were 15 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.
We cannot assure shareholders that these agreements will be
renewed, or that they will not be terminated prior to the end of
their respective terms.
All franchised hotels were required to meet Red Lion upscale
brand standards by the end of 2007. The majority of hotels met
the standards by the end of 2007, while some are still in the
process of completing renovations. We believe as of
December 31, 2008, all but two of our current franchisees
are either in full compliance with our enhanced brand standards
or making sufficient progress. Subsequent to December 31,
2008, one of those franchisees located in
Winnemucca, Nevada had its franchise agreement
expire and it was not renewed. That hotel has since left our
system. We are monitoring the work of the other franchisees and
will terminate hotels for non-compliance if satisfactory
progress does not continue. If these or other franchise
agreements are not renewed, or are terminated prior to the
expiration of their respective terms, the resulting decrease in
revenue and loss of market penetration could have an adverse
effect on our results of operations and financial condition.
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.
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 continues to demand the use of
technology and systems including those utilized for property
management, procurement, reservation systems, operation of our
customer loyalty program and distribution. These technologies
can be expected to change guests expectations, and there
is the risk that advanced new
16
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 for such
technology. 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 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.
17
The
market price for our common stock may be volatile.
The stock market has experienced and may in the future
experience extreme volatility that has often been 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 current
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 common stock or other securities in the
future; and
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Announcements by us or our competitors of acquisitions,
investments or strategic alliances.
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The
unsolicited proposal from Columbia Pacific Opportunity
Fund LP may create uncertainty that may adversely impact
our business.
In June 2008, we received an unsolicited, non-binding and
conditional preliminary indication of interest proposal from
Columbia Pacific Opportunity Fund, LP (Columbia
Pacific) to acquire all of our outstanding shares of
common stock. Our board of directors, consistent with its
fiduciary duties and in consultation with its financial and
legal advisors, carefully evaluated this indication of interest.
The board of directors retained an outside investment banking
firm to assist it in evaluating strategic options for maximizing
our shareholder value and we entered into several
confidentiality agreements with third parties, including
Columbia Pacific, in connection with that effort.
In October 2008, we announced that we had concluded the
strategic options review process having received no definitive
proposals from any third parties, and that Columbia Pacific had
withdrawn its previous indication of interest.
The fact that we engaged in a publicly-announced review of
strategic options and the fact that such review did not result
in a transaction may create uncertainty regarding our
companys future that may adversely impact our business,
including but not limited to our ability to attract new
franchisees to the Red Lion brand and our ability to retain and
attract employees.
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. In addition, our board of directors has implemented a
shareholder rights plan that automatically dilutes any acquirer
of 20% or more of our common stock that does not obtain board
approval for such acquisition. Subject to extension, the rights
plan will continue in effect until February 1, 2011, unless
earlier redeemed or amended.
Due to
the shareholdings of our Chairman, together with other members
of the Barbieri family, we may be limited in our ability to
undertake transactions requiring shareholder
approval.
As of December 31, 2008, Donald K. Barbieri, our Chairman
of the Board, had sole voting and investment power with respect
to 5.3% of our outstanding shares of common stock. River Run
Ventures, LLC, a Washington limited liability company of which
Mr. Barbieri is a member and as a member shares voting and
dispositive power
18
with respect to the shares, held 0.4% of our outstanding shares
of common stock. Heather Barbieri, his ex-spouse, had sole
voting and investment power with respect to 5.4% of our
outstanding shares of common stock. Pursuant to a trust
agreement, Donald K. Barbieri and Heather Barbieri share voting
and investment power with respect to an additional 3.0% of our
outstanding shares of common stock. Richard L. Barbieri, who is
also a director and a brother of Donald K. Barbieri,
beneficially owned 1.2% of our outstanding shares of common
stock as of December 31, 2008. 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 such, to the extent they are
willing and able to act in concert, they 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 6.4% of our total
revenues from continuing operations in 2008, 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
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.
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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, 2008, we owned
19 hotels, leased 12, and had franchise arrangements with 15
hotels owned and operated by third parties. We also operate one
hotel under a long-term lease that was flagged as independent.
This hotel was subsequently repositioned to a Red Lion hotel in
January 2009, after substantial renovations to the property were
completed. 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 and manage our own
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, 2008.
19
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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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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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16,500
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Red Lion Hotel Pasco
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Pasco, Washington
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279
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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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9,247
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Red Lion Bellevue
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Bellevue, Washington
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181
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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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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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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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|
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Owned Hotels (19 properties)
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4,128
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224,472
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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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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 Astoria
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Astoria, Oregon
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122
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5,118
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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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|
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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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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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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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8,670
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Red Lion River Inn
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Spokane, Washington
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245
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2,800
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Red Lion Hotel Vancouver (at the Quay)
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Vancouver, Washington
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160
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14,785
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Red Lion Hotel Wenatchee
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Wenatchee, Washington
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149
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7,678
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Leased Hotels (12 properties)
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1,807
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80,212
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Other Leased Hotels
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Anaheim Maingate(1)
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Anaheim, California
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310
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5,000
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Other Leased Hotels (1 property)
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310
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5,000
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20
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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 Franchised Hotels
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Red Lion Inn & Suites Victoria
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Victoria, BC Canada
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85
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450
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Red Lion Hotel Bakersfield
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Bakersfield, California
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165
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6,139
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Red Lion Hotel Denver Central
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Denver, Colorado
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297
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15,206
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Red Lion Hotel Lewiston
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Lewiston, Idaho
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183
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12,259
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Red Lion Baton Rouge
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Baton Rouge, Louisiana
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132
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|
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5,111
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Red Lion Hotel & Casino Elko
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Elko, Nevada
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222
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|
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3,000
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Red Lion Hotel & Casino Winnemucca(2)
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Winnemucca, Nevada
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105
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1,271
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Red Lion Inn & Suites McMinnville
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McMinnville, Oregon
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67
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1,312
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Red Lion Inn Portland Airport
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Portland, Oregon
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136
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3,000
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Red Lion Hotel Portland Convention Center
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Portland, Oregon
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174
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6,000
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Red Lion Hotel Salem
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Salem, Oregon
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148
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10,000
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Red Lion Hotel on the River Jantzen Beach
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Portland, Oregon
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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
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised Hotels (15 properties)
|
|
|
|
|
2,665
|
|
|
|
127,942
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Hotels (47 properties)
|
|
|
|
|
8,910
|
|
|
|
437,626
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Red Lion Hotels (46 properties)
|
|
|
|
|
8,600
|
|
|
|
432,626
|
|
|
|
|
(1) |
|
Represents a hotel acquired in the fourth quarter of 2007 that
was repositioned as a Red Lion in January 2009. As of
December 31, 2008, this hotel was flagged as an independent. |
|
(2) |
|
Subsequent to December 31, 2008, this franchise agreement
expired and was not renewed. Therefore, this hotel will leave
our system in 2009. |
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 12 of Notes to Consolidated Financial
Statements.
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.
21
At December 31, 2008, our system of hotels included 15
hotels under franchise agreements, representing a total of 2,665
rooms and 127,942 square feet of meeting space. During the
first quarter of 2008, the franchised property Red Lion Hotel
Baton Rouge (132 rooms) joined the system, and one hotel under a
management contract (254 rooms) did not renew its agreement and
left our system of hotels. In April 2008, franchise agreements
with three hotels expired and were not renewed, representing a
total of 301 rooms. In addition, we have terminated franchise
agreements with four other properties, including three during
the third quarter of 2008 for insufficient progress in
completing the required property improvements. Those hotels were
the former Red Lion Hotel Modesto (186 rooms), Red Lion Hotel
Hillsboro (123 rooms) and Red Lion Hotel Klamath Falls (108
rooms). Subsequent to December 31, 2008, the franchise
agreement for the Red Lion Hotel and Casino Winnemucca (105
rooms) expired and was not renewed, and has since left our
system of hotels.
Discontinued
Operations and Assets Held For Sale
From November 2004 through 2007, we divested non-strategic
assets including ten of our owned hotels, certain commercial
office buildings and certain other non-core properties including
condominium units and certain parcels of excess land. Each of
the divestment properties met the criteria to be classified as
an asset held for sale. The activities of the hotels and
commercial office buildings were considered discontinued
operations under generally accepted accounting principles and
have been separately disclosed on the consolidated statement of
operations, comparative for all periods presented when they
existed. Likewise, the assets and liabilities of the business
units have been segregated and separately stated on the
consolidated balance sheet for all periods presented when they
existed. The total of $72.6 million in gross proceeds from
the sale of these assets was used primarily to finance a company
wide hotel renovation program, to repay debt and for general
corporate purposes. For additional information, see Note 19
of Notes to Consolidated Financial Statements. There were no
remaining discontinued operations after December 31, 2007.
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 and have other
miscellaneous real estate investments.
|
|
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.
|
Submission
of Matters to a Vote of the Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2008.
22
|
|
Item 4A.
|
Executive
Officers of the Registrant
|
Set forth below is information regarding our directors,
executive officers and certain key employees as of March 2,
2009:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Donald K. Barbieri
|
|
|
63
|
|
|
Chairman of the Board
|
Richard L. Barbieri
|
|
|
66
|
|
|
Director
|
Ryland P. Skip Davis
|
|
|
68
|
|
|
Director
|
Jon E. Eliassen
|
|
|
62
|
|
|
Director
|
Anupam Narayan
|
|
|
55
|
|
|
President, Chief Executive Officer and Director
|
Peter F. Stanton
|
|
|
52
|
|
|
Director
|
Ronald R. Taylor
|
|
|
61
|
|
|
Director
|
George H. Schweitzer
|
|
|
53
|
|
|
Senior Vice President, Hotel Operations
|
Thomas L. McKeirnan
|
|
|
40
|
|
|
Senior Vice President, General Counsel and Secretary
|
Anthony F. Dombrowik
|
|
|
38
|
|
|
Senior Vice President, Chief Financial Officer and Principal
Financial and Accounting Officer
|
Jack G. Lucas
|
|
|
56
|
|
|
Vice President and President, TicketsWest
|
Donald K. Barbieri. Mr. Barbieri has been a director
since 1978 and Chairman of the Board since 1996. He served as
President and Chief Executive Officer from 1978 until April
2003. Mr. Barbieri joined our company in 1969 and was
responsible for its development activities in hotel,
entertainment and real estate areas. Mr. Barbieri is a past
Trustee of Gonzaga University; Chairman of the Board for the
Spokane Regional Chamber of Commerce; served as President of the
Spokane Chapter of the Building Owners and Managers Association;
as President of the Spokane Regional Convention and Visitors
Bureau and as Chairman of the Spokane United Way Campaign.
Barbieri chaired the State of Washingtons Quality of Life
Task Force. He has served as board Chairman for the Inland
Northwests largest hospital system, Sacred Heart Medical
Center and was founding president of the Physician Hospital
Community Organization. He has served three governors on the
Washington Economic Development Board and was a candidate for
the Fifth District U.S. Congressional Seat from the State
of Washington. Mr. Barbieri is the brother of Richard L.
Barbieri.
Richard L. Barbieri. Mr. Barbieri has been a
director since 1978. From 1994 until he retired in December
2003, he served as our companys full-time General Counsel,
first as Vice President, then Senior Vice President and
Executive Vice President. He currently serves on the Board of
Neighborcare Health Centers and on the Board of the Pike Market
Foundation, both non-profit organizations. From 1978 to 1995,
Mr. Barbieri served as legal counsel and Secretary, during
which time he was first engaged in the private practice of law
at Edwards and Barbieri, a Seattle law firm, and then at Riddell
Williams P.S., a Seattle law firm. Mr. Barbieri has also
served as chairman of various committees of the Washington State
Bar Association and the King County (Washington) Bar
Association, and as a member of the governing board of the King
County bar association. He also served as Vice Chairman of the
Citizens Advisory Committee to the Major League Baseball
Stadium Public Facilities District in Seattle in 1996 and 1997.
Mr. Barbieri is the brother of Donald K. Barbieri.
Ryland P. Skip Davis. Mr. Davis has been
a director since May 2005. Mr. Davis is the head of Amicus
Healthcare Solutions, a management consulting and private equity
firm. Prior to that, he was the Chief Executive Officer of
Providence Strategic Ventures, a division of Providence Health
and Services, the sixth largest Catholic health system in the
Unites States. From 1998 to 2007, he served as Chief Executive
Officer of Providence Health Care and from 1996 to 1998 as Chief
Executive Officer of Sacred Heart Medical Center in Spokane.
From 1993 to 1996, Mr. Davis was Senior Vice President for
the Hunter Group, a hospital management firm specializing in
healthcare consulting and management nationally. From 1988 to
1993, he was Chairman and CEO of Synergos Neurological Centers,
Inc., in Santa Ana and Sacramento, California. From 1987 to
1988, he was President of Diversified Health Group, Inc., of
Sacramento. From 1982 to 1987, he worked for American Health
Group International as President and CEO of Amerimed in Burbank,
California, and as Executive Vice President of Operations. From
1981 to 1982, he worked for Hospital Affiliates International,
as Group Vice President in
23
Sacramento, and as CEO of Winona Memorial Hospital in
Indianapolis, Indiana. From 1972 to 1975, he was Associate
Administrator of San Jose Hospital and Health Care Center
in San Jose, California and from 1968 to 1971, Assistant
Administrator of Alta Bates Hospital in Berkeley, California. He
has done numerous private business ventures related to
healthcare. Mr. Davis is a Fellow of the American College
of Health Care Executives and has published articles in
Modern Healthcare, Health Week, and
other business publications regarding healthcare issues and
perspectives. Mr. Davis is currently on the Board and is
Chair of Greater Spokane Incorporated, on the Boy Scouts of
America Inland Northwest Council Board, and a member of the
Washington State University Advisory Council.
Jon E. Eliassen. Mr. Eliassen has been a director
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 operations including
technology related startups Itron, Avista Labs and Avista
Advantage. Mr. Eliassen serves on the Board of Directors of
Itron Corporation, 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, Spokane
Intercollegiate Research and Technology Institute and past
director of numerous other organizations and energy industry
associations.
Anupam Narayan. Effective February 11, 2008,
Mr. Narayan was appointed President and Chief Executive
Officer. Prior to that, Mr. Narayan was our Executive Vice
President, Chief Investment Officer and Chief Financial Officer
since January 2005. He has been with the company since November
2004, when he was first appointed Executive Vice President and
Chief Investment Officer. Mr. Narayan has nearly
25 years of experience in the hospitality industry. From
1998 to March 2004, he served in various capacities as an
executive officer of Best Western International Inc., including
his most recent position as Senior Vice President, Global Brand
Management and Chief Financial Officer and a three-month period
as Acting President and Chief Executive Officer during 2002.
From 1985 to 1998, Mr. Narayan was employed by Doubletree
Corporation and Red Lion Hotels, Inc., serving as Senior Vice
President and Treasurer immediately prior to his move to Best
Western. He has served on the board of the International Hotel
and Restaurant Association and as Chairman of its Chains
Council. He currently serves on the American Hotels &
Lodging Association CEO Council, as well as the AHLA Government
Affairs Council.
Peter F. Stanton. Mr. Stanton has been a director
since April 1998. Mr. Stanton has served as the Chief
Executive Officer of Washington Trust Bank since 1993 and
its Chairman since 1997. Mr. Stanton previously served as
President of Washington Trust Bank from 1990 to 2000.
Mr. Stanton is also Chief Executive Officer, President and
Chairman of the Board of Directors of W.T.B. Financial
Corporation (a bank holding company). In addition to serving on
numerous state and local civic boards, Mr. Stanton was
President of the Washington Bankers Association from 1995 to
1996 and served as Washington state chairman of the American
Bankers Association in 1997 and 1998. He currently serves as
Chairman of the Advisory Board for the Boys and
Girls Club of Spokane County. Mr. Stanton is also a
Trustee of Gonzaga University, is on the Board of Trustees of
Greater Spokane Incorporated, as well as on the board of the
Inland Northwest Council, Boy Scouts of America.
Ronald R. Taylor. Mr. Taylor has been a director
since April 1998. Mr. Taylor is President of Tamarack Bay,
LLC, a private consulting firm and is currently a director of
two other public companies, Watson Pharmaceuticals, Inc. (a
pharmaceutical manufacturer) and ResMed, Inc. (a manufacturer of
equipment relating to the management of sleep-disordered
breathing). At Watson Pharmaceuticals, Inc., Mr. Taylor is
a member of the Audit and Nominating and Corporate Governance
Committees and is Chairman of the Compensation Committee. At
ResMed, Inc., he is a member of the Nominating and Corporate
Governance Committees and Chairman of the Compensation
Committee. Mr. Taylor is also Chairman of the Board of
three privately held companies. From 1998 to 2002,
Mr. Taylor was a general partner of Enterprise Partners, a
venture capital firm. From 1996 to 1998, Mr. Taylor worked
as an independent business consultant. From 1987 to 1996,
Mr. Taylor was Chairman, President and Chief Executive
Officer of Pyxis Corporation (a health care service provider),
which he founded in 1987. Prior to founding Pyxis, he was an
executive with both Allergan Pharmaceuticals and Hybritech, Inc.
24
George H. Schweitzer. Mr. Schweitzer has been our
Senior Vice President, Hotel Operations since April 2008. Prior
to joining our company, Mr. Schweitzer had served 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, since August 2006. 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.
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, 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.
Anthony F. Dombrowik. Since March 2008,
Mr. Dombrowik has served as our Senior Vice President,
Chief Financial Officer and Principal Financial and Accounting
Officer. Prior to that, Mr. Dombrowik was our Senior Vice
President, Corporate Controller and Principal Accounting
Officer, and has been with Red Lion Hotels Corporations since
May 2003. Mr. Dombrowik was previously employed as senior
manager at the public accounting firm of BDO Seidman, LLP, where
he served as an auditor, certified public accountant and
consultant from 1992 to 2003. Mr. Dombrowiks public
accounting practice focused on auditing and consulting for
mid-market public companies, with particular attention to
consolidations, capital and debt transactions, mergers and
acquisitions, and the hospitality industry.
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
26 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.
25
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
|
|
|
2008
|
|
|
|
|
|
|
|
|
Fourth Quarter (ended December 31, 2008)
|
|
$
|
7.88
|
|
|
$
|
1.97
|
|
Third Quarter (ended September 30, 2008)
|
|
$
|
8.96
|
|
|
$
|
7.67
|
|
Second Quarter (ended June 30, 2008)
|
|
$
|
9.69
|
|
|
$
|
6.85
|
|
First Quarter (ended March 31, 2008)
|
|
$
|
9.90
|
|
|
$
|
7.63
|
|
2007
|
|
|
|
|
|
|
|
|
Fourth Quarter (ended December 31, 2007)
|
|
$
|
10.80
|
|
|
$
|
9.52
|
|
Third Quarter (ended September 30, 2007)
|
|
$
|
12.94
|
|
|
$
|
8.87
|
|
Second Quarter (ended June 30, 2007)
|
|
$
|
13.04
|
|
|
$
|
12.10
|
|
First Quarter (ended March 31, 2007)
|
|
$
|
12.92
|
|
|
$
|
10.62
|
|
(b) The closing sale price of the common stock on the NYSE
on March 2, 2009 was $2.89. As of that date, there were
approximately 116 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 and do not anticipate paying
any in the foreseeable future. Any determination to pay cash
dividends in the future will be at the discretion of our board
of directors, who periodically review our dividend policy on
common shares.
