SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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
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(Exact name of registrant as specified in its charter)
Delaware 33-0304982
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
529 East South Temple, Salt Lake City, Utah 84102
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(Address of principal executive offices) (Zip Code)
(801) 521-1066
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(Registrant's telephone number, including area code)
N/A
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(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 No [X]
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 August 10, 1996,
there were 10,000,000 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
June 30, 1996 and December 31, 1995
(Amounts in thousands, except par value)
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June 30, December 31,
1996 1995
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(Unaudited)
ASSETS
Land and real estate held for development $ 20,148 $ 22,069
Cash and cash equivalents 1,756 2,373
Restricted cash 1,091 1,105
Investments 85 83
Deposits and other assets 1,133 1,221
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TOTAL $ 24,213 $ 26,851
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LIABILITIES
Notes payable $ 27,750 $ 27,122
Accounts payable and accrued liabilities 692 594
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Total liabilities 28,442 27,716
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STOCKHOLDERS' DEFICIT
Common Stock, $.01 par value;
100,000,000 shares authorized;
10,000,000 shares outstanding 100 100
Additional paid-in-capital 339,904 339,904
Accumulated deficit (344,233) (340,869)
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Total stockholders' deficit (4,229) (865)
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TOTAL $ 24,213 $ 26,851
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See notes to interim consolidated financial statements.
2
HomeFed Corporation and Subsidiaries
Consolidated Statements of Operations
For the periods ended June 30, 1996 and 1995
(Amounts in thousands, except per share amounts)
(Unaudited)
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For the Three For the Six
Month Period Ended Month Period Ended
June 30, June 30,
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1996 1995 1996 1995
------ ------ ------ ------
Sales of residential properties $ 1,015 $ 1,777 $ 2,362 $ 3,859
Cost of sales 1,193 1,750 2,560 3,718
---------- ---------- ---------- ----------
Gross profit (loss) (178) 27 (198) 141
Provision for losses on real estate
investments 1,017 - 1,017 -
Interest expense 772 - 1,535 -
General and administrative expenses 360 307 682 635
---------- ---------- ---------- ----------
Loss from operations (2,327) (280) (3,432) (494)
Other income - net 53 19 108 33
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Loss before reorganization items (2,274) (261) (3,324) (461)
Reorganization items:
Professional fees - 11 - 99
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Loss before income taxes (2,274) (272) (3,324) (560)
Income tax expense (11) (3) (40) (5)
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Net loss $ (2,285) $ (275) $ (3,364) $ (565)
========== ========== ========== ==========
Primary loss per common share: $ (0.23) $ (0.03) $ (0.34) $ (0.06)
========== ========== ========== ==========
Fully diluted loss per common share: $ (0.23) $ (0.03) $ (0.34) $ (0.06)
========== ========== ========== ==========
See notes to interim consolidated financial statements.
3
HomeFed Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
For the six months ended June 30, 1996 and 1995
(Amounts in thousands)
(Unaudited)
____________________________________________
Common
Shares Additional Total
$.01 Par Paid-In Accumulated Stockholders'
Value Capital Deficit Deficit
------------- ------------- ------------- -------------
Balance, January 1, 1995 $ 215 $ 338,529 $ (445,589) $ (106,845)
Net loss (565) (565)
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Balance, June 30, 1995 $ 215 $ 338,529 $ (446,154) $ (107,410)
============= ============= ============= =============
Balance, January 1, 1996 $ 100 $ 339,904 $ (340,869) $ (865)
Net loss (3,364) (3,364)
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Balance, June 30, 1996 $ 100 $ 339,904 $ (344,233) $ (4,229)
============= ============= ============= =============
See notes to interim consolidated financial statements.
4
HomeFed Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended June 30, 1996 and 1995
(Amounts in thousands)
(Unaudited)
____________________________________________
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,364) $ (565)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Accrued interest added to principal 1,503 114
Provision for losses on real estate investments 1,017 -
Changes in operating assets and liabilities:
Land and real estate held for development 904 (2,392)
Deposits and other assets 88 8
Accounts payable and accrued liabilities 98 63
Decrease (increase) in restricted cash 14 (8)
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Net cash provided by (used in) operating activities 260 (2,780)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investments (2) -
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Net cash used in investing activities (2) -
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CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to notes payable 1,190 3,097
Repayments of notes payable (2,065) (48)
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Net cash provided by (used in) financing activities (875) 3,049
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Net increase (decrease) in cash (617) 269
Cash and cash equivalents, beginning of period 2,373 1,085
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Cash and cash equivalents, end of period $ 1,756 $ 1,354
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See notes to interim consolidated financial statements.
