Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 10-Q
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172020
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-13957
 
RED LION HOTELS CORPORATION
(Exact name of registrant as specified in its charter)

Washington91-1032187
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1550 Market St. #350
Denver, Colorado
#425		DenverColorado80202
(Address of principal executive offices)Principal Executive Offices)(Zip Code)
Registrant’s Telephone Number, Including Area Code:
(509) 459-6100
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockRLHNew York Stock Exchange

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  ý☒    No  o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ý☒  No  o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “accelerated“large accelerated filer," "accelerated filer,” "smaller reporting company" and large accelerated filer”"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero☐Accelerated filerý☒
Non-accelerated filero☐Smaller reporting companyo☒
Emerging growth companyo☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o☐    No  ý☒
As of October 31, 2017,November 2, 2020, there were 23,626,11125,464,735 shares of the registrant’s common stock outstanding.



TABLE OF CONTENTS
 
Item No.DescriptionPage No.
Item No.DescriptionPage No.
PART I – FINANCIAL INFORMATION
Item 1
Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016
3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2017 and 2016Loss
4
Condensed Consolidated Statements of Stockholders' Equity
5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016
56
Condensed Notes to Condensed Consolidated Financial Statements
7
Item 2
3322
Item 3
4535
Item 4
4535
PART II – OTHER INFORMATION
Item 1
4635
Item 1A
4636
Item 2
4637
Item 3
4637
Item 4
4637
Item 5
4637
Item 6
4738
4839





2

PART I – FINANCIAL INFORMATION
Item 1.Financial Statements

Item 1.Financial Statements

RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 2017 and December 31, 2016(Unaudited)

  September 30,
2017		 December 31,
2016
  (In thousands, except per share data)
ASSETS    
Current assets:    
Cash and cash equivalents ($9,599 and $5,134 attributable to VIEs) $36,179
 $38,072
Restricted cash ($12,620 and $9,211 attributable to VIEs) 12,946
 9,537
Accounts receivable, net ($4,236 and $2,811 attributable to VIEs) 14,450
 9,196
Accounts receivable from related parties 1,824
 1,865
Notes receivable, net 1,572
 1,295
Inventories ($455 and $447 attributable to VIEs) 631
 596
Prepaid expenses and other ($1,141 and $1,008 attributable to VIEs) 5,156
 4,244
Assets held for sale 4,285
 5,585
Total current assets 77,043
 70,390
Property and equipment, net ($173,377 and $179,609 attributable to VIEs) 204,131
 210,485
Goodwill 9,404
 9,404
Intangible assets 51,306
 52,848
Other assets, net ($177 and $64 attributable to VIEs) 1,843
 1,408
Total assets $343,727
 $344,535
LIABILITIES    
Current liabilities:    
Accounts payable ($1,998 and $3,886 attributable to VIEs) $5,555
 $8,479
Accrued payroll and related benefits ($1,076 and $175 attributable to VIEs) 5,516
 4,590
Other accrued entertainment liabilities held for sale 6,757
 11,334
Other accrued liabilities ($2,749 and $1,656 attributable to VIEs) 6,087
 4,063
Long-term debt, due within one year ($24,422 and $1,469 attributable to VIEs) 24,422
 1,469
Contingent consideration for acquisition due to related party, due within one year 7,581
 6,768
Liabilities held for sale 739
 686
Total current liabilities 56,657
 37,389
Long-term debt, due after one year, net of debt issuance costs ($87,040 and $106,862 attributable to VIEs) 87,040
 106,862
Contingent consideration for acquisition due to related party, due after one year 4,944
 4,432
Deferred income and other long-term liabilities ($701 and $841 attributable to VIEs) 1,666
 2,293
Deferred income taxes 6,132
 5,716
Total liabilities 156,439
 156,692
     
Commitments and contingencies 

 

     
STOCKHOLDERS’ EQUITY    
RLH Corporation stockholders' equity:    
Preferred stock - 5,000,000 shares authorized; $0.01 par value; no shares issued or outstanding —
 —
Common stock - 50,000,000 shares authorized; $0.01 par value; 23,611,519 and 23,434,480 shares issued and outstanding 236
 234
Additional paid-in capital, common stock 173,341
 171,089
Accumulated deficit (16,901) (15,987)
Total RLH Corporation stockholders' equity 156,676
 155,336
Noncontrolling interest 30,612
 32,507
Total stockholders' equity 187,288
 187,843
Total liabilities and stockholders’ equity $343,727
 $344,535
September 30,
2020		December 31,
2019
 (In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents ($1,190 and $1,819 attributable to VIEs)$33,974 $29,497 
Restricted cash ($100 and $2,311 attributable to VIEs)100 2,311 
Accounts receivable ($184 and $1,033 attributable to VIEs), net of an allowance for doubtful accounts of $9,023 and $4,589, respectively10,772 15,143 
Notes receivable, net424 5,709 
Other current assets ($181 and $311 attributable to VIEs)4,258 5,849 
Total current assets49,528 58,509 
Property and equipment, net ($11,079 and $29,848 attributable to VIEs)32,422 68,668 
Operating lease right-of-use assets ($0 and $10,810 attributable to VIEs)5,000 48,283 
Goodwill18,595 18,595 
Intangible assets, net46,319 48,612 
Other assets, net ($0 and $703 attributable to VIEs)2,762 3,851 
Total assets$154,626 $246,518 
LIABILITIES
Current liabilities:
Accounts payable ($186 and $589 attributable to VIEs)$3,632 $5,510 
Accrued payroll and related benefits ($91 and $349 attributable to VIEs)1,103 2,709 
Other accrued liabilities ($223 and $455 attributable to VIEs)5,309 5,469 
Long-term debt, due within one year ($5,588 and $16,984 attributable to VIEs)5,588 16,984 
Operating lease liabilities, due within one year ($0 and $966 attributable to VIEs)1,521 4,809 
Total current liabilities17,153 35,481 
Long-term debt, due after one year, net of debt issuance costs ($0 and $5,576 attributable to VIEs)0 5,576 
Line of credit, due after one year0 10,000 
Operating lease liabilities, due after one year ($0 and $11,938 attributable to VIEs)4,770 46,592 
Deferred income and other long-term liabilities ($0 and $28 attributable to VIEs)762 1,105 
Deferred income taxes830 743 
Total liabilities23,515 99,497 
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY
RLH Corporation stockholders' equity:
Preferred stock - 5,000,000 shares authorized; $0.01 par value; 0 shares issued or outstanding0 0 
Common stock - 50,000,000 shares authorized; $0.01 par value; 25,402,241 and 25,148,005 shares issued and outstanding255 251 
Additional paid-in capital, common stock180,069 181,608 
Accumulated deficit(52,073)(36,875)
Total RLH Corporation stockholders' equity128,251 144,984 
Noncontrolling interest2,860 2,037 
Total stockholders' equity131,111 147,021 
Total liabilities and stockholders’ equity$154,626 $246,518 
The accompanying condensed notes are an integral part of thethese condensed consolidated financial statements.

3

RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)LOSS
For the Three and Nine Months Ended September 30, 2017 and 2016(Unaudited)
 Three Months EndedNine Months Ended
September 30,September 30,
 2020201920202019
 (In thousands, except per share data)
Revenue:
Royalty$4,058 $5,909 $11,999 $17,516 
Marketing, reservations and reimbursables5,271 8,300 15,549 22,632 
Other franchise692 2,016 2,167 3,772 
Company operated hotels3,262 16,633 11,062 43,839 
Other0 5 0 13 
Total revenues13,283 32,863 40,777 87,772 
Operating expenses:
Selling, general, administrative and other expenses4,748 8,401 25,783 22,452 
Company operated hotels2,961 12,673 11,778 36,750 
Marketing, reservations and reimbursables4,594 7,080 14,143 22,088 
Depreciation and amortization2,509 3,636 7,456 11,192 
Asset impairment729 5,382 2,489 5,382 
Loss (gain) on asset dispositions, net107 1 (7,454)45 
Transaction and integration costs860 201 2,260 436 
Total operating expenses16,508 37,374 56,455 98,345 
Operating loss(3,225)(4,511)(15,678)(10,573)
Other income (expense):
Interest expense(44)(1,699)(599)(3,690)
Loss on early retirement of debt0 0 (1,309)(164)
Other income, net2 44 249 121 
Total other income (expense)(42)(1,655)(1,659)(3,733)
Loss before taxes(3,267)(6,166)(17,337)(14,306)
Income tax expense (benefit)18 486 (586)676 
Net loss(3,285)(6,652)(16,751)(14,982)
Net loss attributable to noncontrolling interest148 2,980 1,553 4,040 
Net loss and comprehensive loss attributable to RLH Corporation$(3,137)$(3,672)$(15,198)$(10,942)
Loss per share - basic$(0.12)$(0.15)$(0.60)$(0.44)
Loss per share - diluted$(0.12)$(0.15)$(0.60)$(0.44)
Weighted average shares - basic25,397 25,112 25,311 24,859 
Weighted average shares - diluted25,397 25,112 25,311 24,859 
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2017 2016 2017 2016
  (In thousands, except per share data)
Revenue:        
Company operated hotels $37,244
 $37,157
 $94,214
 $93,515
Other revenues from managed properties 1,054
 1,733
 3,047
 4,498
Franchised hotels 12,714
 4,766
 36,045
 12,194
Other 12
 16
 128
 40
Total revenues 51,024
 43,672
 133,434
 110,247
Operating expenses:        
Company operated hotels 25,284
 25,363
 70,450
 71,035
Other costs from managed properties 1,054
 1,733
 3,047
 4,498
Franchised hotels 8,898
 3,214
 26,300
 10,034
Other (9) 9
 (2) 30
Depreciation and amortization 4,660
 3,771
 13,742
 11,209
Hotel facility and land lease 1,201
 1,197
 3,604
 3,543
Gain on asset dispositions, net (113) (100) (334) (729)
General and administrative expenses 3,640
 2,031
 11,348
 7,781
Acquisition and integration costs 1,235
 1,413
 1,246
 1,653
Total operating expenses 45,850
 38,631
 129,401
 109,054
Operating income 5,174
 5,041
 4,033
 1,193
Other income (expense):        
Interest expense (2,119) (1,793) (6,114) (4,741)
Other income (loss), net 338
 169
 562
 290
Total other income (expense) (1,781) (1,624) (5,552) (4,451)
Income (loss) from continuing operations before taxes 3,393
 3,417
 (1,519) (3,258)
Income tax expense 174
 166
 513
 258
Net income (loss) from continuing operations 3,219
 3,251
 (2,032) (3,516)
Discontinued operations:        
Income from discontinued business unit, net of income tax benefit of $0 408
 262
 611
 1,831
Net income (loss) 3,627
 3,513
 (1,421) (1,685)
Net (income) loss attributable to noncontrolling interest (871) (1,207) 507
 (645)
Net income (loss) and comprehensive income (loss) attributable to RLH Corporation $2,756
 $2,306
 $(914) $(2,330)
         
Earnings (loss) per share - basic        
Income (loss) from continuing operations attributable to RLH Corporation $0.10
 $0.10
 $(0.06) $(0.21)
Income from discontinued operations 0.02
 0.01
 0.02
 0.09
Net income (loss) attributable to RLH Corporation $0.12
 $0.11
 $(0.04) $(0.12)
         
Earnings (loss) per share - diluted        
Income (loss) from continuing operations attributable to RLH Corporation $0.10
 $0.10
 $(0.06) $(0.21)
Income from discontinued operations 0.01
 0.01
 0.02
 0.09
Net income (loss) attributable to RLH Corporation $0.11
 $0.11
 $(0.04)
$(0.12)
         
Weighted average shares - basic 23,609
 20,228
 23,542
 20,157
Weighted average shares - diluted 24,176
 20,613
 23,542
 20,157

The accompanying condensed notes are an integral part of thethese condensed consolidated financial statements.

4

RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2017 and 2016(Unaudited)

Red Lion Hotels Corporation Stockholders' Equity
Common StockRetained
Earnings (Accumulated Deficit)		RLH Corporation Total EquityEquity Attributable to Noncontrolling Interest
SharesAmountAdditional
Paid-In Capital		Total
Equity
(In thousands, except share data)
Balances, December 31, 201824,570,158 $246 $182,018 $(17,846)$164,418 $21,164 $185,582 
Net income (loss)— — — (4,273)(4,273)(286)(4,559)
Shared based payment activity56,301 1 685 — 686 — 686 
Distributions to noncontrolling interests— — — — — (7,431)(7,431)
Balances, March 31, 201924,626,459 247 182,703 (22,119)160,831 13,447 174,278 
Net income (loss)— — — (2,997)(2,997)(774)(3,771)
Shared based payment activity449,453 4 (1,034)— (1,030)— (1,030)
Balances, June 30, 201925,075,912 251 181,669 (25,116)156,804 12,673 169,477 
Net income (loss)— — — (3,672)(3,672)(2,980)(6,652)
Shared based payment activity42,600 1 1,054 — 1,055 — 1,055 
Balances, September 30, 201925,118,512 252 182,723 (28,788)154,187 9,693 163,880 
Net income (loss)— — — (8,087)(8,087)2,096 (5,991)
Shared based payment activity29,493 (1)(739)— (740)— (740)
Reclassification of noncontrolling interest— — (376)— (376)376 0 
Distributions to noncontrolling interests— — — — — (10,128)(10,128)
Balances, December 31, 201925,148,005 251 181,608 (36,875)144,984 2,037 147,021 
Net income (loss)— — — (8,099)(8,099)(1,155)(9,254)
Shared based payment activity60,978 2 336 — 338 — 338 
Distributions to noncontrolling interests— — (2,376)— (2,376)2,376 0 
Balances, March 31, 202025,208,983 253 179,568 (44,974)134,847 3,258 138,105 
Net income (loss)— — — (3,962)(3,962)(250)(4,212)
Shared based payment activity133,121 1 202 — 203 — 203 
Balances, June 30, 202025,342,104 $254 $179,770 $(48,936)$131,088 $3,008 $134,096 
Net income (loss)— — — (3,137)(3,137)(148)(3,285)
Shared based payment activity60,137 1 299 — 300 — 300 
Balances, September 30, 202025,402,241 $255 $180,069 $(52,073)$128,251 $2,860 $131,111 
  Nine Months Ended
  September 30,
  2017 2016
  (In thousands)
Operating activities:    
Net loss $(1,421) $(1,685)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 13,806
 11,354
Amortization of debt issuance costs 892
 880
Gain on disposition of property, equipment and other assets, net (328) (730)
Deferred income taxes 416
 233
Equity in investments —
 (171)
Stock based compensation expense 2,392
 1,960
Provision for doubtful accounts 407
 212
Fair value adjustments to contingent consideration 1,325
 —
Change in current assets and liabilities:    
Accounts receivable (4,345) (4,664)
Notes receivable (69) (68)
Inventories (32) 63
Prepaid expenses and other (1,324) (1,959)
Accounts payable (780) 3,697
Other accrued liabilities (1,936) (2,046)
Net cash provided by operating activities 9,003
 7,076
Investing activities:    
Capital expenditures (8,024) (30,266)
Acquisition of Vantage Hospitality —
 (22,694)
Proceeds from disposition of property and equipment 28
 434
Collection of notes receivable related to property sales 200
 1,781
Advance of note receivable (408) (328)
Proceeds from sales of short-term investments —
 18,060
Other, net —
 78
Net cash used in investing activities (8,204) (32,935)
Financing activities:    
Borrowings on long-term debt 3,237
 19,547
Repayment of long-term debt (959) —
Debt issuance costs (35) (192)
Proceeds from sale of interests in joint ventures —
 3,194
Distributions to noncontrolling interest (1,388) (3,594)
Stock-based compensation awards cancelled to settle employee tax withholding (332) (343)
Other, net 194
 156
Net cash provided by financing activities 717
 18,768
     
Change in cash, cash equivalents and restricted cash:    
Net increase (decrease) in cash, cash equivalents and restricted cash 1,516
 (7,091)
Cash, cash equivalents and restricted cash at beginning of period 47,609
 35,202
Cash, cash equivalents and restricted cash at end of period $49,125
 $28,111


The accompanying condensed notes are an integral part of thethese condensed consolidated financial statements.



5


RED LION HOTELS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - (Continued)
For the Nine Months Ended September 30, 2017 and 2016(Unaudited)

 Nine Months Ended
September 30,
 20202019
 (In thousands)
Operating activities:
Net loss$(16,751)$(14,982)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization7,456 11,192 
Noncash PIK interest and amortization of debt issuance costs194 929 
Amortization of key money and contract costs694 997 
Amortization of contract liabilities(458)(994)
Loss (gain) on asset dispositions, net(7,454)45 
Loss on early retirement of debt1,309 67 
Asset impairment2,489 5,382 
Deferred income taxes87 445 
Stock-based compensation expense840 2,503 
Provision for doubtful accounts10,712 1,780 
Change in operating assets and liabilities:
Accounts receivable(1,050)(2,148)
Key money disbursements(429)(665)
Other current assets1,232 998 
Accounts payable(2,018)45 
Other accrued liabilities(1,420)(639)
Net cash provided by (used in) operating activities(4,567)4,955 
Investing activities:
Capital expenditures(1,637)(4,104)
Net proceeds from disposition of property and equipment36,896 0 
Collection of notes receivable12 262 
Advances on notes receivable(150)(90)
Net cash provided by (used in) investing activities35,121 (3,932)
Financing activities:
Borrowings on long-term debt, net of discounts4,234 32,935 
Repayment of long-term debt and finance leases(21,964)(22,510)
Repayment of line of credit borrowing(10,000)0 
Prepayment penalty on long-term debt(559)0 
Debt issuance costs0 (692)
Distributions to noncontrolling interest0 (7,430)
Stock-based compensation awards canceled to settle employee tax withholding(81)(2,135)
Stock option and stock purchase plan issuances, net and other82 217 
Net cash provided by (used in) financing activities(28,288)385 
Change in cash, cash equivalents and restricted cash:
Net increase (decrease) in cash, cash equivalents and restricted cash2,266 1,408 
Cash, cash equivalents and restricted cash at beginning of period31,808 19,789 
Cash, cash equivalents and restricted cash at end of period$34,074 $21,197 
  Nine Months Ended
  September 30,
  2017 2016
  (In thousands)
     
Supplemental disclosure of cash flow information:    
Cash paid during periods for:    
Income taxes $154
 $22
Interest on debt 5,199
 4,187
Non-cash investing and financing activities:    
Reclassification of long-term debt to current $22,953
 $5,912
Reclassification of current and noncurrent assets to assets held for sale 4,285
 3,936
Reclassification of current and noncurrent liabilities to liabilities held for sale 739
 —
Reclassification of long-term note receivable to short-term 339
 25
Property and equipment, purchases not yet paid 210
 59
Accrual of contingent consideration for Vantage acquisition —
 11,077
Shares issued for Vantage acquisition —
 5,755
Reclassification of current assets to noncurrent assets —
 14


The accompanying condensed notes are an integral part of thethese condensed consolidated financial statements.


6

RED LION HOTELS CORPORATION
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.Organization

1.Organization

Red Lion Hotels Corporation ("RLH Corporation", "we", "our", "us",Corporation," "RLHC," "we," "our," "us," or "our company") is a NYSE-listed hospitality and leisure company (ticker symbol: RLH) doing business as RLH Corporation and primarily engaged, through its subsidiaries, in the management, franchising and ownership of hotels underof its proprietary brands, including the following proprietary brands:
Ÿ Hotel RL
Ÿ America's Best Inn & Suites
Ÿ Red Lion Hotels
Ÿ Signature Inn
Ÿ Red Lion Inn & Suites
Ÿ Jameson Inns
Ÿ GuestHouse
Ÿ Country Hearth Inns & Suites
Ÿ Settle Inn
Ÿ 3 Palm Hotels
Ÿ Americas Best Value Inn
Ÿ Value Inn Worldwide
Ÿ Canadas Best Value Inn
Ÿ Value Hotel Worldwide
Ÿ Lexington Hotels & Inns

A summary of our hotels and available rooms as of September 30, 2017 is provided below:
  Company Operated Franchised Total Systemwide
  Hotels Total Available Rooms Hotels Total Available Rooms Hotels Total Available Rooms
Total 20
 4,200
 1,082
 66,600
 1,102
 70,800
             

On October 3, 2017, we completed the sale of certain specified liabilities and substantially all of the assets of our Entertainment segment, previously composed of WestCoast Entertainment and TicketsWest, including ticketing agreements and engagement agreements with various entertainment venues, teams and artists located throughout the Western United States. As such, the results of the Entertainment segmentbrands that are reported as discontinued operations, and the assets and liabilities are classified as held for sale for all periods presented in this quarterly report on Form 10-Q. See Note 17.

We were incorporatedbeing actively sold in the stateUnited States and Canada: Hotel RL, Red Lion Hotels, Red Lion Inn & Suites, GuestHouse Extended Stay, Americas Best Value Inn, Canadas Best Value Inn, Signature and Signature Inn, and Knights Inn.

2.Summary of Washington in April 1978. The Company's corporate headquarters are located in Denver, Colorado, with regional offices in Spokane, Washington, and Coral Springs, Florida.Significant Accounting Policies

We are authorized to issue 50 million shares of common stock, par value $0.01 per share, and five million shares of preferred stock, par value $0.01 per share. As of September 30, 2017, there were 23,611,519 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, which may be 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 we may designate in the future.

2.Summary of Significant Accounting Policies


The unaudited condensed consolidated financial statements included herein have beenwere prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC)("SEC") and in accordance with generally accepted accounting principles in the United States of America (GAAP)("GAAP"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations.


The Consolidated Balance Sheet as of December 31, 2016 has been2019 was derived from the audited balance sheet as of such date. We believe the disclosures included herein are adequate; however, they should be read in conjunction with the consolidated financial

statements and the notes thereto for the year ended December 31, 2016,2019, filed with the SEC in our annual report on Form 10-K on March 31, 2017.February 27, 2020.


In the opinion of management, these unaudited condensed consolidated financial statements contain all of the adjustments of a normal and recurring nature necessary to present fairly our Condensed Consolidated Balance Sheet at September 30, 2017,Sheets, the Condensed Consolidated Statements of Comprehensive Income (Loss) forLoss, the threeCondensed Consolidated Statements of Stockholders' Equity, and nine months ended September 30, 2017 and 2016, and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016.Flows. The results of operations for the periods presented may not be indicative of that which may be expected for a full year or for any other fiscal period.

Principles of Consolidation

The financial statements encompass the accounts of RLH Corporation and all of its consolidated subsidiaries, including:
Wholly-owned subsidiaries:
• Red Lion Hotels Holdings, Inc.
• Red Lion Hotels Franchising, Inc.
• Red Lion Hotels Canada Franchising, Inc.
• Red Lion Hotels Management, Inc. (RL Management)
• Red Lion Hotels Limited Partnership
• TicketsWest.com, Inc.
Joint venture entities:
• RL Venture LLC (RL Venture) in which we hold a 55% member interest
• RLS Atla Venture LLC (RLS Atla Venture) in which we hold a 55% member interest
• RLS Balt Venture LLC (RLS Balt Venture) in which we hold a 73% member interest
• RLS DC Venture LLC (RLS DC Venture) in which we hold a 55% member interest

All inter-company and inter-segment transactions and accounts have been eliminated upon consolidation.

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 our various borrowing arrangements, at September 30, 2017 and December 31, 2016 cash of $12.9 million and $9.5 million, respectively, was held primarily as reserves for debt service (interest only), property improvements, and other requirements from the lenders.

In our Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, we include restricted cash with cash and cash equivalents when reconciling the beginning and ending balances for each period. The balances included in the Consolidated Statements of Cash Flows for the periods ended are as follows (in thousands):

  Nine Months Ended September 30,
  2017 2016
Cash and cash equivalents $36,179
 $18,930
Restricted cash 12,946
 9,181
Cash, cash equivalents and restricted cash $49,125
 $28,111

Allowance for Doubtful Accounts

The ability to collect individual accounts receivable is reviewed on a routine basis. An allowance for doubtful accounts is recognized based on specifically identified amounts believed to be uncollectible. 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 may be impacted by, among other things, national and regional economic conditions. Acquired accounts receivable from business acquisitions are recorded at fair value, based on amounts expected to be collected. Therefore no allowance for doubtful accounts related to these accounts is recorded at the acquisition date.

