SADDLEBROOK RESORTS INC - Quarter Report: 2007 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, 2007

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one) :

Large accelerated filer o       Accelerated filer o       Non-accelerated filer 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, 2007 and December 31, 2006			3
Statements of Operations and Accumulated Earnings for the three months and nine months ended September 30,2007 and 2006			4
Statements of Cash Flows for the nine months ended September 30, 2007 and 2006			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at September 30, 2007 and December 31, 2006			9
Statements of Operations for the three months and nine months ended September 30, 2007 and 2006			10
Statements of Changes in Participants’ Fund Balance for the nine months ended September 30, 2007 and 2006			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 4T. Controls and Procedures			14
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			14
Item 6. Exhibits			15
Signature			15
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

		September 30,
		2007				December 31,
		(Unaudited)				2006
Assets
Current assets:
Cash and cash equivalents		$	589,462			$	977,849
Escrowed cash			504,309				536,250
Short-term investments			175,000				375,000
Short-term escrowed investments			393,311				197,561
Accounts receivable, net			2,076,121				2,451,792
Due from related parties			3,566,839				4,745,234
Inventory and supplies			1,535,164				1,549,348
Prepaid expenses and other current assets			1,114,600				844,373
Total current assets			9,954,806				11,677,407
Property, buildings and equipment, net			24,810,473				24,703,749
Deferred charges, net			36,099				48,330
Total assets		$	34,801,378			$	36,429,486
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of note payable		$	800,004			$	800,004
Current portion of capital leases			137,548				154,645
Line of credit			1,000,000				1,000,000
Escrowed deposits			897,620				733,810
Accounts payable			969,832				1,172,970
Accrued rental distribution			676,184				690,433
Accrued expenses and other liabilities			2,655,934				2,393,000
Current portion of deferred income			637,891				778,646
Guest deposits			1,316,021				1,398,451
Due to related parties			—				2,488,702
Total current liabilities			9,091,034				11,610,661
Note payable due after one year			8,866,651				9,466,654
Capital lease obligations due after one year			29,691				127,845
Long-term portion of deferred income			1,614,906				1,609,202
Total liabilities			19,602,282				22,814,362
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			14,085,969				12,501,997
Total shareholder’s equity			15,199,096				13,615,124
		$	34,801,378			$	36,429,486

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

SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

AND ACCUMULATED EARNINGS

(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenues		$	7,029,033			$	6,744,842			$	34,627,515			$	35,408,176
Costs and expenses:
Operating costs			6,516,547				6,082,452				25,597,501				25,170,310
Sales and marketing			600,284				597,336				2,072,833				1,985,625
General and administrative			1,070,328				1,013,751				3,329,636				3,131,822
Depreciation			497,919				452,151				1,475,196				1,362,255
Total costs and expenses			8,685,078				8,145,690				32,475,166				31,650,012
Net operating income before Other expenses and (income)			(1,656,045	)			(1,400,848	)			2,152,349				3,758,164
Other expenses (income)
Interest income			(9,680	)			(22,612	)			(43,154	)			(71,694	)
Other income			(16,909	)			(2,996	)			(41,622	)			(22,720	)
Interest expense			211,661				207,638				653,153				596,644
Total other expenses (income)			185,072				182,030				568,377				502,230
Net income (loss)			(1,841,117	)			(1,582,878	)			1,583,972				3,255,934
Accumulated earnings at beginning of period			15,927,086				15,507,396				12,501,997				10,668,584
Accumulated earnings at end of period		$	14,085,969			$	13,924,518			$	14,085,969			$	13,924,518

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,
		2007				2006
Operating activities:
Net income		$	1,583,972			$	3,255,934
Non-cash items included in net income:
Provision for doubtful accounts			—				1,516
Depreciation			1,475,196				1,362,255
Amortization of debt financing costs			12,231				12,231
Loss (gain) on sale of assets			60,639				(17,638	)
Decrease (increase) in:
Accounts receivable			375,670				847,335
Inventory and supplies			14,184				(21,523	)
Prepaid expenses and other assets			(270,227	)			(228,400	)
Increase (decrease) in:
Accounts payable			(203,138	)			(500,139	)
Accrued rental distribution			(14,249	)			(198,554	)
Guest deposits			(82,430	)			(224,185	)
Accrued expenses and other liabilities			262,935				46,387
Deferred Income			(135,051	)			164,199
Cash flow provided by operating activities			3,079,732				4,499,418
Investing activities:
Proceeds from sale of property and equipment			5,700				71,471
Proceeds from maturity of short term investment			375,000				—
Purchase of short-term investment			(175,000	)			—
Capital expenditures			(1,648,258	)			(2,127,234	)
Cash flow used in investing activities			(1,442,558	)			(2,055,763	)
Financing activities:
Payments on notes payable			(600,003	)			(600,003	)
Payments on capital lease obligations			(115,251	)			(149,767	)
Net payments to related parties			(1,310,307	)			(1,855,523	)
Cash flow used in financing activities			(2,025,561	)			(2,605,293	)
Net decrease in cash			(388,387	)			(161,638	)
Cash at beginning of period			977,849				1,030,283
Cash at end of period		$	589,462			$	868,645
Supplemental disclosure of cash flow information:
Cash paid for interest		$	640,921			$	584,413

