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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 March 31, 2005
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 is an accelerated filer (as
defined by Rule 12b-2 of the Act).
YES X NO
------- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. On April 29, 2005, there
were 8,260,759 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
March 31, 2005 and December 31, 2004
(Dollars in thousands, except par value)
March 31, December 31,
2005 2004
----------- -----------
(Unaudited)
ASSETS
- ------
Real estate $ 55,491 $ 47,126
Cash and cash equivalents 29,318 34,634
Investments-available for sale (aggregate cost of $78,888 and $82,272) 78,859 82,249
Accounts receivable, deposits and other assets 2,718 3,321
Deferred income taxes 43,800 44,157
----------- -----------
TOTAL $ 210,186 $ 211,487
=========== ===========
LIABILITIES
- -----------
Notes payable $ 16,667 $ 16,620
Deferred revenue 35,617 39,079
Accounts payable and accrued liabilities 9,317 7,752
Non-refundable option payments 11,669 11,669
Liability for environmental remediation 11,303 11,392
Other liabilities 3,481 3,464
----------- -----------
Total liabilities 88,054 89,976
----------- -----------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
MINORITY INTEREST 7,742 7,760
- ----------------- ----------- -----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, $.01 par value; 25,000,000 shares authorized;
8,260,259 and 8,260,059 shares outstanding 83 83
Additional paid-in capital 381,193 381,192
Accumulated other comprehensive income (loss) (18) (14)
Accumulated deficit (266,868) (267,510)
----------- -----------
Total stockholders' equity 114,390 113,751
----------- -----------
TOTAL $ 210,186 $ 211,487
=========== ===========
See notes to interim consolidated financial statements.
2
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three month periods ended March 31, 2005 and 2004
(In thousands, except per share amounts)
(Unaudited)
2005 2004
---- ----
REVENUES
- --------
Sales of real estate $ 4,087 $ 43,406
Co-op marketing and advertising fees 428 186
--------- ---------
4,515 43,592
--------- ---------
EXPENSES
- --------
Cost of sales 900 9,654
Interest expense 62 715
General and administrative expenses 2,971 2,468
Administrative services fees to Leucadia Financial Corporation 45 30
--------- ---------
3,978 12,867
--------- ---------
Income from operations 537 30,725
Other income (expense), net 582 (1,108)
--------- ---------
Income before income taxes and minority interest 1,119 29,617
Income tax provision (495) (12,245)
--------- ---------
Income before minority interest 624 17,372
Minority interest 18 (3,571)
--------- ---------
Net income $ 642 $ 13,801
========= =========
Basic income per common share $ 0.08 $ 1.68
========= =========
Diluted income per common share $ 0.08 $ 1.67
========= =========
See notes to interim consolidated financial statements.
3
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three month periods ended March 31, 2005 and 2004
(Dollars in thousands, except par value)
(Unaudited)
Deferred
Common Compensation Accumulated
Stock Additional Pursuant to Other Total
$.01 Par Paid-In Stock Incentive Comprehensive Accumulated Stockholders'
Value Capital Plans Income (Loss) Deficit Equity
----- ------- ----- ------------- ------- ------
Balance, January 1, 2004 $ 82 $ 380,545 $ (4) $ 9 $(304,302) $ 76,330
----------
Comprehensive income:
Net change in unrealized gain
(loss) on investments, net of tax
benefit of $7 (8) (8)
Net income 13,801 13,801
----------
Comprehensive income 13,793
----------
Amortization related to stock options 1 1
Exercise of options to purchase
common shares 1 631 632
----- ---------- ------ ------- --------- ----------
Balance, March 31, 2004 $ 83 $ 381,176 $ (3) $ 1 $(290,501) $ 90,756
===== ========== ====== ======= ========= ==========
Balance, January 1, 2005 $ 83 $ 381,192 $ -- $ (14) $(267,510) $ 113,751
----------
Comprehensive income:
Net change in unrealized gain
(loss) on investments, net of tax
benefit of $2 (4) (4)
Net income 642 642
----------
Comprehensive income 638
----------
Exercise of options to purchase
common shares 1 1
----- ---------- ------ ------- --------- ----------
Balance, March 31, 2005 $ 83 $ 381,193 $ -- $ (18) $(266,868) $ 114,390
===== ========== ====== ======= ========= ==========
See notes to interim consolidated financial statements.