5
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies. The unaudited
interim consolidated financial statements, which reflect all
adjustments (consisting only of normal recurring items) that
management believes necessary to present fairly 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
audited consolidated financial statements for HomeFed
Corporation ("HomeFed" or the "Company") for the year ended
December 31, 1995, which are included in the Company's Annual
Report on Form 10-K for such year (the "1995 10-K"). Results
of operations for interim periods are not necessarily
indicative of annual results of operations. The consolidated
balance sheet at December 31, 1995 was extracted from the
Company's audited consolidated financial statements in the 1995
10-K, and does not include all disclosures required by
generally accepted accounting principles for annual financial
statements.
2. Chapter 11 Bankruptcy and Plan of Reorganization. On July 3,
1995, the Company emerged from Chapter 11 Bankruptcy protection
pursuant to its court approved plan of reorganization (the
"Plan"). The Plan was principally funded by a $20,000,000
convertible note (the "Convertible Note") issued to Leucadia
Financial Corporation ("LFC"), an indirect wholly-owned
subsidiary of Leucadia National Corporation, and by LFC's
purchase of 2,700,000 newly issued $.01 par value common shares
("Common Stock") of the Company for $810,000.
As part of the Plan, the Company settled pending litigation
with the Resolution Trust Company (the "RTC") in its capacity
as receiver and conservator of HomeFed Bank, F.S.B. ("HomeFed
Bank"), a former subsidiary of the Company. Under the RTC
settlement, the Company paid the RTC $3,100,000 and the Company
received a receivership certificate from the RTC which was
redeemed by the RTC for $1,402,000. In addition, the RTC
settlement provides that the Company is entitled to receive
$850,000 from any tax refunds received by the RTC relating to
HomeFed Bank for years prior to 1992. The Company has not
recorded an asset related to such tax refunds and no assurances
can be given that any such tax refunds will actually be
received.
Also under the Plan, general unsecured creditors, principally
the holders of the Company's convertible subordinated
debentures, received a pro rata share of (i) $16,900,000, (ii)
the Company's rights to the RTC tax refund relating to HomeFed
Bank and the $1,402,000 receivership certificate proceeds,
(iii) 1,500,000 shares of Common Stock valued by the Bankruptcy
6
Court at $.30 per share, and (iv) an interest in the litigation
trust described below.
The Plan also provided for the issuance of 5,800,000 new shares
of Common Stock to the pre-effective date stockholders of the
Company and the old shares of common stock (approximately
21,484,000 shares) were canceled. As a result of shares
received as a general unsecured creditor and shares purchased
as described above, LFC owns approximately 41.2% of the
Company's Common Stock, without giving effect to the Common
Stock that LFC may acquire in the future pursuant to the terms
of the Convertible Note.
The Company's Restated Certificate of Incorporation contains
certain transfer restrictions with respect to the Company's
stock. Generally, such provisions restrict a person's ability
to accumulate 5% or more of the Company's Common Stock, as well
as the ability of a 5% stockholder to acquire additional shares
of Common Stock, in each case, after giving effect to numerous
rules of attribution, aggregation and calculation. In addition,
pursuant to the Plan, the Company is prohibited from issuing
additional shares of stock until July 3, 1999. The Company's
Restated Certificate of Incorporation further prohibits the
Company from issuing or redeeming any shares of stock as long
as the Convertible Note is outstanding. None of the foregoing
restrictions will prevent LFC's exchange of the Convertible
Note for Common Stock.
Certain pending claims are being prosecuted by a litigation
trust created for the benefit of the Company's creditors under
the Plan. Pursuant to the Plan, the Company loaned $250,000 to
the trust in order to pay litigation costs. The loan will be
repaid with interest in 1996, but the Company will not
otherwise receive any benefits from the trust. This loan is
included in other assets in the consolidated balance sheets.
3. Earnings Per Share. Primary loss per share of Common Stock for
all periods presented was calculated by dividing net loss by
the 10,000,000 shares of Common Stock issued on July 3, 1995.
Primary loss per share calculations based upon the pre-
effective date outstanding shares are not meaningful.
Fully diluted loss per share of Common Stock was calculated as
described above and, for the periods ended June 30, 1996,
conversion of the Convertible Note was not assumed since the
effect of such assumed conversion would have been to decrease
loss per share. The number of shares used to calculate fully
diluted loss per share was 10,000,000 for each of the three-
month and six-month periods ended June 30, 1996 and 1995.
4. Related Party Transactions. Notes payable consist primarily of
the Convertible Note issued to LFC and a note issued to LFC as
part of LFC's agreement to provide construction financing to
the Company, as described below. The Convertible Note bears
interest at 12% per annum payable quarterly; however, interest
7
is only paid if the Company has sufficient funds available, as
determined pursuant to the provisions of the loan agreement.
