8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 5, 2008

Red Lion Hotels Corporation

(Exact Name of Registrant as Specified in Charter)

Washington	001-13957	91-1032187
(State or other jurisdiction	(Commission file number)	(I.R.S. Employer
of incorporation)		Identification No.)

201 W. North River Drive
Suite 100

Spokane, Washington	99201
(Address of Principal	(Zip Code)
Executive Offices)

(509) 459-6100

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-99.1

ITEM 2.02. Results of Operations and Financial Condition

On November 5, 2008, the registrant issued a press release setting forth its results for the third quarter of 2008. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.

ITEM 9.01. Financial Statements and Exhibits

(c) Exhibits.

The following exhibit is furnished pursuant to Item 2.02 hereof:

Exhibit No.		Exhibit
	99.1	Press release dated November 5, 2008 reporting results for the third quarter ended September 30, 2008

SIGNATURE

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 hereunto duly authorized.

RED LION HOTELS CORPORATION (Registrant)
	/s/ Anthony F. Dombrowik Chief Financial Officer
	(Signature)
	November 5, 2008 (Date)

EXHIBIT INDEX

Exhibit No.	Exhibit
99.1	Press release dated November 5, 2008 reporting results for the third quarter ended September 30, 2008

EX-99.1

Exhibit 99.1.1

Red Lion Reports Third Quarter 2008 Results

SPOKANE, WA, November 5, 2008 — Red Lion Hotels Corporation (NYSE: RLH) today announced its results for the third quarter and nine months ended September 30, 2008. Despite a difficult market environment, RevPAR for the quarter at owned and leased hotels decreased by 1.0% while revenue improved 4.3%, primarily due to the addition of the Anaheim and Denver Southeast hotels. Summary results for the three and nine-month periods follow:

	Three months ended September 30,							Nine months ended September 30,
($ in thousands, except per share)	2008		2007		% change			2008		2007		% change
Total revenue, as reported	$	56,886	$	54,520		4.3	%	$	146,256	$	142,818		2.4	%
Continuing operations before 2008 Special Item: (1)
EBITDA	$	14,113	$	15,271		-7.6	%	$	27,755	$	28,425		-2.4	%
Net income	$	4,435	$	5,799		-23.5	%	$	4,584	$	6,329		-27.6	%
Earnings per share — diluted	$	0.24	$	0.29		-17.2	%	$	0.25	$	0.32		-21.9	%
Continuing operations as reported:
EBITDA	$	14,113	$	15,271		-7.6	%	$	24,101	$	28,425		-15.2	%
Net income	$	4,435	$	5,799		-23.5	%	$	2,227	$	6,329		-64.8	%
Earnings per share — diluted	$	0.24	$	0.29		-17.2	%	$	0.12	$	0.32		-62.5	%
Total earnings per share - diluted, as reported	$	0.24	$	0.36		-33.3	%	$	0.12	$	0.37		-67.6	%

¹ Excludes $3.7 million of separation cost incurred in the first quarter of 2008 related to the retirement of the company’s former President and CEO, net of its impact on income taxes. A schedule called “Disclosure of Special Items” is included with this release.

In addition, key hotel operating metrics, on a comparable basis, and reported hotel operating margins for the third quarter and nine-month periods ended September 30, 2008 and September 30, 2007 are highlighted below for owned and leased hotels:

	Three months ended September 30,									Nine months ended September 30,
	2008			2007			% change			2008			2007			% change
RevPAR (revenue per available room)	$	72.08		$	72.79			-1.0	%	$	59.69		$	58.79			1.5	%
ADR (average daily rate)	$	97.11		$	95.43			1.8	%	$	91.57		$	89.84			1.9	%
Occupancy		74.2	%		76.3	%	-210		bp		65.2	%		65.4	%	-20		bp
Hotel Direct Operating Margin		30.1	%		33.0	%	-290		bp		25.5	%		25.5	%	flat

President and Chief Executive Officer Anupam Narayan, commenting on the third quarter results, said, “The third quarter of 2008 was a challenge given the difficult economic environment that we have seen, particularly since Labor Day. We have proactively implemented cost-cutting measures with the goal of optimizing our margins, and have adequate liquidity, no near-term debt maturities and a strong balance sheet. We are confident in the underlying fundamentals and asset value of our company.”

