UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
----------- -----------
Commission File Number: 1-8096
FAIRFIELD COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0390438
(State of Incorporation) (I.R.S. Employer Identification No.)
2800 Cantrell Road, Little Rock, Arkansas 72202
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (501) 664-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
------ ------
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of July 31, 1996 totaled 12,352,142. <PAGE>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
ITEM I - FINANCIAL STATEMENTS
- ------ --------------------
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
June 30, December 31,
1996 1995
---- ----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,891 $ 2,095
Loans receivable, net 141,277 139,674
Real estate inventories 43,396 40,552
Restricted cash and
escrow accounts 8,158 8,194
Property and equipment, net 10,637 8,311
Other assets 16,995 16,692
-------- --------
$223,354 $215,518
======== ========
LIABILITIES AND STOCKHOLDERS'EQUITY
Liabilities:
Financing arrangements $ 79,556 $ 86,982
Deferred revenue 19,456 19,791
Accounts payable 5,942 4,556
Accrued interest 4,012 4,504
Net liabilities of assets
held for sale 3,254 2,267
Other liabilities 19,527 16,191
-------- --------
131,747 134,291
-------- --------
Stockholders' equity:
Common stock 124 124
Paid-in capital 55,934 52,386
Retained earnings 35,549 28,717
-------- --------
91,607 81,227
-------- --------
$223,354 $215,518
======== ========
</TABLE>
Note: The consolidated balance sheet at December 31, 1995
has been derived from the audited consolidated financial
statements at that date.
See notes to consolidated financial statements.
2 <PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------------
1996 1995 1996 1995
---- ---- ----- ----
<S> <C> <C> <C> <C>
REVENUES
Vacation
ownership,net $32,414 $23,897 $51,112 $35,797
Lots, net 3,043 1,630 4,267 2,699
Resort management 4,337 3,964 7,884 7,366
Interest 4,861 4,737 9,523 9,501
Other 4,353 3,561 6,432 6,985
------- ------- ------- -------
49,008 37,789 79,218 62,348
------- ------- ------- -------
COSTS AND EXPENSES
Cost of sales:
Vacation ownership 8,160 6,647 12,892 9,957
Lots 688 358 942 718
Provision for
loan losses 1,599 1,894 2,731 2,839
Selling 17,439 13,525 28,364 22,445
Resort management 3,649 3,438 6,754 6,502
General and
administrative 3,800 2,617 7,122 5,517
Interest 1,709 2,230 3,565 4,505
Other 3,854 2,835 5,595 5,375
------- ------- ------- -------
40,898 33,544 67,965 57,858
------- ------- ------- -------
Earnings before
provision for
income taxes 8,110 4,245 11,253 4,490
Provision for
income taxes 3,171 1,613 4,421 1,706
------- ------- ------- -------
Net earnings $ 4,939 $ 2,632 $ 6,832 $ 2,784
======= ======= ======= =======
NET EARNINGS PER SHARE
Primary $.44 $.24 $.61 $.25
==== ==== ==== ====
Fully diluted $.41 $.23 $.57 $.24
==== ==== ==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 11,312,214 11,042,997 11,229,864 11,038,248
========== ========== ========== ==========
Fully diluted 11,959,083 11,631,381 11,951,083 11,636,317
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
3 <PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 6,832 $ 2,784
Adjustments to reconcile net
earnings to net cash
provided by operations:
Depreciation and amortization 1,415 864
Utilization of pre-confirmation
income tax attributes 3,500 1,460
Provision for loan losses 2,731 2,839
Earnings from unconsolidated
affiliate (88) (1,147)
Changes in operating assets
and liabilities:
Real estate inventories (2,455) (739)
Accounts payable and other
liabilities 4,722 2,520
Deferred revenue (335) 959
Other, net (1,917) (936)
-------- ---------
Net cash provided by operating
activities 14,405 8,604
-------- ---------
INVESTING ACTIVITIES
Purchases of property and
equipment, net (3,305) (2,284)
Principal collections on loans
receivable 40,240 36,754
Originations of loans receivable (44,189) (37,156)
Net investment activities of
net liabilities of assets
held for sale 281 7,855
Other, net 706 (377)
-------- ---------
Net cash (used in) provided by
investing activities (6,267) 4,792
-------- ---------
FINANCING ACTIVITIES
Proceeds from financing arrangements 118,377 101,095
Repayments of financing arrangements (125,755) (119,471)
Net decrease in restricted
cash and escrow accounts 36 1,534
--------- ---------
Net cash used in financing activities (7,342) (16,842)
--------- ---------
Net increase (decrease) in
cash and cash equivalents 796 (3,446)
Cash and cash equivalents,
beginning of period 2,095 13,641
--------- ---------
Cash and cash equivalents,
end of period $ 2,891 $ 10,195
========= =========
</TABLE>
See notes to consolidated financial statements.
