<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------- --------------
Commission File Number 1-10153
HOMEFED CORPORATION
(Exact Name of the 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
(801) 521-1066
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the average bid and asked prices of the Registrant's Common Stock as
published by the OTC Bulletin Board Service as of March 20, 1997, the aggregate
market value of the Registrant's Common Stock held by non-affiliates was
approximately $1,101,966 on that date.
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 [ ]
As of March 20, 1997, there were 10,000,000 outstanding shares of the
Registrant's Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement, to be filed with the
Commission for use in connection with the May 14, 1997 Annual Meeting of
Stockholders is incorporated by reference into Part III of this Form 10-K.
<PAGE>
HOMEFED CORPORATION
(the "Company")
PART I
ITEM 1. BUSINESS
Introduction
HomeFed Corporation ("HomeFed" or the "Company") was incorporated under
the laws of Delaware in 1988. Until July 6, 1992, the Company's principal
operating subsidiary was HomeFed Bank, F.S.B. ("HomeFed Bank"). On July 6,
1992, the Office of Thrift Supervision appointed the Resolution Trust
Corporation ("RTC") as receiver for HomeFed Bank and the RTC took possession and
control of HomeFed Bank. On October 22, 1992, the Company filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of California. On July 3,
1995, HomeFed emerged from Chapter 11 Bankruptcy protection pursuant to its
court approved plan of reorganization. Set forth below is a description of the
Company's plan of reorganization and a description of the business of the
Company following its emergence from bankruptcy.
Plan of Reorganization
The Company emerged from Chapter 11 Bankruptcy protection on July 3, 1995,
pursuant to its Fourth Amended Plan of Reorganization Dated July 15, 1994, as
amended (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 ("Leucadia"), and by LFC's purchase of 2,700,000 newly issued $.01
par value shares ("Common Stock") of the Company for $810,000. LFC was the
largest holder of the Company's convertible subordinated debentures on the
effective date of the Plan.
As part of the Plan, HomeFed settled pending litigation with the RTC
in its capacity as receiver and conservator of HomeFed Bank. Under the RTC
settlement, HomeFed paid the RTC $3,100,000 and HomeFed received a receivership
certificate from the RTC. The receivership certificate was redeemed by the RTC
for $1,402,000 which was paid to HomeFed. The RTC settlement provides that
HomeFed 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 they
actually will 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 Court at $.30
per share and (iv) an interest in the litigation trust described below.
The Plan provided for the issuance of 5,800,000 new shares of Common Stock
to the pre-effective date stockholders of the Company and approximately
21,484,000 old shares of common stock were canceled. As a result of the shares
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it received as a general unsecured creditor and the shares it purchased as
described above, LFC owns 4,117,986 shares or approximately 41.2% of the
outstanding Common Stock of the Company, without giving effect to the Common
Stock that LFC may acquire in the future pursuant to the terms of the
Convertible Note. See Item 13-"Certain Relationships and Related Transactions."
Certain pending claims are being prosecuted by a litigation trust (the
"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 Litigation 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.
Description of Business
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. ("HomeFed Communities")
and HomeFed Resources Corporation ("HomeFed Resources"). The Company's
subsidiaries enter into contracts with local builders and developers to provide
construction, marketing and management services. Revenues of the Company are
derived principally from the sale of real estate in connection with its real
estate projects. Expenses consist principally of construction and development
costs, interest on debt and general and administrative expenses. The Company's
current development projects are described below.
Paradise Valley
Paradise Valley is a new community located in Solano County in the
northeast portion of the City of Fairfield, California. Prior to October 1996,
the Company owned approximately one-third of the development project and the
balance of the project was owned by three unrelated development companies. The
Company's holdings originally included 84 acres planned for four detached single
family residential sites, three clustered housing development sites and a school
site.
On October 3, 1996, the Company entered into agreements with The Forecast
Group (Registered Trade Name), 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. Subject to certain conditions,
the sales of the remaining lots are expected to close on May 1, 1997 and
September 1, 1997, at which times the Company will receive $1,010,000 and
$1,636,000, respectively, less closing costs. The Company has also granted
options to The Forecast Group to purchase 156 additional lots for a total
purchase price of $5,781,950. The option with respect to 81 of these lots will
become exercisable following the sale expected to close on May 1, 1997, and the
option with respect to the remaining lots will become exercisable following the
sale expected to close on September 1, 1997, each as described above. The
options expire on May 1, 1998.
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Following the sales to The Forecast Group, and assuming that The Forecast
Group exercises its options, the Company's remaining holdings at the Paradise
Valley project will consist of the three clustered housing development sites and
the school site. The Company is entertaining offers from potential purchasers
with respect to the remaining sites. If the Company does not receive an
acceptable offer for these sites, the Company will reevaluate its alternatives
with respect to the sale or development of these sites and may request that they
be rezoned as detached single family residential sites or commercial sites;
however, no assurance can be made that the sites will be rezoned. At December
31, 1996, the book value of the Company's investment in Paradise Valley was
approximately $11,271,000.
Silverwood
The Silverwood project is part of the greater Sacramento metropolitan area
located in Placer County, in a community commonly known as Granite Bay.
Silverwood is a 175 acre development and is planned for 97 single family
detached units and a 40 acre public high school. The Company owns 78 of the 97
lots, with the balance owned by LFC. The project has a vested tentative map
approved by the County which expires in January 1998. The Company has received
inquiries and is entertaining offers from potential purchasers interested in
acquiring the Company's remaining lots at the Silverwood project. If an
acceptable offer is received, the Company may sell its remaining interest in the
Silverwood project. Otherwise, the Company expects to develop the project after
existing custom lot inventory in the area is substantially reduced. The Company
anticipates that this would result in the commencement of development in early
1998; however, no assurance can be given that development will begin at that
time. At December 31, 1996, the book value of the Company's investment in
Silverwood was approximately $2,257,000.
Carson Creek
The Carson Creek project is a 127 residential lot development located in
Sacramento County, northeast of Sacramento in an area generally referred to as
Gold River. Development commenced in 1990 and the last remaining home was sold
in 1996.
