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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 For the fiscal year ended
December 31, 2000
Or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition
period from ___________ to ___________
Commission file number: 1-10153
HOMEFED CORPORATION
(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 March 13, 2001, the aggregate
market value of the Registrant's Common Stock held by non-affiliates was
approximately $35,514,000 on that date.
As of March 13, 2001, there were 56,807,826 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 2001 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Form 10-K.
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PART I
Item 1. Business.
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THE COMPANY
Introduction
HomeFed Corporation ("HomeFed" or the "Company") was
incorporated in Delaware in 1988. The Company is engaged, directly and through
subsidiaries, in the investment in and development of residential real estate
projects in the State of California. The principal executive office of the
Company is located at 1903 Wright Place, Suite 220, Carlsbad, California 92008.
The Company's development projects consist of two master
planned communities located in San Diego County, California: San Elijo Hills,
and a portion of the larger Otay Ranch planning area.
As development manager for these projects, the Company is
responsible for the completion of a wide range of activities, including design
engineering, grading raw land, constructing public infrastructure such as
streets, utilities and public facilities, and finishing individual lots for home
sites or other facilities. The Company will develop its communities in phases to
allow itself the flexibility to sell finished lots to suit market conditions and
to enable it to create stable and attractive neighborhoods. Consequently, at any
particular time, the various phases of a project will be in different stages of
land development and construction.
For any master-planned community, plans must be prepared that
provide for infrastructure, neighborhoods, commercial and industrial areas,
educational and other institutional or public facilities, as well as open space.
Once preliminary plans have been prepared, numerous governmental approvals,
licenses, permits and agreements, referred to as "entitlements," must be
obtained before development and construction may commence, often involving a
number of different governmental jurisdictions and agencies, challenges through
litigation, considerable risk and expense, and substantial delays. Unless and
until the requisite entitlements are received and substantial work has been
commenced in reliance upon such entitlements, a developer generally does not
have any "vested rights" to develop a project. In addition, as a precondition to
receipt of building-related permits, master-planned communities such as San
Elijo Hills typically are required in California to pay impact and capacity
fees, or to otherwise satisfy mitigation requirements.
Current Development Projects
San Elijo Hills. In August 1998, the Company entered into a
Development Management Agreement (the "Development Agreement") with San Elijo
Hills Development Company, LLC, an indirect subsidiary of Leucadia National
Corporation (together with its subsidiaries, "Leucadia") that owns certain real
property located in the City of San Marcos, in San Diego County, California.
Pursuant to the Development Agreement, this project, which is known as San Elijo
Hills, will be a master-planned community of approximately 3,400 homes and
apartments as well as commercial properties expected to be completed during the
course of this decade. The Company is the development manager of this project
with responsibility for the overall management of the project, including, among
other things, preserving existing entitlements and obtaining any additional
entitlements required for the project, arranging financing for the project,
coordinating marketing and sales activity, and acting as the construction
manager. The Development Agreement provides that the Company will participate in
the net profits of the project through the payment of a success fee as described
in this Report, and that the Company will receive fees for the field overhead,
management and marketing services it is to provide, based on the revenues of the
project. For additional information, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," of this Report.
As the development manager of the San Elijo Hills project, the
Company has prepared an internal projection of the net cash flow which might be
realized during the course of the projected remaining nine years of the
development and sale of the project. The Company does not update this projection
regularly, but will review the projection annually. The Company does not prepare
a projection for its Otay Ranch project because that project is in the early
stages of development.
The projection is based upon many assumptions, including but
not limited to, the timing of the sales of the various phases of the project,
the prices at which lots can be sold, the cost of financing the project,
numerous estimates of construction and land improvement costs, estimates related
to the costs and availability of public utilities, as well as estimates of
infrastructure costs, marketing and selling expenses, property taxes and
environmental and other regulatory compliance expenditures. Based upon this cash
flow projection, for the period from January 1, 2001 through the completion of
the project, future sales from the project are projected to aggregate
approximately $359,000,000, and aggregate net cash flow, after payment of all
debt service and other liabilities, is projected to be approximately
$118,000,000. At that revenue level, it is projected that the Company would
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receive fees for field overhead, management and marketing services in addition
to those received through December 31, 2000, totaling approximately $34,000,000,
and a success fee of approximately $81,000,000. The foregoing does not reflect
expenses (which have not been projected or estimated) that the Company will be
required to incur to fulfill its obligations under the Development Agreement.
All of the foregoing amounts are not discounted and are
derived solely from the assumptions used in the projection, which are based on
the Company's best estimates, as of January 2001, of the results of the San
Elijo Hills project for the remaining nine years of the project's development.
The projection was not prepared with a view toward compliance with published
guidelines of the American Institute of Certified Public Accountants or
generally accepted accounting principles and has not been examined or compiled
by the Company's independent auditors. The Company's independent auditors do not
express an opinion or any other form of assurance with respect to the
projection. Their report included in this Report relates to the Company's
historical financial information. It does not extend to the projection and
should not be read to do so. The projection is based on a number of assumptions
and estimates that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
control of the Company, and upon assumptions with respect to future business
decisions which are subject to change. Among the factors that could cause actual
results to differ materially from those projected include, but are not limited
to, changes in general economic and market conditions, changes in domestic laws
and government regulations or requirements, changes in real estate pricing
environments, demographic and economic changes in the United States generally
and California in particular, significant competition from other real estate
developers and homebuilders, decreased consumer spending for housing, delays in
construction schedules and cost overruns, increased material and labor costs,
increased development costs, many of which the Company would not be able to
control, the occurrence of significant natural disasters, the imposition of
limitations on the Company's ability to develop the San Elijo Hills project
resulting from developments in or new applications of environmental laws and
regulations, increases in prevailing interest rates, including mortgage rates,
increased interest costs for the project as a result of a delay in completion of
the project requiring the financing to remain outstanding for a longer than
projected period of time, and the availability of reliable energy sources and
consumer confidence in the dependability of such energy sources. The degree of
uncertainty inherent in projections increases significantly with each year that
the projections cover. This projection covers a nine year period and
accordingly, is even more uncertain than projections covering a shorter period
of time. Therefore, the projection is only an estimate and actual results will
vary from the projection. These variations may be, and, in fact, are likely to
be material. Consequently, the inclusion of the foregoing projections in this
Report should not be regarded as representations by the Company or any other
person that the projected results will be achieved. Projections are necessarily
speculative in nature and it is usually the case that one or more significant
assumptions in projections do not materialize. Therefore, the projections should
not be relied upon.
During 2000, 528 residential sites in six neighborhoods were
sold to builders for aggregate net consideration of $71,100,000. These sales are
the first residential lot sales at San Elijo Hills. Three of the sales
agreements covering these sites include options for the builders to purchase a
total of 209 additional residential sites for contract prices totaling
$30,550,000. Non-refundable option payments totaling $3,450,000 have been
received in connection with these options.
