UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission File Number: 1-8096
FAIRFIELD COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0390438
(State of Incorporation) (I.R.S. Employer Identification No.)
8669 Commodity Circle, #200, Orlando, Florida 32819
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 370-5200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of July 31, 2000 totaled 42,292,963.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page
No.
----
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 3
Consolidated Statements of Earnings for the Three and Six
Months Ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
PART I - FINANCIAL INFORMATION
------ ---------------------
Item I - Financial Statements
------ --------------------
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
June 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 12,244 $ 17,716
Receivables, net 257,845 234,061
Real estate inventories 151,612 133,874
Investments in and net amounts due
from qualifying special purpose entities 49,419 39,385
Property and equipment, net 47,721 41,578
Restricted cash 14,060 8,624
Prepaid expenses and other assets 31,838 23,398
-------- --------
Total assets $564,739 $498,636
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 74,001 $ 53,537
Accounts payable 60,474 38,251
Deferred revenue 23,967 23,011
Accrued income taxes 43,628 38,300
Accrued liabilities 73,890 62,582
-------- --------
Total liabilities 275,960 215,681
-------- --------
Stockholders' Equity:
Common stock, $.01 par value, 100,000,000
shares authorized, 52,634,829 and
50,849,153 shares issued as of
June 30, 2000 and December 31, 1999,
respectively 530 509
Paid-in capital 137,430 124,120
Retained earnings 210,541 179,576
Unamortized value of restricted stock (2,064) (259)
Treasury stock, at cost, 10,341,866 and
6,245,723 shares as of June 30, 2000
and December 31, 1999, respectively (57,658) (20,991)
--------- --------
Total stockholders' equity 288,779 282,955
--------- --------
Total liabilities and stockholders'
equity $564,739 $498,636
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Vacation ownership interests, net $118,179 $99,206 $207,062 $171,964
Resort management 12,492 11,299 25,774 22,815
Interest 7,397 7,040 14,473 13,964
Net interest income and fees from
qualifying special purpose entities 5,996 4,925 12,043 9,359
Other 8,558 6,798 14,245 10,231
-------- -------- -------- --------
Total revenues 152,622 129,268 273,597 228,333
-------- -------- -------- --------
EXPENSES
Vacation ownership interests -
cost of sales 30,957 25,611 54,869 45,058
Sales and marketing 57,559 47,609 101,767 83,064
Provision for loan losses 5,656 5,132 9,740 8,754
Resort management 10,663 8,610 21,472 17,914
General and administrative 9,532 8,191 19,380 16,057
Interest, net 1,093 1,344 2,116 2,956
Depreciation and amortization 2,288 1,940 4,508 3,947
Other 5,563 6,111 9,928 10,062
Litigation expenses 4,700 - 4,700 -
-------- -------- -------- --------
Total expenses 128,011 104,548 228,480 187,812
-------- --------- -------- --------
Earnings before provision for income
taxes and extraordinary gain 24,611 24,720 45,117 40,521
Provision for income taxes 9,260 8,780 17,052 14,647
-------- -------- -------- --------
Earnings before extraordinary gain 15,351 15,940 28,065 25,874
Extraordinary gain - extinguishment
of debt 2,900 - 2,900 -
-------- -------- -------- --------
Net earnings $ 18,251 $ 15,940 $ 30,965 $ 25,874
======== ======== ======== ========
BASIC EARNINGS PER SHARE:
Earnings before extraordinary gain $0.38 $0.36 $0.66 $0.59
Extraordinary gain 0.07 - 0.07 -
----- ----- ----- -----
Net earnings $0.45 $0.36 $0.73 $0.59
===== ===== ===== =====
DILUTED EARNINGS PER SHARE:
Earnings before extraordinary gain $0.35 $0.35 $0.63 $0.57
Extraordinary gain 0.07 - 0.07 -
----- ----- ----- -----
Net earnings $0.42 $0.35 $0.70 $0.57
===== ===== ===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 40,570 44,028 42,282 43,954
====== ====== ====== ======
Diluted 43,663 45,677 44,468 45,470
====== ====== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
Six Months Ended
June 30,
---------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $30,965 $25,874
Adjustments to reconcile net earnings to net
cash provided by (used in) operating
activities:
Extraordinary gain - extinguishment of debt (2,900) -
Depreciation and amortization 4,508 3,947
Non-cash litigation expenses 4,700 -
Provision for loan losses 9,740 8,754
Net interest income and fees from
qualifying special purpose entities (12,043) (9,359)
Tax benefit from employee stock benefit plans 91 387
Changes in operating assets and liabilities:
Real estate inventories (17,738) (5,150)
Net investment activities of qualifying
special purpose entities 16,959 13,883
Deferred revenue, accounts payable and
accrued liabilities 35,787 4,388
Other (3,022) (1,081)
------- -------
Net cash provided by operating activities 67,047 41,643
------- -------
INVESTING ACTIVITIES
