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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 3
[x] AMENDMENT TO 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, 1998
Or
[_] AMENDMENT TO 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 Registrant as Specified in its Charter)
DELAWARE 33-0304982
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1903 WRIGHT PLACE
SUITE 220
CARLSBAD, CALIFORNIA 92008
(760) 918-8200
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
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 statement
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 August 24, 1999, the aggregate
market value of the Registrant's Common Stock held by non-affiliates was
approximately $4,411,500 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 December 31, 1999, there were 10,000,000 outstanding shares of the
Registrant's Common Stock, par value $.01 per share.
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NY2:\811493\04\H#5H04!.DOC\76830.0194
<PAGE>
EXPLANATORY NOTE
This Report on Form 10-K/A amends and restates in their
entirety the following Items of the Annual Report on Form 10-K of HomeFed
Corporation, as amended, for the fiscal year ended December 31, 1998.
PART II
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," contained in Item 7 of this
Report.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------- ------------- ------------- -------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Sales of residential and commercial properties $ 5,752 $4,011 $8,988 $9,422 $4,484
Gross profit (loss) 38 (37) (464) 426 66
Interest expense 2,828 2,997 3,063 1,458 --
Loss from operations (4,545) (3,864) (6,424) (2,435) (3,020)
Reorganization items-expense - - - (1,924) (1,424)
Loss before extraordinary item (4,481) (3,577) (6,297) (4,161) (4,294)
Extraordinary item:
Extinguishment of debt - bankruptcy - - - 108,881 -
Net earnings (loss) (4,481) (3,577) (6,297) 104,720 (4,294)
Per share:
Basic earnings (loss) per common share:
Loss before extraordinary item $ (0.45) $ (0.36) $ (0.63) $ (0.42) $ (0.43)
Extraordinary item - - - 10.89 -
------------ ------------- ------------- ------------- -------------
Net earnings (loss) $ (0.45) $(0.36) $ (0.63) $ 10.47 $ (0.43)
============ ============= ============= ============= =============
Diluted earnings (loss) per common share:
Loss before extraordinary item $ (0.45) $(0.36) $ (0.63) $ (0.09) $ (0.43)
Extraordinary item - - - 3.35 -
------------ ------------- ------------- ------------- -------------
Net earnings (loss) $ (0.45) $(0.36) $ (0.63) $ 3.26 $ (0.43)
============ ============= ============= ============= =============
At December 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------- ------------- ------------- -------------
(In thousands, except per share amounts)
SELECTED BALANCE SHEET DATA:
Land and real estate held for development $ 4,636 $9,652 $ 13,528 $ 22,069 $ 21,139
Total assets 19,043 15,457 17,091 26,851 23,387
Notes payable to Leucadia Financial Corporation 19,736 26,085 23,877 26,996 1,199
Other notes payable - - - 126 173
Stockholders' deficit (8,205) (10,739) (7,162) (865) (106,845)
Shares outstanding 10,000 10,000 10,000 10,000 10,000
Book value per common share $(0.82) $ (1.07) $ (0.72) $ (0.09) $ (10.68)
</TABLE>
Basic 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.
1
<PAGE>
Book value per common share calculations based upon the pre-effective date
outstanding shares are not meaningful.
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.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
HOMEFED CORPORATION
Registrant
By: /s/ Corinne A. Maki
------------------------------
Corinne A. Maki, Treasurer
Dated: September 21, 1999
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of HomeFed Corporation:
In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of operations, changes in
stockholders' deficit and cash flows, after the restatement described in Note 1,
present fairly, in all material respects, the financial position of Homefed
Corporation (the "Company") as of December 31, 1998 and 1997, and the results of
their operations, changes in stockholders' deficit and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 19, 1999, except Note 1, Basis of Presentation, as to which the date is
September 21, 1999.