4
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
The accompanying consolidated financial statements of
Fairfield Communities, Inc. ("Fairfield") and its wholly
owned subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial statements and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. The interim
financial information is unaudited, but reflects all
adjustments consisting only of normal recurring accruals
which are, in the opinion of management, necessary for a
fair presentation of the results of operations for such
interim periods. The results of operations for the six
months ended June 30, 1996 are not necessarily indicative of
the results of operations that may be expected for the
entire year. For further information, refer to the
consolidated financial statements and footnotes thereto
included in the Annual Report on Form 10-K for the year
ended December 31, 1995.
Certain previously reported amounts have been
reclassified to conform to the presentation used for the
current period. The accompanying unaudited consolidated
financial statements, and related notes thereto, include the
accounts of Fairfield and its wholly owned subsidiaries,
with all significant intercompany accounts and transactions
eliminated.
NOTE 1 - VACATION OWNERSHIP REVENUES
- ------ ---------------------------
Vacation ownership revenues are summarized as follows
(In thousands):
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Vacation ownership
revenues $32,127 $24,025 $50,430 $36,296
Less: Deferred
revenue on
current year
sales, net (994) (587) (1,718) (2,213)
Add: Revenue
recognized on
prior year
sales 1,281 459 2,400 1,714
------- ------- ------- -------
$32,414 $23,897 $51,112 $35,797
======= ======= ======= =======
</TABLE>
NOTE 2 - LOANS RECEIVABLE
- ------ ----------------
Loans receivable consisted of the following (In
thousands):
<TABLE>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Contracts $143,102 $140,810
Mortgages 12,302 13,064
-------- --------
155,404 153,874
Less allowance for loan
losses (14,127) (14,200)
-------- --------
$141,277 $139,674
======== ========
</TABLE>
5
NOTE 3 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In
thousands):
<TABLE>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Land:
Under development $18,677 $17,377
Undeveloped 6,617 7,288
------- -------
25,294 24,665
------- -------
Residential housing:
Vacation ownership 15,107 13,247
Homes 2,995 2,640
------- -------
18,102 15,887
------- -------
$43,396 $40,552
======= =======
</TABLE>
NOTE 4 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In
thousands):
<TABLE>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Notes payable collateralized
by contracts receivable $44,628 $61,226
Notes payable - other 11,700 12,919
Revolving credit agreements 23,228 12,837
------- -------
$79,556 $86,982
======= =======
</TABLE>
NOTE 5 - FAIRFIELD ACCEPTANCE CORPORATION ("FAC")
- ------ ----------------------------------------
Condensed consolidated financial information for FAC is
summarized as follows (In thousands):
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash $ 234 $ 312
Loans receivable, net 91,817 101,359
Restricted cash 2,155 2,957
Due from parent 14,285 3,187
Other assets 1,345 1,511
-------- --------
$109,836 $109,326
======== ========
LIABILITIES AND EQUITY
Financing arrangements $ 67,856 $ 70,073
Accrued interest and other
liabilities 639 688
Equity 41,341 38,565
-------- --------
$109,836 $109,326
======== ========
</TABLE>
6
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- -----
<S> <C> <C> <C> <C>
Revenues $3,990 $3,744 $7,949 $7,582
Expenses 1,711 2,078 3,440 4,311
------ ------ ------ ------
Earnings before
provision for income
taxes 2,279 1,666 4,509 3,271
Provision for income
taxes 848 639 1,733 1,253
------ ------ ------ ------
Net earnings $1,431 $1,027 $2,776 $2,018
====== ====== ====== ======
</TABLE>
NOTE 6 - NET LIABILITIES OF ASSETS HELD FOR SALE
------ ---------------------------------------
At June 30, 1996, 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.
Disposal of these assets have been at sales prices
approximating book value.
