HOMEFED CORP - FORM 10-Q - November 1, 2010

Attached files

file	filename
EX-32.2 - ERIN N. RUHE EXHIBIT 32.2 - HOMEFED CORP	ruheexhibit322.htm
EX-31.2 - ERIN N. RUHE EXHIBIT 31.2 - HOMEFED CORP	ruheexhibit312.htm
EX-32.1 - PAUL J. BORDEN EXHIBIT 32.1 - HOMEFED CORP	bordenexhibit321.htm
EX-31.1 - PAUL J. BORDEN EXHIBIT 31.1 - HOMEFED CORP	bordenexhibit311.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

[ ] 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 (State or other jurisdiction of	33-0304982 (I.R.S. Employer
incorporation or organization)	Identification Number)
1903 Wright Place, Suite 220, Carlsbad, California (Address of principal executive offices)	92008 (Zip Code)

(760) 918-8200

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

______________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO _____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES _____ NO _____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x
Non-accelerated filer o	(Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES NO x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On October 28, 2010, there were 7,879,500 outstanding shares of the Registrant’s Common Stock, par value $.01 per share.


Part I -FINANCIAL INFORMATION


Item 1. Financial Statements.

HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2010 and December 31, 2009
(Dollars in thousands, except par value)

	September 30,			December 31,
	2010			2009
	(Unaudited)

ASSETS
Real estate	$	104,827		$	104,273
Cash and cash equivalents		16,296			9,127
Investments available for sale (amortized cost of $43,276 and $56,967)		43,280			57,038
Accounts receivable, deposits and other assets		5,186			936
Net deferred tax asset		15,489			14,330

TOTAL	$	185,078		$	185,704

LIABILITIES
Notes payable	$	7,105		$	7,834
Accounts payable and accrued liabilities		3,588			2,922
Non-refundable option payments		3,009			650
Liability for environmental remediation		9,718			9,994
Other liabilities		258			765

		23,678			22,165

COMMITMENTS AND CONTINGENCIES

EQUITY
Common stock, $.01 par value; 25,000,000 shares authorized;
7,879,500 shares outstanding, after deducting 395,409 shares held in treasury		79			79
Additional paid-in capital		376,052			375,917
Accumulated other comprehensive income		2			43
Accumulated deficit		(228,860	)		(226,726	)
Total HomeFed Corporation common shareholders' equity		147,273			149,313
Noncontrolling interest		14,127			14,226
Total equity		161,400			163,539

TOTAL	$	185,078		$	185,704


See notes to interim consolidated financial statements.


HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and nine month periods ended September 30, 2010 and 2009
(In thousands, except per share amounts)
(Unaudited)

	For the Three Month						For the Nine Month
	Period Ended September 30,						Period Ended September 30,
	2010			2009			2010			2009

REVENUES
Sales of real estate	$	837		$	2,477		$	4,073		$	5,990
Co-op marketing and advertising fees		44			76			44			127
		881			2,553			4,117			6,117

EXPENSES
Cost of sales		654			137			3,339			532
General and administrative expenses		1,969			1,666			6,163			4,958
Administrative services fees to Leucadia National Corporation		45			45			135			135
		2,668			1,848			9,637			5,625

Income (loss) from operations		(1,787	)		705			(5,520	)		492

Interest and other income, net		2,534			2,641			1,525			1,032

Income (loss) before income taxes and noncontrolling interest		747			3,346			(3,995	)		1,524
Income tax benefit (provision)		(156	)		(1,173	)		1,762			(487	)

Net income (loss)		591			2,173			(2,233	)		1,037
Net income (loss) attributable to the noncontrolling interest		(117	)		15			(99	)		(197	)

Net income (loss) attributable to HomeFed Corporation
common shareholders	$	708		$	2,158		$	(2,134	)	$	1,234

Basic earnings (loss) per common share attributable
to HomeFed Corporation common shareholders	$	0.09		$	0.27		$	(0.27	)	$	0.16

Diluted earnings (loss) per common share attributable
to HomeFed Corporation common shareholders	$	0.09		$	0.27		$	(0.27	)	$	0.16













See notes to interim consolidated financial statements.


HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the nine month periods ended September 30, 2010 and 2009
(In thousands, except par value)
(Unaudited)

	HomeFed Corporation Common Shareholders
	Common					Accumulated
	Stock		Additional			Other
	$.01 Par		Paid-In			Comprehensive			Accumulated						Noncontrolling
	Value		Capital			Income			Deficit			Subtotal			Interest			Total

Balance, January 1, 2009	$	79	$	375,819		$	54		$	(229,533	)	$	146,419		$	14,239		$	160,658

Comprehensive income:
Net change in unrealized gain (loss)
on investments, net of taxes of $10							14						14						14
Net income										1,234			1,234			(197	)		1,037
Comprehensive income													1,248			(197	)		1,051
Share-based compensation expense				81									81						81
Purchase of common shares for treasury				(7	)								(7	)					(7	)
Balance, September 30, 2009	$	79	$	375,893		$	68		$	(228,299	)	$	147,741		$	14,042		$	161,783

Balance, January 1, 2010	$	79	$	375,917		$	43		$	(226,726	)	$	149,313		$	14,226		$	163,539

Comprehensive loss:
Net change in unrealized gain (loss)
on investments, net of tax benefit of $26							(41	)					(41	)					(41	)
Net loss										(2,134	)		(2,134	)		(99	)		(2,233	)
Comprehensive loss													(2,175	)		(99	)		(2,274	)
Share-based compensation expense				135									135						135
Balance, September 30, 2010	$	79	$	376,052		$	2		$	(228,860	)	$	147,273		$	14,127		$	161,400





See notes to interim consolidated financial statements.


HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine month periods ended September 30, 2010 and 2009
(In thousands)
(Unaudited)

	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)	$	(2,233	)	$	1,037
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Provision for deferred income taxes		(1,133	)		476
Share-based compensation expense		135			81
Depreciation and amortization of property, equipment and leasehold improvements		200			101
Net securities gains		(1	)		(65	)
Accretion of discount on investments available for sale		(103	)		(252	)
Changes in operating assets and liabilities:
Real estate		(629	)		(8,081	)
Accounts receivable, deposits and other assets		(4,766	)		(782	)
Deferred revenue		-			(4,040	)
Accounts payable and accrued liabilities		666			(353	)
Non-refundable option payments		2,359			-
Liability for environmental remediation		(276	)		(160	)
Other liabilities		(115	)		(189	)
Net cash used for operating activities		(5,896	)		(12,227	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (other than short-term)		(87,622	)		(77,291	)
Proceeds from maturities of investments-available for sale		87,220			60,885
Proceeds from sale of investments		14,197			15,398
Net cash provided by (used for) investing activities		13,795			(1,008	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments to trust deed note holders		(730	)		(44	)
Purchase of common shares for treasury		-			(7	)
Net cash used for financing activities		(730	)		(51	)

Net increase (decrease) in cash and cash equivalents		7,169			(13,286	)

Cash and cash equivalents, beginning of period		9,127			16,353

Cash and cash equivalents, end of period	$	16,296		$	3,067

Supplemental disclosures of cash flow information:
Cash paid for interest (net of amounts capitalized)	$	-		$	-
Cash refunded (paid) for income taxes	$	(458	)	$	190

See notes to interim consolidated financial statements.

HOMEFED CORPORATION AND SUBSIDIARIES

Notes to Interim Consolidated Financial Statements

1.	Significant Accounting Policies

The unaudited interim consolidated financial statements, which reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes are necessary to fairly state the results of interim operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Summary of Significant Accounting Policies) included in the Company’s audited consolidated financial statements for the year ended December 31, 2009, which are included in the Company’s Annual Report filed on Form 10-K, as amended, for such year (the “2009 10-K”). Results of operations for interim periods are not necessarily indicative of annual results of operations. The consolidated balance sheet at December 31, 2009 was derived from the Company’s audited annual consolidated financial statements and does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements.

Effective January 1, 2010, the Company adopted new Financial Accounting Standards Board guidance for the accounting for transfers of financial assets, and guidance for the accounting and reporting of variable interests and variable interest entities. The adoption of this guidance did not have any impact on the Company’s consolidated financial statements.

2.	Income Taxes

The aggregate amount of unrecognized tax benefits related to uncertain tax positions reflected in the Company’s consolidated balance sheet at September 30, 2010 was $100,000 (including $30,000 for interest); if recognized, such amounts would lower the Company’s effective tax rate. As a result of the expiration of the statute of limitations, the Company recognized in each of the three and nine month 2010 and 2009 periods $250,000 of previously unrecognized tax benefits, which were reflected as a reduction to income tax expense. Over the next twelve months, the Company believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by an additional $100,000 upon the expiration of the statute of limitations. The statute of limitations with respect to the Company’s federal income tax returns has expired for all years through 2006, and with respect to California state income tax returns through 2005.

