<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 September 30, 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 September 30, 1999 and December 31, 1998 3
Statements of Operations for the three months and nine
months ended September 30, 1999 and 1998 4
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 5
Notes to Financial Statements 6
Saddlebrook Rental Pool Operation
Balance Sheets at September 30, 1999 and December 31, 1998 8
Statements of Operations for the three months and nine
months ended September 30, 1999 and 1998 9
Statements of Changes in Participants' Fund Balance for
the nine months ended September 30, 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>
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SADDLEBROOK RESORTS, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,988,748 $ 8,604,005
Escrowed cash 185,640 91,326
Short-term escrowed investments 879,260 1,180,327
Accounts receivable, net 2,560,009 5,185,155
Due from related parties 948,579 643,681
Inventory and supplies 1,733,174 1,582,488
Prepaid expenses and other assets 721,570 670,643
----------- -----------
Total current assets 14,016,980 17,957,625
Long-term escrowed investments 398,553 498,485
Property, buildings and equipment, net 23,426,812 21,937,929
Deferred charges, net 545,977 561,904
----------- -----------
$38,388,322 $40,955,943
=========== ===========
Liabilities and Shareholder's Equity
Current liabilities:
Current portion of note payable $ 1,055,827 $ 996,764
Escrowed deposits 1,463,453 1,770,138
Accounts payable 1,052,728 1,598,704
Accrued rental distribution 758,779 1,613,142
Accrued payroll and related expenses 1,212,722 818,240
Guest deposits 1,542,116 1,988,483
Accrued expenses and other liabilities 1,282,657 1,401,165
Due to related parties 978,611 811,398
----------- -----------
Total current liabilities 9,346,893 10,998,034
Note payable due after one year 23,733,402 24,532,820
----------- -----------
Total liabilities 33,080,295 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 4,194,900 4,311,962
----------- -----------
Total shareholder's equity 5,308,027 5,425,089
----------- -----------
$38,388,322 $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 Nine months ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 7,343,017 $ 7,520,075 $36,391,776 $36,717,410
---------- ---------- ---------- ----------
Costs and expenses:
Operating costs 6,503,263 6,125,875 24,198,276 23,444,500
Sales and marketing 829,549 703,569 2,678,314 2,437,108
General and administrative 1,179,345 988,594 3,415,601 3,148,308
Depreciation and amortization 385,136 377,212 1,142,464 1,194,833
Interest 449,323 486,843 1,374,183 1,222,246
---------- ---------- ---------- ----------
Total costs and expenses 9,346,616 8,682,093 32,808,838 31,446,995
---------- ---------- ---------- ----------
Net income (loss) (2,003,599) (1,162,018) 3,582,938 5,270,415
Distribution to shareholder (3,700,000) - (3,700,000) (4,188,946)
Accumulated earnings at
beginning of period 9,898,499 6,102,702 4,311,962 3,859,215
---------- ---------- ---------- ----------
Accumulated earnings at
end of period $ 4,194,900 $ 4,940,684 $ 4,194,900 $ 4,940,684
========== ========== ========== ==========
</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>
Nine months ended
September 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Operating activities:
Net income $ 3,582,938 $ 5,270,415
Non-cash items included in net income:
Provision for doubtful accounts 55,085 44,000
Depreciation and amortization 1,142,464 1,194,833
Loss on sale of assets 1,188 -
Decrease (increase) in:
Accounts receivable 2,570,061 216,846
Inventory and supplies (150,686) 28,388
Prepaid expenses and other assets (50,927) (220,951)
Increase (decrease) in:
Accounts payable (545,976) (78,566)
Accrued expenses and other liabilities (1,024,756) (1,289,676)
---------- ----------
5,579,391 5,165,289
---------- ----------
Investing activities:
Proceeds from sale of assets 1,624 -
Capital expenditures (2,602,794) (1,116,311)
---------- ----------
(2,601,170) (1,116,311)
---------- ----------
Financing activities:
Notes payable borrowings - 27,500,000
Payments on notes payable (740,355) (20,419,871)
Financing costs (15,438) (497,484)
Advances from (to) related parties (137,685) 512,463
Distribution to shareholder (3,700,000) (1,674,414)
---------- ----------
(4,593,478) 5,420,694
---------- ----------
Net increase (decrease) in cash (1,615,257) 9,469,672
Cash at beginning of period 8,604,005 854,596
---------- ----------
Cash at end of period $ 6,988,748 $10,324,268
========== ==========
Supplemental disclosure:
Cash paid for interest $ 1,455,534 $ 1,396,279
Distribution of fixed assets to shareholder - 2,514,532
</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, 1998.
