Composite Copy
Reflecting Amendment
No. 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A (No.1)
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended March 31, 1994
[ ] 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: 1-8096
FAIRFIELD COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0390438
(State of Incorporation) (I.R.S. Employer Identification No.)
2800 Cantrell Road, Little Rock, Arkansas 72202
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (501) 664-6000
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
------ ------
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
---- -----
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of May 6, 1994 totaled 9,890,239, of which 160,001 shares
were held by wholly owned subsidiaries of the registrant.
-1-
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
March 31, December 31,
1994 1993
---- ----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,737 $ 4,475
Loans receivable, net 150,739 165,575
Real estate inventories 34,382 34,607
Restricted cash accounts 12,536 10,602
Property and equipment, net 6,273 7,527
Other assets 21,499 23,326
Net assets of discontinued operations 10,315 8,471
-------- --------
$238,481 $254,583
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $123,757 $127,351
Deferred revenue 19,684 20,599
Other liabilities 28,626 36,192
Net liabilities held for sale 17,776 23,293
-------- --------
189,843 207,435
-------- --------
Stockholders' equity:
Common stock 120 120
Paid-in capital 39,021 38,609
Retained earnings 9,497 8,419
-------- --------
48,638 47,148
-------- --------
$238,481 $254,583
======== ========
</TABLE>
Note: The consolidated balance sheet at December 31, 1993 has been
derived from the audited consolidated financial statements at
that date.
See notes to consolidated financial statements.
-2-
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31, 1994 and 1993
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
1994 1993
---- ----
<S> <C> <C>
REVENUES
Vacation ownership, net $ 6,398 $ 4,195
Homes and lots, net 1,795 1,799
Property management 2,740 2,190
Interest 5,324 10,703
Other 3,203 2,290
------- -------
19,460 21,177
------- -------
EXPENSES
Vacation ownership 2,033 1,393
Homes and lots 973 804
Provision for loan losses 580 471
Selling 4,306 3,352
Property management 2,385 2,362
General and administrative 2,535 4,785
Interest, net 2,719 6,887
Other 2,389 891
------- -------
17,920 20,945
------- -------
Earnings before provision for
income taxes 1,540 232
Provision for income taxes 462 146
------- -------
Net earnings $ 1,078 $ 86
======= =======
NET EARNINGS PER SHARE
Primary $.10 $.01
==== ====
Fully diluted $.09 $.01
==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 11,095,519 11,134,117
========== ==========
Fully diluted 11,710,273 11,722,352
========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1994 and 1993
(In thousands)
(Unaudited)
<TABLE>
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Earnings from operations $ 1,078 $ 86
Adjustments to reconcile net earnings to
net cash used in operations:
Depreciation and amortization 335 (758)
Provision for loan losses 580 471
Earnings from unconsolidated affiliates (354) -
Changes in operating assets and
liabilities, net:
Restricted cash accounts (1,934) (13)
Other (1,567) (2,313)
------- -------
Net cash used in operating activities (1,862) (2,527)
------- -------
INVESTING ACTIVITIES
Net purchases of property and equipment (198) (201)
Principal collections on loans 16,875 26,919
Loans originated (5,403) (12,287)
Proceeds from sales of loans to third parties - 8,087
Purchases of investment and mortgage-backed
securities - (16,749)
Payments from maturing investment and
mortgage-backed securities - 12,306
Net cash received from unconsolidated
affiliates 354 366
Net investment activities of assets held
for sale (5,400) -
Net investment activities of discontinued
operations (2,510) (1,126)
------- --------
Net cash provided by investing activities 3,718 17,315
------- --------
FINANCING ACTIVITIES
Proceeds from financing arrangements 27,088 -
Repayments of financing arrangements (30,682) (17,116)
Net increase in demand, savings and money
market accounts - 906
Proceeds from sales of certificates of
deposit - 3,263
Payments for maturing certificates of
deposit - (9,052)
------- --------
Net cash used in financing activities (3,594) (21,999)
------- --------
Net decrease in cash and cash equivalents (1,738) (7,211)
Cash and cash equivalents, beginning of
period 4,475 60,921
-------- --------
Cash and cash equivalents, end of period $ 2,737 $ 53,710
======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
(Unaudited)
The accompanying unaudited financial statements of Fairfield
Communities, Inc. ("Fairfield") and its wholly owned subsidiaries
(collectively, the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial statements and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, the statements for the unaudited interim periods
include all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the financial position and the results of
operations of the Company for such periods. Results of operations for the
period ended March 31, 1994 are not necessarily indicative of the results of
operations that may be expected for a full year or any interim period.
Certain previously reported amounts have been reclassified to conform to the
presentation used for the current period. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Annual Report on Form 10-K, as amended, of the Company for the year ended
December 31, 1993. The accompanying consolidated financial statements, and
related notes thereto, include the accounts of Fairfield and its wholly owned
subsidiaries, with all significant intercompany transactions eliminated.
NOTE 1 - FIRST FEDERAL
- - ------ -------------
On April 6, 1994, Fairfield entered into a Stock Purchase Agreement
to sell the stock (the "Sale") of its wholly owned subsidiary,
First Federal Savings and Loan Association of Charlotte ("First Federal"), to
Security Capital Bancorp ("SCBC").
The Stock Purchase Agreement provides for a sales price of $40.4 million,
which will be increased (subject to the limitation hereafter described)
to reflect the consolidated pretax net earnings of First Federal and its
subsidiaries for the period from October 1, 1993 through the closing of the
Sale, or decreased by the consolidated pretax net losses of First Federal
and its subsidiaries during this time period, whichever is the case (the
"Sales Price"). The increase for pretax earnings of First Federal and
its subsidiaries cannot exceed $1.8 million plus, if the closing of the Sale
occurs after August 1, 1994, in general, the pretax earnings or losses of
First Federal and its subsidiaries from August 1, 1994 through the closing,
provided that the foregoing amounts may be reduced under certain
circumstances for reserves taken or losses (in excess of gains) on Excluded
Assets (as defined below) after September 30, 1993. Up to approximately $1.4
million of the Sales Price is to be retained by SCBC to securitize Fairfield's
obligation to indemnify SCBC against three existing lawsuits/claims which have
been asserted against First Federal (the "Litigation Indemnity").
