SADDLEBROOK RESORTS INC - Quarter Report: 2010 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, 2010

OR

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

For the transition period from                      to                     

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 o		Smaller reporting company 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, 2010 and December 31, 2009			3
Statements of Operations and Accumulated Earnings for the three months ended March 31, 2010 and 2009			4
Statements of Cash Flows for the three months ended March 31, 2010 and 2009			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at March 31, 2010 and December 31, 2009			9
Statements of Operations for the three months ended March 31, 2010 and 2009			10
Statements of Changes in Participants’ Fund Balance for the three months ended March 31, 2010 and 2009			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
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

		March 31,
		2010				December 31,
		(Unaudited)				2009
Assets
Current assets:
Cash and cash equivalents		$	2,828,140			$	1,044,573
Escrowed cash			717,615				777,729
Accounts receivable, net			3,049,508				1,872,364
Due from related parties			285,533				1,319,304
Inventory and supplies			1,564,577				1,566,950
Prepaid expenses and other assets			708,040				704,088
Total current assets			9,153,413				7,285,008
Property, buildings and equipment, net			23,008,334				23,448,520
Deferred charges, net			44,688				47,482
Total assets		$	32,206,435			$	30,781,010
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of long-term debt		$	1,060,000			$	1,060,000
Current portion of capital lease obligation			90,874				89,697
Escrowed deposits			717,615				777,729
Accounts payable			559,824				687,585
Accrued rental distribution			1,157,694				544,090
Accrued expenses and other liabilities			2,028,932				1,622,891
Current portion of deferred income			914,899				852,864
Guest deposits			1,020,989				1,266,157
Due to related parties			478,283				—
Total current liabilities			8,029,110				6,901,013
Long-term debt			8,480,000				8,745,000
Long-term capital lease obligation			179,484				202,648
Deferred income			1,361,546				1,371,871
Other liabilities			149,000				149,000
Total liabilities			18,199,140				17,369,532
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
Retained earnings			15,411,351				14,589,264
Due from related parties			(2,517,183	)			(2,290,913	)
Total shareholder’s equity			14,007,295				13,411,478
Total liabilities and shareholder’s equity		$	32,206,435			$	30,781,010

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,
		2010				2009
Resort revenues		$	9,065,890			$	9,762,424
Costs and expenses:
Operating costs			6,553,407				6,808,673
Sales and marketing			404,309				470,502
General and administrative			723,062				810,127
Depreciation			495,587				531,238
Total costs and expenses			8,176,365				8,620,540
Net operating income before other expenses and (income)			889,525				1,141,884
Other expenses and (income):
Interest income			(203	)			(5,467	)
Other income			(6,867	)			(7,012	)
Interest expense			74,508				110,057
Total other expenses and (income)			67,438				97,578
Net income			822,087				1,044,306
Accumulated earnings at beginning of period			14,589,264				15,603,595
Accumulated earnings at end of period		$	15,411,351			$	16,647,901

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,
		2010				2009
Operating activities:
Net income		$	822,087			$	1,044,306
Non-cash items included in net income:
Depreciation			495,587				531,238
Amortization of debt financing costs			2,794				35,669
Gain on the sale of assets			—				(593	)
Decrease (increase) in:
Accounts receivable			(1,177,144	)			(964,077	)
Inventory and supplies			2,373				95,814
Prepaid expenses and other assets			(3,952	)			63,851
Increase (decrease) in:
Accounts payable			(127,761	)			(216,446	)
Guest deposits			(245,168	)			(1,113,266	)
Accrued expenses and other liabilities			1,019,645				723,336
Deferred income			51,710				24,608
Cash flow provided by operating activities			840,171				224,440
Investing activities:
Capital expenditures			(55,401	)			(176,039	)
Proceeds from the sale of property and equipment			—				94,900
Cash flow used in investing activities			(55,401	)			(81,139	)
Financing activities:
Payments on notes payable			(265,000	)			(566,650	)
Payments on capital lease obligations			(21,987	)			(13,940	)
Debt cost to be amortized			—				(55,895	)
Net payments from related parties			1,285,784				126,227
Cash flow provided by (used in) financing activities			998,797				(510,258	)
Net increase (decrease) in cash			1,783,567				(366,957	)
Cash at beginning of period			1,044,573				3,752,278
Cash at end of period		$	2,828,140			$	3,385,322
Supplemental disclosure of cash flow information:
Cash paid for interest		$	75,481			$	49,858

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 March 31, 2010, and its statements of operations and accumulated earnings and cash flows for the periods ended March 31, 2010 and 2009, 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, 2009.