Narayan continued, “In October, we announced that our review of strategic alternatives had concluded and that we did not receive any definitive offer from the interested parties. We will continue to concentrate on maximizing shareholder value by executing our operational plan and focusing on the basics in these challenging times.”

Third Quarter Results

Red Lion’s total revenue during the third quarter was $56.9 million, up 4.3% from the prior-year period. Revenue from hotels was $53.5 million, up 6.9% from the third quarter of 2007, primarily related to the addition of the Anaheim hotel — acquired in October 2007 — and the Red Lion Hotel Denver Southeast — acquired in May 2008. On a same-store basis, ADR improved 1.8%, offset by a decline in occupancy of 210 basis points, which resulted in a decline in RevPAR of 1.0%. The overall hotel segment’s direct operating margin decreased by 290 basis points to 30.1%. This was driven primarily by spending on additional marketing and advertising to drive hotel revenues and lower than optimal margins at the company’s two new hotels that are undergoing renovations. System-wide, RevPAR on a comparable basis for the quarter decreased 0.4%, with a 220 basis point decrease in occupancy partially offset by a 2.6% increase in ADR.

Franchise and management revenue was $0.8 million, up $0.1 million from the prior-year period due to franchise termination fees of $0.3 million received in the quarter, which more than offset the impact of the fewer number of franchisees in the system. Entertainment revenue was $1.9 million, a decrease of $1.2 million from the same quarter in 2007 due to the economic slowdown and because there were no major shows in the third quarter.

EBITDA from continuing operations for the third quarter of 2008 was $14.1 million, a decrease of 7.6% from the third quarter of 2007. Net income from continuing operations was $4.4 million — a decrease of $1.4 million from the prior-year period. Earnings per fully diluted share from continuing operations was $0.24, down $0.05 per fully diluted share from the third quarter of 2007.

Nine Months 2008 Results

Red Lion’s total revenue for the nine-month period ended September 30, 2008, was $146.3 million, up 2.4% from the same period in 2007. Reported revenue from hotels was $135.4 million, up 4.8% from the prior-year period in 2007, driven by a 1.5% increase in RevPAR at owned and leased hotels. Hotel direct operating profit increased 4.9% to $34.6 million, while margins were 25.5%, flat with the prior-year quarter.

The RevPAR increase for owned and leased hotels on a comparable basis for the first nine months of 2008 was driven by a 1.9% increase in ADR, partially offset by a 20 basis point decrease in occupancy. System-wide, RevPAR on a comparable basis increased 0.5% year-over-year led by a 2.8% increase in ADR, partially offset by a 150 basis point decrease in occupancy primarily resulting from renovations at a number of franchised hotels.

Results for the first nine months of 2008 included revenue from the Anaheim hotel, acquired in October 2007, and the Red Lion Hotel Denver Southeast, acquired in May 2008. Results for the first nine months of 2008 did not include revenue from the Red Lion Hotel Sacramento, which was subleased to a franchisee in July 2007.

Franchise and management revenue was $1.5 million, down from the prior year primarily due to fewer franchisees in the system and non-recurring termination fees of $0.3 million received in 2007 from franchises that are no longer in the system. Entertainment revenue was $7.0 million, down 22.7% from the prior-year period primarily related to attendance and the mix of shows presented during the first nine months of 2008.

EBITDA from continuing operations for the nine-month period ended September 30, 2008 (excluding the 2008 special item for separation costs) was $27.8 million, a decrease of 2.4% from the prior-year period, while net income from continuing operations excluding the 2008 special item was $4.6 million, down $1.7 million from the prior-year period. Earnings per fully diluted share for the nine-month period ended September 30, 2008 (excluding the 2008 special item) was $0.25, down $0.07 from the prior-year period.

