<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 June 30, 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.
------------------------------------------------------
(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, 1998 and December 31, 1997 3
Statements of Operations for the three months and six
months ended June 30, 1998 and 1997 4
Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 5
Notes to Financial Statements 6
Saddlebrook Rental Pool Operation
Balance Sheets at June 30, 1998 and December 31, 1997 8
Statements of Operations for the three months and six
months ended June 30, 1998 and 1997 9
Statements of Changes in Participants' Fund Balance for the
six months ended June 30, 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 5. Other Events 13
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,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $10,672,294 $ 854,596
Escrowed cash 529,319 92,520
Short-term escrowed investments 587,236 690,828
Accounts receivable, net 6,462,308 4,041,440
Due from related parties 2,980,721 391,148
Inventory and supplies 1,484,460 1,567,972
Prepaid expenses and other assets 859,935 523,675
----------- -----------
Total current assets 23,576,273 8,162,179
Long-term escrowed investments 598,272 598,437
Property, buildings and equipment, net 21,235,978 23,838,237
Deferred charges, net 529,473 107,928
----------- -----------
$45,939,996 $32,706,781
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of notes payable $ 876,457 $18,686,920
Escrowed deposits 1,714,827 1,381,785
Accounts payable 419,491 541,281
Accrued rental distribution 1,769,500 1,449,795
Accrued payroll and related expenses 1,272,997 1,168,790
Accrued interest -- 134,766
Accrued taxes 99,439 55,283
Guest deposits 1,750,733 2,161,620
Accrued expenses and other liabilities 1,270,789 1,290,581
Due to related parties 1,911,859 863,618
----------- -----------
Total current liabilities 11,086,092 27,734,439
Notes payable due after one year 25,123,543 -
----------- -----------
Total liabilities 36,209,635 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 8,617,234 3,859,215
----------- -----------
Total shareholders' equity 9,730,361 4,972,342
----------- -----------
$45,939,996 $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 Six months ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $12,539,418 $10,286,740 $29,197,335 $25,718,584
----------- ----------- ----------- -----------
Costs and expenses:
Operating costs 7,905,699 6,733,627 17,318,625 15,626,853
Sales and marketing 941,546 868,619 1,733,539 1,831,005
General and administrative 1,064,219 906,193 2,159,714 1,864,133
Depreciation and amortization 420,074 365,620 817,621 728,205
Interest 370,990 405,388 735,403 823,881
----------- ----------- ----------- -----------
Total costs and expenses 10,702,528 9,279,447 22,764,902 20,874,077
----------- ----------- ----------- -----------
Net income 1,836,890 1,007,293 6,432,433 4,844,507
Distribution to shareholders (1,659,683) (323,581) (1,674,414) (338,312)
Accumulated earnings at
beginning of period 8,440,027 6,201,308 3,859,215 2,378,825
----------- ----------- ----------- -----------
Accumulated earnings at
end of period $ 8,617,234 $ 6,885,020 $ 8,617,234 $ 6,885,020
=========== =========== =========== ===========
</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,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 6,432,433 $ 4,844,507
Non-cash items included in net income:
Provision for doubtful accounts 24,600 23,600
Depreciation and amortization 817,621 728,205
Decrease (increase) in:
Accounts receivable (2,445,468) (1,766,714)
Inventory and supplies 83,512 51,794
Prepaid expenses and other assets (336,260) 44,232
Increase (decrease) in:
Accounts payable (121,790) 124,188
Accrued expenses and other liabilities (97,378) (120,321)
----------- -----------
4,357,270 3,929,491
----------- -----------
Investing activities:
Capital expenditures (593,812) (1,243,547)
----------- -----------
Financing activities:
Notes payable borrowings 27,500,000 --
Payments on notes payable (20,186,920) (688,500)
Financing costs (488,832) --
Advances from related parties 904,406 1,274,496
Distribution to shareholders (1,674,414) (338,312)
----------- -----------
6,054,240 247,684
----------- -----------
Net increase in cash 9,817,698 2,933,628
Cash at beginning of period 854,596 418,197
----------- -----------
Cash at end of period $10,672,294 $ 3,351,825
=========== ===========
Supplemental disclosure:
Cash paid for interest $ 897,268 $ 872,516
=========== ===========
Non-cash investing and financing activities:
Property transferred to affiliate through the
due to/from related party account $ 2,445,738 --
============ ===========
</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>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Trade accounts receivable $ 6,539,988 $ 4,163,083
Less reserve for bad debts (77,680) (121,643)
----------- -----------
$ 6,462,308 $ 4,041,440
=========== ===========
</TABLE>
Note 3. Property, Buildings and Equipment
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Land and land improvements $ 3,820,478 $ 4,821,537
Buildings and recreational facilities 19,000,298 20,371,097
Machinery and equipment 8,904,101 8,422,251
Construction in progress 590,398 1,053,429
----------- -----------
32,315,275 34,668,314
Less accumulated depreciation (11,079,297) (10,830,077)
----------- -----------
$21,235,978 $23,838,237
=========== ===========
</TABLE>
The Registrant's property, buildings and equipment are pledged as security for
its debt (see Note 5). In June 1998, the Registrant transferred its unencumbered
condominium units and their contents and certain tracts of real property held
for development to an affiliated company at its aggregate book value of
approximately $2,446,000 (see Note 6).