For information with respect to the Company's plans for future real estate
development projects, see Item 7- "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Competition
The construction and sale of homes is a highly competitive business. There
are numerous other real estate developers operating in the same geographic areas
in which the Company operates. The principal methods of competition among real
estate developers are price and the quality of real estate sold. The quality of
real estate sold depends on various factors, including the quality of
construction and location.
Government Regulation
The housing industry is subject to increasing environmental, building,
zoning and real estate regulations that are imposed by various federal, state
and local authorities. Such regulations affect homebuilding by specifying,
4
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among other things, the type and quality of building material that must be used,
certain aspects of land use and building design and the manner in which
homebuilders may conduct their sales, operations, and overall relationships with
potential home buyers. In developing a community, the Company must obtain the
approval of numerous governmental agencies regarding such matters as permitted
land uses, housing density, the installation of utility services (such as water,
sewer, gas, electric, telephone and cable television) and the dedication of
acreage for open space, parks, schools and other community purposes.
Furthermore, changes in prevailing local circumstances or applicable laws may
require additional approvals, or modifications of approvals previously obtained.
Environmental Compliance
Environmental laws may cause the Company to incur substantial compliance,
mitigation and other costs, may restrict or prohibit development in certain
areas and may delay completion of the Company's development projects. To date,
environmental laws have not had a material adverse effect on the Company, and
management is not currently aware of any environmental compliance matters that
would have a material adverse effect on the Company.
Employees; Administrative Services
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 period, 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.
Administrative fees paid to LFC for the year ended December 31, 1996 totaled
$143,000.
All of the Company's administrative services are currently provided by LFC
and, as of December 31, 1996, the Company had only one employee. All of the
officers of the Company are Officers of LFC. See Item 13 - "Certain
Relationships and Related Transactions."
ITEM 2. PROPERTIES
See Item 1 - "Business -- Description of Business" for a description of the
Company's real estate development projects.
The Company's executive offices are located at 529 East South Temple in
Salt Lake City, Utah in an office building occupied and leased by LFC. LFC
provides such office space to the Company in connection with the administrative
services provided to the Company by LFC.
5
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain routine legal matters arising in the
normal course of business. In the opinion of management, the ultimate outcome
of these matters will not have a material adverse effect on the Company's
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
During the fourth quarter of 1996, no matter was submitted to a vote of the
Company's stockholders through the solicitation of proxies or otherwise.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT
Office
Position with Held
Name Age the Company Since
- ----------------- ----- --------------- --------
Patricia A. Wood 32 President 1995
Corinne A. Maki 40 Treasurer 1995
Ruth Klindtworth 62 Secretary 1995
The officers serve at the pleasure of the Board of Directors of the
Company.
The recent business experience of the Company's executive officers is
summarized as follows:
Patricia A. Wood.
Ms. Wood has served as President of the Company since February 1995 and as
President of HomeFed Communities and HomeFed Resources since August 1994. Ms.
Wood also served as Executive Vice President of the Company from April 1993 to
July 1994 and as Chief Financial Officer from October 1992 to April 1993. From
September 1989 to October 1992, Ms. Wood was the Assistant Controller for
Douglas Allred Co., a real estate development company. Ms. Wood is also the
President of LFC.
Corinne A. Maki.
Ms. Maki, a certified public accountant, has served as Treasurer of the
Company since February 1995. Ms. Maki has also served as an Assistant Secretary
of the Company since August 1995, and prior thereto had served as Secretary of
the Company since February 1995. Ms. Maki has also been a Vice President of
LFC, holding the offices of Controller, Assistant Secretary and Treasurer, since
October 1992. Ms. Maki has been employed by Leucadia since December 1991.
6
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Ruth Klindtworth.
Ms. Klindtworth was appointed Secretary of the Company in August 1995. Ms.
Klindtworth has been employed by Leucadia since July 1960 and has served as
Secretary of Leucadia since February 1976 and as Vice President--Corporate
Administrator of Leucadia since January 1990. Ms. Klindtworth has also served
in various other capacities with Leucadia and its subsidiaries and is currently
Secretary of LFC.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and Form 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and written representations furnished to the Company, the Company
has determined that, to the best of the Company's knowledge, during 1996 all
reports required by Section 16(a) of the Exchange Act were filed on a timely
basis.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
No information is available concerning the market price of the Company's
common stock for the period during which the Company was in bankruptcy. The
following table sets forth certain information concerning the market price of
the Company's Common Stock since it emerged from bankruptcy in July 1995.
High Low
-------- --------
Year ended December 31, 1995
Third Quarter $ .25 $ .125
Fourth Quarter 1.25 .0625
Year ended December 31, 1996
First Quarter $ 1.25 $ .25
Second Quarter 1.25 .125
Third Quarter .375 .125
Fourth Quarter .375 .125
The Company's Common Stock is traded in the over-the-counter market. The
Company's Common Stock is not listed on any stock exchange, and price
information for the Common Stock is not regularly quoted on any automated
quotation system. The prices above are based on bid quotations, as published by
the National Association of Securities Dealers OTC Bulletin Board Service, and
represent interdealer prices without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions. On March 20, 1997, the
bid price for the Company's Common Stock, was $.0625 per share. As of this
date, there were approximately 10,439 stockholders of record. The Company did
not declare dividends on its Common Stock during 1995 or 1996 and it does not
anticipate that it will pay dividends for the foreseeable future.
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The Company's Common Stock does not currently meet the minimum requirements
for listing on a national securities exchange or inclusion in the Nasdaq Stock
Market. If the Company's Common Stock becomes eligible to be listed or included
in the Nasdaq Stock Market, the Company will consider its alternatives with
respect to the trading market for the Company's Common Stock.
On December 20, 1996, the Board of Directors of the Company appointed
American Stock Transfer Company as transfer agent for the Company's Common
Stock. American Stock Transfer Company's address is 40 Wall Street, New York,
New York 10005.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been summarized from the
Company's consolidated financial statements and are qualified in their entirety
by reference to, and should be read in conjunction with, such consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," under Item 7 below.