(d) The following table provides information as of
December 31, 2008 on plans under which equity securities
may be issued to employees, directors or consultants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities
|
|
|
|
|
|
Remaining Available for
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Future Issuance Under 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)
|
|
|
793,096
|
|
|
$
|
6.05
|
|
|
|
|
|
2006 Stock Incentive Plan
|
|
|
518,059
|
|
|
$
|
9.99
|
|
|
|
403,289
|
|
Equity Compensation Plans Not Approved by Security Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,311,155
|
|
|
$
|
7.61
|
|
|
|
403,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
No further grants will be made under the 1998 Stock Incentive
Plan. |
26
|
|
|
(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 Composite Index and the
Standard & Poors 500 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. |
Issuer
Purchases of Equity Securities
In September 2007, we announced a common stock repurchase
program for up to $10 million. During 2007, we repurchased
924,200 shares for an aggregate cost of $9.1 million.
During January 2008, we repurchased 93,000 shares for an
aggregate cost of $0.9 million, completing that program.
In December 2008, we announced a second 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,
we repurchased 303,000 shares at a cost of
$0.9 million.
Repurchases during 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Dollar Value of
|
|
|
|
Total
|
|
|
|
|
|
Shares Purchased
|
|
|
Shares That May Yet Be
|
|
|
|
Number of
|
|
|
Average
|
|
|
as Part of
|
|
|
Purchased
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Publicly Announced
|
|
|
Under the Plan
|
|
Period
|
|
Purchased
|
|
|
Per Share
|
|
|
Plan or Program
|
|
|
or Program
|
|
|
1/1/08 1/31/08
|
|
|
93,000
|
|
|
$
|
9.58
|
|
|
|
1,017,200
|
|
|
|
n/a
|
|
12/1/08 12/31/08
|
|
|
303,000
|
|
|
|
2.95
|
|
|
|
303,000
|
|
|
$
|
9,106,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
396,000
|
|
|
$
|
4.51
|
|
|
|
1,320,200
|
|
|
$
|
9,106,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Item 6.
|
Selected
Financial Data
|
The following table sets forth our selected consolidated
financial data as of and for the years ended December 31,
2008, 2007, 2006, 2005 and 2004. 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 prior filings by
Red Lion. Operating activities and the balance sheet of
continuing operations have been reflected on a comparable basis
for all years presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
187,570
|
|
|
$
|
186,893
|
|
|
$
|
170,368
|
|
|
$
|
163,053
|
|
|
$
|
161,964
|
|
Restructuring expenses
|
|
$
|
2,067
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating expenses(1,2)
|
|
$
|
182,771
|
|
|
$
|
171,515
|
|
|
$
|
157,060
|
|
|
$
|
151,604
|
|
|
$
|
150,791
|
|
Operating income(2)
|
|
$
|
4,799
|
|
|
$
|
15,378
|
|
|
$
|
13,308
|
|
|
$
|
11,449
|
|
|
$
|
11,173
|
|
Expense of early extinguishment of debt, net(3)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,266
|
|
|
$
|
|
|
|
$
|
|
|
Net income (loss) from continuing operations(2,3)
|
|
$
|
(1,704
|
)
|
|
$
|
5,231
|
|
|
$
|
(520
|
)
|
|
$
|
(977
|
)
|
|
$
|
(626
|
)
|
Net income (loss) from continuing operations applicable to
common shareholders(2,3)
|
|
$
|
(1,704
|
)
|
|
$
|
5,231
|
|
|
$
|
(520
|
)
|
|
$
|
(977
|
)
|
|
$
|
(1,003
|
)
|
Earnings (loss) per share applicable to common shareholders
before discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.09
|
)
|
|
$
|
0.27
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on disposal of discontinued business units, net
of income tax expense (benefit)(4)
|
|
$
|
|
|
|
$
|
932
|
|
|
$
|
(133
|
)
|
|
$
|
3,747
|
|
|
$
|
(5,770
|
)
|
Income (loss) from operations of discontinued business units,
net of income tax expense or benefit
|
|
$
|
|
|
|
$
|
(113
|
)
|
|
$
|
78
|
|
|
$
|
1,725
|
|
|
$
|
111
|
|
Earnings (loss) on discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
|
|
|
$
|
0.42
|
|
|
$
|
(0.43
|
)
|
Net Income (Loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
|
$
|
4,495
|
|
|
$
|
(6,285
|
)
|
Total Earnings (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted(2,3)
|
|
$
|
(0.09
|
)
|
|
$
|
0.32
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.34
|
|
|
$
|
(0.51
|
)
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,234
|
|
|
|
19,134
|
|
|
|
16,666
|
|
|
|
13,105
|
|
|
|
13,049
|
|
Diluted
|
|
|
18,234
|
|
|
|
19,506
|
|
|
|
16,666
|
|
|
|
13,105
|
|
|
|
13,049
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
25,657
|
|
|
$
|
34,594
|
|
|
$
|
23,133
|
|
|
$
|
33,570
|
|
|
$
|
18,268
|
|
EBITDA from continuing operations(2,3)
|
|
$
|
25,657
|
|
|
$
|
33,138
|
|
|
$
|
22,602
|
|
|
$
|
23,189
|
|
|
$
|
22,115
|
|
Net cash provided by operating activities
|
|
$
|
22,803
|
|
|
$
|
21,230
|
|
|
$
|
18,962
|
|
|
$
|
11,937
|
|
|
$
|
10,889
|
|
Net cash used in investing activities
|
|
$
|
(53,754
|
)
|
|
$
|
(12,491
|
)
|
|
$
|
(14,000
|
)
|
|
$
|
(4,219
|
)
|
|
$
|
(21,876
|
)
|
Net cash (used in) provided by financing activities
|
|
$
|
34,129
|
|
|
$
|
(7,014
|
)
|
|
$
|
(5,247
|
)
|
|
$
|
(4,025
|
)
|
|
$
|
12,777
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(5)
|
|
$
|
10,007
|
|
|
$
|
7,559
|
|
|
$
|
10,217
|
|
|
$
|
18,293
|
|
|
$
|
2,322
|
|
Assets of discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,539
|
|
|
$
|
28,041
|
|
|
$
|
68,992
|
|
Assets held for sale
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
884
|
|
Property and equipment, net
|
|
$
|
298,496
|
|
|
$
|
260,574
|
|
|
$
|
250,575
|
|
|
$
|
216,605
|
|
|
$
|
216,802
|
|
Total assets
|
|
$
|
380,772
|
|
|
$
|
344,509
|
|
|
$
|
351,438
|
|
|
$
|
344,083
|
|
|
$
|
364,612
|
|
Total long-term debt and capital lease obligation
|
|
$
|
116,323
|
|
|
$
|
77,673
|
|
|
$
|
83,005
|
|
|
$
|
118,844
|
|
|
$
|
129,513
|
|
Debentures due Red Lion Hotels Capital Trust
|
|
$
|
30,825
|
|
|
$
|
30,825
|
|
|
$
|
30,825
|
|
|
$
|
47,423
|
|
|
$
|
47,423
|
|
Liabilities of discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,112
|
|
|
$
|
7,015
|
|
|
$
|
26,650
|
|
Long-term debt included with discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,874
|
|
|
$
|
6,223
|
|
|
$
|
25,441
|
|
Total liabilities
|
|
$
|
199,400
|
|
|
$
|
162,014
|
|
|
$
|
167,647
|
|
|
$
|
222,836
|
|
|
$
|
248,225
|
|
Total stockholders equity
|
|
$
|
181,372
|
|
|
$
|
182,495
|
|
|
$
|
183,791
|
|
|
$
|
121,247
|
|
|
$
|
116,387
|
|
|
|
|
(1) |
|
Operating expenses include all direct segment expenses,
depreciation and amortization, gain (loss) on asset disposals,
hotel facility and land lease, undistributed corporate expenses
and conversion expenses, if any. |
|
(2) |
|
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. |
|
(3) |
|
During 2006, we reduced our debt by $59.1 million, some of
which resulted in expenses for early extinguishment. For 2006,
this line item impacted net income from continuing operations by
$3.4 million, EBITDA by $5.3 million and earnings per
share by $0.20. |
|
(4) |
|
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 the remaining hotel
identified in the November 2004 divestment plan. In 2006, the
balance includes a loss on disposition of assets of
$0.1 million. In 2005, the balance includes a gain on the
sale of seven hotels and an office building of
$10.2 million and a non-cash impairment charge of
$4.5 million on four hotels. In 2004, the balance includes
a non-cash impairment charge of $8.9 million on four hotels. |
|
(5) |
|
Represents current assets less current liabilities, excluding
assets and liabilties of discontinued operations and assets held
for sale. |
29
The following table details the impact of the $2.1 million
in restructuring expenses recorded and $3.7 million charge
in separation costs on net loss, loss per share and EBITDA for
the year ended 2008 (in thousands, except per share data):
|
|
|
|
|
Separation costs
|
|
$
|
(3,654
|
)
|
Restructuring expenses
|
|
|
(2,067
|
)
|
Income tax benefit
|
|
|
2,031
|
|
|
|
|
|
|
Impact on net loss
|
|
$
|
(3,690
|
)
|
|
|
|
|
|
Impact on EBITDA
|
|
$
|
(5,721
|
)
|
|
|
|
|
|
Separation costs
|
|
$
|
(0.20
|
)
|
Restructuring expenses
|
|
|
(0.11
|
)
|
Income tax benefit
|
|
|
0.11
|
|
|
|
|
|
|
Impact on loss per share
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
EBITDA represents net income (loss) 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, on-going operations. We
believe it is a complement to net income (loss) and other
financial performance measures. EBITDA from continuing
operations is calculated in the same manner, but excludes the
operating activities of business units identified as
discontinued. EBITDA is not intended to represent net income
(loss) 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. We believe that the presentation of EBITDA from
continuing operations is useful for the same reasons, in
addition to using it for comparative purposes for our intended
operations going forward.
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 from continuing operations
excludes the activities of operations we have determined to be
discontinued and does not reflect the totality of operations as
experienced for the periods presented. 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, 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
(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.
30
The following is a reconciliation of EBITDA and EBITDA from
continuing operations to net income (loss) for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
EBITDA from continuing operations
|
|
$
|
25,657
|
|
|
$
|
33,138
|
|
|
$
|
22,602
|
|
|
$
|
23,189
|
|
|
$
|
22,115
|
|
Income tax benefit (expense) continuing operations
|
|
|
1,202
|
|
|
|
(2,207
|
)
|
|
|
1,633
|
|
|
|
904
|
|
|
|
876
|
|
Interest expense continuing operations
|
|
|
(9,247
|
)
|
|
|
(9,172
|
)
|
|
|
(12,072
|
)
|
|
|
(13,987
|
)
|
|
|
(13,489
|
)
|
Depreciation and amortization continuing operations
|
|
|
(19,316
|
)
|
|
|
(16,528
|
)
|
|
|
(12,683
|
)
|
|
|
(11,083
|
)
|
|
|
(10,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(1,704
|
)
|
|
|
5,231
|
|
|
|
(520
|
)
|
|
|
(977
|
)
|
|
|
(626
|
)
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
819
|
|
|
|
(55
|
)
|
|
|
5,472
|
|
|
|
(5,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
|
$
|
4,495
|
|
|
$
|
(6,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
25,657
|
|
|
$
|
34,594
|
|
|
$
|
23,133
|
|
|
$
|
33,570
|
|
|
$
|
18,268
|
|
Income tax benefit (expense)
|
|
|
1,202
|
|
|
|
(2,658
|
)
|
|
|
1,663
|
|
|
|
(2,083
|
)
|
|
|
3,781
|
|
Interest expense
|
|
|
(9,247
|
)
|
|
|
(9,331
|
)
|
|
|
(12,263
|
)
|
|
|
(15,386
|
)
|
|
|
(15,507
|
)
|
Depreciation and amortization
|
|
|
(19,316
|
)
|
|
|
(16,555
|
)
|
|
|
(13,108
|
)
|
|
|
(11,606
|
)
|
|
|
(12,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
|
$
|
4,495
|
|
|
$
|
(6,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and upscale, full 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
most of our hotels are located. The Red Lion brand is typically
associated with three star full-service hotels.
As of December 31, 2008, our hotel system contained 47
hotels located in nine states and one Canadian province, with
8,910 rooms and 437,626 square feet of meeting space as
provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
|
|
|
Space
|
|
|
|
Hotels
|
|
|
Rooms
|
|
|
(sq. ft.)
|
|
|
Red Lion Owned and Leased Hotels(1)
|
|
|
31
|
|
|
|
5,935
|
|
|
|
304,684
|
|
Other Leased Hotel(2)
|
|
|
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
|
|
|
|
|
(1) |
|
Leased hotels are those properties which we operate and manage
and have ownership of some or all of the equipment and personal
property on site, however, the hotel facility and the underlying
land is subject to an operating lease from a third party. Our
lease expiration dates range from 2011 to 2024 and have renewal
provisions beyond that. |
|
(2) |
|
Represents a hotel acquired in the fourth quarter of 2007 that
was repositioned as a Red Lion in January 2009. As of
December 31, 2008, this hotel was flagged as an independent. |
Red Lion is about staying comfortable, and that means feeling at
home when youre away from home. Our product and service
culture is successful in both large urban and smaller markets.
Our hotels strive to reflect the character of the unique local
markets in which they operate, while maintaining a consistent
experience. We believe
31
our adherence to consistent customer service standards and brand
touch-points make guests Stay Comfortable. Red Lion
hotels have always been known for providing a comfortable
lodging experience and real, genuine and sincere service.
We operate in three reportable segments:
|
|
|
|
|
The hotels segment derives revenue primarily from guest
room rentals and food and beverage operations at our owned and
leased hotels.
|
|
|
|
The franchise segment is engaged primarily in licensing
the Red Lion brand to franchisees and managing hotels for
third-party owners. 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.
|
We have historically owned certain commercial real estate. We
also have engaged in traditional real estate related services,
including developing, managing and acting as a broker for sales
and leases of commercial and
multi-unit
residential properties (collectively referred to as the real
estate management business). Together, these operations
comprised our real estate segment. Effective April 30,
2006, we divested the real estate management business. In
addition, consistent with our strategy of divesting non-core
assets, during the fourth quarter of 2006, we listed one of our
two remaining wholly-owned commercial real estate properties for
sale and have classified its results of operations within
discontinued operations for all periods presented. In September
2007, we sold the property for approximately $13.3 million
and recognized a pre-tax gain on sale of $1.9 million.
There were no remaining discontinued operations after
December 31, 2007. For additional information, see
Note 19 of Notes to Consolidated Financial Statements.
Our remaining activities, none of which constitutes a reportable
segment, have been aggregated into other, including
the remaining operations of our former real estate segment.
Results
of Operations
For the year ended December 31, 2008, net loss was
$1.7 million (or $0.09 per share), compared to net income
of approximately $6.1 million (or $0.32 per share) in 2007
and a net loss of $0.6 million (or $0.03 per share) in
2006. Current year results were significantly impacted by a
$3.7 million charge recorded during the first quarter of
2008 for separation costs ($1.4 million of which was
non-cash) associated with the retirement of our former President
and Chief Executive Officer in February 2008. In addition,
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. The table
below summarizes our restructuring expenses and identifies
whether the charge was cash or non-cash (in thousands):
|
|
|
|
|
Severance charges(1)
|
|
$
|
923
|
|
Stock based compensation related to separation (non-cash)
|
|
|
269
|
|
Intangible and other asset write-offs (non-cash)(2)
|
|
|
875
|
|
|
|
|
|
|
Total
|
|
$
|
2,067
|
|
|
|
|
|
|
|
|
|
(1) |
|
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.
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. |
32
|
|
|
(2) |
|
Includes a non-cash charge of $0.7 million reducing the
carrying value of an intangible asset related to management
contracts acquired with the WestCoast and Red Lion brands. Since
January 2008, when the last hotel managed by us elected not to
renew its management agreement, we have not managed any hotels
for third parties. |
Revenues for the hotel segment increased 2.6% over 2007
primarily due to the addition of the Red Lion Denver Southeast
hotel acquired at the end of May 2008, as well as the full year
revenue impact from the Anaheim hotel acquired in October 2007.
However, for much of the third and fourth quarter of 2008,
Anaheim was under renovation and rooms were out of service.
Entertainment and franchise segment revenues were down
year-over-year, and depreciation and amortization expense
increased 16.9% primarily from the two hotel acquisitions. In
total, operating income during 2008 decreased $10.6 million
to $4.8 million compared to 2007.
A summary of our consolidated statement of operations is as
follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Total revenue
|
|
$
|
187,570
|
|
|
$
|
186,893
|
|
|
$
|
170,368
|
|
Operating expenses
|
|
|
182,771
|
|
|
|
171,515
|
|
|
|
157,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,799
|
|
|
|
15,378
|
|
|
|
13,308
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,247
|
)
|
|
|
(9,172
|
)
|
|
|
(12,072
|
)
|
Expense of early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(5,266
|
)
|
Minority interest in partnerships, net
|
|
|
12
|
|
|
|
(34
|
)
|
|
|
56
|
|
Other income, net
|
|
|
1,530
|
|
|
|
1,266
|
|
|
|
1,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
(2,906
|
)
|
|
|
7,438
|
|
|
|
(2,153
|
)
|
Income tax expense (benefit)
|
|
|
(1,202
|
)
|
|
|
2,207
|
|
|
|
(1,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(1,704
|
)
|
|
|
5,231
|
|
|
|
(520
|
)
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
819
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
0.32
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
25,657
|
|
|
$
|
34,594
|
|
|
$
|
23,133
|
|
EBITDA from continuing operations
|
|
$
|
25,657
|
|
|
$
|
33,138
|
|
|
$
|
22,602
|
|
The following table details the impact of the restructuring
expenses recorded and $3.7 million charge in separation
costs on net loss, loss per share and EBITDA for the year ended
2008 (in thousands, except per share data):
|
|
|
|
|
Separation costs
|
|
$
|
(3,654
|
)
|
Restructuring expenses
|
|
|
(2,067
|
)
|
Income tax benefit
|
|
|
2,031
|
|
|
|
|
|
|
Impact on net loss
|
|
$
|
(3,690
|
)
|
|
|
|
|
|
Impact on EBITDA
|
|
$
|
(5,721
|
)
|
|
|
|
|
|
Separation costs
|
|
$
|
(0.20
|
)
|
Restructuring expenses
|
|
|
(0.11
|
)
|
Income tax benefit
|
|
|
0.11
|
|
|
|
|
|
|
Impact on loss per share
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
Net income during 2007 improved over 2006, a direct result of an
increase in hotel segment revenues during 2007 to
$166.2 million from $154.8 million in 2006. Operating
income increased to $15.4 million during 2007,
33
primarily driven by profitability in the hotels segment due to
strong gains in both rate and occupancy at our owned and leased
hotels. Positive 2007 operating results were offset by increased
depreciation and amortization expense over 2006 from the
completed hotel renovations. Included in 2006 results was a
$1.0 million gain from the sale of the real estate
management business.
Results for 2007 reflect the transition of the Red Lion Hotel
Sacramento from a leased hotel to a franchise during July 2007,
reducing 2007 revenues compared to 2006 by $4.0 million,
partially offset by the addition of $1.3 million in
revenues from our Anaheim property added during the fourth
quarter of 2007. Net income was also positively affected by
lower interest expense from the repayment of approximately
$50.0 million in long-term debt during the second and third
quarters of 2006, and from the non-recurring expense from the
early extinguishment of debt of approximately $5.3 million
included in 2006.
Operating income from continuing operations increased 15.6% in
2007 from 2006, reflecting comparative improvements in RevPAR,
ADR and occupancy and increased margins from our hotel segment.
EBITDA from continuing operations in 2007 increased
$10.5 million to $33.1 million, or 46.6%, compared to
2006, which included expense of $5.3 million for the early
extinguishment of debt.
EBITDA represents net income (or loss) before interest expense,
income tax benefit (expense) and depreciation and amortization.
We utilize EBITDA as a financial measure because management
believes that investors find it 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
on-going operations. We believe it is a complement to net income
and other financial performance measures. EBITDA from continuing
operations is calculated in the same manner, but excludes the
operating activities of business units identified as
discontinued. EBITDA is not intended to represent net income
(loss) 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. We believe that the presentation of EBITDA from
continuing operations is useful for the same reasons, in
addition to using it for comparative purposes for our intended
operations going forward.
