<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, 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.
------------------------------------------------------
(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
----
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at June 30, 1997 and December 31, 1996 3
Statements of Operations for the three months and six months
ended June 30, 1997 and 1996 4
Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 5
Notes to Financial Statements 6
Saddlebrook Rental Pool Operation
Balance Sheets at June 30, 1997 and December 31, 1996 8
Statements of Operations for the three months and six months
ended June 30, 1997 and 1996 9
Statements of Changes in Participants' Fund Balance for the
six months ended June 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>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SADDLEBROOK RESORTS, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,351,825 $ 418,197
Escrowed cash deposits 509,047 216,687
Escrowed short-term investments 99,796 99,796
Accounts receivable, net 5,199,303 3,456,189
Related parties receivable 155,780 276,284
Inventory and supplies 1,407,301 1,459,095
Prepaid expenses and other assets 330,977 375,209
----------- -----------
Total current assets 11,054,029 6,301,457
Escrowed long-term investments 499,431 299,431
Property, buildings and equipment, net 23,303,180 22,720,248
Deferred charges, net 130,277 197,867
----------- -----------
$34,986,917 $29,519,003
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of notes payable $ 1,050,000 $ 950,000
Escrowed deposits 1,108,274 615,914
Accounts payable 722,168 597,980
Accrued rental distribution 1,518,462 1,443,512
Accrued payroll and related expenses 1,001,694 908,053
Accrued interest 140,283 146,207
Accrued taxes 321,938 83,372
Guest deposits 823,517 1,090,718
Other liabilities and accrued expenses 768,952 1,023,305
Due to related parties 1,705,062 551,070
----------- -----------
Total current liabilities 9,160,350 7,410,131
Notes payable due after one year 17,828,420 18,616,920
----------- -----------
Total liabilities 26,988,770 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 6,885,020 2,378,825
----------- -----------
Total shareholders' equity 7,998,147 3,491,952
----------- -----------
$34,986,917 $29,519,003
=========== ===========
</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 Six months ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 10,286,740 $ 8,818,529 $ 25,718,584 $ 21,159,388
------------ ------------ ------------ ------------
Costs and expenes:
Operating costs 6,733,627 6,262,853 15,626,853 13,597,752
Sales and marketing 868,619 752,904 1,831,005 1,594,066
General and administrative 906,193 889,604 1,864,133 1,850,292
Depreciation and amortization 365,620 341,645 728,205 682,198
Interest 405,388 418,363 823,881 838,910
------------ ------------ ------------ ------------
Total costs and expenses 9,279,447 8,665,369 20,874,077 18,563,218
------------ ------------ ------------ ------------
Net income 1,007,293 153,160 4,844,507 2,596,170
Distribution to shareholders (323,581) (803,381) (338,312) (815,144)
Accumulated earnings at
beginning of period 6,201,308 4,216,429 2,378,825 1,785,182
------------ ------------ ------------ ------------
Accumulated earnings at
end of period $ 6,885,020 $ 3,566,208 $ 6,885,020 $ 3,566,208
============ ============ ============ ============
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements
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<PAGE> 5
SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 4,844,507 $ 2,596,170
Non-cash items included in net income:
Provision for doubtful accounts 23,600 18,600
Loss (gain) on sale of assets -- (1,081)
Depreciation and amortization 728,205 682,198
Decrease (increase) in:
Accounts receivable (1,766,714) 563,376
Inventory and supplies 51,794 80,560
Prepaid expenses and other assets 44,232 172,842
Increase (decrease) in:
Accounts payable 124,188 (573,970)
Accrued expenses and other liabilities (120,321) (32,303)
Net payable to related parties 1,274,496 17,565
----------- -----------
5,203,987 3,523,957
----------- -----------
Investing activities:
Proceeds from sale of assets -- 2,581
Capital expenditures (1,243,547) (499,899)
----------- -----------
(1,243,547) (497,318)
----------- -----------
Financing activities:
Notes payable borrowings -- 1,540,000
Payments on notes payable (688,500) (1,311,031)
Financing costs -- (34,031)
Distribution to shareholders (338,312) (815,144)
----------- -----------
(1,026,812) (620,206)
----------- -----------
Net increase in cash 2,933,628 2,406,433
Cash at beginning of period 418,197 40,702
----------- -----------
Cash at end of period $ 3,351,825 $ 2,447,135
=========== ===========
Supplemental disclosure:
Cash paid for interest $ 872,516 $ 857,277
=========== ===========
</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>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Trade accounts receivable $ 5,287,979 $ 3,552,737
Less reserve for bad debts (88,676) (96,548)
----------- -----------
$ 5,199,303 $ 3,456,189
=========== ===========
</TABLE>
Note 3. Fixed Assets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Land and land improvements $ 4,591,278 $ 4,591,278
Buildings and recreational facilities 19,567,735 19,563,084
Furnishings and equipment 7,784,226 7,600,876
Construction in progress 1,569,453 513,907
------------ ------------
33,512,692 32,269,145
Less accumulated depreciation (10,209,512) (9,548,897)
------------ ------------
$ 23,303,180 $ 22,720,248
============ ============
</TABLE>
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<PAGE> 7
Note 4. Deferred Charges
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Debt issue costs $ 532,603 $ 532,603
Less accumulated amortization (402,326) (334,736)
------------ ------------
$ 130,277 $ 197,867
============ ============
</TABLE>
Note 5. Notes Payable
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Note payable to bank, variable rate
currently 8.875% $ 18,878,420 $ 19,566,920
Less current portion (1,050,000) (950,000)
------------ ------------
$ 17,828,420 $ 18,616,920
============ ============
</TABLE>
The Registrant is also the guarantor of an amount owed by an affiliated company
of $637,500 at June 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.
