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, 2008
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 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 reporting company) Smaller reporting 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 31, 2008, there were
8,274,909 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, 2008 and December 31, 2007
(Dollars in thousands, except par value)
June 30, December 31,
2008 2007
----------- -----------
(Unaudited)
ASSETS
- ------
Real estate $ 91,431 $ 88,200
Cash and cash equivalents 4,800 10,574
Investments-available for sale (amortized cost of $90,512 and $95,877) 90,469 95,940
Accounts receivable, deposits and other assets 1,529 1,288
Deferred income taxes 23,292 23,253
---------- -----------
TOTAL $ 211,521 $ 219,255
========== ===========
LIABILITIES
- -----------
Notes payable $ 8,202 $ 8,953
Deferred revenue 10,048 14,349
Accounts payable and accrued liabilities 4,331 6,489
Liability for environmental remediation 10,345 10,437
Income taxes payable -- 66
Other liabilities 2,015 2,077
---------- -----------
Total liabilities 34,941 42,371
---------- -----------
COMMITMENTS AND CONTINGENCIES
- -----------------------------
MINORITY INTEREST 15,130 14,767
- ----------------- ---------- -----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, $.01 par value; 25,000,000 shares authorized;
8,274,609 and 8,274,384 shares outstanding 83 83
Additional paid-in capital 381,666 381,602
Accumulated other comprehensive income (loss) (27) 38
Accumulated deficit (220,272) (219,606)
---------- -----------
Total stockholders' equity 161,450 162,117
---------- -----------
TOTAL $ 211,521 $ 219,255
========== ===========
See notes to interim consolidated financial statements.
2
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the periods ended June 30, 2008 and 2007
(In thousands, except per share amounts)
(Unaudited)
For the Three Month For the Six Month
Period Ended June 30, Period Ended June 30,
---------------------- ----------------------
2008 2007 2008 2007
---- ---- ---- ----
REVENUES
- --------
Sales of real estate $ 4,765 $ 6,379 $ 5,645 $ 13,772
Co-op marketing and advertising fees 31 198 65 293
------- ------- ------- --------
4,796 6,577 5,710 14,065
------- ------- ------- --------
EXPENSES
- --------
Cost of sales 542 2,055 755 4,064
General and administrative expenses 2,735 2,936 6,478 5,870
Administrative services fees to Leucadia
National Corporation 45 45 90 90
------- ------- ------- --------
3,322 5,036 7,323 10,024
------- ------- ------- --------
Income (loss) from operations 1,474 1,541 (1,613) 4,041
Interest and other income, net 379 1,203 1,131 2,208
------- ------- ------- --------
Income (loss) before income taxes and minority interest 1,853 2,744 (482) 6,249
Income tax benefit (provision) (764) (1,126) 179 (2,561)
------- ------- ------- --------
Income (loss) before minority interest 1,089 1,618 (303) 3,688
Minority interest (434) (543) (363) (1,012)
------- ------- ------- --------
Net income (loss) $ 655 $ 1,075 $ (666) $ 2,676
======= ======= ======= ========
Basic income (loss) per common share $ 0.08 $ 0.13 $(0.08) $ 0.32
====== ====== ====== ======
Diluted income (loss) per common share $ 0.08 $ 0.13 $(0.08) $ 0.32
====== ====== ====== ======
See notes to interim consolidated financial statements.
