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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

     
(Mark one)    
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended June 30, 2002
    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: No 1934 act file number assigned
(1933 act file no. 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 x      NO o

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Not Applicable*

* Registrant has no common stock subject to this annual report.

Page 1 of 13

 

INDEX

                 
            Page
PART I — FINANCIAL INFORMATION
        
 
        
 
Item 1. Financial Statements
        
 
        
     
Saddlebrook Resorts, Inc.
        
       
Balance Sheets at June 30, 2002 and December 31, 2001
     3  
       
Statements of Operations for the three months and six months ended June 30, 2002 and 2001
     4  
       
Statements of Cash Flows for the six months ended June 30, 2002 and 2001
     5  
       
Notes to Financial Statements
     6  
 
        
     
Saddlebrook Rental Pool Operation
      
       
Balance Sheets at June 30, 2002 and December 31, 2001
     8  
       
Statements of Operations for the three months and six months ended June 30, 2002 and 2001
     9  
       
Statements of Changes in Participants’ Fund Balance for the six months ended June 30, 2002 and 2001
     10  
 
        
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
        
 
        
     
Saddlebrook Resorts, Inc.
     11  
     
Saddlebrook Rental Pool Operation
     12  
 
        
PART II — OTHER INFORMATION
        
 
        
 
Item 6. Exhibits and Reports on Form 8-K
     12  

-2-

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS
                       
          June 30,        
          2002   December 31,
          (Unaudited)   2001
         
 
     
Assets
                
Current assets:
                
 
Cash and cash equivalents
   $ 7,108 508     $ 6,724,259  
 
Escrowed cash
     915,569       217,550  
 
Short-term investments
     300,000       —  
 
Short-term escrowed investments
     989       989  
 
Accounts receivable, net
     2,642,520       1,681,780  
 
Due from related parties
     2,263,141       849,952  
 
Inventory and supplies
     1,741,179       1,834,400  
 
Prepaid expenses and other assets
     790,341       516,923  
 
    
     
 
   
Total current assets
     15,762,247       11,825,853  
Long-term investments
     —       300,000  
Property, buildings and equipment, net
     25,230,134       24,974,266  
Deferred charges, net
     437,596       457,486  
 
    
     
 
 
   $ 41,429,977     $ 37,557,605  
 
    
     
 
     
Liabilities and Shareholder’s Equity
                
Current liabilities:
                
 
Current portion of notes payable
   $ 1,332,265     $ 1,281,697  
 
Escrowed deposits
     916,558       218,540  
 
Accounts payable
     522,745       704,018  
 
Accrued rental distribution
     1,127,156       247,692  
 
Accrued expenses and other liabilities
     2,138,040       2,176,962  
 
Guest deposits
     977,055       1,411,575  
 
Due to related parties
     557,131       205,282  
 
    
     
 
   
Total current liabilities
     7,570,950       6,245,766  
Notes payable due after one year
     20,382,636       21,061,638  
 
    
     
 
   
Total liabilities
     27,953,586       27,307,404  
 
    
     
 
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
     12,363,264       9,137,074  
 
    
     
 
   
Total shareholder’s equity
     13,476,391       10,250,201  
 
    
     
 
 
   $ 41,429,977     $ 37,557,605  
 
    
     
 

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

-3-

 

SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS
(Unaudited)
                                     
        Three months ended   Six months ended
        June 30,   June 30,
       
 
        2002   2001   2002   2001
       
 
 
 
Revenues
   $ 10,073,616     $ 13,285,808     $ 24,265,905     $ 33,632,314  
 
    
     
     
     
 
 
                                
Costs and expenses:
                                
 
Operating costs
     7,023,872       9,180,893       15,948,351       20,833,115  
 
Sales and marketing
     617,921       1,008,055       1,272,391       2,018,317  
 
General and administrative
     869,505       1,450,611       1,877,570       2,721,442  
 
Depreciation and amortization
     549,217       524,704       1,088,735       1,045,603  
 
Interest
     426,934       445,379       852,668       895,728  
 
    
     
     
     
 
   
Total costs and expenses
     9,487,449       12,609,642       21,039,715       27,514,205  
 
    
     
     
     
 
 
                                
Net income
     586,167       676,166       3,226,190       6,118,109  
 
                                
Distribution to shareholder
     —       (1,300,000 )     —       (1,300,000 )
 