F-1
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands, except par value)
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Land and real estate held for development and sale $ 4,636 $ 9,652
Cash and cash equivalents 3,120 4,195
Restricted cash 1,127 1,073
Investment in Otay Land Company, LLC 9,917 -
Other investments 79 75
Deposits and other assets 164 462
------------- ------------
TOTAL $ 19,043 $ 15,457
============= ============
LIABILITIES
Note payable to Leucadia Financial Corporation $ 19,736 $ 26,085
Accounts payable and accrued liabilities 802 111
------------- ------------
TOTAL LIABILITIES 20,538 26,196
------------- ------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBSCRIPTION
Advance under common stock subscription 6,710 -
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value,
100,000,000 shares authorized;
10,000,000 shares outstanding 100 100
Additional paid-in capital 346,919 339,904
Accumulated deficit (355,224) (350,743)
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT (8,205) (10,739)
------------- -------------
TOTAL $ 19,043 $ 15,457
============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Sales of residential properties $ 5,752 $ 4,011 $ 8,988
Cost of sales 5,714 4,048 9,452
------------- ------------- ------------
Gross profit (loss) 38 (37) (464)
Provision for losses on real estate investments 425 153 1,583
Interest expense relating to Leucadia Financial
Corporation 2,828 2,997 3,054
Other interest expense - - 9
General and administrative expenses 1,192 597 1,171
Management fees to Leucadia Financial Corporation 138 80 143
------------- ------------- ------------
Loss from operations (4,545) (3,864) (6,424)
Equity in losses from Otay Land Company, LLC (208) - -
Other income - net 312 319 181
------------- ------------- ------------
Loss before income taxes (4,441) (3,545) (6,243)
Income tax expense (40) (32) (54)
------------- ------------- -------------
Net loss $ (4,481) $ (3,577) $ (6,297)
============= ============= =============
Basic loss per common share $ (0.45) $ (0.36) $ (0.63)
============ ============ ============
Diluted loss per common share $ (0.45) $ (0.36) $ (0.63)
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Common
Stock Additional Total
$.01 Par Paid-in Accumulated Stockholders'
Value Capital Deficit Deficit
------ ------------ ------------- ----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 100 $ 339,904 $ (340,869) $ (865)
Net loss (6,297) (6,297)
------ ------------ ------------- ----------
BALANCE, DECEMBER 31, 1996 100 339,904 (347,166) (7,162)
Net loss (3,577) (3,577)
------ ------------ ------------- ----------
BALANCE, DECEMBER 31, 1997 100 339,904 (350,743) (10,739)
Contribution of capital resulting from
restructuring of note payable to
Leucadia Financial Corporation 7,015 7,015
Net loss (4,481) (4,481)
------ ------------ ------------- ----------
BALANCE, DECEMBER 31, 1998 $ 100 $ 346,919 $ (355,224) $ (8,205)
====== ============ ============= ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
HomeFed Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,481) $ (3,577) $ (6,297)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for losses on real estate investments 425 153 1,583
Accrued interest added to notes payable to
Leucadia Financial Corporation 666 2,208 2,957
Equity in losses from Otay Land Company, LLC 208 - -
Changes in operating assets and liabilities:
Land and real estate held for development and sale 4,591 3,723 6,958
Deposits and other assets 298 136 366
Accounts payable and accrued liabilities 691 (265) (218)
Decrease (increase) in restricted cash (54) 12 20
------------- ------------- ------------
Net cash provided by operating activities 2,344 2,390 5,369
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in other assets - - 250
Contributions to Otay Land Company, LLC (10,125) - -
Distributions from joint ventures - - 7
Decrease (increase) in other investments (4) (4) 12
------------- ------------- ------------
Net cash provided by (used in) investing activities (10,129) (4) 269
------------- ------------- ------------
</TABLE>
(continued)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
HomeFed Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to notes payable to Leucadia Financing
Corporation $ - $ - $ 1,439
Repayments of notes payable to Leucadia Financing
Corporation - - (7,515)
Repayments of other notes payable - - (126)
Advance under common stock subscription 6,710 - -
------------ ------------ -------------
Net cash provided by (used in) financing activities 6,710 - (6,202)
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,075) 2,386 (564)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 4,195 1,809 2,373
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,120 $ 4,195 $ 1,809
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of amounts capitalized) $ 2,162 $ 789 $ 492
============ ============ ============
Cash paid for income taxes $ 28 $ 31 $ 59
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
HOMEFED CORPORATION AND SUBSIDIARIES
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 the
Company's wholly-owned subsidiaries, HomeFed Communities, Inc. ("HomeFed
Communities") and HomeFed Resources Corporation. The Company is engaged,
directly and through its subsidiaries, in the investment in and development of
residential real estate properties in California. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company accounts for its investment in Otay Land Company, LLC
("Otay Land Company"), under the equity method of accounting since the Company
has the ability to exert significant influence but does not control this
investment.