3
HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the six month periods ended June 30, 2008 and 2007
(In thousands, except par value)
(Unaudited)
Common Accumulated
Stock Additional Other Total
$.01 Par Paid-In Comprehensive Accumulated Stockholders'
Value Capital Income (Loss) Deficit Equity
-------- ------------ -------------- -------------- -----------
Balance, January 1, 2007 $ 83 $ 381,478 $ 27 $ (226,808) $ 154,780
---------
Cumulative effect of change in accounting
principle as of January 1, 2007 -- FASB
Interpretation No. 48 382 382
---------
Comprehensive income:
Net change in unrealized gain (loss) on
investments, net of taxes of $0 2 2
Net income 2,676 2,676
---------
Comprehensive income 2,678
---------
Share-based compensation expense,
including excess tax benefit 52 52
Exercise of options to purchase
common shares 4 4
---- --------- ------ ---------- ---------
Balance, June 30, 2007 $ 83 $ 381,534 $ 29 $ (223,750) $ 157,896
==== ========= ====== ========== =========
Balance, January 1, 2008 $ 83 $ 381,602 $ 38 $ (219,606) $ 162,117
---------
Comprehensive loss:
Net change in unrealized gain (loss) on
investments, net of tax benefit of $41 (65) (65)
Net loss (666) (666)
---------
Comprehensive loss (731)
---------
Share-based compensation expense,
including excess tax benefit 57 57
Exercise of options to purchase
common shares 7 7
---- --------- ------ ---------- ---------
Balance, June 30, 2008 $ 83 $ 381,666 $ (27) $ (220,272) $ 161,450
==== ========= ====== ========== =========
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, 2008 and 2007
(In thousands)
(Unaudited)
2008 2007
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (666) $ 2,676
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Minority interest 363 1,012
Provision for deferred income taxes 2 912
Share-based compensation expense 57 46
Excess tax benefit from exercise of stock options -- (6)
Accretion of discount on available for sale investments (1,392) (2,357)
Changes in operating assets and liabilities:
Real estate (3,210) (5,158)
Accounts receivable, deposits and other assets 102 811
Notes payable (17) (69)
Deferred revenue (4,301) (11,294)
Accounts payable and accrued liabilities (2,158) (184)
Non-refundable option payments (40) 350
Liability for environmental remediation (92) (103)
Income taxes payable (409) (2,477)
Other liabilities (22) 433
-------- ---------
Net cash used for operating activities (11,783) (15,408)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments-available for sale (other than short-term) (100,133) (135,580)
Proceeds from maturities of investments-available for sale 106,890 127,215
Proceeds from sales of investments-available for sale -- 636
-------- ---------
Net cash provided by (used for) investing activities 6,757 (7,729)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments to trust deed note holders (755) (985)
Exercise of options to purchase common shares 7 4
Excess tax benefit from exercise of stock options -- 6
-------- ---------
Net cash used for financing activities (748) (975)
-------- ---------
Net decrease in cash and cash equivalents (5,774) (24,112)
Cash and cash equivalents, beginning of period 10,574 47,177
-------- ---------
Cash and cash equivalents, end of period $ 4,800 $ 23,065
======== =========
Supplemental disclosures of cash flow information:
Cash paid for interest (net of amounts capitalized) $ -- $ --
Cash paid for income taxes $ 225 $ 4,125
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, 2007, which are
included in the Company's Annual Report filed on Form 10-K for such year
(the "2007 10-K"). Results of operations for interim periods are not
necessarily indicative of annual results of operations. The consolidated
balance sheet at December 31, 2007 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.
Effective January 1, 2008 (except as described below), the Company adopted
Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("SFAS 157"), and Statement of Financial Accounting Standards
No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115" ("SFAS
159"). SFAS 157 defines fair value, establishes a framework for measuring
fair value, establishes a hierarchy that prioritizes inputs to valuation
techniques and expands disclosures about fair value measurements. The fair
value hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1), the next
priority to inputs that don't qualify as Level 1 inputs but are nonetheless
observable, either directly or indirectly, for the particular asset or
liability (Level 2), and the lowest priority to unobservable inputs (Level
3). The Company elected to defer the effectiveness of SFAS 157 for one year
only with respect to nonfinancial assets and nonfinancial liabilities that
are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. The adoption of SFAS 157 did not have any impact on the
Company's consolidated financial statements; however, fair value
measurements for new assets or liabilities and fair value measurements for
existing nonfinancial assets and nonfinancial liabilities may be materially
different under SFAS 157.
SFAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value (the "fair value option"), and to
report unrealized gains and losses on items for which the fair value option
is elected in earnings. SFAS 159 identifies eligible items for which the
fair value option may be elected, specifies election dates for eligible
items (including all eligible items held as of January 1, 2008) and also
permits the election of the fair value option on an
instrument-by-instrument basis subject to certain exceptions. The Company
did not elect the fair value option for any of its eligible items. However,
for eligible items for which the accounting treatment changes, or that are
acquired or entered into after SFAS 159 was adopted or otherwise become
subject to a new election date, the Company intends to make an assessment
at such time as to whether to elect the fair value option.
In March 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 161, "Disclosures about
Derivative Instruments and Hedging Activities - an amendment of FASB
Statement No. 133" ("SFAS 161"). SFAS 161, which is effective for fiscal
years beginning after November 15, 2008, requires enhanced disclosures
about an entity's derivative and hedging activities including the
objectives and strategies for using derivatives, disclosures about fair
value amounts of, and gains and losses on, derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. Since the Company does not currently engage in any derivative
or hedging activities, it does not expect that the impact of the adoption
of SFAS 161 will have a material impact on its consolidated financial
statements.
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141R, "Business Combinations" ("SFAS 141R") and Statement of
Financial Accounting Standards No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" ("SFAS 160"). SFAS 141R will change how
business combinations are accounted for and will impact financial
statements both on the acquisition date and in subsequent periods. SFAS 160
will change the accounting and reporting for minority interests, which will
be recharacterized as noncontrolling interests and classified as a
component of stockholders' equity. SFAS 141R and SFAS 160 are effective for
fiscal years beginning after December 15, 2008. The Company is currently
evaluating the impact of adopting SFAS 141R and SFAS 160 on its
consolidated financial statements, but expects they will have a material
impact on the accounting for future acquisitions and noncontrolling
interests.
6
2. Basic and diluted income (loss) per share of common stock was calculated by
dividing the net income (loss) by the weighted average shares of common
stock outstanding, and for diluted income (loss) per share, the incremental
weighted average number of shares (using the treasury stock method)
issuable upon exercise of outstanding options for the periods they were
outstanding. The number of shares used to calculate basic income (loss) per
common share was 8,274,400 and 8,273,897 for the three month periods ended
June 30, 2008 and 2007, respectively, and 8,274,392 and 8,273,866 for the
six month periods ended June 30, 2008 and 2007, respectively. The number of
shares used to calculate diluted income per share for the three month
period ended June 30, 2008 was 8,275,471. For the six month 2008 period,
1,224 options were not included in the computation of diluted earnings per
share as the effect was antidilutive. The number of shares used to
calculate diluted income per share for the three and six month periods
ended June 30, 2007 was 8,275,475 and 8,275,456, respectively.
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, 2008 and 2007, 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, 2008 and
2007, and $6,000 for each of the six month periods ended June 30, 2008 and
2007.
4. Interest and other income, net includes interest income of $600,000 and
$1,400,000 for the three month periods ended June 30, 2008 and 2007,
respectively and $1,500,000 and $2,800,000 for the six month periods ended
June 30, 2008 and 2007, respectively.
5. Investments classified as available for sale are the only assets or
liabilities that are measured at fair value on a recurring basis at June
30, 2008. The fair value of these investments aggregated $90,500,000, all
of which were determined using quoted prices in active markets for
identical assets (Level 1 inputs as described in SFAS 157).
6. As more fully discussed in the 2007 10-K, an owner of property adjacent to
the Rampage property filed a complaint against the Company and the former
owners of the Rampage property. The complaint alleged that the value of an
option to purchase a portion of the Rampage property was devalued due to
poor farming practices. During 2008, the Company decided to settle this
lawsuit for a cash payment of $1,100,000, all of which was paid and
expensed during the first quarter of 2008.