The following schedule summarizes the activity in the allowance account for trade accounts receivable (in thousands):
  2017 2016
Allowance for doubtful accounts  
Balance, January 1 $944
 $657
Additions to allowance 385
 212
Write-offs, net of recoveries (1) (67)
Balance, September 30 $1,328
 $802

Accounts Receivable from Related Parties

Amounts receivable from related parties relate to outstanding amounts billed to the owners of hotels we manage for reimbursement of costs of the operations of those hotels. We have a related party relationship with these owners, and there is no allowance for doubtful accounts associated with these receivables.

Notes Receivable

We carry notes receivable at their estimated collection amount, and they are classified as either current or long-term depending on the expected collection date. Interest income on notes receivable is recognized using the interest method.

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.

Prepaid and other expenses

Prepaid and other expenses include prepaid insurance, prepaid taxes, deposits, advertising costs and prepaid costs related to our brand conferences.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. The cost of improvements that extend the life of property and equipment is capitalized. Repairs and maintenance charges are expensed as incurred.

Depreciation is provided using the straight-line method over the estimated useful life of each asset, which ranges as follows:
Buildings25 to 39 years
Equipment2 to 15 years
Furniture and fixtures2 to 15 years
Landscaping and improvements15 years

Leasehold improvements are capitalized and depreciated over the term of the applicable lease, including renewable periods if reasonably assured, or over the useful lives, whichever is shorter.

Valuation of Long-Lived Assets

We test long-lived asset groups for recoverability when changes in circumstances indicate the carrying value may not be recoverable, for example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, or significant negative industry or economic trends. We also perform a test for recoverability when management has committed to a plan to sell or otherwise dispose of an asset group. We evaluate recoverability of an asset group by comparing its carrying value to the future net undiscounted cash flows that we expect will be generated by the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life.

We base our calculations of the estimated fair value of an asset group on the income approach or the market approach. The assumptions and methodology utilized for the income approach are the same as those described in the "Goodwill and Intangible Assets" caption. For the market approach, we use analyses based primarily on market comparables, recent appraisals and assumptions about market capitalization rates, growth rates, and inflation.

Variable Interest Entities

We analyze the investments we make in joint venture entities based on the accounting guidance for variable interest entities (VIEs). These joint ventures are evaluated to determine whether (1) sufficient equity at risk exists for the legal entity to finance its activities without additional subordinated financial support or, (2) as a group, the holders of the equity investment at risk lack one of the following characteristics (a) the power, through voting or similar rights, to direct the activities of the legal entity that most significantly impact the entity’s economic performance or, (b) the obligation to absorb the expected losses of the legal entity or (c) the right to receive expected residual returns of the legal entity, or (3) the voting rights of some equity investors are not proportional to their obligations to absorb the losses or the right to receive benefits and substantially all of the activities either involve or are conducted on behalf of an investor with disproportionately few voting rights. If any one of the above three conditions are met then the joint venture entities are considered to be VIEs.

We consolidate the results of any such VIE in which we determine that we have a controlling financial interest. We would have a “controlling financial interest” (i.e., be deemed the primary beneficiary) in such an entity if we had both the power to direct the activities that most significantly affect the VIE’s economic performance and the obligation to absorb the losses of, or right to receive the benefits from, the VIE that could be potentially significant to the VIE.

Business Combinations

On the date of acquisition, the assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree are recorded at their fair values. The acquiree's results of operations are also included as of the date of acquisition in our consolidated results. Intangible assets that arise from contractual/legal rights, or are capable of being separated are measured and recorded at fair value, and amortized over the estimated useful life. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If the valuation of any contingent assets or liabilities is not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill. Acquisition-related costs are expensed as incurred. Restructuring costs associated with an acquisition are generally expensed in periods subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and acquired income tax uncertainties, including penalties and interest, after the measurement period are recognized as a component of the provision for income taxes. Our acquisitions may include contingent consideration, which require us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized in the Consolidated Statements of Comprehensive Income (Loss). Cash payments for contingent or deferred consideration up to the amount of liability recognized on the acquisition date are classified within cash flows from financing activities within the Consolidated Statements of Cash Flows and any excess is classified as cash flows from operating activities.

Goodwill and Intangible Assets

Goodwill and intangible assets may result from our business acquisitions. Intangible assets may also result from the purchase of assets and intellectual property in a transaction that does not qualify as a business combination. We use estimates, including estimates of useful lives of intangible assets, the amount and timing of related future cash flows, and fair values of the related operations, in determining the value assigned to goodwill and intangible assets. Our finite-lived intangible assets, which include

customer contracts and certain brand names that we do not expect to maintain indefinitely, are amortized over their expected useful lives based on estimated discounted cash flows. The remaining brand name and trademark assets are considered indefinite-lived intangible assets and are not subject to amortization. Finite-lived intangible assets are tested for impairment at the asset group level when events or changes in circumstances indicate the carrying value may not be recoverable. Indefinite-lived intangible assets are tested for impairment annually, when events or changes in circumstances indicate the asset may be impaired, or at the time when their useful lives are determined to be no longer indefinite.

Goodwill is assigned to our reporting units based on the expected benefit from the synergies arising from each business combination, determined by using certain financial metrics, including the forecast discounted cash flows associated with each reporting unit. The reporting units are aligned with our reporting segments.

We test goodwill for impairment each year as of October 1, or more frequently should a significant impairment indicator occur. As part of the impairment test, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit, including goodwill, is less than its carrying amount, or if we elect to bypass the qualitative assessment, we would then proceed with the two-step impairment test. The impairment test involves comparing the fair values of the reporting units to their carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, a second step is required to measure the goodwill impairment loss amount. This second step determines the current fair values of all assets and liabilities of the reporting unit and then compares the implied fair value of the reporting unit's goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.

In assessing the qualitative factors, we assess relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of relevant events and circumstances, and how these may impact a reporting unit's fair value or carrying amount, involves significant judgments and assumptions. The judgment and assumptions include the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, RLH Corporation-specific events, and share price trends, and making the assessment as to whether each relevant factor would impact the impairment test positively or negatively and the magnitude of any such impact.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. We forecast discounted future cash flows at the reporting unit level using risk-adjusted discount rates and estimated future revenues and operating costs, which take into consideration factors, such as expectations of competitive and economic environments. We also identify similar publicly traded companies and develop a correlation, referred to as a multiple, to apply to the operating results of the reporting units. These combined fair values are then reconciled to the aggregate market value of our common stock on the date of valuation, while considering a reasonable control premium.

Other Assets

Other assets primarily consist of key money arrangements with certain of our franchisees and IT system implementation and license costs, for both our franchisees and our company operated hotels. We recognize key money paid in conjunction with entering into long-term franchise agreements as prepaid expenses and amortize the amount paid as a reduction of revenue over the term of the franchise agreements. IT system implementation and license costs represent costs incurred to implement and operate RevPak, our proprietary guest management system application and are amortized over the initial term of the software license arrangement or the current license period, as applicable.

Fair Value Measurements

Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure our assets and liabilities using inputs from the following three levels of the fair value hierarchy:
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 includes unobservable inputs that reflect assumptions about what factors market participants would use in pricing the asset or liability. We develop these inputs based on the best information available, including our own data.

Deferred Income

In 2003, we 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 our option. During the nine months ended September 30, 2017 and 2016, we recognized income of approximately $0.4 million each period for the amortization of the deferred gain. The remaining balances at September 30, 2017 and December 31, 2016 were $0.5 million and $0.9 million.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning, and results of recent operations. At September 30, 2017 and December 31, 2016, a valuation allowance has been recorded to reduce our deferred tax assets to an amount that is more likely than not to be realized. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We classify any interest expense and penalties related to underpayment of taxes and any interest income on tax overpayments as components of income tax expense.

We record uncertain tax positions in accordance with Accounting Standards Codification 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. See Note 13.

Discontinued Operations and Held For Sale

When an asset group meets the criteria to be classified as held-for-sale, and the asset group represents a component of our business or an entire reportable segment, we classify the results of operations as discontinued operations in our consolidated statements of comprehensive income for all periods presented. An asset considered a held-for-sale is reported at the lower of the asset's carrying amount or fair value. Cash flows from the Company's discontinued operations are included in the Consolidated Statements of Cash Flows. See Note 17 for further discussion of our discontinued operations.

Revenue Recognition

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. We recognize revenue from the following sources:

Company Operated Hotels - Room rental and food and beverage sales from majority owned and leased hotels and management fees from hotels under management contract. Revenues are recognized when services have been performed, generally at the time of the hotel stay or guest's visit to the restaurant or at the time the management services are provided. We recognize other revenue and costs from managed properties when we incur the related reimbursable costs. These costs primarily consist of payroll and related expenses at managed properties where we are the employer. As these costs have no added markup, the revenue and related expense have no impact on either our operating or net income.

Franchised Hotels - Fees received in connection with the franchise and marketing of our brand names. Franchise revenues are recognized as earned in accordance with the contractual terms of the franchise agreements.


Entertainment - Online ticketing services, ticketing inventory management systems, promotion of Broadway-style shows and other special events. Where we act as an agent and receive a net fee or commission, revenue is recognized 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. As the result of the sale of the Entertainment business on October 3, 2017, all revenues earned have been classified as discontinued operations for all periods presented.

Advertising and Promotion

Costs associated with advertising and promotional efforts are generally expensed as incurred. During the nine months ended September 30, 2017 and 2016 we incurred approximately $5.1 million and $4.3 million, respectively in advertising expense.

Basic and Diluted Earnings (Loss) Per Share

Basic earnings (loss) per share attributable to RLH Corporation is computed by dividing income (loss) attributable to RLH Corporation by the weighted‑average number of shares outstanding during the period. Diluted earnings (loss) per share attributable to RLH Corporation gives effect to all dilutive potential shares that are outstanding during the period and include outstanding stock options, other outstanding employee equity grants, warrants and amounts contingently issuable in association with the Vantage acquisition contingent consideration, by increasing the weighted-average number of shares outstanding by their effect. See Note 12.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us 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.

Reclassifications

Effective for the year ended December 31, 2016, we early adopted Accounting Standards Update (ASU) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. We have revised the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016 to reflect the adoption of this new standard. As the result, the total change in cash flows for the first nine months of 2016 was a decrease of $2.1 million of cash inflows, of which $1.1 million was an increase for operating activities, and $3.2 million was a decrease for investing activities. The change was the result of the net transfer of restricted cash to cash for completed property improvements, partially offset by the net transfer of cash to restricted cash as part of our joint venture debt arrangements.


New and Recent Accounting Pronouncements Not Yet Adopted


In May 2014,June 2016, the Financial Accounting Standards Board (FASB)("FASB") issued ASU 2014-09, Revenue from Contracts2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments, as amended by multiple subsequent ASUs, which will change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the current "incurred loss" approach with Customers (Topic 606), which isan "expected loss" model for instruments measured at amortized cost. For trade and other receivables, held to maturity debt securities, loans and other instruments, entities will be required to use a comprehensive new revenueforward-looking “expected loss” model that generally will result in the earlier recognition model requiring a companyof allowances for losses. In October 2019, an update was issued to recognize revenuethe standard that deferred the effective date of the guidance to depict the transferfirst quarter of goods or services to a customer at an amount reflecting2023 for smaller reporting companies such as us. We are currently evaluating the consideration it expects to receive in exchange for those goods or services.effects of this ASU 2014-09 may be applied using either a full retrospective or a modified retrospective approach and is effective for us on January 1, 2018. Upon adoption utilizing the modified retrospective method, we will recognize a cumulative adjustment to retained earnings as opposed to retrospectively adjusting prior periods, and our financial statements, will include expanded disclosures related to contracts with customers. We are continuing our assessment of our various revenue arrangements to ensure we account for them in accordance with this new guidance upon adoption. We doand such effects have not expect a material impact to revenue from our company operated hotels segment. Within our franchise business, we will recognize application fee revenue and the related deal commission expense over the initial contract period, rather than immediately upon the signing of the franchise agreement.yet been determined.


In February 2016,December 2019, the FASB issued ASU 2016-02, Leases (Topic 842).2019-12, Simplifying the Accounting for Income Taxes, which amends the existing guidance related to the accounting for income taxes. The new standard establishesASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognitionstep-up in the income statement.tax basis of goodwill. The new standardASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginningfirst quarter of the earliest comparative period presented in the financial statements, with certain practical expedients available. We had $81.8 million of operating lease obligations as of September 30, 2017 (see Note 9) and upon the adoption of the standard will record an ROU asset and lease liability for present value of these leases, which will have

a material impact on the Consolidated Balance Sheet. However, the Consolidated Statement of Comprehensive Income (Loss) recognition of lease expenses is not expected to change from the current methodology.

The FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments to address diversity in practice for eight specific topics: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. This guidance is effective for us beginning January 1, 2018. As this ASU is clarifying only presentation matters within the statement of cash flows, we do not expect it to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business (ASU 2017-01), which narrows the definition of a business and provides a framework that gives entities a basis for making reasonable judgments about whether a transaction involves an asset or a business. ASU 2017-01 states that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If this initial test is not met, a set cannot be considered a business unless it includes an input and a substantive process that together significantly contribute to the ability to create output. ASU 2017-01 is effective for fiscal years beginning after December 15, 20192021, with early adoption permitted. We do not expectare currently evaluating the adoptioneffects of this standard to have a material impact on our consolidated results of operations, financial position, cash flows, and related financial statement disclosures.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04), which simplifies the measurement of goodwill impairment by removing step two of the goodwill impairment test that requires the determination of the fair value of individual assets and liabilities of a reporting unit. ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. Upon adoption, we will follow the guidance in this standard for goodwill impairment testing.

In February 2017, the FASB issued ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.  The amendments clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The guidance is effective for us as of January 1, 2018 in conjunction with our adoption of ASU 2014-09. Entities may use either a full or modified approach to adopt the ASU. We are assessing the impact of the adoption of this new guidance on our financial statements.statements, and such effects have not yet been determined.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following are met: (1) The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The guidance is effective on January 1, 2018 for us, and we would apply the amendments prospectively to an award modified on or after the adoption date.


We have assessed the potential impact of other recently issued, but not yet effective, accounting standards and determined that the provisions are either not applicable to us or are not anticipated to have a material impact on our consolidated financial statements.



7
3.Business Segments


3.    Business Segments

We have two2 operating segments: company operatedfranchised hotels and franchisedcompany operated hotels. The "other" segment consists of miscellaneous revenues and expenses, cash and cash equivalents, certain receivables, certain property and equipment and general and administrative expenses, which are not specifically associated with an operating segment. Management reviews and evaluates the operating segments exclusive of interest expense, income taxes and certain corporate expenses; therefore, they have not been allocated to the operating segments. We allocate selling, general, administrative and other expenses to our operating segments. All balances have been presented after the elimination of inter-segment and intra-segment revenues and expenses.

The results of operations of the Entertainment segment were treated as discontinued operations, due to the sale of the business completed on October 3, 2017. As a result, the revenue and operating expenses of the Entertainment segment are excluded from the segment disclosures below.


Selected financial information is provided below (in thousands):
Three Months Ended September 30, 2020Franchised HotelsCompany Operated HotelsOtherTotal
Revenue$10,021 $3,262 $0 $13,283 
Operating expenses:
Segment and other operating expenses6,170 3,248 2,885 12,303 
Depreciation and amortization927 512 1,070 2,509 
Asset impairment0 729 0 729 
Loss (gain) on asset dispositions, net0 104 3 107 
Transaction and integration costs0 0 860 860 
Operating income (loss)$2,924 $(1,331)$(4,818)$(3,225)

Three Months Ended September 30, 2019Franchised HotelsCompany Operated HotelsOtherTotal
Revenue$16,225 $16,633 $5 $32,863 
Operating expenses:
Segment and other operating expenses10,963 13,007 4,184 28,154 
Depreciation and amortization1,015 1,777 844 3,636 
Asset impairment0 5,382 0 5,382 
Loss (gain) on asset dispositions, net0 2 (1)1 
Transaction and integration costs(6)164 43 201 
Operating income (loss)$4,253 $(3,699)$(5,065)$(4,511)

Nine Months Ended September 30, 2020Franchised HotelsCompany Operated HotelsOtherTotal
Revenue$29,715 $11,062 $0 $40,777 
Operating expenses:
Segment and other operating expenses29,357 12,704 9,643 51,704 
Depreciation and amortization2,703 1,801 2,952 7,456 
Asset impairment0 2,489 0 2,489 
Loss (gain) on asset dispositions, net0 (7,677)223 (7,454)
Transaction and integration costs0 53 2,207 2,260 
Operating income (loss)$(2,345)$1,692 $(15,025)$(15,678)

8

Three Months Ended September 30, 2017 Company Operated Hotels Franchised Hotels Other Total
Revenue $38,298
 $12,714
 $12
 $51,024
Operating expenses:        
Segment operating expenses 26,338
 8,898
 (9) 35,227
Depreciation and amortization 3,755
 594
 311
 4,660
Other operating expenses, acquisition costs and gains on asset dispositions 1,090
 1,235
 3,638
 5,963
Operating income (loss) $7,115
 $1,987

$(3,928)
$5,174
         
Capital expenditures $1,073
 $188
 $998
 $2,259
Identifiable assets as of September 30, 2017 $251,620
 $70,500
 $21,607
 $343,727
Nine Months Ended September 30, 2019Franchised HotelsCompany Operated HotelsOtherTotal
Revenue$43,920 $43,839 $13 $87,772 
Operating expenses:
Segment and other operating expenses30,669 38,331 12,290 81,290 
Depreciation and amortization3,039 5,650 2,503 11,192 
Asset impairment0 5,382 0 5,382 
Loss (gain) on asset dispositions, net(1)45 1 45 
Transaction and integration costs90 164 182 436 
Operating income (loss)$10,123 $(5,733)$(14,963)$(10,573)


The following table presents identifiable assets for our reportable segments (in thousands):

September 30,
2020		December 31,
2019
Franchised Hotels$79,905 $91,832 
Company Operated Hotels58,617 138,477 
Other16,104 16,209 
Total$154,626 $246,518 


4.     Variable Interest Entities
Three Months Ended September 30, 2016 Company Operated Hotels Franchised Hotels Other Total
Revenue $38,890
 $4,766
 $16
 $43,672
Operating expenses:        
Segment operating expenses 27,096
 3,214
 9
 30,319
Depreciation and amortization 3,444
 101
 226
 3,771
Other operating expenses, acquisition costs and gains on asset dispositions 1,097
 1,413
 2,031
 4,541
Operating income (loss) $7,253
 $38

$(2,250)
$5,041
         
Capital expenditures $9,007
 $—
 $787
 $9,794
Identifiable assets as of December 31, 2016 $260,583
 $66,601
 $17,351
 $344,535


Nine Months Ended September 30, 2017 Company Operated Hotels Franchised Hotels Other Total
Revenue $97,261
 $36,045
 $128
 $133,434
         
Segment operating expenses 73,497
 26,300
 (2) 99,795
Depreciation and amortization 11,096
 1,721
 925
 13,742
Other operating expenses, acquisition costs and gains on asset dispositions 3,258
 1,144
 11,462
 15,864
Operating income (loss) $9,410
 $6,880
 $(12,257) $4,033
         
Capital expenditures $3,281
 $626
 $2,089
 $5,996
Identifiable assets as of September 30, 2017 $251,620
 $70,500
 $21,607
 $343,727

Nine Months Ended September 30, 2016 Company Operated Hotels Franchised Hotels Other Total
Revenue $98,013
 $12,194
 $40
 $110,247
         
Segment operating expenses 75,533
 10,034
 30
 85,597
Depreciation and amortization 10,308
 115
 786
 11,209
Other operating expenses, acquisition costs and gains on asset dispositions 3,208
 1,654
 7,386
 12,248
Operating income (loss) $8,964
 $391
 $(8,162) $1,193
         
Capital expenditures $28,917
 $—
 $1,919
 $30,836
Identifiable assets as of December 31, 2016 $260,583
 $66,601
 $17,351
 $344,535

4.Variable Interest Entities


Our joint venture entities have been determined to be variable interest entities (VIEs), and RLH Corporation has been determined to be the primary beneficiary of each VIE. Therefore, we consolidate the assets, liabilities, and results of operations of (1) RL Venture, (2) RLS Balt Venture, (3) RLS Atla Venture and (4) RLS DC Venture. See Note 2 for discussion of the significant judgments and assumptions made by us in determining whether an entity is a VIE and if we are the primary beneficiary and therefore must consolidate the VIE. See Note 7 for further discussion of the terms of the long-term debt at each of the joint venture entities.

RL Venture

In January 2015, we transferred 12 of our wholly-owned hotels into RL Venture, a newly created entity that was initially wholly-owned by us, and immediately sold a 45% ownership stake in RL Venture to Shelbourne Falcon RLHC Hotel Investors LLC (Shelbourne Falcon), an entity that is led by Shelbourne Capital LLC (Shelbourne). Subsequently we disposed of one hotel, leaving 11 properties owned by RL Venture. We maintain a 55% interest in RL Venture, and the 11 hotels are managed by RL Management, one of our wholly-owned subsidiaries, subject to a management agreement. RL Venture is considered a variable interest entity("VIEs") because our voting rights are not proportional to our financial interest and substantially all of RL Venture'seach joint venture's activities involve and are conducted on our behalf. We have determined that we are the primary beneficiary as (a) we exert power over two of the entity's key activities (hotel operations and property renovations) and share power over the remaining key activities with Shelbourne Falcon, which does not have the unilateral ability to exercise kick-out rights, and (b) we have the obligation to absorb losses and right to receive benefits that could be significant to the entity through our 55% equity interest and management fees. As a result, we consolidate RL Venture. The equity interest owned by Shelbourne Falcon is reflected as a noncontrolling interest in the consolidated financial statements.

Cash distributions may be made periodically based on calculated distributable income. During the third quarter of 2017, RL Venture made a cash distribution totaling $1.6 million, of which RLH Corporation received $0.9 million. During the third quarter of 2016, RL Venture made distributions totaling $4.0 million, of which RLH Corporation received $2.2 million. During the nine months ended September 30, 2017 and 2016, cash distributions totaled $3.1 million and $8.0 million, of which RLH Corporation received $1.7 million and $4.4 million, respectively.

Subsequent to the third quarter of 2017, RL Venture made a cash distribution totaling $1.9 million, of which RLH Corporation received $1.0 million.

In October 2017, we listed the 11 properties in the RL Venture entity for sale through a commercial real estate broker.

RLS Balt Venture

In April 2015, we sold a 21% member interest in our wholly-owned RLS Balt Venture to Shelbourne Falcon Charm City Investors LLC (Shelbourne Falcon II), an entity led by Shelbourne. Shelbourne Falcon II had an option exercisable until December 31, 2015 to purchase up to an additional 24% member interest for $2.3 million. In December 2015, Shelbourne Falcon II elected to purchase additional member interests of 6% based on an aggregate purchase price of $560,000. With the sale of additional member interest without a corresponding change in control, $0.1 million was recognized as an increase in RLH Corporation's additional paid in capital. RL Baltimore, LLC (RL Baltimore), which is wholly-owned by RLS Balt Venture, owns the Hotel RL Baltimore Inner Harbor, which is managed by RL Management. RLS Balt Venture is considered a variable interest entity because our voting rights are not proportional to our financial interest and substantially all of RLS Balt Venture's activities involve and are conducted on our behalf. We have determined that we are the primary beneficiary as (a) we exert power over the entity's key activities (hotel operations and property renovations) and share power over the remaining key activities with Shelbourne Falcon II, which does not have the unilateral ability to exercise kick-out rights, and (b) we have the obligation to absorb losses and right to receive benefits that could be significant to the entity through our 73% equity interest and management fees. As a result, we consolidate RLS Balt Venture. The equity interest owned by Shelbourne Falcon II is reflected as a noncontrolling interest in the consolidated financial statements.

