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 31,2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 1-10153
HOMEFED CORPORATION
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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.)
1903 Wright Place, Suite 220, Carlsbad, California 92008
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(Address of principal executive offices) (Zip Code)
(760) 918-8200
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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,
2000, there were 56,807,826 outstanding shares of the Registrant's Common Stock,
par value $.01 per share.
76830.0194
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
(Dollars in thousands, except par value)
------------------------------------------------------------------------
March 31, December 31,
2000 1999
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(Unaudited)
ASSETS
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Land and real estate held for development and sale $ 23,798 $ 23,707
Cash and cash equivalents 1,945 2,795
Restricted cash 415 868
Deposits and other assets 123 158
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TOTAL $ 26,281 $ 27,528
========== =========
LIABILITIES
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Note payable to Leucadia Financial Corporation $ 20,771 $ 20,552
Recreation center liability 505 970
Accounts payable and accrued liabilities 1,525 1,905
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Total liabilities 22,801 23,427
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COMMITMENTS AND CONTINGENCIES
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MINORITY INTEREST 11,458 11,208
- ----------------- ----------- ----------
STOCKHOLDERS' DEFICIT
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Common Stock, $.01 par value;
100,000,000 shares authorized;
56,807,826 and 56,557,826 shares outstanding 568 566
Additional paid-in capital 355,019 354,833
Deferred compensation of restricted stock grants (184) -
Accumulated deficit (363,381) (362,506)
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Total stockholders' deficit (7,978) (7,107)
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TOTAL $ 26,281 $ 27,528
=========== ==========
See notes to interim consolidated financial statements.
2
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2000 and 1999
(In thousands, except per share amounts)
(Unaudited)
------------------------------------------------------------------------
2000 1999
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REVENUES:
Sales of residential properties $ - $ 2,250
Marketing, field overhead and management service fee income from
San Elijo Hills 878 -
Equity in losses from Otay Land Company, LLC - (257)
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878 1,933
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EXPENSES:
Cost of sales - 2,218
Provision for losses on real estate investments - 255
Interest expense relating to Leucadia Financial Corporation 614 584
General and administrative expenses 881 568
Management fees to Leucadia Financial Corporation 74 74
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1,569 3,699
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Loss from operations (691) (1,706)
Other income 75 52
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Loss before income taxes and minority interest (616) (1,654)
Income tax expense (9) (8)
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Loss before minority interest (625) (1,662)
Minority interest (250) -
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Net loss $ (875) $ (1,662)
========= ========
Basic loss per common share $ (0.02) $ (0.17)
========= ========
Diluted loss per common share $ (0.02) $ (0.17)
========= ========
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, 2000 and 1999
(In thousands)
(Unaudited)
------------------------------------------------------------------------
Common Deferred
Stock Additional Compensation Total
$.01 Par Paid-In of Restricted Accumulated Stockholders'
Value Capital Stock Grants Deficit Deficit
--------- ----------- ------------ ----------------- ----------
BALANCE, JANUARY 1, 1999 $100 $346,919 $(355,224) $(8,205)
Net loss (1,662) (1,662)
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BALANCE, MARCH 31, 1999 $100 $346,919 $(356,886) $(9,867)
==== ======== ========= =========
BALANCE, JANUARY 1, 2000 $566 $354,833 $(362,506) $(7,107)
Issuance of 250,000 shares of
Common Stock 2 186 $ (188)
Amortization of deferred compensation
from restricted stock grants 4 4
Net loss (875) (875)
---- -------- ------------ ---------- ---------
BALANCE, MARCH 31, 2000 $568 $355,019 $ (184) $(363,381) $(7,978)
==== ======== ============ ========== =========
See notes to interim consolidated financial statements.