The consolidated financial statements have been restated to reflect
the accrual of a minority interest charge of $208,000 representing Leucadia
National Corporation's ("Leucadia") minimum preferred return in Otay Land
Company from its inception (October 1998) through December 31, 1998. In
addition, certain amounts for prior periods have been reclassified to be
consistent with the 1998 presentation.
LAND AND REAL ESTATE HELD FOR DEVELOPMENT AND SALE - Land and real
estate held for development and sale is carried at the lower of cost or fair
value less costs to sell. The cost of land and real estate held for development
and sale 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 and sale 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 are 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 (i) the reported amounts of assets and
liabilities, (ii) the disclosure of contingent assets and liabilities at the
date of the financial statements and (iii) the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
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. LAND AND REAL ESTATE HELD FOR DEVELOPMENT AND SALE
A summary of land and real estate held for development and sale by
project follows:
December 31,
------------
1998 1997
---- ----
Paradise Valley $ 4,636,000 $ 7,265,000
Silverwood - 2,387,000
-------------- --------------
Total $ 4,636,000 $ 9,652,000
============== ==============
Interest capitalized in land and real estate held for development and
sale in 1996 was $26,000. No interest was capitalized in land and real estate
held for development and sale during 1998 and 1997.
All land and real estate held for development and sale is property in
California and is pledged as collateral under the Amended and Restated Loan
Agreement.
3. NOTES PAYABLE
As of August 14, 1998, the Company and LFC 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 Company's
outstanding 12% Secured Convertible Note due 2003 ("Convertible Note") held by
LFC. The restructured note dated August 14, 1998 (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. The Restructured Note is collateralized by a perfected first priority
security interest in all assets of the borrower, whether now owned or hereafter
acquired. No principal payments are due under the Restructured Note until its
maturity date.
F-8
<PAGE>
3. NOTES PAYABLE, continued:
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 the fair value of the Restructured Note and the carrying
value of the Convertible Note was reflected as additional paid-in capital. This
difference will be amortized as interest expense over the term of the
Restructured Note using the interest method. Approximately $289,000 was
amortized to interest expense during 1998. The carrying amount of this
Restructured Note, net of this discount for fair value, was $19,736,000 at
December 31, 1998.
Interest accrued during the years ended December 31, 1998, 1997 and
1996 of $377,000, $2,208,000 and $2,669,000, respectively, was not paid and was
added to the principal balance. Additional interest of $2,162,000, and $789,000
accrued during 1998 and 1997, respectively, was paid by the Company.
4. INVESTMENT IN OTAY LAND COMPANY, LLC
On October 14, 1998, the Company and Leucadia formed Otay Land
Company for the purpose of purchasing 4,800 acres of land located within the
22,900-acre Otay Ranch planning area, located south of San Diego, California.
The Company initially contributed $10,000,000 as capital and Leucadia
contributed $10,000,000 as a preferred capital interest to Otay Land Company and
the Company contributed an additional $125,000 as capital in 1998; the Company
will act as development manager of this project.
The following table provides certain summarized data with respect to
Otay Land Company accounted for by the Company using the equity method of
accounting for the year ended December 31, 1998.