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 from continuing operations
excludes the activities of operations we have determined to be
discontinued and does not reflect the totality of operations as
experienced for the periods presented. 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, 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
(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.
34
The following is a reconciliation of EBITDA and EBITDA from
continuing operations to net income (loss) for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
EBITDA from continuing operations
|
|
$
|
25,657
|
|
|
$
|
33,138
|
|
|
$
|
22,602
|
|
Income tax benefit (expense) continuing operations
|
|
|
1,202
|
|
|
|
(2,207
|
)
|
|
|
1,633
|
|
Interest expense continuing operations
|
|
|
(9,247
|
)
|
|
|
(9,172
|
)
|
|
|
(12,072
|
)
|
Depreciation and amortization continuing operations
|
|
|
(19,316
|
)
|
|
|
(16,528
|
)
|
|
|
(12,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(1,704
|
)
|
|
|
5,231
|
|
|
|
(520
|
)
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
819
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
25,657
|
|
|
$
|
34,594
|
|
|
$
|
23,133
|
|
Income tax benefit (expense)
|
|
|
1,202
|
|
|
|
(2,658
|
)
|
|
|
1,663
|
|
Interest expense
|
|
|
(9,247
|
)
|
|
|
(9,331
|
)
|
|
|
(12,263
|
)
|
Depreciation and amortization
|
|
|
(19,316
|
)
|
|
|
(16,555
|
)
|
|
|
(13,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
A breakdown of revenues from continuing operations is as follows
(in thousands, except for percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 vs. 2007
|
|
|
2007 vs. 2006
|
|
Revenues From Continuing Operations
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
$ Change
|
|
|
% Change
|
|
|
$ Change
|
|
|
% Change
|
|
|
Hotels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room revenue
|
|
$
|
117,485
|
|
|
$
|
114,312
|
|
|
$
|
103,677
|
|
|
$
|
3,173
|
|
|
|
2.8
|
%
|
|
$
|
10,635
|
|
|
|
10.3
|
%
|
Food and beverage revenue
|
|
|
48,506
|
|
|
|
48,061
|
|
|
|
47,517
|
|
|
|
445
|
|
|
|
0.9
|
%
|
|
|
544
|
|
|
|
1.1
|
%
|
Other hotels revenue
|
|
|
4,561
|
|
|
|
3,795
|
|
|
|
3,623
|
|
|
|
766
|
|
|
|
20.2
|
%
|
|
|
172
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotels segment revenue
|
|
|
170,552
|
|
|
|
166,168
|
|
|
|
154,817
|
|
|
|
4,384
|
|
|
|
2.6
|
%
|
|
|
11,351
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise and management revenue
|
|
|
1,862
|
|
|
|
2,756
|
|
|
|
2,853
|
|
|
|
(894
|
)
|
|
|
(32.4
|
)%
|
|
|
(97
|
)
|
|
|
(3.4
|
)%
|
Entertainment revenue
|
|
|
12,016
|
|
|
|
14,839
|
|
|
|
10,791
|
|
|
|
(2,823
|
)
|
|
|
(19.0
|
)%
|
|
|
4,048
|
|
|
|
37.5
|
%
|
Other revenue
|
|
|
3,140
|
|
|
|
3,130
|
|
|
|
1,907
|
|
|
|
10
|
|
|
|
0.3
|
%
|
|
|
1,223
|
|
|
|
64.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
187,570
|
|
|
$
|
186,893
|
|
|
$
|
170,368
|
|
|
$
|
677
|
|
|
|
0.4
|
%
|
|
$
|
16,525
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Compared to 2007
Revenue from the hotels segment increased $4.4 million, or
2.6%, compared to 2007, primarily due to the addition of
revenues contributed by our Anaheim and Denver properties.
Comparable revenues year-over-year from these new properties
added $9.7 million in 2008. Occupancy during 2008 for our
owned and leased hotels on a comparable basis decreased
130 basis points to 61.1% compared to 2007, although rate
increased 1.7% to $90.12. RevPAR was essentially flat
year-over-year at $55.08 in 2008 compared to $55.33 in 2007.
Other hotel revenue increased $0.8 million, or 20.2%,
compared to 2007.
In addition to increased revenues from having two additional
hotels in our system during 2008, hotel revenue through the
third quarter of 2008 was positively impacted by increases in
revenues generated from redlion.com, third-party online travel
agent bookings and travel agent promotions. Early in 2008, we
began to build a strong base
35
foundation of stable, permanent business in several of our
hotels, the majority derived from airline crews and other guests
delivering a fixed minimum number of rooms per night. However,
hotel revenue was impacted by an industry-wide decrease in
transient revenues throughout the year, sharply spiking around
Labor Day and continuing through the end of the year. Occupancy
decreased 450 basis points during the fourth quarter of
2008 compared to the same period in 2007.
Revenue from the franchise segment decreased $0.9 million,
or 32.4%, primarily due to fewer franchises in our system during
2008 compared to 2007, and revenues decreased $2.8 million,
or 19.0%, in our entertainment segment. Entertainment revenues
in 2007 were significantly impacted by a 12-week production of
Walt Disneys The Lion King in Honolulu, Hawaii, that did
not recur during 2008. Other segment revenues, consisting
primarily of the operations of a mall, remained flat at
$3.1 million during both 2008 and 2007.
2007
Compared to 2006
Revenue from the hotels segment increased $11.4 million, or
7.3%, compared to 2006 primarily due to a 10.3% increase in
rooms revenue driven by a 6.6% increase in rate and a
310 basis point increase in occupancy. In addition to
generally strong demand and a positive reaction to our renovated
product, 2007 hotel revenues were also higher than 2006 results
due to the displacement of rooms during renovations in 2006,
largely completed by the end of the second quarter of 2006. Our
mix of business during 2007 included increased room sales
generated from on-line promotional activity and concentrated
efforts in attracting high-yield contract business, offset by a
shift from lower rate volume and contract business. Food and
beverage revenue increased $0.5 million, or 1.1%, during
2007 from 2006. In October 2007, we added the Anaheim property
and in July 2007 we subleased and franchised the Red Lion
Sacramento property. The net impact of these property changes
was a decrease in 2007 revenues of $2.7 million.
Revenue from the franchise segment decreased $0.1 million
primarily due to fewer franchisees in our system during 2007
compared to 2006. Revenues increased $4.0 million in the
entertainment segment, primarily during the fourth quarter of
2007 due to revenues generated from our 12-week production of
Walt Disneys The Lion King in Honolulu, Hawaii. Other
segment revenues increased to $3.1 million during 2007 from
$1.9 million during 2006, impacted by our 50% increase in
ownership of a retail and hotel property during December 2006
and included in consolidation during all of 2007.
36
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
2008, they also included restructuring expenses. In the
aggregate, operating expenses from continuing operations during
2008 increased $11.3 million over 2007, compared to a
$14.5 million increase from 2006 to 2007. A breakdown of
our operating expenses is provided in the table below, as well
as direct margins by segment for each of the three years ending
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except for percentages)
|
|
|
Operating Expenses From Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
131,214
|
|
|
$
|
127,431
|
|
|
$
|
122,596
|
|
Franchise
|
|
|
355
|
|
|
|
814
|
|
|
|
808
|
|
Entertainment
|
|
|
11,234
|
|
|
|
12,812
|
|
|
|
9,109
|
|
Other
|
|
|
2,100
|
|
|
|
2,037
|
|
|
|
1,866
|
|
Depreciation and amortization
|
|
|
19,316
|
|
|
|
16,528
|
|
|
|
12,683
|
|
Hotel facility and land lease
|
|
|
6,998
|
|
|
|
6,490
|
|
|
|
6,449
|
|
Gain on asset dispositions, net
|
|
|
(156
|
)
|
|
|
(437
|
)
|
|
|
(1,705
|
)
|
Separation costs
|
|
|
3,654
|
|
|
|
|
|
|
|
|
|
Undistributed corporate expenses
|
|
|
5,989
|
|
|
|
5,840
|
|
|
|
5,254
|
|
Restructuring expenses
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
182,771
|
|
|
$
|
171,515
|
|
|
$
|
157,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels revenue owned(1)
|
|
$
|
120,502
|
|
|
$
|
114,364
|
|
|
$
|
104,495
|
|
Direct margin(2)
|
|
$
|
30,635
|
|
|
$
|
29,520
|
|
|
$
|
24,053
|
|
Direct margin%
|
|
|
25.4
|
%
|
|
|
25.8
|
%
|
|
|
23.0
|
%
|
Hotels revenue leased
|
|
$
|
50,050
|
|
|
$
|
51,804
|
|
|
$
|
50,322
|
|
Direct margin(2)
|
|
$
|
8,703
|
|
|
$
|
9,217
|
|
|
$
|
8,168
|
|
Direct margin%
|
|
|
17.4
|
%
|
|
|
17.8
|
%
|
|
|
16.2
|
%
|
Franchise and management revenue
|
|
$
|
1,862
|
|
|
$
|
2,756
|
|
|
$
|
2,853
|
|
Direct margin(2)
|
|
$
|
1,507
|
|
|
$
|
1,942
|
|
|
$
|
2,045
|
|
Direct margin%
|
|
|
80.9
|
%
|
|
|
70.5
|
%
|
|
|
71.7
|
%
|
Entertainment revenue
|
|
$
|
12,016
|
|
|
$
|
14,839
|
|
|
$
|
10,791
|
|
Direct margin(2)
|
|
$
|
782
|
|
|
$
|
2,027
|
|
|
$
|
1,682
|
|
Direct margin%
|
|
|
6.5
|
%
|
|
|
13.7
|
%
|
|
|
15.6
|
%
|
Other revenue
|
|
$
|
3,140
|
|
|
$
|
3,130
|
|
|
$
|
1,907
|
|
Direct margin(2)
|
|
$
|
1,040
|
|
|
$
|
1,093
|
|
|
$
|
41
|
|
Direct margin%
|
|
|
33.1
|
%
|
|
|
34.9
|
%
|
|
|
2.1
|
%
|
|
|
|
(1) |
|
Continuing operations only |
|
(2) |
|
Revenues less direct operating expenses. |
2008
Compared to 2007
Direct hotel expenses increased 3.0% during 2008 over 2007,
compared with a hotel segment revenue increase of 2.6%. The
increased expenditures are attributed to the additional rooms in
our system from Denver and Anaheim in 2008 compared to 2007.
Food and beverage costs decreased $0.2 million, while
revenues increased $0.4 million, for a direct operating
profit improvement of $0.7 million, or 8.0%. Overall, the
segment had a direct profit of $39.3 million compared to
$38.7 million in 2007, for a direct operating margin
decrease of 25 basis points. Hotel
37
segment costs were also affected by increased promotional and
marketing related costs and increased utility costs associated
with the addition of new properties into our owned and leased
system of hotels.
Direct costs for the franchise segment were reduced by
$0.5 million, or 56.4%, with a purposeful decision to scale
back activities in 2008. Entertainment direct costs decreased
12.3% to $11.2 million, compared to decreased revenues of
19.0%, primarily from fewer shows and less associated show
expense during 2008 compared to 2007. Overall, segment profit
from entertainment decreased $1.2 million, attributable to
fewer shows and from a slower ticketing market.
Depreciation and amortization increased 16.9% to
$19.3 million during 2008 compared to $16.5 million
recorded during 2007, directly related to hotel acquisition.
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. During 2007, we
recorded a loss of $0.3 million on sign dispositions at our
hotels that were all replaced as part of renovations.
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 as discussed
above. Other undistributed corporate expense increased
$0.1 million due to increased equity compensation expense
and increased outside consulting services. Undistributed
corporate expenses include general and administrative charges
such as corporate payroll, legal expenses, charitable
contributions, director and officers insurance, bank service
charges and outside accountants and various other
consultants expense. We consider these expenses to be
undistributed because the costs are not directly
related to our business segments and therefore are not further
distributed. However, costs that can be identified to a
particular segment are distributed, such as accounting, human
resources and information technology, and are included in direct
expenses.
2007
Compared to 2006
Direct hotel expenses increased 3.9% during 2007 over 2006,
compared with a hotel segment revenue increase of 10.3%. Room
related expenses increased $2.3 million, or 7.5%, and food
and beverage costs increased $0.3 million, or 0.7%. Results
for 2007 reflect the addition of Anaheim during the fourth
quarter, and the transition of the Red Lion Hotel Sacramento
from an owned/leased hotel to a franchise during July 2007,
where we have included operating expenses for seven months as
compared to the full year of 2006. Hotel segment costs were also
affected by increased reservation, promotional and marketing
related costs directly related to the increase in hotel revenue
and occupied rooms, increased utility and general maintenance
costs and increased payroll and employee benefit related costs.
Overall, the hotel segment had a direct profit of
$38.7 million during 2007 compared to $32.2 million in
2006, for a direct margin improvement of 250 basis points.
Hotel direct margin was 23.3% in 2007 compared to 20.8% in 2006.
Direct costs for the franchise segment remained approximately
the same during 2007 compared to 2006. Entertainment costs
increased $3.7 million in 2007 over 2006 primarily related
to The Lion King production in Honolulu, Hawaii, as well as from
a slower ticketing market in some of our regions compared to
2006 and monthly fees that commenced during the second quarter
of 2007 associated with the implementation of a new ticketing
software platform. Overall, segment profit from entertainment
increased $0.3 million, or 20.5%. Other segment expenses
increased $0.2 million during 2007, while segment profit
grew by $1.1 million during 2007 related to the repurchase
of a 50% interest and reconsolidation of the operating results
of a retail and hotel property in Kalispell, Montana in December
2006.
Depreciation and amortization increased 30.3% during 2007
compared to 2006, related directly to our hotel renovations.
The net gain on asset dispositions decreased by
$1.3 million in 2007 from 2006, primarily due to a
$1.0 million gain recorded during 2006 from the divestment
of the real estate management business in April of that year.
38
Undistributed corporate expenses were $0.6 million higher
during 2007 compared to 2006 primarily attributable to increased
audit, legal and outside consultant fees, as well as increased
compensation levels, including employee medical costs and
SFAS 123(R) option and ESPP expenses, offset by lower
Sarbanes-Oxley related expenditures.
Interest
Expense
Interest expense for the year ended December 31, 2008,
remained about the same as 2007 at $9.2 million during both
periods. Borrowings increased in 2008 although at lower rates
than debt that it replaced during the year. Interest expense for
the year ended December 31, 2007, decreased 24.0% to
$9.2 million, compared to $12.1 million recorded
during 2006, a result of the repayment of over $50 million
in debt. Our average pre-tax interest rate on debt during 2008
was 6.0%, compared to 7.8% in 2007 and in 2006.
Other
Income (Expense)
Interest income has decreased since 2006 due to generally lower
cash balances, offset by $0.3 million received in 2008 from
the extension of an option to purchase a hotel currently
subleased.
Income
Taxes
In 2008, we reported an income tax benefit of $1.2 million
compared to a $2.2 million income tax expense in 2007. The
experienced rate on pre-tax net income differed from the
statutory combined federal and state tax rates primarily due to
the utilization of certain incentive tax credits allowed under
federal law.
In 2006, we recorded an income tax benefit of $1.6 million.
We realized additional taxable income in 2007 compared to 2006,
although during 2006, we took advantage of certain tax-free
investment income that resulted in the tax benefit during that
year. The experienced rate on pre-tax net income differed from
the statutory combined federal and state tax rates primarily due
to the utilization of certain incentive tax credits allowed
under federal law, certain tax free investment income and the
tax-free nature of the $1.0 million gain on the divestment
from the real estate management business in April 2006.
Discontinued
Operations
From November 2004 through September 2007, we divested
non-strategic assets including ten of our owned hotels, certain
commercial office buildings and certain other non-core
properties including condominium units and certain parcels of
excess land. The activities of these assets were considered
discontinued operations under generally accepted accounting
principles and have been separately disclosed on the
consolidated statement of operations. Proceeds from the sales
were used to finance the company-wide hotel renovation program,
the repayment of debt and for general corporate purposes. For
additional information, see Note 19 of Notes to
Consolidated Financial Statements. There were no remaining
discontinued operations after December 31, 2007.
During the second quarter of 2007, we sold the last hotel
included in discontinued operations for gross proceeds of
$3.9 million. In September 2007, we sold our remaining
commercial office complex included in discontinued operations
for $13.3 million. During 2007, we recognized a gain on
dispositions of $1.4 million, or $0.9 million net of
income tax expense. Consolidated earnings from the activities of
discontinued operations resulted in income of approximately
$0.8 million during 2007.
During 2006, we sold three hotels for approximately
$15.8 million in gross proceeds, and recognized a loss on
disposition of $0.1 million, net of income tax expense. The
net impact on consolidated earnings from the activities of
discontinued operations resulted in a loss of $0.1 million
in 2006, net of income tax expense.
Liquidity
and Capital Resources
We believe that our assets provide us with a stable, positive
cash flow and we have the financial flexibility to manage our
business. We expect to meet our short-term liquidity needs over
the next twelve months using funds generated from operating
activities and by existing cash and cash equivalents of
$18.2 million at December 31, 2008. In September 2008,
we refinanced a 181-room hotel in Bellevue, Washington for
$14.0 million, at terms more
39
favorable than the higher-rate $8.2 million loan we paid
off. To finance the May 2008 acquisition of the Red Lion Denver
Hotel Southeast for $25.3 million, we utilized
$23.0 million of our $50 million credit facility. In
addition, we borrowed $15.0 million under the facility in
December 2008 to fund ongoing hotel renovations and for general
corporate purposes. At December 31, 2008, the outstanding
balance was $36.0 million at 2.2% interest, the rate of
which is a floating rate based upon LIBOR. We have the ability
to increase this facility to $100 million, subject to
satisfaction of various conditions, including continued
compliance with our debt covenants and the furnishing of
additional collateral (see Item 1A, Risk Factors
Failure to comply with debt covenants could adversely
affect our financial results or condition, and Note 5
of Notes to Consolidated Financial Statements for additional
information surrounding our current debt structure).
A comparative summary of our balance sheets at December 31,
2008 and 2007 is provided below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Consolidated balance sheet data (in thousands):
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,222
|
|
|
$
|
15,044
|
|
Working capital(1)
|
|
$
|
10,007
|
|
|
$
|
7,559
|
|
Property and equipment, net
|
|
$
|
298,496
|
|
|
$
|
260,574
|
|
Total assets
|
|
$
|
380,772
|
|
|
$
|
344,509
|
|
Total long-term debt
|
|
$
|
119,331
|
|
|
$
|
83,220
|
|
Debentures due Red Lion Hotels Capital Trust
|
|
$
|
30,825
|
|
|
$
|
30,825
|
|
Total liabilities
|
|
$
|
199,400
|
|
|
$
|
162,014
|
|
Total stockholders equity
|
|
$
|
181,372
|
|
|
$
|
182,495
|
|
|
|
|
(1) |
|
Represents current assets less current liabilities. |
During 2009, we expect cash expenditures to primarily include
the funding of operating activities, interest payments on our
outstanding indebtedness and additional capital expenditures to
primarily fund renovation costs. 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 or equity issuances.
Operating
Activities
Net cash provided by operations during 2008 totaled
$22.8 million, a 7.4% improvement over the
$21.2 million provided during 2007. Net cash provided by
operations during 2006 was $19.0 million. Non-cash income
statement expenses including depreciation and amortization,
provision for deferred tax and stock based compensation, totaled
$21.5 million during 2008 compared to $19.0 million in
2007 and $18.5 million in 2006. The comparative change in
working capital during 2008 compared to 2007 was positive by
$6.9 million, including changes to restricted cash,
receivables, accruals, payables and inventories. Working capital
changes in 2007 compared with 2006 were unfavorable by
$4.9 million. The changes in accounts payable during 2008
are a reflection of the increase in hotel renovation activity at
the end of the period. At December 31, 2008, restricted
cash held in escrow for future payments of insurance, property
taxes, repairs and other items as required by debt agreements,
increased by $0.5 million from December 31, 2007,
compared to a decrease of $1.7 million reported in 2007.
