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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 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 Identification No.)
Incorporation or Organization)
1903 WRIGHT PLACE
SUITE 220
CARLSBAD, CALIFORNIA 92008
(760) 918-8200
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [x]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [x]
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x].
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer [ ] Accelerated Filer [x] Non-Accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12-b of the Exchange Act). Yes [ ] No [x]
Based on the average bid and asked prices of the Registrant's Common Stock as
published by the OTC Bulletin Board Service as of June 30, 2005, the aggregate
market value of the Registrant's Common Stock held by non-affiliates was
approximately $261,084,000 on that date.
As of February 13, 2006, there were 8,265,334 outstanding shares of the
Registrant's Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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EXPLANATORY NOTE
This report on Form 10-K/A corrects certain information, in Part I,
Item 1 of the Annual Report of HomeFed Corporation for the fiscal year ended
December 31, 2005, with respect to the amendment to the General Development Plan
for the overall Otay Ranch area contained on page 6 of this Form 10-K/A.
PART I
Item 1. Business.
- ------ --------
THE COMPANY
INTRODUCTION
HomeFed Corporation ("HomeFed") was incorporated in Delaware
in 1988. As used herein, the term "Company" refers to HomeFed and its
subsidiaries, except as the context may otherwise require. The Company is
currently engaged, directly and through subsidiaries, in the investment in and
development of residential real estate projects in the State of California. The
Company also investigates the acquisition of new real estate projects, both
residential and commercial and within and outside the State of California,
although no assurance can be given that the Company will find new investments
providing a satisfactory return or, if found, that the Company will have access
to the capital necessary to make new real estate investments. The executive
office of the Company is located at 1903 Wright Place, Suite 220, Carlsbad,
California 92008.
The Company's current development projects consist of two
master-planned communities located in San Diego County, California: San Elijo
Hills, and a portion of the larger Otay Ranch planning area. As discussed below,
the Company acquired the San Elijo Hills project in October 2002. The Company
also owns the Rampage property, a 1,600 acre grape vineyard located in southern
Madera County, California, which is not currently entitled for commercial or
residential development.
As the owner of development projects, the Company is
responsible for the completion of a wide range of activities, including design
engineering, grading raw land, constructing public infrastructure such as
streets, utilities and public facilities, and finishing individual lots for home
sites or other facilities. Prior to commencement of development, the Company may
engage in incidental activities to maintain the value of the project; such
activities are not treated as a separate operating segment. The Company develops
and markets its communities in phases to allow itself the flexibility to sell
finished lots to suit market conditions and to enable it to create stable and
attractive neighborhoods. Consequently, at any particular time, the various
phases of a project will be in different stages of land development and
construction. In addition, from time to time the Company will receive
expressions of interest from buyers of multiple phases of a project, or the
remaining undeveloped land of an entire project. The Company evaluates these
proposals when it receives them, but no assurance can be given that the Company
will sell all or any portion of its development projects in such a manner.
For any master-planned community, plans must be prepared that
provide for infrastructure, neighborhoods, commercial and industrial areas,
educational and other institutional or public facilities, as well as open space.
Once preliminary plans have been prepared, numerous governmental approvals,
licenses, permits and agreements, referred to as "entitlements," must be
obtained before development and construction may commence. These often involve a
number of different governmental jurisdictions and agencies, challenges through
litigation, considerable risk and expense, and substantial delays. Unless and
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until the requisite entitlements are received and substantial work has been
commenced in reliance upon such entitlements, a developer generally does not
have full "vested rights" to develop a project, and as a result, allocation of
acreage between developable and non-developable land may change. In addition, as
a precondition to receipt of building-related permits, master-planned
communities such as San Elijo Hills typically are required in California to pay
impact and capacity fees, or to otherwise satisfy mitigation requirements.