Unpaid interest is added to the principal balance each quarter.
Interest accrued during the six-month period ended June 30,
1996 of $1,288,000 was not paid and was added to the principal
balance as of June 30, 1996.
The construction financing bears interest based on the prime
rate, and any unpaid interest is added to the principal balance
at the end of each month. The interest rate at June 30, 1996
was 9.50%. Interest accrued during the six-month period ended
June 30, 1996 on the construction financing totaled $268,000,
of which $52,000 was paid to LFC and $216,000 was added to the
principal balance during such period. Payments of principal
and interest on the loans are payable on demand, and if
payments are not made upon demand, the applicable interest rate
is increased by 3% per annum. A payment equal to 110% of the
construction cost of the property being released is required in
order to release property from the construction financing lien.
As of June 30, 1996, the balance of the construction financing
loan was $5,130,000.
Pursuant to an Administrative Services Agreement dated March 1,
1996 (the "Administrative Services Agreement"), LFC has agreed
to provide administrative services to the Company for an annual
fee of $141,000, payable in monthly installments, through March
1, 1997. After March 1, 1997, the Administrative Services
Agreement provides that LFC and the Company will negotiate in
good faith to determine the compensation to be paid to LFC
under the Administrative Services Agreement for subsequent
periods. The Administrative Services Agreement will terminate
on March 1, 1999; provided, however, that LFC may terminate the
Administrative Services Agreement prior to March 1, 1999, upon
30 days written notice, if the Company and LFC are unable to
reach an agreement regarding the compensation to be paid to LFC
for periods after March 1, 1997. Administrative fees paid to
LFC for the six-month period ended June 30, 1996 totaled
$73,000.
5. Paradise Valley. The Company has entered into an agreement to
sell 124 improved lots at the Paradise Valley Project to The
Forecast Group, L.P. for a cash purchase price of $5,316,000.
In addition, the Company has granted options to The Forecast
Group, L.P. to purchase an additional 75 unimproved and 81
partially improved lots from the Company for a total of
$5,781,950. Subject to certain conditions, including the
completion of a satisfactory feasibility review by the buyer,
the sale of the 124 lots is expected to close no later than
October 2, 1996, at which time the purchase price for such lots
will be paid to the Company. The options expire 330 days after
such closing. The Company is currently evaluating the real
estate market to determine the timing of development of the
remaining sites in the project.
8
6. Provision for Losses on Real Estate Investments. During the
three months ended June 30, 1996, the Company recorded a loss
of $1,017,000. The loss was due to the Company's decision not
to complete the home development on the four detached single-
family residential sites at the Paradise Valley Project as
originally planned. The Company ceased building additional
homes at these sites and it is in the process of selling off
all remaining homes in inventory. The Company accepted a cash
offer for 124 unbuilt lots and granted options for the purchase
of 156 unbuilt lots as mentioned in Note 5 above.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the
Company's consolidated financial condition, liquidity and capital
resources and results of operations. This analysis should be read
in conjunction with the Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the
Company's 1995 10-K.
GENERAL
The Company is a holding company primarily engaged in the
investment in and development of residential real estate projects
in Northern California, through its wholly-owned subsidiaries
HomeFed Communities, Inc. and HomeFed Resources Corporation. The
Company's subsidiaries enter into contracts with local builders and
developers to provide construction, marketing and management
services.
LIQUIDITY AND CAPITAL RESOURCES
For the six-month period ended June 30, 1996, net cash was
provided by operating activities, principally from sales of real
estate. For the six-month period ended June 30, 1995, net cash was
used by operating activities, principally for real estate
development projects and to pay reorganization expenses. The
Company is a holding company whose principal source of funds is
dividends or borrowings from its subsidiaries. As a result, the
Company is dependent upon the cash flow, if any, from the real
estate development projects of its subsidiaries in order to pay its
expenses. The Company expects such cash flows will be sufficient
to cover overhead expenses and, pending receipt of funds from the
Forecast Group, L.P., the Company expects cash flows will also be
sufficient to permit debt service payments on the Convertible Note
beginning in 1997. As more fully described in the 1995 10-K, no
principal payments are due on the Convertible Note until July 1998
and accrued interest is only required to be paid under certain
conditions. Any unpaid interest is added to the principal balance
of the note on a quarterly basis.
