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, 1997
[ ] 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.)
11001 Executive Center Drive, Little Rock, Arkansas 72211
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (501) 228-2700
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 18, 1997 totaled 11,102,355.
PART I - FINANCIAL INFORMATION
- ------ ---------------------
ITEM I - FINANCIAL STATEMENTS
- ------ --------------------
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
1997 1996
---- ----
(Unaudited) (Note)
ASSETS
Cash and cash equivalents $ 2,894 $ 7,008
Loans receivable, net 154,530 152,069
Real estate inventories 47,914 42,284
Restricted cash and escrow
accounts 6,191 7,777
Property and equipment, net 15,275 14,527
Deferred tax assets, net 14,295 16,576
Other assets 14,216 13,558
-------- --------
$255,315 $253,799
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 63,690 $ 58,110
Deferred revenue 21,437 20,332
Accounts payable 3,787 7,171
Net liabilities of assets
held for sale - 8,293
Other liabilities 27,256 25,594
-------- --------
116,170 119,500
-------- --------
Stockholders' equity:
Common stock 134 134
Paid-in capital 92,701 91,879
Retained earnings 47,345 43,580
Unamortized value of
restricted stock (1,035) (1,294)
Treasury stock, at cost - -
-------- --------
139,145 134,299
-------- --------
$255,315 $253,799
======== ========
Note: The consolidated balance sheet at December 31, 1996
has been derived from the audited consolidated
financial statements at that date.
See notes to consolidated financial statements.
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
------------------
1997 1996
---- ----
REVENUES
Vacation ownership, net $25,193 $18,698
Lots, net 1,955 1,224
Resort management 3,706 3,104
Interest 5,429 4,662
Other 3,496 2,079
------- -------
39,779 29,767
------- -------
EXPENSES
Cost of sales:
Vacation ownership 6,371 4,732
Lots 493 254
Provision for loan losses 1,121 1,132
Selling 14,120 10,925
Resort management 3,218 2,662
General and administrative 3,946 3,322
Interest 1,203 1,856
Other 3,065 1,741
------- -------
33,537 26,624
------- -------
Earnings before provision
for income taxes 6,242 3,143
Provision for income taxes 2,477 1,250
------- -------
Net earnings $ 3,765 $ 1,893
======= =======
NET EARNINGS PER SHARE $.30 $.17
==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING 12,432,753 11,147,513
========== ==========
See notes to consolidated financial statements.
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
-------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Net earnings $ 3,765 $ 1,893
Adjustments to reconcile net
earnings to net cash
provided by operating
activities:
Depreciation 635 501
Amortization 507 191
Provision for loan losses 1,121 1,132
Other 335 (114)
Utilization of pre-confirmation
income tax attributes - 1,252
Changes in operating assets and
liabilities:
Real estate inventories (5,635) (2,473)
Deferred revenue, accounts payable
and other liabilities (770) 2,750
Other 1,442 (381)
-------- -------
Net cash provided by operating
activities 1,400 4,751
-------- -------
INVESTING ACTIVITIES
Purchases of property and
equipment, net (1,347) (1,708)
Principal collections on loans
receivable 21,834 19,282
Originations of loans receivable (25,330) (16,056)
Net investment activities of net
liabilities of assets held for sale (8,293) 161
Other - 529
-------- --------
Net cash (used in) provided by
investing activities (13,136) 2,208
-------- --------
FINANCING ACTIVITIES
Proceeds from financing arrangements 79,777 49,579
Repayments of financing arrangements (74,197) (56,741)
Issuance of Common Stock 456 48
Net decrease in restricted cash and
escrow accounts 1,586 (34)
-------- --------
Net cash provided by (used in)
financing activities 7,622 (7,148)
-------- --------
Net decrease in cash and cash equivalents (4,114) (189)
Cash and cash equivalents,
beginning of period 7,008 2,095
-------- --------
Cash and cash equivalents, end of period $ 2,894 $ 1,906
======== ========
Supplemental cash flow information:
Interest paid $1,792 $2,238
====== ======
See notes to consolidated financial statements.
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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, 1997 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, 1996.
Certain previously reported amounts in the consolidated
financial statements have been reclassified to conform to
the presentation used for the current period. All
significant intercompany balances and transactions have been
eliminated in consolidation.