CURRENT DEVELOPMENT PROJECTS
San Elijo Hills
In 2002, the Company purchased from Leucadia National
Corporation (together with its subsidiaries, "Leucadia") all of the issued and
outstanding shares of capital stock of CDS Holding Corporation ("CDS"), which
through its majority-owned subsidiaries is the owner of the San Elijo Hills
project. The San Elijo Hills project, a master-planned community located in the
City of San Marcos in San Diego County, California, at completion is expected to
be a community of approximately 3,500 homes and apartments, as well as
commercial properties and a towncenter; the San Elijo Hills project is expected
to be completed before the end of this decade. Since August 1998, the Company
has been the development manager for this project, with responsibility for the
overall management of the project, including, among other things, preserving
existing entitlements and obtaining any additional entitlements required for the
project, arranging financing for the project, coordinating marketing and sales
activity, and acting as the construction manager. The development management
agreement provided that the Company would participate in the net cash flow of
the project through the payment of a success fee, and that the Company receive
fees for the field overhead, management and marketing services it provides
("development management fees"), based on the revenues of the project. No
success fee had been paid prior to the Company's acquisition of CDS. Through its
majority owned subsidiaries, CDS has an effective 68% indirect equity interest
in the San Elijo Hills project, after considering minority interests held by
former owners of the project before CDS acquired its interest. However, CDS has
the right to the return of funds advanced to the project and to receive a
preferred return on its investment before any amounts are distributed to the
minority shareholders. In 2004, all amounts advanced to the project were repaid
and, except for amounts related to infrastructure improvement bond guarantees,
the preferred returns were fully satisfied. For more information on the minority
interests, see Note 6 of Notes to Consolidated Financial Statements.
Sales Activity: The table below summarizes sales activity at
the San Elijo Hills project during the last three years. At closing, a portion
of the sales proceeds is deferred and not immediately recognized as revenue in
the Company's consolidated statements of operations. The Company recognizes
deferred revenue upon completion of required improvements to the property sold,
including costs related to common areas, under the percentage of completion
method of accounting. Amounts shown below as development management fees earned
are intercompany payments, which are eliminated in consolidation and therefore
not reflected in the Company's consolidated statements of operations, but which
are a source of liquidity for the parent company.
For the Year Ended December 31,
-------------------------------------------
2005 2004 2003
---- ---- ----
(Dollars in thousands)
Number of residential units sold (1) 406 139 739
Aggregate sales proceeds from sales of residential
units, net of closing costs (2) $ 127,100 $ 33,000 $ 133,400
Aggregate proceeds from the sales of school and
retail sites, net of closing costs (3) $ 700 $ 20,200 $ -
Development management fees earned $ 7,700 $ 3,300 $ 8,100
(1) Units are comprised of single family lots, multi-family units and very low
income apartment units.
(2) Excludes profit participation and consent fees described elsewhere in this
Report which are received subsequent to the closing of the land sales.
(3) Reflects the sale of one retail site in 2005 and the sale of one school
site in 2004.
As of December 31, 2005, the Company estimates that it will
spend approximately $20,600,000 to complete the required improvements to sold
properties, which results in a deferred revenue balance of $73,200,000. The
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Company will recognize the deferred revenue in its consolidated statements of
operations as the required improvements are completed under the percentage of
completion method of accounting.
As of February 13, 2006, the Company has entered into
agreements with homebuilders that have not closed to sell 283 single family lots
for aggregate cash proceeds of $132,200,000 (of which $13,600,000 has been
received as non-refundable deposits). After considering this land under contract
for sale, the remaining land at the San Elijo Hills project to be developed and
sold or leased consists of the following:
Single family lots to be developed and sold 184
Multi-family units 40
Square footage of commercial space 132,000
The Company's current plans are to construct and sell or lease
the remaining mixed-use multi-family units in the towncenter rather than sell
the property to another developer. Assuming the Company's development is not
delayed, it expects to close the sales of the remaining residential units during
2006 and 2007; however, development activity on units sold is expected to
continue into 2007 and on common areas into 2008.
With respect to the towncenter commercial space, the Company
plans to construct and lease approximately 57,000 square feet of the commercial
space rather than sell it to a builder. The Company has begun discussions with
prospective users of the towncenter commercial space and expects it will begin
construction of the mixed-use towncenter during 2006. The Company intends to
sell the remainder of the towncenter commercial space, which includes the
supermarket site and daycare center site, to third party builders or owners.
