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, 1997
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.)
529 East South Temple, Salt Lake City, Utah 84102
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 521-1066
-----------------------------------------------------
(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 12, 1997, 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
September 30, 1997 and December 31, 1996
(Dollars in thousands, except par value)
--------------------------------------------
September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
ASSETS
Land and real estate held for development $ 10,666 $ 13,528
Cash and cash equivalents 4,110 1,809
Restricted cash 1,072 1,085
Investments 74 71
Deposits and other assets 478 598
------------- -------------
TOTAL $ 16,400 $ 17,091
============= =============
LIABILITIES
Notes payable to Leucadia Financial Corporation $ 26,085 $ 23,877
Accounts payable and accrued liabilities 135 376
------------- -------------
Total liabilities 26,220 24,253
------------- -------------
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 (349,824) (347,166)
------------- -------------
Total stockholders' deficit (9,820) (7,162)
------------- -------------
TOTAL $ 16,400 $ 17,091
============= =============
See notes to interim consolidated financial statements.
2
HomeFed Corporation and Subsidiaries
Consolidated Statements of Operations
For the periods ended September 30, 1997 and 1996
(Dollars in thousands, except per share amounts)
(Unaudited)
---------------------------------------------------
For the Three For the Nine
Month Period Ended Month Period Ended
September 30, September 30,
--------------------- --------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Sales of residential properties $ 1,841 $ 2,500 $ 3,120 $ 4,862
Cost of sales 1,877 2,544 3,152 5,104
---------- ---------- ---------- ----------
Gross loss (36) (44) (32) (242)
Provision for losses on real estate
investments - - - 1,017
Interest expense relating to Leucadia
Financial Corporation 766 793 2,208 2,323
Other interest expense - 3 - 8
General and administrative expenses 128 225 459 834
Management fees to Leucadia Financial
Corporation 17 35 63 108
---------- ---------- ---------- ----------
Loss from operations (947) (1,100) (2,762) (4,532)
Other income - net 56 40 133 148
---------- ---------- ---------- ----------
Loss before income taxes (891) (1,060) (2,629) (4,384)
Income tax expense (9) (11) (29) (51)
---------- ---------- ---------- ----------
Net loss $ (900) $ (1,071) $ (2,658) $ (4,435)
========== ========== ========== ==========
Primary loss per common share: $ (0.09) $ (0.11) $ (0.27) $ (0.44)
========== ========== ========== ==========
Fully diluted loss per common share: $ (0.09) $ (0.11) $ (0.27) $ (0.44)
========== ========== ========== ==========
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, 1997 and 1996
(Dollars in thousands)
(Unaudited)
____________________________________________
Common
Stock Additional Total
$.01 Par Paid-In Accumulated Stockholders'
Value Capital Deficit Deficit
------------ ------------ -------------- --------------
Balance, January 1, 1996 $ 100 $ 339,904 $ (340,869) $ (865)
Net loss (4,435) (4,435)
------------ ------------ -------------- --------------
Balance, September 30, 1996 $ 100 $ 339,904 $ (345,304) $ (5,300)
============ ============ ============== ==============
Balance, January 1, 1997 $ 100 $ 339,904 $ (347,166) $ (7,162)
Net loss (2,658) (2,658)
------------ ------------ -------------- --------------
Balance, September 30, 1997 $ 100 $ 339,904 $ (349,824) $ (9,820)
============ ============ ============== ==============
See notes to interim consolidated financial statements.
4
HomeFed Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1997 and 1996
(Dollars in thousands)
(Unaudited)
____________________________________________
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,658) $ (4,435)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Accrued interest added to notes payable to
Leucadia Financial Corporation 2,208 2,231
Provision for losses on real estate investments - 1,017
Changes in operating assets and liabilities:
Land and real estate held for development 2,862 3,035
Deposits and other assets 120 264
Accounts payable and accrued liabilities (241) (223)
Decrease in restricted cash 13 19
---------- ----------
Net cash provided by operating activities 2,304 1,908
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in other assets - 250
Decrease (increase) in investments (3) 13
---------- ----------
Net cash provided by (used in) investing activities (3) 263
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to notes payable to Leucadia Financial
Corporation - 1,440
Repayments of notes payable to Leucadia Financial
Corporation - (4,422)
---------- ----------
Net cash used in financing activities - (2,982)
---------- ----------
Net increase (decrease) in cash 2,301 (811)
Cash and cash equivalents, beginning of period 1,809 2,373
---------- ----------
Cash and cash equivalents, end of period $ 4,110 $ 1,562
========== ==========
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, 1996 which are included in the Company's Annual
Report on Form 10-K for such year (the "1996 10-K"). Results of
operations for interim periods are not necessarily indicative of
annual results of operations. The consolidated balance sheet at
December 31, 1996 was extracted from the Company's audited
consolidated financial statements in the 1996 10-K, 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 1997 presentation.
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. The receivership certificate was redeemed
by the RTC for $1,402,000 which was paid to the Company. 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
expects to receive $850,000 related to such tax refunds prior to the
end of 1997. Upon receipt, the Company is obligated to pay the entire
$850,000 to general unsecured creditors as described below.