NOTE 1 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- ------ ----------------------------------------------
In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings per Share, which is
required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently
used to compute earnings per share, disclose both primary
and diluted earnings per share and restate all prior
periods. Under the new requirements, primary earnings per
share will be renamed basic earnings per share and will
exclude the dilutive effect of stock options. The impact is
expected to result in an increase in primary earnings per
share for the first quarter ended March 31, 1997 and March
31, 1996 of $.04 and $.02 per share, respectively. The
impact of Statement No. 128 on fully diluted earnings per
share, which has been renamed diluted earnings per share, is
not expected to be significant.
NOTE 2 - VACATION OWNERSHIP REVENUES
- ------ ---------------------------
Vacation ownership revenues are summarized as follows
(In thousands):
Three Months Ended
March 31,
-----------------
1997 1996
---- ----
Vacation ownership revenues $ 25,253 $18,303
Less: Deferred revenue on
current year sales, net (2,179) (724)
Add: Revenue recognized
on prior year sales 2,119 1,119
------- -------
$25,193 $18,698
======= =======
NOTE 3 - LOANS RECEIVABLE
- ------ ----------------
Loans receivable consisted of the following (In
thousands):
March 31, December 31,
1997 1996
---- ----
Contracts $157,145 $154,906
Mortgages 11,000 11,413
-------- --------
168,145 166,319
Less allowance for loan (13,615) (14,250)
losses -------- --------
$154,530 $152,069
======== ========
NOTE 4 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In
thousands):
March 31, December 31,
1997 1996
---- ----
Land:
Under development $17,728 $16,196
Undeveloped 5,440 5,515
------- -------
23,168 21,711
------- -------
Residential housing:
Vacation ownership 20,914 16,765
Homes 3,832 3,808
------- -------
24,746 20,573
------- -------
$47,914 $42,284
======= =======
NOTE 5 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In
thousands):
March 31, December 31,
1997 1996
---- ----
Notes payable collateralized by
contracts receivable:
FCC Notes $27,186 $29,944
FFC Notes 19,789 24,370
Notes payable - other 3,587 3,796
Revolving credit agreements 13,128 -
------- -------
$63,690 $58,110
======= =======
At March 31, 1997, notes payable collateralized by
contracts receivable were secured by a pool of contracts
receivable totaling $70.6 million.
NOTE 6 - FAIRFIELD ACCEPTANCE CORPORATION ("FAC")
- ------ ----------------------------------------
Condensed consolidated financial information for FAC is
summarized as follows (In thousands):
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
---- ----
ASSETS
Cash $ 878 $ 462
Loans receivable, net 98,961 96,760
Restricted cash 2,412 2,622
Due from parent 2,294 -
Other assets 2,185 2,279
-------- --------
$106,730 $102,123
======== ========
LIABILITIES AND EQUITY
Financing arrangements $ 60,103 $ 54,314
Accrued interest and other
liabilities 484 586
Due to parent - 2,554
Equity 46,143 44,669
-------- --------
$106,730 $102,123
======== ========
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
------------------
1997 1996
---- ----
Revenues $3,946 $3,959
Expenses 1,521 1,729
------ ------
Earnings before provision for
income taxes 2,425 2,230
Provision for income taxes 951 885
------ ------
Net earnings $1,474 $1,345
====== ======
NOTE 7 - NET LIABILITIES OF ASSETS HELD FOR SALE
- ------ ---------------------------------------
During the first quarter of 1997, the Company
transferred $7.9 million in cash (the "Prepayment") and the
respective assets collateralizing the 10% Senior
Subordinated Secured Notes (the "FCI Notes"), with an
appraised market value of $7.2 million, in settlement of the
FCI Notes. The Company was advised that certain holders of
the FCI Notes and/or the indenture trustee contested the
Company's method of satisfying this obligation, by either
(a) disputing the Company's right to transfer the
collateral, seeking instead a cash payment of $7.2 million,
plus interest, or (b) disputing the $7.9 million cash
transfer, seeking instead the issuance of 588,235 shares of
the Company's Common Stock, previously reserved for issuance
if a deficiency resulted on the FCI Notes at maturity.
On April 18, 1997, Fairfield filed an adversary
proceeding in the Bankruptcy Court for the Eastern District
of Arkansas, Western Division (the "Bankruptcy Court"),
against IBJ Schroder Bank & Trust Company, as the trustee
under the indenture for the FCI Notes, seeking a declaratory
judgement that Fairfield's Prepayment of the FCI Notes was
proper and that the FCI Notes have been fully satisfied.
NOTE 8 - SUPPLEMENTAL INFORMATION
- ------ ------------------------
Other revenues for the three months ended March 31,
1997 and 1996 include home sales totaling $2.5 million and
$1.2 million, respectively. Other expenses for the three
months ended March 31, 1997 and 1996 include costs of home
sales, including selling expenses, totaling $2.3 million and
$1.2 million, respectively.
