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 March 31, 1998
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 [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
May 12, 1998, 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
March 31, 1998 and December 31, 1997
(Dollars in thousands, except par value)
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
Land and real estate held for development $ 9,640 $ 9,964
Cash and cash equivalents 3,948 4,195
Restricted cash 1,070 1,073
Investments 76 75
Deposits and other assets 225 462
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TOTAL $ 14,959 $ 15,769
============ ============
LIABILITIES
Note payable to Leucadia Financial Corporation $ 26,085 $ 26,085
Accounts payable and accrued liabilities 475 423
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Total liabilities 26,560 26,508
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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 (351,605) (350,743)
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Total stockholders' deficit (11,601) (10,739)
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TOTAL $ 14,959 $ 15,769
============ ============
See notes to interim consolidated financial statements.
2
HomeFed Corporation and Subsidiaries
Consolidated Statements of Operations
For the three months ended March 31, 1998 and 1997
(Dollars in thousands, except per share amounts)
(Unaudited)
1998 1997
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Sales of residential properties $ 891 $ 260
Cost of sales 894 265
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Gross loss (3) (5)
Interest expense relating to Leucadia
Financial Corporation 772 707
General and administrative expenses 131 169
Management fees to Leucadia Financial
Corporation 17 29
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Loss from operations (923) (910)
Other income - net 70 37
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Loss before income taxes (853) (873)
Income tax expense (9) (11)
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Net loss $ (862) $ (884)
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Basic loss per common share: $ (0.09) $ (0.09)
========== ==========
Diluted loss per common share: $ (0.09) $ (0.09)
========== ==========
See notes to interim consolidated financial statements.
3
HomeFed Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
For the three months ended March 31, 1998 and 1997
(Dollars in thousands)
(Unaudited)
____________________________________________
Common
Stock Additional Total
$.01 Par Paid-In Accumulated Stockholders'
Value Capital Deficit Deficit
------------- ------------- ------------- -------------
Balance, January 1, 1997 $ 100 $ 339,904 $ (347,166) $ (7,162)
Net loss (884) (884)
------------- ------------- ------------- -------------
Balance, March 31, 1997 $ 100 $ 339,904 $ (348,050) $ (8,046)
============= ============= ============= =============
Balance, January 1, 1998 $ 100 $ 339,904 $ (350,743) $ (10,739)
Net loss (862) (862)
------------- ------------- ------------- -------------
Balance, March 31, 1998 $ 100 $ 339,904 $ (351,605) $ (11,601)
============= ============= ============= =============
See notes to interim consolidated financial statements.
4
HomeFed Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the three months ended March 31, 1998 and 1997
(Dollars in thousands)
(Unaudited)
____________________________________________
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (862) $ (884)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accrued interest added to note payable to
Leucadia Financial Corporation - 707
Changes in operating assets and liabilities:
Land and real estate held for development 324 153
Deposits and other assets 237 10
Accounts payable and accrued liabilities 52 (118)
Decrease in restricted cash 3 2
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Net cash used in operating activities (246) (130)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments (1) (1)
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Net cash used in investing activities (1) (1)
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Net decrease in cash (247) (131)
Cash and cash equivalents, beginning of period 4,195 1,809
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Cash and cash equivalents, end of period $ 3,948 $ 1,678
========== ==========
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 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 ("HomeFed" or the "Company") for the year
ended December 31, 1997 which are included in the Company's Annual Report on
Form 10-K for such year (the "1997 10-K"). Results of operations for interim
periods are not necessarily indicative of annual results of operations. The
consolidated balance sheet at December 31, 1997 was derived from the
Company's audited consolidated financial statements in the 1997 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 1998 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 provided that the
Company was entitled to receive $850,000 from any tax refunds received by the
RTC relating to HomeFed Bank for years prior to 1992. The Company received
$850,000 related to such tax refunds in January 1998. Thereafter, the Company
paid the entire $850,000 to general unsecured creditors in accordance with
the Plan as described below.
Also under the Plan, general unsecured creditors, principally the holders of
the Company's convertible subordinated debentures, of which LFC was the
6
largest holder, 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 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.
3. Earnings Per Share. Basic loss per share of Common Stock for all periods
presented was calculated by dividing the net loss by the 10,000,000 shares
of Common Stock issued on July 3, 1995.
