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 June 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 August 1, 1995 totaled 9,972,091. <PAGE>
Part I - Financial Information
Item I - Financial Statements
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
June 30, December 31,
1995 1994
---- ----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,195 $ 13,641
Loans receivable, net 136,519 137,899
Real estate inventories 32,976 32,237
Restricted cash and escrow accounts 9,360 10,894
Property and equipment, net 7,671 5,956
Net assets held for sale - 7,943
Other assets 17,686 16,156
-------- --------
$214,407 $224,726
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 93,567 $111,943
Deferred revenue 19,915 18,956
Accounts payable 8,582 6,305
Accrued interest 4,991 5,404
Net liabilities held for sale 747 -
Other liabilities 15,426 15,183
-------- --------
143,228 157,791
-------- --------
Stockholders' equity:
Common stock 124 124
Paid-in capital 47,583 46,123
Retained earnings 23,472 20,688
Less treasury stock, at cost - -
-------- --------
71,179 66,935
-------- --------
$214,407 $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 <PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Vacation ownership, net $25,171 $16,135 $37,635 $22,533
Lots, net 1,630 2,964 2,699 3,891
Resort management 3,964 2,956 7,366 5,696
Interest 4,737 4,905 9,501 10,229
Other 3,561 3,206 6,985 6,654
------- ------- ------- -------
39,063 30,166 64,186 49,003
------- ------- ------- -------
EXPENSES
Cost of sales:
Vacation ownership 7,870 4,949 11,712 6,982
Lots 358 608 718 883
Provision for loan losse 1,894 1,396 2,839 1,976
Selling 13,623 8,811 22,620 12,958
Resort management 3,438 2,460 6,502 4,845
General and administration 2,699 2,539 5,683 5,074
Interest 2,230 2,820 4,505 5,539
Other 2,706 2,763 5,117 5,386
------- ------- ------- -------
34,818 26,346 59,696 43,643
------- ------- ------- -------
Earnings before provision for
income taxes 4,245 3,820 4,490 5,360
Provision for income taxes 1,613 1,146 1,706 1,608
------- ------- ------- -------
Net earnings $ 2,632 $ 2,674 $ 2,784 $ 3,752
======= ======= ======= =======
NET EARNINGS PER SHARE
Primary $.24 $.24 $.25 $.34
==== ==== ==== ====
Fully diluted $.23 $.23 $.24 $.32
==== ==== ==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 11,042,997 11,047,737 11,038,248 11,071,780
========== ========== ========== ==========
Fully diluted 11,631,381 11,670,802 11,636,317 11,707,953
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
3 <PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 and 1994
(In thousands)
(Unaudited)
<TABLE>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 2,784 $ 3,752
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 864 701
Provision for loan losses 2,839 1,976
Utilization of pre-confirmation net
loss carryforwards 1,460 1,422
Earnings from unconsolidated affiliates (1,147) (707)
Changes in operating assets and liabilities:
Real estate inventories (739) 1,236
Accounts payable and other liabilities 2,520 832
Deferred revenue 959 (1,294)
Other (936) (3,251)
-------- --------
Net cash provided by operating activities 8,604 4,667
-------- --------
INVESTING ACTIVITIES
Purchases of property and equipment, net (2,284) (178)
Principal collections on loans 36,754 35,199
Loans originated (37,156) (22,992)
Purchase of U.S. Treasury Note (1,524) -
Cash distributions from unconsolidated
affiliates 1,147 707
Net investment activities of net
(liabilities) assets held for sale 7,855 (10,716)
-------- --------
Net cash provided by investing activities 4,792 2,020
-------- --------
FINANCING ACTIVITIES
Proceeds from financing arrangements 101,095 75,923
Repayments of financing arrangements (119,471) (83,760)
Net decrease (increase) in restricted cash and
escrow accounts 1,534 (687)
-------- ---------
Net cash used in financing activities (16,842) (8,524)
Net decrease in cash and cash equivalents (3,446) (1,837)
Cash and cash equivalents, beginning of period 13,641 4,475
-------- ---------
Cash and cash equivalents, end of period $ 10,195 $ 2,638
======== =========
</TABLE>
See notes to consolidated financial statements.