8
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<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Sales of residential and commercial properties $ 8,988 $ 9,422 $ 4,484 $ 8,527 $ -
Gross profit (loss) (464) 426 66 369 -
Interest expense 3,063 1,458 - - -
Loss from operations (6,417) (2,435) (3,020) (10,619) (8,279)
Reorganization items - (expense) income - (1,924) (1,424) (1,633) 2,126
Discontinued operations (net of tax) - - - - (104,945)
Loss before extraordinary items (6,297) (4,161) (4,294) (9,573) (109,615)
Extraordinary items:
Equity in joint venture's extinguishment of debt - - - 3,051 -
Extinguishment of debt - bankruptcy - 108,881 - - -
Net earnings (loss) (6,297) 104,720 (4,294) (6,522) (109,615)
Per share:
Primary earnings (loss) per common share:
Loss before discontinued operations $ (0.63) $ (0.42) $ (0.43) $ (0.96) $ (0.47)
Loss on discontinued operations - - - - (10.49)
--------- --------- --------- --------- ---------
Loss before extraordinary items (0.63) (0.42) (0.43) (0.96) (10.96)
Extraordinary items - 10.89 - 0.31 -
--------- --------- --------- --------- ---------
Net earnings (loss) $ (0.63) $ 10.47 $ (0.43) $ (0.65) $ (10.96)
========= ========= ========= ========= =========
Fully diluted earnings (loss) per common share:
Loss before discontinued operations $ (0.63) $ (0.09) $ (0.43) $ (0.96) $ (0.47)
Loss on discontinued operations - - - - (10.49)
--------- --------- --------- --------- ---------
Loss before extraordinary items (0.63) (0.09) (0.43) (0.96) (10.96)
Extraordinary items - 3.35 - 0.31 -
--------- --------- --------- --------- ---------
Net earnings (loss) $ (0.63) $ 3.26 $ (0.43) $ (0.65) $ (10.96)
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Land and real estate held for development $ 13,528 $ 22,069 $ 21,139 $ 22,071 $ 27,544
Total assets 17,091 26,851 23,387 27,453 31,583
Notes payable to Leucadia Financial Corporation 23,877 26,996 1,199 - -
Other notes payable - 126 173 986 -
Stockholders' deficit (7,162) (865) (106,845) (102,551) (96,029)
Shares outstanding 10,000 10,000 10,000 10,000 10,000
Book value per common share $ (0.72) $ (0.09) $ (10.68) $ (10.26) $ (9.60)
</TABLE>
Primary earnings (loss) per common share and book value per common share
were calculated assuming the 10,000,000 shares of Common Stock issued on July 3,
1995 were the only shares outstanding for all years presented. Book value per
common share calculations based upon the pre-effective date outstanding shares
are not meaningful.
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ITEM 7. 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 consolidated
financial statements and related notes which appear elsewhere in this report.
Liquidity and Capital Resources
As more fully described in Item 1 - "Business," on July 3, 1995, the
Company emerged from Chapter 11 Bankruptcy protection pursuant to its court
approved plan of reorganization. The Plan was principally funded by a
$20,000,000 Convertible Note issued to LFC and the sale to LFC of 2,700,000
newly issued shares of Common Stock for $810,000. The funds received from LFC
were used along with other consideration to satisfy the Company's liabilities
subject to compromise of approximately $127,458,000 and to settle pending
litigation with the RTC.
For the year ended December 31, 1996, net cash was provided by operating
activities, principally from sales of real estate. For the years ended December
31, 1995 and 1994, net cash was used by operating activities, principally for
real estate development projects and to pay reorganization expenses. The
Company is a holding company and its principal sources of funds are 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, the Company expects cash flows may also be sufficient to
permit debt service payments on the Convertible Note beginning in 1997. No
principal payments are due on the Convertible Note until September 1998 and
accrued interest is only required to be paid under certain conditions. See
Item 13-"Certain Relationships and Related Transactions."
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 December 31,
1996, 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 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, 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
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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. Subject to
certain conditions, the sales of the remaining lots are expected to close on May
1, 1997 and September 1, 1997, at which times the Company expects to receive
$1,010,000 and $1,636,000, 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 will become exercisable following the sale expected to close
on May 1, 1997, and the option with respect to the remaining lots will become
exercisable following the sale expected to close on September 1, 1997, each as
described above. The options expire on May 1, 1998. 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.
The Company continues to seek opportunities for additional real estate
development projects. Any such projects would be funded by the $15,000,000
construction financing and the expected cash proceeds from the sale to The
Forecast Group. After July 1998, however, the ability of the Company to
undertake new development projects will depend significantly upon the actions of
LFC with respect to its investment in the Company. In September 1998, if LFC
does not exchange the Convertible Note for shares of Common Stock of the
Company, the Company will be required to begin making principal and interest
payments under the payment terms of the Convertible Note. Accordingly, most of
the Company's cash resources would have to be used for payments on the
Convertible Note. Given the current state of the Company's real estate
activities, unless the Company acquires additional real estate development
projects, it is unlikely the Company would have sufficient cash flow to repay
the Convertible Note in accordance with its terms. If, however, LFC decides to
exchange the Convertible Note for Common Stock of the Company, the Company will
be able to use its cash resources for additional development projects. LFC has
not advised the Company as to whether it intends to exchange the Convertible
Note, and no assurance can be given that LFC will exchange the Convertible Note.
The Company, as well as the real estate industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
land and construction costs. Higher interest rates may also affect the
affordability and availability of financing to prospective purchasers. In
addition, as all of the Company's real estate projects are located in
California, the Company's operations are particularly dependent upon that
state's economic conditions.
Results of Operations
Sales of residential properties decreased in 1996 as compared to 1995 due
to the sale of lots to The Forecast Group and due to fewer new and trade home
sales. Except for two homes, all remaining residential homes at Paradise Valley
were sold in 1996.
Sales of residential properties increased in 1995 as compared to 1994 due
to the opening of the Paradise Valley project in May 1995 and a new sales
program at the Carson Creek project that began in September 1994 to complete and
sell all remaining homes. Except for one rental home, all remaining residential
homes at Carson Creek were sold in 1995.
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The increase in cost of sales in 1996 as compared to 1995 reflects the
increased cost of homes sold primarily due to the reallocation of Paradise
Valley costs to residential home inventory based on the Company's decision to
build fewer homes.
