UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended September 30, 1995
[ ] 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 October 31, 1995 totaled 9,972,091. <PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
September 30, December 31,
1995 1994
---- ----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,604 $ 13,641
Loans receivable, net 140,037 139,810
Real estate inventories 38,915 32,237
Restricted cash and escrow accounts 9,278 10,894
Property and equipment, net 8,605 5,956
Net assets held for sale - 7,943
Other assets 14,855 14,245
-------- --------
$214,294 $224,726
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 91,430 $111,943
Deferred revenue 18,948 18,956
Accounts payable 4,370 6,305
Accrued interest 4,727 5,404
Net liabilities of assets held for sale 1,743 -
Other liabilities 16,613 15,183
-------- --------
137,831 157,791
-------- --------
Stockholders' equity:
Common stock 124 124
Paid-in capital 49,613 46,123
Retained earnings 26,726 20,688
-------- --------
76,463 66,935
-------- --------
$214,294 $224,726
======== ========
</TABLE>
Note: The consolidated balance sheet at December 31, 1994 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
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Vacation ownership, net $29,613 $19,026 $ 67,248 $41,559
Lots, net 2,486 2,647 5,185 6,538
Resort management 3,839 3,111 11,205 8,807
Interest 4,758 5,136 14,259 15,365
Other 4,204 3,086 11,189 9,740
Gain on sale of First Federal - 5,200 - 5,200
------- ------- -------- -------
44,900 38,206 109,086 87,209
------- ------- -------- -------
EXPENSES
Cost of sales:
Vacation ownership 9,594 5,886 21,306 12,868
Lots 631 648 1,349 1,531
Provision for loan losses 2,086 1,423 4,925 3,399
Selling 15,293 10,288 37,913 23,246
Resort management 3,406 2,637 9,908 7,482
General and administrative 3,123 2,791 8,806 7,865
Interest 2,013 2,654 6,518 8,193
Other 3,505 3,081 8,622 8,467
------- ------- ------- -------
39,651 29,408 99,347 73,051
------- ------- ------- -------
Earnings before provision for
income taxes 5,249 8,798 9,739 14,158
Provision for income taxes 1,995 1,079 3,701 2,687
------- ------- ------- -------
Net earnings $ 3,254 $ 7,719 $ 6,038 $11,471
======= ======= ======= =======
NET EARNINGS PER SHARE
Primary $.29 $.70 $.55 $1.04
==== ==== ==== =====
Fully diluted $.28 $.66 $.51 $ .98
==== ==== ==== =====
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 11,119,530 11,099,345 11,065,342 11,080,867
========== ========== ========== ==========
Fully diluted 11,768,264 11,687,580 11,768,264 11,703,406
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 6,038 $ 11,471
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,463 1,040
Provision for loan losses 4,925 3,399
Utilization of pre-confirmation net operating
loss carryforwards 3,490 2,588
Earnings from unconsolidated affiliates (1,323) (883)
Gain on sale of First Federal - (5,200)
Changes in operating assets and liabilities:
Real estate inventories (7,008) 1,400
Other (999) (1,009)
--------- ---------
Net cash provided by operating activities 6,586 12,806
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment, net (3,268) (168)
Principal collections on loans 53,801 55,571
Loans originated (57,880) (42,518)
Purchase of U.S. Treasury Note (1,553) -
Cash distributions from unconsolidated affiliates 1,323 883
Net cash used on sale of First Federal - (17,666)
Net investment activities of net liabilities of
assets held for sale 8,851 (10,712)
--------- ---------
Net cash provided by (used in) investing activities 1,274 (14,610)
--------- ---------
FINANCING ACTIVITIES
Proceeds from financing arrangements 169,695 143,092
Repayments of financing arrangements (190,208) (141,901)
Net decrease (increase) in restricted cash and
escrow accounts 1,616 (1,670)
--------- ---------
Net cash used in financing activities (18,897) (479)
--------- ---------
Net decrease in cash and cash equivalents (11,037) (2,283)
Cash and cash equivalents, beginning of period 13,641 4,475
--------- ---------
Cash and cash equivalents, end of period $ 2,604 $ 2,192
========= =========
</TABLE>
See notes to consolidated financial statements.
-4-
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
The accompanying unaudited consolidated 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
periods ended September 30, 1995 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 of the Company for the year ended December 31,
1994. The accompanying consolidated financial statements, and related notes
thereto, include the accounts of Fairfield and its wholly owned subsidiaries,
with all significant intercompany accounts and transactions eliminated.
