UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _______
Commission File Number: 1-8096
FAIRFIELD COMMUNITIES, INC.
(Exact name of registrant as specified in its Charter)
Delaware 71-0390438
(State of incorporation) (I.R.S. Employer Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value New York
Preferred Stock Purchase Rights New York
with respect to Common Stock,
$.01 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 29, 2000, the number of shares of the registrant's Common
Stock outstanding was 44,667,622 and the aggregate market value of the
registrant's Common Stock held by non-affiliates totaled approximately $375.2
million.
Documents Incorporated by Reference: Parts I, II and III of this Form 10-K
incorporate certain information by reference from the registrant's Annual Report
to Stockholders for the year ended December 31, 1999 and the Proxy Statement to
be issued in connection with its 2000 Annual Meeting of Stockholders.
<PAGE>
INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
----
PART I
------
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 9
Item 4. Submission of Matters to a Vote of Security Holders........... 9
PART II
-------
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters.................................. 10
Item 6. Selected Financial Data....................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 10
Item 8. Financial Statements and Supplementary Data................... 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................... 10
PART III
--------
Item 10. Directors and Executive Officers of the Registrant............ 10
Item 11. Executive Compensation........................................ 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................ 11
Item 13. Certain Relationships and Related Transactions................ 11
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................... 11
<PAGE>
PART I
------
Item 1. BUSINESS
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General
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Fairfield Communities, Inc. ("Fairfield", and together with its
consolidated subsidiaries, the "Company") is one of the largest vacation
ownership companies in the United States in terms of property owners, vacation
units constructed and revenues from sales of vacation ownership interests. The
Company markets vacation products and manages resort properties that provide
quality recreational experiences to its more than 278,000 property owners. At
December 31, 1999, the Company's portfolio of resorts consisted of 33 resorts
located in 12 states and the Bahamas. Of those resorts, which are in various
stages of development, 23 are located in destination areas with popular vacation
attractions and 10 are located in scenic regional locations. During 1999, the
Company began sales operations on a start-up basis at its six newest destination
resorts to be developed in Sedona, Arizona; Durango, Colorado; Daytona Beach,
Florida; Destin, Florida; Las Vegas, Nevada and Gatlinburg, Tennessee.
The operations of the Company consist of (i) sales and marketing of
vacation ownership interests at its resort locations and off-site sales centers,
which entitle the purchaser to use a fully furnished vacation home at the
Company's resort locations, (ii) acquiring, developing and operating vacation
ownership resorts, (iii) providing consumer financing to individual purchasers
for the purchase of vacation ownership interests and (iv) providing property
management services for which it receives fees paid by the respective property
owners' associations.
The Company's primary business is the sale of vacation ownership interests
through its innovative points-based vacation system, FairShare Plus. The
vacation ownership interests offered by the Company consist of either undivided
fee simple interests or specified fixed week interval ownership in fully
furnished vacation homes. The vacation ownership interests are typically in
resort locations that feature one or more amenities such as swimming pools,
restaurants, and access to golf courses, marinas, beaches, tennis courts or
other recreational facilities.
The Company offers financing to the purchasers of vacation ownership
interests, which results in the creation of high-quality, medium-term contracts
receivable. The Company initially holds these contracts receivable and will
either securitize them or sell them to its special purpose finance entities.
During 1998, the Company initiated a program whereby it sells contracts
receivable to its two special purpose entities, which are wholly owned but
unconsolidated subsidiaries of Fairfield Acceptance Corporation - Nevada, a
wholly owned subsidiary of Fairfield. Due to favorable interest rates available
through the credit facilities of the special purpose entities, the Company
intends to sell contracts receivable to these entities until such time as these
credit facilities are fully utilized. Additionally, this will also provide the
Company with additional borrowing availability under its existing credit
facilities. At December 31, 1999, the Company's contracts receivable portfolio
totaled $225.1 million, with outstanding borrowings of $39.6 million
collateralized by the contracts receivable. At December 31, 1999, the contracts
receivable portfolio had a weighted average maturity of approximately five
years, a weighted average interest rate of 14.0% and a weighted average funding
cost on the associated debt of 6.4%. At December 31, 1999, borrowing
availability under the Company's financing arrangements totaled $80.6 million.
The Company serves as property manager at most of its resorts, allowing it
to maintain close contact with the owners of vacation ownership interests and to
ensure that the quality of the resorts is well maintained. In addition, by being
the on-site manager at its resorts and other resorts, the Company is presented
with additional sales and marketing opportunities to the persons using the
resorts.
The Company operates one reportable business segment, which includes the
marketing, sales and financing of its vacation ownership resorts. The revenues
in this segment are derived from the sale of
<PAGE>
vacation ownership interests and from the associated interest income on
contracts receivable generated by the Company's financing of vacation ownership
interests. See Note 11 of "Notes to Consolidated Financial Statements".
Fairfield was incorporated in Delaware in 1969. The Company's principal
executive office is located at 8669 Commodity Circle, #200, Orlando, Florida
32819, and its telephone number is (407) 370-5200. At December 31, 1999, the
Company had approximately 5,500 full-time employees.
Mergers and Acquisitions
------------------------
In 1997, Fairfield acquired all of the outstanding common stock of Vacation
Break U.S.A., Inc. in exchange for approximately 10.6 million shares of the
Company's Common Stock. The merger was accounted for as a pooling of interests
and, accordingly, all prior period financial information was restated as if the
merger took place at the beginning of the earliest period presented.
Additionally, in 1997, Fairfield acquired the remaining 45% minority interests
in Vacation Break's joint ventures in the Palm Aire and Royal Vista resorts for
$13.5 million in cash. These acquisitions have been accounted for as purchases
and the results of operations of these resorts have been included in the
consolidated financial statements from the date of acquisition.
Item 2. PROPERTIES
- ------ ----------
The Company's objective is to be a leading provider of innovative,
high-quality vacation experiences in the vacation ownership industry to the
broadest spectrum of households throughout the United States. To capitalize on
its innovative FairShare Plus vacation system and to achieve its objective,
Fairfield has placed an emphasis on acquiring and developing resort properties
in destination locations. These resorts are in areas with well-known attractions
and large tourist populations. The advantage of focusing on sites in destination
locations is the reduced need for developing large-scale amenities to attract
vacationers which decreases developmental risks and expenses. Furthermore, large
populations of prospective customers continually pass through these areas,
making them prime locations for the Company to operate on-site sales offices
that showcase the Company's resort property portfolio.
The Company's array of other resorts offers a variety of vacation
experiences which are intended to meet the different lifestyles and vacation
needs of its existing and potential customer base. The Company's resort sites
vary in size from several acres to over 18,000 acres. The Company's properties
are generally unencumbered as the Company has historically financed its
operations through borrowings which utilize its contracts receivable portfolio
as its primary form of collateral. The following summary sets forth certain
information as of December 31, 1999 regarding the Company's more significant
resorts.
Property Portfolio - Destination Resorts
------------------ -------------------
FAIRFIELD BRANSON
Branson, MO - Fairfield Branson at the Falls, Fairfield's original Branson
development, is complete and has 54 units. The second Branson development,
Fairfield Branson at the Meadows, has 208 units completed and 24 units under
construction out of a planned 326 units. Amenities at Fairfield Branson at the
Meadows include indoor and outdoor swimming pools, health club and clubhouse.
FAIRFIELD MYRTLE BEACh
Myrtle Beach, SC - Fairfield Westwinds, Fairfield's first Myrtle Beach
resort is a 10-story, 82 unit beachfront tower. Fairfield's second Myrtle Beach
resort, Fairfield SeaWatch Plantation, is a 10 acre beachfront property with a
planned 225 units. Fairfield SeaWatch Plantation currently has 156 completed
units and 69 units under construction. Amenities at Fairfield Seawatch
Plantation include two indoor and four outdoor pools.
<PAGE>
FAIRFIELD NASHVILLE AT MUSIC CITY, USA
Nashville, TN - Fairfield Nashville is located on 19 acres, adjacent to the
Opryland Hotel complex. Fairfield Nashville has 158 units completed and 32 units
under construction out of a planned 254 units. Amenities at Fairfield Nashville
include indoor and outdoor swimming pools, health club and clubhouse.
FAIRFIELD ORLANDO AT CYPRESS PALMS
Kissimmee, FL - Fairfield Orlando at Cypress Palms has 210 units completed
and 20 units under construction. When completed, the resort will include 244
units, an activity/recreation building and two outdoor pools.
PORT LUCAYA RESORT & YACHT CLUB
Freeport, Grand Bahama - Port Lucaya Resort & Yacht Club is a resort
50%-owned by the Company consisting of 160 hotel rooms and suites. The resort,
situated on 5 acres, features a full-service marina, a restaurant, swimming
pool, bar area and several other amenities.
THE FAIRWAYS OF PALM AIRE
Pompano Beach, FL - The Fairways of Palm Aire has a total of 208 units.
Upon completion, the resort will have 398 units. The resort features a health
spa, swimming pools, a restaurant and banquet facilities as well as access to
adjacent golf courses.
ROYAL VISTA RESORT
Pompano Beach, FL - Royal Vista Resort, is located on beachfront property
and consists of 99 units. On-site amenities include a health club and two
beachfront swimming pools.
SANTA BARBARA RESORT AND YACHT CLUB
Pompano Beach, FL - Santa Barbara Resort and Yacht Club consists of 90
units and features a swimming pool, banquet facilities, as well as dockage on
the Spanish River and close access to the Atlantic Ocean.
SEA GARDENS BEACH AND TENNIS RESORT
Pompano Beach, FL - Sea Gardens Beach and Tennis Resort contains 217 units
and includes 250 feet of beachfront property. The resort features 4,000 square
feet of banquet facilities, four swimming pools, seven tennis courts, a
restaurant and a beachfront activity center.
FAIRFIELD ORLANDO AT STAR ISLAND
Orlando, FL - Fairfield Orlando at Star Island has 163 units completed. The
resort features a swimming pool, tennis courts, a health club and a children's
playground. Construction of an additional 48 units began in the first quarter of
2000, with completion scheduled in the first quarter of 2001.
FAIRFIELD WASHINGTON, D.C.
Alexandria, VA - Fairfield Washington, D. C. is located in downtown
Alexandria, adjacent to the Kings Street Station metro terminal. Construction of
this resort was completed in the fourth quarter of 1999 and contains 88 units.
FAIRFIELD WILLIAMSBURG
Williamsburg, VA - Fairfield Williamsburg is located 10 miles from
Jamestown, the first English-speaking settlement in North America, and 15 miles
from Yorktown, where the last battle of the American Revolution was fought.
Fairfield Williamsburg at Patriot's Place, Fairfield's original Williamsburg
development, has 196 units. Fairfield Williamsburg at Kingsgate, Fairfield's
second Williamsburg location, has 278 completed units and 22 units under
construction. Fairfield began development at its third Williamsburg location,
Governor's Green, in the first quarter of 2000, with the first 12 units
scheduled to
<PAGE>
be completed in the fourth quarter of 2000. Anticipated development includes
construction of 350 units, swimming pools and a nine hole golf course.
Property Portfolio - Regional Resorts
- -------------------------------------
FAIRFIELD BAY
Fairfield Bay, AR - Fairfield Bay contains 217 units in the Ozark foothills
and offers golf and a lighted 10-court tennis center. The Ozark National Forest
is nearby and offers hiking, camping and other outdoor activities. Fairfield Bay
is located on the 40,000-acre Greers Ferry Lake, which has over 300 miles of
shoreline.
FAIRFIELD FLAGSTAFF
Flagstaff, AZ - Fairfield Flagstaff has 125 units and is approximately 80
miles from the Grand Canyon and 25 miles from Sedona. Nearby Arizona Snowbowl
offers a sky-ride in the summer, as well as downhill and cross-country skiing in
the winter. The resort offers swimming, golf, tennis and horseback riding.
FAIRFIELD GLADE
Fairfield Glade, TN - Fairfield Glade contains 362 units and offers one
27-hole and three 18-hole golf courses. Horseback riding, indoor and outdoor
swimming pools and tennis courts are available to vacationers. The resort is
surrounded by 12 lakes and nearby attractions include the Fall Creek Falls and
Cumberland Mountain State Parks and the Great Smoky Mountains National Park.
HARBORTOWN POINT
Ventura, CA - Harbortown Point is located in Ventura Harbor between Santa
Barbara and Los Angeles and has 57 units. In addition to the public beaches and
water activities surrounding the resort, on-site facilities include a heated
swimming pool and two glass-enclosed whirlpools. Channel Island National Park,
the only aquatic national park in the continental United States, is just beyond
the resort's docks.
FAIRFIELD HARBOUR
New Bern, NC - Fairfield Harbour has 207 units and is surrounded by
historic towns and attractions, such as Bath, incorporated in 1705 as the
state's first town. Recreational activities at Fairfield Harbour include golf,
indoor and outdoor pools, whirlpool spa, exercise room with sauna, miniature
golf, playground and community center. A full service marina can accommodate
vessels up to 60 feet in length and provides boat rentals and fishing cruises.
FAIRFIELD MOUNTAINS
Lake Lure, NC - Fairfield Mountains has 215 units amid the Blue Ridge
Mountains, 45 miles east of Asheville, North Carolina. Lake Lure and Bald
Mountain Lake both offer fishing, as well as boating and private beaches. The
Bald Mountain and Apple Valley golf courses are open year-round.
FAIRFIELD OCEAN RIDGE
Edisto Island, SC - Fairfield Ocean Ridge, located 45 miles from
Charleston, South Carolina, has 190 units completed, 8 units under construction,
with an additional 30 units planned. Recreational activities at Fairfield Ocean
Ridge include golf, tennis courts and outdoor swimming pools.
<PAGE>
FAIRFIELD PAGOSA
Pagosa Springs, CO - Fairfield Pagosa, located 60 miles from Durango,
Colorado, is an 18,000 acre resort with five lakes on the property and is
bordered by two-and-a-half million acres of national forest and wilderness.
Recreational activities at Fairfield Pagosa include 27 holes of golf, tennis
courts and indoor and outdoor pools. The site currently has 228 units completed,
24 units under construction, with an additional 54 units planned.
FAIRFIELD PLANTATION
Villa Rica, GA - Fairfield Plantation is a 2,400 acre resort which is
located 45 miles west of Atlanta, Georgia. The resort has 80 units. Recreational
activities at Fairfield Plantation include an 18 hole golf course, fishing on
three lakes, a private beach and three outdoor swimming pools.
FAIRFIELD SAPPHIRE VALLEY
Sapphire, NC - Fairfield Sapphire Valley currently has 194 units completed
with four units under construction and another four units planned. The resort
lies in the foothills of the Blue Ridge Mountains, 60 miles southwest of
Asheville, North Carolina. The Pisgah National Forest and Great Smoky Mountains
National Park are nearby and offer backpacking and other outdoor activities.
Recreational activities at Fairfield Sapphire Valley include golf, fishing,
white-water rafting and skiing in the winter months.
Property Portfolio - Resorts Under Development
----------------------------------------------
During 1999, the Company began sales operations on a start-up basis at its
six newest destination resorts. These resorts are in various stages of
development and the exact number of vacation ownership units ultimately
constructed may differ from the following estimates based on future land
planning, zoning and site layout considerations.
. Sedona, Arizona - This development includes 20 acres and is planned to
include 64 units. Construction of the first 16 units was completed in
the first quarter of 2000.
. Durango, Colorado - This development includes 20 acres and is planned
to include 104 units. Construction of the first 16 units is
anticipated to begin in the third quarter of 2000, with completion
scheduled in the second quarter of 2001.
. Daytona Beach, Florida - Development plans for this 19-story
oceanfront resort includes 124 units. Construction of this resort
began in 1999, with completion scheduled in the first quarter of 2001.
. Las Vegas, Nevada - This development includes seven acres located two
blocks from Las Vegas Boulevard, near the MGM Grand Hotel and Casino.
The Company plans phased construction of one 13-story and one 17-story
building, with an estimated 184 units available at the conclusion of
the first phase and 416 units available upon completion. Construction
of the first phase began in the first quarter of 2000, with completion
of the first phase scheduled in the second quarter of 2001.
. Gatlinburg, Tennessee - This development includes 15 acres near the
Great Smokey Mountains National Park and is planned to include 208
units. Construction of the first 40 units began in 1999, with
completion scheduled in the second quarter of 2000. Additionally, the
Company has an option to build additional 48 units on five acres of
adjoining land.
. Destin, Florida - During 1999, the Company acquired 726 intervals of
existing inventory at two operating vacation ownership properties and
also purchased land for the development of an additional 30 units at
one of the properties. Additionally, the Company entered into a
contract to purchase 68 oceanfront units at a new resort, with
completion scheduled in the third quarter of 2000.
<PAGE>
Corporate Office Locations
- --------------------------
The Company maintains three corporate office locations. The headquarters
and principal executive office is located in Orlando, Florida, and the Company's
operations centers are located in Little Rock, Arkansas and Ft. Lauderdale,
Florida. The Company's credit and collection functions are located in Las Vegas,
Nevada. The Company also leases various office space in locations where it
conducts its sales and marketing operations. The Company believes that all of
its office space is adequate to meet its needs for the foreseeable future and
that, if necessary, it can obtain additional space at a reasonable cost without
significant operational disruption.
Development/Regulation
- ----------------------
In some of its developments, the Company engages in master planning of
land, commercial construction and management of resort and conference
facilities. Many state and local authorities have imposed restrictions and
additional regulations on developers of vacation ownership interests and lots.
Although these restrictions have generally increased the cost of selling
vacation ownership interests and lots, the Company has not experienced material
difficulties in complying with such regulations or operating within such
restrictions. The Company's strategy includes expansion through the acquisition
of properties in destination locations, including urban and coastal areas. There
can be no assurance that the Company will be successful in resolving zoning and
other property use restrictions and requirements likely to be encountered in
such areas on favorable terms or that the costs of complying with such
restrictions and requirements will not be greater than the Company has
traditionally experienced in its development activities.
The marketing and sales of vacation ownership interests and other
operations are subject to extensive regulation by the federal government and by
the states in which the Company's resorts are located and in which the vacation
ownership interests are marketed and sold. The federal government and many
states have adopted specific laws and regulations regarding the sale of lots and
vacation ownership interests, telemarketing and other aspects of the Company's
activities. For example, the federal government and many states require that a
"property report" be furnished to purchasers of vacation ownership interests and
lots, providing, among other things, detailed information about the particular
community, the development and the purchaser's rights and obligations as a
vacation ownership interest or lot owner. Similarly, regulations and laws
governing the Company's use of telemarketing based marketing programs have grown
in the recent past and additional laws and regulations governing these
activities may be adopted in the future. The Company believes that it is in
substantial compliance with all laws and regulations to which it is currently
subject. The cost of complying with laws and regulations in all jurisdictions in
which the Company desires to conduct sales may be significant and may impair the
cost-effectiveness of the Company's marketing programs. There is no assurance
that the Company is in fact in compliance with all applicable laws and
regulations, that any applicable law will not be revised, or that other laws or
regulations will not be adopted which could increase the Company's costs of
compliance or prevent the Company from selling vacation ownership interests or
conducting other operations in a jurisdiction.
