SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value New York
Preferred Stock Purchase Rights New York
with respect to Common Stock,
$0.01 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS 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
outstanding as of January 31, 1996 totaled 9,930,553 and the
aggregate market value of the registrant's Common Stock held
by non-affiliates totaled approximately $73 million at January
31, 1996.
Documents Incorporated by Reference: Parts I, II and III of
this Form 10-K incorporate certain information by reference
from the registrant's Annual Report to Stockholders for the
year ended December 31, 1995 and the Proxy Statement to be
issued in connection with its 1996 Annual Meeting of
Stockholders.
INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
PART I ----
-------
Items 1. and 2. Business and Properties...................... 3
Item 3. Legal Proceedings................................... 4
Item 4. Submission of Matters to a Vote of Security Holders. 4
PART II
-------
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters....................... 4
Item 6. Selected Financial Data............................ 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 5
Item 8. Financial Statements and Supplementary Data........ 5
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... 5
PART III
--------
Item 10. Directors and Executive Officers of the Registrant. 5
Item 11. Executive Compensation............................. 5
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................ 5
Item 13. Certain Relationships and Related Transactions..... 6
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................. 6
-2- <PAGE>
PART I
------
Items 1. and 2. BUSINESS AND PROPERTIES
- -------------- -----------------------
General
-------
Fairfield Communities, Inc. ("Fairfield" and together with
its subsidiaries, the "Company") is one of the nation's largest
vacation ownership companies. The Company markets vacation
products and manages resort properties in eleven states,
providing quality recreational experiences to its property
owners.
The Company's primary business is the sale of vacation
ownership interests ("VOIs"), popularly known as timeshare, at
its various properties situated either in popular tourist
locations or in proximity to other scenic resort areas. The
Company offers financing for VOI and homesite purchases through a
wholly owned subsidiary, Fairfield Acceptance Corporation ("FAC"),
generating high quality, medium-term contracts receivable with
attractive yields. FAC holds these contracts in its portfolio and,
in some instances, securitizes and sells them to third parties.
Fairfield and certain of its subsidiaries successfully
reorganized under Chapter 11 of the United States Bankruptcy Code
pursuant to plans of reorganization confirmed in August 1992.
The events that led the Company to file for bankruptcy resulted
from a combination of real estate market conditions, lack of
credit availability and a business strategy under which the
Company attempted to diversify its business to include activities
in the development and construction of primary residences and
retirement communities, and entered into joint ventures unrelated
to its core business.
In September 1994, Fairfield sold 100% of the capital stock
of First Federal Savings and Loan Association of Charlotte
("First Federal") for $41.0 million and recognized a net gain on
the sale of $5.2 million. The gain from the sale of First
Federal was not subject to federal income tax due to a permanent
tax basis difference in First Federal's stock and underlying
goodwill.
Fairfield was incorporated in Delaware in 1969. The
Company's principal executive office is located at 2800 Cantrell
Road, Little Rock, Arkansas 72202, and its telephone number is
(501)664-6000. At December 31, 1995, the Company had
approximately 850 full-time employees.
Additional information required by Items 1. and 2. is
incorporated herein by reference to Fairfield Property Portfolio
----------------------------
included in the Registrant's Annual Report to Stockholders for
the year ended December 31, 1995.
Development/Regulation
----------------------
In certain of its developments, the Company engages in
master planning of land, home and commercial construction and
management of resort and conference facilities. Many state and
local authorities have imposed restrictions and additional
regulations on developers of vacation ownership interests
("VOIs") and lots. Although these restrictions have generally
increased the cost of selling VOIs and lots, the Company has not
experienced material difficulties in complying with such
regulations or operating within such restrictions. The Company
provides certain purchasers with a "property report" designed to
comply with the disclosure requirements of federal and state laws
which contains, among other things, detailed information about
the particular community, the development and the purchaser's
rights and obligations as a VOI or lot owner.
-3-
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
The information required by Item 3 is incorporated
herein by reference to Note 13 - Contingencies of
-----------------------
"Notes to Consolidated Financial Statements" included
in the Registrant's Annual Report to Stockholders for
the year ended December 31, 1995.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matters were submitted to a vote of
stockholders during the fourth quarter of 1995.
Executive Officers of the Registrant
- ------------------------------------
The following is a listing of the executive officers of the
Company, none of whom has a family relationship with directors or
other executive officers:
John W. McConnell, age 54, President and Chief
Executive Officer since 1991; President and Chief
Operating Officer from 1990 to 1991; Senior Vice
President and Chief Financial Officer from 1986 to
1990.
Marcel J. Dumeny, age 45, Senior Vice President
and General Counsel since 1989; Senior Vice
President/Law and Development from 1987 to 1989.
Clay G. Gring, Sr., age 64, Senior Vice
President/Chief Operating Officer since January 23,
1996; Senior Vice President/Leisure Products Group from
1991 to January 23, 1996. Self-employed from 1984 to
1991 specializing in the development and management of
real estate properties, including resort communities
and hospitality related properties.
Robert W. Howeth, age 48, Senior Vice President,
Chief Financial Officer and Treasurer since 1993;
Senior Vice President and Treasurer from 1992 to 1993;
Senior Vice President/Planning and Administration from
1990 to 1992; Vice President and Treasurer from 1988 to
1990.
Joe T. Gunter, age 54, Senior Vice President since
1989; Senior Vice President and Special Counsel from
1984 to 1989.
Morris E. Meacham, age 57, Vice President of
Special Projects since 1994; Executive Vice President
from 1990 to 1994; Senior Vice President and Chief
Operating Officer/Leisure Products Group from 1986 to
1990.
William G. Sell, age 42, Vice President and
Controller (Chief Accounting Officer) since 1988.
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ------ ------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Information required by Item 5 is incorporated
herein by reference to Common Stock Prices included in
-------------------
the Registrant's Annual Report to Stockholders for the
year ended December 31, 1995.
-4-
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
Information required by Item 6 is incorporated
herein by reference to Financial Highlights included in
--------------------
the Registrant's Annual Report to Stockholders for the
year ended December 31, 1995.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Information required by Item 7 is incorporated
herein by reference to Management's Discussion and
---------------------------
Analysis of Financial Condition and Results of
----------------------------------------------
Operations included in the Registrant's Annual Report
----------
to Stockholders for the year ended December 31, 1995.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
Financial statements and supplementary data
required by Item 8 are set forth below in Item 14(a),
Index to Financial Statements.
-----------------------------
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------
None
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
(a) Identification of Directors
---------------------------
This item is incorporated herein by reference to
Registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.
(b) Identification of Executive Officers
------------------------------------
In accordance with Regulation S-K Item 401(b),
Instruction 3, the information required by Item 10(b)
concerning the Company's executive officers is
furnished in a separate item captioned Executive
---------
Officers of the Registrant in Part I above.
--------------------------
(c) Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
This item is incorporated by reference to
Registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
This item is incorporated by reference to
Registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
----------
This item is incorporated by reference to
Registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.
-5-
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
This item is incorporated by reference to
Registrant's Proxy Statement for its 1996 Annual
Meeting of Stockholders.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- ------- -------------------------------------------------------
FORM 8-K
--------
(a)(1) Index to Financial Statements:
-----------------------------
The following consolidated financial statements
and Report of Ernst & Young LLP, Independent Auditors,
included in the Registrant's Annual Report to
Stockholders for the year ended December 31, 1995 are
incorporated herein by reference:
Consolidated Balance Sheets - December 31, 1995
and 1994
Consolidated Statements of Earnings - Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years
Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements -
December 31, 1995
(2) The following financial statement schedule
should be read in conjunction with the
consolidated financial statements included in the
Registrant's Annual Report to Stockholders for the
year ended December 31, 1995:
Schedule II - Valuation and Qualifying Accounts
Financial statement schedules not included herein
have been omitted because they are not applicable or
the required information is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits required by this item are listed on
the Exhibit Index attached to this report and
hereby incorporated by reference.
(b) Reports on Form 8-K Filed in the Fourth Quarter
-----------------------------------------------
None
(c) Exhibits
--------
The Exhibit Index attached to this report is
hereby incorporated by reference.
(d) Financial Statement Schedules
-----------------------------
Following is the schedule as referenced in the
Index to Financial Statements included in Item 14(a)
-----------------------------
above.
-6-
<TABLE>
SCHEDULE II
Fairfield Communities, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
Additions
---------------------
Balance at Charged Charged to Balance at
Beginning to Costs Other End of
Description of Period and Expenses Accounts Deductions Period
- --------------------------- --------- ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Deducted from asset accounts:
Allowance for loan losses $11,322 $6,505 $ - $(3,627)(a) $14,200
======= ====== ====== ======= =======
Valuation allowance for
deferred tax assets $26,131 $ - $ 547(b)$(6,263)(c) $20,415
======= ====== ====== ======= =======
Year Ended December 31, 1994
Deducted from asset accounts:
Allowance for loan losses $10,992 $4,430 $ - $(4,100)(a) $11,322
======= ====== ====== ======= =======
Valuation allowance for
deferred tax assets $33,649 $ - $ - $(7,518)(c) $26,131
======= ====== ====== ======= =======
Year Ended December 31, 1993
Deducted from asset accounts:
Allowance for loan losses $14,613 $3,586(d) $ - $(7,207)(e) $10,992
======= ====== ====== ======= =======
Valuation allowance for
deferred tax assets $42,974 $ - $ - $(9,325)(f) $33,649
======= ====== ====== ======= =======
</TABLE>
(a) Uncollectible loans receivable written-off,
net of recoveries.
(b) Represents the refinement of prior year
estimates of certain deferred tax assets.
(c) Utilization of pre-confirmation income tax
attributes credited to paid-in capital.
(d) Includes $334 which is included in "Savings
and loan operations" in the 1993 Consolidated
Statement of Earnings.
(e) Includes $2,248 transferred to net liabilities
of assets held for sale and $4,959 of
uncollectible loans receivable written-off,
net of recoveries.
(f) Includes $3,016 utilization of pre-
confirmation income tax attributes credited to
paid-in capital. Other deductions represent
the refinement of prior year estimates of
certain deferred tax assets, including net
operating loss carryforwards and tax credits
subject to the limitations of Internal Revenue
Code Section 382.
-7-
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned
duly authorized.
FAIRFIELD COMMUNITIES, INC.
Date: March 11, 1996 By /s/ J.W. McConnell
----------------------------------
J.W. McConnell, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities on the
dates indicated:
Date: March 11, 1996 By /s/ Russell A. Belinsky*
------------------------------------
Russell A. Belinsky, Director
Date: March 11, 1996 By /s/ Ernest D. Bennett, III*
------------------------------------
Ernest D. Bennett, III, Director
Date: March 11, 1996 By /s/ Daryl J. Butcher*
------------------------------------
Daryl J. Butcher, Director
Date: March 11, 1996 By /s/ Philip L. Herrington*
------------------------------------
Philip L. Herrington, Director
Date: March 11, 1996 By /s/ Ronald Langley*
------------------------------------
Ronald Langley, Director
Date: March 11, 1996 By /s/ William C. Scott*
------------------------------------
William C. Scott, Director
Date: March 11, 1996 By /s/ J. W. McConnell
-----------------------------------
J. W. McConnell, Director, President
and Chief Executive Officer
Date: March 11, 1996 By /s/ Robert W. Howeth
------------------------------------
Robert W. Howeth, Senior Vice President,
Chief Financial Officer and Treasurer
Date: March 11, 1996 By /s/ William G. Sell
-------------------------------------
William G. Sell, Vice President/Controller
(Chief Accounting Officer)
Date: March 11, 1996 *By /s/ J. W. McConnell
-------------------------------------
J. W. McConnell, Attorney-in-Fact
-8-
FAIRFIELD COMMUNITIES, INC.
