SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2009
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
1903 Wright Place, Suite 220, Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)
(760) 918-8200
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405
of this Chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
YES NO
------ -------
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer X
---- ----
Non-accelerated filer (Do not check if a smaller Smaller reporting
---- reporting company) company ----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES NO X
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On July 30, 2009, there were
7,879,500 outstanding shares of the Registrant's Common Stock, par value $.01
per share.
Part I -FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements.
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2009 and December 31, 2008
(Dollars in thousands, except par value)
June 30, December 31,
2009 2008
---------- ---------
(Unaudited)
ASSETS
------
Real estate $ 104,328 $ 98,544
Cash and cash equivalents 18,088 16,353
Investments-available for sale (amortized cost of $45,645 and $57,645) 45,794 57,735
Accounts receivable, deposits and other assets 1,943 2,224
Deferred income taxes 15,783 15,541
--------- ---------
TOTAL $ 185,936 $ 190,397
========= =========
LIABILITIES
-----------
Notes payable $ 8,218 $ 8,218
Deferred revenue 2,245 5,758
Accounts payable and accrued liabilities 4,699 4,501
Liability for environmental remediation 10,141 10,245
Other liabilities 1,026 1,017
--------- ---------
Total liabilities 26,329 29,739
--------- ---------
COMMITMENTS AND CONTINGENCIES
-----------------------------
EQUITY
------
Common stock, $.01 par value; 25,000,000 shares authorized;
7,879,500 and 7,879,978 shares outstanding, respectively 79 79
Additional paid-in capital 375,869 375,819
Accumulated other comprehensive income 89 54
Accumulated deficit (230,457) (229,533)
--------- ---------
Total HomeFed Corporation common shareholders' equity 145,580 146,419
--------- ---------
Noncontrolling interest 14,027 14,239
--------- ---------
Total equity 159,607 160,658
--------- ---------
TOTAL $ 185,936 $ 190,397
========= =========
See notes to interim consolidated financial statements.
2
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and six month periods ended June 30, 2009 and 2008
(Unaudited)
For the Three Month For the Six Month
Period Ended June 30, Period Ended June 30,
------------------------ -------------------
2009 2008 2009 2008
---- ---- ---- ----
REVENUES
--------
Sales of real estate $ 1,479 $ 4,765 $ 3,513 $ 5,645
Co-op marketing and advertising fees 11 31 51 65
--------- --------- --------- ---------
1,490 4,796 3,564 5,710
--------- --------- --------- ---------
EXPENSES
--------
Cost of sales 137 542 395 755
General and administrative expenses 1,661 2,735 3,292 6,478
Administrative services fees to Leucadia National Corporation 45 45 90 90
--------- --------- --------- ---------
1,843 3,322 3,777 7,323
--------- --------- --------- ---------
Income (loss) from operations (353) 1,474 (213) (1,613)
Interest and other income (expense), net (688) 379 (1,609) 1,131
--------- --------- --------- ---------
Income (loss) before income taxes and noncontrolling interest (1,041) 1,853 (1,822) (482)
Income tax benefit (provision) 380 (764) 686 179
--------- --------- --------- ---------
Net income (loss) (661) 1,089 (1,136) (303)
Net income (loss) attributable to the noncontrolling interest (158) 434 (212) 363
--------- --------- --------- ---------
Net income (loss) attributable to HomeFed Corporation common
shareholders $ (503) $ 655 $ (924) $ (666)
========= ========= ========= =========
Basic net income (loss) per common share attributable
to HomeFed Corporation common shareholders $ (0.06) $ 0.08 $ (0.12) $ (0.08)
========= ========= ========= =========
Diluted net income (loss) per common share attributable
to HomeFed Corporation common shareholders $ (0.06) $ 0.08 $ (0.12) $ (0.08)
========= ========= ========= =========
See notes to interim consolidated financial statements.
