<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1996
-------------
OR
( ) 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
--- ---
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
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at June 30, 1996 and December 31, 1995 3
Statements of Operations for the three months and six
months ended June 30, 1996 and 1995 4
Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 5
Notes to Financial Statements 6
Saddlebrook Rental Pool Operation
Balance Sheets at June 30, 1996 and December 31, 1995 8
Statements of Operations for the three months and six
months ended June 30, 1996 and 1995 9
Statements of Changes in Participants' Fund Balance for the
six months ended June 30, 1996 and 1995 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 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SADDLEBROOK RESORTS, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,447,135 $ 40,702
Escrowed cash deposits 199,448 106,096
Escrowed short-term investments 399,635 399,635
Accounts receivable, net 2,767,803 3,349,779
Related parties receivable 149,577 114,004
Inventory and supplies 1,392,129 1,472,689
Prepaid expenses and other assets 353,582 526,424
----------- -----------
Total current assets 7,709,309 6,009,329
Escrowed long-term investments 399,227 299,500
Property, buildings and equipment, net 22,453,691 22,580,998
Intangible assets and deferred charges, net 244,241 266,702
----------- -----------
$30,806,468 $29,156,529
=========== ===========
Liabilities and Shareholder's Equity
Current liabilities:
Current portion of notes payable $ 964,191 $ 1,486,722
Escrowed deposits 998,310 805,231
Accounts payable 751,295 1,325,265
Accrued rental distribution 1,284,109 1,037,865
Accrued payroll and related expenses 805,336 743,077
Accrued interest 138,934 141,491
Accrued taxes 257,552 43,178
Guest deposits 366,654 798,444
Other liabilities and accrued expenses 555,733 676,566
Due to related parties 1,976,599 1,923,461
----------- -----------
Total current liabilities 8,098,713 8,981,300
Notes payable due after one year 18,028,420 17,276,920
----------- -----------
Total liabilities 26,127,133 26,258,220
----------- -----------
Shareholders' 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 3,566,208 1,785,182
----------- -----------
Total shareholders' equity 4,679,335 2,898,309
----------- -----------
$30,806,468 $29,156,529
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements
3
<PAGE> 4
<TABLE>
<CAPTION>
SADDLEBROOK RESORTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
--------------------------- ------------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $8,818,529 $9,446,759 $21,159,388 $22,015,920
---------- ---------- ----------- -----------
Costs and expenses:
Operating costs 6,262,853 6,408,727 13,597,752 13,938,658
Sales and marketing 752,904 825,049 1,594,066 1,618,364
General and administrative 889,604 900,779 1,850,292 1,787,644
Depreciation and amortization 341,645 328,219 682,198 621,712
Interest 418,363 335,167 838,910 660,851
---------- ---------- ----------- -----------
Total costs and expenses 8,665,369 8,797,941 18,563,218 18,627,229
---------- ---------- ----------- -----------
Net income 153,160 648,818 2,596,170 3,388,691
Distribution to shareholder (803,381) (1,087,773) (815,144) (1,397,455)
Accumulated earnings at
beginning of period 4,216,429 4,123,233 1,785,182 1,693,042
---------- ---------- ----------- -----------
Accumulated earnings at
end of period $3,566,208 $3,684,278 $ 3,566,208 $ 3,684,278
========== ========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements
4
<PAGE> 5
SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Operating activities:
Net income $2,596,170 $3,388,691
Non-cash items included in net income:
Provision for doubtful accounts 18,600 15,500
(Gain) on sale of assets (1,081) --
Depreciation and amortization 682,198 621,712
(Increase) decrease in:
Accounts receivable 563,376 (581,056)
Inventory and supplies 80,560 143,495
Prepaid expenses and other assets 172,842 87,137
Increase (decrease) in:
Accounts payable (573,970) (553,023)
Accrued expenses and other liabilities (32,303) (340,785)
Net payable to related parties 17,565 242,820
---------- ----------
3,523,957 3,024,491
---------- ----------
Investing activities:
Proceeds from sale of assets 2,581 --
Capital expenditures (499,899) (1,491,152)
---------- ----------
(497,318) (1,491,152)
---------- ----------
Financing activities:
Notes payable borrowings 1,540,000 2,426,284
Payments on notes payable (1,311,031) (922,583)
Financing costs (34,031) (27,800)
Distribution to shareholder (815,144) (1,397,455)
---------- ----------
(620,206) 78,446
---------- ----------
Net increase in cash 2,406,433 1,611,785
Cash at beginning of period 40,702 595,502
---------- ----------
Cash at end of period $2,447,135 $2,207,287
========== ==========
Cash paid for interest $ 857,277 $ 733,959
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
5
<PAGE> 6
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying balance sheets and statements of operations and cash flows 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 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 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, 1995.
