<PAGE> 1
UNITED STATES
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, 1999
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 14
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at March 31, 1999 and December 31, 1998 3
Statements of Operations for the three months ended
March 31, 1999 and 1998 4
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 5
Notes to Financial Statements 6
Saddlebrook Rental Pool Operation
Balance Sheets at March 31, 1999 and December 31, 1998 8
Statements of Operations for the three months ended
March 31, 1999 and 1998 9
Statements of Changes in Participants' Fund Balance for the
three months ended March 31, 1999 and 1998 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 13
Item 6. Exhibits and Reports on Form 8-K 14
</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,
1999 1998
----------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $11,937,674 $ 8,604,005
Escrowed cash 841,378 91,326
Short-term escrowed investments 493,016 1,180,327
Accounts receivable, net 5,864,067 5,185,155
Due from related parties 1,325,879 643,681
Inventory and supplies 1,610,198 1,582,488
Prepaid expenses and other assets 714,491 670,643
----------- -----------
Total current assets 22,786,703 17,957,625
Long-term escrowed investments 498,485 498,485
Property, buildings and equipment, net 22,230,900 21,937,929
Deferred charges, net 564,316 561,904
----------- -----------
$46,080,404 $40,955,943
=========== ===========
Liabilities and Shareholder's Equity
Current liabilities:
Current portion of note payable $ 1,016,075 $ 996,764
Escrowed deposits 1,832,879 1,770,138
Accounts payable 1,294,002 1,598,704
Accrued rental distribution 2,630,600 1,613,142
Accrued payroll and related expenses 1,034,954 818,240
Accrued taxes 166,058 63,067
Guest deposits 1,961,495 1,988,483
Accrued expenses and other liabilities 1,221,351 1,338,098
Due to related parties 947,990 811,398
----------- -----------
Total current liabilities 12,105,404 10,998,034
Note payable due after one year 24,271,444 24,532,820
----------- -----------
Total liabilities 36,376,848 35,530,854
----------- -----------
Shareholder's 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 8,590,429 4,311,962
----------- -----------
Total shareholder's equity 9,703,556 5,425,089
----------- -----------
$46,080,404 $40,955,943
=========== ===========
</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,
------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Revenues $16,534,084 $16,657,917
----------- -----------
Costs and expenses:
Operating costs 9,439,298 9,412,926
Sales and marketing 920,504 791,993
General and administrative 1,052,278 1,095,494
Depreciation and amortization 376,424 397,547
Interest 467,113 364,413
----------- -----------
Total costs and expenses 12,255,617 12,062,373
----------- -----------
Net income 4,278,467 4,595,544
Distribution to shareholders -- (14,732)
Accumulated earnings at beginning of period 4,311,962 3,859,215
----------- -----------
Accumulated earnings at end of period $ 8,590,429 $ 8,440,027
=========== ===========
</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>
Three months ended
March 31,
-------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Operating activities:
Net income $ 4,278,467 $ 4,595,544
Non-cash items included in net income:
Provision for doubtful accounts 18,485 12,300
Depreciation and amortization 376,424 397,547
(Gain) on sale of asset (1,274) --
Decrease (increase) in:
Accounts receivable (697,397) (5,054,860)
Inventory and supplies (27,710) 74,717
Prepaid expenses and other assets (43,848) (20,616)
Increase (decrease) in:
Accounts payable (304,702) 459,933
Accrued expenses and other liabilities 1,193,428 399,059
----------- -----------
4,791,873 863,624
----------- -----------
Investing activities:
Proceeds from sale of assets 1,274 --
Capital expenditures (659,708) (396,802)
----------- -----------
(658,434) (396,802)
----------- -----------
Financing activities:
Payments on note payable (242,065) --
Financing costs (12,099) (250,000)
Advances from (to) related parties (545,606) 2,014,575
Distribution to shareholders -- (14,732)
----------- -----------
(799,770) 1,749,843
----------- -----------
Net increase in cash 3,333,669 2,216,665
Cash at beginning of period 8,604,005 854,596
----------- -----------
Cash at end of period $11,937,674 $ 3,071,261
=========== ===========
Supplemental disclosure:
Cash paid for interest $ 489,898 $ 389,544
=========== ===========
</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
(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, 1998.
