SADDLEBROOK RESORTS INC - Quarter Report: 2005 September (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                          to                                         

SADDLEBROOK RESORTS, INC.

(Exact name of registrant as specified in its charter)

Florida		59-1917822
(State of incorporation)		(IRS employer identification no.)

(Address of principal executive offices)

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 þ NO o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES o NO þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

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

 

 

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at September 30, 2005 and December 31, 2004			3
Statements of Operations for the three months and nine months ended September 30, 2005 and 2004			4
Statements of Cash Flows for the nine months ended September 30, 2005 and 2004			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at September 30, 2005 and December 31, 2004			9
Statements of Operations for the three months and nine months ended September 30, 2005 and 2004			10
Statements of Changes in Participants’ Fund Balance for the nine months ended September 30, 2005 and 2004			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 3. Quantitative and Qualitative Disclosures about Market Risk			14
Item 4. Controls and Procedures			14
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			14
Item 3. Defaults upon Senior Securities			15
Item 4. Submission of Matters to a Vote of Security Holders			15
Item 5. Other Information			15
Item 6. Exhibits			15
Signature			15
EX-31.1: Section 302 Certification of CEO
EX-31.2: Section 302 Certification of CFO
EX-32.1: Section 906 Certification of CEO
EX-32.2: Section 906 Certification of CFO

   PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

		September 30,
		2005				December 31,
		(Unaudited)				2004
Assets
Current assets:
Cash and cash equivalents		$	571,703			$	723,131
Escrowed cash			653,993				3,250,362
Short-term investments			375,000				375,000
Accounts receivable, net			1,280,415				2,300,423
Due from related parties			3,591,993				988,012
Inventory and supplies			1,324,490				1,514,533
Prepaid expenses and other assets			772,284				711,049
Total current assets			8,569,878				9,862,510
Long-termed escrowed investments			—				399,576
Property, buildings and equipment, net			23,287,179				23,234,943
Deferred charges, net			68,715				80,946
Total assets		$	31,925,772			$	33,577,975
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of note payable		$	800,004			$	800,004
Current portion of capital leases			176,361				29,260
Escrowed deposits			653,993				3,649,938
Accounts payable			622,103				805,021
Accrued rental distribution			606,228				810,169
Accrued expenses and other liabilities			2,590,690				2,774,888
Guest deposits			1,078,421				1,466,485
Total current liabilities			6,527,800				10,335,765
Note payable due after one year			10,466,659				11,066,662
Capital lease obligations due after one year			336,523				40,175
Total liabilities			17,330,982				21,442,602
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			13,481,663				11,022,246
Total shareholder’s equity			14,594,790				12,135,373
		$	31,925,772			$	33,577,975

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

SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2005				2004				2005				2004
Revenues		$	6,793,218			$	6,258,804			$	32,865,150			$	31,290,496
Costs and expenses:
Operating costs			6,081,033				5,638,033				23,809,133				22,493,842
Sales and marketing			518,432				490,382				1,899,952				1,943,742
General and administrative			873,402				848,736				2,844,194				2,783,100
Depreciation			467,320				452,618				1,375,935				1,343,054
Total costs and expenses			7,940,187				7,429,769				29,929,214				28,563,738
Net operating income before
Other expenses and (income)			(1,146,969	)			(1,170,965	)			2,935,936				2,726,758
Other expenses & (income)
Interest expense			167,838				364,465				464,288				1,114,026
Amortization of debt financing costs			4,077				9,945				12,231				29,835
Litigation settlement (net)			—				—				—				(3,177,832	)
Net income (loss)			(1,318,884	)			(1,545,375	)			2,459,417				4,760,729
Accumulated earnings at beginning of period			14,800,547				14,169,857				11,022,246				7,863,753
Accumulated earnings at end of period		$	13,481,663			$	12,624,482			$	13,481,663			$	12,624,482

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

 

SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine months ended
		September 30,
		2005				2004
Operating activities:
Net income		$	2,459,417			$	4,760,729
Non-cash items included in net income:
Provision for doubtful accounts			10,080				6,960
Depreciation			1,375,935				1,343,054
Amortization of debt financing costs			12,231				29,835
Loss on sale of assets			17,360				12,958
Decrease (increase) in:
Accounts receivable			1,009,928				607,139
Inventory and supplies			190,043				26,972
Prepaid expenses and other assets			(61,235	)			450,616
Increase (decrease) in:
Accounts payable			(182,918	)			(75,498	)
Accrued rental distribution			(203,941	)			(63,762	)
Guest deposits			(388,064	)			(12,429	)
Accrued expenses and other liabilities			(184,198	)			211,349
			4,054,638				7,297,923
Investing activities:
Proceeds from sale of asset			100				400
Short term investments			—				(75,000	)
Capital expenditures			(886,039	)			(1,459,336	)
			(885,939	)			(1,533,936	)
Financing activities:
Payments on notes payable			(600,003	)			(1,086,699	)
Payments on capital lease obligations			(116,143	)			(17,805	)
Net payments from (to) related parties			(2,603,981	)			(361,007	)
			(3,320,127	)			(1,465,511	)
Net decrease in cash			(151,428	)			4,298,476
Cash at beginning of period			723,131				5,198,715
Cash at end of period		$	571,703			$	9,497,191
Supplemental disclosure of cash flow information:
Cash paid for interest			464,288				1,114,026
Supplemental disclosure of non-cash items:
Debt assumed for capital lease			559,592				—