4
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three month periods ended March 31, 2005 and 2004
(In thousands)
(Unaudited)
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 642 $ 13,801
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Minority interest (18) 3,571
Provision for deferred income taxes 359 5,330
Net securities (gains) losses 1 (5)
Amortization of deferred compensation pursuant to stock incentive plans -- 1
Loss on prepayment of Leucadia Financial Corporation note -- 1,470
Amortization of debt discount on note payable to Leucadia Financial Corporation -- 276
Other amortization related to investments (461) (135)
Changes in operating assets and liabilities:
Real estate (8,159) 3,505
Accounts receivable, deposits and other assets 603 (205)
Notes payable (159) (60)
Deferred revenue (3,462) (4,611)
Accounts payable and accrued liabilities 1,565 (4,159)
Non-refundable option payments -- (3,126)
Liability for environmental remediation (89) (373)
Income taxes payable -- 6,343
Other liabilities 17 (5,963)
-------- --------
Net cash provided by (used for) operating activities (9,161) 15,660
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (other than short-term) (48,041) (30,440)
Proceeds from maturities of investments - available for sale 48,790 9,900
Proceeds from sales of investments 3,095 46,936
Decrease in restricted cash -- 657
-------- --------
Net cash provided by investing activities 3,844 27,053
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment of Leucadia Financial Corporation note -- (26,462)
Principal payments to trust deed note holders -- (1,163)
Exercise of options to purchase common shares 1 632
Distributions to minority interest -- (9,479)
-------- --------
Net cash provided by (used for) financing activities 1 (36,472)
-------- --------
Net increase (decrease) in cash and cash equivalents (5,316) 6,241
Cash and cash equivalents, beginning of period 34,634 43,503
-------- --------
Cash and cash equivalents, end of period $ 29,318 $ 49,744
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest (net of amounts capitalized) $ 265 $ 410
Cash paid (refunded) for income taxes $ (9) $ 597
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, 2004, which are
included in the Company's Annual Report filed on Form 10-K for such year
(the "2004 10-K"). Results of operations for interim periods are not
necessarily indicative of annual results of operations. The consolidated
balance sheet at December 31, 2004 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.
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 operations or disclosure. As permitted, the Company
applies APB Opinion No. 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized in the
statements of operations related to employees and directors under its stock
compensation plans. 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 income and income per share would
not have been materially different from that reported.
In April 2005, the Securities and Exchange Commission amended the effective
date of Statement of Financial Accounting Standards No. 123R, "Share-Based
Payment" ("SFAS 123R"), from the first interim or annual period after June
15, 2005 to the beginning of the next fiscal year that begins after June
15, 2005. The Company is currently evaluating the impact of SFAS 123R on
its consolidated financial statements.
Certain amounts for prior periods have been reclassified to be consistent
with the 2005 presentation.
2. In March 2004, the Company prepaid in full its note payable to Leucadia
Financial Corporation ("LFC"), a subsidiary of Leucadia National
Corporation ("Leucadia"), in the amount of $26,462,000. As of the date of
prepayment, the Company expensed the remaining unamortized discount on the
note in the amount of $1,500,000, which is included in the caption "Other
income (expense), net" in the consolidated statements of operations.
Interest on the note of $370,000 was expensed and paid during the three
month period ended March 31, 2004. Additionally, $280,000 of debt discount
on the note was amortized as interest expense during the three month period
ended March 31, 2004.
3. The Company has a $10,000,000 line of credit agreement with LFC that has a
maturity date of February 28, 2007. Loans outstanding under this line of
credit bear interest at 10% per annum. At March 31, 2005, no amounts were
outstanding under this facility.
4. Basic and diluted income per share of common stock was calculated by
dividing the net income by the weighted average shares of common stock
outstanding, and for diluted earnings per share, the incremental weighted
average number of shares issuable upon exercise of outstanding options for
the periods they were outstanding. The treasury stock method is used for
these calculations. The number of shares used to calculate basic earnings
per common share was 8,260,079 and 8,217,893 for the three month periods
ended March 31, 2005 and 2004, respectively. The number of shares used to
calculate diluted earnings per share was 8,273,618 and 8,272,409 for the
three month periods ended March 31, 2005 and 2004, respectively.