3
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the six month periods ended June 30, 2009 and 2008
(In thousands, except par value)
(Unaudited)
HomeFed Corporation Common Shareholders
-------------------------------------------------------------
Common Accumulated
Stock Additional Other
$.01 Par Paid-In Comprehensive Accumulated Noncontrolling
Value Capital Income (Loss) Deficit Subtotal Interest Total
------- ----------- -------------- ----------- ---------- -------------- ---------
Balance, January 1, 2008 $ 83 $ 381,602 $ 38 $ (219,606) $ 162,117 $ 14,767 $ 176,884
--------- -------- ---------
Comprehensive loss:
Net change in unrealized gain (loss)
on investments, net of tax benefit
of $41 (65) (65) (65)
Net loss (666) (666) 363 (303)
--------- -------- ---------
Comprehensive loss (731) 363 (368)
--------- -------- ---------
Share-based compensation expense 57 57 57
Exercise of options to purchase
common shares 7 7 7
---- --------- ----- ---------- --------- -------- ---------
Balance, June 30, 2008 $ 83 $ 381,666 $ (27) $ (220,272) $ 161,450 $ 15,130 $ 176,580
==== ========= ===== ========== ========= ======== =========
Balance, January 1, 2009 $ 79 $ 375,819 $ 54 $ (229,533) $ 146,419 $ 14,239 $ 160,658
--------- -------- ---------
Comprehensive loss:
Net change in unrealized gain (loss)
on investments, net of taxes of $24 35 35 35
Net loss (924) (924) (212) (1,136)
--------- -------- ---------
Comprehensive loss (889) (212) (1,101)
--------- -------- ---------
Share-based compensation expense 57 57 57
Purchase of common shares for
treasury (7) (7) (7)
---- --------- ----- ---------- --------- -------- ---------
Balance, June 30, 2009 $ 79 $ 375,869 $ 89 $ (230,457) $ 145,580 $ 14,027 $ 159,607
==== ========= ===== ========== ========= ======== =========
See notes to interim consolidated financial statements.
4
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six month periods ended June 30, 2009 and 2008
(In thousands)
(Unaudited)
2009 2008
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,136) $ (303)
Adjustments to reconcile net loss to net cash used for
operating activities:
Provision (benefit) for deferred income taxes (266) 2
Share-based compensation expense 57 57
Net securities gains (24) --
Accretion of discount on available for sale investments (185) (1,392)
Changes in operating assets and liabilities:
Real estate (5,778) (3,210)
Accounts receivable, deposits and other assets 701 102
Notes payable -- (17)
Deferred revenue (3,513) (4,301)
Accounts payable and accrued liabilities 198 (2,158)
Non-refundable option payments -- (40)
Liability for environmental remediation (104) (92)
Income taxes payable (420) (409)
Other liabilities 9 (22)
-------- ---------
Net cash used for operating activities (10,461) (11,783)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (other than short-term) (51,820) (100,133)
Proceeds from maturities of investments-available for sale 51,500 106,890
Proceeds from sale of investments 12,529 --
-------- ---------
Net cash provided by investing activities 12,209 6,757
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments to trust deed note holders (6) (755)
Exercise of options to purchase common shares -- 7
Purchase of common shares for treasury (7) --
-------- ---------
Net cash used for financing activities (13) (748)
-------- ---------
Net increase (decrease) in cash and cash equivalents 1,735 (5,774)
Cash and cash equivalents, beginning of period 16,353 10,574
-------- ---------
Cash and cash equivalents, end of period $ 18,088 $ 4,800
======== =========
Supplemental disclosures of cash flow information:
Cash paid for interest (net of amounts capitalized) $ -- $ --
Cash paid for income taxes $ -- $ 225
See notes to interim consolidated financial statements.
5
HOMEFED CORPORATION AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
1. The unaudited interim consolidated financial statements, which reflect all
adjustments (consisting of normal recurring items or items discussed
herein) that management believes are necessary to present fairly the
results of interim operations, should be read in conjunction with the Notes
to Consolidated Financial Statements (including the Summary of Significant
Accounting Policies) included in the Company's audited consolidated
financial statements for the year ended December 31, 2008, which are
included in the Company's Annual Report filed on Form 10-K for such year
(the "2008 10-K"). Results of operations for interim periods are not
necessarily indicative of annual results of operations. The consolidated
balance sheet at December 31, 2008 was derived from the Company's audited
annual consolidated financial statements and does not include all
disclosures required by accounting principles generally accepted in the
United States of America for annual financial statements.