Red Lion System Update

The company continues the complete renovation of its 310-room Anaheim hotel acquired in October 2007. Refurbished rooms will start to come on line in November and the renovation should be substantially completed by the end of 2008. Renovations have also commenced on the recently acquired 478-room Red Lion Hotel Denver Southeast. The company waited until after the Democratic National Convention and the end of the summer travel season to start its work. Red Lion will continue to operate the hotel while it makes over $8 million in renovations, primarily to guest rooms and public spaces, and anticipates completion by the end of the first quarter of 2009.

At the end of September 2008, the company had 15 franchised hotels in the Red Lion system. As part of the strategy to enhance the Red Lion Brand, during the quarter, the company removed three hotels from the franchise system for insufficient progress in completing required property improvements. Those hotels were the former Red Lion Hotel Modesto (186 rooms), the Red Lion Hotel Hillsboro (123 rooms) and the Red Lion Hotel Klamath Falls (108 rooms). The company believes all but two of its current franchisees are either in full compliance with the company’s enhanced brand standards or making sufficient progress to be in full compliance in the near term.

Liquidity and Balance Sheet

As of September 30, 2008, the company had approximately $16.0 million in cash and cash equivalents. The company continues to maintain a $50 million credit facility with $21 million outstanding as of September 30, 2008.

On October 13, 2008, the company announced that it had closed on a $14 million loan from Wells Fargo Bank, National Association on its hotel in Bellevue, Washington. The loan provides for a five-year term and a variable spread over LIBOR based on certain financial ratios. The current pricing is 1.75% over LIBOR. Red Lion used part of the proceeds of the loan to pay off the previous 9% loan of approximately $8.2 million and will use the remainder for general corporate purposes.

For the remainder of 2008, the company is projecting capital expenditures of $15.0 million for ongoing hotel improvement projects and the renovations at the Anaheim and Denver hotels.

Outlook for 2008

Consistent with others in the industry, and given the current challenging economic conditions, the company is revising its 2008 guidance as follows:

• 2008 RevPAR for company owned and leased hotels is expected to be flat to down 2%

• 2008 direct hotel operating margins expected to be flat to down 150 basis points

• EBITDA from continuing operations in the range of $29.0 to $32.0 million

Red Lion’s 2008 EBITDA guidance does not include the impact of the $3.7 million special item for separation costs incurred in the first quarter of 2008.

Conference Call Information

The company will hold a conference call at 9:00 a.m. Pacific Time (12:00 p.m. Eastern Time) on November 6, 2008, to discuss the results for interested investors, analysts and portfolio managers. Management on the call will include President and CEO Anupam Narayan and Chief Financial Officer Anthony Dombrowik.

To participate in the conference call, please dial the following number ten minutes prior to the scheduled time: (800) 230-1096. International callers should dial (612) 332-0228.

This conference call will also be webcast live at http://www.redlion.com in the Investor Relations section of the website. To listen to the live call, please go to the Red Lion website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available at 2:00 p.m. PST on November 6, 2008, through December 6, 2008 at (800) 475-6701 or (320) 365-3844 (International) access code — 965898. The replay will also be available shortly after the call on the Red Lion website.

About Red Lion Hotels Corporation:

Red Lion Hotels Corporation is a hospitality and leisure company primarily engaged in the ownership, operation and franchising of upscale and midscale hotels under its Red Lion® brand. As of September 30, 2008, the RLH hotel network was comprised of 47 hotels located in nine states and one Canadian province, with 8,910 rooms and 437,626 square feet of meeting space. The company also owns and operates an entertainment and event ticket distribution business. For more information, please visit the company’s website at www.redlion.com.

