Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Summary of Significant Accounting Policies | ' |
Summary of Significant Accounting Policies |
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Principles of Consolidation |
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The consolidated financial statements have been prepared by Red Lion pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and in accordance with generally accepted accounting principles in the United States of America ("GAAP"), and include all accounts and wholly and majority-owned subsidiaries' accounts. All significant inter-company and inter-segment transactions and accounts have been eliminated upon consolidation. Certain amounts disclosed in prior period financial statements have been reclassified to conform to the current period presentation. Specifically, certain operations have been classified as discontinued and are reflected as such in all periods presented. |
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Cash and Cash Equivalents |
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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. |
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Restricted Cash |
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In accordance with our various borrowing arrangements, at December 31, 2012 cash of approximately $2.4 million was held in escrow for the future payment of insurance, property taxes, repairs and furniture and fixtures. |
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Allowance for Doubtful Accounts |
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The ability to collect individual accounts receivable is reviewed on a routine basis. An allowance for doubtful accounts is recorded based on specifically identified amounts believed to be uncollectible. If actual collection experience changes, revisions to the allowance may be required and if all attempts to collect a receivable fail, it is recorded against the allowance. The estimate of the allowance for doubtful accounts is impacted by, among other things, national and regional economic conditions. |
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The following schedule summarizes the activity in the allowance account for trade accounts receivable for the past three years for continuing operations: |
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| | Year ended December 31, |
| | 2013 | | 2012 | | 2011 |
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Allowance for doubtful accounts, continuing operations | |
| Balance, beginning of year | $ | 82 | | | $ | 385 | | | $ | 487 | |
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| Additions to allowance | 117 | | | 110 | | | 185 | |
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| Write-offs, net of recoveries | (71 | ) | | (413 | ) | | (287 | ) |
| Balance, end of year | $ | 128 | | | $ | 82 | | | $ | 385 | |
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Inventories |
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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. |
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Property and Equipment |
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Property and equipment are stated at cost. The cost of improvements that extend the life of property and equipment is capitalized. Repairs and maintenance charges are expensed as incurred. |
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Depreciation is provided using the straight-line method over the estimated useful life of each asset, which ranges as follows: |
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Buildings | 25 to 39 years | | | | | | | | | | | |
Equipment | 2 to 15 years | | | | | | | | | | | |
Furniture and fixtures | 5 to 15 years | | | | | | | | | | | |
Landscaping and improvements | 15 years | | | | | | | | | | | |
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Valuation of Finite Lived Intangibles and Long-Lived Assets |
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We test finite lived intangibles and 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 and the plan is expected to be completed within a year. 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. |
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We base our calculations of the estimated fair value of a finite lived intangible asset or 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 "Valuation of Goodwill" 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. |
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For information on impairment losses recorded in 2013, 2012 and 2011 associated with finite lived intangibles and long-lived assets, see Note 4, Note 5 and Note 6. |
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Valuation of Goodwill and Indefinite Lived Intangible Assets |
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We assess goodwill of our segments 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 asset. For purposes of goodwill impairment testing, we have determined that the individual segments where goodwill is recorded constitute reporting units as defined in the literature. |
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In the first step of evaluating goodwill for impairment we compare the estimated fair value of the reporting unit with its carrying value. If the estimated fair value of the reporting unit exceeds its carrying amount, no further analysis is needed. |
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If the estimated fair value of the reporting unit is less than its carrying amount, we proceed to the second step of the test to calculate the implied fair value of the reporting unit's goodwill in order to determine whether any impairment is required. We calculate the implied fair value of the reporting unit's goodwill by allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, we recognize an impairment loss for that excess amount. In allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit, we use industry and market data, recent appraisals and knowledge of the industry and past experiences. |
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We base our calculations of the estimated fair value of a reporting unit on a combined income and market approach. For the income approach, we use a discounted cash flow model that includes the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. We base these assumptions on historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and our own expectations. For the market approach, we use analyses based primarily on market comparables and assumptions about market capitalization rates, growth rates, and inflation. |
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Assets Held for Sale |
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We consider a property to be an asset held for sale when all of the following criteria are met: |
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• | management commits to a plan to sell the property; | | | | | | | | | | | |
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• | it is unlikely that the disposal plan will be significantly modified or discontinued; | | | | | | | | | | | |
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• | the property is available for immediate sale in its present condition; | | | | | | | | | | | |
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• | actions required to complete the sale of the property have been initiated; | | | | | | | | | | | |
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• | sale of the property is probable, we expect the completed sale will occur within one year; and | | | | | | | | | | | |
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• | the property is actively being marketed for sale at a price that is reasonable given its current market value. | | | | | | | | | | | |
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Upon designation as an asset held for sale, we record the carrying value of each property at the lower of its carrying value or its estimated fair value, less estimated costs to sell, and cease depreciation. |
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For information on the assets classified as held for sale, see Note 5. |
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Notes Receivable |
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We carry notes receivable at their estimated collection amount and they are classified as either current or noncurrent depending on the expected collection date. Interest income on notes receivable is recognized using the interest method. |
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During 2013, we sold a property, the Red Lion Hotel Pendleton ("Pendleton property") and received a $1.72 million secured promissory note. Refer to Note 5 and Note 6 for further discussion. |