Cash provided by operations in 2007 included the receipt of
$3.0 million in deferred lease income as part of the
sublease agreement for the Red Lion Hotel Sacramento that is
being recognized over the life of the sublease agreement.
Investing
Activities
Net cash used in investing activities totaled $53.8 million
during 2008 compared to $12.5 million used in 2007.
Included in current year activity is the purchase of the Red
Lion Hotel Denver Southeast in May 2008 for $25.3 million
and renovation expenditures at several locations, primarily in
Anaheim. Not including the purchase of the hotel in Denver, or
the $8.3 million paid in October 2007 for the purchase of
our Anaheim location, additions to property and equipment
increased to $31.1 million in 2008 from 2007. Of the
$31.1 million, $17.9 million was used
40
for renovation activities. Total capital expenditures in 2006
were $34.9 million. We utilized $2.2 million of
restricted cash included in other assets during 2008 to fulfill
our commitment to reimburse up to $3.0 million in tenant
improvements at the Red Lion Hotel Sacramento in connection with
its July 2007 sublease. During the first quarter of 2008, we
also received approximately $0.5 million for a
workers compensation premium reimbursement and from the
payoff of a long-term receivable.
During 2009, we plan to scale back our capital expenditures to
essential investments in maintenance, technology and hotel
improvement projects. These investments include completing the
renovation of the Anaheim hotel and the remodel of the Denver
Southeast hotel. Capital expenditures in 2009 are expected to be
$20.0 million. Excluding the investments at the Anaheim and
Denver locations, capital expenditures are expected to be
approximately $10.0 million. We may further reduce our
level of capital spending as appropriate to match our needs.
Proceeds from the disposition of discontinued operations were
$5.2 million less in 2007 than in 2006. During the first
quarter of 2007, we liquidated all variable rate demand notes
recorded at December 31, 2006, totaling $7.6 million,
compared to net liquidations of $7.2 million during 2006.
During the 2006 period, we also received $0.5 million in
proceeds from the repayment of a portion of our investment in
Red Lion Hotels Capital Trust.
Financing
Activities
Net financing activities provided cash of approximately
$34.1 million during 2008, compared to cash used in 2007
and 2006 of $7.0 million and $5.2 million,
respectively. During 2008, we borrowed $38.0 million under
our $50 million credit facility to finance the acquisition
of the hotel in Denver, to fund ongoing renovations and for
general corporate purposes. In addition, we closed on a
$14.0 million loan in September 2008 collateralized by a
181-room hotel in Bellevue, Washington, $8.2 million of
which was used to pay off existing higher-rate debt. In addition
to this payoff, $5.8 million of scheduled principal
payments on long-term debt were made during 2008, compared to
$2.5 million paid in 2007. During 2008, we also repaid
$2.0 million of the $23.0 million drawn on our credit
facility in May 2008. In June 2007, we borrowed
$3.9 million that was later assumed by the buyers of the
commercial office complex sold in September of that year.
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. This current
program is in addition to the one announced in September 2007
for up to $10 million that was completed in January 2008.
During January 2008, we repurchased 93,000 shares for an
aggregate cost of $0.9 million. During the fourth quarter
of 2007, we had repurchased 924,200 shares at a cost of
$9.1 million.
In 2006, we generated proceeds of $60.4 million through a
common stock offering of 5.8 million shares, which was
offset by repayment of debentures totaling $17.4 million
including expense of early extinguishment, defeasance of
$33.4 million under a term note, $4.7 million of
defeasance costs, repayment of debt on a sold property of
$1.9 million and scheduled principal payments of
$3.4 million. Net financing activities during the 2007 and
2006 periods benefited from the exercise by employees of stock
options resulting in proceeds to the company of
$0.5 million and $0.7 million, respectively, during
the comparative periods. No options were exercised during 2008.
At December 31, 2008, we had total debt obligations of
$150.2 million. Included within outstanding debt are
debentures due to the Red Lion Hotels Capital Trust of
$30.8 million, which are uncollateralized and due to the
trust in 2044 at a fixed rate of 9.5%. Our $50 million
credit facility is secured by our Seattle Red Lion Hotel on
Fifth Avenue property and is renewable through September 2011,
under the current terms. The facility has certain restricted
covenants and we remain in compliance with them at the end of
2008. We also have one variable rate property note on our Red
Lion Bellevue location, with a balance of $13.8 million at
December 31, 2008. This note has restrictive covenants that
mirror those of our credit facility. The variable interest rate
was 2.2% at December 31, 2008, and is due in 2013. The
remaining debt of $69.5 million consists of 13 notes
collateralized by specific properties, with fixed interest rates
that range from 5.9% to 8.1%. These 13 notes mature beginning in
2011 through 2013.
41
Of the $150.2 million in total debt obligations, three
pools of cross securitized debt exist: (i) one consisting
of five properties with total borrowings of $20.6 million;
(ii) a second consisting of two properties with total
borrowings of $18.5 million; and (iii) a third
consisting of four properties with total borrowings of
$23.0 million. Each pool of securitized debt and the other
collateralized hotel borrowings include defeasance provisions
for early repayment.
Contractual
Obligations
The following table summarizes our significant contractual
obligations as of December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Long-term debt(1)
|
|
$
|
142,482
|
|
|
$
|
9,373
|
|
|
$
|
76,044
|
|
|
$
|
57,065
|
|
|
$
|
|
|
Operating leases(2)
|
|
|
61,615
|
|
|
|
7,097
|
|
|
|
12,975
|
|
|
|
10,022
|
|
|
|
31,521
|
|
Service agreements
|
|
|
1,100
|
|
|
|
275
|
|
|
|
550
|
|
|
|
275
|
|
|
|
|
|
Debentures due Red Lion Hotels Capital Trust(1)
|
|
|
133,805
|
|
|
|
2,928
|
|
|
|
5,857
|
|
|
|
5,857
|
|
|
|
119,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations(3)
|
|
$
|
339,002
|
|
|
$
|
19,673
|
|
|
$
|
95,426
|
|
|
$
|
73,219
|
|
|
$
|
150,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including estimated interest payments and commitment fees over
the life of the debt agreement. |
|
(2) |
|
Operating lease amounts are net of estimated sublease income of
$11.9 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. The
master lease agreement requires minimum monthly payments of
$1.3 million plus contingent rents based on gross receipts
from the 17 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, we received deferred lease income of
$3.0 million, which will be amortized over the life of the
sublease agreement. The sublease agreement provides for annual
rent payments of $1.4 million, which we have netted against
lease amounts payable by us in computing the operating lease
amounts shown in the above table. As part of the agreement, we
committed to reimburse the tenant for up to $3.0 million in
tenant improvements that had been spent at December 31,
2008.
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. At our option, we are entitled to
extend the initial five-year term of the lease for up to 19
additional terms of five years each, with increases in lease
payments tied directly to the Consumer Price Index. Beyond the
monthly payments through April 2011, we have not included any
additional potential future lease commitment related to the
Anaheim property in the table above.
In May 2008, we completed an acquisition of a hotel in Denver,
Colorado. In connection with the purchase agreement, we assumed
an office lease used by guests contracted to stay at the hotel
for approximately $0.6 million annually. As part of this
contract business, we are reimbursed the entire lease expense
amount. The lease expires in August 2012, the expense of which
has been included in the table above.
42
Off-balance
Sheet Arrangements
As of December 31, 2008, 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, 2008, our system of hotels included 15
hotels under franchise agreements, representing a total of 2,665
rooms and 127,942 square feet of meeting space. During the
first quarter of 2008, the franchised property Red Lion Hotel
Baton Rouge (132 rooms) joined the system, and one hotel under a
management contract (254 rooms) did not renew its agreement and
left our system of hotels. In April 2008, franchise agreements
with three hotels expired and were not renewed, representing a
total of 301 rooms. In addition, we terminated franchise
agreements with four other properties, including three during
the third quarter of 2008 for insufficient progress in
completing the required property improvements. Those hotels were
the former Red Lion Hotel Modesto (186 rooms), Red Lion Hotel
Hillsboro (123 rooms) and Red Lion Hotel Klamath Falls (108
rooms). Subsequent to December 31, 2008, a franchise
agreement for the Red Lion Hotel and Casino Winnemucca (105
rooms) expired and was not renewed, and has since left our
system of hotels.
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 2008, revenues during the
second and third quarters approximated 26.6% and 30.3%,
respectively, of total revenues for the year, compared to
revenues of 21.1% and 22.0% 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 under
review.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect: (i) the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates
of the financial statements, and (ii) the reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ materially from those estimates. We
consider a critical accounting policy to be one that is both
important to the portrayal of our financial condition and
results of operations and requires managements most
subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are
inherently uncertain. Our significant accounting policies are
described in Note 2 of Notes to Consolidated Financial
Statements; 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.
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
|
43
|
|
|
|
|
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 and management fees we earn
from managing third-party owned hotels. Franchise and management
revenues are recognized as earned in accordance with the
contractual terms of the franchise or management 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. Our estimate of
the allowance for doubtful accounts is impacted by, among other
things, national and regional economic conditions.
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 annually
or more frequently 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.
Intangible
Assets
Our intangible assets include brands and goodwill which we
account for in accordance with SFAS No. 142
Goodwill and Other Intangible Assets. We do not
amortize our brands and goodwill. 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, 2008 and 2007, our recorded
goodwill and other intangible assets not subject to amortization
remained unchanged at $28.0 million. While we have not
recognized an impairment loss since we originally recorded
goodwill, 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 swing or
a longer-term trend.
Our other intangible assets include management, marketing and
lease contracts, the value of which is amortized on a
straight-line basis over the weighted average life of the
agreements and totaled $10.4 million and
$11.6 million, respectively, at December 31, 2008 and
2007. The assessment of these contracts requires us to make
44
certain judgments, including estimated future cash flow from the
applicable properties. During the fourth quarter of 2008, we
recorded a non-cash charge of $0.9 million to reduce the
carrying value of intangible assets, primarily related to
management contracts acquired with the WestCoast and Red Lion
brands. Since January 2008, when the last hotel managed by us
elected not to renew its management agreement, we have not
managed any hotels for third parties.
New
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which establishes a
framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about
fair value measurements. SFAS No. 157 does not require
any new fair value measurements itself. However, this statement
applies under other accounting pronouncements that require or
permit fair value measurements and may therefore change current
practice if an alternative measure of fair value has been used.
SFAS No. 157 applies an exchange price notion for fair
value consistent with previously preferred practice, with a
focus on exit price and market-based measurements as compared to
entry price and entity-specific measurements.
SFAS No. 157 became effective for financial assets and
liabilities in financial statements issued for fiscal years
beginning after November 15, 2007. In February 2008, the
FASB issued a proposed staff position (FSP)
FAS 157-2,
which delayed the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).
FSP
FAS 157-2
partially deferred the effective date of SFAS No. 157
to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the
scope of the FSP.
Effective January 1, 2008, we adopted
SFAS No. 157 except as it applies to those
nonfinancial assets and nonfinancial liabilities as noted in FSP
FAS 157-2.
We do not use derivative instruments, nor do we hold or issue
financial instruments for the purpose of trading. Our financial
instruments currently consist of cash and cash equivalents,
restricted cash, accounts receivable, current liabilities and
debt obligations. The carrying amounts for cash and cash
equivalents, current investments, accounts receivable, current
liabilities and variable rate long-term debt are reasonable
estimates of their fair values. Therefore, we experienced no
impact on the carrying value of any financial asset or liability
in 2008 upon adoption. We do not believe the adoption of FSP
FAS 157-2,
which became effective for us on January 1, 2009, will have
a material impact on our consolidated financial statements in
relation to our nonfinancial assets and liabilities.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS No. 159).
SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair
value, the objective of which is to improve financial reporting
by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related
assets and liabilities differently without having to apply
complex hedge accounting provisions. This statement is expected
to expand the use of fair value measurement, which is consistent
with FASBs long-term measurement objectives for accounting
for financial instruments. SFAS No. 159 is effective
as of the beginning of an entitys first fiscal year that
begins after November 15, 2007. While
SFAS No. 159 became effective on January 1, 2008,
we did not elect the fair value measurement option for any of
our financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141R) and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting
Research Bulletin No. 51
(SFAS No. 160). SFAS No. 141R
will change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in
subsequent periods. SFAS No. 160 will change the
accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a
component of equity. SFAS No. 141R and
SFAS No. 160 are effective for annual periods
beginning after December 15, 2008, and early adoption is
not permitted. The impact of adopting these standards will be
limited to business combinations occurring on or after
January 1, 2009.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), an
amendment of FASB No. 133. SFAS No. 161 will
improve the transparency about where derivative instruments are
located in financial statements, how derivative instruments and
related hedge items are currently accounted for under Statement
133, and how these instruments ultimately affect an
entitys financial
45
position, performance, and cash flow. It requires that entities
disclose the fair value of derivative instruments and their
gains and losses, disclose features that are credit
risk related, and cross reference footnotes to
enable financial statement end users to locate significant
derivative instrument information more easily.
SFAS No. 161 is effective for all financial statements
that are issued for fiscal years and interim periods after
November 15, 2008 but entities are encouraged to adopt its
requirements early. We do not currently engage in hedging
activities and do not currently have derivative instruments
recorded within our consolidated financial statements. Thus, we
do not expect the adoption of SFAS No. 161 to have any
effect on our consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162), which identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements
of nongovernmental entities that are presented in conformity
with GAAP to improve the quality of standards and the
standard-setting process, including improving the conceptual
framework, codifying existing accounting literature,
transitioning to a single standard-setter regime, and converging
FASB and standards of the International Accounting Standards
Board. SFAS No. 162 is effective 60 days
following the SECs approval of the PCAOB amendments to AU
Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
No. 142-3),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. FSP
No. 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. We do not expect the adoption of FSP
No. 142-3
to have a material impact on our consolidated financial
statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
At December 31, 2008, $100.3 million of our
outstanding debt was subject to currently fixed interest rates
and is not exposed to market risk from rate changes. During
2008, we borrowed $38.0 million from our revolving credit
facility. Outstanding borrowings under the facility accrue
interest at rates ranging from 150 to 225 basis points over
LIBOR, with an option for base rate loans based upon the federal
funds rate or prime rate. At December 31, 2008,
$36.0 million was outstanding under the facility at an
interest rate of 2.2% based on a
30-day LIBOR
plus 1.5%. In September 2008, we closed on a $14.0 million
loan that provides for a five-year term and a spread over LIBOR
that was 1.75% at December 31, 2008. We do not foresee any
significant changes in our exposure to fluctuations in interest
rates, although we will continue to manage our exposure to this
risk by monitoring available financing alternatives.
The below table summarizes our debt obligations at
December 31, 2008 on our consolidated balance sheet (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
3,008
|
|
|
$
|
3,172
|
|
|
$
|
25,275
|
|
|
$
|
1,976
|
|
|
$
|
49,900
|
|
|
$
|
|
|
|
$
|
119,331
|
|
|
$
|
115,466
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0
|
%
|
|
|
|
|
Debentures due Red Lion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels Capital Trust
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,825
|
|
|
$
|
30,825
|
|
|
$
|
14,798
|
|
Interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
%
|
|
|
|
|
46
|
|
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, 2008 and 2007, 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
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room revenue
|
|
$
|
23,549
|
|
|
$
|
32,570
|
|
|
$
|
39,280
|
|
|
$
|
22,086
|
|
|
$
|
117,485
|
|
Food and beverage revenue
|
|
|
10,804
|
|
|
|
13,011
|
|
|
|
12,643
|
|
|
|
12,048
|
|
|
|
48,506
|
|
Other hotel revenue
|
|
|
883
|
|
|
|
1,112
|
|
|
|
1,549
|
|
|
|
1,017
|
|
|
|
4,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotels segment revenue
|
|
|
35,236
|
|
|
|
46,693
|
|
|
|
53,472
|
|
|
|
35,151
|
|
|
|
170,552
|
|
Franchise revenue
|
|
|
335
|
|
|
|
445
|
|
|
|
769
|
|
|
|
313
|
|
|
|
1,862
|
|
Entertainment revenue
|
|
|
3,211
|
|
|
|
1,895
|
|
|
|
1,869
|
|
|
|
5,041
|
|
|
|
12,016
|
|
Other revenue
|
|
|
777
|
|
|
|
779
|
|
|
|
776
|
|
|
|
808
|
|
|
|
3,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
39,559
|
|
|
$
|
49,812
|
|
|
$
|
56,886
|
|
|
$
|
41,313
|
|
|
$
|
187,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(5,267
|
)
|
|
$
|
5,305
|
|
|
$
|
8,737
|
|
|
$
|
(3,976
|
)
|
|
$
|
4,799
|
|
Restructuring expenses(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,067
|
|
|
$
|
2,067
|
|
Income (loss) before income tax
|
|
$
|
(7,116
|
)
|
|
$
|
3,443
|
|
|
$
|
6,826
|
|
|
$
|
(6,059
|
)
|
|
$
|
(2,906
|
)
|
Net income (loss)
|
|
$
|
(4,508
|
)
|
|
$
|
2,301
|
|
|
$
|
4,435
|
|
|
$
|
(3,932
|
)
|
|
$
|
(1,704
|
)
|
Earnings (loss) per common share basic
|
|
$
|
(0.25
|
)
|
|
$
|
0.13
|
|
|
$
|
0.24
|
|
|
$
|
(0.22
|
)
|
|
$
|
(0.09
|
)
|
Earnings (loss) per common share diluted
|
|
$
|
(0.25
|
)
|
|
$
|
0.12
|
|
|
$
|
0.24
|
|
|
$
|
(0.22
|
)
|
|
$
|
(0.09
|
)
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Room revenue
|
|
$
|
22,655
|
|
|
$
|
31,238
|
|
|
$
|
36,851
|
|
|
$
|
23,568
|
|
|
$
|
114,312
|
|
Food and beverage revenue
|
|
|
10,962
|
|
|
|
12,706
|
|
|
|
12,007
|
|
|
|
12,386
|
|
|
|
48,061
|
|
Other hotel revenue
|
|
|
764
|
|
|
|
895
|
|
|
|
1,181
|
|
|
|
955
|
|
|
|
3,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hotels segment revenue
|
|
|
34,381
|
|
|
|
44,839
|
|
|
|
50,039
|
|
|
|
36,909
|
|
|
|
166,168
|
|
Franchise and management revenue
|
|
|
789
|
|
|
|
782
|
|
|
|
701
|
|
|
|
483
|
|
|
|
2,756
|
|
Entertainment revenue
|
|
|
3,347
|
|
|
|
2,642
|
|
|
|
3,030
|
|
|
|
5,820
|
|
|
|
14,839
|
|
Other revenue
|
|
|
787
|
|
|
|
731
|
|
|
|
750
|
|
|
|
862
|
|
|
|
3,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
39,304
|
|
|
$
|
48,994
|
|
|
$
|
54,520
|
|
|
$
|
44,074
|
|
|
$
|
186,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
$
|
(1,265
|
)
|
|
$
|
5,811
|
|
|
$
|
10,737
|
|
|
$
|
95
|
|
|
$
|
15,378
|
|
Income (loss) from continuing operations before income tax
|
|
$
|
(3,186
|
)
|
|
$
|
3,772
|
|
|
$
|
8,757
|
|
|
$
|
(1,904
|
)
|
|
$
|
7,438
|
|
Net income (loss) from continuing operations
|
|
$
|
(1,980
|
)
|
|
$
|
2,509
|
|
|
$
|
5,799
|
|
|
$
|
(1,097
|
)
|
|
$
|
5,231
|
|
Net income (loss) from discontinued operations
|
|
$
|
(26
|
)
|
|
$
|
(311
|
)
|
|
$
|
1,306
|
|
|
$
|
(150
|
)
|
|
$
|
819
|
|
Net income (loss)
|
|
$
|
(2,006
|
)
|
|
$
|
2,198
|
|
|
$
|
7,105
|
|
|
$
|
(1,247
|
)
|
|
$
|
6,050
|
|
Earnings (loss) per common share basic
|
|
$
|
(0.10
|
)
|
|
$
|
0.11
|
|
|
$
|
0.37
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.32
|
|
Earnings (loss) per common share diluted
|
|
$
|
(0.10
|
)
|
|
$
|
0.11
|
|
|
$
|
0.36
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.32
|
|
|
|
|
(1) |
|
During 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. The $2.1 million 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 value of an intangible assets related to management
contracts acquired with the WestCoast and Red Lion brands. |
47
Financial
Statements
The 2008
Consolidated Financial Statements of Red Lion Hotels Corporation
are
presented on pages 50 to 77 of this annual report.