The increase in cost of sales in 1995 as compared to 1994 reflects the
increased level of home sales. Gross profit percentages for both years reflect
the mix of homes sold in different projects.
Land and real estate held for development is carried at the lower of cost
or fair value less costs to sell. The provision for losses for the years ended
December 31, 1996 and 1994 reflect the Company's estimates to reduce the
carrying value of the real estate investments to fair value less costs to sell.
See Notes 1 and 6 to the Company's consolidated financial statements.
Interest expense primarily reflects the interest due on the Convertible
Note to LFC of $2,669,000 for 1996 and $1,208,000 for 1995, which was not paid
and was added to the principal balance of the note as stipulated under the note
agreement. Interest on the construction loan was also expensed for construction
phases that were substantially complete. Interest of $385,000 and $167,000 was
expensed on the construction loan in 1996 and 1995, respectively.
The decrease in general and administrative expenses in 1996 as compared to
1995 reflects the decreased costs in selling expenses attributable to the Carson
Creek project, which was substantially completed in 1995.
The increase in general and administrative expenses in 1995 as compared to
1994 reflects the additional costs related to administration, management, sales
and marketing of the Paradise Valley project which opened in May 1995 and
selling expenses attributable to the Carson Creek project. These increases were
partially offset by reduced corporate overhead expenses for the Company and its
subsidiaries.
Reorganization expenses decreased in 1996 as a result of the Company's
emergence from bankruptcy in July 1995. Reorganization expenses increased in
1995 as compared to 1994 primarily due to the settlement of litigation with the
RTC for a net amount of approximately $1,698,000. This increase was partially
offset by a reduction in professional fees while the Company was in bankruptcy.
Income tax expense or benefit for all years presented principally relates
to state franchise taxes. The Company has not recognized any income tax benefit
for its operating losses in all years presented due to the uncertainty of
sufficient future taxable income which is required in order to recognize such
tax benefits.
In 1995, the extraordinary gain on debt discharged in bankruptcy resulted
from the Company's satisfaction of liabilities to creditors subject to
compromise of approximately $127,458,000, principally by the payment of
$18,302,000 and the issuance of 1,500,000 shares of Common Stock.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required by this Item 8 are set
forth at the pages indicated in Item 14(a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
During 1995, the Board of Directors of the Company approved the appointment
of Coopers & Lybrand L.L.P. as the Company's independent accountants. The firm
of Deloitte & Touche LLP, which had served as the Company's independent
accountants since 1992, was dismissed by the Company on October 13, 1995. On
November 7, 1995, the Company engaged Coopers & Lybrand L.L.P. as its
independent accountants for the year ended December 31, 1995.
The accountant's reports which Deloitte & Touche LLP issued with respect to
the Company's financial statements for the years ended December 31, 1994 and
1993 were modified as to the uncertainties regarding the ultimate outcome of the
Company's reorganization proceedings under Chapter 11 of the United States
Bankruptcy Code and stated that the Company's recurring losses and stockholders'
deficit raised substantial doubt about its ability to continue as a going
concern. During the two most recent fiscal years and the subsequent interim
periods preceding the dismissal of Deloitte & Touche LLP, the Company did not
have any disagreements with Deloitte & Touche LLP on any matter of accounting
principle or practice, financial statement disclosure or auditing scope or
procedure.
As noted above, on November 7, 1995, Coopers & Lybrand L.L.P. was engaged
as the Company's independent accountants for the year ended December 31, 1995.
No consultations occurred between the Company and Coopers & Lybrand L.L.P.
during the two fiscal years and the subsequent interim period prior to Coopers &
Lybrand L.L.P.'s appointment regarding the application of accounting principles
to a specific completed or contemplated transaction, the type of audit opinion,
or other information considered by the Company in reaching a decision as to an
accounting, auditing or financial reporting issue.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be included under the caption "Nominees for Election as
Directors" in the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A of the Exchange Act in connection with the
1997 annual meeting of stockholders of the Company (the "Proxy Statement") is
incorporated herein by reference. In addition, reference is made to Item 10 in
Part I of this Report.
13
<PAGE>
The Directors of the Company are Timothy Considine, Michael A. Lobatz and
Patricia A. Wood. Mr. Considine is the Managing Partner of Considine and
Considine, an accounting firm, and Mr. Lobatz is a practicing physician. Ms.
Wood is President of the Company and an officer of LFC.
ITEM 11. EXECUTIVE COMPENSATION
The information to be included under the caption "Executive Compensation"
in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information to be included under the caption "Present Beneficial
Ownership of Common Stock" in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described above, LFC agreed to provide administrative services to the
Company pursuant to the Administrative Services Agreement for an annual fee of
$141,000 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 period,
the Company will now pay certain expenses previously paid by LFC. All of the
officers of the Company are officers of LFC and receive compensation from LFC or
Leucadia. Except for Ms. Wood, the officers of the Company did not receive
compensation directly from the Company in 1996.
The Company's executive offices are located at 529 East South Temple in
Salt Lake City, Utah in an office building occupied and leased by LFC. LFC
provides such office space to the Company in connection with the administrative
services provided to the Company by LFC.
As described above under Item 1 - "Business -- Plan of Reorganization," the
Company emerged from Chapter 11 Bankruptcy protection pursuant to its court
approved plan of reorganization. The Plan was principally funded by the
issuance of the $20,000,000 Convertible Note to LFC and the sale to LFC of
2,700,000 newly issued shares of Common Stock for $810,000. 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 relating to the Convertible Note. Unpaid
interest is added to the principal balance each quarter. The Convertible Note
matures on July 3, 2003. Commencing July 6, 1998, the Convertible Note,
including any accrued interest previously added to the principal balance, may be
exchanged for up to a maximum of 54,400,000 shares of Common Stock at a
conversion price of $.45 per share, subject to certain restrictions. The
Convertible Note is collateralized by all of the Company's assets and has been
guarantied by each of the Company's subsidiaries. The guaranties of the
Company's subsidiaries are collateralized by all of the assets of such
subsidiaries. LFC owns 4,117,986 shares or approximately 41.2% of the
outstanding Common Stock of the Company, without giving effect to the Common
14
<PAGE>
Stock that LFC may acquire in the future pursuant to the terms of the
Convertible Note.
