SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 1-10153
HOMEFED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0304982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1903 Wright Place, Suite 220, Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)
(760) 918-8200
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date. On November
3, 2000, there were 56,807,826 outstanding shares of the Registrant's Common
Stock, par value $.01 per share.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 and December
31, 1999 (Dollars in thousands,
except par value)
----------------------------------------
September 30, December 31,
2000 1999
-------------- -------------
(Unaudited)
ASSETS
Land and real estate held for development and sale $ 22,731 $ 23,707
Cash and cash equivalents 1,281 2,795
Restricted cash 177 868
Deposits and other assets 430 158
--------- ---------
TOTAL $ 24,619 $ 27,528
========= =========
LIABILITIES
Note payable to Leucadia Financial Corporation $ 21,232 $ 20,552
Recreation center liability 259 970
Accounts payable and accrued liabilities 1,662 1,905
--------- ---------
Total liabilities 23,153 23,427
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 11,958 11,208
--------- ---------
STOCKHOLDERS' DEFICIT
Common Stock, $.01 par value; 100,000,000 shares authorized;
56,807,826 and 56,557,826 shares outstanding 568 566
Additional paid-in capital 355,055 354,833
Deferred compensation pursuant to stock incentive plans (184) --
Accumulated deficit (365,931) (362,506)
--------- ---------
Total stockholders' deficit (10,492) (7,107)
--------- ---------
TOTAL $ 24,619 $ 27,528
========= =========
See notes to interim consolidated financial statements.
2
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the periods ended September 30, 2000 and 1999
(In thousands, except per share amounts)
(Unaudited)
---------------------------------------------------
For the Three For the Nine
Month Period Ended Month Period Ended
September 30, September 30,
------------------ --------------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES:
Sales of residential properties $ -- $ 350 $ 1,575 $ 2,600
Marketing, field overhead and management service
fee income from San Elijo Hills 944 -- 2,082 --
Equity in losses from Otay Land Company, LLC -- (256) -- (779)
------- ------- ------- -------
944 94 3,657 1,821
------- ------- ------- -------
EXPENSES:
Cost of sales -- 418 1,544 2,636
Provision for losses on real estate investments -- -- -- 255
Interest expense relating to Leucadia Financial Corporation 633 609 1,868 1,789
General and administrative expenses 1,143 677 2,899 1,854
Management fees to Leucadia Financial Corporation 69 74 210 222
------- ------- ------- -------
1,845 1,778 6,521 6,756
------- ------- ------- -------
Loss from operations (901) (1,684) (2,864) (4,935)
Other income 26 72 179 174
------- ------- ------- -------
Loss before income taxes and minority interest (875) (1,612) (2,685) (4,761)
Income tax benefit/(provision) 25 (10) 10 (30)
------- ------- ------- -------
Loss before minority interest (850) (1,622) (2,675) (4,791)
Minority interest (250) (30) (750) (30)
------- ------- ------- -------
Net loss $(1,100) $(1,652) $(3,425) $(4,821)
======= ======= ======= =======
Basic loss per common share $ (.02) $ (.03) $ (.06) $ (.20)
======= ======= ======= =======
Diluted loss per common share $ (.02) $ (.03) $ (.06) $ (.20)
======= ======= ======= =======
See notes to interim consolidated financial statements.
3
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Deficit
For the nine months ended September 30, 2000 and 1999
(In thousands)
(Unaudited)
----------------------------------------------
Deferred
Common Compensation
Stock Additional Pursuant to Total
$.01 Par Paid-In Stock Incentive Accumulated Stockholders'
Value Capital Plans Deficit Deficit
--------- ----------- ---------------- ------------ ----------------
Balance, January 1, 1999 $ 100 $ 346,919 $(355,224) $ (8,205)
Issuance of 46,557,826 shares of
Common Stock 466 7,914 8,380
Net loss (4,821) (4,821)
--------- --------- ----- --------- ---------
Balance, September 30, 1999 $ 566 $ 354,833 $(360,045) $ (4,646)
========= ========= ===== ========= =========
Balance, January 1, 2000 $ 566 $ 354,833 $(362,506) $ (7,107)
Issuance of 250,000 shares of
Common Stock 2 186 $(188) --
Amortization related to restricted
stock grants 36 36
Grant of 50,000 stock options 36 (36) --
Amortization related to stock options 4 4
Net loss (3,425) (3,425)
--------- --------- ----- --------- ---------
Balance, September 30, 2000 $ 568 $ 355,055 $(184) $(365,931) $ (10,492)
========= ========= ===== ========= =========
See notes to interim consolidated financial statements.
