SADDLEBROOK RESORTS INC - Quarter Report: 2008 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, 2008

OR

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.)

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499
(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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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, 2008 and December 31, 2007			3
Statements of Operations and Accumulated Earnings for the three months ended March 31, 2008 and 2007			4
Statements of Cash Flows for the three months ended March 31, 2008 and 2007			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at March 31, 2008 and December 31, 2007			9
Statements of Operations for the three months ended March 31, 2008 and 2007			10
Statements of Changes in Participants’ Fund Balance for the three months ended March 31, 2008 and 2007			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 4. 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,
		2008				December 31,
		(Unaudited)				2007
Assets
Current assets:
Cash and cash equivalents		$	938,629			$	991,320
Escrowed cash			328,291				890,069
Short-term investments			175,000				175,000
Short-term escrowed investments			395,187				—
Accounts receivable, net			10,449,919				3,200,585
Due from related parties			1,994,464				2,228,553
Inventory and supplies			1,702,880				1,679,645
Prepaid expenses and other current assets			1,054,497				756,956
Total current assets			17,038,867				9,922,128
Property, buildings and equipment, net			25,419,154				25,493,141
Deferred charges, net			27,945				32,022
Total assets		$	42,485,966			$	35,447,291
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of note payable		$	800,004			$	800,004
Current portion of capital leases			87,952				127,845
Current portion of line of credit			2,500,000				1,750,000
Escrowed deposits			723,478				890,069
Accounts payable			1,804,968				1,668,050
Accrued rental distribution			2,750,121				905,234
Accrued expenses and other liabilities			2,688,614				2,411,566
Current portion of deferred income			993,014				814,861
Guest deposits			1,144,520				1,657,194
Total current liabilities			13,492,671				11,024,823
Note payable due after one year			8,466,649				8,666,650
Long-term portion of deferred income			1,593,402				1,609,632
Total liabilities			23,552,722				21,301,105
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			17,820,117				13,033,059
Total shareholder’s equity			18,933,244				14,146,186
		$	42,485,966			$	35,447,291

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,
		2008				2007
Resort revenues		$	20,234,667			$	17,026,581
Costs and expenses:
Operating costs			12,508,324				10,889,809
Sales and marketing			1,075,969				739,883
General and administrative			1,157,766				1,177,828
Depreciation			517,364				482,276
Total costs and expenses			15,259,423				13,289,796
Net operating income before other expenses and (income)			4,975,244				3,736,785
Other expenses and (income):
Interest income			(3,920	)			(11,743	)
Other expense			21,720				(5,969	)
Interest expense			170,386				219,741
Total other expenses and (income)			188,186				202,029
Net income			4,787,058				3,534,756
Accumulated earnings at beginning of period			13,033,059				12,501,997
Accumulated earnings at end of period		$	17,820,117			$	16,036,753

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,
		2008				2007
Operating activities:
Net income		$	4,787,058			$	3,534,756
Non-cash items included in net income:
Depreciation			517,364				482,276
Amortization of debt financing costs			4,077				4,077
Loss on sale of assets			—				56,161
Decrease (increase) in:
Accounts receivable			(7,249,334	)			(4,495,699	)
Inventory and supplies			(23,235	)			25,957
Prepaid expenses and other assets			(297,541	)			(554,903	)
Increase (decrease) in:
Accounts payable			136,918				(85,706	)
Guest deposits			(512,674	)			(187,726	)
Accrued expenses and other liabilities			2,121,935				1,571,143
Deferred income			161,923				48,939
Cash flow (used in) provided by operating activities			(353,509	)			399,275
Investing activities:
Capital expenditures			(443,377	)			(209,372	)
Cash flow used in investing activities			(443,377	)			(209,372	)
Financing activities:
Proceeds from line of credit			750,000				750,000
Payments on notes payable			(200,001	)			(200,001	)
Payments on capital lease obligations			(39,893	)			(37,934	)
Net payments from related parties			234,089				160,768
Cash flow provided by financing activities			744,195				672,833
Net (decrease) increase in cash			(52,691	)			862,736
Cash at beginning of period			991,320				977,849
Cash at end of period		$	938,629			$	1,840,585
Supplemental disclosure of cash flow information:
Cash paid for interest		$	166,000			$	217,000

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, 2008, and its statements of operations and accumulated earnings and cash flows for the periods ended March 31, 2008 and 2007, 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, 2007.

Recent Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 161. “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB statement No. 133,” which requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of SFAS 161 will not have a material impact on the Company’s financial statements.