In October 2015, RLH Corporation provided $1.5 million to RLS Balt Venture to fund renovation costs and for operating losses. This funding was not treated as a loan or as a capital contribution. Rather, it is preferred capital of RLS Balt Venture and will be repaid only when the Baltimore hotel property is sold or when RLS Balt Venture is liquidated. Upon such an event, RLH Corporation will receive the $1.5 million plus a preferred return of 11%, compounded annually, prior to any liquidation proceeds being returned to the members.

In May 2017, RLH Corporation provided $2.8 million to RLS Balt Venture to fund operating losses. This funding was not treated as a loan or as a capital contribution. Rather, it is preferred capital of RLS Balt Venture and will be repaid only when the Baltimore hotel property is sold or when RLS Balt Venture is liquidated. Upon such an event, RLH Corporation will receive the $2.8 million plus a preferred return of 9%, compounded annually, prior to any liquidation proceeds being returned to the members.

Cash distributions may be made periodically based on calculated distributable income. There were no cash distributions made during the nine months ended September 30, 2017 or 2016.

RLS Atla Venture

In September 2015, we formed a joint venture RLS Atla Venture, with Shelbourne Falcon Big Peach Investors LLC (Shelbourne Falcon III), an entity led by Shelbourne. We own a 55% interest in the joint venture and Shelbourne Falcon III owns a 45% interest. RLH Atlanta LLC (RLH Atlanta),partners, which is wholly-owned by RLS Atla Venture, owns a hotel adjacent to the Atlanta International Airport that opened in April 2016 as the Red Lion Hotel Atlanta International Airport. RLS Atla Venture is considered a variable interest entity because our voting rights are not proportional to our financial interest and substantially all of RLS Atla Venture's activities involve and are conducted on our behalf. We have determined that we are the primary beneficiary as (a) we exert power over the entity's key activities (hotel operations and property renovations) and share power over the remaining key activities with Shelbourne Falcon III, which does not have the unilateral ability to exercise kick-out rights, and (b) we have the obligation to absorb losses and right to receive benefits that could be significant to the entity through our 55% equity interest and management fees. As a result, we consolidate RLS Atla Venture. The equity interest owned by Shelbourne Falcon III is reflected as a noncontrolling interest in the consolidated financial statements.

Cash distributions may be made periodically based on calculated distributable income. There were no cash distributions made during the nine months ended September 30, 2017 or 2016.

RLS DC Venture

In October 2015, we formed a joint venture, RLS DC Venture, with Shelbourne Falcon DC Investors LLC (Shelbourne Falcon IV), an entity led by Shelbourne. Initially, we owned an 86% interest in the joint venture, and Shelbourne Falcon IV owned a 14% interest. On October 29, 2015, RLH DC LLC (RLH DC), which is wholly-owned by RLS DC Venture, acquired 100% of The

Quincy, an existing hotel business now operated as the Hotel RL Washington DC, in a business combination. The property is managed by RL Management.

As part of the organization of RLS DC Venture, Shelbourne Falcon IV had an option to purchase from us up to an additional 31% of the member interests. On February 3, 2016, Shelbourne Falcon IV elected to purchase from us an additional 15% of the member interests of RLS DC Venture, based on an aggregate purchase price of $1.5 million. With the sale of the additional member interest without a corresponding change in control $0.2 million was recognized as an increase in additional paid in capital in February 2016. On April 1, 2016, Shelbourne Falcon IV exercised the remaining option and purchased from us an additional 16% of the member interests of RLS DC Venture for $1.7 million, which resulted in a further increase of $0.3 million to RLH Corporation's additional paid in capital. Following the April 1, 2016 transaction, we now own 55% of RLS DC Venture, and Shelbourne Falcon IV owns 45%. RLS DC Venture is considered a variable interest entity because our voting rights are not proportional to our financial interest, and substantially all of RLS DC Venture's activities involve and are conducted on our behalf. We have determined that we are the primary beneficiary as (a) we exert power over the entity's key activities (hotel operations and property renovations) and share power over the remaining key activities with Shelbourne Falcon IV, which doesdo not have the unilateral ability to exercise kick-out rights, and (b) we have the obligation to absorb losses and right to receive benefits that could be significant to the entity through our equity interest and management fees. As a result, we consolidate the assets, liabilities, and results of operations of (1) RL Venture LLC ("RL Venture"), (2) RLS Atla Venture LLC ("RLS Atla Venture"), and (3) RLS DC Venture.Venture LLC ("RLS DC Venture"). Subsequent to the hotel sales in the fourth quarter of 2019 and the first quarter of 2020 discussed further below, RLS Atla Venture and RLS DC Venture have had no additional financial statement activity and have no remaining asset or liability balances.

There were no cash contributions or distributions by partners to any of the joint venture entities during the three and nine months ended September 30, 2020 or 2019 except as otherwise described below.

RL Venture

For all periods presented, RLH Corporation owns 55% of RL Venture and our JV Partner owns 45%. In March 2019, secured loans with an aggregate principal of $16.6 million were entered into for 2 RL Venture properties, Hotel RL Salt Lake City and Hotel RL Olympia. Shortly thereafter the net loan proceeds were distributed to us and our joint venture partner in accordance with our respective ownership percentages. Accordingly, during the nine months ended September 30, 2019, cash distributions totaled $16.5 million, of which RLH Corporation received $9.1 million.

In December 2019, the Hotel RL Salt Lake City was sold for an aggregate sales price of $33.0 million. Proceeds from the sale were used to repay in full the secured loan entered into in 2019 for the Hotel RL Salt Lake City property. As of September 30, 2020, RL Venture has 1 remaining property, the Hotel RL Olympia, owned through RL Olympia, LLC. The equity interest owned by Shelbourne Falcon IVour JV Partner is reflected as a noncontrolling interest in the condensed consolidated financial statements.


In May 2017,

9


RLS DC Venture

As of December 31, 2019, RLH Corporation provided $950,000 to RLS DC Venture to fund restricted cash required by the loan agreement. This funding was not treated as a loan or as a capital contribution. Rather, it is preferred capitalowned 55% of RLS DC Venture and will be repaid only when the DC hotel property is sold, whenour Joint Venture Partner owned 45%. In May 2019, a secured loan with principal and accrued exit fee of $17.4 million was executed by RLS DC Venture is liquidated, orVenture. The net loan proceeds were used to pay off the restricted cash is released per the loan agreement. Upon such an event, RLH Corporation will receive the $950,000 plusprevious debt with a preferred returnprincipal balance of 9%, compounded annually, prior to any liquidation proceeds being returned to the members.

Cash distributions may be made periodically based on calculated distributable income.approximately $15.9 million. There were no cash distributions made duringresulting from the nine months ended September 30, 2017 or 2016.refinancing. In February 2020, the Hotel RL in Washington DC, which was wholly-owned by RLS DC Venture, was sold for $16.4 million. Using proceeds from the sale, together with the release of $2.3 million in restricted cash held by CP Business Finance I, LP, RLS DC Venture repaid the remaining outstanding principal balance and accrued exit fee under the secured loan agreement. The $2.4 million balance remaining in non-controlling interest for the entity was reclassified to Additional paid-in capital on the Condensed Consolidated Balance Sheets as no remaining distributions to the joint venture partner are required.


RLS Atla Venture
5.Property and Equipment


In November 2019, RLH Atlanta LLC, which is wholly owned by RLS Atla Venture, sold the Red Lion Hotel Atlanta International Airport Hotel. Upon completion of the sale, no remaining distributions to our joint venture partner were required and the remaining noncontrolling interest for the entity was reclassified to Additional paid-in capital on the Condensed Consolidated Balance Sheets.

5.    Property and Equipment

Property and equipment is summarized as follows (in thousands):
September 30,
2020		December 31,
2019
Buildings and equipment$44,618 $101,619 
Furniture and fixtures5,034 12,407 
Landscaping and land improvements487 2,038 
50,139 116,064 
Less accumulated depreciation(25,289)(57,491)
24,850 58,573 
Land6,871 6,871 
Construction in progress701 3,224 
Property and equipment, net$32,422 $68,668 
  September 30,
2017		 December 31,
2016
Buildings and equipment $252,615
 $248,132
Furniture and fixtures 37,486
 37,743
Landscaping and land improvements 7,878
 7,928
  297,979
 293,803
Less accumulated depreciation (142,368) (130,876)
  155,611
 162,927
Land 43,192
 43,193
Construction in progress 5,328
 4,365
Property and equipment, net $204,131
 $210,485


6.Goodwill and Intangible Assets

Goodwill representsA novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the excessWorld Health Organization on March 11, 2020. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The economic impact of the estimatedpandemic thus far has been extremely punitive to travel related businesses across the nation, significantly affecting the operating results of companies within the hospitality industry. In the first quarter of 2020, we considered the actual and anticipated economic impacts of the COVID-19 pandemic on our financial results to be an indicator that the carrying value of our long-lived assets might not be recoverable. Accordingly, we performed a test for recoverability using probability-weighted undiscounted cash flows on our long-lived assets as of March 31, 2020. Only the Red Lion Hotel Seattle Airport ("RLH Seattle"), one of our company operated hotel properties under a lease through February 2024, did not recover the carrying value of the long-lived asset group in the test for recoverability, due to the short useful life and lack of terminal value. After calculating the fair value of the RLH Seattle property long-lived asset group, we recognized an impairment loss of $1.8 million in the first quarter of 2020.

During the third quarter of 2020, we noted an additional indicator that the carrying value of our long-lived assets might not be recoverable at RLH Seattle as the impacts of COVID-19 on business travel have been worse than initially projected in the first quarter of 2020, particularly impacting this airport location. We performed an updated test for recoverability using probability-weighted cash flows on the long-lived assets of RLH Seattle as of September 30, 2020, noting they did not recover the carrying value of the long-lived asset group. After calculating the fair value of the property's asset group, we recognized an additional impairment loss of $0.7 million in the third quarter of 2020.

10

Fair values for the RLH Seattle property were determined based on a discounted cash flow analysis, which is a Level 3 fair value measurement. The impairment losses were allocated to the assets within the long-lived asset group on a pro rata basis, with $2.1 million applied against the hotel building leasehold interest and other equipment, included within Property and equipment, net and $0.4 million applied against the Operating lease right-of-use asset on the Condensed Consolidated Balance Sheets. There were no other impairments of our long-lived assets in 2020.

During the three months ended September 30, 2019, we entered into individual non-binding sales agreements with third parties for four of our company operated hotels. Due to the potential for disposition within 12 months, we performed a test for recoverability using probability-weighted undiscounted cash flows on each of these four properties, noting only our Hotel RL Washington DC joint venture property did not recover the carrying value of the long-lived asset group. After calculating the fair value of the Hotel RL Washington DC joint venture property long-lived asset group, we recognized an impairment loss of $5.4 million. The fair value was determined based on the contractual selling price less expected costs to sell, which is a Level 3 fair value measurement. The impairment loss was allocated to the assets within the long-lived asset group on a pro rata basis, with $3.4 million applied against the hotel building, included within Property and equipment, net assets acquired as a result of business combinations overand $2.0 million applied against the net tangibleOperating lease right-of-use asset on the Condensed Consolidated Balance Sheets. There were no impairments at the other three properties.

In February 2020, we sold the Hotel RL Washington DC joint venture hotel property, and identifiable intangible assets acquired. Goodwill was recordedour leasehold interest in prior years in connection with the acquisitions of certain franchise and entertainment businesses.

The Red Lion, GuestHouse and Settle Inn & Suites brand names are identifiable, indefinite-lived intangible assets that represent the separable legal right to trade names and associated trademarks. We acquired the Red Lion brand name inAnaheim for a business combination we entered into in 2001. We purchasedcombined net gain of $7.9 million. There were 0 hotels sold during the GuestHouse and Settle Inn & Suites brand names from GuestHouse International LLC in April 2015 and have allocated $5.5 million of the final purchase price to the brand names.

Onthree months ended September 30, 2016 we acquired substantially all of2020, or the assetsthree and assumed certain liabilities of Vantage Hospitality Group, Inc. (Vantage), including customer contracts and brand names (see Note 16). The brand names include: Americas Best Value Inn, Canadas Best Value Inn, Lexington Hotels & Inns, America's Best Inns & Suites, Jameson Inns, Country Hearth Inns & Suites,

Vantage Hotels, Value Inn Worldwide, Value Hotel Worldwide, 3 Palms Hotels and Resorts and Signature Inn. Based on our purchase price allocation, we allocated $30.0 million to brand names. Based on our intent with the brands acquired, we determined that certain of the brands are indefinite-lived based on our intent to hold and maintain the brands. The total of the purchase price allocated to indefinite-lived brand names was $27.2 million. We also acquired certain brand names that we intend to sunset in the future. The total of the purchase price allocated to finite-lived brand names was $2.8 million, with a weighted average remaining useful life of 7.9 years.

In the table below, the customer contracts represent the franchise license agreements acquired with the GuestHouse and Vantage acquisitions. For GuestHouse, we allocated $3.3 million of the final purchase price to the customer contracts. GuestHouse franchise license agreements are amortized over 10 years, which represents the period of expected cash flows, using an accelerated amortization method that matches the economic benefit of the agreements. For Vantage, we allocated $8.4 million to customer contracts and are amortizing them over 15 years, which represents the period of expected cash flows, using an accelerated amortization method that matches the economic benefit of the agreements.

Certain of our brand names and trademarks are considered to have indefinite lives. We assess goodwill and the other indefinite lived intangible assets for potential impairments annually as of October 1, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the assets. We did not impair any goodwill or intangible assets during the nine months ended September 30, 2017 or 2016.2019.


6.     Goodwill and Intangible Assets

Interim Impairment Assessment

In connection with the salefirst quarter of 2020, we considered the actual and anticipated economic impacts of the Entertainment business, $3.2 millionCOVID-19 pandemic on our financial results to be an indicator that the fair value of our goodwill and $6,000 ofindefinite-lived intangible assets have been classifiedmight be less than their carrying amounts. Accordingly, we performed quantitative assessments to measure the fair values of these assets as held for sale. See Note 17 for further information.of March 31, 2020. No impairments were identified based on the quantitative impairment calculations of our goodwill and other indefinite-lived intangible assets. No additional indicators of impairment were identified in the second or third quarter of 2020.


The following table summarizes the balances of goodwill and other intangible assets (in thousands):
September 30,
2020		December 31,
2019
Goodwill$18,595 $18,595 
Intangible assets
Brand name - indefinite lived$32,532 $32,532 
Trademarks - indefinite lived128 128 
Brand name - finite lived, net3,020 3,554 
Customer contracts - finite lived, net10,639 12,398 
Total intangible assets, net$46,319 $48,612 
 September 30,
2017		 December 31,
2016
Goodwill$9,404
 $9,404
    
Intangible assets   
Brand name - indefinite lived$39,704
 $39,704
Brand name - finite lived, net2,403
 2,664
Customer contracts, net9,071
 10,352
Trademarks128
 128
Total intangible assets$51,306
 $52,848

Goodwill and other intangible assets attributable to each of our business segments at September 30, 2017 and December 31, 2016 were as follows (in thousands):  
 September 30, 2017 December 31, 2016
   Intangible   Intangible
 Goodwill Assets Goodwill Assets
Company operated hotels$—
 $4,660
 $—
 $4,660
Franchised hotels9,404
 46,646
 9,404
 48,188
Total$9,404
 $51,306
 $9,404
 $52,848


The following table summarizes the balances of amortized customer contracts and finite-lived brand names (in thousands):
September 30,
2020		December 31,
2019
Customer contracts$20,773 $20,773 
Brand name - finite lived5,395 5,395 
Accumulated amortization(12,509)(10,216)
Net carrying amount$13,659 $15,952 

11
 September 30,
2017		 December 31,
2016
Customer contracts$11,673
 $11,673
Brand name - finite lived2,751
 2,751
Accumulated amortization(2,950) (1,408)
Net carrying amount$11,474
 $13,016


7.     Revenue from Contracts with Customers


AsInner Circle

In July 2019, the parent entities for eight Inner Circle franchisees and the operating entities for two other Inner Circle franchisees all filed for voluntary bankruptcy protection under Chapter 11 of September 30, 2017, estimated future amortization expensesthe United States Bankruptcy Code.
Of the $7.1 million in accounts receivable and notes receivable balances related to our customerthese franchisees, including unamortized key money converted to notes receivable upon termination of contracts, we recognized bad debt expense and finite-lived brand names isan allowance of $0.8 million in 2019 and bad debt expense and an allowance for the remaining $6.3 million in the first quarter of 2020 when the reduction in fair value of collateral combined with timing of bankruptcy proceedings made it apparent the balances were highly unlikely to be recoverable. There has been no additional activity recorded by RLHC related to these franchisees since the first quarter and the related balances continue to be fully reserved, but we continue to monitor the ongoing bankruptcy proceedings for any potential changes.
Other Allowances
We recognized additional bad debt expense of $3.4 million in the first quarter of 2020, primarily related to large balances under legal dispute and aged balances from terminated agreements that were negatively impacted by the economic effects of the COVID-19 pandemic. In the second and third quarters of 2020 we recognized an additional $0.6 million and $0.4 million of bad debt expense, respectively, primarily related to terminated franchise agreements.

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):
Financial Statement Line Item(s)September 30,
2020		December 31,
2019
Accounts receivableAccounts receivable, net$10,772 $15,143 
Key money disbursedOther current assets and Other assets, net2,381 2,228 
Capitalized contract costsOther current assets and Other assets, net706 941 
Contract liabilitiesOther accrued liabilities and Deferred income and other long-term liabilities1,178 1,448 

Significant changes in the key money disbursements, capitalized contract costs, and contract liabilities balances during the period are as follows (in thousands):
Key Money DisbursedCapitalized Contract CostsContract Liabilities
Balance as of January 1, 2020$2,228 $941 $1,448 
Key money disbursed429 — — 
Key money converted from accounts receivable675 — — 
Key money converted to notes receivable(639)— — 
Costs incurred to acquire contracts— 147 — 
Cash received in advance— — 188 
Revenue or expense recognized that was included in the January 1, 2020 balance(241)(358)(437)
Revenue or expense recognized in the period for the period(71)(24)(21)
Balance as of September 30, 2020$2,381 $706 $1,178 

12

Year ending December 31,Amount
2017 (remainder)$511
20181,798
20191,610
20201,419
20211,261
Thereafter4,875
Total$11,474
Estimated revenues and expenses expected to be recognized related to performance obligations that were unsatisfied as of September 30, 2020, including revenues related to application, initiation and other fees were as follows (in thousands):

Year Ending December 31,Contra RevenueExpenseRevenue
2020 (remainder)$155 $57 $115 
2021524 195 394 
2022404 176 296 
2023359 132 181 
2024270 84 104 
Thereafter669 62 88 
Total$2,381 $706 $1,178 
We did not estimate revenues expected to be recognized related to our unsatisfied performance obligations for our royalty fees, as they are considered sales-based royalty fees recognized as hotel room sales occur in exchange for licenses of our brand names over the terms of the franchise contracts. Therefore, there are no amounts included in the table above related to these revenues.
7.Long-Term Debt

8.     Debt and Line of Credit

The current and noncurrent portions of long-termour debt as of September 30, 20172020 and December 31, 20162019 are as follows (in thousands):
 September 30, 2020December 31, 2019
 CurrentNoncurrentCurrentNoncurrent
Line of Credit$0 $0 $0 $10,000 
RL Venture - Olympia5,600 0 0 5,600 
RLH DC Venture0 0 17,648 0 
Total debt5,600 0 17,648 15,600 
Unamortized debt issuance costs(12)0 (664)(24)
Debt net of debt issuance costs$5,588 $0 $16,984 $15,576 
  September 30, 2017 December 31, 2016
  Current Noncurrent Current Noncurrent
RL Venture $1,430
 $72,074
 $1,375
 $69,841
RL Baltimore 13,300
 —
 —
 13,300
RLH Atlanta 9,390
 —
 40
 9,360
RLH DC 302
 16,379
 54
 16,628
Total debt 24,422
 88,453
 1,469
 109,129
Unamortized debt issuance costs —
 (1,413) —
 (2,267)
Long-term debt net of debt issuance costs $24,422
 $87,040
 $1,469
 $106,862

The collateral for each of the borrowings within the joint venture entities is the assets and proceeds of each respective entity.


RL Venture - Olympia

In January 2015,March 2019, RL Venture HoldingOlympia, LLC, a wholly-owned subsidiary of RL Venture, and each of its 12 wholly-owned subsidiaries entered intoexecuted a loansecured debt agreement with Pacific WesternUmpqua Bank which is secured byfor a term loan with a principal balance of $5.6 million. We incurred approximately $33,000 of debt discounts and debt issuance costs in connection with the hotels owned by RL Venture. Subsequently we disposed of one hotel, leaving 11 properties owned by RL Venture. The original principal amountissuance of the loan was $53.8 million with an additional $26.2 million to be drawn over a two-year period to cover improvements related to the 12 hotels owned by the subsidiaries. We drew $0.4 million and $3.2 million during the three and nine months ended September 30, 2017. At September 30, 2017, there were unamortized debt issuance fees of $0.9 million.

loan. The loan matures in January 2019 and has a one-year extension option. Interest under the advanced portions of the loan is payable monthly at LIBOR plus 4.75%. Monthly principal payments began in January 2017 in an amount that would repay the outstanding principal balance over a 25-year amortization period.

The liabilities of RL Venture, other than its long-term debt, are nonrecourse to our general credit and assets. The long-term debt is nonrecourse as to RLH Corporation, but several investors in RL Venture, including us, are guarantors regarding completion of certain improvements to the hotels, environmental covenants in the loan agreement, or losses incurred by the lender in the event of a voluntary bankruptcy filing involving RL Venture, any of its subsidiaries or the guarantors. RLH Corporation has no other obligation to provide financial support to RL Venture.

The loan requires us to comply with customary reporting and operating covenants applicable to RL Venture, including requirements relating to debt service loan coverage ratios. It also includes customary events of default. We were in compliance with these covenants at September 30, 2017.


RL Baltimore

In April 2015, RL Baltimore obtained a new mortgage loan from PFP Holding Company IV LLC, an affiliate of Prime Finance, secured by the Hotel RL Baltimore Inner Harbor.Olympia property, on a nonrecourse basis. The loan has a maturity date of March 18, 2021, and a variable interest rate of LIBOR plus 2.25%, payable monthly. The borrower has the option to exercise 2 six-month extensions upon maturity of the loan, so long as the borrower is in compliance with covenants. There are no principal repayment requirements prior to the maturity date and the loan includes a financial covenant to be calculated semi-annually in which the property must maintain a minimum debt service coverage ratio of not less than 1.6 to 1.0.

Primarily due to the negative economic impact of the COVID-19 pandemic, the property failed to meet the minimum required financial covenants as of the semi-annual calculation of June 30, 2020. Due to the contractual cure period provisions the debt will not be called due prior to the maturity date in March 2021, however we will be unable to exercise the previously discussed extensions, and as such we have classified this debt as current in our Condensed Consolidated Balance Sheets as of September 30, 2020. We continue to pursue options to address the debt prior to maturity, such as the sale of property or alternative financing, which may include extending the maturity date.

Line of Credit

In August 2018, we drew the full $10.0 million available to us on the Line of Credit under a credit agreement with Deutsche Bank AG New York Branch (DB), Capital One, National Association and Raymond James Bank, N.A., as lenders and DB as the administrative agent. In the first quarter of 2020, we sold our leasehold interest in the Red Lion Anaheim for $21.5 million. Using proceeds from the sale, we repaid the outstanding Line of Credit balance of $10.0 million. This debt is no longer outstanding as of September 30, 2020 and as the credit agreement has been terminated we no longer have access to this Line of
13

Credit. Due to the early extinguishment of this debt, we recognized a Loss on early retirement of debt of$0.2 million in the first quarter of 2020.