4
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended
September 30, 2000 and 1999
(In thousands)
(Unaudited)
------------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,425) $(4,821)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for losses on real estate investments -- 255
Minority interest 750 30
Amortization of deferred compensation pursuant to stock incentive plans 40 --
Amortization of debt discount on note payable to Leucadia Financial Corporation 680 601
Equity in losses from Otay Land Company, LLC -- 779
Changes in operating assets and liabilities:
Land and real estate held for development and sale 976 2,236
Deposits and other assets (272) (122)
Recreation center liability (711) 133
Accounts payable and accrued liabilities (243) 513
Decrease (increase) in restricted cash 691 (2)
------- -------
Net cash used in operating activities (1,514) (398)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Contributions to Otay Land Company, LLC -- (850)
Decrease in investments -- 79
------- -------
Net cash used in investing activities -- (771)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from the sale of Common Stock -- 1,670
------- -------
Net cash provided by financing activities -- 1,670
------- -------
Net (decrease) increase in cash and cash equivalents (1,514) 501
Cash and cash equivalents, beginning of period 2,795 3,120
------- -------
Cash and cash equivalents, end of period $ 1,281 $ 3,621
======= =======
See notes to interim consolidated financial statements.
5
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements, which reflect all
adjustments (consisting only of normal recurring items) that management
believes are necessary to present fairly the financial position, results of
operations and cash flows, should be read in conjunction with the audited
consolidated financial statements for HomeFed Corporation for the year
ended December 31, 1999 which are included in the Company's Annual Report
on Form 10-K, as amended by Form 10-K/A, for such year (the "1999 10-K").
Results of operations for interim periods are not necessarily indicative of
annual results of operations. The consolidated balance sheet at December
31, 1999 was derived from the Company's audited consolidated financial
statements in the 1999 10-K, and does not include all disclosures required
by generally accepted accounting principles for annual financial
statements.
During the third quarter of 1999, the limited liability agreement governing
Otay Land Company, LLC ("Otay Land Company") was amended and as a result,
the Company now has the ability to control Otay Land Company. Accordingly,
effective September 20, 1999, Otay Land Company has been included in the
Company's consolidated financial statements. The Company previously had
accounted for this investment under the equity method of accounting; the
noncash effects on the consolidated financial statements were a decrease in
the investment in Otay Land Company of $9,988,000, an increase in minority
interest of $10,928,000 and an increase in land and real estate held for
development and sale of $20,976,000.
2. As of August 14, 1998, the Company and Leucadia Financial Corporation
("LFC"), a wholly-owned subsidiary of Leucadia National Corporation
("Leucadia") entered into an Amended and Restated Loan Agreement, pursuant
to which the Company and LFC amended the original loan agreement dated July
3, 1995 and restructured the outstanding 12% Secured Convertible Note due
2003 held by LFC. The Restructured Note has a principal amount of
approximately $26,462,000 (reflecting the original $20,000,000 principal
balance of the Convertible Note, together with additions to principal
resulting from accrued and unpaid interest thereon to the date of the
restructuring, as allowed under the terms of the Convertible Note), extends
the maturity date from July 3, 2003 to December 31, 2004, reduces the
interest rate from 12% to 6% and eliminates the convertibility feature of
the Convertible Note. Interest only on the Restructured Note is paid
quarterly and all unpaid principal is due on the maturity date. Interest of
approximately $1,188,000 was expensed and paid for the Restructured Note
during each of the nine month periods ended September 30, 2000 and 1999. As
a result of the restructuring of the Convertible Note, the Restructured
Note was recorded at fair value and the approximate $7,015,000 difference
between such amount and the carrying value of the Convertible Note was
reflected as additional paid-in capital. The $7,015,000 difference between
the fair value of the Restructured Note and the carrying value of the
Convertible Note will be amortized over the term of the Restructured Note
using the interest method. Approximately $680,000 and $601,000,
respectively, was amortized as interest expense during the nine month
periods ended September 30, 2000 and 1999.