If the Company is not in substantial compliance with applicable laws and
regulations, the Company could be subjected to regulatory actions and purchasers
of vacation ownership interests or lots could have certain rescission rights.
Any failure to comply with any applicable law or regulation, or any increases in
the costs of compliance, could have a material adverse effect on the Company.
<PAGE>
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
The information required by Item 3 is incorporated herein by reference to
Note 15 - Contingencies of "Notes to Consolidated Financial Statements" included
in the Registrant's Annual Report to Stockholders for the year ended December
31, 1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
There were no matters submitted to a vote of Fairfield's stockholders
during the fourth quarter of 1999.
Executive Officers of the Registrant
- ------------------------------------
The following is a listing of the executive officers of the Company, none
of whom has a family relationship with any director or other executive officers:
James G. Berk, age 40, was employed with Fairfield on October 1, 1999
as President and Chief Executive Officer. From 1996 to September 1999, Mr.
Berk was President and Chief Executive Officer of Hard Rock Cafe
International, Inc. and a member of the Executive Committee of the Rank
Group Plc., of which Hard Rock was a wholly owned subsidiary. From 1992 to
1996, Mr. Berk was Executive Director for the National Academy of Recording
Arts & Sciences Foundation.
Franz Hanning, age 46, has been with Fairfield since 1982, serving as
Executive Vice President and Chief Operating Officer since May 1999; Senior
Vice President and Chief Operating Officer, Vacation Ownership Business
from 1998 to May 1999; Senior Vice President/Corporate Sales from 1997 to
1998; Regional Vice President from 1991 to 1997 and Vice President/Sales -
Fairfield Williamsburg from 1990 to 1991.
Robert W. Howeth, age 52, has been with Fairfield since 1975, serving
as Executive Vice President and Chief Financial Officer since May 1999;
Senior Vice President and Chief Financial Officer from 1996 to May 1999;
Senior Vice President, Chief Financial Officer and Treasurer from 1994 to
1996; Senior Vice President and Treasurer from 1993 to 1994 and Senior Vice
President/Planning and Administration from 1990 to 1993.
Robert Albertson, age 59, has been with Fairfield since 1996, serving
as Senior Vice President, Corporate Marketing since 1997 and Regional Vice
President from 1996. Mr. Albertson was a sales and marketing consultant
from 1992 to 1996 with the Global Group in Europe and other vacation
ownership companies. From 1982 to 1992, Mr. Albertson was employed by
Fairfield serving as a Regional Vice President and General Manager.
Marcel J. Dumeny, age 49, has been with Fairfield since 1987, serving
as Executive Vice President and General Counsel since May 1999; Senior Vice
President and General Counsel from 1989 to May 1999 and Senior Vice
President/Law and Development prior thereto.
Mark Nuzzo, age 48, has been with Fairfield since 1983, serving as
Senior Vice President, Property Management since 1995 and as Vice President
of Resort Operations from 1991 to 1995.
William G. Sell, age 46, has been with Fairfield since 1981, serving
as Vice President, Controller and Chief Accounting Officer since 1988.
<PAGE>
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ------ ------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Information required by Item 5 is incorporated herein by reference to
Common Stock Prices included in the Registrant's Annual Report to Stockholders
- -------------------
for the year ended December 31, 1999.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
Information required by Item 6 is incorporated herein by reference to
Selected Financial Data included in the Registrant's Annual Report to
- --------------------------
Stockholders for the year ended December 31, 1999.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Information required by Item 7 is incorporated herein by reference to
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------------
Operations included in the Registrant's Annual Report to Stockholders for the
- ----------
year ended December 31, 1999.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Information required by Item 7A is incorporated herein by reference to
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------------
Operations included in the Registrant's Annual Report to Stockholders for the
- ----------
year ended December 31, 1999.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
Financial statements and supplementary data required by Item 8 are set
forth below in Item 14(a), Index to Financial Statements.
-----------------------------
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------ -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
(a) Identification of Directors
---------------------------
This item is incorporated herein by reference to
Registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders.
(b) Identification of Executive Officers
------------------------------------
In accordance with Regulation S-K Item 401(b), Instruction
3, the information required by Item 10(b) concerning the
Company's executive officers is furnished in a separate item
captioned Executive Officers of the Registrant in Part I above.
-------------------------------------
(c) Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
This item is incorporated by reference to Registrant's Proxy
Statement for its 2000 Annual Meeting of Stockholders.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
This item is incorporated by reference to Registrant's Proxy Statement for
its 2000 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- --------------------------------------------------------------
This item is incorporated by reference to Registrant's Proxy Statement for
its 2000 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
This item is incorporated by reference to Registrant's Proxy Statement for
its 2000 Annual Meeting of Stockholders.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------- ---------------------------------------------------------------
(a)(1) Index to Financial Statements:
-----------------------------
The following consolidated financial statements and
Report of Ernst & Young LLP, Independent Auditors, included in
the Registrant's Annual Report to Stockholders, are
incorporated herein by reference:
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Earnings - Years Ended December
31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements - December 31,
1999
(2) None. Financial statement schedules are omitted because they
are not applicable or the required information is set forth in
the consolidated financial statements or notes thereto.
(3) Exhibits required by this item are listed on the Exhibit
Index attached to this report and hereby incorporated by
reference.
(b) Reports on Form 8-K Filed in the Fourth Quarter
-----------------------------------------------
None
(c) Exhibits
--------
The Exhibit Index attached to this report is hereby
incorporated by reference.
(d) Financial Statement Schedules
-----------------------------
None
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized.
FAIRFIELD COMMUNITIES, INC.
Date: March 28, 2000 By /s/ James G. Berk
----------------------------
James G. Berk, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities on the dates indicated:
Date: March 28, 2000 By /s/ Ernest D. Bennett, III*
----------------------------------------
Ernest D. Bennett, III, Director
Date: March 28, 2000 By /s/ Philip L. Herrington*
----------------------------------------
Philip L. Herrington, Director
Date: March 28, 2000 By /s/ Gerald Johnston*
----------------------------------------
Gerald Johnston, Director
Date: March 28, 2000 By /s/ Bryan D. Langton*
----------------------------------------
Bryan D. Langton, Director
Date: March 28, 2000 By /s/ Charles D. Morgan*
----------------------------------------
Charles D. Morgan, Director
Date: March 28, 2000 By /s/ William C. Scott*
----------------------------------------
William C. Scott, Director
Date: March 28, 2000 By /s/ James G. Berk
----------------------------------------
James G. Berk, Director, President
and Chief Executive Officer
Date: March 28, 2000 By /s/ Robert W. Howeth
----------------------------------------
Robert W. Howeth, Executive Vice President
and Chief Financial Officer
Date: March 28, 2000 By /s/ William G. Sell
----------------------------------------
William G. Sell, Vice President/Controller
(Chief Accounting Officer)
Date: March 28, 2000 *By /s/ James G. Berk
-----------------------------------------
James G. Berk, Attorney-in-Fact
<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 Rights Agreement, dated September 1, 1992, between Registrant and
Society National Bank, as Rights Agent (previously filed with the
Registrant's Current Report on Form 8-K dated September 1, 1992
and incorporated herein by reference)
10.2 Amendment to Rights Agreement, dated September 20, 1994
(previously filed with the Registrant's Form 8-A/A dated November
1, 1994 and incorporated herein by reference)
<PAGE>
Exhibit
Number
- ------
10.3 Appointment and Acceptance Agreement, dated March 3, 1994,
between the Registrant and FNBB appointing FNBB as successor
Rights Agent (previously filed with the Registrant's Annual
Report on Form 10-K/A for the year ended December 31, 1993 and
incorporated herein by reference)
10.4 Sixth Amended and Restated Title Clearing Agreement by and among
the Registrant, FAC, Lawyers Title Insurance Corporation, FNBB,
First Commercial Trust Company, N.A., and Capital Markets
Assurance Corporation, dated July 31, 1996 (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.5 Fourth Amended and Restated Title Clearing Agreement by and among
the Registrant, FAC, Colorado Land Title Company, FNBB, First
Commercial Trust Company, N.A., and Capital Markets Assurance
Corporation, dated July 31, 1996 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.6 Westwinds Third Amended and Restated Title Clearing Agreement by
and among the Registrant, FMB, FAC, Lawyers Title Insurance
Corporation, FNBB, and Resort Funding, Inc., dated November 15,
1992 (previously filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 and incorporated
herein by reference)
10.7 First Amendment to Westwinds Third Amended and Restated Title
Clearing Agreement, dated September 29, 1993 (previously filed
with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference)
10.8 Second Amendment to Westwinds Third Amended and Restated Title
Clearing Agreement, dated March 28, 1995 (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.9 Third Amendment to Westwinds Third Amended and Restated Title
Clearing Agreement, dated July 31, 1996 (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.10 Letter Agreement on Certain Contracts, Forms of Colorado
Contracts, Environmental Disclosure Schedule and Pool Limit
Excess, dated as of September 8, 1997 between Capital Markets
Assurance Corporation, as Collateral Agent, Triple-A One Funding
Corporation, BankBoston, N.A. as L/C Bank, FCC, FAC, FMB and
Registrant (previously filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference)
<PAGE>
Exhibit
Number
- ------
10.11 Amended and Restated Receivables Purchase Agreement with an
effective restatement date of October 2, 1996, among the
Registrant, FAC, FMB and FCC (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference)
10.12 Amended and Restated Nashville Title Clearing Agreement by and
among the Registrant, FAC, Lawyers Title Insurance Corporation,
FNBB, and Capital Markets Assurance Corporation, dated July 31,
1996 (previously filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated
herein by reference)
10.13 Amended and Restated Seawatch Plantation Title Clearing
Agreement by and among the Registrant, FMB, FAC, Lawyers Title
Insurance Corporation, FNBB, and Capital Markets Assurance
Corporation, dated July 31, 1996 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.14 Third Amended and Restated Supplementary Trust Agreement
(Arizona) by and among the Registrant, FAC, First American Title
Insurance Company, FNBB, and Capital Markets Assurance
Corporation, dated March 28, 1995 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.15 First Amendment to Third Amended and Restated Supplementary Trust
Agreement (Arizona), dated July 31, 1996 (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.16 Protected Interest Rate Agreement, dated September 4, 1997,
between BankBoston, N.A., and FCC (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference)
10.17 Agreement and Plan of Merger, dated August 8, 1997, among the
Company, FCVB Corp., and Vacation Break U.S.A., Inc. (previously
filed as Exhibit 2.1 to the Registrant's Form S-4, SEC File No.
333-39615, and incorporated herein by reference)
10.18 Joint Proxy Statement/Prospectus, dated November 10, 1997
(previously filed by the Registrant on November 10, 1997,
pursuant to Rule 424(b) under the Securities Act, and specified
sections of which are incorporated herein by reference)
10.19 Principal Stockholders Agreement among the Registrant, FCVB
Corp., Ralph P. Muller, R & A Partnership, Ltd. and Kevin
Sheehan, dated August 8, 1997 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
<PAGE>
Exhibit
Number
- ------
10.20 Escrow Agreement among the Registrant, Ralph P. Muller, R & A
Partnership, Ltd., Kevin Sheehan and Mercantile Bank of
Arkansas, as Escrow Agent, dated August 8, 1997 (previously
filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference)
10.21 Amended and Restated Revolving Credit Agreement between Fairfield
Communities, Inc. and BankBoston, N.A., dated January 15, 1998
(previously filed with the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 and incorporated herein
by reference)
10.22 First Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Communities, Inc. and BankBoston,
N.A., dated July 13, 1998. (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference)
10.23 Second Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Communities, Inc. and BankBoston,
N.A., dated October 20, 1998 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference)
10.24 Third Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Communities, Inc. and BankBoston,
N.A. dated June 30, 1999 (previously filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference)
10.25 Fourth Amendment to Amended and Restated Revolving Credit
Agreement, dated August 10, 1999 between Fairfield Communities,
Inc. and BankBoston, N.A. (previously filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference)
10.26 Fifth Amendment to Amended and Restated Revolving Credit
Agreement, dated October 4, 1999 between Fairfield Communities,
Inc. and BankBoston, N.A. (previously filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference)
10.27 Amended and Restated Revolving Credit Agreement between Fairfield
Acceptance Corporation and BankBoston, N.A., dated January 15,
1998 (previously filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and incorporated
herein by reference)
10.28 First Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Acceptance Corporation and
BankBoston, N.A., dated July 13, 1998 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference)
<PAGE>
Exhibit
Number
- -----
10.29 Second Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Acceptance Corporation - Nevada and
BankBoston, N.A., dated October 20, 1998 (previously filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 and incorporated herein by reference)
10.30 Third Amendment to Amended and Restated Revolving Credit
Agreement and First Amendment to Amended and Restated
Unconditional Payment and Performance Guaranty between Fairfield
Acceptance Corporation - Nevada, BankBoston, N.A., and First
Massachusetts Bank, N.A., dated February 8, 1999 (previously
filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by
reference).
10.31 Fourth Amendment to Amended and Restated Revolving Credit
Agreement, dated October 4, 1999 between Fairfield Acceptance
Corporation-Nevada and BankBoston, N.A. (previously filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 and incorporated herein by reference).
10.32 Pledge and Servicing Agreement between Fairfield Funding
Corporation, II, Fairfield Acceptance Corporation-Nevada,
Fairfield Communities, Inc., First Security Bank, N.A. and
BankBoston, N.A., dated July 31, 1998 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference)
10.33 Receivables Purchase Agreement between Fairfield Acceptance
Corporation, Fairfield Communities, Inc. and Fairfield
Receivables Corporation, dated January 15, 1998 (previously filed
with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by
reference)
10.34 Credit Agreement among Fairfield Receivables Corporation,
EagleFunding Capital Corporation, Fairfield Acceptance
Corporation, Fairfield Communities, Inc., BankBoston Securities,
Inc. and BankBoston, N.A., dated January 15, 1998 (previously
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by
reference)
10.35 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 (previously filed with the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999 and
incorporated herein by reference).
10.36 Amendment No. 2 to Credit Agreement among Fairfield Receivables
Corporation, EagleFunding Capital Corporation, Fairfield
Acceptance Corporation - Nevada, Fairfield Communities, Inc.,
BancBoston Robertson Stephens Inc., CIBC World Markets Corp. and
BankBoston, N.A. dated June 9, 1999 (previously filed with the
Registrant's Quarterly Report on form 10-Q for the quarter ended
June 30, 1999 and incorporated herein by reference).
<PAGE>
Exhibit
Number
- ------
10.37 Receivables Purchase Agreement between Fairfield Funding
Corporation, II, Fairfield Acceptance Corporation - Nevada and
Fairfield Communities, Inc., dated July 31, 1998 (previously
filed with the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 and incorporated herein by
reference)
10.38 Fourth Amended and Restated Operating Agreement, dated January
15, 1998, by and between Fairfield Communities, Inc., Fairfield
Myrtle Beach, Inc., Sea Gardens Beach and Tennis Resort, Inc.,
Vacation Break Resorts, Inc., Vacation Break Resort at Star
Island, Inc., Palm Vacation Group, Ocean Ranch Vacation Group and
Fairfield Acceptance Corporation (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference)
10.39 Fifth Amended and Restated Operating Agreement, dated July 14,
1998, by and between Fairfield Communities, Inc., Fairfield
Myrtle Beach, Inc., Sea Gardens Beach and Tennis Resort, Inc.,
Vacation Break Resorts, Inc., Vacation Break Resort at Star
Island, Inc., Palm Vacation Group, Ocean Ranch Vacation Group and
Fairfield Acceptance Corporation - Nevada (previously filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference)
10.40 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 (previously filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999 and incorporated
herein by reference).
COMPENSATORY PLANS OR ARRANGEMENTS
10.41 Form of Warrant Agreement between the Registrant and directors of
the Registrant (previously filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993 and
incorporated herein by reference)
10.42 Registrant's Savings/Profit Sharing Plan, effective July 1, 1994
(previously filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 and incorporated herein
by reference)
10.43 Amendment Number One to Registrant's Savings/Profit Sharing Plan,
effective January 1, 1995 (previously filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996
and incorporated herein by reference)
10.44 Amendment Number Two to Registrant's Savings/Profit Sharing Plan,
effective January 1, 1996 (previously filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
and incorporated herein by reference)
<PAGE>
Exhibit
Number
- ------
10.45 Amendment Number Three to Registrant's Savings/Profit Sharing
Plan, effective September 20, 1996 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.46 Amendment Number Four to Registrant's Savings/Profit Sharing
Plan, effective January 1, 1997 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.47 Amendment Number Five to Registrant's Savings/Profit Sharing
Plan, effective January 1, 1998 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference)
10.48 Amendment Number Six to Registrant's Savings/Profit Sharing Plan,
effective January 1, 1998 (previously filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998
and incorporated herein by reference)
10.49 Employment Agreement, dated September 20, 1991, by and between
the Registrant and Mr. John W. McConnell (previously filed with
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference)
10.50 Amendment Number Two to Employment Agreement, dated September
24, 1999, by and between the Registrant and John W. McConnell
(previously filed with the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999 and incorporated
herein by reference).
10.51 Employment Agreement, dated September 20, 1991, by and between
the Registrant and Mr. Marcel J. Dumeny (previously filed with
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference)
10.52 Form of Amendment No. One to Employment Agreements between
Registrant and certain officers (previously filed with
Registrant's Current Report on Form 8-K dated September 1, 1992
and incorporated herein by reference)
10.53 Form of Warrant Agreement between Registrant and certain officers
and executives of the Registrant (previously filed with
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 and incorporated herein by reference)
10.54 Registrant's Third Amended and Restated 1992 Warrant Plan
(previously filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated
herein by reference)
10.55 Form of Indemnification Agreement between the Registrant and
certain officers and directors of the Registrant (previously
filed with the Registrant's Current Report on Form 8-K dated
September 1, 1992 and incorporated herein by reference)
<PAGE>
Exhibit
Number
- ------
10.56 Form of Severance Agreement between the Registrant and certain
officers of the Registrant (previously filed with Registrant's
Annual Report on Form 10-K/A for the year ended December 31, 1993
and incorporated herein by reference)
10.57 Registrant's Excess Benefit Plan, adopted February 1, 1994
(previously filed with the Registrant's Annual Report on Form
10-K/A for the year ended December 31, 1993 and incorporated
herein by reference)
10.58 First Amendment to Excess Benefit Plan, adopted May 11, 1995
(previously filed with the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995 and incorporated herein
by reference)
10.59 Registrant's Key Employee Retirement Plan, adopted January 1,
1994 (previously filed with Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994 and incorporated herein
by reference)
10.60 First Amendment to Key Employee Retirement Plan, adopted May 11,
1995 (previously filed with Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995 and incorporated herein
by reference)
10.61 Registrant's Employee Stock Purchase Plan (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.62 Registrant's Second Amended and Restated 1997 Stock Option Plan
(previously filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated herein
by reference)
10.63 Registrant's Third Amended and Restated 1997 Stock Option Plan
(previously filed with the Registrant's Current Report on Form
S-8 dated August 31, 1998 and incorporated herein by reference)
10.64 Vacation Break U.S.A., Inc. 1995 Stock Option Plan, as amended
(previously filed as Exhibit 4.5 to the Registrant's Form S-8,
SEC File No. 333-42901, and incorporated herein by reference)
10.65 Employment Agreement, dated October 23, 1998, by and between the
Registrant and Mr. Franz Hanning (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference)
10.66 Employment Agreement, executed on August 31, 1999, by and
between the Registrant and James G. Berk (previously filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 and incorporated herein by reference).