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, Ltd., a limited partnership engaged in
the development of a tract of land near 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 (including
funds on deposit in collateral prepayment accounts), 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 (including funds on
deposit in collateral prepayment accounts) 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>
June 30, December 31,
1996 1995
---- -----
<S> <C> <C>
Collateral for FCI Notes $ 7,705 $ 8,423
Association Assets 2,681 2,901
Other 1,146 1,195
-------- --------
11,532 12,519
FCI Notes (14,786) (14,786)
-------- --------
$ (3,254) $ (2,267)
======== ========
</TABLE>
7
NOTE 7 - SUPPLEMENTAL INFORMATION
------ ------------------------
Other revenues for the six months ended June 30,
1996 and 1995 include home sales totaling $4.5 million
and $2.4 million, respectively. Other expenses for the
six months ended June 30, 1996 and 1995 include homes
costs of sales, including selling expenses, totaling $4.1
million and $2.3 million, respectively. Other revenues
for the six months ended June 30, 1996 and 1995 include
$.1 million and $1.1 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 near Stuart, Florida.
Included in other assets at June 30, 1996 and
December 31, 1995 are (i) deferred tax assets totaling
$5.0 million for each period presented, (ii) $4.6 million
and $5.1 million, respectively, related to the assets of
the Company's life insurance subsidiary, and (iii)
unamortized financing costs totaling $1.4 million and
$1.5 million, respectively. Included in other
liabilities at June 30, 1996 and December 31, 1995 are
(i) accruals totaling $5.9 million and $4.6 million,
respectively, related to the Company's employee benefit
plans (ii) deposits associated with sales contracts
totaling $2.6 million and $1.8 million, respectively, and
(iii) $1.8 million and $2.6 million, respectively,
related to liabilities of the Company's life insurance
subsidiary.
Interest paid totaled $4.1 million and $5.0 million
for the six months ended June 30, 1996 and 1995,
respectively.
During the six months ended June 30, 1996 and 1995,
benefits realized from the utilization of pre-
confirmation net operating loss carryforwards and
recognition of pre-confirmation deductible temporary
differences of $3.5 million and $1.4 million,
respectively, were recorded as reductions of the
Company's valuation allowance for deferred tax assets and
as additions to paid-in capital.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------ ----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1995
Vacation Ownership
-----------------
Gross revenues of vacation ownership interests
("VOIs") totaled $50.4 million and $36.3 million for the
six months ended June 30, 1996 and 1995, respectively.
Of this increase, $11.0 million is attributable to
increased sales volumes at the Company's newer locations,
including off-site sales offices, and $3.1 million is
attributable to increased sales volumes at the Company's
more mature locations.
Net VOI revenues increased to $51.1 million for the
six months ended June 30, 1996 from $35.8 million for the
six months ended June 30, 1995. The increase in net VOI
revenues is attributable to the same factors as noted
above and the recognition of net deferred revenue of $.7
million during the six months ended June 30, 1996,
related to the percentage of completion method of
accounting, as compared to net deferred revenue of $.5
million during the six months ended June 30, 1995. Under
the percentage of completion method of accounting, the
portion of revenues attributable to costs incurred as
compared to total estimated construction costs and
selling expenses, is recognized in the period of sale.
The remaining revenue is deferred and recognized as the
remaining costs are incurred.
Cost of sales, as a percentage of related revenues
was 25.2% and 27.8% for the six months ended June 30,
1996 and 1995, respectively. During the six months ended
June 30, 1996, the Company benefited from increased sales
of fixed week inventory at its more mature locations,
which has a lower cost basis as compared to the Company's
newer locations. Sales of this limited fixed week
inventory are not expected to occur to this extent in the
future, but will occur from time to time.
Selling
-------
Selling expenses, including commissions, for both
VOI and lot sales, as a percentage of related revenues,
were 50.9% and 58.1%, for the six months ended June 30,
1996 and 1995, respectively. The decrease in selling
expenses, as a percentage of related revenues, is
primarily attributable to anticipated efficiencies
experienced at the Company's newer destination sites
located in Orlando, Florida and Nashville, Tennessee.
Management continues to work to improve sales
efficiencies at its newer locations and future
efficiencies should be realized as these projects mature
and their base of property owners expands.
Interest
--------
Interest income remained constant during the six
months ended June 30, 1996 as compared to the same period
in 1995. For the six months ended June 30, 1996 as
compared to the same period in 1995, interest earned on
short-term investments decreased $.3 million, which was
offset by (i) an increase in the average balance of
outstanding contracts receivable ($137.0 million and
$133.4 million for the six months ended June 30, 1996 and
1995) and (ii) an increase in the weighted average stated
interest rate on the Company's contracts receivable
(13.4% and 13.0% for the six months ended June 30, 1996
and 1995).