As part of the proposed transaction, Fairfield is to purchase for cash
(a) at book value, net of reserves, up to approximately $19.8 million, as of
March 31, 1994, of certain real estate, classified loans, joint venture
interests and other assets owned by First Federal (the "Excluded Association
Assets"), subject to the right of SCBC to elect for First Federal to retain
all or part of such assets, and (b) lot and timeshare contracts receivable and
related assets which First Federal previously acquired from Fairfield (the
"Contracts Receivable"), having a book value less certain reserves and a
weighted average yield at March 31, 1994, of approximately $49.7 million and
11.6%, respectively. The Excluded Association Assets and the Contracts
Receivable are
-5-
collectively referred to as the "Excluded Assets". Fairfield expects to
dispose of certain of the Excluded Association Assets in one or more
transactions, and otherwise to monetize the remaining Excluded Association
Assets, following the closing of the Sale. Management intends to dispose of a
substantial portion of the Excluded Association Assets by December 31, 1994.
Approximately $2.9 million in net book value of the Excluded
Association Assets are to be pledged to SCBC, to provide additional security
with respect to both the Litigation Indemnity and the general indemnities
under the Stock Purchase Agreement. Fairfield has certain rights to substitute
collateral in connection with such pledge, including the right to substitute
$0.60 to $0.70 of cash for every $1.00 of net book value of Excluded
Association Assets so pledged. Reserves taken by Fairfield after the
closing on the Excluded Association Assets securing the Litigation Indemnity
may increase the total Excluded Association Assets required as collateral.
Fairfield expects to utilize (a) the cash portion of the Sales Price to
fund the purchase of the Excluded Association Assets and (b) the remaining
cash portion of the Sales Price, plus proceeds from borrowings under the
Company's revolving credit agreements with The First National Bank of Boston
("FNBB"), to fund the purchase of the Contracts Receivable. Under the
Company's revolving credit agreements, in general, within applicable loan
limits, $0.75 of additional borrowing availability is created for each $1.00
in outstanding principal balance of qualifying Contracts Receivable pledged to
FNBB.
Management estimates that the Sale will result in a net gain of
approximately $5.5 million after taking into account (i) writedowns related to
the Excluded Assets estimated at approximately $4.0 million, based upon
Fairfield's accelerated method of disposal of these assets subsequent to the
consummation of the Sale, and (ii) anticipated selling expenses, including
professional fees and other direct expenses, of approximately $3.3 million.
The Sale is subject to numerous conditions, including the obtaining of
necessary approvals from (i) state and federal regulatory authorities, (ii)
FNBB and (iii) Fairfield's stockholders. There is no assurance that the
conditions to closing will be satisfied or that the various regulatory
approvals will be obtained on terms satisfactory to the parties. Assuming
such conditions to closing are satisfied and the approvals are obtained, the
sale is expected to close by September 30, 1994.
Fairfield had previously classified the First Federal segment as a
discontinued operation. As a result of the retention of a significant amount
of assets of First Federal, the consolidated financial statements have been
revised to reflect the Sale as a disposal of a portion of a segment rather
than a discontinued operation. As a result of this change, the consolidated
statement of operations and cash flows for the three months ended March 31,
1993 include the operations and cash flows of First Federal. In addition, the
assets to be sold and liabilities to be assumed by the purchaser have been
included in the Consolidated Balance Sheet at December 31, 1993 and March 31,
1994 as "Net liabilities held for sale" (see Note 8). Pro forma financial
information as if the Sale had occurred as of January 1, 1994
is as follows: Revenues - $19.5 million; earnings from continuing operations
before gain on the Sale - $.7 million; earnings per share from continuing
operations before gain on the Sale (primary) - $.07; earnings per share from
continuing operations before gain on Sale (fully diluted) - $.06.
-6-
NOTE 2 - VACATION OWNERSHIP SALES
- - ------ ------------------------
Vacation ownership sales for the three months ended March 31, 1994 and
1993 are summarized as follows (In thousands):
<TABLE>
1994 1993
---- ----
<S> <C> <C>
Vacation ownership sales $5,755 $3,854
Less: Deferred revenue on
current year sales, net (729) (58)
Add: Deferred revenue on
prior year sales 1,372 399
------ ------
$6,398 $4,195
====== ======
</TABLE>
NOTE 3 - LOANS RECEIVABLE
- - ------ ----------------
Loans receivable consisted of the following (In thousands):
<TABLE>
March 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Contracts $148,600 $159,874
Mortgages 13,304 17,366
-------- --------
161,904 177,240
Less: Allowance for loan losses (10,557) (10,992)
Unamortized valuation discount (608) (673)
-------- --------
$150,739 $165,575
======== ========
</TABLE>
As of March 31, 1994 and December 31, 1993, contracts receivable include
$48.1 million and $52.5 million, respectively, of contracts receivable owned
by First Federal which are to be purchased by the Company (see Note 1).
NOTE 4 - REAL ESTATE INVENTORIES
- - ------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
March 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Land:
Under development $ 8,680 $ 9,490
Undeveloped 13,779 14,771
------- -------
22,459 24,261
------- -------
Residential housing:
Vacation ownership 10,124 8,759
Homes 1,799 1,587
------- -------
11,923 10,346
------- -------
$34,382 $34,607
======= =======
</TABLE>
-7-
NOTE 5 - FINANCING ARRANGEMENTS
- - ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
March 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Revolving credit agreements $ 12,652 $ 12,223
Notes payable 96,335 100,358
Senior Subordinated Notes 14,770 14,770
-------- --------
$123,757 $127,351
======== ========
</TABLE>
Notes payable include $78.3 million and $81.6 million at March 31, 1994
and December 31, 1993, respectively, of 7.6% Notes secured by a pool of
contracts receivable totaling $86.2 million and $91.8 million, respectively.
NOTE 6 - SUPPLEMENTAL INFORMATION
- - ------ ------------------------
Reorganization expenses paid totaled $.2 million and $.9 million for the
three months ended March 31, 1994 and 1993, respectively. Interest paid on
financing arrangements, including debt collateralized principally by assets of
discontinued operations, totaled $6.2 million and $8.4 million for the three
months ended March 31, 1994 and 1993, respectively. Of these amounts, $3.2
million and $3.4 million, respectively, were related to First Federal.
Other revenues and expenses for the three months ended March 31, 1994
include $2.3 million and $2.1 million, respectively, relating to bulk asset
sales and related cost of sales. During the three months ended March 31,
1993, bulk asset sales and related costs of sales totaled $.5 million and $.4
million, respectively. Other revenues for the three months ended March 31,
1994 also include cash distributions totaling $.4 million related to the
Company's 35% partnership interest in Harbour Ridge, Ltd., a limited
partnership engaged in the development of a tract of land in St. Lucie,
Florida. There were no similar revenues for the three months ended March 31,
1993.