10.67 Restricted Stock Agreement between the Registrant and James G.
Berk, entered into on October 1, 1999 (attached)
10.68 Promissory Note and Security Agreement between the Registrant and
Franz S. Hanning, entered into on November 12, 1999 (attached)
<PAGE>
Exhibit
Number
- ------
13 Portions of Registrant's Annual Report to Stockholders for the
year ended December 31, 1999 which are incorporated herein by
reference: Common Stock Prices; Selected Financial Data;
Management's Discussion and Analysis of Financial Condition and
Results of Operations; Report of Ernst & Young LLP, Independent
Auditors; Consolidated Balance Sheets; Consolidated Statements
of Earnings; Consolidated Statements of Stockholders' Equity;
Consolidated Statements of Cash Flows and Notes to Consolidated
Financial Statements (attached)
21 Subsidiaries of the Registrant (attached)
23.1 Consent of Ernst & Young LLP, Independent Auditors (attached)
24 Powers of Attorney (attached)
27 Financial Data Schedule, December 31, 1999 (attached)
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (the "Agreement") is entered into as of
the 1st day of October, 1999 (the "Date of Grant"), by and between Fairfield
Communities, Inc., a Delaware corporation (the "Company"), and James G. Berk
(the "Participant"). The Company and the Participant agree as follows:
1. Restricted Stock Award. Pursuant to the terms of an Employment
------------------------
Agreement (the "Employment Agreement") between the Company and the Participant
executed on August 31, 1999 and the approval by the Compensation Committee of
the Board of Directors of the Company (the "Board") at a meeting held on August
25, 1999, the Company hereby grants to the Participant, upon the terms and
conditions set forth below, a total of 25,000 shares (the "Shares") of the
Company's common stock, par value $0.01 per share (the "Common Stock"), issued
from treasury. The Company represents and warrants that such Shares are duly
authorized, validly issued, fully paid and non-assessable.
2. Risk of Forfeiture. The Shares will be subject to forfeiture if the
------------------
Participant's employment with the Company is terminated (a) by the Participant,
other than as a result of a "Constructive Discharge", or (b) by the Company for
"Cause". The terms "Constructive Discharge" and "Cause" shall have the
respective meanings attributed to such terms in the Employment Agreement,
including satisfying the procedures therein contained to determine the existence
of any such conditions. Such risk of forfeiture will lapse as to 100% of the
Shares and such Shares will become fully vested, without restriction, upon the
earliest to occur of (v) 11:59 p.m., Orlando, Florida time, on September 30,
2003, (w) the Participant's death, (x) termination of the Participant's
Employment Agreement due to the Participant's "Disability" (as such term is
defined in the Employment Agreement, including satisfying the procedures therein
contained to determine the existence of a "Disability"), (y) termination of the
Participant's employment with the Company by the Participant as a result of
"Constructive Discharge" or (z) termination of the Participant's employment with
the Company by the Company other than for "Cause". If any Shares are forfeited,
the Participant will surrender such forfeited Shares to the Company. The
Participant will not be entitled to any payment in respect of any Shares so
forfeited.
3. Rights as Stockholder. Unless and until forfeited, the Participant
---------------------
shall have, with respect to the shares of Common Stock underlying the grant of
the Shares, all of the rights of a stockholder of such Common Stock (except as
otherwise provided herein). Any stock dividends paid in respect of unvested
Shares will be treated as additional Shares and will be subject to the same
restrictions and other terms and conditions that apply to the unvested Shares
with respect to which such stock dividends are issued.
4. Share Certificates.
------------------
(a) The Participant will be issued one or more stock
certificates in respect of the Shares. Each Share certificate will be registered
in the name of the Participant, will be accompanied by a stock power duly
executed by the Participant and will bear, among any other
<PAGE>
required legends, the following legend:
"THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF
STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS (INCLUDING, WITHOUT LIMITATION, THE FORFEITURE
EVENTS) CONTAINED IN THE RESTRICTED STOCK AGREEMENT ENTERED
INTO BETWEEN THE REGISTERED OWNER HEREOF AND FAIRFIELD
COMMUNITIES, INC. A COPY OF SUCH AGREEMENT IS ON FILE IN THE
OFFICE OF THE SECRETARY OF FAIRFIELD COMMUNITIES, INC. IN
ORLANDO, FLORIDA. FAIRFIELD COMMUNITIES, INC. WILL FURNISH TO
THE RECORDHOLDER OF THIS CERTIFICATE, WITHOUT CHARGE AND UPON
WRITTEN REQUEST AT ITS PRINCIPAL PLACE OF BUSINESS, A COPY OF
SUCH AGREEMENT. FAIRFIELD COMMUNITIES, INC. RESERVES THE RIGHT
TO REFUSE TO RECORD THE TRANSFER OF THIS CERTIFICATE UNTIL ALL
SUCH RESTRICTIONS ARE SATISFIED, ALL SUCH TERMS ARE COMPLIED
WITH AND ALL SUCH CONDITIONS ARE SATISFIED."
All certificates evidencing grants of Shares will be deposited with and held in
custody by the Company until the date on which the risk of forfeiture lapses and
all of the conditions and restrictions on the Shares are satisfied.
(b) New Certificates. Subject to the provisions of Section
-----------------
4(a) above, after vesting and the satisfaction and/or lapse of the restrictions,
terms and conditions applicable to any Shares, a new certificate representing
such vested Shares, without the legend set forth above in Section 4(a) or other
restriction, will (in lieu, and upon cancellation, of the certificate, or the
portion thereof, previously representing such Shares) be registered in the name
of the Participant and delivered to the Participant within five business days
after vesting.
5. Withholding. The Participant shall, at the time of vesting and as a
-----------
condition precedent to the delivery of a certificate representing such Shares,
pay to the Company in cash an amount equal to any applicable withholding taxes
required to be withheld or collected under applicable federal, state or local
laws or regulations. Furthermore, the Company will have the right to deduct and
withhold any such applicable taxes from, or in respect of, any dividends or
other distributions paid on or in respect of the Shares. All taxes, if any, in
respect of any grants or payments to the Participant hereunder will be the sole
responsibility of and shall be paid by the Participant.
6. Restrictions on Transfer. The Shares, and any rights or interest in
------------------------
this Agreement, shall not, prior to vesting, be assigned, transferred, sold,
exchanged or otherwise disposed of in any way at any time by the Participant.
Any such award, rights or interests will not, prior to vesting, be pledged,
encumbered or otherwise hypothecated in any way at any time by the Participant.
Any such award, rights or interests will not, prior to vesting, be subject to
execution, attachment or similar legal process. Any attempt to sell, exchange,
transfer, assign, pledge,
<PAGE>
encumber or otherwise dispose of or hypothecate in any way any such awards,
rights or interests, or the levy of any execution, attachment or similar legal
process thereon, contrary to the terms of this Agreement will be null and void
and without legal force or effect. Upon the lapse of the restrictions on
transfer of the Shares, if the Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), the Participant shall
not dispose of the Shares in violation of the Securities Act.
7. Registration and Listing. The Company shall, at its sole cost and
-------------------------
expense, take all necessary action to register or qualify the Shares under the
Securities Act and to list the Shares on the NYSE (or such other principal
exchange on which the Common Stock is then listed for trading), to permit the
sale of the Shares by the Participant in compliance with the Securities Act and
any state securities laws, not later than the scheduled vesting date provided in
subparagraph (x) of the third sentence of Section 2 hereof. Prior to
registration, the Shares shall bear a legend similar to the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE FEDERAL SECURITIES ACT OF 1933, AS
AMENDED, OR ANY FEDERAL OR STATE SECURITIES LAWS. THE SHARES
HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933. NEITHER THIS SECURITY
NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
THE SAME IS REGISTERED UNDER SAID ACT AND ANY APPLICABLE
FEDERAL OR STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
8. Notices. Each notice relating to this Agreement must be in writing and
-------
delivered in person or by certified mail to the proper address. Each notice
will be deemed to have been given on the date it is received. Each notice
to the Company must be addressed to it at its principal office: Fairfield
Communities, Inc., 8669 Commodity Circle, Orlando, Florida 32819, attention
of the Secretary. Each notice to the Participant must be addressed to the
Participant at the Participant's address specified below. Anyone to whom a
notice may be given under this Agreement may designate a new address by
notice to that effect.
9. Amendments. The Board may, without the consent of the Participant,
----------
amend this Agreement, or otherwise take action, to accelerate the time at
which the risk of forfeiture of the Shares and the restriction on transfer
shall lapse. The Board may not otherwise amend this Agreement without the
consent of the Participant.
10. Governing Law. This Agreement is intended to be performed in the State
-------------
of Florida and will be construed and enforced in accordance with and
governed by the laws of such State.
<PAGE>
IN WITNESS WHEREOF, the Company and the Participant have executed this
Agreement, effective on the date set forth above.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Bryan D. Langton
-----------------------------
Bryan D. Langton
Chairman
PARTICIPANT:
/s/ James G. Berk
--------------------------------
James G. Berk
PROMISSORY NOTE
$450,000 Orlando, Florida
November 12, 1999
FOR VALUE RECEIVED, Franz S. Hanning, individually, and Kelly M.
Hanning, individually (together, the "Co-Makers," and each, a "Co-Maker"),
having a residence at 2137 Lake Vilma Drive, Orlando, Florida 32835, or at such
other address as the Co-Makers may designate in writing, jointly and severally
promise to pay, without setoff, deduction or reduction, to the order of
Fairfield Communities, Inc. (the "Holder") at 8669 Commodity Circle, Suite 200,
Orlando, Florida 32819, or at such other place as the Holder may designate in
writing, the principal sum of Four Hundred Fifty Thousand and No/100 Dollars
($450,000.00), the receipt of which by the Co-Makers is hereby acknowledged,
plus interest on the unpaid principal balance thereof from time to time
outstanding at the rate of zero percent (0%) per annum from the date of this
Note until paid, or such higher rate specified below in the event of default or
failure to pay this Note at maturity, in lawful money of the United States of
America, as hereinafter provided.
REQUIRED PAYMENTS
Co-Makers shall repay the principal and interest, if any, as follows,
without limitation to other payments required hereunder:
(1) simultaneously with the completion of the sale of the Co-Makers'
current residence situated at 2137 Lake Vilma Drive, Orlando,
Florida 32835, the Co-Makers shall make a payment that is equal
to seventy-five percent (75%) of the difference between (a) such
residence's sale price and (b) the sum of (i) the amount
necessary to pay off the closing date balances of any
mortgage(s) existing as of October 1, 1999 on such residence and
(ii) real estate commissions and other closing costs (excluding
the mortgage payments described in clause (i) above) paid to
unrelated third parties by either of the Co-Makers in connection
with the sale of such residence, in the amount and of the type
normally borne by the seller of a house in the Orlando, Florida
area;
(2) as and when payable to Co-Maker Franz S. Hanning at or following
the effective date of Co-Maker Franz S. Hanning's termination of
employment with the Holder, regardless of whether such
termination is due to resignation by Franz S. Hanning,
termination of Franz S. Hanning's employment by the Holder for
cause or without cause, death or for any other reason whatsoever
(and regardless of whether or not such termination is deemed to
have been proper under Co-Maker Franz S. Hanning's Employment
Agreement with the Holder described below or alleged to be
wrongful), the Co-Makers shall make a payment (and the Holder
shall have the right to offset an amount) that is equal to
one-hundred percent (100%) of any bonus or incentive compensation
(net of income taxes, at the applicable statutory rate (currently
28% for federal income taxes)) that is owed to Co-Maker Franz S.
Hanning as of the effective date of termination; and
<PAGE>
(3) not later than the later of (a) three business days following the
date all of the shares are sold underlying in each instance an
exercise of any part or all of Franz S. Hanning's stock options
or stock warrants or (b) such time as the Holder delivers the
stock certificate representing such underlying shares of stock to
the Co-Makers' securities broker against receipt of payment, the
Co-Makers shall pay (or cause their broker to pay, pursuant to
the terms of the Letter Agreement described below) to the Holder
an amount equal to one-hundred percent (100%) of the net proceeds
or gain (net of (i) income taxes, at the applicable statutory
rate (currently 28% for federal income taxes), (ii) normal broker
commissions and expenses associated with the sale of the stock,
(iii) payment of the exercise price and (iv) margin loan interest
payable to the broker solely to fund payment to the Holder of the
exercise price) of such sale or exercise.
MATURITY AND DUE DATE
Notwithstanding anything to the contrary in this Note, the entire
unpaid principal and interest, if any, hereunder, as well as any fees or costs
chargeable to Co-Makers hereunder, shall be immediately due and payable upon the
earliest of (the "Due Date"): (1) April 1, 2003; or (2) the occurrence of an
event of default as provided below; or (3) the first to occur of any of the
accelerated maturity dates provided below:
(a) 365 days following the death of Co-Maker Franz S. Hanning;
(b) six months following the date Co-Maker Franz S. Hanning's
employment with the Holder is terminated by the Holder by reason
of "Disability," as defined and provided for in the Employment
Agreement, dated October 23, 1998, between Co-Maker Franz S.
Hanning and the Holder, as amended or replaced from time to time
(the "Employment Agreement");
(c) immediately upon the termination of Co-Maker Franz S. Hanning's
employment with the Holder (i) as the result of resignation
(other than resignation for "Constructive Discharge") or (ii)
for "Cause," as defined and provided for in the Employment
Agreement;
(d) 365 days following the termination of Co-Maker Franz S.
Hanning's employment with the Holder (i) by Franz S. Hanning as
the result of resignation for "Constructive Discharge" or (ii)
by the Holder without "Cause," as defined and provided for in
the Employment Agreement; or
(e) immediately upon the Co-Makers' sale or transfer of the residence
situated at 6001 Greatwater Dr., Windermere, Florida 34786.
INTEREST
Any interest on the unpaid balance of this Note shall be calculated on
the basis of the actual number of days elapsed in a 365 or 366 day year, as the
case may be.
DEFAULT, ACCELERATION AND SETOFF
Any one of the following shall constitute an event of default under the
terms of this Note and, upon the occurrence of any such event of default, the
entire unpaid principal amount of this
<PAGE>
Note shall become immediately due and payable (without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived) and the
Holder shall thereupon be entitled to exercise all of the Holder's remedies
hereunder and under the Security Agreement described below:
(1) the Co-Makers' default under any mortgage on the residence
situated at 6001 Greatwater Dr., Orlando, Florida 34786, which
entitles the mortgage holder to commence foreclosure or
collection proceedings;
(2) the insolvency or inability to pay debts as they mature of
either of the Co-Makers, or the application for the appointment
of a receiver for either of the Co-Makers, or the filing of a
petition under any provision of the Bankruptcy Code or other
insolvency law, statute or proceeding by or against either of
the Co-Makers or any assignment for the benefit of creditors by
or against either of the Co-Makers;
(3) the entry of a judgment against either of the Co-Makers in the
amount of $50,000 or more (excluding any judgment that is
manifestly fully payable by insurance confirmed in writing by a
financially solvent, reputable third party insurer (which has
neither reserved rights to dispute coverage nor denied coverage)
to provide coverage) or the issuance or service of any
attachment, levy or garnishment against either of the Co-Makers
or the property of either of the Co-Makers, or the repossession
or seizure of property of either of the Co-Makers;
(4) the notice of either of the Co-Makers given to the Holder
purporting to terminate such party's obligations under or with
respect to this Note;
(5) the sale or transfer by either of the Co-Makers of all or
substantially all of such party's assets;
(6) either of the Co-Makers commits fraud or makes a material
misrepresentation at any time in connection with this Note;
(7) either of the Co-Makers fails to make a timely payment as
provided in this Note; or
(8) either of the Co-Makers breaches any provision of or obligation
arising under or in connection with (a) this Note, (b) the
Security Agreement, of even date herewith, between the Co-Makers
and the Holder, as amended or replaced from time to time, (c) the
Letter Agreement, in the form attached to the Security Agreement,
to be entered into by and between the Co-Makers, the Holder and
Co-Maker Franz S. Hanning's stock broker in connection with the
exercise of any stock options or stock warrants and sale of the
underlying stock, or (d) the Employment Agreement.
From and following the Due Date, the Holder shall be entitled to
interest on the unpaid balance at twelve percent (12%) per annum from the Due
Date until paid in full. To the extent permitted by law, from and following the
Due Date, the Holder will have the right, in addition to all other remedies
permitted by law, to setoff and deduct the amount due under this Note or the
Security Agreement or Letter Agreement herein described against any and all
amounts due to either of the Co-Makers from the Holder of any nature whatsoever
on deposit with, held by, owned by or in the possession of the Holder or any of
its affiliates to the credit of or for the account of either of the Co-Makers,
without notice to or consent by either of the Co-Makers. The Holder's right of
setoff
<PAGE>
and deduction shall extend and apply to any and all unpaid salary, wages, bonus,
incentive compensation or benefits (to the extent permitted by law) and any and
all outstanding stock options and stock warrants relating to the Holder's stock
that the Holder has granted or in the future grants to Co-Maker Franz S.
Hanning, and the right of setoff and deduction shall permit the Holder, at its
election, to sell, exercise, rescind, cancel, revoke or otherwise proceed
against such stock options and stock warrants, the underlying shares and any
proceeds therefrom to the extent necessary to recover the unpaid balance of this
Note, including any costs and charges payable by either of the Co-Makers to the
Holder in connection herewith and any accrued interest, and Franz S. Hanning
hereby grants unto the Holder and its officers and agents his power of attorney
to sign any and all documents necessary or deemed desirable to effect any
alternative or combination of alternatives in connection with the foregoing,
which power of attorney shall be deemed to be coupled with an interest and be
irrevocable, all without liability to Franz S. Hanning for any and all actions
reasonably taken in connection therewith. The foregoing power of attorney shall
expire upon full payment of the principal balance hereof, any interest and any
costs and charges payable by the Co-Makers to the Holder in connection herewith.
The remedies provided in this Note and any other agreement(s) between the Holder
and the Co-Makers are cumulative and not exclusive of any other remedies
provided by law. Any indulgence granted by the Holder from time to time shall in
no event be considered as a waiver of the Holder's rights hereunder or estop the
Holder from exercising any such rights thereafter.
