SADDLEBROOK RESORTS INC - 10-Q Quarterly Report

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, 2005


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

(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 is an accelerated filer (as defined in Rule 12b-2 of the 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.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS


	March 31,
	2005		December 31,
	(Unaudited)		2004
Assets
Current assets:
Cash and cash equivalents	$	3,314,317	$	723,131
Escrowed cash		326,151		3,250,362
Short-term investments		375,000		375,000
Short-term escrowed investments		—		—
Accounts receivable, net		3,850,697		2,300,423
Due from related parties		1,060,751		988,012
Inventory and supplies		1,440,295		1,514,533
Prepaid expenses and other assets		811,517		711,049

Total current assets		11,178,728		9,862,510
Long-termed escrowed investments		399,576		399,576
Property, buildings and equipment, net		23,583,572		23,234,943
Deferred charges, net		76,869		80,946

Total assets	$	35,238,745	$	33,577,975

Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of notes payable	$	800,004	$	800,004
Current portion of capital leases		131,136		29,260
Escrowed deposits		725,727		3,649,938
Accounts payable		889,957		805,021
Accrued rental distribution		2,012,171		810,169
Accrued expenses and other liabilities		2,874,992		2,774,888
Guest deposits		1,124,449		1,466,485
Due to related parties		302,915		—

Total current liabilities		8,861,351		10,335,765

Notes payable due after one year		10,866,661		11,066,662
Capital lease obligations due after one year		330,935		40,175

Total liabilities		20,058,947		21,442,602

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		14,066,671		11,022,246

Total shareholder’s equity		15,179,798		12,135,373

	$	35,238,745	$	33,577,975

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
	March 31,
	2005		2004
Resort revenues	$	14,975,203	$	15,646,152

Costs and expenses:
Operating costs		9,574,313		9,431,034
Sales and marketing		726,380		762,006
General and administrative		1,034,454		965,999
Depreciation and amortization		452,401		457,656

Total costs and expenses		11,787,548		11,616,695

Net operating income before other expenses and (income)		3,187,655		4,029,457

Other expenses & (income)
Interest expense		143,230		377,955
Litigation settlement (net)		—		(3,286,051	)

Total other expenses & (income)		143,230		(2,908,096	)

Net income		3,044,425		6,937,553
Accumulated earnings at beginning of period		11,022,246		7,863,753

Accumulated earnings at end of period	$	14,066,671	$	14,801,306

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

-4-

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


	Three months ended
	March 31,
	2005			2004
Operating activities:
Net income	$	3,044,425		$	6,937,553
Non-cash items included in net income:
Provision for doubtful accounts		3,360			3,360
Depreciation and amortization		452,401			457,656
Loss on sale of assets		13,418			463
Decrease (increase) in:
Accounts receivable		(1,553,634	)		(3,045,711	)
Inventory and supplies		74,238			86,582
Prepaid expenses and other assets		(100,468	)		338,287
Increase (decrease) in:
Accounts payable		84,936			300,823
Guest deposits		(342,036	)		(93,367	)
Accrued expenses and other liabilities		1,302,106			1,861,266

Cash flow provided by operating activities		2,978,746			6,846,912

Investing activities:
Proceeds from sale of asset		100			400
Capital expenditures		(378,023	)		(67,591	)

Cash flow used in investing activities		(377,923	)		(67,191	)

Financing activities:
Payments on notes payable		(200,001	)		(355,305	)
Payments on capital lease obligations		(39,812	)		(4,363	)
Net payments from related parties		230,176			298,534

Cash flow used in financing activities		(9,637	)		(61,134	)

Net increase in cash		2,591,186			6,718,587
Cash at beginning of period		723,131			5,198,715

Cash at end of period	$	3,314,317		$	11,917,302

Supplemental disclosure of cash flow information:
Cash paid for interest		143,000			378,000

Supplemental disclosure of non-cash items:
Debt assumed for capital lease		432,448			—

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

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, 2005, and its statements of operations and cash flows for the periods ended March 31, 2005 and 2004, 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, 2004.