Included in other assets at March 31, 1997 and December
31, 1996 are (i) $3.1 million and $2.9 million,
respectively, related to the assets of the Company's life
insurance subsidiary and (ii) unamortized capitalized
financing costs totaling $2.3 million. Included in other
liabilities at March 31, 1997 and December 31, 1996 are (i)
$1.3 million and $1.5 million, respectively, related to the
liabilities of the Company's life insurance subsidiary and
(ii) accruals totaling $8.0 million and $8.9 million,
respectively, related to the Company's employee benefits.
NOTE 9 - CONTINGENCIES
- ------ -------------
In July 1993 and September 1993, two lawsuits (the
"Recreation Fee Litigation") were filed by 29 individuals
and a company against Fairfield in the District Court of
Archuleta County, Colorado. The Recreation Fee Litigation,
which seeks certification as class actions, alleges that
Fairfield and its predecessors in interest wrongfully
imposed an annual recreation fee on owners of lots,
condominiums, townhouses, VOIs and single family residences
in Fairfield's Pagosa, Colorado development. The amount of
the recreation fee, which was adopted in August 1983, is
$180 per lot, condominium, townhouse and single family
residence subject to the fee and $360 per unit for VOIs.
The Recreation Fee Litigation in general seeks (a) a
declaratory judgment that the recreation fee is invalid; (b)
the refund, with interest, of the recreation fees which were
allegedly improperly collected by Fairfield; (c) damages
arising from Fairfield's allegedly improper attempts to
collect the recreation fee (i) in an amount of not less than
$1,000 per lot in one case and (ii) in an unstated amount in
the other case; (d) punitive damages; and (e) recovery of
costs and expenses, including attorneys' fees. The court
has not yet ruled on whether or not the Recreation Fee
Litigation will be allowed to proceed as class actions.
Because of the nature of the litigation and uncertainty
concerning the time period covered by the suits'
allegations, Fairfield is unable to determine with any
certainty the dollar amount sought by plaintiffs, but
believes it to be material.
In November 1993, Fairfield filed an adversary
proceeding in the Bankruptcy Court, alleging that the
Recreation Fee Litigation violates the discharge granted to
Fairfield in its Chapter 11 bankruptcy reorganization and
the injunction issued by the Bankruptcy Court against
prosecution of any claims discharged in the bankruptcy
proceedings. By orders and opinions dated September 29,
1994, the Bankruptcy Court decided motions filed by the
plaintiffs in the Recreation Fee Litigation, in response to
Fairfield's adversary proceeding. The Bankruptcy Court
retained jurisdiction over one of the lawsuits (the Storm
lawsuit) and determined that any purchaser of a lot from
Fairfield and its predecessors prior to August 14, 1992
would be limited to a pre-confirmation cause of action. The
Bankruptcy Court determined that it did not have
jurisdiction over the second lawsuit (the Daleske lawsuit),
involving eight individuals and one company, due to prior
proceedings in the case in Colorado federal district court,
which ruled that the plaintiffs in this lawsuit had post-
confirmation causes of action, although all nine plaintiffs
are believed to have purchased their lots prior to August
14, 1992. Fairfield has appealed the Bankruptcy Court's
decision in the Daleske lawsuit, and the plaintiffs in the
Storm lawsuit have appealed the Bankruptcy Court's decision
in that case, to the District Court. The Colorado State
Court stayed further proceedings in the Recreation Fee
Litigation pending the outcome of the appeals to the
District Court. Two additional related lawsuits have also
been filed in the Archuleta County District Court, raising
similar issues and demands as the Storm and Daleske cases.
The Fiedler case, filed in October 1994, was filed
individually, while the second of these new cases, the
Lobdell case, was filed in November 1994, as a purported
class action. In February 1995, Fairfield filed an
adversary proceeding in the Bankruptcy Court against the
Fiedler and the Lobdell plaintiffs, seeking relief similar
to that requested in the Storm and Daleske adversary
proceeding. The Colorado District Court has stayed
proceedings in the Lobdell case. The Colorado District
Court entered summary judgment against Fairfield in the
Fiedler case, holding that the individual lot in question is
not subject to the recreation fee, based upon facts unique
to the Fiedler case. Fairfield has appealed the summary
judgment decision in the Fiedler case. The Bankruptcy Court
has determined, by decision dated September 18, 1995, that
it does not have jurisdiction in the Fiedler case, but also
determined that it does have jurisdiction in the Lobdell
case, based upon similar reasoning to the Storm case. Both
the Fiedler and the Lobdell cases were appealed to the
District Court. By order dated March 27, 1997, the District
Court ruled in the Daleske, Storm and Lobdell appeals,
finding in favor of the plaintiffs that the recreation fees
arising after August 14, 1992 are post-confirmation claims
and that the plaintiffs may pursue actions seeking to enjoin
Fairfield from continuing to collect such fees. Fairfield
has filed a notice of appeal from the District Court's
decision with the United States Court of Appeals for the
Eighth Circuit and certain of the plaintiffs have filed
motions in the Colorado State Court requesting that the
stays in those actions be lifted in view of the District
Court's decision.