Two additional neighborhoods consisting of 171 residential
sites, are currently under contract for sale for a total of $14,500,000 and are
anticipated to close in 2001. During 2001, the local school district is
obligated to purchase a site of approximately 20 acres, which is the first of
three school sites. The purchase price will be based upon the highest and best
use of the land determined by appraisal.
An additional two neighborhoods, consisting of 148 residential
sites and a multi-family residential site with an estimated 192 dwelling units,
are currently being offered for sale.
Otay Ranch. On October 14, 1998, the Company and Leucadia
formed Otay Land Company, LLC (the "Otay Land Company") to purchase 4,800
non-adjoining acres of land located within the larger 22,900 acre Otay Ranch
master planned community south of San Diego, California. Otay Land Company
acquired this land for $19,500,000. The Company has contributed $11,590,000 as
capital and Leucadia has contributed $10,000,000 as a preferred capital
interest; the Company is development manager of this project.
The City of Chula Vista and the County of San Diego have
approved a general development plan for the larger planning area. Although there
is no minimum time within which implementation of the general development plan
must be completed, it is expected that full development of the larger planning
area will take decades. This general development plan establishes land use
goals, objectives and policies within the larger planning area. Any development
within the larger Otay Ranch master planned community must be consistent with
this general development plan. The general development plan for the larger
planning area contemplates home sites, a golf-oriented resort and residential
community, commercial retail centers, a proposed university site and a network
of infrastructure, including roads and highways, a rail transportation system,
3
park systems and schools. Actual development of any of these will require that
further entitlements and approvals be obtained. Because the larger planning area
will be developed by several independent developers in addition to the Company,
all developers working in the Otay Ranch planning area will need to coordinate
their activities to develop their respective projects.
Of the 4,800 acres owned by Otay Land Company, 1,200 acres are
developable and 3,600 acres are zoned as various qualities of non-developable
"open space mitigation land." The Company entered into an option to sell 85
acres of developable land for a sales price of $4,100,000. The Company has
received a non-refundable payment of $500,000 for this option, which will be
applied against the purchase price upon closing. This option, which was
scheduled to expire in December 2000, is extendable for up to eighteen months
for a non-refundable monthly fee of $60,000. The monthly extension fees will not
reduce the purchase price. As of March 13, 2001, the Company received $240,000
of such fees. The Company will either develop or sell the remaining developable
land; until such determination is made, the Company will not know the nature or
extent of the entitlements or approvals that may be required.
Under the general development plan, approximately 1.2 acres of
open space mitigation land must be set aside for each 1.0 acre of developable
land. Some owners of developable land have adequate or excess mitigation land,
while other owners lack sufficient acreage of mitigation land. The Company
currently has substantially more mitigation land than it would need to develop
its property at this project. A market for the Company's open space mitigation
land exists among buyers in the San Diego County Region. Based upon the general
development plan conditions, the Company believes that a market for this land is
likely to develop within the larger Otay Ranch development area as development
progresses.
The Company continues to evaluate how to maximize the value of
this investment while pursuing land sales and processing further entitlements on
portions of the property. The Company cannot predict when, or if, revenues will
be derived from this project. As indicated above, the ultimate development of
projects of this type is subject to significant governmental and environmental
approval. Recently, the United States Fish & Wildlife Service proposed
designating a portion of the Otay Ranch project already planned primarily for
non-development/habitat preservation as a critical habitat for an endangered
species. In addition, the project is within the area identified by a draft
United States Fish & Wildlife Service recovery plan for this endangered species.
Although the designation and plan are not final, there can be no assurance that
if the designation and plan are adopted in this or another form, any such final
designation or plan will not have a material impact on the Company's ability to
develop or sell the project.
Other Projects
Paradise Valley. The Company owns a 10 acre site, zoned for
public facilities, at the Paradise Valley project, a community located in
Fairfield, California. This site was previously subject to a purchase option
held by the local school district. In February 2001, the local school district
terminated their option to purchase the site. At December 31, 2000, the book
value of this site was $1,060,000.
The Company had certain obligations with respect to this
project, including the obligation to construct a recreation center. The
construction of this recreation center was completed in January 2001 and annexed
to the homeowners association in February 2001.
Competition
Real estate development is a highly competitive business.
There are numerous residential real estate developers and development projects
operating in the same geographic area in which the Company operates. Competition
among real estate developers and development projects is determined by the
location of the real estate, the market appeal of the development master plan,
and the developer's ability to build, market and deliver project segments on a
timely basis. Residential developers sell to homebuilders, who compete based on
location, price, market segmentation, product design and reputation.
Government Regulation
The residential real estate development industry is subject to
increasing environmental, building, zoning and real estate regulations that are
imposed by various federal, state and local authorities. 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. Regulations affect homebuilding by
specifying, 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. Furthermore, changes in prevailing
local circumstances or applicable laws may require additional approvals, or
modifications of approvals previously obtained.
4
Timing of the initiation and completion of development
projects depends upon receipt of necessary authorizations and approvals. Delays
could adversely affect the Company's ability to complete its projects,
significantly increase the costs of doing so or drive potential customers to
purchase competitors' products.
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.
Delays arising from compliance with environmental laws and regulations could
adversely affect the Company's ability to complete its projects, significantly
increase the costs of doing so or cause potential customers to purchase
competitors' products. To date, environmental laws have not had a material
adverse effect on the Company, and management is not currently aware, except as
otherwise disclosed, of any environmental compliance matters that would have a
material adverse effect on the Company.
Relationship with Leucadia; Administrative Services Agreement
Since emerging from bankruptcy in 1995, administrative
services and managerial support have been provided to HomeFed by a subsidiary of
Leucadia. Leucadia funded HomeFed's bankruptcy plan by purchasing stock and debt
of the Company. For additional information, see Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
In 1999, Leucadia completed the distribution of HomeFed Common
Stock to shareholders of Leucadia. As a result, Joseph S. Steinberg, Chairman of
the Board of HomeFed, and Ian M. Cumming, a director of HomeFed, together with
their respective family members (excluding trusts for the benefit of Mr.
Steinberg's children) beneficially own approximately 12.7% and 13.8%,
respectively, of the outstanding Common Stock. Mr. Steinberg is also President
and a director of Leucadia and Mr. Cumming is Chairman of the Board of Leucadia.
At March 13, 2001, Mr. Steinberg and Mr. Cumming beneficially owned (together
with their respective family members but excluding trusts for the benefit of Mr.
Steinberg's children) approximately 16.7% and 18.2%, respectively, of Leucadia's
outstanding common shares.
Under the current administrative services agreement, which
extends through December 31, 2001, Leucadia provides the services of Ms. Corinne
A. Maki, the Company's Treasurer and Secretary, in addition to various
administrative functions. Ms. Maki is an officer of subsidiaries of Leucadia.
Prior to November 2000, Leucadia also provided the services of Paul J. Borden,
President of the Company, under this agreement. Until October 31, 2000, Mr.
Borden also was a Vice President of Leucadia. The cost of services provided by
Leucadia during 2000 aggregated $255,000.
Item 2. Properties.