6
Notes to Interim Consolidated Financial Statements, continued.
5. Pursuant to the administrative services agreement, LFC provides
administrative services, including providing the services of the Company's
Secretary, for an annual fee of $180,000 to December 31, 2005, and
thereafter for successive annual periods unless terminated in accordance
with its terms. LFC administrative fee expenses were $45,000 and $30,000
for the three month periods ended March 31, 2005 and 2004, respectively. A
subsidiary of the Company sublets a portion of its office space to
Leucadia, for which it receives monthly rental fees in the amount equal to
Leucadia's pro rata share of the Company's cost. The current rental fee is
approximately $1,000 per month. The term of the sublease is until February
2010.
6. Certain of the Company's lot purchase agreements with homebuilders include
provisions that entitle the Company to a share of the revenues or profits
realized by the homebuilders upon their sale of the homes, after certain
thresholds are achieved. The actual amount which could be received by the
Company is generally based on a formula and other specified criteria
contained in the lot purchase agreements, and is generally not payable and
cannot be determined with reasonable certainty until the builder has
completed the sale of a substantial portion of the homes covered by the lot
purchase agreement. The Company accrued $600,000 under these agreements for
the three month period ended March 31, 2005 (no amounts were recognized in
2004).
7. As of April 29, 2005, the Company has agreements with homebuilders to sell
an additional 241 single family lots for aggregate cash proceeds of
$103,900,000, pursuant to which it received non-refundable option payments
of $8,000,000 in 2004. In addition, the Company entered into an agreement
with a builder to sell 132 multi-family units at a sales price of
$36,300,000, pursuant to which it received a non-refundable option payment
of $3,700,000 in 2004. These option payments are non-refundable if the
Company completes site improvement work and fulfills its other obligations
under the agreements, and will be applied to reduce the amount due from the
purchasers at closing. Although these agreements are binding on the
purchasers, should the Company fulfill its obligations under the agreements
within the specified timeframes and a purchaser decides not to close, the
Company's recourse will be primarily limited to retaining the option
payment. The Company does not expect these sales agreements will close
until the fourth quarter of 2005.
8. On April 19, 2005, the Company's Board of Directors announced that it has
declared a cash dividend equal to $0.50 per share of the Company's common
stock payable on May 9, 2005 to stockholders of record on April 29, 2005.
9. In March 2005, the Company received a letter from an individual claiming
that he had purchased leases covering part of the stake and trellis system
at the Rampage vineyard property and requesting return of the leased
property. The Company has requested information from the individual in
order to investigate his claim. At this time the Company is unable to
determine whether the claim is valid and, if valid, what the financial
impact might be.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations.
Liquidity and Capital Resources
For the three month period ended March 31, 2005, net cash was used for operating
activities, principally for real estate expenditures at the San Elijo Hills
project and general and administrative expenses. For the three month period
ended March 31, 2004, net cash was provided by operating activities, principally
resulting from sales of real estate at the San Elijo Hills project. The
Company's principal sources of funds are proceeds from the sale of real estate,
its $10,000,000 line of credit with LFC, fee income from the San Elijo Hills
project, dividends and tax sharing payments from its subsidiaries and borrowings
from or repayment of advances by its subsidiaries. As of March 31, 2005, the
Company had aggregate cash, cash equivalents and investments of $108,200,000 to
meet its needs and for future investment opportunities.
The Company currently has a $10,000,000 line of credit agreement with LFC, which
has a maturity date of February 28, 2007. Loans outstanding under this line of
credit bear interest at 10% per annum. As of March 31, 2005, no amounts were
outstanding under this facility.
As of March 31, 2005, the aggregate balance of deferred revenue for all real
estate sales was $35,600,000, which the Company estimates will be substantially
recognized as revenue by the end of 2006. The Company estimates that it will
spend approximately $8,100,000 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 March 31, 2005, the remaining land at the San Elijo Hills project to be
developed and sold or leased consisted of the following (including real estate
under contract for sale):
Single family lots to be developed and sold 670
Multi-family units 171
Square footage of commercial space 135,000
As of April 29, 2005, the Company has entered into agreements with homebuilders
to sell an additional 241 single family lots for aggregate cash proceeds of
$103,900,000, pursuant to which it had received non-refundable option payments
of $8,000,000 in 2004. In addition, the Company has entered into an agreement
with a builder to sell 132 multi-family units at a sales price of $36,300,000,
pursuant to which it received a non-refundable option payment of $3,700,000 in
2004. These option payments are non-refundable if the Company completes site
improvement work and fulfills its other obligations under the agreements, and
will be applied to reduce the amount due from the purchasers at closing.
