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, 1999
[ ] 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.)
8669 Commodity Circle, #200, Orlando, Florida 32819
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 370-5200
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
--- ---
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of April 30, 1999 totaled 44,356,016.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page
No.
----
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Earnings for the Three Months
Ended March 31, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
ITEM I - FINANCIAL STATEMENTS
- ------ --------------------
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,175 $ 5,017
Receivables, net 207,136 202,849
Real estate inventories 129,029 128,397
Investments in and net amounts due
from qualifying special purpose entities 35,359 31,917
Property and equipment, net 29,801 30,062
Restricted cash 10,258 11,154
Other assets 23,059 21,697
-------- --------
$438,817 $431,093
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 90,539 $ 79,441
Deferred revenue 26,042 27,085
Accrued income taxes 24,992 28,157
Accounts payable 16,999 26,550
Other liabilities 46,657 47,230
-------- --------
205,229 208,463
-------- --------
Stockholders' Equity:
Common stock, $.01 par value,
100,000,000 shares authorized,
50,766,215 and 50,663,851 shares
issued as of March 31, 1999 and
December 31, 1998, respectively 508 507
Paid-in capital 121,426 120,403
Retained earnings 132,645 122,711
Treasury stock, at cost, 6,431,136
and 6,496,959 shares as of March 31,
1999 and December 31, 1998, respectively (20,991) (20,991)
-------- --------
233,588 222,630
-------- --------
$438,817 $431,093
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES
Vacation ownership interests, net $72,758 $60,205
Resort management 11,516 9,600
Interest 6,924 10,299
Net interest income and fees from qualifying
special purpose entities 4,434 398
Other 3,433 5,437
------- -------
99,065 85,939
------- -------
EXPENSES
Vacation ownership interests -
costs of units sold 19,447 16,675
Sales and marketing 35,455 28,592
Provision for loan losses 3,622 2,917
Resort management 9,304 7,702
General and administrative 7,866 7,142
Interest, net 1,612 3,624
Depreciation and amortization 2,007 1,652
Other 3,951 3,983
------- -------
83,264 72,287
Earnings before provision for income taxes 15,801 13,652
Provision for income taxes 5,867 5,247
------- -------
Net earnings $ 9,934 $ 8,405
======= =======
Basic earnings per share $0.23 $0.19
===== =====
Diluted earnings per share $0.22 $0.18
===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 43,879 44,276
====== ======
Diluted 45,275 47,113
====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 9,934 $ 8,405
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,007 1,652
Provision for loan losses 3,622 2,917
Net interest income and fees from
qualifying special purpose entities (4,434) (398)
Tax benefit from employee stock benefit plans 355 1,056
Changes in operating assets and liabilities:
Real estate inventories (632) (10,287)
Net investment activities of qualifying
special purpose entities 5,715 (757)
Deferred revenue, accounts payable
and other liabilities (14,332) (2,676)
Other (1,362) (1,913)
-------- ---------
Net cash provided by operating activities 873 (2,001)
-------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment, net (1,746) (1,446)
Principal collections on receivables 21,352 26,797
Originations of receivables (49,557) (39,058)
Sales of receivables to qualifying
special purpose entities 23,473 64,729
-------- ---------
Net cash (used in) provided
by investing activities (6,478) 51,022
-------- ---------
FINANCING ACTIVITIES
Proceeds from financing arrangements 47,407 68,725
Repayments of financing arrangements (44,209) (122,814)
Activity related to employee stock benefit plans 669 2,667
Net decrease in restricted cash 896 4,747
-------- ---------
Net cash provided by (used in)
financing activities 4,763 (46,675)
-------- ---------
Net (decrease) increase in
cash and cash equivalents (842) 2,346
Cash and cash equivalents, beginning of period 5,017 3,074
-------- ---------
Cash and cash equivalents, end of period $ 4,175 $ 5,420
======== =========
Supplemental cash flow information:
Interest paid, net of amounts capitalized $ 1,408 $ 3,898
======== =========
Income taxes paid $ 8,676 $ 2,897
======== =========
Capitalized interest $ 669 $ 139
======== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 1 - GENERAL
- ------ -------
Organization
------------
Fairfield Communities, Inc. ("Fairfield" and together with its consolidated
subsidiaries, the "Company") is one of the largest vacation ownership companies
in the United States. The Company's primary business is the sale of vacation
ownership interests ("VOIs") through its innovative points-based vacation
system, FairShare Plus. The VOIs offered by the Company consist of either
undivided fee simple interests or specified fixed week interval ownership in
fully furnished vacation units. The Company also offers financing for VOI
purchasers, which results in the creation of high-quality, medium-term contracts
receivable.
The accompanying consolidated financial statements of 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. Operating results for the three months
ended March 31, 1999 are not necessarily indicative of the results 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, 1998.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Fairfield and
its wholly owned consolidated subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain amounts
in the consolidated financial statements of prior years have been reclassified
to conform to the current year presentation.
Investments in and Net Amounts Due From Qualifying Special Purpose Entities
---------------------------------------------------------------------------
Fairfield Receivables Corporation ("FRC") and Fairfield Funding
Corporation, II ("FFC II" and together with FRC, the "QSPEs") were incorporated
in 1998 as wholly owned, qualifying special purpose subsidiaries of Fairfield
Acceptance Corporation - Nevada ("FAC - Nevada"), for the specific purpose of
purchasing contracts receivable from the Company. Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," requires that
qualifying special purpose entities, which engage in qualified purchases of
financial assets with affiliated companies, be accounted for on an
unconsolidated basis.
Sales of contracts receivable from the Company to the QSPEs occur on a
periodic basis and are recorded based on the relative fair value of the
contracts receivable sold. Fair value is estimated using discounted cash flows
at an interest rate which the Company believes a purchaser would require as a
rate of return. The Company's assumptions are based on experience with its
contracts receivable portfolio, available market data, estimated prepayments,
the cost of servicing and net transaction costs.
The Company's cumulative residual interest in the contracts receivable sold
to the QSPEs are classified as "Investments in and net amounts due from
qualifying special purpose entities" in the Consolidated Balance Sheets with
income from the residual interests reflected as "Net interest income and fees
from qualifying special purpose entities" in the Consolidated Statements of
Earnings.