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During 2012, we sold two properties, Red Lion Hotel Sacramento at Arden Village ("Sacramento property") and Red Lion Hotel Denver Southeast in Aurora, Colorado ("Denver Southeast property") and received a $2.7 million secured promissory note and a $4.0 million secured promissory note, respectively. Refer to Note 5 and Note 6 for further discussion. |
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Other Assets |
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Other assets primarily include deferred loan costs, equity method and cost method investments discussed in Note 1. Deferred loan costs are amortized using the effective interest method over the term of the related loan agreement, and totaled $42,000, $0.2 million and $0.7 million at December 31, 2013, 2012 and 2011, respectively. |
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Cost method investments are carried at their original purchase price. Equity method investments are carried at cost, adjusted for our proportionate share of earnings and any investment disbursements. |
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Fair Value Measurements |
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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: |
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• | 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. | | | | | | | | | | | |
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• | 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). | | | | | | | | | | | |
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• | 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. | | | | | | | | | | | |
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Deferred Income |
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During the year ended December 31, 2011, we entered into an agreement with a new tenant of the Sacramento property. We received $0.3 million in consideration that was to be amortized over the lease period as deferred lease revenue. During 2012, prior to the sale of the property, we recognized $16,000 in deferred lease income and upon the sale of the property the remaining amount was recognized. Refer to Note 6. During the year ended December 31, 2011, we recognized $23,000 in deferred lease income. |
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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 2013, 2012 and 2011, we recognized income of approximately $0.5 million each year for the amortization of the deferred gain. The remaining balance at December 31, 2013, was $2.3 million. |
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Income Taxes |
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Deferred tax assets and liabilities and income tax expenses and benefits are recorded for the expected future income tax consequences of events that have been recognized in the consolidated financial statements. Deferred tax assets and liabilities are determined based on the temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. Certain wholly or partially-owned entities, including RLHLP and Bellevue Inn LLC, do not directly pay income taxes. Instead, their taxable income flows through to us. |
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We recognize deferred tax assets to the extent that we determine 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 strategies, and results of recent operations. At December 31, 2013, we determined that we may not be able to realize all of our deferred tax assets before expiration, and therefore have recorded a valuation allowance. 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. See Note 14 for more detail. |
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We recognize the financial statement effect of a tax position when, based on the technical merits of the uncertain tax position, it is more likely than not to be sustained on a review by taxing authorities. These estimates are based on judgments made from information currently available to us. We review these estimates and make changes to recorded amounts of uncertain tax positions as facts and circumstances warrant. For additional information about income taxes, see Note 14. |
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Revenue Recognition and Receivables |
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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: |
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• | Hotels - Room rental and food and beverage sales from owned and leased hotels. Revenues are recognized when services have been performed, generally at the time of the hotel stay or guest's visit to the restaurant. | | | | | | | | | | | |
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• | Franchise - 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. | | | | | | | | | | | |
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• | 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. | | | | | | | | | | | |
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Advertising and Promotion |
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Costs associated with advertising and promotional efforts are generally expensed as incurred. During the years ended December 31, 2013, 2012 and 2011, we incurred approximately $3.9 million, $3.1 million and $3.4 million, respectively, in advertising expense from continuing operations. These amounts include advertising and promotion spent by our Central Program Fund discussed below. |
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Central Program Fund |
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In 2002, we established the Central Program Fund ("CPF") in accordance with our various domestic franchise agreements. The CPF acts as an agent in providing services to its members, the hotels owned and leased by us and our franchisees. These services include advertising, frequent guest program administration, reservation services, national sales promotions and brand and revenue management services intended to increase sales and enhance the reputation of the Red Lion Brands. CPF contributions made by company owned and leased hotels and those made by the franchisees, based on the individual franchise agreements, are up to 4.5% of room revenue. We can elect to contribute additional funds to the CPF in order to accelerate brand awareness or increase marketing and advertising expense to grow the brand, among other things. Activities of the CPF are conducted as a service, not as an operation or business venture. |
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Basic and Diluted Earnings (Loss) Per Share |
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Basic earnings (loss) per share is computed by dividing income (loss) by the weighted-average number of shares outstanding during the period. Diluted earnings (loss) per share gives effect to all dilutive potential shares that are outstanding during the period and include outstanding stock options and other outstanding employee equity grants, as well as the effect of noncontrolling interest related to the previously outstanding operating partnership units of RLHLP, by increasing the weighted-average number of shares outstanding by their effect. When we report a net loss during the period, basic and diluted earnings (loss) per share are the same. See Note 13. |
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Use of Estimates |
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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. |
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Reclassifications |
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Certain amounts disclosed in prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income/losses, cash flows, total assets, or stockholders' equity as previously reported. See Note 4, Note 5 and Note 6. |
Recent Accounting Pronouncements |
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In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"). ASU 2013-11 requires an entity to present an unrecognized tax benefit and an NOL carryforward, a similar tax loss, or a tax credit carryforward on a net basis as part of a deferred tax asset, unless the unrecognized tax benefit is not available to reduce the deferred tax asset component or would not be utilized for that purpose, in which case a liability would be recognized. ASU 2013-11 will be effective for fiscal periods beginning after December 15, 2013, with early adoption permitted. We have evaluated the impact of the adoption of this pronouncement and determined that it will not have a material impact on our consolidated financial statements. |
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Management has assessed the potential impact of other recently issued, but not yet effective, accounting standards and determined that the provisions are either not applicable to our company, or are not anticipated to have a material impact on our consolidated financial statements. |