<TABLE>
<CAPTION>
Note 2. Accounts Receivable
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Trade accounts receivable $ 6,133,390 $ 5,456,280
Less reserve for bad debts (269,323) (271,125)
------------ ------------
$ 5,864,067 $ 5,185,155
============ ============
Note 3. Property, Buildings and Equipment
March 31, December 31,
1999 1998
------------ ------------
Land and land improvements $ 3,820,478 $ 3,820,478
Buildings and recreational facilities 19,512,085 19,133,063
Machinery and equipment 9,377,478 9,147,470
Construction in progress 1,421,943 1,371,265
------------ ------------
34,131,984 33,472,276
Less accumulated depreciation (11,901,084) (11,534,347)
------------ ------------
$ 22,230,900 $ 21,937,929
============ ============
</TABLE>
The Registrant's property, buildings and equipment are pledged as security for
its debt (see Note 5).
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<PAGE> 7
<TABLE>
<CAPTION>
Note 4. Deferred Charges
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Debt issue costs $ 593,377 $ 581,278
Less accumulated amortization (29,061) (19,374)
------------ ------------
$ 564,316 $ 561,904
============ ============
Note 5. Note Payable
March 31, December 31,
1999 1998
------------ ------------
Note payable due June 30, 2013 $ 25,287,519 $ 25,529,584
Less current portion (1,016,075) (996,764)
------------ ------------
$ 24,271,444 $ 24,532,820
============ ============
</TABLE>
The Registrant's financing from a third-party lender has an annual interest
rate fixed at 7.7% and monthly payments for principal and interest of $243,988.
The debt is secured by the Registrant's real and personal property.
Note 6. 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.
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<PAGE> 8
SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Assets
Receivable from Saddlebrook Resorts, Inc. $2,559,459 $1,549,733
========== ==========
Liabilities and Participants' Fund Balance
Due to participants for rental pool distribution $2,102,999 $1,256,492
Due to maintenance escrow fund 456,460 293,241
Participants' fund balance -- --
---------- ----------
$2,559,459 $1,549,733
========== ==========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 826,328 $ 74,676
Investments 991,501 1,678,812
Receivables:
Distribution fund 456,460 293,241
Interest 14,417 16,904
Prepaid maintenance 252,597 325,648
Linen inventory 109,626 145,109
---------- ----------
$2,650,929 $2,534,390
========== ==========
Liabilities and Participants' Fund Balance
Accounts payable $ 199,755 $ 94,288
Participants' fund balance 2,451,174 2,440,102
---------- ----------
$2,650,929 $2,534,390
========== ==========
</TABLE>
-8-
<PAGE> 9
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Rental pool revenue $6,300,403 $6,241,366
---------- ----------
Deductions:
Marketing expense 472,530 468,102
Management expense 787,550 780,171
Travel agent commissions 285,295 280,859
Credit card expense 72,697 53,548
Bad debt expense 9,000 3,000
---------- ----------
1,627,072 1,585,680
---------- ----------
Net rental income 4,673,331 4,655,686
Less operator share of net rental income (2,102,999) (2,095,059)
Other revenues (expenses):
Complimentary room revenues 19,743 23,498
Minor repairs and replacements (30,616) (28,951)
---------- ----------
Amount available for distribution $2,559,459 $2,555,174
========== ==========
</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,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Balance at beginning of period $ -- $ --
Additions:
Amount available for distribution 2,559,459 2,555,174
Reductions:
Amount withheld for maintenance escrow fund (456,460) (460,115)
Amount accrued or paid to participants (2,102,999) (2,095,059)
---------- ----------
Balance at end of period $ -- $ --
========== ==========
MAINTENANCE ESCROW FUND
Three months ended
March 31,
------------------------
1999 1998
---------- ----------
Balance at beginning of period $2,440,102 $1,852,584
Additions:
Amount withheld from distribution fund 456,460 460,115
Unit owner payments 39,865 121,254
Interest earned 21,208 17,101
Reductions:
Escrow account refunds (138,307) (29,132)
Maintenance charges (60,049) (66,279)
Unit renovations (271,273) (691,635)
Linen replacement (36,832) (30,308)
---------- ----------
Balance at end of period $2,451,174 $1,633,700
========== ==========
</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, 1999 when compared with its fiscal year-end of
December 31, 1998. The primary effect of this seasonal period was an increase
in cash and accumulated earnings.