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

SADDLEBROOK RESORTS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

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

The Company’s accompanying balance sheet for September 30, 2005, and its statements of operations and cash flows for the periods ended September 30, 2005 and 2004, 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 year.

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, 2004.

Note 2. Accounts Receivable

		September 30,
		2005				December 31,
		(Unaudited)				2004
Trade accounts receivable		$	1,322,474			$	2,332,402
Less reserve for bad debts			(42,059	)			(31,979	)
		$	1,280,415			$	2,300,423

Note 3. Property, Buildings and Equipment

		September 30,
		2005				December 31,
		(Unaudited)				2004
Land and land improvements		$	4,859,372			$	4,859,372
Buildings and recreational facilities			26,525,196				25,554,112
Machinery and equipment			14,740,428				14,404,035
Construction in progress			200,682				677,701
			46,325,678				45,495,220
Less accumulated depreciation			(23,038,499	)			(22,260,277	)
		$	23,287,179			$	23,234,943

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

Note 4. Deferred Charges

		September 30,
		2005				December 31,
		(Unaudited)				2004
Debt issue costs		$	83,730			$	83,730
Less accumulated amortization			(15,015	)			(2,784	)
		$	68,715			$	80,946

Note 5. Note Payable

On November 1, 2004, the Company refinanced $12 million of the previous note payable due on June 30, 2013 with a new term note with a new lender. As part of the refinancing, the Company paid the remaining principal balance due under the prior note. The new term note is due November 1, 2009, and requires monthly principal payments of $66,667, together with monthly payment of all accrued interest. The new term note bears interest at 2% over the one month LIBOR index. At September 30, 2005, the outstanding balance of the note payable was $11,266,663.

The Company has the ability to obtain an additional $5 million under a line of credit facility from the same lender under the terms of the agreement subject to specific covenants until November 1, 2006.

Note 6. Related Party Receivables and Payables

Related party receivables and payables at September 30, 2005 and December 31, 2004 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.

Note 8. Litigation Settlement

During January 2004, the Company and Honeywell Corporation (the owner of the Company’s former parent company), settled a legal dispute with a prior insurance provider. The case involved the Company and its former parent company seeking reimbursement for the defense and settlement costs incurred in connection with a lawsuit that alleged damages covered by the policies issued by the insurance company. A favorable settlement of $4,950,000 was received by the Company in February 2004. Certain related expenses for legal services and bonuses have been netted against this amount resulting in a net litigation settlement of $3,177,832.

SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND

		September 30,
		2005				December 31,
		(Unaudited)				2004
Assets
Receivable from Saddlebrook Resorts, Inc.		$	597,997			$	919,360
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	507,526			$	751,408
Due to maintenance escrow fund			90,471				167,952
Participants’ fund balance			—				—
		$	597,997			$	919,360

MAINTENANCE ESCROW FUND

		September 30,
		2005				December 31,
		(Unaudited)				2004
Assets
Cash and cash equivalents		$	627,670			$	3,223,612
Investments			—				399,576
Receivables:
Distribution fund			90,471				167,952
Owner payments			6,344				—
Interest			12				672
Linen inventory			20,370				97,419
Prepaid expenses and other assets			81,609				25,018
		$	826,476			$	3,914,249
Liabilities and Participants’ Fund Balance
Accounts payable		$	141,205			$	178,800
Participants’ fund balance			685,271				3,735,449
		$	826,476			$	3,914,249

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2005				2004				2005				2004
Rental pool revenues		$	1,498,900			$	1,584,302			$	9,744,114			$	9,198,915
Deductions:
Marketing fee			112,418				118,823				730,809				689,919
Management fee			187,363				198,038				1,218,015				1,149,865
Travel agent commissions			39,727				32,936				351,364				379,049
Credit card expense			30,056				27,782				163,899				147,784
Provision for bad debts			1,500				1,500				4,500				4,500
			371,064				379,079				2,468,587				2,371,117
Net rental income			1,127,836				1,205,223				7,275,527				6,827,798
Less operator share of net rental income			(507,526	)			(542,350	)			(3,273,987	)			(3,072,509	)
Other revenues (expenses):
Complimentary room revenues			9,355				14,733				58,166				47,253
Minor repairs and replacements			(31,668	)			(33,173	)			(107,453	)			(114,750	)
Amount available for distribution		$	597,997			$	644,433			$	3,952,253			$	3,687,792

