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 March 31, 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 April 30, 1996 totaled 9,946,553.
1
PART I - FINANCIAL INFORMATION
- ------ ---------------------
ITEM I - FINANCIAL STATEMENTS
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
March 31, December 31,
1996 1995
---- ----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,906 $ 2,095
Loans receivable, net 135,353 139,674
Real estate inventories 43,233 40,552
Restricted cash and escrow
accounts 8,228 8,194
Property and equipment, net 9,544 8,311
Other assets 16,196 16,692
-------- --------
$214,460 $215,518
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 79,820 $ 86,982
Deferred revenue 19,534 19,791
Accounts payable 6,390 4,556
Accrued interest 4,253 4,504
Net liabilities of assets
held for sale 2,428 2,267
Other liabilities 17,615 16,191
-------- ---------
130,040 134,291
-------- ---------
Stockholders'equity:
Common stock 124 124
Paid-in capital 53,686 52,386
Retained earnings 30,610 28,717
-------- --------
84,420 81,227
-------- --------
$214,460 $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
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1996 and 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
1996 1995
---- ----
<S> <C> <C>
REVENUES
Vacation ownership, net $18,698 $11,900
Lots, net 1,224 1,069
Resort management 3,547 3,402
Interest 4,662 4,764
Other 2,079 3,424
------- -------
30,210 24,559
------- -------
EXPENSES
Cost of sales:
Vacation ownership 4,732 3,310
Lots 254 360
Provision for loan losses 1,132 945
Selling 10,925 8,920
Resort management 3,105 3,064
General and administrative 3,322 2,900
Interest 1,856 2,275
Other 1,741 2,540
------- -------
27,067 24,314
------- -------
Earnings before provision for income taxes 3,143 245
Provision for income taxes 1,250 93
------- -------
Net earnings $ 1,893 $ 152
======= =======
NET EARNINGS PER SHARE
Primary $.17 $.01
==== ====
Fully diluted $.16 $.01
==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 11,147,513 11,033,498
========== ==========
Fully diluted 11,785,420 11,641,254
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 and 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,893 $ 152
Adjustments to reconcile net
earnings to net cash provided
by (used in) operations:
Depreciation and amortization 692 389
Utilization of pre-confirmation
income tax attributes 1,252 730
Provision for loan losses 1,132 945
Earnings from unconsolidated affiliate (88) (618)
Changes in operating assets and
liabilities:
Real estate inventories (2,473) (946)
Accounts payable and other liabilities 3,258 (1,195)
Other, net (915) (633)
-------- --------
Net cash provided by (used in)
operating activities 4,751 (1,176)
-------- --------
INVESTING ACTIVITIES
Principal collections on loans receivable 19,282 17,779
Originations of loans receivable (16,056) (13,683)
Net investment activities of net
liabilities of assets held for sale 161 5,687
Other, net (1,179) (1,617)
-------- --------
Net cash provided by investing activities 2,208 8,166
-------- --------
FINANCING ACTIVITIES
Proceeds from financing arrangements 49,627 39,481
Repayments of financing arrangements (56,741) (48,132)
Net (increase) decrease in restricted
cash and escrow accounts (34) 2,502
-------- --------
Net cash used in financing activities (7,148) (6,149)
-------- --------
Net (decrease) increase in cash
and cash equivalents (189) 841
Cash and cash equivalents,
beginning of period 2,095 13,641
-------- --------
Cash and cash equivalents, end of period $ 1,906 $ 14,482
======== ========
</TABLE>
See notes to consolidated financial statements.
4
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three
months ended March 31, 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 for the three months ended
March 31, 1996 and 1995 are summarized as follows (In
thousands):
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Vacation ownership revenues $18,303 $12,271
Less: Deferred revenue on
current year sales, net (724) (1,626)
Add: Revenue recognized on
prior year sales 1,119 1,255
------- -------
$18,698 $11,900
======= =======
</TABLE>
NOTE 2 - LOANS RECEIVABLE
- ------ ----------------
Loans receivable consisted of the following (In
thousands):
<TABLE>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Contracts $135,784 $140,810
Mortgages 13,644 13,064
-------- --------
149,428 153,874
Less allowance for loan losses (14,075) (14,200)
-------- --------
$135,353 $139,674
======== ========
</TABLE>
5
NOTE 3 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In
thousands):
<TABLE>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Land:
Under development $16,623 $17,377
Undeveloped 7,282 7,288
------- -------
23,905 24,665
------- -------
Residential housing:
Vacation ownership 16,047 13,247
Homes 3,281 2,640
------- -------
19,328 15,887
------- -------
$43,233 $40,552
======= =======
</TABLE>
NOTE 4 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In
thousands):
<TABLE>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Borrowings collateralized by
contracts receivable $52,522 $61,226
Notes payable 12,914 12,919
Revolving credit agreements 14,384 12,837
------- -------
$79,820 $86,982
======= =======
</TABLE>
At March 31, 1996, borrowings collateralized by
contracts receivable were secured by a pool of contracts
receivable totaling $69.2 million.