4
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
March 31, 2000 and 1999
(In thousands)
(Unaudited)
------------------------------------------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (875) $(1,662)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Provision for losses on real estate investments - 255
Minority interest 250 -
Amortization of deferred compensation from restricted stock grants 4 -
Accrued interest added to note payable to Leucadia Financial Corporation - 391
Amortization of debt discount on note payable to Leucadia Financial Corporation 219 193
Equity in losses from Otay Land Company, LLC - 257
Changes in operating assets and liabilities:
Land and real estate held for development and sale (91) 1,851
Deposits and other assets 35 (83)
Recreation center liability (465) -
Accounts payable and accrued liabilities (380) 247
Decrease (increase) in restricted cash 453 (193)
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Net cash provided by (used in ) operating activities (850) 1,256
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CASH FLOWS FROM INVESTING ACTIVITIES:
Contributions to Otay Land Company, LLC - (450)
Decrease in investments - 79
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Net cash used in investing activities - (371)
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Net increase (decrease) in cash and cash equivalents (850) 885
Cash and cash equivalents, beginning of period 2,795 3,120
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Cash and cash equivalents, end of period $1,945 $4,005
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See notes to interim consolidated financial statements.
5
HOMEFED CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements, which reflect
all adjustments (consisting only of normal recurring items) that
management believes are necessary to present fairly the financial
position, results of operations and cash flows, should be read in
conjunction with the audited consolidated financial statements for
HomeFed Corporation for the year ended December 31, 1999 which are
included in the Company's Annual Report on Form 10-K, as amended by Form
10-K/A, for such year (the "1999 10-K"). Results of operations for
interim periods are not necessarily indicative of annual results of
operations. The consolidated balance sheet at December 31, 1999 was
derived from the Company's audited consolidated financial statements in
the 1999 10-K, and does not include all disclosures required by generally
accepted accounting principles for annual financial statements.
During the third quarter of 1999, the limited liability agreement
governing Otay Land Company, LLC ("Otay Land Company") was amended and as
a result, the Company now has the ability to control Otay Land Company.
Accordingly, effective September 20, 1999, Otay Land Company has been
included in the Company's consolidated financial statements. The Company
previously had accounted for this investment under the equity method of
accounting; the noncash effects on the consolidated financial statements
were a decrease in the investment in Otay Land Company of $9,988,000, an
increase in minority interest of $10,928,000 and an increase in land and
real estate held for development and sale of $20,976,000.
2. As of August 14, 1998, the Company and Leucadia Financial Corporation
("LFC"), a wholly-owned subsidiary of Leucadia National Corporation
("Leucadia") entered into an Amended and Restated Loan Agreement,
pursuant to which the Company and LFC amended the original loan agreement
dated July 3, 1995 and restructured the outstanding 12% Secured
Convertible Note due 2003 held by LFC. The Restructured Note has a
principal amount of approximately $26,462,000 (reflecting the original
$20,000,000 principal balance of the Convertible Note, together with
additions to principal resulting from accrued and unpaid interest thereon
to the date of the restructuring, as allowed under the terms of the
Convertible Note), extends the maturity date from July 3, 2003 to
December 31, 2004, reduces the interest rate from 12% to 6% and
eliminates the convertibility feature of the Convertible Note. Interest
only on the Restructured Note is paid quarterly and all unpaid principal
is due on the maturity date. During the three-month periods ended March
31, 2000 and March 31, 1999, interest of approximately $395,000 and
$391,000, respectively, was expensed for the Restructured Note. As a
result of the restructuring of the Convertible Note, the Restructured
Note was recorded at fair value and the approximate $7,015,000 difference
between such amount and the carrying value of the Convertible Note was
reflected as additional paid-in capital. The $7,015,000 difference
between the fair value of the Restructured Note and the carrying value of
the Convertible Note will be amortized over the term of the Restructured
Note using the interest method. Approximately $219,000 and $193,000,
respectively, was amortized as interest expense during the three-month
periods ended March 31, 2000 and March 31, 1999.
3. Basic loss per share of Common Stock for 2000 was calculated by dividing
the net loss by the 56,623,760 weighted average shares of Common Stock
outstanding. Basic loss per share of Common Stock for 1999 was calculated
by dividing the net loss by 10,000,000 shares of Common Stock.
Diluted loss per share of Common Stock were calculated as described
above. The number of shares used to calculate diluted loss per share was
56,623,760 and 10,000,000 for 2000 and 1999. The calculation of diluted
loss per share does not include Common Stock equivalents of 180,000 and
46,557,826 for 2000 and 1999, respectively, which are antidilutive.
4. As of October 14, 1998, the Company and Leucadia formed Otay Land
Company. The Company has contributed $11,300,000 as capital and Leucadia
has contributed $10,000,000 as a preferred capital interest. The Company
is the manager of Otay Land Company. Otay Land Company has acquired, for
approximately $19,500,000, approximately 4,800 acres of land which is
part of a 22,900 acre project located south of San Diego, California,
known as Otay Ranch.