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The Company owns approximately 10 acres at the Paradise Valley
project and approximately 4,800 non-adjoining acres at the Company's Otay Ranch
project, as described under Item 1 - "Business." Land held for development and
sale has an aggregate book value of $22,979,000 at December 31, 2000.
3
The Company's corporate headquarters are located at 1903
Wright Place, Suite 220, Carlsbad, California 92008 in part of an office
building sub-leased from Leucadia for a monthly amount equal to its share of
Leucadia's cost for such space and furnishings. The agreement pursuant to which
the space and furnishings are provided extends through February 28, 2005
(coterminous with Leucadia's occupancy of the space) and provides for a monthly
rental of $19,000 effective March 1, 2001.
Item 3. Legal Proceedings.
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The Company is not a party to legal proceedings other than
ordinary, routine litigation, incidental to its business or not material to the
Company's consolidated financial position or results of operations.
5
Item 10. Executive Officers of the Registrant.
- ------- ------------------------------------
As of March 13, 2001, the executive officers of the Company,
their ages, the positions held by them and the periods during which they have
served in such positions are as follows:
Name Age Position with HomeFed Office Held Since
- ---- --- --------------------- -----------------
Paul J. Borden 52 President 1998
Corinne A. Maki 44 Secretary and Treasurer 1995
Curt R. Noland 44 Vice President 1998
R. Randy Goodson 35 Vice President 2000
Simon G. Malk 31 Vice President 2000
Erin N. Ruhe 35 Vice President and Controller 2000
The officers serve at the pleasure of the Board of Directors
of HomeFed.
The recent business experience of our executive officers is
summarized as follows:
Paul J. Borden. Mr. Borden has served as a director and
President of HomeFed since May 1998. Mr. Borden had been a Vice President of
Leucadia from August 1988 through October 2000, responsible for overseeing many
of Leucadia's real estate investments.
Corinne A. Maki. Ms. Maki, a certified public accountant, has
served as Treasurer of HomeFed since February 1995 and Secretary since February
1998. Prior to that, Ms. Maki served as an Assistant Secretary of HomeFed since
August 1995. Ms. Maki has also been a Vice President of Leucadia Financial
Corporation, a subsidiary of Leucadia, holding the offices of Controller,
Assistant Secretary and Treasurer since October 1992. Ms. Maki has been employed
by Leucadia since December 1991.
Curt R. Noland. Mr. Noland has served as Vice President of
HomeFed since October 1998. He spent the last 21 years in the land development
industry in San Diego County as a design consultant, merchant builder and a
master developer. From November 1997 until joining HomeFed, Mr. Noland was
employed by the prior development manager of San Elijo Hills and served as
Director of Development for San Elijo Hills. Prior to November 1997, Mr. Noland
was employed for eight years by Aviara Land Associates, LP, a 1,000 acre master
planned resort community in Carlsbad, California. He is also a licensed civil
engineer and real estate broker.
R. Randy Goodson. Mr. Goodson has served as Vice President of
HomeFed since April 2000. Mr. Goodson has spent 15 years as a real estate
consultant, developer and investor. Prior to joining HomeFed, he was a principal
in a San Diego company involved in real estate development and consulting, which
provided consulting services to San Elijo Hills and HomeFed. Mr. Goodson is a
licensed California real estate broker and a member of the Urban Land Institute.
Simon G. Malk. Mr. Malk has served as Vice President of
HomeFed since April 2000. For the prior seven years, Mr. Malk was a principal of
a San Diego company involved in residential real estate development and
consulting.
Erin N. Ruhe. Ms. Ruhe has served as Vice President of
HomeFed since April 2000 and has been employed by HomeFed as Controller since
January 1999. Previously, Ms. Ruhe was Vice President since December 1995 and
Controller since November 1994 of HSD Venture, a real estate subsidiary of
Leucadia.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
- ------ ------------------------------------------------------------------------
The following table sets forth certain information concerning
the market price of the Company's Common Stock for each quarterly period within
the two most recent fiscal years.
High Low
---- ---
Year ended December 31, 1999
First Quarter $ .3000 $ 0313
Second Quarter .7500 .0313
Third Quarter 1.0000 .0100
Fourth Quarter 1.0000 .1500
Year ended December 31, 2000
First Quarter $ .8750 $.0620
Second Quarter .7200 .5500
Third Quarter .7300 .6000
Fourth Quarter .8750 .5700
Year ended December 31, 2001
First quarter (through March 13, 2001) $1.3700 $.7813
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 the high and low sales price per
share, as published by the National Association of Securities Dealers OTC
Bulletin Board Service. On March 13, 2001, the closing bid price for the
Company's Common Stock was $.86 per share. As of this date, there were 13,675
stockholders of record. The Company did not declare dividends on its Common
Stock during 1999 or 2000 and it does not anticipate that it will pay dividends
for the foreseeable future.
The Company's Common Stock does not currently meet the minimum
requirements for listing on a national securities exchange or inclusion on the
Nasdaq Stock Market. If the Company's Common Stock becomes eligible to be listed
or included on the Nasdaq Stock Market, the Company will consider its
alternatives with respect to the trading market for the Company's Common Stock.
The transfer agent for the Company's Common Stock is American
Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York 10038.
Item 6. Selected Financial Data.
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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. Effective September 20, 1999, Otay Land Company is included in the
Company's consolidated financial statements; previously this investment had been
accounted for under the equity method.
Year Ended December 31,
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2000 1999 1998 1997 1996
-------- -------- -------- ------- --------
(In thousands, except per share amounts)
SELECTED INCOME STATEMENT DATA:
Sales of residential properties $ 1,575 $ 2,600 $ 5,752 $ 4,011 $ 8,988
Marketing, field overhead and management service
fee income 3,508 -- -- -- --
Interest expense 2,510 2,404 2,828 2,997 3,063
Loss from operations (2,671) (6,458) (4,545) (3,864) (6,424)
Net loss (3,409) (7,282) (4,481) (3,577) (6,297)
Basic loss per common share $ (0.06) $ (0.22) $ (0.45) $ (0.36) $ (0.63)
======= ======= ======= ======= =======
Diluted loss per common share $ (0.06) $ (0.22) $ (0.45) $ (0.36) $ (0.63)
======= ======= ======= ======= =======
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At December 31,
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2000 1999 1998 1997 1996
-------- -------- -------- ------- --------
(In thousands, except per share amounts)
SELECTED BALANCE SHEET DATA:
Land and real estate held for development and sale $ 22,979 $ 23,707 $ 5,008 $ 10,408 $ 14,284
Total assets 24,818 27,528 19,415 16,213 17,847
Notes payable to Leucadia Financial Corporation 21,474 20,552 19,736 26,085 23,877
Stockholders' deficit (10,421) (7,107) (8,205) (10,739) (7,162)
Shares outstanding 56,808 56,558 10,000 10,000 10,000
Book value per common share $ (0.18) $ (0.13) $ (0.82) $ (1.07) $ (0.72)
Basic and diluted loss per share of Common Stock was
calculated by dividing the net loss by the weighted average shares of Common
Stock outstanding. The number of shares used to calculate basic and diluted loss
per Common Share was 56,762,061, 32,577,357 and 10,000,000 for the years ending
December 31, 2000, 1999 and 1998, respectively. The calculation of diluted loss
per share does not include common stock equivalents of 1,186,000 and 49,647,893
for the years ending December 31, 2000 and 1998, respectively, which are
antidilutive. The number of shares used to calculate book value per Common Share
was 56,807,826, 56,557,826 and 10,000,000 for the years ended December 31, 2000,
1999 and 1998, respectively.