As of January 1, 2009, the Company adopted Statement of Financial
Accounting Standards No. 160, "Noncontrolling Interests in Consolidated
Financial Statements" ("SFAS 160"). SFAS 160 materially changes the
accounting and reporting for minority interests in the future, and requires
retrospective application of its presentation and disclosure requirements
for all periods presented. Minority interests have been reclassified as
noncontrolling interests and included as a component of consolidated net
worth; previously minority interests were separately classified on the
consolidated balance sheet and not included as a component of consolidated
net worth. Included in consolidated equity are noncontrolling interests of
$14,000,000 and $14,200,000, respectively, as of June 30, 2009 and December
31, 2008.
Effective June 30, 2009, the Company adopted Statement of Financial
Accounting Standards No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165
establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or available to be issued. Adoption of SFAS 165 did not have any
impact on the Company's consolidated financial statements other than
expanded disclosure.
In June 2009, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 166, "Accounting for
Transfers of Financial Assets - an amendment of FASB Statement No. 140"
("SFAS 166"). SFAS 166, which is effective for fiscal years beginning after
November 15, 2009, eliminates the concept of a qualifying special-purpose
entity, establishes specific conditions that must be met for transfers of
portions of financial assets to be eligible for sale accounting, clarifies
and amends the derecognition criteria for a transfer to be accounted for as
a sale, changes the amount of recognized gain/loss on a transfer accounted
for as a sale under certain circumstances and requires enhanced
disclosures. The Company does not believe that the adoption of SFAS 166
will have any impact on its consolidated financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards
No. 167, "Amendments to FASB Interpretation No. 46(R)" ("SFAS 167"), which
is effective for fiscal years beginning after November 15, 2009. SFAS 167
requires an enterprise to qualitatively determine whether the enterprise's
variable interest or interests give it a controlling financial interest in
a variable interest entity ("VIE"), which would result in the enterprise
being the primary beneficiary of the VIE. This determination of the primary
beneficiary is based upon the enterprise that has both the power to direct
the activities of a VIE that most significantly impact the VIE's economic
performance, and has the obligation to absorb losses or the right to
receive benefits of the VIE that could potentially be significant to the
VIE. SFAS 167 also requires ongoing reassessment of whether an enterprise
is the primary beneficiary of a VIE and enhanced disclosures. The Company
does not believe that the adoption of SFAS 167 will have any impact on its
consolidated financial statements.
6
2. Basic and diluted income (loss) per share amounts were calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding. The numerators and denominators used to calculate basic and
diluted income (loss) per share for the three and six month periods ended
June 30, 2009 and 2008 are as follows (in thousands):
For the three months ended For the six months ended
-------------------------- ------------------------
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
-------- -------- --------- ---------
Numerator - net income (loss) attributable to
HomeFed Corporation common shareholders $ (503) $ 655 $ (924) $ (666)
======== ======== ======== ========
Denominator for basic income (loss) per share-
weighted average shares 7,880 8,274 7,880 8,274
-------- -------- -------- --------
Stock options -- 1 -- --
-------- -------- -------- --------
Denominator for diluted income (loss) per share-
weighted average shares 7,880 8,275 7,880 8,274
======== ======== ======== ========
For the three month period ended June 30, 2009 and for the six months
period ended June 30, 2009 and 2008, there is no difference between basic
and diluted loss per share amounts because the effect of increasing the
weighted average number of common shares for incremental shares issuable
upon exercise of outstanding options is antidilutive.
3. Pursuant to the administrative services agreement, Leucadia National
Corporation ("Leucadia") provides administrative and accounting services,
including providing the services of the Company's Secretary. Administrative
service fee expenses were $45,000 and $90,000 for each of the three and six
month periods ended June 30, 2009 and 2008, respectively. The
administrative services agreement automatically renews for successive
annual periods unless terminated in accordance with its terms. The Company
subleases office space to Leucadia under a sublease agreement until
February 2010. Amounts reflected in other income pursuant to this agreement
were $3,000 for each of the three month periods ended June 30, 2009 and
2008, and $6,000 for each of the six month periods ended June 30, 2009 and
2008.