4 <PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 period ended June
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 Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Vacation ownership sales $25,299 $15,731 $38,134 $21,486
Less: Deferred revenue on
current year sales,
net (587) (325) (2,213) (1,054)
Add: Deferred revenue on
prior year sales 459 729 1,714 2,101
------- ------- ------- -------
$25,171 $16,135 $37,635 $22,533
======= ======= ======= =======
</TABLE>
NOTE 2 - LOANS RECEIVABLE
------ ----------------
Loans receivable consisted of the following (In thousands):
<TABLE>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Contracts $135,312 $137,484
Mortgages 13,824 12,044
-------- --------
149,136 149,528
Less: Allowance for loan losses (12,502) (11,322)
Unamortized valuation discount (115) (307)
-------- --------
$136,519 $137,899
======== ========
</TABLE>
5 <PAGE>
NOTE 3 - REAL ESTATE INVENTORIES
------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Land:
Under development $11,326 $ 4,575
Undeveloped 8,929 17,633
------- -------
20,255 22,208
------- -------
Residential housing:
Vacation ownership 10,439 8,418
Homes 2,282 1,611
------- -------
12,721 10,029
------- -------
$32,976 $32,237
======= =======
</TABLE>
In 1995, the Company began development at its newest destination sites and,
therefore, the related acquisition costs were reclassed from undeveloped land to
to land under development.
NOTE 4 - FINANCING ARRANGEMENTS
------ -----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Collateralized contracts receivable:
7.6% Notes $60,683 $ 73,560
FCC Notes 18,801 -
Notes payable 14,083 14,708
Revolving credit agreements - 23,675
------- --------
$93,567 $111,943
======= ========
</TABLE>
At June 30, 1995, the collateralized contracts receivable were secured by a
pool of contracts receivable totaling $97.8 million.
On March 28, 1995, Fairfield Capital Corporation, ("FCC"), a wholly owned
subsidiary of Fairfield Acceptance Corporation ("FAC"), entered into a Credit
Agreement (the "FCC Agreement") which provides 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 on April
10, 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 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 June 30, 1995, the weighted average interest
rate on the borrowings was 6.875%, including facility fees totaling .675%.
6 <PAGE>
NOTE 5 - FAIRFIELD ACCEPTANCE CORPORATION
------ --------------------------------
Condensed consolidated financial information for FAC is summarized as
follows (In thousands):
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash $ 891 $ 895
Loans receivable, net 93,045 108,093
Restricted cash 3,846 8,120
Due from parent 16,012 12,115
Other assets 2,759 3,008
-------- --------
$116,553 $132,231
======== ========
LIABILITIES AND EQUITY
Notes payable $ 79,484 $ 73,560
Revolving credit agreement (see Note 4) - 23,675
Accrued interest and other liabilities 736 681
Equity 36,333 34,315
-------- --------
$116,553 $132,231
======== ========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $3,744 $3,117 $7,582 $6,306
Expenses 2,078 1,979 4,311 3,985
------ ------ ------ ------
Earnings before provision for income
taxes 1,666 1,138 3,271 2,321
Provision for income taxes 639 436 1,253 889
------ ------ ------ ------
Net earnings $1,027 $ 702 $2,018 $1,432
====== ====== ====== ======
</TABLE>
NOTE 6 - NET (LIABILITIES) ASSETS HELD FOR SALE
------ --------------------------------------
A summary of net (liabilities) assets held for sale is as follows (In
thousands):
<TABLE>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Golf courses $ 1,246 $ 2,471
Collateral for Senior Subordinated Secured Notes 8,587 8,676
Excluded Association Assets 4,226 11,602
-------- --------
14,059 22,749
Senior Subordinated Secured Notes (14,806) (14,806)
-------- --------
$ (747) $ 7,943
======== ========
</TABLE>
During the six months ended June 30, 1995, the Company disposed of
approximately $7.9 million of assets held for sale at approximate book value.