48
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, 2008 and
2007 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, 2008.
These financial statements 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 as of December 31,
2008 and 2007, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Red
Lion Hotels Corporations internal control over financial
reporting as of December 31, 2008, 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 12, 2009, expressed an unqualified opinion
thereon.
BDO Seidman, LLP
Spokane, Washington
March 12, 2009
49
RED LION
HOTELS CORPORATION
December 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,222
|
|
|
$
|
15,044
|
|
Restricted cash
|
|
|
3,890
|
|
|
|
4,439
|
|
Accounts receivable, net
|
|
|
11,337
|
|
|
|
10,330
|
|
Inventories
|
|
|
1,375
|
|
|
|
1,416
|
|
Prepaid expenses and other
|
|
|
2,574
|
|
|
|
3,352
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
37,398
|
|
|
|
34,581
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
298,496
|
|
|
|
260,574
|
|
Goodwill
|
|
|
28,042
|
|
|
|
28,042
|
|
Intangible assets, net
|
|
|
10,376
|
|
|
|
11,582
|
|
Other assets, net
|
|
|
6,460
|
|
|
|
9,730
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
380,772
|
|
|
$
|
344,509
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,990
|
|
|
$
|
4,189
|
|
Accrued payroll and related benefits
|
|
|
4,925
|
|
|
|
6,166
|
|
Accrued interest payable
|
|
|
314
|
|
|
|
356
|
|
Advance deposits
|
|
|
398
|
|
|
|
345
|
|
Other accrued expenses
|
|
|
7,756
|
|
|
|
10,419
|
|
Long-term debt, due within one year
|
|
|
3,008
|
|
|
|
5,547
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,391
|
|
|
|
27,022
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
|
36,000
|
|
|
|
|
|
Long-term debt, due after one year
|
|
|
80,323
|
|
|
|
77,673
|
|
Deferred income
|
|
|
8,476
|
|
|
|
9,169
|
|
Deferred income taxes
|
|
|
16,366
|
|
|
|
17,294
|
|
Minority interest in partnerships
|
|
|
19
|
|
|
|
31
|
|
Debentures due Red Lion Hotels Capital Trust
|
|
|
30,825
|
|
|
|
30,825
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
199,400
|
|
|
|
162,014
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
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; 17,977,205 and 18,312,756 shares
issued and outstanding
|
|
|
180
|
|
|
|
183
|
|
Additional paid-in capital, common stock
|
|
|
141,137
|
|
|
|
140,553
|
|
Retained earnings
|
|
|
40,055
|
|
|
|
41,759
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
181,372
|
|
|
|
182,495
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
380,772
|
|
|
$
|
344,509
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
50
RED LION
HOTELS CORPORATION
For the Years Ended December 31, 2008, 2007 and
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
170,552
|
|
|
$
|
166,168
|
|
|
$
|
154,817
|
|
Franchise
|
|
|
1,862
|
|
|
|
2,756
|
|
|
|
2,853
|
|
Entertainment
|
|
|
12,016
|
|
|
|
14,839
|
|
|
|
10,791
|
|
Other
|
|
|
3,140
|
|
|
|
3,130
|
|
|
|
1,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
187,570
|
|
|
|
186,893
|
|
|
|
170,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
|
131,214
|
|
|
|
127,431
|
|
|
|
122,596
|
|
Franchise
|
|
|
355
|
|
|
|
814
|
|
|
|
808
|
|
Entertainment
|
|
|
11,234
|
|
|
|
12,812
|
|
|
|
9,109
|
|
Other
|
|
|
2,100
|
|
|
|
2,037
|
|
|
|
1,866
|
|
Depreciation and amortization
|
|
|
19,316
|
|
|
|
16,528
|
|
|
|
12,683
|
|
Hotel facility and land lease
|
|
|
6,998
|
|
|
|
6,490
|
|
|
|
6,449
|
|
Gain on asset dispositions, net
|
|
|
(156
|
)
|
|
|
(437
|
)
|
|
|
(1,705
|
)
|
Undistributed corporate expenses
|
|
|
9,643
|
|
|
|
5,840
|
|
|
|
5,254
|
|
Restructuring expenses
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
182,771
|
|
|
|
171,515
|
|
|
|
157,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,799
|
|
|
|
15,378
|
|
|
|
13,308
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(9,247
|
)
|
|
|
(9,172
|
)
|
|
|
(12,072
|
)
|
Expense of early extinguishment of debt, net
|
|
|
|
|
|
|
|
|
|
|
(5,266
|
)
|
Minority interest in partnerships, net
|
|
|
12
|
|
|
|
(34
|
)
|
|
|
56
|
|
Other income, net
|
|
|
1,530
|
|
|
|
1,266
|
|
|
|
1,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
(2,906
|
)
|
|
|
7,438
|
|
|
|
(2,153
|
)
|
Income tax (benefit) expense
|
|
|
(1,202
|
)
|
|
|
2,207
|
|
|
|
(1,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(1,704
|
)
|
|
|
5,231
|
|
|
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of discontinued business units,
net of income tax (benefit) expense of $(62) and $43,
respectively
|
|
|
|
|
|
|
(113
|
)
|
|
|
78
|
|
Net gain (loss) on disposal of discontinued business units, net
of income tax (benefit) expense of $513 and $(73), respectively
|
|
|
|
|
|
|
932
|
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
819
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(0.09
|
)
|
|
$
|
0.27
|
|
|
$
|
(0.03
|
)
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.09
|
)
|
|
$
|
0.32
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
18,234
|
|
|
|
19,134
|
|
|
|
16,666
|
|
Weighted average shares diluted
|
|
|
18,234
|
|
|
|
19,506
|
|
|
|
16,666
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
51
RED LION
HOTELS CORPORATION
For the Years Ended December 31, 2008, 2007 and
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Earnings
|
|
|
|
(In thousands, except share data)
|
|
|
Balances, January 1, 2006
|
|
|
13,131,282
|
|
|
$
|
131
|
|
|
|
84,832
|
|
|
$
|
36,284
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(575
|
)
|
Stock issued for cash, net of issuance costs
|
|
|
5,845,302
|
|
|
|
58
|
|
|
|
60,361
|
|
|
|
|
|
Stock issued under employee stock purchase plan
|
|
|
22,400
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
Stock issued under option plan
|
|
|
60,526
|
|
|
|
1
|
|
|
|
367
|
|
|
|
|
|
Stock based compensation
|
|
|
9,995
|
|
|
|
1
|
|
|
|
700
|
|
|
|
|
|
Tax benefits related to exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
340
|
|
|
|
|
|
OP Units exchanged for common stock
|
|
|
143,498
|
|
|
|
1
|
|
|
|
2,273
|
|
|
|
|
|
Stock redeemed for sale of business
|
|
|
(94,311
|
)
|
|
|
(1
|
)
|
|
|
(1,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
|
19,118,692
|
|
|
$
|
191
|
|
|
$
|
147,891
|
|
|
$
|
35,709
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,050
|
|
Stock redeemed under repurchase plan
|
|
|
(924,200
|
)
|
|
|
(9
|
)
|
|
|
(9,096
|
)
|
|
|
|
|
Stock issued under employee stock purchase plan
|
|
|
19,246
|
|
|
|
|
|
|
|
195
|
|
|
|
|
|
Stock issued under option plan
|
|
|
81,668
|
|
|
|
1
|
|
|
|
489
|
|
|
|
|
|
Stock based compensation
|
|
|
17,350
|
|
|
|
|
|
|
|
899
|
|
|
|
|
|
Tax benefits related to exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
18,312,756
|
|
|
$
|
183
|
|
|
$
|
140,553
|
|
|
$
|
41,759
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,704
|
)
|
Stock redeemed under repurchase plan
|
|
|
(396,000
|
)
|
|
|
(4
|
)
|
|
|
(1,824
|
)
|
|
|
|
|
Stock issued under employee stock purchase plan
|
|
|
22,265
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
Stock based compensation
|
|
|
38,184
|
|
|
|
1
|
|
|
|
2,513
|
|
|
|
|
|
Tax expense related to expiration of stock options
|
|
|
|
|
|
|
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
17,977,205
|
|
|
$
|
180
|
|
|
$
|
141,137
|
|
|
$
|
40,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
52
RED LION
HOTELS CORPORATION
For the Years Ended December 31, 2008, 2007 and
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,316
|
|
|
|
16,556
|
|
|
|
13,108
|
|
Gain on disposition of property, equipment and other assets, net
|
|
|
(156
|
)
|
|
|
(437
|
)
|
|
|
(1,704
|
)
|
(Gain) loss on disposition of discontinued operations, net
|
|
|
|
|
|
|
(1,445
|
)
|
|
|
207
|
|
Restructuring expenses (non-cash)
|
|
|
1,144
|
|
|
|
|
|
|
|
|
|
Expense of early extinguishment of debt, net
|
|
|
|
|
|
|
|
|
|
|
5,266
|
|
Deferred income tax provision (benefit)
|
|
|
(1,197
|
)
|
|
|
3,210
|
|
|
|
838
|
|
Minority interest in partnerships
|
|
|
(12
|
)
|
|
|
34
|
|
|
|
(57
|
)
|
Equity in investments
|
|
|
(133
|
)
|
|
|
(40
|
)
|
|
|
(152
|
)
|
Imputed interest expense
|
|
|
111
|
|
|
|
212
|
|
|
|
|
|
Stock based compensation expense
|
|
|
2,245
|
|
|
|
901
|
|
|
|
700
|
|
Provision for doubtful accounts
|
|
|
166
|
|
|
|
53
|
|
|
|
334
|
|
Change in current assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
549
|
|
|
|
(1,683
|
)
|
|
|
1,047
|
|
Accounts receivable
|
|
|
(947
|
)
|
|
|
(941
|
)
|
|
|
(281
|
)
|
Inventories
|
|
|
82
|
|
|
|
133
|
|
|
|
341
|
|
Prepaid expenses and other
|
|
|
786
|
|
|
|
714
|
|
|
|
(2,297
|
)
|
Accounts payable
|
|
|
6,801
|
|
|
|
(4,889
|
)
|
|
|
1,430
|
|
Accrued payroll and related benefits
|
|
|
(1,243
|
)
|
|
|
88
|
|
|
|
50
|
|
Accrued interest payable
|
|
|
(42
|
)
|
|
|
(87
|
)
|
|
|
(241
|
)
|
Other accrued expenses and advance deposits
|
|
|
(2,963
|
)
|
|
|
2,801
|
|
|
|
948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
22,803
|
|
|
|
21,230
|
|
|
|
18,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(56,377
|
)
|
|
|
(25,509
|
)
|
|
|
(34,851
|
)
|
Non-current restricted cash for sublease tenant improvements, net
|
|
|
2,151
|
|
|
|
(2,151
|
)
|
|
|
|
|
Proceeds from disposition of property and equipment
|
|
|
41
|
|
|
|
22
|
|
|
|
34
|
|
Proceeds from disposition of discontinued operations
|
|
|
|
|
|
|
7,918
|
|
|
|
13,155
|
|
Proceeds from short-term liquid investments
|
|
|
|
|
|
|
7,635
|
|
|
|
7,165
|
|
Proceeds from (advances to) Red Lion Hotels Capital Trust
|
|
|
(27
|
)
|
|
|
(17
|
)
|
|
|
515
|
|
Other, net
|
|
|
458
|
|
|
|
(389
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(53,754
|
)
|
|
|
(12,491
|
)
|
|
|
(14,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on revolving credit facility
|
|
|
38,000
|
|
|
|
|
|
|
|
|
|
Repayment of revolving credit facility
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
Repayment of long-term debt including expense of early
extinguishment
|
|
|
(14,000
|
)
|
|
|
(2,479
|
)
|
|
|
(48,179
|
)
|
Borrowings on long-term debt
|
|
|
14,000
|
|
|
|
3,926
|
|
|
|
|
|
Common stock redeemed
|
|
|
(1,828
|
)
|
|
|
(9,107
|
)
|
|
|
|
|
Proceeds from common stock offering
|
|
|
|
|
|
|
|
|
|
|
60,420
|
|
Repayment of debentures including expense of early extinguishment
|
|
|
|
|
|
|
|
|
|
|
(17,403
|
)
|
Proceeds from issuance of common stock under employee stock
purchase plan
|
|
|
164
|
|
|
|
196
|
|
|
|
150
|
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
489
|
|
|
|
708
|
|
Distributions to operating partnership unit holders
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
Additions to deferred financing costs
|
|
|
(207
|
)
|
|
|
(31
|
)
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
34,129
|
|
|
|
(7,014
|
)
|
|
|
(5,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash from discontinued operations
|
|
|
|
|
|
|
57
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,178
|
|
|
|
1,782
|
|
|
|
(271
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
15,044
|
|
|
|
13,262
|
|
|
|
13,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
18,222
|
|
|
$
|
15,044
|
|
|
$
|
13,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during periods for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
$
|
9,777
|
|
|
$
|
9,206
|
|
|
$
|
12,502
|
|
Income taxes
|
|
$
|
102
|
|
|
$
|
1,100
|
|
|
$
|
1,812
|
|
Cash received during periods for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
978
|
|
|
$
|
2,514
|
|
|
$
|
691
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect on conversion of equity
|
|
$
|
(269
|
)
|
|
$
|
175
|
|
|
$
|
|
|
Exchange of property and equipment for minority interest
|
|
$
|
|
|
|
$
|
167
|
|
|
$
|
|
|
Exchange of common stock for minority interest in partnership
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,273
|
|
Exchange of common stock for real estate management business
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,131
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
53
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 and upscale, full service hotels under the Red Lion
brand. As of December 31, 2008, the Red Lion system of
hotels contained 47 hotels located in nine states and one
Canadian province, with 8,910 rooms and 437,626 square feet
of meeting space. As of that date, the Company operated 32
hotels, of which 19 are wholly-owned and 13 are leased, and
franchised 15 hotels that were owned and operated by various
third-party franchisees.
In addition to hotel operations, the Company is engaged in
entertainment operations, which includes TicketsWest.com, Inc.,
through which the Company derives revenues from event ticket
distribution and promotion and presentation of a variety of
entertainment productions. The Company also maintains a direct
ownership interest in a retail mall that is attached to one of
its hotels and in other miscellaneous real estate investments.
Since December 2006, the Company has owned 100% of the retail
mall and hotel property and has included its results of
operation in consolidation. Prior to December 2006, the
Companys 50%
tenancy-in-common
interest in that property was reflected as an equity method
investment.
Historically, the Company owned certain commercial real estate
and engaged in traditional real estate related services,
including developing, managing and acting as a broker for sales
and leases of commercial and
multi-unit
residential properties (collectively referred to as the real
estate management business). Together with commercial retail and
office properties the Company owned, these operations comprised
the Real Estate segment. Effective April 30,
2006, the Company divested the real estate management business.
Any former Real Estate segment activities still part of
continuing operations have been included within the
Other segment for all periods presented. During the
third quarter of 2007, the Company sold a wholly-owned
commercial real estate property recorded as a discontinued
operation, as discussed further in Note 19.
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 more than 99% ownership
of Red Lion Hotels Limited Partnership (RLHLP)
further discussed in Note 9.
The financial statements include an equity method investment in
a 19.9% owned corporate office building, 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 under FIN-46(R) Consolidation
of Variable Interest Entities, as revised. However, as the
Company is not the primary beneficiary of the Trust, it is
treated as an equity method investment.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
The consolidated financial statements have been prepared 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 transactions and
accounts have been eliminated upon consolidation. In addition,
certain other amounts disclosed in prior period statements have
been reclassified to conform to the current period presentation;
however, this reclassification had no effect on net income
(loss) or retained earnings as previously reported.
54
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Restricted
Cash
In accordance with the Companys various borrowing
arrangements, at December 31, 2008 and 2007, cash of
approximately $3.9 million and $4.4 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts, continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
286
|
|
|
$
|
434
|
|
|
$
|
342
|
|
Additions to allowance
|
|
|
410
|
|
|
|
83
|
|
|
|
375
|
|
Write-offs, net of recoveries
|
|
|
(216
|
)
|
|
|
(231
|
)
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
480
|
|
|
$
|
286
|
|
|
$
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 are
capitalized. Interest costs are capitalized as incurred during
the construction period for qualifying assets. During 2008 and
2006, the Company capitalized approximately $0.3 million
and $0.2 million, respectively. No interest was capitalized
in 2007. 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 range as follows:
|
|
|
Buildings
|
|
25 to 39 years
|
Equipment
|
|
2 to 15 years
|
Furniture and fixtures
|
|
5 to 15 years
|
Landscaping and improvements
|
|
15 years
|
55
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Valuation
of Long-Lived Assets
Management reviews the carrying value of property, equipment and
other long-lived assets at least annually, or upon the
occurrence of events or changes in circumstances that indicate
the related carrying amounts may not be recoverable. 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 SFAS No. 144. No asset impairment
charges were recorded during 2008, 2007 or 2006.
Goodwill
and 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 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.
The following table summarizes the cost and accumulated
amortization of goodwill and other intangible assets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
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
|
|
|
4,332
|
|
|
|
(1,011
|
)
|
|
|
3,321
|
|
|
|
4,332
|
|
|
|
(866
|
)
|
|
|
3,466
|
|
Franchise and management contracts(1)
|
|
|
313
|
|
|
|
(250
|
)
|
|
|
63
|
|
|
|
4,087
|
|
|
|
(2,959
|
)
|
|
|
1,128
|
|
Trademarks
|
|
|
114
|
|
|
|
n/a
|
|
|
|
114
|
|
|
|
110
|
|
|
|
n/a
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
11,637
|
|
|
$
|
(1,261
|
)
|
|
$
|
10,376
|
|
|
$
|
15,407
|
|
|
$
|
(3,825
|
)
|
|
$
|
11,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In December 2008, the Company wrote-off a non-cash charge of
$0.7 million reducing the net carrying value of an
intangible asset related to management contracts acquired with
the WestCoast and Red Lion brands. Since January 2008, when the
last hotel the Company managed elected not to renew its
management agreement, the Company has not managed any hotels for
third parties. |
56
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense related to intangible assets was
approximately $0.5 million, $0.5 million and
$0.8 million during the years ended December 31, 2008,
2007 and 2006, respectively. Estimated amortization expense for
intangible assets over the next five years is as follows (in
thousands):
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
2009
|
|
$
|
176
|
|
2010
|
|
|
176
|
|
2011
|
|
|
144
|
|
2012
|
|
|
144
|
|
2013
|
|
|
144
|
|
|
|
|
|
|
|
|
$
|
784
|
|
|
|
|
|
|
Goodwill and other intangible assets attributable to each of the
Companys business segments at December 31, 2008 and
2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
Goodwill
|
|
|
Intangibles
|
|
|
Goodwill
|
|
|
Intangibles
|
|
|
Hotels
|
|
$
|
19,530
|
|
|
$
|
7,961
|
|
|
$
|
19,530
|
|
|
$
|
8,103
|
|
Franchise
|
|
|
5,351
|
|
|
|
2,409
|
|
|
|
5,351
|
|
|
|
3,473
|
|
Entertainment
|
|
|
3,161
|
|
|
|
6
|
|
|
|
3,161
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,042
|
|
|
$
|
10,376
|
|
|
$
|
28,042
|
|
|
$
|
11,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the Companys measurement date of October 1, 2008
and at December 31, 2008, the book value of its net assets
exceeded the market capitalization of the Company. Goodwill and
intangible assets are tested for impairment at least 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 reporting units.