4. Interest and other income (expense), net includes interest income of
$200,000 and $600,000 for the three month periods ended June 30, 2009 and
2008, respectively, and $400,000 and $1,500,000 for the six month periods
ended June 30, 2009 and 2008, respectively.
5. The Company's material financial instruments include cash and cash
equivalents, investments classified as available for sale and notes payable
that are collateralized by the San Elijo Hills project; investments
classified as available for sale are the only assets or liabilities that
are measured at fair value on a recurring basis. All of the Company's
investments mature in one year or less. The par value, amortized cost,
gross unrealized gains and losses and estimated fair value of investments
classified as available for sale as of June 30, 2009 and December 31, 2008
are as follows (in thousands):
7
Fair Value Measurements Using
------------------------------------
Quoted Prices
in
Active Markets
for Significant
Gross Gross Identical Other Total
Par Amortized Unrealized Unrealized Assets Observable Inputs Fair Value
Value Cost Gains Losses (Level 1) (Level 2) Measurements
----- -------- ---------- --------- --------- ---------------- -------------
June 30, 2009
-------------
U.S. Treasury securities $ 33,250 $ 33,225 $ 5 $ -- $ 33,230 $ -- $ 33,230
U.S.Government-Sponsored
Enterprises 4,000 3,998 2 -- 4,000 -- 4,000
Corporate bonds 8,535 8,422 142 -- -- 8,564 8,564
-------- --------- -------- -------- ---------- ----------- --------
Total $ 45,785 $ 45,645 $ 149 $ -- $ 37,230 $ 8,564 $ 45,794
======== ========= ======== ======== ========== =========== ========
December 31, 2008
-----------------
U.S. Treasury securities $ 36,650 $ 36,558 $ 88 $ -- $ 36,646 $ -- $ 36,646
U.S. Government-Sponsored
Enterprises 21,100 21,087 6 4 21,089 -- 21,089
-------- --------- -------- -------- ---------- ----------- --------
Total $ 57,750 $ 57,645 $ 94 $ 4 $ 57,735 $ -- $ 57,735
======== ========= ======== ======== ========== =========== ========
As of June 30, 2009, the Company did not have any assets or liabilities
measured at fair value on a nonrecurring basis.
For cash and cash equivalents, the carrying amounts of such financial
instruments approximate their fair values. At June 30, 2009 and December
31, 2008, the fair values of notes payable are estimated to be $7,300,000
and $6,900,000, respectively. The fair value of notes payable were
determined based on the present value of future cash flows, discounted at a
rate that appropriately reflects the inherent risks.
As more fully discussed in the 2008 10-K, during the fourth quarter of 2008
the Company recorded an impairment charge for condominium units at the San
Elijo Hills Towncenter which reduced the carrying amount of those assets to
their fair value of $800,000 at December 31, 2008. The Company utilized a
discounted cash flow technique to determine the fair value of the
condominium units. Future selling prices were based on the Company's best
estimate of market conditions when the units would be available for sale,
discounted using a rate that appropriately reflects the inherent risks. The
fair value determined for the condominium units was based on Level 3
inputs.
The Company does not invest in any derivatives or engage in any hedging
activities.
6. During the first quarter of 2009, the Company purchased 478 shares of the
Company's common stock in an open market transaction in accordance with the
Company's repurchase plan. After considering this transaction, the Company
can repurchase up to 104,591 common shares without board approval.
7. On July 14, 2009, options to purchase an aggregate of 6,000 shares of
common stock were granted to members of the Board of Directors under the
Company's 1999 Stock Incentive Plan at an exercise price of $23.00 per
share, the then current market price per share.
8. In July 2009, the San Elijo Hills project repurchased for $500,000 land
that had previously been sold to a developer in May 2008 as a swim and
tennis club site (the developer had paid $700,000 for the site). The
acquisition increases the amount of residential and non-residential acreage
available for sale at the project; however it does not increase the amount
of single family residential lots or multi-family residential units that
may be sold.
