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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, 2007
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. YESþ NOo
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero Accelerated filero Non-accelerated filerþ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOþ
Registrant has 100,000 shares of common stock outstanding, all of which are held by an affiliate of the Registrant.
INDEX
Page | ||||||||
Saddlebrook Resorts, Inc. | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
Saddlebrook Rental Pool Operation | ||||||||
9 | ||||||||
10 | ||||||||
11 | ||||||||
12 | ||||||||
13 | ||||||||
14 | ||||||||
14 | ||||||||
15 | ||||||||
15 | ||||||||
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO | ||||||||
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO | ||||||||
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO | ||||||||
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO |
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SADDLEBROOK RESORTS, INC.
BALANCE SHEETS
March 31, | ||||||||
2007 | December 31, | |||||||
(Unaudited) | 2006 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,840,585 | $ | 977,849 | ||||
Escrowed cash | 379,278 | 536,250 | ||||||
Short-term investments | 375,000 | 375,000 | ||||||
Short-term escrowed investments | 197,508 | 197,561 | ||||||
Accounts receivable, net | 6,947,491 | 2,451,792 | ||||||
Due from related parties | 4,975,630 | 4,745,234 | ||||||
Inventory and supplies | 1,523,391 | 1,549,348 | ||||||
Prepaid expenses and other current assets | 1,399,276 | 844,373 | ||||||
Total current assets | 17,638,159 | 11,677,407 | ||||||
Property, buildings and equipment, net | 24,374,684 | 24,703,749 | ||||||
Deferred charges, net | 44,253 | 48,330 | ||||||
Total assets | $ | 42,057,096 | $ | 36,429,486 | ||||
Liabilities and Shareholder’s Equity | ||||||||
Current liabilities: | ||||||||
Current portion of notes payable | $ | 800,004 | $ | 800,004 | ||||
Current portion of capital leases | 156,604 | 154,645 | ||||||
Current portion of line of credit | 1,750,000 | 1,000,000 | ||||||
Escrowed deposits | 576,785 | 733,810 | ||||||
Accounts payable | 1,087,264 | 1,172,969 | ||||||
Accrued rental distribution | 2,303,258 | 690,433 | ||||||
Accrued expenses and other liabilities | 2,351,318 | 2,393,000 | ||||||
Current portion of deferred income | 823,760 | 778,646 | ||||||
Guest deposits | 1,210,725 | 1,398,451 | ||||||
Due to related parties | 2,879,866 | 2,488,702 | ||||||
Total current liabilities | 13,939,584 | 11,610,661 | ||||||
Notes payable due after one year | 9,266,653 | 9,466,654 | ||||||
Capital lease obligations due after one year | 87,952 | 127,845 | ||||||
Long-term portion of deferred income | 1,613,027 | 1,609,202 | ||||||
Total liabilities | 24,907,216 | 22,814,362 | ||||||
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 | 16,036,753 | 12,501,997 | ||||||
Total shareholder’s equity | 17,149,880 | 13,615,124 | ||||||
$ | 42,057,096 | $ | 36,429,486 | |||||
The accompanying Notes to Financial Statements are
an integral part of these financial statements
an integral part of these financial statements
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SADDLEBROOK RESORTS, INC.
STATEMENTS OF OPERATIONS
AND ACCUMULATED EARNINGS
(Unaudited)
AND ACCUMULATED EARNINGS
(Unaudited)
Three months ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Resort revenues | $ | 17,026,581 | $ | 16,788,146 | ||||
Costs and expenses: | ||||||||
Operating costs | 10,889,809 | 10,559,512 | ||||||
Sales and marketing | 739,883 | 700,826 | ||||||
General and administrative | 1,177,828 | 1,069,948 | ||||||
Depreciation | 482,276 | 473,230 | ||||||
Total costs and expenses | 13,289,796 | 12,803,516 | ||||||
Net operating income before other expenses and (income) | 3,736,785 | 3,984,630 | ||||||
Other expenses & (income): | ||||||||
Interest income | (11,743 | ) | (14,035 | ) | ||||
Other expense | (5,969 | ) | (6,256 | ) | ||||
Interest expense | 219,741 | 189,587 | ||||||
Total other expenses & (income) | 202,029 | 169,296 | ||||||
Net income | 3,534,756 | 3,815,334 | ||||||
Accumulated earnings at beginning of period | 12,501,997 | 10,668,584 | ||||||
Accumulated earnings at end of period | $ | 16,036,753 | $ | 14,483,918 | ||||