Fairfield intends to defend vigorously the Recreation
Fee Litigation, and the two related cases, including any
attempt to certify a class in any of these cases. Fairfield
has previously implemented recreation fee charges at certain
other of its resort sites which are not subject to the
pending action.
On April 18, 1997, Fairfield filed an adversary
proceeding in the Bankruptcy Court against IBJ Schroder Bank
& Trust Company, seeking a declaratory judgement that
Fairfield's Prepayment of the FCI Notes was proper and that
the FCI Notes have been fully satisfied (see Note 7 of
" Notes to Consolidated Financial Statements").
The Company is involved in various other lawsuits and
litigation matters on an ongoing basis as a result of its
day-to-day operations. However, the Company does not
believe that any of these other or any threatened lawsuits
and litigation matters will have a materially adverse effect
on the Company's financial position or results of
operations.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
Vacation Ownership
------------------
Gross sales of vacation ownership interests ("VOIs")
increased 38% to $25.3 million for the three months ended
March 31, 1997 as compared to $18.3 million for the three
months ended March 31, 1996. Gross VOI sales at the
Company's "destination resorts" , which include Branson,
Cypress Palms (Orlando), Myrtle Beach, Nashville and
Williamsburg, continue to be the largest dollar contributor
to total VOI sales. Gross VOI sales for the three months
ended March 31, 1997 increased 39% at the Company's five
destination resorts, 41% at the Company's ten regional
resorts and 27% at the Company's three off-site sales
offices.
Net VOI revenues increased to $25.2 million for the
three months ended March 31, 1997 from $18.7 million for the
three months ended March 31, 1996. The increase in net VOI
revenues is attributable to the same factors as noted above,
which was slightly offset by net deferral of revenue of
$60,000 during the three months ended March 31, 1997 related
to the percentage of completion method of accounting, as
compared to the recognition of net deferred revenue of $0.4
million during the three months ended March 31, 1996. 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% for the each of three months ended March 31, 1997 and
1996. During the three months ended March 31, 1997 and
1996, the Company benefitted from the sale of $2.2 million
and $2.0 million, respectively, of residual fixed week
inventory at its regional resorts, which has a lower cost
basis as compared to the cost basis at the Company's
destination resorts. 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 net revenues, were
51.8% and 54.5%, for the three months ended March 31, 1997
and 1996, respectively. The Company continues to benefit
from sales efficiencies experienced at its destination
resorts including its two newer destination resorts located
in Orlando, Florida and Nashville, Tennessee. Management
continues to work to improve sales efficiencies at its newer
locations and future efficiencies are expected as these
projects mature and expand their base of property owners.
Interest
--------
Interest income increased to $5.4 million for the three
months ended March 31, 1997 as compared to $4.7 million for
the three months ended March 31, 1996. This increase is
attributable to (i) an increase in the average balance of
outstanding contracts receivable ($153.3 million for the
three months ended March 31, 1997 versus $135.5 million for
the three months ended March 31, 1996) and (ii) an increase
in the weighted average stated interest rate on the
Company's contracts receivable (13.6% for the three months
ended March 31, 1997 versus 13.4% for the three months ended
March 31, 1996). Interest income is expected to increase in
tandem with the net increase in contracts receivable.
Interest expense totaled $1.2 million and $1.9 million
for the three months ended March 31, 1997 and 1996,
respectively. This decrease is primarily attributable to
the reduction in the average outstanding balance of
interest-bearing debt ($81.9 million for the three months
ended March 31, 1996 as compared to $58.3 million for the
three months ended March 31, 1997). The weighted average
interest rate for the Company's financing arrangements
collateralized by contracts receivable, including certain
fees and expenses, was 8.7% and 8.4% for the three months
ended March 31, 1997 and 1996, respectively. Interest
expense is expected to increase in tandem with the net
increase in interest bearing debt.