EXHIBIT INDEX
-------------
Exhibit
Number
- -------
3(a) Second Amended and Restated Certificate of
Incorporation of the Registrant, effective
September 1, 1992 (previously filed with the
Registrant's Current Report on Form 8-K dated
September 1, 1992 and incorporated herein by
reference)
3(b) Second Amended and Restated Bylaws of the
Registrant, dated November 18, 1994
(previously filed with the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by
reference)
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, dated
September 1, 1992, related to the Senior
Subordinated Secured Notes (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, dated September 1, 1992
(previously filed with the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by
reference)
4.4 Third Supplemental Indenture to the
Supplemented and Restated Indenture referenced
in 4.1 above, dated March 18, 1993 (previously
filed with the Registrant's Quarterly Report
on Form 10-Q for the quarter ended 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 Amended and Restated Revolving Credit and Term
Loan Agreement, dated September 28, 1993, by
and between the Registrant, Fairfield Myrtle
Beach, Inc., Suntree Development Company,
Fairfield Acceptance Corporation ("FAC") and
The First National Bank of Boston ("FNBB")
(previously filed with the Registrant's
Current Report on Form 8-K dated October 1,
1993 and incorporated herein by reference)
10.2 First Amendment to Amended and Restated
Revolving Credit Agreement, referenced in 10.1
above, dated May 13, 1994 (previously filed
with the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994
and incorporated herein by reference)
10.3 Second Amendment to Amended and Restated
Revolving Credit Agreement, referenced in 10.1
above, dated December 9, 1994 (previously
filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994
and incorporated herein by reference)
-9-
Exhibit
Number
- ------
10.4 Third Amendment to Amended and Restated
Revolving Credit Agreement, referenced in 10.1
above, dated December 19, 1994 (previously
filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994
and incorporated herein by reference)
10.5 Fourth Amendment to Amended and Restated
Revolving Credit Agreement referenced in 10.1
above, dated November 20, 1995 (attached)
10.6 Fifth Amendment to Amended and Restated
Revolving Credit Agreement referenced in 10.1
above, dated January 25, 1996 (attached)
10.7 Stock Purchase Agreement, dated April 5, 1994,
between the Registrant and Security Capital
Bancorp (previously filed with the
Registrant's Current Report on Form 8-K dated
April 14, 1994 and incorporated herein by
reference)
10.8 Limited Partnership Agreement, dated March 3,
1981, between Harbour Ridge, Inc., Fairfield
River Ridge, Inc. and Harbour Ridge
Investments, Inc. forming the limited
partnership of Harbour Ridge, Ltd. (previously
filed with the Registrant's Registration
Statement on Form S-7 No. 2-75301 effective
February 11, 1982 and incorporated herein by
reference)
10.9 Sugar Island Associates, Ltd. Amended Limited
Partnership Agreement, dated October 17, 1984
(previously filed with the Registrant's
current Report on Form 8-K dated October 25,
1984 and incorporated herein by reference)
10.10 Rights Agreement, dated September 1, 1992,
between Registrant and Society National Bank,
as Rights Agent (previously filed with the
Registrant's Current Report on Form 8-K dated
September 1, 1992 and incorporated herein by
reference)
10.11 Amendment to Rights Agreement, referenced in
10.10 above, dated September 20, 1994
(previously filed with the Registrant's Form
8-A/A dated November 1, 1994 and incorporated
herein by reference)
10.12 Fourth Amended and Restated Title Clearing
Agreement between the Registrant, FAC, Lawyers
Title Insurance Corporation, FNBB individually
and in various capacities as agent and
trustee, First Bank National Association,
First Commercial Trust Company, N.A., First
American Trust Company, N.A. and First
Federal, dated September 1, 1992 (previously
filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992
and incorporated herein by reference)
10.13 Promissory Note and Security Agreement, each
dated June 30, 1994, between the Registrant
and VM Investors Partnership (previously filed
with the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994
and incorporated herein by reference)
10.14 Second Amended and Restated Title Clearing
Agreement between the Registrant, FAC,
Colorado Land Title Company, FNBB, First Bank
National Association, First Commercial Trust
Company, N.A. and First Federal, dated
September 1, 1992 (previously filed with the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992 and
incorporated herein by reference)
-10-
Exhibit
Number
- -------
10.15 Westwinds Third Amended and Restated Title
Clearing Agreement between the Registrant,
FAC, Fairfield Myrtle Beach, Inc., Lawyers
Title Insurance Corporation, FNBB, and Resort
Funding, Inc., dated November 15, 1992
(previously filed with the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by
reference)
10.16 Third Amended and Restated Revolving Credit
Agreement between FAC and FNBB, dated
September 28, 1993 (previously filed with
Registrant's Current Report on Form 8-K dated
October 1, 1993 and incorporated herein by
reference)
10.17 First Amendment to Third Amended and Restated
Revolving Credit Agreement, referenced in
10.16 above, dated December 9, 1994
(previously filed with the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by
reference)
10.18 Second Amendment to Third Amended and Restated
Revolving Credit Agreement, referenced in
10.16 above, dated December 19, 1994
(previously filed with the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by
reference)
10.19 Pledge and Servicing Agreement between
Fairfield Funding Corporation ("FFC"), FAC,
First Commercial Trust Company, N.A. and Texas
Commerce Trust Company, N.A., dated September
28, 1993 (previously filed with Registrant's
Current Report on Form 8-K filed October 1,
1993 and incorporated herein by reference)
10.20 Receivable Purchase Agreement, dated September
28, 1993, between the Registrant, FAC, and FFC
(previously filed with the Registrant's
Current Report on Form 8-K filed October 1,
1993 and incorporated herein by reference)
10.21 Third Amended and Restated Operating
Agreement, dated December 9, 1994, between the
Registrant and FAC (previously filed with the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994 and
incorporated herein by reference)
10.22 Appointment and Acceptance Agreement, dated
March 3, 1994, between the Registrant and FNBB
appointing FNBB as successor Rights Agent
(previously filed with the Registrant's Annual
Report on Form 10-K/A for the year ended
December 31, 1993 and incorporated herein by
reference)
10.23 Credit Agreement, dated March 28, 1995, among
the Registrant, Fairfield Capital Corporation
("FCC"), FAC, Triple-A One Funding Corporation
and Capital Markets Assurance Corporation as
Administrative Agent and Collateral Agent
(previously filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 and incorporated herein
by reference)
10.24 Receivables Purchase Agreement dated March 28,
1995 among the Registrant, FAC, and FCC
(previously filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 and incorporated herein
by reference)
-11-
Exhibit
Number
- ------
COMPENSATORY PLANS OR ARRANGEMENTS
10.25 Form of Warrant Agreement between the
Registrant and directors of the Registrant
(previously filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 and incorporated
herein by reference)
10.26 Registrant's Savings/Profit Sharing Plan, as
amended, effective January 1, 1995 (previously
filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994
and incorporated herein by reference)
10.27 Amendment Number Two to Registrant's
Savings/Profit Sharing Plan referenced in
10.26 above, effective January 1, 1996
(attached)
10.28 Employment Agreement, dated September 20,
1991, by and between the Registrant and Mr.
John W. McConnell (previously filed with
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991 and
incorporated herein by reference)
10.29 Employment Contract, effective January 1,
1994, by and between the Registrant and Mr.
Morris E. Meacham (previously filed with
Registrant's Annual Report on Form 10-K/A for
the year ended December 31, 1993 and
incorporated herein by reference)
10.30 Employment Agreement, dated September 20,
1991, by and between the Registrant and Mr.
Marcel J. Dumeny (previously filed with
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991 and
incorporated herein by reference)
10.31 Form of Amendment No. One to Employment
Agreements between Registrant and certain
officers (previously filed with Registrant's
Current Report on Form 8-K dated September 1,
1992 and incorporated herein by reference)
10.32 Form of Warrant Agreement between Registrant
and certain officers and executives of the
Registrant (previously filed with Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 and incorporated
herein by reference)
10.33 Registrant's First Amended and Restated 1992
Warrant Plan (previously filed with
Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993 and
incorporated herein by reference)
10.34 Form of Indemnification Agreement between the
Registrant and certain officers and directors
of the Registrant (previously filed with the
Registrant's Current Report on Form 8-K dated
September 1, 1992 and incorporated herein by
reference)
10.35 Form of Severance Agreement between the
Registrant and certain officers of the
Registrant (previously filed with Registrant's
Annual Report on Form 10-K/A for the year
ended December 31, 1993 and incorporated
herein by reference)
10.36 Registrant's Excess Benefit Plan, adopted
February 1, 1994 (previously filed with the
Registrants Annual Report on Form 10-K/A for
the year ended December 31, 1993 and
incorporated herein by reference)
10.37 First Amendment to Excess Benefit Plan,
adopted May 11, 1995 (previously filed with
the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995 and
incorporated herein by reference)
-12-
Exhibit
Number
- ------
10.38 Registrant's Key Employee Retirement Plan,
adopted January 1, 1994 (previously filed with
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994 and
incorporated herein by reference)
10.39 First Amendment to Key Employee Retirement
Plan, adopted May 11, 1995 (previously filed
with Registrant's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1995 and
incorporated herein by reference)
11 Computation of earnings per share (attached)
13 Portions of Registrant's Annual Report to
Stockholders for the year ended December 31,
1995 which are incorporated herein by
reference: Fairfield Property Portfolio;
Common Stock Prices; Financial Highlights;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Report of Ernst & Young LLP, Independent
Auditors; Consolidated Balance Sheets;
Consolidated Statements of Earnings;
Consolidated Statements of Stockholders'
Equity; Consolidated Statements of Cash Flows
and Notes to Consolidated Financial Statements
(attached)
21 Subsidiaries of the Registrant (attached)
23 Consent of Ernst & Young LLP, Independent
Auditors (attached)
24 Powers of Attorney (attached)
27 Financial Data Schedule (attached)
99 Ombudsman Report for the period ending
December 31, 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 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 February 8, 1996, for the period ending
December 31, 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)
-13-
-1-
FOURTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
among
FAIRFIELD COMMUNITIES, INC.
FAIRFIELD MYRTLE BEACH, INC.
and
THE FIRST NATIONAL BANK OF BOSTON,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of
November 20, 1995, is made by and among FAIRFIELD COMMUNITIES,
INC., a Delaware corporation (the "Company or "Fairfield"),
FAIRFIELD MYRTLE BEACH, INC., a Delaware corporation ("Myrtle
Beach", and together with Fairfield, the "Borrowers"), THE
FIRST NATIONAL BANK OF BOSTON, a national banking association
("FNBB") and THE FIRST NATIONAL BANK OF BOSTON, as agent for
itself and the Lenders (the "Agent"), all parties to a certain
Amended and Restated Revolving Credit Agreement dated as of
September 28, 1993, as amended by First Amendment dated as of
May 13, 1994, as further amended by Consent, Waiver and
Agreement dated as of September 23, 1994, as further amended
by Second Amendment to Amended and Restated Revolving Credit
Agreement dated as of December 9, 1994, and as further amended
by a Third Amendment to Amended and Restated Revolving Credit
Agreement dated as of December 19, 1994 (as so amended, the
"Credit Agreement"). This Amendment is joined in by Fairfield
Acceptance Corporation, a Delaware corporation ("FAC"), by
reason of the Unconditional Guaranty of Payment and
Performance, dated as of September 28, 1993, from FAC in favor
of the Agent (the "Fairfield Guaranty"). All capitalized
terms used herein and not otherwise defined shall have the
same respective meanings herein as in the Credit Agreement.
WHEREAS, FNBB, the Borrowers and the Agent have
agreed to amend the operating margin covenant appearing in
Section 10.1 of the Credit Agreement;
NOW, THEREFORE, in consideration of the premises,
the Borrowers, FAC, FNBB and the Agent hereby agree as
follows:
-2-
Section 1. AMENDMENT TO CREDIT AGREEMENT. The Borrowers,
-----------------------------
FNBB and the Agent hereby agree to amend Section 10.1 of the
Credit Agreement by deleting said Section in its entirety and
substituting therefor the following new Section 10.1:
"Section 10.1. Operating Margin Covenant. The Borrowers will not
--------------------------
permit, as of the last day of any fiscal quarter, the ratio of
Consolidated Earnings before Interest and Taxes to Consolidated
Total Revenue for the period of four (4) consecutive fiscal
quarters ended on such date to be less than sixteen percent
(16%); provided, however, that with respect to each period of
four (4) consecutive fiscal quarters ending on September 30,
1995 and December 31, 1995, the Borrowers will not permit the
ratio of Consolidated Earnings before Interest and Taxes to
Consolidated Total Revenue for such period to be less than
fourteen percent (14%)."
Section 2. FAC CONSENT. FAC hereby consents to the amendment to the
------------
Credit Agreement set forth in this Amendment and confirms its obligations
to the Agent and the Lenders under the Fairfield Guaranty and the Fairfield
Guaranty shall extend to and include the obligations of the Borrowers under
the Credit Agreement as amended by this Amendment. FAC agrees that all of
its obligations to the Agent and the Lenders evidenced by or otherwise
arising under the Fairfield Guaranty are in full force and effect and are
hereby ratified and confirmed in all respects.
Section 3. OTHER AMENDMENTS. Except as expressly provided in this
----------------
Amendment, all of the terms and conditions of the Credit Agreement and the
other Loan Documents remain in full force and effect. Each of the
Borrowers and FAC confirm and agree that the Obligations of the Borrowers
to the Lenders and the Agent under the Credit Agreement, as amended hereby,
and all of the other obligations of any of such parties under the other
Loan Documents, are secured by and entitled to the benefits of the Security
Documents.
Section 4. EXECUTION IN COUNTERPARTS. This Amendment may be executed
-------------------------
in any number of counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, but all
of which together shall constitute one instrument. In proving this
Amendment, it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is
sought.
Section 5. HEADINGS. The captions in this Amendment are for
--------
convenience of reference only and shall not define or limit the provisions
hereof. <PAGE>
-3-
IN WITNESS WHEREOF, the parties have executed this Amendment as
an instrument under seal to be governed by the laws of the Commonwealth of
Massachusetts, as of the date first above written.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Marcel J. Dumeny
------------------------
Name: Marcel J. Dumeny
----------------------
Title: Senior Vice President
----------------------
FAIRFIELD MYRTLE BEACH, INC.
By: /s/ Marcel J. Dumeny
------------------------
Name: Marcel J. Dumeny
----------------------
Title: Vice President
---------------------
FAIRFIELD ACCEPTANCE CORPORATION
By: /s/ Marcel J. Dumeny
------------------------
Name: Marcel J. Dumeny
----------------------
Title: Vice President
---------------------
THE FIRST NATIONAL BANK
OF BOSTON, Individually
and as Agent
By: /s/ Linda J. Carter
------------------------
Name: Linda J. Carter
----------------------
Title: Vice President
---------------------
-1-
FIFTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
among
FAIRFIELD COMMUNITIES, INC.
FAIRFIELD MYRTLE BEACH, INC.
and
THE FIRST NATIONAL BANK OF BOSTON,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of
January 25, 1996, is made by and among FAIRFIELD COMMUNITIES,
INC., a Delaware corporation (the "Company or "Fairfield"),
FAIRFIELD MYRTLE BEACH, INC., a Delaware corporation ("Myrtle
Beach", and together with Fairfield, the "Borrowers"), THE
FIRST NATIONAL BANK OF BOSTON, a national banking association
("FNBB") and THE FIRST NATIONAL BANK OF BOSTON, as agent for
itself and the Lenders (the "Agent"), all parties to a certain
Amended and Restated Revolving Credit Agreement dated as of
September 28, 1993, as amended by First Amendment dated as of
May 13, 1994, as further amended by Consent, Waiver and
Agreement dated as of September 23, 1994, as further amended
by Second Amendment to Amended and Restated Revolving Credit
Agreement dated as of December 9, 1994, as further amended by
a Third Amendment to Amended and Restated Revolving Credit
Agreement dated as of December 19, 1994, and as further
amended by a Fourth Amendment to Amended and Restated
Revolving Credit Agreement dated as of November 20, 1996 (as
so amended, the "Credit Agreement"). This Amendment is joined
in by Fairfield Acceptance Corporation, a Delaware corporation
("FAC"), by reason of the Unconditional Guaranty of Payment
and Performance, dated as of September 28, 1993, from FAC in
favor of the Agent (the "Fairfield Guaranty"). All
capitalized terms used herein and not otherwise defined shall
have the same respective meanings herein as in the Credit
Agreement.
WHEREAS, FNBB, the Borrowers and the Agent have
agreed to amend the operating margin covenant appearing in
Section 10.1 of the Credit Agreement;
NOW, THEREFORE, in consideration of the premises,
the Borrowers, FAC, FNBB and the Agent hereby agree as
follows:
-2-
Section 1. AMENDMENT TO CREDIT AGREEMENT. The Borrowers,
----------------------------
FNBB and the Agent hereby agree to amend Section 10.1 of the
Credit Agreement by deleting said Section in its entirety and
substituting therefor the following new Section 10.1:
"Section 10.1. Operating Margin Covenant. The Borrowers will not
-------------------------
permit, as of the last day of any fiscal quarter, the ratio of
Consolidated Earnings before Interest and Taxes to Consolidated
Total Revenue for the period of four (4) consecutive fiscal
quarters ended on such date to be less than twelve and one-half
percent (12.5%)."