Forecasts of future cash flow 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.
Management performed an annual test of its goodwill and
intangible assets as of October 1, 2008 and at
December 31, 2008, and concluded that the recorded values
were not impaired based on present value discounted cash flows
as allowed under SFAS No. 142. The key assumption used
in its analysis included that the Companys hotel 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.
If circumstances change, management could conclude that the
Companys goodwill or other intangible assets are impaired.
Any resulting impairment would result in the Company recording
an impairment loss of all or a portion of the balances provided
above, which could have a material adverse impact on the
Companys financial condition and results of operations.
Given current market conditions, the Company will continue to
monitor the value of its goodwill and intangible assets on a
quarterly basis.
57
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
During 2007 and in connection with the sublease of the Red Lion
Hotel Sacramento and subsequent long-term franchise agreement as
discussed further in Note 12, the Company committed to
approximately $3.0 million in tenant improvements that was
segregated as long-term restricted cash and included in other
assets on the consolidated balance sheet. At December 31,
2008, all $3.0 million had been expended for the tenant
improvements.
Cost method investments are carried at their original purchase
price, less any impairment recognized to date. Equity method
investments are carried at cost, adjusted for the Companys
proportionate share of earnings and any investment
disbursements. At both December 31, 2008 and 2007, 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. The note is due in
February 2011.
Deferred
Income
Deferred income includes unamortized gain on the sale or
sublease of assets that has been deferred and being amortized
into income over time. In connection with the sublease of the
Red Lion Hotel Sacramento during 2007 and subsequent long-term
franchise, the Company received $3.0 million in
consideration that is being amortized over the sublease period
as deferred lease revenue. During 2008 and 2007, the Company
recognized income of $0.2 million and $0.1 million,
respectively, with a remaining balance at December 31, 2008
of $2.7 million that will be amortized through December
2020.
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 2008, 2007
and 2006, the Company recognized income of approximately
$0.5 million each year for the amortization of the deferred
gain. The remaining balance at December 31, 2008, was
$4.6 million.
In 2002, the Company sold an 80.1% interest in its corporate
office building, retaining a lease of office space and the
remaining ownership interest discussed further below in
Note 4. A portion of the gain on sale was deferred and is
being amortized over the six-year initial lease term, which
concluded at December 31, 2007. The Company recognized
income of approximately $0.3 million during both 2006 and
2007 for the amortization of the deferred gain.
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. Per SFAS No. 109,
Accounting for Income Taxes, the 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. A valuation allowance against the
deferred tax assets has not been established as its more
likely than not that these assets will be realized.
58
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
|
|
|
|
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.
|
In June 2006, the EITF reached a consensus on EITF
No. 06-03,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That is, Gross versus Net Presentation)
(EITF
No. 06-03).
EITF
No. 06-03
provides that the presentation of taxes assessed by a
governmental authority that is directly imposed on a
revenue-producing transaction between a seller and a customer on
either a gross basis (included in revenues and costs) or on a
net basis (excluded from revenues) is an accounting policy
decision that should be disclosed. The provisions of EITF
No. 06-03
became effective as of December 31, 2006, and did not
change the Companys accounting policy of net presentation,
nor have an effect on the Companys financial position or
results of operations.
Restructuring
Expenses
The Company accounts for costs associated with the restructuring
of its operations in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. During 2008, the Company recorded
restructuring expenses of $2.1 million as it implemented a
reduction in work force and further cost savings. The table
below summarizes total restructuring expenses (in thousands):
|
|
|
|
|
Severance charges(1,2)
|
|
$
|
923
|
|
Stock based compensation related to separation(1)
|
|
|
269
|
|
Intangible and other asset write-offs
|
|
|
875
|
|
|
|
|
|
|
Total
|
|
$
|
2,067
|
|
|
|
|
|
|
|
|
|
(1) |
|
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. |
|
(2) |
|
Includes other severance charges of $0.3 million. |
Advertising
and Promotion
Costs associated with advertising and promotional efforts are
generally expensed as incurred. During the years ended
December 31, 2008, 2007 and 2006, the Company incurred
approximately $2.0 million, $2.1 million and
59
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$1.9 million, respectively, in advertising expense for
continuing operations. These amounts are exclusive of
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 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 net assets and
transactions of the CPF are not included in the accompanying
financial statements in accordance with SFAS No. 45,
Accounting for Franchise Fee Revenue, and
FIN 46.
The Company can elect to contribute additional funds to the CPF
in order to accelerate brand awareness, increase marketing and
advertising expense to grow the brand, among other things. These
advances are considered a receivable from the CPF and will be
recouped as more hotels join the system. For the years ended
December 31, 2008, 2007 and 2006, the Company recorded
operating expenses of $7.3 million, $7.0 million, and
$6.2 million, respectively, based on contributions for the
period to the CPF. At December 31, 2008 and 2007, the
Company had a net current receivable from the CPF of
approximately $1.7 million and $1.5 million,
respectively.
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 is the same.
Use of
Estimates
The preparation of 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
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which establishes a
framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about
fair value measurements. SFAS No. 157 does not require
any new fair value measurements itself. However, this statement
applies under other accounting pronouncements that require or
permit fair value measurements and may therefore change current
practice if an alternative measure of fair value has been used.
SFAS No. 157 applies an exchange price notion for fair
value consistent with previously preferred practice, with a
focus on exit price and market-based measurements as compared to
entry price and entity-specific measurements.
SFAS No. 157 became effective for financial assets and
liabilities in financial statements issued for fiscal years
beginning after November 15, 2007. In February 2008, the
FASB issued a proposed staff position (FSP)
FAS 157-2,
which delayed the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).
FSP
FAS 157-2
partially deferred the effective date of SFAS No. 157
to fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years for items within the
scope of the FSP.
60
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective January 1, 2008, the Company adopted
SFAS No. 157 except as it applies to those
nonfinancial assets and nonfinancial liabilities as noted in FSP
FAS 157-2.
The Company does not use derivative instruments, nor does it
hold or issue financial instruments for the purpose of trading.
The Companys financial instruments currently consist of
cash and cash equivalents, restricted cash, accounts receivable,
current liabilities and debt obligations. The carrying amounts
for cash and cash equivalents, current investments, accounts
receivable, current liabilities and variable rate long-term debt
are reasonable estimates of their fair values. Therefore, the
Company experienced no impact on the carrying value of any
financial asset or liability in 2008 upon adoption. The Company
does not believe the adoption of FSP
FAS 157-2,
which became effective January 1, 2009, will have a
material impact on its consolidated financial statements in
relation to its nonfinancial assets and liabilities.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS No. 159).
SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair
value, the objective of which is to improve financial reporting
by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related
assets and liabilities differently without having to apply
complex hedge accounting provisions. This statement is expected
to expand the use of fair value measurement, which is consistent
with FASBs long-term measurement objectives for accounting
for financial instruments. SFAS No. 159 is effective
as of the beginning of an entitys first fiscal year that
begins after November 15, 2007. While
SFAS No. 159 became effective on January 1, 2008,
the Company did not elect the fair value measurement option for
any of its financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141R) and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting
Research Bulletin No. 51
(SFAS No. 160). SFAS No. 141R
will change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in
subsequent periods. SFAS No. 160 will change the
accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a
component of equity. SFAS No. 141R and
SFAS No. 160 are effective for annual periods
beginning after December 15, 2008, and early adoption is
not permitted. The impact of adopting these standards will be
limited to business combinations occurring on or after
January 1, 2009.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161), an
amendment of FASB No. 133. The new statement will improve
the transparency about where derivative instruments are located
in financial statements, how derivative instruments and related
hedge items are currently accounted for under Statement 133, and
how these instruments ultimately affect an entitys
financial position, performance, and cash flow. It requires that
entities disclose the fair value of derivative instruments and
their gains and losses, disclose features that are credit
risk related, and cross reference footnotes to
enable financial statement end users to locate significant
derivative instrument information more easily.
SFAS No. 161 is effective for all financial statements
that are issued for fiscal years and interim periods after
November 15, 2008, although entities are encouraged to
adopt its requirements early. The Company does not currently
engage in hedging activities and does not currently have
derivative instruments recorded within its consolidated
financial statements. Thus, the Company does not expect the
adoption of SFAS No. 161 will have any effect on its
consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles
(SFAS No. 162), which identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements
of nongovernmental entities that are presented in conformity
with GAAP to improve the quality of standards and the
standard-setting process, including improving the conceptual
framework, codifying existing accounting literature,
transitioning to a single standard-setter regime, and converging
FASB and standards of the International Accounting Standards
Board. SFAS No. 162 is effective 60 days
following the SECs approval of the PCAOB amendments to AU
Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.
61
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible
Assets (FSP
No. 142-3),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. FSP
No. 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. The Company does not expect the
adoption of FSP
No. 142-3
will have a material impact on its consolidated financial
statements.
|
|
3.
|
Property
and Equipment
|
Property and equipment for continuing operations is summarized
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Buildings and equipment
|
|
$
|
281,979
|
|
|
$
|
253,905
|
|
Furniture and fixtures
|
|
|
39,906
|
|
|
|
37,557
|
|
Landscaping and land improvements
|
|
|
6,753
|
|
|
|
5,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328,638
|
|
|
|
296,784
|
|
Less accumulated depreciation and amortization
|
|
|
(116,148
|
)
|
|
|
(99,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
212,490
|
|
|
|
197,179
|
|
Land
|
|
|
66,146
|
|
|
|
58,928
|
|
Construction in progress
|
|
|
19,860
|
|
|
|
4,467
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
298,496
|
|
|
$
|
260,574
|
|
|
|
|
|
|
|
|
|
|
In May 2008, the Company completed the asset acquisition of a
478-room, full service hotel asset in the Denver, Colorado area
for $25.3 million.
In October 2007, the Company completed an asset acquisition of a
100-year
(including extension periods) leasehold interest in a 310-room
hotel in Anaheim, California for $8.3 million, including
costs of the acquisition. The property has undergone extensive
renovations to guest rooms and public areas in order to
reposition the hotel to meet Red Lion brand standards. At the
Companys option, the initial five-year term of the lease
may be extended for up to 19 additional terms of five years
each. As required under the terms of the assumed leasehold
agreement, the Company will pay $1.8 million per year in
lease payments through April 2011, to be adjusted every five
years based on the terms of the agreement and tied directly to
the Consumer Price Index.
Aggregate investments recorded as noncurrent assets on the
consolidated balance sheet totaled $1.3 million as of both
December 31, 2008 and 2007. During 2008 and 2007, the
Company recorded income from investments of $133,000 and
$40,000, respectively, with a loss of $152,000 in 2006.
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
$0.7 million as of both December 31, 2008 and 2007.
62
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized unaudited financial information with respect to the
office building, on a 100% basis, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Current assets
|
|
$
|
401
|
|
|
$
|
280
|
|
Total assets
|
|
$
|
12,169
|
|
|
$
|
12,433
|
|
Current liabilities
|
|
$
|
130
|
|
|
$
|
129
|
|
Total liabilities
|
|
$
|
9,372
|
|
|
$
|
9,481
|
|
Total equity
|
|
$
|
2,797
|
|
|
$
|
2,952
|
|
Revenues
|
|
$
|
2,031
|
|
|
$
|
2,019
|
|
Net income
|
|
$
|
108
|
|
|
$
|
40
|
|
The Company maintains a 3% common security interest in the Red
Lion Hotels Capital Trust (the Trust), as discussed
below in Note 7, which represents all of the common
ownership of the Trust. The Trust is considered a variable
interest entity under FIN-46(R) and the Company is not
considered its primary beneficiary. At December 31, 2008
and 2007, the Companys equity method investment in the
Trust had a balance of $0.6 million during both periods,
after adjusting for trust earnings and operating expenses.
In September 2006, the Company entered into a secured revolving
credit facility for up to $50 million with a syndication of
banks led by Calyon New York Branch. Subject to certain
conditions, including continued compliance with debt covenants
as discussed below and the provision of additional collateral
acceptable to the lenders, the size of the facility may be
increased at the Companys request to up to
$100 million. The initial maturity date for the facility is
September 13, 2009, and the Company has the right to extend
the maturity for two additional one-year terms, which it intends
to exercise. 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 a company
owned hotel, including a deed of trust and security agreement
covering all of its assets, as well as by unsecured guaranties
of the Company and certain of its other subsidiaries. In
connection with this transaction, the Company paid loan fees and
related costs of approximately $0.9 million, which have
been deferred and are being amortized over the initial term of
the facility.
During the second quarter of 2008, the Company borrowed
$23.0 million against its revolving credit facility to
purchase the Red Lion Hotel Denver Southeast discussed above in
Note 3. The Company borrowed an additional
$15.0 million in December 2008 to fund ongoing hotel
renovations and for general corporate purposes. Outstanding
borrowings under the facility accrue interest at rates ranging
from 150 to 225 basis points over LIBOR, with an option for
base rate loans based upon the federal funds rate or prime rate.
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. At
December 31, 2008, $36.0 million was outstanding under
the facility at an interest rate of 2.2% based on a
30-day LIBOR
plus 1.5%, with no amounts outstanding at December 31,
2007. At December 31, 2008 and 2007, the Company was in
compliance with all of its covenants.
A summary of long-term debt as of December 31, 2008 and
2007, 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). In
addition to the debentures discussed in Note 7, 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. The
Company has $36.0 million outstanding as of
December 31, 2008, on its
63
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$50 million secured credit facility, as discussed above in
Note 5, as well as one variable rate property note with
restrictive covenants that mirror those of the credit facility.
The $13.8 million outstanding under this note has been
included in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Last
|
|
|
Last
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Applicable
|
|
|
Applicable
|
|
|
|
|
Maturity/
|
|
|
|
|
December 31,
|
|
|
Monthly
|
|
|
Interest
|
|
|
|
|
Balloon
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Installment
|
|
|
Rate
|
|
|
Type
|
|
Payment Due
|
|
Security
|
|
Note payable(1)
|
|
$
|
13,825
|
|
|
|
|
|
|
$
|
104,611
|
|
|
|
2.25
|
%
|
|
Variable
|
|
September 2013
|
|
Real Property
|
Note payable
|
|
|
12,443
|
|
|
|
12,713
|
|
|
$
|
108,797
|
|
|
|
8.08
|
%
|
|
Fixed
|
|
September 2011
|
|
Real Property
|
Note payable
|
|
|
9,325
|
|
|
|
9,533
|
|
|
$
|
70,839
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Note payable
|
|
|
8,239
|
|
|
|
8,422
|
|
|
$
|
62,586
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Note payable
|
|
|
6,043
|
|
|
|
6,175
|
|
|
$
|
52,844
|
|
|
|
8.08
|
%
|
|
Fixed
|
|
September 2011
|
|
Real Property
|
Note payable
|
|
|
5,432
|
|
|
|
5,553
|
|
|
$
|
41,265
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Note payable
|
|
|
5,380
|
|
|
|
5,497
|
|
|
$
|
46,695
|
|
|
|
8.00
|
%
|
|
Fixed
|
|
October 2011
|
|
Real Property
|
Note payable
|
|
|
4,617
|
|
|
|
4,720
|
|
|
$
|
35,076
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Note payable
|
|
|
4,492
|
|
|
|
4,627
|
|
|
$
|
34,353
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Note payable
|
|
|
3,712
|
|
|
|
3,795
|
|
|
$
|
28,198
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Note payable
|
|
|
2,716
|
|
|
|
2,776
|
|
|
$
|
20,633
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Note payable
|
|
|
2,716
|
|
|
|
2,776
|
|
|
$
|
20,633
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Note payable
|
|
|
2,263
|
|
|
|
2,314
|
|
|
$
|
17,194
|
|
|
|
6.70
|
%
|
|
Fixed
|
|
July 2013
|
|
Real Property
|
Industrial revenue bonds payable
|
|
|
2,128
|
|
|
|
2,780
|
|
|
$
|
66,560
|
|
|
|
5.90
|
%
|
|
Fixed
|
|
October 2011
|
|
Real Property
|
Note payable(2)
|
|
|
|
|
|
|
3,139
|
|
|
$
|
|
|
|
|
7.00
|
%
|
|
Fixed
|
|
June 2008
|
|
Unsecured
|
Note payable(3)
|
|
|
|
|
|
|
8,400
|
|
|
$
|
74,480
|
|
|
|
7.42
|
%
|
|
Fixed
|
|
August 2023
|
|
Real Property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
83,331
|
|
|
|
83,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
(3,008
|
)
|
|
|
(5,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt due after one year
|
|
$
|
80,323
|
|
|
$
|
77,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest rate based on
30-day
LIBOR, plus 1.75%. |
|
(2) |
|
Paid in June 2008. |
|
(3) |
|
Paid in September 2008. |
Contractual maturities for long-term debt outstanding at
December 31, 2008, excluding the $36.0 million
outstanding under the revolving credit facility discussed above
in Note 5, are summarized by year as follows (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
2009
|
|
$
|
3,008
|
|
2010
|
|
|
3,172
|
|
2011
|
|
|
25,275
|
|
2012
|
|
|
1,976
|
|
2013
|
|
|
49,900
|
|
|
|
|
|
|
|
|
$
|
83,331
|
|
|
|
|
|
|
64
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
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 sheet.
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 sheet. 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. The $0.8 million premium paid to
retire the debentures was included on the consolidated statement
of operations for the year ended December 31, 2006, as a
component of expense of early extinguishment of debt. At
December 31, 2008 and 2007, debentures due the Trust
totaled $30.8 million.
|
|
8.
|
Change in
Executive Officers
|
In February 2008, the President and Chief Executive Officer of
the Company, 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.
Also in February 2008, the board of directors granted 5,769
restricted shares of common stock and 52,734 options to purchase
common stock in connection with the appointment of the
Companys new President, Chief Executive Officer and
director. Under the terms of the award, the options and units
issued will vest 25% each year for four years. Both equity
awards were based on a grant date price of $7.80. On the grant
date, the options had a fair value of $2.53 per share, based on
the Black-Scholes options pricing model using the following
assumptions:
|
|
|
Dividend yield
|
|
0%
|
Expected volatility
|
|
34.6%
|
Forfeiture rate
|
|
0%
|
Risk free interest rate
|
|
3.62%
|
Expected options lives
|
|
4 years
|
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 as of 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.
65
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2008, there were 17,977,205 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.
In January 2009, the Company announced it had adopted a
shareholder rights plan as approved by the board of directors.
At the close of business on February 2, 2009, the Company
distributed one right with respect to each outstanding share of
its common stock. These rights are generally not exercisable and
will trade with the shares of the Companys common stock.
Under the plan, these rights will generally become exercisable
if a person or group becomes an acquiring person by
acquiring beneficial ownership of 20% or more of the
Companys common stock or commencing a tender or exchange
offer for 20% or more of the Companys common stock.
Subject to extension, the rights plan will continue in effect
until February 1, 2011, unless earlier redeemed or amended
by the Company. The issuance of the rights will have no dilutive
effect and will not impact reported earnings per share.