All payments hereunder shall be applied first toward costs and charges
payable by Co-Makers to the Holder in connection herewith, secondly toward the
payment of interest, if any, and thirdly toward the payment of the principal
balance hereof.
This Note may be prepaid in whole or in part without penalty.
Should it become necessary to collect the indebtedness evidenced by
this Note through an attorney, by legal proceedings or otherwise, each Co-Maker
shall be jointly and severally liable to the Holder for all costs of collection
where the Holder pursues its rights hereunder, including, without limitation,
attorneys' and paralegals' fees for legal services rendered in connection
therewith, including, without limitation, fees and costs incurred in litigation
and in administrative and bankruptcy proceedings and appeals therefrom, and the
Co-Makers shall pay such sums to the Holder upon demand.
It is the intent of all parties to this transaction to abide by any and
all interest limitations of any applicable usury law and it is expressly agreed
that the Holder shall not be allowed or entitled to collect any interest (or any
sum which is considered interest by law) which is in excess of any legal rate
applicable hereto. Should any amount be collected hereunder which would cause
the interest to exceed said lawful rate, such part of said amount in excess of
the lawful rate shall automatically be credited to principal, or, if all
principal amounts have been paid, shall be refunded to the Co-Makers.
It is the intent of all parties to this transaction that the
transaction and this Note and its terms and conditions may be disclosed to third
parties, including, without limitation, the shareholders of the Holder,
governmental entities (such as the Securities and Exchange Commission and
Internal Revenue Service) and the general public.
This Note, for all purposes, shall be governed by and construed in
accordance with the laws of the State of Florida.
Co-Makers hereby waive presentment, demand, protest, notice of dishonor
and any other
<PAGE>
notice of any kind in connection with this Note.
This Note shall bind Co-Makers and their successors and assigns, and
shall inure to the benefit of the Holder, its successors and assigns.
Any tax on this Note pursuant to Florida Statutes, Chapter 201, has
been or will be paid on the Security Agreement.
NEITHER THE HOLDER, CO-MAKERS OR OTHER PERSON OR ENTITY LIABLE FOR THE
INDEBTEDNESS EVIDENCED HEREBY, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL
REPRESENTATIVE OF THE HOLDER, CO-MAKERS OR ANY SUCH OTHER PERSON OR ENTITY SHALL
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER
LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF THIS NOTE, ANY RELATED
INSTRUMENT OR AGREEMENT, ANY COLLATERAL FOR THE PAYMENT HEREOF OR THE DEALINGS
OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS OR ENTITIES, OR ANY OF THEM.
NEITHER THE HOLDER, CO-MAKERS OR ANY SUCH OTHER PERSON OR ENTITY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY
OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO,
AND THE PROVISIONS HEREOF SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY
WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS
PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, the Co-Makers have caused this Note to be executed
and delivered on the date first above written.
CO-MAKER:
ATTEST:
/s/ Sandra Romero /s/ Franz S. Hanning
- ------------------------------ -----------------------
Sandra Romero Franz S. Hanning
- ------------------------------
CO-MAKER:
ATTEST:
/s/ Abigail Thomason /s/ Kelly M. Hanning
- ------------------------------ -----------------------
Abigail Thomason Kelly M. Hanning
- ------------------------------
<PAGE>
ACKNOWLEDGEMENT
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this 12th day of
November, 1999 by Franz S. Hanning. Franz S. Hanning is personally known to me
or has produced sufficient identification.
My commission Expires: /s/ Serina Sherman
--------------------------------
Notary Public
(SEAL)
/s/ Serina Sherman
----------------------------------
(Printed Name)
ACKNOWLEDGEMENT
STATE OF FLORIDA
COUNTY OF ORANGE
The foregoing instrument was acknowledged before me this 12th day of
November, 1999 by Kelly M. Hanning. Kelly M. Hanning is personally known to me
or has produced sufficient identification.
My commission Expires: /s/ Serina Sherman
---------------------------------
Notary Public
(SEAL)
/s/ Serina Sherman
----------------------------------
(Printed Name)
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT (the "Agreement") is effective and entered into
this 12th day of November, 1999, among FRANZ S. HANNING, an individual ("Franz
Hanning"), KELLY M. HANNING, an individual ("Kelly Hanning"), and FAIRFIELD
COMMUNITIES, INC., a Delaware corporation ("Secured Party").
WITNESSETH:
WHEREAS, Franz Hanning and Kelly Hanning (the "Debtors") have requested
a loan from the Secured Party in the amount of $450,000 for the purpose of
paying off a portion of the construction loan associated with the building of a
residence located at 6001Greatwater Dr., Windermere, Florida 34786 (the "Loan");
WHEREAS, the Debtors (as Co-Makers) have executed a Promissory Note of
even date herewith (the "Promissory Note");
WHEREAS, one of the primary sources of fund for the repayment of the
Promissory Note is anticipated to be funds generated from the exercise of
certain stock options and stock warrants previously granted and which may be
granted in the future by the Secured Party to Franz Hanning for the purchase of
shares of the Secured Party and the sale of the underlying shares (the
"Options");
WHEREAS, the Debtors wish to grant a security interest in and to pledge
the Options, the shares of the Secured Party related to the Options, and any and
all proceeds from the exercise of the Options or the sale of such underlying
shares and, in certain instances, a portion of the net equity payable upon sale
of the Debtors' current residence located at 2137 Lake Vilma Drive, Orlando,
Florida 32835, and unpaid salary, wages, bonus, incentive compensation and
benefits owed by the Secured Party to the Debtors (the "Collateral"); and
WHEREAS, the Secured Party is willing to make the Loan upon the terms
and subject to the conditions set forth herein and in the Promissory Note;
NOW, THEREFORE, in consideration of the above premises and the
agreements, covenants and conditions set forth herein, and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto covenant and agree as follows:
1. GRANT OF SECURITY INTEREST. As collateral security for the full and
---------------------------
prompt payment when due (whether at stated maturity, by acceleration
or otherwise) of, and the performance of, all the Obligations (as
defined herein), and to induce the Secured Party to make the Loan, the
Debtors hereby assign, convey, mortgage, pledge, hypothecate and
transfer to the Secured Party, and hereby grant to the Secured Party,
a first priority security interest in, all of the Debtors' right,
title and interest in, to and under the Collateral, and to the extent
not otherwise included, all proceeds of and from the Collateral. For
purposes of this Agreement, the term "Obligations" shall mean the
outstanding indebtedness under the Promissory Note, and all other
advances, debts, liabilities, obligations, covenants and duties owing
by the Debtors to the Secured Party, of every type and description,
present or future, whether or not evidenced by any separate note,
guaranty or other instrument, arising under the Promissory Note, this
Agreement or the Letter Agreement (as defined herein), whether or not
for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due,
<PAGE>
now existing or hereafter arising and however acquired. The term
"Obligation" includes, without limitation, all principal, interest,
charges, expenses, fees, attorneys' fees and any other sum chargeable
to the Debtors under the Promissory Note, this Agreement or the Letter
Agreement. For purposes of this Agreement, the term "Collateral" shall
extend to all of the Options, including those Options that are now
vested or that may in the future become vested, and including those
Options already granted to or acquired by Franz Hanning and those
hereafter granted to or acquired by Franz Hanning. The term
"Collateral" shall also include all rights and property of every kind
at any time in the possession or control of the Secured Party, or any
of its agents, or in transit to it by mail or carrier, belonging to,
for the account of, or subject to the order of the Debtors.
2. FINANCING STATEMENTS. The Debtors will execute from time to time any
---------------------
financing statements or other documents and do other acts considered by
the Secured Party (in its sole and absolute discretion) to be
appropriate to perfect or protect the security interest created herein.
The Debtors agree to pay all costs and expenses related to the
preparation and filing of any financing statements, continuation
statements or other documents related to the protection of the security
interest created herein.
3. DEBTORS' DUTIES WITH RESPECT TO THE COLLATERAL.
----------------------------------------------
(a) Until all of the Debtors' obligations arising under the
Promissory Note have been performed or otherwise satisfied:
(i) the Debtors will not exercise any of the Options except
pursuant to the terms hereof and the Letter Agreement or
dispose of, sell or transfer the Collateral without the
prior written consent of the Secured Party;
(ii) the Debtors will not permit any lien or security interest
other than that created hereby to attach to the Collateral
nor permit the Collateral to be levied upon, attached or
seized; and
(iii) the Debtors will defend the Collateral against the claims
and demands of all persons except the Secured Party.
(b) It shall be a condition precedent for the Secured Party to honor
any exercise or purported exercise of the Options that the
Debtors, the Secured Party and a broker nominated by the Debtors
and reasonably acceptable to the Secured Party (the "Broker")
shall have executed and delivered the Letter Agreement, in
substantially the form attached to this Agreement as Exhibit A.
The Debtors agree to comply with provisions of the Letter
Agreement and to use their best efforts to cause the Broker to
comply with the Letter Agreement.
4. LIABILITY FOR TAXES. In the event that any tax under Florida Statutes,
-------------------
Chapter 201, is payable by any of the parties hereto in connection with
the Loan, the Promissory Note, this Agreement or the Letter Agreement,
including any documentary stamp tax, the Secured Party shall pay any
such tax, and the Debtors shall reimburse the Secured Party within five
(5) days of delivery to the Debtors of a receipt or other document
evidencing payment of such tax.
<PAGE>
5. DEFAULT. The failure of either of the Debtors to perform or comply with
-------
any of their respective obligations arising under this Agreement, the
Promissory Note or the Letter Agreement shall be considered an event of
default (an "Event of Default"). Upon an Event of Default, the Secured
Party shall be entitled to exercise any or all of its rights arising
under this Agreement, the Promissory Note, the Letter Agreement and
applicable law, including, without limitation, the right to accelerate
the maturity date under the Promissory Note, the right to assemble the
Collateral, and the right pursue all remedies provided by Florida's
Uniform Commercial Code.
6. APPLICATION OF PROCEEDS OF SALE OF COLLATERAL. The Debtors acknowledge
---------------------------------------------
and agree that the proceeds of any sale of the Collateral shall be
applied first to the payment of any federal, state and local income
taxes and payroll taxes (including FICA and FHI taxes) that may be due
or required to be withheld and then to the unpaid balance under the
Promissory Note in accordance with the terms of the Promissory Note.
7. INCORPORATION AND PRIORITY OF RELATED AGREEMENTS. The Promissory Note
-------------------------------------------------
and the Letter Agreement are incorporated herein by reference. In the
event of any conflict between or among the Promissory Note, this
Agreement, and the Letter Agreement, the order of priority shall be the
Promissory Note, this Agreement and finally the Letter Agreement.
8. ATTORNEY'S FEES AND COSTS. In the event of any action by any party in
--------------------------
any way connected with the enforcement of this Agreement or the
enforcement of the party's rights under this Agreement, the Promissory
Note and the Letter Agreement, the prevailing party shall be entitled
to its costs incurred in prosecuting such action and to such reasonable
sum as the court may establish in said action for attorneys' and
paralegals' fees for legal services rendered in connection therewith,
including, without limitation, fees and costs incurred in litigation
and in administrative and bankruptcy proceedings and appeals therefrom,
and shall pay such sums to the Secured Party upon demand.
9. PARTIES BOUND. This Agreement shall be binding upon and inure to the
-------------
benefit of the parties hereto and their permitted assigns and
successors.
10. GOVERNING LAW. This Agreement shall be governed by, and construed in
--------------
accordance with, the internal laws of the State of Florida, without
giving effect to the principles of conflict of laws thereof. Venue for
any action to enforce the provisions of this letter of understanding
shall be properly laid in any federal court in the State of Florida. In
case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.
11. NOTICE. Notice required or permitted to be given pursuant to the terms
------
of this Agreement shall be deemed given five (5) calendar days after
deposit into the United States mail, postage prepaid, certified return
receipt and addressed as provided below, or upon receipt if delivered
by any other method:
If to Secured Party: Fairfield Communities, Inc.
8669 Commodity Circle, Suite 200
Orlando, Florida 32819
<PAGE>
Attn: Robert W. Howeth, Executive Vice President and
Chief Financial Officer
With a copy to: Fairfield Communities, Inc.
8669 Commodity Circle, Suite 200
Orlando, Florida 32819
Attn: General Counsel
If to Debtors: Mr. Franz S. Hanning
Ms. Kelly M. Hanning
2137 Lake Vilma Drive
Orlando, Florida 32835
12. ENTIRE AGREEMENT; AMENDMENT. Except as expressly provided herein, this
----------------------------
Agreement constitutes the entire agreement between the parties relating
to the subject matter contained herein and supersedes any prior oral or
written agreements, understandings, representations and warranties, and
courses of conduct and dealing between the parties on the subject
matter hereof. This Agreement may not be amended, modified or waived by
the express or implied conduct of the parties, except by written
instrument signed by the parties.
13. OTHER AGREEMENTS. This Agreement, the Promissory Note, and the Letter
----------------
Agreement do not confer upon the Debtors any rights with respect to the
continuance of Franz Hanning's employment with the Secured Party or
with respect to the grant, vesting and exercise of any options or
warrants relating to shares of the Secured Party. Any such rights to
continued employment are governed solely by the Employment Agreement.
Any such rights to the grant, vesting and exercise of the options or
warrants are governed solely by the relevant option and warrant plans
and the corresponding option and warrant agreements.
14. MISCELLANEOUS. This Agreement may be executed in multiple
-------------
counterparts, each of which shall constitute an original but all of
which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have set their hands the day and
year first above written.
/s/Franz S. Hanning
-----------------------------
Franz S. Hanning, individually
/s/Kelly M. Hanning
-----------------------------
Kelly M. Hanning, individually
FAIRFIELD COMMUNITIES, INC.
By:/s/Marcel J.Dumeny
--------------------------
Marcel J. Dumeny
Executive Vice President
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
Year Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Data: (1)(2)
Revenues:
Vacation ownership
interests, net $370,766 $301,119 $256,141 $194,612 $125,751
Resort management 43,679 37,210 28,237 26,987 22,264
Interest 29,378 33,916 37,179 28,651 23,815
Net interest income and fees
from qualifying special
purpose entities 20,524 9,739 - - -
Other 27,389 25,909 24,622 23,562 27,691
-------- -------- -------- -------- --------
$491,736 $407,893 $346,179 $273,812 $199,521
======== ======== ======== ======== ========
Net earnings $56,865 $43,628 $21,177 $22,103 $13,874
======= ======= ======= ======= =======
Earnings before merger costs
and extraordinary loss $56,865 $43,628 $34,009 $22,103 $13,874
======= ======= ======= ======= =======
Net earnings per share:
Basic $1.29 $.98 $.48 $.54 $.37
===== ==== ==== ==== ====
Diluted $1.25 $.93 $.46 $.51 $.35
===== ==== ==== ==== ====
Earnings per share before merger
costs and extraordinary loss:
Basic $1.29 $.98 $.77 $.54 $.37
===== ==== ==== ==== ====
Diluted $1.25 $.93 $.73 $.51 $.35
===== ==== ==== ==== ====
Weighted average shares outstanding:
Basic 44,041 44,544 44,200 40,558 37,691
====== ====== ====== ====== ======
Diluted 45,565 46,846 46,282 43,265 39,888
====== ====== ====== ====== ======
Balance Sheet Data (at period end): (1)(2)
Receivables, net $234,061 $202,849 $296,699 $227,627 $188,250
Total assets 498,636 431,093 463,932 385,570 320,112
Total financing arrangements 53,537 79,441 170,081 113,295 117,763
Stockholders' equity 282,955 222,630 187,182 162,125 100,485
</TABLE>
(1) In 1998, the Company incorporated two qualifying special purpose entities
for the specific purpose of purchasing contracts receivable from the
Company. During 1999 and 1998, the Company sold $133.2 million and $212.7
million, respectively, of contracts receivable to the qualifying special
purpose entities. At December 31, 1999 and 1998, the qualifying special
purpose entities held contracts receivable totaling $225.9 million and
$172.1 million, respectively, with related borrowings of $187.6 million and
$142.9 million, respectively.
(2) In 1997, Fairfield consummated the merger with Vacation Break U.S.A., Inc.
which was accounted for as a pooling of interests and, accordingly, all
prior period consolidated financial information has been restated as if the
merger took place at the beginning of the earliest period presented. In
conjunction with the merger, Fairfield recorded merger costs of $16.9
million ($12.8 million after taxes), of which $3.6 million ($2.2 million
after taxes) related to the extraordinary loss resulting from the early
extinguishment of substantially all of Vacation Break's debt.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations
-------------
RESULTS OF OPERATIONS
Fairfield Communities, Inc. ("Fairfield", and together with its
consolidated subsidiaries, the "Company") currently owns and/or operates 33
resorts located in 12 states and the Bahamas. Of these resorts, which are in
various stages of development, 23 are located in destination areas with popular
vacation attractions and 10 are located in scenic regional locations. During
1999, the Company began sales operations on a start-up basis at its six newest
destination resorts to be developed in Sedona, Arizona; Durango, Colorado;
Daytona Beach, Florida; Destin, Florida; Las Vegas, Nevada and Gatlinburg,
Tennessee.
In 1997, the Company acquired all of the outstanding common stock of
Vacation Break U.S.A., Inc. ("Vacation Break") in exchange for approximately
10.6 million shares of the Company's Common Stock. The merger was accounted for
as a pooling of interests and, accordingly, all prior period financial
information was restated as if the merger took place at the beginning of the
earliest period presented. In conjunction with the merger, the Company recorded
merger costs of $16.9 million ($12.8 million after taxes), of which $3.6 million
($2.2 million after taxes) related to the extraordinary loss resulting from the
early extinguishment of substantially all of Vacation Break's indebtedness.
Additionally, in 1997, Fairfield acquired the remaining 45% minority interest in
Vacation Break's joint ventures in the Palm Aire and Royal Vista resorts for
$13.5 million in cash. These acquisitions have been accounted for as purchases
and the results of operations of these resorts have been included in the
consolidated financial statements from the date of acquisition.
The following table sets forth certain consolidated operating information
for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
Year Ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
As a percentage of total revenues:
Vacation ownership interests, net 75.4% 73.8% 74.0%
Resort management 8.9 9.1 8.2
Interest income 6.0 8.3 10.7
Net interest income and fees from
qualifying special purpose
entities 4.2 2.4 -
Other revenue 5.5 6.4 7.1
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
As a percentage of related revenues:
Cost of sales - vacation ownership
interests 25.9% 27.8% 26.5%
Resort management 79.5% 85.5% 87.1%
Sales and marketing 48.2% 46.9% 46.0%
Provision for loan losses 4.9% 4.7% 4.7%
As a percentage of total revenues:
General and administrative 6.6% 7.2% 8.7%
Depreciation and amortization 1.6% 1.7% 1.5%
Other expense 4.7% 4.5% 5.2%
</TABLE>
<PAGE>
Vacation Ownership
------------------
The Company's growth strategy continues to include the (i) acquisition and
development of properties in new destination locations, (ii) further development
at its existing destination resorts and (iii) expansion of sales and marketing
programs, including the establishment of additional off-site sales offices.