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
For the years ended December 31, 2000 and December 31, 1999,
net cash was used in operating activities, principally to fund interest and
general administrative expenses. The Company's principal sources of funds are
fee income earned from the San Elijo Hills project, proceeds from the sale of
real estate, its $3,000,000 line of credit from Leucadia and dividends or
borrowings from its subsidiaries.
The Company expects that its cash on hand, together with the
sources described above, will be sufficient to meet its cash flow needs for the
foreseeable future. If, at any time in the future, the Company's cash flow is
insufficient to meet its then current cash requirements, the Company could
accelerate its subsidiaries' sale of real estate projects held for development
or seek to borrow funds. However, because all of the Company's assets are
pledged to Leucadia to collateralize its $26,462,000 borrowing from Leucadia, it
may be unable to obtain financing at favorable rates from sources other than
Leucadia.
In March 2001, the Company entered into a $3,000,000 line of
credit agreement with Leucadia. The line of credit matures in one year unless
renewed. Loans outstanding under this line of credit bear interest at 10% per
year. As of March 13, 2001, no amounts were outstanding under this facility.
Under the Development Agreement, the Company is responsible
for the overall management of the San Elijo Hills project, including arranging
financing, coordinating marketing and sales activity, and acting as construction
manager. The Development Agreement provides that the Company will receive
certain fees in connection with the project. These fees consist of marketing,
field overhead and management service fees. These fees are based on a fixed
percentage of gross revenues of the project, less certain expenses allocated to
the project, and are expected to cover the Company's cost of providing services
under the Development Agreement. During the year ended December 31, 2000, the
Company received $3,508,000 in fees under the Development Agreement. The
Development Agreement also provides for a success fee to the Company out of the
project's net cash flow, if any, as described below, up to a maximum amount.
Whether the success fee, if it is earned, will be paid to the Company prior to
the conclusion of the project will be at the discretion of the project owner.
8
To determine "net cash flow" for purposes of calculating the
success fee, all cash expenditures of the project will be deducted from total
revenues of the project. Examples of "expenditures" for these purposes include
land development costs, current period operating costs, and indebtedness, either
collateralized by the project ($28,309,000 at December 31, 2000, which is
non-interest bearing), or owed by the project's owner to Leucadia ($49,630,000
at December 31, 2000) (collectively, "Indebtedness"). As a success fee, the
Company is entitled to receive payments out of net cash flow, if any, up to the
aggregate amount of the Indebtedness. The balance of the net cash flow, if any,
will be paid to the Company and the project owner in equal amounts. However, the
amount of the success fee cannot be more than 68% of net cash flow minus the
amount of the Indebtedness. The Company believes that any success fee that it
may receive will be its principal source of revenue earned through its
participation in the San Elijo Hills project pursuant to the Development
Agreement. There can be no assurance, however, that the Company will receive any
success fee at all for this project.
As of December 31, 2000, the Company owed $26,462,000
principal amount to Leucadia. This amount is payable on December 31, 2004 and
bears interest at 6% per year. This obligation is reflected in the consolidated
balance sheet, net of debt discount, at $21,474,000 as of December 31, 2000.
During the year ended December 31, 2000, the Company paid to Leucadia $1,588,000
in interest. In addition, Leucadia has invested $10,000,000 as a preferred
capital interest in Otay Land Company, LLC, a consolidated subsidiary of the
Company. Distributions of net income, if any, from Otay Land Company first will
be paid to Leucadia until it has received an annual cumulative preferred return
of 12% on, and repayment of, its preferred investment. Any remaining funds will
be distributed to the Company.
During 2000, the Company sold two clustered housing
development sites at its Paradise Valley project for net proceeds of $1,494,000.
The Company had certain obligations with respect to this project, including the
obligation to construct a recreation center. The construction of this recreation
center was completed in January 2001 and annexed to the homeowners association
in February 2001. The completed cost of the recreation center was $1,200,000,
substantially all of which was paid as of December 31, 2000.
In accordance with the terms of a partnership agreement
entered into in 1990 and amended in November 2000, a subsidiary of the company
is required to maintain a minimum net worth of $1,000,000, which the subsidiary
currently meets. The partners agreed on the minimum net worth requirement in
connection with an indemnity agreement with a third party surety that has
provided surety bonds for the construction of infrastructure in a development in
LaQuinta, California.
As of December 31, 2000, the Company has net operating loss
carryovers ("NOLs") of $275,872,000 available to reduce its future federal
income tax liabilities and NOLs of $36,560,000 available to reduce its future
state income tax liabilities. Most of these NOLs are not available to reduce
federal alternative minimum taxable income, which is currently taxed at the rate
of 20%. As a result, the Company expects to pay federal income tax at a rate of
20% during future periods, even if these NOLs are available to reduce regular
taxable income.
Results of Operations
Sales of residential properties decreased in 2000 as compared
to 1999. In 2000, the Company sold two clustered housing development sites at
the Paradise Valley project, while in 1999, the Company sold 75 lots and one
clustered housing development site at the Paradise Valley project. Sales of
residential properties decreased in 1999 as compared to 1998 due to a greater
amount of lot sales in 1998, which consisted of 97 lots in the Company's
Silverwood project and 61 lots at the Paradise Valley project.
Land and real estate held for development and sale is carried
at the lower of cost or fair value less costs to sell. The provision for losses
for the years ended December 31, 1999 and 1998 reflect the Company's estimates
to reduce the carrying value of real estate investments to fair value and, for
the years ended December 31, 1999 and 1998, includes $335,000 and $119,000,
respectively, for estimated additional costs to build the Paradise Valley
recreational center. Actual cost of sales recorded during these periods reflects
the level of sales activity, as well as provisions for losses.
Interest expense for all years presented primarily reflects
the interest due on indebtedness to Leucadia, including interest of $377,000 for
1998 which was not paid and was added to the principal balance of the
obligation. Interest expense for 2000, 1999, and 1998 also reflects interest of
$1,588,000, $1,588,000, and $2,162,000, respectively, due to Leucadia, which was
paid by the Company. Interest expense also includes $922,000, $816,000 and
$289,000 for 2000, 1999 and 1998, respectively, for amortization of debt
discount related to the indebtedness due to Leucadia.
General and administrative expenses increased in 2000 as
compared to 1999 due to increased operating activities in connection with the
San Elijo Hills project and Otay Ranch project.
9
Income taxes for all years presented principally relates to
state franchise taxes. The Company has not recognized income tax benefits for
its operating losses due to the uncertainty of sufficient future taxable income
which is required in order to recognize such tax benefits.