NOTE 1 - VACATION OWNERSHIP SALES
- ------ ------------------------
Vacation ownership sales are summarized as follows (In thousands):
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Vacation ownership sales $29,283 $19,327 $67,417 $40,813
Add (less): Deferred revenue
on current year
sales, net 124 (301) (2,089) (1,355)
Add: Deferred revenue on
prior year sales 206 - 1,920 2,101
------- ------- ------- -------
$29,613 $19,026 $67,248 $41,559
======= ======= ======= =======
</TABLE>
NOTE 2 - LOANS RECEIVABLE
- ------ ----------------
Loans receivable consisted of the following (In thousands):
<TABLE>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Contracts $139,255 $137,177
Mortgages 13,194 12,044
Accrued interest receivable 1,875 1,911
-------- --------
154,324 151,132
Less allowance for loan losses:
Contracts (12,903) (10,436)
Mortgages (1,384) (886)
-------- --------
$140,037 $139,810
======== ========
</TABLE>
-5-
The Company provides for losses on contracts receivable by a charge
against earnings at the time of sale at a rate based upon historical
cancellation experience and management's estimate of future losses. When a
contract is cancelled in a year subsequent to the year in which the
underlying sale was recorded, the outstanding balance, less recoverable
costs, is charged to the allowance for loan losses. When a contract is
cancelled in the same year as the related sale, all entries applicable to
the sale are reversed and nonrecoverable selling expenses are charged to
operations.
NOTE 3 - REAL ESTATE INVENTORIES
------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Land:
Under development $11,382 $ 4,575
Undeveloped 14,160 17,633
------- -------
25,542 22,208
------- -------
Residential housing:
Vacation ownership 10,732 8,418
Homes 2,641 1,611
------- -------
13,373 10,029
------- -------
$38,915 $32,237
======= =======
</TABLE>
In 1995, the Company began development at two of its newest
destination sites and, therefore, the related acquisition costs were
reclassed from undeveloped land to land under development. In July 1995,
the Company purchased, for $6.1 million, real estate in Myrtle Beach, South
Carolina.
NOTE 4 - FINANCING ARRANGEMENTS
------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Collateralized contracts receivable:
7.6% Notes $53,681 $ 73,560
FCC Notes 16,400 -
Notes payable 13,101 14,708
Revolving credit agreements 8,248 23,675
------- --------
$91,430 $111,943
======= ========
</TABLE>
At September 30, 1995, the collateralized contracts receivable were
secured by a pool of contracts receivable totaling $87.9 million.
In March 1995, Fairfield Capital Corporation, ("FCC"), a wholly owned
subsidiary of Fairfield Acceptance Corporation ("FAC"), entered into a
Credit Agreement (the "FCC Agreement") which provided for borrowings of up
to $21.4 million (the "FCC Notes") for the purchase of contracts receivable
from FAC pursuant to the Receivables Purchase Agreement, among Fairfield as
originator, FAC, as seller and FCC, as purchaser. The initial purchase of
contracts receivable and the respective funding under the FCC Agreement
occurred in April 1995, resulting in borrowings under the FCC Agreement
totaling $21.4 million, of which $20.3 million was used to reduce borrowings
under FAC's revolving credit agreement
-6-
and $1.1 million was used to establish restricted cash accounts required by
the FCC Agreement and to pay transaction fees. Borrowings under the FCC
Agreement mature in December 1999 and bear interest at varying rates, based
on commercial paper rates, subject to an interest rate cap of 8.5%. As of
September 30, 1995, the weighted average interest rate on the FCC Notes was
6.475%, including facility fees totaling .675%.
NOTE 5 - FAIRFIELD ACCEPTANCE CORPORATION
------ --------------------------------
Condensed consolidated financial information for FAC is summarized as
follows (In thousands):
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash $ 263 $ 895
Loans receivable, net 95,498 108,093
Restricted cash 3,300 8,120
Due from parent 11,138 12,115
Other assets 2,722 3,008
------- --------
$112,921 $132,231
======== ========
LIABILITIES AND EQUITY
Notes payable $ 70,081 $ 73,560
Revolving credit agreement 4,709 23,675
Accrued interest and other liabilities 711 681
Equity 37,420 34,315
-------- --------
$112,921 $132,231
======== ========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $3,697 $3,361 $11,279 $9,667
Expenses 1,936 2,005 6,247 5,990
------ ------ ------- ------
Earnings before provision for
income taxes 1,761 1,356 5,032 3,677
Provision for income taxes 674 519 1,927 1,408
------ ------ ------- ------
Net earnings $1,087 $ 837 $ 3,105 $2,269
====== ====== ======= ======
</TABLE>
-7-
NOTE 6 - NET LIABILITIES OF ASSETS HELD FOR SALE
------ ---------------------------------------
A summary of net liabilities of assets held for sale is as follows
(In thousands):
<TABLE>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Golf courses $ 1,220 $ 2,471
Collateral for Senior Subordinated
Secured Notes 8,459 8,676
Excluded Association Assets, net 3,384 11,602
-------- --------
13,063 22,749
Senior Subordinated Secured Notes (14,806) (14,806)
-------- --------
Net liabilities of assets held for sale $ (1,743) $ 7,943
======== ========
</TABLE>
During the nine months ended September 30, 1995, the Company disposed
of approximately $8.9 million of assets held for sale at approximate book
value.