<PAGE>
NOTE 2 - RECEIVABLES, NET
- ------ ----------------
Receivables consist of the following (In thousands):
<TABLE>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Contracts $192,692 $197,888
Mortgages and other 26,819 17,966
-------- --------
219,511 215,854
Less allowance for loan losses (12,375) (13,005)
-------- --------
Receivables, net $207,136 $202,849
======== ========
</TABLE>
During the three months ended March 31, 1999, the Company sold
approximately $28.2 million of contracts receivable to the QSPEs. In conjunction
with these sales, the Company received non-cash consideration, primarily in the
form of a subordinated note receivable, of $4.7 million. At March 31, 1999, the
QSPEs held contracts receivable totaling $182.0 million, with related borrowings
of $151.3 million.
Except for the repurchase of contracts that fail to meet initial
eligibility requirements, the Company is not obligated to repurchase defaulted
or any other contracts sold to the QSPEs. It is anticipated, however, that the
Company will repurchase defaulted contracts to facilitate the remarketing of the
underlying collateral. The Company maintains an allowance for loan losses in
connection with its option to repurchase the defaulted contracts and, at March
31, 1999, this allowance totaled $10.7 million and was classified in
"Investments in and net amounts due from qualifying special purpose entities" in
the Consolidated Balance Sheets.
NOTE 3 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Land and improvements $ 38,647 $ 39,814
Residential housing:
Vacation ownership 87,283 85,350
Homes 3,099 3,233
-------- --------
90,382 88,583
-------- --------
$129,029 $128,397
======== ========
</TABLE>
NOTE 4 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Revolving credit agreements $36,325 $29,181
Notes payable:
Fairfield Capital Corporation 39,945 43,574
Other 14,269 6,686
------- -------
$90,539 $79,441
======= =======
</TABLE>
At March 31, 1999, the Amended and Restated Revolving Credit Agreements
(the "Credit Agreements") provided borrowing availability of up to $80.0 million
(including up to $11.0 million for letters of credit, of which $8.6 million is
outstanding at March 31, 1999) and mature in October 2001. On April 30, 1999,
the borrowing availability under the Credit Agreements was increased to $100.0
million. Borrowings under the Credit Agreements bear interest at variable rates
ranging from the base rate minus .25% to the base rate minus .75% (weighted
average stated interest rate of 7.0% at March 31, 1999).
<PAGE>
Fairfield Capital Corporation is a wholly owned subsidiary of FAC - Nevada.
Borrowings under the Fairfield Capital Corporation credit agreement principally
mature within 44 months and bear interest at varying rates, based on commercial
paper rates (5.2% at March 31, 1999).
At March 31, 1999, notes payable - other consisted primarily of (i) $5.2
million borrowing secured by the Company's corporate office building in Little
Rock, Arkansas which matures in December 2003 and bears interest at a fixed rate
of 6.9% and (ii) a $7.9 million note payable for the Company's 10% Senior
Subordinated Secured Notes as discussed more fully in Note 8.
NOTE 5 - EARNINGS PER SHARE
- ------ ------------------
The following table sets forth the computation of basic and diluted
earnings per share ("EPS") (In thousands, except per share data):
<TABLE>
Three Months Ended
March 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income - Numerator for
basic and diluted EPS $ 9,934 $ 8,405
======= =======
Denominator:
Denominator for basic EPS -
weighted average shares 43,879 44,276
Effect of dilutive securities:
Options and warrants 1,021 2,140
Common stock held in escrow 375 607
Restricted common stock - 90
------- -------
Dilutive potential common shares 1,396 2,837
------- -------
Denominator for diluted EPS -
adjusted weighted average
shares and assumed conversions 45,275 47,113
====== ======
Basic earnings per share $.23 $.19
==== ====
Diluted earnings per share $.22 $.18
==== ====
</TABLE>
NOTE 6 - SEGMENT DISCLOSURES
- ------ -------------------
The Company, which is organized based on products and services offered,
operates one reportable segment - Vacation Ownership operations. This segment
derives its revenues from the sale of VOIs and from the associated interest
income on contracts receivable generated by the Company's financing of VOI
sales. The Company evaluates performance and allocates resources based on
operating profit before income taxes. This basis includes depreciation expense;
however, the related property and equipment are not allocated to the segment
level.
Segment revenues totaled $86.0 million and $71.8 million for the three
months ended March 31, 1999 and 1998. A reconciliation of segment operating
profit to consolidated net earnings before taxes is as follows:
<TABLE>
Three Months Ended
March 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
Total segment operating profit $23,286 $18,431
Other operating profit (7,485) (4,779)
------- -------
Consolidated net earnings before taxes $15,801 $13,652
======= =======
</TABLE>
Other operating profit includes primarily general and administrative
expenses, which are not allocated on a segment basis.
<PAGE>
NOTE 7 - SUPPLEMENTAL INFORMATION
- ------ ------------------------
Included in other assets at March 31, 1999 and December 31, 1998 are (i)
costs in excess of net assets acquired of $4.8 million and $4.9 million,
respectively, (ii) prepaid assets of $4.7 million and $4.4 million,
respectively, and (iii) unamortized capitalized financing costs totaling $2.7
million and $3.0 million, respectively.
Included in other liabilities at March 31, 1999 and December 31, 1998 are
(i) accruals totaling $17.9 million and $17.6 million, respectively, related to
the Company's employee compensation programs and related benefits, (ii) accruals
totaling $6.2 million and $6.3 million, respectively, for the fulfillment costs
associated with the Company's Discovery Vacations program, and (iii) deposits
associated with sales contracts totaling $3.4 million and $3.3 million,
respectively.
Other revenues for the three months ended March 31, 1999 and 1998 include
home sales revenue totaling $2.2 million and $3.0 million, respectively, and lot
sales revenue totaling $0.6 million and $1.2 million, respectively. Other
expenses for the three months ended March 31, 1999 and 1998 include costs of
home sales, including selling expenses, of $2.1 million and $2.6 million,
respectively, and accrued subsidies for certain property owners' associations
totaling $1.2 million and $0.5 million, respectively.