7
As a result of asset dispositions and cash distributions from
the collateral for the Senior Subordinated Secured Notes (the "FCI
Notes"), the carrying value of the remaining collateral as of June
30, 1995 may not be indicative of its 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) 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. The Company
is in the process of obtaining independent appraisals of certain
of the remaining collateral.
NOTE 7 - SUPPLEMENTAL INFORMATION
------ ------------------------
As of August 1, 1995, Fairfield has issued 12,367,386 shares
of Common Stock to holders of unsecured resolved claims, of which
2,395,295 were 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 six months ended June 30, 1995 and 1994
include cash distributions totaling $1.1 million and $.7 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 six months ended
June 30, 1995 also include home and bulk land sales totaling $3.2
million and related cost of sales totaling $3.0 million. For the
six months ended June 30, 1994, home and bulk land sales and
related cost of sales totaled $4.4 million and $4.0 million,
respectively.
Included in other assets at June 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 $1.9 million and
$2.0 million, respectively. Also included in other assets at June
30, 1995 is a $1.5 million U.S. Treasury Note, maturing March 1997.
As a result of maintaining a consolidated cash management system,
the Company maintains overdraft positions in its operating
accounts. Included in accounts payable at June 30, 1995 and
December 31, 1994 are cash overdrafts totaling $4.3 million and
$2.6 million, respectively.
Interest paid totaled $5.0 million and $12.1 million for the
six months ended June 30, 1995 and 1994, respectively. Of the 1994
amount, $6.3 million was related to the net assets of First Federal
which were sold in September 1994.
During the six months ended June 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 $1.46 million and $1.42 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 six
months ended June 30, 1994 varies with the statutory rate due to
the impact of non-taxable income.
8
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 PLPOA has filed an
appeal of the Bankruptcy Court's decision with the United States
District Court, Eastern District of Arkansas, Western Division
("District Court"). The issues on appeal have been briefed and the
parties are awaiting a decision. 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 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
9
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. No hearing has been held on the Fiedler and
Lobdell 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.
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. 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 letter dated August 4, 1995, the court advised
that it would deny plaintiff's motion for class certification, but
no formal order has yet been entered.
Under the Stock Purchase Agreement for the sale of First
Federal, Fairfield agreed to indemnify Security Capital Bancorp
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, by merger, Security Bank and
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.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------- --------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE
30, 1994
Vacation Ownership
-----------------
Gross vacation ownership interval ("VOI") revenues totaled
$38.1 million and $21.5 million for the six months ended June 30,
1995 and 1994, respectively. Of this increase, $8.8 million (53%)
is attributable to increased sales volumes at the Company's
existing developments and the remaining increase is attributable to
the additional sales volumes at 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 $37.6 million for the six months
ended June 30, 1995 from $22.5 million for the six months ended
June 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 $.5 million during the six months ended June
30, 1995, related to the percentage of completion method of
accounting, as compared to the net recognition of $1 million of
previously deferred revenue during the six months ended June 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 55.9% and 48.4%,
for the six months ended June 30, 1995 and 1994, respectively. The
increase in selling expenses, as a percentage of related revenues,
is attributable primarily to inefficiencies experienced at the
Company's newest destination sites at Orlando, Florida and
Nashville, Tennessee. Exclusive of these new projects, selling
expenses, as percentage of related revenues, were 47.2% for the six
months ended June 30, 1995. Efficiencies are expected to be
realized in the second half of 1995 as the Company continues to
adjust its marketing and sales efforts at these new locations to
better match its marketing programs with the respective sales
efforts.