During the three months ended March 31, 1994 and 1993, benefits realized
from the utilization of pre-confirmation net operating loss carryforwards and
recognition of pre-confirmation deductible temporary differences of $.4
million and $41,000, respectively, were recorded as reductions of the
Company's valuation allowance for deferred tax assets and as additions to
paid-in capital.
-8-
NOTE 7 - FAIRFIELD ACCEPTANCE CORPORATION ("FAC")
- - ----- ---------------------------------------
Condensed consolidated financial information for FAC is summarized as
follows (In thousands):
Condensed Consolidated Balance Sheets
<TABLE>
March 31, December 31,
1994 1993
---- ----
<S> <C> <C>
ASSETS
Cash $ 1,037 $ 711
Loans receivable, net 90,232 94,668
Restricted cash and escrow accounts 12,536 10,602
Due from parent 8,281 7,392
Other assets 2,884 3,113
-------- --------
$114,970 $116,486
======== ========
LIABILITIES AND EQUITY
Notes payable $ 78,299 $ 81,559
Revolving credit agreement 4,958 4,283
Accrued interest and other liabilities 708 745
Equity 31,005 29,899
-------- --------
$114,970 $116,486
======== ========
</TABLE>
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1994 and 1993
<TABLE>
1994 1993
---- ----
<S> <C> <C>
Revenues $3,189 $3,578
Expenses 2,006 2,312
------ ------
Earnings before provision for income taxes 1,183 1,266
Provision for income taxes 453 485
------ ------
Net earnigs $ 730 $ 781
====== ======
</TABLE>
NOTE 8 - NET LIABILITIES HELD FOR SALE
- - ------ ------------------------------
A summary of net liabilities held for sale is as follows (In thousands):
<TABLE>
March 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Cash $ 30,048 $ 14,205
Loans receivable, net 144,361 157,178
Real estate owned 15,722 15,322
Investment and mortgage-backed securities 68,834 76,708
Other 13,465 15,476
-------- --------
272,430 278,889
Savings deposits (272,055) (276,672)
Advances from Federal Home Loan Bank (13,886) (20,907)
Other liabilities (4,265) (4,603)
--------- --------
Net liabilities held for sale $ (17,776) $ (23,293)
========= =========
</TABLE>
-9-
NOTE 9 - DISCONTINUED OPERATIONS
- - ------ -----------------------
A summary of net assets of discontinued operations is as follows (In
thousands):
<TABLE>
March 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Real estate inventories $ - $ 15,652
Property and equipment 11,968 21,429
------- --------
11,968 37,081
Revolving credit agreements - (19,933)
Notes payable (1,447) (2,458)
Accrual for losses (206) (6,219)
------- --------
$10,315 $ 8,471
======= ========
</TABLE>
In March 1994, Fairfield sold the stock of its wholly owned
subsidiaries, Fairfield Green Valley, Inc. and Fairfield Sunrise Village, Inc.
(collectively, the "Arizona Subsidiaries") at approximate book value. The
consideration received by Fairfield included (i) release of a lien on and
transfer to Fairfield of 2,235,294 shares of Fairfield's Common Stock owned
by the Arizona Subsidiaries and pledged to their primary lender, an affiliate
of Bank of America Arizona (the "Bank"), (ii) release of a mortgage in favor
of the Bank on a tract of unimproved property owned by Fairfield, and (iii)
release from any further liability to the Bank. Subsequent to the closing,
Fairfield recorded the shares of its Common Stock previously owned by the
Arizona Subsidiaries as treasury stock.
NOTE 10 - CONTINGENCIES
- - ------- -------------
In June 1992, the Pagosa Lakes Property Owners Association ("PLPOA")
filed an adversary proceeding in the Bankruptcy Court for the Eastern District
of Arkansas, Western Division (the "Bankruptcy Court") asserting equitable
ownership or lien interests in certain recreational amenities, including golf
courses. In March 1994, the Bankruptcy Court issued its decision upholding
Fairfield's ownership of the Pagosa recreational amenities, subject to a
restrictive covenant allowing Pagosa property owners and their guests to use
the recreational amenities. The PLPOA has filed an appeal of the Bankruptcy
Court's decision with the United States District Court, Eastern District of
Arkansas, Western Division.
In August 1992, the PLPOA filed an appeal of the Bankruptcy Court's
final order confirming Fairfield's plan of reorganization. This appeal is
pending before the United States District Court, Eastern District of Arkansas,
Western Division. The basis for the appeal is the PLPOA's position that
Fairfield should have been required to resolicit the plan of reorganization
due to its amendment in accordance with the Bankruptcy Court's conditional
confirmation order to eliminate any recovery for Fairfield's previous
stockholders. The Bankruptcy Court rejected this argument, finding that the
property owner group lacked standing to raise this issue, and in management's
opinion, the appeal is without merit and moot, since the plan of
reorganization has been substantially implemented. The issues on appeal have
been briefed, but no decision has been rendered.
The PLPOA and Archuleta County have filed claims, which are largely
duplicative, in the Bankruptcy Court for approximately $10.4 million and $9.7
million, respectively, for promised improvements to be constructed at the
Pagosa, Colorado resort site and other matters. Trial is scheduled for May,
1994.
-10-
On or about July 21, 1993 and September 9, 1993, two lawsuits (the
"Recreation Fee Litigation") were filed by 29 individuals and a company
against Fairfield in the District Court of Archuleta County, Colorado. The
Recreation Fee Litigation, which seeks certification as class actions, alleges
that Fairfield and its predecessors in interest wrongfully imposed an annual
recreation fee on owners of lots, condominiums, townhouses, VOIs and single
family residences in Fairfield's Pagosa, Colorado development. The amount of
the recreation fee, which was adopted in August, 1983, is $180 per lot,
condominium, townhouse and single family residence subject to the fee and $360
per unit for VOIs. The Recreation Fee Litigation in general seeks (a) a
declaratory judgment that the recreation fee is invalid; (b) the refund, with
interest, of the recreation fees which were allegedly improperly collected by
Fairfield; (c) damages arising from Fairfield's allegedly improper attempts to
collect the recreation fee (i) in an amount of not less than $1,000 per lot in
one case and (ii) in an unstated amount in the other case; (d) punitive
damages; and (e) recovery of costs and expenses, including attorneys' fees.
The court has not yet ruled on whether or not the Recreation Fee Litigation
will be allowed to proceed as class actions or on whether the cases will be
consolidated. Because of the preliminary nature of the litigation and
uncertainty concerning the time period covered by the suits' allegations,
Fairfield is unable to determine with any certainty the dollar amount sought
by plaintiffs, but believes it to be material.