Future sales growth should be realized as the Company expands its development of
destination resort locations which have a higher and more consistent stream of
potential customers generated by existing attractions.
Gross revenues from vacation ownership interests ("VOIs") totaled $369.3
million, $304.1 million and $250.8 million for 1999, 1998 and 1997,
respectively. Gross VOI revenues at the Company's destination resorts continue
to be the largest dollar contributor to VOI sales, accounting for 80.8%, 77.4%
and 80.3% of total VOI sales for 1999, 1998 and 1997, respectively. Management
anticipates revenue growth trends will continue in 2000 as a result of the
additional sales volumes to be realized from the Company's six newest
destination resorts.
Net VOI revenues increased to $370.8 million for the year ended December
31, 1999 from $301.1 million in 1998 and $256.1 million in 1997. Net VOI revenue
growth trends were affected by the same factors that impacted gross VOI revenue
growth trends, as well as revenue deferrals/recognition resulting from the
percentage of completion method of accounting.
Revenues relating to sales of VOIs in projects under construction are
recognized using the percentage-of-completion method of accounting. Under this
method of revenue recognition, revenues are recognized as construction
progresses and costs are incurred. Measures of progress are based on the
relationship of costs incurred to date, as compared to total estimated
acquisition, construction and direct selling costs. The remaining revenue and
related cost of sales are deferred and recognized as the remaining costs are
incurred. As previously noted, the Company is currently in the development stage
at certain of its projects and it is anticipated that VOI sales at these
projects will generate deferred revenue as the Company completes sales at a more
rapid pace than the completion of the related VOI units. At December 31, 1999,
the Company had deferred revenue totaling $6.7 million, which will be recognized
upon completion of the respective VOI units.
The following table reconciles VOI sales recorded to VOI revenues
recognized for the respective periods (In thousands):
<TABLE>
Year Ended December 31,
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Vacation ownership interests $369,265 $304,119 $250,802
Add: Deferred revenue at
beginning of year 8,225 5,225 10,564
Less: Deferred revenue at
end of year (6,724) (8,225) (5,225)
-------- -------- --------
Vacation ownership interests, net $370,766 $301,119 $256,141
======== ======== ========
</TABLE>
VOI cost of sales, as a percentage of related net revenues, was 25.9%,
27.8% and 26.5% for the years ended December 31, 1999, 1998 and 1997,
respectively. The decrease in 1999 was attributable to sales price increases
initiated in February 1999 to partially offset higher product costs. The
increase in 1998 was directly related to higher product costs (including
beachfront property purchased at higher prices and increased construction costs)
at certain of the Company's destination resorts.
Sales and marketing expenses, as a percentage of related net revenues, were
48.2%, 46.9% and 46.0%, for the years ended December 31, 1999, 1998 and 1997,
respectively. Exclusive of the Company's six newest destination resorts (all of
which began "start-up" operations in the second quarter of 1999), sales and
marketing expenses, as a percentage of related net revenues, were 47.1% for the
year ended December 31, 1999. New sales operations typically experience lower
operating margins in the
<PAGE>
start-up phase of operations as the Company develops its property owner base and
establishes sales and marketing programs for each new location.
The provision for loan losses, as a percentage of related net revenues, was
4.9% for the year ended December 31, 1999 and 4.7% for each of the years ended
December 31, 1998 and 1997. The Company records a provision for estimated losses
on uncollectible contracts receivable by a charge against earnings at the time
of sale. Such provision is recorded at an amount based upon various factors,
including the Company's historical cancellation experience, management's
estimate of future losses and current economic factors. The Company maintains
its allowance for contracts receivable at a level believed adequate by
management based on periodic analyses of the contracts receivable portfolio.
Resort Management
-----------------
Resort management revenues totaled $43.7 million, $37.2 million and $28.2
million for 1999, 1998 and 1997, respectively. The increases in resort
management revenues is due primarily to (i) expansion of the Company's resort
management services, including the sale of furnishings to independent resort
operators and property owners' associations, (ii) continued growth in the number
of units developed by the Company that remain under management and the
respective management fees associated with this growth and (iii) increases in
rental income.
Resort management expenses totaled $34.7 million, $31.8 million and $24.6
million for 1999, 1998 and 1997, respectively. Resort management expenses, as a
percentage of related revenues, were 79.5%, 85.5% and 87.1% for the years ended
December 31, 1999, 1998 and 1997, respectively. This trend is primarily
reflective of certain economies of scale realized by the Company as resort
management revenues increased at a more rapid pace than the related resort
management expenses.
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) net interest income and fees from the qualifying special purpose
entities ("QSPEs") and (iii) interest expense from the Company's financing
arrangements.
During 1999 and 1998, the Company sold $133.2 million and $212.7 million,
respectively, of contracts receivable to the QSPEs. At December 31, 1999 and
1998, the QSPEs held contracts receivable totaling $225.9 million and $172.1
million, respectively. The QSPEs primarily funded these purchases through
advances under their various credit agreements, with $187.6 million and $142.9
million of borrowings outstanding at December 31, 1999 and 1998, respectively.
Net interest income for the Company (including its QSPEs) totaled $43.5
million, $35.2 million and $26.8 million in 1999, 1998 and 1997, respectively.
These increases are due primarily to (i) corresponding increases in the average
outstanding balance of contracts receivable, which totaled $407.8 million in
1999, as compared to $339.5 million and $302.5 million during 1998 and 1997,
respectively, (ii) an increase in the weighted average interest rate of the
contracts receivable portfolio to 15.1% for the year ended December 31, 1999, as
compared to 14.6% for each of the years ended December 31, 1998 and 1997,
respectively, and (iii) a shift in funding sources from the Company's financing
arrangements to the credit facilities of the QSPEs, which carry a lower weighted
average cost of funds.
The Company uses interest rate caps, interest rate swaps or similar
instruments on a limited basis 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 these
instruments are recognized as adjustments of interest expense related to the
designated financing arrangements.
<PAGE>
General and Administrative
--------------------------
General and administrative expenses, as a percentage of total revenues,
were 6.6%, 7.2% and 8.7% for 1999, 1998 and 1997, respectively. These decreases
were due primarily to benefits realized from the continued integration of
Vacation Break's operational infrastructure with that of the Company, which more
than offset the costs associated with the 1998 relocation and additional other
expenses of the Company's move of the executive offices to Orlando, Florida and
the move of the credit and collection functions to Las Vegas, Nevada. The
Company anticipates that general and administration expenses will increase, in
absolute dollars, as the Company continues to invest in its management and
organizational infrastructure, in addition to its information technology
infrastructure, in order to more efficiently manage its anticipated VOI sales
growth. Management will continue to monitor these expenses and anticipates that
these expenses, as a percentage of total revenues, will remain consistent in
future periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company increased $12.7 million from
December 31, 1998 to December 31, 1999. Cash provided by operating activities
totaled $124.7 million, $67.8 million and $44.0 million in 1999, 1998 and 1997,
respectively. The single largest use of cash from operating activities involves
the increase in real estate inventories which totaled $5.5 million, $35.3
million and $16.6 million in 1999, 1998, and 1997, respectively. Real estate
inventories increased in 1999 due to VOI construction at several of the
Company's destination resorts, including resorts located in Daytona Beach,
Florida; Alexandria, Virginia; Pompano Beach, Florida and Orlando, Florida.
During 1998, the Company acquired real estate inventories in Sedona, Arizona;
Durango, Colorado; Las Vegas, Nevada and Gatlinburg, Tennessee, as well as
funded significant VOI construction at several of its other destination resorts,
including the resorts located in Alexandria, Virginia; Branson, Missouri and
Pompano Beach, Florida.
The Company's primary investment activity is the financing of VOI sales
through originations of contracts receivable. Due to increasing levels of VOI
sales, originations of contracts receivable have historically exceeded principal
collections resulting in the usage of $83.4 million and $105.3 million of cash
in 1999 and 1997. During 1998, the Company generated $24.5 million of cash from
its investing activities through the sale of contracts receivable to its wholly
owned qualifying special purpose entities.
The Company's resort development plans in 2000 are expected to require
approximately $226 million for vacation ownership building construction as well
as infrastructure, amenity and lot development. The Company expects to finance
its resort development activities through cash flow generated from operations,
sales of contracts receivable to the QSPEs and supplemented, as necessary, by
the existing revolving credit agreements or through other public or private
financing sources. The Company's projection of resort development activity is
based on a continuation of the Company's current growth projections. The actual
level of resort development may vary from current expectations in the event of a
change in the economy or the Company's inability or restrictions on obtaining
adequate credit availability.
The Company has traditionally engaged in financing activities to fund its
resort development activities and to support its loan receivable portfolio. In
1999 and 1998, the Company's financing activities used $28.6 million and $90.4
million, primarily to reduce outstanding revolving credit facilities. During
1997, the Company's financing activities provided $51.1 million.
In 1998, Fairfield repurchased $21.0 million of its Common Stock. The
repurchased shares were accounted for as treasury shares and will be used to
meet the Company's obligations under its employee stock-based plans or for other
corporate purposes. Additionally, on March 2, 2000, Fairfield's Board of
Directors authorized the repurchase of up to $60.0 million of Common Stock in
open market or privately negotiated transactions.
<PAGE>
The Company generates cash from operations primarily from the sale and
financing of VOIs which include (i) cash sales, (ii) customer down payments,
(iii) principal collections on its contracts receivable, (iv) sales of contracts
receivable to the QSPEs and (v) borrowing availability generated by customer
contracts receivable in amounts which typically range from 65% to 80% of the
outstanding balance of the contracts receivable. The Company generates
additional cash from the financing of VOI sales equal to the difference between
the interest charged on the customer contracts receivable and the interest paid
on the related borrowings.
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 intends to finance its short- and long-term cash needs, including
potential acquisitions and the stock repurchase program, 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.
Credit Facilities of the Company
--------------------------------
In 1999, the Company amended its previously existing revolving credit
agreements between Fairfield, Fairfield Acceptance Corporation - Nevada ("FAC")
and their primary lender. The Amended and Restated Revolving Credit Agreements
(the "Credit Agreements") provide borrowing availability of up to $100.0 million
(including up to $17.0 million for letters of credit) and mature in October
2001. At December 31, 1999, borrowing availability under the Credit Agreements
totaled $80.6 million and will be used to finance the Company's acquisition and
development of additional destination resorts and for the general operations of
the Company.
At December 31, 1999, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC, had outstanding borrowings of $30.3 million, which provide
for the purchase of contracts receivable from FAC. At December 31, 1999,
borrowings collateralized by these contracts receivable had a weighted average
maturity of approximately 35 months, which represents the approximate remaining
weighted average life of the underlying contracts receivable. At December 31,
1999, contracts receivable totaling $38.5 million collateralized the borrowings.
There are no additional fundings available under this financing arrangement.
Credit Facilities of Qualifying Special Purpose Entities
--------------------------------------------------------
In 1998, Fairfield Receivables Corporation ("FRC"), a wholly owned
unconsolidated qualifying special purpose subsidiary of FAC, entered into a
borrower arrangement which provides for borrowings for the purchase of contracts
receivable pursuant to a Receivables Purchase Agreement, between Fairfield, FAC
and FRC. In June 1999, the financing arrangement was amended to increase the
borrowing availability up to $250 million. At December 31, 1999, FRC held $166.1
million of contracts receivable, with outstanding associated borrowings of
$137.7 million collateralized by the contracts receivable. At December 31, 1999,
these contracts receivable had a weighted average interest rate of 16.0%, while
FRC's weighted average funding cost on the borrowed funds was 7.0%.
In 1998, Fairfield Funding Corporation, II ("FFC II"), a wholly owned
unconsolidated qualifying special purpose subsidiary of FAC, purchased $60.1
million of contracts receivable from FRC. The purchase was financed by the
issuance of $49.8 million of private placement notes. The borrowing
<PAGE>
arrangement provided for a reinvestment period whereby collateral and related
debt remained constant for an eighteen month period that ended in March 2000.
Subsequent to the reinvestment period, 100% of the principal collections on the
contracts will be used to retire the notes until such time as the debt to
collateral value equals 70%, at which time the lender and FFC II will share 70%
to 30% in the remaining principal collections. At December 31, 1999, FFC II held
$57.5 million of contracts receivable, with outstanding borrowings of $49.8
million collateralized by the contracts receivable. At December 31, 1999, these
contracts receivable had a weighted average interest rate of 15.8%, while FFC
II's weighted average funding cost on the borrowed funds was 6.8%.
Interest Rate Risk
------------------
The Company has historically derived net interest income from its financing
activities as the interest rates it charges its customers who finance their
purchases of VOIs exceed the interest rates the Company pays to its lenders.
Because substantially all of the Company's indebtedness bears interest at
variable rates and the Company's respective receivables bear interest at fixed
rates, increases in interest rates will reduce net interest margins and could
result in the rate on borrowings exceeding the rate at which financing is
provided to customers. To mitigate the impact of fluctuations in market rates of
interest, the Company has entered into interest rate swap agreements on
approximately 30% of its financing arrangements and has interest rate cap
agreements on approximately 40% of its financing arrangements. The interest rate
swap agreements effectively convert certain of the Company's variable interest
rate financing arrangements to fixed interest rate financing agreements, thereby
reducing the interest rate exposure of the Company. The Company's investment in
the QSPEs is also subject to interest rate risk for the same reasons as the
Company.
If market interest rates increased 200 basis points during 2000 as compared
to 1999, 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 $2.1 million. Comparatively, if market interest rates decreased 200
basis points during 2000 as compared to 1999, the Company's interest expense,
after considering the effects of its interest rate swap agreements, would
decrease, and net interest income and fees from the QSPEs would increase and
earnings before provision for income taxes would increase by $2.1 million. 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
based on its borrowings outstanding at December 31, 1999. These analyses do 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.
PROVISION FOR INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." At December 31, 1999, the Company had net operating loss
carryforwards totaling $78.1 million which reflect the amount available to
offset regular taxable income in future periods. Under limitations imposed by
Internal Revenue Code Section 382 ("Section 382"), certain potential changes in
ownership of the Company, which may be outside the Company's knowledge or
control, may restrict future utilization of these carryforwards. More
specifically, changes in ownership occurring within a rolling three-year period,
taking into consideration filings with the Securities and Exchange Commission on
Schedules 13D and 13G by holders of 5% or more of Fairfield's Common Stock,
whether involving the acquisition or disposition of Fairfield's Common Stock,
may impose a limitation on the Company's use of these carryforwards. If an
ownership change triggers the Section 382 limitations, the annual limitation
imposed on the use of pre-change
<PAGE>
carryforwards under present law is an amount equal to the value of the Company
immediately before the ownership change multiplied by the federally prescribed
long-term tax-exempt rate for the period in which the change occurs. At December
31, 1999, net operating loss carryforwards which are available to offset regular
taxable income, if not utilized, expire as follows: 2007 - $11.8 million; 2008 -
$5.4 million; 2009 - $3.3 million; 2010 - $16.1 million; 2011 - $21.4 million;
2012 - $1.7 million and 2018 - $18.4 million.
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 these 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. Prior to 1997, the Company had AMT net operating
loss carryforwards that could be used to offset the AMT. During 1997, these AMT
net operating loss carryforwards were fully utilized. The payment of AMT reduces
the future regular tax liability and creates a deferred tax asset. During the
years ended December 31, 1999 and 1998, the Company made AMT payments totaling
$13.1 million and $5.2 million, respectively. In the first quarter of 2000, the
company made additional AMT payments totaling $8 million and anticipates that it
will continue to make significant AMT payments in future periods.
Under Section 453(1) of the Internal Revenue Code, interest is imposed on
the amount of tax attributable to the installment payments received during any
given year on customer contracts receivable. Interest is computed for the period
beginning on the date of sale and ending on the date such installment payment is
received. If the Company is not obligated to pay tax in a particular year, no
interest is imposed because interest is based on the amount of tax paid that
year. The Company has not included an amount for interest in its tax provision
because it is not currently subject to such interest and it is uncertain that
the Company will be subject to such interest in future years. The Company
continues to monitor its tax provision and may adjust it to provide for this
interest if it becomes applicable in the future.
FINANCIAL CONDITION
Consolidated assets of the Company increased $67.5 million from December
31, 1998 to December 31, 1999. This increase is primarily attributable to a net
increase in loans receivable of $31.2 million, resulting from loan originations
exceeding principal collections and sales to the QSPEs. Property and equipment
increased due to additions in the Company's information technology
infrastructure and to the additional resort and sales facilities at the
Company's six newest destination resorts. Real estate inventories increased due
to VOI construction at several of the Company's destination resorts, including
resorts located in Alexandria, Virginia; Daytona Beach, Florida; Pompano Beach,
Florida and Orlando, Florida.
Consolidated liabilities of the Company increased $7.2 million in 1999 due
to increases in accounts payable and deferred income taxes. During 1999, the
Company began sales operations at its six newest destination resorts, in
addition to construction activities at certain of these resorts. The increase in
deferred income taxes results from the use of the installment sales method on
VOI contracts for federal income tax purposes. The outstanding balance of the
Company's revolving credit agreements continue to decline as paydowns occur and
new contracts receivable are sold to the QSPEs. Due to favorable interest rates
available through the credit facilities of the QSPEs, it is the Company's
intention to continue selling contracts receivable to the QSPEs until such time
as the credit facilities of the QSPEs are fully utilized.
Total stockholders' equity increased by $60.3 million in 1999. This
increase is due primarily to current year net earnings of $56.9 million and
proceeds totaling $3.4 million related to income tax benefits from the exercise
of stock options and warrants.
<PAGE>
SEASONALITY
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its gross revenues and net earnings from the
sale of VOIs, which have been generally higher in the second and third quarters.
This seasonality may cause significant fluctuations in the quarterly operating
results of the Company. In addition, material fluctuations in operating results
may occur due to the timing of construction of future VOI inventory and the
Company's use of the percentage of completion method of accounting for
recognizing revenues and related expenses on incomplete buildings. Additionally,
as the Company opens new resorts and expands into new markets and geographical
locations, it may experience increased or different seasonality dynamics
creating fluctuations in operating results that are different from those
experienced in the past.
CONCENTRATIONS OF RISK
Any substantial downturn in economic conditions or significant price
increases or adverse events related to the travel and tourism industry, such as
the cost and availability of fuel, could significantly depress discretionary
consumer spending and have a material adverse effect on the Company's business.
Economic downturns, including inflation, may also affect the future availability
of attractive financing for the Company or its customers. Inflation may also
affect the Company's income derived from sales of vacation packages to the
extent that its costs of providing vacation packages increase from the time the
vacation package is sold until the time the vacation is taken. Furthermore,
adverse changes in general economic conditions may adversely affect the
collectibility of the Company's contracts receivable.