The strength of the residential real estate market in San
Diego County over the past several years has been greatly responsible for the
successful sales activity at the San Elijo Hills project. Although the Company
plans to complete the construction and sale of the remaining residential sites
during the next two years, the continued resiliency of the residential real
estate market will be critical to these efforts. Should demand in the
residential real estate market decline, it may take longer for the Company to
complete residential sales activity, or result in lower prices for the
residential sites, or both. Including land under contract for sale discussed
above, the estimate of future taxable income discussed elsewhere in this Report
assumes that the Company will sell all of the remaining land at the San Elijo
Hills project for aggregate sales proceeds of approximately $250,000,000; after
deducting actual and projected development costs from this amount, projected
gross profit is estimated to be $150,000,000. These amounts are only estimates,
and actual sales and development costs could be materially different as a result
of changes in the real estate market or other factors that may or may not be
within the Company's control.
Although these development plans are based on the Company's
current intentions, these plans could change, including as a result of actions
of local regulatory authorities.
In order for the City of San Marcos to issue building permits
to the Company's prospective lot purchasers for lot sales above certain
thresholds, the Company is required to make improvements to two off-site roads.
Pursuant to the project development agreement with the City of San
Marcos/Redevelopment Agency of San Marcos (the "City"), the Company is required
to contribute $11,000,000 to fund a portion of the cost of building these roads;
the City is required to fund any costs in excess of this amount. The
improvements for one of these roads have been substantially completed, and
improvements for the second off-site road commenced in early 2005. The
commencement of construction of these roads removed the last significant
limitations to the issuance of building permits at the San Elijo Hills project.
By the end of February 2006, the Company expects that it will have substantially
fulfilled its entire $11,000,000 obligation and the City will need to fund the
balance of the construction costs before the road can be completed. Although the
absence of significant building permit limitations should enable the Company to
complete development of the project in accordance with its plans, unforeseen
developments or delays by the City in fulfilling its road improvement
obligations could adversely impact its development plans.
Since 1999, the San Elijo Hills project has carried
$50,000,000 of general liability and professional liability insurance under a
policy issued by the Kemper Insurance Companies ("Kemper"). The policy covered a
thirteen year term from the initial date of coverage, and the entire premium for
the life of the policy was paid in 1999. This policy is specific to the San
Elijo Hills project; the Company has general and professional liability
insurance for other matters with different insurance companies.
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Kemper has ceased underwriting operations and has submitted a
voluntary run-off plan to its insurance regulators. Although Kemper is not in
receivership proceedings, it is operating under restrictive orders entered by
insurance regulators. It is uncertain whether Kemper will have sufficient assets
at such time, if ever, the Company makes a claim under the policy or, if they
are declared insolvent, whether state insurance guaranty funds would be
available to pay the claim. In May 2004, the Company purchased an excess policy
with another insurance carrier that provides up to $10,000,000 of coverage for
general liability claims, but not professional liability claims, relating to
homes sold through May 31, 2004. In September 2005, the excess policy was
extended to cover homes sold through May 31, 2005. The Company continues to
investigate whether insurance coverage for future home sales at the San Elijo
Hills project is available at acceptable prices.
Otay Ranch
In October 1998, the Company and Leucadia formed Otay Land
Company, LLC ("Otay Land Company") to purchase approximately 4,850 non-adjoining
acres of land located within the larger 22,900 acre Otay Ranch master-planned
community south of San Diego, California. Otay Land Company acquired this land
for $19,500,000. When Otay Land Company was formed, Leucadia contributed
$10,000,000 as a preferred capital interest, and the Company contributed all
other funds as non-preferred capital. In April 2003, Otay Land Company sold
1,445 acres to an unrelated third party and used a portion of the proceeds from
the sale to fully redeem Leucadia's preferred capital interest. As a result,
Otay Land Company became a wholly-owned subsidiary of the Company.
In 1993, the City of Chula Vista and the County of San Diego
approved a General Development Plan ("GDP") for the larger planning area.
