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, 2001, there were approximately 710 persons employed by the Registrant. Management's relationship with employees is excellent and there are no collective bargaining agreements.
Item 2.
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 was 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 549 rental units participating in a rental pooling program at December 31, 2001 (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 135,000 square foot convention facility with approximately 78,000 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.
Item 3.
Item 3. Legal Proceedings
The Registrant is involved in 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5.
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 it is real estate, no dividends have been paid or will be paid related to the registered securities.
Item 6.
Item 6. Selected Financial Data
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
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 available under the Registrant's debt agreement discussed above.
Management is not aware of any environmental matters that are currently present.
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.
There are no adverse purchase or other commitments outstanding as of December 31, 2001.
Results of Operations
Revenues for the fiscal years ended December 31, 2001, 2000 and 1999 were comprised of the following areas of operation:
Total revenues decreased $6,597,000 or 13% for the fiscal year ended December 31, 2001 when compared with the previous year. This decrease resulted from fewer occupied unit nights in the resort, partially offset by a slightly higher average daily room rate, for the current year when compared to the prior year. This downturn in business was concentrated in the second half of the current year due to the slowdown in the nation's economy and concerns about national security that adversely affected travel. Total revenues increased $3,078,000 or 6% for the fiscal year ended December 31, 2000 when compared with its previous year. This improvement was the result of increases in both occupied unit nights and the average daily rate at the resort, for that fiscal period when compared to its prior period. Projections for occupied room nights in the year 2002 and subsequent fiscal periods are expected to be lower than the resort's current volume of business pending an improvement in national concerns.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Net income decreased $815,000 or 19% for the fiscal year ended December 31, 2001 when compared with the previous year. This decrease is a result of lower revenues which were mitigated by cost-control measures implemented to reduced operating and administrative expenses during the second half of the year. The net income for the fiscal year ended December 31, 2000 increased $1,867,000 or 80% when compared with its prior year. This improvement was a direct result of the increased revenues which were offset by increases in general costs of operation.
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
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 11 to 22 and for Saddlebrook Rental Pool Operation on pages 23 to 27. An index to the financial statements is on page 10.
Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
The Registrant does not believe its accounting principles are currently subject to significant estimates which would materially impact its financial statements referenced herein.
Item 9.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Directors and Executive Officers of the Registrant are as follows:
Item 11.
Item 11. Executive Compensation
The directors and executive officers of the Registrant as of December 31, 2001 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, 2001 was $1,238,000. Of this amount, the Registrant's compensation to Thomas Dempsey was $217,000, Eleanor Dempsey was $170,000, Richard Boehning was $278,000, Maureen Dempsey was $182,000 and Diane Riehle was $182,000. No other director or executive officer received compensation from the Registrant 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 had no other compensation plans for directors and executive officers at December 31, 2001.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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.
Item 13. Certain Relationships and Related Transactions
As of December 31, 2001, 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 9 Related Party Transactions of the Notes to Financial Statements in Item 8 of this Form 10-K, which is incorporated herein by reference.
PART IV
Item 14.
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, 2001.
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: April 1, 2002 /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 April 1, 2002.
/s/ Thomas L. Dempsey /s/ Richard Boehning ----------------------------------- -------------------------------- Thomas L. Dempsey Richard Boehning Chairman of the Board Director and 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
SADDLEBROOK RESORTS, INC.
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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, of changes in shareholder's equity and of cash flows present fairly, in all material respects, the financial position of Saddlebrook Resorts, Inc. at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion.
/S/ PricewaterhouseCoopers LLP Tampa, Florida March 15, 2002
SADDLEBROOK RESORTS, INC.
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
SADDLEBROOK RESORTS, INC.
STATEMENTS OF INCOME
The accompanying notes are an integral part of these financial statements.
SADDLEBROOK RESORTS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
The accompanying notes are an integral part of these financial statements.
SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. ORGANIZATION AND BUSINESS:
Saddlebrook Resorts, Inc. (the "Company"), a wholly-owned subsidiary of Saddlebrook Holdings, Inc. ("SHI"), 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 (the "Rental Pool"). The resort facilities include two 18 hole golf courses, 45 courts, three swimming pools, three restaurants, a 135,000 square foot convention facility with approximately 78,000 square feet of meeting space, a luxury health spa, a fitness center, shops and other facilities necessary for the operation of a luxury resort.
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 accounting principles generally accepted in the United States of America 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 and Cash Equivalents
All short-term highly liquid 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 held at December 31, 2001 consist of a U.S. Treasury Security, bearing interest at 2.2% which matures in April 2002, and a certificate of deposit, bearing interest at 1.88%, which matures in June 2002. Investments are held to maturity, and recorded at amortized cost, which approximates fair market value. Escrowed investments relate to Rental Pool unit owner deposits for the maintenance reserve fund.
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. Expenditures for repairs and maintenance are charged to expense as incurred. When property, buildings and equipment are retired or otherwise disposed, 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.