The accompanying Notes to Financial Statements are
an integral part of these financial statements
an integral part of these financial statements
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SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Unaudited)
Three months ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Operating activities: | ||||||||
Net income | $ | 3,534,756 | $ | 3,815,334 | ||||
Non-cash items included in net income: | ||||||||
Provision for doubtful accounts | — | 2,112 | ||||||
Depreciation | 482,276 | 473,230 | ||||||
Amortization of debt financing costs | 4,077 | 4,077 | ||||||
Loss on sale of assets | 56,161 | 190 | ||||||
Decrease (increase) in: | ||||||||
Accounts receivable | (4,495,699 | ) | (3,513,257 | ) | ||||
Inventory and supplies | 25,957 | (12,886 | ) | |||||
Prepaid expenses and other assets | (554,903 | ) | (511,656 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable | (85,706 | ) | (19,541 | ) | ||||
Guest deposits | (187,726 | ) | 185,141 | |||||
Accrued expenses and other liabilities | 1,571,143 | 1,899,418 | ||||||
Deferred income | 48,939 | 365,550 | ||||||
Cash flow provided by operating activities | 399,275 | 2,687,712 | ||||||
Investing activities: | ||||||||
Capital expenditures | (209,372 | ) | (89,695 | ) | ||||
Cash flow used in investing activities | (209,372 | ) | (89,695 | ) | ||||
Financing activities: | ||||||||
Proceeds from line of credit | 750,000 | — | ||||||
Payments on notes payable | (200,001 | ) | (200,001 | ) | ||||
Payments on capital lease obligations | (37,934 | ) | (43,776 | ) | ||||
Net payments (to) from related parties | 160,768 | (235,398 | ) | |||||
Cash flow used in financing activities | 672,833 | (479,175 | ) | |||||
Net increase in cash | 862,736 | 2,118,842 | ||||||
Cash at beginning of period | 977,849 | 1,030,283 | ||||||
Cash at end of period | $ | 1,840,585 | $ | 3,149,125 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 217,000 | $ | 186,000 | ||||
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
an integral part of these financial statements.
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SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(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, 2007, and its statements of operations and accumulated earnings and cash flows for the periods ended March 31, 2007 and 2006, 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, 2006.
Note 2. Accounts Receivable
March 31, | ||||||||
2007 | December 31, | |||||||
(Unaudited) | 2006 | |||||||
Trade accounts receivable | $ | 6,995,038 | $ | 2,499,339 | ||||
Less reserve for bad debts | (47,547 | ) | (47,547 | ) | ||||
$ | 6,947,491 | $ | 2,451,792 | |||||
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Note 3. Property, Buildings and Equipment
March 31, | ||||||||
2007 | December 31, | |||||||
(Unaudited) | 2006 | |||||||
Land and land improvements | $ | 6,809,179 | $ | 6,809,179 | ||||
Buildings and recreational facilities | 27,425,247 | 27,415,173 | ||||||
Machinery and equipment | 15,529,760 | 15,191,068 | ||||||
Construction in progress | 209,442 | 418,353 | ||||||
49,973,628 | 49,833,773 | |||||||
Less accumulated depreciation | (25,598,944 | ) | (25,130,024 | ) | ||||
$ | 24,374,684 | $ | 24,703,749 | |||||
The Company’s property, buildings and equipment are pledged as security for its debt (see Note 5).
Note 4. Deferred Charges
March 31, | ||||||||
2007 | December 31, | |||||||
(Unaudited) | 2006 | |||||||
Debt issue costs | $ | 83,730 | $ | 83,730 | ||||
Less accumulated amortization | (39,477 | ) | (35,400 | ) | ||||
$ | 44,253 | $ | 48,330 | |||||
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Note 5. Notes Payable
The Company’s term note is due November 1, 2009, and requires monthly principal payments of $66,667, together with monthly payment of all accrued interest. The term note bears interest at 2% over the one month LIBOR index. The rate at March 31, 2007 was 7.32%.
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. The Company had an outstanding balance of $1,750,000 at March 31, 2007.
Note 6. Related Party Receivables and Payables
Related party receivables and payables at March 31, 2007 and December 31, 2006 are the result of net intercompany transactions and cash transfers between the Company and its shareholder company and affiliated companies.