NOTE 8 - CONTINGENCIES
- ------ -------------
On May 6, 1999, the Court of Appeals for the Second Circuit (the "Court of
Appeals") issued a decision in an appeal brought by IBJ Schroder Bank & Trust
Company, as indenture trustee, in connection with litigation concerning the
Company's 10% Senior Subordinated Secured Notes (the "FCI Notes"), which matured
during the first quarter of 1997, in the principal amount of $15.1 million. At
that time, the Company transferred $7.9 million in cash (the "$7.9 Million
Payment") and the assets collateralizing the FCI Notes, with an appraised market
value of $7.2 million (the "Real Estate Collateral"), in settlement of the FCI
Notes. The indenture trustee filed suit in the United States District Court for
the Southern District of New York (the "District Court"), contesting the
Company's method of satisfying this obligation and claiming a default under the
indenture securing the FCI Notes. This action alternatively (a) disputed the
Company's right to transfer the Real Estate Collateral in satisfaction of the
FCI Notes, seeking instead a cash payment of $7.2 million, plus interest and the
fees and expenses of the action, in addition to the $7.9 Million Payment, or (b)
disputed the $7.9 Million Payment, seeking instead the issuance of 1,764,706
shares of Fairfield's Common Stock (the "Contested Shares"), previously reserved
for issuance if a deficiency resulted on the FCI Notes at maturity. Pursuant to
the indenture for the FCI Notes, the noteholders are entitled to retain, as a
premium, up to $2.0 million from the proceeds of the collateral (the
"Collateral") transferred in satisfaction of the FCI Notes (including, if
applicable, the Contested Shares) in excess of the amount of principal and
accrued interest due at maturity. The indenture trustee on September 24, 1997
filed a motion seeking to require the immediate issuance and sale of the
Contested Shares, with the proceeds to be held in escrow, pending the outcome of
the litigation (the "Injunction Demand"). The Company opposed the Injunction
Demand and requested summary judgment, asserting that the noteholders were not
entitled to any of the Contested Shares. The indenture trustee indicates that it
has sold the Real Estate Collateral for approximately $4.4 million. The District
Court on April 24, 1998 entered an order denying the Injunction Demand and
granting the Company's motion for summary judgment. The indenture trustee
appealed the District Court's order to the Court of Appeals.
The May 6, 1999 decision of the Court of Appeals reverses the District
Court decision and grants partial summary judgment to the indenture trustee,
holding that the Company's method of satisfying the FCI Notes at maturity
violated the terms of the indenture, but declining to enter the indenture
trustee's Injunction Demand. The Court of Appeals also upheld the Company's
position that the Contested Shares should not be distributed to the noteholders
without limitation, adopting the Company's view that any premium would be
limited to $2 million. The Court of Appeals remanded the case to the District
Court for further proceedings to enforce the terms of the indenture, including
specifically consideration of whether or not to enter the indenture trustee's
Injunction Demand and whether or not the sale of the Real Estate Collateral for
$4.4 million by the indenture trustee was commercially reasonable and, if not,
how this would bear upon the relief sought by the indenture trustee. The Company
intends to request that the Court of Appeals reconsider its decision granting
partial summary judgment against the Company.
The indenture is non-recourse to the Company except as to recourse to the
Collateral and except for the indenture trustee's fees and expenses, which are
fully recourse obligations. In conjunction with the decision of the Court of
Appeals, the Company recorded a $7.9 million note payable pertaining to the
disputed $7.9 Million Payment and has recorded a corresponding receivable for
the same amount. The Contested Shares are not included in the number of shares
outstanding for earnings per share or other purposes. The Company anticipates
that its
<PAGE>
exposure in this litigation, in excess of amounts accrued, at March 31, 1999 is
less than $4 million, which will be charged to operations in the event of an
adverse decision on the outstanding issues by the District Court on remand.
On March 28, 1997, a lawsuit was filed against Vacation Break in the
Circuit Court for Pinellas County, Florida by Market Response Group & Laser
Company, Inc. ("MRG&L") alleging that Vacation Break and others conspired to
boycott MRG&L and fix prices for mailings in violation of the Florida Antitrust
Act, and in concert with others, engaged in various acts of unfair competition,
deceptive trade practices and common law conspiracy. The complaint also alleges
that Vacation Break breached its contract with MRG&L, that Vacation Break
misappropriated proprietary information from MRG&L and that Vacation Break
interfered with, and caused other companies to breach their, contracts with
MRG&L. While the Company cannot calculate the total amount of damages sought by
MRG&L, it appears from the initial complaint, and subsequent submissions by
MRG&L's counsel, to be substantially in excess of $50.0 million.
The Company intends to vigorously defend this action and on June 2, 1998,
Vacation Break filed a separate action in federal District Court for the Middle
District of Florida, Tampa Division, asserting various antitrust tying and other
claims against MRG&L and related parties. On April 7, 1999, the federal District
Court denied MRG&L's motion for judgment on the pleadings, without prejudice to
MRG&L's right to refile such motion following Vacation Break's amendment of its
complaint in that action. MRG&L has asserted in the federal action similar
counterclaims as are alleged in the state court action. The court in the state
court action on December 14, 1998 issued a self-executing order that the state
court action would be stayed in the event that MRG&L's motion for judgment on
the pleadings is denied in the federal action. Under the terms of the Principal
Stockholders Agreement, entered into in connection with the acquisition of
Vacation Break, Fairfield has been indemnified for (a) 75% of the damages which
may be incurred in connection with the defense of the MRG&L litigation and (b)
25% of the expense incurred in defending the MRG&L litigation, in excess of the
June 30, 1997 reserve on Vacation Break's books, with the maximum amount of
indemnification to be $6.0 million. Such indemnification agreement has been
collateralized by, and recourse under the indemnity agreement is limited to, the
pledge of shares of Fairfield's Common Stock, valued as of December 18, 1997
(adjusted for stock splits and certain other similar items), at an
indemnification value of $21.59375 per share, and the proceeds thereof. Any
shares of Common Stock the Company receives under the indemnification agreement
will reduce the number of shares outstanding. The amount of any settlement,
adverse judgement or defense costs, in excess of amounts accrued, would be
charged to operations, notwithstanding the availability of indemnification under
the Principal Stockholders Agreement.
Certain other litigation is described in "Note 14 - Contingencies" to the
financial statements contained in the Company's 1998 annual report and reference
is made thereto for a description of such litigation. Additionally, the Company
is involved in various other claims and lawsuits arising in the ordinary course
of business. However, management believes the outcome of these other claims and
lawsuits will not have a materially adverse effect on the Company's financial
position or results of operations.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
As of March 31, 1999, the Company's operations consisted of 26 resorts
located in 11 states and the Bahamas. Of these resorts, 16 are located in
destination areas with popular vacation attractions and 10 are located in scenic
regional locations. Additionally, the Company has five destination resorts under
development, located in Sedona, Arizona; Durango, Colorado; Daytona Beach,
Florida; Las Vegas, Nevada and Gatlinburg, Tennessee.