NOTE 5 - FAIRFIELD ACCEPTANCE CORPORATION ("FAC")
- ------ ----------------------------------------
Condensed consolidated financial information for FAC is
summarized as follows (In thousands):
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash $ 392 $ 312
Loans receivable, net 89,500 101,359
Restricted cash 2,519 2,957
Due from parent 11,997 3,187
Other assets 1,516 1,511
-------- --------
$105,924 $109,326
======== ========
LIABILITIES AND EQUITY
Financing arrangements $ 65,350 $ 70,073
Accrued interest and other
liabilities 664 688
Equity 39,910 38,565
-------- --------
$105,924 $109,326
======== ========
</TABLE>
6
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Revenues $3,959 $3,838
Expenses 1,729 2,233
------ ------
Earnings before provision for
income taxes 2,230 1,605
Provision for income taxes 885 614
------ ------
Net earnings $1,345 $ 991
====== ======
</TABLE>
NOTE 6 - NET LIABILITIES OF ASSETS HELD FOR SALE
- ------ ---------------------------------------
At March 31, 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,
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>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Collateral for FCI Notes $ 8,423 $ 8,423
Association Assets 2,764 2,901
Other 1,171 1,195
-------- --------
12,358 12,519
FCI Notes (14,786) (14,786)
-------- --------
$ (2,428) $ (2,267)
======== ========
</TABLE>
7
NOTE 7 - SUPPLEMENTAL INFORMATION
- ------ ------------------------
Other revenues for the three months ended March 31,
1996 and 1995 include cash distributions totaling $.1
million and $.6 million, respectively, related to the
Company's 35% partnership interest in Harbour Ridge, Ltd.
Also included in other revenues and other expenses for the
three months ended March 31, 1996 are home sales totaling
$1.2 million and related costs of sales, including selling
expenses, totaling $1.2 million. For the three months ended
March 31, 1995, home sales and related costs of sales,
including selling expenses, totaled $1.2 million and $1.1
million, respectively.
Included in other assets at March 31, 1996 and December
31, 1995 are (i) deferred tax assets totaling $5.0 million
for each period presented, (ii) $4.8 million and $5.1
million, respectively, related to the assets of the
Company's life insurance subsidiary and (iii) unamortized
capitalized financing costs totaling $1.6 million and $1.5
million, respectively. Included in other liabilities at
March 31, 1996 and December 31, 1995 are (i) $2.2 million
and $2.6 million, respectively, related to the liabilities
of the Company's life insurance subsidiary and (ii) accruals
totaling $4.5 million and $4.6 million, respectively,
related to the Company's employee benefits.
Interest paid totaled $2.2 million and $2.6 million for
the three months ended March 31, 1996 and 1995,
respectively.
During the three months ended March 31, 1996 and 1995,
benefits realized from the utilization of pre-confirmation
net operating loss carryforwards and recognition of pre-
confirmation deductible temporary differences of $1.3
million and $.7 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
Vacation Ownership
------------------
Gross revenues of vacation ownership interests ("VOIs")
totaled $18.3 million and $12.3 million for the three months
ended March 31, 1996 and 1995, respectively. Of this
increase, $5.1 million (85%) is attributable to increased
sales volumes at the Company's newer locations, including
off-site sales offices, and $.9 million (15%) is
attributable to increased sales volumes at the Company's
existing locations.