RLH DC Venture

In the first quarter of 2020, we sold the Hotel RL Washington DC for $16.4 million. Using proceeds from the sale, together with the release of $2.3 million in restricted cash held by the lender CP Business Finance I, LP, RLH DC Venture repaid the remaining outstanding principal balance and accrued exit fee under the RLH DC Venture - CPBF loan agreement of $17.7 million. This debt is no longer outstanding as of September 30, 2020. Due to the early extinguishment of this debt, in the first quarter of 2020, we recognized a Loss on early retirement of debt of $1.1 million, including a prepayment penalty of $0.6 million.

Paycheck Protection Program ("PPP") Loan

On April 21, 2020, RLHC received $4.2 million in loan proceeds issued pursuant to the PPP of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). In accordance with the CARES Act, RLHC planned to use proceeds from the Loan primarily for payroll costs, rent, and utilities as we concluded we met the certification criteria under the initial principalrequirements of the PPP. However, on April 24, 2020, the U.S. government published additional guidance regarding PPP eligibility. As a result of this new guidance, we determined it was no longer clear that we met the eligibility requirements and accordingly repaid the full amount of the loan was $10.1 million, and the lender agreed to advance an additional $3.2 million to cover expenses related to improvements to the hotel, which we drew during the year ended December 31, 2015. At September 30, 2017 the funds on the loan were fully disbursed. At September 30, 2017, there were unamortized debt issuance fees of $0.2 million.in May.


The balance is payable at maturity of the loan in May 2018. Interest under the advanced portions of the loan is payable monthly at LIBOR plus 6.25%.

9.    Leases
The loan agreement includes customary requirements for lender approval of annual operating and capital budgets, under certain conditions. It also includes customary events of default. The liability of RL Baltimore under the loan agreement is generally nonrecourse.  However, the lender may obtain a monetary judgment against RL Baltimore if the lender suffers losses under certain circumstances listed in the loan agreement, including but not limited to fraud, criminal activity, waste, misappropriation of revenues, and breach of environmental representations.  RLH Corporation has guaranteed these recourse obligations of RL Baltimore and agreed to customary reporting and operating covenants. We were in compliance with these covenants at September 30, 2017.

RLH Atlanta

In September 2015, RLH Atlanta obtained a mortgage loan from PFP Holding Company IV LLC, an affiliate of Prime Finance, secured by a hotel adjacent to the Atlanta International Airport, which opened in April 2016 as the Red Lion Hotel Atlanta International Airport. The initial principal amount of the loan was $6.0 million, and the lender agreed to advance an additional $3.4 million to cover expenses related to improvements to the hotel, which we drew in the three months ended March 31, 2016. At September 30, 2017 the funds on the loan were fully disbursed. At September 30, 2017, there were unamortized debt issuance fees of $0.1 million.

The loan matures in September 2018 and has two one-year extension options. Interest under the advanced portions of the loan is payable monthly at LIBOR plus 6.35%. Monthly principal payments of $10,000 began in September 2017.

The loan agreement includes customary requirements for lender approval of annual operating and capital budgets, under certain conditions. It also includes customary events of default. The liability of RLH Atlanta under the loan agreement is generally nonrecourse.  However, the lender may obtain a monetary judgment against RLH Atlanta if the lender suffers losses under certain circumstances listed in the loan agreement, including but not limited to fraud, criminal activity, waste, misappropriation of revenues, and breach of environmental representations.  RLH Corporation has guaranteed these recourse obligations of RLH Atlanta and agreed to customary reporting and operating covenants. We were in compliance with these covenants at September 30, 2017.

RLH DC

In October 2015, RLH DC obtained a new mortgage loan from Pacific Western Bank secured by the Hotel RL Washington DC. The initial principal amount of the loan was $15.2 million, and the lender agreed to advance an additional $2.3 million to cover expenses related to improvements to the hotel. We drew $1.5 million in additional funds during the year ended December 31, 2016. At September 30, 2017 the funds on the loan were fully disbursed. At September 30, 2017, there were unamortized debt issuance costs of $0.3 million.

The loan matures in October 2019 and has a one-year extension option. Interest under the advanced portions of the loan is payable monthly at LIBOR plus 4.55%. Monthly principal payments begin in November 2017 in an amount that will repay the outstanding principal balance over a 25-year amortization period.

The loan agreement includes customary requirements for lender approval of annual operating and capital budgets, under certain conditions. It also includes customary events of default. The liability of RLH DC under the loan agreement is generally nonrecourse.  However, the lender may obtain a monetary judgment against RLH DC if the lender suffers losses under certain circumstances listed in the loan agreement, including but not limited to fraud, criminal activity, waste, misappropriation of revenues, and breach of environmental representations.  RLH Corporation has guaranteed these recourse obligations of RLH DC and agreed to customary reporting and operating covenants. We were in compliance with these covenants at September 30, 2017.


Contractual maturities for long-term debt outstanding at September 30, 2017, for the next five years are summarized by the year as follows (in thousands):
Year ending December 31, Amount
2017 (remainder) $434
2018 24,442
2019 87,999
2020 —
2021 —
Thereafter —
Total $112,875

8.Derivative Financial Instruments

We enter into derivative transactions to hedge our exposure to interest rate fluctuations, and not for trading purposes. We manage our floating rate debt using interest rate caps in order to reduce our exposure to the impact of changing interest rates and future cash outflows for interest. We estimate the fair value of our interest rate caps via calculations that use as their basis readily available observable market parameters. This option-pricing technique utilizes a one-month LIBOR forward yield curve, obtained from an independent external service, which is a Level 2 input. Changes in fair value of these instruments are recognized in interest expense on the Consolidated Statements of Comprehensive Income (Loss). At September 30, 2017 and December 31, 2016, the valuation of the interest rate caps resulted in the recognition of assets with minimal values both individually and in the aggregate, which are included within Other assets, net on the Consolidated Balance Sheets.
Subsidiary Institution Original Notional Amount LIBOR Reference Rate Cap Expiration
    (In millions)    
RL Venture Commonwealth Bank of Australia $80.0
 4% January 2018
RL Baltimore Commonwealth Bank of Australia $13.3
 3% May 2018
RLH Atlanta SMBC Capital Markets, Inc. $9.4
 3% September 2018
RLH DC Commonwealth Bank of Australia $17.5
 3% November 2018

9.Operating and Capital Lease Commitments


We have both operatinglease equipment and capital leases in the normal course of business. The operating leases relate to five of ourland and/or property at certain company operated hotel properties as well as office space for our headquarters through operating leases. The operating leases for office space generally provide for fixed annual rents and our three administrative offices. variable lease costs related to maintenance, real estate taxes and insurance.

We are obligated under capitalfinance leases for certain hotel equipment at our company operated hotel locations. The capitalfinance leases typically have a five-yearfive year term.

We have elected the practical expedient so that leases with an initial term of 12 months or less are not recorded on the balance sheet.

During the first quarter of 2020, we sold the Hotel RL Washington DC joint venture property, which had a ground lease with a term through 2080. As of December 31, 2019, we had recorded an Operating lease right-of use asset of $10.8 million, and total operating lease liabilities of $12.9 million for this ground lease. The equipment assets areground lease was transferred with the sale of the property, resulting in the removal of these balances from the Condensed Consolidated Balance Sheets.

Also in the first quarter of 2020, we sold our leasehold interest in the Red Lion Anaheim, which had a ground lease with a term through 2021 with renewal options through 2106 that were reasonably assured to be exercised. As of December 31, 2019, we had recorded an Operating lease right-of use asset of $31.4 million, with corresponding operating lease liabilities of $31.4 million for this ground lease. The ground lease was transferred with the sale of the property, resulting in the removal of these balances from the Condensed Consolidated Balance Sheets.

Balance sheet information related to our leases is included within our property and equipment balance and are depreciated overin the lease term.

Total future minimum payments due under all current term operating and capital leases at September 30, 2017, are as indicated belowfollowing table (in thousands):
Operating LeasesSeptember 30, 2020December 31, 2019
Operating lease right-of-use assets$5,000 $48,283 
Operating lease liabilities, due within one year$1,521 $4,809 
Operating lease liabilities, due after one year4,770 46,592 
     Total operating lease liabilities$6,291 $51,401 

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Year ending December 31, Total Lease Obligation Operating Lease Obligation Capital Lease Obligation
2017 (remainder) $1,545
 $1,476
 $69
2018 5,573
 5,293
 280
2019 4,853
 4,571
 282
2020 4,551
 4,294
 257
2021 2,889
 2,752
 137
Thereafter 63,458
 63,453
 5
Total $82,869
 $81,839
 $1,030
Finance LeasesSeptember 30, 2020December 31, 2019
Property and equipment$88 $298 
Less accumulated depreciation(77)(168)
Property and equipment, net$11 $130 
Other accrued liabilities$19 $74 
Deferred income and other long-term liabilities1 76 
Total finance lease liabilities$20 $150 



In March of 2020, we entered into a sublease for a portion of our leased corporate office space in an effort to reduce our operating costs. Income from this sublease is presented net with the operating lease expense for the corporate office space within Selling, general, administrative and other expenses on the Condensed Consolidated Statements of Comprehensive Loss.
Total rent
The components of lease expense under leases forduring the three and nine months ended September 30, 2017 was $1.6 million2020 and $4.8 million, respectively, which represents2019 are included in the total of amounts shown within Hotel facility and landfollowing table (in thousands):
Financial Statement Line Item(s)Three Months Ended September 30, 2020Three months ended September 30, 2019Nine Months Ended September 30, 2020Nine months ended September 30, 2019
Operating lease expenseSelling, general, administrative and other expenses, and Company operated hotels$313 1,168 $1,442 $3,444 
Variable lease expenseSelling, general, administrative and other expenses133 111 398 340 
Short-term lease expenseSelling, general, administrative and other expenses, and Company operated hotels52 56 87 232 
Sublease incomeSelling, general, administrative and other expenses(138)0 (227)0 
Finance lease expense
     Amortization of finance right-of-use assetsDepreciation and amortization6 35 20 104 
     Interest on lease liabilitiesInterest expense0 7 4 23 
Total finance lease expense6 42 24 127 
Total lease expense$366 $1,377 $1,724 $4,143 

Supplemental cash flow information for our leases is included in the following table (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
Cash used in operating activities for operating leases$1,607 $3,547 
Cash used in operating activities for finance leases4 23 
Cash used in financing activities for finance leases26 104 

There were 0 new finance lease expense, as well as amounts included within Franchise and General and Administrative operating expenses, and Discontinued Operations on our Consolidated Statements of Comprehensive Income (Loss). Total rent expense under leases forassets or associated liabilities during the three and nine months ended September 30, 2016 was $1.5 million2020 and $4.2 million, respectively.2019. There were no new operating lease assets or associated liabilities during the three and nine months ended September 30, 2020. During the second quarter of 2019, we recognized ROU assets of $181,000 and associated operating lease liabilities of $202,000 upon commencement of leases for space in our Spokane office.

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10.Commitments and Contingencies

Information related to the weighted average remaining lease terms and discount rates for our leases as of September 30, 2020 and December 31, 2019 is included in the following table:
September 30, 2020December 31, 2019
Weighted average remaining lease term (in years)
     Operating leases669
     Finance leases13
Weighted average discount rate
     Operating leases5.8 %7.2 %
     Finance leases5.7 %11.9 %

The future maturities of lease liabilities at September 30, 2020, are as indicated below (in thousands):
Years Ending December 31,Operating LeasesFinance Leases
2020 (remainder)$382 $7 
20211,522 14 
20221,486 0 
20231,449 0 
2024595 0 
Thereafter1,984 0 
Total lease payments7,418 21 
Less: imputed interest1,127 1 
$6,291 $20 

The future maturities of lease liabilities in the table above do not differ materially from future minimum rental payments under the previous leasing standard.

10.    Commitments and Contingencies

At any given time we are subject to claims and actions incidental to the operations of our business. During the second quarter of 2019, we accrued approximately $952,000 for a settlement over a wage dispute with former hotel employees related to the calculation of pay for certain rest, break, meal, and other periods that are required under California law. Based on information currently available, we do not expect that any other sums we may receive or have to pay in connection with any legal proceeding would have a materially adversematerial effect on our consolidated financial position or net cash flow.


11.Stock Based Compensation

11.    Stock Based Compensation

Stock Incentive Plans


The 20062015 Stock Incentive Plan ("2015 Plan") authorizes the grant or issuance of various option and otherstock-based awards, including restricted stock units and other stock-based compensation. The plan was approved by our shareholders and allowed awards of 2.0 million shares, subject to adjustments for stock splits, stock dividends and similar events. No further stock option grants or other awards are permitted under the terms of the 2006 plan.

The 2015 Stock Incentive Plan (2015 Plan) authorizes the grant or issuance of various option and other awards includingoptions, restricted stock units, and other stock-based compensation. The 2015 Plan was approved by our shareholders in 2015, and providedamended in 2017, and as amended provides for awards of 1.42.9 million shares, subject to adjustments for stock splits, stock dividends and similar events. In May 2017, our shareholders approved an amendment to the 2015 Plan to authorize an additional 1.5 million shares, for a total authorized of 2.9 million shares. As of September 30, 2017,2020, there were 1,370,5961.2 million shares of common stock available for issuance pursuant to future stock option grants or other awards under the 2015 Plan.Plan, as amended.


Stock based compensation expense reflects the fair value of stock basedstock-based awards measured at grant date, including an estimated forfeiture rate, and is recognized over the relevant service period. For the three and nine months ended September 30, 20172020 and 20162019 stock-based compensation expense is as follows:follows (in thousands):
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Three Months Ended September 30,Nine Months Ended September 30,
 Three Months Ended September 30, Nine Months Ended September 30,2020201920202019
 2017 2016 2017 2016
 (In thousands)
Restricted stock unitsRestricted stock units$162 $581 $537 $1,871 
Unrestricted stock awardsUnrestricted stock awards97 158 266 417 
Performance stock unitsPerformance stock units0 172 15 123 
Stock options $17
 $17
 $51
 $34
Stock options0 22 0 65 
Restricted stock units 687
 561
 1,891
 1,588
Performance stock units 76
 —
 101
 —
Unrestricted stock awards 104
 105
 319
 315
Employee Stock Purchase Plan 14
 11
 30
 25
Employee stock purchase planEmployee stock purchase plan6 8 22 27 
Total stock-based compensation $898
 $694
 $2,392
 $1,962
Total stock-based compensation$265 $941 $840 $2,503 

Stock Options

Stock options issued are valued based upon the Black-Scholes option pricing model and we recognize this value as an expense over the periods in which the options vest. Use of the Black-Scholes option-pricing model requires that we 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. For the nine months ended September 30, 2017 there were no stock options granted. For the nine months ended September 30, 2016 there were 81,130 shares granted.


Stock option fair value assumptions are as follows for stock options granted during the nine months ended September 30, 2016:
Grant Date Volatility Forfeiture Rate Risk-free Interest Rate Dividend Yield Expected Life (Years)
March 28, 2016 61.12% 21.07% 1.37% —% 5

A summary of stock option activity for the nine months ended September 30, 2017, is as follows:
  
Number
of Shares
 
Weighted
Average
Exercise
Price
Balance, January 1, 2017 132,868
 $8.91
Options granted —
 —
Options exercised —
 —
Options forfeited (18,890) $12.27
Balance, September 30, 2017 113,978
 $8.36
Exercisable, September 30, 2017 53,131
 $8.53

Additional information regarding stock options outstanding and exercisable as of September 30, 2017, is presented below:
Exercise
Price
 
Number
Outstanding
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Expiration
Date
 
Weighted
Average
Exercise
Price
 
Aggregate
Intrinsic
Value(1)
 
Number
Exercisable
 
Weighted
Average
Exercise
Price
 
Aggregate
Intrinsic
Value(1)
$8.20 81,130
 8.49 2026 $8.20
 $37
 20,283
 $8.20
 $9
$8.74 32,848
 0.64 2018 $8.74
 —
 32,848
 $8.74
 —
  113,978
 6.23 2018-2026 $8.36
 $37
 53,131
 $8.53
 $9
(1) The aggregate intrinsic value, in thousands, is before applicable income taxes and represents the amount option recipients would have received if all options had been exercised on the last trading day of the first nine months of 2017, or September 30, 2017, based upon our closing stock price on that date of $8.65.


Restricted Stock Units Shares Issued as Compensation


During the nine months ended September 30, 2017 and 2016, we granted 458,020 and 282,989 unvested restrictedRestricted stock units respectively,granted to executive officers and other key employees which typically 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. As of September 30, 2017 and 2016, there were 1,288,752 and 1,095,719 unvested restricted stock units outstanding, respectively. Since we began issuing restricted stock units, approximately 21% of total restricted stock units granted have been forfeited.

A summary of restricted stock unit activity for the nine months ended September 30, 2017, is as follows:
  
Number
of Shares
 
Weighted
Average
Grant Date
Fair Value
Balance, January 1, 2017 1,036,680
 $7.27
Granted 458,020
 $6.95
Vested (148,674) $6.93
Forfeited (57,274) $7.19
Balance, September 30, 2017 1,288,752
 $7.20


We issued 148,674 shares of common stock to employees during the first nine months of 2017 as their restricted stock units vested. Under the terms of the 2006 and 2015 plans andplan, upon issuance, we authorizeddeliver a net settlement of distributable shares to employees after consideration of individual employees' tax withholding obligations, at the election of each employee. The fair value of restricted stock that vested during the nine months ended September 30, 20172020 and 20162019 was approximately $1.0$0.2 million and $1.1$5.8 million, respectively.

During the three months ended September 30, 2017 and 2016, we recognized $0.7 million and $0.6 million, respectively in compensation expense related to these grants. During the nine months ended September 30, 2017 and 2016, we recognized $1.9 million and $1.6 million, respectively, in compensation expense related to these grants, and We expect to recognize an additional $5.8$1.1 million in compensation expense over the remaining weighted average vesting periods of 3021 months.


A summary of restricted stock unit activity for the nine months ended September 30, 2020, is as follows:
Number
of Units		Weighted
Average
Grant Date
Fair Value
January 1, 2020459,070 $9.03 
Granted235,251 $1.79 
Vested(122,720)$8.53 
Forfeited(242,215)$5.91 
September 30, 2020329,386 $6.34 

Performance Stock Units, Shares Issued as Compensation


In May 2017, we granted performancePerformance stock units (PSUs)("PSUs") are granted to certain of our executives under the 2015 Plan. These PSUs include both performance vesting conditions and a service vesting condition. The performance vesting conditions are based on (1) an annual earnings goal tied to Adjusted EBITDA, with a 70% weighting, and (2) a goal tied to the number of signed franchise license agreements in the year, with a 30% weighting.conditions. Each performance condition has a minimum, a target and a maximum share amount based on the level of attainment of the performance condition. Compensation expense, net of estimated forfeitures, is calculated based on the estimated full year attainment of the performance conditions during the performance period and recognized on a straight-line basis over the performance and service periods. TheNo PSUs vest upon achievement ofwere granted during the performancethree and service conditions, provided participants are employed by RLH Corporation at the end of the service periods. For the PSUs granted in May 2017, the service period ends in Marchnine months ended September 30, 2020.


A summary of performance stock unit activity forDuring the nine months ended September 30, 2017, is2020, 25,796 PSUs vested at a weighted average grant date fair value of $6.45. The fair value of PSUs that vested during the nine months ended September 30, 2020 was approximately $38,000. No PSUs vested during the nine months ended September 30, 2019. There are no PSUs outstanding and no remaining compensation expense related to PSUs as follows:of September 30, 2020.

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Number
of Shares
 
Weighted
Average
Grant Date
Fair Value
Balance, January 1, 2017 —
 —
Granted 274,882
 $6.45
Vested —
 —
Forfeited (17,906) $6.45
Balance, September 30, 2017 256,976
 $6.45


Unrestricted Stock Awards


Unrestricted stock awards are granted to members of our boardBoard of directorsDirectors as part of their compensation. Awards are fully vested, and expensedexpense is recognized when granted. The fair value of unrestricted stock awards is the market close price of our common stock on the date of the grant.


The following table summarizes unrestricted stock award activity for the three and nine months ended September 30, 20172020 and 2016:2019:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Shares of unrestricted stock granted40,843 22,075 117,270 52,986 
Weighted average grant date fair value per share$2.38 $7.19 $2.28 $7.89 

12.    Earnings (Loss) Per Share
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Shares of unrestricted stock granted 14,184
 14,868
 42,432
 42,096
Weighted average grant date fair value per share $7.40
 $7.06
 $7.54
 $7.48


Employee Stock Purchase Plan

In 2008, we adopted a new employee stock purchase plan (ESPP) upon expiration of our previous plan. Under the ESPP as approved in 2008, 300,000 shares of common stock were authorized for purchase by eligible employees. In May 2017, our shareholders authorized an additional 300,000 shares for a total of 600,000 shares authorized under the ESPP plan. As of September 30, 2017, 344,847 shares were available for grant. Eligible employees may purchase shares of our common stock at a 15% discount through payroll deductions. No employee may purchase more than $25,000 worth of shares, or more than 10,000 total shares, in any calendar year. As allowed under the ESPP, a participant may elect to withdraw from the plan, effective for the purchase period in progress at the time of the election with all accumulated payroll deductions returned to the participant at the time of withdrawal. During the three months ended September 30, 2017 and 2016, there were 21,371 and 17,060 shares issued and approximately $14,000 and $11,000 was recognized in compensation expense related to the discount associated with the plan in each year, respectively. During the nine months ended September 30, 2017 and 2016, 33,925 and 29,795 shares were issued, and $30,000 and $25,000 were recognized in compensation expense related to the discount associated with the plan in each year, respectively.

  Three Months Ended
September 30,		 Nine Months Ended September 30,
  2017 2016 2017 2016
Shares of stock sold to employees 21,371
 17,060
 33,925
 29,795
Weighted average fair value per ESPP award $6.25
 $5.98
 $6.16
 $5.97

Warrants

In January 2015, in connection with Shelbourne Falcon’s purchase of equity interests in RL Venture, we issued Shelbourne warrants to purchase 442,533 shares of common stock. The warrants have a five-year term from the date of issuance and a per share exercise price of $6.78. The warrants have been classified as equity due to required share settlement upon exercise. Accordingly, the estimated fair value of the warrants was recorded in additional paid in capital upon issuance, and we do not recognize subsequent changes in fair value in our financial statements. As of September 30, 2017, all warrants were still outstanding.


12.Earnings (Loss) Per Share


The following table presents a reconciliation of the numerators and denominators used in the basic and diluted net income (loss) per share computations for the three and nine months ended September 30, 20172020 and 20162019 (in thousands, except per share data):
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Numerator - basic and diluted:
Net loss$(3,285)$(6,652)$(16,751)$(14,982)
Net loss attributable to noncontrolling interest148 2,980 1,553 4,040 
Net loss attributable to RLH Corporation$(3,137)$(3,672)$(15,198)$(10,942)
Denominator:
Weighted average shares - basic25,397 25,112 25,311 24,859 
Weighted average shares - diluted25,397 25,112 25,311 24,859 
Loss per share - basic$(0.12)$(0.15)$(0.60)$(0.44)
Loss per share - diluted$(0.12)$(0.15)$(0.60)$(0.44)
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Numerator - basic and diluted:        
Net income (loss) from continuing operations $3,219
 $3,251
 $(2,032) $(3,516)
Less: net (income) loss attributable to noncontrolling interests (871) (1,207) 507
 (645)
Net income (loss) from continuing operations attributable to RLH Corporation 2,348
 2,044
 (1,525) (4,161)
Income from discontinued operations 408
 262
 611
 1,831
Net income (loss) attributable to RLH Corporation 2,756
 2,306
 (914) (2,330)
Fair value adjustment of share component of contingent consideration (1)
 987
 —
 567
 —
Net income (loss) attributable to RLH Corporation for diluted earnings (loss) per share (1)
 $3,743
 $2,306
 $(347) $(2,330)
         
Denominator:        
Weighted average shares - basic 23,609
 20,228
 23,542
 20,157
Weighted average shares - diluted (1)
 24,176
 20,613
 23,542
 20,157
         
Earnings (loss) per share - basic        
Net income (loss) from continuing operations attributable to RLH Corporation $0.10
 $0.10
 $(0.06) $(0.21)
Income from discontinued operations 0.02
 0.01
 0.02
 0.09
Net income (loss) attributable to RLH Corporation $0.12
 $0.11
 $(0.04) $(0.12)
         
Earnings (loss) per share - diluted (1)
        
Net income (loss) from continuing operations attributable to RLH Corporation $0.10
 $0.10
 $(0.06) $(0.21)
Income from discontinued operations 0.01
 0.01
 0.02
 0.09
Net income (loss) attributable to RLH Corporation $0.11
 $0.11
 $(0.04) $(0.12)
(1) For the three and nine months ended September 30, 2017, the effect of the fair value adjustment of share component of contingent consideration is excluded from the calculation of diluted earnings per share as it would be antidilutive.

