SADDLEBROOK RESORTS INC - 10-Q Quarterly Report

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 September 30, 2004


[ ]		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 [X] NO [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES [ ] NO [X]

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


	September 30,
	2004		December 31,
	(Unaudited)		2003
Assets
Current assets:
Cash and cash equivalents	$	9,497,191	$	5,198,715
Escrowed cash		4,691,795		248,915
Short-term investments		375,000		300,000
Short-term escrowed investments		—		995
Accounts receivable, net		1,033,159		1,647,259
Due from related parties		905,291		563,532
Inventory and supplies		1,313,487		1,340,458
Prepaid expenses and other assets		726,632		1,177,249

Total current assets		18,542,555		10,477,123
Long-termed escrowed investments		399,576		399,576
Property, buildings and equipment, net		23,102,553		22,999,629
Deferred charges, net		348,091		377,926

Total assets	$	42,392,775	$	34,254,254

Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of notes payable	$	1,578,606	$	1,490,166
Escrowed deposits		5,091,371		649,486
Accounts payable		726,489		801,988
Accrued rental distribution		635,233		698,995
Accrued expenses and other liabilities		2,160,157		1,948,808
Guest deposits		1,367,617		1,380,046
Due to related parties		—		19,248

Total current liabilities		11,559,473		6,988,737
Notes payable due after one year		17,095,693		18,288,637

Total liabilities		28,655,166		25,277,374

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		12,624,482		7,863,753

Total shareholder’s equity		13,737,609		8,976,880

	$	42,392,775	$	34,254,254

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

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SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004		2003
Revenues	$	6,258,804		$	5,468,012		$	31,290,496	$	29,097,072

Costs and expenses:
Operating costs		5,638,033			4,822,091			22,493,842		20,782,980
Sales and marketing		490,382			490,409			1,943,742		1,862,206
General and administrative		848,736			945,090			2,783,100		3,029,474
Depreciation and amortization		462,563			530,341			1,372,889		1,605,092
Interest		364,465			392,270			1,114,026		1,195,737

Total costs and expenses		7,804,179			7,180,201			29,707,599		28,475,489

		(1,545,375	)		(1,712,189	)		1,582,897		621,583
Litigation settlement, net		—			—			3,177,832		—

Net income (loss)		(1,545,375	)		(1,712,189	)		4,760,729		621,583
Accumulated earnings at beginning of period		14,169,857			10,329,562			7,863,753		7,995,790

Accumulated earnings at end of period	$	12,624,482		$	8,617,373		$	12,624,482	$	8,617,373

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)


	Nine months ended
	September 30,
	2004			2003
Operating activities:
Net income	$	4,760,729		$	621,583
Non-cash items included in net income:
Provision for doubtful accounts		6,960			31,080
Depreciation and amortization		1,372,889			1,605,092
Loss on sale of assets		12,958			—
Decrease (increase) in:
Accounts receivable		607,139			198,329
Inventory and supplies		26,972			256,120
Prepaid expenses and other assets		450,616			(97,356	)
Increase (decrease) in:
Accounts payable		(75,498	)		49,118
Accrued expenses and other liabilities		135,158			(1,319,611	)

		7,297,923			1,344,355

Investing activities:
Proceeds from sale of asset		400			—
Short term investments		(75,000	)		—
Capital expenditures		(1,459,336	)		(398,128	)

		(1,533,936	)		(398,128	)

Financing activities:
Payments on notes payable		(1,104,504	)		(1,022,793	)
Net payments to related parties		(361,007	)		(217,796	)

		(1,465,511	)		(1,240,589	)

Net increase (decrease) in cash		4,298,476			(294,362	)
Cash at beginning of period		5,198,715			6,255,608

Cash at end of period	$	9,497,191		$	5,961,246

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 September 30, 2004, and its statements of operations and cash flows for the periods ended September 30, 2004 and 2003, 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, 2003.

Note 2. Accounts Receivable


	September 30,
	2004			December 31,
	(Unaudited)			2003
Trade accounts receivable	$	1,061,778		$	1,668,918
Less reserve for bad debts		(28,619	)		(21,659	)

	$	1,033,159		$	1,647,259

Note 3. Property, Buildings and Equipment


	September 30,
	2004			December 31,
	(Unaudited)			2003
Land and land improvements	$	4,412,746		$	4,412,746
Buildings and recreational facilities		25,554,112			25,166,173
Machinery and equipment		14,372,364			14,081,673
Construction in progress		908,717			175,496

		45,247,939			43,836,088
Less accumulated depreciation		(22,145,386	)		(20,836,459	)

	$	23,102,553		$	22,999,629

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

- 6 -

Note 4. Deferred Charges


	September 30,
	2004			December 31,
	(Unaudited)			2003
Debt issue costs	$	596,716		$	596,716
Less accumulated amortization		(248,625	)		(218,790	)

	$	348,091		$	377,926

The remaining deferred debt issue costs will be expensed during the fourth quarter of 2004 due to the refinancing of the debt. See Note 9.