Interest
--------
Interest income totaled $9.5 million for the six months ended
June 30, 1995 as compared to $10.2 million for the six months ended
June 30, 1994. The decrease in 1995 is primarily attributable to a
lower average balance of outstanding contracts receivable (1995 -
$132.8 million; 1994 - $150.0 million), resulting primarily from
principal collections exceeding originations.
Interest expense, net of capitalized interest, totaled $4.5
million and $5.5 million for the six months ended June 30, 1995 and
1994, respectively. The decrease in 1995 is primarily attributable
to the reductions in the average outstanding balance of interest-
bearing debt.
General and Administrative
--------------------------
General and administrative expenses increased from $5.1
million during the six months ended June 30, 1994 to $5.7 million
during the six months ended June 30, 1995. This increase primarily
resulted from the additional expenses incurred related to the
increased VOI sales volumes as previously discussed.
11
As a percentage of total revenues, general and administrative expenses
decreased from 10.4% for the six months ended June 30, 1994 to 8.9%
for the six months ended June 30, 1995.
Other
-----
Other revenues for the six months ended June 30, 1995 and 1994
include cash distributions totaling $1.1 million and $.7 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 six months ended June 30,
1995 also include $3.2 million and $3.0 million, respectively,
relating to home and bulk asset sales and related cost of sales.
For the six months ended June 30, 1994, home and bulk asset sales
and related costs of sales totaled $4.4 million and $4.0 million,
respectively.
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1994
Revenue and expense trends for the three months ended June 30,
1995 were generally consistent with those of the related six month
period as described above with (i) an increase 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 the three months ended June 30, 1995 and
1994 include cash distributions totaling $.5 million and $.3
million, respectively, related to the Company's 35% partnership
interest in Harbour Ridge, Ltd.
Other revenues and expenses for the three months ended June
30, 1995 also include $1.5 million and $1.4 million, respectively,
relating to home and bulk asset sales and related cost of sales.
For the three months ended June 30, 1994, bulk asset sales and
related costs of sales totaled $1.9 million and $1.8 million,
respectively.
PROVISION FOR INCOME TAXES
For the six months ended June 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 $1.46 million and $1.42 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 six
months ended June 30, 1994 varies with the statutory rate due to
the impact of non-taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company decreased $3.4
million from December 31, 1994 to June 30, 1995. For the six
months ended June 30, 1995, cash from operations totaled $8.6
million and cash provided by investing activities totaled $4.8
million, resulting primarily from sales proceeds of assets held for
sale offset by purchases of property and equipment and the purchase
of a U. S. Treasury Note. Using available cash and certain
restricted cash accounts, the Company reduced the outstanding
balances of its financing arrangements by $18.4 million during the
six months ended June 30, 1995.
12
As of June 30, 1995, the Company had borrowing availability
totaling $24.0 million from its two credit facilities as discussed
below. At June 30, 1995, Fairfield and certain of its subsidiaries
had no borrowings, and $1.3 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
June 30, 1995, Fairfield had borrowing availability under the FCI
Agreement of $23.7 million, net of outstanding letters of credit.
At June 30, 1995, FAC had no borrowings outstanding 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 June 30, 1995, FAC had borrowing availability under the FAC
Agreement of $.3 million.
On March 28, 1995, Fairfield Capital Corporation, ("FCC"), a
wholly owned subsidiary of Fairfield Acceptance Corporation
("FAC"), entered into a Credit Agreement (the "FCC Agreement")
which provides for loans of up to $21.4 million 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 on April 10,
1995, resulting in borrowings under the FCC Agreement totaling
$21.4 million, of which $20.3 million was used to reduce borrowings
under the FAC Agreement 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 on
December 9, 1999.
As of June 30, 1995, the Company had $10.2 million in cash and
cash equivalents, which was used in part to fund the cash overdraft
at June 30, 1995 totaling $4.3 million. In July 1995, the Company
purchased for $6.1 million, real estate in Myrtle Beach, South
Carolina using available cash and borrowing availability.