Note 2. Accounts Receivable


	March 31,
	2005			December 31,
	(Unaudited)			2004
Trade accounts receivable	$	3,886,036		$	2,332,402
Less reserve for bad debts		(35,339	)		(31,979	)

	$	3,850,697		$	2,300,423

-6-

Note 3. Property, Buildings and Equipment


	March 31,
	2005			December 31,
	(Unaudited)			2004
Land and land improvements	$	4,859,372		$	4,859,372
Buildings and recreational facilities		25,919,545			25,554,112
Machinery and equipment		14,418,951			14,404,035
Construction in progress		559,286			677,701

		45,757,154			45,495,220
Less accumulated depreciation		(22,173,582	)		(22,260,277	)

	$	23,583,572		$	23,234,943

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

Note 4. Deferred Charges


	March 31,
	2005			December 31,
	(Unaudited)			2004
Debt issue costs	$	83,730		$	83,730
Less accumulated amortization		(6,861	)		(2,784	)

	$	76,869		$	80,946

-7-

Note 5. Notes Payable

On November 1, 2004, the Company refinanced $12 million of the previous note payable due on June 30, 2013 with a new term note with a new lender. As part of the refinancing, the Company paid the remaining principal balance due under the prior note. The new term note is due November 1, 2009, and requires monthly principal payments of $66,667, together with monthly payment of all accrued interest. The new term note bears interest at 2% over the one month LIBOR index.

The Company has the ability to obtain an additional $5 million under a line of credit facility from the same lender under the terms of the agreement subject to specific covenants until November 1, 2006.

Note 6. Related Party Receivables and Payables

Related party receivables and payables at March 31, 2005 and December 31, 2004 are the result of net intercompany transactions and cash transfers between the Company and its shareholder company and affiliated companies. There are no advances from the Company to its Directors or Officers.

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.

Note 8. Litigation Settlement

During January 2004, the Company and Honeywell Corporation (the owner of the Company’s former parent company), settled a legal dispute with a prior insurance provider. The case involved the Company and its former parent company seeking reimbursement for the defense and settlement costs incurred in connection with a lawsuit that alleged damages covered by the policies issued by the insurance company. A favorable settlement of $4,950,000 was received by the Company in February 2004. Certain related expenses for legal services and bonuses were netted against this amount resulting in a net litigation settlement of $3,286,051.

-8-

SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND


	March 31,
	2005		December 31,
	(Unaudited)		2004
Assets
Receivable from Saddlebrook Resorts, Inc.	$	2,076,597	$	919,360

Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution	$	1,702,031	$	751,408
Due to maintenance escrow fund		374,566		167,952
Participants’ fund balance		—		—

	$	2,076,597	$	919,360

MAINTENANCE ESCROW FUND


	March 31,
	2005		December 31,
	(Unaudited)		2004
Assets
Cash and cash equivalents	$	298,001	$	3,223,612
Investments		399,576		399,576
Receivables:
Distribution fund		374,566		167,952
Owner payments		633,649		—
Interest		1,911		672
Linen inventory		64,922		97,419
Prepaid expenses and other assets		50,040		25,018

	$	1,822,665	$	3,914,249

Liabilities and Participants’ Fund Balance
Accounts payable	$	173,271	$	178,800
Participants’ fund balance		1,649,394		3,735,449

	$	1,822,665	$	3,914,249

-9-

SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)

DISTRIBUTION FUND


	Three months ended
	March 31,
	2005			2004
Rental pool revenue	$	5,094,551		$	5,159,287

Deductions:
Marketing fee		382,091			386,947
Management fee		636,819			644,911
Travel agent commissions		211,901			248,877
Credit card expense		79,950			72,467
Provision for bad debts		1,500			1,500

		1,312,261			1,354,702

Net rental income		3,782,290			3,804,585
Less operator share of net rental income		(1,702,031	)		(1,712,063	)
Other revenues (expenses):
Complimentary room revenues		28,150			16,107
Minor repairs and replacements		(31,812	)		(39,771	)

Amount available for distribution	$	2,076,597		$	2,068,858

-10-

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

DISTRIBUTION FUND


	Three months ended
	March 31,
	2005			2004
Balance at beginning of period	$	—		$	—
Additions:
Amount available for distribution		2,076,597			2,068,858
Reductions:
Amount withheld for maintenance escrow fund		(374,566	)		(356,795	)
Amount accrued or paid to participants		(1,702,031	)		(1,712,063	)

Balance at end of period	$	—		$	—

MAINTENANCE ESCROW FUND


	Three months ended
	March 31,
	2005			2004
Balance at beginning of period	$	3,735,449			1,089,720
Additions:
Amount withheld from distribution fund		374,566			356,795
Unit owner payments		812,867			1,643,079
Interest earned		7,179			1,408
Reductions:
Escrow account refunds		(9,798	)		(5,850	)
Maintenance charges		(123,723	)		(38,921	)
Unit renovations		(3,034,442	)		—
Linen replacement		(112,704	)		(89,182	)

Balance at end of period	$	1,649,394		$	2,957,049

-11-

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 either 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.