8
In July 2009, the Company sold the visitor center building at the San Elijo
Hills project to a third party for cash proceeds of approximately
$2,000,000, which is expected to result in the recognition of a pre-tax
gain of $1,800,000 during the third quarter.
9. The Company has evaluated subsequent events through August 6, 2009, the
date of issuance of the financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations.
Liquidity and Capital Resources
For the six month periods ended June 30, 2009 and 2008, net cash was used for
operating activities, principally for real estate expenditures at the San Elijo
Hills and Otay Ranch projects, general and administrative expenses and farming
operations at the Rampage property. The Company's principal sources of funds are
proceeds from the sale of real estate, fee income from the San Elijo Hills
project, dividends and tax sharing payments from its subsidiaries, borrowings
from or repayment of advances by its subsidiaries and cash and cash equivalents
and investments. As of June 30, 2009, the Company had aggregate cash, cash
equivalents and investments of $63,900,000 to meet its current liquidity needs
and for future investment opportunities.
As of June 30, 2009, the aggregate balance of deferred revenue for all real
estate sales was $2,200,000, which the Company estimates will be substantially
recognized as revenue during 2009. The Company estimates that it will spend
approximately $600,000 to complete the required improvements, including costs
related to common areas. The Company will recognize revenues previously deferred
and the related cost of sales in its statements of operations as the
improvements are completed under the percentage of completion method of
accounting.
As of June 30, 2009, the remaining land at the San Elijo Hills project to be
developed and sold or leased consisted of the following:
Single family lots to be developed and sold 441
Multi-family units 171
Square footage of commercial space 60,000
As more fully discussed in the 2008 10-K, residential property sales volume,
prices and new building starts have declined significantly in many U.S. markets,
including California and the greater San Diego region, which have negatively
affected sales and profits at the San Elijo Hills project. The slowdown in
residential sales has been exacerbated by the turmoil in the mortgage lending
and credit markets, which has resulted in stricter lending standards and reduced
liquidity for prospective home buyers. Sales of new homes and re-sales of
existing homes have declined substantially from the early years of the project's
development; there have been no residential lot sales at the San Elijo Hills
project since June 2006.
The Company has substantially completed development of its remaining residential
single family lots at the San Elijo Hills project, many of which are "premium"
lots which are expected to command premium prices if, and when, the market
recovers. The Company is not actively soliciting bids for its remaining
inventory of single family lots and is unable to predict when local residential
real estate market conditions might improve. The Company believes that by
exercising patience and waiting for market conditions to improve it can best
maximize shareholder value with its remaining residential lot inventory.
However, on an ongoing basis the Company evaluates the local real estate market
and economic conditions in general, and updates its expectations of future
market conditions as it continues to assess the best time to market its
remaining residential lot inventory for sale.
In July 2009, the Company sold the visitor center building at the San Elijo
Hills project to a third party for cash proceeds of approximately $2,000,000,
which is expected to result in the recognition of a pre-tax gain of $1,800,000
during the third quarter.
9
Results of Operations
Real Estate Sales Activity
San Elijo Hills Project:
------------------------
There were no sales that closed during the three and six months periods ended
June 30, 2009. During the periods ended June 30, 2008, the Company closed on
sales of real estate and recognized revenues as follows:
Single family units --
Commercial lot sales - planned square feet --
Non-residential acres sold 5.3
Sales price, net of closing costs $ 1,300,000
Revenues recognized on closing date $ 1,300,000
As discussed in the 2008 10-K, a portion of the revenue from sales of real
estate is deferred, and is recognized as revenue upon the completion of the
required improvements to the property, including costs related to common areas,
under the percentage of completion method of accounting. Revenues include
amounts that were previously deferred of $1,500,000 and $3,400,000 for the three
month periods ended June 30, 2009 and 2008, respectively, and $3,500,000 and
$4,300,000 for the six months ended June 30, 2009 and 2008, respectively. Such
amounts were recognized upon the completion of certain required improvements.