In addition to loaning $20,000,000 to the Company pursuant to the
Convertible Note, 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 for as long as the Convertible Note is outstanding. The construction
financing is collateralized by certain assets of the Company's subsidiaries or
their affiliates. 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. No amounts were outstanding under the construction financing as of
December 31, 1996.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a)(1) Financial Statements
Reports of Independent Accountants F-1
Consolidated Balance Sheets at December 31, F-3
1996 and 1995
Consolidated Statements of Operations for the F-4
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in F-5
Stockholders' Deficit for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for F-6
the years ended December 31, 1996, 1995 and
1994
Notes to Consolidated Financial Statements F-7
(a)(2) Financial Statement Schedules
Schedules are omitted because they are not
required or are not applicable or the required
information is shown in the financial
statements or notes thereto
(a)(3) The following exhibits are filed herewith or incorporated by
reference:
Exhibit
Number Exhibit
- ------- -------------
2.1 Amended Disclosure Statement to the Company's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.1 to the Company's current report on Form 8-K dated June
14, 1995).
2.2 The Company's Fourth Amended Plan of Reorganization Dated July 15,
1994 (incorporated by reference to Exhibit 2.2 to the Company's
current report on Form 8-K dated June 14, 1995).
2.3 Order Modifying and Confirming the Company's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to
Exhibit 2.3 to the Company's current report on Form 8-K dated June
14, 1995).
16
<PAGE>
3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of
the Company (incorporated by reference to Exhibit 3.1 to the
Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1995).
3.2 By-laws of the Company as amended through November 10, 1995
(incorporated by reference to Exhibit 3.2 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1995).
10.1 Letter Agreement dated July 3, 1995 between the Company and Leucadia
Financial Corporation and Second Amended and Restated Promissory Note
dated August 31, 1995 (incorporated by reference to Exhibit 10.1 to
the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1995).
10.2 Loan Agreement dated July 3, 1995 between the Company and Leucadia
Financial Corporation and Form of 12% Secured Convertible Note due
July 3, 2003 (incorporated by reference to Exhibit 10.2 to the
Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1995).
10.3 Paradise Valley Unit 1 First Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.1 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.4 Paradise Valley Unit 2 First Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.2 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.5 Paradise Valley Unit 1 Second Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.3 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.6 Paradise Valley Unit 2 Second Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.4 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
10.7 Paradise Valley Unit 3 Option to Purchase Real Property and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.5 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
17
<PAGE>
10.8 Paradise Valley Unit 4 Option to Purchase Real Property and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name),
L.P. (incorporated by reference to Exhibit 10.6 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1996).
21 * Subsidiaries of the Company.
27 * Financial Data Schedule
* Filed with this report.
(b) Reports on Form 8-K
Not Applicable.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 26, 1997 By /s/ Corinne A. Maki
-------------------------------
Corinne A. Maki, Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 22, 1997 By /s/ Timothy Considine
-------------------------------
Timothy Considine, Director and
Chairman of the Board
Date: March 26, 1997 By /s/ Patricia A. Wood
-------------------------------
Patricia A. Wood, Director
(Principal Executive Officer)
Date: March 26, 1997 By /s/ Corinne A. Maki
------------------------------
Corinne A. Maki, Treasurer
(Principal Financial and Accounting
Officer)
Date: March 20, 1997 By /s/ Michael A. Lobatz
------------------------------
Michael A. Lobatz, Director
19
<PAGE>
Report of Independent Accountants
To the Board of Directors of
HomeFed Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of HomeFed
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HomeFed Corporation
and Subsidiaries as of December 31,1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conforming with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Salt Lake City, Utah
March 6, 1997
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
HomeFed Corporation:
We have audited the accompanying consolidated statements of operations,
stockholders' deficit and cash flows of HomeFed Corporation and subsidiaries for
the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, such consolidated financial statements
present fairly, in all material respects, the results of operations and cash
flows of the Company and its subsidiaries for the year ended December 31, 1994
in conformity with generally accepted accounting principles.
As discussed in Note 2, the Company has filed for reorganization under Chapter
11 of the Federal Bankruptcy Code. The accompanying consolidated financial
statements for the year ended December 31, 1994 do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
consolidated financial statements do not purport to show (a) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (b) as to operations, the effect of any changes that may be
made in the Company's business. The outcome of these matters is not presently
determinable. Accordingly, the consolidated financial statements do not include
adjustments that might result from the ultimate outcome of these uncertainties.