The following table sets forth certain consolidated operating information
for the three months ended March 31, 1999 and 1998, respectively.
<TABLE>
March 31, March 31,
1999 1998
-----------------------------------------------------------------------
<S> <C> <C>
As a percentage of total revenues:
Vacation ownership interests, net 73.4% 70.0%
Resort management 11.6 11.2
Interest income 7.0 12.0
Net interest income and fees
from qualifying special purpose entities 4.5 .5
Other revenue 3.5 6.3
----- -----
100.0% 100.0%
===== =====
As a percentage of related revenues:
Cost of sales - vacation ownership interests 26.7% 27.7%
Resort management 80.8% 80.2%
Sales and marketing 48.3% 46.6%
Provision for loan losses 4.9% 4.7%
As a percentage of interest revenues:
Interest expense, net 14.2% 33.9%
As a percentage of total revenues:
General and administrative 7.9% 8.3%
Depreciation 2.0% 1.9%
Other expense 3.9% 4.6%
</TABLE>
Gross revenues from vacation ownership interests ("VOIs") increased 19.5%
to $72.1 million for the three months ended March 31, 1999 as compared to $60.4
million for the three months ended March 31, 1998. Gross VOI revenues at the
Company's destination resorts continue to be the largest dollar contributor to
total VOI sales, accounting for 81.2% and 81.6% of total VOI revenues for the
three months ended March 31, 1999 and 1998, respectively. Gross VOI revenues for
the three months ended March 31, 1999, as compared to the same period in 1998,
increased 19.0% at the Company's destination resorts, 8.1% at the Company's
regional resorts and 38.4% at the Company's off-site sales offices. Management
anticipates that these revenue growth trends will continue throughout 1999 due
to the addition of the destination resorts noted above, as well as a full year
of sales at the Company's newest destination resorts located in Pompano Beach,
Florida and Alexandria, Virginia.
Net VOI revenues increased 20.9% to $72.8 million for the three months
ended March 31, 1999 from $60.2 million for the three months ended March 31,
1998. Net VOI revenue growth trends were affected by the same factors that
impacted gross VOI revenue growth trends as well as net revenue recognition of
$0.6 million during the three months ended March 31, 1999, related to the
percentage of completion method of accounting, as compared to net revenue
deferral of $0.2 million during the three months ended March 31, 1998. Under the
percentage of completion method of accounting, the portion of revenues
attributable to costs incurred as compared to total estimated acquisition,
construction and selling expenses, is recognized in the period of sale. The
remaining revenue is deferred and recognized as the remaining costs are
incurred. The Company is currently in the development stage at certain of its
projects. Therefore, VOI sales at these projects will generate deferred revenue
as the Company completes sales at a more rapid pace than the completion of
related VOI units. At March 31, 1999, the Company had deferred revenue totaling
$7.6 million, which will be recognized upon completion of the respective VOI
units.
<PAGE>
The following table reconciles VOI sales recorded to VOI revenues
recognized for the respective periods (In thousands):
Three Months Ended
March 31,
----------------------
1999 1998
---- ----
Vacation ownership interests $72,148 $60,359
Add: Deferred revenue at beginning of period 8,225 5,225
Less: Deferred revenue at end of period (7,615) (5,379)
------- -------
Vacation ownership interests, net $72,758 $60,205
======= =======
VOI cost of sales, as a percentage of related net revenue, decreased to
26.7% from 27.7% for the three months ended March 31, 1999 and 1998,
respectively. This reduction reflects a shift from selling the remaining higher
cost fixed-week inventory acquired during the Vacation Break merger to selling
exclusively the Company's points-based inventory. Additionally, the reduction
reflects the impact of a Company-wide price increase initiated in February 1999,
which offset higher product costs at certain of the Company's destination
resorts.
Sales and marketing expenses, as a percentage of related net revenues, were
48.3% and 46.6%, for the three months ended March 31, 1999 and 1998,
respectively. This increase is due to the realization of certain benefits in
sales and marketing expenses during the three months ended March 31, 1998
related to the expiration of vacation package certificates. Management
anticipates that sales and marketing expenses, as a percentage of related net
revenues, will decline during the remainder of 1999 as the Company realizes the
benefits of its new sales and marketing programs as well as sales efficiencies
anticipated from the full integration of the marketing programs of Vacation
Break.
The provision for loan losses, as a percentage of related net revenues,
remained relatively constant for the three months ended March 31, 1999 as
compared to the same period in 1998. The Company provides for losses on
contracts receivable by a charge against earnings at the time of sale at a rate
based upon the Company's historical cancellation experience, management's
estimate of future losses and current economic factors. The allowance for
contracts receivable is maintained at a level believed adequate by management
based upon periodic analysis of the contracts receivable portfolio. Management
anticipates the provision for loan losses will remain relatively constant during
the remainder of 1999.
Resort Management
-----------------
Resort management revenues increased 20% to $11.5 million for the three
months ended March 31, 1999 from $9.6 million for the three months ended March
31, 1998. The increase in 1999 is primarily due to the expansion of the
Company's resort management services, including the sale of furnishings for VOI
units to independent resort operators and property owner associations, as well
as continued growth in the number of units under management and the fees
associated with this growth.
Interest
--------
For purposes of management's discussion of results of operations, net
interest income includes (i) interest earned from the Company's receivable
portfolio, (ii) interest expense from the Company's financing arrangements and
(iii) net interest income and fees from the Qualifying Special Purpose Entities
("QSPEs").
Net interest income increased 37.8% to $9.7 million for the three months
ended March 31, 1999, from $7.1 million for the same period in 1998. This
increase is primarily attributable to (i) an increase in the average balance of
outstanding contracts receivable ($370.7 million compared with $290.4 million
for the three months ended March 31, 1999 and 1998, respectively), (ii) an
increase in the weighted average interest rate of the Company's contract
receivable portfolio to 14.9% from 14.6% for the three months ended March 31,
1999 and 1998, respectively, and (iii) a reduction in borrowings under the
Company's revolving credit agreements due to increased utilization of QSPE
credit facilitation, which carry a lower weighted average cost of funds than the
revolving credit agreements. The QSPEs finance purchases of contracts receivable
through their commercial paper credit facilities and other financial conduits,
with $151.3 million of borrowings outstanding at March 31, 1999.