                                
Accumulated earnings at beginning of period
     11,777,097       12,491,974       9,137,074       7,050,031  
 
    
     
     
     
 
 
                                
Accumulated earnings at end of period
   $ 12,363,264     $ 11,868,140     $ 12,363,264     $ 11,868,140  
 
    
     
     
     
 

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

-4-

 

SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS
(Unaudited)
                     
        Six months ended
        June 30,
       
        2002   2001
       
 
Operating activities:
                
 
Net income
   $ 3,226,190     $ 6,118,109  
 
Non-cash items included in net income:
                
   
Provision for doubtful accounts
     26,720       24,720  
   
Depreciation and amortization
     1,088,735       1,045,603  
   
Loss (gain) on sale of assets
     (50 )     (25 )
 
Decrease (increase) in:
                
   
Accounts receivable
     (987,460 )     (96,677 )
   
Inventory and supplies
     93,221       117,428  
   
Prepaid expenses and other assets
     (273,418 )     (203,314 )
 
Increase (decrease) in:
                
   
Accounts payable
     (181,273 )     (295,426 )
   
Accrued expenses and other liabilities
     406,021       319,096  
 
    
     
 
 
     3,398,686       7,029,514  
 
    
     
 
 
                
Investing activities:
                
 
Proceeds from sale of assets
     50       25  
 
Capital expenditures
     (1,324,713 )     (559,938 )
 
    
     
 
 
     (1,324,663 )     (559,913 )
 
    
     
 
 
                
Financing activities:
                
 
Payments on notes payable
     (628,434 )     (581,062 )
 
Distribution to shareholder
     —       (1,300,000 )
 
Net payments to related parties
     (1,061,340 )     (408,622 )
 
    
     
 
 
     (1,689,774 )     (2,289,684 )
 
    
     
 
Net increase in cash
     384,249       4,179,917  
Cash at beginning of period
     6,724,259       8,109,135  
 
    
     
 
 
                
Cash at end of period
   $ 7,108,508     $ 12,289,052  
 
    
     
 
 
                
Supplemental disclosure:
                
 
Cash paid for interest
   $ 850,870     $ 897,660  

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

-5-

 

SADDLEBROOK RESORTS, INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation

The accompanying balance sheet for June 30, 2002, and statements of operations and cash flows for the periods ended June 30, 2002 and 2001, 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 Registrant’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 fiscal years.

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 Registrant’s Annual Report on Form 10-K. Accordingly, these financial statements and related notes should be read in conjunction with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

Note 2. Accounts Receivable

                 
    June 30,        
    2002   December 31,
    (Unaudited)   2001
   
 
Trade accounts receivable
   $ 2,688,358     $ 1,700,922  
Less reserve for bad debts
     (45,838 )     (19,142 )
 
    
     
 
 
   $ 2,642,520     $ 1,681,780  
 
    
     
 

Note 3. Property, Buildings and Equipment

                   
      June 30,        
      2002   December 31,
      (Unaudited)   2001
     
 
Land and land improvements
   $ 4,412,746     $ 4,412,746  
Buildings and recreational facilities
     24,524,658       23,792,806  
Machinery and equipment
     13,370,233       12,480,733  
Construction in progress
     889,412       1,191,540  
 
    
     
 
 
     43,197,049       41,877,825  
Less accumulated depreciation
     (17,966,915 )     (16,903,559 )
 
    
     
 
 
   $ 25,230,134     $ 24,974,266  
 
    
     
 

-6-

 

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

Note 4. Deferred Charges

                   
      June 30,        
      2002   December 31,
      (Unaudited)   2001
     
 
 
Debt issue costs
   $ 596,716     $ 596,716  
 
Less accumulated amortization
     (159,120 )     (139,230 )
 
    
     
 
 
  $ 437,596     $ 457,486  
 
    
     
 

Note 5. Notes Payable

                 
    June 30,        
    2002   December 31,
    (Unaudited)   2001
   
 
Note payable due June 30, 2013
   $ 21,679,005     $ 22,294,392  
Capital lease obligation
     35,896       48,943  
 
    
     
 
 
     21,714,901       22,343,335  
Less current portion
     (1,332,265 )     (1,281,697 )
 
    
     
 
 
   $ 20,382,636     $ 21,061,638  
 
    
     
 

The Registrant’s financing from a third-party lender has an annual interest rate fixed at 7.7% and monthly payments for principal and interest of $243,988. The debt is secured by the Registrant’s real and personal property.