The Company anticipates approximately 32% of its VOI revenues will be
concentrated in the Florida market. The Florida market is one of the largest,
and also one of the most competitive markets, for VOI sales in the United
States. Historically, natural disasters in Florida have had significant adverse
effects on tourism. Accordingly, the Florida market could become less favorable
for VOI sales or the Company's business could be adversely affected by its sales
concentration in the Florida market.
YEAR 2000 ISSUE UPDATE
The Company did not experience any significant malfunctions or errors in
its operating or business systems when the date changed from 1999 to 2000. Based
on operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the "Year 2000 issue". However, it
is possible that the full impact of the date change, which was of concern due to
computer programs that use two digits instead of four digits to define years,
has not been fully recognized. The Company will continue to monitor its computer
applications and those of its suppliers and vendors to determine that any
significant Year 2000 issues that may occur are promptly addressed. The Company
currently is not aware of any significant Year 2000 or similar issues that have
arisen for its suppliers and vendors. To date, the Company expended $1.5 million
on its Year 2000 readiness efforts, of which $1.0 million has been capitalized
representing noncompliant hardware replacement costs.
<PAGE>
FORWARD-LOOKING INFORMATION
Statements in this Form 10-K, including 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. Such 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
including those detailed below and set forth generally in this Form 10-K.
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; an increase or
decrease in the number of resort properties subject to the
percentage-of-completion method of accounting which requires deferral of sales
and profit on such projects to the extent that the construction is not
substantially complete; shifts in customer demands; changes in operating
expenses, including employee wages, commission structures and related benefits;
economic cycles; the risk of the Company incurring an unfavorable judgment in
any litigation or audit, and the impact of any related monetary or equity
damages; 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 operations.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Fairfield Communities, Inc.
We have audited the accompanying consolidated balance sheets of Fairfield
Communities, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fairfield Communities, Inc. and subsidiaries at December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Little Rock, Arkansas
February 14, 2000
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
December 31,
-------------------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 17,716 $ 5,017
Receivables, net 234,061 202,849
Real estate inventories 133,874 128,397
Investments in and net amounts due from
qualifying special purpose entities 39,385 31,917
Property and equipment, net 41,578 30,062
Restricted cash 8,624 11,154
Other assets 23,398 21,697
-------- --------
$498,636 $431,093
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 53,537 $ 79,441
Deferred revenue 23,011 27,085
Accounts payable 38,251 26,550
Deferred income taxes 38,300 19,470
Other liabilities 62,582 55,917
-------- --------
215,681 208,463
-------- --------
Stockholders' Equity:
Common stock, $.01 par value, 100,000,000
shares authorized; 50,849,153 and
50,663,851 shares issued in 1999 and
1998, respectively 509 507
Paid-in capital 124,120 120,403
Retained earnings 179,576 122,711
Unamortized value of restricted stock (259) -
Treasury stock, at cost, 6,245,723 and
6,496,959 shares in 1999 and 1998 (20,991) (20,991)
-------- --------
282,955 222,630
-------- --------
$498,636 $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)
<TABLE>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Vacation ownership interests, net $370,766 $301,119 $256,141
Resort management 43,679 37,210 28,237
Interest 29,378 33,916 37,179
Net interest income and fees
from qualifying special purpose
entities 20,524 9,739 -
Other 27,389 25,909 24,622
-------- -------- --------
491,736 407,893 346,179
-------- -------- --------
COST AND OPERATING EXPENSES
Vacation ownership interests -
cost of sales 96,112 83,743 67,846
Sales and marketing 182,289 144,996 121,638
Provision for loan losses 18,240 14,270 12,121
Resort management 34,733 31,820 24,595
General and administrative 32,630 29,517 30,079
Interest, net 6,366 8,490 10,353
Depreciation and amortization 8,001 7,072 5,157
Other 23,193 18,448 17,983
Costs associated with merger - - 13,308
-------- -------- --------
401,564 338,356 303,080
-------- -------- --------
Earnings before provision for income
taxes and extraordinary loss 90,172 69,537 43,099
Provision for income taxes 33,307 25,909 19,727
-------- -------- --------
Earnings before extraordinary loss 56,865 43,628 23,372
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit of $1,379 - - 2,195
-------- -------- --------
Net earnings $ 56,865 $ 43,628 $ 21,177
======== ======== ========
BASIC EARNINGS PER SHARE:
Earnings before extraordinary
loss $1.29 $.98 $.53
Extraordinary loss - - .05
----- ---- ----
Net earnings $1.29 $.98 $.48
===== ==== ====
DILUTED EARNINGS PER SHARE:
Earnings before extraordinary
loss $1.25 $.93 $.51
Extraordinary loss - - .05
----- ---- ----
Net earnings $1.25 $.93 $.46
===== ==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 44,041 44,544 44,200
Diluted 45,565 46,846 46,282
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
Unamortized
Value of
Common Stock Paid-in Retained Restricted Treasury
--------------
Shares Amount Capital Earnings Stock Stock Total
------ ------ ------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1997 18,886 $189 $105,324 $ 57,906 $(1,294) $ - $162,125
Net earnings - - - 21,177 - - 21,177
Amortization of
unearned compensation -
restricted stock - - - - 978 - 978
Effect of stock
splits 30,354 304 (318) - - - (14)
Activity related
to employee
stock benefit plans 106 1 2,915 - - - 2,916
Other 146 1 (1) - - - -
------ ---- -------- ------- ------- ----- -------
Balance, December 31,
1997 49,492 495 107,920 79,083 (316) - 187,182
Net earnings - - - 43,628 - - 43,628
Amortization of
unearned
compensation -
restricted stock - - - - 316 - 316
Activity related
to employee
stock benefit plans 1,172 12 11,678 - - - 11,690
Acquisition of
treasury shares - - - - - (20,991)(20,991)
Other - - 805 - - - 805
------ ---- ------- ------- ------ ------- -------
Balance, December
31, 1998 50,664 507 120,403 122,711 - (20,991)222,630
Net earnings - - - 56,865 - - 56,865
Issuance of restricted
stock - - 276 - (276) - -
Amortization of unearned
compensation -
restricted stock - - - - 17 - 17
Activity related to
employee stock
benefit plans 185 2 3,441 - - - 3,443
------ ---- -------- -------- ------ -------- -------
Balance, December
31, 1999 50,849 $509 $124,120 $179,576 $(259)$(20,991)$282,955
====== ==== ======== ======== ===== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
Year Ended December 31,
-----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 56,865 $ 43,628 $ 21,177
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 8,001 7,072 5,157
Provision for loan losses 18,240 14,270 12,121
Net interest income and fees from qualifying
special purpose entities (20,524) (9,739) -
Deferred income taxes, net 18,830 17,012 16,784
Tax benefit from exercise of stock warrants 722 4,869 612
Charges associated with merger - - 5,869
Changes in operating assets and liabilities,
net of acquisitions:
Real estate inventories (5,477) (35,258) (16,647)
Net investment activities of qualifying
special purpose entities 35,395 20,148 -
Deferred revenue (4,074) (2,684) (13,558)
Accrued income taxes (644) 6,394 6,331
Accounts payable 11,701 6,152 4,363
Other 5,625 (4,054) 1,776
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 124,660 67,810 43,985
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (19,517) (12,764) (7,019)
Principal collections on receivables 87,670 94,372 105,197
Originations of receivables (262,448) (227,514) (181,750)
Sales of receivables to qualifying
special purpose entities 110,887 170,396 -
Cash paid for acquisitions - - (13,500)
Other - - (8,242)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (83,408) 24,490 (105,314)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from financing arrangements 152,646 236,952 356,199
Repayments of financing arrangements (186,450) (327,592) (299,413)
Activity related to employee stock
benefit plans 2,721 6,821 2,304
Net decrease (increase) in restricted cash 2,530 14,453 (8,003)
Acquisition of treasury stock - (20,991) -
-------- -------- --------
Net cash (used in) provided by financing
activities (28,553) (90,357) 51,087
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 12,699 1,943 (10,242)
Cash and cash equivalents, beginning of year 5,017 3,074 13,316
-------- -------- --------
Cash and cash equivalents, end of year $ 17,716 $ 5,017 $ 3,074
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 5,807 $ 9,951 $ 11,204
Income taxes paid $ 13,540 $ 5,490 $ 710
Capitalized interest $ 1,838 $ 1,534 $ 2,986
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 1 - Organization and Summary of Significant Accounting Policies
- ------ -----------------------------------------------------------
Description of Business
- -----------------------
The operations of Fairfield Communities, Inc. ("Fairfield" and together
with its consolidated subsidiaries, the "Company") consist of (i) sales and
marketing of vacation ownership interests ("VOIs") at its resort locations and
off-site sales centers, which entitle the purchaser to use a fully furnished
vacation home at the Company's resort locations, (ii) acquiring, developing and
operating vacation ownership resorts, (iii) providing consumer financing to
individual purchasers for the purchase of vacation ownership interests and (iv)
providing property management services for which it receives fees paid by the
respective property owners' associations. The VOIs offered by the Company
consist of either undivided fee simple interests or specified fixed week
interval ownership in fully furnished vacation homes.
In 1997, Fairfield acquired all of the outstanding common stock of Vacation
Break U.S.A., Inc. ("Vacation Break") in exchange for approximately 10.6 million
shares of the Company's Common Stock. The merger was accounted for as a pooling
of interests and, accordingly, all prior period financial information was
restated as if the merger took place at the beginning of the earliest period
presented. Additionally, in 1997, Fairfield acquired the remaining 45% minority
interest in Vacation Break's joint ventures in the Palm Aire and Royal Vista
resorts for $13.5 million in cash. These acquisitions have been accounted for as
purchases and the total results of operations of these resorts have been
included in the consolidated financial statements from the date of acquisition.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of Fairfield and
its wholly owned 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") 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 interests 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>
Use of Estimates
- ----------------
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts and disclosures reported in the
consolidated financial statements and accompanying notes. Such estimates include
the allowance for loan losses on receivables, revenue recognition under the
percentage of completion method on VOI sales, depreciation of property and
equipment, accrued liabilities and deferred revenue on the sale of vacation
packages. Consequently, actual results could differ from these estimates and
assumptions.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Restricted Cash
- ---------------
Restricted cash consists primarily of deposits received on sales of VOIs
that are held in escrow until the applicable statutory rescission period has
expired and the related customer contract receivable has been recorded, and
amounts received prior to the attainment of the required 10% down payment.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. In connection with the
development of a resort property, the Company constructs guest registration
facilities and on-site sales and marketing facilities. The Company generally
retains ownership and control over these facilities. These facilities are
capitalized as property and equipment and depreciated on a straight-line basis
over their estimated useful lives, ranging generally from 10 to 25 years for
buildings and from three to seven years for furniture, fixtures and equipment.
Additions and improvements are capitalized while maintenance and repairs are
expensed as incurred. Asset and accumulated depreciation accounts are relieved
for dispositions with resulting gains or losses reflected in operations.
Real Estate Inventories
- -----------------------
Real estate inventories are stated at the lower of cost or net realizable
value. VOI inventories include the cost of land and land improvements;
construction materials; direct labor and overhead; taxes and capitalized
interest incurred during the construction of the VOI units and a portion of the
costs of amenities constructed for the use and benefit of property owners. These
costs are capitalized as inventory and are allocated to individual VOI units
based upon their relative sales values. VOIs reacquired are placed back into
inventory at the lower of their original cost basis or estimated market value.
Company management periodically reviews the carrying value of its inventories to
determine that the carrying value does not exceed market.
Receivables
- -----------
Contracts
---------
The Company's contracts receivable are regionally diversified. Generally,
VOIs are sold under installment contracts requiring a 10% - 15% down payment and
monthly installments, including interest, for periods of up to seven years. The
Company records a provision for estimated losses on uncollectible contracts
receivable by a charge against earnings at the time of sale. Such provision is
recorded at an amount based upon the Company's historical cancellation
experience, management's estimate of future losses, current economic conditions
and other relevant factors. The allowance for contracts receivable is maintained
at a level believed adequate by management based on periodic analyses of the
contracts receivable portfolio.
<PAGE>
When a contract is cancelled in a year subsequent to the year in which the
underlying sale was recorded, the outstanding balance, less recoverable costs,
is charged to the allowance for loan losses. When a contract is cancelled in the
same year as the related sale, all entries applicable to the sale are reversed
and nonrecoverable selling expenses are charged to operations. For financial
statement purposes, contracts receivable are considered delinquent and fully
reserved if a payment remains unpaid under the following conditions:
Percent of Contract Price Paid Delinquency Period
------------------------------ ------------------
Less than 25% 90 days
25% but less than 50% 120 days
50% and over 150 days
Mortgages
---------
The Company's mortgages receivable consist of a small number of
non-homogeneous loans collateralized primarily by real estate geographically
dispersed throughout the country. The allowance for mortgages receivable is
maintained at a level believed adequate by management based on periodic
evaluation of each mortgage receivable. Management's evaluation of the adequacy
of this allowance is based on past loss experience, adverse situations that may
affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, current economic
conditions and other relevant factors.
Other Assets
- ------------
Other assets consist primarily of prepaid insurance, prepaid promotional
items, prepaid postage, costs in excess of net assets acquired (intangibles),
commitment fees, debt issuance costs and miscellaneous inventories. Commitment
fees and debt issuance costs are amortized over the life of the related debt.
Intangibles are amortized over their useful lives, which do not exceed 15 years.
Revenue and Profit Recognition
- ------------------------------
VOIs sold by the Company consist of either undivided fee simple interests
or specified fixed week interval ownership in fully furnished vacation homes.
The Company recognizes VOI sales on a full accrual basis after a binding sales
contract has been executed, a 10% minimum down payment has been received, the
statutory rescission period has expired and construction is substantially
complete. In cases where construction is not substantially complete, the Company
recognizes revenues using the percentage-of-completion method of accounting.
Under this method of revenue recognition, revenues are recognized as
construction progresses and costs are incurred. Measures of progress are based
on the relationship of costs incurred to date, as compared to total estimated
acquisition, construction and direct selling costs. The remaining revenue and
related cost of sales are deferred and recognized as the remaining costs are
incurred. Additionally, sales commissions and direct marketing costs relating to
the VOIs accounted for under the percentage-of-completion method are deferred
until the associated revenues are recorded.
Until a contract for sale qualifies for revenue recognition, all payments
received are accounted for as deposits. Commissions and other selling costs,
directly attributable to the sale, are deferred until the sale is recorded. If a
contract is cancelled before qualifying as a sale, nonrecoverable selling
expenses are charged to expense and deposits forfeited are credited to income.
The Company's Discovery Vacations program allows purchasers to receive a
one-year trial membership in the FairShare Plus system. Revenues and direct
expenses related to the Discovery Vacations program are recorded at the time of
sale and are classified in "Sales and marketing" expenses in the Consolidated
Statements of Earnings.
<PAGE>
The Company sells vacation package certificates on a non-refundable basis.
The customer typically has up to 18 months to exercise the certificate, at which
time the certificate expires, if not extended generally upon payment of a
nominal fee. The earnings impact related to the sale of vacation package
certificates is generally deferred until either the vacation is taken or the
expiration period, including extension, has expired and the Company is no longer
contractually obligated to fulfill the vacation.
Resort management revenues and expenses are recognized on an accrual basis.
Earnings per Share
- ------------------
Earnings per share is based on the weighted average number of common shares
outstanding and includes both basic and diluted earnings per share computations.
Basic earnings per share is computed by dividing net earnings by the weighted
average number of common shares outstanding during the period. The computation
of diluted earnings per share includes the dilutive effects of the Company's
outstanding options and warrants, along with contingently issuable shares.
Income Taxes
- ------------
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred income
taxes are recorded for temporary differences between the financial statement
bases of assets and liabilities and their respective income tax bases and net
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted income tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities resulting from a
change in the income tax rate is recognized in income during the period of
change.
Business Segment
- ----------------
The Company operates one reportable business segment, which includes the
marketing, sales and financing of its vacation ownership resorts. 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.
Derivative Financial Instruments
- --------------------------------
The Company uses derivative financial instruments on a limited basis and
does not use them for trading purposes. However, to manage risk associated with
the Company's borrowings bearing interest at variable rates, the Company may
from time to time purchase interest rate caps, interest rate swaps or similar
instruments. Interest rate differentials paid or received under the terms of
these instruments are recognized as adjustments of interest expense related to
the designated financing arrangement.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, is effective for fiscal years beginning after June 15, 2000 and will be
adopted by the Company for the period beginning January 1, 2001. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of the derivatives will be recorded
each period in current earnings or other comprehensive income depending on
whether a derivative is designated as part of a hedge transaction, and if it is,
the type of hedge transaction. The impact of SFAS No. 133 on the Company's
results of operations, financial position or cash flows will be dependent on the
level and types of derivative instruments the Company will have entered into at
the time the standard is implemented.
Recent Accounting Pronouncements
- --------------------------------
In 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." Under
<PAGE>
the SOP, qualifying computer software costs are required to be capitalized and
amortized against income over the software's estimated useful life. The SOP was
effective for fiscal years beginning after December 15, 1998 and the Company
adopted SOP 98-1 effective January 1, 1999.
In 1997, the AICPA began a project addressing the accounting for all
vacation ownership transactions. The proposed guidance is currently in the
drafting stage of the promulgation process. The Company is unable to assess the
possible impact this proposed guidance may have on the Company's results of
operations. It is unknown at this time when, or if, this project will be
completed.
Note 2 - Receivables, net
- ------ ----------------
Receivables consisted of the following (In thousands):
<TABLE>
December 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Contracts $225,111 $197,888
Mortgages and other 24,892 17,966
-------- --------
250,003 215,854
Less allowance for loan losses (15,942) (13,005)
-------- --------
Receivables, net $234,061 $202,849
======== ========
</TABLE>
During 1999 and 1998, the Company sold $133.2 million and $212.7 million,
respectively, of contracts receivable to the QSPEs. The QSPEs primarily funded
these purchases through advances under their various credit agreements and, in
conjunction with these purchases, the Company received non-cash consideration
primarily in the form of a subordinated note receivable of $22.3 million and
$42.3 million in 1999 and 1998, respectively. At December 31, 1999 and 1998,
these entities held contracts receivable totaling $225.9 million and $172.1
million, respectively, with related borrowings of $187.6 million and $142.9
million, respectively. 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 December 31, 1999 and December 31, 1998, this allowance totaled $14.5
million and $10.3 million, respectively, and was classified in "Investments in
and net amounts due from qualifying special purpose entities" in the
Consolidated Balance Sheets.
At December 31, 1999 and 1998, the weighted average interest rate on the
Company's contracts receivable was 14.0% and 14.2%, respectively, with interest
rates on these receivables ranging generally from 13.3% to 17.9%. The Company's
contracts receivable were 98.5% and 97.8% current on a 60 day basis at December
31, 1999 and 1998, respectively.