On November 3, 1993, Fairfield filed an adversary proceeding in the
Bankruptcy Court, alleging that the Recreation Fee Litigation violates the
discharge granted to Fairfield in its Chapter 11 bankruptcy reorganization and
the injunction issued by the Bankruptcy Court against prosecution of any
claims discharged in the bankruptcy proceedings. The Colorado State Court
separately has stayed further proceedings in the Recreation Fee Litigation
pending decision by the Bankruptcy Court.
Fairfield intends to defend vigorously the Recreation Fee Litigation.
Fairfield has previously implemented recreation fee charges at certain other
of its resort sites which are not subject to the pending action.
On December 10, 1993, Charlotte T. Curry, who purchased a lot from
Fairfield under an installment sale contract subsequently sold to First
Federal, filed suit against First Federal, currently pending in Superior Court
in Mecklenburg County, North Carolina, alleging breach of contract, breach of
fiduciary duty and unfair trade practices. On April 8, 1994, the complaint
was amended, (a) adding Fairfield as a party, (b) adding an additional count
against both Fairfield and First Federal alleging violation of the North
Carolina's Racketeer Influenced and Corrupt Organizations ("RICO") Statute and
(c) adding a count against Fairfield alleging fraud. The litigation, which
seeks class action certification, contests the method by which Fairfield
calculated refunds for lot purchasers whose installment sale contracts were
canceled due to failure to complete payment of the deferred sales price for
the lot. Most installment lot sale contracts require Fairfield to refund to a
defaulting purchaser the amount paid in principal, after deducting the greater
of (a) 15% of the purchase price of the lot or (b) Fairfield's actual damages.
The plaintiff disputes Fairfield's method of calculating damages, which has
historically included certain sales, marketing and other expenses. In the
case of Ms. Curry's lot, the amount of refund claimed as having been
improperly retained is approximately $3,600. The Curry lawsuit seeks damages,
punitive damages, treble damages under North Carolina law for unfair trade
practices and RICO, prejudgment interest and attorney's fees and costs.
Fairfield and First Federal intend to defend the Curry litigation
vigorously. Fairfield also cancels defaulted lot installment sales contracts
owned by it and its subsidiaries (other than First Federal), using the same
method of calculating refunds as is at issue in the Curry litigation.
-11-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- - ------ -----------------------------------------------------------------------
OF OPERATIONS
-------------
The disposal of First Federal had previously been recorded as a disposal
of a segment whereby the operations and cash flows of First Federal were
reported as those of discontinued operations. As a significant amount of the
assets of First Federal are to be retained, the consolidated financial
statements have been revised to reflect the disposal of First Federal as a
disposal of a portion of a segment rather than as a discontinued operation.
Specifically, this results in the operations and cash flows of First Federal,
for periods prior to January 1, 1994, being included in the Consolidated
Financial Statements of Earnings and Cash Flows. For periods subsequent to
January 1, 1994, the operations of First Federal which relate to the assets to
be sold and the liabilities to be assumed by the purchaser have been deferred
as a net gain on the disposal of First Federal is anticipated. In addition,
the net liabilities to be sold have been recorded in the December 31, 1993 and
March 31, 1994 Consolidated Balance Sheets as "Net liabilities held for sale".
For purposes of management's discussion and analysis, the consolidated
statement of earnings for the three months ended March 31, 1993 has been
adjusted to exclude the effects of the operations related to the assets of
First Federal which are to be sold and the liabilities which are to be assumed
by the purchaser. As a result, interest income totals $6.5 million, interest
expense totals $4.3 million and general and administrative expense totals $2.6
million.
RESULTS OF OPERATIONS
Vacation Ownership
------------------
Gross vacation ownership interval ("VOI") revenues totaled $5.8 million
and $3.9 million for the three months ended March 31, 1994 and 1993,
respectively. This improvement is reflective of (i) increased sales volume at
several of the Company's sites and (ii) additional sales at the Company's
newest destination site at Branson, Missouri, which began sales efforts in
June 1993.
Net VOI revenues increased to $6.4 million for the three months ended
March 31, 1994 from $4.2 million for the three months ended March 31, 1993.
The increase in net VOI revenues is attributable to the same factors as noted
above, plus the recognition of $.3 million of previously deferred revenue
related to the percentage of completion method of accounting. Under this
method, the portion of revenues attributable to costs incurred as compared to
total estimated construction costs and selling expenses, is recognized in the
period of sale. The remaining revenue is deferred and recognized as the
remaining costs are incurred.
Cost of sales, as a percentage of revenues, improved to 31.8% for the
three months ended March 31, 1994 from 33.2% from the comparable period in
1993. The fluctuation in the percentage is primarily attributable to the mix
of the products sold and the varying acquisition and development costs at
certain sites.
Selling expenses, including commissions, for both VOI and lot sales, as
a percentage of related revenues, were 56.2% and 59.4%, for the three months
ended March 31, 1994 and 1993, respectively. The decrease in selling
expenses, as a percentage of related revenues, is attributed to efficiencies
experienced primarily at the Company's destination site at Branson, Missouri.
The Company continues to emphasize less expensive marketing programs (e.g.,
property owner referrals) in an effort to reduce these expenses, as a
percentage of related revenues.
-12-
Property Management
-------------------
Net property management revenues totaled $.4 million for the three
months ended March 31, 1994 as compared to net property management expenses of
$.2 million for the three months ended March 31, 1993. The improvement
reflects increased property management revenues coupled with more effective
cost controls.
Interest
--------
Interest income totaled $5.3 million for the three months ended March
31, 1994 as compared to $6.5 million for the three months ended March 31,
1993. The decrease is primarily attributable to a lower average balance of
outstanding contracts receivable (1994 - $151.3 million; 1993 - $191.3
million), resulting primarily from principal collections exceeding
originations.
Interest expense, net of capitalized interest, totaled $2.7 million and
$4.3 million for the three months ended March 31, 1994 and 1993, respectively.
The decrease is primarily attributable to the restructuring of the Company's
debt in September 1993 which contributed to (i) reductions in the average
outstanding balance of interest-bearing debt (1994 - $124.6 million; 1993 -
$138.4 million) and (ii) a decrease in the weighted average interest rates
between the respective periods.
Other
-----
Other revenues and expenses for the three months ended March 31, 1994
include $2.3 million and $2.1 million, respectively, relating to bulk asset
sales and related cost of sales. During the three months ended March 31,
1993, bulk asset sales and related costs of sales totaled $.5 million and $.4
million, respectively. Other revenues for the three months ended March 31,
1994, also include cash distributions totaling $.4 million related to the
Company's 35% partnership interest in Harbour Ridge, Ltd., a limited
partnership engaged in the development of a tract of land in St. Lucie,
Florida. There were no similar revenues for the three months ended March 31,
1993.