For the three months ended September 30, 2017, we recognized $1.0 million of expense related to the change in fair value of the share component of the contingent consideration (classified within Acquisition and integration costs on our Consolidated Statement of Comprehensive Income (Loss)), as the result of the $1.30 per share increase in our stock price from June 30, 2017 to September 30, 2017.

For the nine months ended September 30, 2017, we recognized $0.6 million of income related to the change in fair value of the share component of the contingent consideration (classified within Acquisition and integration costs on our Consolidated Statement of Comprehensive Income (Loss)), as the result of the $0.30 per share increase in our stock price from December 31, 2016 to September 30, 2017.


The following table presents options to purchase common shares, restricted stock units outstanding, performance stock units outstanding, and warrants to purchase common shares and contingently issuable shares included in the earnings per share calculation, as well as the amount excluded from the dilutive earnings per share calculation ifas they were considered antidilutive for the three and nine months ended September 30, 20172020 and 2016.

2019. No options to purchase common shares, restricted stock units outstanding, performance stock units outstanding or warrants to purchase common shares were considered dilutive for the periods presented due to the net losses attributable to RLH Corporation.
18

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Stock Options(1)
Stock Options(1)
Antidilutive awards outstandingAntidilutive awards outstanding0 81,130 0 81,130 
Total awards outstandingTotal awards outstanding0 81,130 0 81,130 
Restricted Stock Units(2)
Restricted Stock Units(2)
Antidilutive awards outstandingAntidilutive awards outstanding329,386 738,544 329,386 738,544 
Total awards outstandingTotal awards outstanding329,386 738,544 329,386 738,544 
Performance Stock Units(3)
Performance Stock Units(3)
Antidilutive awards outstandingAntidilutive awards outstanding0 314,684 0 314,684 
Total awards outstandingTotal awards outstanding0 314,684 0 314,684 
Warrants(4)
Warrants(4)
Antidilutive awards outstandingAntidilutive awards outstanding0 442,533 0 442,533 
Total awards outstandingTotal awards outstanding0 442,533 0 442,533 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Stock Options(1)
        
Dilutive awards outstanding —
 —
 —
 —
Antidilutive awards outstanding 113,978
 149,858
 113,978
 149,858
Total awards outstanding 113,978
 149,858
 113,978
 149,858
        
Restricted Stock Units(2)
        
Dilutive awards outstanding 535,035
 342,321
 —
 —
Antidilutive awards outstanding 753,717
 753,398
 1,288,752
 1,095,719
Total awards outstanding 1,288,752
 1,095,719
 1,288,752
 1,095,719
        
Performance Stock Units(3)
        
Dilutive awards outstanding —
 —
 —
 —
Antidilutive awards outstanding —
 —
 —
 —
Total awards outstanding —
 —
 —
 —
        
Warrants(4)
        
Dilutive awards outstanding 31,702
 34,761
 —
 —
Antidilutive awards outstanding 410,831

407,772

442,533

442,533
Total awards outstanding 442,533
 442,533
 442,533
 442,533
        
Shares for Vantage Contingent Consideration(5)
        
Dilutive awards outstanding —
 7,500
 —
 —
Antidilutive awards outstanding 483,000
 682,500
 483,000
 690,000
Total awards outstanding 483,000
 690,000
 483,000
 690,000
        
Total dilutive awards outstanding 566,737
 384,582
 —
 —
(1) All stock options for the three and nine months ended September 30, 2020 and 2019 were anti-dilutive as a result of the net loss attributable to RLH Corporation for these periods, and as a result of the RLH Corporation weighted average share price during the reporting periods.period.
(2)Restricted stock units were anti-dilutive for the three and nine months ended September 30, 20172020 and 20162019 due to the net loss attributable to RLH Corporation in the reporting periods. If we had reported net income for the three and nine months ended September 30, 20172020, then 25,092 and 2016 then 444,608 and 443,66817,002 units, respectively, would have been dilutive. If we had reported net income for the three and nine months ended September 30, 2019, then 12,771 and 337,035 units, respectively, would have been dilutive.
(3)All performance Performance stock units are considered anti-dilutive and are not included in the weighted average diluted shares outstanding until the performance targets have beenare met. Performance targets relate to total company annual earnings and the number of new franchise agreements signed in 2017.
(4) All warrantsPSUs were anti-dilutive for the nine months ended September 30, 20172020 due to the net loss attributable to RLH Corporation in the reporting period. If we had reported net income for the nine months ended September 30, 2020, then 3,393 units would have been dilutive. Certain PSUs were anti-dilutive for the three and 2016 duenine months ended September 30, 2019 as their respective performance targets had not been achieved during those periods, in addition to the net loss attributable to RLH Corporation in the reporting periods. If we had reported net income and the performance targets had been met for the three and nine months ended September 30, 2019 then 96,141 and 92,907 units, respectively, would have been dilutive.
(4) All warrants expired without being exercised in January 2020. All warrants for the three and nine months ended September 30, 2019 were anti-dilutive due to the net loss attributable to RLH in each reporting period. If we had reported net income for the three and nine months ended September 30, 2019, 0 and 47,831 warrants, respectively, would have been dilutive.

13.    Income Taxes

We recognized income tax expense of $18,000 and $486,000 for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019 we recognized income tax (benefit) expense of $(586,000) and $676,000, respectively. On March 27, 2020, President Trump signed into law the CARES Act, which generally allows for unlimited use of net operating losses generated in 2019 and 2020 as well as a five year carryback provision and shortening the recovery period for qualified improvement property. The income tax benefit recognized for the nine months ended September 30, 2017 and 2016 then 24,750 and 30,453 units, respectively, would have been dilutive.
(5) As part of the Vantage acquisition, up to an additional 690,000 shares may be issued with the one-year and two-year contingent consideration earn outs (see Note 16). These shares are not included in basic shares outstanding until the period the contingency2020 is resolved. The Year 1 contingent consideration was preliminarily determined to have been earned as of September 30, 2017, resulting in 414,000 shares included in basic shares outstanding on a weighted average basis. For purposes of calculating earnings per share, the income or expense recognized during the period that isprincipally related to the changes in the fair valueprovisions of the share component of the contingent consideration is added back to net income/loss. For the three months ended September 30, 2017, we recognized $1.0 million of expense related to the change in fair value of the share component of the contingent consideration (classified within Acquisition and integration costs on our Consolidated Statement of Comprehensive Income (Loss)), as the result of the $1.30 per share increase in our stock price from June 30, 2017 to September 30, 2017. For the nine months ended September 30, 2017, we recognized $0.6 million of income related to the change in fair value of the share component of the contingent consideration (classified within Acquisition and integration costs on our Consolidated Statement of Comprehensive Income (Loss)), as the result of the $0.30 per share increase in our stock price from December 31, 2016 to September 30, 2017.CARES Act.



13.Income Taxes

We recognized anThe income tax provision of $174,000 and $166,000expense recognized for the three months ended September 30, 20172020 and 2016. For the three and nine months ended September 30, 2017 and 2016 we recognized an income tax provision of $513,000 and $258,000. The income tax provision2019 varies from the statutory rate primarily due to a fullpartial valuation allowance against our deferred tax assets, as well as for deferred tax expense associated with our acquired indefinite-lived intangible assets, which are amortized for tax purposes but not for U.S. GAAP purposes.


We have federal operating loss carryforwards, which will expire beginning in 2032, state operating loss carryforwards, which will expire beginning in 2017,2020, and both federal and state tax credit carryforwards, which will begin to expire in 2024.


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14.Fair Value


14.    Fair Value

Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). We measure our assets and liabilities using inputs from the Level 1, Level 2 and Level 3 of the fair value hierarchy.


EstimatedCash, Restricted cash and Accounts receivable carrying values approximate fair valuesvalue due to the short-term nature of financial instruments (in thousands) are shown in the table below.these items. We estimate the fair value of our notesNotes receivable using expected future payments discounted at risk-adjusted rates, both of which are Level 3 inputs. We estimate the fair value of our long-termLong-term debt and capital lease obligations using expected future payments discounted at risk-adjusted rates, both of which are Level 3 inputs. The fair values provided below are not necessarily indicative of the amounts we 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. Estimated fair values of financial instruments are shown in the table below (in thousands).
 September 30, 2020December 31, 2019
 Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Financial assets:
Notes receivable$424 $424 $5,709 $5,709 
Financial liabilities:
Debt$5,600 $5,480 $33,248 $32,737 
Total finance lease obligations20 20 150 150 

15.    Related Party Transactions
  September 30, 2017 December 31, 2016
  
Carrying
Amount
 Fair
Value		 
Carrying
Amount
 
Fair
Value
Financial assets:        
Notes receivable $1,572
 $1,572
 $1,295
 $1,295
Financial liabilities:        
Total debt $112,875
 $112,307
 $110,598
 $107,858
Total capital lease obligations $1,030
 $1,030
 $1,147
 $1,147


15.Related Party Transactions

All fourDuring the fourth quarter of 2018, we transitioned management of our joint ventures -company operated Hotel RL Venture, RLS Atla Venture, RLS Balt VentureBaltimore Inner Harbor and RLSHotel RL Washington DC Venture - have agreedfrom RL Management, Inc., to pay to Shelbourne Capital,Merritt Hospitality, LLC (Shelbourne Capital)("Merritt"), an investor relations fee each month equal to 0.50%affiliate of its total aggregate revenue. The amount Shelbourne Capital earned from all four joint venturesHEI Hotels and Resorts, of which one of the members of our Board of Directors, Ted Darnall, is currently the Chief Executive Officer. Additionally, during the three months ended September 30, 2017 and 2016 totaled $134,000 and $221,000, respectively. The amount Shelbourne Capital earned from all four joint ventures during the nine months ended September 30, 2017 and 2016 totaled $344,000 and $423,000, respectively. Columbia Pacific Opportunity Fund, LP, onefirst quarter of 2019, management of our largest shareholders, is an investor in Shelbourne Falcon, our minority partner incompany operated hotel Red Lion Hotel Seattle Airport was also transitioned from RL Venture.Management, Inc. to Merritt. During the three months ended September 30, 20172020 and 2016, Shelbourne Capital earned $117,0002019, we paid $143,000 and $190,000 from RL Venture$307,000, respectively, in each period.management fees to Merritt for management of these properties. During the nine months ended September 30, 20172020 and 2016, Shelbourne Capital earned $291,0002019, we paid $465,000 and $366,000 from RL Venture$847,000, respectively, in each period.management fees to Merritt for management of these properties.


RL Venture agreedAdditionally, as of September 30, 2020, 4 hotels managed by Merritt purchased services provided by us through our all-in-one cloud-based hospitality management suite, Canvas Integrated Systems, operated by our wholly owned subsidiary, RLabs, Inc.. During the three months ended September 30, 2020 and 2019, we recognized revenue of $260,000 and $154,000, respectively, for services sold to pay CPA Development, LLC,these hotels. During the nine months ended September 30, 2020 and 2019, we recognized revenue of $657,000 and $480,000, respectively, for services sold to these hotels. Amounts owed to RLHC by Merritt as of September 30, 2020 and December 31, 2019 were $264,000 and $187,000, respectively.

On May 31, 2019 we executed a mortgage loan with a principal and accrued exit fee of $17.4 million with CP Business Finance I, LP, an affiliate of Columbia Pacific Opportunity Fund, LP, a construction management feewhich, to our knowledge, currently holds 500,000 shares of $200,000 related to the renovation projects. No payment was due from RL Venture to CPA Development, LLC during the three and nine months ended September 30, 2017,RLH common stock. Alexander B. Washburn, who served as the obligation was fully paid by the end of 2016. RL Venture paid $11,000 and $78,000 for the construction management fee during the three and nine months ended September 30, 2016, respectively.

In May 2015, we entered into a management agreement with the owner (the LLC entity) of Red Lion Hotel Woodlake Conference Center Sacramento. A member of our boardBoard of directorsDirectors from May 2015 to April 2019, is a 50% ownerone of the entity thatmanaging members of Columbia Pacific Advisor, LLC, which serves as the investment manager member of Columbia Pacific Opportunity Fund, LP. This debt is no longer outstanding.


20

16.    Dispositions

In the LLC entity. Duringfirst quarter of 2020, we continued the three and nine months ended September 30, 2016, we recognized management fee and brand marketing fee revenue from the LLC entityexecution of $30,000 and $92,000. On December 12, 2016 the LLC permanently closed the Red Lion Hotel Woodlake.

Effective March 2016, our wholly owned subsidiary, RL Management entered into a one-year contract to manage the Hudson Valley Resort and Spa, a hotel located in Kerhonkson, New York. Following the initial one-year term, we continueasset sales initiative consistent with our previously stated business strategy to manage the

propertyfocus on a month-to-month basis. The hotel is owned by HNA Hudson Valley Resort & Training Center LLC, an affiliate of HNA RLH Investments LLC, one of our largest shareholders, and is controlled by HNA Group North America LLC, for which Enrico Marini Fichera, one of our directors, servesmoving towards operations as the Head of Investments. Under that contract, our subsidiary is entitled toprimarily a monthly management fee equal to $8,333 or three percent of the hotel’s gross operating revenues, whichever is greater. During the three and nine months ended September 30, 2017, we recognized management fee revenue from HNA Hudson Valley Resort & Training Center LLC of $33,000 and $83,000. During the three and nine months ended September 30, 2016, we recognized management fee revenue from HNA Hudson Valley Resort & Training Center LLC of $35,000 and $65,000.

The total amounts receivable from related parties, primarily related to hotel management agreements, were $1.8 million and $1.9 million at September 30, 2017 and December 31, 2016, and are classified within Accounts receivable from related parties on our Consolidated Balance Sheets.

16.Business Acquisition

On September 30, 2016 (the close date), we (i) acquired selected assets and assumed certain liabilities of Vantage Hospitality Group, Inc. (Vantage), a subsidiary of Thirty-Eight Street, Inc. (TESI) and (ii) acquired one brand name asset from TESI. Vantage is a hotel franchise company, and the additiondisposed of the Vantage assets substantially increasestwo hotels from our numbercompany operated hotels segment. These dispositions resulted in a combined net gain of franchise properties and provides us with a broader presence in the United States and Canada. We acquired over 1,000 hotel franchise and membership license agreements, as well as multiple brand names, including Americas Best Value Inn, Canadas Best Value Inn, Lexington Hotels & Inns, America's Best Inns & Suites, Jameson Inns, Country Hearth Inns & Suites, Vantage Hotels, Value Inn Worldwide, Value Hotel Worldwide, 3 Palms Hotels and Resorts and Signature Inn.$7.9 million

The purchase price totaled $40.2 million, including the following (in thousands):
  Purchase Price
Cash paid to Vantage at close date $10,300
Cash paid to TESI at close date 12,300
Total cash consideration at close date 22,600
Value of 690,000 shares to TESI at close date 5,800
Total consideration at close date 28,400
   
Fair value of contingent consideration 10,900
Assumption of Vantage obligation 900
Total purchase price $40,200

The acquisition was funded at closing with $22.6 million of cash on hand, of which $10.3 million was paid to Vantage and $12.3 million was paid to TESI and 690,000 shares of RLH Corporation stock paid to TESI, which was valued at $5.8 million, based on the closing price of RLH Corporation stock of $8.34 on the close date. The total purchase price was $40.2 million, which included the estimated fair value of $0.9 million for the assumption of an obligation related to a previous business acquisition of Vantage and the fair value of $10.9 million of primarily contingent consideration, the total of which is to be paid to TESI at the first and second anniversaries of the close date, based on the attainment of certain performance criteria. A minimum of $2 million of the additional consideration would not be contingent and would be paid in equal amounts at the first and second anniversaries of the close date. Payment of the contingent consideration is dependent on the retention of Vantage properties under franchise or membership license agreements, as determined by the room count at the first and second-year anniversary dates when compared with the room count at the close date, as follows:
  Year 1 Anniversary Year 2 Anniversary Total
Threshold Shares 
Cash(1)
 Shares 
Cash(1)
 Shares 
Cash(1)
90% of room count at close 414,000
 $4,000
 276,000
 $3,000
 690,000
 $7,000
80% of room count at close 310,500
 $3,000
 207,000
 $2,250
 517,500
 $5,250
Minimum —
 $1,000
 —
 $1,000
 —
 $2,000
(1) in thousands


If the room counts are below the 80% thresholds at each anniversary date, but the annual franchise revenue, measured as the most recent twelve months ending on the anniversary date, of the Vantage properties is equal to or exceeds the closing date revenue benchmark, then the contingent consideration would be paid at the anniversary date based on the 90% threshold in the table above.

The contingent consideration is measured at each anniversary date independent of the other measurement period and is recorded as a liability due to the expected payment of cash and a variable number of shares. Changes in the obligation are recognized within acquisition and integration costs in the Consolidated Statements of Comprehensive Income (Loss). At each reporting period, we are required to assess the fair value of the liability and record any changes in fair value in our Consolidated Statement of Comprehensive Income (Loss). For the third quarter 2017, we recognized $1.2 million in expense associated with our updated assessment, including $1.0 million of expense related to the change in fair value of the share component of the contingent consideration (classified within Acquisition and integration costs on our Consolidated Statements of Comprehensive Income (Loss)), as the result of the $1.30 per share increase in our stock price from June 30, 2017 to September 30, 2017. As of September 30, 2017, we have preliminarily determined the Year 1 anniversary contingent consideration had been earned at the full amount. The value of the Year 1 anniversary consideration was $7.6 million, including $4.0 million in cash and $3.6 million in shares of RLH Corporation stock, based on the closing price of $8.65 per share on September 30, 2017. Once agreed to between the Vantage sellers and us, as specified in the asset purchase agreement, the shares of RLH Corporation stock will be issued and the cash transferred.

The Year 2 contingent consideration was $4.9 million at September 30, 2017. At December 31, 2016, the full contingent consideration was valued at $11.2 million.

Following the closing of the acquisition, Roger J. Bloss and Bernard T. Moyle were appointed to executive management positions at RLH Corporation, and Messrs. Bloss and Moyle also have ownership interests in TESI. Therefore, the contingent consideration obligations are classified as related party liabilities within our Consolidated Balance Sheets.

The following supplemental pro forma results are based on the individual historical results of RLH Corporation and Vantage, with adjustments to give effect to the combined operations as if the acquisition had been consummated on January 1, 2016 (unaudited):
  Three Months Ended
September 30, 2016		 Nine Months Ended
September 30, 2016
  (in thousands)
Revenue $53,692
 $147,463
Income (loss) before income taxes $5,880
 $2,188

17.Discontinued Operations and Assets and Liabilities Held for Sale

On October 3, 2017, we completed the sale of certain specified liabilities and substantially all of the assets of our Entertainment segment, previously composed of WestCoast Entertainment and TicketsWest. As such, the results of the Entertainment business are reported as discontinued operations, and the assets and liabilities are classified as held for sale for all periods presented in this quarterly report on Form 10-Q. We will recognize an estimated gain on sale of $1.1 million in the fourth quarter of 2017, based on cash proceeds of $6.0 million, less estimated transaction costs of $0.7 million, and $4.2 million of net assets.



The following summarizes the resultsresult of operations for the Entertainment business segment included intwo properties sold during the Consolidated Statementsfirst quarter of Comprehensive Income (Loss) as discontinued operations (in thousands).
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2017 2016 2017 2016
Entertainment revenue $2,969
 $1,936
 $9,050
 $13,014
Operating expenses:        
Entertainment 2,555
 1,605
 8,372
 11,183
Other —
 13
 —
 14
Depreciation and amortization 7
 43
 64
 145
Gain on asset dispositions, net (1) (1) 3
 (1)
Total operating expenses 2,561
 1,660
 8,439
 11,341
Operating income 408
 276
 611
 1,673
Interest expense —
 (12) —
 (12)
Other income (expense), net —
 (2) —
 170
Income from discontinued operations $408
 $262
 $611
 $1,831

The following table presents the assets and liabilities of the Entertainment business segment included in the Consolidated Balance Sheet as Assets held for sale and Liabilities held for sale2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Pre-tax income (loss)$(104)$(6,086)$6,003 $(6,562)
Net (income) loss attributable to noncontrolling interest0 2,844 1,152 3,212 
Net income (loss) attributable to RLHC$(104)$(3,242)$7,155 $(3,350)


21

  September 30,
2017		 December 31,
2016
Accounts receivable, net $381
 $1,656
Inventories 16
 51
Prepaid expenses and other 266
 247
Property and equipment, net 228
 247
Goodwill 3,162
 3,162
Intangible assets 6
 6
Other assets, net 226
 216
Assets held for sale $4,285
 $5,585


  September 30,
2017		 December 31,
2016
Accounts payable $318
 $203
Accrued payroll and related benefits 82
 210
Other accrued liabilities 15
 —
Deferred income and other long-term liabilities
 324
 273
Liabilities held for sale $739
 $686
     
Other accrued entertainment liabilities held for sale $6,757
 $11,334

The following table represents the cash flow items associated with discontinued operations of the Entertainment business segment for the nine months ended September 30, 2017 and 2016 (in thousands).
  Nine Months Ended
  September 30,
  2017 2016
Depreciation and amortization $64
 $145
Capital expenditures $101
 $26


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q includes forward-looking statements.statements, including statements concerning operational and financial impacts of the COVID-19 pandemic. We have based these statements on our current expectations, assumptions, 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 quarterly report, these are forward-looking statements. Many possible events or factors, including the continuing effects of the COVID-19 pandemic and those discussed in “Risk Factors” under Item 1A below, under Item 1A of our annual report on Form 10-K for the year ended December 31, 2016,2019, which we filed with the Securities and Exchange Commission (“SEC”) on March 31, 2017,February 27, 2020, and in our subsequent filings with the Securities and Exchange Commission 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.statements, which speak only as of the date of this quarterly report. We undertake no obligation to update or revise any forward-looking statements except as required by law.


In this report, "we", "us", "our","we," "our, company"" "us," "our company," "RLHC," and "RLH Corporation" refer to Red Lion Hotels Corporation, doing business as RLH Corporation, and as the context requires all, of its consolidated subsidiaries as follows:


Wholly-ownedWholly owned subsidiaries:
•Red Lion Hotels Holdings, Inc.
•Red Lion Hotels Franchising, Inc.
•Red Lion Hotels Management, Inc. (RL Management)("RL Management")
•Red Lion Hotels Limited Partnership
•RL Baltimore LLC ("RL Baltimore")
•WestCoast Hotel Properties, Inc.
•Red Lion Anaheim, LLC
•RLabs, Inc.

Joint venture entities:
•RL Venture LLC (RL Venture)("RL Venture") in which we hold a 55% member interest
•RLS Atla Venture LLC (RLS("RLS Atla Venture)Venture") in which we hold a 55% member interest
•RLS Balt Venture LLC (RLS Balt Venture) in which we hold a 73% member interest
•RLS DC Venture LLC (RLS("RLS DC Venture)Venture") in which we hold a 55% member interest


The terms "the network",network," "systemwide hotels"hotels," "system of hotels," or "network of hotels" refer to our entire group of owned, managed and franchised hotels.


The following discussion and analysis should be read in connection with our unaudited condensed consolidated financial statements and the condensed notes thereto and other financial information included elsewhere in this quarterly report, as well as in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2016,2019, which are included in our annual report on Form 10-K for the year ended December 31, 2016.2019.


