SADDLEBROOK RESORTS INC - Quarter Report: 2003 March (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

COMMISSION FILE NUMBER: No 1934 act file number assigned
(1933 act file no. 2-65481)

SADDLEBROOK RESORTS, INC.

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499

813-973-1111

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 [   ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [   ]   NO [X]

Registrant has 100,000 shares of common stock outstanding, all of which are held by affiliates of the Registrant.

Table of Contents

INDEX

- 2 -

Table of Contents

PART I — FINANCIAL INFORMATION

     Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

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

- 3 -

Table of Contents

SADDLEBROOK RESORTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)

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

- 4 -

Table of Contents

SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)

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

- 5 -

Table of Contents

SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation

Saddlebrook Resorts, Inc., (the “Company”) operates Saddlebrook Resort, which is a condominium hotel and resort located in Wesley Chapel, Florida.

The Company’s accompanying balance sheet for March 31, 2003, and its statements of operations and cash flows for the periods ended March 31, 2003 and 2002, 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 Company’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 full 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 Company’s Annual Report on Form 10-K. Accordingly, these financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Note 2. Accounts Receivable

- 6 -

Table of Contents

Note 3. Property, Buildings and Equipment

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

Note 4. Deferred Charges

- 7 -

Table of Contents

Note 5. Notes Payable

The Company’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 Company’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 Company, the additional financing would be due on June 30, 2013.

Note 6. Related Party Receivables and Payables

Related party receivables and payables at March 31, 2003 and December 31, 2002 are the result of net intercompany transactions and cash transfers between the Company and its shareholder company and affiliated companies. There are no advances from the Company to its Directors or Officers.

Note 7. Income Taxes

The Company is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, no income tax expense was reflected in the Company’s operating results as the tax is assessed to the shareholders of its parent company.

- 8 -

Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

DISTRIBUTION FUND

MAINTENANCE ESCROW FUND

- 9 -

Table of Contents

SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)

DISTRIBUTION FUND

- 10 -

Table of Contents

SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES
(Unaudited)

DISTRIBUTION FUND

MAINTENANCE ESCROW FUND

- 11 -

Table of Contents

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

General

The Company operates Saddlebrook Resort in Wesley Chapel, Florida, which contains condominium units that have been sold to third parties or to affiliates of the Company. The majority of the condominium units are hotel accommodations that participate in a rental-pooling program (the “Rental Pool”) that provides its owners with a percentage distribution of related room revenues minus certain fees and expenses. The remainder of the condominium units either participate in a non-pooling rental program, are owner-occupied or are designated as hospitality suites or housing for young athletes independent of the rental programs. Other resort property owned by the Company and its affiliates include golf courses, tennis courts, a spa, restaurants and conference center facilities.

Liquidity and Capital Resources

The Company’s operations are seasonal with the highest volume of sales generally occurring in the first quarter of each calendar year. Accordingly, the Company experienced an improvement in its financial condition as of March 31, 2003 when compared with its fiscal year-end of December 31, 2002. The primary effect of this seasonal period was an increase in cash, accounts receivable and accumulated earnings.

The Company’s financing from a third-party lender has a fixed annual interest rate of 7.7%, monthly principal and interest payments of approximately $244,000 and matures on June 30, 2013. The current debt agreement contains additional financing from the same lender of $5,000,000 provided the Company remains in compliance with certain financial covenants.

There were no significant capital additions or improvements during the three months ended March 31, 2003 and the Company’s management has no major capital projects anticipated in the immediate future. Future operating costs and planned expenditures for minor capital additions and improvements are expected to be adequately funded by the Company’s and its affiliates’ current cash reserves, cash generated by resort operations or by additional funds, if available, from the Company’s current lender discussed above.

Regarding the Company’s operation of the Rental Pool, the related condominium units’ kitchens, bathrooms and carpeting are currently being renovated and upgraded. This project commenced in 1998 and has been completed for unit Clusters One through Eight with an aggregate billing to the maintenance escrow fund of $5,072,000. The project is currently underway in Clusters Nine and Ten and the resort’s management expects the related billing to the condominium owners’ maintenance escrow fund accounts to occur in late 2003.