Although these agreements are binding on the purchasers, should the Company
fulfill its obligations under the agreements within the specified timeframes and
a purchaser decides not to close, the Company's recourse will be primarily
limited to retaining the option payment.
The Company is currently developing lots that are under contract for sale or
being marketed for sale. The Company believes it will sell all of its remaining
single family residential sites during 2005 and 2006, after which the remaining
activity at the San Elijo Hills project will be primarily concentrated on
multi-family and commercial sites. These estimates of future property available
for sale and the timing of the sales are based upon current development plans
for the project and could change based on actions of regulatory agencies and
other factors that are not within the control of the Company.
On April 19, 2005, the Company's Board of Directors announced that it has
declared a cash dividend equal to $0.50 per share of the Company's common stock
payable on May 9, 2005 to stockholders of record on April 29, 2005
(approximately $4,100,000 in the aggregate).
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations, continued.
Results of Operations
Real Estate Sales Activity
San Elijo Hills Project:
-----------------------
There were no sales that closed during the first quarter of 2005. The Company
does not expect lot sale agreements currently under contract will close until
the fourth quarter of 2005. During the three month period ended March 31, 2004,
the Company closed on sales of real estate and recognized revenues as follows:
2004
------------
Single family units 94
Multi-family units 45
Purchase price, net of closing costs $ 33,000,000
Revenues recognized on closing date $ 22,300,000
As discussed above, a portion of the revenue from sales of real estate is
deferred, and is recognized as revenues upon the completion of the required
improvements to the property, including costs related to common areas, under the
percentage of completion method of accounting. In addition to revenues
recognized on the closing date reflected in the table above, revenues include
amounts that were previously deferred of $3,500,000 and $15,300,000 for the
three month periods ended March 31, 2005 and 2004, respectively, which were
recognized upon completion of certain required improvements.
Revenues from sales of real estate also include amounts recognized pursuant to
revenue or profit sharing agreements with homebuilders of $600,000 for the three
month period ended March 31, 2005 (no amounts were recognized in 2004).
During the three month periods ended March 31, 2005 and 2004, cost of sales of
real estate aggregated $900,000 and $8,700,000, respectively. Cost of sales is
recognized in the same proportion to the amount of revenue recognized under the
percentage of completion method of accounting.
Otay Ranch Project:
------------------
In the first quarter of 2004, the City of Chula Vista acquired 439 acres of
mitigation land from Otay Land Company by eminent domain proceedings for
aggregate proceeds of approximately $5,800,000. The Company recognized a pre-tax
gain of approximately $4,800,000 on this transaction during the first quarter of
2004. There was no real estate sales activity at the Otay Ranch project during
the first quarter of 2005.
As discussed in the 2004 10-K, the Company continues to evaluate how to maximize
the value of Otay Ranch and is processing further entitlements on portions of
its property, which have not changed significantly during 2005. If the Company
decides to develop the developable land at Otay Ranch, development will not
begin for a few years and is likely to take several years to complete.
Recently, the City of Chula Vista decided to postpone action on an amendment
supported by the Company to the General Development Plan for the overall Otay
Ranch area until later this year. The delay will permit the City to re-circulate
the Environmental Impact Report in response to adverse comments received by the
City during the public comment period. It is unclear whether this will affect
the number of development units or timing of development of the Company's
property within the Otay Ranch area.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations, continued.
Other Results of Operations Activity
The Company recorded co-op marketing and advertising fees of $400,000 and
$200,000 for the three month periods ended March 31, 2005 and 2004,
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 for the 2005 and 2004 periods includes $60,000 and $70,000,
respectively, related to the Rampage note payable. In addition, interest expense
for 2004 reflects the interest due on the previously outstanding indebtedness to
LFC of $370,000 and amortization of debt discount related to the indebtedness to
LFC of $280,000. The note payable to LFC was fully repaid in March 2004, and as
such these interest costs ceased at the date of repayment.