-6-
<PAGE> 7
Note 4. Deferred Charges
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Debt issue costs $ 529,473 $ 569,244
Less accumulated amortization -- (461,316)
----------- -----------
$ 529,473 $ 107,928
=========== ===========
</TABLE>
Note 5. Note Payable
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Note payable due June 30, 2013 $26,000,000 $18,686,920
Less current portion ( 876,457) (18,686,920)
----------- -----------
$25,123,543 $ -
=========== ===========
</TABLE>
On June 30, 1998, the Registrant obtained financing from a third-party lender
which replaced its prior debt. The annual interest rate is fixed at 7.7% and
monthly payments are $243,988.
Note 6. Stock ownership
On June 30, 1998, the Registrant's stockholders exchanged each share of the
Registrant's outstanding common stock for one share of common stock of
Saddlebrook Holdings, Inc. ("SHI"). After the exchange, the Registrant's prior
stockholders own 100% of SHI which owns 100% of the Registrant. SHI also owns
100% of Dempsey and Daughters, Inc. which was created to own real and personal
property not encumbered by the Registrant's current debt (see Note 3).
Note 7. Income Taxes
The Registrant previously elected S Corporation status and is currently a member
of a Qualified Subchapter S Subsidiary Group. Accordingly, the Registrant has
had no income tax expense since the initial 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,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Receivable from Saddlebrook Resorts, Inc. $ 1,699,097 $ 1,384,044
=========== ===========
Liabilities and Participants' Fund Balance
Due to participants $ 1,397,034 $ 1,138,469
Due to maintenance escrow fund 302,063 245,575
Participants' fund balance - -
----------- -----------
$ 1,699,097 $ 1,384,044
=========== ===========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 506,469 $ 66,570
Investments 1,185,508 1,289,265
Receivables:
Distribution fund 302,063 245,575
Interest 14,874 10,646
Prepaid maintenance 469,594 343,822
----------- -----------
$ 2,478,508 $ 1,955,878
=========== ===========
Liabilities and Participants' Fund Balance
Accounts payable $ 466,551 $ 103,294
Participants' fund balance 2,011,957 1,852,584
----------- -----------
$ 2,478,508 $ 1,955,878
=========== ===========
</TABLE>
-8-
<PAGE> 9
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ -------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Rental pool revenue $ 4,150,577 $ 3,511,329 $10,391,943 $ 9,679,569
----------- ----------- ----------- -----------
Deductions:
Marketing expense 311,293 263,350 779,395 725,968
Management expense 518,822 438,916 1,298,993 1,209,946
Travel agent commissions 171,514 158,102 452,373 420,427
Credit card expense 41,429 37,024 94,977 93,928
Bad debt expense 3,000 2,000 6,000 5,000
----------- ----------- ----------- -----------
1,046,058 899,392 2,631,738 2,455,269
----------- ----------- ----------- -----------
Net rental income 3,104,519 2,611,937 7,760,205 7,224,300
Less operator share of net
rental income (1,397,034) (1,175,372) (3,492,093) (3,250,935)
Other revenues (expenses):
Complimentary room revenues 21,077 23,832 44,575 67,694
Minor repairs and replacements (29,465) (38,674) (58,416) (69,627)
----------- ----------- ----------- -----------
Amount available for
distribution $ 1,699,097 $ 1,421,723 $ 4,254,271 $ 3,971,432
=========== =========== =========== ===========
</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,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Balance at beginning of period $ -- $ --
Additions:
Amount available for distribution 4,254,271 3,971,432
Reductions:
Amount withheld for maintenance escrow fund (762,178) (720,497)
Amount accrued or paid to participants (3,492,093) (3,250,935)
----------- ----------
Balance at end of period $ -- $ --
=========== ==========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 1,852,584 $ 1,146,309
Additions:
Amount withheld from distribution fund 762,178 720,497
Unit owner payments 308,024 50,570
Interest earned 35,100 17,880
Reductions:
Escrow account refunds (40,048) (78,017)
Maintenance charges (133,754) (106,350)
Unit renovations (716,219) (54,491)
Linen replacement (55,908) (59,923)
----------- -----------
Balance at end of period $ 2,011,957 $ 1,636,475
=========== ===========
</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. 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 June 30,
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 financial condition was further enhanced
by additional funds provided by the refinancing of its debt described below.