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, | ||||||||
2007 | December 31, | |||||||
(Unaudited) | 2006 | |||||||
Assets | ||||||||
Receivable from Saddlebrook Resorts, Inc. | $ | 2,257,743 | $ | 691,861 | ||||
Liabilities and Participants’ Fund Balance | ||||||||
Due to participants for rental pool distribution | $ | 1,872,542 | $ | 590,663 | ||||
Due to maintenance escrow fund | 385,201 | 101,198 | ||||||
$ | 2,257,743 | $ | 691,861 | |||||
MAINTENANCE ESCROW FUND
March 31, | ||||||||
2007 | December 31, | |||||||
(Unaudited) | 2006 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 559,685 | $ | 715,241 | ||||
Receivables: | ||||||||
Distribution fund | 385,201 | 101,198 | ||||||
Interest | 247 | 268 | ||||||
Linen inventory | 52,237 | 77,155 | ||||||
Prepaid expenses and other assets | 1,144 | 788 | ||||||
$ | 998,514 | $ | 894,650 | |||||
Liabilities and Participants’ Fund Balance | ||||||||
Accounts payable | $ | 50,691 | $ | 124,745 | ||||
Participants’ fund balance | 947,823 | 769,905 | ||||||
$ | 998,514 | $ | 894,650 | |||||
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SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
(Unaudited)
DISTRIBUTION FUND
Three months ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Rental pool revenue | $ | 5,557,244 | $ | 5,531,242 | ||||
Deductions: | ||||||||
Marketing fee | 416,793 | 414,843 | ||||||
Management fee | 694,656 | 691,405 | ||||||
Travel agent commissions | 194,464 | 164,247 | ||||||
Credit card expense | 90,126 | 90,773 | ||||||
Provision for bad debts | 0 | 1,000 | ||||||
1,396,039 | 1,362,268 | |||||||
Net rental income | 4,161,205 | 4,168,974 | ||||||
Less operator share of net rental income | (1,872,542 | ) | (1,876,038 | ) | ||||
Other revenues (expenses): | ||||||||
Complimentary room revenues | 19,151 | 20,613 | ||||||
Minor repairs and replacements | (50,071 | ) | (35,263 | ) | ||||
Amount available for distribution | $ | 2,257,743 | $ | 2,278,286 | ||||
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SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES
(Unaudited)
(Unaudited)
DISTRIBUTION FUND
Three months ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Balance at beginning of period | $ | — | $ | — | ||||
Additions: | ||||||||
Amount available for distribution | 2,257,743 | 2,278,286 | ||||||
Reductions: | ||||||||
Amount withheld for maintenance escrow fund | (385,201 | ) | (402,248 | ) | ||||
Amount accrued or paid to participants | (1,872,542 | ) | (1,876,038 | ) | ||||
Balance at end of period | $ | — | $ | — | ||||
MAINTENANCE ESCROW FUND
Three months ended | ||||||||
March 31, | ||||||||
2007 | 2006 | |||||||
Balance at beginning of period | $ | 769,905 | 566,450 | |||||
Additions: | ||||||||
Amount withheld from distribution fund | 385,201 | 402,248 | ||||||
Unit owner payments | 7,306 | 28,871 | ||||||
Interest earned | 6,171 | 2,505 | ||||||
Reductions: | ||||||||
Escrow account refunds | (8,292 | ) | (8,952 | ) | ||||
Maintenance charges | (47,321 | ) | (56,741 | ) | ||||
Unit renovations | (74,905 | ) | (160,222 | ) | ||||
Linen replacement | (90,242 | ) | (10,996 | ) | ||||
Balance at end of period | $ | 947,823 | $ | 763,163 | ||||
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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.
Liquidity and Capital Resources
The Company is currently participating in a project to redesign the shared entrance to its property, including the installation of a traffic light, widening of the existing entry and exit roads and installation of a new security/welcome center. The Company’s share of this joint project is expected to be approximately $370,000.
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, of which $1,750,000 was outstanding at March 31, 2007, 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 (7.32% at March 1, 2007) and matures on November 1, 2009.
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Results of Operations
First quarter 2007 compared to first quarter 2006
The Company’s total revenues for the three months ended March 31, 2007 increased approximately $238,000, about 1%, from the first quarter of the prior year. Although the number of guests on property was down about 2% when compared with the first quarter of 2006, the average room rate improved by approximately 3%. The Company also experienced an increase in total food and beverage revenues of $322,000, or about 5% over the prior year. Total revenues for the Rental Pool Operation increased $26,000, less than 1% over the first quarter of 2006.
The increase of $486,000 in operating costs and expenses for the Company relates to the increases in revenues, along with other marginal increases in sales and marketing expenses and interest expense. The $34,000 in operating costs and expenses for the Rental Pool Operation is related to the increases in revenues along with an increase in travel agent commission expenses.
Net Income for the Company decreased $281,000 over the comparable period last year. Amounts available for distribution for the Rental Pool Operation decreased $21,000 from the first quarter of 2006. These decreases are directly related to the increases in operating costs, partially offset by the increases in revenues.
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 periods 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% over the one month LIBOR index and matures on November 1, 2009.
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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, 2007, 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, 2007 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 significant changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2007 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. | ||||
Date: May 14, 2007 | /s/ Donald L. Allen | |||
Vice President and Treasurer | ||||
(Principal Financial and | ||||
Accounting Officer) |
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