Interest expense excludes capitalized interest of $200,000 and $400,000 for the
three month periods ended March 31, 2005 and 2004, respectively. Interest is
capitalized for the notes payable to trust deed holders on the San Elijo Hills
project.
General and administrative expenses increased during the three month period
ended March 31, 2005 as compared to the same period in 2004, primarily due to
greater expenses related to compensation, farming and marketing. The increase in
compensation is due to a $200,000 bonus awarded to the Company's President to
pay taxes due on reimbursed expenses relating to his temporary residence in
California, and an increase in general bonus expense. Farming expenses increased
by $200,000 at the Rampage property in order to prepare the vineyards for the
2005 harvest. Marketing expenses increased by $150,000 at the San Elijo Hills
project, principally due to a special marketing event to promote the project
within the surrounding community. General and administrative expenses decreased
by $100,000 primarily due to legal fees incurred in 2004 related to the
acquisition of 439 acres of Otay Ranch land by the City of Chula Vista, as
discussed above.
The increase in other income (expense), net for the 2005 period as compared to
the same period in 2004 primarily relates to the 2004 loss of $1,500,000 on
prepayment of the LFC note, which was fully repaid in March 2004. In addition,
investment income in 2005 increased by $200,000 as compared to the 2004 period
primarily due to greater interest income resulting from higher interest rates.
The decrease in minority interest expense for the three month period ended March
31, 2005 as compared to the same period in 2004 relates to less sales activity
at the San Elijo Hills Project and, with respect to the minority interest at CDS
Devco, Inc., charges related to obtaining infrastructure improvement bonds that
resulted in an allocation of a loss to the minority interest for the three month
period ended March 31, 2005.
The Company's effective income tax rate during the 2005 and 2004 periods are
higher than the federal statutory rate due to California state income taxes and
state franchise taxes.
Cautionary Statement for Forward-Looking Information
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Interim Operations may contain forward-looking
statements. Such statements may relate, but are not limited, to projections of
revenues, income or loss, 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.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations, continued.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted or quantified. When used in this Management's
Discussion and Analysis of Financial Condition and Results of Interim
Operations, the words "estimates," "expects," "anticipates," "believes,"
"plans," "intends" and variations of such words and similar expressions are
intended to identify forward-looking statements that involve risks and
uncertainties. Future events and actual results could differ materially from
those set forth in, contemplated by or underlying the forward-looking
statements.
In addition to risks set forth in this and the Company's other public filings
with the Securities and Exchange Commission, the following important factors
could cause actual results to differ materially from any results projected,
forecasted, estimated or budgeted:
o Changes in prevailing interest rate levels, including mortgage rates, or
changes in consumer lending practices. Any significant increase in the
prevailing low mortgage interest rate environment or decrease in available
credit that could reduce consumer demand for housing.
o Changes in domestic laws and government regulations or requirements and in
implementation and/or enforcement of governmental rules and regulations.
The Company's plans for its development projects require numerous
governmental approvals, licenses, permits and agreements, which must be
obtained before development and construction may commence. The approval
process can be delayed by withdrawals or modifications of preliminary
approvals, by litigation and appeals challenging development rights and by
changes in prevailing local circumstances or applicable laws that may
require additional approvals or as a result of additional time required to
obtain government approvals.
o Changes in real estate pricing environments. Any significant decrease in
the prevailing price of real estate in the geographic areas in which the
Company owns, develops and sells real estate may adversely affect the
Company's results of operations.
o Regional or general increases in cost of living. Any significant increases
in the prevailing prices of goods and services that result in increased
costs of living, particularly in the regions in which the Company is
currently developing properties, may adversely affect consumer demand for
housing.
o Demographic and economic changes in the United States generally and
California in particular. The Company's operations are sensitive to
demographic and economic changes. Any economic downturn in the United
States in general, and California in particular, may adversely affect
consumer demand for housing by limiting the ability of people to save for
down payments and purchase homes. In addition, if the current trend of
population increases in California were not to continue, or in the event of
any significant reduction in job creation, demand for real estate in
California may not be as robust as current levels indicate.
o Increases in real estate taxes and other local government fees. Any such
increases may make it more expensive to own the properties that the Company
is currently developing, which would increase the carrying costs to the
Company of owning the properties and decrease consumer demand for them.
o Significant competition from other real estate developers and homebuilders.