Section 2. FAC CONSENT. FAC hereby consents to the amendment to the
--- -------
Credit Agreement set forth in this Amendment and confirms its obligations
to the Agent and the Lenders under the Fairfield Guaranty and the Fairfield
Guaranty shall extend to and include the obligations of the Borrowers under
the Credit Agreement as amended by this Amendment. FAC agrees that all of
its obligations to the Agent and the Lenders evidenced by or otherwise
arising under the Fairfield Guaranty are in full force and effect and are
hereby ratified and confirmed in all respects.
Section 3. OTHER AMENDMENTS. Except as expressly provided in this
----------------
Amendment, all of the terms and conditions of the Credit Agreement and the
other Loan Documents remain in full force and effect. Each of the
Borrowers and FAC confirm and agree that the Obligations of the Borrowers
to the Lenders and the Agent under the Credit Agreement, as amended hereby,
and all of the other obligations of any of such parties under the other
Loan Documents, are secured by and entitled to the benefits of the Security
Documents.
Section 4. EXECUTION IN COUNTERPARTS. This Amendment may be executed
-------------------------
in any number of counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, but all
of which together shall constitute one instrument. In proving this
Amendment, it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is
sought.
Section 5. HEADINGS. The captions in this Amendment are for
--------
convenience of reference only and shall not define or limit the provisions
hereof. <PAGE>
-3-
IN WITNESS WHEREOF, the parties have executed this Amendment as
an instrument under seal to be governed by the laws of the Commonwealth of
Massachusetts, as of the date first above written.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Robert W. Howeth
---------------------------
Name: Robert W. Howeth
-------------------------
Title: Senior Vice President
------------------------
FAIRFIELD MYRTLE BEACH, INC.
By: /s/ Robert W. Howeth
---------------------------
Name: Robert W. Howeth
-------------------------
Title: Vice President
------------------------
FAIRFIELD ACCEPTANCE CORPORATION
By: /s/ Robert W. Howeth
---------------------------
Name: Robert W. Howeth
-------------------------
Title: President
------------------------
THE FIRST NATIONAL BANK
OF BOSTON, Individually and as Agent
By: /s/ Linda J. Carter
---------------------------
Name: Linda J. Carter
-------------------------
Title: Vice President
------------------------
AMENDMENT NUMBER TWO
to
FAIRFIELD COMMUNITIES, INC.
SAVINGS/PROFIT SHARING PLAN
---------------------------
(effective January 1, 1996)
THIS AMENDMENT to the Fairfield Communities, Inc. Savings/Profit Sharing
Plan (the "Plan"), which Plan was originally effective March 1, 1976, was
restated effective July 1, 1994, and was amended effective January 1, 1995,
is hereby entered into effective as of January 1, 1996.
WHEREAS, it is desirable to amend the Plan to provide for daily
valuations of Plan assets and to revise certain provisions of the Plan
relating to employee contribution elections, investment elections and
withdrawal elections in order to coordinate the same with daily valuations;
and
WHEREAS, Fairfield Communities, Inc., by resolutions adopted at a duly
convened meeting of its Board of Directors held on November 17, 1995, in
accordance with the provisions of Section 11.3 of the Plan, adopted the
following amendments to the Plan, effective as of January 1, 1996;
NOW, THEREFORE, Sections 1.1(A)(44), 3.1(C), 3.2, 5.1(b)(1) and (2) and
8.5(1), (2) and (5) of the Plan are hereby amended, effective January 1,
1996, to provide as follows:
SECTION 1.1(A)(44)
------------------
"Valuation Date", effective for the Plan Year beginning
January 1, 1996, shall mean each day of the calendar year; and/or
such other date or dates as may be established by the Committee.
SECTION 3.1(C)
--------------
Right of Participant to Suspend or Change His Rate of Salary
------------------------------------------------------------
Deferral Contributions: Except as set forth below, a Participant
----------------------
may change the rate of his Salary Deferral Contributions or suspend
his Salary Deferral Contributions effective as soon as
administratively practicable as of the beginning of any payroll
period subsequent to filing proper written authorization. Except
as provided in Section 3.1(E) below with respect to certain
required suspensions, a Participant who suspends his Salary
Deferral Contributions may not resume such contributions until the
following calendar quarter. Any resumption of Salary Deferral
Contributions must be made by the Participant in writing filed with
the Committee, such resumption to be effective as soon as
administratively practicable as of the beginning of any payroll
period subsequent to filing proper authorization.
A Participant whose Salary Deferral Contributions are
suspended during a period of leave of absence or who is re-employed
following a termination of service may elect, upon his return to
active employment with the Employer, to have the Employer resume
Salary Deferral Contributions on his behalf to the Plan. Any such
election shall be in writing filed with the Committee and shall
specify the percentage of Salary Deferral Contributions to be
deducted from his Compensation.
SECTION 3.2
-----------
PARTICIPANT'S CONTRIBUTIONS
---------------------------
Participants are not required to make contributions to the
Plan. However, subject to the limitations of Sections 4.1(D) and
7.2 hereof, and to such rules of uniform application as the
Committee may adopt, each Participant may elect to make optional
contributions to the Plan of an amount not to exceed 10% of his
Compensation as received by him while a Participant. The Committee
shall have the power to establish uniform and nondiscriminatory
rules and from time to time to modify or change such rules
governing the manner and method by which the Participant's
contributions shall be made. A Participant's Contributions made
under the Plan shall at all times be 100% vested.
To the extent Participant's Contributions are permitted, they
may be made by payroll deduction, which the Participant shall
authorize the Employer to make on written authorization forms
approved and designated by, and filed with, the Committee. Any
such authorization to make the contributions by payroll deduction
shall be effective for the first pay period commencing on or after
the January 1st, April 1st, July 1st or October 1st following the
Committee's receipt of the payroll deduction authorization.
The right of a Participant to elect to contribute to the Plan
is entirely optional and the Participant may accordingly change his
rate of contributions to the Plan, subject to the maximum rates
specified above, or he may suspend such contributions, effective as
soon as administratively practicable as of any payroll period
subsequent to filing proper written authorization. Not more than
one change in his rate of contributions shall be made within a
calendar quarter and having once suspended contributions, a
Participant may not resume contributions until the following
calendar quarter after such contributions were suspended.
SECTION 5.1(b)(1) AND (2)
-------------------------
(1) Investment of Contributions. A Participant may elect in
---------------------------
a form established by the Committee the percentage of future
contributions that will be made on his behalf to each Investment
Fund. Such election shall be effective as of the beginning of any
payroll period following the Committee's receipt of proper
authorization.
(2) Investment of Existing Account Balances. A Participant
---------------------------------------
may elect in a form established by the Committee the percentage of
his existing accounts which shall be invested in each Investment
Fund. Such election shall be effective if administratively
practicable as of the first Valuation Date following the
Committee's receipt of proper authorization.
SECTION 8.5(1), (2) AND (5)
---------------------------
(1) Withdrawals may be made as soon as administratively
practicable after filing proper authorization, and/or such other
dates as may be established by the Committee, after all adjustments
have been made to the accounts as described in Section 7.1 hereof.
(2) All withdrawals are subject to the Participant having
filed a written application with the Committee.
(5) A Participant may withdraw, as soon as administratively
practicable after filing proper authorization, all or any part of
the optional contributions previously made by him in accordance
with Section 3.2 hereof (but not to exceed the net credit balance
in his Participant's Contribution Account at the time of
withdrawal). A participant may not, however, withdraw the
proportionate share of net interest and gains, if any, previously
credited to his Participant's Contribution Account. Said interest
and gains will not be forfeited but will not be distributed until
the Participant's Initial Distribution Date. A Participant who
withdraws all or any part of his optional contributions will be
considered to have suspended further optional contributions to the
Plan as of the date the withdrawal of his optional contributions is
deemed effective, and he cannot again make optional contributions
to the Plan until at least one year has elapsed following the date
of such withdrawal.
IN WITNESS WHEREOF, Fairfield Communities, Inc. has caused this
Amendment to be executed by its duly authorized officer.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Marcel J. Dumeny
--------------------
Marcel J. Dumeny
Secretary
EXHIBIT 11
----------
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
Primary
--------------------------------------
Year Ended December 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average shares:
Shares outstanding 12,351,622 12,265,240 10,490,083
Estimated increase in
shares outstanding due
to allowed claims
exceeding $85 million (1) 707,693 823,035 2,942,977
Less treasury stock (2,395,295) (2,395,295) (2,395,295)
Net effect of dilutive
warrants based on the
treasury stock method 415,769 376,287 -
Contingent issuance -
Holders of FCI Notes (2) - - -
---------- ---------- -----------
Totaled weighted average
shares outstanding 11,079,789 11,069,267 11,037,765
========== ========== ==========
Net earnings $8,029,000 $12,269,000 $7,170,000
========== =========== ==========
Earnings per share $.72 $1.11 $0.65
==== ===== =====
Fully Diluted
-----------------------------------
Year Ended December 31,
-----------------------------------
1995 1994 1993
---- ---- ----
<C> <C> <C>
12,351,622 12,265,240 10,490,083
707,693 823,035 2,942,977
(2,395,295) (2,395,295) (2,395,295)
435,811 392,519 66,667
588,235 588,235 588,235
---------- ---------- ----------
11,688,066 11,673,734 11,692,667
========== ========== ==========
$8,029,000 $12,269,000 $7,170,000
========== =========== ==========
$.69 $1.05 $0.61
==== ===== =====
</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
issued will be increased to a number equal to 10,000,000 multiplied by the
quotient of the total amount of the allowed unsecured claims divided by $85
million. For purposes of the earnings per share computation, the estimated
amount of allowed claims, exclusive of the contingent issuance for the
holders of the FCI Notes, totaled $111 million as of December 31, 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>
FAIRFIELD PROPERTY PORTFOLIO
Fairfield's property portfolio spreads across some
of America's most desired resort destinations, including
Colonial Williamsburg, Myrtle Beach, Nashville, Orlando
and Branson. As one of the oldest and largest vacation
ownership companies in America, we offer a high level of
service and variety of amenities. Our resorts offer a
wide range of accommodations, from studios with
mini-kitchens to one-, two- or three-bedroom villas with
full kitchens, fireplaces, VCRs and stereos, washers,
dryers and even whirlpool tubs.
At Fairfield, we have recognized the importance of
following and pro-actively addressing changes in the way
Americans plan and take their vacations, and we remain
attuned to meeting the changing demands of the evolving
vacation industry. These market demands, as well as the
preferences of vacationers, are key drivers in the
research and identification of new vacation destinations.
Location selection involves extensive research of tourism
and demographic trends. Our increased focus on
constructing properties in destination locations reduces
the need for developing large-scale amenities to attract
vacationers, thereby lowering development expense and
reducing development risk. Most importantly, the large
tourist draws of major destinations provide our sales
offices with a steady source of potential customers.
Our goal on any project is to build the number of
accommodations the market will support. In most cases, we
develop a location in phases as market demand confirms
the need for additional inventory. This approach results
in a diversified product portfolio of resort offerings,
which are built to meet the vacation needs of our entire
customer base.
FAIRFIELD BAY
Fairfield Bay, AR - This family resort offers 217
vacation ownership units in a pristine setting stretching
over the beautiful Ozark foothills. Mountain Ranch Golf
Course is in the heart of it all, and Fairfield Bay's
lighted 10-court tennis center has been selected as one
of the top tennis resorts in the United States by Tennis
magazine. The lush Ozark National Forest is perfect for
family hiking and camping, and the Ozark Folk Center
features performances and craft shows and demonstrations
year-round. Blanchard Springs Caverns, called "one of the
greatest cave finds of the 20th century," is nearby, as
are the nationally acclaimed trout fishing waters of the
White and Little Red Rivers. The crown jewel of Fairfield
Bay, though, is the magnificent 40,000-acre Greers Ferry
Lake, one of the cleanest, purest lakes in America. With
over 300 miles of shoreline, this lake is a sportsman's
dream. Also, the friendly capital city of Little Rock is
easily accessible from the area and can be an educational
and enjoyable day trip.
FAIRFIELD BRANSON
Branson, MO - Once a quiet, obscure Ozark community,
Branson is now being hailed as America's Country Music
Show Capital. This music mecca entertains millions of
fans and families drawing the biggest names in country
and bluegrass music year-round. Fairfield Branson at the
Falls, our original Branson project, offers 54 units. The
second Branson development, Fairfield Branson at the
Meadows, is partially completed with a planned 232-unit
capacity when fully developed. Both projects provide
convenient access to the 10-mile stretch of Highway 76
where over 30 indoor theaters provide non-stop
entertainment, with capacities from 500 to 4,000. The
Branson/Lakes area also offers boating, fishing,
swimming, waterskiing, sailing, scuba diving and
parasailing on three beautiful lakes - Table Rock, Lake
Taneycomo and Bull Shoals, all complimented by great
shopping, dining and museums. Theme parks such as Silver
Dollar City and White Water are among other family
attractions in the area.
FAIRFIELD FLAGSTAFF
Flagstaff, AZ - Nestled in the tall pines of Arizona's
cool high country, Fairfield Flagstaff provides 125
vacation ownership units in four wonderful seasons of
resort vacationing. With the Grand Canyon just 76 miles
away, it is difficult to imagine a more impressive or
memorable family getaway. Just 25 miles south of
Flagstaff is the fascinating artist's colony of Sedona.
The drive takes you through the startling red rock
formations of the Oak Creek Canyon. Nearby Arizona
Snowbowl
<PAGE>
[This page only includes 3 pictures which are described
clockwise as follows:
A picture of VOI buildings at Fairfield Branson at the
Falls; A picture of red rock formations near Sedona,
Arizona; A picture of two couples in a VOI unit at
Fairfield Bay]
<PAGE>
offers a sky-ride for a stunning view, as well as great
downhill and cross-country skiing. However, without even
leaving the resort area you can swim, golf, play tennis,
go horseback riding or lounge comfortably in the cool
mountain air. For shoppers, Flagstaff offers a host of
retail outlets near popular northern Arizona sightseeing
attractions.
FAIRFIELD GLADE
Fairfield Glade, TN - The best of Southern living comes
right into your backyard at Fairfield Glade. Golf is king
at this resort, boasting one 27-hole and three 18-hole
PGA championship golf courses. The resort has 358
vacation ownership units and is surrounded by 11 lakes.
Hobby and social clubs, arts and crafts fairs, local
shops and outlet malls abound. Nearby Cumberland County
Playhouse is an exciting place to see a premier show in
the evening, and the on-site riding stables hold a great
cool-evening western cookout. Indoor and outdoor swimming
pools and indoor and outdoor tennis courts are available
to use, and the private hot tubs are a great way to
relax. Nearby attractions include the magnificent Fall
Creek Falls and Cumberland Mountain State Parks, Great
Smokey Mountains National Park, as well as Dolly Parton's
Dollywood and the American Museums of Atomic Energy and
Fine Arts.
