SADDLEBROOK RESORTS INC - Quarter Report: 2007 March (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 March 31, 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 March 31, 2007 and December 31, 2006			3
Statements of Operations and Accumulated Earnings for the three months ended March 31, 2007 and 2006			4
Statements of Cash Flows for the three months ended March 31, 2007 and 2006			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at March 31, 2007 and December 31, 2006			9
Statements of Operations for the three months ended March 31, 2007 and 2006			10
Statements of Changes in Participants’ Fund Balance for the three months ended March 31, 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			13
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

		March 31,
		2007				December 31,
		(Unaudited)				2006
Assets
Current assets:
Cash and cash equivalents		$	1,840,585			$	977,849
Escrowed cash			379,278				536,250
Short-term investments			375,000				375,000
Short-term escrowed investments			197,508				197,561
Accounts receivable, net			6,947,491				2,451,792
Due from related parties			4,975,630				4,745,234
Inventory and supplies			1,523,391				1,549,348
Prepaid expenses and other current assets			1,399,276				844,373
Total current assets			17,638,159				11,677,407
Property, buildings and equipment, net			24,374,684				24,703,749
Deferred charges, net			44,253				48,330
Total assets		$	42,057,096			$	36,429,486
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of notes payable		$	800,004			$	800,004
Current portion of capital leases			156,604				154,645
Current portion of line of credit			1,750,000				1,000,000
Escrowed deposits			576,785				733,810
Accounts payable			1,087,264				1,172,969
Accrued rental distribution			2,303,258				690,433
Accrued expenses and other liabilities			2,351,318				2,393,000
Current portion of deferred income			823,760				778,646
Guest deposits			1,210,725				1,398,451
Due to related parties			2,879,866				2,488,702
Total current liabilities			13,939,584				11,610,661
Notes payable due after one year			9,266,653				9,466,654
Capital lease obligations due after one year			87,952				127,845
Long-term portion of deferred income			1,613,027				1,609,202
Total liabilities			24,907,216				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			16,036,753				12,501,997
Total shareholder’s equity			17,149,880				13,615,124
		$	42,057,096			$	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
		March 31,
		2007				2006
Resort revenues		$	17,026,581			$	16,788,146
Costs and expenses:
Operating costs			10,889,809				10,559,512
Sales and marketing			739,883				700,826
General and administrative			1,177,828				1,069,948
Depreciation			482,276				473,230
Total costs and expenses			13,289,796				12,803,516
Net operating income before other expenses and (income)			3,736,785				3,984,630
Other expenses & (income):
Interest income			(11,743	)			(14,035	)
Other expense			(5,969	)			(6,256	)
Interest expense			219,741				189,587
Total other expenses & (income)			202,029				169,296
Net income			3,534,756				3,815,334
Accumulated earnings at beginning of period			12,501,997				10,668,584
Accumulated earnings at end of period		$	16,036,753			$	14,483,918

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

SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS
(Unaudited)

		Three months ended
		March 31,
		2007				2006
Operating activities:
Net income		$	3,534,756			$	3,815,334
Non-cash items included in net income:
Provision for doubtful accounts			—				2,112
Depreciation			482,276				473,230
Amortization of debt financing costs			4,077				4,077
Loss on sale of assets			56,161				190
Decrease (increase) in:
Accounts receivable			(4,495,699	)			(3,513,257	)
Inventory and supplies			25,957				(12,886	)
Prepaid expenses and other assets			(554,903	)			(511,656	)
Increase (decrease) in:
Accounts payable			(85,706	)			(19,541	)
Guest deposits			(187,726	)			185,141
Accrued expenses and other liabilities			1,571,143				1,899,418
Deferred income			48,939				365,550
Cash flow provided by operating activities			399,275				2,687,712
Investing activities:
Capital expenditures			(209,372	)			(89,695	)
Cash flow used in investing activities			(209,372	)			(89,695	)
Financing activities:
Proceeds from line of credit			750,000				—
Payments on notes payable			(200,001	)			(200,001	)
Payments on capital lease obligations			(37,934	)			(43,776	)
Net payments (to) from related parties			160,768				(235,398	)
Cash flow used in financing activities			672,833				(479,175	)
Net increase in cash			862,736				2,118,842
Cash at beginning of period			977,849				1,030,283
Cash at end of period		$	1,840,585			$	3,149,125
Supplemental disclosure of cash flow information:
Cash paid for interest		$	217,000			$	186,000

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 March 31, 2007, and its statements of operations and accumulated earnings and cash flows for the periods ended March 31, 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

		March 31,
		2007				December 31,
		(Unaudited)				2006
Trade accounts receivable		$	6,995,038			$	2,499,339
Less reserve for bad debts			(47,547	)			(47,547	)
		$	6,947,491			$	2,451,792

