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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal period ended December 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None*
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None*
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 [ ]
----- -----
State the aggregate value of voting stock held by nonaffiliates of the
registrant: None*
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: Not applicable*
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's Form S-1 Registration Statement (no. 2-65481)
as declared effective December 28, 1979 are incorporated by reference into
Part IV.
* Registrant has no common stock subject to this annual report.
Exhibit index on Page 28
Page 1 of 34
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PART I
Item 1. Business
Saddlebrook Resorts, Inc., (the "Registrant") was incorporated in the State of
Florida on June 20, 1979 as a wholly-owned subsidiary of Pittway Real Estate,
Inc. ("PREI"). PREI was a wholly-owned subsidiary of Penton Publishing, Inc.
which, in turn, was a wholly-owned subsidiary of Pittway Corporation of
Northbrook, Illinois. The Registrant was formed to acquire an existing golf
course and tennis club and develop it into a condominium resort and residential
homes project.
Thomas L. Dempsey ("Dempsey") effectively purchased one hundred percent (100%)
of the authorized and issued stock of the Registrant from PREI in November
1988. Dempsey is the former Chairman of the Board of Penton Publishing, Inc.
and a former Director and Vice President of Pittway Corporation. Dempsey
subsequently gifted 13,000 shares of the Registrant's non-voting stock to
family trusts (see Item 12. Security Ownership of Certain Beneficial Owners and
Management of this Form 10-K, which is incorporated herein by reference).
Prior to November 1988, the Registrant operated and reported the results of its
operations in two industry segments: (1) the real estate segment was engaged in
the development, construction and sales of resort and residential condominium
units, homes and residential lots and (2) the resort segment was engaged in the
ownership and operation of the resort including its facilities for hotel,
convention, food and beverage, golf, tennis and other recreational activities.
In connection with and immediately prior to the sale of the stock of the
Registrant to Dempsey, the Registrant deeded the property which comprised its
real estate segment to PREI as a dividend from a subsidiary to its parent. The
property that was conveyed to PREI was not used as part of the resort or by its
rental guests or condominium owners.
In June 1998, each share of the Registrant's outstanding capital stock was
exchanged for one share of Saddlebrook Holdings, Inc. ("SHI") stock. After the
exchange, Dempsey and the family trusts own 100% of SHI which owns 100% of the
Registrant.
The operations of the Registrant are not considered to be dependent upon the
availability of raw materials, nor the effect of the duration of patents,
licenses, franchises or concessions held.
The Registrant's resort operations are seasonal with a higher volume of sales
during the winter and spring seasons.
The Registrant's competition includes major golf and tennis resorts nationwide,
which provide luxury accommodations and facilities for conventions and
recreational activities.
At December 31, 1999, there were approximately 820 persons employed by the
Registrant. Management's relationship with employees is excellent and there are
no collective bargaining agreements.
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Item 2. Properties
Saddlebrook Resort is located in south Pasco County, near Tampa, Florida. The
property originally consisted of approximately 330 acres which the Registrant
purchased in July 1979. In addition, approximately 170 and 11 adjoining acres
were purchased and added to the Saddlebrook project in 1984 and 1985,
respectively. The Registrant's property has been approved for 950 residential
and condominium units.
A portion of the Registrant's property that was being developed as residential
single family and cluster homes and improved residential lots known as Fairway
Village was deeded to PREI in November 1988 (see Item 1. Business of this Form
10-K, which is incorporated herein by reference).
Property improvements for the resort consist of condominium units which were
sold or are for sale to outside parties of which there were 550 rental units
participating in a rental pooling program at December 31, 1999 (see Exhibit 28
- - Interest Being Registered of this Form 10-K, which is incorporated herein by
reference).
Certain condominium units and their contents, tennis courts and tracts of real
property held for development which were owned by the Registrant are no longer
encumbered by the Registrant's debt (see Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations of this Form 10-K,
which is incorporated herein by reference). Accordingly, concurrent with the
1998 refinancing of its prior debt, the Registrant effectively distributed the
unencumbered property to SHI at its aggregate book value of approximately
$2,515,000.
In addition to condominium units, resort facilities owned by the Registrant and
its affiliates include a 117,000 square foot convention facility with
approximately 60,000 square feet of meeting space, two 18-hole golf courses, 45
tennis courts, a luxury health spa, a fitness center, three swimming pools,
three restaurants, shops and other facilities necessary for the operation of a
resort. In addition, a facility was completed in the first quarter 2000 which
increases group function space by 18,000 square feet.
Item 3. 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 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 (see Item 1. Business of this Form 10-K, which is incorporated
herein by reference).
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Item 3. Legal Proceedings (continued)
On March 18, 1992, the Florida Second District Court of Appeal let stand a
circuit court opinion that reversed and vacated the jury verdict and judgment
against the Registrant and ordered a new trial due to the false testimony of
the plaintiff's 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 plaintiff
will be prohibited from introducing evidence on some, but not all, of the
damages sought.
On March 10, 2000, the Registrant and the plaintiff reached a settlement
agreement which was approved by the court. Upon settlement, the case was
dismissed with prejudice without right to appeal. Final resolution has been
reflected in the financial statements in Item 8 of this Form 10-K, which is
incorporated herein by reference.
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 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Registrant's stock is privately held and there is no established market for
the stock (see Item 12. Security Ownership of Certain Beneficial Owners and
Management of this Form 10-K, which is incorporated herein by reference).
Condominium units that were developed and sold by the Registrant are deemed to
be securities due to the rental pool feature (see Exhibit 28 - Interest Being
Registered of this Form 10-K, which is incorporated herein by reference).