PROVISION FOR INCOME TAXES
During the three months ended March 31, 1994 and 1993, benefits realized
from the utilization of pre-confirmation net operating loss carryforwards and
recognition of pre-confirmation deductible temporary differences of $.4
million and $41,000, respectively, were recorded as reductions of the
Company's valuation allowance for deferred tax assets and as additions to
paid-in capital.
FINANCIAL CONDITION
Total consolidated assets of the Company decreased $16.1 million from
December 31, 1993 to March 31, 1994. The decrease in assets is primarily
attributable to a $14.8 million decrease in loans receivable resulting
primarily from principal collections exceeding origination of receivables.
Total consolidated liabilities of the Company decreased $17.6 million from
December 31, 1993 to March 31, 1994 and is primarily attributable to (i) a
$5.5 million decrease in net liabilities held for sale and (ii) a $3.6 million
net decrease in financing arrangements. The reduction in net liabilities held
for sale was primarily attributable to a decrease in the liabilities of First
Federal of $12 million, which was partially offset by a $6.5 million decrease
in the assets of First Federal (see Note 8 of "Notes to Consolidated Financial
Statements").
-13-
Other variations in the Company's assets and liabilities generally
reflect the revenue and expense activities the Company experienced during the
three months ended March 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company decreased $1.7 million from
December 31, 1993 to March 31, 1994. During the three months ended March 31,
1994, the Company generated $16.9 million of cash from principal collections
on loans receivable (including $4.6 million related to contracts receivable
held by First Federal) which was partially offset by $5.4 million of loan
originations. Using available cash, the Company reduced the outstanding
balances of its financing arrangements by $3.6 million. In addition,
restricted cash accounts increased $1.9 million relating to Fairfield Funding
Corporation's ("FFC") private placement as discussed below.
The Company has sources of funds from two revolving credit agreements.
Fairfield and certain of its subsidiaries are borrowers under the Amended and
Restated Revolving Credit Agreement (the "FCI Agreement") with FNBB. The FCI
Agreement provides for revolving loans of up to $25 million (including up to
$7 million for letters of credit), bearing interest at FNBB's base rate plus
1.5%. The FCI Agreement also provides for an annual facility fee of 1% of the
total commitment. The revolving loans mature on September 28, 1996, if not
extended in accordance with the terms of the agreement. The FCI Agreement is
collateralized by substantially all of the borrowers' loans receivable and
real estate inventories with FAC being a guarantor pursuant to the FCI
Agreement. At March 31, 1994, Fairfield had outstanding borrowings under the
FCI Agreement totaling $7.7 million, additional borrowing availability of $9.5
million, and outstanding letters of credit totaling $2.6 million.
FAC is the borrower under the Third Amended and Restated Revolving
Credit Agreement (the "FAC Agreement") with FNBB. The FAC Agreement provides
for revolving loans of up to $35 million (including up to $1 million for
letters of credit), bearing interest at FNBB's base rate plus .75%. The FAC
Agreement also provides for an annual facility fee of 1% of the total
commitment amount. The revolving loans mature on September 28, 1996, if not
extended in accordance with the terms of the agreement. The FAC Agreement is
collateralized by certain loans receivable with Fairfield being a guarantor
pursuant to the FAC Agreement. At March 31, 1994, FAC had outstanding
borrowings under the FAC Agreement totaling $5 million and no additional
borrowing availability.
An additional source of funds is the Company's ability to securitize
contracts receivable pursuant to a receivable purchase agreement (the
"Agreement") related to the Company's 7.6% Notes (the "FFC Notes"). The
Agreement provides for the principal amounts collected from the contracts
receivable pool to be reinvested into additional contracts receivable limited
monthly to (i) the availability of eligible contracts as defined in the
Agreement and (ii) the amounts accumulated in the reinvestment account.
During the three months ended March 31, 1994, the Company securitized $2.5
million of contracts receivable. The excess of funds held in the reinvestment
account over $6 million, determined on a monthly basis, is to be used to
reduce the FFC Notes. During the three months ended March 31, 1994, the
outstanding balance of the FFC Notes was reduced by $3.3 million. In April
1994, the Company securitized an additional $2.5 million of contracts
receivable under the reinvestment provisions of the Agreement. The
reinvestment period expires March 31, 1995.
The Company expects to finance its future cash needs from (i) principal
collections from its loans receivable, (ii) borrowings under the revolving
credit facilities and, in the short-term, the securitization of additional
eligible contracts receivable during the reinvestment period provided by the
Agreement, (iii) operating cash flows, (iv) proceeds from asset sales and (v)
other financings that it may obtain in the future.
-14-
First Federal
-------------
Cash flows from First Federal are currently restricted as to use by
First Federal and are generally not available to fund any of the Company's
other operations. In 1994, principal collections from the contracts
receivable included in assets of continuing operations totaled $4.6 million.
Once these assets are acquired by Fairfield, the cash flow therefrom will be
that of the Company. The following cash flow data reflects the cash flow
from First Federal's total operations.
For the three months ended March 31, 1994, cash from operations for
First Federal totaled $2.4 million. During the same period, cash provided
from First Federal's investing activities totaled $24.7 million resulting
primarily from $18.8 million in proceeds from the sale of loans to third
parties and net increases in investment and mortgage-backed securities of $7.8
million, which increases were partially offset by loan originations exceeding
loan collections by $2 million. Cash used in First Federal's financing
activities for the three months ended March 31, 1994 totaled $11.3 million,
resulting from repayments of Advances from the Federal Home Loan Bank of $7
million and a $4.3 million net decrease in savings deposits. Except for
previously approved agreements, First Federal may not enter into transactions
with or make cash distributions to Fairfield without prior written approval of
the Office of Thrift Supervision.
-15-
Part II - Other Information
- - ------- -----------------
Item 1 - Legal Proceedings
- - ------ -----------------
Incorporated by reference. See Note 10 of "Notes to Consolidated
Financial Statements".
Item 2 - Changes in Securities
- - ------ ---------------------
None
Item 3 - Defaults Upon Senior Securities
- - ------ -------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
- - ------ ---------------------------------------------------
None
Item 5 - Other Information
- - ------ -----------------
None
Item 6 - Exhibits and Reports on Form 8-K
- - ------ --------------------------------
(a) Exhibits
--------
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
-------------------
On April 14, 1994, a Current Report on Form 8-K was filed in which
the Registrant announced it had entered into a Stock Purchase
Agreement for the possible sale of First Federal Savings and Loan
Association of Charlotte, North Carolina.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FAIRFIELD COMMUNITIES, INC.