Although there is no specified time within which implementation of the GDP must
be completed, it is expected that full development of the larger planning area
will take decades. The GDP establishes land use goals, objectives and policies
within the larger planning area. The GDP for the larger planning area
contemplates home sites, a golf-oriented resort and residential community,
commercial retail centers, a proposed university site and a network of
infrastructure, including roads and highways, a public transportation system,
park systems and schools. Any development within the larger Otay Ranch
master-planned community must be consistent with the GDP. While the GDP can be
amended, subject to approval by either or both of the City of Chula Vista and
the County of San Diego, Otay Land Company has certain vested and contractual
rights, pursuant to a development agreement, that protect its development
interests in Chula Vista, covering substantially all of its developable land.
However, actual land development will require that further entitlements and
approvals be obtained.
In April 2003, at the urging of the City of Chula Vista, the
developers within Otay Ranch (including Otay Land Company) entered into a three
year agreement to limit the number of annual building permits they would utilize
to an aggregate of 2,210 per year for all developers, with certain exceptions.
The City has requested that this agreement be extended for another three years
after it expires in April 2006. The terms of the proposed extension are
acceptable to the Company. If the developers do not agree to extend the
restriction, the City has the right to unilaterally impose a restriction on the
number of building permits that can be issued. However, there is no guaranty
that this agreement will be extended or, if it is, that the proposed permit
allocation will not change.
In August 2002, Otay Land Company reached an agreement with
the City of Chula Vista and another party whereby the City agreed to acquire 439
acres of mitigation land from Otay Land Company by eminent domain proceedings.
In January 2004, these proceedings were concluded and the mitigation land was
sold to the City for aggregate proceeds of approximately $5,800,000; a pre-tax
gain of approximately $4,800,000 was recognized in 2004.
After considering the above transactions, Otay Land Company
owns approximately 2,900 acres, of which the total developable area is
approximately 700 acres, including approximately 170 acres of land designated as
"Limited Development Area and Common Use Area." The remaining approximately
2,200 acres are designated as various qualities of non-developable open space
mitigation land. Under the GDP, 1.188 acres of open space mitigation land from
within the Otay Ranch project must be dedicated to the government for each 1.0
acre of land that is developed, excluding land designated Limited Development
Area and Common Use Area.
Some owners of development land have adequate or excess
mitigation land, while other owners lack sufficient acreage of mitigation land
to cover their inventory of development land. Otay Land Company currently has
substantially more mitigation land than it would need to develop its property at
this project. Based upon the GDP conditions, this land could have value to other
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developers within the larger Otay Ranch development area as their development
progresses; however, this is partially dependent upon other parties with
developable land fully developing their land. Should other owners choose not to
develop their developable land, it is unlikely that Otay Land Company's
mitigation land can be sold to other owners within the larger Otay Ranch
planning area to meet their mitigation requirements. In addition, it is unclear
whether the Otay Ranch mitigation land is acceptable to meet mitigation
requirements for development outside of Otay Ranch in the greater San Diego
County region.
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 Company has been working with the City of Chula
Vista and other developers on a GDP amendment for the overall Otay Ranch area.
In 2005, the Chula Vista City Council adopted an amendment to the GDP, which
modified land use designations in the Otay Ranch area, but deferred action with
regard to land owned by Otay Land Company. The City Council deferred action that
would have increased from 2,880 to 6,000 the number of residential dwelling
units that Otay Land Company's developable land is approved for, and would have
increased commercial development space that Otay Land Company's developable land
is approved for from approximately 1.5 million square feet to approximately 1.8
million square feet. This GDP amendment deferral period is intended, among other
things, to give the City of Chula Vista staff, Otay Land Company and another
land owner time to reach agreement concerning land use surrounding a planned
university, regional technology park and adjacent parts of Otay Ranch. The
Company is unable to predict the impact the ultimate resolution of these matters
will have, nor can any assurance be given that the City Council will approve the
currently pending amendment to the GDP.
San Diego Expressway Limited Partnership ("SDELP") is in the
process of constructing a toll road designated as SR 125 through south San Diego
County. Grading and bridge construction have begun, and the SDELP intends to
complete construction during the second quarter of 2007. This toll road runs
along the western border of one of Otay Land Company's land parcels and is a
quarter mile east of another. When complete the toll road will significantly
improve access to the southern portion of Otay Ranch, including the parcels
owned by the Company. Otay Land Company and other adjacent property owners will
need to negotiate with the City of Chula Vista and SDELP regarding the
construction timing and financing of interchanges that will provide access to SR
125.