The Company expects to finance its long-term cash needs from
(i) contract payments generated from its contracts receivable
portfolio, (ii) borrowings under its credit facilities, and (iii)
operating cash flows.
FINANCIAL CONDITION
Total consolidated assets of the Company decreased $10.3
million from December 31, 1994 to June 30, 1995. The decrease in
assets is primarily attributable to a $7.9 million decrease in net
assets held for sale resulting from the disposal of such assets
which resulted in the remaining items being included in net
liabilities held for sale (see Note 6 of "Notes to Consolidated
Financial Statements"). Total consolidated liabilities of the
Company decreased $14.6 million from December 31, 1994 to June 30,
1995 and is primarily attributable to a $18.4 million net decrease
in financing arrangements which was partially offset by an increase
in accounts payable of $2.3 million.
Other variations in the Company's assets and liabilities
generally reflect the revenue and expense activities the Company
experienced during the six months ended June 30, 1995.
13
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
------ ---------------------------------------------------
The 1995 Annual Meeting of Stockholders of the Registrant
was held on May 11, 1995. The following item of business
was presented to the stockholders:
Election of Directors
---------------------
The seven directors were elected as proposed in
the Proxy Statement dated April 5, 1995 under
the caption titled "Election of Directors".
Total Vote For Total Vote Withheld
Each Director From Each Director
-------------- ------------------
Russell A. Belinsky 8,540,085 50,361
Ernest D. Bennett, III 8,545,187 45,259
Daryl J. Butcher 8,545,182 45,264
Philip L. Herrington 8,545,182 45,264
Ronald Langley 8,540,090 50,356
John W. McConnell 8,545,103 45,343
William C. Scott 8,310,170 280,276
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
14
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: August 3, 1995 /s/ Robert W. Howeth
------------------ ---------------------------------------
Robert W. Howeth, Senior Vice President,
Chief Financial Officer and Treasurer
Date: August 3, 1995 /s/ William G. Sell
------------------- -----------------------------------------
William G. Sell, Vice President/Controller
(Chief Accounting Officer)
15
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 First Amendment to Excess Benefit Plan adopted May 11,
1995 (attached)
10.2 First Amendment to Key Employee Retirement Plan adopted
May 11, 1995 (attached)
11 Computation of earnings per share (attached)
27 Financial Data Schedule (attached)
99 Ombudsman Report for the period ending June 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
16
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
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 August
4, 1995, for the period ending June 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)
17
FIRST AMENDMENT
to
EXCESS BENEFIT PLAN
THIS AMENDMENT, adopted by the Board of Directors of Fairfield
Communities, Inc. (the "Corporation") on May 11, 1995, is retroactively
effective as of February 1, 1994.
1. Recitals. The Corporation, at a meeting of its Board of
Directors held February 1, 1994, adopted the Excess Benefit Plan (the
"Plan"), to provide certain benefits to employees of the Corporation and
its subsidiaries. In order to clarify the operation of the Plan, the
Corporation, at a meeting of its Board of Directors held on May 11, 1995,
amended the Plan, with such amendment effective retroactively as of
February 1, 1994.