Note 2. Accounts Receivable
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- -----------
<S> <C> <C>
Trade accounts receivable $2,904,840 $3,472,755
Less reserve for bad debts (137,037) (122,976)
---------- ----------
$2,767,803 $3,349,779
========== ==========
Note 3. Fixed Assets
June 30, December 31,
1996 1995
----------- ------------
Land and land improvements $ 4,477,482 $ 4,478,982
Buildings and recreational
facilities 19,261,985 18,862,973
Furnishings and equipment 7,636,937 7,587,232
Construction in progress 322,660 300,308
----------- -----------
31,699,064 31,229,495
Less accumulated depreciation (9,245,373) (8,648,497)
----------- -----------
$22,453,691 $22,580,998
=========== ===========
</TABLE>
6
<PAGE> 7
Note 4. Intangible Assets and Deferred Charges
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Noncompete agreement with prior owner $1,000,000 $1,000,000
Management contract with prior owner 500,000 500,000
Acquisition costs 41,577 41,577
Financing costs 513,203 479,172
---------- ----------
2,054,780 2,020,749
Less accumulated amortization (1,810,539) (1,754,047)
---------- ----------
$ 244,241 $ 266,702
========== ==========
Note 5. Notes Payable
June 30, December 31,
1996 1995
----------- ------------
Note payable to bank, variable rate
currently 8.75% $18,978,420 $18,226,920
Line of credit payable to bank -- 500,000
Capital leases 14,191 36,722
----------- -----------
18,992,611 18,763,642
Less current portion (964,191) (1,486,722)
----------- -----------
$18,028,420 $17,276,920
=========== ===========
</TABLE>
The Registrant is also the guarantor of amounts that are owed by its majority
shareholder and an affiliated company of $300,000 and $687,500, respectively,
at June 30, 1996.
Note 6. Income Taxes
The Registrant has elected S Corporation status. Accordingly, the Registrant
has had no income tax expense since the election as the tax is assessed at the
shareholder level.
7
<PAGE> 8
SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Assets
Receivable from Saddlebrook Resorts, Inc. $1,211,526 $1,017,332
========== ==========
Liabilities and Participants' Fund Balance
Due to participants $1,001,578 $ 832,926
Due to maintenance escrow fund 209,948 184,406
Participants' fund balance -- --
---------- ----------
$1,211,526 $1,017,332
========== ==========
MAINTENANCE ESCROW FUND
June 30, December 31,
1996 1995
---------- -----------
Assets
Cash and cash equivalents $ 170,589 $ 76,314
Investments 798,862 699,135
Receivables:
Distribution fund 209,948 184,406
Interest 9,442 8,633
Prepaid maintenance 235,089 146,932
---------- ----------
$1,423,930 $1,115,420
========== ==========
Liabilities and Participants' Fund Balance
Accounts payable $ 44,908 $ 97,651
Participants' fund balance 1,379,022 1,017,769
---------- ----------
$1,423,930 $1,115,420
========== ==========
</TABLE>
8
<PAGE> 9
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental pool revenue $3,013,518 $3,551,001 $7,773,588 $8,869,539
---------- ---------- ---------- ----------
Deductions:
Marketing expense 226,014 266,325 583,019 665,215
Management expense 376,690 443,875 971,699 1,108,692
Travel agent commissions 151,534 141,859 368,543 424,042
Credit card expense 33,551 44,364 68,334 93,854
---------- ---------- ---------- ----------
787,789 896,423 1,991,595 2,291,803
---------- ---------- ---------- ----------
Net rental income 2,225,729 2,654,578 5,781,993 6,577,736
Less operator share of net rental income (1,001,578) (1,194,560) (2,601,897) (2,959,981)
Other revenues (expenses):
Complimentary room revenues 29,736 32,901 60,003 64,751
Minor repairs and replacements (42,361) (33,004) (75,921) (66,354)
---------- ---------- ---------- ----------
Amount available for distribution $1,211,526 $1,459,915 $3,164,178 $3,616,152
========== ========== ========== ==========
</TABLE>
9
<PAGE> 10
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND
BALANCE
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Balance at beginning of period $ -- $ --
Additions:
Amount available for distribution 3,164,178 3,616,152
Reductions:
Amount withheld for maintenance escrow fund (562,281) (656,171)
Amount accrued or paid to participants (2,601,897) (2,959,981)
---------- ----------
Balance at end of period $ -- $ --
========== ===========
MAINTENANCE ESCROW FUND
Six months ended
June 30,
----------------------------
1996 1995
----------- ----------
Balance at beginning of period $ 1,017,769 $ 999,356
Additions:
Amount withheld from distribution fund 562,281 656,171
Unit owner payments 36,171 53,310
Interest earned 23,399 24,267
Reductions:
Escrow account refunds (32,516) (324,652)
Maintenance charges (147,689) (166,098)
Unit renovations (51,490) (51,577)
Linen replacement (28,903) (60,027)
---------- ----------
Balance at end of period $1,379,022 $1,130,750
========== ==========
</TABLE>
10
<PAGE> 11
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 during the first quarter of each calendar year. The second and fourth
quarters have historically had marginal financial performance, and the third
quarter has historically had the lowest volume of sales of the fiscal period.