3. Basic and diluted loss per share of Common Stock was calculated by dividing
the net loss by the weighted average shares of Common Stock outstanding.
The number of shares used to calculate basic and diluted loss per Common
Share was 56,807,826 and 53,015,383 for the three month periods ended
September 30, 2000 and 1999, respectively, and 56,746,695 and 24,496,096
for the nine month periods ended September 30, 2000 and 1999, respectively.
The calculation of diluted loss per share does not include common stock
equivalents of 1,186,000 for the three month and nine month periods ended
September 30, 2000 which are antidilutive.
4. As of October 14, 1998, the Company and Leucadia formed Otay Land Company.
The Company has contributed $11,375,000 as capital and Leucadia has
contributed $10,000,000 as a preferred capital interest. The Company is the
manager of Otay Land Company. Otay Land Company has acquired, for
approximately $19,500,000, approximately 4,935 acres of land which is part
of a 22,900 acre project located south of San Diego, California, known as
Otay Ranch.
6
Notes to Interim Consolidated Financial Statements
(continued)
5. Pursuant to administrative service agreements, LFC provides administrative
services to the Company, including providing the services of two of the
Company's executive officers. Effective March 1, 2000, the Company and LFC
entered into a new one year administrative services agreement pursuant to
which the Company pays LFC an administrative fee of $276,000. For these
services, the Company expensed $69,000 and $74,000 for the three month
periods ended September 30, 2000 and 1999, respectively, and $210,000 and
$222,000 for the nine month periods ended September 30, 2000 and 1999,
respectively.
The Company's corporate office is in part of an office building subleased
from Leucadia for a monthly amount equal to its share of Leucadia's cost
for such space and furniture. In connection with these rentals, the Company
expensed $57,000 and $44,000 for the three month periods ended September
30, 2000 and 1999, respectively, and $162,000 and $134,000 for the nine
month periods ended September 30, 2000 and 1999, respectively.
6. On March 8, 2000, options to purchase an aggregate of 180,000 shares of
Common Stock were granted to eligible participants under the Company's 1999
Stock Incentive Plan (the "1999 Plan") at an exercise price of $.75 per
share (market price) and an aggregate of 250,000 shares of restricted
Common Stock were issued to eligible participants under the 1999 Plan,
subject to certain forfeiture provisions. Of the 180,000 options granted,
50,000 were granted to non-employees, resulting in deferred compensation of
$36,000 based upon the estimated fair value of these options at the time of
grant, using the modified Black Scholes model. This amount will be
amortized over the five year vesting period of the options. In connection
with the issuance of restricted stock, the Company recorded deferred
compensation of $188,000 representing the value of stock on the date of
issuance based upon market price. This amount will be amortized over the
three year vesting period of the restricted stock at which time all
remaining forfeiture provisions will end.
On July 12, 2000, options to purchase an aggregate of 6,000 shares of
Common Stock were granted to members of the Board of Directors under the
1999 Plan at an exercise price of $.70 per share, the then current market
price per share.
On July 12, 2000, the Company's Stockholders approved the Company's 2000
Stock Incentive Plan pursuant to which options to purchase an aggregate of
1,000,000 shares of Common Stock were granted to two key employees on April
27, 2000 at an exercise price of $.61 per share, the then current market
price per share. The options are subject to achievement of performance
goals as determined by the Board of Directors and are exercisable over a
six year period. Options and any stock issued on exercise of an option are
subject to forfeiture if the performance goals are not met within three
years from the date of grant. Deferred compensation, representing the
difference between the exercise price and the then current market price, is
subject to change based upon fluctuations in the Company's stock price. The
deferred compensation will be amortized over the expected performance
period of three years. At September 30, 2000, no deferred compensation was
recognized relating to these options since the exercise price exceeded the
quoted market price.
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Interim Operations.
The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's 1999 10-K.
LIQUIDITY AND CAPITAL RESOURCES
For the nine month periods ended September 30, 2000 and September 30, 1999, net
cash was used in operating activities, principally to fund interest and general
and administrative expenses. The Company's principal sources of funds are fee
income earned from the San Elijo Hills project, proceeds from the sale of the
Paradise Valley school site and dividends or borrowings from its Otay Land
Company subsidiary. The Company is dependent upon these cash flows to pay its
expenses, including debt service payments.