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Management periodically reviews the potential impairment of property, buildings and equipment in order to determine its proper carrying value 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, 2001.
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 $40,000, $40,000 and $41,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Resort Revenues
Resort revenues are recognized as the related service is performed and includes 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, 2001, 2000 and 1999 include rental pool distributions to condominium unit owners approximating $5,659,000, $6,619,000 and $6,278,000, 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, 2001, 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.
Employee Benefit Plans
Effective January 1, 2001, SRI sponsors a defined contribution plan (the "Plan"), which provides retirement benefits for all eligible employees who have elected to participate. Employees must fulfill a one year service requirement to be eligible. The Company currently matches one-half of the first 2% of an employee's contribution. Company contributions approximated $72,000 for the year ended December 31, 2001.
Recent Accounting Pronouncements
On October 3, 2001, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 144 ("FAS 144"), Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144 excludes goodwill from its scope and therefore, eliminates the requirement to allocate goodwill to long-lived assets to be tested for impairment. The provisions of FAS 144 will be effective for fiscal years beginning after December 15, 2001. The Company has not completed the process of evaluating the impact that will result from adopting FAS 144; however, currently does not believe its long-lived assets are impaired.
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Reclassifications
Certain prior year balances have been reclassified to conform with current year presentation.
3. COMMON STOCK:
At December 31, 2001 and 2000, 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, 2001 and 2000.
4. ESCROWED CASH:
Escrowed cash, restricted as to use, is comprised of the following:
5. PROPERTY, BUILDINGS AND EQUIPMENT, NET:
Property, buildings and equipment, consist of the following:
Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under loan agreements (Note 7).
Depreciation expense amounted to $2,047,000, $2,017,000 and $1,715,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
The Company leases 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 2001 and 2000, the Company recorded approximately $9,000 and $7,000, respectively, 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 on the asset under lease was approximately $24,000 during 2001 and 2000. Future minimum lease payments under this lease are payable as follows:
The Company also leases equipment under operating leases. Some of the leases contain annual renewal options after the initial lease term. Lease expense amounted to $269,000, $228,000 and $319,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Future minimum lease payments under noncancelable operating leases with initial lease terms in excess of one year are as follows:
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
7. NOTES PAYABLE:
Notes payable consists of the following:
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, 2001. 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: 2003 - $1,377,062; 2004 - $1,463,058; 2005 - $1,579,776; 2006 and thereafter - $16,641,740.
8. RESORT REVENUES AND OPERATING COSTS OF RESORT:
Resort revenues and operating costs of resort are comprised of the following:
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
9. RELATED PARTY TRANSACTIONS
Amounts due from related parties are comprised of the following:
Amounts due to related parties are comprised of the following:
The Company reimburses SHI, the Company's parent, for intercompany charges and cash transfers. At December 31, 2001 and 2000, amounts payable to SHI were approximately $75,000 and $156,000, respectively.
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 $2,527,000, $2,363,000 and $2,142,000 for the years ended December 31, 2001, 2000 and 1999, respectively. In addition, the Company was reimbursed for actual expenses and other costs incurred on behalf of SIT. At December 31, 2001 and 2000, the amounts due from/to SIT were approximately $576,000 and $427,000, respectively.
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, 2001 and 2000, a net payable of approximately $6,300 and a net receivable of approximately $41,000, respectively, resulted from net intercompany charges and cash transfer within these entities.
SADDLEBROOK RESORTS, INC.
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
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 $1,070,000, $1,050,000 and $1,012,000 for the years ended December 31, 2001, 2000 and 1999, respectively. At December 31, 2001 and 2000, a net receivable of approximately $111,000 and $95,000 respectively, was due from the Association.
Amounts from affiliated companies also consists of other miscellaneous receivables and employee advances owed the Company of approximately $162,000 and $23,000 at December 31, 2001 and 2000, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in 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, 2001.
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, 2001) 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, 2001. The Company may withdraw from the risk pool annually at any renewal date.
11. INSURANCE CLAIMS
During 2001, the Company incurred fire damages to two separate buildings at the resort which were adequately covered by insurance from third parties. The Company has received approximately $1,939,000 of insurance proceeds as of December 31, 2001.
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, 2001 and 2000, 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, 2001 in conformity with accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP Tampa, Florida March 15, 2002
SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS
DISTRIBUTION FUND
MAINTENANCE ESCROW FUND
The accompanying notes are an integral part of these financial statements.
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
DISTRIBUTION FUND
The accompanying notes are an integral part of these financial statements.
SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCE
The accompanying notes are an integral part of these financial statements.
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 a U.S. Treasury Security which bears interest at 2.2%, with a maturity date of April 2002. At December 31, 2001 and 2000, investments of $989 and $293,652, 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.
INDEX TO EXHIBITS
(*) Identification of exhibit incorporated by reference from the Registration Statement No. 2-65481 previously filed by Registrant, effective December 28, 1979.