<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 March 31, 1998
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
-------------------------------------------------------
(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> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at March 31, 1998 and December 31, 1997 3
Statements of Operations for the three months ended
March 31, 1998 and 1997 4
Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 5
Notes to Financial Statements 6
Saddlebrook Rental Pool Operation
Balance Sheets at March 31, 1998 and December 31, 1997 8
Statements of Operations for the three months ended
March 31, 1998 and 1997 9
Statements of Changes in Participants' Fund Balance for the
three months ended March 31, 1998 and 1997 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>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,071,261 $ 854,596
Escrowed cash 382,972 92,520
Short-term escrowed investments 389,908 690,828
Accounts receivable, net 9,084,000 4,041,440
Due from related parties 252,226 391,148
Inventory and supplies 1,493,255 1,567,972
Prepaid expenses and other assets 544,291 523,675
----------- -----------
Total current assets 15,217,913 8,162,179
Long-term escrowed investments 598,437 598,437
Property, buildings and equipment, net 23,870,995 23,838,237
Deferred charges, net 324,425 107,928
----------- -----------
$40,011,770 $32,706,781
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of notes payable $18,686,920 $18,686,920
Escrowed deposits 1,371,317 1,381,785
Accounts payable 1,001,214 541,281
Accrued rental distribution 2,641,109 1,449,795
Accrued payroll and related expenses 928,972 1,168,790
Accrued interest 133,560 134,766
Accrued taxes 262,616 55,283
Guest deposits 1,638,015 2,161,620
Accrued expenses and other liabilities 1,055,622 1,290,581
Due to related parties 2,739,271 863,618
----------- -----------
Total current liabilities 30,458,616 27,734,439
Notes payable due after one year - -
----------- -----------
Total liabilities 30,458,616 27,734,439
----------- -----------
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 8,440,027 3,859,215
----------- -----------
Total shareholders' equity 9,553,154 4,972,342
----------- -----------
$40,011,770 $32,706,781
=========== ===========
</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
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues $16,657,917 $15,431,844
---------- ----------
Costs and expenses:
Operating costs 9,412,926 8,893,226
Sales and marketing 791,993 962,386
General and administrative 1,095,494 957,939
Depreciation and amortization 397,547 362,585
Interest 364,413 418,493
---------- ----------
Total costs and expenses 12,062,373 11,594,629
---------- ----------
Net income 4,595,544 3,837,215
Distribution to shareholders (14,732) (14,732)
Accumulated earnings at beginning of period 3,859,215 2,378,825
---------- ----------
Accumulated earnings at end of period $ 8,440,027 $ 6,201,308
========== ==========
</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>
Three months ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Operating activities:
Net income $ 4,595,544 $ 3,837,215
Non-cash items included in net income:
Provision for doubtful accounts 12,300 12,300
Depreciation and amortization 397,547 362,585
Decrease (increase) in:
Accounts receivable (5,054,860) (4,660,297)
Inventory and supplies 74,717 11,872
Prepaid expenses and other assets (20,616) (13,691)
Increase (decrease) in:
Accounts payable 459,933 284,536
Accrued expenses and other liabilities 399,059 926,830
Net payable to related parties 2,014,575 1,999,115
---------- ----------
2,878,199 2,760,465
---------- ----------
Investing activities:
Capital expenditures (396,802) (732,557)
---------- ----------
(396,802) (732,557)
---------- ----------
Financing activities:
Financing costs (250,000) -
Distribution to shareholders (14,732) (14,732)
---------- ----------
(264,732) (14,732)
---------- ----------
Net increase in cash 2,216,665 2,013,176
Cash at beginning of period 854,596 418,197
---------- ----------
Cash at end of period $ 3,071,261 $ 2,431,373
========== ==========
Supplemental disclosure:
Cash paid for interest $ 389,544 $ 430,810
========== ==========
</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
(Unaudited)
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, 1997.
