SADDLEBROOK RESORTS INC - Quarter Report: 2009 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

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

COMMISSION FILE NUMBER: 2-65481

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o      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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller Reporting Company o

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, 2009 and December 31, 2008			3
Statements of Operations and Accumulated Earnings for the three months and nine months ended September 30,2009 and 2008			4
Statements of Cash Flows for the nine months ended September 30, 2009 and 2008			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at September 30, 2009 and December 31, 2008			9
Statements of Operations for the three months and nine months ended September 30, 2009 and 2008			10
Statements of Changes in Participants’ Fund Balance for the nine months ended September 30, 2009 and 2008			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 6. Exhibits			15
Signature			16
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

		September 30,				December 31,
		2009				2008
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	2,668,618			$	3,752,278
Escrowed cash			767,426				121,801
Short-term investments			—				175,000
Short-term escrowed investments			—				399,205
Accounts receivable, net			774,635				1,362,339
Due from related parties			2,242,791				2,112,747
Inventory and supplies			1,579,433				1,832,820
Prepaid expenses and other current assets			542,371				648,660
Total current assets			8,575,274				10,404,850
Property, buildings and equipment, net			23,752,930				24,743,737
Due from related parties, net of current portion			1,500,000				1,500,000
Deferred charges, net			50,274				35,670
Total assets		$	33,878,478			$	36,684,257
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of note payable		$	1,059,996			$	1,361,667
Current portion of capital leases			88,532				—
Escrowed deposits			767,426				521,006
Accounts payable			397,000				770,811
Accrued rental distribution			304,640				674,147
Accrued expenses and other liabilities			2,002,129				2,045,784
Current portion of deferred income			744,767				823,223
Guest deposits			1,127,246				2,453,431
Total current liabilities			6,491,736				8,650,069
Note payable due after one year			9,010,006				9,804,983
Capital lease obligation			225,510				—
Other liabilities			149,000				—
Long-term portion of deferred income			1,366,626				1,512,483
Total liabilities			17,242,878				19,967,535
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			15,522,473				15,603,595
Total shareholder’s equity			16,635,600				16,716,722
		$	33,878,478			$	36,684,257

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,
		2009				2008				2009				2008
Revenues		$	4,291,516			$	5,594,686			$	21,040,715			$	38,596,767
Costs and expenses:
Operating costs			4,074,870				5,710,973				16,513,618				27,443,049
Sales and marketing			291,486				509,048				1,151,525				2,385,878
General and administrative			625,988				963,995				2,235,021				3,068,878
Net gain on assets sold			(404,416	)			(4,486	)			(403,009	)			(2,665	)
Depreciation			502,413				528,058				1,540,319				1,587,037
Total costs and expenses			5,090,341				7,707,588				21,037,474				34,482,177
Net operating (loss) income before other (income) expenses			(798,825	)			(2,112,902	)			3,241				4,114,590
Other (income) expenses
Interest income			(1,440	)			(16,252	)			(8,083	)			(28,909	)
Other income			(15,484	)			(254,362	)			(189,595	)			(232,632	)
Interest expense			83,213				136,054				282,041				449,664
Total other (income) expenses			66,289				(134,560	)			84,363				188,123
Net (loss) income			(865,114	)			(1,978,342	)			(81,122	)			3,926,467
Accumulated earnings at beginning of period			16,387,587				18,937,868				15,603,595				13,033,059
Accumulated earnings at end of period		$	15,522,473			$	16,959,526			$	15,522,473			$	16,959,526

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,
		2009				2008
Operating activities:
Net (loss) income		$	(81,122	)		$	3,926,467
Non-cash items included in net (loss) income:
Provision for doubtful accounts			(759	)			3,300
Depreciation			1,540,319				1,587,037
Amortization of debt financing costs			41,290				12,231
Gain on sale of assets			(403,009	)			(2,665	)
Decrease (increase) in:
Accounts receivable			588,464				1,674,295
Inventory and supplies			253,387				(79,561	)
Prepaid expenses and other assets			106,289				(119,632	)
(Decrease) increase in:
Accounts payable			(373,811	)			(868,186	)
Accrued rental distribution			(369,507	)			(433,126	)
Guest deposits			(1,326,185	)			(81,981	)
Accrued expenses and other liabilities			105,344				20,462
Deferred income			(224,313	)			(92,526	)
Cash flow (used in) provided by operating activities			(143,613	)			5,546,115
Investing activities:
Proceeds from sale of property and equipment			505,528				9,396
Proceeds from maturity of short term investment			175,000				—
Capital expenditures			(281,490	)			(1,126,525	)
Cash flow provided by (used in) investing activities			399,038				(1,117,129	)
Financing activities:
Proceeds from line of credit			—				750,000
Payments on notes payable			(1,096,649	)			(600,003	)
Payments on capital lease obligations			(56,500	)			(98,154	)
Debt costs to be amortized			(55,895	)
Net advances to related parties			(130,044	)			(942,485	)
Cash flow used in financing activities			(1,339,088	)			(890,642	)
Net (decrease) increase in cash			(1,083,663	)			3,538,344
Cash at beginning of period			3,752,278				991,320
Cash at end of period		$	2,668,618			$	4,529,664
Supplemental disclosure of cash flow information:
Cash paid for interest		$	224,976			$	437,433

Non-Cash Investing Activities

In February 2009, the Company acquired $370,542 of vehicles through a capital lease obligation.