During the first and second quarters of 2009, the Company reduced its estimated
cost to complete certain improvements at the San Elijo Hills project, which
resulted in an acceleration of the recognition of previously deferred revenue of
$1,000,000 and $900,000, respectively, that would have otherwise been recognized
during the remaining periods of 2009. For the three and six month periods ended
June 30, 2009, these changes in estimates reduced the net loss by $500,000 and
$1,100,000, respectively, and reduced the net loss attributable to common
shareholders by $400,00 and $800,000, respectively.
During the three month periods ended June 30, 2009 and 2008, cost of sales of
real estate aggregated $150,000 and $550,000, respectively. During the six month
periods ended June 30, 2009 and 2008, cost of sales of real estate aggregated
$400,000 and $750,000, respectively. Cost of sales is recognized in the same
proportion to the amount of revenue recognized under the percentage of
completion method of accounting, subject to changes in estimate as discussed
above.
Otay Ranch Project:
-------------------
There was no real estate sales activity at the Otay Ranch project during the
three and six month periods ended June 30, 2009 and 2008. As discussed in the
2008 10-K, the Company continues to evaluate how to maximize the value of this
investment while pursuing land sales and processing further entitlements on
portions of its property. The Otay Ranch Project is in the early stages of
development; as a result, the Company does not expect any sales activity in the
near future.
Other Results of Operations Activity
The Company recorded co-op marketing and advertising fees of $10,000 and $30,000
for the three month periods ended June 30, 2009 and 2008, respectively, and
$50,000 and $70,000 for the six month periods ended June 30, 2009 and 2008,
respectively. The Company records these fees when the San Elijo Hills project
builders sell homes, and are generally based upon a fixed percentage of the
homes' selling price. These fees provide the Company with funds to conduct its
marketing activities.
Interest expense is capitalized for the notes payable to trust deed holders on
the San Elijo Hills project, which totaled $2,000 and $10,000 for the three
month periods ended June 30, 2009 and 2008, respectively, and $6,000 and $20,000
for the six month periods ended June 30, 2009 and 2008, respectively.
10
General and administrative expenses decreased during the three month period
ended June 30, 2009 as compared to the same period in 2008 primarily due to
lower expenses related to compensation, marketing and legal. Compensation
expense decreased by $300,000 principally due to workforce reductions and lower
estimated general bonus expense; marketing expenses decreased by $250,000 as a
result of a reduction in advertisements due to the limited number of new homes
for sale at the San Elijo Hills project; and legal expenses declined by
$200,000. General and administrative expenses for the three month 2009 and 2008
periods also reflects payments of $100,000 and $200,000, respectively, to
acquire an option to purchase water storage capacity, which is a component of
the Company's plan to acquire sufficient water to develop the Rampage property
as a master-planned community. The Company will have to make additional annual
option payments of between $200,000 and $400,000 over the next six years in
order to retain the option to acquire water storage capacity.
General and administrative expenses decreased during the six month period ended
June 30, 2009 as compared to the same period in 2008 primarily due to the
settlement of a lawsuit in 2008 related to the Rampage property for $1,150,000.
The decline in general and administration expenses in 2009 also reflects
$700,000 of lower compensation expense principally due to workforce reductions
and lower estimated general bonus expense; $550,000 of lower marketing expenses
as a result of a reduction in advertisements due to the limited number of new
homes for sale at the San Elijo Hills project; $250,000 of lower professional
fees; and $150,000 of lower legal expenses. General and administrative expenses
for the six month 2009 and 2008 periods also reflects payments of $100,000 and
$200,000, respectively, to acquire an option to purchase water storage capacity
which is discussed above.
The change in interest and other income (expense), net for the three and six
month periods ended June 30, 2009 as compared to the same periods in 2008
primarily reflects a decline in interest income of $400,000 and $1,150,000,
respectively, due to lower interest rates and a lower amount of invested assets
reflecting cash used for operating and financing activities. Other income
(expense), net also reflects an increase in farming expenses at the Rampage
property of $650,000 and $1,550,000 for the three and six month periods ended
June 30, 2009, respectively, as compared to the same periods in 2008 resulting
from an increase in acres being farmed from 500 acres to 1,400 acres. The
additional acres being farmed were previously leased to a third-party.