Note 5. Notes Payable


	September 30,
	2004			December 31,
	(Unaudited)			2003
Note payable due June 30, 2013	$	18,597,877		$	19,684,576
Capital lease obligation		76,422			94,227

		18,674,299			19,778,803
Less current portion		(1,578,606	)		(1,490,166	)

	$	17,095,693		$	18,288,637

The Company’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 Company’s real and personal property.

An additional $5,000,000 is available from the same lender if the Company is in compliance with certain financial covenants. If received, the additional financing will be due with the existing debt on June 30, 2013. For the debt’s reporting period ended June 30, 2004, the Company was in compliance with the financial covenants related to both the existing debt and the additional financing.

This financing was refinanced on November 1, 2004. See Note 9.

- 7 -

Note 6. Related Party Receivables and Payables

Related party receivables and payables at September 30, 2004 and December 31, 2003 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.

Amounts due from related parties as of September 30, 2004 and December 31, 2003 are comprised of the following:


	September 30,		December 31,
	2004		2003
Saddlebrook Resorts Condominium Association Inc.	$	109,560	$	93,394
Saddlebrook Holdings, Inc.		276,252		128,114
Dempsey and Daughters, Inc.		305,335		258,919
Dempsey Resort Management, Inc.		1,388		53,159
Saddlebrook Properties LLC		3,616		3,254
Saddlebrook International Tennis, Inc.		188,356		—
Saddlebrook Realty, Inc.		6,555		8,507
Saddlebrook Investments, Inc.		1,642		3,138
Other		12,587		15,047

	$	905,291	$	563,532

Amounts due to related parties as of September 30, 2004 and December 31, 2003 are comprised of the following:


	September 30,		December 31,
	2004		2003
Saddlebrook International Tennis, Inc.	$	—	$	19,248

	$	—	$	19,248

Dempsey and Daughters, Inc. owns 23 individual condominium units, 9 of which participate in the Rental Pool Operation.

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 have been netted against this amount resulting in a net litigation settlement of $3,177,832.

- 8 -

Note 9. Debt Refinancing

Subsequent to the period ending September 30, 2004, on November 1, 2004, the Company refinanced $12 million of the note payable to Textron Financial due June 30, 2013 with a new term note payable to SunTrust. As part of the refinancing, the Company paid the remaining principal balance due under the Textron note. The new term note is due November 1, 2009, requires monthly principal payments of $66,667, together with monthly payments of all accrued interest. The new term note bears interest at 2% over the one month LIBOR index. The debt is secured by all of the Company’s real and personal property. In accordance with the original terms of the Textron obligation, a pre-payment penalty of $372,000 was paid at the time of refinancing.

SunTrust has also made available a $5,000,000 revolving line of credit until November 1, 2006, subject to the Company’s compliance with specific covenants set forth in the loan agreement. All borrowings under the line of credit will bear interest at the same interest rate as the new term note, with interest being payable monthly.

- 9 -

SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND


	September 30,
	2004		December 31,
	(Unaudited)		2003
Assets
Receivable from Saddlebrook Resorts, Inc.	$	644,433	$	777,263

Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution	$	542,350	$	664,077
Due to maintenance escrow fund		102,083		113,186
Participants’ fund balance		—		—

	$	644,433	$	777,263

MAINTENANCE ESCROW FUND


	September 30,
	2004		December 31,
	(Unaudited)		2003
Assets
Cash and cash equivalents	$	4,667,645	$	226,565
Investments		399,576		400,571
Receivables:
Distribution fund		102,083		113,186
Owner payments		—		239
Interest		1,688		19,462
Linen inventory		36,406		274,044
Prepaid expenses and other assets		140,763		206,591

	$	5,348,161	$	1,240,658

Liabilities and Participants’ Fund Balance
Accounts payable	$	105,419	$	150,938
Participants’ fund balance		5,242,742		1,089,720

	$	5,348,161	$	1,240,658

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

- 10 -

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003
Rental pool revenues	$	1,584,302		$	1,090,379		$	9,198,915		$	8,367,702

Deductions:
Marketing fee		118,823			81,778			689,919			627,578
Management fee		198,038			136,297			1,149,865			1,045,962
Travel agent commissions		32,936			53,947			379,049			310,448
Credit card expense		27,782			27,305			147,784			156,666
Provision for bad debts		1,500			1,500			4,500			4,500

