SADDLEBROOK RESORTS INC - Quarter Report: 2009 June (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 June 30, 2009

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

(Registrant’s telephone number, including area code)

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.:

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 June 30, 2009 and December 31, 2008			3
Statements of Operations and Accumulated Earnings for the three months and six months ended June 30,2009 and 2008			4
Statements of Cash Flows for the six months ended June 30, 2009 and 2008			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at June 30, 2009 and December 31, 2008			9
Statements of Operations for the three months and six months ended June 30, 2009 and 2008			10
Statements of Changes in Participants’ Fund Balance for the six months ended June 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			15
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

		June 30,				December 31,
		2009				2008
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	4,114,774			$	3,752,278
Escrowed cash			529,929				121,801
Short-term investments			—				175,000
Short-term escrowed investments			199,749				399,205
Accounts receivable, net			1,116,773				1,362,339
Due from related parties			2,284,893				2,112,747
Inventory and supplies			1,603,047				1,832,820
Prepaid expenses and other current assets			561,770				648,660
Total current assets			10,410,935				10,404,850
Property, buildings and equipment, net			24,236,113				24,743,737
Due from related parties, net of current portion			1,500,000				1,500,000
Deferred charges, net			53,067				35,670
Total assets		$	36,200,115			$	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			87,381				—
Escrowed deposits			729,677				521,006
Accounts payable			670,627				770,811
Accrued rental distribution			678,737				674,147
Accrued expenses and other liabilities			2,288,842				2,045,784
Current portion of deferred income			827,780				823,223
Guest deposits			1,410,038				2,453,431
Total current liabilities			7,753,078				8,650,069
Note payable due after one year			9,275,004				9,804,983
Capital lease obligation			248,082				—
Long-term portion of deferred income			1,423,237				1,512,483
Total liabilities			18,699,401				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			16,387,587				15,603,595
Total shareholder’s equity			17,500,714				16,716,722
		$	36,200,115			$	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								Six months ended
		June 30,								June 30,
		2009				2008				2009				2008
Revenues		$	6,986,775			$	12,767,415			$	16,749,199			$	33,002,081
Costs and expenses:
Operating costs			5,630,075				9,223,752				12,438,748				21,732,076
Sales and marketing			389,537				800,862				860,039				1,876,831
General and administrative			800,313				948,937				1,610,440				2,106,703
Depreciation			506,667				541,615				1,037,905				1,058,980
Total costs and expenses			7,326,592				11,515,166				15,947,132				26,774,590
Net operating (loss) income
Before other (income) expenses			(339,817	)			1,252,249				802,067				6,227,491
Other (income) expenses
Interest income			(1,176	)			(8,737	)			(6,643	)			(12,657	)
Other (income) expenses			(167,099	)			10				(174,111	)			21,730
Interest expense			88,772				143,225				198,829				313,611
Total other (income) expenses			(79,503	)			134,498				18,075				322,684
Net (loss) income			(260,314	)			1,117,751				783,992				5,904,809
Accumulated earnings at beginning of period			16,647,901				17,820,117				15,603,595				13,033,059
Accumulated earnings at end of period		$	16,387,587			$	18,937,868			$	16,387,587			$	18,937,868

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

SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)

		Six months ended
		June 30,
		2009				2008
Operating activities:
Net income		$	783,992			$	5,904,809
Non-cash items included in net income:
Provision for doubtful accounts			(759	)			3,300
Depreciation			1,037,905				1,058,980
Amortization of debt financing costs			38,497				8,154
(Gain)loss on sale of assets			(593	)			1,821
(Increase) decrease in:
Accounts receivable			246,325				(1,454,608	)
Inventory and supplies			229,773				(58,445	)
Prepaid expenses and other assets			86,890				(284,918	)
(Decrease) increase in:
Accounts payable			(100,184	)			(508,114	)
Accrued rental distribution			4,590				545,137
Guest deposits			(1,043,393	)			(325,957	)
Accrued expenses and other liabilities			243,058				306,057
Deferred income			(84,689	)			16,927
Cash flow provided by operating activities			1,441,412				5,213,143
Investing activities:
Capital expenditures			(254,046	)			(948,575	)
Proceeds from short term investment maturity			175,000				—
Proceeds from the sale of property and equipment			94,900				500
Cash flow used in investing activities			15,854				(948,075	)
Financing activities:
Proceeds from line of credit			—				750,000
Payments on notes payable			(831,650	)			(400,002	)
Payments on capital lease obligations			(35,079	)			(68,837	)
Debt cost to be amortized			(55,895	)			—
Net advances to related parties			(172,146	)			(601,554	)
Cash flow used in financing activities			(1,094,770	)			(320,393	)
Net increase in cash			362,496				3,944,675
Cash at beginning of period			3,752,278				991,320
Cash at end of period		$	4,114,774			$	4,935,995
Supplemental disclosure of cash flow information:
Cash paid for interest		$	144,556			$	305,457

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 June 30, 2009, and its statements of operations and accumulated earnings and cash flows for the periods ended June 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 will be effective for financial statements issued for reporting periods that end after September 15, 2009. Once it’s effective, it will supersede all accounting standards in U.S. GAAP, aside from those issued by the SEC. SFAS No. 168 replaces SFAS No. 162 to establish a new hierarchy of GAAP sources for non-governmental entities under the FASB Accounting Standards Codification.

Management has adopted the provisions set forth in SFAS No. 165, Subsequent Events, and considered subsequent events through August 14, 2009 in connection with the preparation of these financial statements.