On June 30, 1998, the Registrant obtained financing from a third-party lender
which replaced its prior debt. The new debt is self-amortizing and matures on
June 30, 2013. The annual interest rate is fixed at 7.7% and monthly payments
are $243,988. (see Note 5. Note 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 condominium units and their contents and certain tracts of real
property held for development are no longer encumbered by the Registrant's debt.
Accordingly, concurrent with the refinancing of its prior debt, the Registrant
transferred the unencumbered property to an affiliated company at its aggregate
book value of approximately $2,446,000 (see Part II, Item 5. Other Events 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.
Although the Registrant performed several minor capital improvements, there were
no major capital additions or improvements during the six months ended June 30,
1998. No other significant capital projects are anticipated in the remaining
fiscal period. Future operating costs and planned expenditures for capital
additions and improvements will be funded by the resort operations of the
Registrant or by additional funds received from the refinancing of its prior
debt discussed above.
Results of Operations
Total revenues increased $2,253,000 or 22% for the second quarter of 1998 when
compared with the same period in 1997. Total revenues increased $3,479,000 or
14% for the first six months of 1998 when compared with the same period in 1997.
These improvements resulted from increases in the average room rate, occupied
unit nights and the number of guests in the resort for the current periods when
compared to the same periods 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 continue a slight growth trend.
Net income for the second quarter of 1998 increased $830,000 or 82% over the
same period in 1997. Net income for the first six months of 1998 increased
$1,588,000 or 33% over the same period in 1997. These improvements were a direct
result of the increases in revenues which were partially offset by expected
increases in general costs of operations for the current periods when compared
to 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 June 30, 1998 and 1997 were 60%
and 55%, respectively. The average distributions of net rental income per
participating condominium unit for the same periods were $3,095 and $2,585,
respectively. The improvement in the average distribution of net rental income
was primarily due to an increase in the average room rate and number of occupied
unit nights which increased the total amount available for distribution for the
current quarter when compared to the same period the prior year.
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.
-12-
<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 5. Other Events
On June 30, 1998, the Registrant's stockholders exchanged each share of the
Registrant's outstanding common stock for one share of common stock of
Saddlebrook Holdings, Inc. ("SHI"). After the exchange, the Registrant's prior
stockholders own 100% of SHI which owns 100% of the Registrant. SHI also owns
100% of Dempsey and Daughters, Inc. which was created to own real and personal
property not encumbered by the Registrant's current debt.
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 six months
ended June 30, 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: August 19, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 10,672,294
<SECURITIES> 587,236
<RECEIVABLES> 6,539,988
<ALLOWANCES> 77,680
<INVENTORY> 1,484,460
<CURRENT-ASSETS> 23,576,273
<PP&E> 32,315,275
<DEPRECIATION> 11,079,297
<TOTAL-ASSETS> 45,939,996
<CURRENT-LIABILITIES> 11,086,092
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 45,939,996
<SALES> 29,197,335
<TOTAL-REVENUES> 29,197,335
<CGS> 0
<TOTAL-COSTS> 22,029,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 735,403
<INCOME-PRETAX> 6,432,433
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,432,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,432,433
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