Due to the illiquid nature of certain of the collateral for the
Senior Subordinated Secured Notes (the "FCI Notes"), a majority of which is
comprised of minority equity positions in partnerships managed by third
parties, Fairfield carries these assets at a substantial discount from 1991
appraised values, which have not been updated and may not be indicative of
current fair value. In the event the proceeds from the sale of the
remaining collateral securing the FCI Notes, or the fair value of any such
collateral not sold, are insufficient to fully repay the principal and
accrued interest on the FCI Notes, Fairfield will issue shares of common
stock, up to a maximum number equal to what a holder of a $5 million
general unsecured claim was entitled to receive on the effective date of
the plans of reorganization (588,235 shares). The remaining collateral of
the FCI Notes consists of (i) certain of the Company's real estate
inventories located at its Pointe Alexis development in Tarpon Springs,
Florida, (ii) the Company's partnership interest in Sugar Island limited
partnership in St. Croix, U. S. Virgin Islands and (iii) the Company's
partnership interest in Harbour Ridge limited partnership in Stuart,
Florida.
NOTE 7 - SUPPLEMENTAL INFORMATION
------ ------------------------
As of October 31, 1995, Fairfield has issued 12,367,386 shares of
Common Stock to holders of unsecured resolved claims, of which 2,395,295
shares, acquired by the Company at no cost, are held in treasury. In
accordance with the plans of reorganization, Fairfield will issue
additional shares as the remaining claims are resolved. Based upon
available information, Fairfield presently estimates that approximately
13,069,699 shares of Common Stock will be issued. However, the ultimate
amount of shares issued may vary materially from Fairfield's estimate.
Additionally, 588,235 shares have been reserved, but not issued, for the
benefit of the holders of the FCI Notes (see Note 6).
Other revenues for the nine months ended September 30, 1995 and 1994
include cash distributions totaling $1.3 million and $.9 million,
respectively, related to the Company's 35% partnership interest in Harbour
Ridge, Ltd. Cash distributions from this partnership interest are
anticipated to continue through the third quarter of 1996; however, the
amounts and timing of future distributions are entirely within the control
of the general partner.
Other revenues and other expenses for the nine months ended September
30, 1995 also include home and bulk land sales totaling $5.4 million and
related cost of sales totaling $4.9 million. For the nine months ended
September 30, 1994, home and bulk land sales and related cost of sales
totaled $6.0 million and $5.9 million, respectively.
-8-
Included in other assets at September 30, 1995 and December 31, 1994
are (i) $5.0 million and $5.1 million, respectively, related to the assets
of the Company's life insurance subsidiary and (ii) unamortized capitalized
financing costs totaling $1.7 million and $2.0 million, respectively.
Interest paid totaled $7.2 million and $17.2 million for the nine
months ended September 30, 1995 and 1994, respectively. Of the 1994
amount, $9.0 million was related to the net assets of First Federal which
were sold in September 1994.
During the nine months ended September 30, 1995 and 1994, benefits
realized from the utilization of pre-confirmation net operating loss
carryforwards and recognition of pre-confirmation deductible temporary
differences of $3.5 million and $2.6 million, respectively, were recorded
as reductions of the Company's valuation allowance for deferred tax assets
and as additions to paid-in capital. The effective tax rate for the three
and nine months ended September 30, 1994 varies with the statutory rate due
to the impact of non-taxable income, related primarily to the gain on the
sale of First Federal.
NOTE 8 - 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 United
States District Court, Eastern District of Arkansas, Western Division
("District Court") affirmed the Bankruptcy Court's order in its entirety,
by order dated September 25, 1995. The PLPOA has filed a notice of appeal
to the United States Court of Appeals for the Eighth Circuit. Fairfield's
ability to dispose of the recreational amenities at Pagosa is restricted
until the claim is finally resolved.
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 District Court. 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.
In July 1993 and September 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
-9-
the Recreation Fee Litigation will be allowed to proceed as class actions.
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.
In November 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. By orders and
opinions dated September 29, 1994, the Bankruptcy Court decided motions
filed by the plaintiffs in the Recreation Fee Litigation, in response to
Fairfield's adversary proceeding. The Bankruptcy Court retained
jurisdiction over one of the lawsuits (the Storm lawsuit), and determined
that any purchaser of a lot from Fairfield and its predecessors prior to
August 14, 1992 would be limited to a pre-confirmation cause of action.