However, there is no market for such securities other than the normal real
estate market. Since the security is real estate, no dividends have been paid
or will be paid.
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Item 6. Selected Financial Data
Year ended December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Operating revenues $47,306,000 $48,395,000 $41,753,000 $37,309,000 $35,625,000
Net income before
taxes 2,336,000 5,675,000 3,133,000 1,740,000 1,797,000
Total assets 37,773,000 40,956,000 32,707,000 29,519,000 29,157,000
Notes payable 24,628,000 25,530,000 18,687,000 19,567,000 18,764,000
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Registrant obtained financing from a third-party lender in June 1998, which
replaced its prior debt. The financing has a fixed annual interest rate of
7.7%, monthly principal and interest payments of approximately $244,000 and
matures on June 30, 2013. The Registrant may obtain additional financing from
the same lender of $5,000,000 provided certain financial covenants are met (see
Note 7 Note Payable of the Notes to Financial Statements in Item 8 of this Form
10-K, which is incorporated herein by reference).
Construction of the resort was substantially complete as of December 1982.
During the fiscal period ended December 31, 1999, the Registrant commenced
construction on a new facility which expands its group function space by 18,000
square feet. This structure, named the Grand Pavilion, was completed in the
spring of 2000 at a cost of approximately $1,620,000. During the fiscal period
ended December 31, 1998, the Registrant completed several capital projects for
an aggregate cost of approximately $2,187,000. However, no individual project
had a cost in excess of $1,000,000. During the fiscal periods ended December
31, 1997 and 1996, the Registrant constructed a new fitness and recreation
center and upgraded its previous fitness center area into a luxury spa at an
aggregate cost of $1,410,000. There were no other major capital additions or
improvements during the fiscal years ended December 31, 1999, 1998 and 1997.
Significant capital expenditures are not anticipated in the next year. 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 funds provided by the refinancing of the Registrant's debt discussed
above.
Management is not aware of any environmental matters other than the issue in
Item 3. Legal Proceedings of this Form 10-K, which is incorporated herein by
reference.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The Registrant's operations are not considered to be dependent on any
individual or small group of customers, the loss of whom would have a material
adverse effect.
Management is aware of the issues associated with the programming code in
computer systems related to the new millennium (year 2000). 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 and their performance
to-date, management anticipates that they are year 2000-compliant and the
effects of the new millennium on the Registrant's operations will be minimal.
There are no adverse purchase or other commitments outstanding as of December
31, 1999.
Results of Operations
Revenues for the fiscal years ended December 31, 1999, 1998 and 1997 were
comprised of the following areas of operation:
Year ended December 31,
------------------------
1999 1998 1997
------ ------ ------
Hotel revenues 49% 48% 48%
Merchandise sales 37 37 36
Club fees 13 13 15
Other income 1 2 1
------ ------ ------
100% 100% 100%
====== ====== ======
Total revenues decreased $1,089,000 or 2% for the fiscal year ended December
31, 1999 when compared with the previous year. This decrease resulted from
slightly fewer occupied unit nights and number of guests in the resort,
partially offset by a higher average daily room rate, for the current year when
compared to the prior year. Total revenues increased $6,642,000 or 16% for the
fiscal year ended December 31, 1998 when compared with its previous year. This
improvement was the result of an increase in occupied unit nights, average
daily rate and number of guests who stayed at the resort for that fiscal period
when compared to its prior period. Projections for occupied unit nights and
revenues for the year 2000 and subsequent fiscal periods are expected to remain
at the resort's current volume of business.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Net income decreased $3,339,000 or 59% for the fiscal year ended December 31,
1999 when compared with the previous year. This decrease is a result of lower
revenues, expected increases in general costs of operation and costs associated
with the litigation explained in Item 3. Legal Proceedings of this Form 10-K,
which is incorporated herein by reference. The net income for the fiscal year
ended December 31, 1998 increased $2,542,000 or 81% when compared with its
previous year. This improvement was a direct result of that year's increased
revenues which were offset by expected increases in general costs of operation,
when compared to the prior year.
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 (see Note 2 Significant Accounting
Policies of the Notes to Financial Statements in Item 8 of this Form 10-K,
which is incorporated herein by reference).
In management's estimation, the effects of inflation and changing prices on the
Registrant's results of operations were negligible in 1999, 1998 and 1997.
Saddlebrook Rental Pool Operation
The Saddlebrook Rental Pool Operation (the "Rental Pool") is described in Note
2 Significant Accounting Policies of the Notes to Financial Statements of
Saddlebrook Resorts, Inc. and in Note 1 Rental Pool Operations and Rental Pool
Agreement of the Notes to Financial Statements of Saddlebrook Rental Pool
Operation in Item 8 of this Form 10-K, which are incorporated herein by
reference.
The average occupancy for fiscal 1999, 1998 and 1997 was 52%, 57% and 54%,
respectively. The average distribution of Net Rental Income per participating
rental unit for fiscal 1999, 1998 and 1997 was $11,394, $12,106 and $11,093,
respectively.
Item 8. Financial Statements and Supplementary Data
The financial statements, including the Reports of Independent Certified Public
Accountants, for Saddlebrook Resorts, Inc. are included on pages 12 to 22 and
for Saddlebrook Rental Pool Operation on pages 23 to 27. An index to the
financial statements is on page 11.