This press release contains forward-looking statements within the meaning of federal securities law, including statements concerning plans, objectives, goals, strategies, projections of future events or performance and underlying assumptions (many of which are based, in turn, upon further assumptions). The forward-looking statements in this press release are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed. Such risks and uncertainties include, among others, economic cycles; international conflicts; changes in future demand and supply for hotel rooms; competitive conditions in the lodging industry; relationships with franchisees and properties; impact of government regulations; ability to obtain financing; changes in energy, healthcare, insurance and other operating expenses; ability to sell non-core assets; ability to locate lessees for rental property; dependency upon the ability and experience of executive officers and ability to retain or replace such officers as well as other matters discussed in the company’s annual report on Form 10-K for the year ended December 31, 2007 and in other documents filed by the company with the Securities and Exchange Commission.

Contact:
Red Lion Hotels Corporation
Julie Langenheim, Investor Relations Manager
(509) 777-6322

Investor Relations:
ICR Inc.
William Schmitt
(203) 682-8200

Red Lion Hotels Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands, except footnotes)

	Three months ended September 30,
	2008			2007			$ Change			% Change
Revenue:
Hotels	$	53,472		$	50,039		$	3,433			6.9	%
Franchise and management		769			701			68			9.7	%
Entertainment		1,869			3,030			(1,161	)		-38.3	%
Other		776			750			26			3.5	%
Total revenues		56,886			54,520			2,366			4.3	%
Operating expenses:
Hotels		37,375			33,546			3,829			11.4	%
Franchise and management		81			190			(109	)		-57.4	%
Entertainment		1,712			2,519			(807	)		-32.0	%
Other		483			454			29			6.4	%
Depreciation and amortization		4,966			4,194			772			18.4	%
Hotel facility and land lease		1,850			1,513			337			22.3	%
Gain on asset dispositions, net		(64	)		(188	)		124			66.0	%
Undistributed corporate expenses		1,746			1,555			191			12.3	%
Total expenses		48,149			43,783			4,366			10.0	%
Operating income		8,737			10,737			(2,000	)		-18.6	%
Other income (expense):
Interest expense		(2,321	)		(2,320	)		(1	)		0.0	%
Minority interest in partnerships, net		(10	)		(39	)		29			74.4	%
Other income, net		420			379			41			10.8	%
Income from continuing operations before income taxes		6,826			8,757			(1,931	)		-22.1	%
Income tax expense		2,391			2,958			(567	)		-19.2	%
Net income from continuing operations		4,435			5,799			(1,364	)		-23.5	%
Discontinued operations:
Loss from operations of discontinued business units, net of income tax benefit of $17		—			(32	)		32			100.0	%
Gain on disposal of discontinued business units, net of income tax expense of $736		—			1,338			(1,338	)		-100.0	%
Income from discontinued operations		—			1,306			(1,306	)		-100.0	%
Net income	$	4,435		$	7,105		$	(2,670	)		-37.6	%
EBITDA (1)	$	14,113		$	17,401		$	(3,288	)		-18.9	%
EBITDA as a percentage of revenues (2)		24.8	%		31.8	%
EBITDA from continuing operations (1)	$	14,113		$	15,271		$	(1,158	)		-7.6	%
EBITDA from continuing operations as a percentage of revenues (2)		24.8	%		28.0	%

(1)

The definition of “EBITDA” and how that measure relates to net income is discussed further in this release under Non-GAAP Financial Measures.

(2)

The calculation of EBITDA as a percentage of revenues is based upon total operating revenues, from both continuing and discontinued operations, of $56,886,000 and $54,747,000 for the three months ended September 30, 2008 and 2007, respectively. EBITDA from continuing operations as a percentage of revenues is based upon the operating results of continuing business units as presented in the financial statements.

Red Lion Hotels Corporation
Earnings Per Share and Hotel Statistics
(unaudited)
(shares in thousands)

	Three months ended September 30,
	2008		2007		$ Change
Earnings per share — basic: (1)
Net income from continuing operations	$	0.24	$	0.30	$	(0.06	)
Income from discontinued operations		—		0.07		(0.07	)
Net income	$	0.24	$	0.37	$	(0.13	)
Earnings per share — diluted: (1)
Net income from continuing operations	$	0.24	$	0.29	$	(0.05	)
Income from discontinued operations		—		0.07		(0.07	)
Net income	$	0.24	$	0.36	$	(0.12	)
Weighted average shares — basic		18,267		19,226
Weighted average shares — diluted		18,551		19,574