HARBORTOWN POINT
Ventura, CA - Harbortown Point is located in Ventura
Harbor, California, between Santa Barbara and Los
Angeles. In addition to the many public beaches and water
activities surrounding the resort, on-site facilities
include 57 units, a heated swimming pool and two
glass-enclosed whirlpools for relaxing. Year-round
temperatures are in the 70s and 80s, making this a prime
location for outdoor shopping and dining. Channel Island
National Park, the only aquatic national park in the
continental United States, is just beyond Fairfield's
docks. Harbortown Point's boat rentals include sailboats,
fishing boats, paddle boats and boardsails by the hour or
overnight.
FAIRFIELD HARBOUR
New Bern, NC - The banks of the broad Neuse River are the
setting the 207 vacation ownership units of Fairfield
Harbour. A scenic Venice-like canal system crisscrosses
much of the community, and boat rentals, fishing cruises
and golf are main attractions. Fairfield Harbour is
surrounded by historical towns and attractions, such as
Bath, incorporated in 1705 as the state's first town.
Beaufort, founded in 1709, features excellent restoration
of 18th and 19th century homes and businesses. Nearby
Tryon Palace is a classical Georgian mansion that once
served as the North Carolina capitol. The recreation
center at Fairfield
[This page includes a map of the United States with the
Fairfield developments identified.]
<PAGE>
[This page only includes 3 pictures which are described
clockwise as follows:
A picture of two golfers on a golf green at Fairfield
Glade; A picture of a man and woman sitting beside the
pool at Fairfield Williamsburg at Kingsgate; A picture
of a sailboat in the marina at Fairfield Harbour.]
<PAGE>
Harbour includes an indoor and outdoor pool, whirlpool spa,
exercise room with sauna, miniature golf, playground,
video game room and community center. The city of New
Bern boasts complete shopping centers, marina facilities,
fine restaurants and nightclubs. It is a city rich in
history, modern amenities and cordial citizens.
FAIRFIELD MOUNTAINS
Lake Lure, NC - This resort offers 215 vacation ownership
units amid all of the beauty and pleasures of the Blue
Ridge Mountains, just 45 miles east of Asheville, North
Carolina. Lake Lure and Bald Mountain Lake both offer
great bass fishing, as well as relaxing boating and
beautiful private beaches. The Bald Mountain and Apple
Valley golf courses are open year-round, offering some of
the most beautiful settings in the Southeast. Guided
trips are available to Chimney Rock Park for hiking and
exploring scenic caves and waterfalls, as well as white
water rafting or a quiet boat cruise. Nearby attractions
include Oconaluftee Indian Village, a replica of a
Cherokee Indian Village, and the Biltmore House and
Gardens, a magnificent example of 19th century
architecture and craftsmanship. Weekly planned activities
include bingo, bridge and Mountainfest Night, with
storytelling, music and hayrides, making Fairfield
Mountains a great family vacation spot.
FAIRFIELD MYRTLE BEACH
Myrtle Beach, SC - The 10-acre oceanfront resort at
SeaWatch Plantation is zoned for approximately 640 units
consisting of a mixture of condominiums and hotel units.
The initial phase will include 96 VOI units as well as a
pool, lagoon and beach walk. The first building of the
resort is expected to be ready for occupancy in April
1996, and the entire first phase should be completed in
approximately three years. Fairfield Westwinds, our
original Myrtle Beach area project, was built in 1989 in
North Myrtle Beach. The success we have met with there
has prompted us to develop SeaWatch Plantation as well.
Fairfield Westwinds is a 10-story, 82-unit oceanfront
luxury complex on the white-sand beaches of North Myrtle
Beach. The area, which was rated the second most popular
drive destination in the United States by the Automobile
Association of America Travel Service, averages more than
14 million visitors per year. With over 60 miles of
glistening sand, more golf courses than anywhere else on
earth, dozens of amusement centers and miniature golf
courses, enormous theaters and shopping centers, hundreds
of attractions and over a thousand restaurants, Myrtle
Beach brings families back time after time. <PAGE>
FAIRFIELD NASHVILLE
AT MUSIC CITY, USA
Nashville, TN - Fairfield Nashville is located on 13
acres in the music center of Nashville, Tennessee, right
next to Opryland. When complete, the initial phase of
the resort will offer approximately 150 units. Planned
amenities include indoor and outdoor swimming pools, a
health club, clubhouse, picnic tables, barbecue grills
and playgrounds. The Company also expects to exercise an
option on an adjacent 6-acre parcel. An estimated 10
million people visited Nashville in 1995, making the area
an attractive fit with our strategy to expand our
vacation ownership network in popular destination
locations. This resort is ideally located in close
proximity to all of Nashville's major attractions,
including the Grand Ole Opry, the Opryland Theme Park and
the Hermitage.
FAIRFIELD ORLANDO
AT CYPRESS PALMS
Kissimmee, FL - Fairfield Orlando at Cypress Palms puts
our members in the middle of the vacation capital of the
world, just minutes away from this city's world famous
attractions such as WALT DISNEY WORLD[Registered Trademark]
Resort, Epcot
[This page includes a picture of the VOI building at Fairfield
Myrtle Beach at Westwinds.]
<PAGE>
[This page only includes 3 pictures which are described
clockwise as follows:
A picture of a water ride at a theme park in Myrtle
Beach; A picture of children playing on the beach
near Fairfield Ocean Ridge; A picture of four people
at the riding stables at Fairfield Glade.]
<PAGE>
Center, MGM Studios, Universal Studios and Sea World. The
beautiful resort setting will include 244 units, a pool
and whirlpool spa. Orlando and the surrounding areas also
offer dozens of other major amusement parks, exhibits and
attractions drawing families all year long and bringing
them back year after year. In fact, 70 percent of all
visitors are repeat visitors. And there are fantastic new
attractions being added all the time.
FAIRFIELD PAGOSA
Pagosa Springs, CO - This resort has five lakes on the
property and is bordered by two-and-a-half-million acres
of national forest and wilderness. The nearby Wolf Creek
Ski Area is known for receiving the most snow in
Colorado. On-site, we have 172 vacation ownership units,
27 holes of golf, seven regulation tennis courts,
mini-golf and other family activities. The resort's
recreation center features an indoor pool, spa and
racquetball courts, as well as fitness equipment and
aerobics classes. Dining is available at several on-site
restaurants in addition to other dining and shopping
experiences in the village of Pagosa Springs.
FAIRFIELD PLANTATION
Villa Rica, GA - Fairfield Plantation is an entire resort
community built around the great Southern tradition of
living a good life year-round. Just 45 miles west of
Atlanta, Georgia, the resort features 80 vacation
ownership units. There are three lakes which provide
excellent fishing and water sports. The tennis center's
courts are lighted for evening play, and there is an
18-hole golf course, a miniature golf course and a
playground.
For swimming, the resort has its own private beach
and three outdoor pools. All resort units are air
conditioned and have fully equipped kitchens. Some have
private laundry and hot tubs.
FAIRFIELD SAPPHIRE VALLEY
Sapphire, NC - Fairfield Sapphire Valley includes 194
vacation ownership units, luxurious amenities and
year-round fun for every age and interest. The resort
lies in the foothills of the Blue Ridge Mountains, 60
miles south of Asheville, NC. Opportunities for family
backpacking adventures are virtually unlimited in the
Pisgah National Forest and the Great Smokey Mountains
National Park. While the Horsepasture and Tuckasegee
Rivers are both nationally known as outstanding Eastern
trout streams, the Nantahala and Chattooga Rivers of
western North Carolina offer some of the most challenging
white water rafting in the East. Sapphire Stables
provides horseback riders with peaceful excursions
through the gorgeous countryside. There is also skiing in
the winter months and golf the rest of the year.
FAIRFIELD WILLIAMSBURG
Williamsburg, VA - The multi-site resorts of Fairfield
Williamsburg have 361 units just three miles from the
world famous Colonial Williamsburg Historic Area. This
unique village covers 173 acres of authentically
recreated exhibits. All of the restaurants and shops have
been restored just as they were in the 18th century, and
fine crafts come straight from the artisan's hands. The
resort, designed to complement the historic area, is
located just 10 miles from Jamestown, the first English
speaking settlement, and 15 miles from Yorktown, where
the last battle of the American Revolution was fought.
Furthermore, just three miles from the resort are the
more contemporary sights and thrills of Busch Gardens'
amusement park.
[This page includes a picture of a man and woman standing on
a bridge at Treasure Falls near Fairfield Pagosa.]
<PAGE>
[This page only includes 3 pictures which are described
clockwise as follows:
A picture of children playing in a field near the
playground at Fairfield Pagosa; A picture of people
overlooking the Grand Canyon near Fairfield Flagstaff;
A picture of a VOI building at Fairfield Orlando at
Cypress Palms.]
<PAGE>
COMMON STOCK PRICES
Effective December 20, 1995, Fairfield's Common
Stock began trading on the New York Stock Exchange under
the symbol FFD. Prior to that date, Fairfield's Common
Stock traded on The Nasdaq Stock Market under the symbol
FFCI. The approximate number of recordholders of
Fairfield's Common Stock at January 31, 1996 was 2,900.
The Company has paid no dividends in the past two years.
High and low stock prices during 1995 and 1994 were
as follows:
1995 1994
---- ----
Quarter Ended High Low High Low
------------- ----- --- ---- ---
March 31 $6 1/8 $4 1/2 $6 1/2 $4
June 30 6 5 1/4 6 1/4 5 1/4
September 30 8 1/4 5 1/2 7 5
December 31 8 1/4 5 7/8 6 3/8 4 1/4
Certain of the Company's financing arrangements
prohibit the Company from paying cash dividends or making
other distributions on its Common Stock.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
Six Months
Ended
Year Ended December 31, December 31,
-------------------------
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING DATA
Revenues:
Vacation ownership, net $ 85,460 $ 53,085 $ 33,472 $15,255
Lots, net 7,817 7,981 7,399 1,704
Resort management 14,554 11,413 10,876 5,145
Interest 19,111 20,366 24,089 14,670
Other 15,209 13,709 14,270 7,062
Gain on sale of
First Federal - 5,200 - -
Savings and loan
operations - - 18,762 10,099
-------- -------- -------- -------
$142,151 $111,754 $108,868 $53,935
======== ======== ======== =======
Earnings (loss):
Continuing operations $8,029 $12,269 $7,170 $1,249
Discontinued operations - - - -
Extraordinary credit -
gain on discharge
of debt - - - -
------ ------- ------ -------
Net earnings (loss) $8,029 $12,269 $7,170 $1,249
====== ======= ====== ======
EARNINGS PER SHARE
Primary $.72 $1.11 $.65 $.11
==== ===== ==== ====
Fully diluted $.69 $1.05 $.61 $.11
==== ===== ==== ====
| Six Months
| Ended Year Ended
| June 30, December 31,
| 1992 1991
| ---- ----
|
| <C> <C>
| $13,558 $ 34,098
| 1,640 4,104
| 4,756 8,056
| 16,089 37,294
| 10,021 17,790
|
| - -
|
| 13,597 30,935
| ------- --------
| $59,661 $132,277
| ======= ========
|
| $(13,284) $(32,780)
| (6,538) (2,494)
|
|
| 125,895 -
| -------- --------
| $106,073 $(35,274)
| ======== ========
|
|
| * *
| * *
</TABLE>
<TABLE>
BALANCE SHEET DATA
December 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Loans receivable, net $139,674 $139,810 $167,465
Total assets 215,518 224,726 245,073
Total financing
arrangements 86,982 111,943 112,581
Liabilities subject to
reorganization
proceedings - - -
Stockholders' equity
(deficit) 81,227 66,935 47,148
Book value per share $7.64 $6.27 $4.39
December 31,
---------------------
1992 | 1991
---- | ----
<C> | <C>
$381,844 | $454,879
586,700 | 685,468
|
180,812 | 96,081
|
|
- | 218,808
|
36,962 | (38,322)
$3.32 | *
</TABLE>
* Per share amounts are neither comparable nor
meaningful due to reorganization.
Note: Effective June 30, 1992, the Company
implemented "Fresh Start Reporting" in
connection with confirmation of the plans of
reorganization. No dividends have been paid
during the previous five years. See Note 13 of
"Notes to Consolidated Financial Statements"
for discussion of the Company's contingencies.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OEPRATIONS
RESULTS OF OPERATIONS
Vacation Ownership
------------------
Gross revenues of vacation ownership interests
("VOIs") totaled $86.2 million, $52.9 million and $34.4
million for 1995, 1994 and 1993, respectively. Of the
increase in gross VOI revenues from 1994 to 1995, $15.8
million (47.5%) is attributable to increased sales
volumes at the Company's existing sites and $15.6 million
(47.0%) is attributable to the additional sales volumes
at the Company's newest destination sites located in
Orlando, Florida and Nashville, Tennessee, both of which
began sales efforts in December 1994. During 1994, the
Company experienced revenue increases at several of its
developments, including its destination locations in
Myrtle Beach, South Carolina as well as Branson,
Missouri, which began sales efforts in June 1993.
Net VOI revenues increased to $85.5 million for the
year ended December 31, 1995 from $53.1 million in 1994
and $33.5 million in 1993. The increase in net VOI
revenues is attributable to the same factors as noted
above, which was partially offset, during 1995, by a net
deferral of VOI revenues totaling $.7 million related to
the percentage of completion method of accounting. The
Company recognized $.2 million of previously deferred
revenue during 1994 as compared to net revenue deferred
of $.9 million during 1993. 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 remaining costs are
incurred.
Selling
-------
Selling expenses, including commissions, for both
VOI and lot sales, as a percentage of related revenues,
were 54.1%, 50.6% and 49.8%, for 1995, 1994 and 1993,
respectively. The increase in selling expenses, as a
percentage of related revenues, is primarily attributable
to anticipated inefficiencies experienced at the
Company's newest destination sites in Orlando, Florida
and Nashville, Tennessee. Exclusive of these new
projects, selling expenses, as a percentage of related
revenues, were 48.1% for the year ended December 31,
1995. New projects typically experience lower operating
margins in the "start-up" phase of operations as the
Company develops its property owner base and establishes
an efficient sales and marketing program at each new
location. Management continues to work to improve sales
efficiencies at the Orlando and Nashville projects and
future efficiencies are expected to be realized as both
of these projects mature and expand their base of
property owners.