Note 3. Property, Buildings and Equipment

		March 31,
		2007				December 31,
		(Unaudited)				2006
Land and land improvements		$	6,809,179			$	6,809,179
Buildings and recreational facilities			27,425,247				27,415,173
Machinery and equipment			15,529,760				15,191,068
Construction in progress			209,442				418,353
			49,973,628				49,833,773
Less accumulated depreciation			(25,598,944	)			(25,130,024	)
		$	24,374,684			$	24,703,749

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

Note 4. Deferred Charges

		March 31,
		2007				December 31,
		(Unaudited)				2006
Debt issue costs		$	83,730			$	83,730
Less accumulated amortization			(39,477	)			(35,400	)
		$	44,253			$	48,330

Note 5. Notes Payable

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 at March 31, 2007 was 7.32%.

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 $1,750,000 at March 31, 2007.

Note 6. Related Party Receivables and Payables

Related party receivables and payables at March 31, 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.

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

		March 31,
		2007				December 31,
		(Unaudited)				2006
Assets
Receivable from Saddlebrook Resorts, Inc.		$	2,257,743			$	691,861
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	1,872,542			$	590,663
Due to maintenance escrow fund			385,201				101,198
		$	2,257,743			$	691,861

MAINTENANCE ESCROW FUND

		March 31,
		2007				December 31,
		(Unaudited)				2006
Assets
Cash and cash equivalents		$	559,685			$	715,241
Receivables:
Distribution fund			385,201				101,198
Interest			247				268
Linen inventory			52,237				77,155
Prepaid expenses and other assets			1,144				788
		$	998,514			$	894,650
Liabilities and Participants’ Fund Balance
Accounts payable		$	50,691			$	124,745
Participants’ fund balance			947,823				769,905
		$	998,514			$	894,650

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS
(Unaudited)

DISTRIBUTION FUND

		Three months ended
		March 31,
		2007				2006
Rental pool revenue		$	5,557,244			$	5,531,242
Deductions:
Marketing fee			416,793				414,843
Management fee			694,656				691,405
Travel agent commissions			194,464				164,247
Credit card expense			90,126				90,773
Provision for bad debts			0				1,000
			1,396,039				1,362,268
Net rental income			4,161,205				4,168,974
Less operator share of net rental income			(1,872,542	)			(1,876,038	)
Other revenues (expenses):
Complimentary room revenues			19,151				20,613
Minor repairs and replacements			(50,071	)			(35,263	)
Amount available for distribution		$	2,257,743			$	2,278,286

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES
(Unaudited)

DISTRIBUTION FUND

		Three months ended
		March 31,
		2007				2006
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			2,257,743				2,278,286
Reductions:
Amount withheld for maintenance escrow fund			(385,201	)			(402,248	)
Amount accrued or paid to participants			(1,872,542	)			(1,876,038	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Three months ended
		March 31,
		2007				2006
Balance at beginning of period		$	769,905				566,450
Additions:
Amount withheld from distribution fund			385,201				402,248
Unit owner payments			7,306				28,871
Interest earned			6,171				2,505
Reductions:
Escrow account refunds			(8,292	)			(8,952	)
Maintenance charges			(47,321	)			(56,741	)
Unit renovations			(74,905	)			(160,222	)
Linen replacement			(90,242	)			(10,996	)
Balance at end of period		$	947,823			$	763,163

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

The Company is 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 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, of which $1,750,000 was outstanding at March 31, 2007, 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 (7.32% at March 1, 2007) and matures on November 1, 2009.

Results of Operations

First quarter 2007 compared to first quarter 2006

The Company’s total revenues for the three months ended March 31, 2007 increased approximately $238,000, about 1%, from the first quarter of the prior year. Although the number of guests on property was down about 2% when compared with the first quarter of 2006, the average room rate improved by approximately 3%. The Company also experienced an increase in total food and beverage revenues of $322,000, or about 5% over the prior year. Total revenues for the Rental Pool Operation increased $26,000, less than 1% over the first quarter of 2006.

The increase of $486,000 in operating costs and expenses for the Company relates to the increases in revenues, along with other marginal increases in sales and marketing expenses and interest expense. The $34,000 in operating costs and expenses for the Rental Pool Operation is related to the increases in revenues along with an increase in travel agent commission expenses.

Net Income for the Company decreased $281,000 over the comparable period last year. Amounts available for distribution for the Rental Pool Operation decreased $21,000 from the first quarter of 2006. These decreases are directly related to the increases in operating costs, partially offset by the increases in revenues.

Seasonality

The Company’s operations are seasonal with the highest volume of revenue 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 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 March 31, 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 March 31, 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 error 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 March 31, 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 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: May 14, 2007		/s/ Donald L. Allen
		Donald L. Allen
		Vice President and Treasurer
		(Principal Financial and
		Accounting Officer)