Purchases of property and equipment, net (10,651) (6,231)
Principal collections on receivables 44,365 42,868
Originations of receivables (160,232) (118,471)
Sales of receivables to qualifying special
purpose entities 67,393 53,469
-------- --------
Net cash (used in) provided by investing
activities (59,125) (28,365)
-------- --------
FINANCING ACTIVITIES
Proceeds from financing arrangements 130,043 64,882
Repayments of financing arrangements (101,679) (76,599)
Activity related to employee stock benefit plans 347 1,232
Repurchase of treasury stock (36,669) -
Net decrease in restricted cash (5,436) 142
-------- --------
Net cash used in financing activities (13,394) (10,343)
-------- --------
Net (decrease) increase in cash and cash
equivalents (5,472) 2,935
Cash and cash equivalents, beginning of period 17,716 5,017
-------- --------
Cash and cash equivalents, end of peri $ 12,244 $ 7,952
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 1,745 $ 2,749
======== ========
Income taxes paid $ 11,533 $ 11,876
======== ========
Capitalized interest $ 951 $ 1,340
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE 1 - GENERAL
------ -------
Organization
------------
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.
The accompanying condensed consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The interim financial information is
unaudited, but reflects all adjustments consisting only of normal recurring
accruals which are, in the opinion of management, necessary for a fair
presentation of the results of operations for such interim periods. Operating
results for the interim periods are not necessarily indicative of the results
that may be expected for the entire year because of seasonal and short-term
variations. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Annual Report on Form 10-K for
the year ended December 31, 1999.
Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of
Fairfield and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation, including
certain qualifying special purpose entities ("QSPEs") in conformity with
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." Certain
amounts in the consolidated financial statements of prior periods have been
reclassified to conform to the current period presentation.
NOTE 2 - RECEIVABLES, NET
------ ----------------
Receivables consist of the following (In thousands):
<TABLE>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Contracts $247,456 $225,111
Mortgages and other 25,611 24,892
-------- --------
273,067 250,003
Less allowance for loan losses (15,222) (15,942)
-------- --------
Receivables, net $257,845 $234,061
======== ========
</TABLE>
During the six months ended June 30, 2000, the Company sold approximately
$82.3 million of contracts receivable to the QSPEs. The QSPEs primarily funded
these purchases through advances under their various credit agreements and, in
conjunction with these sales, the Company received non-cash consideration,
primarily in the form of a subordinated note receivable, of $15.0 million.
At June 30, 2000, the QSPEs held contracts receivable totaling $255.8
million, with related borrowings of $208.7 million. Except for the repurchase of
contracts that fail to meet initial eligibility requirements, the Company is not
obligated to repurchase defaulted or any other contracts sold to the QSPEs. It
is anticipated, however, that the Company will repurchase defaulted contracts to
facilitate the remarketing of the underlying collateral. The Company maintains
an allowance for loan losses in connection with its option to repurchase the
defaulted contracts and, at June 30, 2000, this allowance totaled $14.6 million
and was classified in "Investments in and net amounts due from qualifying
special purpose entities" in the Condensed Consolidated Balance Sheets.
<PAGE>
NOTE 3 - REAL ESTATE INVENTORIES
------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Land and improvements $ 31,037 $ 35,581
Residential housing:
Vacation ownership 115,388 93,207
Homes 5,187 5,086
-------- --------
120,575 98,293
-------- --------
$151,612 $133,874
======== ========
</TABLE>
NOTE 4 - FINANCING ARRANGEMENTS
------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Revolving credit agreements $43,570 $ 9,300
Notes payable:
Collateralized by contracts receivable 24,694 30,338
Other 5,737 13,899
------- -------
$74,001 $53,537
======= =======
</TABLE>
At June 30, 2000, the Company's Amended and Restated Revolving Credit
Agreements (the "Credit Agreements") provided borrowing ability of up to $100.0
million (including up to $17.0 million for letters of credit, of which $14.2
million was outstanding at June 30, 2000) 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 8.75% at June 30, 2000). Borrowings under the Credit Agreements
are collateralized by contracts receivable and certain construction
work-in-process, with an aggregate book value of $247.6 million at June 30,
2000. At June 30, 2000, the Company's borrowing availability under its Credit
Agreements totaled $42.3 million.
