SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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 Number)
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
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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 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 May 3, 2002, there were
56,808,076 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
March 31, 2002 and December 31, 2001
(Dollars in thousands, except par value)
March 31, December 31,
2002 2001
--------- -----------
(Unaudited)
ASSETS
Land and real estate held for development and sale $ 24,341 $ 23,890
Cash and cash equivalents 603 1,454
Deposits and other assets 389 460
--------- ---------
TOTAL $ 25,333 $ 25,804
========= =========
LIABILITIES
Note payable to Leucadia Financial Corporation $ 22,783 $ 22,508
Credit agreement with Leucadia Financial Corporation 450 --
Accounts payable and accrued liabilities 1,524 1,711
--------- ---------
Total liabilities 24,757 24,219
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 13,458 13,208
--------- ---------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value; 100,000,000 shares authorized;
56,808,076 shares outstanding 568 568
Additional paid-in capital 355,307 355,377
Deferred compensation pursuant to stock incentive plans (169) (276)
Accumulated deficit (368,588) (367,292)
--------- ---------
Total stockholders' deficit (12,882) (11,623)
--------- ---------
TOTAL $ 25,333 $ 25,804
========= =========
See notes to interim consolidated financial statements.
2
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three month periods ended March 31, 2002 and 2001
(In thousands, except per share amounts)
(Unaudited)
2002 2001
------ ------
REVENUES
Fee income from San Elijo Hills $ 470 $ 168
Income from options on real estate properties 180 180
------- -------
650 348
------- -------
EXPENSES
Interest expense relating to Leucadia Financial Corporation 667 635
General and administrative expenses 1,113 998
Administrative services fees to Leucadia Financial Corporation 26 31
------- -------
1,806 1,664
------- -------
Loss from operations (1,156) (1,316)
Other income, net 116 7
------- -------
Loss before income taxes and minority interest (1,040) (1,309)
Income tax provision (6) (5)
------- -------
Loss before minority interest (1,046) (1,314)
Minority interest (250) (250)
------- -------
Net loss $(1,296) $(1,564)
======= =======
Basic loss per common share $ (0.02) $ (0.03)
======= =======
Diluted loss per common share $ (0.02) $ (0.03)
======= =======
See notes to interim consolidated financial statements.
3
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Deficit
For the three month periods ended March 31, 2002 and 2001
(Dollars in thousands, except par value)
(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, 2001 $ 568 $ 355,277 $ (351) $ (365,915) $ (10,421)
Amortization of restricted stock grants 15 15
Amortization related to stock options 22 22
Change in value of 1,000,000 stock options 10 (10) --
Net loss (1,564) (1,564)
----- ---------- ------ ----------- ---------
Balance, March 31, 2001 $ 568 $ 355,287 $ (324) $ (367,479) $ (11,948)
===== ========== ====== =========== =========
Balance, January 1, 2002 $ 568 $ 355,377 $ (276) $ (367,292) $ (11,623)
Amortization of restricted stock grants 16 16
Amortization related to stock options 21 21
Change in value of 1,000,000 stock options (70) 70 --
Net loss (1,296) (1,296)
----- ---------- ------ ----------- ---------
Balance, March 31, 2002 $ 568 $ 355,307 $ (169) $ (368,588) $ (12,882)
===== ========== ====== =========== =========
See notes to interim consolidated financial statements.