Financial statement schedules have been omitted because they are not applicable
or the required information is shown in the financial statements or notes
thereto.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The Directors and Executive Officers of the Registrant are as follows:
Name Position Background
Thomas L. Dempsey Chairman of the Board, Chairman of the Board, Penton
Age 73 President and Chief Publishing, Inc., Cleveland, OH,
29822 Fairway Dr. Executive Officer Vice President and Director,
Wesley Chapel, FL Pittway Corp., Northbrook, IL
Eleanor Dempsey Vice Chairman of the Wife of Thomas Dempsey
29822 Fairway Dr. Board
Wesley Chapel, FL
Richard Boehning Director, Executive Vice General Manager, Doral Hotel
Age 65 President and General and Country Club, Miami, FL
5017 Pinelake Rd. Manager
Wesley Chapel, FL
Gregory R. Riehle Director, Vice President Son-in-law of Thomas Dempsey,
Age 43 and Secretary Attorney, Shumaker, Loop &
30338 Laurelwood Ln. Kendrick, Tampa, FL
Wesley Chapel, FL
Maureen Dempsey Director, Vice President Daughter of Thomas Dempsey,
Age 41 and Assistant Secretary President, Saddlebrook
29812 Fairway Dr. International Tennis, Inc.
Wesley Chapel, FL
Diane L. Riehle Director, Vice President Daughter of Thomas Dempsey,
Age 39 and Assistant Secretary Regional Sales Manager,
30338 Laurelwood Ln. Saddlebrook Resorts, Inc.
Wesley Chapel, FL
Donald L. Allen Vice President and Controller, Kiawah Island,
Age 60 Treasurer Charleston, SC
1314 Foxwood Dr.
Lutz, FL
Robert A. Shaw Assistant Treasurer and Controller, Gulf Shores
Age 43 Corporate Controller Plantation, Gulf Shores, AL,
5404 Saddlebrook Way CPA, Price Waterhouse,
Wesley Chapel, FL Indianapolis, IN
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Item 11. Executive Compensation
The directors and executive officers of the Registrant as of December 31, 1999
are listed in Item 10 of this Form 10-K, which is incorporated herein by
reference. The aggregate remuneration from the Registrant for all directors and
executive officers for the fiscal year ended December 31, 1999 was $1,377,000.
Of this amount, Thomas Dempsey received $219,000, Eleanor Dempsey received
$164,000, Richard Boehning received $300,000, Gregory Riehle received $140,000,
Maureen Dempsey received $199,000 and Diane Riehle received $200,000. No other
director or executive officer received compensation in excess of $100,000.
Directors and executive staff are allowed to use the Registrant's resort
facilities and are provided various discounts on related purchases in
accordance with hospitality industry standards. The Registrant has no other
compensation plans for directors and executive officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Title of Name of beneficial Amount and nature of Percent
class owner beneficial ownership of class
Common Saddlebrook Holdings, Inc. 100.0% 100%
Common Thomas L. Dempsey 100.0% 0%
Common Maureen Dempsey Trust 6.5% 0%
Common Diane Lynn Riehle Trust 6.5% 0%
In December 1994, the Registrant's Articles of Incorporation were amended to
increase the number of shares of authorized common stock from 25,000 to 100,000
shares. Each of the 500 shares of stock that was previously outstanding was
then exchanged for 100 shares of voting stock and 100 shares of nonvoting
stock. The par value of each share remains unchanged at $1. On October 1, 1995,
6,500 shares of nonvoting stock was gifted by Thomas L. Dempsey to each of two
family trusts.
In June 1998, each share of the Registrant's outstanding capital stock was
exchanged for one share of Saddlebrook Holdings, Inc. ("SHI") stock. After the
exchange, Thomas L. Dempsey and the family trusts own 100% of SHI which owns
100% of the Registrant.
Item 13. Certain Relationships and Related Transactions
As of December 31, 1999, present and past executive officers and/or directors
of the Registrant have personally accounted for real estate sales totaling
$2,748,000 since inception of the project. Other relationships and related
transactions are described in Note 8 Related Party Transactions of the Notes to
Financial Statements in Item 8 of this Form 10-K, which is incorporated herein
by reference.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial statements and schedules required to be filed are listed in
Item 8 of this Form 10-K, which is incorporated herein by reference.
Exhibits required to be attached by Item 601 of Regulation S-K are
listed in the Index to Exhibits attached to this Form 10-K, which is
incorporated herein by reference.
(b) The Registrant was not required to file a Form 8-K during the year
ended December 31, 1999.
Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2000 /s/ Donald L. Allen
-----------------------
Donald L. Allen
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 2000.
/s/ Thomas L. Dempsey /s/ Richard Boehning
----------------------- ----------------------
Thomas L. Dempsey Richard Boehning
President and Chairman Director and Executive
of the Board Vice President
(Principal Executive Officer)
/s/ Gregory R. Riehle /s/ Robert A. Shaw
----------------------- ----------------------
Gregory R. Riehle Robert A. Shaw
Director and Vice President Assistant Treasurer
and Corporate Controller
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SADDLEBROOK RESORTS, INC.
INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PAGE
Financial Statements
SADDLEBROOK RESORTS, INC.
Report of Independent Certified Public Accountants 12
Balance Sheets at December 31, 1999 and 1998 13
Statements of Income for each of the three years in the period
ended December 31, 1999 14
Statements of Changes in Shareholders' Equity for each of the
three years in the period ended December 31, 1999 15
Statements of Cash Flows for each of the three years in the
period ended December 31, 1999 16
Notes to Financial Statements 17-22
SADDLEBROOK RENTAL POOL OPERATION
Report of Independent Certified Public Accountants 23
Balance Sheets at December 31, 1999 and 1998 24
Statements of Operations for each of the three years in the period
ended December 31, 1999 25
Statements of Changes in Participants' Fund Balance for each of
the three years in the period ended December 31, 1999 26
Notes to Financial Statements 27
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of
Saddlebrook Resorts, Inc.
