[RIDDELL WILLIAMS P.S. LOGO]
August 8, 2006
VIA EDGAR AND FACSIMILE
Ms. Kristi Beshears, Staff Accountant
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Re: Red Lion Hotels Corporation
Form 10-K for the year ended December 31, 2005
Form 10-Q for the quarter ended March 31, 2006
File No. 001-13957
Dear Ms. Beshears:
We are providing on behalf of our client, Red Lion Hotels Corporation (the
"Company" or "RLH"), the response of the Company to the comments of the staff
(the "Staff") of the Securities and Exchange Commission (the "Commission") in
its letter dated July 27, 2006 relating to the Company's Form 10-K for the
fiscal year ended December 31, 2005 and its Form 10-Q for the quarter ended
March 31, 2006.
The Company has supplied the supplemental information set forth in this
letter for use herein, and has reviewed and approved all of the responses set
forth herein to the Staff's comments. For convenience, each of the Staff's
consecutively numbered comments is set forth in italics, followed by the
Company's response.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY AND EQUIPMENT, PAGE 63
1. COMMENT: Tell us your basis in GAAP for consolidating the Kalispell
Center based upon your 50% ownership interest. It is not clear from your
disclosure how you ascertained that you control the property, which
resulted in its consolidation in your financial statements. Please cite
the relevant accounting literature in your response.
Ms. Kristi Beshears, Staff Accountant
August 8, 2006
Page 2
RESPONSE:
The Kalispell Center Hotel and Retail Complex ("Kalispell" or "the
property") is a combined-use property comprised of the Red Lion Hotel
Kalispell (the "Hotel") and the Kalispell Center Mall (the "Mall"). RLH
believes that it is appropriate to account for its investment in the property
using the consolidation method prescribed by Accounting Research Bulletin No.
51 "Consolidated Financial Statements" and Statement of Financial Accounting
Standards ("SFAS") No. 94 "Consolidation of Majority Owned Subsidiaries"
("SFAS No. 94"). The basis for this decision was determined as follows:
(1) RLH's 50% legal ownership position indicating shared control;
and
(2) RLH's indicated control of Kalispell given the following
factors:
o RLH's involvement in ongoing activities of the property
through its lease of the Hotel and, up until April 30, 2006,
its status as a property manager for the Mall;
o RLH's resulting disproportionate risk in the performance of
the property as a whole; and
o RLH's veto authority over major decisions.
RLH holds a 50% tenancy-in-common ("TIC") interest in the Kalispell
land, building, and operations. The other 50% is owned by an unrelated,
third-party real estate investor. Funding and financing, voting power,
ownership rights, and decision making authority are shared. Both parties
to the TIC have veto rights on major decisions.
RLH leases and operates the Hotel. The lease of the Hotel is
material to the combined operations of the property. In addition,
through a wholly owned operating business referred to as G&B Real Estate
Services, RLH served as a property manager for the Mall through April
30, 2006. Effective that date, RLH divested ownership of G&B Real Estate
Services, which resulted in the transfer of the property management
function for the Mall. On an ongoing basis RLH has the right, together
with the owner of the other 50% of the TIC, to name a successor property
manager for the Mall.
Based upon the relative ownership percentages, the importance of the
Hotel to the property, RLH's ability to veto major decisions as outlined
in the TIC agreement, and its disproportionate risk as compared to the
other owner in the success or failure of the property, RLH concluded
that control existed and generally accepted accounting principles
required consolidation as compared to treatment as an equity method
investment. At the time of the original TIC
Ms. Kristi Beshears, Staff Accountant
August 8, 2006
Page 3
agreement, RLH's ability to impact daily operations of the Mall in its
capacity as a property manager led further weight to this decision.
While RLH no longer serves in that capacity, RLH still has significant
influence in selecting which third party management company will manage
the Mall, and therefore significant influence with respect to the
operations of that portion of the property.
Future disclosure of this ownership in the Company's annual Form
10-K and interim filings will include the affirmative statement that "We
consolidate the Kalispell Center retail and hotel complex as we believe
the form of our ownership and the level of our influence over the
operations of the assets indicate that consolidation is appropriate for
the property."
NOTE 5. OTHER INVESTMENTS, PAGE 65
2. COMMENT: Tell us your basis in GAAP for treating the trust in which you
own a 3% interest as an equity method investment. We note from page 54
that this trust is considered a VIE under FIN 46(R). Please also tell us
whether or not you are the primary beneficiary of the trust and how you
reached that conclusion. We may have further comment.