4
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three month periods ended March 31, 2002 and 2001
(In thousands)
(Unaudited)
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,296) $ (1,564)
Adjustments to reconcile net loss to net cash used for operating activities:
Minority interest 250 250
Amortization of deferred compensation pursuant to stock incentive plans 37 37
Amortization of debt discount on note payable to Leucadia Financial Corporation 275 244
Changes in operating assets and liabilities:
Land and real estate held for development and sale (451) (238)
Deposits and other assets 71 (33)
Recreation center liability -- (41)
Accounts payable and accrued liabilities (187) (363)
-------- --------
Net cash used for operating activities (1,301) (1,708)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit agreement with Leucadia Financial Corporation 450 500
-------- -------
Net cash provided by financing activities 450 500
-------- -------
Net decrease in cash and cash equivalents (851) (1,208)
Cash and cash equivalents, beginning of period 1,454 1,631
-------- --------
Cash and cash equivalents, end of period $ 603 $ 423
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest (net of amounts capitalized) $ 392 $ 391
Cash paid for income taxes $ 1 $ 4
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 results of interim operations
should be read in conjunction with the Notes to Consolidated Financial
Statements (including the Summary of Significant Accounting Policies)
included in the Company's audited consolidated financial statements for the
year ended December 31, 2001, which are included in the Company's Annual
Report filed on Form 10-K, as amended by Form 10-K/A, for such year (the
"2001 10-K"). Results of operations for interim periods are not necessarily
indicative of annual results of operations. The consolidated balance sheet
at December 31, 2001 was extracted from the Company's audited annual
consolidated financial statements and does not include all disclosures
required by generally accepted accounting principles for annual financial
statements.
Certain amounts for prior periods have been reclassified to be consistent
with the 2002 presentation.
2. The note payable to Leucadia Financial Corporation ("LFC") has a principal
amount of $26,462,000 and matures on December 31, 2004. Interest on the
note of approximately $391,000 was expensed and paid during each of the
three month periods ended March 31, 2002 and 2001. Additionally,
approximately $275,000 and $244,000 of debt discount on the note was
amortized as interest expense during the three month periods ended March
31, 2002 and 2001, respectively.
3. In March 2001, the Company entered into a $3,000,000 line of credit
agreement with LFC. Loans outstanding under this line of credit bear
interest at 10% per annum. Effective March 1, 2002, this agreement was
amended to extend the maturity to February 28, 2007, unless earlier
terminated by LFC not later than November 15 of any year, effective
February 28 of the following year. At March 31, 2002, $450,000 was
outstanding under this facility. Interest on the line of credit of
approximately $1,000 was expensed and paid during the three month period
ended March 31, 2002.
4. 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 56,808,076 and 56,807,826 for the three month periods ended March
31, 2002 and 2001, respectively. Options to purchase 322,022 and 376,142
weighted average shares of Common Stock outstanding during the three month
periods ended March 31, 2002 and 2001, respectively, were not included in
the computation of diluted loss per share as those options were
antidilutive.
5. Pursuant to administrative services agreements, LFC provides administrative
services to the Company on a month-to-month basis, including providing the
services of one of the Company's executive officers. Administrative fees
paid to LFC were $26,000 and $31,000 for the three month periods ended
March 31, 2002 and 2001, respectively.
The Company's corporate office is in part of an office building subleased
from LFC's parent, Leucadia National Corporation ("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 $62,000
and $58,000 for the three month periods ended March 31, 2002 and 2001,
respectively.
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Interim Operations.
The following should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 2001 10-K.
LIQUIDITY AND CAPITAL RESOURCES
For the three month periods ended March 31, 2002 and 2001, net cash was used for
operating activities, principally to pay 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 real estate, its
$3,000,000 line of credit from LFC and dividends or borrowings from its
subsidiaries.
For the three month periods ended March 31, 2002 and 2001, the Company has
reported a net loss and experienced a net decrease in cash and cash equivalents.
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. Further, if the
Company were to sell its real estate projects in order to meet its liquidity
needs, it may have to do so at a time when the potential sales prices are not
attractive or are not reflective of the values which the Company believes are
inherent in the projects. Accordingly, while the Company believes it can
generate sufficient liquidity to meet its obligations through sales of assets,
any such sales could be at prices that would not maximize the Company's value to
its shareholders.
As of March 31, 2002, the Company owed $26,462,000 principal amount to LFC,
which 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
$22,783,000 as of March 31, 2002. During the three months ended March 31, 2002,
the Company paid LFC interest of $391,000 relating to this note payable.