In our opinion, the accompanying balance sheets and the related statements of
income, changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Saddlebrook Resorts, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Tampa, Florida
March 10, 2000
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SADDLEBROOK RESORTS, INC.
BALANCE SHEETS
- -------------------------------------------------------------------------------
DECEMBER 31,
1999 1998
ASSETS
Current assets:
Cash and cash equivalents $ 5,551,280 $ 8,604,005
Escrowed cash 372,104 91,326
Short-term escrowed investments 195,251 1,180,327
Trade accounts receivable, net of allowances for
doubtful accounts of $164,000 and $271,000 2,874,562 5,185,155
Due from related parties 531,179 643,681
Resort inventory and supplies 1,832,538 1,582,488
Prepaid expenses and other assets 550,830 670,643
----------- -----------
Total current assets 11,907,744 17,957,625
Long-term escrowed investments 398,553 498,485
Property, buildings and equipment, net 24,930,026 21,937,929
Deferred charges, net of accumulated amortization of
$60,000 and $19,000 537,046 561,904
----------- -----------
$37,773,369 $40,955,943
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 1,097,965 $ 996,764
Escrowed deposits 965,908 1,770,138
Accounts payable 1,515,163 1,598,704
Accrued rental distribution 1,431,301 1,613,142
Accrued payroll and related expenses 770,608 818,240
Accrued taxes 77,633 63,067
Guest deposits 1,909,517 1,988,483
Accrued expenses and other liabilities 2,073,696 1,338,098
Due to related parties 441,318 811,398
----------- -----------
Total current liabilities 10,283,109 10,998,034
Notes payable due after one year 23,529,604 24,532,820
----------- -----------
Total liabilities 33,812,713 35,530,854
----------- -----------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock 100,000 100,000
Additional paid-in capital 1,013,127 1,013,127
Accumulated earnings 2,847,529 4,311,962
----------- -----------
Total shareholders' equity 3,960,656 5,425,089
----------- -----------
$37,773,369 $40,955,943
=========== ===========
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
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SADDLEBROOK RESORTS, INC.
STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
Year ended
December 31,
1999 1998 1997
Resort revenues (Note 8) $47,306,209 $48,394,775 $41,752,786
----------- ----------- -----------
Cost and expenses:
Operating costs of resort (Note 8) 32,292,105 31,515,915 28,128,453
Sales and marketing 3,781,059 3,548,950 3,529,378
General and administrative 5,256,616 4,297,181 3,785,816
Depreciation and amortization 1,755,644 1,573,902 1,489,063
Interest 1,885,218 1,784,187 1,687,092
----------- ----------- -----------
Total costs and expenses 44,970,642 42,720,135 38,619,802
----------- ----------- -----------
Net income $ 2,335,567 $ 5,674,640 $ 3,132,984
=========== =========== ===========
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
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SADDLEBROOK RESORTS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Total
Common Additional Accumulated shareholders'
stock paid-in capital earnings equity
Balance at December 31, 1996 $ 100,000 $1,013,127 $ 2,378,825 $ 3,491,952
Net income 3,132,984 3,132,984
Distributions to shareholders (1,652,594) (1,652,594)
---------- ---------- ----------- -----------
Balance at December 31, 1997 100,000 1,013,127 3,859,215 4,972,342
Net income 5,674,640 5,674,640
Distributions to shareholders (2,707,361) (2,707,361)
Distribution of fixed assets to
shareholder (2,514,532) (2,514,532)
---------- ---------- ----------- -----------
Balance at December 31, 1998 100,000 1,013,127 4,311,962 5,425,089
Net income 2,335,567 2,335,567
Distributions to shareholder (3,800,000) (3,800,000)
---------- ---------- ----------- -----------
Balance at December 31, 1999 $ 100,000 $1,013,127 $ 2,847,529 $ 3,960,656
========== ========== =========== ===========
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
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SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
Year ended
December 31,
1999 1998 1997
Cash flows from operating activities:
Net income $ 2,335,567 $ 5,674,640 $ 3,132,984
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,755,644 1,573,902 1,489,063
Loss (gain) on disposal of property, buildings
and equipment 1,188 (124,217) 4,629
Provision for doubtful accounts 12,844 125,300 77,100
Change in assets and liabilities:
(Increase) decrease in:
Escrowed cash (280,778) 1,194 124,167
Escrowed investments 1,085,008 (389,547) (890,038)
Trade accounts receivable 2,297,749 (1,269,015) (662,351)
Resort inventory and supplies (250,050) (14,516) (108,877)
Prepaid expenses and other assets 119,813 (146,968) (148,466)
Increase (decrease) in:
Escrowed deposits (804,230) 388,353 765,871
Accounts payable (83,541) 1,057,423 (56,699)
Accrued rental distribution (181,841) 163,347 6,283
Guest deposits (78,966) (173,137) 1,070,902
Accrued expenses and other liabilities 702,532 (430,015) 488,483
----------- ----------- ----------
Net cash provided by operating activities 6,630,939 6,436,744 5,293,051
----------- ----------- ----------
Cash flows from investing activities:
Proceeds from sales of equipment 1,625 210,000 555,400
Capital expenditures (4,587,029) (2,187,248) (3,040,501)
----------- ----------- ----------
Net cash used in investing activities (4,585,404) (1,977,248) (2,485,101)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from notes payable - 26,000,000 -
Payments on notes payable (1,025,244) (19,157,336) (880,000)
Distribution to shareholders (3,800,000) (2,707,361) (1,652,594)
Financing costs (15,438) (540,637) (36,641)
Due to/from related parties (257,578) (304,753) 197,684
----------- ----------- ----------
Net cash (used in) provided by financing activities (5,098,260) 3,289,913 (2,371,551)
----------- ----------- ----------
Net (decrease) increase in cash and cash equivalents (3,052,725) 7,749,409 436,399
Cash and cash equivalents, beginning of year 8,604,005 854,596 418,197
----------- ----------- ----------
Cash and cash equivalents, end of year $ 5,551,280 $ 8,604,005 $ 854,596
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 1,942,398 $ 1,918,953 $1,608,123
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Distribution of fixed assets to shareholder $ - $ 2,514,532 $ -
Capital lease obligation $ 123,229 $ - $ -
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
16
17
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. THE COMPANY:
Saddlebrook Resorts, Inc. (the "Company") was incorporated in the
State of Florida in June 1979 at which time it purchased a golf course
and tennis complex, as well as certain undeveloped land, located in
Pasco County, Florida, which was developed as a resort-condominium and
residential homes project. Property improvements for the resort
consist of condominiums which were sold or are for sale to outside
parties. The majority of the condominium units sold are provided as
hotel accommodations by their owners under a Rental Pool and Agency
Appointment Agreement. As of December 31, 1999, the resort facilities
include two 18 hole golf courses, eight tennis courts, three swimming
pools, three restaurants, a 117,000 square foot convention facility
with approximately 60,000 square feet of meeting space, a luxury
health spa, a fitness center, shops and other facilities necessary for
the operation of a luxury resort. In addition, a facility was
completed in the first quarter of 2000 which increases the group
function space by 18,000 square feet.