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<PAGE> 8
SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Assets
Receivable from Saddlebrook Resorts, Inc. $1,421,723 $1,381,418
========== ==========
Liabilities and Participants' Fund Balance
Due to participants $1,175,372 $1,132,612
Due to maintenance escrow fund 246,351 248,806
Participants' fund balance -- --
---------- ----------
$1,421,723 $1,381,418
========== ==========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 493,797 $ 194,287
Investments 599,227 399,227
Receivables:
Distribution fund 246,351 248,806
Interest 10,007 5,606
Prepaid maintenance 354,517 335,381
---------- ----------
$1,703,899 $1,183,307
========== ==========
Liabilities and Participants' Fund Balance
Accounts payable $ 67,424 $ 36,998
Participants' fund balance 1,636,475 1,146,309
---------- ----------
$1,703,899 $1,183,307
========== ==========
</TABLE>
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<PAGE> 9
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rental pool revenue $ 3,511,329 $ 3,013,518 $ 9,679,569 $ 7,773,588
----------- ----------- ----------- -----------
Deductions:
Marketing expense 263,350 226,014 725,968 583,019
Management expense 438,916 376,690 1,209,946 971,699
Travel agent commissions 158,102 151,534 420,427 368,543
Credit card expense 37,024 33,551 93,928 68,334
Bad debt expense 2,000 -- 5,000 --
----------- ----------- ----------- -----------
899,392 787,789 2,455,269 1,991,595
----------- ----------- ----------- -----------
Net rental income 2,611,937 2,225,729 7,224,300 5,781,993
Less operator share of net rental income (1,175,372) (1,001,578) (3,250,935) (2,601,897)
Other revenues (expenses):
Complimentary room revenues 23,832 29,736 67,694 60,003
Minor repairs and replacement (38,674) (42,361) (69,627) (75,921)
----------- ----------- ----------- -----------
Amount available for distribution $ 1,421,723 $ 1,211,526 $ 3,971,432 $ 3,164,178
=========== =========== =========== ===========
</TABLE>
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<PAGE> 10
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Balance at beginning of period $ -- $ --
Additions:
Amount available for distribution 3,971,432 3,164,178
Reductions:
Amount withheld for maintenance escrow fund (720,497) (562,281)
Amount accrued or paid to participants (3,250,935) (2,601,897)
----------- ----------
Balance at end of period $ -- $ --
=========== ===========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 1,146,309 $ 1,017,769
Additions:
Amount withheld from distribution fund 720,497 562,281
Unit owner payments 50,570 36,171
Interest earned 17,880 23,399
Reductions:
Escrow account refunds (78,017) (32,516)
Maintenance charges (106,350) (147,689)
Major unit renovations (54,491) (51,490)
Linen replacement (59,923) (28,903)
----------- -----------
Balance at end of period $ 1,636,475 $ 1,379,022
=========== ===========
</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 June 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, accounts receivable 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 six months ended June 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 June 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 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 $1,468,000 or 17% for the second quarter of 1997 when
compared with the same period in 1996. Total revenues increased $4,559,000 or
22% for the first six months of 1997 when compared with the same period in 1996.
These improvements were a result of increases 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 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.
Net income for the second quarter of 1997 increased $854,000 or 558% over the
same period in 1996. Net income for the first six months of 1997 increased
$2,248,000 or 87% over the same period in 1996. These improvements are a direct
result of the increases in revenues which were partially offset by increases in
general costs of operations.
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.
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<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, 1997 and 1996 were 55%
and 48%, respectively. The average distributions of net rental income per
participating condominium unit for the same periods were $2,585 and $2,223,
respectively. This increase in average net rental income was primarily due to
the increases in average occupancy and average daily rate.
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 late summer 1997.
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) 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, 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: August 12, 1997 /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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,860,872
<SECURITIES> 599,227
<RECEIVABLES> 5,287,979
<ALLOWANCES> 88,676
<INVENTORY> 1,407,301
<CURRENT-ASSETS> 11,054,029
<PP&E> 33,512,692
<DEPRECIATION> 10,209,512
<TOTAL-ASSETS> 34,986,917
<CURRENT-LIABILITIES> 9,160,350
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 34,986,917
<SALES> 25,718,584
<TOTAL-REVENUES> 25,718,584
<CGS> 0
<TOTAL-COSTS> 20,050,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 823,881
<INCOME-PRETAX> 4,844,507
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,844,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,844,507
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