Results of Operations

The Company’s total revenues for the three months ended March 31, 2003 decreased approximately $1,160,000, or 8%, from the first quarter the prior year. Total revenues for the Rental Pool decreased approximately $594,000, or 12%, from the same period the prior year. These reductions were primarily due to a 12% decrease in paid room nights for the condominium units that participated in the Rental Pool. The average daily room rate for the current quarter was approximately the same as the prior year’s first quarter. Paid room nights were down 12% for the resort’s group business and also off 12% for social hotel stays. The Company’s total resort revenues also reflected reductions in its food and beverage and most other areas of operation that resulted from a 2% decrease in individual guests that stayed at the resort for the current quarter when compared to the same period the prior year.

- 12 -

Table of Contents

The above reductions in business are attributed to the continued slowdown in the nation’s economy and concerns about national security that have adversely affected travel. These events have created a trend in the booking of future resort business where reservations for both group and social guests are now generally occurring closer to their arrival dates instead of several months in advance as in previous years. However, although this trend makes it difficult to project future business, the Company’s management believes the occupied room nights for the remainder of the year 2003 will approximate the prior year’s level. Similarly, projections for occupied room nights in the year 2004 and subsequent fiscal periods are expected to remain at the resort’s current volume of business pending an improvement in the nation’s economy and less concern about national security.

The Company’s net income for the current quarter decreased $695,000, which was a 26% reduction from the net income for the first quarter of 2002. This decrease was a direct result of lower revenues partially offset by management’s continued efforts to minimize the Company’s expenses throughout all areas of operations. Depreciation and amortization expense were effectively unchanged for the current period when compared to the prior year’s first quarter. Interest expense decreased approximately 5% as the Company continued to pay down its self-amortizing debt discussed in Liquidity and Capital Resources above.

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

Forward-Looking Information

Certain information contained in this report constitutes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements may be identified by the inclusion of terms such as "believe," "expect," "anticipate," "estimate" or "may." Although the Company's management believes that such forward-looking statements are based upon reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Consequently, the expected results may not be achieved and actual results may differ significantly from expectations. This may be a result of various factors, including: changes in general economic conditions that may influence group conferences and guests' vacation plans; changes in travel patterns; changes in consumer tastes in destinations or accommodations for group conferences and vacations; changes in Rental Pool participation by the current condominium unit owners; and the resale of units to owners who elect not to participate in the Rental Pool. The Company assumes no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s invested cash, including investments escrowed on behalf of the condominium unit owners in the Rental Pool’s Maintenance Escrow Fund, are subject to changes in market interest rates. Consequently, the related yields for these investments continue to have a downward trend. Otherwise, the Company does not have significant market risk with respect to foreign currency exchanges or other market rates.

The Company’s debt is self-amortizing and has a fixed contractual interest rate through June of 2013. Accordingly, fluctuations in related market costs of capital are not expected to affect its financial results.

Item 4. Controls and Procedures

Within the 90 days prior to the date of this report, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Chief Executive Officer and the Chief Financial Officer carried out this evaluation.

- 13 -

Table of Contents

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in litigation in the ordinary course of business. In the opinion of the Company’s management, insurance or indemnification from other third parties adequately covers these matters. Accordingly, the effect, if any, of these claims is considered immaterial to the Company’s financial condition and results of operations.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

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

     (b)  Reports on Form 8-K: None

- 14 -

Table of Contents

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.

- 15 -

Table of Contents

CERTIFICATION

I, Thomas L. Dempsey, certify that:

- 16 -

Table of Contents

CERTIFICATION

I, Donald L. Allen, certify that:

     1.     I have reviewed this quarterly report on Form 10-Q of Saddlebrook Resorts, Inc.;

- 17 -