At June 30, 2000, notes payable collateralized by contracts receivable had
a weighted average maturity of approximately 29 months, which represents the
approximate remaining weighted average life of the underlying contracts
receivable. The weighted average stated interest rate on the borrowings was
6.22% at June 30, 2000. At June 30, 2000, contracts receivable totaling $30.6
million collateralized the borrowings. There are no additional fundings
available under this financing arrangement.
<PAGE>
NOTE 5 - EARNINGS PER SHARE
------ ------------------
The following table sets forth the computation of basic and diluted
earnings per share ("EPS") (In thousands, except per share data):
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Earnings before extraordinary gain $15,351 $15,940 $28,065 $25,874
Extraordinary gain - extinguishment
of debt 2,900 - 2,900 -
------- ------- ------- -------
Numerator for basic and diluted EPS $18,251 $15,940 $30,965 $25,874
======= ======= ======= =======
Denominator:
Denominator for basic EPS -
weighted average shares 40,570 44,028 42,282 43,954
Effect of dilutive securities:
Shares issued in satisfaction
of certain debt and litigation 1,765 - 882 -
Options and warrants 924 1,324 950 1,166
Common stock held in escrow 278 325 278 350
Restricted common stock 126 - 76 -
------ ------ ------ ------
Dilutive potential common shares 3,093 1,649 2,186 1,516
------ ------ ------ ------
Denominator for diluted EPS -
adjusted weighted average shares
and assumed conversions 43,663 45,677 44,468 45,470
====== ====== ====== ======
Basic earnings per share $.45 $.36 $.73 $.59
==== ==== ==== ====
Diluted earnings per share $.42 $.35 $.70 $.57
==== ==== ==== ====
</TABLE>
NOTE 6 - SEGMENT DISCLOSURES
------ -------------------
The Company operates one reportable business segment, which includes the
development, 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 revenues totaled $241.6 million and $197.8 million for the six
months ended June 30, 2000 and 1999, respectively. A reconciliation of segment
operating profit to earnings before provision for income taxes and extraordinary
gain is as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total segment operating profit $35,599 $30,543 $63,870 $53,829
Other operating loss (10,988) (5,823) (18,753) (13,308)
------- ------- ------- -------
Earnings before provision for
income taxes and extraordinary
gain $24,611 $24,720 $45,117 $40,521
======= ======= ======= =======
</TABLE>
Other operating loss includes primarily general and administrative and
litigation expenses, which are not allocated on a segment basis.
NOTE 7 - SUPPLEMENTAL INFORMATION
------ ------------------------
On July 3, 2000, the Company tendered 1,764,704 shares of its Common Stock
in satisfaction of certain litigation (the "FCI Notes") as more fully described
in Note 9 - Contingencies. In connection with this transaction, the Company
recorded, in the second quarter of 2000, a pretax charge of $4.7 million, a
related non-taxable extraordinary gain of $2.9 million associated with the
extinguishment of $7.9 million of related debt, and a credit to stockholders'
equity of $11.0 million.
<PAGE>
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,
totaling approximately $0.3 million, were charged to "General and
Administrative" expenses in the first quarter of 2000.
Included in prepaid expenses and other assets at June 30, 2000 are (i)
costs in excess of net assets acquired of $4.1 million, (ii) prepaid assets of
$7.9 million and (iii) unamortized capitalized financing costs totaling $2.2
million. Included in accrued liabilities at June 30, 2000 are (i) accruals
totaling $19.9 million related to the Company's employee compensation programs
and related benefits, (ii) accruals totaling $12.6 million for the fulfillment
costs associated with the Company's Discovery Vacations program and (iii)
deposits associated with sales contracts totaling $8.7 million.
