SADDLEBROOK RESORTS INC - Quarter Report: 2002 June (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q


(Mark one)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2002
		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: No 1934 act file number assigned
(1933 act file no. 2-65481)

SADDLEBROOK RESORTS, INC.

(Exact name of registrant as specified in its charter)


Florida		59-1917822

(State of incorporation)		(IRS employer identification no.)

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499

(Address of principal executive offices)

813-973-1111

(Registrant’s telephone number, including area code)

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 x NO o

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Not Applicable*

* Registrant has no common stock subject to this annual report.

Page 1 of 13

INDEX


				Page
PART I — FINANCIAL INFORMATION

	Item 1. Financial Statements

		Saddlebrook Resorts, Inc.
			Balance Sheets at June 30, 2002 and December 31, 2001		3
			Statements of Operations for the three months and six months ended June 30, 2002 and 2001		4
			Statements of Cash Flows for the six months ended June 30, 2002 and 2001		5
			Notes to Financial Statements		6

		Saddlebrook Rental Pool Operation
			Balance Sheets at June 30, 2002 and December 31, 2001		8
			Statements of Operations for the three months and six months ended June 30, 2002 and 2001		9
			Statements of Changes in Participants’ Fund Balance for the six months ended June 30, 2002 and 2001		10

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

		Saddlebrook Resorts, Inc.			11
		Saddlebrook Rental Pool Operation			12

PART II — OTHER INFORMATION

	Item 6. Exhibits and Reports on Form 8-K				12

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS


				June 30,
				2002		December 31,
				(Unaudited)		2001

			Assets
Current assets:
	Cash and cash equivalents			$	7,108 508	$	6,724,259
	Escrowed cash				915,569		217,550
	Short-term investments				300,000		—
	Short-term escrowed investments				989		989
	Accounts receivable, net				2,642,520		1,681,780
	Due from related parties				2,263,141		849,952
	Inventory and supplies				1,741,179		1,834,400
	Prepaid expenses and other assets				790,341		516,923

		Total current assets			15,762,247		11,825,853
Long-term investments					—		300,000
Property, buildings and equipment, net					25,230,134		24,974,266
Deferred charges, net					437,596		457,486

				$	41,429,977	$	37,557,605

			Liabilities and Shareholder’s Equity
Current liabilities:
	Current portion of notes payable			$	1,332,265	$	1,281,697
	Escrowed deposits				916,558		218,540
	Accounts payable				522,745		704,018
	Accrued rental distribution				1,127,156		247,692
	Accrued expenses and other liabilities				2,138,040		2,176,962
	Guest deposits				977,055		1,411,575
	Due to related parties				557,131		205,282

		Total current liabilities			7,570,950		6,245,766
Notes payable due after one year					20,382,636		21,061,638

		Total liabilities			27,953,586		27,307,404

Shareholder’s equity:
	Common stock, $1.00 par value, 100,000 shares authorized and outstanding				100,000		100,000
	Additional paid-in capital				1,013,127		1,013,127
	Accumulated earnings				12,363,264		9,137,074

		Total shareholder’s equity			13,476,391		10,250,201

				$	41,429,977	$	37,557,605

The accompanying Notes to Financial Statements are
an integral part of these financial statements

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SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)


			Three months ended					Six months ended
			June 30,					June 30,

			2002		2001			2002		2001

Revenues			$	10,073,616	$	13,285,808		$	24,265,905	$	33,632,314


Costs and expenses:
	Operating costs			7,023,872		9,180,893			15,948,351		20,833,115
	Sales and marketing			617,921		1,008,055			1,272,391		2,018,317
	General and administrative			869,505		1,450,611			1,877,570		2,721,442
	Depreciation and amortization			549,217		524,704			1,088,735		1,045,603
	Interest			426,934		445,379			852,668		895,728

		Total costs and expenses		9,487,449		12,609,642			21,039,715		27,514,205


Net income				586,167		676,166			3,226,190		6,118,109

Distribution to shareholder				—		(1,300,000	)		—		(1,300,000	)

Accumulated earnings at beginning of period				11,777,097		12,491,974			9,137,074		7,050,031


Accumulated earnings at end of period			$	12,363,264	$	11,868,140		$	12,363,264	$	11,868,140

The accompanying Notes to Financial Statements are
an integral part of these financial statements

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SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)


			Six months ended
			June 30,

			2002			2001

Operating activities:
	Net income		$	3,226,190		$	6,118,109
	Non-cash items included in net income:
		Provision for doubtful accounts		26,720			24,720
		Depreciation and amortization		1,088,735			1,045,603
		Loss (gain) on sale of assets		(50	)		(25	)
	Decrease (increase) in:
		Accounts receivable		(987,460	)		(96,677	)
		Inventory and supplies		93,221			117,428
		Prepaid expenses and other assets		(273,418	)		(203,314	)
	Increase (decrease) in:
		Accounts payable		(181,273	)		(295,426	)
		Accrued expenses and other liabilities		406,021			319,096

				3,398,686			7,029,514


Investing activities:
	Proceeds from sale of assets			50			25
	Capital expenditures			(1,324,713	)		(559,938	)

				(1,324,663	)		(559,913	)


Financing activities:
	Payments on notes payable			(628,434	)		(581,062	)
	Distribution to shareholder			—			(1,300,000	)
	Net payments to related parties			(1,061,340	)		(408,622	)

				(1,689,774	)		(2,289,684	)

Net increase in cash				384,249			4,179,917
Cash at beginning of period				6,724,259			8,109,135


Cash at end of period			$	7,108,508		$	12,289,052


Supplemental disclosure:
	Cash paid for interest		$	850,870		$	897,660

The accompanying Notes to Financial Statements are
an integral part of these financial statements.

