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EX-31.2 - EXHIBIT 31.2 - SADDLEBROOK RESORTS INCc01064exv31w2.htm
EX-32.1 - EXHIBIT 32.1 - SADDLEBROOK RESORTS INCc01064exv32w1.htm
EX-32.2 - EXHIBIT 32.2 - SADDLEBROOK RESORTS INCc01064exv32w2.htm
EX-31.1 - EXHIBIT 31.1 - SADDLEBROOK RESORTS INCc01064exv31w1.htm
Table of Contents

 
 
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
(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
         
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    14  
 
       
    15  
 
       
    15  
 
       
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

 

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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.

 

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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.

 

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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.

 

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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  
 
           

 

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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  
 
           

 

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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.

 

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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  
 
           

 

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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  
 
           

 

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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  
 
           

 

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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.

 

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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.

 

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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.

 

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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)    

 

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