SADDLEBROOK RESORTS INC - Quarter Report: 2011 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

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
(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.:

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, 2011 and December 31, 2010			3
Statements of Operations and Accumulated Earnings for the three months ended March 31, 2011 and 2010			4
Statements of Cash Flows for the three months ended March 31, 2011 and 2010			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at March 31, 2011 and December 31, 2010			9
Statements of Operations for the three months ended March 31, 2011 and 2010			10
Statements of Changes in Participants’ Fund Balance for the three months ended March 31, 2011 and 2010			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,
		2011				December 31,
		(Unaudited)				2010
Assets
Current assets:
Cash and cash equivalents		$	1,930,720			$	1,038,368
Escrowed cash			609,761				611,012
Accounts receivable, net			2,141,141				1,521,404
Due from related parties			391,942				373,254
Inventory and supplies			1,551,419				1,625,960
Prepaid expenses and other assets			674,871				707,043
Total current assets			7,299,854				5,877,041
Property, buildings and equipment, net			21,495,563				21,930,690
Deferred charges, net			33,516				36,309
Total assets		$	28,828,933			$	27,844,040
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			95,758				94,512
Escrowed deposits			609,761				611,012
Accounts payable			580,791				791,674
Accrued rental distribution			932,691				549,951
Accrued expenses and other liabilities			2,184,183				1,884,865
Current portion of deferred income			861,099				851,791
Guest deposits			839,024				827,741
Due to related parties			278,008				133,660
Total current liabilities			7,441,315				6,805,206
Long-term debt			7,420,000				7,685,000
Long-term capital lease obligation			83,722				108,134
Deferred income			1,182,353				1,197,866
Other liabilities			149,000				149,000
Total liabilities			16,276,390				15,945,206
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			11,908,889				11,625,169
Due from related parties			(469,473	)			(839,462	)
Total shareholder’s equity			12,552,543				11,898,834
Total liabilities and shareholder’s equity		$	28,828,933			$	27,844,040

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,
		2011				2010
Resort revenues		$	7,792,333			$	9,065,890
Costs and expenses:
Operating costs			5,923,208				6,553,407
Sales and marketing			304,528				404,309
General and administrative			741,617				723,062
Depreciation			477,858				495,587
Total costs and expenses			7,447,211				8,176,365
Net operating income before other expenses and (income)			345,122				889,525
Other expenses and (income):
Interest income			(4	)			(203	)
Other income			(4,409	)			(6,867	)
Interest expense			65,815				74,508
Total other expenses and (income)			61,402				67,438
Net income			283,720				822,087
Accumulated earnings at beginning of period			11,625,169				14,589,264
Accumulated earnings at end of period		$	11,908,889			$	15,411,351

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,
		2011				2010
Operating activities:
Net income		$	283,720			$	822,087
Non-cash items included in net income:
Depreciation			477,858				495,587
Amortization of debt financing costs			2,793				2,794
Gain on the sale of assets			(563	)			—
(Increase)decrease in:
Accounts receivable			(619,737	)			(1,177,144	)
Inventory and supplies			74,541				2,373
Prepaid expenses and other assets			32,172				(3,952	)
(Decrease)increase in:
Accounts payable			(210,883	)			(127,761	)
Guest deposits			11,283				(245,168	)
Accrued expenses and other liabilities			682,058				1,019,645
Deferred income			(6,205	)			51,710
Cash flow provided by operating activities			727,037				840,171
Investing activities:
Capital expenditures			(43,669	)			(55,401	)
Proceeds from the sale of property and equipment			1,500				—
Cash flow used in investing activities			(42,169	)			(55,401	)
Financing activities:
Payments on notes payable			(265,000	)			(265,000	)
Payments on capital lease obligations			(23,167	)			(21,987	)
Net payments from related parties			495,651				1,285,784
Cash flow provided by financing activities			207,484				998,797
Net increase in cash			892,352				1,783,567
Cash at beginning of period			1,038,368				1,044,573
Cash at end of period		$	1,930,720			$	2,828,140
Supplemental disclosure of cash flow information:
Cash paid for interest		$	63,276			$	75,481

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, 2011, and its statements of operations and accumulated earnings and cash flows for the periods ended March 31, 2011 and 2010, 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, 2010.