Date: May 10, 1994 /s/Robert W. Howeth
---------------- ----------------------------------------
Robert W. Howeth, Senior Vice President,
Chief Financial Officer and Treasurer
Date: May 10, 1994 /s/William G. Sell
----------------- ----------------------------------------
William G. Sell, Vice President/
Controller (Chief Accounting
Officer)
-17-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FAIRFIELD COMMUNITIES, INC.
Date: August 9, 1994 /s/William G. Sell
----------------- ---------------------------------
William G. Sell, Vice President/
Controller (Chief Accounting
Officer)
-18-
FAIRFIELD COMMUNITIES, INC.
EXHIBIT INDEX
Exhibit
Number
- - -------
4.1 Supplemented and Restated Indenture between the Registrant,
Fairfield River Ridge, Inc., Fairfield St. Croix, Inc. and IBJ
Schroder Bank & Trust Company, as Trustee, and Houlihan Lokey
Howard & Zukin, as Ombudsman, related to the Senior Subordinated
Secured Notes, dated September 1, 1992 (previously filed with the
Registrant's Current Report on Form 8-K dated September 1, 1992
and incorporated herein by reference)
4.2 First Supplemental Indenture to the Supplemental and Restated
Indenture referenced in 4.1 above, dated September 1, 1992
(previously filed with the Registrant's Current Report on Form 8-K
dated September 1, 1992 and incorporated herein by reference)
4.3 Second Supplemental Indenture to the Supplemental and Restated
Indenture referenced in 4.1 above, effective September 1, 1992
(previously filed with the Registrant's Annual Report on Form 10-K
dated December 31, 1992 and incorporated herein by reference)
4.4 Third Supplemental Indenture to the Supplemental and Restated
Indenture referenced in 4.1 above, effective March 18, 1993
(previously filed with the Registrant's Quarterly Report on Form
10-Q dated March 31, 1993 and incorporated herein by reference)
4.5 Certificate of Designation, Preferences, and Rights of Series A
Junior Participating Preferred Stock, dated September 1, 1992
(previously filed with the Registrant's Current Report on Form 8-K
dated September 1, 1992 and incorporated herein by reference)
10.1 Stock Purchase Agreement dated as of April 5, 1994, between the
Registrant and Security Capital Bancorp (previously filed with the
Registrant's Current Report on Form 8-K dated April 14, 1994 and
incorporated herein by reference)
11 Computation of earnings per share (attached)
28 Ombudsman Report for the period ending March 31, 1994 related to
the Registrant's Senior Subordinated Notes (attached)
-19-
EXHIBIT 11
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
Three Months Ended Three Months Ended
March 31, 1994 March 31, 1993
------------------ ------------------
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Weighted average shares:
Shares outstanding 12,027,895 12,027,895 3,820,125 3,820,125
Shares issued to wholly owned
subsidiaries (160,001) (160,001) (2,395,295)(2,395,295)
Treasury stock (2,235,294) (2,235,294) - -
Estimated increase in shares
outstanding due to
allowed claims exceeding $85
million (1) 1,116,105 1,116,105 9,709,287 9,709,287
Net effect of dilutive warrants
based on the treasury stock
method 346,814 373,333 - -
Contingent issuance -
Holders of FCI Notes (2) - 588,235 - 588,235
---------- ---------- ---------- ----------
Total weighted average shares
outstanding 11,095,519 11,710,273 11,134,117 11,722,352
========== ========== ========== ==========
Net earnings $1,078,000 $1,078,000 $ 86,000 $ 86,000
========== ========== ========== ==========
Earnings per share $.10 $.09 $.01 $.01
==== ==== ==== =====
</TABLE>
(1) In accordance with the terms of the Seventh Amended and Restated Joint
Plans of Reorganization (the "Plans"), the number of shares to be
issued to unsecured claim holders will increase if the amount of the
allowed unsecured claims exceeds $85 million. The number of shares
issued will be increased to a number equal to 10,000,000 multiplied by
the quotient of the total amount of the allowed unsecured claims divided
by $85 million. For purposes of the earnings per share computation, the
estimated amount of allowed claims, exclusive of the contingent issuance
for the holders of the FCI Notes, totals $111.7 million and $115 million
at March 31, 1994 and 1993, respectively.
(2) In accordance with the terms of the Plans, Fairfield has reserved, but
not issued, 588,235 shares of Common Stock for the benefit of the
holders of the FCI Notes in the event the proceeds from the sale of the
collateral securing the FCI Notes, or the value of any such collateral
not sold, is not sufficient to repay the FCI Notes.
-------------------------
Fairfield Communities, Inc.
10% Senior Subordinated Secured Notes
Ombudsman Report
For the Period Ending
March 31, 1994
Prepared by
Houlihan Lokey Howard & Zukin
------------------------
Date Prepared: May 5, 1994
Fairfield Communities, Inc.
- - -------------------------------
Introduction
- - -------------------------------
In connection with Houlihan Lokey Howard & Zukin's role ("Houlihan Lokey") as
the official ombudsman ("Ombudsman") to the Fairfield Communities, Inc.
("Fairfield" or the "Company") Senior Subordinated Secured Noteholders
("Noteholders"), the following is the quarterly report regarding the
Noteholders' collateral for the quarter ending March 31, 1994.
The Noteholders' collateral (the "Collateral") consists of all of Fairfield's
interest in its (i) Fairfield Pointe Alexis development (excluding certain
lots pledged as Collateral to the First National Bank of Boston) located in
Tarpon Springs, Florida ("Pointe Alexis"); (ii) Harbour Ridge joint venture
in Stuart, Florida ("Harbour Ridge"); and (iii) Sugar Island joint venture
in St. Croix, U.S. Virgin Islands ("Sugar Island"). Noteholders previously
had Collateral interests in the Bald Mountain Golf Course at the Fairfield
Mountain Development ("Bald Mountain Golf Course") until it was sold on
February 9, 1993 and the Harbour Golf Course at the Fairfield Harbour
development in New Bern, North Carolina ("Harbour Golf Course") until it was
sold on October 8, 1993.
In addition, Fairfield has reserved, but not issued, 588,235 shares of its
common stock (approximately five percent of the outstanding Fairfield common
stock on a fully-diluted basis) on behalf of the Noteholders to be issued in
the event that the Collateral sale proceeds are insufficient to repay the
Senior Subordinated Secured Notes ("Notes"). As of April 26, 1994, the
trading price of Fairfield's common stock was 5 3/8.