Interest expense totaled $3.6 million and $4.5
million for the six months ended June 30, 1996 and 1995,
respectively. This decrease is primarily attributable to
the reduction in the average outstanding balance of
interest-bearing debt, resulting primarily from operating
cash flows. The average outstanding
9
balance of interest bearing debt decreased from $106.0
million for the six months ended June 30, 1995 to $80.2
million for the six months ended June 30, 1996. The
weighted average interest rate for the Company's financing
arrangements collateralized by contracts receivable was
8.5% and 7.9% for the six months ended June 30, 1996
and 1995, respectively.
General and Administrative
--------------------------
General and administrative expenses increased from
$5.5 million during the six months ended June 30, 1995 to
$7.1 million during the six months ended June 30, 1996.
This increase resulted from additional expenses incurred
resulting from the increased VOI sales volumes as
previously discussed and additional accruals recorded
related to the Company s employee incentive plans. As a
percentage of total revenues, general and administrative
expenses remained relatively constant between periods
(9.0% for the six months ended June 30, 1996 versus 8.8%
for the six months ended June 30, 1995).
Other
-----
Other revenues for the six months ended June 30,
1996 and 1995 include home sales totaling $4.5 million
and $2.4 million, respectively. Other expenses for the
six months ended June 30, 1996 and 1995 include homes
costs of sales, including selling expenses, totaling $4.1
million and $2.3 million, respectively. Other revenues
for the six months ended June 30, 1996 and 1995 include
$.1 million and $1.1 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 near Stuart, Florida.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1995
Revenue and expense trends for the three months
ended June 30, 1996 were generally consistent with those
of the related six month period as described above with
(i) an increase in gross and net VOI sales, (ii) a
decrease in selling expenses as a percentage of related
revenues, and (iii) a decrease in interest expense.
Other revenues and expenses for the three months
ended June 30, 1996 include home sales totaling $3.2
million and related costs of sales, including selling
expenses, totaling $3.0 million. For the three months
ended June 30, 1995, home sales and related costs of
sales, including selling expenses, totaled $1.2 million
and $1.2 million, respectively.
PROVISION FOR INCOME TAXES
During the six months ended June 30, 1996 and 1995,
benefits realized from the utilization of pre-
confirmation net operating loss carryforwards and
recognition of pre-confirmation deductible temporary
differences of $3.5 million and $1.4 million,
respectively, were recorded as reductions of the
Company's valuation allowance for deferred tax assets and
as additions to paid-in capital.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company increased
$.8 million from December 31, 1995 to June 30, 1996.
During the six months ended June 30, 1996, the Company
generated $14.4 million in cash and cash equivalents from
operating activities which was offset by the use of cash
and cash equivalents in financing activities totaling
$7.3 million. During the six months ended June 30, 1996,
loan originations exceeded principal collections on loans
by $3.9 million.
10
At June 30, 1996, Fairfield had no 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 June 30, 1996, Fairfield had borrowing
availability under the FCI Agreement of $24.2 million,
net of outstanding letters of credit totaling $.8
million.
At June 30, 1996, FAC had borrowings outstanding of
$23.2 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 million, including up to $1 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 June 30, 1996, FAC had
borrowing availability of $4.6 million under the FAC
Agreement.
Historically, the Company has obtained borrowed
funds primarily through various revolving credit
agreements, including those noted above and, in its
efforts to lower the costs of borrowed funds and to
maintain its liquidity, has begun 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, and (iv) future financings, including
additional securitizations of contracts receivable.
FINANCIAL CONDITION
Total consolidated assets of the Company increased
$7.8 million from December 31, 1995 to June 30, 1996.
The increase in assets is primarily attributable to (i) a
$1.6 million increase in net loans receivable, (ii) a
$2.8 million increase in real estate inventories, and
(iii) a $2.3 million increase in net property and
equipment related primarily to the construction in progress
of the Company' s new corporate office building. Total
consolidated liabilities of the Company decreased $2.5
million in 1996 due primarily to a net reduction in the
Company's financing arrangements as previously discussed.
Other variations in the Company's assets and
liabilities generally reflect the revenue and expense
activities the Company experienced during the six months
ended June 30, 1996.