COVID-19 Update

COVID-19 was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The economic impact of the pandemic thus far has been extremely punitive to travel related businesses across the nation, significantly affecting the operating results of companies within the hospitality industry, including our operating results and the operating results of our franchisees. The measures enacted by most governments to combat the pandemic have included intensive restrictions on travel, required closure of businesses deemed non-essential, and shelter in place orders for civilians.

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We have undertaken a series of organizational changes and cost cutting measures to mitigate the impact of the COVID-19 pandemic on our operating results, including changes to senior management, a reduction in force and the consolidation of office space. As our business is reliant in part on the financial success and cooperation of our franchisees, we have also implemented policy changes to address the impact of the pandemic on their financial condition, including the implementation of a fee deferral program to certain of our franchisees in which billings related to fees for March through June of 2020 could be deferred and paid ratably over the following nine months, temporary fee reductions for review responses, guest relations fees, and certain other fees, and a delay in implementation of capital intensive brand standards. These changes have and will continue to reduce our cash flow, as our franchisees defer paying royalty fees to future periods and take advantage of temporary fee reductions. The COVID-19 pandemic has also directly affected revenues, as our midscale brand hotels typically pay royalties and marketing fees as a percentage of gross rooms revenue, and revenues at our Company operated hotels have been adversely effected by the overall reduction in travel.Our financial results have also been affected and may continue to be effected due to the recognition of impairment losses on Company operated hotels, and increase in bad debt reserves, as a result of the negative impacts of COVID-19 on business travel.

The impact of the pandemic is ongoing, and the extent to which the COVID-19 pandemic further impacts our business, operations and financial results will depend on numerous evolving factors that we are not able to accurately predict, including the length of travel restrictions and the continuation or new imposition of government-mandated stay-at-home orders, the duration and spread of the virus, and the extent to which people are willing to resume travel and hotel stays, as well as the financial condition and recovery of our franchisees. Given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows for the foreseeable future. However, we expect it will continue to have a material, adverse impact on future revenue growth as well as overall profitability.

Introduction


We are a NYSE-listed hospitality and leisure company (ticker symbol: RLH) doing business as RLH Corporation and primarily engaged, through our subsidiaries, in the management, franchising and ownership of hotels underof our proprietary brands, including the following proprietary brands:brands that are being actively sold in the United States and Canada: Hotel RL, Red Lion Hotels, Red Lion Inn & Suites, GuestHouse Extended Stay, Americas Best Value Inn ("ABVI"), Canadas Best Value Inn ("CBVI"), Signature and Signature Inn, and Knights Inn.
Ÿ Hotel RL
Ÿ America's Best Inn & Suites
Ÿ Red Lion Hotels
Ÿ Signature Inn
Ÿ Red Lion Inn & Suites
Ÿ Jameson Inns
Ÿ GuestHouse
Ÿ Country Hearth Inns & Suites
Ÿ Settle Inn
Ÿ 3 Palm Hotels
Ÿ Americas Best Value Inn
Ÿ Value Inn Worldwide
Ÿ Canadas Best Value Inn
Ÿ Value Hotel Worldwide
Ÿ Lexington Hotels & Inns

A summary of our properties as of September 30, 2017, including the approximate number of available rooms, is provided below:
  Company Operated Franchised Total Systemwide
  Hotels Total Available Rooms Hotels Total Available Rooms Hotels Total Available Rooms
Beginning quantity, January 1, 2017 20
 4,200
 1,117
 68,900
 1,137
 73,100
Newly opened properties —
 —
 48
 3,500
 48
 3,500
Terminated properties —
 —
 (83) (5,800) (83) (5,800)
Ending quantity, September 30, 2017 20
 4,200
 1,082
 66,600
 1,102
 70,800
             
Executed franchise license and management agreements, nine months ended September 30, 2017:            
New franchise / management agreements 1
 100
 49
 3,300
 50
 3,400
Renewals / changes of ownership —
 —
 70
 5,000
 70
 5,000
Total executed franchise license agreements, nine months ended September 30, 2017 1
 100
 119
 8,300
 120
 8,400


We operate in two reportable segments:


•The franchised hotels segment is engaged primarily in licensing our brands to franchisees. This segment generates revenue from royalty, marketing, and other fees that are primarily based on a percentage of room revenue or on room count or on transaction count and are charged to hotel owners in exchange for the use of our brand and access to our marketing and central services programs. These central services and marketing programs include our reservation system, guest loyalty program, national and regional sales, revenue management tools, quality inspections, advertising and brand standards. Additionally, this segment includes our initial contracts for Canvas Integrated Systems.

•The company operated hotel segment derives revenues primarily from guest room rentals and food and beverage offerings at owned and leased hotels for which we consolidate results. Revenues arehave also been derived from management fees and related charges for hotels with which we contract to perform management services.
services, however our last management agreement terminated in February 2019.

The franchised hotels segment is engaged primarily in licensing our brands to franchisees. This segment generates revenue from franchise fees that are typically based on a percentage of room revenue and are charged to hotel owners in exchange for the use of our brand and access to our central services programs. These programs include our reservation system, guest loyalty program, national and regional sales, revenue management tools, quality inspections, advertising and brand standards.


Our remaining activities, none of which constitutes a reportable segment, have beenare aggregated into "other"."other."


On October 3, 2017, we completed the sale of certain specified liabilities and substantially all of the assets
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A summary of our Entertainment segment, previously composedopen franchise and company operated hotels from January 1, 2020 through September 30, 2020, including the approximate number of WestCoast Entertainmentavailable rooms, is provided below:
Midscale BrandEconomy BrandTotal
HotelsTotal Available RoomsHotelsTotal Available RoomsHotelsTotal Available Rooms
Beginning quantity, January 1, 202096 13,500 966 54,200 1,062 67,700 
Newly opened2 100 22 1,200 24 1,300 
Change in brand1 100 (1)(100)— — 
Terminated properties(14)(2,600)(116)(7,200)(130)(9,800)
Ending quantity, September 30, 202085 11,100 871 48,100 956 59,200 

A summary of activity relating to our open midscale franchise and TicketsWest, including ticketing agreements and engagement agreements with various entertainment venues, teams and artists located throughout the Western United States. As such, the resultscompany operated hotels by brand from January 1, 2020 through September 30, 2020 is provided below:
Midscale Brand HotelsHotel RLRed Lion HotelsRed Lion Inn and SuitesSignatureOtherTotal
Beginning quantity, January 1, 20209 39 40 4 4 96 
Newly opened— — 2 — — 2 
Change in brand— — 1 — — 1 
Terminated properties(1)(7)(4)— (2)(14)
Ending quantity, September 30, 20208 32 39 4 2 85 
Ending rooms, September 30, 20201,400 6,200 3,000 300 200 11,100 

A summary of the Entertainment segment are reported as discontinued operations and the assets and liabilities are classified as held for sale for all periods presented in this quarterly report on Form 10-Q. See Note 17 of Item 1: Condensed Notesactivity relating to Consolidated Financial Statements.our open economy franchise hotels by brand from January 1, 2020 through September 30, 2020 is provided below:

Economy Brand HotelsABVI and CBVIKnights InnCountry HearthGuest HouseOtherTotal
Beginning quantity, January 1, 2020657 232 47 19 11 966 
Newly opened14 8 — — — 22 
Change in brand— — — (1)— (1)
Terminated properties(74)(31)(4)(2)(5)(116)
Ending quantity, September 30, 2020597 209 43 16 6 871 
Ending rooms, September 30, 202031,600 12,800 2,100 1,200 400 48,100 
On October 5, 2017, we announced that we would be listing for sale 11
A summary of our owned hotels while working to retainexecuted franchise agreements on these assets. Thisfor the nine months ended September 30, 2020 is consistentprovided below:
Midscale BrandEconomy BrandTotal
Executed franchise license agreements, nine months ended September 30, 2020:
New locations3 20 23 
New contracts for existing locations6 100 106 
Total executed franchise license agreements, nine months ended September 30, 20209 120 129 

Overview

Consistent with the Company’sour previously stated business strategy to focus on movingmove towards operationsoperating as primarily a franchise company. Based on a preliminary reviewcompany, in the first quarter of 2020, we sold two of our remaining company operated hotels. On February 7, 2020, we sold the only hotel in our consolidated joint venture, RLS DC Venture, for $16.4 million. Using proceeds from the sale, together with the release of $2.3 million in restricted cash held by CP Business Finance I, LP, RLS DC Venture repaid the remaining outstanding principal balance and accrued exit fee under the RLH DC Venture loan agreement of $17.7 million.
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On February 27, 2020, we sold our leasehold interest in the Red Lion Anaheim for $21.5 million. Using net proceeds from the sale, the Company repaid the $10.0 million outstanding principal balance owing under the revolving line of credit with Deutsche Bank AG New York Branch, and other lenders party thereto (the "Line of Credit"). Upon repayment of the market, we estimateoutstanding balance, the aggregate valueLine of the 11 hotels is currently between $165Credit was terminated and $175 million. We expect that the completion of these sales would allow the companyfunds are no longer available to significantly reduce or eliminate long-term debt and to increase cash reserves for future franchise agreement growth initiatives.us.


Overview

Total revenue for the three months ended September 30, 2017 increased $7.4 million, or 17%, compared with the same period in 2016, driven by our franchised hotels segment, partially offset by decreases in our company operated hotels segment. For nine months ended September 30, 2017, total revenue increased $23.2 million, or 21%, driven by our franchised hotels segment, with the company operated hotels business generating lower revenue compared with 2016. In 2017, franchise revenues were favorably impacted by the brands acquired from Vantage Hospitality Group, Inc. (Vantage) in September 2016.

Revenue per available room (RevPAR) systemwide increased 1.6% for both the three and nine months ended September 30, 2017 when compared with the same periods in 2016. The RevPAR increase for the third quarter was primarily driven by improvement

of 2.5% in Average Daily Rate (ADR) and partially offset by 60 basis points in lower occupancy. For the year-to-date period in 2017, RevPAR improved as the result of an increase in ADR of 3.3%, with an offsetting 100 basis point decrease in occupancy.

RevPAR for company operated hotels on a comparable basis increased in the third quarter and first nine months of 2017 from the same periods in 2016, driven by increased ADR on a comparable basis for both periods, and for the first nine months of 2017 was partially offset by lower average occupancy.

Results of Operations


A summary of our Condensed Consolidated Statements of Comprehensive Income (Loss)Loss is provided below (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Total revenues$13,283 $32,863 $40,777 $87,772 
Total operating expenses16,508 37,374 56,455 98,345 
Operating loss(3,225)(4,511)(15,678)(10,573)
Other income (expense):
Interest expense(44)(1,699)(599)(3,690)
Loss on early retirement of debt— — (1,309)(164)
Other income, net2 44 249 121 
Loss before taxes(3,267)(6,166)(17,337)(14,306)
Income tax expense (benefit)18 486 (586)676 
Net loss(3,285)(6,652)(16,751)(14,982)
Net loss attributable to noncontrolling interest148 2,980 1,553 4,040 
Net loss and comprehensive loss attributable to RLH Corporation$(3,137)$(3,672)$(15,198)$(10,942)
Non-GAAP Financial Measures (1)
EBITDA$(714)$(831)$(9,282)$576 
Adjusted EBITDA$1,538 $5,899 $(8,517)$10,624 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Total revenue $51,024
 $43,672
 $133,434
 $110,247
Total operating expenses 45,850
 38,631
 129,401
 109,054
Operating income 5,174
 5,041
 4,033
 1,193
Other income (expense):        
Interest expense (2,119) (1,793) (6,114) (4,741)
Other income (loss), net 338
 169
 562
 290
Income (loss) from continuing operations before taxes 3,393
 3,417
 (1,519) (3,258)
Income tax expense 174
 166
 513
 258
Net income (loss) from continuing operations 3,219
 3,251
 (2,032) (3,516)
Net income from discontinued operations, net of tax 408
 262
 611
 1,831
Net income (loss) 3,627
 3,513
 (1,421) (1,685)
Less net (income) loss attributable to noncontrolling interests (871) (1,207) 507
 (645)
Net income (loss) and comprehensive income (loss) attributable to RLH Corporation $2,756
 $2,306
 $(914) $(2,330)
         
Non-GAAP Financial Measures (1)
        
EBITDA from continuing operations $10,580
 $9,243
 $18,948
 $14,523
Adjusted EBITDA from continuing operations $11,407
 $10,615
 $19,683
 $14,697
Adjusted net income (loss) $4,454
 $4,885
 $(686) $(1,511)
(1)The definitions of "EBITDA","EBITDA," and "Adjusted EBITDA" and "Adjusted net income (loss)" and how those measures relate to net income (loss) are discussed and reconciled under Reconciliation of Non-GAAP Financial Measures below.


For the three months ended September 30, 2017,2020, we reported a net incomeloss of $3.6$3.3 million, which included $1.2$0.9 million of acquisitiontransaction and integration costs. costs relating primarily to fees paid to advisors engaged to review and respond to bona fide inquiries received from parties considering an investment in or acquisition of the Company, a $0.7 million asset impairment on our Red Lion Hotel Seattle Airport as a result of the negative impact of the COVID-19 pandemic on the operating results of that hotel, $0.4 million of bad debt expense primarily related to terminated agreements, $0.3 million of stock based compensation, $0.2 million of employee separation costs, a $0.1 million loss on asset disposition, and $0.1 million of expense related to a non-income tax assessment.

For the three months ended September 30, 2016,2019, we reported a net incomeloss of $3.5$6.7 million, which included acquisitiona $5.4 million asset impairment on our Hotel RL Washington DC joint venture property, $0.9 million of stock based compensation, $0.8 million of bad debt expense and associated legal fees related to a reserve recognized in the third quarter of 2019 for certain amounts of accounts receivable, key money, and notes receivable for certain Inner Circle franchisees, $0.2 million of transaction and integration costs, of $1.4 million, and $0.2 million for the CFO transition and other one-time professional services costs.of expense related to a non-income tax assessment.


For the nine months ended September 30, 2017,2020, we reported a net loss of $1.4$16.8 million, which included $1.2$10.7 million of acquisitionbad debt expense related to reserves recognized for accounts receivable, key money, and notes receivable for certain Inner Circle franchisees and other customer balances determined to be uncollectible during the nine months ended September 30, 2020, a $2.5 million asset impairment on our Red Lion Hotel Seattle Airport as a result of the negative impact of the COVID-19 pandemic on the operating results of that hotel, $2.3 million of transaction and integration costs relating primarily to fees paid to advisors engaged to review and $0.1respond to bona fide inquiries received from parties considering an investment in or acquisition of the Company, a $1.3 million loss on early retirement of debt, $1.0 million of CFO transition costs. employee separation costs, $0.8 million of stock based compensation, and $0.3 million of expense related to a non-income tax assessment, partially offset by $7.5 million in gains primarily from the disposal of two hotel properties.
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For the nine months ended September 30, 2016,2019, we reported a net loss of $1.7$15.0 million, which included $1.7a $5.4 million asset impairment on our Hotel RL Washington DC joint venture property, $2.5 million of acquisition and integration costs. $0.6 million for the CFO transition and other one-time professional services costs, an environmental cleanup charge of $0.1stock based compensation, $1.0 million related to onea legal settlement, $0.8 million of our hotel properties,bad debt expense and associated legal fees related to a reserve recognized in the third quarter of 2019 for certain amounts of accounts receivable, key money, and notes receivable for certain Inner Circle franchisees, $0.5 million of expense related to a non-income tax assessment, $0.4 million of transaction and integration costs, and a net gain$0.2 million loss on early retirement of debt resulting from the salereplacement of intellectual property of $0.4 million.a mortgage loan at RLS DC Venture.


The above special items are excluded from operating results in Adjusted EBITDA and adjusted net income (loss). For the three months ended September 30, 2017,2020, Adjusted EBITDA was $11.4$1.5 million compared with $10.6$5.9 million in 2016. 2019. This decrease was due to franchise agreement terminations and the negative impact of COVID-19 on our operating results, as well as a decrease in profits resulting from hotels disposed of in the fourth quarter of 2019 and the first quarter of 2020.

For the nine months ended September 30, 2017,2020, Adjusted EBITDA was $19.7$(8.5) million compared with $14.7$10.6 million in 2016.2019. This decrease was due to franchise agreement terminations and the negative impact of COVID-19 on our operating results, along with $10.7 million of bad debt expense recognized to establish reserves for certain Inner Circle franchisees in bankruptcy and other customer balances determined to be uncollectible during the nine months ended September 30, 2020. Adjusted EBITDA was also negatively impacted by a decrease in profits resulting from hotels disposed of in the fourth quarter of 2019 and the first quarter of 2020.



Non-GAAP Financial Measures


EBITDA is defined as net income (loss), before interest, taxes, depreciation and amortization. We believe it is a useful financial performance measure due to the significance of our long-lived assets and level of indebtedness.


Adjusted EBITDA and Adjusted net income (loss) areis an additional measuresmeasure of financial performance. We believe that the inclusion or exclusion of certain special items, such as gains and losses on asset dispositions and impairments, is necessary to provide the most accurate measure of core operating results and as a means to evaluate comparative results. Adjusted EBITDA also excludes the effect of non-cash stock compensation expense. We believe that the exclusion of this item is consistent with the purposes of the measure described below.


EBITDA, Adjusted EBITDA and Adjusted net income (loss)EBITDA are commonly used measures of performance in our industry. We utilize these measures because management finds them a useful tool to calculate more meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core, ongoing operations. Our board of directors and executive management team consider Adjusted EBITDA to be a key performance metric and compensation measure. We believe they are a complement to reported operating results. EBITDA Adjusted EBITDA and Adjusted net income (loss)EBITDA are not intended to represent net income (loss) defined by generally accepted accounting principles in the United States (GAAP)of America ("GAAP"), and such information should not be considered as an alternative to reported information or any other measure of performance prescribed by GAAP. In addition, other companies in our industry may calculate EBITDA and, in particular, Adjusted EBITDA and Adjusted net income (loss) differently than we do or may not calculate them at all, limiting the usefulness of EBITDA Adjusted EBITDA and Adjusted net income (loss)EBITDA as comparative measures.


Comparable hotels are defined as properties that were operated by our company for at least one full calendar year as of the beginning of the current year other than hotels for which comparable results were not available. Comparable results excludes two hotels, one of which was sold in the fourth quarter of 2016, and one property that opened during the second quarter of 2016, as these properties had not been open at least one year as of the beginning of the current year. In addition, we exclude revenue earned and expenses incurred related to our hotel management agreements.
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We utilize these comparable measures because management finds them a useful tool to perform more meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core, ongoing operations. We believe they are a complement to reported operating results. Comparable operating results are not intended to represent reported operating results defined by GAAP, and such information should not be considered as an alternative to reported information or any other measure of performance prescribed by GAAP.


The following is a reconciliation of EBITDA and Adjusted EBITDA to net income (loss)loss for the periods presented (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net loss$(3,285)$(6,652)$(16,751)$(14,982)
Depreciation and amortization2,509 3,636 7,456 11,192 
Interest expense44 1,699 599 3,690 
Income tax expense (benefit)18 486 (586)676 
EBITDA(714)(831)(9,282)576 
Stock-based compensation (1)
265 941 840 2,503 
Asset impairment (2)
729 5,382 2,489 5,382 
Transaction and integration costs (3)
860 201 2,260 436 
Employee separation and transition costs (4)
227 — 1,023 35 
Loss on early retirement of debt (5)
— — 1,309 164 
Loss (gain) on asset dispositions (6)
107 1 (7,454)45 
Legal settlement expense (7)
— — — 952 
Non-income tax expense assessment (8)
64 205 298 531 
Adjusted EBITDA1,538 5,899 (8,517)10,624 
Adjusted EBITDA attributable to noncontrolling interests32 (660)76 (1,665)
Adjusted EBITDA attributable to RLH Corporation$1,570 $5,239 $(8,441)$8,959 
(1) Costs represent total stock-based compensation for each period. These costs are included within Selling, general, administrative and other expenses and Marketing, reservations and reimbursables on the Condensed Consolidated Statements of Comprehensive Loss.
(2) In the first and third quarters of 2020, we recognized impairments on our Red Lion Hotel Seattle Airport leased property. In the third quarter of 2019 we recognized an impairment on our Hotel RL Washington DC joint venture property.
(3) Transaction and integration costs incurred in 2020 relate primarily to fees paid to advisors engaged to review and respond to bona fide inquiries received from parties considering an investment in or acquisition of the Company.
(4) The costs recognized in 2020 relate to the accrual of severance payments due to our Chief Financial Officer upon her departure in March 2020 and to our Chief Operating Officer upon the announcement of his departure in September 2020, along with two reductions in force that were implemented in the first and second quarters of 2020. The costs recognized in 2019 relate to a reduction in force that was implemented in the second quarter of 2019. These costs are included within Selling, general, administrative and other expenses and Marketing, reservations and reimbursables on the Condensed Consolidated Statements of Comprehensive Loss.
(5) The Loss on early retirement of debt recognized in 2020 relates to unamortized deferred debt issuance costs and prepayment fees incurred related to the payoff of a secured debt agreement at RL Venture - Olympia and the outstanding balance on our Line of Credit. The loss recognized in 2019 relates to unamortized deferred debt issuance costs and prepayment fees incurred related to the payoff of a mortgage loan at RLS DC Venture, which was replaced through a new mortgage loan with a different lender.
(6) The gain primarily relates to the sale of two properties during the first quarter of 2020. There was no material activity during the nine months ended September 30, 2019 or the second and third quarters of 2020.
(7) Legal settlement expense relates to a settlement agreement with former hotel workers regarding a wage dispute in California. This expense is included in Company operated hotels expense on the Condensed Consolidated Statements of Comprehensive Loss.
(8) Costs relate to estimated non-income taxes we have concluded we are probable of being assessed. We accrued these estimated taxes in Selling, general, administrative and other expenses on the Condensed Consolidated Statements of Comprehensive Loss.

Franchise and Marketing, Reservations and Reimbursables Revenues
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2020201920202019
Royalty$4,058 $5,909 $11,999 $17,516 
Marketing, reservations and reimbursables5,271 8,300 15,549 22,632 
Other franchise692 2,016 2,167 3,772 

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  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Net income (loss) $3,627
 $3,513
 $(1,421) $(1,685)
Depreciation and amortization 4,660
 3,771
 13,742
 11,209
Interest expense 2,119
 1,793
 6,114
 4,741
Income tax expense (benefit) 174
 166
 513
 258
EBITDA from continuing operations 10,580
 9,243
 18,948
 14,523
Acquisition and integration costs (1)
 1,235
 1,413
 1,246
 1,653
Employee separation and transition costs (2)
 —
 221
 100
 617
Reserve for environmental cleanup (3)
 —
 —
 —
 128
Gain on asset dispositions (4)
 —
 —
 —
 (393)
Income from discontinued business unit (5)
 (408) (262) (611) (1,831)
Adjusted EBITDA from continuing operations 11,407
 10,615
 19,683
 14,697
Income from discontinued business unit (5)
 408
 262
 611
 1,831
Depreciation and amortization of discontinued business unit 7
 43
 64
 145
Interest expense from discontinued business unit —
 12
 —
 12
Adjusted EBITDA from discontinued operations 415
 317
 675
 1,988
Adjusted EBITDA from continuing & discontinued operations 11,822
 10,932
 20,358
 16,685
Adjusted EBITDA attributable to noncontrolling interests (3,142) (3,155) (6,110) (6,137)
Adjusted EBITDA attributable to RLH Corporation $8,680
 $7,777
 $14,248
 $10,548
         
(1)  On September 30, 2016 RLH Corporation acquired Vantage. Net expenses associated with the acquisition and changes in the fair value of contingent consideration are included within Acquisition and integration costs on the Consolidated Statements of Comprehensive Income (Loss).
(2)  During the third quarter of 2016, RLH Corporation recorded separation costs of a former Executive Vice President and Chief Financial Officer and other legal and consulting services associated with the CFO transition. The costs recorded for the nine months ended September 30, 2017 consisted of legal and consulting services associated with the CFO transition.
(3)  In the first quarter of 2016, a reserve was recorded for environmental cleanup at one of the hotel properties.
(4)  In the second quarter of 2016, RLH Corporation recorded a gain on sale of intellectual property, net of brokerage fees, of $0.4 million, included within Gain on asset dispositions, net on the Consolidated Statements of Comprehensive Income (Loss).
(5)  On October 3, 2017, the Company completed the sale of its Entertainment business. Based on this sale, the results of operations of the Entertainment business are reported as discontinued operations for all periods presented.