Significant design and processing will be required to fully
entitle the Company's property in Otay Ranch before development and sale of the
finished neighborhoods to builders can begin, and there can be no assurance that
the Company will be successful in receiving the entitlements necessary for any
future development. Even if Otay Land Company receives its entitlements to
develop its property, it is uncertain whether it will fully develop or sell its
developable land. If or when development does occur, it will likely be phased
based on market conditions at the time of development and the progress of
infrastructure improvements. As a result, the Company is unable to predict when
revenues will be derived from this project. The ultimate development of projects
of this type is subject to significant governmental and environmental regulation
and approval and is likely to take many years. For additional information
concerning governmental and environmental matters, see "Government Regulation"
and "Environmental Compliance" below.
A map indicating the location of the Chula Vista General Plan
area in San Diego County and a more detailed map showing general information
about the Company's land within that General Plan area can be found on Otay Land
Company's website at www.otaylandcompany.com.
OTHER PROJECTS
Rampage Property
In November 2003, the Company purchased a 2,159 acre grape
vineyard located in southern Madera County, California. The purchase price for
the property was $5,700,000, excluding expenses, of which $1,700,000 was paid in
cash and the balance was financed.
In July 2005, the Company sold approximately 600 acres of the
property to a neighboring land owner for approximately $5,000,000, which
resulted in the recognition of a pre-tax gain of $3,200,000. The buyer claimed
to own options to purchase this land, and had also filed a complaint against the
Company and the former owners of the property alleging that the property has
been devalued by approximately $3,000,000 due to poor farming practices since
2001. While the sale resolved any remaining dispute with respect to the purchase
options, the Company continues to have settlement discussions concerning the
farming practices complaint.
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The Company had leased the farming rights to approximately
one-half of the property to one of the former owners for a fifteen-year period;
however, the lease was terminated in 2005 due to non-performance by the tenant
and the Company commenced eviction proceedings. On January 30, 2006, the tenant
filed a cross-complaint against the Company seeking a rescission of the purchase
agreement by which the Company acquired the Rampage property on the grounds that
they did not receive the consideration for which they bargained. The Company
does not expect that the ultimate resolution of this matter will be material to
its consolidated financial position; however, should the Company need to accrue
or pay damages, any such loss could be material to its consolidated results of
operations during the period recorded.
Although this property is not currently entitled for
residential development, it is located in a growing residential area northeast
of Fresno, California. The Company purchased this land with the intention of
obtaining the necessary entitlements to develop the property as a master-planned
community; however, approvals from various government agencies will be required,
including the acquisition of a water supply that meets regulatory requirements.
The Company expects the entitlement process will take several years and no
assurance can be given that such entitlements will be obtained. In the interim,
the Company is engaged in farming activities necessary to maintain the vineyard.
COMPETITION
Real estate development is a highly competitive business.
There are numerous residential real estate developers and development projects
operating in the same geographic area in which the Company operates. Competition
among real estate developers and development projects is determined by the
location of the real estate, the market appeal of the development plan, and the
developer's ability to build, market and deliver project segments on a timely
basis. Many of the Company's competitors may have greater financial resources
and/or access to cheaper capital than the Company. Residential developers sell
to homebuilders, who compete based on location, price, market segmentation,
product design and reputation.
GOVERNMENT REGULATION
The residential real estate development industry is subject to
substantial environmental, building, construction, zoning and real estate
regulations that are imposed by various federal, state and local authorities. In
developing a community, the Company must obtain the approval of numerous
government agencies regarding such matters as permitted land uses, housing
density, the installation of utility services (such as water, sewer, gas,
electric, telephone and cable television) and the dedication of acreage for open
space, parks, schools and other community purposes. Regulations affect
homebuilding by specifying, among other things, the type and quality of building
materials that must be used, certain aspects of land use and building design and
the manner in which homebuilders may conduct their sales, operations, and
overall relationships with potential home buyers. Furthermore, changes in
prevailing local circumstances or applicable laws may require additional
approvals, or modifications of approvals previously obtained.