7. In April 2008, the City of Chula Vista approved an agreement whereby the
Company will dedicate 50 acres of development land in the Otay Ranch
project and 160 acres of open space land in the unincorporated area of San
Diego County and has committed to pay an endowment of $2,000,000 (of which
$1,000,000 has been paid) to fund costs associated with establishing a
higher education facility on the property. Subject to numerous public
hearings and the discretionary action of the City Council, the City
committed to allocate a maximum of 6,050 residential units and 1.8 million
square feet of commercial development space to the Company's project, and
has agreed to process its development applications within two years from
submittal. If such applications are not approved and implemented on the
same terms as set forth in the agreement, the City will be required to
return to the Company the endowment funds and the dedicated land. The
Company retains the right to withdraw these development applications if it
determines, in its sole discretion, that it is economically infeasible or
undesirable to continue with such applications.
7
8. During May 2008 at the San Elijo Hills project, the Company sold the church
site for cash proceeds of $600,000, for which a $40,000 non-refundable
option payment had been received in October 2007, and sold the swim and
tennis club site for cash proceeds of $700,000, for which $50,000
non-refundable option payments had been received ($25,000 in each of
January and April 2008). There were no other real estate sales during 2008.
As more fully disclosed in the 2007 10-K, the Company utilizes the
percentage of completion method of accounting and defers revenue
recognition if it has obligations to complete improvements on property sold
subsequent to the sale date. During the second quarter of 2008, the Company
reduced its estimated cost to complete certain improvements at the San
Elijo Hills project, and as a result recognized additional deferred revenue
that would have otherwise been recognized during the second half of 2008.
For the periods ended June 30, 2008, this change in estimate increased net
income by $1,000,000, and had a positive impact on basic and diluted
earnings per share of $0.12.
9. On July 15, 2008, 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 $40.25 per
share, the then current market price per share.
8
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, 2008 and 2007, net cash was used for
operating activities, principally for real estate expenditures at the San Elijo
Hills project, general and administrative expenses and federal and state tax
payments. 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, 2008, the Company had aggregate cash, cash equivalents and investments of
$95,300,000 to meet its current liquidity needs and for future investment
opportunities.
As of June 30, 2008, the aggregate balance of deferred revenue for all real
estate sales was $10,000,000, which the Company estimates will be substantially
recognized as revenue during 2008. The Company estimates that it will spend
approximately $2,700,000 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, 2008, 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 40
Square footage of commercial space 60,000
As more fully discussed in the 2007 10-K, there has been a slowdown in sales of
residential properties in many U.S. markets, including California and the
greater San Diego region, which negatively affected sales and profits at the San
Elijo Hills project during the last two years. Although it is not actively
soliciting bids for its remaining inventory of single family lots, the Company
has substantially completed development of all of its remaining lots at the San
Elijo Hills project, many of which are "premium" lots that are expected to
command premium prices if, and when, the market recovers. The Company is unable
to predict when local residential real estate market conditions might improve;
however, the Company intends to wait for market conditions to improve before
marketing its remaining inventory for sale. The Company believes that by
exercising patience with the current market conditions it can best maximize
shareholder value with its remaining residential lot inventory.
The turmoil in the mortgage lending markets has had an adverse impact on the
local residential real estate market and could further delay the completion of
lot sales at the San Elijo Hills project. Stricter lending standards,
foreclosures and weak consumer demand have caused an increase in residential
housing available for sale, which reduces demand from homebuilders for new
projects and for the Company's residential lot inventory.
Results of Operations
Real Estate Sales Activity
San Elijo Hills Project:
------------------------
During the periods ended June 30, 2008 and 2007, the Company closed on sales of
real estate and recognized revenues as follows:
9
For the Three and Six Month For the Three and Six Month
Periods Ended June 30, 2008 Periods Ended June 30, 2007
--------------------------- ---------------------------
Single family units -- --
Commercial lot sales - planned square feet -- 49,420
Non-residential acres sold 5.3 --
Sales price, net of closing costs $1,300,000 $1,700,000
Revenues recognized on closing date $1,300,000 $1,200,000
As discussed in the 2007 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. In addition to revenues
recognized on the closing date reflected in the table above, revenues include
amounts that were previously deferred of $3,400,000 and $4,400,000 for the three
month periods ended June 30, 2008 and 2007, respectively, and $4,300,000 and
$11,800,000 for the six month periods ended June 30, 2008 and 2007,
respectively. Such amounts were recognized upon the completion of certain
required improvements.