Accordingly, the Registrant experienced an improvement in its financial
condition as of June 30, 1996 when compared with its fiscal year-end of
December 31, 1995. The primary effect of this seasonal period was an increase
in cash and accumulated earnings.
Several minor capital improvements have been performed. However, there were no
major capital additions or improvements during the six months ended June 30,
1996. No significant capital projects are anticipated in the remaining fiscal
period. Future operating costs and planned expenditures for minor additions and
improvements are expected to be funded by the resort operations of the
Registrant or by additional financing within the terms of the Registrant's debt
agreement.
The Registrant's debt agreement includes a line of credit of $1,500,000 which
is limited to the value of certain accounts receivable, inventories and
equipment of the Registrant and an affiliate. As of June 30, 1996, this full
line of credit was unrestricted, and no draws were outstanding (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 additional financing that is available related to the matter
that is discussed in Part II, Item 1. Legal Proceedings of this Form 10-Q,
which is incorporated herein by reference.
Results of Operations
Total revenues decreased $628,000 or 7% for the second quarter of 1996 when
compared with the same period in 1995. Total revenues decreased $857,000 or 4%
for the first six months of 1996 when compared with the same period in 1995.
These resulted from decreases in occupied unit nights, the average daily rates
and the number of guests at the resort for the current periods over the same
periods the previous year. Anticipated occupied unit nights for the remainder
of 1996 are not expected to exceed the prior year's level. Projections for
occupied unit nights in 1997 and subsequent fiscal periods are expected to
remain at the resort's current volume of business.
Net income decreased $496,000 or 76% for the second quarter of 1996 when
compared with the same period in 1995. Net income decreased $793,000 or 23% for
the first six months of 1996 when compared with the same period in 1995. These
were direct results of reduced revenues combined with increased depreciation
and interest expense that are related to recent capital improvements.
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 the full fiscal period.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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 which provides for the distribution of a percentage of
net rental income to participating condominium owners. Rental pool income is
shared according to the provisions of an agreement, and the level of the
Registrant's occupancy directly impacts revenues and expenses used to determine
this income.
The average occupancies for the quarters ended June 30, 1996 and 1995 were 48%
and 57%, respectively. The average distributions of net rental income per
participating condominium unit for the same periods were $2,223 and $2,694,
respectively. This decrease in average net rental income was primarily due to
the decrease in average occupancy.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 12, 1989, the Circuit Court of the Sixth Judicial Circuit in and for
Pasco County, Florida, in the lawsuit, James H. Porter and Martha Porter,
Trustees, et al v. Saddlebrook Resorts, Inc. and the County of Pasco, Florida,
Case No. 83-1860, entered a judgment against the Registrant in the amount of
$8,082,000 relating to damages to adjacent property for surface water effects.
In addition, an injunction was entered to remediate damages relating thereto.
On October 14, 1989, the Registrant and Pittway Corporation (the former owner
of the Registrant) entered into an agreement, and on July 16, 1993 an amended
agreement, to split equally the costs of the defense of the litigation, the
ultimate judgment and the mandated remedial work. The agreements provide for
Pittway Corporation to make subordinated loans to the Registrant, if required,
to enable the Registrant to pay for its half of these costs.
On March 18, 1992, the Florida Second District Court of Appeal issued an
opinion reversing and vacating the jury verdict and judgment against the
Registrant and ordering a new trial. On December 22, 1993, the Registrant filed
a motion for summary judgment in the trial court on grounds that the findings
in its favor by an administrative law judge in a related proceeding bar further
litigation of this matter. An order granting the summary judgment and
dismissing the action was entered on January 7, 1995. The Plaintiff filed an
appeal of said order in the Florida Second District Court of Appeal. Oral
argument on said appeal was heard on February 21, 1996. It is currently not
known when the appellate court will render a decision. Management currently
believes that the Registrant's position in further litigation would be
meritorious.
The Registrant is involved in other litigation in the ordinary course of
business. In the opinion of management, these matters are adequately covered by
insurance or indemnification from other third parties. The effect, if any, of
these claims is, in management's opinion, immaterial to the Registrant's
financial condition and results of operations.
12
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) The Registrant was not required to file a Form 8-K during the six
months ended June 30, 1996.
SIGNATURES
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 12, 1996 /s/ Donald L. Allen
------------------------------
Donald L. Allen
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,447,135
<SECURITIES> 798,862
<RECEIVABLES> 2,904,840
<ALLOWANCES> 137,037
<INVENTORY> 1,392,129
<CURRENT-ASSETS> 7,709,309
<PP&E> 31,699,064
<DEPRECIATION> 9,245,373
<TOTAL-ASSETS> 30,806,468
<CURRENT-LIABILITIES> 8,098,713
<BONDS> 0
100,000
0
<COMMON> 0
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 30,806,468
<SALES> 21,159,388
<TOTAL-REVENUES> 21,159,388
<CGS> 0
<TOTAL-COSTS> 17,724,308
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 838,910
<INCOME-PRETAX> 2,596,170
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,596,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,596,170
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