Share
Repurchases
In September 2007, the Company announced a common stock
repurchase program for up to $10 million. During 2007, the
Company repurchased 924,200 shares for an aggregate cost of
$9.1 million. During January 2008, the Company repurchased
93,000 shares for an aggregate cost of $0.9 million,
completing that program.
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.
Repurchases during 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Repurchase
|
|
Period
|
|
Shares
|
|
|
Price
|
|
|
1/1/08 1/31/08
|
|
|
93,000
|
|
|
$
|
9.58
|
|
12/1/08 12/31/08
|
|
|
303,000
|
|
|
|
2.95
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
396,000
|
|
|
$
|
4.51
|
|
|
|
|
|
|
|
|
|
|
Stock
Incentive Plans
The 1998 Stock Incentive Plan and the 2006 Stock Incentive Plan
(the Plans) authorize the grant or issuance of
various option or other awards including stock appreciation
rights (SARs), restricted stock grants and other
stock-based compensation. The plans were approved by the
shareholders of the Company. The 2006 plan allows awards up to a
maximum number of 1.0 million shares, subject to
adjustments for stock splits, stock dividends and
66
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 will no longer grant or issue
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, 2008, there were 403,289 shares of common
stock available for issuance pursuant to future stock option
grants or other awards under the 2006 plan.
Effective January 1, 2006, the Company adopted the
provisions of SFAS 123(R) Share Based Payments
for accounting for stock based compensation, including options
and other awards issued under its stock incentive plan and
shares issued under the employee stock purchase plan. 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
expected life of the option. During 2008, 2007 and 2006, the
following weighted-average assumptions were used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted-average grant date fair value of options granted
|
|
$
|
8.52
|
|
|
$
|
4.36
|
|
|
$
|
4.18
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
34
|
%
|
|
|
33
|
%
|
|
|
34
|
%
|
Forfeiture rate
|
|
|
4
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk free interest rates
|
|
|
4.12
|
%
|
|
|
4.85
|
%
|
|
|
5.02
|
%
|
Expected option lives
|
|
|
4 years
|
|
|
|
4 years
|
|
|
|
4 years
|
|
Under SFAS No. 123(R), 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. The Company elected
to use the modified prospective transition method and has
applied the provisions of SFAS No. 123(R) to new
awards and to awards modified, repurchased or cancelled after
January 1, 2006. Stock-based compensation expense
recognized under SFAS No. 123(R) during 2008, 2007 and
2006 was approximately $2.5 million, $0.8 million and
$0.6 million, respectively. Stock-based compensation
expense recorded in 2008 includes expense recorded in February
upon the retirement of the Companys former President and
Chief Executive Officer, as discussed above in Note 8. In
addition, the Company recognized tax benefits related to the
exercise of stock options of $0.2 million and
$0.3 million during 2007 and 2006, respectively, with no
options having been exercised during 2008. As options and
restricted stock units vest, the Company expects to recognize
approximately $1.5 million in additional compensation
expense as required by SFAS No. 123(R), including
$0.6 million during 2009.
For options issued in 2004 and 2005, 50% vest four years after
grant date with the remained 50% vesting the fifth year. This
vesting schedule will change if, between the two-year
anniversary and the four year anniversary of the option grant
date, the stock price of the common stock reaches the following
target levels (measured as a percentage increase over the
exercise price) for 60 consecutive trading days. During 2008,
25% of the options granted in 2004, or 32,500 options excluding
the impact of option acceleration discussed above in
Note 8, vested and became eligible for exercise in
accordance with the following provisions:
|
|
|
|
|
|
|
Percent of
|
|
|
|
Options
|
|
Stock Price Increase
|
|
Shares Vested
|
|
|
100%
|
|
|
25
|
%
|
200%
|
|
|
50
|
%
|
67
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2008, the board of directors granted 334,212 options to
purchase common stock to executive officers and other key
employees. These options, as well as those issued in 2007 and
2006, vest 25% each year for four years with no stock price
acceleration provision. During 2008, 24,556 options granted in
2007 and 20,112 options granted in 2006, excluding the impact of
option acceleration discussed above in Note 8, vested and
became eligible for exercise.
A summary of stock option activity at December 31, 2008, is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Balance, January 1, 2008
|
|
|
1,276,534
|
|
|
$
|
7.98
|
|
Options granted
|
|
|
334,212
|
|
|
$
|
8.52
|
|
Options forfeited
|
|
|
(299,531
|
)
|
|
$
|
10.19
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
1,311,215
|
|
|
$
|
7.61
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2008
|
|
|
785,412
|
|
|
$
|
6.88
|
|
|
|
|
|
|
|
|
|
|
No options were exercised during 2008. During 2007 and 2006, the
total intrinsic value of the 81,668 and 60,526 stock options
exercised, respectively, was $0.5 million and
$0.3 million. From those exercises, the Company issued new
shares of common stock and received approximately
$0.5 million and $0.4 million in gross proceeds.
Additional information regarding stock options outstanding and
exercisable as of December 31, 2008, is presented below.
Total unrecognized stock-based compensation expense related to
non-vested stock options, as of December 31, 2008, was
approximately $1.2 million before the impact of income
taxes and is expected to be recognized over a weighted average
period of 33 months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Contractual
|
|
|
Expiration
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Number
|
|
|
Exercise
|
|
|
Intrinsic
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Date
|
|
|
Price
|
|
|
Value(1)
|
|
|
Exercisable
|
|
|
Price
|
|
|
Value(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
5.10 6.07
|
|
|
568,857
|
|
|
|
3.40
|
|
|
|
2011-2014
|
|
|
$
|
5.31
|
|
|
$
|
|
|
|
|
504,857
|
|
|
$
|
5.34
|
|
|
$
|
|
|
7.05 7.80
|
|
|
248,878
|
|
|
|
5.31
|
|
|
|
2009-2018
|
|
|
|
7.52
|
|
|
|
|
|
|
|
114,500
|
|
|
|
7.47
|
|
|
|
|
|
8.31 8.80
|
|
|
283,205
|
|
|
|
7.81
|
|
|
|
2010-2018
|
|
|
|
8.71
|
|
|
|
|
|
|
|
50,219
|
|
|
|
8.51
|
|
|
|
|
|
10.88 10.94
|
|
|
24,455
|
|
|
|
1.92
|
|
|
|
2009-2016
|
|
|
|
10.93
|
|
|
|
|
|
|
|
21,469
|
|
|
|
10.93
|
|
|
|
|
|
12.21 15.00
|
|
|
185,760
|
|
|
|
6.50
|
|
|
|
2009-2017
|
|
|
|
12.64
|
|
|
|
|
|
|
|
94,367
|
|
|
|
12.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,311,155
|
|
|
|
5.12
|
|
|
|
2009-2018
|
|
|
$
|
7.61
|
|
|
$
|
|
|
|
|
785,412
|
|
|
$
|
6.88
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2008, the Companys closing stock
price was $2.38 and therefore below the exercise price of all
outstanding options on that date. |
In 2008, 2007 and 2006, the Company granted 36,125, 18,670 and
18,389 unvested restricted stock units, respectively, to
executive officers and other key employees, all 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 1%
of total restricted stock units granted have been forfeited.
During 2008, 21,576 restricted shares were issued and are
outstanding. Under the terms of the plan and upon vesting, 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. In
2008, we repurchased 552 shares at a weighted average of
$7.72 per share to cover the participants tax liability.
68
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2008 and 2007, there were 48,866 and
36,169 unvested shares outstanding, respectively. The
Companys closing stock price at December 31, 2008 was
$2.38, the value of which was below the grant date prices of all
unvested restricted stock units outstanding as of that date.
During 2008, 2007 and 2006, the Company recognized approximately
$130,000, $110,000 and $23,000, respectively, in compensation
expense related to these grants, and will record an additional
$0.3 million over the remaining vesting periods. The 2008
expense of $130,000 excludes the impact of option acceleration
and modification discussed above in Note 9.
During the years ended December 31, 2008, 2007 and 2006,
17,160, 9,234 and 6,288 shares of common stock,
respectively, were issued in aggregate to non-management
directors as compensation for service. During 2008, 2007 and
2006, the Company recognized compensation expense of
approximately $0.2 million, $0.1 million and
$0.1 million, respectively, upon issuance.
Employee
Stock Purchase Plan
In 1998, the Company adopted an employee stock purchase plan
(the 1998 ESPP) to assist its employees in acquiring
a stock ownership interest in the Company at a discount. Under
the ESPP, 300,000 shares of common stock were authorized
for purchase, of which 64,993 shares remained available at
the time the ESPP terminated on December 31, 2007, in
accordance with its terms. The 64,993 shares included
8,515 shares issued in January 2008, for which the Company
had previously recognized approximately $0.1 million in
compensation expense for the discount, based on the grant date
fair value estimated in accordance with the provisions of
SFAS No. 123(R). During the years ended
December 31, 2007 and 2006, 19,246 and 22,400 shares,
respectively, were issued out of the ESPP, and approximately
$18,000 and $85,000 was recorded in compensation expense.
Due to the expiration of the current ESPP and upon shareholder
ratification at the annual shareholder meeting in May 2008, the
Company adopted a new employee stock purchase plan (the
2008 ESPP). The terms of the 2008 ESPP remained
essentially the same as its predecessor, with
300,000 shares of common stock authorized for purchase by
eligible employees at a discount through payroll deductions. No
employee may purchase more than $25,000 worth of shares in any
calendar year. As allowed under the 2008 ESPP, a participant may
elect to withdraw from the plan, effective for the purchase
period in progress at the time of the election with all
accumulated payroll deductions returned to the participant at
the time of withdrawal. The common stock will be offered during
twenty consecutive six-month periods, with the purchase periods
beginning on the first day and ending on the last day of each
subsequent six-month period. The first period began on
January 1, 2008 and ended on June 30, 2008, and
13,750 shares were issued out of the plan in July 2008.
During 2008, the Company recorded approximately $38,000 in
compensation expense associated with the plan.
Minority
Interest and Operating Partnership Units
As discussed above in Note 1, the Company is a general
partner of RLHLP and at December 31, 2008, 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, 2008 and 2007, 44,837 OP Units held by
limited partners remained outstanding.
In September 2007, as partial consideration for the sale of a
commercial office complex discussed below in Note 19, the
Company accepted 97,826 OP Units held by limited partners
at a value of $9.27 per share, based upon the trading price of
the Companys common stock five days before the sale. This
transaction resulted in a non-cash adjustment of the minority
interest balance of $0.3 million and an increase of
$0.6 million to property and equipment as a result of the
step-up in
value of the Companys investment in RLHLP.
69
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Major components of the income tax (benefit) expense for the
years ended December 31, 2008, 2007 and 2006, are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal benefit
|
|
$
|
(225
|
)
|
|
$
|
(502
|
)
|
|
$
|
(2,441
|
)
|
State (benefit) expense
|
|
|
(49
|
)
|
|
|
124
|
|
|
|
(60
|
)
|
Deferred (benefit) expense
|
|
|
(928
|
)
|
|
|
3,036
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,202
|
)
|
|
|
2,658
|
|
|
|
(1,663
|
)
|
Amount reflected as a component of discontinued operations
|
|
|
|
|
|
|
(451
|
)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(1,202
|
)
|
|
$
|
2,207
|
|
|
$
|
(1,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
(Benefit) provision at federal statutory rate
|
|
$
|
(988
|
)
|
|
|
(34.0
|
)%
|
|
$
|
2,960
|
|
|
|
34.0
|
%
|
|
$
|
(761
|
)
|
|
|
(34.0
|
)%
|
State tax (benefit) expense
|
|
|
(49
|
)
|
|
|
(1.7
|
)%
|
|
|
124
|
|
|
|
1.4
|
%
|
|
|
(252
|
)
|
|
|
(11.3
|
)%
|
Effect of tax credits
|
|
|
(274
|
)
|
|
|
(9.4
|
)%
|
|
|
(266
|
)
|
|
|
(3.1
|
)%
|
|
|
(40
|
)
|
|
|
(1.8
|
)%
|
Tax exempt interest
|
|
|
(39
|
)
|
|
|
(1.3
|
)%
|
|
|
(173
|
)
|
|
|
(2.0
|
)%
|
|
|
(260
|
)
|
|
|
(11.6
|
)%
|
Real estate tax-free gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(338
|
)
|
|
|
(15.1
|
)%
|
Other
|
|
|
148
|
|
|
|
5.0
|
%
|
|
|
13
|
|
|
|
0.1
|
%
|
|
|
(12
|
)
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,202
|
)
|
|
|
(41.4
|
)%
|
|
|
2,658
|
|
|
|
30.4
|
%
|
|
|
(1,663
|
)
|
|
|
(74.3
|
)%
|
Amount reflected as a component of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(451
|
)
|
|
|
(15.2
|
)%
|
|
|
30
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(1,202
|
)
|
|
|
(41.4
|
)%
|
|
$
|
2,207
|
|
|
|
15.2
|
%
|
|
$
|
(1,633
|
)
|
|
|
(73.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the net deferred tax assets and
liabilities at December 31, 2008 and 2007, are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Property and equipment
|
|
$
|
|
|
|
$
|
17,878
|
|
|
$
|
|
|
|
$
|
16,927
|
|
Brand name
|
|
|
|
|
|
|
2,463
|
|
|
|
|
|
|
|
2,476
|
|
Other intangible assets
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
359
|
|
Rental income
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
87
|
|
Gain on sale leaseback
|
|
|
2,074
|
|
|
|
|
|
|
|
2,254
|
|
|
|
|
|
Tax credit carryforwards
|
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal net operating losses
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
748
|
|
|
|
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,031
|
|
|
$
|
20,397
|
|
|
$
|
2,555
|
|
|
$
|
19,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 48 requires the Company to recognize in its financial
statements uncertainties in tax positions taken that may not be
sustained upon examination by the taxing authorities. Upon
adoption of FIN 48 in January 2007 and through 2008, the
Company determined that no adjustments were necessary in
implementing FIN 48.
|
|
11.
|
Operating
Lease Income
|
The Company leases commercial retail and office space to various
tenants over terms ranging through 2017. 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, 2008, 2007 and 2006, from
continuing operations was approximately $3.6 million,
$2.8 million and $1.3 million, respectively, which
included contingent rents of approximately $0.4 million,
$0.3 million and $0.2 million, respectively, for each
of the three years. Future minimum lease income under existing
non-cancelable leases as of December 31, 2008, is
anticipated to be as follows (in thousands):
|
|
|
|
|
2009
|
|
$
|
2,549
|
|
2010
|
|
|
2,156
|
|
2011
|
|
|
1,617
|
|
2012
|
|
|
754
|
|
2013
|
|
|
84
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,160
|
|
|
|
|
|
|
|
|
12.
|
Operating
Lease Commitments
|
Total future minimum payments due under all current term
operating leases at December 31, 2008, were as indicated
below (in thousands). Through 2012, the amounts shown are net of
$11.9 million of sublease income to be earned annually.
Thereafter, annual sublease income will be $11.3 million
through 2020. Total rent expense from continuing operations, net
of sublease income under the leases for the years ended
December 31, 2008, 2007, and 2006, respectively, was
$8.0 million, $7.0 million and $7.0 million,
respectively, which included $7.0 million,
$6.5 million and $6.4 million of hotel facility and
land lease expense, as presented on the Consolidated Statements
of Operations.
71
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
2009
|
|
$
|
7,097
|
|
2010
|
|
|
7,329
|
|
2011
|
|
|
5,646
|
|
2012
|
|
|
5,203
|
|
2013
|
|
|
4,819
|
|
Thereafter
|
|
|
31,521
|
|
|
|
|
|
|
|
|
$
|
61,615
|
|
|
|
|
|
|
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
the Company. The master lease agreement requires minimum monthly
payments of $1.3 million plus contingent rents based on
gross receipts from the 17 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.
Through June 2007, the Company operated a leased hotel property,
the Red Lion Hotel Sacramento, which is included under the
master lease agreement discussed in the above paragraph. In July
2007, the Company entered into an agreement to turn over
operations and sublease this hotel to an unrelated third party
with an initial lease term expiring in 2020. The sublease
agreement provides for annual sublease payments to the Company
of $1.4 million, which reduces the Companys
consolidated annual hotel facility and land lease expense by
that amount. In addition as part of the agreement, the Company
received deferred lease income of $3.0 million, which is
being recognized over the life of the sublease agreement.
The third-party subleasing the hotel has entered into a
franchise agreement and committed to make a multi-million dollar
investment to further improve and reposition the hotel. As part
of the agreement, the Company committed to $3.0 million in
tenant improvements and as of December 31, 2008, had spent
all of the agreed upon funds. Also, the sublease provides the
third party a two-year option to purchase the property.
As discussed in Note 3, 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.
Beyond the monthly payments through April 2011, the Company has
not included any additional potential further lease commitments
related to the Anaheim property in the table above.
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, the expense of which
has been included in the table above.
|
|
13.
|
Related-Party
Transactions
|
The Company conducted various business transactions during 2008,
2007, and 2006 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 2008, 2007, and 2006 was $0.3 million,
$0.3 million and $0.5 million, respectively.
72
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2008 and 2007, 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, 2008 and
2007, total cash and investments held was approximately
$0.5 million and $0.9 million, respectively, with
outstanding notes payable totaling approximately
$2.1 million and $2.8 million, respectively. Net
interest expense of $0.1 million, $0.2 million and
$0.5 million, respectively, related to an outstanding note
payable to this bank was recorded during 2008, 2007 and 2006.
Additionally, up until the sale of the real estate management
business in April 2006 discussed below in Note 18, the
Company managed the banks corporate office building under
the terms of a management agreement. Aggregate management fees
received from this agreement during 2006 were approximately
$43,000.
|
|
14.
|
Employee
Defined Contribution Plan
|
The Company maintains the Red Lion Hotels Corporation Amended
and Restated Retirement and Savings Plan, the Companys
401(k) plan, to which it and substantially all employees may
contribute. The Company generally makes contributions of up to
3% of an employees compensation based on a vesting
schedule and eligibility requirements set forth in the plan
document. During 2007 and 2006, the Company made contributions
to the plan of approximately $0.4 million each year. The
Company did not make a contribution to the plan for 2008.
|
|
15.
|
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, 2008, of the underlying trust
preferred securities, as discussed in Note 7, 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash
|
|
$
|
22,112
|
|
|
$
|
22,112
|
|
|
$
|
19,483
|
|
|
$
|
19,483
|
|
Accounts receivable
|
|
$
|
11,337
|
|
|
$
|
11,337
|
|
|
$
|
10,330
|
|
|
$
|
10,330
|
|
Cash included in other assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,151
|
|
|
$
|
2,151
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities, excluding debt
|
|
$
|
24,384
|
|
|
$
|
24,384
|
|
|
$
|
21,475
|
|
|
$
|
21,475
|
|
Long-term debt
|
|
$
|
119,331
|
|
|
$
|
115,466
|
|
|
$
|
83,220
|
|
|
$
|
84,565
|
|
Debentures
|
|
$
|
30,825
|
|
|
$
|
14,798
|
|
|
$
|
30,825
|
|
|
$
|
29,342
|
|
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.
As of December 31, 2008, the Company had three operating
segments hotels, franchise and entertainment. The
other segment consists primarily of miscellaneous
revenues and expenses, cash and cash equivalents, certain
receivables and certain property and equipment which are not
specifically associated with an operating segment.
73
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Management reviews and evaluates the operating segments
exclusive of interest expense; therefore, it has not been
allocated to the segments.
The Company has historically owned certain commercial properties
and has also engaged in traditional real estate related
services, including developing, managing and acting as a broker
for sales and leases of commercial and
multi-unit
residential properties (collectively referred to as the real
estate management business). Together, these operations
comprised the real estate segment. Effective April 30,
2006, the Company divested the real estate management business.