On June 29, 1998, the Company's shareholders exchanged each share of
the outstanding common stock for one share of common stock of
Saddlebrook Holdings, Inc. ("SHI"). After the exchange, the Company's
prior shareholders own 100% of SHI which owns 100% of the Company.
2. SIGNIFICANT ACCOUNTING POLICIES:
A summary of the Company's significant accounting policies follows:
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash equivalents
All highly liquid debt instruments purchased with an original maturity
of three months or less are considered to be cash equivalents.
Resort inventory and supplies
Inventory includes operating materials and supplies and is accounted
for at the lower of first-in, first-out cost or market.
Investments
Investments, which are held to maturity, are recorded at amortized
cost, which approximates fair market value.
Property, buildings and equipment
Property, buildings and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the assets on a
straight-line basis. Expenditures for renewals and improvements that
significantly add to or extend the useful life of an asset are
capitalized.
17
18
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Expenditures for repairs and maintenance are charged to expense as
incurred. With the retirement or other disposition of property,
buildings and equipment, the cost of the assets and related
accumulated depreciation amounts are removed from the accounts, and
any resulting gains or losses are reflected in operations.
Management periodically reviews the potential impairment of property,
buildings and equipment in order to determine the proper carrying
value of property, buildings and equipment as of each balance sheet
date presented. Based on this review, there were no adjustments made
to the carrying value of operating properties during the three years
ended December 31, 1999.
Deferred charges
In connection with the Company's refinancing of its debt during 1998,
financing costs in the amount of $597,000 were incurred and
capitalized. These financing costs are being amortized using a method
that approximates the effective interest method over fifteen years,
the life of the related debt outstanding.
Amortization expense for deferred charges amounted to $41,000, $87,000
and $127,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Operating costs of resort
Included in operating costs of resort are service fee revenues
associated with various operating departments, primarily banquets.
Such amounts were $2,397,000, $2,577,000 and $1,993,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Rental pool operations
Resort revenues include rental revenues for condominium units owned by
third parties participating in the rental pool. If these rental units
were owned by the Company, normal costs associated with ownership such
as depreciation, real estate taxes, maintenance, and other costs would
have been incurred. Instead, resort operating expenses for the years
ended December 31, 1999, 1998 and 1997 include rental pool
distributions to condominium unit owners approximating $6,278,000,
$6,646,000 and $6,090,000, respectively.
Income taxes
Effective February 1, 1990, the Company elected S Corporation status
for federal and state income tax purposes. Taxable income and losses
are ultimately passed through to the shareholders, and accordingly, no
provision for income taxes has been made in the accompanying financial
statements. As of December 31, 1999, the Company has approximately
$470,000 in tax net operating loss carryforwards, which expire in 2002
available only to offset future C Corporation taxable income.
3. COMMON STOCK:
At December 31, 1999 and 1998, the Company had 50,000 shares of voting
common stock and 50,000 shares of nonvoting common stock authorized,
issued and outstanding. The par value of the voting and nonvoting
common stock was $1.00 at December 31, 1999 and 1998.
18
19
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. ESCROWED CASH:
Escrowed cash, restricted as to use, at December 31 is comprised of
the following:
1999 1998
Rental pool unit owner deposits for maintenance reserve fund
held in a bank account which bears an interest rate of 3.6% $353,829 $74,676
Security deposits held on long-term rentals 18,275 16,650
-------- -------
$372,104 $91,326
======== =======
5. ESCROWED INVESTMENTS:
Escrowed investments at December 31 are comprised of the following:
1999 1998
U.S. Treasury Securities $ 593,804 $ 1,678,812
Less current portion (195,251) (1,180,327)
--------- -----------
$ 398,553 $ 498,485
========= ===========
Escrowed investments relate to rental pool unit owner deposits for the
maintenance reserve fund which bear interest at rates ranging from
4.6% to 6.5%. Long-term portions of these investments mature in 2001
through 2003.