The Company's effective income tax rate is higher than the federal statutory
rate due to California state income taxes.
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, development expenditures, plans for growth and future operations,
competition and regulation, as well as assumptions relating to the foregoing.
Such forward-looking statements are made pursuant to the safe-harbor provisions
of the Private Securities Litigation Reform Act of 1995.
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.
11
Factors that could cause actual results to differ materially from any results
projected, forecasted, estimated or budgeted or may materially and adversely
affect the Company's actual results include but are not limited to the
following: the performance of the real estate industry in general; changes in
mortgage interest rate levels or changes in consumer lending practices that
reduce demand for housing; recent turmoil in the mortgage lending markets; the
economic strength of the Southern California region where our business is
currently concentrated; changes in domestic laws and government regulations or
in the implementation and/or enforcement of government rules and regulations;
demographic changes in the United States generally and California in particular
that reduce the demand for housing; increases in real estate taxes and other
local government fees; significant competition from other real estate developers
and homebuilders; delays in construction schedules and cost overruns; increased
costs for land, materials and labor; imposition of limitations on our ability to
develop our properties resulting from condemnations, environmental laws and
regulations and developments in or new applications thereof; earthquakes, fires
and other natural disasters where our properties are located; construction
defect liability on structures we build or that are built on land that we
develop; our ability to insure certain risks economically; shortages of adequate
water resources and reliable energy sources in the areas where we own real
estate projects; changes in the composition of our assets and liabilities
through acquisitions or divestitures; the actual cost of environmental
liabilities concerning our land could exceed liabilities recorded; opposition
from local community or political groups at our development projects; and our
ability to generate sufficient taxable income to fully realize our deferred tax
asset. For additional information see Part I, Item 1A. Risk Factors in the 2008
10-K.
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 3. Quantitative and Qualitative Disclosures About Market Risk.
Information required under this Item is contained in Item 7A of the Company's
Annual Report on Form 10-K for the year ended December 31, 2008, and is
incorporated by reference herein.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
(a) The Company's management evaluated, with the participation of the Company's
principal executive and principal financial officers, the effectiveness of
the Company's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), as of June 30, 2009. Based on their
evaluation, the Company's principal executive and principal financial
officers concluded that the Company's disclosure controls and procedures
were effective as of June 30, 2009.
Changes in internal control over financial reporting
(b) There were no changes in the Company's internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) that occurred during the Company's fiscal quarter ended June 30, 2009,
that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
12
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
On June 25, 2009, a lawsuit was filed against the Company, its president and
certain affiliates of the Company by a minority stockholder of CDS Devco, Inc.,
a subsidiary of the Company.
The action, entitled Walter E. Wolf v. Paul J. Borden, CDS Devco, Inc., CDS
Holding, Inc., San Elijo Ranch, Inc. and HomeFed Corporation was filed in the
Superior Court of the State of California for the County of San Diego. The
complaint alleges breach of fiduciary duty, fraud, breach of contract and
intentional interference with contract in connection with the Company's
relationship with its majority-owned subsidiary, San Elijo Ranch, Inc.
The complaint alleges that the plaintiff should have received additional
distributions from CDS Devco, Inc., and that CDS Devco, Inc. should have
received additional distributions from San Elijo Ranch, Inc. The action seeks
recovery of unspecified monetary damages, and such other relief as the court may
award.
The Company has not yet filed a response to the complaint. The response is due
in August 2009. No discovery has been taken by either side. The Company believes
that the material allegations of the complaint are without merit and intends to
vigorously defend itself against the complaint.
Item 6. Exhibits.
31.1 Certification of President pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Vice President, Treasurer and Controller
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
13
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOMEFED CORPORATION
(Registrant)
Date: August 6, 2009
By: /s/ Erin N. Ruhe
--------------------------
Erin N. Ruhe
Vice President, Treasurer
and Controller
(Principal Accounting Officer)
14
EXHIBIT INDEX
Exhibit Number Description
31.1 Certification of President pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Vice President, Treasurer and Controller
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
15