3.	Earnings (Loss) Per Common Share

Basic and diluted earnings (loss) per share amounts were calculated by dividing net income (loss) by the weighted average number of common shares outstanding. The numerators and denominators used to calculate basic and diluted earnings (loss) per share for the three and nine month periods ended September 30, 2010 and 2009 are as follows (in thousands):

	For the three months				For the nine months
	ended September 30,				ended September 30,
	2010		2009		2010			2009

Numerator – net income (loss) attributable to HomeFed Corporation common shareholders	$	708	$	2,158	$	(2,134	)	$	1,234

Denominator for basic and diluted earnings (loss) per share– weighted average shares		7,880		7,880		7,880			7,880

Options to purchase 104,500 weighted average shares of common stock were outstanding during the three month 2010 period, and options to purchase 30,000 weighted average shares of common stock were outstanding during the three and nine month 2009 periods, but were not included in the computation of diluted earnings per share primarily because the options’ exercise price was greater than the average market price of the common shares. For the nine month 2010 period, there is no difference between basic and diluted loss per share amounts because the effect of increasing the weighted average number of common shares for incremental shares issuable upon exercise of outstanding options is antidilutive.

4.	Related Party Transactions

Pursuant to an administrative services agreement, Leucadia National Corporation (“Leucadia”) provides administrative and accounting services, including providing the services of the Company’s Secretary. Administrative services fee expenses were $45,000 and $135,000 for each of the three and nine month periods ended September 30, 2010 and 2009, respectively. The administrative services agreement automatically renews for successive annual periods unless terminated in accordance with its terms. The Company subleases office space to Leucadia under a sublease agreement until February 2013. Amounts reflected in other income pursuant to this agreement were $3,000 for each of the three month periods ended September 30, 2010 and 2009, and $9,000 for each of the nine month periods ended September 30, 2010 and 2009.

5.	Interest and Other Income, net

Interest and other income, net includes interest income of $60,000 and $100,000 for the three month periods ended September 30, 2010 and 2009, respectively, and $200,000 and $500,000 for the nine month periods ended September 30, 2010 and 2009, respectively.

For the three and nine month periods ended September 30, 2010, rental income aggregated $100,000 and $300,000, respectively. Rental income for the 2009 periods was not material as tenants in the San Elijo Hills TownCenter began paying rent in September 2009.

Net income from farming operations at the Rampage property was $2,350,000 and $2,050,000 for the three month periods ended September 30, 2010 and 2009, respectively, and $950,000 and $50,000 for the nine month periods ended September 30, 2010 and 2009, respectively.

6.	Financial Instruments

The Company’s material financial instruments include cash and cash equivalents, investments classified as available for sale and notes payable that are collateralized by the San Elijo Hills project; investments classified as available for sale are the only assets or liabilities that are measured at fair value on a recurring basis. All of the Company’s investments mature in one year or less. The par value, amortized cost, gross unrealized gains and losses and estimated fair value of investments classified as available for sale as of September 30, 2010 and December 31, 2009 are as follows (in thousands):

									Fair Value Measurements Using
									Quoted Prices in Active Markets		Significant Other
	Par		Amortized		Gross Unrealized		Gross Unrealized		for Identical Assets		Observable Inputs		Total Fair Value
	Value		Cost		Gains		Losses		(Level 1)		(Level 2)		Measurements

September 30, 2010
U.S. Treasury securities	$	43,300	$	43,276	$	4	$	-	$	43,280	$	-	$	43,280

December 31, 2009
U.S. Treasury securities	$	52,500	$	52,483	$	10	$	-	$	52,493	$	-	$	52,493
Corporate bonds		4,520		4,484		61		-		-		4,545		4,545
Total	$	57,020	$	56,967	$	71	$	-	$	52,493	$	4,545	$	57,038

As of September 30, 2010, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis.

For cash and cash equivalents, the carrying amounts of such financial instruments approximate their fair values. At September 30, 2010 and December 31, 2009, the fair values of notes payable are estimated to be $6,950,000 and $7,200,000, respectively. The fair value of notes payable were determined based on the present value of future cash flows, discounted at a rate that appropriately reflects the inherent risks. The notes payable mature on December 31, 2010.

The Company does not invest in any derivatives or engage in any hedging activities.