6
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(continued)
5. Pursuant to administrative services agreements, LFC provides
administrative services to the Company, including providing the services
of two of the Company's executive officers. Effective March 1, 1999, the
Company and LFC entered into a new three year administrative services
agreement pursuant to which the Company paid LFC an administrative fee of
$296,000 for the first annual period, with the fee for subsequent annual
periods to be negotiated. The Company is continuing to pay LFC fees based
on the first annual period, while the parties negotiate the fee for the
annual period beginning March 1, 2000. Fees paid by the Company to LFC
totaled $74,000 in each of the three-month periods ended March 31, 2000
and March 31, 1999.
The Company's corporate office is in part of an office building subleased
from Leucadia for a monthly amount equal to its share of Leucadia's cost
for such space and furniture. For the three-month periods ended March 31,
2000 and March 31, 1999, the Company expensed $47,000 and $37,000,
respectively, for rentals from Leucadia.
6. On March 8, 2000, options to purchase an aggregate of 180,000 shares of
Common Stock were granted to eligible participants under the Company's
1999 Stock Incentive Plan at an exercise price of $.75 per share (market
value) and an aggregate of 250,000 shares of restricted stock were issued
to eligible participants under the Plan. In connection with the grant of
restricted stock, the Company recorded a deferred charge of $188,000
representing the fair value of the stock grant, which will be amortized
over the three year vesting period of the restricted stock.
7. In April 2000, the Board of Directors approved, subject to stockholder
approval, the Company's 2000 Stock Incentive Plan (the "2000 Plan"). The
2000 Plan provides for the grant of options to purchase up to 1,000,000
shares of Common Stock to two key employees of the Company. On April 27,
2000, options to purchase an aggregate of 1,000,000 shares of Common
Stock were granted to the two employees at an exercise price of $.61 per
share, the then current market price per share. The options are subject
to achievement of performance goals as determined by the Board of
Directors and are exercisable following stockholder approval over a
four-year period. Options and any stock issued on exercise of an option
are subject to forfeiture if the performance goals are not met within
three years from the date of grant.
In April 2000, the Company sold two clustered housing development sites
at the Paradise Valley project for net proceeds of $1,494,000.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF INTERIM OPERATIONS.
The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's 1999 10-K.
LIQUIDITY AND CAPITAL RESOURCES
For the three month period ended March 31, 2000, net cash was used in operating
activities, principally to pay interest to LFC. For the three month period ended
March 31, 1999, net cash was provided by operating activities, principally from
sales of residential properties. The Company's principal sources of funds are
dividends or borrowings from its subsidiaries, and any fee income earned from
the San Elijo Hills project. The Company is dependent upon the cash flow, if
any, from the sale of real estate and management fees in order to pay its
expenses, including debt service payments.
The Company expects that its cash on hand, together with cash generated from
sales of real estate will be sufficient to meet its cash flow needs for the
foreseeable future. However, the Company's ability to fund the cost of providing
services required under the Development Agreement for San Elijo Hills will
depend significantly upon the receipt of fees under the Development Agreement as
described below. If, at any time in the future, the Company's cash flow is
insufficient to meet its then current cash requirements, the Company could sell
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.
The Development Agreement provides that the Company will receive certain fees in
connection with the project. These fees consist of marketing, field overhead and
management service fees. These fees are based on a fixed percentage of gross
revenues of the project, less certain expenses allocated to the project, and are
expected to cover the Company's cost of providing services under the Development
Agreement. The Development Agreement also provides for a success fee to the
Company out of the project's net cash flow, if any, as described below, up to a
maximum amount. Whether the success fee, if it is earned, will be paid to the
Company prior to the conclusion of the project will be at the discretion of the
project owner.