11
PART II - OTHER INFORMATION
- ------- -----------------
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Stockholders of the
Registrant was held on May 9, 1996. The following
item of business was presented to the stockholders:
Election of Directors
---------------------
The nine directors were elected as proposed
in the Proxy Statement dated April 8, 1996
under the caption titled "Election of
Directors".
Total Vote For Total Vote Withheld
Each Director From Each Director
-------------- -------------------
Les R. Baledge 9,080,285 139,704
Russell A. Belinsky 9,061,281 158,708
Ernest D. Bennett, III 8,691,963 528,026
Philip L. Herrington 8,484,896 735,093
Ronald Langley 8,891,900 328,089
Bryan D. Langton 8,890,426 329,563
John W. McConnell 9,070,166 149,823
Charles D. Morgan, Jr. 8,867,400 352,589
William C. Scott 9,060,381 159,608
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
-------------------
On April 5, 1996, a Current Report on Form 8-K was
filed in which the Registrant disclosed its Third
Amended and Restated Bylaws and its Fourth Amended
and Restated Bylaws.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
FAIRFIELD COMMUNITIES, INC.
Date: August 6, 1996 /s/ Robert W. Howeth
----------------- ------------------------------------------
Robert W. Howeth, Senior Vice President
and Chief Financial Officer
Date: August 6, 1996 /s/ William G. Sell
----------------- -------------------------------------------
William G. Sell, Vice President/Controller
(Chief Accounting Officer)
13
FAIRFIELD COMMUNITIES, INC.
EXHIBIT INDEX
-------------
Exhibit
Number
- -------
4.1 Supplemented and Restated Indenture between the
Registrant, Fairfield River Ridge, Inc., Fairfield
St. Croix, Inc. and IBJ Schroder Bank & Trust
Company, as Trustee, and Houlihan Lokey Howard &
Zukin, as Ombudsman, related to the Senior
Subordinated Secured Notes, dated September 1,
1992 (previously filed with the Registrant's
Current Report on Form 8-K dated September 1, 1992
and incorporated herein by reference)
4.2 First Supplemental Indenture to the Supplemental
and Restated Indenture referenced in 4.1 above,
dated September 1, 1992 (previously filed with the
Registrant's Current Report on Form 8-K dated
September 1, 1992 and incorporated herein by
reference)
4.3 Second Supplemental Indenture to the Supplemental
and Restated Indenture referenced in 4.1 above,
effective September 1, 1992 (previously filed with
the Registrant's Annual Report on Form 10-K dated
December 31, 1992 and incorporated herein by
reference)
4.4 Third Supplemental Indenture to the Supplemental
and Restated Indenture referenced in 4.1 above,
effective March 18, 1993 (previously filed with
the Registrant's Quarterly Report on Form 10-Q
dated March 31, 1993 and incorporated herein by
reference)
4.5 Certificate of Designation, Preferences, and
Rights of Series A Junior Participating Preferred
Stock, dated September 1, 1992 (previously filed
with the Registrant's Current Report on Form 8-K
dated September 1, 1992 and incorporated herein by
reference)
11 Computation of earnings per share (attached)
27 Financial Data Schedule (attached)
99 Ombudsman Report for the period ending June 30,
1996 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
14
are being distributed to the record holders of the
FCI Notes and the contents of the Ombudsman's
Reports may be of interest to other persons,
including potential purchasers of the FCI Notes,
the Company is filing herewith, as Exhibit 99, a
copy of the Ombudsman's Report dated August 1,
1996, for the period ending June 30, 1996. The
Company is not obligated to file such reports and
may discontinue filing such reports in the future
without notice to any person. (attached)
15 <PAGE>
EXHIBIT 11
----------
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
Primary
----------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares:
Shares outstanding 12,341,848 12,360,210 12,333,848 12,360,210
Estimated increase in shares
outstanding due to allowed
claims exceeding $85
million (1) 702,313 709,489 702,313 709,489
Less treasury stock (2,395,295) (2,395,295) (2,395,295) (2,395,295)
Net effect of dilutive
warrants based on
the treasury stock method 663,348 368,593 588,998 363,844
Contingent issuance -
Holders of FCI Notes (2) - - - -
---------- ---------- ---------- ---------
Totaled weighted average shares
outstanding 11,312,214 11,042,997 11,229,864 11,038,248
========== ========== ========== ==========
Net earnings $4,939,000 $2,632,000 $6,832,000 $2,784,000
========== ========== ========== ==========
Earnings per share $0.44 $0.24 $0.61 $0.25
===== ===== ===== =====
Fully Diluted
------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<C> <C> <C> <C>
12,341,848 12,360,210 12,333,848 12,360,210
702,313 709,489 702,313 709,489
(2,395,295) (2,395,295) (2,395,295) (2,395,295)
721,982 368,742 721,982 373,678
588,235 588,235 588,235 588,235
---------- ---------- ---------- ----------
11,959,083 11,631,381 11,951,083 11,636,317
========== ========== ========== ==========
$4,939,000 $2,632,000 $6,832,000 $2,784,000
========== ========== ========== ==========
$0.41 $0.23 $0.57 $0.24
===== ===== ===== =====
</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 computations, the estimated amount of allowed claims,
exclusive of the contingent issuance for the holders of the
FCI Notes, totaled $111 million at June 30, 1996.