The Company expects that its cash on hand, together with the sources described
above will be sufficient to meet its cash flow needs for the foreseeable future.
If, at any time in the future, the Company's cash flow is insufficient to meet
its then current cash requirements, the Company could accelerate its
subsidiaries' sale of real estate projects held for development or seek to
borrow funds. However, because all of the Company's assets are pledged to LFC to
collateralize its $26,462,000 borrowing from LFC, it may be unable to obtain
financing at favorable rates from sources other than LFC. In addition, any
distributions relating to the Otay Land Company must first repay Leucadia's
preferred return and preferred capital, before such funds are distributable to
the Company.
The Development Agreement provides that the Company will receive certain fees in
connection with the project. These fees consist of marketing, field overhead and
management service fees. These fees are based on a fixed percentage of gross
revenues of the project, less certain expenses allocated to the project, and are
expected to cover the Company's cost of providing services under the Development
Agreement. During the nine month period ended September 30, 2000, the Company
received approximately $1,861,000 for such fees and collected the accrued
balance of approximately $221,000 in October 2000. The Development Agreement
also provides for a success fee to the Company out of the project's net cash
flow, if any, as described below, up to a maximum amount. Whether the success
fee, if it is earned, will be paid to the Company prior to the conclusion of the
project will be at the discretion of the project owner.
To determine "net cash flow" for purposes of calculating the success fee, all
cash expenditures of the project will be deducted from total revenues of the
project. Examples of "expenditures" for these purposes include land development
costs, current period operating costs, and indebtedness, either collateralized
by the project ($29,289,000 at September 30, 2000, which is non-interest
bearing), or owed by the project's owner to Leucadia ($62,864,000 at September
30, 2000) (collectively, "Indebtedness"). As a success fee, the Company is
entitled to receive payments out of net cash flow, if any, up to the aggregate
amount of the Indebtedness. The balance of the net cash flow, if any, will be
paid to the Company and the project owner in equal amounts. However, the amount
of the success fee cannot be more than 68% of net cash flow minus the amount of
Indebtedness. The Company believes that any success fee that it may receive will
be its principal source of revenue earned through its participation in the San
Elijo Hills project pursuant to the Development Agreement. There can be no
assurance, however, that the Company will receive any success fee at all for
this project.
As of September 30, 2000, the Company owed $26,462,000 principal amount to LFC.
This amount is payable on December 31, 2004 and bears interest at 6% per year.
This obligation is reflected in the consolidated balance sheet, net of discount,
at $21,232,000 as of September 30, 2000. During the nine months ended September
30, 2000, the Company paid to LFC $1,188,000 in interest.
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Interim Operations, (continued)
In April 2000, the Company sold two clustered housing development sites at the
Paradise Valley project for net proceeds of $1,494,000. The Company has certain
continuing obligations with respect to this project, including the obligation to
construct a recreation center. The Company estimates that construction of the
recreation center for the Paradise Valley Community will be completed at a cost
of approximately $1,200,000. Construction of the recreation center began in 1999
and is expected to be completed in 2000. Cash of $1,000,000 was deposited in an
escrow account that is being drawn upon as the recreation center is being
completed. At September 30, 2000, $177,000 remained in escrow.
In connection with an indemnity agreement to a third party surety entered into
in 1990 in connection with the construction of infrastructure improvements in a
development located in LaQuinta, California, a subsidiary of the Company is
required to maintain a minimum net worth of $5,000,000 and a minimum cash
balance of $400,000. Failure to meet both of these requirements would trigger
the subsidiary's obligation to provide an irrevocable letter of credit of
approximately $460,000 based upon current estimates. The subsidiary currently
meets the minimum cash balance requirement. In November 2000, the agreement was
amended to eliminate the cash balance and letter of credit requirements and
reduce the net worth requirement, which the subsidiary meets.
RESULTS OF OPERATIONS
During the three month and nine month periods ended September 30, 2000, as a
result of the sale of certain lots in the San Elijo Hills project, the Company
recognized $944,000 and $2,082,000, respectively, of marketing, field overhead
and management service fee income in accordance with the terms of the
Development Agreement. During the three month and nine month periods ended
September 30, 1999, no sales occurred in the San Elijo Hills project and no fee
income was recognized.