⁽¹⁾ For the three months ended September 30, 2008, 234,658 of the 1,429,794 options to purchase common shares outstanding as of that date were considered dilutive. Of the 55,715 restricted stock units outstanding, 4,298 shares were considered dilutive during the third quarter of 2008. For the three months ended September 30, 2007, 258,594 of the 1,306,617 options to purchase common shares outstanding as of that date were considered dilutive, as were the 44,473 units of unissued restricted stock outstanding. For both comparable periods, all of the 44,837 convertible operating partnership units were considered dilutive.

Red Lion Hotels Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands, except footnotes)

	Nine months ended September 30,
	2008			2007			$ Change			% Change
Revenue:
Hotels	$	135,401		$	129,259		$	6,142			4.8	%
Franchise and management		1,549			2,272			(723	)		-31.8	%
Entertainment		6,975			9,019			(2,044	)		-22.7	%
Other		2,331			2,268			63			2.8	%
Total revenues		146,256			142,818			3,438			2.4	%
Operating expenses:
Hotels		100,827			96,311			4,516			4.7	%
Franchise and management		226			586			(360	)		-61.4	%
Entertainment		6,886			7,978			(1,092	)		-13.7	%
Other		1,547			1,402			145			10.3	%
Depreciation and amortization		13,993			12,210			1,783			14.6	%
Hotel facility and land lease		5,496			4,964			532			10.7	%
Gain on asset dispositions, net		(204	)		(427	)		223			52.2	%
Undistributed corporate expenses		8,710			4,510			4,200			93.1	%
Total expenses		137,481			127,534			9,947			7.8	%
Operating income		8,775			15,284			(6,509	)		-42.6	%
Other income (expense):
Interest expense		(6,955	)		(6,871	)		(84	)		-1.2	%
Minority interest in partnerships, net		2			(40	)		42			105.0	%
Other income, net		1,331			971			360			37.1	%
Income from continuing operations before income taxes		3,153			9,344			(6,191	)		-66.3	%
Income tax expense		926			3,015			(2,089	)		-69.3	%
Net income from continuing operations		2,227			6,329			(4,102	)		-64.8	%
Discontinued operations:
Loss from operations of discontinued business units, net of income tax benefit of $62		—			(113	)		113			100.0	%
Net gain on disposal of discontinued business units, net of income tax expense of $596		—			1,082			(1,082	)		-100.0	%
Income from discontinued operations		—			969			(969	)		-100.0	%
Net income	$	2,227		$	7,298		$	(5,071	)		-69.5	%
EBITDA (1)	$	24,101		$	30,113		$	(6,012	)		-20.0	%
EBITDA as a percentage of revenues (2)		16.5	%		20.9	%
EBITDA from continuing operations (1)	$	24,101		$	28,425		$	(4,324	)		-15.2	%
EBITDA from continuing operations as a percentage of revenues (2)		16.5	%		19.9	%

(1)

The definition of “EBITDA” and how that measure relates to net income (loss) is discussed further in this release under Non-GAAP Financial Measures.

(2)

The calculation of EBITDA as a percentage of revenues is based upon total operating revenues, from both continuing and discontinued operations, of $146,256,000 and $144,226,000 for the nine months ended September 30, 2008 and 2007, respectively. EBITDA from continuing operations as a percentage of revenues is based upon the operating results of continuing business units as presented in the financial statements.