RESPONSE:
The Company has considered both SFAS No. 94 and FASB Interpretation No.
46(R) "Consolidation of Variable Interest Entities" ("FIN 46(R)") and
believes that it is appropriate to account for the investment in the Red
Lion Hotels Capital Trust ("the Trust") using the equity method of
accounting prescribed by Accounting Principle Board Opinion No. 18 "The
Equity Method of Accounting for Investments in Common Stock". The basis for
this decision follows from:
(1) RLH's legal ownership of 100% of the trust common securities issued
by the Trust, which represents 3% of the total book basis
capitalization of the Trust; the remaining capitalization consists
of trust preferred securities, held publicly and traded on the New
York Stock Exchange;
(2) RLH not being the primary beneficiary of the Trust and therefore
consolidation under FIN 46(R) being deemed inappropriate; and
(3) RLH's significant influence over the Trust indicating that equity
method accounting for the investment was appropriate.
RLH holds a 3% interest in the Trust through its ownership of the trust
common securities. The other 97% of the capitalization of the Trust is in
the form of trust preferred securities held publicly (by outside, unrelated
third-party
Ms. Kristi Beshears, Staff Accountant
August 8, 2006
Page 4
investors) and traded on the New York Stock Exchange under the symbol
RLH-pa. The Trust was created solely to facilitate the offering of the trust
preferred securities. While the Company believes the Trust meets the
definition of a variable interest entity under FIN 46(R), it also believes
the trust preferred security holders are the primary beneficiaries of the
Trust. As such, the Company concluded that consolidation of the Trust into
RLH was not appropriate.
Given the 100% ownership of the trust common securities, service by
officers of RLH as administrative trustees of the Trust, material
transactions between the Trust and RLH including certain material
debentures, and the overall dependency of the Trust on RLH, the Company
believes that RLH has significant influence over the Trust and that equity
method treatment for the investment is appropriate.
Future disclosure of this ownership in the Company's annual Form 10-K
and interim filings will include the affirmative statement that "...we are
not considered the primary beneficiary of the Trust."
NOTE 16. BUSINESS SEGMENTS, PAGE 76
3. COMMENT: We note that there are intra-segment revenues between the
franchise and management segment and the hotels segment; however, the
revenue presented for each of these segments is the same as the
amounts presented on consolidated statements of operations. Please
quantify and disclose the amount of intra-segment revenue in
accordance with paragraph 27(b) of SFAS 131 and confirm to us that
these amounts have been eliminated from your consolidated financial
statements.
RESPONSE:
Certain owned hotels, making up a component of the Company's hotels
segment, pay a management fee for services to the franchise and management
segment that is reflected on a hotel property's individual stand alone
financial statements. For the year ended December 31, 2005, that fee
totaled approximately $3,073,000 for all of the hotels in question. That
fee is appropriately eliminated upon consolidation. In Note 16 to its
consolidated financial statements for the year ended December 31, 2005,
the Company presented the table for its segments on a "post-elimination"
basis. In accordance with SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information", the Company presents the information
included in the measure of segment profit and loss reviewed by the
Company's chief operating decision maker. The Company's chief operating
decision makers evaluate segment profit and loss based upon its impact to
the
Ms. Kristi Beshears, Staff Accountant
August 8, 2006
Page 5
consolidated statements, otherwise described as on a post elimination
basis. The Company believes the footnote conforms to the requirements of
SFAS No. 131. Future disclosure of segments in the Company's annual Form
10-K and interim filings will include the affirmative statement that the
table "... reflects balances after the elimination of intra-segment
transactions".
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In responding to the Staff's comments, the Company acknowledges:
o The Company is responsible for the adequacy and accuracy of the
disclosure in the Form 10-K and Form 10-Q;
o Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action with
respect to the Form 10-K and Form 10-Q; and
o the Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities law of the United States.
Please contact the undersigned at (206) 389-1519 with any questions
concerning this letter. In addition, we request that you advise us when the
Staff has completed its review of the filings.
Very truly yours,
/s/ Frank C. Woodruff
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Frank C. Woodruff
of
RIDDELL WILLIAMS P.S.
cc: Daniel L. Gordon
Securities and Exchange Commission
Arthur Coffey
President and Chief Executive Officer
Red Lion Hotels Corporation