Transactions in the allowance for loan losses were as follows (In
thousands):
<TABLE>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $13,005 $ 20,848 $16,528
Provision for loan losses 18,240 14,270 12,121
Reclassification of allowance
pertaining to receivables
sold to QSPEs (4,133) (10,326) -
Net charge-offs (11,170) (11,787) (7,801)
------- -------- -------
Balance at December 31 $15,942 $13,005 $20,848
======= ======== =======
</TABLE>
<PAGE>
Note 3 - Real Estate Inventories
- ------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
December 31,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Land and improvements $ 35,581 $ 39,814
Residential housing:
Vacation ownership 93,207 85,350
Homes 5,086 3,233
-------- --------
98,293 88,583
-------- --------
$133,874 $128,397
======== ========
</TABLE>
Note 4 - Property and Equipment, net
- ------ ---------------------------
Property and equipment, net consisted of the following (In thousands):
<TABLE>
December 31,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Land, buildings and improvements $42,143 $30,663
Furniture, fixtures and equipment 20,686 19,014
------- -------
62,829 49,677
Accumulated depreciation (21,251) (19,615)
------- -------
$41,578 $30,062
======= =======
</TABLE>
During 1999, the Company acquired property and equipment, totaling $12.0
million, to support its six newest destination resorts which began sales
operations in 1999, and for resort and sales facilities at the Company's other
destination locations. Additionally, in 1999, the Company invested $7.1 million
related to its information technology infrastructure, including the acquisition
of new hardware and software to support its anticipated VOI sales growth.
The Company has operating leases which consist primarily of building and
office space used for its sales and marketing operations, and telephone and
office equipment. Rental expense under operating leases totaled $10.2 million
for 1999, $7.2 million for 1998 and $4.8 million for 1997. At December 31, 1999,
future minimum lease commitments for non-cancelable operating leases with
initial or remaining terms in excess of one year are as follows: 2000 - $6.3
million; 2001 - $3.8 million; 2002 - $1.9 million; 2003 - $.7 million; 2004 -
$.3 million and thereafter - $.7 million.
Note 5 - Financing Arrangements
- ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
December 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Revolving credit agreements $ 9,300 $29,181
Notes payable collateralized by
contracts receivable 30,338 43,574
Notes payable - other 13,899 6,686
------- -------
$53,537 $79,441
======= =======
</TABLE>
During 1999, the Company sold $133.2 million of contracts receivable to the
QSPEs. The net proceeds received from these transactions were used to repay
borrowings under certain of the Company's financing arrangements.
<PAGE>
Revolving Credit Agreements
---------------------------
At December 31, 1999, the Company's Amended and Restated Revolving Credit
Agreements (the "Credit Agreements") provide borrowing availability of up to
$100.0 million (including up to $17.0 million for letters of credit, of which
$10.1 million is outstanding at December 31, 1999) and mature in October 2001.
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 8.2% at December 31, 1999). Borrowings under the Credit
Agreements are collateralized by contracts receivable and certain construction
work-in-process, with an aggregate book value of $186.0 million at December 31,
1999. At December 31, 1999, the Company's borrowing availability under its
Credit Agreements totaled $80.6 million.
Notes Payable Collateralized by Contracts Receivable
----------------------------------------------------
At December 31, 1999, borrowings collateralized by contracts receivable had
a weighted average maturity of approximately 35 months, which represents the
approximate remaining weighted average life of the underlying contracts
receivable. The weighted average stated interest rate on the borrowings was
5.90% at December 31, 1999. At December 31, 1999, contracts receivable totaling
$38.5 million collateralized the borrowings. Contractual maturities within the
next five years of contracts receivable which serve as collateral for and will
be used to reduce notes payable as follows: 2000 - $10.1 million; 2001 - $11.4
million; 2002 - $10.7 million; 2003 - $5.8 million and 2004 - $.5 million.
In 1998, FAC entered into an interest rate swap with its primary lender,
which provides for a fixed interest rate of 5.63% on substantially all of the
FCC Notes. This agreement is subject to the scheduled amortization of the
contracts receivable and will expire in February 2002.
Notes Payable - Other
---------------------
At December 31, 1999, notes payable - other consisted primarily of (i) a
$5.0 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 related to the Company's
10% Senior Subordinated Secured Notes (see Note 15). Scheduled principal
repayments related to the borrowing secured by the Company's office building are
as follows: 2000 - $.2 million; 2001 - $.2 million; 2002 - $.3 million and 2003
- - $4.3 million.
Note 6 - Deferred Revenue
- ------ ----------------
At December 31, 1999, the Company had deferred revenue, totaling $6.7
million, relating to sales of VOIs in projects under construction, which will be
recognized upon completion of the respective VOI units in 2000.
At December 31, 1999, the Company had net deferred revenue related to lots
sold for which development was not complete of $16.2 million. The estimated
costs to complete development work in subdivisions from which lots had been sold
totaled $13.9 million. The estimated cost of development work within the next
five years is as follows: 2000 - $.5 million; 2001 - $.5 million; 2002 - $.2
million; 2003 - $.2 million and 2004 - $.4 million.
Note 7 - Income Taxes
- ------ ------------
At December 31, 1999, the Company had net operating loss carryforwards
totaling $78.1 million which reflect the amount available to offset taxable
income in future periods. Under limitations imposed by Internal Revenue Code
Section 382 ("Section 382"), certain potential changes in ownership of the
Company, which may be outside the Company's knowledge or control, may restrict
future utilization of these carryforwards. More specifically, changes in
ownership occurring within a rolling three-year period, taking into
consideration filings with the Securities and Exchange Commission
<PAGE>
on Schedules 13D and 13G by holders of 5% or more of Fairfield's Common Stock,
whether involving the acquisition or disposition of Fairfield's Common Stock,
may impose a material limitation on the Company's use of these carryforwards. If
an ownership change triggers the Section 382 limitations, the annual limitation
imposed on the use of pre-change carryforwards under present law is an amount
equal to the value of the Company immediately before the ownership change
multiplied by the federally prescribed long-term tax-exempt rate for the period
in which the change occurs. At December 31, 1999, net operating loss
carryforwards which are available to offset regular taxable income, if not
utilized, expire as follows: 2007 - $11.8 million; 2008 - $5.4 million; 2009 -
$3.3 million; 2010 - $16.1 million; 2011 - $21.4 million; 2012 - $1.7 million
and 2018 - $18.4 million.
Components of the provision for income taxes are as follows (In thousands):
<TABLE>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $14,477 $ 8,356 $ 2,779
State - 541 164
------- ------- -------
14,477 8,897 2,943
------- ------- -------
Deferred:
Federal 15,315 14,111 14,050
State 3,515 2,901 2,734
------- ------- -------
18,830 17,012 16,784
------- ------- -------
$33,307 $25,909 $19,727
======= ======= =======
</TABLE>
In 1997, the Company recorded a tax benefit of $1.4 million related to the
extraordinary loss resulting from the early extinguishment of substantially all
of Vacation Break's debt.
Components of the variance between taxes computed at the expected federal
statutory income tax rate and the provision for income taxes are as follows (In
thousands):
<TABLE>
Year Ended December 31,
-----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory tax provision $31,560 $24,338 $15,085
State income taxes, net of
federal benefit 2,285 2,237 1,720
Impact of merger expenses - - 2,294
Other (538) (666) 628
------- ------- -------
Provision for income taxes $33,307 $25,909 $19,727
======= ======= =======
</TABLE>
<PAGE>
Significant components of the Company's net deferred tax liabilities
(taxable temporary differences) consisted of the following (In thousands):
<TABLE>
December 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 30,371 $ 40,397
Loan and cancellation loss reserves 11,826 7,672
Deferred revenue 3,104 6,267
Tax over book basis in inventory
and fixed assets 7,350 2,975
Credit carryforwards 27,809 12,694
Other 4,646 4,376
-------- --------
85,106 74,381
-------- --------
Deferred tax liabilities:
Installment sales 120,573 90,234
Other 2,833 3,617
-------- --------
123,406 93,851
-------- --------
Net deferred tax liabilities $ 38,300 $ 19,470
======== ========
</TABLE>
Note 8 - Other Liabilities
- ------ ------------------
Other liabilities consisted of the following (In thousands):
<TABLE>
December 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Accrued employee compensation and benefits $19,170 $17,592
Accrual for Discovery fulfillment 11,133 6,299
Accrued income taxes 8,043 8,687
Deposits associated with sales contracts 7,726 3,302
Accrued association subsidies 1,751 3,154
Other 14,759 16,883
------- -------
$62,582 $55,917
======= =======
</TABLE>
Note 9 - Stockholders' Equity
- ------ --------------------
Fairfield is authorized to issue 100 million shares of Common Stock, par
value of $.01 per share. During 1997, Fairfield's Board of Directors declared
two-for-one and three-for-two common stock splits. In connection with these
stock splits, the par value of the additional shares resulting from the splits,
totaling $304,000, was reclassified from paid-in capital to common stock.
In 1998, Fairfield repurchased $21.0 million of its Common Stock. These
shares, totaling 2,050,911, were accounted for as treasury shares and will be
used to meet the Company's obligations under its employee stock-based plans or
for other corporate purposes.
On October 1, 1999, the Company issued 25,000 shares of Common Stock to the
Chief Executive Officer subject to certain restrictions and forfeiture
provisions. The restricted shares were issued at no cost to the Chief Executive
Officer, and vest on the fourth anniversary of the date of grant. At issuance of
the restricted shares, unearned compensation equivalent to the market value at
the date of grant was charged to stockholders' equity and will be amortized to
compensation expense over the restricted period.
Fairfield is authorized to issue five million shares of Preferred Stock
with a par value of $.01 per share, none of which have been issued. One million
shares of Preferred Stock, which have been designated as the Series A Junior
Participating Preferred Stock, have been reserved for possible issuance in
connection with Fairfield's Rights Agreement as discussed below. The rights and
preferences of the
<PAGE>
remaining shares of authorized but unissued Preferred Stock are to be
established by Fairfield's Board of Directors at the time of issuance.
Fairfield has a Rights Agreement which provides for the issuance of
one-third of a right for each outstanding share of Fairfield's Common Stock. The
rights, which entitle the holder to purchase from Fairfield one one-hundredth of
a share of Series A Junior Participating Preferred Stock at $25 per share,
become exercisable (i) 10 business days after a person becomes the beneficial
holder of 20% or more of Fairfield's Common Stock or (ii) 10 business days
following the commencement of a tender or exchange offer for at least 20% of
Fairfield's Common Stock. Fairfield may redeem the rights at $.01 per right
under certain circumstances. The rights expire on September 1, 2002.
Certain of the Company's financing arrangements contain restrictive
covenants relating to the maintenance of certain financial ratios and other
financial requirements. Under the most restrictive covenants, the Company is
prohibited from paying dividends or making other distributions of its Common
Stock.
Note 10 - 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>
Year Ended December 31,
--------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income before extraordinary loss $56,865 $43,628 $23,372
Extraordinary loss from early
extinguishment of debt - - 2,195
------- ------- -------
Numerator for basic and diluted EPS $56,865 $43,628 $21,177
======= ======= =======
Denominator:
Denominator for basic EPS -
weighted average shares 44,041 44,544 44,200
Effect of dilutive securities:
Options and warrants 1,181 1,727 1,626
Common stock held in escrow 337 575 366
Other 6 - 90
------- ------- -------
Dilutive potential common shares 1,524 2,302 2,082
------- ------- -------
Denominator for diluted EPS - adjusted
weighted-average shares and
assumed conversions 45,565 46,846 46,282
====== ====== ======
Basic earnings per share $1.29 $.98 $.48
===== ==== ====
Diluted earnings per share $1.25 $.93 $.46
===== ==== ====
</TABLE>
Note 11 - Segment Disclosures
- ------- -------------------
The Company operates one reportable business segment, which includes the
marketing, sales and financing of its vacation ownership resorts. 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's management 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 assets include all contracts receivable. In addition, for the
consolidated financial statement presentation, portions of interest income and
interest expense allocated to the segment are included in "Net interest income
and fees from qualifying special purpose entities" in the Consolidated Statement
of Earnings.
<PAGE>
The following table summarizes VOI segment information for the periods
indicated (In thousands):
<TABLE>
Year Ended December 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
VOI revenues, net $370,766 $301,119
Interest income 61,522 49,575
Interest expense, net 17,874 14,346
Depreciation expense 3,277 2,480
</TABLE>
The differences in interest income and interest expense for the years ended
December 31, 1999 and 1998 as reported for the segment and the consolidated
interest income and interest expense are attributable to interest income and
interest expense recorded by the QSPEs. The difference between depreciation
expense reported by the segment and consolidated depreciation expense for the
same time period is attributable to depreciation expense by non-reportable
operating segments or business activities.
Reconciliation to consolidated totals (In thousands):
---------------------------------------------------
<TABLE>
Year Ended December 31,
-------------------------------------------
1999 1998
--------------------- ---------------------
Earnings Earnings
Revenues Before Taxes Revenues Before Taxes
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Total segment revenue
and operating profit, respectively $430,787 $114,816 $356,188 $90,161
Other revenues and other operating
profit, respectively 72,569 (24,532) 57,625 (20,560)
Adjustment to interest income and
net interest and fees from QSPEs (11,620) (112) (5,920) (64)
-------- -------- -------- -------
Consolidated revenues and earnings
before income taxes, respectively $491,736 $ 90,172 $407,893 $69,537
======== ======== ======== =======
</TABLE>
Other revenues consist primarily of resort management revenue and home
sales. Other operating profits includes general and administrative expenses,
which are not allocated on a segment basis.
<TABLE>
December 31,
----------------------------------
1999 1998
---- ----
<S> <C> <C>
Reportable segment total assets $ 559,530 $ 484,015
Other assets 150,578 108,856
Adjustment to contracts receivable,
allowance for loan losses
and investments in and net
amounts due from QSPEs (211,472) (161,778)
--------- ---------
Total consolidated assets $ 498,636 $ 431,093
========= =========
</TABLE>
Other assets consists primarily of property and equipment and real estate
inventories - homes. All revenues and assets of the segment are attributed to or
located in the United States. The Company does not have any customers which
represent 10 percent or more of its consolidated revenues.
Note 12 - Employee Benefit Plans
- ------- ----------------------
Savings/Profit Sharing Plan
---------------------------
The Savings/Profit Sharing Plan covers substantially all employees with one
year or more of credited service, and participants are fully vested after seven
years of credited service. The Savings/Profit Sharing Plan includes a profit
sharing feature, with annual employer discretionary contributions, and a 401(k)
feature, which allows employee elected salary deferrals, with the Company
<PAGE>
currently matching a portion of such deferrals. The amount charged to expense
related to the Savings/Profit Sharing Plan totaled $4.3 million, $3.4 million
and $2.0 million for 1999, 1998 and 1997, respectively.
Excess Benefit Plan
-------------------
The Excess Benefit Plan is a non-qualified, unfunded plan established to
provide qualifying employees with benefits to compensate them for certain
limitations imposed by federal law on the amount of compensation which may be
considered in determining employer contributions to participants' accounts under
the Savings/Profit Sharing Plan. Participants' accounts under the Excess Benefit
Plan are credited with amounts that, except for the limits of the Internal
Revenue Code, would have been contributed to such participants' accounts under
the Savings/Profit Sharing Plan. Participants' accounts under the Excess Benefit
Plan vest in accordance with the vesting schedule for profit sharing accounts
under the Savings/Profit Sharing Plan. Interest is credited to the participants'
accounts annually. The expense associated with the Excess Benefit Plan was $0.5
million for 1999 and $0.3 million for each of 1998 and 1997, respectively.
Employee Stock Purchase Plan
----------------------------
The Company has an Employee Stock Purchase Plan, whereby all full time
employees are eligible to purchase shares of the Company's Common Stock at a 15%
discount to the market price on the date of purchase. The Employee Stock
Purchase Plan is not qualified under Section 401(a) of the Internal Revenue Code
of 1996, as amended, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974.
Option and Warrant Plans
------------------------
The Company has stock option plans for certain employees and directors
which generally provide for the grant of non-qualified stock options at a price
not less than the fair market value of such shares at the date of the grant. The
options generally vest evenly over two to five years from the date of grant and
have a ten year term. The following table summarizes the activity under the
Company's option and warrant plans (shares in thousands):
<TABLE>
Weighted Average
Shares Price Per Share
--------------------- ---------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,521 4,802 3,103 $ 5.45 $ 5.66 $ 2.03
Granted 375 - 2,299 13.37 N/A 10.78
Exercised (185) (1,179) (380) 2.69 4.31 3.51
Cancelled (81) (102) (220) 8.47 14.48 6.70
----- ------ -----
Outstanding at end of year 3,630 3,521 4,802
===== ===== =====
Exercisable at end of year 2,190 1,918 2,739
===== ===== =====
Reserved for future issuance 990 1,320 220
===== ===== =====
</TABLE>
<PAGE>
The following table summarizes information concerning outstanding and
exercisable stock options and warrants as of December 31, 1999 (shares in
thousands):
<TABLE>
Outstanding Exercisable
--------------------------------- --------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of of Shares Contractual Exercise of Shares Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
Less than $2 1,465 3.2 years $ 1.02 1,465 $ 1.02
$2 - $9 370 5.3 years 3.47 370 3.47
$10 or more 1,795 8.0 years 11.28 355 10.74
----- -----
3,630 2,190
===== =====
</TABLE>
Pursuant to the provisions of SFAS No. 123 "Accounting for Stock-based
Compensation", the Company has elected to continue using the intrinsic-value
method of accounting for stock-based awards. Accordingly, the Company has not
recognized compensation expense on the issuance of its stock options and
warrants.
Pursuant to SFAS No. 123, pro forma net earnings per share has been
determined as if the Company had accounted for its stock options and warrants
under the fair value method. The fair values of these options and warrants were
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions for 1999 and 1997, respectively:
risk-free interest rates of 5.7% and 6.6%; expected dividend yields of 0% for
each year presented; volatility factors of the expected market price of the
Company's Common Stock of 50.8 and 43.8; and a weighted-average life of the
options and warrants of seven years in 1999 and six years in 1997. The
weighted-average fair value of the options and warrants granted in 1999 and 1997
was $6.68 and $4.90, respectively. There were no options granted during 1998.
For purposes of pro forma disclosures, the estimated fair value of stock
options and warrants is amortized to expense over their respective vesting
periods. The pro forma net earnings and earnings per share, assuming the Company
had elected to adopt the fair value approach, would have been $55.6 million or
$1.22 per diluted share, $42.3 million or $.91 per diluted share and $19.6
million or $.42 per diluted share, for 1999, 1998, and 1997, respectively. Such
pro forma effects are not necessarily indicative of the effect on future years.
<PAGE>
Note 13 - Qualifying Special Purpose Entities
- ------- -----------------------------------
In 1998, the Company incorporated two qualifying special purpose entities,
Fairfield Receivables Corporation and Fairfield Funding Corporation II, for the
specific purpose of purchasing contracts receivable from the Company. During
1999 and 1998, the Company sold $133.2 million and $212.7 million, respectively,
of contracts receivable to the qualifying special purpose entities.