General and Administrative
--------------------------
Increases in general and administrative expenses
during 1995 and 1994 resulted primarily from the
additional expenses incurred related to the increased VOI
sales volumes as previously discussed. Additionally, the
Company experienced increases in expenses in 1994, as
compared to 1993, related to the Company's employee
benefit plans (see Note 11 of "Notes to Consolidated
Financial Statements"). As a percentage of total
revenues, general and administrative expenses decreased
to 8.3% in 1995 from 9.8% in 1994, exclusive of the gain
on sale of First Federal. During 1993, general and
<PAGE>
administrative expenses, as a percentage of total
revenues, were 10.4%, exclusive of the savings and loan
operations.
Gain on Sale of First Federal
-----------------------------
In September 1994, Fairfield sold 100% of the
capital stock of First Federal Savings and Loan
Association of Charlotte ("First Federal") for $41.0
million and recognized a net gain on the sale of $5.2
million. The gain from the sale of First Federal was not
subject to federal income tax due to a permanent tax
basis difference in First Federal's stock and underlying
goodwill.
Included in "Restricted cash and escrow accounts" at
December 31, 1995 is $2.9 million representing certain
assets retained and/or pledged to the buyer to securitize
Fairfield's obligation to indemnify the buyer against
general indemnities and three existing lawsuits/claims
which have been asserted against First Federal (see Note
13 of "Notes to Consolidated Financial Statements").
Interest
--------
Interest income totaled $19.1 million, $20.4 million
and $24.1 million in 1995, 1994 and 1993, respectively.
The decrease in interest income is primarily attributable
to lower average balances of contracts receivable
outstanding ($135.8 million for 1995, $146.2 million for
1994 and $177.4 million for 1993). Loan originations
began to exceed principal collections in 1995 and
interest income is expected to increase in tandem with
the net increase in contracts receivable.
Interest expense totaled $8.6 million, $10.5 million
and $14.4 million in 1995, 1994 and 1993, respectively.
These decreases are primarily attributable to
reductions in the average outstanding balances of
interest-bearing debt, resulting primarily from
collections on contracts receivable exceeding the
Company's cash requirements. The average outstanding
balance of interest-bearing debt has decreased from
$191.8 million in 1993 to $137.8 million in 1994 and
$94.9 million in 1995. Exclusive of First Federal, the
weighted average interest rate for the Company's
financing arrangements collateralized by contracts
receivable was 8.1%, 8.4% and 8.6% for the years ended
December 31, 1995, 1994 and 1993, respectively.
Other
-----
Other revenues in 1995, 1994 and 1993 include cash
distributions totaling $1.6 million, $1.2 million and
$2.0 million, respectively, related to the Company's 35%
partnership interest in Harbour Ridge, Ltd., a limited
partnership engaged in the development of a tract of land
in St. Lucie, Florida. Cash distributions from this
partnership interest are anticipated to continue at a
reduced amount through 1996; however, the amounts and
timing of future distributions are not under the control
of the Company, but are entirely within the control of the
general partner.
Also included in other revenues and other expenses
for 1995 are home sales and related cost of sales
totaling $6.7 million and $6.0 million, respectively.
For 1994, home sales and related cost of sales totaled
$5.9 million and $5.4 million, respectively, and for 1993
totaled $4.7 million and $4.4 million, respectively.
As previously noted, the Company began sales efforts
in December 1994 at its destination sites located in
Orlando, Florida and Nashville, Tennessee. The results
of operations for 1994 reflect $1.0
million in start-up expenses associated with these sites
(included in "Other expenses" in the 1994 Consolidated
Statement of Earnings). These expenses resulted from
costs associated with establishing marketing operations
in both projects prior to commencement of the prime
selling season, which normally corresponds with the
Company's second and third quarters.
<PAGE>
PROVISION FOR INCOME TAXES
The Company provides for income taxes in accordance
with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes". Under SFAS No.
109, deferred tax assets or liabilities are determined
based on the difference between the financial reporting
and tax bases of assets and liabilities and enacted tax
rates that will be in effect for the year in which the
differences are expected to reverse. Additionally, under
SFAS No. 109, a valuation allowance must be established
for deferred tax assets if, based on available evidence,
it is "more likely than not" that all or a portion of the
deferred tax assets will not be realized.
Fresh Start Reporting requires the Company to report
federal income tax expense on income before utilization
of pre-confirmation net operating loss carryforwards and
recognition of the benefit of pre-confirmation deductible
temporary differences. Benefits realized from the
utilization of pre-confirmation net operating loss
carryforwards and recognition of pre-confirmation
deductible temporary differences are recorded as
reductions of the valuation allowance and as additions to
paid-in capital. The Company recorded benefits from the
utilization of pre-confirmation tax attributes totaling
$6.3 million, $7.5 million and $3.0 million for 1995,
1994 and 1993, respectively.
At December 31, 1995, the Company had net operating
loss carryforwards totaling $29.9 million which reflect
the amount available to offset taxable income in future
periods. Under limitations imposed by Internal Revenue
Code Section 382 ("Section 382"), certain potential
changes in ownership of the Company, which may be outside
the Company's knowledge or control, may restrict future
utilization of these carryforwards. More specifically,
changes in ownership occurring within a rolling three
year period, taking into consideration filings with the
Securities and Exchange Commission on Schedules 13D and
13G by holders of 5% or more of Fairfield's Common Stock,
whether involving the acquisition or disposition of
Fairfield's Common Stock, may impose a material
limitation on the Company's use of these carryforwards.
Available carryovers, if not utilized, expire as follows:
2006 - $7.0 million; 2007 - $14.0 million; 2008 - $5.5
million and 2009 - $3.4 million.
Prior to 1994, the Company's deferred tax assets
were reduced by a 100% valuation allowance based on the
lack of a historical earnings record for the Company and
the uncertainty as to the potential limitations that
could have been imposed under Section 382 during the two-
year period following the effective date of the plans of
reorganization. In 1994, management determined that it
was more likely than not that a portion of the deferred
tax assets would be realized. Management concluded that
the Company had not undergone an ownership change as
defined under Section 382 during the two-year period
following the effective date of the plans of
reorganization and would therefore realize a certain
portion of the deferred tax assets through (i) future
taxable earnings and (ii) the reversal of deferred tax
liabilities during periods in which the Company has
available net operating loss carryforwards and other
deductible temporary differences.
The Company has reported operating earnings since
the effective date of the plans of reorganization and
management believes that it is more likely than not that
future taxable earnings will be sufficient to realize a
portion, if not all, of the tax benefits associated with
the future deductible temporary differences and net
operating loss carryforwards prior to their expiration.
Reductions in the valuation allowance were based on (i)
current realization of certain prior year deferred tax
liabilities, (ii) offset of deferred tax assets against
remaining deferred tax liabilities and (iii) utilization
of deferred tax assets to offset estimated taxable
earnings for the following year. Management believes
that its projections of the following year's earnings are
achievable and provide adequate support for reducing the
valuation allowance. Future realization of the remaining
unrealized deferred tax assets will depend
<PAGE>
principally on the Company's ability to generate taxable earnings
sufficient to offset net operating losses and deductions
for temporary differences which comprise these assets.
To the extent this realization of tax assets occurs,
substantially all of the valuation allowance, totaling
$20.4 million at December 31, 1995, will be eliminated
and an equal amount credited to paid-in capital.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company decreased
$11.5 million from December 31, 1994 to December 31,
1995. This decrease is primarily attributable to $22.3
million of cash used by financing activities, which was
partially offset by $8.7 million of cash provided by
operating activities and $2.1 million of cash provided by
investing activities.
Fairfield offers financing for its vacation
ownership and lot sales, resulting in the creation of
installment contracts receivable which produce cash flows
as payments are received. Certain costs have been
historically funded to support these sales (primarily
development and marketing costs) from operating cash
flows, borrowings and asset sales, including sales of
contracts receivable. Fairfield has historically relied
upon these sources of funds to finance timing differences
between incurring the costs to develop and market its
real estate products and receiving the proceeds from the
sale of such products. In the recent past, the Company
has obtained borrowed funds primarily through various
revolving credit agreements and, in its effort to lower
the costs of borrowed funds, began to securitize its
contracts receivable. The Company expects to finance its
short and long-term cash needs from (i) contract payments
generated from its contracts receivable portfolio, (ii)
operating cash flows, (iii) borrowings under its credit
facilities as described below and (iv) future financings,
including additional securitizations of contracts
receivable.
At December 31, 1995, Fairfield had $4.0 million in
borrowings outstanding under its 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 December 31, 1995, Fairfield had borrowing
availability of $18.7 million, net of outstanding letters
of credit totaling $1.5 million.
At December 31, 1995, FAC had borrowings outstanding
of $8.8 million under its 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, with Fairfield being a guarantor
pursuant to the FAC Agreement. At December 31, 1995, FAC
had borrowing availability of $13.4 million.
FINANCIAL CONDITION
Total consolidated assets of the Company decreased
$9.2 million from December 31, 1994 to December 31, 1995.
This decrease is primarily attributable to (i) an $11.5
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 certain of these assets
(see Note 10 of "Notes to Consolidated Financial
Statements"). These decreases were partially offset by
(i) the purchase of real estate, for $6.1 million,
located in Myrtle Beach, South Carolina and (ii)
purchases of property and equipment totaling $3.9
million. Total consolidated liabilities of the Company
decreased $23.5 million in 1995 due primarily to a net
<PAGE>
reduction in the Company's financing arrangements,
resulting primarily from collections on contracts
receivable exceeding the Company's cash requirements.
As previously discussed, in addition to current year
earnings, stockholders' equity increased $6.3 million
representing recorded benefits from the utilization of
pre-confirmation income tax attributes (see Note 7 of
"Notes to Consolidated Financial Statements").
SEASONALITY
The Company has historically experienced and expects
to continue to experience seasonal fluctuations in its
gross revenues and net income from the sale of VOIs,
which have been generally higher in the period from May
through September. This seasonality may cause
significant fluctuations in the quarterly operating
results of the Company. Furthermore, due to the timing
of construction of future VOI inventory, additional
material fluctuations in operating results may occur.
IMPACT OF INFLATION
Although inflation has slowed in recent years, it is
still a factor in our economy and the Company continues
to seek ways to mitigate its impact. In general, to the
extent permitted by competition, the Company passes
increased costs on to its customers through increased
sales prices. The value of a land parcel is determined
by factors such as location, zoning, topography and,
perhaps most importantly, plans for its ultimate use. As
some of these factors change, sometimes as a result of
the Company's own actions, the value of the land may
increase or decrease independently of inflationary
pressures. Management believes that capitalizing
interest on land during development reasonably provides
for increases in land value due to inflation. Due to the
Company's relatively high turnover rate in VOIs and
homes, historical costs closely approximate current
costs.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Fairfield Communities, Inc.
We have audited the accompanying consolidated
balance sheets of Fairfield Communities, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all
material respects, the consolidated financial position of
Fairfield Communities, Inc. and subsidiaries at December
31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three
years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Little Rock, Arkansas
January 29, 1996
<PAGE>
<TABLE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
December 31,
1995 1994
---- -----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,095 $ 13,641
Loans receivable,net 139,674 139,810
Real estate inventories 40,552 32,237
Restricted cash and
escrow accounts 8,194 10,894
Property and equipment,net 8,311 5,956
Net assets held for sale - 7,943
Other assets 16,692 14,245
-------- --------
$215,518 $224,726
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 86,982 $111,943
Deferred revenue 19,791 18,956
Accounts payable 4,556 6,305
Accrued interest 4,504 5,404
Net liabilities of assets held
for sale 2,267 -
Other liabilities 16,191 15,183
-------- --------
134,291 157,791
-------- --------
Stockholders' Equity:
Common stock, $.01 par value,
25,000,000 shares authorized,
12,325,848 shares issued in
1995 and 12,359,037 in 1994 124 124
Paid-in capital 52,386 46,123
Retained earnings 28,717 20,688
Less treasury stock, at cost,
2,395,295 shares - -
-------- --------
81,227 66,935
-------- --------
$215,518 $224,726
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES
Vacation ownership, net $ 85,460 $ 53,085 $ 33,472
Lots, net 7,817 7,981 7,399
Resort management 14,554 11,413 10,876
Interest 19,111 20,366 24,089
Other 15,209 13,709 14,270
Gain on sale of
First Federal, net - 5,200 -
Savings and loan
operations - - 18,762
-------- -------- --------
142,151 111,754 108,868
-------- -------- --------
EXPENSES
Cost of sales:
Vacation ownership 23,838 14,958 9,275
Lots 1,970 1,855 1,705
Provision for loan losses 6,505 4,430 3,252
Selling 50,738 31,176 20,715
Resort management 13,106 9,991 11,057
General and
administrative 11,844 10,456 9,390
Interest 8,562 10,528 14,449
Other 12,550 13,213 9,353
Savings and loan
operations - - 19,345
-------- -------- --------
129,113 96,607 98,541
-------- -------- --------
Earnings before provision
for income taxes 13,038 15,147 10,327
Provision for income taxes 5,009 2,878 3,157
-------- -------- --------
Net earnings $ 8,029 $ 12,269 $ 7,170
======== ======== ========
NET EARNINGS PER SHARE
Primary $.72 $1.11 $.65
==== ===== ====
Fully diluted $.69 $1.05 $.61
==== ===== ====
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 11,079,789 11,069,267 11,037,765
========== ========== ==========
Fully diluted 11,688,066 11,673,734 11,692,667
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Common Paid-in Retained
Stock Capital Earnings Total
------ ------- ------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1993 $ 124 $35,589 $ 1,249 $36,962
Net earnings - - 7,170 7,170
Utilization of pre-confirmation
income tax attributes - 3,016 - 3,016
------- ------- ------- -------
Balance, December 31, 1993 124 38,605 8,419 47,148
Net earnings - - 12,269 12,269
Utilization of pre-confirmation
income tax attributes - 7,518 - 7,518
------- ------- ------- -------
Balance, December 31, 1994 124 46,123 20,688 66,935
Net earnings - - 8,029 8,029
Utilization of pre-confirmation
income tax attributes - 6,263 - 6,263
------- ------- ------- -------
Balance, December 31, 1995 $ 124 $52,386 $28,717 $81,227
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 8,029 $ 12,269 $ 7,170
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and
amortization 2,131 1,259 1,937
Provision for loan
losses 6,505 4,430 3,252
Utilization of pre-
confirmation income
tax attributes 6,263 7,518 3,016
Earnings from
unconsolidated
affiliates (1,588) (1,236) (1,996)
Gain on sale of
First Federal - (5,200) -
Changes in operating
assets and liabilities:
Real estate inventories (8,645) 220 8,885
Other (4,041) (6,333) (12,764)
------- ------- --------
Net cash provided by
operating activities 8,654 12,927 9,500
------- ------- --------
INVESTING ACTIVITIES:
Purchases of property
and equipment, net (3,384) (572) (1,095)
Principal collections
on loans receivable 73,943 73,189 131,543
Originations of loans
receivable (79,461) (51,877) (131,598)
Cash distributions
from unconsolidated
affiliates 1,588 1,236 2,572
Net investment activities
of net liabilities of
assets held for sale 9,375 (9,563) (11,665)
Net cash used on sale
of First Federal - (17,666) -
Net investing activities
related to savings and
loan operations - - 22,904
-------- -------- -------
Net cash provided by
(used in) investing
activities 2,061 (5,253) 12,661
-------- ------- --------
FINANCING ACTIVITIES:
Proceeds from financing
arrangements 226,870 219,744 138,297
Repayments of financing
arrangements (251,831) (220,627) (187,331)
Net decrease (increase)
in restricted cash
and escrow accounts 2,700 2,375 (9,497)
Net financing activities
related to savings and
loan operations - - (20,076)
--------- --------- ---------
Net cash (used in)
provided by financing
activities (22,261) 1,492 (78,607)
--------- --------- ---------
Net (decrease) increase
in cash and cash
equivalents (11,546) 9,166 (56,446)
Cash and cash equivalents,
beginning of period 13,641 4,475 60,921
-------- -------- --------
Cash and cash equivalents,
end of period $ 2,095 $ 13,641 $ 4,475
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
- ------ --------------------------------------------------
POLICIES
--------
Organization
- ------------
Fairfield Communities, Inc. ("Fairfield" and together
with its subsidiaries, the "Company") is one of the nation's
largest vacation ownership companies. The Company markets
vacation products and manages resort properties in eleven
states, providing quality recreational experiences to its
property owners.