<PAGE>
The Company uses interest rate cap and swap agreements to manage the
interest rate characteristics of certain of its outstanding financing
arrangements to obtain a more desirable fixed rate basis and to limit the
Company's exposure to rising interest rates. Interest rate differentials paid or
received under the terms of the agreements of the interest rate cap and swap
agreements are recognized as adjustments of interest expense related to the
designated financing arrangements.
General and Administrative
--------------------------
General and administrative expenses, as a percentage of total revenues,
decreased to 7.9% for the three months ended March 31, 1999 from 8.3% for the
three months ended March 31, 1998. General and administrative expenses for 1999
include the additional costs associated with the operations of the Company's
executive offices in Orlando, Florida as well as those of the Company's credit
and collection functions in Las Vegas, Nevada, both of which were relocated
during the second half of 1998.
Other
-----
Other revenues for the three months ended March 31, 1999 and 1998 include
home sales revenue totaling $2.2 million and $3.0 million, respectively, and lot
sales revenue totaling $0.6 million and $1.2 million, respectively. Other
expenses for the three months ended March 31, 1999 and 1998 include cost of home
sales, including selling expenses, totaling $2.1 million and $2.6 million,
respectively, and accrued subsidies for certain property owners' associations
totaling $1.2 million and $0.5 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company's cash and cash equivalents totaled $4.2
million, a decrease of $0.8 million from December 31, 1998. Cash provided by
operating activities totaled $0.9 for the three months ended March 31, 1999
compared to cash used in operating activities of $2.0 million for the three
months ended March 31, 1998. The fluctuation in operating cash results primarily
from a decrease in real estate acquisitions and accounts payable, resulting from
the payment of construction costs in January 1999 for the Company's Myrtle Beach
property.
Cash used in investing activities totaled $6.5 million for the three months
ended March 31, 1999 compared to cash provided by investing activities of $51.0
million for the three months ended March 31, 1998. As a result of increased VOI
sales volumes and increasing levels of principal collections occurring at the
QSPE level, originations of receivables exceeded principal collections by
$28.2 million for the three months ended March 31, 1999, as compared to $12.3
million for the three months ended March 31, 1998. For the three months ended
March 31, 1999 and 1998, the Company received $23.5 million and $64.7 million,
respectively, in cash from the sale of contracts receivable to the QSPEs.
Cash provided by financing activities totaled $4.8 million for the three
months ended March 31, 1999 compared to cash used in financing activities of
$46.7 million for the three months ended March 31, 1998. During the three months
ended March 31, 1999, proceeds of financing arrangements exceeded repayments
by $3.2 million. During the three months ended March 31, 1998, repayments of
financing arrangements exceeded proceeds by $54.1 million.
Credit Facilities of the Company
--------------------------------
The Amended and Restated Revolving Credit Agreements (the "Credit
Agreements") provide borrowing availability of up to $80.0 million (including up
to $11.0 million for letters of credit). At March 31, 1999, borrowing
availability under the Credit Agreements totaled $35.0 million. On April 30,
1999, an additional $20.0 million was made available under the Credit Agreements
and will be used to finance the Company's acquisition and development of
additional vacation resorts and for the general operations of the Company.
At March 31, 1999, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC - Nevada, had outstanding borrowings of $39.9 million under
the FCC Agreement, which provides for the purchases of contracts receivable from
FAC - Nevada. There are no additional fundings available under the FCC
Agreement. At March 31, 1999, contracts receivable totaling $51.7 million
collateralized the FCC borrowings.
Credit Facilities of Qualifying Special Purpose Entities
--------------------------------------------------------
The credit facilities of the Qualifying Special Purpose Entities provide
for borrowings of approximately $200.0 million for the purchase of contracts
receivable from FAC - Nevada. At March 31, 1999, the Qualifying Special Purpose
Entities held $182.0 million of contracts receivable, with $151.3 million of
related borrowings. An
<PAGE>
additional $48.6 million of new fundings and approximately $15.0 million of
fundings to compensate for contract attrition are available under the current
credit facilities of the QSPEs.
Interest Rate Risk
------------------
The Company uses interest rate swap agreements to mitigate the impact of
fluctuations in market rates of interest. If market interest rates increased two
hundred basis points for the three months ended March 31, 1999 and 1998, the
Company's interest expense, after considering the effects of its interest rate
swap agreements, would increase, net interest income and fees from the QSPEs
would decrease and earnings before provision for income taxes would decrease by
$1.7 million and $2.1 million, respectively. These amounts are determined by
considering the impact of the hypothetical interest rates on the Company's
borrowing costs and interest rate swap and cap agreements. This analysis does
not consider the effects of the reduced level of overall economic activity that
could exist in such an environment. Further, in the event of a change of such
magnitude, management would likely take actions to further mitigate its exposure
to the change. However, due to the uncertainty of the specific actions that
would be taken and their possible effects, the sensitivity analysis assumes no
changes in the Company's financial structure.
Income Taxes
------------
The Company reports its sales of VOIs on the installment method for federal
income tax purposes. Under this method, the Company does not recognize taxable
income on VOI sales until the installment payments have been received from the
Company's customers. The Company's federal alternative minimum tax ("AMT") is
impacted by the net deferral of income resulting from the Company's election of
the installment sales method. The payment of AMT reduces the future regular tax
liability and creates a deferred tax asset. For the three months ended March 31,
1999 and 1998, the Company made AMT payments totaling $8.3 million and $2.7
million, respectively. This increase in AMT payments is due to the availability
of AMT net operating loss carryforwards during the first quarter of 1998. The
Company anticipates that it will continue to make significant AMT payments in
future periods.