The Bankruptcy Court determined that it did not have jurisdiction over the
second lawsuit (the Daleske lawsuit), involving eight individuals and one
company, due to prior proceedings in the case in Colorado federal district
court, which ruled that the plaintiffs in this lawsuit had post-
confirmation causes of action, although all nine plaintiffs are believed to
have purchased their lots prior to August 14, 1992. Fairfield has appealed
the Bankruptcy Court's decision in the Daleske lawsuit, and the plaintiffs
in the Storm lawsuit have appealed the Bankruptcy Court's decision in that
case, to the District Court, which has indicated that it will schedule oral
argument on these appeals in the near future. The Colorado State Court
stayed further proceedings in the Recreation Fee Litigation pending the
outcome of the appeals to the District Court. Two additional related
lawsuits have also been filed in the Archuleta County District Court,
raising similar issues and demands as the Storm and Daleske cases. The
Fiedler case, filed in October 1994, was filed individually, while the
second of these new cases, the Lobdell case, was filed in November 1994, as
a proported class action. In February 1995, Fairfield filed an adversary
proceeding in the Bankruptcy Court against the Fiedler and the Lobdell
plaintiffs, seeking relief similar to that requested in the Storm and
Daleske adversary proceeding. The Colorado District Court has stayed
proceedings in the Lobdell case. The Colorado District Court entered
summary judgment against Fairfield in the Fiedler case, holding that the
individual lot in question is not subject to the recreation fee, based upon
facts unique to the Fiedler case. Fairfield has appealed the summary
judgment decision in the Fiedler case. The Bankruptcy Court has
determined, by decision dated September 18, 1995, that it does not have
jurisdiction in the Fiedler case, but also determined that it does have
jurisdiction in the Lobdell case, based upon similar reasoning to the Storm
case. Both the Fiedler and the Lobdell cases have been appealed to the
District Court.
Fairfield intends to defend vigorously the Recreation Fee Litigation,
and the two related cases, including any attempt to certify a class in any
of these cases. Fairfield has previously implemented recreation fee
charges at certain other of its resort sites which are not subject to the
pending action.
In December 1993, Charlotte T. Curry, who, with her husband,
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. In April 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 cancelled 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.
-10-
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. By order dated July 6, 1994, the court dismissed Ms. Curry's
claims for (a) breach of contract, due to the statute of limitations, (b)
breach of fiduciary duty, due to the lack of a fiduciary duty and the
statute of limitations, (c) fraud, due to the statute of limitations, and
(d) RICO, due to failure to state a claim. The court, by order dated
August 16, 1994, dismissed Ms. Curry's only remaining claim against
Fairfield, for unfair trade practices, subject to possible appeal rights.
By order dated September 14, 1995, the court denied the plaintiff's motion
for class certification.
Under the Stock Purchase Agreement for the sale of First Federal,
Fairfield agreed to indemnify Security Capital Bancorp (which has since
been acquired) against any liability in the Curry litigation. While
Fairfield is no longer a defendant in the litigation, it intends to
coordinate the defense of First Federal (now, through merger and
succession, Central Carolina Bank & Trust Company) with the counsel who
have been representing First Federal, to defend the Curry litigation
vigorously. Fairfield also has cancelled 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
-------------------------
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1994
Vacation Ownership
------------------
Gross vacation ownership interval ("VOI") revenues totaled $67.4
million and $40.8 million for the nine months ended September 30, 1995 and
1994, respectively. Of this increase, $13.0 million (48.9%) is
attributable to increased sales volumes at the Company's existing
developments and $12.4 million (46.4%) is attributable to the additional
sales volumes at two of the Company's newest destination sites at Orlando,
Florida and Nashville, Tennessee, both of which began sales efforts in
December 1994.
Net VOI revenues increased to $67.2 million for the nine months ended
September 30, 1995 from $41.6 million for the nine months ended September
30, 1994. The increase in net VOI revenues is attributable to the same
factors as noted above, which was partially offset by net deferred revenue
of $.2 million during the nine months ended September 30, 1995, related to
the percentage of completion method of accounting, as compared to the net
recognition of $.7 million of previously deferred revenue during the nine
months ended September 30, 1994. Under the percentage of completion method
of accounting, 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.
Selling
-------
Selling expenses, including commissions, for both VOI and lot sales,
as a percentage of related revenues, were 52.1% and 47.9%, for the nine
months ended September 30, 1995 and 1994, respectively. The increase in
selling expenses, as a percentage of related revenues, is attributable
primarily to inefficiencies experienced at two of the Company's newest
destination sites at Orlando, Florida and Nashville, Tennessee. Exclusive
of these new projects, selling expenses, as a percentage of related
revenues, were 45.7% for the nine months ended September 30, 1995.