Pursuant to Fairfield's plan of reorganization, efforts are underway to
liquidate all of the Fairfield controlled Collateral (Pointe Alexis) and to
continue receipt of cash flow distributions from Collateral consisting of
Fairfield general and limited partnership interests (Sugar Island and Harbour
Ridge). Fairfield also must maintain the Collateral it controls until the
liquidation process is complete.
Collateral proceeds during the quarter ended March 31, 1994 totaled
approximately $600,494 (excluding approximately $109,000 funded to the
Noteholders' Operating Account which is used to pay administrative expenses
at Pointe Alexis) . The balances in the Noteholders' Interest Payment
Account and Development Account, were $215,664 and $636,088, respectively, as
of March 31, 1994.
Since the effective date of Fairfield's chapter 11 plan of reorganization,
Noteholders have received distributions totaling $10,534,077, of which
$2,524,799 was interest and $8,009,279 was principal. The remaining
principal balance outstanding as of March 31, 1994 was $14,805,665 which
amount is secured by all of the Collateral outlined in this report, including
the monies in the above mentioned Interest and Development accounts.
- - -------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
This report will serve to more fully describe the Collateral as well as to
update the Noteholders with respect the both the condition and expected cash
flow of all of the remaining Collateral.
Pointe Alexis
- - --------------------------
Fairfield Pointe Alexis is divided into two separate developments, Pointe
Alexis South and Pointe Alexis North (Harbour Watch), both located in Tarpon
Springs, Florida.
- - ------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
Pointe Alexis South is a Fairfield community master planned for 271 units.
As of March 31, 1994, 154 had been sold, 3 were built and waiting for sale,
49 were vacant lots with roads and improvements installed, and 65 were raw
land with no improvements. The aggregate release price (the amount which
must be paid to Noteholders upon sale of each unit) for all the remaining
lots and developed units is $1,554,750 although some of the interior lots may
never yield any appreciable value. Originally developed as a retirement
community, Pointe Alexis has both single- and multi-family product. As a
result of Fairfield's Chapter 11 filing and limited sales at Pointe Alexis,
however, the Company limited construction activity to projects in progress
and began marketing tracts of land in bulk to other developers. This
strategy will continue going forward. Lot prices range from $12,000 to
$20,000 but may be discounted if large tracts of land are sold in bulk.
The community surrounding the development consists mostly of lower income
housing and access from the Tampa airport is poor; however, some of the lots
(especially the waterfront lots) do have appeal. In addition, Pointe Alexis
is one of the few remaining sites in Florida where gulf-front properties can
be purchased at relatively inexpensive prices, and the Tarpon Springs area
does have a strong retirement community. A market does exist for Pointe
Alexis lots, albeit at significantly discounted prices from historical
levels. At the current sales and release prices, the remaining land
inventory will likely liquidate over approximately three years as undeveloped
lots are sold in small to medium sized tracts to developers.
During the quarter ended March 31, 1994, at Pointe Alexis South, Fairfield
recorded 7 lot sales and 6 lot closing compared to 2 lot sales and 1 lot
closing during the quarter ended March 31, 1993. Total revenues at Pointe
Alexis South during the first quarter ended March 31, 1994 totaled $128,000
compared to $60,000 revenue during the first quarter ended March 31, 1993.
Harbour Watch shares the same location and access problems as Pointe Alexis
South, but has superior marketing characteristics and Collateral value.
Harbour Watch is a gated community with card-controlled access. From
inception, it has been operated as a lot sale development with no home
building operations conducted by Fairfield (in contrast to Pointe Alexis
South). Lot prices generally range from $50,000 for interior lots to
$170,000 or more for waterfront lots with docks. The master plan calls for
sales of 180 lots. As of March 31, 1994, 108 lots had been sold, 42 more
were developed with roads and available for sale and 29 more lots were held
as raw land. Of the 71 remaining lots, the First National Bank of Boston has
a first lien on 15 lots. The aggregate release price on the lots pledged as
Collateral to the Noteholders is $2,557,100.
During the later stages of Fairfield's Chapter 11 proceedings, the Official
Committee of Noteholders together with the Bankruptcy Court approved a plan
to reinvest certain of the lot sale proceeds being held on behalf of the
Noteholders for the development of additional gulf front lots to spur sales
volume. In total, 14 lots were developed for an aggregate purchase price of
$185,366. The estimated cost to develop all of the remaining lots (many of
which are waterfront lots) is $636,000 which, pursuant to the Indenture, must
be funded by Collateral proceeds. During our recent due diligence trip, we
reviewed the development cost estimates and expected selling prices of the
undeveloped lots. Based upon our review, and the success of the earlier lot
development project, we have approved the decision to develop the remaining
lots and have taken the necessary steps with the Noteholder Indenture Trustee
- - --------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
to provide the funding. In total, 31 additional lots will be developed, 16
of which are waterfront. The entire cost of the project has been pre-funded
into the Noteholders' Development Account. The development project is
expected to be finished by approximately June 30, 1994.
During the quarter ended March 31, 1994, at Harbour Watch, Fairfield recorded
2 lot sales and 5 lot closings, compared to 6 lot sales and no lot closings
during the quarter ended March 31, 1993. Total revenues at Harbour Watch
during the quarter ended March 31, 1994 were $629,000 compared to no revenue
during the quarter ended March 31, 1993.
Many of the homes which have been built are quite large and expensive,
particularly some of the waterfront homes. There is an ongoing sales effort
in place with a sales trailer at the entrance to the community. During the
quarter ending March 31, 1994, construction of several new homes continued,
maintaining the community's positive ambiance of ongoing activity. The time
estimate to sell the remaining land inventory is approximately 2.0 to 3.0
years.
Pointe Alexis South and Harbour Watch collectively had monthly cash operating
expenses of approximately $258,284 during the quarter ended March 31, 1994,
which, together with closing costs and commissions, may be funded out of
excess sale proceeds (the sale price that is in excess of the release price).
Operating expenses during the first quarter included approximately $150,000
in property taxes which will cover the entire year.
As the Ombudsman, Houlihan Lokey will continue to monitor the spread between
the sales prices and release prices and its relationship with operating
expenses and closing costs. At its discretion, Houlihan Lokey can instruct
Fairfield to increase (up to the levels in the March 31, 1989 Indenture) or
decrease release prices as appropriate. Given the current slow sales
activity, Houlihan Lokey does not foresee increasing prices in the immediate
future. In fact, based upon the continued slow sales pace, Houlihan Lokey
did approve a modest reduction in sales prices on certain of the lots which
took effect late in the quarter. This change does not impact the
Noteholders' release price.