Timing of the initiation and completion of development
projects depends upon receipt of necessary authorizations and approvals. Because
of the provisional nature of these approvals and the concerns of various
environmental and public interest groups, the approval process can be delayed by
withdrawals or modifications of preliminary approvals and by litigation and
appeals challenging development rights. The ability of the Company to develop
projects could be delayed or prevented due to litigation challenging previously
obtained governmental approvals. The Company may also be subject to periodic
delays or may be precluded entirely from developing in certain communities due
to building moratoriums or "slow-growth" or "no-growth" initiatives that could
be implemented in the future. Such delays could adversely affect the Company's
ability to complete its projects, significantly increase the costs of doing so
or drive potential customers to purchase competitors' products.
ENVIRONMENTAL COMPLIANCE
Environmental laws may cause the Company to incur substantial
compliance, mitigation and other costs, may restrict or prohibit development in
certain areas and may delay completion of the Company's development projects.
Delays arising from compliance with environmental laws and regulations could
adversely affect the Company's ability to complete its projects, significantly
increase the costs of doing so or cause potential customers to purchase
competitors' products.
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Under various federal, state and local environmental laws, an
owner or operator of real property may become liable for the costs of the
investigation, removal and remediation of hazardous or toxic substances at that
property. These laws often impose liability without regard to whether the owner
or operator knew of, or was responsible for, the presence of the hazardous or
toxic substances. The presence of hazardous or toxic substances, or the failure
to remediate these substances when present, may adversely affect the owner's
ability to sell or rent that property or to borrow funds using that property as
collateral. It may impose unanticipated costs and delays on projects. Persons
who arrange for the disposal or treatment of hazardous or toxic wastes may also
be liable for the costs of the investigation, removal and remediation of those
wastes at the disposal or treatment facility, regardless of whether that
facility is owned or operated by that person. In addition to remediation actions
brought by federal, state and local agencies, the presence of hazardous
substances on a property could result in personal injury, contribution or other
claims by private parties. These claims could result in costs or liabilities
that could exceed the value of that property. We are not aware of any
notification by any private party or governmental authority of any claim in
connection with environmental conditions at any of our properties that we
believe will involve any material expenditure other than as disclosed herein.
The Company obtained a preliminary remediation study
concerning approximately 30 acres of undeveloped land in the Otay Ranch
master-planned community that is owned by a subsidiary of Otay Land Company,
Flat Rock Land Company, LLC ("Flat Rock"). Flat Rock owns approximately 265
acres of the Company's total holdings in the Otay Ranch area, including 100
developable acres. The need for remediation results from activities conducted on
the land prior to Otay Land Company's ownership. Based upon the preliminary
findings of this study, in 2002 the Company estimated that the cost to implement
the most likely remediation alternative would be approximately $11,200,000, and
accrued that amount as an operating expense. The estimated liability is neither
discounted nor reduced for potential claims for recovery from previous owners
and users of the land who may be liable, and may increase or decrease based upon
the actual extent and nature of the remediation required, the type of remedial
process approved, the expenses of the regulatory process, inflation and other
items. The Company periodically adjusts its liability to reflect its current
best estimate; however, no assurance can be given that the actual amount of
environmental liability will not exceed the amount of reserves for this matter
or that it will not have a material adverse effect on the Company's financial
position, results of operations or cash flows. During 2004, the Company
increased its estimate of remediation costs by approximately $1,300,000,
primarily due to increases in site investigation and remediation costs, and
during 2003 by approximately $300,000, primarily for consulting costs.
During 2003, Otay Land Company developed an investigation
plan, which the San Diego Department of Environmental Health ("DEH") approved,
to further determine the nature and extent of contamination on the property. In
January 2004, the State Department of Toxic Substance Control ("DTSC") approved
DEH as the overseeing agency for the site investigation and the remediation.
