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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark one)

For the quarterly period ended March 31, 2005

OR

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 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.

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

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

INDEX

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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

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SADDLEBROOK RESORTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)

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)

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

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 March 31, 2005, and its statements of operations and cash flows for the periods ended March 31, 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

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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

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Note 5. Notes 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.

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 March 31, 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 were netted against this amount resulting in a net litigation settlement of $3,286,051.

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SADDLEBROOK RENTAL POOL OPERATION

DISTRIBUTION FUND

MAINTENANCE ESCROW FUND

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SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)

DISTRIBUTION FUND

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

DISTRIBUTION FUND

MAINTENANCE ESCROW FUND

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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 March 31, 2005. The Company entered a four year lease of 140 golf carts and 23 service carts at a cost of $430,000. The Company also commenced a three year lease of computer equipment at a cost of $130,000 on April 1, 2005. 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 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 and matures on November 1, 2009.

Regarding the Company’s operation of the Rental Pool, the Company completed the renovation and upgrades of the kitchens, bathrooms and carpeting in the first quarter of 2005. Additionally, the Company’s management has commenced a project to replace and upgrade unit furniture packages and expects to complete that project during the second or third quarter of 2005. The total cost of that project is expected to be approximately $8,400,000, $6,636,000 of which had been spent as of the end of March 2005. The original estimate of $7,700,000 had to be revised due to increases in the charges for freight and installation. Once the final cost has been determined, the related billing to the condominium owners’ maintenance escrow fund accounts will occur.

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Results of Operations

First quarter 2005 compared to first quarter 2004

The Company’s total revenues for the months ended March 31, 2005 decreased by approximately $671,000, or 4%, from the first quarter of the prior year. Total revenues for the Rental Pool decreased approximately $65,000, or 1%, from the same period the prior year. These decreases were primarily due to a 4% decrease in paid room nights for the condominium units that participated in the Rental Pool. The derease in paid room nights can be partially attributed to the fact that Easter occured during the first quarter of 2005 (March 27) as opposed to the second quarter (April 11). Corporate bookings are fewer during the Easter break period. The average daily room rate for the current quarter increased by approximately 4% from the average daily room rate for the same period prior year. The Company’s total resort revenues were also affected by decreased sales in its food and beverage and other areas of operations that resulted from a 5% decrease in the number of individual guests that stayed at the Resort for the current quarter when compared to the same period in the prior year.

Regarding the projection of future revenues, the trend of booking reservations for both group and social guests closer to their arrival dates instead of several months in advance continues. 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 2005 will approximate the prior year’s level. Similarly, projections for occupied room nights in the year 2006 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.

Seasonality

The Company’s operations are seasonal with the highest volume of sales 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.

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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 March 31, 2005, pursuant to Exchange Act Rule 13a-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 March 31, 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 or in other factors during the quarter ended March 31, 2005 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls.

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

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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.

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