Note 2. Accounts Receivable

		March 31,
		2008				December 31,
		(Unaudited)				2007
Trade accounts receivable		$	10,489,774			$	3,245,106
Less reserve for bad debts			(39,855	)			(44,521	)
		$	10,449,919			$	3,200,585

Note 3. Property, Buildings and Equipment

		March 31,
		2008				December 31,
		(Unaudited)				2007
Land and land improvements		$	6,809,179			$	6,809,179
Buildings and recreational facilities			28,339,358				27,520,130
Machinery and equipment			16,268,656				16,090,540
Construction in progress			1,428,199				1,982,166
			52,845,392				52,402,015
Less accumulated depreciation			(27,426,238	)			(26,908,874	)
		$	25,419,154			$	25,493,141

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

Note 4. Deferred Charges

		March 31,
		2008				December 31,
		(Unaudited)				2007
Debt issue costs		$	83,730			$	83,730
Less accumulated amortization			(55,785	)			(51,708	)
		$	27,945			$	32,022

Note 5. Notes 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 at March 31, 2008 was 5.12%.

The Company has the ability to obtain an additional $5 million under a line of credit facility from the same lender under the same terms as the term note subject to specific covenants. The Company had an outstanding balance of $2,500,000 on the line of credit at March 31, 2008.

Note 6. Related Party Receivables and Payables

Related party receivables and payables at March 31, 2008 and December 31, 2007 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

		March 31,
		2008				December 31,
		(Unaudited)				2007
Assets
Receivable from Saddlebrook Resorts, Inc.		$	2,750,121			$	905,234
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	2,275,309			$	758,745
Due to maintenance escrow fund			474,812				146,489
		$	2,750,121			$	905,234

MAINTENANCE ESCROW FUND

		March 31,
		2008				December 31,
		(Unaudited)				2007
Assets
Cash and cash equivalents		$	705,805			$	869,796
Receivables:
Distribution fund			474,812				146,489
Interest			2,857				—
Linen inventory			55,299				84,317
Prepaid expenses and other assets			2,747				1,774
		$	1,241,520			$	1,102,376
Liabilities and Participants’ Fund Balance
Accounts payable		$	84,894			$	120,702
Participants’ fund balance			1,156,626				981,674
		$	1,241,520			$	1,102,376

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

DISTRIBUTION FUND

		Three months ended
		March 31,
		2008				2007
Rental pool revenue		$	6,906,264			$	5,557,244
Deductions:
Marketing fee			517,970				416,793
Management fee			863,283				694,656
Travel agent commissions			366,078				194,464
Credit card expense			102,691				90,126
			1,850,022				1,396,039
Net rental income			5,056,242				4,161,205
Less operator share of net rental income			(2,275,309	)			(1,872,542	)
Other revenues (expenses):
Complimentary room revenues			19,063				19,151
Minor repairs and replacements			(49,875	)			(50,071	)
Amount available for distribution		$	2,750,121			$	2,257,743

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

		Three months ended
		March 31,
		2008				2007
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			2,750,121				2,257,743
Reductions:
Amount withheld for maintenance escrow fund			(474,812	)			(385,201	)
Amount accrued or paid to participants			(2,275,309	)			(1,872,542	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Three months ended
		March 31,
		2008				2007
Balance at beginning of period		$	981,674				769,905
Additions:
Amount withheld from distribution fund			474,812				385,201
Unit owner payments			6,100				7,306
Interest earned			5,549				6,171
Reductions:
Escrow account refunds			(14,078	)			(8,292	)
Maintenance charges			(80,372	)			(47,321	)
Unit renovations			(137,891	)			(74,905	)
Linen replacement			(79,168	)			(90,242	)
Balance at end of period		$	1,156,626			$	947,823

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

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 term note agreement also contains a commitment for an additional $5,000,000, of which $2,500,000 was outstanding at March 31, 2008, 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 (5.12% at March 31, 2008) and matures on November 1, 2009.

Results of Operations

First quarter 2008 compared to first quarter 2007

The Company’s total revenues for the three months ended March 31, 2008 increased approximately $3,208,000, about 19%, from the first quarter of the prior year. The number of guests on property increased about 22% when compared with the first quarter of 2007, and the average room rate improved by approximately 7%. The Company experienced an increase in total food and beverage revenues of $1,221,000, or about 21% over the prior year. Total revenues for the Rental Pool Operation increased $1,349,000, about 24%, over the first quarter of 2007.

The increase of $1,970,000 in operating costs and expenses for the Company relates to the increases in revenues, along with other increases in sales and marketing expenses. The $454,000 increase 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 increased $1,252,000 over the comparable period last year. Amounts available for distribution for the Rental Pool Operation increased $492,000 from the first quarter of 2007.

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 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, 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, 2008 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, 2008 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)