Inflation
The Company, as well as the real estate development and
homebuilding industry in general, may be adversely affected by inflation,
primarily because of either reduced rates of savings by consumers during periods
of low inflation or higher land and construction costs during periods of high
inflation. Low inflation could adversely affect consumer demand by limiting
growth of savings for down payments, ultimately affecting demand for real estate
and the Company's revenues. In addition, higher mortgage interest rates may
significantly affect the affordability of permanent mortgage financing to
prospective purchasers. High inflation also increases the Company's costs of
labor and materials. The Company would attempt to pass through to its customers
any increases in its costs through increased selling prices. To date, high or
low rates of inflation have not had a material adverse effect on the Company's
results of operations. However, there is no assurance that high or low rates of
inflation will not have a material adverse impact on the Company's future
results of operation.
Interest Rates
The Company's operations are interest-rate sensitive. Overall
housing demand is adversely affected by increases in interest costs. If mortgage
interest rates increase significantly, this may negatively impact the ability of
a home buyer to secure adequate financing. This could adversely affect the
Company's revenues, gross margins and profitability.
Cautionary Statement for Forward-Looking Information
Statements included in this Report may contain forward-looking
statements. Such statements may relate, but are not limited, to projections of
revenues, income or loss, capital expenditures, plans for growth and future
operations, competition and regulation as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted or quantified. When used in
this Report, the words "estimates", "expects", "anticipates", "believes",
"plans", "intends" and variations of such words and similar expressions are
intended to identify forward-looking statements that involve risks and
uncertainties. Future events and actual results could differ materially from
those set forth in, contemplated by or underlying the forward-looking
statements. The factors that could cause actual results to differ materially
from those suggested by any such statements include, but are not limited to,
those discussed or identified from time to time in the Company's public filings,
including changes in general economic and market conditions, changes in domestic
laws and government regulations or requirements, changes in real estate pricing
environments, regional or general changes in asset valuation, demographic and
economic changes in the United States generally and California in particular,
increases in real estate taxes and other local government fees, significant
competition from other real estate developers and homebuilders, decreased
consumer spending for housing, delays in construction schedules and cost
overruns, availability and cost of land, materials and labor, increased
development costs, many of which the Company would not be able to control,
damage to properties or condemnation of properties, the occurrence of
significant natural disasters, imposition of limitations on the Company's
ability to develop its properties resulting from developments in or new
applications of environmental laws and regulations, the inability to insure
certain risks economically, the adequacy of loss reserves, increases in
prevailing interest rate levels, including mortgage rates, increased interest
costs as a result of a delay in project completion requiring the financing to
remain outstanding for a longer than projected period of time, the availability
of reliable energy sources and consumer confidence in the dependability of such
energy sources, and changes in the composition of the Company's assets and
liabilities through acquisitions or divestitures. Undue reliance should not be
placed on these forward-looking statements, which are applicable only as of the
date hereof. The Company undertakes no obligation to revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date of this Report or to reflect the occurrence of unanticipated events.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
- ------- ---------------------------------------------------------
The Company does not have material market risk exposures.
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. Disagreements on Accounting and Financial Disclosure.
- ------ ----------------------------------------------------
Not applicable.
10
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 HomeFed's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A of the 1934
Act in connection with the 2001 annual meeting of stockholders of HomeFed (the
"Proxy Statement") is incorporated herein by reference. In addition, reference
is made to Item 10 in Part I of this Report.
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.
- ------- ----------------------------------------------
The information to be included under the caption "Executive
Compensation - Certain Relationships and Related Transactions" in the Proxy
Statement is incorporated herein by reference.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ------- ----------------------------------------------------------------
(a)(1) Financial Statements.
Report of Independent Accountants F-1
Consolidated Balance Sheets at December 31, 2000 and 1999 F-2
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Changes in Stockholders' Deficit for the years ended
December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 F-5
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) Executive Compensation Plans and Arrangements.
1999 Stock Incentive Plan (filed as Annex A to the Company's Proxy
Statement dated November 22, 1999).
2000 Stock Incentive Plan (filed as Annex B to the Company's Proxy
Statement dated June 20, 2000).
(b) Reports on Form 8-K.
None.
(c) 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 December 14, 1999.
10.1 Loan Agreement dated July 3, 1995 between the Company and Leucadia
Financial Corporation ("LFC") 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).
10.2 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).
12
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 Real Estate Purchase Agreement and Escrow Instructions between
Southfork Partnership and Northfork Communities (incorporated by
reference to Exhibit 10.1 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1998).
10.9 Purchase and Sale Agreement and Escrow Instructions, dated as of
September 21, 1999, by and between Paradise Valley Communities No. 1
and Western Pacific Housing, Inc. (incorporated by reference to Exhibit
10 to the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1999).
10.10 Amended and Restated Loan Agreement between the Company and LFC, dated
as of August 14, 1998 (incorporated by reference to Exhibit 10.2 to
the Company's report on Form 8-K dated August 14, 1998).
10.11 Development Management Agreement between the Company and Provence Hills
Development Company, LLC, dated as of August 14, 1998 (incorporated by
reference to Exhibit 10.3 to the Company's report on Form 8-K dated
August 14, 1998).
10.12 Stock Purchase Agreement between the Company and Leucadia National
Corporation, dated as of August 14, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 8-K dated August 14,
1998).
10.13 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of September 20, 1999, between the Company and
Leucadia National Corporation (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form S-2 (No.
333-79901) (the "Registration Statement").
10.14 Stock Purchase Agreement, dated as of October 20, 1998, between the
Company and Leucadia National Corporation (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended
September 30, 1998).
10.15 Administrative Services Agreement, dated as of March 1, 2000, between
LFC, the Company, HomeFed Resources Corporation and HomeFed
Communities, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's report on Form 10-Q for the quarter ended June 30, 2000).
10.16 Transitional Management Agreement, dated as of August 14, 1998, by and
between HomeFed and Accretive Investments, LLC (incorporated by
reference to Exhibit 10.17 to the Registration Statement).
10.17 Option and Purchase Agreement and Escrow Instructions, dated as of
October 15, 1999, by and between Otay Land Company, LLC and Lakes Kean
Argovitz Resorts-California, LLC. (incorporated by reference to Exhibit
10.17 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 (the "1999 10-K")).
10.18 First Amendment to Option and Purchase Agreement and Escrow
Instructions, dated as of December 8, 1999, by and between Otay Land
Company, LLC and Lakes Kean Argovitz Resorts-California, LLC
(incorporated by reference to Exhibit 10.18 to the Company's 1999
10-K).
13
10.19 Second Amendment to Option and Purchase Agreement and Escrow
Instructions, dated as of December 14, 1999, by and between Otay Land
Company, LLC and Lakes Kean Argovitz Resorts-California, LLC
(incorporated by reference to Exhibit 10.19 to the Company's 1999
10-K).
10.20 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of
September 30, 1998, by and between Paradise Valley Communities No. 1
and Richmond American Homes of California, Inc. (incorporated by
reference to Exhibit 10.15 to the Registration Statement).