An additional $5,000,000 is available from the same lender as long as certain financial covenants are maintained. If received by the Registrant, the additional financing would be due on June 30, 2013.

Note 6. Related Party Receivables and Liabilities

Related party receivables and payables at June 30, 2002 and December 31, 2001 are the result of net intercompany transactions and cash transfers between the Registrant and its shareholder company and affiliated companies. There are no advances from the Registrant to its Directors or Officers.

Note 7. Income Taxes

The Registrant previously elected S Corporation status and is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, the Registrant has had no income tax expense since the initial election as the tax is assessed at the shareholder level.

-7-

 

SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS

DISTRIBUTION FUND

                   
      June 30,        
      2002   December 31,
      (Unaudited)   2001
     
 
 
Assets
                
Receivable from Saddlebrook Resorts, Inc.
   $ 1,199,312     $ 686,491  
 
    
     
 
 
                
 
Liabilities and Participants’ Fund Balance
                
Due to participants for rental pool distribution
   $ 993,683     $ 571,194  
Due to maintenance escrow fund
     205,629       115,297  
Participants’ fund balance
     —       —  
 
    
     
 
 
   $ 1,199,312     $ 686,491  
 
    
     
 

MAINTENANCE ESCROW FUND

                     
        June 30,        
        2002   December 31,
        (Unaudited)   2001
       
 
   
Assets
                
Cash and cash equivalents
   $ 892,619     $ 195,300  
Investments
     989       989  
Receivables:
                
 
Distribution fund
     205,629       115,297  
 
Owner payments
     53,903       234,055  
 
Interest
     10       4  
Linen inventory
     282,769       299,879  
Prepaid expenses and other assets
     99,432       2,119,489  
 
    
     
 
 
   $ 1,535,351     $ 2,965,013  
 
    
     
 
 
                
   
Liabilities and Participants’ Fund Balance
                
Accounts payable
   $ 211,729     $ 504,627  
Participants’ fund balance
     1,323,622       2,460,386  
 
    
     
 
 
   $ 1,535,351     $ 2,965,013  
 
    
     
 

-8-

 

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS
(Unaudited)
                                   
      Three months ended   Six months ended
      June 30,   June 30,
     
 
      2002   2001   2002   2001
     
 
 
 
Rental pool revenues
   $ 3,000,670     $ 4,096,118     $ 8,017,935     $ 11,111,672  
 
    
     
     
     
 
 
                                
Deductions:
                                
 
Marketing expense
     225,050       307,209       601,345       833,376  
 
Management expense
     375,084       512,015       1,002,242       1,388,959  
 
Travel agent commissions
     147,890       272,851       348,715       540,076  
 
Credit card expense
     42,962       53,290       109,501       127,239  
 
Provision for bad debts
     1,500       —       2,000       —  
 
    
     
     
     
 
 
     792,486       1,145,365       2,063,803       2,889,650  
 
    
     
     
     
 
 
                                
Net rental income
     2,208,184       2,950,753       5,954,132       8,222,022  
Less operator share of net rental income
     (993,683 )     (1,327,839 )     (2,679,360 )     (3,699,910 )
Other revenues (expenses):
                                
 
Complimentary room revenues
     20,958       30,772       43,163       56,143  
 
Minor repairs and replacements
     (36,147 )     (31,919 )     (81,208 )     (89,038 )
 
    
     
     
     
 
 
                                
Amount available for distribution
   $ 1,199,312     $ 1,621,767     $ 3,236,727     $ 4,489,217  
 
    
     
     
     
 

-9-

 

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCE
(Unaudited)

DISTRIBUTION FUND

                   
      Six months ended
      June 30,
     
      2002   2001
     
 
Balance at beginning of period
   $ —     $ —  
 
                
Additions:
                
 
Amount available for distribution
     3,236,727       4,489,217  
 
                
Reductions:
                
 
Amount withheld for maintenance escrow fund
     (557,367 )     (789,307 )
 
Amount accrued or paid to participants
     (2,679,360 )     (3,699,910 )
 
    
     
 
 
                
Balance at end of period
   $ —     $ —  
 
    
     
 