The following isRoyalty revenue decreased $1.9 million or 31% and $5.5 million or 31%, and revenues from Marketing, reservations, and reimbursables revenue decreased by $3.0 million or 36% and $7.1 million or 31%, during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019, respectively. These decreases were primarily due to terminated franchise agreements in 2019 and the first nine months of 2020, along with the negative impact of COVID-19 on our midscale brand hotels that typically pay royalties and marketing fees as a reconciliationpercentage of Adjusted net income (loss) to net income (loss) forgross rooms revenue. Our economy hotels comprise 91% of total franchised properties and generally pay a fixed fee per room per month and therefore are less dependent on the periods presented (in thousands):
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
 Net income (loss) $3,627
 $3,513
 $(1,421) $(1,685)
Acquisition and integration costs (1)
 1,235
 1,413
 1,246
 1,653
Employee separation and transition costs (2)
 —
 221
 100
 617
Reserve for environmental cleanup (3)
 —
 —
 —
 128
Gain on asset dispositions (4)
 —
 —
 —
 (393)
Income from discontinued business unit (5)
 (408) (262) (611) (1,831)
Adjusted net income (loss) $4,454
 $4,885
 $(686) $(1,511)
         
(1)  On September 30, 2016 RLH Corporation acquired Vantage. Net expenses associated with the acquisition and changes in the fair value of contingent consideration are included within Acquisition and integration costs on the Consolidated Statements of Comprehensive Income (Loss).
(2)  During the third quarter of 2016, RLH Corporation recorded separation costs of a former Executive Vice President and Chief Financial Officer and other legal and consulting services associated with the CFO transition. The costs recorded for the nine months ended September 30, 2017 consisted of legal and consulting services associated with the CFO transition.
(3)  In the first quarter of 2016, a reserve was recorded for environmental cleanup at one of the hotel properties.
(4)  In the second quarter of 2016, RLH Corporation recorded a gain on sale of intellectual property, net of brokerage fees, of $0.4 million, included within Gain on asset dispositions, net on the Consolidated Statements of Comprehensive Income (Loss).
(5)  On October 3, 2017, the Company completed the sale of its Entertainment business. Based on this sale, the results of operations of the Entertainment business are reported as discontinued operations for all periods presented.

The following is a reconciliation of comparable company operated hotel revenue, expenseseffects that COVID-19 has on occupancy. Economy hotels represented 71% and operating profit (in thousands):
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
  (in thousands)
Company operated hotel revenue $37,244
 $37,157
 $94,214
 $93,515
less: revenue from sold and closed hotels —
 (1,338) —
 (2,791)
less: revenue from hotels without comparable results (1,307) (1,223) (3,528) (1,830)
less: revenue from managed properties (380) (235) (855) (982)
Comparable company operated hotel revenue $35,557
 $34,361
 $89,831
 $87,912
         
Company operated hotel operating expenses $25,284
 $25,363
 $70,450
 $71,035
less: operating expenses from sold and closed hotels —
 (761) —
 (1,949)
less: operating expenses from hotels without comparable results (1,108) (1,151) (3,096) (2,311)
less: operating expenses from managed properties (188) (237) (520) (866)
Comparable company operated hotel operating expenses $23,988
 $23,214
 $66,834
 $65,909
         
Company operated hotel direct operating profit $11,960
 $11,794
 $23,764
 $22,480
less: operating profit from sold and closed hotels —
 (577) —
 (842)
less: operating profit from hotels without comparable results (199) (72) (432) 481
less: operating profit from managed properties (192) 2
 (335) (116)
Comparable company operated hotel direct profit $11,569
 $11,147
 $22,997
 $22,003
Comparable company operated hotel direct margin % 32.5% 32.4% 25.6% 25.0%


Revenues

A detail75% of our revenuestotal royalty revenue for the three and nine months ended September 30, 2017 and 2016 is as follows (in thousands):2020, respectively.

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Company operated hotels $37,244
 $37,157
 $94,214
 $93,515
Other revenues from managed properties 1,054
 1,733
 3,047
 4,498
Franchised hotels 12,714
 4,766
 36,045
 12,194
Other 12
 16
 128
 40
Total revenues $51,024
 $43,672
 $133,434
 $110,247

Three months ended September 30, 2017 and 2016

During the third quarter of 2017, revenue from our company operated hotel segment was flat compared with the third quarter of 2016. This business benefited from increased ADR in 2017, which was almost entirely offset by the reduction of revenue from the sale of one owned property and the closure of one managed property in the fourth quarter of 2016.

On a comparable hotel basis, excluding the results of sold and closed properties and hotels for which comparable results were not available, revenue from our company operated hotel segment was higher ($1.2Other franchise revenues decreased $1.3 million or 3%) in the third quarter of 2017 compared with the third quarter of 2016 primarily due to the 3.0% increase in ADR66% and a slight increase in average occupancy.

Revenue from our franchised hotels segment increased $7.9 million to $12.7 million in the third quarter of 2017 compared with the same period in 2016. This increase was primarily due to an additional $7.8 million from the recently acquired Vantage brands, as well as growth in the number of franchises in the system.

Nine months endedSeptember 30, 2017 and 2016

During nine months ended September 30, 2017, revenue from our company operated hotel segment increased $0.7$1.6 million or 1% compared with the same period in 2016. The increase was driven primarily by new company operated locations that were opened in the second quarter of 2016, partially offset by two hotel properties sold or closed in the fourth quarter of 2016.

On a comparable hotel basis, excluding the results of sold and closed properties and hotels for which comparable results were not available, revenue from our company operated hotel segment was higher ($1.9 million or 2%) for the nine months ended September 30, 2017 compared with the same period in 2016 primarily due to the 3% increase in ADR and partially offset by a slightly lower average occupancy.

Revenue from our franchised hotels segment increased $23.9 million to $36.0 million in the nine months ended September 30, 2017 compared with the same period in 2016. This increase was primarily due to an additional $22.9 million from the recently acquired Vantage brands, as well as growth in the number of upscale and midscale franchises in the system.

Comparable Hotel Revenue (Non-GAAP Data)

Comparable hotels are defined as properties that were operated by our company for at least one full calendar year as of the beginning of the current year other than hotels for which comparable results were not available. Comparable results excludes two hotels, one of which was sold in thev fourth quarter of 2016, and one property that opened during the second quarter of 2016, as these properties had not been open at least one year as of the beginning of the current year. In addition, we exclude revenue earned and expenses incurred related to our hotel management agreements.

We utilize these comparable measures because management finds them a useful tool to perform more meaningful comparisons of past, present and future operating results and as a means to evaluate the results of core, ongoing operations. We believe they are a complement to reported operating results. Comparable operating results are not intended to represent reported operating results defined by GAAP, and such information should not be considered as an alternative to reported information or any other measure of performance prescribed by GAAP.


Average occupancy, ADR and RevPAR statistics are provided below on a comparable basis.
Comparable Hotel Statistics (1)
       
  Three Months Ended September 30,
  2017 2016
  
Average Occupancy(2)
  
ADR(3)
 
RevPAR(4)
 
Average
Occupancy(2)
 
ADR(3)
 
RevPAR(4)
Systemwide 69.9%  $99.40
 $69.46
 70.5% $96.95
 $68.38
              
Change from prior comparative period: 
Average Occupancy(2)
  
ADR(3)
 
RevPAR(4)
      
Systemwide (60.0)bps 2.5% 1.6%      

Comparable Hotel Statistics (1)
       
  Nine Months Ended September 30,
  2017 2016
  
Average Occupancy(2)
  
ADR(3)
 
RevPAR(4)
 
Average
Occupancy(2)
 
ADR(3)
 
RevPAR(4)
Systemwide 63.1%  $92.74
 $58.54
 64.1% $89.81
 $57.59
              
Change from prior comparative period: 
Average Occupancy(2)
  
ADR(3)
 
RevPAR(4)
      
Systemwide (100.0)bps 3.3% 1.6%      
(1)Certain operating results for the periods included in this report are shown on a comparable hotel basis. Comparable hotels are defined as hotels that were in the system for at least one full calendar year as of the beginning of the current year under materially similar operations.
(2)Average occupancy represents total paid rooms divided by total available rooms. Total available rooms represents the number of rooms available multiplied by the number of days in the reported period and includes rooms taken out of service for renovation.
(3)Average daily rate (ADR) represents total room revenues divided by the total number of paid rooms occupied by hotel guests.
(4)Revenue per available room (RevPAR) represents total room and related revenues divided by total available rooms.

Average occupancy, RevPAR, and ADR as defined below, are non-GAAP measures and are widely used in the hospitality industry and appear throughout this document as important measures to the discussion of our operating performance.

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 network of hotels.
RevPAR represents total room and related revenues divided by total available rooms. We use RevPAR as a measure of performance yield in our network of hotels.
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 network of hotels.
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 network of hotels and do not adjust total available rooms for rooms temporarily out of service for remodel or other short-term periods.
Comparable hotels are hotels that have been owned, leased, or franchised by us and were in operation for at least one full calendar year as of the beginning the current period other than hotels for which comparable results were not available.

Throughout this document and unless otherwise stated, RevPAR, ADR and average occupancy statistics are calculated using statistics for comparable hotels. Some of the terms used in our industry such as "upscale", "midscale" and "economy" are consistent with those used by Smith Travel Research (STR), an independent statistical research service that specializes in the lodging industry. These terms as used in our disclosures are consistent with the STR definitions.


Operating Expenses

Operating expenses generally include direct operating expenses for each of the operating segments, depreciation and amortization, hotel facility and land lease expense, gain or loss on asset dispositions, general and administrative expenses and acquisition and integration costs.

The detail of our operating expenses by major expense category as reported43% for the three and nine months ended September 30, 20172020 compared to the three and 2016nine months ended September 30, 2019, respectively, primarily due to the impact of terminated agreements, along with temporary fee reductions provided to our franchisees in response to COVID-19.

Company Operated Hotels Revenues
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2020201920202019
Company operated hotels revenues$3,262 $16,633 $11,062 $43,839 

Three months ended September 30, 2020 and 2019

During the three months ended September 30, 2020, revenue from our Company operated hotels segment decreased $13.4 million or 80% compared with the same period in 2019. The decrease was driven primarily by the disposal of two company operated hotel properties in the fourth quarter of 2019 and two additional company operated hotel properties in the first quarter of 2020. There were no hotel properties sold during the second or third quarter of 2020.

Revenues for the four company operated hotels held during the entirety of both periods decreased by $4.4 million, to $3.3 million in the third quarter of 2020 compared to $7.7 million in the third quarter of 2019. This decrease was primarily due to the negative impact of the COVID-19 pandemic on hotel occupancy.

Nine months ended September 30, 2020 and 2019

During the nine months ended September 30, 2020, revenue from our Company operated hotels segment decreased $32.8 million or 75% compared with the same period in 2019. The decrease was driven primarily by the disposal of two company operated hotel properties in the fourth quarter of 2019 and disposal of two additional company operated hotel properties in the first quarter of 2020.

Revenues for the four company operated hotels held during the entirety of both periods decreased by $9.6 million, to $8.7 million for the nine months ended September 30, 2020, compared to $18.3 million for the nine months ended September 30, 2019. This decrease was primarily due to the negative impact of the COVID-19 pandemic on hotel occupancy.
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Operating Expenses

Selling, General, Administrative and Other Expenses


Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2020201920202019
Franchise development and operations, including labor$1,136 $2,346 $4,268 $6,707 
General and administrative labor and labor-related costs1,214 1,681 4,435 5,182 
Stock-based compensation104 504 354 1,266 
Non-income tax expense assessment64 205 298 531 
Bad debt expense428 1,295 10,745 1,752 
Legal fees348 577 1,314 1,598 
Professional fees and outside services317 322 1,043 955 
Facility lease131 243 548 717 
Information technology costs219 193 651 628 
Other787 1,035 2,127 3,116 
Total Selling, general, administrative and other expenses$4,748 $8,401 $25,783 $22,452 

Three months ended September 30, 2020 and 2019

Selling, general, administrative and other expenses decreased by $3.7 million or 43% for the three months ended September 30, 2020 compared with three months ended September 30, 2019.

Franchise development and operations, including labor, General and administrative labor and labor-related costs, and Stock-based compensation decreased primarily as a result of reduced costs after the significant reduction in force implemented at the beginning of the second quarter of 2020 and executive terminations in the fourth quarter of 2019, partially offset by severance costs paid to employees.

Bad debt expense decreased primarily due to bad debt expense recognized related to a reserve established in the third quarter of 2019 for $0.8 million of accounts receivable, key money and notes receivable for certain Inner Circle franchisees. See Note 7. Revenue from Contracts with Customers within Item 8. Financial Statements for additional detail.

Other expenses decreased primarily due to various efficiencies and cost cutting initiatives implemented by management.

Nine months ended September 30, 2020 and 2019
29


Selling, general, administrative and other expenses increased by $3.3 million or 15% for the nine months ended September 30, 2020 compared with nine months ended September 30, 2019.

Franchise development and operations, including labor, General and administrative labor and labor-related costs, and Stock-based compensation decreased primarily as a result of reduced costs after the significant reduction in force implemented at the beginning of the second quarter of 2020 and executive terminations in the fourth quarter of 2019, partially offset by severance costs paid to employees.

Bad debt expense increased primarily due to $6.3 million of expense recognized in the first quarter of 2020 arising from a reserve recognized for accounts receivable, key money, and notes receivable for certain Inner Circle franchisees. The remaining increase relates primarily to reserves recognized for accounts and notes receivable related to large balances under legal dispute, aged balances from terminated agreements, or aged balances placed with third party collections. See Note 7. Revenue from Contracts with Customers within Item 8. Financial Statements for additional detail.

Other expenses decreased primarily due to various efficiencies and cost cutting initiatives implemented by management.

Company Operated Hotels Expenses

 Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
 2020201920202019
Company operated hotels expenses$2,961 $12,673 $11,778 $36,750 

Three months ended September 30, 2020 and 2019

Company operated hotels expenses decreased by $9.7 million or 77%. The decrease was driven primarily by the disposal of two company operated hotel properties in the fourth quarter of 2019 and two additional company operated hotel properties in the first quarter of 2020.

Operating expenses for the four company operated hotels held during the entirety of both periods decreased by $2.8 million, to $3.0 million in the third quarter of 2020 compared to $5.8 million in the third quarter of 2019, primarily due to the impact of COVID-19 on hotel operations and other cost cutting initiatives implemented by management.

Nine months ended September 30, 2020 and 2019

Company operated hotels expenses decreased by $25.0 million or 68%. The decrease was driven primarily by the disposal of two company operated hotel properties in the fourth quarter of 2019 and two additional company operated hotel properties in the first quarter of 2020.

Operating expenses for the four company operated hotels held during the entirety of both periods decreased by $6.3 million, to $9.4 million for the nine months ended September 30, 2020 compared to $15.7 million for the nine months ended September 30, 2019, primarily due to the impact of COVID-19 on hotel operations and other cost cutting initiatives implemented by management.

Marketing, Reservations and Reimbursables Expenses
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2020201920202019
Marketing, reservations and reimbursables expenses$4,594 $7,080 $14,143 $22,088 


Marketing, reservations and reimbursables expenses decreased by $2.5 million or 35% and $7.9 million or 36% during the three and nine months ended September 30, 2020, respectively. This decrease was primarily driven by terminated franchise agreements as well as a decrease in reservation volume due to the impact of COVID-19 and is as follows (in thousands):consistent with the decrease in Marketing, reservations and reimbursables revenues.
30

  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Company operated hotels $25,284
 $25,363
 $70,450
 $71,035
Other costs from managed properties 1,054
 1,733
 3,047
 4,498
Franchised hotels 8,898
 3,214
 26,300
 10,034
Other (9) 9
 (2) 30
Depreciation and amortization 4,660
 3,771
 13,742
 11,209
Hotel facility and land lease 1,201
 1,197
 3,604
 3,543
Gain on asset dispositions, net (113) (100) (334) (729)
General and administrative expenses 3,640
 2,031
 11,348
 7,781
Acquisition and integration costs 1,235
 1,413
 1,246
 1,653
Total operating expenses $45,850
 $38,631
 $129,401
 $109,054


Depreciation and Amortization
The summary of our comparablehotel operating expenses
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2020201920202019
Depreciation and amortization$2,509 $3,636 $7,456 $11,192 


Depreciation and amortization expense decreased $1.1 million or 31% and $3.7 million or 33% for the three and nine months ended September 30, 20172020 compared to the three and 2016 is as follows (in thousands):

Comparable Hotel Expenses (Non-GAAP Data)
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Company operated hotel operating expenses $25,284
 $25,363
 $70,450
 $71,035
less: operating expenses from sold and closed hotels —
 (761) —
 (1,949)
less: operating expenses from hotels without comparable results (1,108) (1,151) (3,096) (2,311)
less: operating expenses from managed properties (188) (237) (520) (866)
Comparable company operated hotel operating expenses $23,988
 $23,214
 $66,834
 $65,909

Comparable hotels are defined asnine months ended September 30, 2019, respectively. These decreases were driven primarily by the disposal of two company operated hotel properties that were operated by our company for at least one full calendar year as of the beginning of the current year other than hotels for which comparable results were not available. Comparable results excludes two hotels, one of which was sold in the fourth quarter of 2016,2019 and one property that openedtwo additional company operated hotel properties in the first quarter of 2020. This decrease was partially offset by additional depreciation recognized from other fixed assets placed in service during the secondremainder of 2019 and the first nine months of 2020.

Asset Impairment

Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2020201920202019
Asset impairment$729 $5,382 $2,489 $5,382 

We recognized impairment losses totaling $2.5 million on our Red Lion Hotel Seattle Airport leased property during the first and third quarters of 2020 and an impairment loss of $5.4 million on our Hotel RL Washington DC joint venture property in the third quarter of 2016, as these properties had not been open at least one year as of the beginning of the current year. In addition, we exclude revenue earned2019. See Note 5. Property and expenses incurred related to our hotel management agreements.Equipment within Item 8. Financial Statements for additional detail.


Loss (Gain) on Asset Dispositions, net

Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2020201920202019
Loss (gain) on asset dispositions, net$107 $1 $(7,454)$45 


We utilize these comparable measures because management finds themrecognized a useful tool to perform more meaningful comparisonsnet gain on asset dispositions of past, present and future operating results and as a means to evaluate$7.5 million for the results of core, ongoing operations. We believe they are a complement to reported operating results. Comparable operating results are not intended to represent reported operating results defined by GAAP, and such information should not be considered as an alternative to reported information or any other measure of performance prescribed by GAAP.

Threenine months ended September 30, 20172020, primarily from the disposal of two hotel properties during the first quarter of 2020. There was no material activity during the nine months ended September 30, 2019.

Transaction and 2016Integration Costs


Direct company operated hotel expenses were flat at $25.3 million
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)
2020201920202019
Transaction and integration costs$860 $201 $2,260 $436 

Transaction and $25.4 millionintegration costs incurred during the current year primarily relate to fees paid to advisors engaged to review and respond to bona fide inquiries received from parties considering an investment in or acquisition of the third quarters of 2017 and 2016. On a comparable basis, direct company operated hotel expenses were $24.0Company.

Interest Expense

Interest expense decreased $1.7 million in the third quarter of 20172020 compared with $23.2 million into the third quarter of 2016, driven by additional costs associated with higher revenue2019 and a minimum wage increase in Washington, partially offset by cost control measures in the current period.

Direct expenses for the franchised hotels in the third quarter of 2017 increased $5.7 million compared with the third quarter of 2016, primarily driven by costs associated with the economy brand operations acquired from Vantage as of September 30, 2016.

Depreciation and amortization expenses increased $0.9 million in the third quarter of 2017 compared with the third quarter of 2016, primarily due to the completion of the renovations at the RL Venture and Washington, D.C. properties and the addition of the definite-lived intangibles from the Vantage acquisition.

Hotel facility and land lease costs were flat for the third quarter of 2017 compared with 2016.

General and administrative expenses increased by $1.6 million in the third quarter of 2017 compared with 2016, primarily due to the addition of costs from the Vantage acquisition and higher variable compensation expense in conjunction with our financial performance in 2017 compared with 2016.

Acquisition and integrations costs were lower by $0.2 million in the third quarter of 2017 compared with 2016. In 2017, we recognized $1.2 million in expense related to the increase in fair value of the contingent consideration for the Vantage acquisition. In 2016, we incurred costs for professional services related to the negotiations of the Vantage acquisition.

Nine months ended September 30, 2017 and 2016

Direct company operated hotel expenses were $70.5 million and $71.0 million in the first nine months of 2017 and 2016, lower primarily due to the closure and sale of two properties in the fourth quarter of 2016, partially offset by the opening of two locations in the second quarter of 2016. On a comparable basis, direct company operated hotel expenses were $66.8 million in the nine month period ended September 30, 2017 compared with $65.9 million in the same period in 2016, driven by higher variable costs associated with higher revenue and a minimum wage increase in Washington, partially offset by cost control measures in the current period.

Direct expenses for the franchised hotels in the first nine months of 2017 increased $16.3 million compared with the same period of 2016, primarily driven by costs associated with the economy brand operations acquired from Vantage as of September 30, 2016.

Depreciation and amortization expenses increased $2.5 million in the first nine months of 2017 compared with 2016, primarily due to the completion of the renovations at the RL Venture and Washington, D.C. properties, along with the opening of the Atlanta Airport hotel in the second quarter of 2016, and the addition of the definite-lived intangibles from the Vantage acquisition.

Hotel facility and land lease costs were flat for the first nine months of 2017 compared with 2016.

General and administrative expenses increased by $3.6 million in the nine months ended September 30, 2017 compared with 2016, primarily due to the addition of costs from the Vantage acquisition and higher variable compensation expense in conjunction with our financial performance in the first nine months of 2017 compared with 2016.

Acquisition and integrations costs were lower by $0.4 million in the first nine months of 2017 compared with 2016. In 2017, we recognized expense for the increase in fair value of the contingent consideration for the Vantage acquisition. In 2016, we incurred costs for professional services related to the negotiations of the Vantage acquisition.

Interest Expense

Interest expense increased $0.3 million in the third quarter of 2017 compared with the third quarter of 2016. Interest expense increased $1.4$3.1 million during the nine months ended September 30, 20172020 compared with the same period in 2016. The increase was2019. This decrease is primarily driven bydue to hotel sales and the greaterrelated reduction in our average corporate and hotel-specific debt outstanding principal balancein 2020 as compared to 2019.

31

Loss on Early Retirement of Debt

In the first quarter of 2020, we recognized a Loss on early retirement of debt of $1.3 million related to the early payoff of our Line of Credit and a secured debt agreement at RLH DC Venture. These loans were paid off using proceeds from the sale of the Hotel RL Washington DC joint ventures.

Other Income (Expense), net

Other income (expense), net increasedventure property and our leasehold interest in the Red Lion Anaheim. In the second quarter of 2019, we recognized a Loss on early retirement of debt of $0.2 million infor unamortized deferred debt issuance costs and prepayment fees incurred related to the third quarterpayoff of 2017 compareda mortgage loan at RLH DC Venture, which was replaced through a new mortgage loan with the third quarter of 2016, and increased $0.3 million in the first nine months of 2017 compared with the same period in 2016. The additional income was driven by a litigation settlement for hotel equipment.different lender.