Note 2. Accounts Receivable
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Trade accounts receivable $ 2,824,292 $ 5,456,280
Less reserve for bad debts (264,283) (271,125)
----------- -----------
$ 2,560,009 $ 5,185,155
=========== ===========
</TABLE>
Note 3. Property, Buildings and Equipment
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Land and land improvements $ 3,820,478 $ 3,820,478
Buildings and recreational facilities 19,518,007 19,133,063
Machinery and equipment 9,471,615 9,147,470
Construction in progress 3,204,224 1,371,265
----------- -----------
36,014,324 33,472,276
Less accumulated depreciation (12,587,512) (11,534,347)
----------- -----------
$23,426,812 $21,937,929
=========== ===========
</TABLE>
The Registrant's property, buildings and equipment are pledged as security for
its debt (see Note 5).
-6-
<PAGE> 7
Note 4. Deferred Charges
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Debt issue costs $ 596,716 $ 581,278
Less accumulated amortization (50,739) (19,374)
----------- -----------
$ 545,977 $ 561,904
=========== ===========
</TABLE>
Note 5. Note Payable
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Note payable due June 30, 2013 $24,789,229 $25,529,584
Less current portion (1,055,827) (996,764)
----------- -----------
$23,733,402 $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.
An additional $5,000,000 is available from the same lender if certain financial
covenants are met. If received by the Registrant, the additional financing
would be due on June 30, 2013.
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.
-7-
<PAGE> 8
SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets
Receivable from Saddlebrook Resorts, Inc. $ 791,104 $ 1,549,733
=========== ===========
Liabilities and Participants' Fund Balance
Due to participants for rental pool distribution $ 651,922 $ 1,256,492
Due to maintenance escrow fund 139,182 293,241
Participants' fund balance - -
----------- -----------
$ 791,104 $ 1,549,733
=========== ===========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 171,090 $ 74,676
Investments 1,277,813 1,678,812
Receivables:
Distribution fund 139,182 293,241
Interest 18,113 16,904
Prepaid maintenance 379,833 325,648
Linen inventory 161,809 145,109
----------- -----------
$ 2,147,840 $ 2,534,390
=========== ===========
Liabilities and Participants' Fund Balance
Accounts payable $ 167,310 $ 94,288
Participants' fund balance 1,980,530 2,440,102
----------- -----------
$ 2,147,840 $ 2,534,390
=========== ===========
</TABLE>
-8-
<PAGE> 9
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rental pool revenues $ 2,035,454 $ 2,138,511 $12,302,031 $12,530,454
---------- ---------- ---------- ----------
Deductions:
Marketing expense 152,659 160,388 922,652 939,783
Management expense 254,432 267,314 1,537,754 1,566,307
Travel agent commissions 139,225 95,465 655,980 547,838
Credit card expense 31,423 22,848 154,924 117,825
Bad debt expense 9,000 8,000 27,000 14,000
---------- ---------- ---------- ----------
586,739 554,015 3,298,310 3,185,753
---------- ---------- ---------- ----------
Net rental income 1,448,715 1,584,496 9,003,721 9,344,701
Less operator share of net
rental income (651,922) (713,023) (4,051,675) (4,205,116)
Other revenues (expenses):
Complimentary room revenues 24,661 12,191 66,547 56,766
Minor repairs and replacements (30,350) (41,492) (95,115) (99,908)
---------- ---------- ---------- ----------
Amount available for
distribution $ 791,104 $ 842,172 $ 4,923,478 $ 5,096,443
========== ========== ========== ==========
</TABLE>
-9-
<PAGE> 10
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
(Unaudited)
DISTRIBUTION FUND
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1999 1998
----------- ----------
<S> <C> <C>
Balance at beginning of period $ - $ -
Additions:
Amount available for distribution 4,923,478 5,096,443
Reductions:
Amount withheld for maintenance escrow fund (871,803) (891,327)
Amount accrued or paid to participants (4,051,675) (4,205,116)
---------- ----------
Balance at end of period $ - $ -
========== ==========
</TABLE>
MAINTENANCE ESCROW FUND
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 2,440,102 $ 1,852,584
Additions:
Amount withheld from distribution fund 871,803 891,327
Unit owner payments 147,038 479,906
Interest earned 60,343 55,990
Reductions:
Escrow account refunds (190,940) (68,385)
Maintenance charges (167,243) (200,895)
Unit renovations (1,093,943) (716,219)
Linen replacement (86,630) (75,306)
---------- ----------
Balance at end of period $ 1,980,530 $ 2,219,002
========== ==========
</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 with the highest volume of sales
occurring in the first and second quarters of each calendar year. The third
quarter has historically produced the lowest volume of sales. Consequently, the
Registrant's financial condition declined slightly during the third quarter of
1999. However, the Registrant's financial condition at September 30, 1999
remains substantially as it was at its fiscal year-end of December 31, 1998.
The Registrant's loan agreement for its existing debt provides for an
additional $5,000,000 from the same lender 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.
The Registrant has commenced construction on a facility which expands its group
function space by 18,000 square feet, at a projected cost of approximately
$1,100,000. The Registrant also performed several other minor capital
improvements. However, there were no other significant capital additions or
improvements during the nine months ended September 30, 1999. No other major
capital projects are anticipated in the remaining fiscal period. Future
operating costs and planned expenditures for capital additions and improvements
should 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, point-of-sale 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 its key systems in 1998 and
1999 at an aggregate cost of approximately $815,000. 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 $177,000 or 2% for the third quarter of 1999 when
compared with the same period in 1998. Total revenues for the first nine months
of 1999 decreased $326,000 or 1% when compared with the same period in 1998.
These decreases resulted from slightly fewer occupied unit nights and numbers
of guests in the resort, partially offset by a higher average daily room rate,
for the current periods when compared to the same periods in 1998. Anticipated
occupied unit nights for the remainder of 1999 are expected to approximate 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.
A net loss for the third quarter of 1999 increased $842,000 or 72% from the
loss for the same period in 1998. The net income for the first nine months of
1999 decreased $1,687,000 or 32% from the same period in 1998. These declines
were a direct result of the lower revenues along with expected increases in the
general operating costs of the resort.
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 September 30, 1999 and 1998 were
41% and 46%, respectively. The average distributions of net rental income per
participating condominium unit for the same periods were $1,436 and $1,534,
respectively. The decrease in the average distribution of net rental income was
primarily due to the lower occupancy for rental units which decreased the total
amount available for distribution for the current quarter when compared to the
same period the prior year.
-12-
<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 early part of 2000.
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.
-13-
<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 nine months
ended September 30, 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: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,174,388
<SECURITIES> 879,260
<RECEIVABLES> 2,824,292
<ALLOWANCES> 264,283
<INVENTORY> 1,733,174
<CURRENT-ASSETS> 14,016,980
<PP&E> 36,014,324
<DEPRECIATION> 12,587,512
<TOTAL-ASSETS> 38,388,322
<CURRENT-LIABILITIES> 9,346,893
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 1,013,127
<TOTAL-LIABILITY-AND-EQUITY> 38,388,322
<SALES> 36,391,776
<TOTAL-REVENUES> 36,391,776
<CGS> 0
<TOTAL-COSTS> 31,434,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,374,183
<INCOME-PRETAX> 3,582,938
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,582,938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,582,938
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