Note 2. Accounts Receivable
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Trade accounts receivable $ 9,206,000 $ 4,163,083
Less reserve for bad debts (122,000) (121,643)
----------- -----------
$ 9,084,000 $ 4,041,440
=========== ===========
</TABLE>
Note 3. Fixed Assets
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Land and land improvements $ 4,821,537 $ 4,821,537
Buildings and recreational facilities 20,425,734 20,371,097
Machinery and equipment 8,495,813 8,422,251
Construction in progress 1,322,032 1,053,429
----------- -----------
35,065,116 34,668,314
Less accumulated depreciation (11,194,121) (10,830,077)
----------- -----------
$23,870,995 $23,838,237
=========== ===========
</TABLE>
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<PAGE> 7
Note 4. Deferred Charges
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Debt issue costs $ 819,244 $ 569,244
Less accumulated amortization (494,819) (461,316)
----------- -----------
$ 324,425 $ 107,928
=========== ===========
</TABLE>
Note 5. Notes Payable
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Note payable to bank due July 16, 1998,
variable rate currently 8.375% $ 18,686,920 $ 18,686,920
Less current portion (18,686,920) (18,686,920)
------------ ------------
$ - $ -
============ ============
</TABLE>
The Registrant is also the guarantor of an amount owed by an affiliated company
which matures on July 16, 1998. The amount of this debt is $629,000 as of March
31, 1998.
The refinancing of the Registrant's current debt is being arranged with a
different lender. The new debt is expected to have a longer term and a lower
interest rate. The refinancing is expected to occur before the current debt's
maturity date.
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>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Receivable from Saddlebrook Resorts, Inc. $ 2,555,174 $ 1,384,044
=========== ===========
Liabilities and Participants' Fund Balance
Due to participants $ 2,095,059 $ 1,138,469
Due to maintenance escrow fund 460,115 245,575
Participants' fund balance - -
----------- -----------
$ 2,555,174 $ 1,384,044
=========== ===========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 357,122 $ 66,570
Investments 988,345 1,289,265
Receivables:
Distribution fund 460,115 245,575
Interest 8,354 10,646
Prepaid maintenance 294,330 343,822
----------- -----------
$ 2,108,266 $ 1,955,878
=========== ===========
Liabilities and Participants' Fund Balance
Accounts payable $ 474,566 $ 103,294
Participants' fund balance 1,633,700 1,852,584
----------- -----------
$ 2,108,266 $ 1,955,878
=========== ===========
</TABLE>
-8-
<PAGE> 9
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Rental pool revenue $ 6,241,366 $ 6,168,240
---------- ----------
Deductions:
Marketing expense 468,102 462,618
Management expense 780,171 771,030
Travel agent commissions 280,859 262,325
Credit card expense 53,548 56,904
Bad debt expense 3,000 3,000
---------- ----------
1,585,680 1,555,877
---------- ----------
Net rental income 4,655,686 4,612,363
Less operator share of net rental income (2,095,059) (2,075,563)
Other revenues (expenses):
Complimentary room revenues 23,498 43,862
Minor repairs and replacements (28,951) (30,953)
---------- ----------
Amount available for distribution $ 2,555,174 $ 2,549,709
========== ==========
</TABLE>
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<PAGE> 10
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Balance at beginning of period $ - $ -
Additions:
Amount available for distribution 2,555,174 2,549,709
Reductions:
Amount withheld for maintenance escrow fund (460,115) (474,146)
Amount accrued or paid to participants (2,095,059) (2,075,563)
----------- -----------
Balance at end of period $ - $ -
========== ==========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Balance at beginning of period $ 1,852,584 $ 1,146,309
Additions:
Amount withheld from distribution fund 460,115 474,146
Unit owner payments 121,254 36,625
Interest earned 17,101 7,821
Reductions:
Escrow account refunds (29,132) (26,448)
Maintenance charges (66,279) (23,239)
Unit renovations (691,635) (42,132)
Linen replacement (30,308) (34,123)
---------- ----------
Balance at end of period $ 1,633,700 $ 1,538,959
========== ==========
</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. The highest volume of sales occurs in
the first quarter of each calendar year while the third quarter has historically
had the lowest volume of sales. The second and fourth quarters of each calendar
year have historically had marginal financial performance. Accordingly, the
Registrant experienced an improvement in its financial condition as of March 31,
1998 when compared with its fiscal year-end of December 31, 1997. The primary
effect of this seasonal period was an increase in cash, accounts receivable and
accumulated earnings.