General and Administrative
--------------------------
Increases in general and administrative expenses during
the three months ended March 31, 1997 resulted primarily
from the additional expenses incurred related to the
increased VOI sales volumes as previously discussed, and
increased expenses related to the Company's employee
incentive compensation/benefit plans. As of a percentage of
total revenues, general and administrative expenses
decreased from 11.2% for the three months ended March 31,
1996 to 9.9% for the three months ended March 31, 1997.
Other
-----
Other revenues for the three months ended March 31,
1997 and 1996 include home sales totaling $2.5 million and
$1.2 million, respectively. Other expenses for the three
months ended March 31, 1997 and 1996 include costs of home
sales, including selling expenses, totaling $2.3 million and
$1.2 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company decreased $4.1
million from December 31, 1996 to March 31, 1997. During
the three months ended March 31, 1997, the Company used
$13.1 million in investing activities which was offset by
$9.0 million generated from operating and financing
activities. For the three months ended March 31, 1997, loan
originations exceeded principal reductions by $3.5 million.
In the first quarter of 1997, the Company prepaid $7.9
million of outstanding indebtedness under the FCI Notes (see
Note 7 of " Notes to Consolidated Financial Statements" ) and
exercised its option, for $3.4 million, to acquire
additional land located near Orlando, Florida.
At March 31, 1997, Fairfield Capital Corporation
("FCC" ), a wholly-owned subsidiary of FAC, had borrowings
outstanding of $27.2 million under the Amended Credit
Agreement (the "FCC Agreement" ) which provides for the
purchases of contracts receivable from FAC. The FCC
Agreement provides for two additional fundings of up to a
total of $55.0 million prior to October 1997.
At March 31, 1997, Fairfield had no borrowings
outstanding under its Amended and Restated Revolving Credit
Agreement (the "FCI Agreement"). 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, 1999, if not extended in accordance
with the terms of the FCI Agreement. At March 31, 1997,
Fairfield had borrowing availability under the FCI Agreement
of $23.5 million, net of outstanding letters of credit
totaling $1.5 million.
At March 31, 1997, FAC had borrowings outstanding of
$13.1 million under its Third Amended and Restated Revolving
Credit Agreement (the "FAC Agreement"). The FAC Agreement
provides for revolving loans of up to $35.0 million,
including up to $1.0 million for letters of credit. The
revolving loans mature on January 1, 1999, 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, 1997, FAC had borrowing availability of $13.6
million under the FAC Agreement.
The Company expects to finance its short- and long-term
cash needs, including the acquisition of additional
destination locations and off-site sales offices, from (i)
contract payments generated from its contracts receivable
portfolio, (ii) operating cash flows, (iii) borrowings under
its credit facilities as described above, and (iv) future
financings, including additional securitizations of
contracts receivable.
FORWARD-LOOKING INFORMATION
- ---------------------------
This Management's Discussion and Analysis of Financial
Condition and Results of Operations, other filings by the
Company with the Securities and Exchange Commission and
other oral and written statements by the Company and its
management may include certain forward-looking statements,
including (without limitation) statements with respect to
anticipated future operating and financial performance,
growth and acquisition opportunities and other similar
forecasts and statements of expectation. Words such as
"expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," and "should," and variations of these
words and similar expressions, are intended to identify
these forward-looking statements. Forward-looking
statements made by the Company and its management are based
on estimates, projections, beliefs and assumptions of
management at the time of such statements and are not
guarantees of future performance. The Company disclaims any
obligation to update or revise any forward-looking statement
based on the occurrence of future events, the receipt of new
information, or otherwise.
Actual future performance, outcomes and results may
differ materially from those expressed in forward-looking
statements made by the Company and its management as a
result of a number of risks, uncertainties and assumptions.
Representative examples of these factors include (without
limitation) general industry and economic conditions;
interest rate trends; cost of capital and capital
requirements; availability of real estate properties;
competition from national hospitality companies; shifts in
customer demands; changes in operating expenses, including
employee wages, benefits and training; governmental and
public policy changes and the continued availability of
financing in the amounts and at the terms necessary to
support the Company's future business.
PART II - OTHER INFORMATION
- ------- -----------------
Item 1 - Legal Proceedings
Incorporated by reference. (See Note 9 of "Notes
to Consolidated Financial Statements.")
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
-------------------
None
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: April 28, 1997 /S/ Robert W. Howeth
--------------------- ------------------------------------------------
Robert W. Howeth, Senior Vice President and
Chief Financial Officer
Date: April 28, 1997 /s/ William G. Sell
--------------------- -----------------------------------------------
William G. Sell, Vice President and Controller
(Chief Accounting Officer)
FAIRFIELD COMMUNITIES, INC.