Assets $ 20,460,000
Liabilities 335,000
----------------
Net Assets $ 20,125,000
================
The Company's portion of the reported net assets $ 10,125,000
================
For information with respect to the priority of distributions from
Otay Land Company, see note 9(d).
5. INCOME TAXES
The income tax expense 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.
In 1997, the Internal Revenue Service granted the Company a favorable
ruling on the Company's private letter ruling request and the Company received
permission to reattribute a portion of the net operating losses from HomeFed
Bank, F.S.B. ("HomeFed Bank") and its subsidiaries to the Company. The amount of
net operating loss ("NOL") carryforwards reattributed was approximately
$219,324,000.
F-9
<PAGE>
5. INCOME TAXES, continued:
The Company and its wholly-owned subsidiaries have NOL carryforwards
available for federal income tax purposes of $266,245,000 as of December 31,
1998, including the NOLs reattributed to the Company by HomeFed Bank and its
subsidiaries. These carryforwards were generated during 1984-1998 and expire
during 1999-2018. For state income tax purposes, available NOLs as of December
31, 1998 total $32,305,000 and expire in 1999-2013.
At December 31, the net deferred tax asset consisted of the
following:
1998 1997
---- ----
NOL carryforwards $ 95,789,000 $ 89,623,000
Land basis 3,081,000 6,000,000
Other 28,000 78,000
----------------- ----------------
98,898,000 95,701,000
Valuation allowance (98,898,000) (95,701,000)
----------------- ----------------
$ 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
$3,197,000 and $76,100,000 in 1998 and 1997, respectively.
6. PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS
For the years ended December 31, 1998, 1997 and 1996, the Company
recorded a loss of $425,000, $153,000 and $1,583,000, respectively, 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 other sites. The loss for each year 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
Basic loss per share of Common Stock for all years presented were
calculated by dividing net loss by the 10,000,000 shares of Common Stock issued
on July 3, 1995.
Diluted loss per share of Common Stock were calculated as described
above. The number of shares used to calculate diluted loss per share was
10,000,000 for each of the years ended December 31, 1998, 1997 and 1996,
respectively. The calculation of diluted loss per share does not include Common
Stock equivalents of 49,647,893, 54,073,383 and 49,314,276, respectively, which
are antidilutive.
8. COMMITMENTS AND CONTINGENCIES
One of the Company's consolidated real estate partnerships placed
approximately $1,000,000 on deposit with a financial institution in Salt Lake
City, Utah to collateralize 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.
F-10
<PAGE>
8. COMMITMENTS AND CONTINGENCIES, continued:
One of the Company's wholly-owned subsidiaries, HomeFed Communities,
must maintain a net worth of $5,000,000 and a cash balance of $400,000 in order
to ensure its ability to pay amounts which may become due under an indemnity
agreement with a third-party surety which provided security for certain
obligations of the partnership in which HomeFed Communities was a partner. If
HomeFed Communities does not meet these requirements, it must post an
irrevocable letter of credit in the amount of 50% of the face value of the bonds
issued by the surety. This letter of credit amount is currently estimated to be
approximately $460,000.
9. RELATED PARTY TRANSACTIONS
The Company has entered into the following related party transactions
with Leucadia and its subsidiary, LFC.
(a) Amended Loan Agreement. As of August 14, 1998, the Company and
LFC 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 Convertible Note held by LFC. The Restructured Note
has a principal amount of approximately $26,462,380 (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 year ended December 31, 1998,
the Company paid to LFC approximately $2,162,000 in interest on the Convertible
Note and the Restructured Note. Also during this period, interest of
approximately $377,000 was not paid and was added to the principal balance of
the Convertible 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 $289,000 was amortized as interest expense in
1998.