Note 2. Accounts Receivable

		March 31,
		2010				December 31,
		(Unaudited)				2009
Trade accounts receivable		$	3,104,675			$	1,927,591
Less reserve for bad debts			(55,167	)			(55,227	)
		$	3,049,508			$	1,872,364

Note 3. Property, Buildings and Equipment

		March 31,
		2010				December 31,
		(Unaudited)				2009
Land and land improvements		$	6,802,067			$	6,802,067
Buildings and recreational facilities			29,702,374				29,702,374
Machinery and equipment			17,387,084				17,332,183
Construction in progress			195,460				194,960
			54,086,985				54,031,584
Less accumulated depreciation			(31,078,651	)			(30,583,064	)
		$	23,008,334			$	23,448,520

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

Note 4. Deferred Charges

		March 31,
		2010				December 31,
		(Unaudited)				2009
Debt issue costs		$	55,895			$	55,895
Less accumulated amortization			(11,207	)			(8,413	)
		$	44,688			$	47,482

Note 5. Notes Payable and Capital Lease Obligation

The 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 March 31, 2010 was 2.73%. The note is collateralized by all current and subsequently acquired real and personal property. At March 31, 2010, the outstanding balance on this term note was $9,540,000.

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 March 31, 2010, 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 and Payables

Related party receivables and payables at March 31, 2010 and December 31, 2009 are the result of net intercompany transactions and cash transfers between the Company and its shareholder and affiliated companies. Related party receivables and payables are unsecured and non-interest bearing.

The Company currently funds expenditures for its parent company, Saddlebrook Holdings, Inc. (“SHI”). SHI’s expenditures include dividends to its shareholders, which are primarily income taxes related to the operations of SHI and its subsidiaries. Until such time as definitive repayment terms are established and collectability of the amounts due can be assessed, the Company has reclassified the amounts due from SHI as a component of shareholders’s equity in the accompanying 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

		March 31,
		2010				December 31,
		(Unaudited)				2009
Assets
Receivable from Saddlebrook Resorts, Inc.		$	1,157,694			$	544,090
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	970,170			$	456,994
Due to maintenance escrow fund			187,524				87,096
		$	1,157,694			$	544,090

MAINTENANCE ESCROW FUND

		March 31,
		2010				December 31,
		(Unaudited)				2009
Assets
Cash and cash equivalents		$	698,815			$	761,829
Receivables:
Distribution fund			187,524				87,096
Prepaid expenses and other assets			5,811				7,816
Furniture Inventory			60,879				60,174
		$	953,029			$	916,915
Liabilities and Participants’ Fund Balance
Accounts payable		$	79,478			$	112,455
Participants’ fund balance			873,551				804,460
		$	953,029			$	916,915

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

DISTRIBUTION FUND

		Three months ended
		March 31,
		2010				2009
Rental pool revenue		$	2,888,952			$	3,229,115
Deductions:
Marketing fee			216,671				242,184
Management fee			361,119				403,639
Travel agent commissions			93,368				131,570
Credit card expense			61,860				64,035
			733,018				841,428
Net rental income			2,155,934				2,387,687
Less operator share of net rental income			(970,170	)			(1,074,459	)
Other revenues (expenses):
Complimentary room revenues			6,161				11,794
Minor repairs and replacements			(34,231	)			(28,640	)
Amount available for distribution		$	1,157,694			$	1,296,382

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

		Three months ended
		March 31,
		2010				2009
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			1,157,694				1,296,382
Reductions:
Amount withheld for maintenance escrow fund			(187,524	)			(221,923	)
Amount accrued or paid to participants			(970,170	)			(1,074,459	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Three months ended
		March 31,
		2010				2009
Balance at beginning of period		$	804,460			$	555,680
Additions:
Amount withheld from distribution fund			187,524				221,923
Unit owner payments			7,292				9,823
Interest earned			1,115				579
Reductions:
Escrow account refunds			(20,375	)			(1,706	)
Maintenance charges			(68,112	)			(72,974	)
Unit renovations			10				16,119
Linen replacement			(38,363	)			(9,953	)
Balance at end of period		$	873,551			$	719,491

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 continue as a result of the current state of the United States’ economy, and the fact that businesses 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 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 debt agreement allows for the Company to borrow an additional $2,500,000 under a line of credit facility maturing in March 2011, provided the Company is in compliance with certain financial covenants. The Company’s term note obtained from a third-party lender bears interest at 2.5% over the one month LIBOR index (2.73% at March 31, 2010) and matures in March 2014.

Results of Operations

First quarter 2010 compared to first quarter 2009

The Company’s total revenues for the three months ended March 31, 2010 decreased approximately $697,000, about 7%, from the same period in the prior year. Rental Pool revenues decreased $340,000, or about 11% from the comparable period last year. While the group (corporate) occupied room nights were down slightly, the Company did experience a significant increase in social bookings resulting in an overall increase of about 14% in occupied room nights over the comparable period in the prior year. This increase in occupied nights was negatively offset, however, by a decrease of 20% in the average room rate.

The decrease of $444,000 in operating costs and expenses for the Company is consistent with the decreases in revenues. The $108,000 decrease in operating costs and expenses for the Rental Pool Operation is directly related to the decreases in revenues.

Net Income for the Company decreased $222,000 from the comparable period last year. Amounts available for distribution for the Rental Pool Operation decreased $139,000 from the first quarter of 2009.

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

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, 2010, 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, 2010 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 March 31, 2010 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, 2010		/s/ Donald L. Allen   Donald L. Allen
		Vice President and Treasurer
		(Principal Financial and
		Accounting Officer)