EXHIBIT INDEX
------------
Exhibit
Number
- -------
3(a) Second Amended and Restated Certificate of
Incorporation of the Registrant, effective
September 1, 1992 (previously filed with the
Registrant's Current Report on Form 8-K dated
September 1, 1992 and incorporated herein by
reference)
3(b) Fifth Amended and Restated Bylaws of the
Registrant, dated May 9, 1996 (previously filed
with the Registrant's Current Report on Form 8-K
dated May 22, 1996 and incorporated herein by
reference)
4.1 Certificate of Designation, Preferences, and
Rights of Series A Junior Participating Preferred
Stock, dated September 1, 1992 (previously filed
with the Registrant's Current Report on Form 8-K
dated September 1, 1992 and incorporated herein by
reference)
10.1 First Amendment to Amended and Restated Credit
Agreement among the Registrant, Fairfield Capital
Corporation, Fairfield Acceptance Corporation,
Triple-A One Funding Corporation and Capital
Markets Assurance Corporation as Administrative
Agent and Collateral Agent (attached)
11 Computation of earnings per share (attached)
27 Financial Data Schedule (attached)<PAGE>
FIRST AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
AND
WAIVER AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT AND WAIVER AGREEMENT ("Agreement"), dated as of
March 5, 1997, (i) amends and modifies that certain
Amended and Restated Credit Agreement, dated as of July
31, 1996 (the "Credit Agreement"), by and among Fairfield
Capital Corporation, a Delaware corporation (the
"Borrower"), Fairfield Acceptance Corporation, a Delaware
corporation in its capacity as Servicer thereunder
("Servicer or FAC"), Fairfield Communities, Inc., a
Delaware corporation ("FCI"), Triple-A One Funding
Corporation, a Delaware corporation ("Triple-A"), Capital
Markets Assurance Corporation, a New York stock insurance
company, individually and as Collateral Agent and
Administrative Agent (in such capacities, "CapMAC") and
The First National Bank of Boston, a national banking
association as L/C Bank, (in such capacity, the "L/C
Bank")and (ii) waives the application of certain
provisions contained in the Credit Agreement and that
certain Amended and Restated Receivables Purchase
Agreement, dated as of July 31, 1996 (the "Purchase
Agreement"), among FCI, FAC, Fairfield Myrtle Beach,
Inc., a Delaware corporation ("FMB") and Borrower.
WHEREAS, the parties to the Credit Agreement and
Purchase Agreement have agreed and consented to (i) make
certain clarifying and conforming changes to the Credit
Agreement and (ii) waive certain provisions contained in
the Credit Agreement and Purchase Agreement, in order to
reflect their understanding regarding the practical
application and operation of said agreements;
NOW THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to them in the
Definitions List to the Credit Agreement. The following
definitions as set forth in the Definitions List are
hereby amended and restated in their entirety to read as
follows:
"Contract Expenses" means, with respect to any
-----------------
Calculation Period, the aggregate amount of all of
the fees, costs, expenses, losses paid or accrued
during such Calculation Period or otherwise
attributed to such Calculation Period (as set forth
below):
(a) all Carrying Costs;
(b) any taxes payable by or on behalf of the
Borrower (including any imputed taxes
accrued pursuant to the terms of the Tax
Sharing Agreement); and
(c) all amounts transferred to the Spread
Account from the Collection Account in
order to fund the Spread Account
Requirement, excluding amounts transferred
to the Spread Account on the three
Settlement Dates immediately following any
Contract Grant Date as required to fund
the Spread Account Requirement as of such
Settlement Dates.
"Triple-A Loan Percentage" means for any
------------------------
Settlement Date hereunder a fraction (stated as a
percentage) equal to the quotient of (i) the
principal balance of all Triple-A Loans outstanding
as of the close of business of the Servicer on the
immediately preceding Determination Date, divided by
(ii) the Eligible Contract Pool Principal Balance
outstanding as of the close of business of the
Servicer on such Determination Date.