The accompanying consolidated financial statements for the year ended December
31, 1994 have been prepared assuming that the Company will continue as a going
concern. The Company's recurring losses and stockholders' deficit raise
substantial doubt about its ability to continue as a going concern. Management
intends to address these issues through its plan of reorganization, as discussed
in Note 2. The financial statements for the year ended December 31, 1994 do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
San Diego, California
April 24, 1995
F-2
<PAGE>
HomeFed Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995
(Dollars in thousands, except par value)
--------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Land and real estate held for development $ 13,528 $ 22,069
Cash and cash equivalents 1,809 2,373
Restricted cash 1,085 1,105
Investments 71 83
Deposits and other assets 598 1,221
---------- ----------
TOTAL $ 17,091 $ 26,851
========== ==========
LIABILITIES
Notes payable to Leucadia Financial Corporation $ 23,877 $ 26,996
Other note payable - 126
Accounts payable and accrued liabilities 376 594
---------- ----------
Total liabilities 24,253 27,716
---------- ----------
COMMITMENTS AND CONTINGENCIES
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 (347,166) (340,869)
---------- ----------
Total stockholders' deficit (7,162) (865)
---------- ----------
TOTAL $ 17,091 $ 26,851
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HomeFed Corporation and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Sales of residential properties $ 8,988 $ 9,422 $ 4,484
Cost of sales 9,452 8,996 4,418
---------- ---------- ----------
Gross profit (loss) (464) 426 66
Equity in losses (gains) of joint ventures (7) - 97
Provision for losses on real estate investments 1,583 - 1,962
Interest expense relating to Leucadia Financial Corporation 3,054 1,375 -
Other interest expense 9 83 -
General and administrative expenses 1,171 1,261 1,027
Management fees to Leucadia Financial Corporation 143 142 -
---------- ---------- ----------
Loss from operations (6,417) (2,435) (3,020)
Other income - net 174 220 146
---------- ---------- ----------
Loss before reorganization items (6,243) (2,215) (2,874)
Reorganization items:
RTC settlement and professional fees - 1,924 1,424
---------- ---------- ----------
Loss before income taxes (6,243) (4,139) (4,298)
Income tax benefit (expense) (54) (22) 4
---------- ---------- ----------
Loss before extraordinary item (6,297) (4,161) (4,294)
Extraordinary item:
Extraordinary gain on debt discharged in bankruptcy - 108,881 -
---------- ---------- ----------
Net earnings (loss) $ (6,297) $ 104,720 $ (4,294)
========== ========== ==========
Primary earnings (loss) per common share:
Loss before extraordinary item $ (0.63) $ (0.42) $ (0.43)
Extraordinary item - 10.89 -
---------- ---------- ----------
Net earnings (loss) $ (0.63) $ 10.47 $ (0.43)
========== ========== ==========
Fully diluted earnings (loss) per common share:
Loss before extraordinary item $ (0.63) $ (0.09) $ (0.43)
Extraordinary item - 3.35 -
---------- ---------- ----------
Net earnings (loss) $ (0.63) $ 3.26 $ (0.43)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HomeFed Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
-----------------------------------------------------------
<TABLE>
<CAPTION>
Common
Stock Additional Total
$.01 Par Paid-In Accumulated Stockhholders'
Value Capital Deficit Deficit
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 215 $ 338,529 $ (441,295) $ (102,551)
Net loss (4,294) (4,294)
--------------- --------------- --------------- ---------------
Balance, December 31, 1994 215 338,529 (445,589) (106,845)
Cancellation of old shares (215) 215
Issuance of new shares to previous
stockholders 58 (58)
Issuance of new shares to Leucadia
Financial Corporation for cash 27 783 810
Issuance of new shares to creditors 15 435 450
Net earnings 104,720 104,720
--------------- --------------- --------------- ---------------
Balance, December 31, 1995 100 339,904 (340,869) (865)
Net loss (6,297) (6,297)
--------------- --------------- --------------- ---------------
Balance, December 31, 1996 $ 100 $ 339,904 $ (347,166) $ (7,162)
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HomeFed Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (6,297) $ 104,720 $ (4,294)
Adjustments to reconcile net earnings (loss) to net cash provided by (used
in) operating activities:
Extraordinary gain on debt discharged in bankruptcy - (108,881) -
Equity in losses (gains) of joint ventures (7) - 97
Provision for losses on real estate investments 1,583 - 1,962
Accrued interest added to notes payable to Leucadia
Financial Corporation 2,957 1,524 -
Changes in operating assets and liabilities:
Land and real estate held for development 6,958 (930) (1,593)
Deposits and other assets 373 129 592
Accounts payable and accrued liabilities (218) (808) (158)
Decrease (increase) in restricted cash 20 (963) 198
---------- ---------- ----------
Net cash provided by (used in) operating activities 5,369 (5,209) (3,196)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in other assets 250 (250) -
Distributions from joint ventures 7 - 536
Decrease in investments 12 13 2,241
---------- ---------- ----------
Net cash provided by (used in) investing activities 269 (237) 2,777
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to notes payable to Leucadia Financial Corporation 1,439 25,960 1,199
Repayments of notes payable to Leucadia Financial Corporation (7,515) (1,687) -
Repayments of other notes payable (126) (47) (813)
Payments to settle liabilities subject to compromise - (18,302) -
Issuance of new shares to Leucadia Financial Corporation for cash - 810 -
---------- ---------- ----------
Net cash provided by (used in) financing activities (6,202) 6,734 386
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (564) 1,288 (33)
Cash and cash equivalents, beginning of year 2,373 1,085 1,118
---------- ---------- ----------
Cash and cash equivalents, end of year $ 1,809 $ 2,373 $ 1,085
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized) $ 492 $ 151 $ -
========== ========== ==========
Cash paid (refund) for income taxes $ 59 $ 25 $ (4)
========== ========== ==========
Reorganization items:
Cash paid for RTC settlement and professional fees $ - $ 2,578 $ 1,518
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of HomeFed Corporation (the "Company") and its wholly-
owned subsidiaries HomeFed Communities, Inc. ("HomeFed Communities") and
HomeFed Resources Corporation. The Company is engaged, through its
subsidiaries, in the investment in and development of residential real
estate properties in Northern California. All significant intercompany
balances and transactions have been eliminated in consolidation.
Certain amounts for prior periods have been reclassified to be consistent
with the 1996 presentation.
Land and Real Estate Held for Development - Land and real estate held for
development is carried at the lower of cost or fair value less costs to
sell. The cost of land and real estate held for development includes all
expenditures incurred in connection with the acquisition, development, and
construction of the property, including interest and property taxes.
Revenue from incidental operations relating specifically to property under
development is treated as a reduction of capitalized costs. Land costs
included in land and real estate held for development are allocated to lots
based on relative fair values prior to development and are charged to cost
of sales at the time of sale.
Cash and Cash Equivalents - Cash and cash equivalents include short-term,
highly liquid investments that are readily convertible to cash. The
majority of the Company's cash and cash equivalents is held by one
financial institution in Salt Lake City, Utah.
Restricted Cash - Restricted cash consists of amounts reserved for warranty
obligations on homes sold and amounts reserved as collateral relating to an
outstanding standby letter of credit.
Investments - Investments consist of liquid mutual fund accounts and are
carried at cost, which approximates market value.
Revenue Recognition - Revenue from the sale of real estate is recognized at
the time title is conveyed to the buyer at the close of escrow, minimum
down payment requirements are met, the terms of any notes received satisfy
continuing payment requirements, and there are no requirements for
continuing involvement with the properties. When it is determined that the
earning process is not complete, income is deferred using the installment,
cost recovery or percentage of completion methods of accounting, as
appropriate.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
F-7
<PAGE>
Notes to Consolidated Financial Statements, continued
1. Summary of Significant Accounting Policies, continued:
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Provisions for Losses on Real Estate Investments - Management periodically
assesses the recoverability of its real estate investments by comparing the
carrying amount of the investments with their fair value less costs to
sell. The process involved in the determination of fair value requires
estimates as to future events and market conditions. This estimation
process assumes the Company has the ability to complete development and
dispose of its real estate properties in the ordinary course of business
based on management's present plans and intentions. When management
determines that the carrying value of specific real estate investments
should be reduced to properly record these assets at fair value less costs
to sell, this write-down is recorded as a charge to current period
operations .