Flat Rock selected an environmental consultant to implement the investigation
plan, which has been conducted under the San Diego County Voluntary Cleanup
Program and under the oversight of the DEH. In 2005, Flat Rock completed the
site investigation, and expects to submit the remediation plan for approval from
the DEH in 2006. Flat Rock anticipates starting the remediation process in 2006
with completion in 2007. However, the Company is unable to predict with
certainty when the remediation will commence and there is no current regulatory
requirement to commence remediation by a fixed date. Further, Otay Land Company
and Flat Rock have filed a lawsuit in Federal Court in the Southern District of
California seeking compensation from the parties who it believes are responsible
for the contamination. However, the Company can give no assurances that this
lawsuit will be successful or that it will be able to recover any of the costs
incurred in investigating and/or remediating the contamination.
EMPLOYEES
At December 31, 2005, the Company and its consolidated
subsidiaries had 25 full-time employees.
INVESTOR INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"). Accordingly, the
Company files periodic reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy statements
and other information may be obtained by visiting the Public Reference Room of
the SEC at 450 Fifth Street, NW, Washington, D.C. 20549 or by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet site
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(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding the Company and other issuers that file
electronically.
The Company does not maintain a website. The Company will
provide without charge upon written request copies of its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act. Requests for such copies should be directed to: HomeFed
Corporation, 1903 Wright Place, Suite 220, Carlsbad, CA 92008 (telephone number
(760) 918-8200), Attention: Corporate Secretary.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
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(a)(1) Financial Statements.
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets at December 31, 2005 and 2004 F-3
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2005, 2004 and 2003 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 F-6
Notes to Consolidated Financial Statements F-8
(a)(2) Financial Statement Schedules.
Schedules are omitted because they are not required or are not
applicable or the required information is shown in the financial
statements or notes thereto.
(a)(3) Executive Compensation Plans and Arrangements. See item 15(b) below
for a complete list of exhibits to this Report.
1999 Stock Incentive Plan (filed as Annex A to the Company's Proxy
Statement dated November 22, 1999).
Form of Grant Letter for 1999 Stock Incentive Plan.
See also Item 15(b) below.
(b) Exhibits.
We will furnish any exhibit upon request made to our Corporate
Secretary, 1903 Wright Place, Suite 220, Carlsbad, CA 92008. We charge
$.50 per page to cover expenses of copying and mailing.
3.1 Restated Certificate of Incorporation, as restated July 3, 1995 of the
Company (incorporated by reference to Exhibit 3.1 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1995).
3.2 By-laws of the Company as amended through December 14, 1999
(incorporated by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (the "1999
10-K")).
3.3 Amendment to Amended and Restated Bylaws of the Company, dated July 10,
2002 (incorporated by reference to Exhibit 3.3 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
2002).
3.4 Certificate of Amendment of the Certificate of Incorporation of the
Company, dated July 10, 2002 (incorporated by reference to Exhibit 3.4
to the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 2002).
3.5 Certificate of Amendment of the Certificate of Incorporation of the
Company, dated July 10, 2003 (incorporated by reference to Exhibit 3.5
to the Company's Annual Report on Form 10-K for the year ended December
31, 2003 (the "2003 10-K")).
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3.6 Certificate of Amendment of the Certificate of Incorporation of the
Company, dated July 10, 2003 (incorporated by reference to Exhibit 3.6
to the Company's 2003 10-K).
10.1 Development Management Agreement between the Company and Provence Hills
Development Company, LLC, dated as of August 14, 1998 (incorporated by
reference to Exhibit 10.3 to the Company's current report on Form 8-K
dated August 14, 1998).
10.2 Amended and Restated Limited Liability Company Agreement of Otay Land
Company, LLC, dated as of September 20, 1999, between the Company and
Leucadia National Corporation (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form S-2 (No.
333-79901)).
10.3 Administrative Services Agreement, dated as of March 1, 2000, between
Leucadia Financial Corporation ("LFC"), the Company, HomeFed Resources
Corporation and HomeFed Communities, Inc. (incorporated by reference to
Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 2000).
10.4 Amendment No. 1 dated as of November 1, 2000 to the Administrative
Services Agreement dated as of March 1, 2000 (incorporated by reference
to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (the "2000 10-K")).