To determine "net cash flow" for purposes of calculating the success fee, all
cash expenditures of the project will be deducted from total revenues of the
project. Examples of "expenditures" for these purposes include land development
costs, current period operating costs, and indebtedness, either collateralized
by the project ($30,565,000 at March 31, 2000, which is non-interest bearing),
or owed by the project's owner to Leucadia ($66,793,000 at March 31, 2000)
(collectively, "Indebtedness"). As a success fee, the Company is entitled to
receive payments out of net cash flow, if any, up to the aggregate amount of the
Indebtedness. The balance of the net cash flow, if any, will be paid to the
Company and the project owner in equal amounts. However, the amount of the
success fee cannot be more than 68% of net cash flow minus the amount of
Indebtedness. There can be no assurance, however, that the Company will receive
any success fee at all for this project. 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.
As of March 31, 2000, the Company owed $26,462,000 principal amount to LFC. This
amount is payable on December 31, 2004 and bears interest at 6% per year. This
obligation is reflected in the consolidated balance sheet, net of discount, at
$20,771,000 as of March 31, 2000. During the three months ended March 31, 2000
the Company paid to LFC $395,000 in interest.
In April 2000, the Company sold two clustered housing development sites at the
Paradise Valley project for net proceeds of $1,494,000. The Company has certain
continuing obligations with respect to this project, including the obligation to
construct a recreation center. The Company estimates that construction of the
recreation center for the Paradise Valley Community will be completed at a cost
of approximately $1,200,000. Construction of the recreation center began in 1999
and is expected to be completed in 2000. Cash of $1,000,000 was deposited in an
escrow account that is being drawn upon as the recreation center is being
completed. At March 31, 2000, $415,000 remained in escrow.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF INTERIM OPERATIONS.
(continued)
In connection with an indemnity agreement to a third party surety entered in
1990 in connection with the construction of infrastructure improvements in a
development located in LaQuinta, California, a subsidiary of the Company is
required to maintain a minimum net worth of $5,000,000 and a minimum cash
balance of $400,000. Failure to meet both of these requirements would trigger
the subsidiary's obligation to provide an irrevocable letter of credit of
approximately $460,000 based upon current estimates. The subsidiary currently
meets the minimum cash balance requirement.
RESULTS OF OPERATIONS
During the first quarter of 2000, as a result of the sale of certain lots in the
San Elijo Hills project, the Company received $878,000 of marketing, field
overhead and management service fee income in accordance with the terms of the
Development Agreement.
There were no sales of real estate during the first quarter of 2000. During the
first quarter of 1999, the Company sold 75 residential lots in the Paradise
Valley project. Cost of sales recorded during these periods reflects the level
of sales activity.
Interest expense primarily reflects the interest due on indebtedness to LFC,
including interest of $395,000 and $391,000 for the three month periods ended
March 31, 2000 and March 31, 1999, respectively. In addition, interest expense
includes $219,000 and $193,000 for amortization of debt discount related to the
indebtedness due to LFC for the three-month periods ended March 31, 2000 and
March 31, 1999, respectively.
General and administrative expenses increased in 2000 as compared to 1999 due to
the increased operating activities in connection with the San Elijo Hills
project and Otay Ranch project.
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 Management's Discussion and Analysis of Financial
Condition and Results of Interim Operations may contain forward-looking
statements. Such forward-looking statements are made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements may relate, but are not limited, to projections of revenues, income
or loss, capital expenditures, plans for growth and future operations,
competition and regulation as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted or quantified. When used in Management's
Discussion and Analysis of Financial Condition and Results of Interim Operations
the words "estimates", "expects", "anticipates", "believes", "plans", "intends"
and variations of such words and similar expressions are intended to identify
forward-looking statements that involve risks and uncertainties. Future events
and actual results could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements. The factors that could cause
actual results to differ materially from 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 beyond the Company's control, damage to properties or
condemnation of properties, the occurrence of significant natural disasters, the
inability to insure certain risks economically, the adequacy of loss reserves,
changes in prevailing interest rate levels and changes in the composition of the
Company's assets and liabilities through acquisitions or divestitures. Undue
reliance should not be placed on these forward-looking statements, which are
applicable only as of the date hereof. The Company undertakes no obligation to
revise of update these forward-looking statements to reflect events or
circumstances that arise after the date of this Report or to reflect the
occurrence of unanticipated events.
9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule
(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
/s/ Corinne A. Maki
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CORINNE A. MAKI, Treasurer
(Authorized Signatory and
Principal Financial and
Accounting Officer)
Date: May 12, 2000
11
INDEX TO EXHIBITS
Exhibits
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27 Financial Data Schedule.
12