7.	Real Estate Sales Agreements

During the three month period ended September 30, 2010, the Company sold two residential condominium units at the San Elijo Hills Towncenter (“Towncenter”) for gross cash proceeds of $850,000 and recognized a gain of $200,000. During the nine month period ended September 30, 2010, the Company sold nine residential condominium units at the Towncenter for gross cash proceeds of $4,050,000 and recognized a gain of $750,000. As of October 28, 2010, three units remain to be sold.

As of September 30, 2010, the Company has entered into three sales agreements with homebuilders that have not closed. The Company has agreed to sell 32 single family lots for aggregate cash proceeds of $7,000,000, 131 multi-family units for aggregate cash proceeds of $18,500,000 and 52 single family lots for aggregate cash proceeds of $13,600,000. The Company received non-refundable option deposits with respect to these agreements of $650,000 in 2009 and $2,850,000 in 2010 (of which $500,000 was received in October 2010). These option payments are non-refundable if the Company fulfills its obligations under the agreements, and will be applied to reduce the amount due from the purchasers at closing. Although these agreements are binding on the purchasers, should the Company fulfill its obligations under the agreements within the specified timeframes and the purchasers decide not to close, the Company’s recourse will be primarily limited to retaining the option payments.

8.	Stock Options

On August 2, 2010, options to purchase an aggregate of 6,000 shares of common stock were granted to members of the Board of Directors under the Company’s 1999 Stock Incentive Plan at an exercise price of $21.00 per share.

On May 11, 2010, options to purchase an aggregate of 74,500 shares of common stock were granted to employees under the Company’s stock option plan at an exercise price of $25.00 per share. The exercise price for all option grants was the market price on the grant date.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Interim Operations.

Liquidity and Capital Resources

For the nine month periods ended September 30, 2010 and 2009, net cash was used for operating activities, principally for real estate expenditures at the San Elijo Hills and Otay Ranch projects, general and administrative expenses and farming operations at the Rampage property. In addition, net cash was used for estimated federal and state tax payments during the nine month 2010 period. The Company’s principal sources of funds are proceeds from the sale of real estate, fee income from the San Elijo Hills project, proceeds from the sale of grapes at the Rampage project, dividends and tax sharing payments from its subsidiaries, borrowings from or repayment of advances by its subsidiaries and cash and cash equivalents and investments. As of September 30, 2010, the Company had aggregate cash, cash equivalents and investments of $59,600,000 to meet its current liquidity needs and for future investment opportunities.

As of September 30, 2010, the remaining land at the San Elijo Hills project to be developed and sold or leased consisted of the following (including real estate under contract for sale):

Single family lots			409
Multi-family units			162
Square footage of commercial space			50,100

As more fully discussed in the 2009 10-K, residential property sales volume, prices and new building starts have declined significantly in many U.S. markets, including California and the greater San Diego region, which have negatively affected sales and profits at the San Elijo Hills project. The slowdown in residential sales has been exacerbated by the turmoil in the mortgage lending and credit markets, which has resulted in stricter lending standards and reduced liquidity for prospective home buyers. Sales of new homes and re-sales of existing homes have declined substantially from the early years of the project’s development; there has been only one sale of residential lots at the San Elijo Hills project since June 2006.

The Company has substantially completed development of all of its remaining residential single family lots at the San Elijo Hills project, many of which are “premium” lots which are expected to command premium prices if, and when, the market recovers. Although the Company has received unsolicited offers, the Company is not actively soliciting bids for its remaining inventory of single family lots and is unable to predict when local residential real estate market conditions might improve. The Company believes that by exercising patience and waiting for market conditions to improve it can best maximize shareholder value with its remaining residential lot inventory. However, the Company evaluates the local real estate market and economic conditions in general on an ongoing basis, and updates its expectations of future market conditions as it continues to assess the best time to market its remaining residential lot inventory for sale.

The Towncenter includes multi-family residential units and commercial space, which are being constructed in phases. The Company has completed construction of the first phase of the Towncenter, which includes 12 residential condominium units and 11,000 square feet of commercial space. Nine of the twelve condominium units were sold during the nine month period ended September 30, 2010. The Company has entered into leases for eight of the nine phase one retail spaces covering 9,900 square feet; all of the tenants have opened for business. The Company is currently evaluating design options for phase two of the Towncenter, which is expected to be comprised of office and retail space.

In October 2010, the Company engaged a real estate brokerage firm to sell the Rampage property. The listing price for the property is $25,000,000; however, no assurance can be given that the Company will be successful in selling the Rampage property, or if the property is sold whether it will be sold for the asking price.