Other revenues for the six months ended June 30, 2000 and 1999 include home
sales totaling $6.4 million and $4.7 million, respectively, and lot sales
totaling $3.9 million and $2.0 million, respectively. Other expenses for the six
months ended June 30, 2000 and 1999 include costs of home sales, including
selling expenses, of $5.4 million and $4.2 million, respectively, and accrued
subsidies for certain property owners' associations totaling $.6 million and
$2.5 million, respectively.
NOTE 8 - STOCKHOLDERS' EQUITY
------ --------------------
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. As of June 30, 2000, Fairfield had repurchased $36.7 million of
its Common Stock, including commissions, utilizing availability under its
revolving credit agreements. The repurchased shares, totaling 4.4 million, 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. Additional repurchases may occur from time to time and are subject to
prevailing market conditions and other considerations.
NOTE 9 - CONTINGENCIES
------ -------------
During 1993, two lawsuits, the Storm and the Daleske cases (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 $800,000), 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. Fairfield has filed motions seeking payment of past due recreation fees,
plus interest and attorneys' fees and expenses.
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
<PAGE>
from proceeding on a class action basis and that Ms. Scarvey's claims are barred
by the applicable statutes of limitations. Ms. Scarvey filed a motion seeking
reconsideration of the court's February 23, 2000 decision, which was denied, and
has filed a notice of appeal from the court's decision. Under the Stock Purchase
Agreement for the sale of First Federal, 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.
On March 1, 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 (the "Stock
Issuance Motion") with the District Court, which the Company initially 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
in the interim to the noteholders.
On July 3, 2000, the Company tendered 1,764,704 shares of its common stock
to the indenture trustee and indicated that it would generally withdraw its
opposition to the Stock Issuance Motion. The Company believes that it is in the
Company's best interest to conclude this litigation, to avoid the continuing
expenses and need to devote management time to the defense of this action. The
Company intends to seek return of the $7.9 Million Payment and an order closing
the case. The indenture trustee has indicated that it intends to seek payment of
its fees and expenses associated with the litigation and to amend its complaint
to allege that Fairfield's wrongful failure in 1997 to issue the Contested
Shares allows the indenture trustee to seek a cash recovery from the Company,
which the indenture trustee asserts would be approximately $4.5 million, based
on an assumed net stock sales proceeds of $8.25/share, for the difference
between the value realized in selling the stock and the approximately $18
million claimed by the indenture trustee, and also has indicated that it
anticipates seeking $10 million in punitive damages. The Company expects to
oppose any theory advanced by the indenture trustee which seeks to hold the
Company liable on a recourse basis for the underlying debt obligation or for
punitive damages. 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.
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
<PAGE>
also alleges that Vacation Break breached its contract with MRG&L, that Vacation
Break misappropriated proprietary information from MRG&L and that Vacation Break
interfered with, and caused other companies to breach their contracts with
MRG&L. While the Company cannot calculate the total amount of damages sought by
MRG&L, it appears from the initial complaint, and subsequent submissions by
MRG&L's counsel, to be substantially in excess of $50 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. 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.
<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 the
second quarter of 1999, the Company began sales operations on a start-up basis
at its six newest destination resorts, located in Sedona, Arizona; Durango,
Colorado; Daytona Beach, Florida; Destin, Florida; Las Vegas, Nevada and
Gatlinburg, Tennessee.
The following table sets forth certain consolidated operating information
for the three and six months ended June 30, 2000 and 1999, respectively.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
As a percentage of total revenues:
Vacation ownership interests, net 77.4% 76.7% 75.7% 75.3%
Resort management 8.2 8.7 9.4 10.0
Interest income 4.9 5.5 5.3 6.1
Net interest income and fees
from qualifying special purpose entities 3.9 3.8 4.4 4.1
Other 5.6 5.3 5.2 4.5
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
As a percentage of related revenues:
Cost of sales - vacation ownership
interests 26.2% 25.8% 26.5% 26.2%
Resort management 85.4% 76.2% 83.3% 78.5%
Sales and marketing 47.5% 47.3% 48.2% 47.7%
Provision for loan losses 4.7% 5.1% 4.6% 5.0%
As a percentage of total revenues:
General and administrative 6.2% 6.3% 7.1% 7.0%
Depreciation and amortization 1.5% 1.5% 1.6% 1.7%
Other 3.6% 4.3% 3.6% 4.4%
</TABLE>
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
The Company reported net earnings of $31.0 million for the six months ended
June 30, 2000 on total revenues of $273.6 million. This represents a 20%
increase in both net earnings and in total revenues over the comparable six
month period in 1999. Diluted earnings per share of $.70 for the six months
ended June 30, 2000 increased 23% as compared to the similar period in 1999.