Management continues to work to improve sales efficiencies at the Orlando
and Nashville sites, as the Company continues to adjust its marketing and
sales efforts to better match its marketing programs with the respective
sales efforts.
Interest
--------
Interest income totaled $14.3 million for the nine months ended
September 30, 1995 as compared to $15.4 million for the nine months ended
September 30, 1994. The decrease in 1995 is primarily attributable to a
lower average balance of outstanding contracts receivable (1995 - $134.8
million; 1994 - $148.3 million), resulting primarily from principal
collections on loans exceeding originations. Loan originations began to
exceed principal collections in the second quarter of 1995 and interest
income is expected to increase in tandem with the net increase in contracts
receivable, with no appreciable increase expected until 1996.
Interest expense, net of capitalized interest, totaled $6.5 million
and $8.2 million for the nine months ended September 30, 1995 and 1994,
respectively. The decrease in 1995 is primarily attributable to the
reductions in the average outstanding balance of interest-bearing debt.
-12-
General and Administrative
--------------------------
General and administrative expenses increased from $7.9 million
during the nine months ended September 30, 1994 to $8.8 million during the
nine months ended September 30, 1995. This increase primarily resulted
from the additional expenses related to the increased VOI sales volumes as
previously discussed. As a percentage of total revenues, general and
administrative expenses decreased from 9.0% for the nine months ended
September 30, 1994 to 8.1% for the nine months ended September 30, 1995.
Other
-----
Other revenues for the nine months ended September 30, 1995 and 1994
include cash distributions totaling $1.3 million and $.9 million,
respectively, related to the Company's 35% partnership interest in Harbour
Ridge, Ltd. Cash distributions from this partnership interest are
anticipated to continue through the third quarter of 1996; however, the
amounts and timing of future distributions are entirely within the control
of the general partner.
Other revenues and expenses for the nine months ended September 30,
1995 also include $5.4 million and $4.9 million relating to home and bulk
asset sales and related cost of sales, respectively. For the nine months
ended September 30, 1994, home and bulk asset sales and related costs of
sales totaled $6.0 million and $5.9 million, respectively.
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1994
Revenue and expense trends for the three months ended September 30,
1995 were generally consistent with those of the related nine month period
as described above with (i) increases in gross and net VOI sales, (ii) an
increase in selling expenses as a percentage of related revenues and (iii)
decreases in interest income and interest expense.
Other revenues for each of the three months ended September 30, 1995
and 1994 include cash distributions totaling $.2 million related to the
Company's 35% partnership interest in Harbour Ridge, Ltd. Other revenues
and expenses for the three months ended September 30, 1995 also include
$2.2 million and $2.0 million relating to home and bulk asset sales and
related cost of sales, respectively. For the three months ended September
30, 1994, bulk asset sales and related costs of sales totaled $1.5 million
and $1.6 million, respectively.
PROVISION FOR INCOME TAXES
For the nine months ended September 30, 1995 and 1994, benefits
realized from the utilization of pre-confirmation net operating loss
carryforwards and recognition of pre-confirmation deductible temporary
differences of $3.5 million and $2.6 million, respectively, were recorded
as reductions of the Company's valuation allowance for deferred tax assets
and as additions to paid-in capital. The effective tax rate for the three
and nine months ended September 30, 1994 varies with the statutory rate due
to the impact of non-taxable income, related primarily to the gain on the
sale of First Federal.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company decreased $11.0 million from
December 31, 1994 to September 30, 1995. For the nine months ended
September 30, 1995, cash provided from operations totaled $6.6 million as
compared to $12.8 million for the nine months ended September 30, 1994.
-13-
This decrease in cash provided from operations is attributable to the $6.1
million purchase of real estate in Myrtle Beach, South Carolina.
Cash provided by investing activities for the nine months ended
September 30, 1995, totaled $1.3 million as compared to cash used in
investing activities for the nine months ended September 30, 1994 of $14.6
million. Cash provided by investing activities for the nine months ended
September 30, 1995 reflects cash provided from the sale of assets held for
sale (See Note 6 of "Notes to Consolidated Financial Statements") which was
partially offset by loan originations exceeding principal collections on
loans and the purchase of property and equipment. It is anticipated that
as sales continue to increase that loan originations will exceed principal
collections on loans. Cash used in investing activities for the nine
months ended September 30, 1994 reflects cash used in the sale of First
Federal Savings & Loan Association of Charlotte and the purchase of assets
held for sale which was partially offset by principal collections on loans
exceeding loan originations.
Cash used in financing activities for the nine months ended September
30, 1995 reflects the use of available cash and certain restricted cash
accounts to reduce the outstanding balances of the Company's financing
arrangements.