Other
-----
The Company intends to continue its growth-oriented strategy and,
accordingly, may from time to time acquire additional vacation ownership
resorts, additional land upon which vacation ownership resorts may be expanded
or developed and companies operating resorts or having vacation ownership
assets, management, or sales and marketing expertise commensurate with the
Company's operations in the vacation ownership industry. The Company is
currently evaluating the acquisition of certain additional land parcels for the
expansion of existing resorts and the development of additional resorts. In
addition, the Company is also evaluating certain VOI and property management
acquisitions to integrate into or expand the operations of the Company. The
Company expects to finance its short- and long-term cash needs, including
potential acquisitions, from (i) contract payments generated from its contracts
receivable portfolio, (ii) operating cash flows, (iii) borrowings under its
credit facilities, (iv) sales of contracts receivable to the QSPEs, (v)
additional securitizations of contracts receivable and (vi) future financings
through public or private financing sources.
YEAR 2000 READINESS DISCLOSURE
As more fully described in the Company's annual report on Form 10-K for
the year ended December 31, 1998, the Company is modifying or replacing portions
of its software and certain hardware so that those systems will properly utilize
dates beyond December 31, 1999. As of March 31, 1999, the Company estimates that
it is approximately 70% complete on the internal remediation phase and expects
to complete software reprogramming and replacement by August 31, 1999. Once
software is reprogrammed or replaced for a system, the Company begins testing
and implementation. These phases run concurrently for different systems. To
date, the Company estimates that it has completed approximately 80% of its
testing and has completed approximately 75% of its implementation. Completion of
the testing phase for all significant internal systems is expected by June 30,
1999, with all remediated systems fully tested and implemented by July 31, 1999,
with 100% completion targeted for September 30, 1999.
The remediation of non-information technology equipment is not as
significant to the on-going operations of the Company as the remediation of
information technology systems. Non-information technology equipment includes
elevators at certain resort locations, heating and air conditioning systems,
alarm systems, sprinkler systems and other miscellaneous equipment. The Company
is currently in the process of evaluating its non-information
<PAGE>
technology systems and estimates that it will complete the remediation, testing
and implementation phases by September 30, 1999. The Company anticipates that
the cost, if any, of modifying non-information technology equipment will be the
responsibility of the respective property owners' association unless the resort
is operating under a developer subsidy agreement, in which case the cost will be
the Company's responsibility.
The Company's most significant third party relationship is its banking
relationship with its primary correspondent bank, due to the fact that the
Company's cash management systems interface directly with the systems of the
bank. The Company has completed its review of the interface routine between
itself and the bank and has determined that the interface applications are
currently Year 2000 compliant. Additionally, the Company has been informed by
the bank that its internal systems are currently Year 2000 compliant. The other
vendors queried by the Company either indicated that they were currently Year
2000 compliant or believed that their computerized systems would be Year 2000
compliant by the end of 1999.
The Company is not currently aware of any other third party with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity or capital resources. However, the Company has no means of ensuring
that all third parties will be Year 2000 ready. The inability of third parties
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by third parties is
not determinable.
To date, the Company has incurred costs of $0.7 million for the Year
2000 project ($0.3 million expensed and $0.4 capitalized). Management now
estimates that the total project cost will be $2.2 million which reflects an
increase of $0.2 million over the previous estimate for the replacement of
certain hardware that was not originally thought to be affected. Management's
assessment of the risks associated with the Year 2000 project and the status of
the Company's contingency plans are unchanged from that described in the 1998
annual report.
The Company's plans to complete the Year 2000 modifications are based
on management's best estimates, which are based on numerous assumptions about
future events including the continued availability of certain resources and
other factors. Estimates on the status of completion and the expected completion
dates are based on the level of effort expended to date to total expected
internal staff effort. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
The preceding Year 2000 discussion contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant information technology and non-information
technology systems, results of Year 2000 testing, adequate resolution of Year
2000 issues by businesses and other third parties who are service providers,
suppliers or customers of the Company, unanticipated system costs, the adequacy
of and ability to develop and implement contingency plans and similar
uncertainties. The forward-looking statements made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events.
FORWARD-LOOKING INFORMATION
Statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations 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.
<PAGE>
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,
including those relating to Year 2000 considerations. Representative examples of
these factors include (without limitation) general industry and economic
conditions; interest rate trends; regulatory changes; availability of real
estate properties; competition from national hospitality companies and other
competitive factors and pricing pressures; shifts in customer demands; the
Company's success, or lack thereof, to remediate, test and implement necessary
hardware and software modifications to become Year 2000 compliant; changes in
operating expenses, including employee wages, commission structures and related
benefits; economic cycles; the Company's lack of experience in certain of the
markets where it has purchased land and is developing vacation ownership
resorts; the Company's success in its ability to hire, train and retain
qualified employees; and the continued availability of financing in the amounts
and at the terms necessary to support the Company's future business.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Incorporated by reference (see Note 8 of "Notes to Consolidated
Financial Statements").
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
<PAGE>
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 11, 1999 /s/Robert W. Howeth
------------------- ---------------------------------------------
Robert W. Howeth, Senior Vice President and
Chief Financial Officer
Date: May 11, 1999 /s/William G. Sell
------------------- -----------------------------------------------
William G. Sell, Vice President and Controller
(Chief Accounting Officer)
<PAGE>
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) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (previously filed as Exhibit 4.2
to the Registrant's Form S-8, SEC File No. 333-42901, and
incorporated herein by reference)
3(c) 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 Supplemented and Restated Indenture between the Registrant,
Fairfield River Ridge, Inc., Fairfield St. Croix, Inc. and IBJ
Schroder Bank & Trust Company, as Trustee, and Houlihan Lokey
Howard & Zukin, as Ombudsman, dated September 1, 1992, related to
the Senior Subordinated Secured Notes (previously filed with the
Registrant's Current Report on Form 8-K dated September 1, 1992
and incorporated herein by reference)
4.2 First Supplemental Indenture to the Supplemented and Restated
Indenture, dated September 1, 1992 (previously filed with the
Registrant's Current Report on Form 8-K dated September 1, 1992
and incorporated herein by reference)
4.3 Second Supplemental Indenture to the Supplemented and Restated
Indenture, dated September 1, 1992 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference)
4.4 Third Supplemental Indenture to the Supplemented and Restated
Indenture, dated March 18, 1993 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993 and incorporated herein by reference)
4.5 Certificate of Designation, Preferences, and Rights of Series A
Junior Participating Preferred Stock, dated September 1, 1992
(previously filed with the Registrant's Current Report on Form
8-K dated September 1, 1992 and incorporated herein by reference)
10.1 Amendment No. 1 to Credit Agreement among Fairfield Receivables
Corporation, EagleFunding Capital Corporation, Fairfield
Acceptance Corporation - Nevada, Fairfield Communities, Inc.,
BankBoston Securities, Inc. and BankBoston, N.A. dated February
2, 1999 (attached)
10.2 Instrument of Accession among Fairfield Acceptance Corporation -
Nevada, BankBoston, N.A., a national banking association and the
other lending institutions that are or may become a party to the
Credit Agreement, and BankBoston, N.A., as agent, dated April 30,
1999 (attached)
27 Financial Data Schedule (attached)
AMENDMENT NO. 1
to
CREDIT AGREEMENT
Dated as of February 2, 1999
THIS AMENDMENT NO. 1 ("Amendment") dated as of February 2, 1999, among
FAIRFIELD RECEIVABLES CORPORATION (as Borrower), EAGLEFUNDING CAPITAL
CORPORATION, FAIRFIELD ACCEPTANCE CORPORATION - NEVADA (f/k/a FAIRFIELD
ACCEPTANCE CORPORATION (as Servicer), FAIRFIELD COMMUNITIES, INC., BANCBOSTON
ROBERTSON STEPHENS INC. (f/k/a BANCBOSTON SECURITIES INC.) (as Deal Agent) and
BANKBOSTON, N.A. (as Collateral Agent). Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the "Agreement"
referred to below.