Diluted loss per share of Common Stock was calculated as described above. The
number of shares used to calculate diluted loss per share was 10,000,000 for
each of the three-month periods ended March 31, 1998 and 1997. The
calculation of diluted loss per share for the three-month periods ended March
31, 1998 and 1997 does not include common stock equivalents of 54,400,000 and
53,075,386, respectively, which are antidilutive.
4. Related Party Transactions. Notes payable consists of the Convertible Note
issued to LFC. The Convertible Note bears 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 on the Convertible Note during
the three months ended March 31, 1998 of $772,000 was paid by the
Company in March 1998.
7
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 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
March 31, 1998.
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 Company
and LFC have agreed that the fee to be paid to LFC for the one-year periods
beginning March 1, 1997 and 1998 will be $68,274 and $56,101, respectively.
Although these amounts are lower than the fee paid in the initial year, the
Company now pays 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 $17,000 for the three-month period
ended March 31, 1998.
On February 27, 1998, the Company purchased 19 lots at the Silverwood project
from LFC for a purchase price of $500,000.
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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 1997 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 three-month periods ended March 31, 1998 and 1997, net cash was used
in operating activities, principally to fund interest and general and
administrative 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, including
debt service payments on the Convertible Note. As more fully described in the
1997 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.
Interest accrued on the Convertible Note during the three months ended March 31,
1998 of $772,000 was paid by the Company in March 1998.
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. Amounts outstanding under the construction
financing are 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 March 31, 1998,
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 the Company's assets
9
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 in 1996 and the Company
received $2,670,000, less closing costs. The sale of the remaining 62 lots
closed in 1997 and the Company received $2,646,000, less closing costs. The
Company applied all of the proceeds from the 1996 sales to reduce the
outstanding balance of the construction financing provided by LFC. The Company
used the proceeds from the 1997 sales for working capital needs.
The Company 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") and the option with respect to
the remaining 75 lots (the "Unit 3 Option") became exercisable in 1997. The
Unit 3 Option was not exercised and expired on May 1, 1998. The Unit 4 Option
expires on December 7, 1998.
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. The sale of the second 20 lots closed on February 27, 1998 and the
Company received $891,520, less closing costs. If the remainder of the Unit 4
Option is exercised, 21 lots would be sold on July 6, 1998 and 20 lots would be
sold on December 7, 1998. It is uncertain whether the remainder of the Unit 4
Option will be exercised; however, to the extent the Unit 4 Option is exercised,
the Company expects to use the proceeds from the sale of the lots covered by the
Unit 4 Option for future real estate development, debt service payments on the
Convertible Note and for working capital needs.
The Company intends to solicit offers from potential purchasers for the 75
lots previously covered by the Unit 3 Option. The Company intends to sell these
75 lots once an acceptable offer has been received.
On February 27, 1998, the Company purchased 19 lots at the Silverwood
project from LFC for a purchase price of $500,000.
Results of Operations
Sales of residential properties increased in the 1998 period as compared to
the 1997 period due to the sale of 20 lots to The Forecast Group. One new home
was sold in the 1997 period.
10
The increase of cost of sales in the 1998 period as compared to the 1997
period reflects the sale of 20 lots to The Forecast Group. Gross profit
percentages reflect the mix of real estate sold.
Interest expense reflects the interest due on the Convertible Note to LFC of
approximately $772,000 for the 1998 period, which was paid by the Company, and
$707,000 for the 1997 period, which was not paid and was added to the principal
balance of the note as stipulated under the note agreement.
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.
Cautionary Statement for Forward-Looking Information
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of 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 not be limited, to projections of revenues, income or
loss, capital expenditures, the expected development schedule of existing real
estate projects, plans for growth and future operations, financing needs, as
well as assumptions relating to the foregoing. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be predicted
or quantified. When used in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the words "estimates",
"expects", "anticipates", "forecasts", "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.
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PART II. OTHER INFORMATION
Item 5. Other Information
Patricia A. Wood has announced that she will retire from her position as
President of the Company, effective May 29, 1998, in order to pursue other
interests. Ms. Wood has also declined to stand for reelection at the Company's
Annual Meeting of Stockholders to be held on May 18, 1998 (the "Annual
Meeting"). Subsequent to the Annual Meeting, the Board of Directors intends to
appoint a new director to fill the vacancy created by Ms. Wood's retirement.
The Board of Directors is also considering candidates to succeed Ms. Wood as
President of the Company.
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.
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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: May 14, 1998
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INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.
14