The Company's primary business is the sale of vacation
ownership interests ("VOIs"), popularly known as timeshare,
at its various properties situated either in popular tourist
locations or in proximity to other scenic resort areas. The
Company offers financing for VOI and homesite purchases
through a wholly owned subsidiary, Fairfield Acceptance
Corporation ("FAC"), generating high-quality, medium-term
contracts receivable with attractive yields. FAC holds
these contracts in its portfolio and, in some instances,
securitizes and sells them to third parties.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the
accounts of Fairfield and its wholly owned subsidiaries.
All significant intercompany balances and transactions have
been eliminated in consolidation. Certain amounts in the
consolidated financial statements of prior years have been
reclassified to conform to the 1995 presentation.
Use of Estimates
- ----------------
The preparation of the consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Fresh Start Reporting
- ---------------------
In 1990, Fairfield and twelve wholly owned
subsidiaries filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code and,
in August 1992, the bankruptcy court confirmed the Amended
and Restated Joint Plans of Reorganization (the "Plans").
As of June 30, 1992, the Company implemented the recommended
accounting for entities emerging from reorganization set
forth in Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" issued
by the American Institute of Certified Public Accountants
("Fresh Start Reporting"). Accordingly, the Company's
assets and liabilities were adjusted to reflect their
estimated fair values and the accumulated deficit was
eliminated.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
During 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". In accordance with SFAS No. 121,
impairment losses are recognized on long-lived
<PAGE>
assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount.
Long-lived assets held for disposal are carried at the lower
of the carrying amount of the asset or fair value, less
estimated selling costs. The adoption of SFAS No. 121 had
no impact on the Company's consolidated financial
statements.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be
cash equivalents.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost and
depreciated primarily by the straight-line method based on
the estimated useful lives of the assets, ranging generally
from 10 to 25 years for buildings and from two to seven years for
machinery, fixtures and equipment. Additions and
improvements are capitalized while maintenance and repairs
are expensed as incurred. Asset and accumulated
depreciation accounts are relieved for dispositions with
resulting gains or losses reflected in operations.
Deposits and Deferred Selling Costs
- -----------------------------------
Until a contract for sale qualifies for revenue
recognition, all payments received are accounted for as
deposits. Commissions and other selling costs, directly
attributable to the sale, are deferred until the sale is
recorded. If a contract is cancelled before qualifying as a
sale, nonrecoverable selling expenses are charged to expense
and deposits forfeited are credited to income.
Real Estate Inventories
- -----------------------
Real estate inventories are valued at the lower of
cost or estimated net realizable value. Costs include land,
land improvements, capitalized interest and a portion of
the costs of amenities constructed for the use and benefit
of property owners.
Land and improvement costs are allocated for the
purpose of accumulating costs to match with related sales
revenues. The Company allocates acquisition and carrying
costs to these areas on the acreage or the value basis, as
appropriate. Improvement costs in each project are
allocated to the appropriate areas on a specific
identification basis. Certain amenity costs are allocated
on an acreage or benefit basis, as appropriate.
Unexpended costs for committed improvements to areas
from which lots have been sold are calculated using the
Company's projections of the timing and cost of work to be
completed, including an inflation factor. The projections
are reviewed and refined periodically based on work
completed and current plans for development. The effect of
these revised cost estimates is recognized prospectively.
Allowance for Loan Losses
- -------------------------
Contracts
---------
The Company's contracts receivable are regionally
diversified. A minimum down payment of 15% is generally
required for purchases financed by contracts receivable.
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.
<PAGE>
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. For financial statement
purposes, contracts receivable are considered delinquent and
fully reserved if a payment remains unpaid under the
following conditions:
Percent of Contract Delinquency
Price Paid Period
------------------- -----------
Less than 25% 90 days
25% but less than 50% 120 days
50% and over 150 days
Mortgages
---------
The Company's mortgages receivable consist of a small
number of non-homogeneous loans collateralized primarily by
real estate geographically dispersed throughout the country.
The allowance for mortgages receivable is maintained at a
level believed adequate by management based on a periodic
evaluation of each mortgage receivable. Management's
evaluation of the adequacy of this allowance is based on
past loss experience, known inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to
repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of
the mortgage receivable portfolio, current economic
conditions and other relevant factors. This evaluation is
inherently subjective as it requires material estimates
including the amounts and timing of future cash flows.
Revenue and Profit Recognition
- ------------------------------
Vacation Ownership Interests
----------------------------
VOIs consist of either specified fixed week interval
ownership or undivided fee simple interests in fully-
furnished vacation homes. Generally, VOIs are sold under
installment sales contracts which provide for a down payment
and monthly installments, including interest, for periods of
up to seven years. Sales of VOIs are included in revenues
when a 10% minimum down payment (including interest) has
been received. Revenue relating to sales of VOIs in
projects under construction is recognized using the
percentage of completion method. Under this method, the
portion of revenues applicable 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.
Homes/Property Sales
--------------------
Homes sales are included in revenues when the unit is
complete, ready for occupancy and title is transferred to
the buyer. Sales of bulk acreage are recognized when title
has passed to the buyer, the Company's continuing
involvement in the property is limited, if not eliminated,
and sufficient nonrefundable funds have been received to
reasonably assure the continuing commitment of the buyer.
Earnings Per Share
- ------------------
Primary earnings per share is computed based on the
estimated weighted average number of common shares and
common equivalent shares deemed to be outstanding. Such
shares include those
<PAGE>
shares issued as authorized by the Plans plus
the additional shares estimated to be issued
based on the resolution of the remaining allowed claims (see
Note 8). This aggregate number of shares has been reduced
by the shares held in treasury. The computation of fully
diluted earnings per share further includes 588,235 shares
which have been reserved, but not issued, for the benefit of
the holders of the Senior Subordinated Secured Notes.
Income Taxes
- ------------
The Company provides for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred tax assets or liabilities are
determined based on the difference between the financial
reporting and tax bases of assets and liabilities and
enacted tax rates that will be in effect for the year in
which the differences are expected to reverse.
Additionally, under SFAS No. 109, a valuation allowance must
be established for deferred tax assets if, based on
available evidence, it is "more likely than not" that all or
a portion of the deferred tax assets will not be realized.
Fresh Start Reporting requires the Company to report
federal income tax expense on income before utilization of
pre-confirmation net operating loss carryforwards and
recognition of the benefit of pre-confirmation deductible
temporary differences. Benefits realized from the
utilization of pre-confirmation net operating loss
carryforwards and recognition of pre-confirmation deductible
temporary differences are recorded as reductions of the
valuation allowance and as additions to paid-in capital.
Stock-based Compensation
- ------------------------
Fairfield grants non-qualified stock warrants to
certain key employees and directors to purchase shares of
its Common Stock at prices not less than the fair market
value of such shares at the date of grant. The Company
accounts for these stock warrant grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, recognizes no compensation
expense for the stock warrant grants.
NOTE 2 - LOANS RECEIVABLE
- ------ ----------------
Loans receivable consisted of the following (In
thousands):
<TABLE>
December 31,
1995 1994
---- ----
<S> <C> <C>
Contracts $140,810 $139,091
Mortgages 13,064 12,041
-------- --------
153,874 151,132
Less allowance for loan losses (14,200) (11,322)
-------- --------
$139,674 $139,810
======== ========
</TABLE>
The weighted average stated interest rates on the
Company's contracts receivable were 13.2% and 12.6% at
December 31, 1995 and 1994, respectively, with interest
rates on these receivables ranging generally from 10.75% to
16.0%. Contractual maturities of these receivables within
the next five years are as follows: 1996 - $33.6 million;
1997 - $26.5 million; 1998 - $21.4 million; 1999 - $17.7
million and 2000 - $15.5 million. The Company's contracts
receivable were 97.9% and 98.1% current on a 30-day basis as
of December 31, 1995 and 1994, respectively. Amounts
charged against the allowance for loan losses, net of
recoveries, totaled $3.6 million and $4.1 million during
1995 and 1994, respectively.
<PAGE>
NOTE 3 - VACATION OWNERSHIP REVENUES
- ------ ---------------------------
Vacation ownership revenues are summarized as follows
(In thousands):
<TABLE>
Year Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Vacation ownership revenues $86,188 $52,904 $34,405
Less: Deferred revenue on
current year sales,
net (2,648) (1,920) (2,101)
Add: Revenue recognized on
prior year sales 1,920 2,101 1,168
------- ------- -------
$85,460 $53,085 $33,472
======= ======= =======
</TABLE>
NOTE 4 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In
thousands):
<TABLE>
December 31,
1995 1994
---- ----
<S> <C> <C>
Land:
Under development $17,377 $ 4,575
Undeveloped 7,288 17,633
------- -------
24,665 22,208
------- -------
Residential housing:
Vacation ownership 13,247 8,418
Homes 2,640 1,611
------- -------
15,887 10,029
------- -------
$40,552 $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. Additionally, the Company
purchased, for $6.1 million in cash, real estate located in
Myrtle Beach, South Carolina.
NOTE 5 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In
thousands):
<TABLE>
December 31,
1995 1994
---- ----
<S> <C> <C>
Borrowings collateralized by
contracts receivable:
FFC Notes $47,026 $ 73,560
FCC Notes 14,200 -
Notes payable 12,919 14,708
Revolving credit agreements 12,837 23,675
------- --------
$86,982 $111,943
======= ========
</TABLE>
<PAGE>
Borrowings Collateralized by Contracts Receivable
--------------------------------------------------
At December 31, 1995, Fairfield Funding Corporation
("FFC"), a wholly owned subsidiary of FAC, had borrowings
outstanding totaling $47.0 million under a private placement
of 7.6% Notes (the "FFC Notes"). The FFC Notes are secured
by and payable from a pool of contracts receivable purchased
from FAC pursuant to the Receivables Purchase Agreement
among Fairfield as originator, FAC as seller and FFC as
purchaser. At December 31, 1995, contracts receivable
totaling $61.7 million collateralized the FFC Notes.
In 1995, Fairfield Capital Corporation, ("FCC"), a
wholly owned subsidiary of 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 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
December 31, 1995, the weighted average interest rate on the
FCC Notes was 6.675%, including facility fees totaling
.675%. At December 31, 1995, contracts receivable totaling
$16.7 million collateralized the FCC Notes.
At December 31, 1995, restricted cash accounts totaling
$3.0 million were required to be maintained in accordance
with the terms of the FCC Notes and FFC Notes. Maturities
of borrowings collateralized by contracts receivable within
the next five years are as follows: 1996 - $24.4 million;
1997 - $16.3 million; 1998 - $9.2 million; 1999 - $5.7
million and 2000 - $5.6 million.
Notes Payable
-------------
At December 31, 1995, notes payable consisted primarily
of (i) an unsecured note payable totaling $6.4 million and
(ii) other obligations collateralized primarily by property
and equipment and mortgages receivable. At December 31,
1995, the weighted average interest rate on notes payable
was 9.8%. Maturities of notes payable within the next five
years are as follows: 1996 - $0.8 million; 1997 - $2.6
million; 1998 - $3.5 million; 1999 - $3.9 million and 2000 -
$1.5 million.
Revolving Credit Agreements
--------------------------
At December 31, 1995, Fairfield had $4.0 million of
borrowings outstanding under its 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
borrowings under the FCI Agreement are collateralized
primarily by contracts receivable, which had a book value of
$30.1 million at December 31, 1995, and bear interest at
FNBB's base rate plus .875% (9.38% at December 31, 1995).
The FCI Agreement also provides for an annual facility fee
of .625% of the total commitment. The revolving loans
mature on January 1, 1998, if not extended in accordance
with the terms of the FCI Agreement. At December 31, 1995,
Fairfield had borrowing availability of $18.7 million, net
of outstanding letters of credit totaling $1.5 million.
<PAGE>
At December 31, 1995, FAC had borrowings outstanding of
$8.8 million under its 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 borrowings under the FAC Agreement are collateralized
primarily by contracts receivable, which had a book value of
$28.6 million at December 31, 1995, and bear interest at
FNBB's base rate plus .25% (8.75% at December 31, 1995).
The FAC Agreement also provides for an annual facility fee
of .5% of the total commitment. The revolving loans mature
on January 1, 1998, if not extended in accordance with the
terms of the FAC Agreement, with Fairfield being a guarantor
pursuant to the FAC Agreement. At December 31, 1995, FAC
had borrowing availability of $13.4 million.
NOTE 6 - DEFERRRED REVENUE - ESTIMATED COSTS TO DEVELOP LAND
- ------ --------------------------------------------------
SOLD
----
At December 31, 1995, estimated cost to complete
development work in subdivisions from which lots had been
sold totaled $14.7 million. The estimated costs to complete
development work within the next five years are as follows:
1996 - $1.0 million; 1997 - $1.2 million; 1998 - $1.1
million; 1999 - $0.7 million and 2000 - $0.6 million.
NOTE 7 - INCOME TAXES
- ------ ------------
At December 31, 1995, the Company had net operating
loss carryforwards totaling $29.9 million which reflect the
amount available to offset taxable income in future periods.