Vacation Ownership Interests
----------------------------
Gross revenues from vacation ownership interests ("VOIs") increased 23% to
$207.6 million for the six months ended June 30, 2000 as compared to $169.3
million for the six months ended June 30, 1999. Gross VOI revenues at the
Company's destination resorts continue to be the largest dollar contributor to
total VOI revenues, accounting for 80.0% of total VOI revenues for both the six
months ended June 30, 2000 and 1999, respectively.
Net VOI revenues increased 20% to $207.1 million for the six months ended
June 30, 2000 from $172.0 million for the six months ended June 30, 1999. Net
VOI revenue growth trends were affected by the same factors that impacted gross
VOI revenue growth trends as well as net revenue deferral of $0.6 million during
the six months ended June 30, 2000, related to the percentage-of-completion
method of accounting, as compared to net revenue recognition of $2.6 million for
the six months ended June 30, 1999.
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
<PAGE>
related cost of sales are deferred and recognized as the remaining costs are
incurred. 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 June 30, 2000, the Company had deferred
revenue totaling $7.3 million in projects under construction, 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>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Vacation ownership interests $118,644 $97,193 $207,626 $169,341
Add: Deferred revenue at
beginning of period 6,823 7,615 6,724 8,225
Less: Deferred revenue at
end of period (7,288) (5,602) (7,288) (5,602)
-------- ------- -------- --------
Vacation ownership interests,
net $118,179 $99,206 $207,062 $171,964
======== ======= ========= ========
</TABLE>
VOI cost of sales, as a percentage of related net revenues, increased
slightly from 26.5% for the six months ended June 30, 2000 as compared to 26.2%
for the six months ended June 30, 1999. The Company anticipates slightly higher
product costs during the remainder of 2000 as the Company develops and
constructs VOI inventory at certain of its destination resorts.
Sales and marketing expenses, as a percentage of related net revenues, were
48.2% and 47.7% for the six months ended June 30, 2000 and 1999, 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 45.9% and 47.1% for the
six months ended June 30, 2000 and 1999, respectively. New sales operations
typically experience lower operating margins in the 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,
remained relatively constant for the six months ended June 30, 2000 as compared
to the same period in 1999. The Company provides for losses on contracts
receivable by a charge against earnings at the time of sale at a rate based upon
the Company's historical cancellation experience, management's estimate of
future losses and current economic factors. The allowance for contracts
receivable is maintained at a level believed adequate by management based upon
periodic analysis of the contracts receivable portfolio. Management anticipates
the provision for loan losses will remain relatively constant during the
remainder of 2000.
Resort Management
-----------------
Resort management revenues increased 13% to $25.8 million for the six
months ended June 30, 2000 from $22.8 million for the six months ended June 30,
1999. This increase is primarily due to continued growth in the number of units
and resorts under management and the respective management fees associated with
this growth, and increased reservation income resulting from the continued
growth in the number of owners using the system. Resort management expenses
increased 20% for the six months ended June 30, 2000, as compared to the similar
period in 1999, resulting primarily from the costs associated with the
additional units and resorts under management, and additional organizational
infrastructure costs to support the Company's reservation and customer service
operations.
Net Interest Income
-------------------
For purposes of management's discussion of results of operations, net
interest income includes (i) interest earned from the Company's receivable
portfolio, (ii) interest expense from the Company's financing arrangements and
(iii) net interest income and fees from the Qualifying Special Purpose Entities
("QSPEs").
Net interest income for the Company increased 20% to $24.4 million for the
six months ended June 30, 2000, as compared to $20.4 million for the same period
in 1999. This increase is primarily attributable to (i) an increase in the
average balance of outstanding contracts receivable ($469.2 million compared
with $379.2 million for the six months ended June 30, 2000 and 1999,
respectively), and (ii) 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
<PAGE>
under the terms of these instruments are recognized as adjustments of interest
expense related to the designated financing arrangements.
General and Administrative
--------------------------
General and administrative expenses, consisting primarily of corporate
overhead, remained basically flat, as a percentage of total revenues, during the
six months ended June 30, 2000 as compared to the same period in 1999. The
Company anticipates that general and administrative expenses, in absolute
dollars, will increase 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.