In addition, consistent with company strategy of divesting
non-core assets, during the fourth quarter of 2006 the Company
listed one of its two remaining wholly owned commercial real
estate properties for sale and classified its results of
operations within discontinued operations for all periods
presented. As discussed below in Note 19, the Company sold
the commercial office building in September 2007. The remaining
operations of that segment are included in Other.
The franchise segment had intra-segment revenues with the hotels
segment for management fees which were eliminated in the
consolidated financial statements. Likewise, the entertainment
segment had inter-segment revenues which were eliminated in the
consolidated financial statements. Management reviews and
evaluates the operations of all of its segments including the
inter-segment and intra-segment revenues. 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
170,552
|
|
|
$
|
166,168
|
|
|
$
|
154,817
|
|
Franchise
|
|
|
1,862
|
|
|
|
2,756
|
|
|
|
2,853
|
|
Entertainment
|
|
|
12,016
|
|
|
|
14,839
|
|
|
|
10,791
|
|
Other
|
|
|
3,140
|
|
|
|
3,130
|
|
|
|
1,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
187,570
|
|
|
$
|
186,893
|
|
|
$
|
170,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
16,657
|
|
|
$
|
18,668
|
|
|
$
|
15,568
|
|
Franchise
|
|
|
950
|
|
|
|
1,467
|
|
|
|
1,083
|
|
Entertainment
|
|
|
314
|
|
|
|
1,609
|
|
|
|
1,168
|
|
Other
|
|
|
(13,122
|
)
|
|
|
(6,366
|
)
|
|
|
(4,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,799
|
|
|
$
|
15,378
|
|
|
$
|
13,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels(1,2)
|
|
$
|
51,909
|
|
|
$
|
24,271
|
|
|
$
|
29,792
|
|
Franchise
|
|
|
3,088
|
|
|
|
194
|
|
|
|
230
|
|
Entertainment
|
|
|
218
|
|
|
|
905
|
|
|
|
227
|
|
Other
|
|
|
1,162
|
|
|
|
762
|
|
|
|
1,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,377
|
|
|
$
|
26,132
|
|
|
$
|
32,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
15,623
|
|
|
$
|
13,634
|
|
|
$
|
10,651
|
|
Franchise
|
|
|
781
|
|
|
|
570
|
|
|
|
943
|
|
Entertainment
|
|
|
469
|
|
|
|
418
|
|
|
|
511
|
|
Other
|
|
|
2,443
|
|
|
|
1,906
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,316
|
|
|
$
|
16,528
|
|
|
$
|
12,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Hotels
|
|
$
|
316,291
|
|
|
$
|
281,117
|
|
Franchise
|
|
|
15,983
|
|
|
|
18,260
|
|
Entertainment
|
|
|
5,530
|
|
|
|
6,279
|
|
Other
|
|
|
42,968
|
|
|
|
38,853
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
380,772
|
|
|
$
|
344,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a hotel asset acquisition in the second quarter of 2008
of $25.3 million. |
|
(2) |
|
Includes a hotel asset acquisition in the fourth quarter of 2007
for total costs of $8.3 million. |
|
|
17.
|
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, 2008, 2007 and 2006 (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Numerator basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
(1,704
|
)
|
|
$
|
5,231
|
|
|
$
|
(520
|
)
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
819
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,704
|
)
|
|
$
|
6,050
|
|
|
$
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
18,234
|
|
|
|
19,134
|
|
|
|
16,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
18,234
|
|
|
|
19,506
|
|
|
|
16,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.09
|
)
|
|
$
|
0.27
|
|
|
$
|
(0.03
|
)
|
Income on discontinued operations
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.09
|
)
|
|
$
|
0.32
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 and 2006, the effect of converting
44,837 and 142,664 of the then outstanding OP Units was
considered anti-dilutive due to the losses during those periods
and excluded from the above calculations. At December 31,
2007, the effect of converting the 44,837 outstanding
OP Units was considered dilutive and included in the above
calculations.
At December 31, 2008, 2007 and 2006, 1,311,215, 1,276,534
and 1,256,874 options to purchase common shares, respectively,
were outstanding. At December 31, 2007, 290,570 of the
1,276,534 options to purchase common shares outstanding as of
that date were considered dilutive and included in the above
calculation. At December 31, 2008 and 2006, all of the
options to purchase common shares were considered anti-dilutive
and excluded from the above calculations. At December 31,
2007, 36,169 of the total outstanding but unissued shares of
restricted stock units were dilutive and included within the
above calculation. At December 31, 2008 and 2006, all
48,866 and 25,657 outstanding but unvested restricted stock
units, respectively, were considered anti-dilutive.
75
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Real
Estate Management Business
|
On April 30, 2006, the Company divested on a tax-free basis
the real estate management portion of its real estate division
for $1.1 million, in exchange for 94,311 shares of
unrestricted Red Lion Hotels Corporation common stock that was
subsequently retired. The transaction resulted in a gain on sale
of approximately $1.0 million. The new entity continues to
manage the Companys office and retail real estate assets
through specific management agreements.
|
|
19.
|
Assets
Held For Sale and Discontinued Operations
|
From November 2004 through 2007, the Company divested
non-strategic assets including ten of its owned hotels, certain
commercial office buildings and certain other non-core
properties including condominium units and certain parcels of
excess land (collectively referred to as the divestment
properties). Each of the divestment properties met the
criteria to be classified as an asset held for sale. The
activities of the hotels and commercial office buildings were
considered discontinued operations under generally accepted
accounting principles and have been separately disclosed on the
consolidated statement of operations, comparative for all
periods presented when they existed. Likewise, the assets and
liabilities of the business units have been segregated and
separately stated on the consolidated balance sheet for all
periods presented when they existed. Depreciation of these
assets, if previously appropriate, was suspended.
In 2006, the Company received approximately $15.8 million
in gross proceeds from the disposition of discontinued
operations, and recognized a loss on disposition of
$0.1 million, net of income tax expense. The Companys
one remaining hotel listed for sale and included in discontinued
operations, which was located in Kalispell, Montana, was sold
during the second quarter of 2007 for $3.9 million in gross
proceeds. In September 2007, the Company sold its remaining
commercial office complex for $13.3 million in a tax
advantaged transaction as a result of the surrender of
OP Units, resulting in a gain on the sale of
$1.9 million. The consideration for the sale was
$4.2 million in cash, 97,826 OP Units (for further
information, see Note 9), and the assumption of
$7.6 million of debt. The structure of the sale allowed a
portion of the tax on the gain to be deferred, further enhancing
the economic return to the Company. There were no remaining
discontinued operations as of December 31, 2008 or 2007.
Proceeds from the sales were used to finance the company-wide
hotel renovation program, to repay debt and for general
corporate purposes. The net impact on consolidated earnings from
the activities of discontinued operations resulted in income
from discontinued operations of $0.8 million in 2007,
compared to a loss of $0.1 million in 2006, net of income
tax expense.
76
RED LION
HOTELS CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the results of operations for discontinued
operations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Hotel
|
|
|
|
|
|
|
|
|
Hotel
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
Other
|
|
|
Combined
|
|
|
Properties
|
|
|
Other
|
|
|
Combined
|
|
|
Revenues
|
|
$
|
623
|
|
|
$
|
785
|
|
|
$
|
1,408
|
|
|
$
|
6,327
|
|
|
$
|
1,008
|
|
|
$
|
7,335
|
|
Operating expenses
|
|
|
(853
|
)
|
|
|
(546
|
)
|
|
|
(1,399
|
)
|
|
|
(5,918
|
)
|
|
|
(689
|
)
|
|
|
(6,607
|
)
|
Depreciation and amortization
|
|
|
(1
|
)
|
|
|
(25
|
)
|
|
|
(26
|
)
|
|
|
(7
|
)
|
|
|
(418
|
)
|
|
|
(425
|
)
|
Interest expense
|
|
|
|
|
|
|
(159
|
)
|
|
|
(159
|
)
|
|
|
(122
|
)
|
|
|
(69
|
)
|
|
|
(191
|
)
|
Interest income
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Income tax benefit (expense)
|
|
|
82
|
|
|
|
(20
|
)
|
|
|
62
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations
|
|
|
(148
|
)
|
|
|
35
|
|
|
|
(113
|
)
|
|
|
246
|
|
|
|
(168
|
)
|
|
|
78
|
|
Gain (loss) on disposal of discontinued business units
|
|
|
(396
|
)
|
|
|
1,841
|
|
|
|
1,445
|
|
|
|
(206
|
)
|
|
|
|
|
|
|
(206
|
)
|
Income tax benefit (expense)
|
|
|
140
|
|
|
|
(653
|
)
|
|
|
(513
|
)
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on disposal of discontinued business units
|
|
|
(256
|
)
|
|
|
1,188
|
|
|
|
932
|
|
|
|
(133
|
)
|
|
|
|
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(404
|
)
|
|
$
|
1,223
|
|
|
$
|
819
|
|
|
$
|
113
|
|
|
$
|
(168
|
)
|
|
$
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the above table, the comparability of the divestment
properties activity between periods is impacted by the
cessation of operations on the date of sale, as applicable.
77
|
|
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, 2008, 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, 2008, 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, 2008, based on these criteria.
For purposes of evaluating internal controls over financial
reporting, management determined that the internal controls over
financial reporting of the 478- room, full service Red Lion
Hotel Denver Southeast, which we acquired in May 2008 for
$25.3 million, including costs of the acquisition, would be
excluded from the internal control assessment as of
December 31, 2008, as permitted by the rules and
regulations of the Securities and Exchange Commission. During
2008, the Denver Southeast contributed approximately 3.4% of the
Companys total revenue and accounted for approximately
7.2% of total assets at December 31, 2008.
Our assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2008, has been
audited by BDO Seidman, 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 that has materially affected,
or is reasonably likely to materially affect, our internal
control over financial reporting.
78
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, 2008,
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 Hotel 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
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.
As indicated in the accompanying Managements Annual
Report on Internal Controls over Financial Reporting,
managements assessment of and conclusion on the
effectiveness of internal controls over financial reporting did
not include the internal controls of the Red Lion Hotel Denver
Southeast, which was acquired in May 2008 and which is included
in the consolidated balance sheet of Red Lion Hotels Corporation
as of December 31, 2008, and the related consolidated
statements of operations, changes in stockholders equity
and cash flows for the year then ended. The Red Lion Hotel
Denver Southeast constituted 7.2% of total assets as of
December 31, 2008, and 3.4% of total revenues for the year
then ended. Management did not assess the effectiveness of
internal control over financial reporting of the Red Lion Hotel
Denver Southeast because of the timing of the acquisition which
was competed in May 2008. Our audit of internal control over
financial reporting of Red Lion Hotels Corporation did not
include an evaluation of the internal controls over financial
reporting of the Red Lion Hotel Denver Southeast.
In our opinion, Red Lion Hotels Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO
criteria.
79
We have also 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, 2008 and 2007, 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, 2008 and our report dated March 12, 2009
expressed an unqualified opinion thereon.
BDO Seidman, LLP
Spokane, Washington
March 12, 2009
|
|
Item 9B.
|
Other
Information
|
Not applicable.
PART III
|
|
Item 10.
|
Directors
and Executive Officers and Corporate Governance
|
A portion of the information required by this item is contained
in, and incorporated by reference from, the proxy statement for
our 2009 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.
See Item 4A of this Annual Report on
Form 10-K
for information regarding our directors and executive officers.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is contained in, and
incorporated by reference from, the Proxy Statement for our 2009
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 2009 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 2009
Annual Meeting of Shareholders under the captions Certain
Relationships and Related Transactions, and
Corporate Governance Director
Independence.
80
|
|
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 2009
Annual Meeting of Shareholders under the caption Principal
Accountant Fees and Services.
|
|
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
|
|
Amended and Restated Articles of Incorporation, as amended.
|
|
3
|
.2(1)
|
|
Amended and Restated By-Laws
|
|
4
|
.1(2)
|
|
Specimen Common Stock Certificate
|
|
4
|
.2(3)
|
|
Rights Agreement dated January 27, 2009 between Red Lion Hotels
Corporation and American Stock Transfer and Trust Company, as
Rights Agent
|
|
4
|
.3(4)
|
|
Certificate of Trust of Red Lion Hotels Capital Trust
|
|
4
|
.4(4)
|
|
Declaration of Trust of Red Lion Hotels Capital Trust
|
|
4
|
.5(5)
|
|
Amended and Restated Declaration of Trust of Red Lion Hotels
Capital Trust
|
|
4
|
.6(5)
|
|
Indenture for 9.5% Junior Subordinated Debentures Due February
24, 2044
|
|
4
|
.7(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
|
.8(5)
|
|
Form of 9.5% Junior Subordinated Debenture Due February 24, 2044
(included in Exhibit 4.6 as Exhibit A)
|
|
4
|
.9(5)
|
|
Trust Preferred Securities Guarantee Agreement dated February
24, 2004
|
|
4
|
.10(5)
|
|
Trust Common Securities Guarantee Agreement dated February 24,
2004
|
|
Executive Compensation Plans and Agreements
|
|
10
|
.1(6)
|
|
1998 Employee Stock Purchase Plan
|
|
10
|
.2(7)
|
|
1998 Stock Incentive Plan
|
|
10
|
.3(6)
|
|
Form of Restricted Stock Award Agreement for the 1998 Stock
Incentive Plan
|
|
10
|
.4(8)
|
|
Form of Notice of Grant of Stock Options and Option Agreement
for the 1998 Stock Incentive Plan
|
|
10
|
.5(9)
|
|
2006 Stock Incentive Plan
|
|
10
|
.6(10)
|
|
Form of Restricted Stock Unit Agreement Notice of Grant
for the 2006 Stock Incentive Plan
|
|
10
|
.7(11)
|
|
Form of Notice of Grant of Stock Options and Option Agreement
for the 2006 Stock Incentive Plan
|
|
10
|
.8(12)
|
|
2008 Employee Stock Purchase Plan
|
81
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.9(13)
|
|
Executive Employment Agreement dated April 3, 2003 between the
Registrant and Arthur M. Coffey
|
|
10
|
.10(11)
|
|
Executive Employment Agreement dated August 10, 2006 between the
Registrant and Thomas McKeirnan
|
|
10
|
.11(14)
|
|
Executive Employment Agreement dated November 22, 2004 between
the Registrant and Anupam Narayan
|
|
10
|
.12(15)
|
|
Executive Employment Agreement dated July 24, 2006 between the
Registrant and John M. Taffin
|
|
10
|
.13(16)
|
|
Executive Officers Variable Pay Plan Effective January 1, 2005
|
|
10
|
.14(17)
|
|
Executive Employment Agreement dated April 12, 2007 between the
Registrant and Arthur M. Coffey
|
|
10
|
.15(17)
|
|
Executive Employment Agreement dated April 12, 2007 between the
Registrant and Thomas McKeirnan
|
|
10
|
.16(17)
|
|
Executive Employment Agreement dated April 12, 2007 between
between the Registrant and Anupam Narayan
|
|
10
|
.17(17)
|
|
Executive Employment Agreement dated April 12, 2007 between the
Registrant and John M. Taffin
|
|
10
|
.18
|
|
Summary Sheet for Director Compensation and Executive Cash
Compensation and Performance Criteria Under Executive Officers
Variable Pay Plan
|
|
10
|
.19(18)
|
|
Retirement Agreement dated February 11, 2008 between the
Registrant and Arthur M. Coffey
|
|
10
|
.20(19)
|
|
Executive Employment Agreement dated April 22, 2008 between the
Registrant and Thomas L. McKeirnan
|
|
10
|
.21(19)
|
|
Executive Employment Agreement dated April 22, 2008 between the
Registrant and Anupam Narayan
|
|
10
|
.22(19)
|
|
Executive Employment Agreement dated June 5, 2008 between the
Registrant and John M. Taffin
|
|
10
|
.23(19)
|
|
Executive Employment Agreement dated June 5, 2008 between the
Registrant and Anthony F. Dombrowik
|
|
10
|
.24(19)
|
|
Executive Employment Agreement dated June 5, 2008 between the
Registrant and George H. Schweitzer
|
|
Other Material Contracts
|
|
10
|
.25(20)
|
|
Amended and Restated Agreement of Limited Partnership of Red
Lion Hotels Limited Partnership dated November 1, 1997
|
|
10
|
.26(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
|
.27(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
|
.28(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
|
.29(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
|
.30(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
|
.31(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
|
.32(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
|
.33(21)
|
|
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
|
.34(21)
|
|
Ninth Amendment dated February 2, 2006 to Amended and Restated
Agreement of Limited Partnership of Red Lion Hotels Limited
Partnership dated November 1, 1997
|
82
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.35(22)
|
|
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
|
.36(23)
|
|
Purchase and Sale Agreement dated December 17, 1999 with respect
to WC Coast Holdings, Inc.
|
|
10
|
.37(23)
|
|
Membership Interest Purchase Agreement dated December 17, 1999
with respect to October Hotel Investors, LLC
|
|
10
|
.38(23)
|
|
First Amendment dated December 30, 1999 to Membership Interest
Purchase Agreement with respect to October Hotel Investors, LLC
|
|
10
|
.39(24)
|
|
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
|
.40(24)
|
|
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
|
.41(24)
|
|
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.
|
|
10
|
.42(25)
|
|
Credit Agreement dated September 13, 2006 among the Registrant,
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.
|
|
21
|
|
|
List of Subsidiaries of Red Lion Hotels Corporation
|
|
23
|
|
|
Consent of BDO Seidman, LLP
|
|
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)
|
Footnotes to index to exhibits:
|
|
|
(1) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 10-K
filed by us on March 31, 2003. |
|
(2) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form S-3/A
filed by us on May 15, 2006. |
|
(3) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 8-K
filed by us on January 27, 2009. |
|
(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. |
83
|
|
|
(6) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form S-1
filed by us on January 20, 1998. |
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(7) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 10-Q
filed by us on May 15, 2001. |
|
(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-Q
filed by us on August 14, 2003. |
|
(14) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 10-Q
filed by us on November 22, 2004. |
|
(15) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 8-K
filed by us on July 26, 2006. |
|
(16) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 8-K
filed by us on March 23, 2005. |
|
(17) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 10-Q
filed by us on May 9, 2007. |
|
(18) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 8-K
filed by us on February 14, 2008. |
|
(19) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 10-Q
filed by us on August 7, 2008. |
|
(20) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form S-1/A
filed by us on February 27, 1998. |
|
(21) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 8-K
filed by us on February 8, 2006. |
|
(22) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 8-K
filed by us on February 22, 2006. |
|
(23) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 8-K
filed by us on January 19, 2000. |
|
(24) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 10-Q
filed by us on August 14, 2003. |
|
(25) |
|
Previously filed with the Securities and Exchange Commission as
an exhibit to the
Form 8-K
filed by us on September 18, 2006. |
84
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
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Signature
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Title
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Date
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By: /s/ ANUPAM
NARAYAN
Anupam
Narayan
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President, Chief Executive Officer and Director
(Principal Executive Officer)
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March 12, 2009
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By: /s/ ANTHONY
F. DOMBROWIK
Anthony
F. Dombrowik
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Senior Vice President,
Chief Financial Officer
(Principal Financial
and Accounting Officer)
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March 12, 2009
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By: /s/ DONALD
K. BARBIERI
Donald
K. Barbieri
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Chairman of the Board of Directors
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March 12, 2009
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By: /s/ RICHARD
L. BARBIERI
Richard
L. Barbieri
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Director
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March 12, 2009
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By: /s/ RYLAND
P. DAVIS
Ryland
P. Davis
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Director
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March 12, 2009
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By: /s/ JON
E. ELIASSEN
Jon
E. Eliassen
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Director
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March 12, 2009
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By: /s/ PETER
F. STANTON
Peter
F. Stanton
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Director
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March 12, 2009
|
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By: /s/ RONALD
R. TAYLOR
Ronald
R. Taylor
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Director
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March 12, 2009
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85