Capitalization of Interest and Real Estate Taxes - Interest and real estate
taxes attributable to land and home construction are capitalized and added
to the cost of those properties while the properties are being actively
developed.
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 HomeFed. The net settlement expense of $1,698,000 is
included as a reorganization item in the statement of operations. 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 they
actually will be received.
Also under the Plan, general unsecured creditors, principally the holders
of the convertible subordinated debentures, of which LFC was the 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
F-8
<PAGE>
Notes to Consolidated Financial Statements, continued
2. Chapter 11 Bankruptcy and Plan of Reorganization, continued:
valued by the Bankruptcy Court at $.30 per share and (iv) an interest in
the litigation trust described below. As a result of the Company's
satisfaction of liabilities subject to compromise of approximately
$127,458,000, the Company recognized a before tax and after tax
extraordinary gain of $108,881,000.
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 any
outstanding 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.
3. LAND AND REAL ESTATE HELD FOR DEVELOPMENT
A summary of land and real estate held for development by project follows:
<TABLE>
<CAPTION>
Carson
December 31, 1996 Paradise Creek
Valley Village Silverwood Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Land $ 10,811,000 $ 2,257,000 $ 13,068,000
Cost of Completed Residences 460,000 460,000
------------- ------------- ------------- -------------
Total $ 11,271,000 $ 0 $ 2,257,000 $ 13,528,000
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Carson
December 31, 1995 Paradise Creek
Valley Village Silverwood Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Land $ 13,930,000 $ 2,196,000 $ 16,126,000
Cost of Residences Under Construction 1,105,000 1,105,000
Cost of Completed Residences 3,738,000 $ 1,100,000 4,838,000
------------- ------------- ------------- -------------
Total $ 18,773,000 $ 1,100,000 $ 2,196,000 $ 22,069,000
============= ============= ============= =============
</TABLE>
F-9
<PAGE>
Notes to Consolidated Financial Statements, continued
3. Land and Real Estate Held for Development, continued:
At December 31, 1996, the total cost of completed residences includes only
project homes. At December 31, 1995, the total cost of completed
residences includes project homes, trade homes and a rental home.
Interest capitalized in land and real estate held for development during
1996, 1995 and 1994 was $26,000, $240,000 and $37,000, respectively.
All land and real estate held for development is residential property in
Northern California and is pledged as collateral under the Convertible Note
and construction financing agreements.
4. NOTES PAYABLE
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 during the years ended December 31, 1996 and 1995 of $2,669,000 and
$1,208,000, respectively, was not paid and was added to the principal
balance. The Convertible Note matures on July 3, 2003. Commencing July 6,
1998, the Convertible Note, including any accrued interest previously added
to the principal balance, may be exchanged for up to a maximum of
54,400,000 shares of Common Stock, at a conversion price of $.45 per
share. However, the conversion right is restricted if such conversion
would limit the Company's ability to utilize certain tax benefits. The
Convertible Note is collateralized by all of the Company's assets and has
been guarantied by each of the Company's subsidiaries. The guaranties of
the Company's subsidiaries are collateralized by all of the assets of such
subsidiaries. The balance of the Convertible Note at December 31, 1996 and
1995 was $23,877,000 and $21,208,000, respectively.
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. Interest accrued during the
years ended 1996 and 1995 of $288,000 and $316,000, respectively, was added
to the principal balance during such periods. 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 December 31, 1996 and 1995, the balance of the
construction financing loan was $0 and $5,788,000,respectively.
F-10
<PAGE>
Notes to Consolidated Financial Statements, continued
4. Notes Payable, continued:
Principal payments required on notes payable are summarized as follows:
1997 $ 0
1998 297,000
1999 650,000
2000 732,000
2001 823,000
Thereafter 21,375,000
---------------
Total $ 23,877,000
===============
5. INCOME TAXES
The income tax expense or benefit for all years presented principally
relates to state franchise taxes. The Company has not recognized any tax
benefit from its operating losses in all years presented. The companies
included in the consolidated tax group have net operating loss ("NOL")
carryforwards available for federal income tax purposes of $29,343,000 as
of December 31, 1996. These carryforwards were generated during 1992-1996
and expire during 2007-2011. For state income tax purposes, available NOLs
as of December 31, 1996 total $17,042,000 and expire in 1997-2001.
At December 31, the net deferred tax asset consists of the following:
1996 1995
------------ ------------
NOL carryforwards $ 11,855,000 $ 8,570,000
Land and real estate held for
development 7,654,000 10,306,000
Other 92,000 0
------------ ------------
19,601,000 18,876,000
Valuation Allowance (19,601,000) (18,876,000)
------------ ------------
$ 0 $ 0
============ ============
The valuation allowance has been provided on the total amount of the
deferred tax asset due to the uncertainty of future taxable income
necessary for realization of the deferred tax asset. The valuation
allowance increased by $725,000 and $1,588,000 in 1996 and 1995,
respectively.
Significant NOL carryforwards were also generated prior to 1992. These
losses are attributable to prior years' operations of HomeFed Bank and its
subsidiaries. The Company has filed a private letter ruling request with
the Internal Revenue Service requesting permission to reattribute a portion
of the NOLs from HomeFed Bank and Subsidiaries to the Company. Should the
Company receive a favorable ruling, the Company will have total NOL
carryforwards of approximately $239 million. Due to the uncertainty of
future taxable income, any additional NOL carryforwards will be fully
reserved in the valuation allowance.
F-11
<PAGE>
Notes to Consolidated Financial Statements, continued
6. PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS
For the year ended December 31, 1996, the Company recorded a loss of
$1,583,000 due to its decision not to complete the home development on the
four detached single-family residential sites at the Paradise Valley
project as originally planned and due to the revaluation of the school
site. The loss was determined by comparing the carrying value of the
investment to its fair value less costs to sell based on offers the Company
has received and sales of comparable real estate.