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

		Nine months ended
		September 30,
		2005				2004
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			3,952,253				3,687,792
Reductions:
Amount withheld for maintenance escrow fund			(678,267	)			(615,283	)
Amount accrued or paid to participants			(3,273,986	)			(3,072,509	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Nine months ended
		September 30,
		2005				2004
Balance at beginning of period		$	3,735,449				1,089,720
Additions:
Amount withheld from distribution fund			678,267				615,283
Unit owner payments			1,124,314				6,559,408
Interest earned			12,883				28,205
Reductions:
Escrow account refunds			(29,628	)			(58,775	)
Maintenance charges			(246,945	)			(158,720	)
Unit renovations			(4,341,869	)			(2,649,553	)
Linen replacement			(247,200	)			(182,826	)
Balance at end of period		$	685,271			$	5,242,742

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

General

The Company operates Saddlebrook Resort (the “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

There were no significant capital additions or improvements during the three months ended September 30, 2005.Future operating costs and planned expenditures for minor capital additions and improvements are expected to be adequately funded by current cash reserves and cash generated by resort operations. The Company’s current debt agreement also contains a commitment for an additional $5,000,000 provided the Company is in compliance with certain financial covenants. The Company’s financing from a third-party lender bears interest at 2% over the one month LIBOR index (5.69% at September 30, 2005) and matures on November 1, 2009.

Regarding the Company’s operation of the Rental Pool, the Company’s management has commenced a project to replace and upgrade unit furniture packages and expects to complete that project by the end of 2005. The total cost of that project is expected to be approximately $8,400,000, $7,900,000 of which has already been spent as of the end of September 2005. The original estimate of $7,700,000 was revised due to increases in the charges for freight and installation. The Company is currently holding in escrow approximately $650,000 in deposits from the Rental Pool participants for the funding of these expenditures.

Results of Operations

Third quarter 2005 compared to third quarter 2004

The Company’s total revenues increased approximately $535,000 or about 9%, for the three months ended September 30, 2005 compared to the same period in the prior year. Total revenues for the Rental Pool decreased approximately $85,000, or 5%, from the same period in the prior year. The decrease in Rental Pool revenues was primarily due to a 6% decrease in the number of paid room nights. Paid room nights decreased 17% for the Resort’s social business, but were effectively unchanged for group business. The Company’s total resort revenues were affected by increased sales in its food and beverage and other areas of operations. During August and September of 2004, the State of Florida experienced an unusually high number of hurricanes. The Company and its surrounding areas were unaffected, however, the Company did experience an increase in occupancy due to serving as a staging area for a utility company and its workers who were brought into the state, and some evacuees from other areas. While the occupancy and guest numbers were increased during that period last year, those guests, for the most part, did not utilize the Company’s food and beverage and other amenities, such as golf and spa.

First nine months 2005 compared to first nine months 2004

The Company’s total revenues increased approximately $1,575,000 or 5% for the first nine months of 2005 compared to the same period in the prior year. Total revenues for the Rental Pool increased approximately $545,000, or 6%, from the same period in the prior year. These increases were primarily due to a 5% increase in the number of paid room nights for the condominium units that participated in the Rental Pool during the nine month period. Paid room nights increased 5% for the Resort’s group business and 7% for social hotel stays. The Company’s total resort revenues also reflected increased sales in its food and beverage and most other areas of operations.

The Company’s net operating income for the current period increased approximately $209,000, which was an 8% increase from the net operating income for the first nine months of 2004. This increase was primarily a result of increased revenues.

Seasonality

The Company’s operations are seasonal with the highest volume of revenues generally occurring in the first quarter of each calendar year.

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 year.

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. Otherwise, the Company does not have significant market risk with respect to foreign currency exchanges or other market rates.

The Company’s term note bears interest at 2% over the one month LIBOR index and matures on November 1, 2009.

Item 4. Controls and Procedures

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 as of September 30, 2005, pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2005, in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

There were no significant changes in the Company’s internal controls over financial reporting or in other factors during the quarter ended September 30, 2005 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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. Unregistered Sales of Equity 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

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

	31.1		—   Chief Executive Officer Rule 15d-14(a) Certification
	31.2		—   Chief Financial Officer Rule 15d-14(a) Certification
	32.1		—   Chief Executive Officer Section 1350 Certification
	32.2		—   Chief Financial Officer Section 1350 Certification

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: November 14, 2005		/s/ Donald L. Allen
		Donald L. Allen
		Vice President and Treasurer
		(Principal Financial and
		Accounting Officer)