At September 30, 1995, Fairfield and certain of its subsidiaries had
borrowings totaling $3.5 million and $1.4 million in letters of credit,
outstanding under the Amended and Restated Revolving Credit Agreement (the
"FCI Agreement") with The First National Bank of Boston ("FNBB"). The FCI
Agreement provides for revolving loans of up to $25.0 million, including up
to $7.0 million for letters of credit. The revolving loans mature on
January 1, 1998, if not extended in accordance with the terms of the FCI
Agreement. At September 30, 1995, Fairfield had borrowing availability
under the FCI Agreement of $20.1 million, net of outstanding letters of
credit.
At September 30, 1995, FAC had outstanding borrowings totaling $4.7
million under the Third Amended and Restated Revolving Credit Agreement
(the "FAC Agreement") with FNBB. The FAC Agreement provides for revolving
loans of up to $35.0 million, including up to $1.0 million for letters of
credit. The revolving loans mature on January 1, 1998, if not extended in
accordance with the terms of the FAC Agreement. At September 30, 1995, FAC
had borrowing availability under the FAC Agreement of $5.8 million.
As discussed above, the Company had borrowing availability at
September 30, 1995 totaling $25.9 million and expects to finance its short
and long-term cash needs from (i) contract payments generated from its
contracts receivable portfolio, (ii) operating cash flows, and (iii)
borrowings under its credit facilities.
FINANCIAL CONDITION
Total consolidated assets of the Company decreased $10.4 million from
December 31, 1994 to September 30, 1995. The decrease in assets is
primarily attributable to (i) an $11.0 million decrease in cash and cash
equivalents and (ii) a $7.9 million decrease in net assets held for sale
resulting from the disposal of such assets (see Note 6 of "Notes to
Consolidated Financial Statements"). These decreases were partially offset
by the purchase of real estate in Myrtle Beach, South Carolina for $6.1
million in cash. Total consolidated liabilities of the Company decreased
$20.0 million from December 31, 1994 to September 30, 1995 and is primarily
attributable to a $20.5 million net decrease in financing arrangements.
Other variations in the Company's assets and liabilities generally
reflect the revenue and expense activities the Company experienced during
the nine months ended September 30, 1995.
-14-
Part II - Other Information
------- -----------------
Item 1 - Legal Proceedings
------ -----------------
Incorporated by reference. See Note 8 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
-------------------
None
-15-
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: November 3, 1995 /s/ Robert W. Howeth
----------------------- -----------------------------------------
Robert W. Howeth, Senior Vice President,
Chief Financial Officer and Treasurer
Date: November 3, 1995 /s/ William G. Sell
----------------------- -----------------------------------------
William G. Sell, Vice President/Controller
(Chief Accounting Officer)
-16-
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 Supplemented 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 Supplemented 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 Supplemented 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)
11 Computation of earnings per share (attached)
27 Financial Data Schedule (attached)
99 Ombudsman Report for the period ending September 30, 1995
related to the Registrant's Senior Subordinated Secured
Notes. Fairfield Communities, Inc. (the "Company") has
issued its 10% Senior Subordinated Secured Notes (the
"FCI Notes") pursuant to the Supplemented and Restated
Indenture, dated as of September 1, 1992, as amended (the
"Restated Indenture"), among the Company, as issuer,
Fairfield St. Croix, Inc. and Fairfield River Ridge,
Inc., as guarantors, IBJ Schroder Bank & Trust Company,
as trustee (the "Trustee"), and Houlihan Lokey Howard &
Zukin, as ombudsman (the "Ombudsman"). The Ombudsman,
which was designated by the committee representing the
holders of the notes for which the FCI Notes were
exchanged in the Company's reorganization proceedings, as
part of its duties under the Restated Indenture, is to
report periodically concerning the collateral securing
the FCI Notes and other matters (the "Ombudsman's
Reports"). The Ombudsman's Reports are not prepared at
the direction of, or in concert with, the Company and are
delivered by the Ombudsman to the Trustee for
distribution to each holder of record of the FCI Notes.