Under limitations imposed by Internal Revenue Code Section
382 ("Section 382"), certain potential changes in ownership
of the Company, which may be outside the Company's knowledge
or control, may restrict future utilization of these
carryforwards. More specifically, changes in ownership
occurring within a rolling three-year period, taking into
consideration filings with the Securities and Exchange
Commission on Schedules 13D and 13G by holders of 5% or more
of Fairfield's Common Stock, whether involving the
acquisition or disposition of Fairfield's Common Stock, may
impose a material limitation on the Company's use of these
carryforwards. Available carryovers, if not utilized,
expire as follows: 2006 - $7.0 million; 2007 - $14.0
million; 2008 - $5.5 million and 2009 - $3.4 million.
Components of the provision for income taxes are as
follows (In thousands):
<TABLE>
Year Ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 290 $ - $ -
State 543 257 4
------ ------ ------
833 257 4
------ ------ ------
Deferred:
Federal 3,880 2,422 2,770
State 296 199 383
------ ------ ------
4,176 2,621 3,153
------ ------ ------
$5,009 $2,878 $3,157
====== ====== ======
Utilization of pre-confirmation
income tax attributes $6,263 $7,518 $3,016
====== ====== ======
</TABLE>
<PAGE>
Components of the variance between taxes computed at
the expected federal statutory income tax rate and the
provision for income taxes are as follows (In thousands):
<TABLE>
Year Ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory tax provision $4,563 $ 5,150 $3,511
State income taxes, net
of federal benefit 545 301 255
Gain on sale of
First Federal - (2,277) -
Other (99) (296) (609)
------ ------- ------
Provision for
income taxes $5,009 $ 2,878 $3,157
====== ======= ======
</TABLE>
Significant components of the Company's deferred tax
assets (deductible temporary differences) and deferred tax
liabilities (taxable temporary differences) consisted of the
following (In thousands):
<TABLE>
December 31,
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 11,499 $ 16,767
Loan and cancellation
loss reserves 5,456 4,358
Tax over book basis in inventory 3,267 3,092
Deferred revenue 2,428 2,435
Credit carryforwards 2,172 1,882
Other 1,806 2,065
-------- --------
26,628 30,599
Valuation allowance (20,415) (26,131)
-------- --------
6,213 4,468
-------- --------
Deferred tax liabilities:
Basis in partnership assets 1,076 1,380
Other 131 169
-------- --------
1,207 1,549
-------- --------
Net deferred tax assets $ 5,006 $ 2,919
======== ========
</TABLE>
Prior to 1994, the Company's deferred tax assets were
reduced by a 100% valuation allowance based on the lack of a
historical earnings record for the Company and the
uncertainty as to the potential limitations that could have
been imposed under Section 382 during the two-year period
following the effective date of the plans of reorganization.
In 1994, management determined that it was more likely than
not that a portion of the deferred tax assets would be
realized. Management concluded that the Company had not
undergone an ownership change as defined under Section 382
during the two-year period following the effective date of
the plans of reorganization and would therefore realize a
certain portion of the deferred tax assets through (i)
estimated future taxable earnings and (ii) the reversal of
deferred tax liabilities during periods in which the Company
has available net operating loss carryforwards and other
deductible temporary differences.
The Company has reported operating earnings since the
effective date of the plans of reorganization and management
believes that it is more likely than not that future taxable
earnings will be sufficient to realize a portion, if not
all, of the tax benefits associated with the future deductible
<PAGE>
temporary differences and net operating loss
carryforwards prior to their expiration. Reductions in the
valuation allowance were based on (i) current realization of
certain prior year deferred tax liabilities, (ii) offset of
deferred tax assets against remaining deferred tax
liabilities and (iii) utilization of deferred tax assets to
offset estimated taxable earnings for the following year.
Management believes that its projections of the following
year's earnings are achievable and provide adequate support
for reducing the valuation allowance. Future realization of
remaining unrealized deferred tax assets will depend
principally on the Company's ability to generate taxable
earnings sufficient to offset net operating losses and
deductions for temporary differences which comprise these
assets. To the extent this realization of tax assets
occurs, substantially all of the valuation allowance,
totaling $20.4 million at December 31, 1995, will be
eliminated and an equal amount credited to paid-in capital.
NOTE 8 - STOCKHOLDERS' EQUITY
- ------ --------------------
Pursuant to the Plans, all of the common stock
outstanding prior to reorganization was cancelled effective
September 1, 1992. Thereafter, Fairfield began issuing new
stock and is authorized to issue 25,000,000 shares of Common
Stock, par value $.01 per share, and 5,000,000 shares of
Preferred Stock, par value $.01 per share. One million
shares of preferred stock, which have been designated as the
Series A Junior Participating Preferred Stock, have been
reserved for possible issuance in connection with
Fairfield's Rights Agreement as discussed below. The rights
and preferences of the remaining shares of authorized but
unissued Preferred Stock are to be established by
Fairfield's Board of Directors at the time of issuance.
As of December 31, 1995, Fairfield has issued
12,325,848 shares of Common Stock to holders of unsecured
resolved claims, of which 2,395,295 were held in treasury.
In accordance with the Plans, Fairfield will issue
additional shares as the remaining claims are resolved. The
ultimate amount of these claims and the timing of the
resolution of the claims is largely within the control of
the Bankruptcy Court. However, based upon available
information, Fairfield presently estimates that a total of
13,028,161 shares of Common Stock will be issued.
Additionally, 588,235 shares have been reserved, but not
issued, for the benefit of the holders of the FCI Notes (see
Note 10).
In 1992, Fairfield adopted a Rights Agreement which
provides for the issuance of one right for each outstanding
share of Fairfield's Common Stock. The rights, which
entitle the holder to purchase from Fairfield one one-
hundredth of a share of Series A Junior Participating
Preferred Stock at $25 per share, become exercisable (i) ten
business days after a person becomes the beneficial holder
of 20% or more of Fairfield's Common Stock or (ii) ten
business days following the commencement of a tender or
exchange offer for at least 20% of Fairfield's Common Stock.
Fairfield may redeem the rights at $.01 per right under
certain circumstances. The rights expire on September 1,
2002.
Certain of the Company's financing arrangements contain
restrictive covenants relating to the maintenance of certain
financial ratios and other financial requirements. Under
the most restrictive covenants, Fairfield is prohibited from
(i) paying dividends or making other distributions on its
Common Stock and (ii) repurchasing shares of its Common
Stock.
<PAGE>
NOTE 9 - FAIRFIELD ACCEPTANCE CORPORATION
- ------ --------------------------------
Condensed consolidated financial information for FAC is
summarized as follows (In thousands):
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash $ 312 $ 895
Loans receivable, net 101,359 109,194
Restricted cash 2,957 8,120
Due from parent 3,187 12,115
Other assets 1,511 1,907
-------- --------
$109,326 $132,231
======== ========
LIABILITIES AND EQUITY
Financing arrangements $ 70,073 $ 97,235
Accrued interest and
other liabilities 688 681
Equity 38,565 34,315
-------- --------
$109,326 $132,231
======== ========
</TABLE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $15,009 $13,644 $14,582
Expenses 8,103 8,382 8,198
------- ------- -------
Earnings before provision
for income taxes 6,906 5,262 6,384
Provision for income taxes 2,656 2,015 2,444
------- ------- -------
Net earnings $ 4,250 $ 3,247 $ 3,940
======= ======= ========
</TABLE>
In accordance with the terms of the Third Amended and
Restated Operating Agreement (the "Operating Agreement"),
FAC is permitted to purchase eligible receivables from
Fairfield for a price equal to $.94 per $1.00 of such
receivables. Fairfield is required by the Operating
Agreement to repurchase defaulted receivables from FAC at a
price equal to $.94 per $1.00 or substitute an eligible
receivable on the basis of $.85 per $1.00 of such
receivables. During 1995 and 1994, FAC purchased
receivables from Fairfield with outstanding principal
balances of $38.1 million and $69.3 million, respectively.
NOTE 10 - NET LIABILITIES OF ASSETS HELD FOR SALE
- ------- ---------------------------------------
At December 31, 1995, assets held for sale consisted
primarily of (i) those assets collateralizing the Senior
Subordinated Secured Notes ("FCI Notes") and (ii) certain
assets purchased in conjunction with the sale of First
Federal Savings and Loan Association of Charlotte (the
"Association Assets"). Net assets held for sale have been
recorded at the lower of the carrying amount of the asset or
fair value, less estimated selling costs. Disposals of
these assets have been at sales prices approximating book
value.
<PAGE>
The FCI Notes are collateralized by (i) certain of the
Company's real estate inventories located at its Pointe
Alexis development in Tarpon Springs, Florida, (ii) the
Company's 30% partnership interest in Sugar Island limited
partnership in St. Croix, U. S. Virgin Islands and (iii) the
Company's 35% partnership interest in Harbour Ridge limited
partnership in Stuart, Florida. The FCI Notes bear interest
at 10% compounded semi-annually and mature on the earlier of
(i) the sale of all the collateral or (ii) the later of (a)
60 days after the FNBB loans have been paid in full or (b)
March 1, 1997. The FCI Notes are nonrecourse to the Company
and the sole sources of repayment consist of the collateral,
any proceeds from the sale of the collateral and, as
described below, the shares of Common Stock of Fairfield
reserved as additional collateral for the FCI Notes. Due to
the illiquid nature of certain of the collateral for the FCI
Notes, 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 its 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).
Net liabilities of assets held for sale consisted of
the following (In thousands):
<TABLE>
December 31,
1995 1994
---- ----
<S> <C> <C>
Collateral for FCI Notes $ 8,423 $ 8,676
Association Assets 2,901 11,602
Other 1,195 2,471
-------- --------
12,519 22,749
FCI Notes (14,786) (14,806)
-------- --------
$ (2,267) $ 7,943
======== ========
</TABLE>
NOTE 11 - EMPLOYEE BENEFIT PLANS
- ------- ----------------------
Profit Sharing Plan
--------------------
The Company's Profit Sharing Plan covers substantially
all employees with one year or more of credited service, and
participants are fully vested after seven years of credited
service. Effective July 1, 1994, the Profit Sharing Plan
was amended to allow employee elective salary deferrals as
permitted under Internal Revenue Code Section 401(k).
Employer discretionary contributions to the Profit Sharing
Plan are determined annually by the Board of Directors and
the amount charged to expense totaled $0.6 million, $0.7
million and $0.5 million for 1995, 1994 and 1993,
respectively.
Excess Benefit Plan
-------------------
In 1994, the Company adopted the Excess Benefit Plan,
which is a non-qualified, unfunded plan established to
provide designated employees with benefits to compensate for
certain limitations imposed by federal law on the amount of
compensation which may be considered in determining employer
contributions to participants' accounts under the Profit
Sharing Plan. Participants' accounts under the Excess
Benefit Plan are credited with amounts that, except for the
limits of the Internal Revenue Code, would have been
contributed to such participants' accounts under the Profit
Sharing Plan. Participants' accounts under the Excess
Benefit Plan vest in accordance with the vesting schedule
set forth in the Profit Sharing Plan. Interest is credited
to the participants' accounts annually
<PAGE>
at the base rate of interest charged by FNBB. The expense
associated with the Excess Benefit Plan totaled $0.1 million
for both 1995 and 1994.
Retirement Plan
---------------
In 1994, the Company adopted the Key Employee Retirement
Plan (the "Retirement Plan"), which is a non-qualified,
unfunded plan established to provide certain senior
executives of the Company with retirement benefits. Under
the Retirement Plan, participants' accounts are credited on
each January 1 by a percentage of each participants'
preceding year's total cash compensation. In general, the
benefit percentage can range from 0% to 20%, depending on
the Company's three year moving average rate of return on
stockholders' equity. Participants' accounts are fully
vested after seven years of service or upon the occurrence
of a change in control of the Company, death of the
participant, termination of employment due to total
disability or retirement on or after the age 55, in each
case while employed by the Company. Interest is credited to
participants' accounts monthly at FNBB's base interest rate,
as in effect on the first banking day of each year. The
expense associated with the Retirement Plan totaled $0.3
million for both 1995 and 1994.
Warrant Plan
------------
The Company's 1992 Warrant Plan, as amended, (the "1992
Plan") provides for the grant of non-qualified stock warrants
to certain key employees and directors to purchase up to
1,000,000 shares of Fairfield's Common Stock. Warrants
under the 1992 Plan are to be granted at prices not less
than the fair market value of such shares at the date of
grant and may be exercisable for periods of up to 10 years
from the date of grant. Warrants available for future grant
totaled 132,000 at December 31, 1995. The following table
summarizes the activity under the 1992 Plan:
<TABLE>
Shares Under Option Option Price Per Share
------------------- ---------------------
1995 1994 1995 1994
---- ----- ---- ----
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 818,000 800,000 $3.00 - $5.50 $3.00
Granted 58,000 18,000 $5.50 - $7.13 $5.50
Cancelled (8,000) - $3.00 - $5.50 -
------- -------
Outstanding at end
of year 868,000 818,000 $3.00 - $7.13 $3.00 - $5.50
======= =======
Exercisable at end
of year 543,000 352,500
======= =======
</TABLE>
NOTE 12 - SUPPLEMENTAL INFORMATION
- ------- ------------------------
Other revenues in 1995, 1994 and 1993 include cash
distributions totaling $1.6 million, $1.2 million and $2.0
million, respectively, related to the Company's 35%
partnership interest in Harbour Ridge, Ltd., a limited
partnership engaged in the development of a tract of land in
St. Lucie, Florida. Cash distributions from this partnership
interest are anticipated to continue at a reduced amount
through 1996; however, the amounts and timing of future
distributions are not under the control of the Company, but
are entirely within the control of the general partner.
Also included in other revenues and other expenses for
1995 are home sales and related cost of sales totaling $6.7
million and $6.0 million, respectively. For 1994, home
sales and related cost of sales totaled $5.9 million and
$5.4 million, respectively, and for 1993 totaled $4.7
million and $4.4 million, respectively.
In December 1994, the Company began sales efforts at
its destination sites located in Orlando, Florida and
Nashville, Tennessee. The results of operations for
1994 reflect $1.0
<PAGE>
million in start-up expenses associated with these sites
(included in "Other expenses" in the 1994 Consolidated
Statement of Earnings).
In September 1994, the Company sold 100% of the capital
stock of First Federal Savings and Loan Association of
Charlotte ("First Federal") for $41.0 million and recognized
a net gain on the sale of $5.2 million. The gain from the
sale of First Federal was not subject to federal income tax
due to a permanent tax basis difference in First Federal's
stock and underlying goodwill. Included in "Restricted cash
and escrow accounts" at December 31, 1995 is $2.9 million
representing certain assets retained and/or pledged to the
buyer to securitize Fairfield's obligation to indemnify the
buyer against general indemnities and three existing
lawsuits/claims which have been asserted against First
Federal (see Note 13).