Litigation Expenses
-------------------
On July 3, 2000, the Company tendered 1,764,704 shares of its Common Stock
in satisfaction of certain debt and litigation. In connection with this
transaction, the Company recorded, in the second quarter of 2000, a pretax
charge of $4.7 million, a related non-tacable extraordinary gain of $2.9 million
associated with the extinguishment of $7.9 million of related debt, and a credit
to stockholders' equity of $11.0 million.
Other
-----
Other revenues for the six months ended June 30, 2000 and 1999 include home
sales totaling $6.4 million and $4.7 million, respectively, and lot sales
totaling $3.9 million and $2.0 million, respectively. Other expenses for the six
months ended June 30, 2000 and 1999 include cost of home sales, including
selling expenses, of $5.4 million and $4.2 million, respectively, and accrued
subsidies for certain property owners' associations totaling $0.6 million and
$2.5 million, respectively.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
The Company reported net earnings of $18.3 million for the three months
ended June 30, 2000 on total revenues of $152.6 million. This represents a 14%
increase in net earnings and an 18% increase in total revenues over the
comparable three month period in 1999. Diluted earnings per share of $.42 for
the three months ended June 30, 2000 increased 20% as compared to the similar
period in 1999.
All revenue and expense trends, other than those mentioned below, for the
three months ended June 30, 2000, compared to the same period in the prior year,
were generally consistent with the trends of the related six month period.
Vacation Ownership Interests
----------------------------
Gross revenues from VOIs increased 22% to $118.6 million for the three
months ended June 30, 2000 as compared to $97.2 million for the three months
ended June 30, 1999. Gross VOI revenues at the Company's destination resorts
continue to be the largest dollar contributor to total VOI revenues, accounting
for 83% and 79% of total VOI revenues for the three months ended June 30, 2000
and 1999, respectively.
Net VOI revenues increased 19% to $118.2 million for the three months ended
June 30, 2000 from $99.2 million for the three months ended June 30, 1999. Net
VOI revenues were affected by net revenue deferral of $0.4 million during the
three months ended June 30, 2000, related to the percentage-of-completion method
of accounting, as compared to net revenue recognition of $2.0 million for the
three months ended June 30, 1999.
As previously noted, sales and marketing expenses, as a percentage of
related net revenues, increased slightly in the second quarter of 2000 as
compared to the similar period in 1999. 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 45.3% and 46.3% for the three months ended June 30, 2000 and
1999, respectively. New sales operations typically experience lower operating
margins in the start-up phase of operations as the Company develops its property
owner base and establishes sales and marketing programs for each new location.
Other
-----
Other revenues for the three months ended June 30, 2000 and 1999 include
home sales totaling $3.7 million and $2.7 million, respectively, and lot sales
totaling $2.8 million and $1.5 million, respectively. Other expenses for the
three months ended June 30, 2000 and 1999 include cost of home sales, including
selling expenses of $3.0 million and $2.4 million, respectively, and accrued
subsidies for certain property owners' associations totaling $0.1 million and
$1.3 million, respectively.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash primarily from down payments on sales of VOIs
which are financed, cash sales of VOIs, principal and interest payments on
contracts receivable, proceeds from sales of contracts receivable to the QSPEs
and borrowings collateralized by the contracts receivable. The Company also
generates cash on the interest differential between the interest charged on the
contracts receivable and the interest paid on the borrowings collateralized by
the contracts receivable.
As of June 30, 2000, the Company's cash and cash equivalents totaled $12.2
million, a decrease of $5.5 million from December 31, 1999. Cash provided by
operating activities totaled $67.0 million and $41.6 million for the six months
ended June 30, 2000 and 1999, respectively. The single largest use of cash from
operating activities involves the increase in real estate inventories which
totaled $17.7 million and $5.2 million for the six months ended June 30, 2000
and 1999, respectively.
Cash used in investing activities totaled $59.1 million for the six months
ended June 30, 2000 compared to cash used in investing activities of $28.4
million for the six months ended June 30, 1999. As a result of increased VOI
sales volumes, originations of receivables exceeded principal collections by
$115.9 million for the six months ended June 30, 2000, as compared to $75.6
million for the six months ended June 30, 1999. For the six months ended June
30, 2000 and 1999, the Company received $67.4 million and $53.5 million,
respectively, in cash from the sale of contracts receivable to the QSPEs.