- - ------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
Harbour Ridge
- - ------------------------------
Harbour Ridge is a for-sale luxury recreational community located on a
beautiful stretch of land fronting on the St. Lucie River approximately one
hour from the West Palm Beach Airport in Stuart, Florida. The Collateral
interest entitles Noteholders to 35.5 percent of the net partnership cash
flow. The community is a high-end luxury community with a strong seasonal
element, as opposed to year-round residence, with prices ranging from
approximately $175,000 to approximately $1 million. Primary emphasis is on a
golf and clubhouse lifestyle, with a secondary emphasis on boating. There
are also boat slips for sale ranging in price from $20,000 to $40,000.
The managing general partner of Harbour Ridge is Harbour Ridge, Inc., the
principals of which have years of experience and success in the business
which are clearly expressed in the competent and professional look and feel
of the project. The homes are attractively designed and appear well built.
The clubhouse also is attractively designed and is surrounded by two golf
courses, one designed by Joe Lee and the other by Pete Dye.
During our recent trip to Port St. Lucie we met with the managing general
partner and toured the undeveloped lot sites. The project is proceeding as
- - -------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
planned and, at current sales activity, could be concluded as early as mid-
1995.
During the quarter ending March 31, 1994, 10 units were sold, leaving
approximately 42 more units to be sold. The total number of available units
was reduced by 7 units as a result of the managing general partner's decision
to develop 9 patio homes instead of 16 apartments as specified in the
original master plan. A total of 654 units have been sold since the
inception of the project. Although many of the choicest sites have been
previously sold, there remains an excellent cross section and mix of single-
family/multi-family, waterfront/non-waterfront properties with varying
prices.
The Noteholders received a distribution of $350,000 from Harbor Ridge during
the quarter ending March 31, 1994. Current projections indicate that an
additional $1.4 to $2.4 million of cash flow should be generated for the
Noteholders.
Sugar Island
- - -------------------------------
The Sugar Island Partnership (the "Partnership") was formed during 1984 to
purchase approximately 4,091 acres of land located on the island of St.
Croix, Territory of the Virgin Islands of the United States. The Partnership
paid $10 million for the property. At the time of the purchase, the property
was undeveloped except for the 166-acre Fountain Valley Golf Course (renamed
Carambola Golf Club) designed by Robert Trent Jones. Fairfield's interest in
the Partnership entitles it to 30 percent of the total net cash flow
distributed.
To date, the Partnership has sold 883 acres of the property in two separate
transactions. During 1986, the Partnership sold 855 acres of the inland
property to Danested Associates ("Danested") for an aggregate purchase price
of $10.7 million. Danested has developed condominiums and vacant lots
designated for single-family homes on the property. Also during 1986, the
Partnership sold 28.5 acres of waterfront land to the Davis Beach Company for
approximately $2.5 million for use in the development of the 157-unit
Carambola Beach Resort (not included in the Collateral). Danested had
entered into an option to purchase approximately 1,069 additional acres of
land for $12.0 million, but the option expired unexercised on March 31, 1991.
The land that was under option to Danested is located in the central part of
the island. It is mostly flat and easily developed but for the most part has
no direct ocean views. Danested also had an option to purchase the Carambola
Golf Club (the "Golf Club") for $7.5 million which expired unexercised on
- - -------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
March 31, 1993.
The remaining parcel of 2,139 acres is arguably some of the most beautiful
land on St. Croix. The terrain is mountainous and covered with dense
foliage. Most of the property has ocean views. The coastal portions are set
in a series of coves ideal for development but currently there are no
significant natural beaches and very limited road access. Development of the
property will be difficult and expensive, limiting the number of potential
buyers. The Partnership has indicated that it is considering selling small
sections of land or even individual lots, if possible. The cost of holding
the property is relatively low. The Partnership leases the land to local
farmers which results in a 95 percent property tax exemption.
The Carambola Beach Resort (the "Resort") is a five-star development and was
completely rebuilt following hurricane Hugo in 1990. As a result of
decreasing tourism and occupancy rates, however, the senior Resort lenders
decided to foreclose on the hotel property and shut down hotel operations
during June 1991. The Resort remained closed until an investment group,
operating through a Radisson Hotel International franchise agreement,
purchased the property on June 8, 1993. The resort has now resumed full
operations and is operating at an occupancy rate of approximately 40%.
According to resort management, low occupancy rates were expected during the
resorts first year of operations.
- - -------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
- - -------------------------------
Although the buyer of the Resort has indicated that it has no interest in
purchasing the Golf Club at this time, increased play since the Resort opened
has increased cash flow at the Golf Club to approximately $200,000 on an
annualized basis, some of which may be used to make a distribution to the
Sugar Island partners.
From a Collateral value perspective, Sugar Island should generate cash flow
for the Noteholders, although the magnitude and the time frame over which the
cash flow will be realized are difficult to determine. The Golf Club will
likely be sold (or leased on a long-term basis) within the next one or two
years, but the undeveloped land acreage could take several years to sell.
- - -------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
Bald Mountain Golf Course
- - -------------------------------
The Bald Mountain Golf Course is one of two golf courses located at the
Fairfield Mountains development in Rutherford County, North Carolina. The
18-hole, par 72, 6,689 yard Bald Mountain Golf Course was designed by William
B. Lewis and sits on approximately 115 acres, with bermuda grass tees and
fairways, bent grass greens, 28 sand traps and 10 water hazards. The Bald
Mountain Golf Course is located behind a gated entrance and attracts almost
exclusively Fairfield residents and timeshare owners.
On February 9, 1993, Fairfield completed the sale of the Bald Mountain Golf
Course to the Fairfield Mountains Development Property Owners Association
(the "Mountain POA") for net cash proceeds of $1,787,519.74.
In addition to the sale proceeds, the Mountains POA withdrew various claims
alleging its rights to golf course ownership.
- - -------------------------------
Houlihan Lokey Howard & Zukin
Fairfield Communities, Inc.
Harbour Golf Course
- - -------------------------------
The Harbour Golf Course is one of two golf courses located at the Fairfield
Harbour development in New Bern, North Carolina. The 18-hole, par 72, 6,600-
yard Harbour Golf Course was designed by Dominic Palumbo and is located on
approximately 188 acres with narrow sloping fairways, a site-wide canal
system, 77 sand traps and 3 lakes. The course does not allow access to the
general public .
On October 8, 1993, Fairfield completed the sale of the Harbour Golf Course
to the Fairfield Harbour Property Owners' Association for net cash proceeds
of $1,947,948.26. Subsequently, an additional $22,800 was received in
connection with the release of certain contingent closing costs.
- - --------------------------------
Houlihan Lokey Howard & Zukin