2. The language beginning on the ninth line of the
definition of "Pool Limit Excess" as set forth in the
Definitions List to the Credit Agreement which reads
"...(1) in the case of each of clauses (i), (ii), (iii)
and (vi) below, the Eligible Contract Pool Principal
Balance in effect at such time, and (2) in the case of
each of clauses (iv), (v) and (vii) below, the aggregate
outstanding Principal Balance of each of the Eligible
Contracts other than the 1995 Contracts..." is hereby
amended and restated to read "...(1) in the case of each
of clauses (i), (iii) and (vi) below, the Eligible
Contract Pool Principal Balance in effect at such time,
and (2) in the case of each of clauses (ii), (iv), (v)
and (vii) below, the aggregate outstanding Principal
Balance of each of the Eligible Contracts other than the
1995 Contracts:..."
3. Subparagraph (x)(ii) of Section 4.02 of the
Credit Agreement is hereby amended by adding the
following subclause (D) to the parenthetical contained
therein:
"...or (D) in the case of an original Contract which
has been removed from the Contract File for the
purpose of recording such Contract in the relevant
local real property recording office (provided such
original Contract contains the following legend
(whether by stamp or otherwise) on the face thereof:
"THIS COPY IS ONE OF TWO ORIGINALS, AND WAS
EXECUTED SOLELY FOR RECORDATION. TO THE EXTENT
THAT POSSESSION OF THIS CONTRACT IS REQUIRED TO
TRANSFER OR PERFECT A TRANSFER OF ANY INTEREST
IN OR TO THIS CONTRACT, POSSESSION OF THE OTHER
ORIGINAL HEREOF IS REQUIRED.))"
4. The third sentence of Section 5.01(n)(i) of the
Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"In addition, the Servicer shall obtain a copy of
each of the Primary Custodial Documents described
above (and entered into with an Obligor subsequent
to May 1, 1994) on microfiche, CD-Rom or other
format reasonably acceptable to the Collateral
Agent, which copy shall in each case be maintained
in a fireproof vault at a repository located outside
of the offices of the Servicer or the Borrower
(which repository shall initially be Southern Office
Services, Inc, in Little Rock, AR and which
repository shall in all cases provide an
acknowledgment in form and substance satisfactory to
the Collateral Agent to the effect that such
repository maintains an account in the name of the
Collateral Agent). Copies of Primary Custodial
Documents entered into with an Obligor prior to May
1, 1994, shall be maintained on microfiche at the
Servicer's principal offices."
5. The language beginning on the thirteenth line of
sub-paragraph (a)(x) of Section 6.01 of the Credit
Agreement which reads "...(which repository initially
shall be Central Records Services, Inc. in North Little
Rock... is hereby amended and restated to read "...(which
repository shall initially be Southern Office Services,
Inc. in Little Rock, AR...."
6. Sub-paragraph (d) of Section 6.01 of the Credit
Agreement is hereby amended to add the following sentence
to the end thereof:
"Servicer shall also provide to Collateral Agent or
L/C Bank, from time to time at their reasonable
request, a report showing the number and principal
balance of all duplicate original Contracts absent
from their related Contract File in accordance with
the exceptions set forth in subclauses (x)(B) and
(x)(D) of Section 4.02 hereof."
7. Sub-paragraph (g)(i) of Section 6.02 of the
Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"(i) an income statement for such
year and a balance sheet as of the
end of such year for the FairShare
Vacation Plan Use Management Trust,
setting forth in each case
corresponding figures from the next
preceding calendar year's annual
financial statements, all in
reasonable detail and audited by a
firm of Big "6" independent
accountants, provided that, the
-------------
financial statements for the calendar
year ended December 31, 1996 need
only set forth a corresponding
audited balance sheet for the year
ended December 31, 1995."
8. The language beginning on the ninth line of
Section 7.11(c) of the Credit Agreement which reads
"...(which Contracts shall consist of (i) all Overlapping
Contracts and (ii) other Pledged Contracts..." is hereby
amended and restated to read "... (which Contracts shall
first consist of Overlapping Contracts then, if a Pool
Limit Excess continues to exist following the release of
said Overlapping Contracts, other Pledged Contracts...."