2. Amendment. The Plan is hereby amended by deleting the existing
Section 3.01 of the Plan in its entirety and substituting the following:
Section 3.01. Allocations. If, with respect to any Plan Year, the
allocation made to the Employer Contribution Account ("Account") of a
Participant under the Profit-Sharing Plan is less than the allocation
that would have been made for the benefit of such Participant but for the
application of the limitations on benefits under Code Sections 415(c),
415(e) or 401(a)(17), the Participant shall be entitled to have his
Excess Benefit Plan Account credited with an amount equal to the
difference obtained by subtracting (a) the actual amount of the
allocation made for the benefit of such Participant for the Plan Year
from (b) the amount of the allocation that would have been made for such
Participant for such Plan Year but for the application of such Code
limitations, provided that if the amount of such credit would be
negative, the amount of such credit shall be determined to be zero, and
further provided that, in determining the amount of such credit, the term
"Compensation", as used in the Profit-Sharing Plan, for purposes of
calculating the allocation that would have been made under (b) above for
such Participant but for the application of such Code limitations, shall
only include such Participant's base salary, wages, commissions and cash
bonuses (including any amounts thereof which have been deducted for
401(k) plans, salary reduction deferral agreements or Section 125 cafeteria
style plans, et al.), and not other income which may be reflected on such
Participant's Federal income tax withholding statement (Form W-2) or its
subsequent equivalent. Such allocation shall be made at such time as
this allocation would have been made to the Profit-Sharing Plan, if
determinable, otherwise as of the last day of the corresponding year.
3. Effect. Except as hereby amended, the Plan shall continue in
full force and effect.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Marcel J. Dumeny
--------------------------
Secretary
FIRST AMENDMENT
to
KEY EMPLOYEE RETIREMENT PLAN
THIS AMENDMENT, adopted by the Board of Directors of Fairfield
Communities, Inc. (the "Corporation") on May 11, 1995, is retroactively
effective as of January 1, 1994.
1. Recitals. The Corporation, at a meeting of its Board of
Directors held August 3, 1994, adopted the Key Employee Retirement Plan
(the "Plan"), effective January 1, 1994, to provide benefits to certain
employees of the Corporation. In order to clarify the operation of the
Plan, the Corporation, at a meeting of its Board of Directors held on May
11, 1995, amended the Plan, with such amendment effective retroactively
as of January 1, 1994.
2. Amendment. The Plan is hereby amended by deleting the existing
definition of "Cash Compensation", contained in Section 2.01(d) of the
Plan, in its entirety and substituting the following:
"Cash Compensation" means base salary, wages, commissions and cash
bonuses (including any amounts thereof which have been deducted for
401(k) plans, salary reduction deferral agreements or Section 125 cafeteria
style plans, et al.).
3. Effect. Except as hereby amended, the Plan shall continue in
full force and effect.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Marcel J. Dumeny
---------------------------
Secretary
EXHIBIT 11
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
Primary
-------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares:
Shares outstanding 12,360,210 12,125,533 12,360,210 12,076,714
Estimated increase in shares
outstanding (1) 709,489 944,166 709,489 1,030,136
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 368,593 373,333 363,844 360,225
Contingent issuance -
Holders of FCI Notes (2) - - - -
---------- ---------- ---------- ----------
Total weighted average
shares outstanding 11,042,997 11,047,737 11,038,248 11,071,780
========== ========== ========== ==========
Net earnings $2,632,000 $2,674,000 $2,784,000 $3,752,000
========== ========== ========== ==========
Earnings per share $0.24 $0.24 $0.25 $0.34
===== ===== ===== =====
Fully Diluted
--------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<C> <C> <C> <C>
12,360,210 12,125,533 12,360,210 12,076,714
709,489 944,166 709,489 1,030,136
(2,395,295)(2,395,295)(2,395,295)(2,395,295)
368,742 408,163 373,678 408,163
588,235 588,235 588,235 588,235
---------- --------- --------- ---------
11,631,381 11,670,802 11,636,317 11,707,953
========== ========== ========== ==========
$2,632,000 $2,674,000 $2,784,000 $3,752,000
========== ========== ========== ==========
$0.23 $0.23 $0.24 $0.32
===== ===== ===== =====
</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 June 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 June 30, 1995 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 10195
<SECURITIES> 0
<RECEIVABLES> 149136
<ALLOWANCES> 12502
<INVENTORY> 32976
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 214407
<CURRENT-LIABILITIES> 0
<BONDS> 93567
<COMMON> 124
0
0
<OTHER-SE> 71055
<TOTAL-LIABILITY-AND-EQUITY> 214407
<SALES> 47700
<TOTAL-REVENUES> 54685
<CGS> 18932
<TOTAL-COSTS> 24049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2839
<INTEREST-EXPENSE> 4505
<INCOME-PRETAX> 4490
<INCOME-TAX> 1706
<INCOME-CONTINUING> 2784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2784
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.24
</TABLE>
FAIRFIELD COMMUNITIES, INC.