As more fully disclosed in the 2007 10-K, the Company utilizes the percentage of
completion method of accounting and defers revenue recognition if it has
obligations to complete improvements on property sold subsequent to the sale
date. During the second quarter of 2008, the Company reduced its estimated cost
to complete certain improvements at the San Elijo Hills project, and as a result
recognized additional deferred revenue that would have otherwise been recognized
during the second half of 2008. For the periods ended June 30, 2008, this change
in estimate increased net income by $1,000,000.
During the three month periods ended June 30, 2008 and 2007, cost of sales of
real estate aggregated $500,000 and $2,100,000, respectively. During the six
month periods ended June 30, 2008 and 2007, cost of sales of real estate
aggregated $800,000 and $4,100,000, 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:
-------------------
There was no real estate sales activity at the Otay Ranch project during the
three and six month periods ended June 30, 2008 and 2007. As discussed in the
2007 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.
In April 2008, the City of Chula Vista approved an agreement whereby the Company
will dedicate 50 acres of development land in the Otay Ranch project and 160
acres of open space land in the unincorporated area of San Diego County and has
committed to pay an endowment of $2,000,000 (of which $1,000,000 has been paid)
to fund costs associated with establishing a higher education facility on the
property. Subject to numerous public hearings and the discretionary action of
the City Council, the City committed to allocate a maximum of 6,050 residential
units and 1.8 million square feet of commercial development space to the
Company's project, and has agreed to process its development applications within
two years from submittal. If such applications are not approved and implemented
on the same terms as set forth in the agreement, the City will be required to
return to the Company the endowment funds and the dedicated land. The Company
retains the right to withdraw these development applications if it determines,
in its sole discretion, that it is economically infeasible or undesirable to
continue with such applications.
10
Other Results of Operations Activity
The Company recorded co-op marketing and advertising fees of $30,000 and
$200,000 for the three month periods ended June 30, 2008 and 2007, respectively
and $70,000 and $300,000 for the six month periods ended June 30, 2008 and 2007,
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 $10,000 and $30,000 for the three
month periods ended June 30, 2008 and 2007, respectively, and $20,000 and
$70,000 for the six month periods ended June 30, 2008 and 2007, respectively.
General and administrative expenses decreased during the three month period
ended June 30, 2008 as compared to the same period in 2007 primarily due to
lower expenses related to marketing and compensation. Marketing expenses
decreased by $250,000 as a result of a reduction in advertisements relating to
new neighborhoods for sale at the San Elijo Hills project. Compensation expense
decreased by $200,000 principally due to a reduction in estimated general bonus
expense. In the second quarter of 2008, general and administrative expenses also
include a $200,000 payment 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 similar amounts over the next
six years in order to retain the option to acquire water storage capacity.
General and administrative expenses increased during the six month period ended
June 30, 2008 as compared to the same period in 2007 primarily due to the
settlement of a lawsuit related to the Rampage property for $1,100,000 and the
$200,000 water storage option payment discussed above. Marketing expenses also
decreased by $300,000 for the six month 2008 period as a result of a reduction
in advertisements relating to new neighborhoods for sale at the San Elijo Hills
project. Compensation expense decreased by $400,000 principally due to a
decrease in estimated general bonus expense. The change in general and
administrative expenses also reflects a decline in legal fees of $250,000
principally due to less activity in pending litigation and lower legal fees
awarded against the Company than it had estimated.
The decrease in interest and other income, net for the three and six month
periods ended June 30, 2008 as compared to the same periods in 2007 primarily
reflects a decline in interest income of $800,000 and $1,300,000, respectively,
due to lower interest rates and a lower amount of invested assets due to cash
used for operating activities. Other income, net also reflects a decrease in
farming expenses at the Rampage property of $100,000 and $400,000, respectively
for the three and six month periods ended June 30, 2008 as compared to the same
periods in 2007.
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.
11
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.
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; 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 2007
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, 2007, 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, 2008. 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, 2008.
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, 2008,
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 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 1, 2008 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