10.5 Amendment No. 2 dated as of February 28, 2001 to the Administrative
Services Agreement dated as of March 1, 2000 (incorporated by reference
to Exhibit 10.22 to the Company's 2000 10-K).
10.6 Amendment No. 3 dated as of December 31, 2001 to the Administrative
Services Agreement dated as of March 1, 2000 (incorporated by reference
to Exhibit 10.26 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2001).
10.7 Registration Rights Agreement dated as of October 21, 2002, by and
between HomeFed Corporation and Leucadia National Corporation
(incorporated by reference to Exhibit 10.2 to the Company's current
report on Form 8-K dated October 22, 2002).
10.8 Amended and Restated Line Letter dated as of October 9, 2002, by and
between HomeFed Corporation and Leucadia Financial Corporation
(incorporated by reference to Exhibit 10.5 to the Company's current
report on Form 8-K dated October 22, 2002).
10.9 Amended and Restated Term Note dated as of October 9, 2002
(incorporated by reference to Exhibit 10.6 to the Company's current
report on Form 8-K dated October 22, 2002).
10.10 Amendment No. 4 dated as of May 28, 2002 to the Administrative Services
Agreement dated as of March 1, 2000 (incorporated by reference to
Exhibit 10.34 to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 2002 (the "2002 10-K/A")).
10.11 Amendment No. 5 dated as of November 15, 2002 to the Administrative
Services Agreement dated as of March 1, 2000 (incorporated by reference
to Exhibit 10.35 of the 2002 10-K/A).
10.12 Amendment dated as of October 21, 2002 to the Development Management
Agreement dated as of August 14, 1998 (incorporated by reference to
Exhibit 10.36 of the 2002 10-K/A).
10.13 Contribution Agreement between the Company and San Elijo Hills
Development Company, LLC, dated as of October 21, 2002 (incorporated by
reference to Exhibit 10.37 of the 2002 10-K/A).
10.14 Agreement and Guaranty, dated as of October 1, 2002, between Leucadia
National Corporation and CDS Holding Corporation (incorporated by
reference to Exhibit 10.38 of the 2002 10-K/A).
10.15 Obligation Agreement, dated as of October 1, 2002, between Leucadia
National Corporation and San Elijo Ranch, Inc. (incorporated by
reference to Exhibit 10.39 of the 2002 10-K/A).
10.16 Tax Allocation Agreement between the Company and its subsidiaries dated
as of November 1, 2002 (incorporated by reference to Exhibit 10.21 to
the Company's 2003 10-K).
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10.17 Amendment No. 1 to the First Amended and Restated Development Agreement
and Owner Participation Agreement between the City of San Marcos, the
San Marcos Redevelopment Agency and the San Elijo Hills Development
Company, LLC dated as of February 11, 2004 (incorporated by reference
to Exhibit 10.22 to the Company's 2003 10-K).
10.18 Amendment No. 6 dated as of December 31, 2003 to the Administrative
Services Agreement dated as of March 1, 2000 (incorporated by reference
to Exhibit 10.23 to the Company's 2003 10-K).
10.19 Amendment No. 7 dated as of December 31, 2004 to the Administrative
Services Agreement dated as of March 1, 2000.
10.20 1999 Stock Incentive Plan (incorporated by reference to Annex A to the
Company's Proxy Statement dated November 22, 1999).
10.21 Form of Grant Letter for the 1999 Stock Incentive Plan. (incorporated
by reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2005 (the "2005 10-K)).
10.22 Director Compensation (incorporated by reference to Exhibit 10.22 to
the Company's 2005 10-K).
21 Subsidiaries of the Company (incorporated by reference Exhibit 21 to
the Company's 2005 10-K).
23 Consent of PricewaterhouseCoopers LLP with respect to the incorporation
by reference into the Company's Registration Statement on Form S-8
(File No. 333-97079).
31.1 Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer 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.*
* Furnished herewith pursuant to Item 601(b) (32) of Regulation S-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
HOMEFED CORPORATION
Date: March 31, 2006 By /s/ Erin N. Ruhe
-----------------------------------------
Erin N. Ruhe
Vice President, Treasurer and Controller
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