Interest paid totaled $9.3 million, $20.5 million and
$25.5 million, for 1995, 1994 and 1993, respectively. Of
the amounts for 1994 and 1993, $9.0 million and $11.1
million, respectively, were related to First Federal.
Included in other assets at December 31, 1995 and 1994
are (i) $5.1 million at each year end related to the assets
of the Company's life insurance subsidiary, (ii) deferred
tax assets totaling $5.0 million and $2.9 million,
respectively (see Note 7) and (iii) unamortized capitalized
financing costs of $1.5 million and $2.0 million,
respectively. Included in other liabilities at December 31,
1995 and 1994 are (i) $2.9 million and $2.7 million,
respectively, related to the liabilities of the Company's
life insurance subsidiary and (ii) accruals totaling $4.6
million and $3.7 million, respectively, related to the
Company's employee benefit plans.
NOTE 13 - 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 to the
District Court of the Bankruptcy Court's final order
confirming Fairfield's plan of reorganization. The basis
for the appeal was 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 the District Court, on November 16,
1995, affirmed the Bankruptcy Court's decision. The PLPOA
has not appealed the District Court's decision.
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,
<PAGE>
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 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 scheduled
oral arguments on these appeals for April 22, 1996. 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.
<PAGE>
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 order filed September 15, 1995,
the court denied the plaintiff's motion for class
certification. The plaintiff has appealed the denial of the
motion for class certification, but no decision has yet been
rendered on the appeal.
Under the Stock Purchase Agreement for the sale of
First Federal, Fairfield agreed to indemnify the buyer
against any liability in the Curry litigation. While
Fairfield is no longer a defendant in the litigation, it
intends to coordinate the defense of this lawsuit 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.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ------- -----------------------------------
The fair value estimates presented herein are based on
relevant market information. As these estimates are
subjective in nature and involve uncertainties and
significant judgment, they are not necessarily indicative of
the amount that the Company could realize on a current
market exchange. The fair value disclosures for financial
instruments are as follows:
Cash and cash equivalents: The carrying amounts
reported in the consolidated balance sheets
approximate their fair values at December 31, 1995
and 1994.
Restricted cash and escrow accounts: The estimated
fair values of restricted cash and escrow accounts
approximate their carrying amounts at December 31,
1995 and 1994.
Loans receivable: The carrying amounts of loans
receivable are a reasonable estimate of their fair
values at December 31, 1995 and 1994 based on
valuation models using risk adjusted interest rates
and historical prepayment experiences.
<PAGE>
Financing arrangements: The carrying amounts of the
Company's borrowings with variable interest rates
approximated their fair values at December 31, 1995 and
1994. The carrying amounts of the Company's
borrowings with fixed interest rates totaled $56.8
million and $84.3 million at December 31, 1995 and
1994, respectively. The fair values of these
borrowings totaled $56.4 million and $80.2 million at
December 31, 1995 and 1994, respectively, and were
estimated using discounted cash flow analyses based on
the Company's current borrowing rates for similar types
of borrowing arrangements.
<TABLE>
NOTE 15 - UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA
- ------- ------------------------------------------------
Dollars in thousands, except per share data
Year Ended December 31, 1995
---------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues $24,559 $37,789 $42,949 $36,854
Total expenses 24,314 33,544 37,700 33,555
------- ------- ------- -------
Earnings before provision
for income taxes 245 4,245 5,249 3,299
Provision for income taxes 93 1,613 1,995 1,308
------- ------- ------- -------
Net earnings $ 152 $ 2,632 $ 3,254 $ 1,991
======= ======= ======= =======
Net earnings per share:
Primary $.01 $.24 $.29 $.18
==== ==== ==== ====
Fully diluted $.01 $.23 $.28 $.17
==== ==== ==== ====
</TABLE>
<TABLE>
Year Ended December 31, 1994
----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues $18,607 $29,518 $37,512 $26,117
Total expenses 17,067 25,698 28,714 25,128
------- ------- ------- -------
Earnings before provision
for income taxes 1,540 3,820 8,798 989
Provision for income taxes 462 1,146 1,079 191
------- ------- ------- -------
Net earnings $ 1,078 $ 2,674 $ 7,719 $ 798
======= ======= ======= =======
Net earnings per share:
Primary $.10 $.24 $.70 $.07
==== ==== ==== ====
Fully diluted $.09 $.23 $.66 $.07
==== ==== ==== ====
</TABLE>
Revenues in the third quarter of 1994 include a non-taxable
gain of $5.2 million related to the sale of First Federal.
Certain amounts in the consolidated financial statements of
prior quarters for 1995 and 1994 have been reclassified to
conform to the 1995 fourth quarter presentation.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21
------------------------------ ----------
The following is a list of the subsidiaries of Fairfield
Communities, Inc. Each subsidiary, some of which are
inactive, is wholly owned by Fairfield or by a wholly owned
subsidiary of Fairfield, unless otherwise indicated.
State of
Subsidiary Incorporation
---------- -------------
Fairfield Bay, Inc. Arkansas
Shirley Realty Company Arkansas
Fairfield Flagstaff Realty, Inc. Arizona
Fairfield Glade, Inc. Tennessee
Fairfield Mortgage Corporation Arkansas
Fairfield Mortgage Acceptance Corporation Delaware
Fairfield Mountains, Inc. North Carolina
Mountains Utility Company North Carolina
Fairfield Homes Construction Company Florida
Northeast Craven Utility Company North Carolina
Fairfield Sapphire Valley, Inc. North Carolina
Jackson Utility Company North Carolina
Intermont Properties, Inc. Delaware
Fairfield Properties, Inc. Arizona
Fairfield River Ridge, Inc. Florida
Harbour Ridge, Ltd.
(a limited partnership; 35.5% interest)
Fairfield Equities, Inc. Delaware
Fairfield Acceptance Corporation Delaware
Fairfield Capital Corporation Delaware
Fairfield Funding Corporation Delaware
Fairfield Pagosa Realty, Inc. Colorado
Fairfield Fort George, Inc. Florida
Fort George Country Club, Inc. Florida
Caribbean Real Property Company, Inc. Florida
Fairfield Communities Purchasing and Design, Inc. Tennessee
The Florida Companies Florida
Imperial Life Insurance Company Arkansas
Rock Island Land Corporation Florida
Fairfield Management Services, Inc. Florida
Suntree Development Company Florida
St. Andrews Club Management Corporation Florida
St. Andrews Realty, Inc. Florida
Commercial Land Equity Corporation Florida
TFC Realty of Indiana, Inc. Florida
Fairfield St. Croix, Inc. Delaware
Sugar Island Associates, Ltd.
(a limited partnership; 30% interest)
Fairfield Virgin Islands, Inc. Delaware
Davis Beach Co.
(a limited partnership; 50% interest)
Fairfield Myrtle Beach, Inc. Delaware
Ventura Management, Inc. Delaware
Fairfield Resorts International, Ltd. Arkansas
(a limited partnership; 50% interest) <PAGE>
EXHIBIT 23 - CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Fairfield Communities, Inc. of our
report dated January 29, 1996, included in the 1995 Annual
Report to Shareholders of Fairfield Communities, Inc.
Our audit also included the financial statement schedule of
Fairfield Communities, Inc. listed in Item 14(a). This
schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-55841) pertaining to
the Fairfield Communities, Inc. First Amended and Restated
1992 Warrant Plan of our report dated January 29, 1996, with
respect to the consolidated financial statements incorporated
herein by reference and our report included in the preceding
paragraph with respect to the financial statement schedule
included in this Annual Report (Form 10-K) of Fairfield
Communities, Inc.
ERNST & YOUNG LLP
Little Rock, Arkansas
March 8, 1996<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints John W. McConnell and/or Robert W.
Howeth, severally, his true and lawful attorney in fact and
agent, with full powers of substitution and resubstitution for
him and his name, place and stead, in any and all capacities,
to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended
December 31, 1995, and any or all amendments thereto, and to
file same, with all exhibits, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney in fact and agent,
full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as necessary
to be done in and about the premises, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney in fact and
agent or his substitute(s), may lawfully do or cause to be
done by virtue hereof.
Dated: January 23, 1996 /s/Russell A. Belinsky
----------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints John W. McConnell and/or Robert W.
Howeth, severally, his true and lawful attorney in fact and
agent, with full powers of substitution and resubstitution for
him and his name, place and stead, in any and all capacities,
to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended
December 31, 1995, and any or all amendments thereto, and to
file same, with all exhibits, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney in fact and agent,
full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as necessary
to be done in and about the premises, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney in fact and
agent or his substitute(s), may lawfully do or cause to be
done by virtue hereof.
Dated: January 23, 1996 /s/Ronald Langley
--------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints John W. McConnell and/or Robert W.
Howeth, severally, his true and lawful attorney in fact and
agent, with full powers of substitution and resubstitution for
him and his name, place and stead, in any and all capacities,
to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended
December 31, 1995, and any or all amendments thereto, and to
file same, with all exhibits, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney in fact and agent,
full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as necessary
to be done in and about the premises, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney in fact and
agent or his substitute(s), may lawfully do or cause to be
done by virtue hereof.
Dated: January 23, 1996 /s/Ernest D. Bennett, III
---------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints John W. McConnell and/or Robert W.
Howeth, severally, his true and lawful attorney in fact and
agent, with full powers of substitution and resubstitution for
him and his name, place and stead, in any and all capacities,
to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended
December 31, 1995, and any or all amendments thereto, and to
file same, with all exhibits, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney in fact and agent,
full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as necessary
to be done in and about the premises, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney in fact and
agent or his substitute(s), may lawfully do or cause to be
done by virtue hereof.
Dated: January 23, 1996 /s/Daryl J. Butcher
-------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints John W. McConnell and/or Robert W.
Howeth, severally, his true and lawful attorney in fact and
agent, with full powers of substitution and resubstitution for
him and his name, place and stead, in any and all capacities,
to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended
December 31, 1995, and any or all amendments thereto, and to
file same, with all exhibits, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney in fact and agent,
full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as necessary
to be done in and about the premises, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney in fact and
agent or his substitute(s), may lawfully do or cause to be
done by virtue hereof.
Dated: January 23, 1996 /s/Philip L. Herrington
---------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints John W. McConnell and/or Robert W.
Howeth, severally, his true and lawful attorney in fact and
agent, with full powers of substitution and resubstitution for
him and his name, place and stead, in any and all capacities,
to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended
December 31, 1995, and any or all amendments thereto, and to
file same, with all exhibits, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorney in fact and agent,
full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises,
as fully for all intents and purposes as necessary to be done in
and about the premises, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all
that said attorney in fact and agent or his substitute(s), may
lawfully do or cause to be done by virtue hereof.
Dated: January 23, 1996 /s/William C. Scott
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's December 31, 1995 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2095
<SECURITIES> 0
<RECEIVABLES> 153874
<ALLOWANCES> 14200
<INVENTORY> 40552
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 215518
<CURRENT-LIABILITIES> 0
<BONDS> 86982
0
0
<COMMON> 124
<OTHER-SE> 81103
<TOTAL-LIABILITY-AND-EQUITY> 215518
<SALES> 107831
<TOTAL-REVENUES> 123040
<CGS> 38914
<TOTAL-COSTS> 51464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6505
<INTEREST-EXPENSE> 8562
<INCOME-PRETAX> 13038
<INCOME-TAX> 5009
<INCOME-CONTINUING> 8029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8029
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.69
</TABLE>
Fairfield Communities, Inc.
10% Senior Subordinated Secured Notes
Ombudsman Report
For the Period Ending
December 31, 1995
Prepared by
Houlihan Lokey Howard & Zukin
----------------------------------------------------------
Date Prepared:
February 8, 1996 <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 December 31, 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 January 31, 1996,
the trading price of Fairfield's common stock was $7.00.
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
March, 1997.
Collateral proceeds during the quarter ended December 31, 1995
totaled approximately $221,450 (excluding approximately $10,786
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 $646,984 as of December
31, 1995.
Since the effective date of Fairfield's Chapter 11 plan of
reorganization, Noteholders have received distributions totaling
$13,494,217 of which $5,484,939 was interest and $8,009,279 was
principal. The remaining principal balance outstanding as of
December 31, 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 December 31, 1995, 172 lots had been sold, 42
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 $1,140,375 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 December 31, 1995, at Pointe Alexis
South, Fairfield recorded 3 lot sales and 5 lot closings compared
to 0 lot sales and 2 lot closings during the quarter ended
December 31, 1994. Total revenues at Pointe Alexis South during
the third quarter ended December 31, 1995 totaled $100,000
compared to $40,000 during the fourth quarter ended December 31,
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 December 31, 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, although an additional reduction in release prices
will likely be required to generate sales.
- -----------------------------------------------------------------
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 December 31, 1995, at Harbour Watch,
Fairfield recorded 0 lot sales and 0 lot closings, compared to 1
lot sale and 1 lot closing during the quarter ended December 31,
1994. Total revenues at Harbour Watch during the quarter ended
December 31, 1995 were $100,000 compared to $40,000 during the
quarter ended December 31, 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 December
31, 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 $203,970 during the
quarter ended December 31, 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 cost. 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. Based on the slow sales pace at
Pointe Alexis, a reduction in the sales and release prices at
both Pointe Alexis South and Harbour Watch is likely during the
next quarter.
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 December 31, 1995, 1 unit was sold,
leaving approximately 10 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 approximately $175,000
from Harbour Ridge during the quarter ending December 31, 1995.
Current projections indicate that an additional $.5 to $.8
million of cash flow should be generated for the Noteholders,
depending upon, among other things, final sales proceeds and a
variety of potential costs associated with transferring project
control to the Harbour Ridge home owners association.<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. Subsequently, the hotel
changed franchises and it now operates under a Westin Resorts
name. 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 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.
Although the Resort sustained the loss of its entire beach system
and damage to certain main structures, it managed to resume full
operations by early December. The Golf Club also sustained
damage with several trees uprooted, sand traps washed-out and
minor structural damage incurred to the club house, but was
closed for only about 30 days during repairs. <PAGE>
- -----------------------------------------------------------------
Fortunately, Delray reserved sufficient funds to cover the
insurance deductible. Going forward, it is unclear how much
insurance rates will increase or if any carriers will even insure
the Golf Club.
Prior to the hurricane, increased play at the Golf Club had
netted annualized cash flow to the Partnership of approximately
$200,000. As a result of the shutdown, it is unlikely that the
Golf Club will generate any cash flow during 1995, pending the
outcome of ongoing negotiation with the insurance carrier
regarding business interruption coverage.
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>