Cash used in financing activities totaled $13.4 million for the six months
ended June 30, 2000 compared to cash used in financing activities of $10.3
million for the six months ended June 30, 1999. During the six months ended June
30, 2000, proceeds of financing arrangements exceeded repayments by $28.4
million, as compared to repayments of financing arrangements exceeding proceeds
of $11.7 million during the six months ended jUne 30, 1999.
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. As of June 30, 2000, Fairfield had repurchased $36.7 million of
its Common Stock, including commissions, utilizing availability under its
revolving credit agreements. The repurchased shares, totaling 4.4 million, 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. Additional repurchases may occur from time to time and are subject to
prevailing market conditions and other considerations.
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 believes that it has access to sufficient financial resources
to finance its growth, as well as to support its ongoing operations and meet
debt service and other cash requirements. However, the Company's ability to
acquire and develop additional properties, which are important components of its
growth plans, is partially dependent on the availability and cost of capital.
The Company's management monitors the status of the capital markets, and
regularly evaluates the effect that changes in capital market conditions may
have on the Company's ability to execute its announced growth plans. In the
future, the Company may negotiate additional credit facilities, or issue
corporate debt or equity securities. Any debt incurred or issued by the Company
may be secured or unsecured, at a fixed or variable interest rate, and may be
subject to such additional terms as management deems appropriate.
Credit Facilities of the Company
--------------------------------
The Amended and Restated Revolving Credit Agreements (the "Credit
Agreements") provide borrowing ability of up to $100.0 million (including up to
$17.0 million for letters of credit, of which $14.2 million was outstanding at
June 30, 2000) and mature in October 2001. Borrowings under the Credit
Agreements are collateralized by contracts receivable and certain construction
work-in-process, with an aggregate book value of $247.6 million at June 30,
2000. At June 30, 2000, the Company's borrowing availability under its Credit
Agreements totaled $42.3 million.
At June 30, 2000, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC - Nevada, had outstanding borrowings of $24.7 million under
the FCC Agreement, which provide for the purchase of contracts
<PAGE>
receivable from FAC - Nevada. At June 30, 2000, contracts receivable totaling
$30.6 million collateralized the FCC borrowings. There are no additional
fundings available under the FCC Agreement.
Credit Facilities of Qualifying Special Purpose Entities
--------------------------------------------------------
The credit facilities of the QSPEs provide for borrowings of up to $300.0
million for the purchase of contracts receivable from FAC - Nevada. At June 30,
2000, the QSPEs held $253.1 million of contracts receivable, with outstanding
associated borrowings of $208.7 million collateralized by the contracts
receivable.
Income Taxes
------------
The Company reports its sales of VOIs on the installment method for federal
income tax purposes. Under this method, the Company does not recognize taxable
income on VOI sales until the installment payments have been received from the
Company's customers. The Company's federal alternative minimum tax ("AMT") is
impacted by the net deferral of income resulting from the Company's election of
the installment sales method. The payment of AMT reduces the future regular tax
liability and creates a deferred tax asset. For the six months ended June 30,
2000, the Company made AMT payments totaling $11.5 million and anticipates that
it will continue to make significant AMT payments in future periods.
FORWARD-LOOKING INFORMATION
Statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations include certain forward-looking statements,
including (without limitation) statements with respect to anticipated future
operating and financial performance, growth and acquisition opportunities and
other similar forecasts and statements of expectation. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended to
identify these forward-looking statements. 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.
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 profits 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 business.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------ ----------------------------------------------------------
The Company is exposed to interest rate changes primarily as a result of
its fixed-rate financing of VOI purchases and variable-rate borrowings under its
financing arrangements. The Company uses interest rate cap and swap agreements
in an effort to mitigate the impact of fluctuations in those market rates of
interest. If market interest rates had increased 200 basis points for the six
months ended June 30, 2000, the Company's interest expense, after considering
the effects of its interest rate cap and swap agreements, would increase, net
interest income and fees from the QSPEs would decrease and earnings before
provision for income taxes would decrease by a total of $0.9 million. These
amounts are determined by considering the impact of the hypothetical interest
rates on the Company's borrowing costs and interest rate cap and swap
agreements. This analysis does not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in the Company's financial structure.