Note 2. Accounts Receivable

		March 31,
		2011				December 31,
		(Unaudited)				2010
Trade accounts receivable		$	2,180,490			$	1,560,759
Less reserve for bad debts			(39,349	)			(39,355	)
		$	2,141,141			$	1,521,404

Note 3. Property, Buildings and Equipment

		March 31,
		2011				December 31,
		(Unaudited)				2010
Land and land improvements		$	6,802,067			$	6,802,067
Buildings and recreational facilities			29,749,924				29,738,834
Machinery and equipment			17,469,852				17,463,682
Construction in progress			467,145				447,964
			54,488,988				54,452,547
Less accumulated depreciation			(32,993,425	)			(32,521,857	)
		$	21,495,563			$	21,930,690

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

Note 4. Deferred Charges

		March 31,
		2011				December 31,
		(Unaudited)				2010
Debt issue costs		$	55,895			$	55,895
Less accumulated amortization			(22,379	)			(19,586	)
		$	33,516			$	36,309

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, 2011 was 2.76%. The note is collateralized by all current and subsequently acquired real and personal property. At March 31, 2011, the outstanding balance on this term note was $8,480,000.

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%. At March 31, 2011, the amount due on the capital lease obligation was $179,480.

Note 6. Related Party Receivables and Payables

Related party receivables and payables at March 31, 2011 and December 31, 2010 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 sheets.

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,
		2011				December 31,
		(Unaudited)				2010
Assets
Receivable from Saddlebrook Resorts, Inc.		$	932,691			$	549,951
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	782,710			$	472,237
Due to maintenance escrow fund			149,981				77,714
		$	932,691			$	549,951

MAINTENANCE ESCROW FUND

		March 31,
		2011				December 31,
		(Unaudited)				2010
Assets
Cash and cash equivalents		$	596,761			$	599,712
Receivables:
Distribution fund			149,981				77,714
Owner payments			—				8,124
Prepaid expenses and other assets			3,584				12,580
Furniture Inventory			48,536				48,619
		$	798,862			$	746,749
Liabilities and Participants’ Fund Balance
Accounts payable		$	80,856			$	89,250
Participants’ fund balance			718,006				657,499
		$	798,862			$	746,749

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

DISTRIBUTION FUND

		Three months ended
		March 31,
		2011				2010
Rental pool revenue		$	2,310,985			$	2,888,952
Deductions:
Marketing fee			173,324				216,671
Management fee			288,873				361,119
Travel agent commissions			57,405				93,368
Credit card expense			52,028				61,860
			571,630				733,018
Net rental income			1,739,355				2,155,934
Less operator share of net rental income			(782,710	)			(970,170	)
Other revenues (expenses):
Complimentary room revenues			6,630				6,161
Minor repairs and replacements			(30,584	)			(34,231	)
Amount available for distribution		$	932,691			$	1,157,694

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

		Three months ended
		March 31,
		2011				2010
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			932,691				1,157,694
Reductions:
Amount withheld for maintenance escrow fund			(149,981	)			(187,524	)
Amount accrued or paid to participants			(782,710	)			(970,170	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

		Three months ended
		March 31,
		2011				2010
Balance at beginning of period		$	657,499				804,460
Additions:
Amount withheld from distribution fund			149,981				187,524
Unit owner payments			20,353				7,292
Interest earned			378				1,115
Reductions:
Escrow account refunds			(13,146	)			(20,375	)
Maintenance charges			(76,991	)			(68,112	)
Unit renovations			4,625				10
Linen replacement			(24,693	)			(38,363	)
Balance at end of period		$	718,006			$	873,551

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.

Results of Operations

First quarter 2011 compared to first quarter 2010

The Company’s total revenues for the three months ended March 31, 2011 decreased approximately $1,274,000, about 14%, from the same period in the prior year. Rental Pool revenues decreased $578,000, or about 20% from the comparable period last year. These decreases are directly related to a decrease in the number of paid unit nights of about 18%, along with a 3% decrease in the average room rate.

The decrease of $729,000 in operating costs and expenses for the Company is consistent with the decreases in revenues. The $161,000 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 $538,000 from the comparable period last year. Amounts available for distribution for the Rental Pool Operation decreased $225,000 from the first quarter of 2010.

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 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. Additionally, management has implemented programs and measures to help the Company get back to positive operating income for the year ending December 31, 2011. These programs and measures include cost control programs, consolidation of restaurant operations and efforts to increase brand awareness and recognition of the Golf Academy. Additionally, the Company has increased its group (corporate meeting) sales staff in response to a recent growth trend in meeting and group sales for the second half of 2011 and for 2012.

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 term note obtained from a third-party lender bears interest at 2.5% over the one month LIBOR index (2.76% at March 31, 2011) and matures in March 2014.

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 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 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, 2011, 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, 2011 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, 2011 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.