The Registrant's current debt, and the related debt of an affiliate, matures on
July 16, 1998. Accordingly, the Registrant's debt is classified as a current
liability on its balance sheet. The present lender has verbally indicated that
the maturing debt may be renewed with similar terms. However, management is
nearing the completion of negotiations for longer-term financing with another
lender. Management believes this refinancing will occur before the maturity date
of the current debt (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's current 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 March 31, 1998, $45,300 of
this line of credit was restricted and no draws were outstanding. Management
anticipates a similar line of credit will be included in the refinancing of the
Registrant's debt discussed above.
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.
Although the Registrant performed several minor capital improvements, there were
no major capital additions or improvements during the three months ended March
31, 1998. No other significant capital projects are anticipated in the remaining
fiscal period. Future operating costs and planned expenditures for minor capital
additions and improvements will be funded by the resort operations of the
Registrant or by additional financing pursuant to the anticipated refinancing of
the Registrant's debt discussed above.
Results of Operations
Total revenues increased $1,226,000 or 8% for the first quarter of 1998 when
compared with the same period in 1997. This resulted from increases in the
average room rate and the number of guests in the resort, which were partially
offset by a slightly lower number of occupied unit nights for the current
quarter when compared to the same period the previous year. Anticipated occupied
unit nights for the remainder of 1998 are expected to slightly exceed the prior
year's level. Projections for occupied unit nights in 1999 and subsequent fiscal
periods are expected to remain at the resort's current volume of business.
Net income for the first quarter of 1998 increased $758,000 or 20% over the same
period in 1997. This improvement was a direct result of the increase in revenue
offset by expected increases in general costs of operations for the current
quarter when compared to the same period the previous year.
-11-
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 year.
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 a distribution of a percentage of
net rental income to participating condominium owners. Net rental income is
calculated and distributed according to the provisions of an agreement and the
level of the Registrant's occupancy directly impacts revenues and expenses used
to determine the distribution.
The average occupancies for the quarters ended March 31, 1998 and 1997 were 72%
and 74%, respectively. The average distributions of net rental income per
participating condominium unit for the same periods were $4,646 and $4,661,
respectively. This decrease in the average distribution of net rental income was
primarily due to a slight increase in the number of units participating in the
Rental Pool which offset an increased amount available for distribution for the
current quarter.
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. On November 19, 1996, the Registrant filed a motion with the
trial court to determine the issues that remain for retrial. On April 1, 1998,
the trial court ruled that the Plaintiffs will be prohibited from introducing
evidence on some, but not all, of the damages sought. Registrant anticipates the
matter will proceed with pre-trial and trial within the next year. Management
currently believes that the Registrant's position in further litigation of this
matter will 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 three months
ended March 31, 1998.
SIGNATURE
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: May 15, 1998 /s/ Donald L. Allen
----------------- -------------------------
Donald L. Allen
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,454,233
<SECURITIES> 988,345
<RECEIVABLES> 9,206,000
<ALLOWANCES> 122,000
<INVENTORY> 1,493,255
<CURRENT-ASSETS> 15,217,913
<PP&E> 35,065,116
<DEPRECIATION> 11,194,121
<TOTAL-ASSETS> 40,011,770
<CURRENT-LIABILITIES> 30,458,616
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 40,011,770
<SALES> 16,657,917
<TOTAL-REVENUES> 16,657,917
<CGS> 0
<TOTAL-COSTS> 11,697,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364,413
<INCOME-PRETAX> 4,595,544
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,595,544
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,595,544
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