There have been no material changes to the Company's exposure to market risk
since December 31, 1999.
<PAGE>
PART II - OTHER INFORMATION
------- -----------------
Item 1 - Legal Proceedings
Incorporated by reference to the description of legal
proceedings in the "Contingencies" footnote in the financial
statements set forth in Part I, "Financial Information".
Item 4 - Submission of Matters to a Vote of Security Holders
The 2000 Annual Meeting of Stockholders was held on May 18,
2000. The following items of business were presented to the
stockholders:
1. To elect nine directors to the Company's Board of Directors.
Director For Withheld
-------- --- --------
Ernest D. Bennett, III 34,072,287 796,211
James G. Berk 31,613,048 3,255,450
Philip A. Clement 34,163,935 704,563
John D. Hayes 34,163,435 705,063
Philip L. Herrington 34,168,720 699,778
Gerald M. Johnston 34,169,980 698,518
Ilan Kaufthal 34,163,735 704,763
Bryan D. Langton 34,170,280 698,218
William C. Scott 34,172,086 696,412
2. To approve the adoption of the Fairfield Communities, Inc. 2000
Incentive Stock Plan.
For Against Abstain
--- ------- -------
32,005,586 2,322,176 540,736
3. To approve the adoption of an amendment to the Fairfield
Communities, Inc. 1997 Stock Option Plan.
For Against Abstain
--- ------- -------
32,819,439 1,506,068 542,991
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
-------------------
On July 17, 2000, the Company filed a report describing the
issuance of 1,764,704 shares of its Common Stock in satisfaction
of debt and certain litigation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FAIRFIELD COMMUNITIES, INC.
Date: August 11, 2000 /s/ Robert W. Howeth
-------------------------- -------------------------------------
Robert W. Howeth, Executive Vice President
and Chief Financial Officer
Date: August 11, 2000 /s/ William G. Sell
-------------------------- -------------------------------------
William G. Sell, Senior Vice President
and Controller
(Chief Accounting Officer)
<PAGE>
FAIRFIELD COMMUNITIES, INC.
EXHIBIT INDEX
-------------
Exhibit
Number
-------
3(a) Second Amended and Restated Certificate of Incorporation of the
Registrant, effective September 1, 1992 (previously filed with
the Registrant's Current Report on Form 8-K dated September 1,
1992 and incorporated herein by reference)
3(b) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (previously filed as Exhibit 4.2
to the Registrant's Form S-8, SEC File No. 333-42901, and
incorporated herein by reference)
3(c) Fifth Amended and Restated Bylaws of the Registrant, dated May 9,
1996 (previously filed with the Registrant's Current Report on
Form 8-K dated May 22, 1996 and incorporated herein by reference)
4.1 Supplemented and Restated Indenture between the Registrant,
Fairfield River Ridge, Inc., Fairfield St. Croix, Inc. and IBJ
Schroder Bank & Trust Company, as Trustee, and Houlihan Lokey
Howard & Zukin, as Ombudsman, dated September 1, 1992, related to
the Senior Subordinated Secured Notes (previously filed with the
Registrant's Current Report on Form 8-K dated September 1, 1992
and incorporated herein by reference)
4.2 First Supplemental Indenture to the Supplemented and Restated
Indenture, dated September 1, 1992 (previously filed with the
Registrant's Current Report on Form 8-K dated September 1, 1992
and incorporated herein by reference)
4.3 Second Supplemental Indenture to the Supplemented and Restated
Indenture, dated September 1, 1992 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference)
4.4 Third Supplemental Indenture to the Supplemented and Restated
Indenture, dated March 18, 1993 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993 and incorporated herein by reference)
4.5 Certificate of Designation, Preferences, and Rights of Series A
Junior Participating Preferred Stock, dated September 1, 1992
(previously filed with the Registrant's Current Report on Form
8-K dated September 1, 1992 and incorporated herein by reference)
10.1 Registrant's Fourth Amended and Restated 1997 Stock Option Plan,
adopted May 18, 2000 (attached)
10.2 Amendment Number One to Employment Agreement by and between the
Registrant and James G. Berk, dated April 12, 2000 (attached)
10.3 Amendment to Employment Agreement by and between the Registrant
and James G. Berk, dated June 27, 2000 (attached)
27 Financial Data Schedule (attached)