Red Lion Hotels Corporation
Earnings Per Share and Hotel Statistics
(unaudited)
(shares in thousands)

	Nine months ended September 30,
	2008		2007		$ Change
Earnings per share — basic: (1)
Net income from continuing operations	$	0.12	$	0.33	$	(0.21	)
Income from discontinued operations		—		0.05		(0.05	)
Net income	$	0.12	$	0.38	$	(0.26	)
Earnings per share — diluted: (1)
Net income from continuing operations	$	0.12	$	0.32	$	(0.20	)
Income from discontinued operations		—		0.05		(0.05	)
Net income	$	0.12	$	0.37	$	(0.25	)
Weighted average shares — basic		18,245		19,191
Weighted average shares — diluted		18,508		19,573

⁽¹⁾ For the nine months ended September 30, 2008, 227,037 of the 1,429,794 options to purchase common shares and 5,805 of the 55,715 restricted stock units outstanding as of that date were considered dilutive. In addition, 29,946 of the 44,837 convertible operating partnership units were dilutive during the nine-month period. For the nine months ended September 30, 2007, 301,568 of the 1,306,617 options to purchase common shares outstanding as of that date were considered dilutive, as were 35,175 units of unissued restricted stock outstanding and 44,837 convertible operating partnership units.

Red Lion Hotels Corporation
Consolidated Balance Sheets
(unaudited)
($ in thousands, except share data)

	September 30,		December 31,
	2008		2007
Assets:
Current assets:
Cash and cash equivalents	$	15,974	$	15,044
Restricted cash		3,916		4,439
Accounts receivable, net		11,729		10,330
Inventories		1,469		1,416
Prepaid expenses and other		2,429		3,352
Total current assets		35,517		34,581
Property and equipment, net		290,659		260,574
Goodwill		28,042		28,042
Intangible assets, net		11,195		11,582
Other assets, net		6,905		9,730
Total assets	$	372,318	$	344,509
Liabilities:
Current liabilities:
Accounts payable	$	8,245	$	4,189
Accrued payroll and related benefits		4,459		6,166
Accrued interest payable		296		356
Advance deposits		850		345
Other accrued expenses		10,580		10,419
Long-term debt, due within one year		2,967		5,547
Total current liabilities		27,397		27,022
Revolving credit facility		21,000		—
Long-term debt, due after one year		81,130		77,673
Deferred income		8,649		9,169
Deferred income taxes		17,223		17,294
Minority interest in partnerships		29		31
Debentures due Red Lion Hotels Capital Trust		30,825		30,825
Total liabilities		186,253		162,014
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; 18,274,498 and 18,312,756 shares issued and outstanding		183		183
Additional paid-in capital, common stock		141,896		140,553
Retained earnings		43,986		41,759
Total stockholders’ equity		186,065		182,495
Total liabilities and stockholders’ equity	$	372,318	$	344,509

Red Lion Hotels Corporation
Consolidated Statement of Cash Flows
(unaudited)
($ in thousands)

	Nine months ended September 30,
	2008			2007
Operating activities:
Net income	$	2,227		$	7,298
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,993			12,237
Gain on disposition of property, equipment and other assets, net		(204	)		(427	)
Gain on disposition of discontinued operations, net		—			(1,678	)
Deferred income tax provision		(71	)		2,830
Minority interest in partnerships		(2	)		40
Equity in investments		(147	)		(62	)
Imputed interest expense		111			157
Stock based compensation expense		2,104			666
Provision for doubtful accounts		65			19
Change in current assets and liabilities:
Restricted cash		523			(1,431	)
Accounts receivable		(1,230	)		(1,238	)
Inventories		(12	)		158
Prepaid expenses and other		931			(813	)
Accounts payable		4,056			(2,082	)
Accrued payroll and related benefits		(1,707	)		(1,613	)
Accrued interest payable		(60	)		(98	)
Other accrued expenses and advance deposits		368			3,380
Net cash provided by operating activities		20,945			17,343
Investing activities:
Purchases of property and equipment		(43,306	)		(14,002	)
Non-current restricted cash for sublease tenant improvements		2,072			—
Proceeds from disposition of property and equipment		5			18
Proceeds from disposition of discontinued operations		—			7,918
Proceeds from short-term liquid investments		—			7,635
Advances to Red Lion Hotels Capital Trust		(27	)		(17	)
Other, net		429			(284	)
Net cash provided by (used in) investing activities		(40,827	)		1,268
Financing activities:
Borrowings on revolving credit facility		23,000			—
Repayment of revolving credit facility		(2,000	)		—
Repayment of long-term debt		(13,234	)		(1,894	)
Borrowings on long-term debt		14,000			3,926
Common stock redeemed		(926	)		—
Proceeds from issuance of common stock under employee stock purchase plan		164			196
Proceeds from stock option exercises		—			488
Distributions to operating partnership unit holders		—			(1	)
Additions to deferred financing costs		(192	)		(27	)
Net cash provided by financing activities		20,812			2,688
Net cash in discontinued operations		—			57
Change in cash and cash equivalents:
Net increase in cash and cash equivalents		930			21,356
Cash and cash equivalents at beginning of period		15,044			13,262
Cash and cash equivalents at end of period	$	15,974		$	34,618