Sales of residential properties decreased in the three and nine month periods
ended September 30, 2000 as compared to the same periods ended September 30,
1999. During the nine month period ended September 30, 2000, the Company sold
two clustered housing development sites at the Paradise Valley project. During
the same period in 1999, the Company sold 75 residential lots and one clustered
housing development site in the Paradise Valley project. Cost of sales recorded
during these periods reflects the level of sales activity.
Interest expense for the three month and nine month periods ended September 30,
2000 reflects $398,000 and $1,188,000, respectively, paid to LFC on the
Restructured Note and $235,000 and $680,000, respectively, resulting from the
amortization of a portion of the difference between the fair value of the
Restructured Note and the carrying value of the Convertible Note. Interest
expense for the three month and nine month periods ended September 30, 1999
reflects interest of $401,000 and $1,188,000, respectively, paid to LFC on the
Restructured Note and $208,000 and $601,000, respectively, resulting from the
amortization of a portion of the difference between the fair value of the
Restructured Note and the carrying value of the Convertible Note.
General and administrative expenses increased in both the three month and nine
month periods ended September 30, 2000 as compared to the same periods in 1999
due to increased operating activities in connection with the San Elijo Hills
project and Otay Ranch project.
Income taxes for all periods presented principally relates to state franchise
taxes. The Company has not recorded federal income tax benefits for its
operating losses due to the uncertainty of sufficient future taxable income
which is required in order to record such tax benefits.
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Interim Operations, (continued)
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Interim Operations may contain forward-looking
statements. Such forward-looking statements are made pursuant to the safe-
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
statements may relate, but are not limited, to projections of revenues, income
or loss, capital expenditures, plans for growth and future operations,
competition and regulation as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted or quantified. When used in Management's
Discussion and Analysis of Financial Condition and Results of Interim Operations
the words "estimates", "expects", "anticipates", "believes", "plans", "intends"
and variations of such words and similar expressions are intended to identify
forward-looking statements that involve risks and uncertainties. Future events
and actual results could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements. The factors that could cause
actual results to differ materially from those suggested by any such statements
include, but are not limited to those discussed or identified from time to time
in the Company's public filings, including changes in general economic and
market conditions, changes in domestic laws and government regulations or
requirements (including those relating to the environment), changes in real
estate pricing environments, regional or general changes in asset valuation,
demographic and economic changes in the United States generally and California
in particular, increases in real estate taxes and other local government fees,
significant competition from other real estate developers and homebuilders,
decreased consumer spending for housing, delays in construction schedules and
cost overruns, availability and cost of land, materials and labor, increased
development costs beyond the Company's control, damage to properties or
condemnation of properties, the occurrence of significant natural disasters, the
inability to insure certain risks economically, the adequacy of loss reserves,
changes in prevailing interest rate levels and changes in the composition of the
Company's assets and liabilities through acquisitions or divestitures. Undue
reliance should not be placed on these forward-looking statements, which are
applicable only as of the date hereof. The Company undertakes no obligation to
revise or update these forward-looking statements to reflect events or
circumstances that arise after the date of this Report or to reflect the
occurrence of unanticipated events.
10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The following matters were submitted to a vote of stockholders at the Company's
2000 Annual Meeting of Stockholders held on July 12, 2000.
a) Election of directors.
Number of Shares
----------------
For Withheld
----- ----------
Patrick D. Bienvenue 49,081,065 108,704
Paul J. Borden 49,081,513 108,256
Timothy M. Considine 49,081,507 108,262
Ian M. Cumming 49,081,377 108,392
Michael A. Lobatz 49,080,240 109,529
Joseph S. Steinberg 49,080,407 109,362
b) Approval of the Company's 2000 Stock Incentive Plan.
For 46,864,027
Against 1,144,081
Abstentions 1,181,661
Broker non-votes -
c) Ratification of PricewaterhouseCoopers LLP, as independent
auditors for the year ended December 31, 2000.
For 49,118,749
Against 38,508
Abstentions 32,512
Broker non-votes -
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
27 Financial Data Schedule
b) Reports on Form 8-K.
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOMEFED CORPORATION
By /s/ Corinne A. Maki
CORINNE A. MAKI, Treasurer
(Authorized Signatory and Principal Financial
and Accounting Officer)
Date: November 14, 2000
12
INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.