Income Taxes


For the three and nine months ended September 30, 2017,2020, we reported income tax expense (benefit) of $174,000$18,000 and $513,000$(586,000) compared with income tax expense of $166,000$486,000 and $258,000$676,000 for the same periods in 2016.2019. The income tax benefit recognized for the nine months ended September 30, 2020 is principally related to the provisions varyof the CARES Act. The income tax expense recognized for the three months ended September 30, 2020 and the three and nine months ended September 30, 2019 varies from the statutory rate primarily due to a fullpartial valuation allowance against our deferred tax assets, as well as for deferred tax expense associated with our acquired indefinite-lived intangible assets, which are amortized for tax purposes but not for U.S. GAAP purposes.

Discontinued Operations

On October 3, 2017, we completed the sale of certain specified liabilities and substantially all of the assets of our Entertainment segment, previously composed of WestCoast Entertainment and TicketsWest, including ticketing agreements and engagement agreements with various entertainment venues, teams and artists located throughout the Western United States. As such, the results of the Entertainment segment are reported as discontinued operations and the assets and liabilities are classified as held for sale for all periods presented in this quarterly report on Form 10-Q.assets. See Note 17 of13. Income Taxes within Item 1: Condensed Notes to Consolidated 1. Financial Statements.Statements.


Liquidity and Capital Resources


Our principal source of liquidity is cash flowsflow from operations. Cash flows may fluctuate and are sensitive to many factors including changes in working capital and the timing and magnitude of capital expenditures and payments on debt. We believe the ongoing effects of COVID-19 on our operations have had, and will continue to have, a material impact on our ability to generate cash from our operations and our financial results, and the impact may continue beyond the containment of the outbreak. We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct given the dynamic nature of the situation.

Working capital, which represents current assets less current liabilities, was $20.4$32.4 million and $33.0$23.0 million atas of September 30, 20172020 and December 31, 2016. We2019, respectively. As of September 30, 2020, we had cash and cash equivalents of $34.0 million and debt of $5.6 million. In order to preserve sufficient liquidity during these uncertain times, we implemented certain cost saving measures at the end of the first quarter of 2020, which included a reduction in force of approximately 40%, company-wide compensation reductions, which have since been substantially reinstated, consolidation of office space and a reduction in 2020 capital expenditures and key money commitments. Based upon our current liquidity position, and assumptions regarding the impact of COVID-19, including its duration, economic impact and impact on travel, we believe that we have sufficient liquidity to fund our operations at least through November 2018.2021. However, given the uncertain nature of the COVID-19 pandemic on our operations, we cannot assure you that our assumptions used to estimate our liquidity requirements will be correct.


We may seek to raise additional funds through public or private financings, strategic relationships, sales of assets or other arrangements. We cannot assure that such funds, if needed, will be available on terms attractive to us, or at all. If we sellseek to raise capital through the sale of additional assets, these sales prices may be negatively impacted by the effect of COVID-19 on the hospitality industry, and result in future impairments or losses on the final sale. Finally, any additional equity financings may be dilutive to shareholders and debt financing, if available, may involve covenants that place substantial restrictions on our business.


We are committed to keepingmaintaining our properties well maintainedinfrastructure for systems and attractiveservices we provide to our customers in order to maintain our competitiveness within the industry and keep our hotels properly positioned in their markets.franchisees. This requires ongoing access to capital for replacement of outdated furnishings as well as for facility repair, modernizationinvestments in technology and renovation. As a result, we included property improvement expenditures in the borrowing arrangements for our RL Venture Holding LLC properties, as well as the Baltimore, Atlanta,related assets.

32

Sources and Washington, DC locations. Those renovations have been completed as of September 30, 2017.

In January 2015, RL Venture Holding LLC, a wholly-owned subsidiary of RL Venture, and each of its 12 wholly-owned subsidiaries entered into a loan agreement with Pacific Western Bank. The original principal amount of the loan was $53.8 million with an additional $26.2 million to be drawn over a two-year period to cover property improvements related to the original 12 hotels owned by the subsidiaries. Subsequently we disposed of one hotel, leaving 11 properties owned by RL Venture. At September 30, 2017, draws on the loan were substantially complete, with a remaining amount of $0.3 million available for draw. Interest under the advanced portions of the loan is payable monthly at LIBOR plus 4.75%. Monthly principal payments began in January 2017 in an amount that will repay the outstanding principal balance over a 25-year amortization period. Our joint venture partner owns 45% of RL Venture at September 30, 2017.

In April 2015, RL Baltimore, a wholly-owned subsidiary of RLS Balt Venture LLC, obtained a new mortgage loan from PFP Holding Company IV LLC, an affiliate of Prime Finance, secured by the Hotel RL Baltimore Inner Harbor. The initial principal amount of the loan was $10.1 million, and the lender agreed to advance an additional $3.2 million to cover expenses related to improvements to the hotel, all of which has been drawn. The loan matures in May 2018 and has two one-year extension options. Interest under the advanced portions of the loan is payable monthly at LIBOR plus 6.25%. Principal payments of $16,000 per month are required beginning in May 2018. Our joint venture partner owns 27% of RLS Balt Venture at September 30, 2017.

In September 2015, RLH Atlanta obtained a new mortgage loan from PFP Holding Company IV LLC, which was used to acquire, and is secured by, a hotel adjacent to the Atlanta International Airport, which opened in April 2016 as the Red Lion Hotel Atlanta International Airport. The principal amount of the loan is $9.4 million, all of which has been drawn at September 30, 2017. The loan matures in September 2018 and has two one-year extension options. Interest under the advanced portions of the loan is payable monthly at LIBOR plus 6.35%. Monthly principal payments of $10,000 began in September 2017. Our joint venture partner owns 45% of RLS Atla Venture at September 30, 2017.

In October 2015, RLH DC obtained a new mortgage loan from Pacific Western Bank, which was used, along with cash on hand, to acquire, and is secured by, the Hotel RL Washington, DC. The principal amount of the loan is $16.7 million and has been fully

drawn as of September 30, 2017. The loan matures in October 2019 and has a one-year extension option. Interest under the advanced portions of the loan will be calculated at LIBOR plus 4.55%. Interest only payments are due monthly and commenced November 2015. Monthly principal payments are required beginning in November 2017 in an amount that will repay the outstanding principal balance over an amortization period of 25-years. Our joint venture partner owns 45% of RLS DC Venture as of September 30, 2017.

At September 30, 2017 total outstanding debt was $111.5 million, net of discount, all of which is at variable interest rates. Our average pre-tax interest rate on debt was 6.3% at September 30, 2017. Refer to Note 7 in Item 1. Financial Information for further information on the specific termsUses of our debt.Cash, Cash Equivalents, and Restricted Cash


The following table summarizes our net cash flows for operating, investing, and financing activities (in thousands):
Nine Months Ended September 30,
 20202019
Net cash provided by (used in) operating activities$(4,567)$4,955 
Net cash provided by (used in) investing activities35,121 (3,932)
Net cash provided by (used in) financing activities(28,288)385 

Operating Activities


Net cash provided byused in operating activities totaled $9.0$4.6 million during the first nine months of 20172020 compared with $7.1cash provided by operating activities of $5.0 million during the same period in 2016.2019. The primary driversdriver of the change in cash flows were higherwas an increase in net income,loss excluding Loss (gain) on asset dispositions, net, Asset impairment, and Provision for doubtful accountsof non-cash items, partially offset by a decline in working capital accounts for the nine months ended September 30, 2017.

Investing Activities

Net cash used in investing activities totaled $8.2approximately $3.2 million during the first nine months of 2017 compared with $32.9 million during the first nine months of 2016. The primary drivers of the change were a decrease in capital expenditures from $30.3to $11.0 million for the nine months ended September 30, 2016 down2020 compared to $8.0$7.8 million for the nine months ended September 30, 2017,2019. Additionally, there was a decrease in cash flows from operating asset and liability accounts of approximately $1.3 million.

Investing Activities

Net cash provided by investing activities totaled $35.1 million during the acquisitionfirst nine months of Vantage Hospitality2020 compared with cash used in investing activities of $3.9 million during the thirdsame period in 2019. Cash flows increased for the nine months ended September 30, 2020 primarily due to net proceeds from hotel sales of $36.9 million during the first quarter of 2016 partially offset2020. Additionally, cash spent for capital expenditures was reduced by proceeds from sales of short-term investments of $18.1$2.5 million during the nine months ended September 30, 2016.2020 compared with the same period in 2019.


Financing Activities


Net cash provided byused in financing activities was $0.7$28.3 million during the first nine months of 20172020 compared with $18.8cash provided by financing activities of $0.4 million in the first nine months of 2016. The primary driver of the change was higher borrowings on long-term debt for2019. During the nine months ended September 30, 20162020 we paid off an outstanding loan for one company operated property along with the outstanding balance on our Line of $19.5Credit. Additionally, we borrowed and repaid approximately $4.2 million down to $3.2 million forunder the PPP loan program in the second quarter of 2020. During the nine months ended September 30, 2017.

Contractual Obligations

The following table summarizes our significant contractual obligations, including principal and estimated interest on debt and capital leases, as of September 30, 2017 (in thousands):
  Total 
Less than
1 year
 1-3 years 4-5 years 
After
5 years
Debt(1)
 $122,397
 $31,430
 $90,967
 $—
 $—
Capital leases(1)
 1,144
 329
 602
 213
 —
Operating leases 81,839
 5,555
 9,024
 5,121
 62,139
Total contractual obligations (2)
 $205,380
 $37,314
 $100,593
 $5,334
 $62,139
(1)Includes estimated interest payments and commitment fees over the life2019, we executed new mortgage loans for three company operated hotel properties while paying off one. Some of the debt agreement or capital lease.
(2)With regardloan proceeds were distributed 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.

We have leasehold interests at various hotel properties, as well as our offices located in Spokane, Washington, Denver, Coloradojoint venture partners and Coral Springs, Florida. These leases require usused to pay fixed monthly rent and have expiration datesdown a portion of 2018 and beyond, which are reflected in the table above.outstanding principal on our Senior Secured Term Loan.


Debt
Off-Balance Sheet Arrangements


As of September 30, 2017,2020, we had outstanding total debt, excluding unamortized deferred financing costs and discounts, of $5.6 million. This outstanding debt is secured by the Hotel RL Olympia and the debt agreement includes financial covenants that the hotel property is required to meet. Primarily due to the negative economic impact of the COVID-19 pandemic, the property failed to meet the minimum required financial covenants as of the semi-annual calculation of June 30, 2020. Due to the contractual cure period provisions the debt will not be called due prior to the maturity date in March 2021. We continue to pursue options to address the debt prior to maturity, such as the sale of property or alternative financing.

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In February 2020, we sold the Hotel RL Washington DC for $16.4 million. Using proceeds from the sale, together with the release of $2.3 million in restricted cash held by the lender CP Business Finance I, LP, RLH DC Venture repaid the remaining outstanding principal balance and accrued exit fee under the loan agreement of $17.7 million, plus a prepayment penalty of $0.6 million.

Also in February of 2020, using the net proceeds from the sale of our leasehold interest in the Red Lion Anaheim, we repaid the outstanding Line of Credit balance of $10.0 million. Upon repayment of the outstanding balance, the Line of Credit was terminated and these funds are no longer available to us.

See Note 8. Debt and Line of Credit within Item 1. Financial Statements of this quarterly report on Form 10-Q, for further additional information about our debt obligations.

Off-Balance Sheet Arrangements

As of September 30, 2020, we had no off-balance sheet arrangements as defined by SEC regulations, which have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



Critical Accounting Policies and Estimates


The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect:effect: (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 management's 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 2Since the date of the condensed notes to consolidated financial statements included in this quarterly report on Form 10-Q.

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 on our annual report on Form 10-K for the fiscal year ended December 31, 2016. Since the date of our 2016 annual report on Form 10-K, there2019, we have beenmade no material changes to our critical accounting policies nor have there been any changes to our methodology andor the methodologies or assumptions applied to these policies.that we apply under them.


New and Recent Accounting Pronouncements


Please refer toSee Note 2: 2. Summary of Significant Accounting Policieswithin Item 1. Financial Statements of this quarterly report on Form 10-Q for information on new and recent U.S. GAAP accounting pronouncements.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from outstanding debt. As of September 30, 2017, our outstanding debt, including current maturities and excluding unamortized origination fees, was $112.9 million, which is under term loans subject to variables rates, but is subject to interest rate caps.

We enter into derivative transactions to hedge our exposure to interest rate fluctuations, and not for trading purposes. We manage our floating rate debt using interest rate caps in order to reduce our exposure to the impact of changing interest rates and future cash outflows for interest. For additional information, see Item 7A, "Quantitative3.Quantitative and Qualitative Disclosures About Market Risk"Risk

Pursuant to Item 305(e) of our annual report on Form 10-K forRegulation S-K (§ 229.305(e)), the year ended December 31, 2016. Our exposuresCompany is not required to market risk have not changed materially since December 31, 2016.provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).


We do not foresee any changes of significance in our exposure to fluctuations in interest rates, although we will continue to manage our exposure to this risk by monitoring available financing alternatives.

The below table summarizes the principal payment requirements on our debt obligations at September 30, 2017 on our Consolidated Balance Sheet (in thousands):
  2017 2018 2019 2020 2021 Thereafter Total Fair Value
Debt $434
 $24,442
 $87,999
 $—
 $—
 $—
 $112,875
 $112,307
Average interest rate             6.3%  

Item 4.Controls and Procedures

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2017,2020, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”("CEO") and our Chief Financial Officer (“CFO”("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended). 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 SEC rules and forms.


Changes in Internal Control over Financial Reporting

There were no changes in the company’s internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), during the threenine months ended September 30, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.





PART II – OTHER INFORMATION


Item 1.Legal Proceedings

Item 1.Legal Proceedings

On September 26, 2018, Radisson Hotels International, Inc. filed a complaint against RLH Corporation and our subsidiary Red Lion Hotels Franchising, Inc. in the U.S District Court for the Eastern District of Washington. The complaint alleges tortious interference with agreements between Radisson and several franchisees controlled by Inner Circle Investments and seeks damages in an undetermined amount. Mediation held in August 2020 resulted in an impasse and parties are now engaged in discovery. RLH Corporation believes this complaint is without merit and we are defending it vigorously.

On October 31, 2018, the Company's lease for the Red Lion River Inn expired. The landlord filed a lawsuit against the Company on January 24, 2019 in Spokane Superior Court, alleging breach of the lease agreement and tort claims relating to the condition of the hotel. The Company filed its Answer on January 25, 2019, denying all allegations and asserting various affirmative defenses. RLH Corporation believes this complaint is without merit and we are defending it vigorously.

During the second quarter of 2019, we accrued approximately $952,000 for a settlement over a wage dispute with former hotel employees related to the calculation of pay for certain rest, break, meal, and other periods that are required under California law.

Along with many of its competitors, the Company has been named as a defendant in lawsuits filed in various state and federal courts, alleging statutory and common law claims related to purported incidents of human trafficking at certain franchised hotel facilities. As of October 27, 2020, the Company was involved (as a named defendant) in four separate human trafficking lawsuits. The Company is in various stages of seeking dismissal on the basis that the Company did not own, operate or manage the hotels at issue, and intends to vigorously defend the lawsuits.

As a result of downsizing (both prior to COVID-19 and as a result of COVID-19), the Company eliminated a number of positions and laid off a number of employees in the fourth quarter of 2019 and the first two quarters of 2020 A small number of former employees have disputed the basis for their layoffs. On May 7, 2020, a former employee whose position with RLH Corporation had been eliminated in September 2019, filed a complaint in the US. District Court for the District of Colorado against the Company alleging gender discrimination, a hostile work environment, retaliation, and disparate treatment. The parties entered into a confidential settlement in October 2020, on terms that were not material to the Company. In November 2019, a former employee’s position with RLH Corporation was eliminated, following which the employee submitted a claim
35

with the U.S. Equal Employment Opportunity Commission alleging gender discrimination and retaliation. The parties entered into a confidential settlement in September 2020, on terms that were not material to the Company. On June 15, 2020, the Company was advised that on May 20, 2020, a former employee whose position with the Company had been eliminated as of April 17, 2020, had filed a charge of age discrimination with the EEOC and the Colorado Civil Rights Division of the Colorado Department of Regulatory Agencies. The Company has filed its position statement, denying the claims, which the Company believes to be without merit.

At any given time, we are subject to additional claims and actions incidental 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. See Note 10 of10. Commitments and Contingencies within Item 1: Condensed Notes to Consolidated 1. Financial Statements.


Item 1A.Risk Factors

Item 1A.Risk Factors
In addition
We are subject to the other informationvarious risks, including those set forth in this report, you should carefully consider the factorsbelow, and those discussed in Part I, Item 1A1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2016,2019, and our subsequent filings with the SEC, 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 RLHC communications.You should carefully consider these risk factors, in addition to the other information in this quarterly report.

The COVID-19 outbreak continues to have a significant negative impact on our financial condition and operations.

The current, and uncertain future impact of the COVID-19 outbreak, including its effect on the ability or desire of people to travel, is expected to continue to impact our results, operations, outlooks, plans, goals, growth, cash flows, liquidity, and stock price.

We have been, and will continue to be, negatively impacted by heightened domestic and foreign governmental regulations and travel advisories, social distancing recommendations by the U.S. Department of State and the Centers for Disease Control and Prevention, stay-at-home orders and travel bans and restrictions, each of which could materially affecthas impacted, and is expected to continue to significantly impact, our financial results.

As primarily a franchise company in the hospitality industry, we are largely reliant on the financial success and cooperation of our franchisees. Our revenues and operating results are highly dependent upon the ability of our franchisees to generate revenue at their franchised properties, which generates revenue for us from royalty, marketing, and other fees. Due to the COVID-19 pandemic, some of our franchisees have had to close their hotels, and others are experiencing unprecedented declines in room revenues. Some of our franchisees may not be able to withstand the financial pressures on their operations, and may have to close their hotels, or may have their hotels repossessed by lenders holding a mortgage on their property. As a result, we have seen and will continue to see a reduction in our anticipated income, collections of outstanding receivables, and overall cash flows, which will have a negative impact on our financial condition and results of operations.

As our business is reliant on the financial success and cooperation of our franchisees, we have implemented policy changes to address the impact of the COVID-19 pandemic on their financial condition, including the implementation of a fee deferral program to certain of our franchisees in which billings related to fees for March through June of 2020 could be deferred and paid ratably over the following nine months, temporary fee reductions for review responses, guest relations fees, and certain other fees, and a delay in implementation of capital intensive brand standards. While these changes are temporary, if the COVID-19 pandemic continues for longer than expected, we may be required to extend some of these fee deferral programs, resulting in additional reductions in income and cash flows and negatively impacting our financial condition.

In addition, the hotel business is seasonal in nature, with the period from May through October generally accounting for the greatest portion of our annual company operated hotel revenues, and franchise royalties that are based on a percentage of hotel revenue. Given the continuation of the COVID-19 pandemic through the summer months, we experienced a larger adverse impact to our revenues and results of operations as a result of this seasonality.

We cannot predict when travel restrictions will be lifted and there is a risk that additional travel restrictions will be implemented in certain areas. Moreover, even once travel advisories and restrictions are lifted, demand for hotel accommodations may remain weak for a significant length of time and we cannot predict if and when it will return to pre-outbreak demand. In particular, demand may be negatively impacted by the adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of COVID-19.

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We have never previously experienced a crisis of this nature or magnitude, and as a consequence, our ability to predict the impact on our future results.prospects is uncertain. In particular, we cannot predict the impact of the public’s concern regarding the health and safety of travel, and related decreases in demand for hotel accommodations on our financial performance and our cash flows.

In addition, the COVID-19 outbreak has significantly increased economic and demand uncertainty. The current outbreak and continued spread of COVID-19 could cause a global recession, which would have a further adverse impact on our financial condition and operations. The significant level of unemployment in the U.S. and other regions is likely to have a negative impact on demand for hotel accommodations once operations resume, and these impacts could exist for an extensive period of time.

The extent of the effects of the outbreak on our business and the hospitality industry at large is highly uncertain, and will ultimately depend on factors outside our control, including, but not limited to, the duration and severity of the outbreak, the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume. To the extent COVID-19 adversely affects our business, operations, financial condition and operating results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A. Risk Factors included in our annual report on Form 10-K for the year ended December 31, 2019.

Our recent organizational changes and cost cutting measures may not be successful.

On April 2, 2020, our Board of Directors announced a series of organizational changes and cost cutting measures including changes to senior management, a reduction in force of approximately 40% of our corporate workforce, a reduction in capital expenditures and the only risksclosing of the Company’s Spokane office. On September 20, 2020 we announced that in light of the substantial completion of Company’s transition to an asset-light franchise model, our Board eliminated the position of Chief Operating Officer, and Gary L. Sims, who has served as Chief Operating Officer since June 25, 2018, will be leaving effective October 15, 2020. These initiatives accelerated cost-cutting measures begun at the end of 2019, and were broadened and accelerated in light of the COVID-19 pandemic. We believe these changes are needed to streamline our organization and reallocate our resources to better align with our current strategic goals, and to respond to the challenges facing the Company as a result of the COVID-19 pandemic. However, these restructuring and cost cutting activities may yield unintended consequences and costs, such the loss of institutional knowledge and expertise, attrition beyond our company. Additional risksintended reduction in force, a reduction in morale among our remaining employees, and uncertainties not currently known to us orthe risk that we currently deemmay not achieve the anticipated benefits, all of which may have a material adverse effect on our results of operations or financial condition. In addition, while positions have been eliminated certain functions necessary to our operations remain, and we may be immaterialunsuccessful in distributing the duties and obligations of departed employees among our remaining employees. We may also discover that the reductions in force and cost cutting measures will make it difficult for us to pursue new opportunities and initiatives, requiring us to hire qualified replacement personnel, which may materially adversely affect our business, financial condition and/or operating results in the future.require us to incur additional and unanticipated costs and expenses.


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
In connection with our acquisition of the operating assets and assumption of certain liabilities of Vantage Hospitality Group, Inc., we agreed to issue up to 414,000 shares of common stock as contingent consideration if certain performance measures were achieved as of September 30, 2017, the one year anniversary of the closing date.  As of September 30, 2017, we have preliminarily determined that the year 1 contingent consideration has been earned, and the 414,000 shares of the Company’s common stock should be issued.
None.
The issuance of the Company’s common shares is exempt from registration under Section 4(a)(2) of the Securities Act because the transaction did not involve a public offering.  The purchaser is an accredited investor, and the shares of the Company’s common stock are restricted securities for purposes of Rule 144 and subject to certain requirements before sale, including holding period requirements. The Company has not engaged in general solicitation or advertising with regard to the issuance and sale of the Company’s common stock issued pursuant to the Purchase Agreement.

Item 3.Defaults Upon Senior Securities

Item 3.Defaults Upon Senior Securities

None.


Item 4.Mine Safety Disclosures

Item 4.Mine Safety Disclosures

Not applicable.


Item 5.Other Information

Item 5.Other Information

None.

37

Item 6.Exhibits
Item 6.Exhibits

Index to Exhibits


Exhibit
Number		Description
Exhibit
Number10.1
DescriptionAmended and Restated Employment Offer Letter of Judith Jarvis, dated September 18, 2020
10.110.2
Asset PurchaseSeparation Agreement and Release of Claims between Red Lion Hotels Corporation, TicketsWest.com, Inc.the Company and Paciolan, LLC dated August 11, 2017Gary L. Sims
12.131.1
Statement of Computation of Ratios
31.1
Certification of ChiefPrincipal 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 ChiefPrincipal 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)
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



38

SIGNATURES


Pursuant to the requirements 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
 
SignatureTitleDate
By:/s/ John J. Russell, Jr.President and Chief Executive Officer
(Principal Executive Officer)		November 5, 2020
John J. Russell, Jr.
SignatureBy:TitleDate
By:/s/ Gregory T. MountGary Kohn
President and Chief Executive Officer
(Principal Executive Officer)
November 3, 2017
Gregory T. Mount
By:/s/ Douglas L. Ludwig
Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)
November 3, 20175, 2020
Douglas L. LudwigGary Kohn



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