10.21 Amendment No. 1 dated as of November 1, 2000 to the Administrative
Services Agreement dated as of March 1, 2000.
10.22 Amendment No. 2 dated as of February 28, 2001 to the Administrative
Services Agreement dated as of March 1, 2000.
10.23 Line Letter dated as of March 1, 2001 from Leucadia Financial
Corporation to the Company.
21 Subsidiaries of the Company.
14
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 29, 2001 By /s/ Erin N. Ruhe
---------------------------------
Erin N. Ruhe
Vice President and Controller
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 29, 2001 By /s/ JOSEPH S. STEINBERG
---------------------------------
Joseph S. Steinberg, Chairman
of the Board and Director
Date: March 29, 2001 By /s/ PAUL J. BORDEN
---------------------------------
Paul J. Borden, President and Director
(Principal Executive Officer)
Date: March 29, 2001 By /s/ Erin N. Ruhe
---------------------------------
Erin N. Ruhe
Vice President and Controller
(Principal Financial and
Accounting Officer)
Date: March 29, 2001 By /s/ PATRICK D. BIENVENUE
---------------------------------
Patrick D. Bienvenue, Director
Date: March 29, 2001 By /s/ TIMOTHY CONSIDINE
---------------------------------
Timothy Considine, Director
Date: March 29, 2001 By /s/ IAN M. CUMMING
--------------------------------
Ian M. Cumming, Director
Date: March 29, 2001 By /s/ MICHAEL A. LOBATZ
-------------------------------
Michael A. Lobatz, Director
15
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
- ------ ----------- ----------
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 December 14, 1999.
10.1 Loan Agreement dated July 3, 1995 between the Company and Leucadia
Financial Corporation ("LFC") 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).
10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 Real Estate Purchase Agreement and Escrow Instructions between
Southfork Partnership and Northfork Communities (incorporated by
reference to Exhibit 10.1 to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1998).
10.9 Purchase and Sale Agreement and Escrow Instructions, dated as of
September 21, 1999, by and between Paradise Valley Communities No. 1
and Western Pacific Housing, Inc. (incorporated by reference to Exhibit
10 to the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 1999).
E-1
10.10 Amended and Restated Loan Agreement between the Company and LFC, dated
as of August 14, 1998 (incorporated by reference to Exhibit 10.2 to the
Company's report on Form 8-K dated August 14, 1998).
10.11 Development Management Agreement between the Company and Provence Hills
Development Company, LLC, dated as of August 14, 1998 (incorporated by
reference to Exhibit 10.3 to the Company's report on Form 8-K dated
August 14, 1998).
10.12 Stock Purchase Agreement between the Company and Leucadia National
Corporation, dated as of August 14, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 8-K dated August 14,
1998).
10.13 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of September 20, 1999, between the Company and
Leucadia National Corporation (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form S-2 (No.
333-79901) (the "Registration Statement").
10.14 Stock Purchase Agreement, dated as of October 20, 1998, between the
Company and Leucadia National Corporation (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended
September 30, 1998).
10.15 Administrative Services Agreement, dated as of March 1, 2000, between
LFC, the Company, HomeFed Resources Corporation and HomeFed
Communities, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's report on Form 10-Q for the quarter ended June 30, 2000).
10.16 Transitional Management Agreement, dated as of August 14, 1998, by and
between HomeFed and Accretive Investments, LLC (incorporated by
reference to Exhibit 10.17 to the Registration Statement).
10.17 Option and Purchase Agreement and Escrow Instructions, dated as of
October 15, 1999, by and between Otay Land Company, LLC and Lakes Kean
Argovitz Resorts-California, LLC (incorporated by reference to Exhibit
10.17 to the Company's 1999 10-K).
10.18 First Amendment to Option and Purchase Agreement and Escrow
Instructions, dated as of December 8, 1999, by and between Otay Land
Company, LLC and Lakes Kean Argovitz Resorts-California, LLC
(incorporated by reference to Exhibit 10.18 to the Company's 1999
10-K).
10.19 Second Amendment to Option and Purchase Agreement and Escrow
Instructions, dated as of December 14, 1999, by and between Otay Land
Company, LLC and Lakes Kean Argovitz Resorts-California, LLC
(incorporated by reference to Exhibit 10.19 to the Company's 1999
10-K).
10.20 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of
September 30, 1998, by and between Paradise Valley Communities No. 1
and Richmond American Homes of California, Inc. (incorporated by
reference to Exhibit 10.15 to the Registration Statement).
10.21 Amendment No. 1 dated as of November 1, 2000 to the Administrative
Services Agreement dated as of March 1, 2000.
10.22 Amendment No. 2 dated as of February 28, 2001 to the Administrative
Services Agreement dated as of March 1, 2000.
10.23 Line Letter dated as of March 1, 2001 from Leucadia Financial
Corporation to the Company.
21 Subsidiaries of the Company.
E-2
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, present fairly, in all material respects, the financial
position of HomeFed Corporation and Subsidiaries (the "Company") as of December
31, 2000 and 1999, 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, 2000, in conformity with generally accepted accounting principles
generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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 our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 13, 2001
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(Dollars in thousands, except par value)
2000 1999
---- ----
ASSETS
Land and real estate held for development and sale $ 22,979 $ 23,707
Cash and cash equivalents 1,631 2,795
Restricted cash -- 868
Deposits and other assets 208 158
--------- ---------
TOTAL $ 24,818 $ 27,528
========= =========
LIABILITIES
Note payable to Leucadia Financial Corporation $ 21,474 $ 20,552
Recreation center liability 41 970
Accounts payable and accrued liabilities 1,516 1,905
--------- ---------
Total liabilities 23,031 23,427
--------- ---------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
MINORITY INTEREST 12,208 11,208
- ----------------- --------- ---------
STOCKHOLDERS' DEFICIT
- ---------------------
Common stock, $.01 par value,
100,000,000 shares authorized;
56,807,826 and 56,557,826 shares outstanding 568 566
Additional paid-in capital 355,277 354,833
Deferred compensation pursuant to stock incentive plans (351) --
Accumulated deficit (365,915) (362,506)
--------- ---------
Total stockholders' deficit (10,421) (7,107)
--------- ---------
TOTAL $ 24,818 $ 27,528
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2000, 1999 and 1998
(In thousands, except per share amounts)
2000 1999 1998
---- ---- ----
REVENUES
Sales of residential properties $ 1,575 $ 2,600 $ 5,752
Marketing, field overhead and management service fee
income from San Elijo Hills 3,508 -- --
-------- -------- --------
5,083 2,600 5,752
-------- -------- --------
EXPENSES
Cost of sales 1,544 2,636 5,714
Provision for losses on real estate investments -- 365 425
Interest expense relating to Leucadia Financial Corporation 2,510 2,404 2,828
General and administrative expenses 3,445 3,357 1,192
Management fees to Leucadia Financial Corporation 255 296 138
-------- -------- --------
7,754 9,058 10,297
-------- -------- --------
Loss from operations (2,671) (6,458) (4,545)
Equity in losses from Otay Land Company, LLC -- (779) (208)
Other income, net 254 259 312
-------- -------- ---------
Loss before income taxes and minority interest (2,417) (6,978) (4,441)
Income tax benefit/(provision) 8 (24) (40)
-------- -------- --------
Loss before minority interest (2,409) (7,002) (4,481)
Minority interest (1,000) (280) --
-------- -------- --------
Net loss $ (3,409) $ (7,282) $ (4,481)
======== ======== ========
Basic loss per common share $ (0.06) $ (0.22) $ (0.45)
======== ======== ========
Diluted loss per common share $ (0.06) $ (0.22) $ (0.45)
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Deficit
For the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Deferred