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 $850,000 RTC tax refund relating to HomeFed Bank and
6
the $1,402,000 receivership certificate proceeds, (iii) 1,500,000
shares of Common Stock valued by the Bankruptcy 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 was repaid with interest in
1996. The Company will not otherwise receive any benefits from the
litigation trust.
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.
Fully diluted loss per share of Common Stock was calculated as
described above and, for the periods ended September 30, 1997 and
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 and nine month
periods ended September 30, 1997 and 1996.
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
7
interest at 12% per annum payable quarterly; however, interest
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 nine month period ended
September 30, 1997 of $2,208,000 was not paid and was added to
the principal balance as of September 30, 1997.
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. 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. No amounts were outstanding under the
construction financing as of September 30, 1997.
Pursuant to an Administrative Services Agreement dated March 1, 1996
(the "Administrative Services Agreement"), LFC 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 Company and LFC have agreed
that the fee to be paid to LFC for the period from March 1, 1997
through March 1, 1998 will be $68,274. Although this fee is lower
than the fee paid in the prior year, the Company will now pay
certain expenses previously paid by LFC. 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 any period. Fees paid by the
Company to LFC totaled $63,000 for the nine month period ended
September 30, 1997.
8
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 1996 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 nine month periods ended September 30, 1997 and 1996, net
cash was provided by operating activities, principally from sales of
residential properties. 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 to permit debt service payments on the
Convertible Note beginning in December 1997. As more fully described in
the 1996 10-K, no principal payments are due on the Convertible Note
until September 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 September 30, 1997, there was
no outstanding balance on the construction financing. The Company
believes that the construction financing provided by LFC will be adequate
to complete its current development plans. Any additional financing
required from a lender other than LFC cannot be collateralized by any of
9
the Company's assets without LFC's consent. Accordingly, the Company may
be unable to obtain additional financing from sources other than LFC.
On October 3, 1996, the Company entered into agreements with The
Forecast Group (A Registered Tradename) , L.P. ("The Forecast Group") pursuant
to which the Company agreed to sell a total of 124 improved lots at the Paradise
Valley project to The Forecast Group for a total purchase price of
$5,316,000. The sale of 62 lots covered by the agreements closed on
October 31, 1996 and the Company received $2,670,000, less closing costs.
The Company applied all of the proceeds from the foregoing sales to
reduce the outstanding balance of the construction financing provided by
LFC. The sale of an additional 20 lots closed on May 29, 1997 and the
Company received $1,010,000, less closing costs. The Company also
received an extension fee of $9,000 related to the May 29, 1997 closing.
The sale of an additional six lots closed on August 15, 1997 and the sale
of an additional 36 lots closed on September 2, 1997, at which time the
Company received $236,000 and $1,400,000, respectively, less closing
costs.
The Company has also granted options to The Forecast Group to
purchase 156 additional lots from the Company for a total purchase price
of $5,781,950. The option with respect to 81 of these lots (the "Unit
4 Option") became exercisable following the sale which closed on May 29,
1997, and the option with respect to the remaining 75 lots (the "Unit 3
Option") became exercisable following the sale which closed on September
2, 1997, each as described above. The Unit 3 Option expires on May 1,
1998 and the Unit 4 Option expires on December 7, 1998.
At the request of The Forecast Group, the Company has amended the
closing schedule for the Unit 4 Option. The amended closing schedule
provides for the sale of such lots in increments of 20, 20, 21 and 20
lots on November 7, 1997, February 9, 1998, July 6, 1998 and December 7,
1998, respectively. If exercised in its entirety, the Company would
receive an aggregate of $3,610,650, less closing costs, pursuant to the
sales of the lots covered by the Unit 4 Option. The sale of the first
20 lots covered by the Unit 4 Option closed on November 7, 1997 and the
Company received $891,520, less closing costs. If the Unit 3 Option is
exercised, the Company would receive $2,171,300, less closing costs,
pursuant to the sales of the lots covered by the Unit 3 Option. 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 residential properties decreased in the nine month period
ended September 30, 1997 period as compared to the same period in 1996
10
due to fewer new and trade home sales. Sales of residential properties
decreased in the three month period ended September 30, 1997 as compared
to the same period in 1996 due to fewer new home sales. The last new home
at the Paradise Valley project was sold in July 1997.
The decrease of cost of sales in the 1997 period as compared to the
1996 period reflects the reduced level of sales. Gross profit
percentages reflect the mix of residential properties sold.
During the nine months ended September 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 for the 1997 and 1996 periods reflects the interest
due on the Convertible Note to LFC of approximately $766,000 and
$2,208,000 for the three and nine month periods ended September 30, 1997,
respectively, and approximately $680,000 and $1,968,000 for the three and
nine month periods ended September 30, 1996, respectively. Interest on
the Convertible Note for such periods was not paid and was added to the
principal balance of the note as stipulated under the note agreement.
Interest expense for the three and nine month periods ended September 30,
1996 also includes interest due on the construction financing loan of
$113,000 and $355,000, respectively, relating to substantially completed
homes in inventory. No interest expense was incurred on the construction
financing for the 1997 periods.
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.
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which
this report is filed.
12
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
----------------------------------
CORINNE A. MAKI, Treasurer
(Authorized Signatory and
Principal Financial and
Accounting Officer)
Date: November 13, 1997
13
INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.
14