There are numerous residential real estate developers and development
projects operating in the same geographic area in which the Company
operates. Many of the Company's competitors may have advantages over the
Company, such as more favorable locations which may provide better schools
and easier access to roads and shopping, or amenities that the Company may
not offer, as well as greater financial resources and/or access to cheaper
capital.
o Decreased consumer spending for housing. Any decrease in consumer spending
for housing may directly affect the Company's results of operations.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations, continued.
o Delays in construction schedules and cost overruns. Any material delays
could adversely affect the Company's ability to complete its projects,
significantly increasing the costs of doing so, including interests costs,
or drive potential customers to purchase competitors' products. Cost
overruns, if material, could have a direct adverse impact on the Company's
results of operations.
o Availability and cost of land, materials and labor and increased
development costs, many of which the Company would not be able to control.
The Company's current and future development projects require the Company
to purchase significant amounts of land, materials and labor. If the costs
of these items increase, it will increase the costs to the Company of
completing its projects; if the Company is not able to recoup these
increased costs, its results of operations could be adversely affected.
o Damage to or condemnation of properties and occurrence of significant
natural disasters and fires. Damage to or condemnation of any of the
Company's properties, whether by natural disasters and fires or otherwise,
may either delay or preclude the Company's ability to develop and sell its
properties, or affect the price at which it may sell such properties.
o Imposition of limitations on the Company's ability to develop its
properties resulting from environmental laws and regulations and
developments in or new applications thereof. The residential real estate
development industry is subject to increasing environmental, building,
construction, zoning and real estate regulations that are imposed by
various federal, state and local authorities. Environmental laws may cause
the Company to incur additional costs, and adversely affect its ability to
complete its projects in a timely and profitable manner.
o Property in California is at risk from earthquakes. Although research on
earthquake prediction has increased in recent years, it cannot be predicted
when and where an earthquake will occur. The Company does not intend to
obtain earthquake insurance for its projects. An earthquake could cause
structural damage or destroy the Company's projects, which could have an
adverse financial impact.
o Under California law the Company could be liable for some construction
defects in homes it builds or that are built on land that it develops.
California law imposes some liabilities on developers of land on which
homes are built as well as on builders. Future construction defect
litigation could be based on a strict liability theory based on the
Company's involvement in the project or it could be related to
infrastructure improvements or grading, even if the Company is not building
homes ourselves.
o The inability to insure certain risks economically. The Company cannot be
certain that it will be able to insure all risks that it desires to insure,
that it can insure risks economically or that all of its insurers will be
financially viable if a claim is made by the Company.
o The availability of adequate water resources and reliable energy sources in
the areas where the Company owns real estate projects. Any shortage of
reliable water and energy resources or a drop in consumer confidence in the
dependability of such resources in areas where the Company owns land may
adversely affect the values of properties owned by the Company and curtail
development projects.
o Changes in the composition of the Company's assets and liabilities through
acquisitions or divestitures. The Company may make future acquisitions or
divestitures of assets. Any change in the composition of the Company's
assets and liabilities as a result thereof could significantly affect the
financial position of the Company and the risks that it faces.
o The actual cost of environmental liabilities concerning land owned in San
Diego County, California exceeding the amount reserved for such matter. The
actual cost of remediation of undeveloped land owned by a subsidiary could
exceed the amount reserved for such matter.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations, continued.
o The Company's ability to generate sufficient taxable income to fully
realize the deferred tax asset, net of the valuation allowance. The Company
and certain of its subsidiaries have net operating loss carryforwards and
other tax attributes, but may not be able to generate sufficient taxable
income to fully realize the deferred tax asset.
o The impact of 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.
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 Management's Discussion and
Analysis of Financial Condition and Results of Interim Operations 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, 2004, 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 March 31, 2005. 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 March 31, 2005.
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 March 31,
2005, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
13
PART II - OTHER INFORMATION
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.
14
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: May 5, 2005
By: /s/ Erin N. Ruhe
-----------------------
Erin N. Ruhe
Vice President, Treasurer and
Controller
(Principal Accounting Officer)
15
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.
16