Common Compensation
Stock Additional Pursuant to Total
$.01 Par Paid-in Stock Incentive Accumulated Stockholders'
Value Capital Plans Deficit Deficit
----- ------- ----- ------- -------
Balance, January 1, 1998 $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)
Issuance of 46,557,826 shares of
Common Stock 466 7,914 8,380
Net loss (7,282) (7,282)
------ -------- ------ --------- --------
Balance, December 31, 1999 566 354,833 (362,506) (7,107)
Issuance of 250,000 shares of
Common Stock related to restricted
stock grants 2 186 $(188) --
Amortization of restricted stock grants 51 51
Grant of 25,000 stock options 18 (18) --
Grant of 1,000,000 stock options 240 (240) --
Amortization related to stock options 44 44
Net loss (3,409) (3,409)
------ -------- ------ --------- --------
Balance, December 31, 2000 $568 $355,277 $(351) $(365,915) $(10,421)
====== ======== ====== ========= ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,409) $ (7,282) $ (4,481)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for losses on real estate investments -- 365 425
Minority interest 1,000 280 --
Amortization of deferred compensation pursuant to
stock incentive plans 95 -- --
Accrued interest added to note payable to Leucadia
Financial Corporation -- -- 377
Amortization of debt discount on note payable to
Leucadia Financial Corporation 922 816 289
Equity in losses from Otay Land Company, LLC -- 779 208
Changes in operating assets and liabilities:
Land and real estate held for development and sale 728 1,912 4,591
Deposits and other assets (50) 6 298
Recreation center liability (929) 95 119
Accounts payable and accrued liabilities (389) 1,546 572
Decrease (increase) in restricted cash 868 259 (54)
-------- -------- --------
Net cash provided by (used in) operating activities (1,164) (1,224) 2,344
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Contributions to Otay Land Company, LLC -- (850) (10,125)
Decrease (increase) in other investments -- 79 (4)
-------- -------- ---------
Net cash used in investing activities -- (771) (10,129)
-------- -------- --------
(continued)
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
For the years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from the sale of Common Stock -- 1,670 --
Advance under common stock subscription from
Leucadia Shareholder Trust -- -- 6,710
------- ------- -------
Net cash provided by financing activities -- 1,670 6,710
------- ------- -------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,164) (325) (1,075)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 2,795 3,120 4,195
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,631 $ 2,795 $ 3,120
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of amounts capitalized) $ 1,588 $ 1,588 $ 2,162
======= ======= =======
Cash paid (refunded) for income taxes $ (16) $ 44 $ 28
======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
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"), Otay
Land Company, LLC ("Otay Land 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.
During the third quarter of 1999, the limited liability agreement
governing Otay Land Company was amended and as a result, the Company now has the
ability to control Otay Land Company. Accordingly, effective September 20, 1999,
Otay Land Company has been included in the Company's consolidated financial
statements. The Company previously had accounted for this investment under the
equity method of accounting.
Certain amounts for prior periods have been reclassified to be
consistent with the 2000 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.
Restricted Cash - Restricted cash consists of amounts held in escrow to
fund the building of a recreation center at the Paradise Valley project.
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. Fee
income for marketing, field overhead and management services provided is
recognized when contractually earned.
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
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,
------------------------------
2000 1999
------------ -----------
Paradise Valley $ 1,060,000 $ 2,522,000
Otay Ranch 21,919,000 21,185,000
----------- ----------
Total $22,979,000 $23,707,000
=========== ===========
No interest was capitalized in land and real estate held for
development and sale during 2000 and 1999. 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.
The Company expects that its cash on hand and cash generated from
operations will be sufficient to meet its cash flow needs for the foreseeable
future. If, at any time in the future, the Company's cash flow is insufficient
to meet its then current cash requirements, the Company could accelerate its
subsidiaries' sale of real estate projects held for development or seek to
borrow funds.
3. NOTES PAYABLE
As of August 14, 1998, the Company and Leucadia Financial
Corporation ("LFC"), a subsidiary of Leucadia National Corporation ("Leucadia"),
entered into an Amended and Restated Loan Agreement pursuant to which the
Company and LFC amended the original loan agreement dated July 3, 1995 and
restructured the 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 $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. The Restructured Note is collateralized by a 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
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 $922,000 and $816,000
was amortized to interest expense during 2000 and 1999, respectively. The
carrying amount of this Restructured Note, net of this discount for fair value,
was $21,474,000 and $20,552,000 at December 31, 2000 and 1999, respectively.
Interest accrued during the year ended December 31, 1998 of $377,000
was not paid and was added to the principal balance. Additional interest of
$1,588,000, $1,588,000 and $2,162,000 accrued during 2000, 1999 and 1998,
respectively, was paid by the Company.
4. STOCK INCENTIVE PLANS
Under the Company's 1999 Stock Incentive Plan (the "Plan"), the Company
may grant options, stock appreciation rights and restricted stock to
non-employee directors, certain non-employees and employees up to a maximum
grant of 300,000 shares to any individual in a given taxable year. The maximum
number of Common Shares which may be acquired through the exercise of options or
rights under the Plan cannot exceed, in the aggregate, 750,000; the maximum
number of Common Shares that may be awarded as restricted stock cannot exceed,
in the aggregate, 250,000. The Plan provides for the issuance of options and
rights at not less 100% of the fair market value of the underlying stock at the
date of grant. Options generally become exercisable in five equal instalments
starting one year from the date of grant. No stock appreciation rights have been
granted. During 2000, 250,000 shares of restricted Common Stock were issued to
eligible participants, subject to certain forfeiture provisions. In connection
with this issuance of restricted stock, the Company recorded deferred
compensation of $188,000 representing the value of stock on the date of issuance
based upon market price. This amount will be amortized over the three year
vesting period of the restricted stock at which time all remaining forfeiture
provisions will end. In addition, during 2000, options to purchase an aggregate
of 25,000 shares of Common Stock were granted to non-employees at an exercise
price of $.75 per share (market price). In connection with this issuance, the
Company recorded deferred compensation of $18,000 based upon the estimated fair
value of these options at the time of grant, using the modified Black-Scholes
model. This amount will be amortized over the five year vesting period of the
options.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123"), establishes a fair value method for
accounting for stock-based compensation plans, either through recognition in the
statements of income or disclosure. As permitted, the Company applies ABP
Opinion No. 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for employees and
directors in the statements of operations for its fixed stock options. Had
compensation cost for the Company's fixed stock options been recorded in the
statements of operations consistent with the provisions of SFAS 123, the
Company's net loss and loss per share for 2000 would not have been materially
different from that reported.