6. PROPERTY, BUILDINGS AND EQUIPMENT, NET:
Property, buildings and equipment, net at December 31 consist of the
following:
Estimated
Useful
Lives 1999 1998
Land and land improvements $ 4,412,745 $ 3,820,478
Buildings and recreational facilities 10-40 21,407,692 19,133,063
Machinery and equipment 2-15 11,173,064 9,147,470
Construction in progress 1,128,285 1,371,265
------------ ------------
38,121,786 33,472,276
Accumulated depreciation (13,191,760) (11,534,347)
------------ ------------
$ 24,930,026 $ 21,937,929
============ ============
Substantially all property, buildings and equipment are mortgaged,
pledged or otherwise subject to lien under loan agreements (Note 7).
On June 29, 1998, the Company distributed to its shareholders at its
aggregate book value of approximately $2,515,000, its unencumbered
condominium units, tennis courts and certain tracts of real property.
19
20
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Depreciation expense amounted to $1,715,000, $1,487,000 and $1,362,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company leases certain equipment under an agreement which is
classified as a capital lease. The equipment and obligations related
to the lease are recorded at the present value of the minimum lease
payments. During 1999, the Company recorded approximately $11,000 of
interest expense related to the lease. Depreciation is computed on a
straight-line basis over the estimated useful life of the asset. Total
depreciation expense was approximately $24,000 during 1999 on the
asset under lease.
The Company leases certain equipment under operating leases. Some of
the leases contain annual renewal options after the initial lease
term. Lease expense amounted to $319,000, $228,000 and $203,000 for
the years ended December 31, 1999, 1998 and 1997, respectively. Future
minimum lease payments for noncancelable operating leases with initial
lease terms in excess of one year approximate:
2000 $ 163,800
2001 52,119
2002 4,200
2003 and thereafter --
----------
$ 220,119
==========
7. NOTES PAYABLE:
Notes payable at December 31 consists of the following:
1999 1998
Note payable to lender, 15 year term, 7.70% fixed interest
rate, monthly ratable principal and interest payments,
secured by all current and subsequently acquired real
and personal property $ 24,532,820 $25,529,584
Capital lease obligation 94,749 -
Less current portion (1,097,965) (996,764)
------------ -----------
$ 23,529,604 $24,532,820
============ ===========
On June 29, 1998, the Company financed a $26 million note payable. The
proceeds from the note payable were used principally to retire the
prior debt. Under the terms of the agreement, the Company is required
to meet debt service coverage ratios as defined. The Company was in
compliance at December 31, 1999. The Company has the ability to obtain
an additional $5 million from the same lender under the terms of the
agreement.
Principal maturities of the note payable are due as follows: 2000 -
$1,097,965; 2001 - $1,186,270; 2002 - $1,281,699; 2003 - $1,377,062;
2004 and thereafter - $19,684,573.
20
21
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
8. RESORT REVENUES AND OPERATING COSTS OF RESORT:
Resort revenues and operating costs of resort for the years ended
December 31 are comprised of the following:
1999 1998 1997
Resort Revenues
Room revenue subject to rental pool agreement $15,555,374 $16,310,670 $14,981,287
Food and beverage 14,764,053 15,682,829 13,182,191
Resort facilities and other 16,986,782 16,401,276 13,589,308
----------- ----------- -----------
$47,306,209 $48,394,775 $41,752,786
=========== =========== ===========
Operating Costs of Resort
Room expense subject to rental pool agreement $ 6,278,003 $ 6,646,176 $ 6,090,010
Food and beverage 10,239,266 9,810,205 8,306,784
Resort facilities and other 15,774,836 15,059,534 13,731,659
----------- ----------- -----------
$32,292,105 $31,515,915 $28,128,453
=========== =========== ===========
9. RELATED PARTY TRANSACTIONS
At December 31, 1999, a net payable amounting to approximately
$326,000 was due to SHI, the Company's parent (Note 1), primarily
relating to dividends declared to the Company's shareholders during
1994 in the amount of $350,000 which were unpaid as of December 31,
1999 and net intercompany charges and cash transfers. At December 31,
1998, a net receivable amounting to approximately $57,000 was due from
SHI, primarily relating to amounts paid by the Company for condominium
improvements made to their units, net of dividends declared to the
Company's shareholders during 1994 in the amount of $350,000 which
were unpaid as of December 31, 1998.
Saddlebrook International Tennis, Inc. ("SIT") is a tennis training
facility and preparatory school operating at the resort. SIT is solely
owned by the Company's parent. The Company charges SIT various amounts
for services provided to SIT guests, which amounted to approximately
$2,142,000, $1,947,000 and $1,730,000 for the years ended December 31,
1999, 1998 and 1997, respectively. In addition, the Company is
reimbursed for allocated expenses and other costs paid on behalf of
SIT. At December 31, 1999, the amounts due to/from SIT were included
in the net payable to SHI. At December 31, 1998, a net payable
amounting to approximately $274,000 resulted from net intercompany
charges and cash transfers.
Saddlebrook Investments, Inc. is a broker/dealer for sales of
Saddlebrook Resort condominium units. Saddlebrook Realty, Inc. is a
broker/dealer for the sale of other general real estate. These
companies are solely owned by the majority shareholder of the
Company's parent. At December 31, 1999 and 1998, a net payable of
approximately $98,000 and $186,000, respectively, resulted from net
intercompany charges and cash transfers.
The Company performs certain accounting and property management
activities on behalf of the Saddlebrook Resort Condominium Association
(the "Association") and is reimbursed for expenses paid on behalf of
the Association. Expenses paid on behalf of and services provided to
the Association amounted to approximately $1,012,000, $976,000 and
$971,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. At December 31, 1999 and 1998, a net receivable of
approximately $101,000 and $100,000 respectively, was due from the
Association.