The Company has a $3,000,000 line of credit agreement with LFC, which was
amended effective March 1, 2002, to extend the maturity to February 28, 2007,
unless earlier terminated by LFC not later than November 15 of any year,
effective February 28 of the following year. Loans outstanding under this line
of credit bear interest at 10% per annum. At March 31, 2002, $450,000 was
outstanding under this facility.
Under a development agreement, the Company is responsible for the overall
management of the San Elijo Hills project, including arranging financing,
coordinating marketing and sales activity, and acting as construction manager.
The development agreement provides that the Company will receive certain fees in
connection with the project. These fees consist of field overhead and management
service fees. These fees ("the development management fees") are based on a
fixed percentage, aggregating 5.72%, 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. The
Company also receives co-op marketing and advertising fees that are paid at the
time builders sell homes, are generally based upon a fixed percentage of the
homes' selling price and are recorded as revenue when the home is sold. For the
three month period ended March 31, 2002, the Company earned $470,000 for such
fees, of which $334,000 was received (all co-op marketing and advertising fees).
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. As
more fully described in the 2001 10-K, the development agreement is terminable
by either the project owner or the Company. In a termination, the Company would
receive the accrued but unpaid portion of the development management fees and
the success fee.
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Interim Operations, continued.
To determine "net cash flow" for the 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 (which cannot exceed $23,959,000, the balance at March 31, 2002,
including interest), or owed by the project's owner to Leucadia ($13,130,000 at
March 31, 2002) (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 (as of the date the development agreement was
signed). 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 the 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 March 31, 2002, the Company has not recognized any success fee income as
none would have been contractually earned.
RESULTS OF OPERATIONS
Fee income related to the San Elijo Hills project was $470,000 and $168,000 for
the three month periods ended March 31, 2002 and 2001, respectively. The
increase in 2002 reflects greater co-op marketing and advertising fees relating
to the sale of homes by builders.
Income from options on real estate properties reflects non-refundable fees to
extend the closing date on the sale of 85 acres of developable land at the Otay
Ranch project. The Company received and recognized $180,000 of such fees in each
of the three month periods ended March 31, 2002 and 2001.
Interest expense reflects the interest due on indebtedness to LFC of $392,000
and $391,000 for the three month periods ended March 31, 2002 and 2001,
respectively. Interest expense also includes $275,000 and $244,000 for the three
month periods ended March 31, 2002 and 2001, respectively, for amortization of
debt discount related to the indebtedness to LFC.
General and administrative expenses increased during the three month period
ended March 31, 2002 as compared to the same period in 2001 principally due to
increased professional fees related to the Paradise Valley project and greater
expenses related to salaries and travel.
The increase in other income for the three month period ended March 31, 2002 as
compared to the same period in 2001 primarily relates to the gain on a sale of a
foreclosed property.
Income tax expense for all periods presented principally relates to state
franchise taxes. The Company has not recognized income tax benefits for its
operating losses due to the uncertainty of sufficient future taxable income
which is required in order to recognize such tax benefits.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Interim Operations may contain forward-looking
statements. 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
this 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
8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Interim Operations, continued.
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, 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, many of which
the Company would not be able to control, damage to properties or condemnation
of properties, the occurrence of significant natural disasters, imposition of
limitations on the Company's ability to develop its properties resulting from
developments in or new applications of environmental laws and regulations, the
inability to insure certain risks economically, the adequacy of loss reserves,
changes in prevailing interest rate levels, including mortgage rates, increased
interest costs as a result of a delay in project completion requiring the
financing to remain outstanding for a longer than projected period of time, the
availability of reliable energy sources and consumer confidence in the
dependability of such energy sources, 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 Management's Discussion and
Analysis of Financial Condition and Results of Interim Operations or to reflect
the occurrence of unanticipated events.
9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
None.
b) Reports on Form 8-K.
None.
10
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
(Registrant)
Date: May 10, 2002 By: /s/ Erin N. Ruhe
----------------------------
Erin N. Ruhe
Vice President and Controller
(Principal Accounting Officer)
11