7. EARNINGS PER SHARE
Primary earnings (loss) per share of Common Stock for all years presented
were calculated by dividing net earnings (loss) by the 10,000,000 shares of
Common Stock issued on July 3, 1995. Primary earnings (loss) per share
calculations based upon the pre-effective date outstanding shares are not
meaningful.
Fully diluted earnings (loss) per share of Common Stock were calculated as
described above and, for the year ended December 31, 1995, also assumes the
Convertible Note had been converted into Common Stock and earnings
increased to eliminate the related interest expense. The number of shares
used to calculate fully diluted earnings (loss) per share was 10,000,000,
32,496,479 and 10,000,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
8. COMMITMENTS AND CONTINGENCIES
In 1994 and 1993, one of the Company's consolidated real estate
partnerships entered into two cost sharing agreements with two California
school districts to share in certain improvement costs which benefit both
the project and the school districts. Subject to certain conditions, the
partnership is required to reimburse the school districts for its share of
these improvement costs, currently estimated at approximately $990,000,
which are expected to be recovered through the sale of the property or the
development and sale of finished lots.
The Company's other consolidated real estate partnership placed
approximately $946,000 on deposit with a financial institution in Salt Lake
City, Utah to secure a standby letter of credit. The amount of the deposit
is included in restricted cash. The letter of credit was issued to guaranty
the partnership's obligation under a property development agreement to
construct a recreation center.
9. RELATED PARTY TRANSACTIONS
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
F-12
<PAGE>
Notes to Consolidated Financial Statements, continued
9. Related Party Transactions, continued
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 period, 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.
Prior to entering into the Administrative Services Agreement, LFC provided
certain administrative services to the Company for a fee of $142,000 in
1995. Administrative fees paid to LFC in 1996 were $143,000.
All of the officers of the Company are officers of LFC and receive
compensation from LFC or Leucadia. The Company's executive offices are
located at 529 East South Temple in Salt Lake City, Utah in an office
building occupied and leased by LFC. LFC provides such office space to the
Company in connection with the services provided to the Company by LFC
pursuant to the Administrative Services Agreement.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's material financial instruments include cash and cash
equivalents, restricted cash, investments and notes payable. In all cases,
the carrying amount of such financial instruments approximates their fair
values. In cases where quoted market prices are not available, fair values
are based on estimates using present value techniques.
F-13
<PAGE>
INDEX TO EXHIBITS
Exhibits
2.1 Amended Disclosure Statement to the Company's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to Exhibit
2.1 to the Company's current report on Form 8-K dated June 14, 1995).
2.2 The Company's Fourth Amended Plan of Reorganization Dated July 15, 1994
(incorporated by reference to Exhibit 2.2 to the Company's current
report on Form 8-K dated June 14, 1995).
2.3 Order Modifying and Confirming the Company's Fourth Amended Plan of
Reorganization Dated July 15, 1994 (incorporated by reference to Exhibit
2.3 to the Company's current report on Form 8-K dated June 14, 1995).
3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of the
Company (incorporated by reference to Exhibit 3.1 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1995).
3.2 By-laws of the Company as amended through November 10, 1995
(incorporated by reference to Exhibit 3.2 to the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1995).
10.1 Letter Agreement dated July 3, 1995 between the Company and Leucadia
Financial Corporation and Second Amended and Restated Promissory Note
dated August 31, 1995 (incorporated by reference to Exhibit 10.1 to the
Company's quarterly report on Form 10-Q for the quarter ended September
30, 1995).
10.2 Loan Agreement dated July 3, 1995 between the Company and Leucadia
Financial Corporation and Form of 12% Secured Convertible Note due July
3, 2003 (incorporated by reference to Exhibit 10.2 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1995).
10.3 Paradise Valley Unit 1 First Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley
Communities No. 1 and The Forecast Group (Registered Trade Name), L.P.
(incorporated by reference to Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1996).
10.4 Paradise Valley Unit 2 First Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley Communities
No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated
by reference to Exhibit 10.2 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1996).
F-14
<PAGE>
10.5 Paradise Valley Unit 1 Second Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley Communities
No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated
by reference to Exhibit 10.3 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1996).
10.6 Paradise Valley Unit 2 Second Closing Purchase Agreement and Escrow
Instructions, dated October 3, 1996, between Paradise Valley Communities
No. 1 and The Forecast Group (Register Trade Name), L.P. (incorporated
by reference to Exhibit 10.4 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1996).
10.7 Paradise Valley Unit 3 Option to Purchase Real Property and Escrow
Instructions, dated October 3, 1996, between Paradise Valley Communities
No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated
by reference to Exhibit 10.5 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1996).
10.8 Paradise Valley Unit 4 Option to Purchase Real Property and Escrow
Instructions, dated October 3, 1996, between Paradise Valley Communities
No. 1 and The Forecast Group (Registered Trade Name), L.P. (incorporated
by reference to Exhibit 10.6 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1996).
21 * Subsidiaries of the Company.
27 * Financial Data Schedule
* Filed with this report
F-15
<PAGE>
EXHIBIT 21
----------
Subsidiaries of HomeFed Corporation (the "Registrant")
Percentage of
Outstanding
Place of Stock Held by
Name of Subsidiary Incorporation the Registrant
------------------ ------------- ---------------
HomeFed Communities, Inc. California 100%
HomeFed Resources Corporation California 100%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,809
<SECURITIES> 71
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,091
<CURRENT-LIABILITIES> 0
<BONDS> 23,877
0
0
<COMMON> 100
<OTHER-SE> (7,262)
<TOTAL-LIABILITY-AND-EQUITY> 17,091
<SALES> 8,988
<TOTAL-REVENUES> 9,162
<CGS> 9,452
<TOTAL-COSTS> 9,452
<OTHER-EXPENSES> 1,307
<LOSS-PROVISION> 1,583
<INTEREST-EXPENSE> 3,063
<INCOME-PRETAX> (6,243)
<INCOME-TAX> 54
<INCOME-CONTINUING> (6,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,297)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> (.63)
</TABLE>