Each of the parties hereto has consented to the proposed amendment to
the Agreement, as hereinafter set forth.
SECTION 1. Amendment to the Agreement. The Agreement is, effective as
--------------------------
of the date first written above and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof hereby amended as follows:
a) In Appendix A to the Credit Agreement, to add the definition of
Weighted Average Seasoning:
"Weighted Average Seasoning" means, with respect to any Determination Date,
--------------------------
the fraction (stated as a number of months) equal to
(i) the sum, across all Pledged Contracts, of the product of (x) the
number of [whole calendar] months which have elapsed since the
origination of each such Pledged Contract and (y) the Principal
Balance of such Pledged Contract then in effect,
divided by
(ii) the sum of the Principal Balances then in effect of all such
Pledged Contracts.
b) In Section 10.01 (n) to delete such section in its entirety and to
replace it with the following:
<PAGE>
If, as of any Determination Date, either (i) the Weighted Average
Seasoning of Pledged Contracts is less than or equal to 30 months, and
the fraction (stated as a percentage) of the sum of Default Percentages
for the three most recently concluded Calculation Periods divided by
three exceeds [2.25%] or (ii) the Weighted Average Seasoning of Pledged
Contracts is greater than 30 months, and the fraction (stated as a
percentage) of the sum of Default Percentages for the three most
recently concluded Calculation Periods divided by three exceeds
[1.75%].
SECTION 2. Conditions Precedent. This Amendment shall become effective
--------------------
as of February 4, 1999 upon receipt by the Deal Agent or its counsel of
(a) counterpart signature pages of this Amendment, executed by each of
the parties hereto;
(b) written confirmation from each of the rating agencies then rating
the Commercial Paper notes at the request of the Borrower and the
Administrator that the rating of the Commercial Paper Notes would not, as a
result of the effectiveness of this Amendment, be reduced or withdrawn).
SECTION 3. Covenants, Representations and Warranties of the Borrower.
---------------------------------------------------------
(a) Upon the effectiveness of this Amendment, the Borrower hereby (i)
reaffirms all covenants, representations and warranties made by it in the
Agreement to the extent the same are not amended hereby, (ii) agrees that all
such covenants, representations and warranties shall be deemed to have been
re-made as of the effective date of this Amendment, and (iii) represents and
warrants that no Event of Default which has not been waived or cured, or event
which with the giving of notice or the passage of time or both would constitute
an Event of Default which has not been waived or cured, is in effect or is
continuing.
(b) The Borrower hereby represents and warrants that this Amendment
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
SECTION 4. Reference to and Effect on the Credit Agreement
-----------------------------------------------
(a) Upon the effectiveness of this Amendment, (i) each reference in the
Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like
import shall mean and be a reference to the Agreement, as amended hereby, and
(ii) each reference to the Agreement in any other Facility Document, or any
other document, instrument or agreement executed and/or delivered in connection
therewith, shall mean and be a reference to the Agreement as amended hereby.
(b) Except as specifically amended above, the terms and conditions of
the Agreement, of all other Facility Documents and of any other documents,
instruments and
<PAGE>
agreements executed and/or delivered in connection therewith, shall remain in
full force and effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of EagleFunding, the Deal
Agent or the Collateral Agent under the Agreement or any other Facility Document
or any other document, instrument or agreement executed in connection therewith,
nor constitute a waiver of any provision contained therein, in each case except
as specifically set forth herein.
SECTION 5. Execution in Counterparts. This Amendment may be executed in any
-------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
SECTION 6. Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
SECTION 7. Headings. Section headings in this Amendment are included herein
--------
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
EAGLEFUNDING CAPITAL CORPORATION
By: BancBoston Roberton Stephens Inc. (formerly
known as BancBoston Securities Inc.),
as its attorney-in-fact
By: /s/Amy S. Roberts
---------------------------------------
Title: Director
------------------------------------
The Collateral Agent
--------------------
BANKBOSTON, N.A. (formerly known as
The First National Bank of Boston)
By: /s/Amy S. Roberts
-------------------------------------
Title: Director
-----------------------------------
<PAGE>
The Borrower
------------
FAIRFIELD RECEIVABLES CORPORATION
By: /s/ Ralph E. Turner
---------------------------------
Title: President
-----------------------------
The Servicer
------------
FAIRFIELD ACCEPTANCE CORPORATION-
NEVADA (f/k/a FAIRFIELD ACCEPTANCE
CORPORATION)
By: /s/ Ralph E. Turner
--------------------------------
Title: President
-----------------------------
FAIRFIELD COMMUNITIES, INC.
By: /s/ Robert W. Howeth
--------------------------------
Title: Senior Vice President
-----------------------------
INSTRUMENT OF ACCESSION
Dated as of April 30, 1999
Reference is hereby made to the Amended and Restated Revolving Credit
Agreement dated as of January 15, 1998 (as heretofore and from time to time
amended and in effect, the "Credit Agreement"), by and among FAIRFIELD
ACCEPTANCE CORPORATION-NEVADA (successor by merger to Fairfield Acceptance
Corporation), a Nevada domiciled Delaware corporation (the "Borrower"),
BANKBOSTON, N.A., a national banking association and the other lending
institutions that are or may become a party to the Credit Agreement (the
"Banks"), and BANKBOSTON, N.A., as agent for the Banks (the "Agent").