21
22
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company and the original owner of the resort have an agreement to
split equally the costs of defense in the litigation and any ultimate
judgment or remedial work relating to litigation with the adjacent
property owners of the resort. A receivable for reimbursable costs of
defense and remedial work at December 31, 1999 and 1998 was
approximately $388,000 and $120,000, respectively. See Note 10 for
discussion of litigation.
Due from related parties also consists of other miscellaneous
receivables and employee advances owed the Company of approximately
$25,000 and $15,000 at December 31, 1999 and 1998, respectively.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
On May 12, 1989, a judgment was entered against the Company in the
amount of $8,082,000 relating to damages to adjacent property owners
for surface water effects as a result of past development. In
addition, an injunction was entered to remediate the damages relating
thereto.
On March 18, 1992, the Florida Second District Court of Appeal let
stand a circuit court decision reversing and vacating the jury verdict
and judgment against the Company and ordered a new trial due to the
false testimony of the plaintiffs' expert hydrologist. On December 7,
1994, the trial court heard oral arguments on the merits of the
Company's motion for summary judgment based on collateral estoppel and
ruled in the Company's favor. On January 7, 1995, the court entered an
order granting summary judgment in favor of the Company and dismissing
the action. The plaintiffs then appealed this order to the Florida
Second District Court of Appeal on April 21, 1995. On August 16, 1996,
the appellate court issued its opinion affirming and reversing, in
part, the trial court's grant of summary judgment to the Company. On
November 19, 1996, the Company filed a motion to determine the issues
that remain for retrial. Oral arguments for that motion took place on
May 15, 1997. On April 1, 1998, the trial court entered an order on
the issues remaining to be tried. The plaintiff sought rehearing of
that order on April 13, 1998. The rehearing was denied on July 30,
1998. On March 10, 2000, the Company and the plaintiff reached a
settlement agreement, which was approved by the court. Upon
settlement, the case was dismissed with prejudice without right to
appeal. Final resolution has been reflected in the accompanying
financial statements.
The Company 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
and/or the effect, if any, of these claims is not material to the
reported financial condition or results of operations of the Company
as of December 31, 1999.
Insurance pool
The Company has pooled its risks with other resorts by forming an
insurance purchasing group in which they retain an equity interest and
to which they pay insurance premiums. The Company's ownership is less
than 9% and all amounts contributed as capital ($122,950 as of
December 31, 1999) are reflected as prepaid expenses and other assets
in the accompanying Balance Sheets. The Company's investment
approximates the proportionate net book value of the insurance company
as of December 31, 1999. The Company may withdraw from the risk pool
at any renewal date (annually).
22
23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Saddlebrook
Resorts, Inc., as Operators under the Saddlebrook
Rental Pool and Agency Appointment Agreement
In our opinion, the accompanying balance sheets and the related statements of
operations and of changes in participants' fund balance present fairly, in all
material respects, the financial position of the Saddlebrook Rental Pool
Operation (funds created for participants who have entered into a rental pool
agreement as explained in Note 1) at December 31, 1999 and 1998, and the
results of its operations and the changes in participants' fund balance for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the rental pool's operators; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Tampa, Florida
March 10, 2000
23
24
SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS
- -------------------------------------------------------------------------------
DISTRIBUTION FUND
DECEMBER 31,
1999 1998
ASSETS
Receivable from Saddlebrook Resorts, Inc. $1,354,525 $1,549,733
========== ==========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Due to participants for rental pool distribution $1,108,663 $1,256,492
Due to maintenance escrow fund 245,862 293,241
Participants' fund balance -- --
---------- ----------
$1,354,525 $1,549,733
========== ==========
MAINTENANCE ESCROW FUND
ASSETS DECEMBER 31,
1999 1998
Cash in bank $ 353,829 $ 74,676
Investments 593,804 1,678,812
Receivables:
Distribution fund 245,862 293,241
Interest 8,180 16,904
Prepaid maintenance 636,669 325,648
Linen inventory 222,188 145,109
---------- ----------
$2,060,532 $2,534,390
========== ==========
LIABILITIES AND PARTICIPANTS' FUND BALANCE
Accounts payable $ 340,730 $ 94,288
Participants' fund balance 1,719,802 2,440,102
---------- ----------
$2,060,532 $2,534,390
========== ==========
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
24
25
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
DISTRIBUTION FUND
YEAR ENDED
DECEMBER 31,
1999 1998 1997
Rental pool revenues $ 15,555,374 $ 16,310,670 $ 14,981,287
------------ ------------ ------------
Deductions:
Marketing fee 1,166,653 1,223,299 1,123,597
Management fee 1,944,422 2,038,834 1,872,661
Travel agent commissions 746,589 698,483 682,404
Credit card expense 197,293 160,148 151,701
Bad debt expense 33,000 53,000 10,000
------------ ------------ ------------
4,087,957 4,173,764 3,840,363
------------ ------------ ------------
Net rental income 11,467,417 12,136,906 11,140,924
Operator share of net rental income (5,160,338) (5,461,608) (5,013,416)
Other revenues (expenses):
Complimentary room revenues 103,488 92,121 105,871
Minor repairs and replacements (132,564) (121,243) (143,369)
------------ ------------ ------------
Amounts available for distribution to
participants and maintenance
escrow fund $ 6,278,003 $ 6,646,176 $ 6,090,010
============ ============ ============
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
25
26
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
- --------------------------------------------------------------------------------
DISTRIBUTION FUND
YEAR ENDED
DECEMBER 31,
1999 1998 1997
Balance, beginning of period $ -- $ -- $ --
Additions:
Amounts available for distribution 6,278,003 6,646,176 6,090,010
Reductions:
Amounts withheld for maintenance
escrow fund (1,117,665) (1,184,568) (1,076,594)
Amounts accrued or paid to participants (5,160,338) (5,461,608) (5,013,416)
----------- ----------- -----------
Balance, end of period $ -- $ -- $ --
=========== =========== ===========
MAINTENANCE ESCROW FUND
YEAR ENDED
DECEMBER 31,
1999 1998 1997
Balance, beginning of period $ 2,440,102 $ 1,852,584 $ 1,146,309
Additions:
Amount withheld from distribution fund 1,117,665 1,184,568 1,076,594
Unit owner payments 288,909 554,024 238,174
Interest earned 77,792 79,361 49,901
Reductions:
Unit renovations (1,690,746) (716,219) (144,458)
Refunds of excess amounts in escrow accounts (209,874) (145,966) (200,025)
Maintenance charges (217,416) (249,025) (221,687)
Linen amortization (86,630) (119,225) (92,224)
----------- ----------- -----------
Balance, end of period $ 1,719,802 $ 2,440,102 $ 1,852,584
=========== =========== ===========
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
26
27
SADDLEBROOK RENTAL POOL OPERATION
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. RENTAL POOL OPERATIONS AND RENTAL POOL AGREEMENT:
Condominium units are provided as rental (hotel) accommodations by
their owners under the Rental Pool and Agency Appointment Agreement
(the "Agreement") with Saddlebrook Resorts, Inc. (collectively, the
"Rental Pool"). Saddlebrook Resorts, Inc. ("Saddlebrook") acts as
operator of the Rental Pool, which provides for the distribution of a
percentage of net rental income, as defined, to the owners.