Condensed combined financial information of the qualifying special purpose
entities is summarized as follows (In thousands):
Condensed Combined Balance Sheets
<TABLE>
December 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Restricted cash $ 16,663 $ 13,875
Contracts receivable 225,932 172,104
-------- --------
$242,595 $185,979
======== ========
LIABILITIES AND EQUITY
Notes payable $187,585 $142,863
Subordinated note to parent 28,036 18,241
Other liabilities 1,349 1,108
Due to parent 7,050 6,798
Equity 18,575 16,969
-------- --------
$242,595 $185,979
======== ========
</TABLE>
Condensed Combined Statements of Earnings
<TABLE>
Year Ended December 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues $32,144 $15,659
Expenses 15,899 8,220
------- -------
Earnings before provision for income taxes 16,245 7,439
Provision for income taxes 5,825 2,684
------- -------
Net earnings $10,420 $ 4,755
======= =======
</TABLE>
Note 14 - Supplemental Information
- ------- ------------------------
Other revenues consisted of the following (In thousands):
<TABLE>
Year Ended December 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Home sales $11,928 $12,252 $11,124
Lot sales 7,142 8,155 8,060
FairShare Plus conversion fees 3,792 2,494 2,069
Other 4,527 3,008 3,369
------- ------- -------
$27,389 $25,909 $24,622
======= ======= =======
</TABLE>
<PAGE>
Other expenses consisted of the following (In thousands):
<TABLE>
Year Ended December 31,
-----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Home cost of sales $10,489 $10,796 $ 9,800
Subsidies to property owner associations 4,211 2,488 686
Lot cost of sales 2,013 2,335 2,170
FairShare Plus conversion commissions 3,322 1,222 706
Other 3,158 1,607 4,621
------- ------- -------
$23,193 $18,448 $17,983
======= ======= =======
</TABLE>
Included in other assets at December 31, 1999 and 1998 are (i) costs in
excess of net assets acquired of $4.5 million and $4.9 million, respectively,
related primarily to the 1997 acquisition of the remaining minority interests in
certain of Vacation Break's joint ventures, (ii) prepaid assets of $9.5 million
and $4.9 million, respectively, and (iii) unamortized capitalized financing
costs of $2.8 million and $3.0 million, respectively.
Note 15- Contingencies
- ------- -------------
During 1993, two lawsuits (the "Recreation Fee Litigation") were filed
against Fairfield in the District Court of Archuleta County, Colorado. The
Recreation Fee Litigation, which seeks certification as class actions, alleges
that Fairfield wrongfully imposed an annual recreation fee on owners in
Fairfield's Pagosa, Colorado development. The Recreation Fee Litigation seeks,
among other things, refund, with interest, of recreation fees collected by
Fairfield (estimated to total in excess of $600,000), damages, punitive damages
and attorneys' fees. Two additional related lawsuits were subsequently filed in
the Archuleta County District Court: the Fiedler case, filed in October 1994,
concerns two lots, while the Lobdell case, filed in November 1994, is a
purported class action. By orders dated June 19, 1998, the Colorado District
Court generally denied plaintiffs' motions for summary judgments and granted
Fairfield's motions for summary judgments in all of the cases. Plaintiffs filed
motions to disqualify the state court judge and to vacate the June 19, 1998
summary judgment orders. The court denied these motions by orders dated February
10, 2000.
In 1993, Charlotte T. Curry, who purchased a lot from Fairfield under an
installment sale contract subsequently sold to First Federal Savings and Loan
Association of Charlotte ("First Federal"), previously a wholly-owned subsidiary
of Fairfield, filed suit against First Federal, initially alleging breach of
contract, breach of fiduciary duty and unfair trade practices. The litigation
contested Fairfield's method of calculating refunds for lot purchasers whose
installment sale contracts were cancelled due to their defaults. The Curry
lawsuit sought damages, punitive damages, treble damages under North Carolina
law for unfair trade practices, prejudgment interest and attorneys' fees and
costs. By order dated July 6, 1994, the court dismissed most claims, primarily
based on statutes of limitations, except for the claim asserting unfair trade
practices. By order filed September 15, 1995, the court denied plaintiff's
motion for class certification, which decision was upheld by the North Carolina
Court of Appeals, with the Supreme Court of North Carolina declining to grant
discretionary review. In April 1998, Ms. Curry dismissed the lawsuit. On January
7, 1998, the plaintiff's attorneys filed another lawsuit (the Scarvey lawsuit),
currently pending in Superior Court in Mecklenburg County, North Carolina, as a
purported class action, against First Federal, alleging matters similar to the
original complaint in the Curry case and seeking similar damages. The Scarvey
case seeks to relitigate the North Carolina courts' refusal to certify the Curry
case as a class action and asserts that the Curry case tolled the statute of
limitations for Ms. Scarvey's claims, which are alleged to post-date Ms. Curry's
claims. The court, by order and opinion dated February 23, 2000, determined that
the Scarvey claims are collaterally estopped from proceeding on a class action
basis and that Ms. Scarvey's claims are barred by the applicable statutes of
limitations. Ms. Scarvey has filed a motion seeking reconsideration of the
court's February 23, 2000 decision. Under the Stock Purchase Agreement for the
sale of First Federal,
<PAGE>
Fairfield agreed to indemnify the buyer against any liability in the Curry
litigation. Fairfield does not believe that it is obligated under the Stock
Purchase Agreement to indemnify the buyer of First Federal for the Scarvey
litigation, but the buyer has filed a third party action against Fairfield
contesting Fairfield's interpretation of the Stock Purchase Agreement and
asserting other common law and statutory grounds for indemnification.
During 1997, the Company's 10% Senior Subordinated Secured Notes (the "FCI
Notes"), having a principal amount of $15.1 million, matured. In settlement of
the FCI Notes, 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"), to IBJ Schroder Bank &
Trust Company, as indenture trustee for 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, which the Company
opposed, 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 indenture trustee indicates that it
has sold the Real Estate Collateral for approximately $4.4 million, although the
Company was advised in late October 1999 that one or more of the noteholders
participated in such purchase. 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 for the Second Circuit (the "Court of Appeals"), which on
May 6, 1999 reversed the District Court decision and granted 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 upheld the Company's position that the Contested Shares should not be
distributed to the noteholders without limitation, limiting any premium to $2.0
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
indenture trustee has filed a motion with the District Court, which the Company
has opposed, seeking to compel issuance of the Contested Shares and authority to
sell a portion of such shares, to permit approximately $12.3 million to be
distributed to the noteholders.
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. The Contested Shares are not included in the number
of shares outstanding for earnings per share or other purposes. The Company
anticipates that, in the event of an adverse decision on the outstanding issues
by the District Court on remand, its maximum exposure in this litigation, in
excess of amounts accrued, would not exceed $4.0 million, plus any applicable
accrued interest and fees.
During 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
<PAGE>
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.
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 the claims alleged in the state
court 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 judgment or defense costs, in
excess of amounts accrued, would be charged to operations, notwithstanding the
availability of indemnification under the Principal Stockholders Agreement.
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.
Note 16 - Fair Value of Financial Instruments
- ------- -----------------------------------
The estimated fair value amounts presented herein have been determined by
the Company using relevant market information and appropriate valuation
methodologies. However, as these estimates are subjective in nature and involve
uncertainties and significant judgment, they are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair value amounts.
The carrying value of cash and cash equivalents, restricted cash and
accounts payable approximate fair value due to the relatively short-term nature
of the financial instruments. The carrying amount of the investment in and net
amounts due from qualifying special purpose entities approximates fair value
based on valuation models using risk adjusted interest rates, estimated
pre-payments, the cost of servicing and net transaction costs. The carrying
amounts of receivables approximates fair value based on valuation models using
risk adjusted interest rates and historical pre-payment experiences to be
received on similar current receivables. The fair value of the interest rate
swap agreements approximates carrying value based on valuation models using risk
adjusted interest rates.
The carrying amounts of the Company's borrowings with variable interest
rates approximated their fair values at December 31, 1999 and 1998. The carrying
amounts of the Company's borrowings with fixed interest rates totaled $5.0
million and $5.2 million at December 31, 1999 and 1998, respectively. The fair
values of these borrowings totaled $4.8 million and $5.0 million at December 31,
1999 and 1998, respectively, and were estimated using discounted cash flow
analyses based on the Company's current borrowing rates, or other appropriate
market rates, for similar types of borrowing arrangements.
<PAGE>
Note 17 - Unaudited Consolidated Quarterly Financial Data
- ------- -----------------------------------------------
(In thousands, except per share data)
<TABLE>
Year Ended December 31, 1999
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues $99,065 $130,486 $142,484 $119,701
Total expenses 83,264 105,766 114,385 98,149
------- -------- -------- --------
Earnings before provision
for income taxes 15,801 24,720 28,099 21,552
Provision for income taxes 5,867 8,780 10,755 7,905
------- -------- -------- --------
Net earnings $ 9,934 $ 15,940 $ 17,344 $ 13,647
======= ======== ======== ========
Basic earnings per share $.23 $.36 $.39 $.31
==== ==== ==== ====
Diluted earnings per share $.22 $.35 $.38 $.30
==== ==== ==== ====
</TABLE>
<TABLE>
Year Ended December 31, 1998
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues $85,939 $107,984 $112,737 $101,233
Total expenses 72,287 86,647 93,522 85,900
------- -------- -------- --------
Earnings before provision
for income taxes 13,652 21,337 19,215 15,333
Provision for income taxes 5,247 8,199 6,975 5,488
------- -------- -------- --------
Net earnings $ 8,405 $ 13,138 $ 12,240 $ 9,845
======= ======== ======== ========
Basic earnings per share $.19 $.29 $.27 $.23
==== ==== ==== ====
Diluted earnings per share $.18 $.28 $.26 $.22
==== ==== ==== ====
</TABLE>
Note 18 - Subsequent Events (Unaudited)
- ------- -----------------------------
On March 2, 2000, Fairfield's Board of Directors authorized the repurchase
of up to $60.0 million of Common Stock in open market or privately negotiated
transactions. The repurchases may occur from time to time and are subject to
prevailing market conditions and other considerations.
On January 23, 2000, the Company entered into a letter of intent with
Carnival Corporation ("Carnival") for a proposed business combination of the
Company and Carnival by a merger of the Company and a subsidiary of Carnival. On
February 25, 2000, the Company and Carnival announced their mutual decision to
terminate the strategic merger of the companies without any liability by the
Company to Carnival. The Company incurred legal, accounting and various other
costs in anticipation of and preparation for the proposed merger. These costs,
which amounted to approximately $0.3 million, will be charged to operations in
the first quarter of 2000.
SUBSIDIARIES OF FAIRFIELD COMMUNITIES, INC.
Fairfield Communities, Inc. Delaware
Apex Marketing, Inc. Arkansas
Fairfield Acceptance Corporation-Nevada Delaware
Fairfield Capital Corporation Delaware
Fairfield Funding Corporation, II Delaware
Fairfield Receivables Corporation Delaware
Fairfield Bay, Inc. Arkansas
Fairfield Flagstaff Realty, Inc. Arizona
Fairfield Glade, Inc. Tennessee
Fairfield Homes Construction Company Florida
Fairfield Management Services, Inc. Florida
Fairfield Mortgage Acceptance Corporation Delaware
Fairfield Mortgage Corporation Arkansas
Fairfield Mountains, Inc. North Carolina
Fairfield Myrtle Beach, Inc. Delaware
Fairfield Pagosa Realty, Inc. Colorado
Fairfield Sapphire Valley, Inc. North Carolina
Fairfield Vacation Resorts, Inc. Delaware
Fairfield Virgin Islands, Inc. Delaware
Imperial Life Insurance Company Arkansas
Ocean Ranch Development, Inc. Florida
Palm Resort Group, Inc. Florida
Shirley Realty company Arkansas
Suntree Development Company Florida
The Florida Companies Florida
Vacation Break, U.S.A., Inc. Florida
Atlantic Marketing Realty, Inc. Florida
Resorts Title, Inc. Florida
Sea Gardens Beach and Tennis Resort, Inc. Florida
Serenity Yacht Club, Inc. Florida
Vacation Break at Ocean Ranch, Inc. Florida
Vacation Break Management, Inc. Florida
Vacation Break Resorts at Palm Aire, Inc. Florida
Vacation Break Resorts at Star Island, Inc. Florida
Vacation Break Resorts, Inc. Florida
Vacation Break Welcome Centers, Inc. Florida
Vacation Break International Limited Bahamas
Vacation Break Marketing Company Limited Bahamas
<PAGE>
PARTNERSHIPS
Davis Beach Company (50%) Virgin Islands
Ocean Ranch Vacation Group (100%) Florida
Palm Vacation Group (100%) Florida
Port Lucaya Resort Company Limited (50%) Bahamas
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Fairfield Communities, Inc. of our report dated February 14, 2000, included
in the 1999 Annual Report to Shareholders of Fairfield Communities, Inc.
We also consent to the incorporation by reference in the Registration Statements
(Form S-3, No. 333-19261) pertaining to the December 19, 1996 Restricted Stock
Agreement, (Form S-3, No. 333-43045) pertaining to the Vacation Break U.S.A.,
Inc. "Selling Stockholders", (Form S-3, No. 333-42963) pertaining to the Apex
Marketing, Inc. "Selling Stockholders", (Form S-8, No. 333-55841) pertaining to
the Fairfield Communities, Inc. Third Amended and Restated 1992 Warrant Plan,
(Form S-8, No. 333-16605) pertaining to the Fairfield Communities, Inc. Employee
Stock Purchase Plan, (Form S-8, No. 333-27833) pertaining to the Fairfield
Communities, Inc. Second Amended and Restated 1997 Stock Option Plan, and (Form
S-8, No. 333-42901) pertaining to the Vacation Break U.S.A., Inc. Directors'
Stock Option Plan and the Vacation Break U.S.A., Inc. 1995 Stock Option Plan of
our report dated February 14, 2000, with respect to the consolidated financial
statements incorporated herein by reference in this Annual Report (Form 10-K) of
Fairfield Communities, Inc.
Little Rock, Arkansas
March 27, 2000
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James G. Berk and/or Robert W. Howeth, severally, his true and lawful
attorney in fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign an
annual report on Form 10-K for the fiscal year of Fairfield Communities, Inc., a
Delaware corporation, ended December 31, 1999, and any or all amendments
thereto, and to file same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney in fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s) may lawfully do or cause to be done by virtue hereof.
Dated: March 21, 2000 /s/Ernest D. Bennett, III
--------------------------------
Ernest D. Bennett, III
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James G. Berk and/or Robert W. Howeth, severally, his true and lawful
attorney in fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign an
annual report on Form 10-K for the fiscal year of Fairfield Communities, Inc., a
Delaware corporation, ended December 31, 1999, and any or all amendments
thereto, and to file same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney in fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s) may lawfully do or cause to be done by virtue hereof.
Dated: March 24, 2000 /s/Philip L. Herrington
-------------------------------
Philip L. Herrington
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James G. Berk and/or Robert W. Howeth, severally, his true and lawful
attorney in fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign an
annual report on Form 10-K for the fiscal year of Fairfield Communities, Inc., a
Delaware corporation, ended December 31, 1999, and any or all amendments
thereto, and to file same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney in fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s) may lawfully do or cause to be done by virtue hereof.
Dated: March 20, 2000 /s/Gerald M. Johnston
---------------------------
Gerald M. Johnston
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James G. Berk and/or Robert W. Howeth, severally, his true and lawful
attorney in fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign an
annual report on Form 10-K for the fiscal year of Fairfield Communities, Inc., a
Delaware corporation, ended December 31, 1999, and any or all amendments
thereto, and to file same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney in fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s) may lawfully do or cause to be done by virtue hereof.
Dated: March 21, 2000 /s/Bryan D. Langton
-------------------------------
Bryan D. Langton
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James G. Berk and/or Robert W. Howeth, severally, his true and lawful
attorney in fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign an
annual report on Form 10-K for the fiscal year of Fairfield Communities, Inc., a
Delaware corporation, ended December 31, 1999, and any or all amendments
thereto, and to file same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney in fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s) may lawfully do or cause to be done by virtue hereof.
Dated: March 23, 2000 /s/Charles D. Morgan
---------------------------------
Charles D. Morgan
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James G. Berk and/or Robert W. Howeth, severally, his true and lawful
attorney in fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign an
annual report on Form 10-K for the fiscal year of Fairfield Communities, Inc., a
Delaware corporation, ended December 31, 1999, and any or all amendments
thereto, and to file same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney in fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s) may lawfully do or cause to be done by virtue hereof.
Dated: March 20, 2000 /s/William C. Scott
-------------------------------
William C. Scott
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James G. Berk and/or Robert W. Howeth, severally, his true and lawful
attorney in fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign an
annual report on Form 10-K for the fiscal year of Fairfield Communities, Inc., a
Delaware corporation, ended December 31, 1999, and any or all amendments
thereto, and to file same, with all exhibits and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney in fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s) may lawfully do or cause to be done by virtue hereof.
Dated: March 20, 2000 /s/William G. Sell
-----------------------------
William G. Sell
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert W. Howeth, severally, his true and lawful attorney in fact and
agent, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign an annual report on
Form 10-K for the fiscal year of Fairfield Communities, Inc., a Delaware
corporation, ended December 31, 1999, and any or all amendments thereto, and to
file same, with all exhibits and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney in fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney in fact and agent or his substitute(s) may
lawfully do or cause to be done by virtue hereof.
Dated: March 21, 2000 /s/James G. Berk
---------------------------------
James G. Berk
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James G. Berk, severally, his true and lawful attorney in fact and
agent, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign an annual report on
Form 10-K for the fiscal year of Fairfield Communities, Inc., a Delaware
corporation, ended December 31, 1999, and any or all amendments thereto, and to
file same, with all exhibits and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney in fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney in fact and agent or his substitute(s) may
lawfully do or cause to be done by virtue hereof.
Dated: March 21, 2000 /s/Robert W. Howeth
--------------------------------
Robert W. Howeth
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's December 31,1999 10-K 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1,000
<CASH> 17,716
<SECURITIES> 0
<RECEIVABLES> 250,003
<ALLOWANCES> 15,942
<INVENTORY> 133,874
<CURRENT-ASSETS> 0
<PP&E> 62,829
<DEPRECIATION> 21,251
<TOTAL-ASSETS> 498,636
<CURRENT-LIABILITIES> 0
<BONDS> 53,537
0
0
<COMMON> 509
<OTHER-SE> 282,446
<TOTAL-LIABILITY-AND-EQUITY> 498,636
<SALES> 414,445
<TOTAL-REVENUES> 441,835
<CGS> 130,845
<TOTAL-COSTS> 154,038
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18,240
<INTEREST-EXPENSE> 6,366
<INCOME-PRETAX> 90,172
<INCOME-TAX> 33,307
<INCOME-CONTINUING> 56,865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,865
<EPS-BASIC> 1.29
<EPS-DILUTED> 1.25
</TABLE>