Liquidity and Capital Resources

There were no significant capital additions or improvements during the three months ended March 31, 2005. The Company entered a four year lease of 140 golf carts and 23 service carts at a cost of $430,000. The Company also commenced a three year lease of computer equipment at a cost of $130,000 on April 1, 2005. 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 contains a commitment for an additional $5,000,000 provided the Company is in compliance with certain financial covenants. The Company’s financing from a third-party lender bears interest at 2% over the one month LIBOR index and matures on November 1, 2009.

Regarding the Company’s operation of the Rental Pool, the Company completed the renovation and upgrades of the kitchens, bathrooms and carpeting in the first quarter of 2005. Additionally, the Company’s management has commenced a project to replace and upgrade unit furniture packages and expects to complete that project during the second or third quarter of 2005. The total cost of that project is expected to be approximately $8,400,000, $6,636,000 of which had been spent as of the end of March 2005. The original estimate of $7,700,000 had to be revised due to increases in the charges for freight and installation. Once the final cost has been determined, the related billing to the condominium owners’ maintenance escrow fund accounts will occur.

-12-

Results of Operations

First quarter 2005 compared to first quarter 2004

The Company’s total revenues for the months ended March 31, 2005 decreased by approximately $671,000, or 4%, from the first quarter of the prior year. Total revenues for the Rental Pool decreased approximately $65,000, or 1%, from the same period the prior year. These decreases were primarily due to a 4% decrease in paid room nights for the condominium units that participated in the Rental Pool. The derease in paid room nights can be partially attributed to the fact that Easter occured during the first quarter of 2005 (March 27) as opposed to the second quarter (April 11). Corporate bookings are fewer during the Easter break period. The average daily room rate for the current quarter increased by approximately 4% from the average daily room rate for the same period prior year. The Company’s total resort revenues were also affected by decreased sales in its food and beverage and other areas of operations that resulted from a 5% decrease in the number of individual guests that stayed at the Resort for the current quarter when compared to the same period in the prior year.

Regarding the projection of future revenues, the trend of booking reservations for both group and social guests closer to their arrival dates instead of several months in advance continues. Although this trend makes it difficult to project future business, the Company’s management believes the occupied room nights for the remainder of the year 2005 will approximate the prior year’s level. Similarly, projections for occupied room nights in the year 2006 and subsequent fiscal periods are expected to remain at the resort’s current volume of business pending an improvement in the nation’s economy and less concern about national security.

Seasonality

The Company’s operations are seasonal with the highest volume of sales 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.

-13-

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% over the one month LIBOR index and matures on November 1, 2009.

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 March 31, 2005, pursuant to Exchange Act Rule 13a-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, 2005, in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

There were no significant changes in the Company’s internal controls or in other factors during the quarter ended March 31, 2005 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls.

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 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

-14-

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

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 16, 2005		/s/ Donald L. Allen Donald L. Allen Vice President and Treasurer (Principal Financial and Accounting Officer)

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Table of Contents

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	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Saddlebrook Resorts, Inc.
Balance Sheets at March 31, 2005 and December 31, 2004		3
Statements of Operations for the three months ended March 31, 2005 and 2004		4
Statements of Cash Flows for the three months ended March 31, 2005 and 2004		5
Notes to Financial Statements		6

Saddlebrook Rental Pool Operation
Balance Sheets at March 31, 2005 and December 31, 2004		9
Statements of Operations for the three months ended March 31, 2005 and 2004		10
Statements of Changes in Participants’ Fund Balance for the three months ended March 31, 2005 and 2004		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 2. Unregistered Sales of Equity Securities and Use of Proceeds		14

Item 3. Defaults Upon Senior Securities		15

Item 4. Submission of Matters to a Vote of Security Holders		15

Item 5. Other Information		15

Item 6. Exhibits		15

Signature		15
EX-31.1: SECTION 302 CERTIFICATIION
EX-31.2: SECTION 302 CERTIFICATIION
EX-32.1: SECTION 906 CERTIFICATIION
EX-32.2: SECTION 906 CERTIFICATIION