The Registrant's debt agreement provides for additional financing from the same
lender of $5,000,000 if certain financial covenants are met (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 liquidity could be affected by the litigation 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, 1999. No 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 Registrant's current
cash reserves, cash generated by resort operations or by additional funds, if
available, from it's current lender discussed above.
Management is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The
Registrant's systems for property management and financial accounting had been
in use for many years which necessitated an upgrading to the current
technological standards for its industry. Consequently, the Registrant replaced
its hardware and software for both systems in 1998 at an aggregate cost of
approximately $395,000. Based on testing of the new computer systems,
management anticipates that they will be year 2000-compliant and the effects of
the millennium on the Registrant's operations will be minimized. However,
although management has made inquiries, it cannot be certain that entities
which it does business with have successfully addressed this issue. Problems
encountered by these entities could have a possible effect on the Registrant's
operations.
-11-
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations
Total revenues decreased $124,000 or less than 1% for the first quarter of 1999
when compared with the same period in 1998. This decrease resulted from
slightly fewer occupied unit nights and guests in the resort, which were
partially offset by a higher average room rate, for the current period when
compared to the same period the previous year. Anticipated occupied unit nights
for the remainder of 1999 are expected to remain at the prior year's level.
Projections for occupied unit nights in the year 2000 and subsequent fiscal
periods are expected to remain at the resort's current volume of business.
Net income for the first quarter of 1999 decreased $317,000 or 7% from the same
period in 1998. This was a direct result of the decrease in revenues along with
an increased interest expense related to the Registrant's higher debt in the
current period when compared to the previous 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 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 a Rental Pool and
Agency Appointment Agreement. The level of the Registrant's occupancy and
related average daily room rate directly impacts revenues and expenses used to
determine the distribution.
The average occupancies for the quarters ended March 31, 1999 and 1998 were 66%
and 72%, respectively. The average distributions of net rental income per
participating condominium unit for the same periods were $4,654 and $4,646,
respectively. The slight improvement in the average distribution of net rental
income was primarily due to an increase in the average daily rate which
increased the total amount available for distribution for the current quarter
when compared to the same period the prior year.
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<PAGE> 13
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.
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 the
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. The matter should proceed to trial in the latter part of 1999.
Management currently believes that the Registrant's position in further
litigation of this matter is 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.
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<PAGE> 14
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, 1999.
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 12, 1999 /s/ Donald L. Allen
----------------- -------------------------
Donald L. Allen
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 12,779,052
<SECURITIES> 991,501
<RECEIVABLES> 6,133,390
<ALLOWANCES> 269,323
<INVENTORY> 1,610,198
<CURRENT-ASSETS> 22,786,703
<PP&E> 34,131,984
<DEPRECIATION> 11,901,084
<TOTAL-ASSETS> 46,080,404
<CURRENT-LIABILITIES> 12,105,404
<BONDS> 0
100,000
0
<COMMON> 0
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 46,080,404
<SALES> 16,534,084
<TOTAL-REVENUES> 16,534,084
<CGS> 0
<TOTAL-COSTS> 11,788,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 467,113
<INCOME-PRETAX> 4,278,467
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,278,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,278,467
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
