<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 September 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>
<S> <C>
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at September 30, 1996 and December 31, 1995 3
Statements of Operations for the three months and nine months
ended September 30, 1996 and 1995 4
Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 5
Notes to Financial Statements 6
Saddlebrook Rental Pool Operation
Balance Sheets at September 30, 1996 and December 31, 1995 8
Statements of Operations for the three months and nine months
ended September 30, 1996 and 1995 9
Statements of Changes in Participants' Fund Balance for the
nine months ended September 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>
September 30, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,875,584 $ 40,702
Escrowed cash deposits 274,442 106,096
Escrowed short-term investments 199,615 399,635
Accounts receivable, net 3,009,587 3,349,779
Related parties receivable 130,718 114,004
Inventory and supplies 1,369,417 1,472,689
Prepaid expenses and other assets 353,157 526,424
------------- ------------
Total current assets 7,212,520 6,009,329
Escrowed long-term investments 299,431 299,500
Property, buildings and equipment, net 22,464,376 22,580,998
Intangible assets and deferred charges, net 211,595 266,702
------------- ------------
$ 30,187,922 $ 29,156,529
============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of notes payable $ 952,491 $ 1,486,722
Escrowed deposits 773,488 805,231
Accounts payable 851,849 1,325,265
Accrued rental distribution 846,958 1,037,865
Accrued payroll and related expenses 627,709 743,077
Accrued interest 139,167 141,491
Accrued taxes 415,319 43,178
Guest deposits 779,879 798,444
Other liabilities and accrued expenses 1,275,079 676,566
Due to related parties 2,240,245 1,923,461
------------- ------------
Total current liabilities 8,902,184 8,981,300
Notes payable due after one year 17,866,920 17,276,920
------------- ------------
Total liabilities 26,769,104 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 2,305,691 1,785,182
------------- ------------
Total shareholders' equity 3,418,818 2,898,309
------------- ------------
$ 30,187,922 $ 29,156,529
============= ============
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements
3
<PAGE> 4
SADDLEBROOK RESORTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ------------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 6,505,731 $ 6,053,516 $ 27,665,119 $ 28,069,436
----------- ----------- ------------ ------------
Costs and expenses:
Operating costs 5,254,684 4,742,017 18,852,436 18,680,675
Sales and marketing 599,173 643,588 2,193,239 2,261,952
General and administrative 817,933 862,350 2,668,225 2,649,994
Depreciation and amortization 351,745 363,040 1,033,943 984,752
Interest 421,372 402,547 1,260,282 1,063,398
----------- ----------- ------------ ------------
Total costs and expenses 7,444,907 7,013,542 26,008,125 25,640,771
Net income (loss) (939,176) (960,026) 1,656,994 2,428,665
Distribution to shareholders (321,341) (300,536) (1,136,485) (1,697,991)
Accumulated earnings at
beginning of period 3,566,208 3,684,278 1,785,182 1,693,042
----------- ----------- ------------ ------------
Accumulated earnings at
end of period $ 2,305,691 $ 2,423,716 $ 2,305,691 $ 2,423,716
=========== =========== ============ ============
</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>
Nine months ended
September 30,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 1,656,994 $ 2,428,665
Non-cash items included in net income:
Provision for doubtful accounts 27,900 24,800
Loss (gain) on sale of assets (1,081) 8,252
Depreciation and amortization 1,033,943 984,752
(Increase) decrease in:
Accounts receivable 312,292 (651,285)
Inventory and supplies 103,272 (101,933)
Prepaid expenses and other assets 173,267 (62,780)
Increase (decrease) in:
Accounts payable (473,416) (49,167)
Accrued expenses and other liabilities 643,489 (1,201,148)
Net payable to related parties 300,070 904,152
------------ ------------
3,776,730 2,284,308
------------ ------------
Investing activities:
Proceeds from sale of assets 2,581 3,384
Capital expenditures (829,682) (1,720,629)
------------ ------------
(827,101) (1,717,245)
------------ ------------
Financing activities:
Notes payable borrowings 1,540,000 2,426,284
Payments on notes payable (1,484,231) (1,595,807)
Financing costs (34,031) (45,907)
Distribution to shareholder (1,136,485) (1,697,991)
------------ ------------
(1,114,747) (913,421)
------------ ------------
Net increase (decrease) in cash 1,834,882 (346,358)
Cash at beginning of period 40,702 595,502
------------ ------------
Cash at end of period $ 1,875,584 $ 249,144
============ ============
Supplemental disclosure:
Cash paid for interest $ 1,283,653 $ 1,127,417
============ ============
</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>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Trade accounts receivable $ 3,155,172 $ 3,472,755
Less reserve for bad debts (145,585) (122,976)
------------ ------------
$ 3,009,587 $ 3,349,779
============ ============
</TABLE>
Note 3. Fixed Assets
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ---------------
<S> <C> <C>
Land and land improvements $ 4,477,482 $ 4,478,982
Buildings and recreational facilities 19,405,221 18,862,973
Furnishings and equipment 7,800,797 7,587,232
Construction in progress 345,348 300,308
------------ ------------
32,028,848 31,229,495
Less accumulated depreciation (9,564,472) (8,648,497)
------------ ------------
$ 22,464,376 $ 22,580,998
============ ============
</TABLE>
6
<PAGE> 7
Note 4. Intangible Assets and Deferred Charges
<TABLE>
<CAPTION>
September 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 (1,843,185) (1,754,047)
------------ -------------
$ 211,595 $ 266,702
============ =============
Note 5. Notes Payable
September 30, December 31,
1996 1995
------------ ------------
Note payable to bank, variable rate currently 8.875% $ 18,816,920 $ 18,226,920
Line of credit payable to bank -- 500,000
Capital leases 2,491 36,722
------------ ------------
18,819,411 18,763,642
Less current portion (952,491) (1,486,722)
------------ ------------
$ 17,866,920 $ 17,276,920
============ ============
</TABLE>
The Registrant is also the guarantor of amounts that are owed by its majority
shareholder and an affiliated company of $270,000 and $679,000, respectively,