(2) In accordance with the terms of the plans of reorganization,
Fairfield has reserved, but not issued, 588,235 shares of
Common Stock for the benefit of the holders of the FCI Notes
in the event the proceeds from the sale of the collateral
securing the FCI Notes, or the value of any such collateral
not sold, is insufficient to repay the FCI Notes. <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Registrant's June 30, 1996 10-Q and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2891
<SECURITIES> 0
<RECEIVABLES> 155404
<ALLOWANCES> 14127
<INVENTORY> 43396
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 223354
<CURRENT-LIABILITIES> 0
<BONDS> 79556
0
0
<COMMON> 124
<OTHER-SE> 91483
<TOTAL-LIABILITY-AND-EQUITY> 223354
<SALES> 63263
<TOTAL-REVENUES> 69695
<CGS> 20588
<TOTAL-COSTS> 26183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2731
<INTEREST-EXPENSE> 3565
<INCOME-PRETAX> 11253
<INCOME-TAX> 4421
<INCOME-CONTINUING> 6832
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6832
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.57
</TABLE>
FAIRFIELD COMMUNITIES, INC.
10% SENIOR SUBORDINATED SECURED NOTES
OMBUDSMAN REPORT
FOR THE PERIOD ENDING
JUNE 30, 1996
PREPARED BY
HOULIHAN LOKEY HOWARD & ZUKIN
-------------------------
Date Prepared:
August 1, 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
June 30, 1996.
The Noteholders' collateral (the "Collateral") consists of
all of Fairfield's interest in its (i) Fairfield Pointe
Alexis development (excluding certain lots pledged as
Collateral to the First National Bank of Boston) located in
Tarpon Springs, Florida ("Pointe Alexis"); (ii) Harbour
Ridge joint venture in Stuart, Florida ("Harbour Ridge");
and (iii) Sugar Island joint venture in St. Croix, U.S.
Virgin Islands ("Sugar Island"). Noteholders previously had
Collateral interests in the Bald Mountain Golf Course at the
Fairfield Mountain Development ("Bald Mountain Golf Course")
until it was sold on February 9, 1993 and the Harbour Golf
Course at the Fairfield Harbour development in New Bern,
North Carolina ("Harbour Golf Course") until it was sold on
October 8, 1993.
In addition, Fairfield has reserved, but not issued, 588,235
shares of its common stock (approximately five percent of
the outstanding Fairfield common stock on a fully-diluted
basis) on behalf of the Noteholders to be issued, in whole
or part, and to the extent that the Collateral sale proceeds
are insufficient to fully repay the principal and accrued
interest on the Senior Subordinated Secured Notes
("Notes"). As of July 31, 1996, the trading price of
Fairfield's common stock was 15 1/4.
Pursuant to Fairfield's plan of reorganization, efforts are
underway to liquidate all of the Fairfield controlled
Collateral (Pointe Alexis) and to continue receipt of cash
flow distributions from Collateral consisting of Fairfield
general and limited partnership interests (Sugar Island and
Harbour Ridge). Fairfield also must maintain the Collateral
it controls until March, 1997.
Collateral proceeds during the quarter ended June 30, 1996
totaled approximately $191,450 (excluding approximately
$4,200 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
$633,951 as of June 30, 1996.
Since the effective date of Fairfield's Chapter 11 plan of
reorganization, Noteholders have received distributions
totaling approximately $14,233,508 of which $6,224,229 was
interest and $8,009,279 was principal. The remaining
principal balance outstanding as of June 30, 1996 was
$14,785,807 which amount is secured by all of the Collateral
outlined in this report (including the cash balance
mentioned above). The above principal balance has been
reduced by $19,858 for notes which were not tendered for
exchange pursuant to Fairfield's Chapter 11 plan of
reorganization.