Note 2. Accounts Receivable

		June 30,				December 31,
		2009				2008
		(Unaudited)
Trade accounts receivable		$	1,160,805			$	1,407,130
Less allowance for bad debts			(44,032	)			(44,791	)
		$	1,116,773			$	1,362,339

Note 3. Property, Buildings and Equipment

		June 30,				December 31,
		2009				2008
		(Unaudited)
Land and land improvements		$	6,809,179			$	6,809,179
Buildings and recreational facilities			29,647,077				29,475,098
Machinery and equipment			17,291,197				16,967,184
Construction in progress			82,640				350,737
			53,830,093				53,602,198
Less accumulated depreciation			(29,593,980	)			(28,858,461	)
		$	24,236,113			$	24,743,737

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

Note 4. Deferred Charges

		June 30,				December 31,
		2009				2008
		(Unaudited)
Debt issue costs		$	55,895			$	107,676
Less accumulated amortization			(2,828	)			(72,007	)
		$	53,067			$	35,669

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 June 30, 2009 was 2.82%. The note is collateralized by all current and subsequently acquired real and personal property. At June 30, 2009, the outstanding balance on this term note was $10,335,000.

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 June 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 June 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 $2.3 million of the total $3.8 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 June 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

		June 30,				December 31,
		2009				2008
		(Unaudited)
Assets
Receivable from Saddlebrook Resorts, Inc.		$	678,737			$	674,147
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	567,463			$	568,641
Due to maintenance escrow fund			111,274				105,506
		$	678,737			$	674,147

MAINTENANCE ESCROW FUND

		June 30,				December 31,
		2009				2008
		(Unaudited)
Assets
Cash and cash equivalents		$	716,577			$	503,806
Receivables:
Distribution fund			111,274				105,506
Interest			249				762
Prepaid expenses and other assets			2,337				2,301
		$	830,437			$	612,375
Liabilities and Participants’ Fund Balance
Accounts payable		$	52,675			$	56,695
Participants’ fund balance			777,762				555,680
		$	830,437			$	612,375

SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2009				2008				2009				2008
Rental pool revenues		$	1,688,626			$	3,687,557			$	4,917,741			$	10,593,821
Deductions:
Marketing fee			126,647				276,567				368,831				794,537
Management fee			211,078				460,945				614,717				1,324,228
Travel agent commissions			42,659				161,067				174,229				527,145
Credit card expense			47,213				86,558				111,248				189,249
			427,597				985,137				1,269,025				2,835,159
Net rental income			1,261,029				2,702,420				3,648,716				7,758,662
Less operator share of net rental income			(567,463	)			(1,216,089	)			(1,641,922	)			(3,491,398	)
Other revenues (expenses):
Complimentary room revenues			12,587				20,700				24,381				39,763
Minor repairs and replacements			(27,416	)			(56,660	)			(56,056	)			(106,535	)
Amount available for distribution		$	678,737			$	1,450,371			$	1,975,119			$	4,200,492

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

DISTRIBUTION FUND

		Six months ended
		June 30,
		2009				2008
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			1,975,119				4,200,492
Reductions:
Amount withheld for maintenance escrow fund			(333,197	)			(709,094	)
Amount accrued or paid to participants			(1,641,922	)			(3,491,398	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Six months ended
		June 30,
		2009				2008
Balance at beginning of period		$	555,680				981,674
Additions:
Amount withheld from distribution fund			333,197				709,094
Unit owner payments			21,143				264,034
Interest earned			1,211				8,336
Reductions:
Escrow account refunds			(2,901	)			(23,404	)
Maintenance charges			15,758				(167,531	)
Unit renovations			(131,916	)			(392,399	)
Linen replacement			(14,410	)			(131,691	)
Balance at end of period		$	777,762			$	1,248,113

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, the Company is increasing its marketing efforts toward the social clientele by developing packages designed to target more social guests, including families. These social packages will be 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 June 30, 2009) and matures in March 2014.

Results of Operations

Second quarter 2009 compared to second quarter 2008

The Company’s total revenues decreased approximately $5,780,000, or about 45%, for the three months ended June 30, 2009 compared to the same period in the prior year. This decrease is directly related to a 46% decrease in occupancy over the prior period. Total revenues for the Rental Pool decreased approximately $1,999,000, or about 54%. This decrease is directly related to the decrease in occupancy, along with a 17% decrease in the average room rate.

The decreases of $4,189,000 in total costs and expenses for the Company, and $558,000 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 $260,000, compared with a net income of approximately $1,118,000 in the same period in the prior year. Amounts available for distribution for the Rental Pool Operation decreased $772,000 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.

First six months 2009 compared to first six months 2008

The Company’s total revenues decreased approximately $16,253,000, or about 49% for the six months ended June 30, 2009 compared to the same period in the prior year. This decrease is directly related to a 51% decrease in occupancy over the prior year. The total revenues for the Rental Pool decreased approximately $5,676,000, or about 54%. This decrease is directly related to the decrease in occupancy, along with an 8% decrease in the average room rate.

The decreases of $10,827,000 in total costs and expenses for the Company, and $1,566,000 in total costs and expenses for the Rental Pool Operation, are consistent with the decreases in revenues.

Net income for the Company decreased $5,121,000 over the comparable period last year. Amounts available for distribution for the Rental Pool Operation decreased $2,225,000 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 June 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 June 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 June 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.