MAINTENANCE ESCROW FUND

                   
      Six months ended
      June 30,
     
      2002   2001
     
 
Balance at beginning of period
   $ 2,460,386       2,830,378  
 
                
Additions:
                
 
Amount withheld from distribution fund
     557,367       789,307  
 
Unit owner payments
     611,183       621,143  
 
Interest earned
     6,602       6,369  
 
                
Reductions:
                
 
Escrow account refunds
     (42,912 )     (69,157 )
 
Maintenance charges
     (102,184 )     (363,412 )
 
Unit renovations
     (2,132,716 )     (1,604,641 )
 
Linen replacement
     (34,104 )     (56,301 )
 
    
     
 
 
                
Balance at end of period
   $ 1,323,622     $ 2,153,686  
 
    
     
 

-10-

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

The Registrant’s operations are seasonal with the highest volume of sales occurring in the first quarter of each calendar year. The second quarter has, historically, had marginal financial performance. Accordingly, the Registrant experienced an improvement in its financial condition as of June 30, 2002 when compared with its fiscal year-end of December 31, 2001. The primary effect of this seasonal period was an increase in current assets and accumulated earnings.

The Registrant’s loan agreement for its existing debt provides for an additional $5,000,000 from the same lender if the Registrant remains in compliance with certain financial covenants (see Note 5. Notes Payable of the Notes to Financial Statements in Part I, Item 1 of this Form 10-Q, which is incorporated herein by reference).

The Registrant has completed construction of new laundry and warehouse facilities to replace a structure that was damaged by fire in January of 2001. The cost for this project (net of related insurance proceeds) was $910,000. There were no other significant capital additions or improvements during the six months ended June 30, 2002 and no other major capital projects are anticipated in the remaining fiscal period. Future operating costs and planned expenditures for capital additions and improvements should be funded by the Registrant’s current cash reserves, cash generated by resort operations or by additional funds, if available, from it’s current lender discussed above.

Results of Operations

Total revenues decreased $3,212,000, or 24%, for the second quarter of 2002 when compared with the same period in 2001. Total revenues decreased $9,366,000, or 28%, for the first six months of 2002 when compared with the same period in 2001. These decreases resulted from fewer occupied unit nights, average daily room rates and numbers of guests in the resort for the current periods when compared to the same periods the prior year. Anticipated occupied room nights for the remainder of 2002 are expected to approximate the prior year’s low level due to the continued slowdown in the nation’s economy and concerns about national security that have adversely affected travel. Projections for occupied room nights in the year 2003 and subsequent fiscal periods are expected to remain at the resort’s current volume of business pending an improvement in national concerns.

Net income for the second quarter of 2002 decreased $90,000, or 13%, from the same period in 2001. Net income for the first six months of 2002 decreased $2,892,000, or 47%, from the same period in 2001. These decreases were a direct result of lower revenues for the current periods when compared to the prior year’s. Net income also benefited by several measures that were taken in the fall of 2001 to reduce the Registrant’s cost of operation.

-11-

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Due to the seasonal business of the Registrant, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for their full fiscal year.

Saddlebrook Rental Pool Operation

The results of the Saddlebrook Rental Pool Operation (the “Rental Pool”) are directly related to the hotel operations of the Registrant. The Registrant operates the Rental Pool that provides for a distribution of a percentage of net rental income to participating condominium owners. Net rental income is calculated and distributed according to the provisions of a Rental Pool and Agency Appointment Agreement. The level of the Registrant’s occupancy and related average daily room rate directly impacts revenues and expenses used to determine the distribution.

The average occupancies for the Rental Pool for the quarters ended June 30, 2002 and 2001 were 50% and 56%, respectively. The average distributions of net rental income per participating condominium unit for the same periods were $2,185 and $2,949, respectively. The decrease in the average distribution of net rental income was directly related to lower Rental Pool revenues that decreased the net amount available for distribution for the current quarter when compared to the same period the prior year.

Item 6. Exhibits and Reports on Form 8-K

  (a)   The following exhibits are included in this Form 10-Q:

         
99.1   - -   Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
         
99.2   - -   Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  (b)   The Registrant was not required to file a Form 8-K during the six months ended June 30, 2002.

-12-

 

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: August 14, 2002   /s/ Donald L. Allen
   
    Donald L. Allen
    Vice President and Treasurer
    (Principal Financial and
    Accounting Officer)

-13-