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, 2009, and its statements of operations and accumulated earnings and cash flows for the periods ended September 30, 2009 and 2008, 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, 2008.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”), on June 29, 2009 and, in doing so, authorized the Codification as the sole source for authoritative U.S. GAAP. SFAS No. 168 was effective for financial statements issued for reporting periods that ended after September 15, 2009. Upon effectiveness, it superseded all accounting standards in U.S. GAAP, aside from those issued by the SEC.

In June 2009, the FASB issued Accounting Standards Update No. 2009-01 (“ASU 2009-01”), which establishes the FASB Accounting Standards Codification™ as the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The Company adopted ASU 2009-01 during the three months ended September 30, 2009 and its adoption did not have any impact on the Company’s consolidated financial statements.

Management, in accordance with guidance regarding subsequent events, has considered subsequent events through November 13, 2009 in connection with the preparation of these financial statements.

The fair value of the Company’s financial assets and liabilities approximate their carrying value due to their short-term nature or market rates of interest associated with long-term obligations.

Note 2. Accounts Receivable

		September 30,				December 31,
		2009				2008
		(Unaudited)
Trade accounts receivable		$	818,667			$	1,407,130
Less allowance for bad debts			(44,032	)			(44,791	)
		$	774,635			$	1,362,339

Note 3. Property, Buildings and Equipment

		September 30,				December 31,
		2009				2008
		(Unaudited)
Land and land improvements		$	6,802,067			$	6,809,179
Buildings and recreational facilities			29,655,329				29,475,098
Machinery and equipment			17,300,415				16,967,184
Construction in progress			88,734				350,737
			53,846,545				53,602,198
Less accumulated depreciation			(30,093,615	)			(28,858,461	)
		$	23,752,930			$	24,743,737

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

Note 4. Deferred Charges

		September 30,				December 31,
		2009				2008
		(Unaudited)
Debt issue costs		$	55,895			$	107,676
Less accumulated amortization			(5,621	)			(72,006	)
		$	50,274			$	35,670

Note 5. Notes Payable and Capital Lease Obligation

On March 12, 2009 the Company refinanced $10,600,000 (the remaining principal balance of the term note along with the outstanding balance of the additional line of credit financing). The new term note is due March 12, 2014, and requires monthly principal payments of $88,333, plus monthly payments of all accrued interest. The term note bears interest at 2.5% over the one month LIBOR index. The rate as of September 30, 2009 was 2.82%. The note is collateralized by all current and subsequently acquired real and personal property. At September 30, 2009, the outstanding balance on this term note was $10,070,002.

The Company has the ability to obtain an additional $2,500,000 under a line of credit facility from the same lender, with the same rate of interest, subject to meeting certain financial covenants on an annual basis. The line of credit expires in March 2011. At September 30, 2009, the Company has no borrowings on the line of credit.

On February 11, 2009, the Company entered into a capital lease for the purchase of vehicles in the amount of $370,542. The capital lease is secured by the vehicles purchased, matures in January 2013 and requires monthly payments of $8,574, including interest at 5.24%.

Note 6. Related Party Receivables

Related party receivables at September 30, 2009 and December 31, 2008 are the result of net intercompany transactions and cash transfers between the Company and its shareholder and affiliated companies. Related party receivables are unsecured and non-interest bearing. Approximately $2.2 million of the total $3.7 million due from related parties is expected to be repaid/collected within 1 year and therefore has been classified as a current asset in the accompanying September 30, 2009 balance sheet.

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,				December 31,
		2009				2008
		(Unaudited)
Assets
Receivable from Saddlebrook Resorts, Inc.		$	304,640			$	674,147
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	273,344			$	568,641
Due to maintenance escrow fund			31,296				105,506
		$	304,640			$	674,147

MAINTENANCE ESCROW FUND

		September 30,				December 31,
		2009				2008
		(Unaudited)
Assets
Cash and cash equivalents		$	753,126			$	503,806
Receivables:
Distribution fund			31,296				105,506
Interest			—				762
Prepaid expenses and other assets			876				2,301
		$	785,298			$	612,375
Liabilities and Participants’ Fund Balance
Accounts payable		$	66,018			$	56,695
Participants’ fund balance			719,280				555,680
		$	785,298			$	612,375

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS
(Unaudited)

		Three months ended								Nine months ended
		September 30,								September 30,
		2009				2008				2009				2008
Rental pool revenues		$	818,833			$	1,210,015			$	5,736,574			$	11,803,836
Deductions:
Marketing fee			61,412				90,751				430,243				885,288
Management fee			102,354				151,252				717,071				1,475,480
Travel agent commissions			29,282				46,901				203,512				574,046
Credit card expense			18,354				33,982				129,602				223,231
			211,402				322,886				1,480,428				3,158,045
Net rental income			607,431				887,129				4,256,146				8,645,791
Less operator share of net rental income			(273,344	)			(399,208	)			(1,915,265	)			(3,890,606	)
Other revenues (expenses):
Complimentary room revenues			6,466				8,350				30,846				48,113
Minor repairs and replacements			(35,913	)			(24,163	)			(91,969	)			(130,698	)
Amount available for distribution		$	304,640			$	472,108			$	2,279,758			$	4,672,600