		379,079			300,827			2,371,117			2,145,154

Net rental income		1,205,223			789,552			6,827,798			6,222,548
Less operator share of net rental income		(542,350	)		(355,298	)		(3,072,509	)		(2,800,146	)
Other revenues (expenses):
Complimentary room revenues		14,733			6,540			47,253			53,855
Minor repairs and replacements		(33,173	)		(49,266	)		(114,750	)		(153,273	)

Amount available for distribution	$	644,433		$	391,528		$	3,687,792		$	3,322,984

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

- 11 -

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND


	Nine months ended
	September 30,
	2004			2003
Balance at beginning of period	$	—		$	—
Additions:
Amount available for distribution		3,687,792			3,322,984
Reductions:
Amount withheld for maintenance escrow fund		(615,283	)		(522,838	)
Amount accrued or paid to participants		(3,072,509	)		(2,800,146	)

Balance at end of period	$	—		$	—

MAINTENANCE ESCROW FUND


	Nine months ended
	September 30,
	2004			2003
Balance at beginning of period	$	1,089,720			1,457,846
Additions:
Amount withheld from distribution fund		615,283			522,838
Unit owner payments		6,559,408			168,749
Interest earned		28,205			3,142
Reductions:
Escrow account refunds		(58,775	)		(37,880	)
Maintenance charges		(158,720	)		(290,644	)
Unit renovations		(2,649,553	)		(846,726	)
Linen replacement		(182,826	)		(79,028	)

Balance at end of period	$	5,242,742		$	898,297

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

- 12 -

SADDLEBROOK RENTAL POOL OPERATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

Saddlebrook Rental Pool Operation’s accompanying balance sheet for September 30, 2004 and its statements of operations and changes in participants fund balance for the periods ended September 30, 2004 and 2003, 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.

- 13 -

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

The Company’s operations are seasonal with the highest volume of sales generally occurring in the first quarter of each calendar year. The third quarter has historically produced the lowest volume of sales. Consequently, the Company’s financial condition declined during the third quarter of 2004. However, due to the earlier seasonal period, and the receipt of the litigation settlement in February 2004, the Company’s financial condition at September 2004 is improved when compared to the financial condition at fiscal year end of December 2003.

At September 30, 2004, the Company was indebted to Textron Financial in the amount of approximately $18.6 million under a term note with a fixed annual interest rate of 7.7%, requiring monthly principal and interest payments of approximately $244,000, and with a maturity date of June 30, 2013. Subsequent to the period ending September 30, 2004, on November 1, 2004, the Company refinanced $12 million of the note payable to Textron Financial with a new term note payable to SunTrust. As part of the refinancing, the Company paid the remaining principal balance due under the Textron note. The new term note is due November 1, 2009, requires monthly principal payments of $66,667, together with monthly payments of all accrued interest. The new term note bears interest at 2% over the one month LIBOR index. The debt is secured by all of the Company’s real and personal property. In accordance with the original terms of the Textron obligation, a pre-payment penalty of $372,000 was paid at the time of refinancing.

The Company has completed the refurbishing of the swimming pools with a total cost of $307,000. The renovation of the greens on the Palmer golf course is currently underway with $400,000 of the estimated $450,000 total cost already completed. There are several other capital projects to be completed during the remainder of 2004 and early 2005. These projects include; installation of a new clear-span structure with an estimated cost of $250,000 and the enclosure of the open air pavilion at the fitness facility with an estimated cost of $250,000. The Co


	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at September 30, 2004 and December 31, 2003		3
Statements of Operations for the three months and nine months ended September 30,2004 and 2003		4
Statements of Cash Flows for the nine months ended September 30, 2004 and 2003		5
Notes to Financial Statements		6
Saddlebrook Rental Pool Operation
Balance Sheets at September 30, 2004 and December 31, 2003		10
Statements of Operations for the three months and nine months ended September 30, 2004 and 2003		11
Statements of Changes in Participants’ Fund Balance for the nine months ended September 30, 2004 and 2003		12
Notes to Financial Statements		13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		16
Item 4. Controls and Procedures		16
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3. Defaults Upon Senior Securities		17
Item 4. Submission of Matters to a Vote of Security Holders		17
Item 5. Other Information		17
Item 6. Exhibits		17
Signature		17
Ex-10.1 SunTrust Loan Agreement
Ex-10.2 Second Amended Mortgage Agreement
Ex-10.3 SunTrust Promissory Note
Ex-10.4 SunTrust Revolving Line of Credit Note
Ex-31.1 Section 302 CEO Certification
Ex-31.2 Section 302 CFO Certification
Ex-32.1 Section 906 CEO Certification
Ex-32.2 Section 906 CFO Certification

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