However, because the Ombudsman's Reports are being
-17-
distributed to the record holders of the FCI Notes and
the contents of the Ombudsman's Reports may be of
interest to other persons, including potential purchasers
of the FCI Notes, the Company is filing herewith, as
Exhibit 99, a copy of the Ombudsman's Report dated
November 1, 1995, for the period ending September 30,
1995. The Company is not obligated to file such reports
and may discontinue filing such reports in the future
without notice to any person. (attached)
-18-
EXHIBIT 11
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
Primary
-------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares:
Shares outstanding 12,367,386 12,359,037 12,367,386 12,233,974
Estimated increase in shares
outstanding (1) 702,313 710,662 702,313 860,492
Less treasury stock (2,395,295)(2,395,295)(2,395,295) (2,395,295)
Net effect of dilutive
warrants based on the
treasury stock method 445,126 424,941 390,938 381,696
Contingent issuance -
Holders of FCI Notes (2) - - - -
---------- ---------- ---------- ----------
Total weighted average
shares outstanding 11,119,530 11,099,345 11,065,342 11,080,867
========== ========== ========== ==========
Net earnings $3,254,000 $7,719,000 $6,038,000 $11,471,000
========== ========== ========== ===========
Earnings per share $0.29 $0.70 $0.55 $1.04
===== ===== ===== =====
Fully Diluted
--------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<C> <C> <C> <C>
12,367,386 12,359,037 12,367,386 12,233,974
702,313 710,662 702,313 860,492
(2,395,295)(2,395,295)(2,395,295)(2,395,295)
505,625 424,941 505,625 416,000
588,235 588,235 588,235 588,235
- ---------- --------- --------- ---------
11,768,264 11,687,580 11,768,264 11,703,406
========== ========== ========== ==========
$3,254,000 $7,719,000 $6,038,000 $11,471,000
========== ========== ========== ===========
$0.28 $0.66 $0.51 $0.98
===== ===== ===== =====
</TABLE>
(1) In accordance with the terms of the plans of reorganization,
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 will be increased
to a number equal to 10,000,000 multiplied by the quotient of
the total amount of the unsecured claims divided by $85
million. For purposes of the earnings per share
computations, the estimated amount of shares to be issued,
exclusive of the contingent issuance for the holders of the
FCI Notes, totaled 13,069,699 at September 30, 1995.
(2) In accordance with the terms of the plans of reorganization,
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 insufficient to repay the FCI Notes. <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's September 30, 1995 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2604
<SECURITIES> 0
<RECEIVABLES> 154324
<ALLOWANCES> 14287
<INVENTORY> 38915
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 214294
<CURRENT-LIABILITIES> 0
<BONDS> 91430
<COMMON> 124
0
0
<OTHER-SE> 76339
<TOTAL-LIABILITY-AND-EQUITY> 214294
<SALES> 83638
<TOTAL-REVENUES> 94827
<CGS> 32563
<TOTAL-COSTS> 41185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4925
<INTEREST-EXPENSE> 6518
<INCOME-PRETAX> 9739
<INCOME-TAX> 3701
<INCOME-CONTINUING> 6038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6038
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.51
</TABLE>
FAIRFIELD COMMUNITIES, INC.
10% SENIOR SUBORDINATED SECURED NOTES
OMBUDSMAN REPORT
FOR THE PERIOD ENDING
SEPTEMBER 30, 1995
Prepared by
HOULIHAN LOKEY HOWARD & ZUKIN
------------------------------------
Date Prepared:
November 1, 1995<PAGE>
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
September 30, 1995.
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 whole
or part, and to the extent that the Collateral sale proceeds
are insufficient to fully repay the principal and accrued
interest on the Senior Subordinated Secured Notes ("Notes").
As of October 30, 1995, the trading price of Fairfield's
common stock was 7 1/4.
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 September 30,
1995 totaled approximately $450,760 (excluding approximately
$53,308 funded to the Noteholders' Operating Account which
is used to pay administrative expenses at Pointe Alexis).
The balance in the Noteholders' Interest Payment Account was
$1,211,434 as of September 30, 1995.
Since the effective date of Fairfield's Chapter 11 plan of
reorganization, Noteholders have received distributions
totaling $12,754,927, of which $8,009,279 was interest and
$4,745,6448 was principal. The remaining principal balance <PAGE>
outstanding as of September 30, 1995 was $14,805,665 which
amount is secured by all of the Collateral outlined in this
report (including the cash balance mentioned above).
This report will serve to more fully describe the Collateral
as well as to update the Noteholders with the respect to
both the condition and expected cash flow of all of the
remaining Collateral. <PAGE>
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.
Pointe Alexis South is a Fairfield community master planned
for 271 units. As of September 30, 1995, 169 lots had been
sold and closed, 45 were vacant lots with roads and
improvements installed, and 57 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 is $1,170,375 although some of the
interior lots may never yield any appreciable value and even
many of the water-front lots may eventually need to be sold
at prices well below the current release prices. 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 water-front
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
three or four years as undeveloped lots are sold in small to
medium sized tracts to developers. As an alternative, the
entire project could be sold in a single bulk sale, or sold
through an auction, although these alternatives would likely
require an aggregate sales price well below the
aforementioned release price.
During the quarter ended September 30, 1995, at Pointe
Alexis South, Fairfield recorded 2 lot sales and 2 lot
closings compared to 1 lot sale and 6 lot closings during
the quarter ended September 30, 1994. Total revenues at
Pointe Alexis South during the third quarter ended September
30, 1995 totaled $30,000 compared to $143,750 during the
second quarter ended September 30, 1994.