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES
(Unaudited)

DISTRIBUTION FUND

		Nine months ended
		September 30,
		2009				2008
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			2,279,758				4,672,600
Reductions:
Amount withheld for maintenance escrow fund			(364,493	)			(781,994	)
Amount accrued or paid to participants			(1,915,265	)			(3,890,606	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Nine months ended
		September 30,
		2009				2008
Balance at beginning of period		$	555,680				981,674
Additions:
Amount withheld from distribution fund			364,493				781,994
Unit owner payments			23,370				306,155
Interest earned			2,668				10,604
Reductions:
Escrow account refunds			(3,390	)			(35,885	)
Maintenance charges			11,866				(256,965	)
Unit renovations			(212,580	)			(1,050,827	)
Linen replacement			(22,827	)			(150,136	)
Balance at end of period		$	719,280			$	586,614

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.

Impact of Current Economic Conditions

The Company believes that the reduced occupancy rates are due to the current state of the United States’ economy, and the fact that businesses appear to have altered their spending patterns in response. This has resulted in fewer group (corporate) bookings.

In response to this trend, although overall marketing expenses have decreased, the Company has increased its marketing efforts toward the social clientele by developing packages designed to target more social guests, including families. These social packages are being promoted through the Company’s website as well as through travel wholesalers and with emphasis on e-commerce sites.

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 debt agreement also allows for the Company to borrow an additional $2,500,000, provided the Company is in compliance with certain financial covenants. The Company’s financing from a third-party lender bears interest at 2.5% over the one month LIBOR index (2.82% at September 30, 2009) and matures in March 2014.

Results of Operations

Third quarter 2009 compared to third quarter 2008

The Company’s total revenues decreased approximately $1,303,000, or about 23%, for the three months ended September 30, 2009 compared to the same period in the prior year. This decrease is directly related to a 29% decrease in occupancy as well as an 11% decrease in the average room rate over the prior period. Total revenues for the Rental Pool decreased approximately $391,000, or about 32%. This decrease is directly related to the decrease in occupancy, along with the decrease in the average room rate.

The decreases of $2,617,000 in total costs and expenses for the Company, and $111,000 in total costs and expenses for the Rental Pool Operation, are consistent with the decreases in revenues.

The Company experienced a net loss for the quarter of approximately $865,000, compared with a net loss of approximately $1,978,000 in the same period in the prior year. Amounts available for distribution for the Rental Pool Operation decreased $167,000 from the comparable period last year.

On August 12, 2007 the Company experienced lightning damage that impacted our fire alarm, electrical and HVAC systems. The damage to the fire alarm system not only affected the Company’s property but also resulted in the need to replace and upgrade the fire alarm system for the condominium units which are governed by Saddlebrook Resorts Condominium Association, Inc., (the “Association”). This event resulted in the filing of an insurance claim for a total of $901,000 in damages, to be reduced by a $100,000 deductible. As of this filing, the Company and the Association have received a total of $801,000 in settlement on this claim. The Association received approximately $271,000 of such amount. The Company received approximately $150,000 in the fourth quarter of 2007, approximately $215,000 in the third quarter of 2008, and the remaining $165,000 in the second quarter of 2009. Such amounts, net of non-capital expenses have been recorded as a component of Other Income for the Company in such quarters.

In August 2009, the Company recorded a gain of approximately $404,000 in connection with the transfer of a strip of land at the entrance to the resort property to the county in connection with a planned road widening project by the county. It is anticipated that the total settlement will be approximately $607,000, which includes proceeds for the land, land improvements and net damages and/or cost to cure such damages. Approximately $348,000 of the settlement has been received by the Company.

First nine months 2009 compared to first nine months 2008

The Company’s total revenues decreased approximately $17,556,000, or about 45% for the nine months ended September 30, 2009 compared to the same period in the prior year. This decrease is directly related to a 47% decrease in occupancy as well as a 9% decrease in the average room rate over the prior year. The total revenues for the Rental Pool decreased approximately $6,067,000, or about 51%. This decrease is directly related to the decrease in occupancy, along with the decrease in the average room rate.

The decreases of $13,444,000 in total costs and expenses for the Company, and $1,678,000 in total costs and expenses for the Rental Pool Operation, are related with the decreases in revenues.

Net income for the Company decreased $4,008,000 over the comparable period last year. Amounts available for distribution for the Rental Pool Operation decreased $2,392,000 over the same period in the prior year.

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, is 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 2.5% over the one month LIBOR index and matures on March 12, 2014.

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, 2009, 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, 2009 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 changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2009 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 13, 2009		/s/ Donald L. Allen   Donald L. Allen
		Vice President and Treasurer (Principal Financial and Accounting Officer)