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, 2007, and its statements of operations and accumulated earnings and cash flows for the periods ended September 30, 2007 and 2006, 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, 2006.

Note 2. Accounts Receivable

		September 30,
		2007				December 31,
		(Unaudited)				2006
Trade accounts receivable		$	2,121,794			$	2,499,339
Less allowance for bad debts			(45,673	)			(47,547	)
		$	2,076,121			$	2,451,792

Note 3. Property, Buildings and Equipment

		September 30,
		2007				December 31,
		(Unaudited)				2006
Land and land improvements		$	6,809,179			$	6,809,179
Buildings and recreational facilities			27,490,968				27,415,173
Machinery and equipment			15,929,463				15,191,068
Construction in progress			1,054,832				418,353
			51,284,442				49,833,773
Less accumulated depreciation			(26,473,969	)			(25,130,024	)
		$	24,810,473			$	24,703,749

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

Note 4. Deferred Charges

		September 30,
		2007				December 31,
		(Unaudited)				2006
Debt issue costs		$	83,730			$	83,730
Less accumulated amortization			(47,631	)			(35,400	)
		$	36,099			$	48,330

Note 5. Note Payable and Line of Credit

The Company’s term note is due November 1, 2009, and requires monthly principal payments of $66,667, together with monthly payment of all accrued interest. The term note bears interest at 2% over the one month LIBOR index. The rate as of September 30, 2007 was 7.13%.

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. The Company had an outstanding balance of $1,000,000 at September 30, 2007.

Note 6. Related Party Receivables and Payables

Related party receivables and payables at September 30, 2007 and December 31, 2006 are the result of net intercompany transactions and cash transfers between the Company and its shareholder company and affiliated companies. Related party receivables and payables are unsecured, non-interest bearing and expected to be fully collected within one year.

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.

SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND

		September 30,
		2007				December 31,
		(Unaudited)				2006
Assets
Receivable from Saddlebrook Resorts, Inc.		$	676,184			$	691,861
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	574,356			$	590,663
Due to maintenance escrow fund			101,828				101,198
		$	676,184			$	691,861

MAINTENANCE ESCROW FUND

		September 30,
		2007				December 31,
		(Unaudited)				2006
Assets
Cash and cash equivalents		$	882,147			$	715,241
Receivables:
Distribution fund			101,828				101,198
Owner payments			—				268
Accrued interest receivable			3,005				—
Linen inventory			16,300				77,155
Prepaid expenses and other assets			540				788
		$	1,003,820			$	894,650
Liabilities and Participants’ Fund Balance
Accounts payable		$	72,952			$	124,745
Participants’ fund balance			930,868				769,905
		$	1,003,820			$	894,650

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2007				2006				2007				2006
Rental pool revenues		$	1,696,494			$	1,428,304			$	9,980,354			$	10,180,731
Deductions:
Marketing fee			127,237				107,123				748,526				763,555
Management fee			212,062				178,538				1,247,545				1,272,591
Travel agent commissions			39,722				36,176				360,321				302,283
Credit card expense			41,126				26,588				185,487				185,059
Provision for bad debts			—				—				—				1,000
			420,147				348,425				2,541,879				2,524,488
Net rental income			1,276,347				1,079,879				7,438,475				7,656,243
Less operator share of net rental income			(574,356	)			(485,946	)			(3,347,313	)			(3,445,310	)
Other revenues (expenses):
Complimentary room revenues			16,101				11,065				52,468				45,836
Minor repairs and replacements			(41,908	)			(30,063	)			(139,716	)			(107,758	)
Amount available for distribution		$	676,184			$	574,935			$	4,003,914			$	4,149,011