at September 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>
September 30, December 31,
1996 1995
----------------- -----------------
<S> <C> <C>
Assets
Receivable from Saddlebrook Resorts, Inc. $ 839,395 $ 1,017,332
================= =================
Liabilities and Participants' Fund Balance
Due to participants $ 707,686 $ 832,926
Due to maintenance escrow fund 131,709 184,406
Participants' fund balance -- --
----------------- -----------------
$ 839,395 $ 1,017,332
================= =================
MAINTENANCE ESCROW FUND
<CAPTION>
September 30, December 31,
1996 1995
-------------------- ------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 249,447 $ 76,314
Investments 499,046 699,135
Receivables:
Distribution fund 131,709 184,406
Interest 4,072 8,633
Prepaid maintenance 269,866 146,932
----------------- -----------------
$ 1,154,140 $ 1,115,420
================= =================
Liabilities and Participants' Fund Balance
Accounts payable $ 82,878 $ 97,651
Participants' fund balance 1,071,262 1,017,769
----------------- -----------------
$ 1,154,140 $ 1,115,420
================= =================
</TABLE>
8
<PAGE> 9
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Rental pool revenue $ 2,095,262 $ 1,693,711 $ 9,868,850 $ 10,563,250
----------- ----------- ------------ -----------
Deductions:
Marketing expense 157,145 127,028 740,164 792,243
Management expense 261,908 211,714 1,233,607 1,320,406
Travel agent commissions 76,425 100,238 444,968 524,280
Credit card expense 27,149 15,811 95,483 109,665
----------- ----------- ------------ ------------
522,627 454,791 2,514,222 2,746,594
----------- ----------- ------------ ------------
Net rental income 1,572,635 1,238,920 7,354,628 7,816,656
Less operator share of net rental income (707,686) (557,514) (3,309,583) (3,517,495)
Other revenues (expenses):
Complimentary room revenues 17,188 16,827 77,191 81,578
Minor repairs and replacements (42,742) (46,661) (118,663) (113,015)
----------- ----------- ------------ ------------
Amount available for distribution $ 839,395 $ 651,572 $ 4,003,573 $ 4,267,724
=========== =========== ============ ============
</TABLE>
9
<PAGE> 10
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------
1996 1995
------------- --------------
<S> <C> <C>
Balance at beginning of period $ -- $ --
Additions:
Amount available for distribution 4,003,573 4,267,724
Reductions:
Amount withheld for maintenance escrow fund (693,990) (750,229)
Amount accrued or paid to participants (3,309,583) (3,517,495)
------------ -------------
Balance at end of period $ -- $ --
============ =============
MAINTENANCE ESCROW FUND
<CAPTION>
Nine months ended
September 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Balance at beginning of period $ 1,017,769 $ 999,356
Additions:
Amount withheld from distribution fund 693,990 750,229
Unit owner payments 42,568 85,386
Interest earned 35,574 36,477
Reductions:
Escrow account refunds (37,663) (357,336)
Maintenance charges (222,622) (262,528)
Unit renovations (409,732) (51,577)
Linen replacement (48,622) (79,393)
------------- ------------
Balance at end of period $ 1,071,262 $ 1,120,614
============= ============
</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 September 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.
The Registrant has commenced a renovation and expansion of its Spa/Fitness
Center at an estimated aggregate cost of approximately $1,000,000. Several
other minor capital improvements have been performed. However, there were no
other major capital additions or improvements during the nine months ended
September 30, 1996. No other 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 September 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 increased $452,000 or 7% for the third quarter of 1996 when
compared with the same period in 1995. This was a result of increases in
occupied unit nights, the average daily rate and the number of guests at the
resort for the current quarter over the same period the previous year. Total
revenues decreased $404,000 or 1% for the first nine months of 1996 when
compared with the same period in 1995. This was a result of decreases in
occupied unit nights, the average daily rate and the number of guests at the
resort for the current period over the same period the previous year.
Anticipated occupied unit nights for the remainder of 1996 are expected to
slightly 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.
The net loss for the third quarter of 1996 decreased $21,000 or 2% from the net
loss for the same period in 1995. Net income decreased $772,000 or 32% for the
first nine months of 1996 when compared with the same period in 1995. These
changes are a direct result of the changes in revenues combined with increased
interest expense that is 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 September 30, 1996 and 1995 were
44% and 38%, respectively. The average distributions of net rental income per
participating condominium unit for the same periods were $1,540 and $1,200,
respectively. This increase in average net rental income was primarily due to
the increase 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 due to the false testimony of plaintiffs'
expert hydrologist. 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. On August 16, 1996, the Florida Second
District Court of Appeal filed an opinion affirming in part, and reversing in
part, the summary judgment and remanding the case to the trial court for a
determination of whether the complaint remains viable. 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 nine
months ended September 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: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,875,584
<SECURITIES> 499,046
<RECEIVABLES> 3,155,172
<ALLOWANCES> 145,585
<INVENTORY> 1,369,417
<CURRENT-ASSETS> 7,212,520
<PP&E> 32,028,848
<DEPRECIATION> 9,564,472
<TOTAL-ASSETS> 30,187,922
<CURRENT-LIABILITIES> 8,902,184
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 30,187,922
<SALES> 27,665,119
<TOTAL-REVENUES> 27,665,119
<CGS> 0
<TOTAL-COSTS> 24,747,843
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,260,282
<INCOME-PRETAX> 1,656,994
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,656,994
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,656,994
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
