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.