10% SENIOR SUBORDINATED SECURED NOTES
OMBUDSMAN REPORT
For the Period Ending
June 30, 1995
Prepared by
Houlihan Lokey Howard & Zukin
--------------------------------------------------------------
Date Prepared:
August 4, 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 June 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 July 30, 1995, the trading price
of Fairfield's common stock was 6 1/8.
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 June 30, 1995 totaled approximately
$625,485 (excluding approximately $55,601 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 $753,512 as of June 30,
1995.
Since the effective date of Fairfield's Chapter 11 plan of reorganization,
Noteholders have received distributions totaling $12,754,927, of which
$4,745,648 was interest and $8,009,279 was principal. The remaining principal
balance outstanding as of June 30, 1995 was $14,805,665 which amount is secured
by all of the Collateral outlined in this report (including the cash balances
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
June 30, 1995, 167 lots had been sold and closed, 47 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 $1,200,375 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 June 30, 1995, at Pointe Alexis South, Fairfield
recorded 0 lot sales and 0 lot closings compared to 5 lot sales and 8 lot
closings during the quarter ended June 30, 1994. Total revenues at Pointe Alexis
South during the second quarter ended June 30, 1995 totaled $0 compared to
$207,956 during the second quarter ended June 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 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 June 30, 1995, 114 lots had been sold and closed, and 66 were
developed with roads and available for sale. Of the 66 remaining lots, the
First National Bank of Boston has a first lien on 12 lots. The aggregate
release price on the lots pledged as Collateral to the Noteholders is
$1,852,578, which reflects a 13% price reduction <PAGE>
---------------------------------------------------------------------------
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 June 30, 1995, at Harbour Watch, Fairfield recorded 1
lot sale and 0 lot closings, compared to 0 lot sales and 1 lot closing during
the quarter ended June 30, 1994. Total revenues at Harbour Watch during the
quarter ended June 30, 1995 were $0 compared to $280,000 during the quarter
ended June 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 June 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, 2 water-front lots have been sold. As
of the date of this report, there were 10 water-front lots available for sale at
Harbour Watch with an aggregate release price of $723,888.
Pointe Alexis South and Harbour Watch collectively had monthly cash operating
expenses of approximately $55,040.80 during the quarter ended June 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 June 30, 1995, 4 units were sold,leaving approximately
14 more units to be sold. A total of 682 units have been sold since the
inception of the project.
The Noteholders received a distribution of $524,350 from Harbour Ridge during
the quarter ending June 30, 1995. Current projections indicate that an
additional $.8 to $1.2 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. During
the first quarter of 1995 (the peak tourism season) the Resort had occupancy of
approximately 65%. Tourism continues to lag normal levels in St. Croix thus far
during 1995.
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 annual cash flow at the Golf <PAGE>
------------------------------------------------------------------------------
Club to 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 decline in rounds played to the impact of the
drought on St. Croix which has plagued the island for over six months. According
to Delray, the Golf Club will continue to reinvest excess cash in new golf carts
and course maintenance which, combined with increased insurance costs
(principally hurricane) will likely prevent any partnership distributions during
1995.
The severe drought which had plagued St. Croix (even through the rainy season)
has broken somewhat, but the water hazards (which are used for irrigation)
remain well below normal levels. The golf course has already substantially
replenished itself but many of the trees which died will take years to
replenish.
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.
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
----------------------------------------------------------------------------
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
---------------------------------------------------------------------------
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>