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SADDLEBROOK RESORTS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The accompanying balance sheet for June 30, 2002, and statements of operations and cash flows for the periods ended June 30, 2002 and 2001, are unaudited but reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.

The Registrant’s business is seasonal. Therefore, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal years.

These financial statements and related notes are presented for interim periods in accordance with the requirements of Form 10-Q and, consequently, do not include all disclosures normally provided in the Registrant’s Annual Report on Form 10-K. Accordingly, these financial statements and related notes should be read in conjunction with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

Note 2. Accounts Receivable


	June 30,
	2002			December 31,
	(Unaudited)			2001

Trade accounts receivable	$	2,688,358		$	1,700,922
Less reserve for bad debts		(45,838	)		(19,142	)

	$	2,642,520		$	1,681,780

Note 3. Property, Buildings and Equipment


	June 30,
	2002			December 31,
	(Unaudited)			2001

Land and land improvements	$	4,412,746		$	4,412,746
Buildings and recreational facilities		24,524,658			23,792,806
Machinery and equipment		13,370,233			12,480,733
Construction in progress		889,412			1,191,540

		43,197,049			41,877,825
Less accumulated depreciation		(17,966,915	)		(16,903,559	)

	$	25,230,134		$	24,974,266

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The Registrant’s property, buildings and equipment are pledged as security for its debt (see Note 5).

Note 4. Deferred Charges


	June 30,
	2002			December 31,
	(Unaudited)			2001

Debt issue costs	$	596,716		$	596,716
Less accumulated amortization		(159,120	)		(139,230	)

	$	437,596		$	457,486

Note 5. Notes Payable


	June 30,
	2002			December 31,
	(Unaudited)			2001

Note payable due June 30, 2013	$	21,679,005		$	22,294,392
Capital lease obligation		35,896			48,943

		21,714,901			22,343,335
Less current portion		(1,332,265	)		(1,281,697	)

	$	20,382,636		$	21,061,638

The Registrant’s financing from a third-party lender has an annual interest rate fixed at 7.7% and monthly payments for principal and interest of $243,988. The debt is secured by the Registrant’s real and personal property.

An additional $5,000,000 is available from the same lender as long as certain financial covenants are maintained. If received by the Registrant, the additional financing would be due on June 30, 2013.

Note 6. Related Party Receivables and Liabilities

Related party receivables and payables at June 30, 2002 and December 31, 2001 are the result of net intercompany transactions and cash transfers between the Registrant and its shareholder company and affiliated companies. There are no advances from the Registrant to its Directors or Officers.

Note 7. Income Taxes

The Registrant previously elected S Corporation status and is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, the Registrant has had no income tax expense since the initial election as the tax is assessed at the shareholder level.

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SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS

DISTRIBUTION FUND


		June 30,
		2002		December 31,
		(Unaudited)		2001

	Assets
Receivable from Saddlebrook Resorts, Inc.		$	1,199,312	$	686,491


	Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	993,683	$	571,194
Due to maintenance escrow fund			205,629		115,297
Participants’ fund balance			—		—

		$	1,199,312	$	686,491

MAINTENANCE ESCROW FUND


			June 30,
			2002		December 31,
			(Unaudited)		2001

		Assets
Cash and cash equivalents			$	892,619	$	195,300
Investments				989		989
Receivables:
	Distribution fund			205,629		115,297
	Owner payments			53,903		234,055
	Interest			10		4
Linen inventory				282,769		299,879
Prepaid expenses and other assets				99,432		2,119,489

			$	1,535,351	$	2,965,013


		Liabilities and Participants’ Fund Balance
Accounts payable			$	211,729	$	504,627
Participants’ fund balance				1,323,622		2,460,386

			$	1,535,351	$	2,965,013

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SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)


		Three months ended						Six months ended
		June 30,						June 30,

		2002			2001			2002			2001

Rental pool revenues		$	3,000,670		$	4,096,118		$	8,017,935		$	11,111,672


Deductions:
	Marketing expense		225,050			307,209			601,345			833,376
	Management expense		375,084			512,015			1,002,242			1,388,959
	Travel agent commissions		147,890			272,851			348,715			540,076
	Credit card expense		42,962			53,290			109,501			127,239
	Provision for bad debts		1,500			—			2,000			—