LFC has agreed to provide up to an aggregate of $15,000,000 of
construction financing to certain of the Company's subsidiaries and
their affiliates while the Convertible Note is outstanding. The
construction financing is collateralized by certain assets of the
Company's subsidiaries or their affiliates, including real estate
under development. To facilitate the sale of property to home
buyers, LFC has agreed to release property from the construction
financing lien when it receives 110% of the assigned cost of
construction as a payment towards the outstanding loan. The
construction financing bears interest based upon the prime rate,
and any unpaid interest is added to the principal balance at the
end of each month. As of June 30, 1996, the outstanding balance on
this loan was approximately $5,130,000. The Company believes that
the construction financing provided by LFC will be adequate to
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complete its current development plans. Any additional financing
required from a lender other than LFC cannot be collateralized by
any of the Company's assets without LFC's consent. Accordingly,
the Company may be unable to obtain additional financing from
sources other than LFC.
The Company expects to receive proceeds, net of selling costs, of
$5,205,000 in 1996 from the sale of 124 improved lots at the
Paradise Valley Project. See Note 5 to the Company's Interim
Financial Statements. The Company intends to use a portion of the
proceeds from such sale to repay the outstanding balance of the
construction financing provided by LFC. The Company has also
granted options to purchase 75 unimproved and 81 partially improved
lots from the Company for a total of $5,781,950. It is uncertain
whether the options will be exercised; however, if such options are
exercised, the Company expects to use the proceeds from the sale of
the lots covered by such options for future real estate
development, debt service payments on the Convertible Note and for
working capital needs.
RESULTS OF OPERATIONS
Sales of real estate properties decreased in the 1996 periods
as compared to the 1995 periods due to reduced sales of new home
inventory. The higher sales in the 1995 periods were primarily the
result of a sales program to complete and sell all remaining homes
at the Company's Carson Creek Project in 1995.
The decrease of cost of sales in the 1996 periods as compared
to the 1995 periods reflects the reduced level of sales. Gross
profit percentages reflect the mix of homes sold.
During the three months ended June 30, 1996, the Company
recorded a provision for losses on real estate investments of
$1,017,000 related to the Company's decision not to complete the
four detached single-family residential sites at the Paradise
Valley Project as originally planned.
Interest expense on the Convertible Note to LFC was
approximately $654,000 and $1,288,000 for the three-month and six-
month periods ended June 30, 1996. No interest expense was
incurred on the Convertible Note for the same periods in 1995.
Interest expense on the construction financing loan relating to
substantially completed homes in inventory was $116,000 and
$242,000 for the three-month and six-month periods ended June 30,
1996. All interest was capitalized on the construction financing
loan for the same periods in 1995.
Income tax expense 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.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
The Annual Meeting of Stockholders of the Company was held on May
15, 1996. At the meeting:
1. The following persons were elected as Directors of the
Company to serve until the next Annual Meeting or until
their successors are elected and qualified.
Name Votes For Votes Withheld
----------------- --------- --------------
Timothy Considine 8,467,222 36,228
Michael A. Lobatz 8,466,124 37,326
Patricia A. Wood 8,466,475 36,975
2. The selection of Coopers & Lybrand L.L.P. as independent
auditors to audit the Consolidated Financial Statements of
the Company and its subsidiaries for the year ended
December 31, 1996 was ratified by the stockholders as
follows:
Votes For: 8,453,210
Votes Against: 11,479
Abstentions 38,761
Broker Non-Votes 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
10.1 Paradise Valley Unit 1 and Unit 2 Purchase Agreement and
Escrow Instructions, dated June 19, 1996, between Paradise
Valley Communities No. 1 and The Forecast Group, L.P.
10.2 Paradise Valley Unit 3 Option to Purchase Real Property
and Escrow Instructions, dated June 19, 1996, between
Paradise Valley Communities No. 1 and The Forecast Group,
L.P.
10.3 Paradise Valley Unit 4 Option to Purchase Real Property
and Escrow Instructions, dated June 19, 1996, between
Paradise Valley Communities No. 1 and The Forecast Group,
L.P.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for
which this report is filed.
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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
/s/ Corinne A. Maki
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CORINNE A. MAKI, Treasurer
(Authorized Signatory and
Principal Financial and
Accounting Officer)
Date: August 13, 1996
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INDEX TO EXHIBITS
Exhibits
10.1 Paradise Valley Unit 1 and Unit 2 Purchase Agreement and
Escrow Instructions, dated June 19, 1996, between
Paradise Valley Communities No. 1 and The Forecast Group,
L.P.
10.2 Paradise Valley Unit 3 Option to Purchase Real Property
and Escrow Instructions, dated June 19, 1996, between
Paradise Valley Communities No. 1 and The Forecast Group,
L.P.
10.3 Paradise Valley Unit 4 Option to Purchase Real Property
and Escrow Instructions, dated June 19, 1996, between
Paradise Valley Communities No. 1 and The Forecast Group,
L.P.
27 Financial Data Schedule.
14