Net VOI revenues increased to $18.7 million for the
three months ended March 31, 1996 from $11.9 million for the
three months ended March 31, 1995. The increase in net VOI
revenues is attributable to the same factors as noted above
and the recognition of net deferred revenue of $.4 million
during the three months ended March 31, 1996, related to the
percentage of completion method of accounting, as compared
to net deferred revenue of $.4 million during the three
months ended March 31, 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
25.3% and 27.8% for the three months ended March 31, 1996
and 1995, respectively. During the three months ended March
31, 1996, the Company benefited from the sale of $2.0
million of fixed week inventory at its existing locations,
which has a lower cost basis as compared to the cost basis
at the Company's newer locations. Sales of this limited
fixed week inventory are not expected to occur to this
extent in every quarter, 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
54.5% and 68.6%, for the three months ended March 31, 1996
and 1995, respectively. The decrease in selling expenses,
as a percentage of related revenues, is primarily
attributable to anticipated efficiencies experienced at two
of 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 are expected to be realized as these
projects mature and their base of property owners expand.
Interest
--------
Interest income remained relatively level between
periods ($4.7 million for the three months ended March 31,
1996 as compared to $4.8 million for the three months ended
March 31, 1995). During the current quarter, interest
earned on short-term investments decreased $.2 million,
which was partially offset by (i) an increase in the average
balance of outstanding contracts receivable ($135.5 million
for the three months ended March 31, 1996 versus $133.2
million for the three months ended March 31, 1995) and (ii)
an increase in the weighted average stated interest rate on
the Company's contracts receivable (13.3% for the three
months ended March 31, 1996 versus 12.6% for the three
months ended March 31, 1995).
Interest expense totaled $1.9 million and $2.3 million
for the three months ended March 31, 1996 and 1995,
respectively. This decrease is primarily attributable to
the reduction in the average outstanding balance of
interest-bearing debt, resulting primarily from (i)
operating cash flow and (ii) principal
9
collections on loans receivable exceeding loan originations.
The average outstanding balance of interest bearing debt
decreased from $109.8 million for the three months ended
March 31, 1995 to $81.9 million for the three months ended
March 31, 1996. The weighted average interest rate for the
Company's financing arrangements collateralized by contracts
receivable was 8.4% and 7.9% for the three months ended
March 31, 1996 and 1995, respectively.
General and Administrative
--------------------------
General and administrative expenses increased from $2.9
million during the three months ended March 31, 1995 to $3.3
million during the three months ended March 31, 1996. This
increase resulted from the additional expenses incurred
related to the increased VOI sales volumes as previously
discussed. As of a percentage of total revenues, general
and administrative expenses decreased from 11.8% for the
three months ended March 31, 1995 to 11.0% for the three
months ended March 31, 1996.
Other
-----
Other revenues for the three months ended March 31,
1996 and 1995 include cash distributions totaling $.1
million and $.6 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. Also included in other revenues
and other expenses for the three months ended March 31, 1996
are home sales totaling $1.2 million and related costs of
sales, including selling expenses, totaling $1.2 million.
For the three months ended March 31, 1995, home and bulk
land sales and related costs of sales, including selling
expenses, totaled $1.2 million and $1.1 million,
respectively.
PROVISION FOR INCOME TAXES
During the three months ended March 31, 1996 and 1995,
benefits realized from the utilization of pre-confirmation
net operating loss carryforwards and recognition of pre-
confirmation deductible temporary differences of $1.3
million and $.7 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 decreased
slightly from December 31, 1995 to March 31, 1996. During
the three months ended March 31, 1996, the Company generated
$7.0 million in cash and cash equivalents from operating and
investing activities which was offset by the use of cash and
cash equivalents of $7.2 million in financing activities.
During the three months ended March 31, 1996, principal
collections on loans receivable exceeded loan originations
by $3.2 million which, with operating cash flow, was used to
reduce financing arrangements by $7.1 million.
At March 31, 1996, Fairfield had $1.6 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 March
31, 1996, Fairfield had borrowing availability under the FCI
Agreement of $21.9 million, net of outstanding letters of
credit totaling $1.5 million.
At March 31, 1996, FAC had borrowings outstanding of
$12.8 million under its Third Amended and Restated Revolving
Credit Agreement (the "FAC Agreement") with FNBB. The FAC
Agreement
10
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 March 31, 1996, FAC had borrowing availability of $7.1
million under the FAC Agreement.
As of March 31, 1996, the Company had incurred $1.2
million in work in progress on its new corporate office
building in Little Rock, Arkansas. The Company anticipates
the building will be completed in the fourth quarter of 1996
at a cost of approximately $6.0 million. The Company is
currently financing these costs with operating cash flow.
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 financing, including additional securitization of
contracts receivable.