Red Lion Hotels Corporation
Additional Hotel Statistics
(unaudited)

System-wide Hotels as of September 30, 2008

					Meeting Space
	Hotels		Rooms		(sq. ft.)
Red Lion Owned and Leased Hotels		31		5,935		304,684
Other Leased Hotel (1)		1		310		5,000
Red Lion Franchised Hotels		15		2,665		127,942
Total		47		8,910		437,626
Total Red Lion Hotels		46		8,600		432,626

Comparable Hotel Statistics ⁽²⁾

	Three months ended September 30, 2008									Three months ended September 30, 2007
	Average									Average
	Occupancy (3)			ADR (4)			RevPAR (5)			Occupancy (3)			ADR (4)		RevPAR (5)
Owned and Leased Hotels		74.2	%	$	97.11		$	72.08			76.3	%	$	95.43	$	72.79
Franchised Hotels		70.1	%	$	81.72		$	57.26			72.4	%	$	77.56		56.12
Total System Wide		72.9	%	$	92.37		$	67.33			75.1	%	$	90.06		67.60
Change from prior comparative period:
Owned and Leased Hotels		(2.1	)		1.8	%		-1.0	%
Franchised Hotels		(2.3	)		5.4	%		2.0	%
Total System Wide		(2.2	)		2.6	%		-0.4	%

	Nine months ended September 30, 2008									Nine months ended September 30, 2007
	Average									Average
	Occupancy (3)			ADR (4)			RevPAR (5)			Occupancy (3)			ADR (4)		RevPAR (5)
Owned and Leased Hotels		65.2	%	$	91.57		$	59.69			65.4	%	$	89.84	$	58.79
Franchised Hotels		60.6	%	$	78.22		$	47.43			64.8	%	$	74.81		48.50
Total System Wide		63.8	%	$	87.75		$	55.99			65.3	%	$	85.39		55.72
Change from prior comparative period:
Owned and Leased Hotels		(0.2	)		1.9	%		1.5	%
Franchised Hotels		(4.2	)		4.6	%		-2.2	%
Total System Wide		(1.5	)		2.8	%		0.5	%

(1)	Represents a hotel acquired in the fourth quarter of 2007 that is being repositioned as a Red Lion, although until that time has been flagged as an independent.
(2)	Includes all hotels owned, leased and franchised, presented on a comparable basis for hotel statistics.
(3)	Average occupancy represents total paid rooms divided by total available rooms. Total available rooms represents the number of rooms available multiplied by the number of days in the reported period and includes rooms taken out of service for renovation.
(4)	Average daily rate (“ADR”) represents total room revenues divided by the total number of paid rooms occupied by hotel guests.
	(5) Revenue per available room (“RevPAR”) represents total room and related revenues divided by total available rooms.

Red Lion Hotels Corporation
Disclosure of Special Items
(unaudited)

As previously announced, the Company’s former President and Chief Executive Officer retired in February 2008. In connection with the retirement agreement, the Company recorded an expense of $3.7 million in separation costs during the first quarter of 2008. As a result, the operations as presented in the accompanying financial statements for the nine months ended September 30, 2008 compared to 2007 do not reflect a meaningful comparison of continuing operations between periods. The follow table represents a reconciliation of certain earnings measures from continuing operations before special items to income from continuing operations after special items.