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 <PAGE>
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
water-front lots with docks. The master plan calls for
sales of 180 lots. As of September 30, 1995, 117 lots had
been sold and closed, and 63 were developed with roads and
available for sale. Of the 63 remaining lots, the First
National Bank of Boston has a first lien on 14 lots. The
aggregate release price on the lots pledged as Collateral to
the Noteholders is $1,784,718, which reflects a 13% price
--------------------------
- ---------------------------------------------------------
reduction effective as of January 1, 1995. The reduction
- -------------------------------------------
was approved by the Ombudsman due to limited sales activity
and to generate funds for expenses at Pointe Alexis. If
sales activity continues to be slow, and no buyer
materializes for a bulk purchase, remaining lots may be sold
through an auction format which could prompt further
decreases in release prices.
During the quarter ended September 30, 1995, at Harbour
Watch, Fairfield recorded 0 lot sales and 2 lot closings,
compared to 1 lot sale and 1 lot closing during the quarter
ended September 30, 1994. Total revenues at Harbour Watch
during the quarter ended September 30, 1995 were $158,200
compared to $160,000 during the quarter ended September 30,
1994.
Many of the homes which have been built are quite large and
expensive, particularly some of the water-front homes.
There is an ongoing sales effort in place with a sales
trailer at the entrance to the community. During the
quarter ending September 30, 1995, construction of several
new homes continued, maintaining the community's positive
ambiance of ongoing activity. Since completing the
development of the water-front property, 3 water-front lots
have been sold. As of the date of this report, there were 9
water-front lots available for sale at Harbour Watch with an
aggregate release price of $656,028.
Pointe Alexis South and Harbour Watch collectively had
monthly cash operating expenses of approximately $43,745.72
during the quarter ended September 30, 1995, 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).
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. As mentioned
above, Houlihan Lokey approved a 13% reduction in Harbour
Watch release prices effective as of January 1, 1995. Based
on the slow sales pace at Pointe Alexis South and Harbour
Watch discussed above, further reductions in the sales and
release prices may be required during 1995 or 1996,
particularly if an auction sale format is pursued.<PAGE>
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 $15,000 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 the quarter ending September 30, 1995, 3 units were
sold, leaving approximately 11 more units to be sold. A
total of 685 units have been sold since the inception of the
project.
The Noteholders received a distribution of $352,900 from
Harbour Ridge during the quarter ending September 30, 1995.
Current projections indicate that an additional $.6 to $1.0
million of cash flow should be generated for the
Noteholders.<PAGE>
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 managing general partner
is Delray Land, Inc. ("Delray"). 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% 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 water-
front 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 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% 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. During 1994, the resort was
reported to have occupancy of approximately 30%, although
occupancy had increased to over 50% by the end of the year.
Although occupancy rates are not available for 1995, the<PAGE>
continued slow pace of tourism in St. Croix would suggest
that they have not materially improved over 1994.
On September 15, 1995, St. Croix was devastated by hurricane
Marilyn, causing over $50 million of damage to the Island.
The Resort sustained the loss of its entire beach system,
and is not expected to be reopened until early December.
The Golf Club also sustained significant damage with several
trees uprooted, sand traps washed-out and structural damage
incurred to the club house.<PAGE>
- ----------------------------------------------------------
Fortunately, Delray has reserved sufficient funds to cover
the insurance deductible and is already almost completed
making repairs. According to Delray, the Golf Club should
be opened by mid-November. According to the Federal
Emergency Management Agency (FEMA), repairs on St. Croix
should be 90% complete by early 1996. Cruise ships are
expected to return to the Virgin Islands by mid-November,
particularly to St. Croix which incurred less damage than
the more popular islands of St. Thomas and St. Johns.
Prior to the hurricane, increased play at the Golf Club had
netted annualized cash flow to the Partnership of
approximately $200,000. Total rounds played increased from
25,400 during 1993 to 31,200 during 1994. During the second
quarter of 1995, the Golf Club reported 6,425 total rounds
of golf compared to 6,475 during the second quarter of 1994.
Delray attributes the second quarter decline in rounds
played to the impact of the drought on St. Croix which had
plagued the island for over six months. Play during the
third quarter of 1995 was far below normal levels due to the
hurricane.
During the first quarter of 1995, St. Croix passed
legislation legalizing gambling on the island. According to
Delray, gambling on the island should increase interest in
the Partnership property for the development of new hotels
and/or casinos; however, the only gambling license granted
to date was to a local developer who was unable to raise
sufficient financing to fund the construction of a casino.
Also, plans to rebuild the St. Croix airport following the
hurricane call for substantial expansion which could help
attract new development to the Island.
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 could
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.<PAGE>
BALD MOUNTAIN GOLF COURSE
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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.<PAGE>
HARBOUR GOLF COURSE
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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. <PAGE>