The Saddlebrook Rental Pool Operation consists of two funds, the
Rental Pool Income Distribution Fund ("Distribution Fund") and the
Maintenance and Furniture Replacement Escrow Fund ("Maintenance Escrow
Fund"). The operations of the Distribution Fund reflect the earnings
of the Rental Pool. The Distribution Fund balance sheets reflect
amounts due from Saddlebrook for the rental pool distribution payable
to participants and amounts due to the Maintenance Escrow Fund. The
amounts due from Saddlebrook are required to be distributed no later
than forty-five days following the end of each calendar quarter. The
Maintenance Escrow Fund reflects the accounting for escrowed assets
used to maintain unit interiors and replace furniture as it becomes
necessary.
Rental pool participants and Saddlebrook share rental revenues
according to the provisions of the Agreement. Net Rental Income shared
consists of rentals received less a marketing surcharge of 7.5%, a
12.5% management fee, travel agent commissions, credit card expense
and provision for bad debts, if warranted. Saddlebrook receives 45% of
Net Rental Income as operator of the Rental Pool. The remaining 55% of
Net Rental Income after adjustments for complimentary room revenues
(ten percent of the normal unit rental price paid by Saddlebrook for
promotional use of the unit) and certain minor repair and replacement
charges is available for distribution to the participants and
maintenance escrow fund based upon each participants' respective
participation factor (computed using the value of a furnished unit and
the number of days it was available to the pool). Quarterly, 45% of
Net Rental Income is distributed to participants, and 10%, as adjusted
for complimentary room revenues and minor interior maintenance and
replacement charges, is deposited in an escrow account until a maximum
of 20% of the set value of the individual owner's furniture package
has been accumulated. Excess escrow balances are refunded to
participants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of accounting
The accounting records of the funds are maintained on the accrual
basis of accounting.
Investments
Investments consist of U.S. Treasury Securities which bear interest at
rates ranging from 4.6% to 6.5% (4.4% to 7.1% for 1998). At December
31, 1999 and 1998, investments of $195,251 and 1,180,327,
respectively, mature in one year or less.
Income taxes
No federal or state taxes have been reflected in the accompanying
financial statements as the tax effect of fund activities accrues to
the rental pool participants and operator.
27
28
INDEX TO EXHIBITS
Sequential
Number and Description of Exhibit Page Number
3.1 Articles of Incorporation of Saddlebrook Resorts, Inc.,
a Florida corporation (incorporated by reference to
Exhibit A*).
3.2 Corporate By-laws of Saddlebrook Resorts, Inc.
(incorporated by reference to Exhibit B*).
4. Declaration of Condominium, together with the following:
(1) Articles of Incorporation of the Saddlebrook
Association of Condominium Owners, Inc. a Florida
non-profit corporation; (2) By-laws of the Saddlebrook
Association of Condominium Owners, Inc., and (3) Rules
and Regulations of the Saddlebrook Association of
Condominium Owners, Inc. (incorporated by reference to
Exhibit C*).
10.1 Management Contract between Saddlebrook Resorts, Inc.
and the Saddlebrook Association of Condominium Owners,
Inc. (incorporated by reference to Exhibit C*).
10.2 Saddlebrook Rental Pool and Agency Appointment
Agreement. 29
10.3 Saddlebrook Rental Management Agency Employment
(incorporated by reference to Exhibit E*).
10.4 Form of Purchase Agreement (incorporated by reference to
Exhibit H*).
10.5 Form of Deed (incorporated by reference to Exhibit I*).
10.6 Form of Bill of Sale (incorporated by reference to
Exhibit J*).
27. Financial Data Schedule (SEC use only). 33
28. Interest Being Registered. Pages 21 and 22 of the
Post-Effective Amendment No. 9 to Registration Statement
on Form S-1 No. 2-65481 filed by the Registrant on March
25, 1986. 34
* Identification of exhibit incorporated by reference from the
Registration Statement No. 2-65481 previously filed by Registrant,
effective December 28, 1979.
28