Capitalized terms used herein and not otherwise defined that are defined in the
Credit Agreement shall have the meanings assigned to such terms in the Credit
Agreement.
Pursuant to the terms of Section 19.1(b) of the Credit Agreement, the
Borrower, the Agent and Union Bank of California, N.A. (the "Acceding Bank")
hereby agree as follows:
1. Subject to the terms and conditions of this Instrument of Accession,
the Acceding Bank hereby agrees to assume, without recourse to the Banks or the
Agent, on the Effective Date (as defined below), a Commitment of $20,000,000 in
accordance with the terms and conditions set forth in the Credit Agreement. Upon
such assumption, the Total Commitment shall be automatically increased by the
amount of such assumption. The Acceding Bank hereby agrees to be bound by, and
hereby requests the agreement of the Borrower and the Agent that the Acceding
Bank shall be entitled to the benefits of, all of the terms, conditions and
provisions of the Credit Agreement as if the Acceding Bank had been one of the
lending institutions originally executing the Credit Agreement as a "Bank";
provided that nothing herein shall be construed as making the Acceding Bank
liable to the Borrower or the other Banks in respect of any acts or omissions of
any party to the Credit Agreement or in respect of any other event occurring
prior to the Effective Date (as defined below) of this Instrument of Accession.
2, The Acceding Bank (a) represents and warrants that (i) it is duly
and legally authorized to enter into this Instrument of Accession, (ii) the
execution, delivery and performance of this Instrument of Accession do not
conflict with any provision of law or of the charter or by-laws of the Acceding
Bank, or of any agreement binding on the Acceding Bank, (iii) all acts,
conditions and things required to be done and performed and to have occurred
prior to the execution, deliver and performance of this Instrument of Accession,
and to render the same the legal, valid and binding obligation of the Acceding
Bank, enforceable against it in accordance with its terms, have been done and
performed and have occurred in due and strict compliance with all applicable
laws; (b) confirms that it has received a copy of the Credit Agreement, together
with copies of the most recent financial statements delivered pursuant to
ss.ss.7.4 and 8.4 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Instrument of Accession; (c) agrees that it will, independently and without
reliance upon the Banks or the Agent and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit Agreement; (d)
represents and warrants that it is an Eligible Assignee; (e) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement and the other Loan Documents as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; (f) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank; and acknowledges that it
has made arrangements with the Agent satisfactory to the Acceding Bank with
respect to its pro rata share of Letter of Credit Fees in respect of outstanding
Letters of Credit.
3. The Acceding Bank hereby requests that the Borrower issue a new
Revolving Credit Note payable to the order of the Acceding Bank in the principal
amount of $20,000,000. In the event the Acceding Bank is also a Bank party to
the Credit Agreement immediately prior to the Effective Date of this Instrument
of Accession, such Acceding Bank agrees to deliver to the Borrower, as soon as
reasonably practicable after the Effective Date the Revolving Credit Note held
by it prior to the issuance of the new Revolving Credit Note, marked
"Cancelled".
4. The effective date for this Instrument of Accession shall be April
30, 1999 (the "Effective Date"). Following the execution of this Instrument of
Accession by the Borrower and the Acceding Bank, it will be delivered to the
Agent for acceptance. Upon acceptance by the Agent, Schedule 1 to the Credit
Agreement shall thereupon be replaced as of the Effective Date by the Schedule 1
annexed hereto. The Agent shall thereafter notify the other Banks of the revised
Schedule 1.
5. Upon such acceptance, from and after the Effective Date, the
Borrower shall make all payments in respect of the Commitment of the Acceding
Bank (including payments of principal, interest, fees and other amounts) to the
Agent for the account of the Acceding Bank.
6. THIS INSTRUMENT OF ACCESSION IS INTENDED TO TAKE EFFECT AS AN
INSTRUMENT UNDER SEAL AND SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
7. This Instrument of Accession may be executed in any number of
counterparts which shall together constitute but one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, each of the
undersigned has caused this Instrument of Accession to be executed on its behalf
by its officer thereunto duly authorized, to take effect as a sealed instrument
as of the date first above written.
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Michael D. Beauprie'
--------------------------------
Title: Vice President
----------------------------
FAIRFIELD ACCEPTANCE CORPORATION-NEVADA
By:/s/Ralph E. Turner
---------------------------------
Title: President
------------------------------
BANKBOSTON, N.A., as Agent
By:/s/Lori Litow
--------------------------------
Title: Vice President
-----------------------------
<PAGE>
SCHEDULE 1
Banks and Commitment
Name and Address Commitment
of Banks Percentage Commitment
BankBoston, N.A.
100 Federal Street
Boston, MA 02110 50% $40,000,000
Union Bank of
California, N. A.
445 South Figueroa Street, 15th
Floor 25% $20,000,000
Los Angeles, CA 90071
First Massachusetts Bank,
National Association
99 West Street
Pittsfield, MA 01201 12.5% $10,000,000
Sovereign Bank
10 Weybosset St., Suite 905
Providence, RI 02903
12.5% $10,000,000
----- -----------
TOTAL 100% $80,000,000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's March 31, 1999 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000276189
<NAME> Fairfield Communities, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1,000
<CASH> 4,175
<SECURITIES> 0
<RECEIVABLES> 219,511
<ALLOWANCES> 12,375
<INVENTORY> 129,029
<CURRENT-ASSETS> 0
<PP&E> 49,124
<DEPRECIATION> 19,323
<TOTAL-ASSETS> 438,817
<CURRENT-LIABILITIES> 0
<BONDS> 90,539
0
0
<COMMON> 508
<OTHER-SE> 233,080
<TOTAL-LIABILITY-AND-EQUITY> 438,817
<SALES> 84,274
<TOTAL-REVENUES> 87,707
<CGS> 28,751
<TOTAL-COSTS> 32,702
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,622
<INTEREST-EXPENSE> 1,612
<INCOME-PRETAX> 15,801
<INCOME-TAX> 5,867
<INCOME-CONTINUING> 9,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,934
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.22
</TABLE>