This report will serve to more fully describe the Collateral
as well as to update the Noteholders with the respect to
both the condition and expected cash flow of all of the
remaining Collateral. <PAGE>
POINTE ALEXIS
- -----------------------------------------------------------
Fairfield Pointe Alexis is divided into two separate
developments, Pointe Alexis South and Pointe Alexis North
(Harbour Watch), both located in Tarpon Springs, Florida.
Pointe Alexis South is a Fairfield community master planned
for 271 units. As of June 30, 1996, 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.
During the quarter ended June 30, 1996, at Pointe Alexis
South, Fairfield recorded 0 lot sales and 0 lot closings
compared to 0 lot sales and 0 lot closings during the
quarter ended June 30, 1995. Total revenues at Pointe
Alexis South during the first quarter ended June 30, 1996
totaled $0 compared to $0 during the first quarter ended
June 30, 1995.
Harbour Watch shares the same location and access problems
as Pointe Alexis South, but has superior marketing
characteristics and Collateral value. Harbour Watch is a
gated community with card-controlled access. From
inception, it has been operated as a lot sale development
with no home building operations conducted by Fairfield (in
contrast to Pointe Alexis South). Lot prices generally
range from $50,000 for interior lots to $170,000 or more for
water-front lots with docks. The master plan calls for
sales of 180 lots. As of June 30, 1996, 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 the current lack of
sales activity may require sales at materially lower levels. <PAGE>
- -----------------------------------------------------------
During the quarter ended June 30, 1996, at Harbour Watch,
Fairfield recorded 0 lot sales and 0 lot closings, compared
to 1 lot sale and 0 lot closings during the quarter ended
June 30, 1995. Total revenues at Harbour Watch during the
quarter ended June 30, 1996 were $0 compared to $0 during
the quarter ended June 30, 1995.
Many of the homes which have been built are quite large and
expensive, particularly some of the water-front homes.
There is an ongoing sales effort in place with a sales
trailer at the entrance to the community. During the
quarter ending June 30, 1996, 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 $47,099
during the quarter ended June 30, 1996, 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 mentioned above, no sales activity was recorded at Pointe
Alexis South or Harbour Watch during the most recent
quarter. Based upon the lack of sales activity, it is
extremely unlikely that the lots will be sold prior to the
Scheduled Maturity Date of the Notes as of March 1, 1997 (as
defined in the Indenture to the Notes). Depending upon
certain determining events on the Scheduled Maturity Date,
as outlined in the Indenture, an auction sales format may be
required in order to quickly liquidate the remaining
properties. On an interim basis, and in response to the
slow sales activity, Fairfield has engaged Caldwell Banker
to assume control of the sales effort.
As the Ombudsman, Houlihan Lokey will continue to monitor
the spread between the sales prices and release prices and
its relationship with operating expenses and closing costs.
At its discretion, Houlihan Lokey can instruct Fairfield to
increase (up to the levels in the March 31, 1989 Indenture)
or decrease release prices as appropriate.<PAGE>
HARBOUR RIDGE
- -----------------------------------------------------------
Harbour Ridge is a for-sale luxury recreational community
located on a beautiful stretch of land fronting on the St.
Lucie River approximately one hour from the West Palm Beach
Airport in Stuart, Florida. The Collateral interest
entitles Noteholders to 35.5 percent of the net partnership
cash flow. The project 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.
The managing general partner of Harbour Ridge is Harbour
Ridge, Inc., the principals of which have years of
experience and success in the business. The homes are
attractively designed and appear well built and the project
well planned and executed. The clubhouse also is
attractively designed and is surrounded by two golf courses,
one designed by Joe Lee and the other by Pete Dye.
During the quarter ending June 30, 1996, 1 unit was sold,
leaving approximately 3 more units to be sold. A total of
693 units have been sold since the inception of the project.
The Noteholders received a distribution of approximately
$176,450 from Harbour Ridge during the quarter ending June
30, 1996. Current projections indicate that an additional
$.1 to $.3 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 now operates under a Westin Resorts name.
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.
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. <PAGE>
- -----------------------------------------------------------
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 and
other increased costs, it is unlikely that the Golf Club
will generate any cash flow during 1996.
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 Mountain 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>