(b) Stock Purchase Agreements. In August and October 1998,
the Company entered into stock purchase agreements (the "Stock Purchase
Agreements") with Leucadia, pursuant to which the Company agreed to sell an
aggregate of 46,557,826 additional shares of its Common Stock to Leucadia for an
aggregate purchase price of $8,380,000. In connection with the Stock Purchase
Agreements, Leucadia advanced to the Company $6,710,000 of the total purchase
price, which amount is refundable in the event the closing of the Stock Purchase
Agreements do not occur. The Stock Purchase Agreements provide that the balance
of the purchase price will be paid at the closing and that the closing will
occur on or after July 5, 1999, subject to the satisfaction of certain
conditions. In 1998, Leucadia assigned the Stock Purchase Agreements to the
Leucadia Trust. Upon consummation of the Stock Purchase Agreements, the Leucadia
Trust will own 89.6% of the Common Stock to be outstanding. The Company has been
advised that, following the purchase of Common Stock under the two Stock
Purchase Agreements and the effectiveness of a registration statement to be
filed with the Securities and Exchange Commission, the Leucadia Trust intends to
distribute to its beneficial holders all of the Company's Common Stock owned by
the Trust as promptly as practicable.
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9. RELATED PARTY TRANSACTIONS, continued:
(c) Development Agreement. As of August 14, 1998, the Company entered
into a Development Management Agreement ("Development Agreement") with an
indirect subsidiary of Leucadia that owns certain real property located in the
City of San Marcos, County of San Diego, California, to develop a master-planned
residential project on such property. The project, known as San Elijo Hills, is
intended to be developed into a community of approximately 3,400 homes over the
next ten years. The Development Agreement provides that the Company will act as
the development manager with responsibility for the overall management of the
project, including arranging financing for the project, marketing and sales
activity, and acting as the construction manager. The Development Agreement
provides for the Company to receive a profit participation (as determined in
accordance with the Development Agreement), and fee income for project
management and marketing services based on the revenues derived from the
project.
(d) Otay Land Company, LLC. As of October 14, 1998, the Company and
Leucadia formed Otay Land Company. The Company initially contributed $10,000,000
as capital and Leucadia contributed $10,000,000 as a preferred capital interest.
The Company also contributed $125,000 as capital in 1998. The Company will act
as 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.
All distributions by Otay Land Company shall be distributed to the
Company and Leucadia in the following order of priority: (i) to pay Leucadia an
annual minimum cumulative preferred return of 10% on all preferred capital
contributed by Leucadia; (ii) to pay Leucadia an annual cumulative preferred
return of 2% on all preferred capital provided by Leucadia, but payable only out
of and to the extent there are profits; (iii) to repay all preferred capital
provided by Leucadia; and (iv) any remaining funds are to be distributed to the
Company.
(e) Administrative Services Agreement. Pursuant to administrative
services agreements, LFC provides administrative services to the Company,
including providing the services of two of the Company's three executive
officers. Administrative fees paid to LFC in 1998, 1997 and 1996 were $138,000,
$80,000 and $143,000, respectively. Effective March 1, 1999, the Company and LFC
entered into a new three year administrative services agreement pursuant to
which the Company will pay LFC an administrative fee of $296,101 for the first
annual period, with the fee for subsequent annual periods to be negotiated.
The Company's corporate office is located at 1903 Wright Place, Suite
220, Carlsbad, California in an office building occupied and leased by a
subsidiary of Leucadia.
(f) Silverwood Project. On February 27, 1998, the Company purchased
19 lots at the Silverwood project from LFC for a purchase price of $500,000.
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.
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11. SUBSEQUENT EVENTS
On February 2, 1999, one of the Company's consolidated partnerships
placed approximately $197,000 on deposit with a financial institution in Salt
Lake City, Utah to secure a standby letter of credit. The letter of credit was
issued to guaranty the partnership's obligation to complete landscape,
irrigation and fencing improvements at the Paradise Valley project.
On February 23, 1999, one of the Company's consolidated partnerships
sold the remaining 75 residential lots at the Paradise Valley project for
$2,250,000, less closing costs.
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