-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DysudI0dKvwEnXOiZfCWKe5rCGF4Vn2VTZ+wyt0rhAOV9Lg9RxdkE7PtRUSWRiLF UJh2XipOtrlFaMDwDc+/HA== 0000909518-06-000341.txt : 20060331 0000909518-06-000341.hdr.sgml : 20060331 20060331122721 ACCESSION NUMBER: 0000909518-06-000341 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060331 DATE AS OF CHANGE: 20060331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMEFED CORP CENTRAL INDEX KEY: 0000833795 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330304982 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10153 FILM NUMBER: 06726709 BUSINESS ADDRESS: STREET 1: 1903 WRIGHT PLACE STREET 2: STE 220 CITY: CARLSBAD STATE: CA ZIP: 92008 BUSINESS PHONE: 7609188200 MAIL ADDRESS: STREET 1: 1903 WRIGHT PLACE STREET 2: STE 220 CITY: CARLSBAD STATE: CA ZIP: 92008 10-K/A 1 mv3-30_10ka1.txt ================================================================================ 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. ================================================================================ 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 2 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 3 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. 4 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 5 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. 6 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. 7 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 8 (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. 9 PART IV Item 15. Exhibits and Financial Statement Schedules. - ------- ------------------------------------------ (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")). 10 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). 11 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. 12 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 13 EX-23 2 mv3-30ex_23.txt Exhibit 23 CONSENT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-97079) of HomeFed Corporation of our report dated February 22, 2006 relating to the financial statements, which appear in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP San Diego, California February 22, 2006 EX-31 3 mv3-30ex31_1.txt 31.1 Exhibit 31.1 CERTIFICATIONS I, Paul J. Borden, certify that: 1. I have reviewed this annual report on Form 10-K/A of HomeFed Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter of 2005 that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2006 By: /s/ Paul J. Borden ------------------------------ Paul J. Borden President EX-31 4 mv3-30ex31_2.txt 31.2 Exhibit 31.2 CERTIFICATIONS I, Erin N. Ruhe, certify that: 1. I have reviewed this annual report on Form 10-K/A of HomeFed Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter of 2005 that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2006 By: /s/ Erin N. Ruhe -------------------------------- Erin N. Ruhe Vice President, Treasurer and Controller EX-32 5 mv3-30ex32_1.txt 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Paul J. Borden, as President of HomeFed Corporation (the "Company") certify, pursuant to 18 U.S.C. ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the accompanying Form 10-K/A report for the fiscal year ended December 31, 2005 as filed with the U.S. Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 31, 2006 By: /s/ Paul J. Borden ---------------------------- Paul J. Borden President EX-32 6 mv3-30ex32_2.txt 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Erin N. Ruhe, as Vice President, Treasurer and Controller of HomeFed Corporation (the "Company") certify, pursuant to 18 U.S.C. ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the accompanying Form 10-K/A report for the fiscal year ended December 31, 2005 as filed with the U.S. Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 31, 2006 By: /s/ Erin N. Ruhe ------------------------------- Erin N. Ruhe Vice President, Treasurer and Controller -----END PRIVACY-ENHANCED MESSAGE-----