FINANCIAL CONDITION
- -------------------
Total consolidated assets of the Company decreased $1.1
million from December 31, 1995 to March 31, 1996. The
decrease in assets is primarily attributable to a $4.3
million decrease in loans receivable resulting primarily
from principal collections exceeding origination of
receivables, which was partially offset by (i) an increase
of $2.7 million in real estate inventories and (ii) an
increase of $1.2 million in property and equipment. Total
consolidated liabilities of the Company decreased $4.3
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 three months
ended March 31, 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
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
-------------------
On April 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: May 7, 1996 /s/ Robert W. Howeth
----------- -----------------------------------------
Robert W. Howeth, Senior Vice President,
Chief Financial Officer
Date: May 7, 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 March
31, 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
14
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 May 2, 1996, for
the period ending March 31, 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
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
Primary
-------------------------------
Three Months Ended March 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average shares:
Shares outstanding 12,325,848 12,360,213
Estimated increase in shares
outstanding due to allowed
claims exceeding $85 million (1) 702,313 709,486
Less treasury stock (2,395,295) (2,395,295)
Net effect of dilutive warrants
based on the treasury stock method 514,647 359,094
Contingent issuance -
Holders of FCI Notes (2) - -
---------- ----------
Totaled weighted average
shares outstanding 11,147,513 11,033,498
========== ==========
Net earnings $1,893,000 $152,000
========== ========
Earnings per share $.17 $.01
==== ====
Fully Diluted
-------------------------------
Three Months Ended March 31,
-------------------------------
1996 1995
---- ----
<C> <C>
12,325,848 12,360,213
702,313 709,486
(2,395,295) (2,395,295)
564,319 378,615
588,235 588,235
---------- ----------
11,785,420 11,641,254
========== ==========
$1,893,000 $152,000
========== ========
$.16 $.01
==== ====
</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 March 31, 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 March 31, 1996 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1906
<SECURITIES> 0
<RECEIVABLES> 149428
<ALLOWANCES> 14075
<INVENTORY> 43233
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 214460
<CURRENT-LIABILITIES> 0
<BONDS> 79820
0
0
<COMMON> 124
<OTHER-SE> 84296
<TOTAL-LIABILITY-AND-EQUITY> 214460
<SALES> 23469
<TOTAL-REVENUES> 25548
<CGS> 8091
<TOTAL-COSTS> 9832
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1132
<INTEREST-EXPENSE> 1856
<INCOME-PRETAX> 3143
<INCOME-TAX> 1250
<INCOME-CONTINUING> 1893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1893
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
</TABLE>
Fairfield Communities, Inc.
10% Senior Subordinated Secured Notes
Ombudsman Report
For the Period Ending
March 31, 1996
Prepared by
Houlihan Lokey Howard & Zukin
--------------------------------------------
Date Prepared:
May 2, 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
March 31, 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 May 1, 1996, the trading price of
Fairfield's common stock was 10 3/4.
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 March 31, 1996
totaled approximately $529,350 (excluding approximately
$1,302 funded to the Noteholders' Operating Account which is
used to pay administrative expenses at Pointe Alexis). The
balance in the Noteholders' Interest Payment Account was
$1,175,685 as of March 31, 1996.
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 March 31, 1996 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 March 31, 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 March 31, 1996, at Pointe Alexis
South, Fairfield recorded 0 lot sales and 0 lot closings
compared to 2 lot sales and 0 lot closings during the
quarter ended March 31, 1995. Total revenues at Pointe
Alexis South during the first quarter ended March 31, 1996
totaled $0.00 compared to $0.00 during the first quarter
ended March 31, 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 March 31, 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 $1,748,718 although the current lack of
sales activity may require sales at materially lower levels.
<PAGE>
- ------------------------------------------------------------
During the quarter ended March 31, 1996, at Harbour Watch,
Fairfield recorded 0 lot sales and 0 lot closings, compared
to 5 lot sales and 3 lot closings during the quarter ended
March 31, 1995. Total revenues at Harbour Watch during the
quarter ended March 31, 1996 were $0.00 compared to $294,000
during the quarter ended March 31, 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 March 31, 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 $58,628
during the quarter ended March 31, 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. 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. 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 March 31, 1996, 6 units were sold,
leaving approximately 4 more units to be sold. A total of
692 units have been sold since the inception of the project.
The Noteholders received a distribution of approximately
$530,000 from Harbour Ridge during the quarter ending March
31, 1996. Current projections indicate that an additional
$.2 to $.4 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, 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 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>