			792,486			1,145,365			2,063,803			2,889,650


Net rental income			2,208,184			2,950,753			5,954,132			8,222,022
Less operator share of net rental income			(993,683	)		(1,327,839	)		(2,679,360	)		(3,699,910	)
Other revenues (expenses):
	Complimentary room revenues		20,958			30,772			43,163			56,143
	Minor repairs and replacements		(36,147	)		(31,919	)		(81,208	)		(89,038	)


Amount available for distribution		$	1,199,312		$	1,621,767		$	3,236,727		$	4,489,217

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SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCE

(Unaudited)

DISTRIBUTION FUND


		Six months ended
		June 30,

		2002			2001

Balance at beginning of period		$	—		$	—

Additions:
	Amount available for distribution		3,236,727			4,489,217

Reductions:
	Amount withheld for maintenance escrow fund		(557,367	)		(789,307	)
	Amount accrued or paid to participants		(2,679,360	)		(3,699,910	)


Balance at end of period		$	—		$	—

MAINTENANCE ESCROW FUND


		Six months ended
		June 30,

		2002			2001

Balance at beginning of period		$	2,460,386			2,830,378

Additions:
	Amount withheld from distribution fund		557,367			789,307
	Unit owner payments		611,183			621,143
	Interest earned		6,602			6,369

Reductions:
	Escrow account refunds		(42,912	)		(69,157	)
	Maintenance charges		(102,184	)		(363,412	)
	Unit renovations		(2,132,716	)		(1,604,641	)
	Linen replacement		(34,104	)		(56,301	)


Balance at end of period		$	1,323,622		$	2,153,686

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

Liquidity and Capital Resources

The Registrant’s operations are seasonal with the highest volume of sales occurring in the first quarter of each calendar year. The second quarter has, historically, had marginal financial performance. Accordingly, the Registrant experienced an improvement in its financial condition as of June 30, 2002 when compared with its fiscal year-end of December 31, 2001. The primary effect of this seasonal period was an increase in current assets and accumulated earnings.

The Registrant’s loan agreement for its existing debt provides for an additional $5,000,000 from the same lender if the Registrant remains in compliance with certain financial covenants (see Note 5. Notes Payable of the Notes to Financial Statements in Part I, Item 1 of this Form 10-Q, which is incorporated herein by reference).

The Registrant has completed construction of new laundry and warehouse facilities to replace a structure that was damaged by fire in January of 2001. The cost for this project (net of related insurance proceeds) was $910,000. There were no other significant capital additions or improvements during the six months ended June 30, 2002 and no other major capital projects are anticipated in the remaining fiscal period. Future operating costs and planned expenditures for capital additions and improvements should be funded by the Registrant’s current cash reserves, cash generated by resort operations or by additional funds, if available, from it’s current lender discussed above.

Results of Operations

Total revenues decreased $3,212,000, or 24%, for the second quarter of 2002 when compared with the same period in 2001. Total revenues decreased $9,366,000, or 28%, for the first six months of 2002 when compared with the same period in 2001. These decreases resulted from fewer occupied unit nights, average daily room rates and numbers of guests in the resort for the current periods when compared to the same periods the prior year. Anticipated occupied room nights for the remainder of 2002 are expected to approximate the prior year’s low level due to the continued slowdown in the nation’s economy and concerns about national security that have adversely affected travel. Projections for occupied room nights in the year 2003 and subsequent fiscal periods are expected to remain at the resort’s current volume of business pending an improvement in national concerns.

Net income for the second quarter of 2002 decreased $90,000, or 13%, from the same period in 2001. Net income for the first six months of 2002 decreased $2,892,000, or 47%, from the same period in 2001. These decreases were a direct result of lower revenues for the current periods when compared to the prior year’s. Net income also benefited by several measures that were taken in the fall of 2001 to reduce the Registrant’s cost of operation.

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

Due to the seasonal business of the Registrant, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for their full fiscal year.

Saddlebrook Rental Pool Operation

The results of the Saddlebrook Rental Pool Operation (the “Rental Pool”) are directly related to the hotel operations of the Registrant. The Registrant operates the Rental Pool that provides for a distribution of a percentage of net rental income to participating condominium owners. Net rental income is calculated and distributed according to the provisions of a Rental Pool and Agency Appointment Agreement. The level of the Registrant’s occupancy and related average daily room rate directly impacts revenues and expenses used to determine the distribution.

The average occupancies for the Rental Pool for the quarters ended June 30, 2002 and 2001 were 50% and 56%, respectively. The average distributions of net rental income per participating condominium unit for the same periods were $2,185 and $2,949, respectively. The decrease in the average distribution of net rental income was directly related to lower Rental Pool revenues that decreased the net amount available for distribution for the current quarter when compared to the same period the prior year.

Item 6. Exhibits and Reports on Form 8-K

(a)

The following exhibits are included in this Form 10-Q:


99.1	-	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2	-	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)

The Registrant was not required to file a Form 8-K during the six months ended June 30, 2002.

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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, thereunto duly authorized.


		SADDLEBROOK RESORTS, INC.

		(Registrant)


Date: August 14, 2002		/s/ Donald L. Allen

		Donald L. Allen
		Vice President and Treasurer
		(Principal Financial and
		Accounting Officer)

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