9. Each of Triple-A, CapMAC and L/C Bank hereby
waives the application of the representation and warranty
contained in Section 4.02(x)(ii) of the Credit Agreement
(and each of Triple-A, CapMAC, the L/C Bank and FCC agree
and/or consent, as applicable, to the waiver of the
incorporation by reference of said representation and
warranty into Section 7(b) of the Receivables Purchase
Agreement) (i) to the extent said representation and
warranty relates to and would otherwise result in the
release or repurchase by FCC, FAC or FCI under the Credit
Agreement or Purchase Agreement, as applicable, of those
Contracts specifically listed on Schedule "A" attached
hereto (the "Excluded Contracts") or (ii) for any
Contract relating to a Development in North Carolina or
South Carolina for which FCI (in accordance with the
applicable laws of said states) has executed only one
original copy thereof; provided that, in the case of each
-------------
of (i) and (ii) immediately above, this waiver shall only
be effective to the extent that said Contracts otherwise
satisfy the representation and warranty contained in
Section 4.02(x)(i) of the Credit Agreement. As
consideration for said waiver, and notwithstanding any
provision contained in this Agreement, the Credit
Agreement or the Purchase Agreement, (i) each of FCI, FMB
and FAC jointly and severally agree to indemnify, defend
and hold harmless FCC and (ii) FCC agrees to indemnify,
defend and hold harmless Triple-A, CapMAC and the L/C
Bank, from and against any and all claims, losses, and
liabilities (including reasonable attorney's fees)
incurred by said parties as a result of the failure at
any time to maintain two original copies of Excluded
Contracts (or any other Contracts relating to VOIs or
Lots located in Developments in North Carolina or South
Carolina) in the related Contract File.
10. Each of Triple-A, CapMAC and the L/C Bank
hereby waives any prior default or non-compliance with
the provisions of the Credit Agreement to the extent such
default or non-compliance specifically related to or
resulted solely from the provisions being modified by
this Agreement. With respect to any all other provisions
of the Credit Agreement (i) the Borrower hereby
represents and warrants to each of Triple-A, CapMAC and
the L/C Bank that no Event of Default or Unmatured Event
of Default has occurred or is continuing and (ii) the
Servicer hereby represents and warrants to each of
Triple-A, CapMAC and the L/C Bank that no Servicer
Default or Unmatured Servicer Default has occurred or is
continuing.
11. Except as expressly provided in this Agreement,
all of the terms and conditions of the Credit Agreement
and the other Facility Documents shall remain in full
force and effect. The L/C Bank hereby acknowledges,
represents and warrants that the Letter of Credit is in
full force and effect after giving effect to this
Agreement.
12. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New
York.
13. This Agreement may be executed in any number of
counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an
original, but all of which together shall constitute one
instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
IN WITNESS WHEREOF, the parties have executed this
Agreement
as of the date first above written.
FAIRFIELD CAPITAL CORPORATION
By: /s/ Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
Title: President
FAIRFIELD ACCEPTANCE CORPORATION
By: /s/ Robert W. Howeth
--------------------------
Name: Robert W. Howeth
Title: President
FAIRFIELD COMMUNITIES, INC.
By: /s/ Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
Title: Senior Vice President
FAIRFIELD MYRTLE BEACH, INC.
By: /s/ Robert W. Howeth
----------------------------
Name: Robert W. Howeth
Title: Vice President
TRIPLE-A ONE FUNDING CORPORATION
By: Capital Markets Assurance
Corporation, its Attorney-in-Fact
By: /s/ Eric Williamson
----------------------------
Name: Eric Williamson
Title:
CAPITAL MARKETS ASSURANCE CORPORATION
By: /s/ Eric Williamson
----------------------------
Name: Eric Williamson
Title:
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Linda J. Carter
----------------------------
Name: Linda J. Carter
Title: Vice President
EXHIBIT 11
----------
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31,
---------------------------
1997 1996
---- -----
Weighted average shares:
Shares outstanding 13,384,741 12,325,848
Estimated increase in
shares oustanding due
to allowed claims
exceeding $85 million (1) 680,420 702,313
Less treasury stock (2,331,047) (2,395,295)
Net effect of dilutive
warrabts based on the
treasury stock method 698,639 514,647
---------- ----------
Totaled weighted average
shares outstanding 12,432,753 11,147,513
========== ==========
Net earnings $3,765,000 $1,893,000
========== ==========
Earnings per share $.30 $.17
==== ====
(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 remaining allowed unsecured
claims totaled $5.8 million as of March 31, 1997.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's March 31, 1997 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2894
<SECURITIES> 0
<RECEIVABLES> 168145
<ALLOWANCES> 13615
<INVENTORY> 47914
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 255315
<CURRENT-LIABILITIES> 0
<BONDS> 63690
0
0
<COMMON> 134
<OTHER-SE> 139011
<TOTAL-LIABILITY-AND-EQUITY> 255315
<SALES> 30854
<TOTAL-REVENUES> 34350
<CGS> 10082
<TOTAL-COSTS> 13147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1121
<INTEREST-EXPENSE> 1203
<INCOME-PRETAX> 6242
<INCOME-TAX> 2477
<INCOME-CONTINUING> 3765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3765
<EPS-PRIMARY> 0.3
<EPS-DILUTED> 0
</TABLE>