	Nine months ended September 30, 2008									Nine months ended September 30, 2007
($ in thousands except per share data)	Net Income			EBITDA			Diluted EPS			Net Income		EBITDA		Diluted EPS
	from Continuing			from Continuing			from Continuing			from Continuing		from Continuing		from Continuing
	Operations			Operations			Operations			Operations		Operations		Operations
Amount before special item	$	4,584		$	27,755		$	0.25		$	6,329	$	28,425	$	0.32
Special items:
Separation costs (1)		(3,654	)		(3,654	)		(0.20	)		—		—		—
Income tax expense of special item (2)		1,297			—			0.07			—		—		—
Amount per consolidated statement of operations	$	2,227		$	24,101		$	0.12		$	6,329	$	28,425	$	0.32
Change from the comparative period:
Amount before special item		-27.6	%		-2.4	%		-21.8	%
Amount per consolidated statement of operations		-64.8	%		-15.2	%		-62.4	%

(1)	Amount as included in the line item “Undistributed corporate expenses” on the accompanying consolidated statements of operations.
(2)	Represents taxes on special items at the Company’s expected incremental tax rate as applicable.

Red Lion Hotels Corporation
Reconciliation of EBITDA to Net Income
(unaudited)
($ in thousands)

The following is a reconciliation of EBITDA and EBITDA from continuing operations to net income for the periods presented:

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
EBITDA from continuing operations	$	14,113		$	15,271		$	24,101		$	28,425
Income tax expense — continuing operations		(2,391	)		(2,958	)		(926	)		(3,015	)
Interest expense — continuing operations		(2,321	)		(2,320	)		(6,955	)		(6,871	)
Depreciation and amortization — continuing operations		(4,966	)		(4,194	)		(13,993	)		(12,210	)
Net income from continuing operations		4,435			5,799			2,227			6,329
Income from discontinued operations		—			1,306			—			969
Net income	$	4,435		$	7,105		$	2,227		$	7,298
EBITDA	$	14,113		$	17,401		$	24,101		$	30,113
Income tax expense		(2,391	)		(3,676	)		(926	)		(3,548	)
Interest expense		(2,321	)		(2,417	)		(6,955	)		(7,030	)
Depreciation and amortization		(4,966	)		(4,203	)		(13,993	)		(12,237	)
Net income	$	4,435		$	7,105		$	2,227		$	7,298

NON-GAAP FINANCIAL MEASURES

EBITDA is defined as net income before interest, taxes, depreciation and amortization. EBITDA is considered a non-GAAP financial measurement. We believe it is a useful financial performance measure for us and for our shareholders and is a complement to net income and other financial performance measures provided in accordance with generally accepted accounting principles in the United States (“GAAP”). EBITDA from continuing operations is calculated in the same manner, but excludes the operating results of business units identified as discontinued under GAAP.

We use EBITDA to measure the financial performance of our owned and leased hotels because it excludes interest, taxes, depreciation and amortization, which bear little or no relationship to operating performance. By excluding interest expense, EBITDA measures our financial performance irrespective of our capital structure or how we finance our properties and operations. We generally pay federal and state income taxes on a consolidated basis, taking into account how the applicable taxing laws apply to our company in the aggregate. By excluding taxes on income, we believe EBITDA provides a basis for measuring the financial performance of our operations excluding factors that our hotels and other operations cannot control. By excluding depreciation and amortization expense, which can vary from hotel to hotel based on historical cost and other factors unrelated to the hotels’ financial performance, EBITDA measures the financial performance of our hotels without regard to their historical cost. For all of these reasons, we believe that EBITDA provides us and investors with information that is relevant and useful in evaluating our business.

However, because EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our long-lived assets. In addition, because EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our borrowings or changes in interest rates. EBITDA, as defined by us, may not be comparable to EBITDA as reported by other companies that do not define EBITDA exactly as we define the term. Because we use EBITDA to evaluate our financial performance, we reconcile all EBITDA measures to net income, which is the most comparable financial measure calculated and presented in accordance with GAAP. EBITDA does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity.