<PAGE> 1
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, 1997
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.
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(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
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(Address of principal executive offices)
813-973-1111
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(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
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Page 2
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at September 30, 1997 and December 31, 1996 3
Statements of Operations for the three months and nine
months ended September 30, 1997 and 1996 4
Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 5
Notes to Financial Statements 6
Saddlebrook Rental Pool Operation
Balance Sheets at September 30, 1997 and December 31, 1996 8
Statements of Operations for the three months and nine
months ended September 30, 1997 and 1996 9
Statements of Changes in Participants' Fund Balance for the
nine months ended September 30, 1997 and 1996 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>
<PAGE> 3
Page 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SADDLEBROOK RESORTS, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,974,921 $ 418,197
Escrowed cash deposits 459,794 216,687
Escrowed short-term investments 296,154 99,796
Accounts receivable, net 3,188,851 3,456,189
Related parties receivable 157,759 276,284
Inventory and supplies 1,516,820 1,459,095
Prepaid expenses and other assets 432,062 375,209
----------- -----------
Total current assets 10,026,361 6,301,457
Escrowed long-term investments 598,233 299,431
Property, buildings and equipment, net 23,476,576 22,720,248
Deferred charges, net 96,482 197,867
----------- -----------
$34,197,652 $29,519,003
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of notes payable $18,686,920 $ 950,000
Escrowed deposits 1,354,181 615,914
Accounts payable 985,080 597,980
Accrued rental distribution 795,549 1,443,512
Accrued payroll and related expenses 758,046 908,053
Accrued interest 130,419 146,207
Accrued taxes 465,754 83,372
Guest deposits 1,395,489 1,090,718
Other liabilities and accrued expenses 987,246 1,023,305
Due to related parties 2,134,045 551,070
----------- -----------
Total current liabilities 27,692,729 7,410,131
Notes payable due after one year - 18,616,920
----------- -----------
Total liabilities 27,692,729 26,027,051
----------- -----------
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 5,391,796 2,378,825
----------- -----------
Total shareholders' equity 6,504,923 3,491,952
----------- -----------
$34,197,652 $29,519,003
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements
<PAGE> 4
Page 4
SADDLEBROOK RESORTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 6,450,288 $ 6,505,731 $32,168,872 $27,665,119
---------- ---------- ---------- ----------
Costs and expenses:
Operating costs 5,300,693 5,254,684 20,927,546 18,852,436
Sales and marketing 699,531 599,173 2,530,536 2,193,239
General and administrative 858,900 817,933 2,723,033 2,668,225
Depreciation and amortization 378,312 351,745 1,106,517 1,033,943
Interest 387,405 421,372 1,211,286 1,260,282
---------- ---------- ---------- ----------
Total costs and expenses 7,624,841 7,444,907 28,498,918 26,008,125
---------- ---------- ---------- ----------
Net income (loss) (1,174,553) (939,176) 3,669,954 1,656,994
Distribution to shareholders (318,671) (321,341) (656,983) (1,136,485)
Accumulated earnings at
beginning of period 6,885,020 3,566,208 2,378,825 1,785,182
---------- ---------- ---------- ----------
Accumulated earnings at
end of period $ 5,391,796 $ 2,305,691 $ 5,391,796 $ 2,305,691
========== ========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements
<PAGE> 5
Page 5
SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1997 1996
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<S> <C> <C>
Operating activities:
Net income $ 3,669,954 $ 1,656,994
Non-cash items included in net income:
Provision for doubtful accounts 35,900 27,900
Loss (gain) on sale of assets - (1,081)
Depreciation and amortization 1,106,517 1,033,943
Decrease (increase) in:
Accounts receivable 231,438 312,292
Inventory and supplies (57,725) 103,272
Prepaid expenses and other assets (56,853) 173,267
Increase (decrease) in:
Accounts payable 387,100 (473,416)
Accrued expenses and other liabilities (162,664) 643,489
Net payable to related parties 1,701,500 300,070
---------- ----------
6,855,167 3,776,730
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Investing activities:
Proceeds from sale of assets 532,230 2,581
Capital expenditures (2,293,690) (829,682)
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(1,761,460) (827,101)
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Financing activities:
Notes payable borrowings - 1,540,000
Payments on notes payable (880,000) (1,484,231)
Financing costs - (34,031)
Distribution to shareholders (656,983) (1,136,485)
---------- ----------
(1,536,983) (1,114,747)
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Net increase in cash 3,556,724 1,834,882
Cash at beginning of period 418,197 40,702
---------- ----------
Cash at end of period $ 3,974,921 $ 1,875,584
========== ==========
Supplemental disclosure:
Cash paid for interest $ 1,286,885 $ 1,283,653
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
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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, 1996.
Note 2. Accounts Receivable
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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<S> <C> <C>
Trade accounts receivable $ 3,277,763 $ 3,552,737
Less reserve for bad debts (88,912) (96,548)
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$ 3,188,851 $ 3,456,189
=========== ===========
</TABLE>
Note 3. Fixed Assets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Land and land improvements $ 4,816,450 $ 4,591,278
Buildings and recreational facilities 20,291,613 19,563,084
Furnishings and equipment 8,245,871 7,600,876
Construction in progress 601,002 513,907
----------- -----------
33,954,936 32,269,145
Less accumulated depreciation (10,478,360) (9,548,897)
----------- -----------
$23,476,576 $22,720,248
=========== ===========
</TABLE>
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Page 7
Note 4. Deferred Charges
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Debt issue costs $ 532,603 $ 532,603
Less accumulated amortization (436,121) (334,736)
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$ 96,482 $ 197,867
=========== ===========
</TABLE>
Note 5. Notes Payable
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Note payable to bank due July 16,1998,
variable rate currently 8.375% $18,686,920 $19,566,920
Less current portion (18,686,920) (950,000)
----------- -----------
$ - $18,616,920
=========== ===========
</TABLE>
The Registrant is also the guarantor of an amount owed by an affiliated company
of $629,000 at September 30, 1997.
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.
<PAGE> 8
Page 8
SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Receivable from Saddlebrook Resorts, Inc. $ 734,534 $ 1,381,418
=========== ===========
Liabilities and Participants' Fund Balance
Due to participants $ 624,012 $ 1,132,612
Due to maintenance escrow fund 110,522 248,806
Participants' fund balance - -
----------- -----------
$ 734,534 $ 1,381,418
=========== ===========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 432,994 $ 194,287
Investments 894,387 399,227
Receivables:
Distribution fund 110,522 248,806
Interest 6,713 5,606
Prepaid maintenance 286,168 335,381
----------- -----------
$ 1,730,784 $ 1,183,307
=========== ===========
Liabilities and Participants' Fund Balance
Accounts payable $ 69,611 $ 36,998
Participants' fund balance 1,661,173 1,146,309
----------- -----------
$ 1,730,784 $ 1,183,307
=========== ===========
</TABLE>
<PAGE> 9
Page 9
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rental pool revenue $ 1,875,896 $ 2,095,262 $11,555,465 $ 9,868,850
---------- ---------- ---------- ----------
Deductions:
Marketing expense 140,692 157,145 866,660 740,164
Management expense 234,487 261,908 1,444,433 1,233,607
Travel agent commissions 89,577 76,425 510,004 444,968
Credit card expense 21,447 27,149 115,375 95,483
Bad debt expense 3,000 - 8,000 -
---------- ---------- ---------- ----------
489,203 522,627 2,944,472 2,514,222
---------- ---------- ---------- ----------
Net rental income 1,386,693 1,572,635 8,610,993 7,354,628
Less operator share of net
rental income (624,012) (707,686) (3,874,947) (3,309,583)
Other revenues (expenses):
Complimentary room revenues 12,973 17,188 80,667 77,191
Minor repairs and replacements (41,120) (42,742) (110,747) (118,663)
---------- ---------- ---------- ----------
Amount available for
distribution $ 734,534 $ 839,395 $ 4,705,966 $ 4,003,573
========== ========== ========== ==========
</TABLE>
<PAGE> 10
Page 10
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1997 1996
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<S> <C> <C>
Balance at beginning of period $ - $ -
Additions:
Amount available for distribution 4,705,966 4,003,573
Reductions:
Amount withheld for maintenance escrow fund (831,019) (693,990)
Amount accrued or paid to participants (3,874,947) (3,309,583)
---------- ----------
Balance at end of period $ - $ -
========== ==========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 1,146,309 $ 1,017,769
Additions:
Amount withheld from distribution fund 831,019 693,990
Unit owner payments 186,212 42,568
Interest earned 30,154 35,574
Reductions:
Escrow account refunds (123,899) (37,663)
Maintenance charges (186,693) (222,622)
Major unit renovations (144,307) (409,732)
Linen replacement (77,622) (48,622)
---------- ----------
Balance at end of period $ 1,661,173 $ 1,071,262
========== ==========
</TABLE>
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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, 1997 when compared with its fiscal year-end of
December 31, 1996. The primary effect of this seasonal period was an increase in
cash and accumulated earnings.
The Registrant constructed a new fitness and recreation center in 1996 and
completed an upgrade of the previous fitness center area into a luxury spa in
1997 at a total aggregate cost of $1,440,000. 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, 1997. 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, 1997, 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 a commitment for long-term financing to replace its current
debt agreement which expires on July 16, 1998.
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 $55,000 or 1% for the third quarter of 1997 when
compared with the same period in 1996. This resulted from decreases in occupied
unit nights and number of guests in the resort, which were partially offset by a
slightly higher average room rate for the current quarter. Total revenues
increased $4,504,000 or 16% for the first nine months of 1997 when compared with
the same period in 1996. This improvement was a result of increases in occupied
unit nights, the average daily rate and the number of guests at the resort for
the first nine months of 1997 over the same period the previous year.
Anticipated occupied unit nights for the remainder of 1997 are expected to
slightly exceed the prior year's level. Projections for occupied unit nights in
1998 and subsequent fiscal periods are expected to remain at the resort's
current volume of business.
A net loss for the third quarter of 1997 increased $235,000 or 25% from the loss
for the same period in 1996. Net income for the first nine months of 1997
increased $2,013,000 or 121% over the same period in 1996. These were a direct
result of the changes in revenues and expected increases in general costs of
operations for the current periods compared to the prior year.
Due to the seasonal business of the Registrant, 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 period.
<PAGE> 12
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, 1997 and 1996 were
38% and 44%, respectively. The average distributions of net rental income per
participating condominium unit for the same periods were $1,336 and $1,540,
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 prior 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. On November 19, 1996, the Registrant filed a motion with the
trial court to determine the issues that remain for retrial. Oral argument was
heard on April 4, 1997. A ruling on said motion is expected in early 1998.
Management currently believes that the Registrant's position in further
litigation would be meritorious.
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Page 13
Item 1. Legal Proceedings (continued)
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.
Item 6. Exhibits and Reports on Form 8-K
(a) 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, 1997.
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 14, 1997 /s/ Donald L. Allen
----------------- -------------------------
Donald L. Allen
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,434,715
<SECURITIES> 894,387
<RECEIVABLES> 3,277,763
<ALLOWANCES> 88,912
<INVENTORY> 1,516,820
<CURRENT-ASSETS> 10,026,361
<PP&E> 33,954,936
<DEPRECIATION> 10,478,360
<TOTAL-ASSETS> 34,197,652
<CURRENT-LIABILITIES> 27,692,729
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 34,197,652
<SALES> 32,168,872
<TOTAL-REVENUES> 32,168,872
<CGS> 0
<TOTAL-COSTS> 27,287,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,211,286
<INCOME-PRETAX> 3,669,954
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,669,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,669,954
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