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

		Nine months ended
		September 30,
		2007				2006
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			4,003,914				4,149,013
Reductions:
Amount withheld for maintenance escrow fund			(656,601	)			(703,703	)
Amount accrued or paid to participants			(3,347,313	)			(3,445,310	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Nine months ended
		September 30,
		2007				2006
Balance at beginning of period		$	769,905				566,450
Additions:
Amount withheld from distribution fund			656,601				703,703
Unit owner payments			11,154				35,746
Interest earned			20,059				12,220
Reductions:
Escrow account refunds			(37,658	)			(22,369	)
Maintenance charges			(186,118	)			(206,121	)
Unit renovations			(165,577	)			(301,833	)
Linen replacement			(137,498	)			(88,762	)
Balance at end of period		$	930,868			$	699,034

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 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

During the three months ended September 30, 2007 the Company commenced the renovations of our Cypress Restaurant, Polo Lounge, Hunt Room and hotel lobby. Work in the hotel lobby included the installation of new marble flooring and has been completed. Work in the Cypress Restaurant, Polo Lounge and Hunt Room is substantially complete and includes installation of new flooring, wall coverings, window treatments and some new furniture and equipments. There has been a re-design of the Cypress Restaurant, and it has opened with a new name, Tropics. The lounge area, formally known as Polo Lounge, will now be called Tropics Lounge. The Hunt Room will now be known as the Bordeaux Room. The remaining work is expected to be completed during the fourth quarter, and the total cost is expected to be within the original budget of $1,500,000. The Company is also currently participating in a project to redesign the shared entrance to its property, including the installation of a traffic light, widening of the existing entry and exit roads and installation of a new security/welcome center. The Company’s share of this joint project is expected to be approximately $370,000.

Future operating costs and planned expenditures for 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 up to 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 (7.13% at September 30, 2007) and matures on November 1, 2009.

Results of Operations

Third quarter 2007 compared to third quarter 2006

The Company’s total revenues increased approximately $284,000 or about 4%, for the three months ended September 30, 2007 compared to the same period in the prior year. The total number of guests on property during the third quarter of 2007 increased from the same period in the prior year by 17%. Revenue from the Company’s other areas of operations for the three months ended September 30, 2007 was consistent with the same period in the prior year. Total revenues for the Rental Pool increased approximately $268,000, or about 19% from the same period in the prior year. Paid unit nights increased from the same period in the prior year by about 15%, and the average room rate for the comparative periods increased approximately 2%.

Total costs and expenses for the Company increased by approximately $539,000 while total expenses for the Rental Pool Operation increased by approximately $72,000 compared to the same period in the prior year. The increase in the Company’s total costs and expenses results from several factors including additional payroll expense, additional rental distribution expenses resulting from the increase in rental pool revenues, and additional depreciation expense for the two major renovation projects completed during the final quarter of the prior year. The increase in the total costs and expenses for the Rental Pool Operation is consistent with the increase in revenue.

Net loss for the Company increased $258,000 over the comparable period last year. Amounts available for distribution for the Rental Pool Operation increased $101,000 over the third quarter of 2007.

First nine months 2007 compared to first nine months 2006

The Company’s total revenues decreased approximately $781,000 or 2% for the first nine months of 2007 compared to the same period in the prior year. Total revenues for the Rental Pool decreased approximately $200,000, or 2%, from the same period in the prior year. These decreases were primarily due to a 4% decrease in the number of paid room nights for the condominium units that participated in the Rental Pool during the nine–month period, along with an 2% decrease in the number of guests staying on property, partially offset by a 3% increase in the average room rate.

The increase of approximately $825,000 in total costs and expenses for the Company results from several factors including additional depreciation expense on the two major renovations projects completed during the final quarter of the prior year, and some additional advertising and payroll expenses. The increase of $17,000 in total costs and expenses for the Rental Pool Operation is the result of increased travel agent commission expenses, partially offset by decreases in other costs consistent with the decrease in revenues.

The Company’s net income for the first nine months of 2007 decreased approximately $1,672,000 over the first nine months of 2006. This decrease was primarily a result of decreased revenues along with the increase in total costs and expenses.

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 and cash equivalents, 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 4T. 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, 2007, 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, 2007 in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures over internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must be considered relative to their costs. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected.

There were no significant changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2007 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 from time to time 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 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, 2007		/s/ Donald L. Allen
		Donald L. Allen
		Vice President and Treasurer
		(Principal Financial and
		Accounting Officer)