A summary of activity with respect to the Company's fixed stock options
for 2000 is as follows:
Common Weighted Available
Shares Average Options for Future
Subject to Exercise Exercisable Options
Option Price at Year-End Grants
---------- --------- ----------- ----------
Balance at January 1, 2000 0 $ 0.00 0 725,000
======= =======
Granted 161,000 $ 0.75
Exercised 0 $ 0.00
Cancelled 0 $ 0.00
--------
Balance at December 31, 2000 161,000 $ 0.75 0 564,000
========= ====== ======= =======
The weighted-average fair value of the options granted was $.73 per
share for 2000 as estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: (1) expected volatility of
172.1%; (2) risk-free interest rate of 6.61%; (3) expected lives of 5.9 years;
and (4) dividend yield of 0%.
F-9
4. STOCK INCENTIVE PLANS, continued
The following table summarizes information about fixed stock options
outstanding at December 31, 2000.
Options Outstanding
--------------------------------------------------
Common Average Weighted
Shares Remaining Average
Range of Subject to Contractual Exercise
Exercise Prices Option Life Price
--------------- ------ ---- -----
$0.70 - $0.75 161,000 5.2 years $0.75
At December 31, 2000, no fixed stock options outstanding were
exercisable.
In 2000, under the Company's 2000 Stock Incentive Plan (the "2000
Plan"), the Company granted to two key employees options to purchase an
aggregate of 1,000,000 shares of Common Stock at an exercise price of $.61 per
share, the then current market price per share. No additional options are
available to be granted under the 2000 Plan. The options are subject to
achievement of performance goals as determined by the Board of Directors and are
exercisable over a six year period. Options and stock issued on exercise of an
option are subject to forfeiture if the performance goals are not met within
three years from the date of grant. Deferred compensation, representing the
difference between the exercise price and the then current market price, is
subject to change based upon fluctuations in the Company's stock price. The
deferred compensation will be amortized over the expected performance period of
three years.
5. INCOME TAXES
Income taxes 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 Company and its wholly-owned subsidiaries have net operating loss
carryforwards ("NOLs") available for federal income tax purposes of $275,872,000
as of December 31, 2000. These carryforwards were generated during 1986-2000 and
expire during 2001-2020. For state income tax purposes, available NOLs as of
December 31, 2000 total $36,560,000 and expire in 2001-2015.
At December 31, the net deferred tax asset consisted of the following:
2000 1999
------------ ------------
NOL carryforwards $ 99,685,000 $ 99,402,000
Land basis 911,000 1,799,000
Other 30,000 31,000
------------ -------------
100,626,000 101,232,000
Valuation allowance (100,626,000) (101,232,000)
------------ -------------
$ 0 $ 0
============ =============
For all years presented, 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.
F-10
6. PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS
For the years ended December 31, 1999 and 1998, the Company recorded a
loss of $365,000 and $425,000, respectively, due to the revaluation of the
residential properties and the increase in estimates to build the recreation
center at the Paradise Valley project. 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 and diluted loss per share of Common Stock was calculated by
dividing the net loss by the weighted average shares of Common Stock
outstanding. The number of shares used to calculate basic and diluted loss per
Common Share was 56,762,061, 32,577,357 and 10,000,000 for the years ending
December 31, 2000, 1999 and 1998, respectively. The calculation of diluted loss
per share does not include common stock equivalents of 1,186,000 and 49,647,893
for the years ending December 31, 2000 and 1998, respectively, which are
antidilutive.
8. COMMITMENTS AND CONTINGENCIES
In accordance with the terms of a partnership agreement entered into in
1990 and amended in November 2000, a subsidiary of the company is required to
maintain a minimum net worth of $1,000,000, which the subsidiary currently
meets. The partners agreed on the minimum net worth requirement in connection
with an indemnity agreement with a third party surety that has provided surety
bonds for the construction of infrastructure in a development in La Quinta,
California.
9. RELATED PARTY TRANSACTIONS
The Company has entered into the following related party transactions
with Leucadia and LFC.
(a) 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
expected to be developed into a community of approximately 3,400 homes during
the course of the decade. 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,
coordinating 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 field overhead, project management and marketing services based
on the revenues derived from the project. In 2000, the Company received
$3,508,000 in fee income under the Development Agreement.
(b) Otay Land Company, LLC. As of October 14, 1998, the Company and
Leucadia formed Otay Land Company. The Company has contributed $11,590,000 as
capital and Leucadia has contributed $10,000,000 as a preferred capital
interest. The Company is the manager of Otay Land Company. Otay Land Company has
acquired, for approximately $19,500,000, approximately 4,800 acres of land,
which is part of a 22,900 acre project located south of San Diego, California,
known as Otay Ranch.
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.
Leucadia's preferred capital interest and cumulative preferred return
is reflected as minority interest in the consolidated balance sheets.
F-11
9. RELATED PARTY TRANSACTIONS, continued
(c) Administrative Services Agreement. Pursuant to administrative
services agreements, LFC provides administrative services to the Company,
including providing the services of one of the Company's executive officers.
Administrative fees paid to LFC in 2000, 1999 and 1998 were $255,000, $296,000
and $138,000, respectively. The current administrative services agreement
extends through December 31, 2001.
(d) The Company's corporate office is in part of an office building
subleased from Leucadia for a monthly amount equal to its share of Leucadia's
cost for such space and furniture. The agreement pursuant to which the space and
furnishings are provided extends through February 28, 2005 (coterminous with
Leucadia's occupancy of the space) and provides for a monthly rental of $19,000
effective March 1, 2001. In connection with these rentals, the Company paid
$219,000 to Leucadia in 2000.
(e) In March 2001, the Company entered into a $3,000,000 line of credit
agreement with Leucadia. The line of credit matures in one year unless renewed.
Loans outstanding under this line of credit bear interest at 10% per year. As of
March 13, 2001, no amounts were outstanding under this facility.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's material financial instruments include cash and cash
equivalents, restricted cash 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.
11. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ------------ -----------
(In thousands, except per share amounts)
Sales of residential properties $ -- $ 1,575 $ -- $ --
============= ============= ============ ============
Marketing, field overhead
and management service fee income $ 878 $ 260 $ 944 $ 1,426
============= ============= ============ ============
Income (loss) from operations $ (691) $ (1,272) $ (901) $ 193
============= ============= ============ ============
Net income (loss) $ (875) $ (1,450) $ (1,100) $ 16
============= ============= ============ ============
Basic income (loss) per common share $ (0.02) $ (0.03) $ (0.02) $ 0.00
============= ============= ============ ============
Diluted income (loss) per common share $ (0.02) $ (0.03) $ (0.02) 0.00
============= ============= ============ ============
<
In 2000, the total of quarterly per share amounts does not necessarily
equal the annual per share amount.
F-12