Results of Operations

Real Estate Sales Activity

San Elijo Hills Project:

During the three and nine months ended September 30, 2010, the Company closed on sales of real estate and recognized revenues as follows:

	For the three month period ended September 30,				For the nine month period ended September 30,
	2010		2009		2010		2009
Single family units		-		-		-		-
Commercial lot sales – planned square feet		-		6,000		-		6,000
Multi-family units		-		-		-		-
Residential condominium units		2		-		9		-
Sales price	$	850,000	$	1,950,000	$	4,050,000	$	1,950,000

As discussed in the 2009 10-K, a portion of the revenue from sales of real estate in prior years was deferred, and has been recognized as revenues upon the completion of the required improvements to the property, including costs related to common areas, under the percentage of completion method of accounting. For the three and nine month periods ended September 30, 2009, revenues include amounts that were previously deferred of $550,000 and $4,050,000, respectively. These amounts were recognized upon the completion of certain required improvements. Revenues did not include any previously deferred amounts for the three and nine month periods ended September 30, 2010 since the Company completed all the required improvements for sold properties during 2009.

During 2009, the Company reduced its estimated cost to complete certain improvements at the San Elijo Hills project, which resulted in an acceleration of the recognition of previously deferred revenue of $300,000 and $2,250,000, for the three and nine month periods ended September 30, 2009, respectively. For the three and nine month periods ended September 30, 2009, these changes in estimates increased net income by $200,000 and $1,300,000, respectively. For the nine month period ended September 30, 2009, this change in estimate increased net income attributable to common shareholders by $1,450,000 and was not material for the three month period ended September 30, 2009.

During the three month periods ended September 30, 2010 and 2009, cost of sales of real estate aggregated $650,000 and $150,000, respectively. During the nine month periods ended September 30, 2010 and 2009, cost of sales of real estate aggregated $3,350,000 and $550,000, respectively. Cost of sales is recognized in the same proportion to the amount of revenue recognized under the percentage of completion method of accounting, subject to changes in estimate as discussed above.

Otay Ranch Project:

There was no real estate sales activity at the Otay Ranch project during the three and nine month periods ended September 30, 2010 and 2009. As discussed in the 2009 10-K, the Company continues to evaluate how to maximize the value of this investment while pursuing land sales and processing further entitlements on portions of its property. The Otay Ranch project is in the early stages of development; as a result, the Company does not expect any sales activity in the near future.

Other Results of Operations Activity

The Company recorded co-op marketing and advertising fees of $40,000 and $80,000 for the three month periods ended September 30, 2010 and 2009, respectively, and $40,000 and $150,000 for the nine month periods ended September 30, 2010 and 2009, respectively. The Company records these fees when the San Elijo Hills project builders sell homes, and are generally based upon a fixed percentage of the homes’ selling price. These fees provide the Company with funds to conduct its marketing activities.

Interest expense is capitalized for the notes payable to trust deed holders on the San Elijo Hills project, which totaled $2,000 and $4,000 for the three month periods ended September 30, 2010 and 2009, respectively, and $8,000 and $10,000 for the nine month periods ended September 30, 2010 and 2009, respectively.

General and administrative expenses increased during the three and nine month 2010 periods as compared to the same periods in 2009 primarily due to greater expenses related to legal, compensation and marketing, and for the nine month 2010 period higher depreciation expense. For the three and nine month 2010 periods, legal expenses increased by $100,000 and $650,000, respectively, principally due to litigation brought by a minority shareholder against one of the Company's subsidiaries related to the San Elijo Hills project and increased litigation activity at the Otay Ranch project; compensation expense increased by $100,000 and $300,000, respectively, due to higher estimated general bonus expense; and marketing expenses increased by $70,000 and $200,000, respectively, as a result of a new advertising campaign for the release of new inventory by homebuilders at the San Elijo Hills project. Depreciation expense for the nine month 2010 period increased by $100,000 primarily due to the September 2009 opening of the retail spaces at the San Elijo Hills Towncenter. General and administrative expenses for the nine month 2009 period also reflect $100,000 for consulting services provided at the Rampage project, and payment of $100,000 to acquire an option to purchase water storage capacity, which was a component of the Company’s plan to acquire sufficient water to develop the Rampage property as a master-planned community. The Company terminated the option agreement in June 2010.

Interest and other income, net includes farming income at the Rampage property of $3,250,000 for the three and nine month periods ended September 30, 2010 as compared to $2,800,000 (of which $1,050,000 relates to insurance proceeds received as a result of weather damage to the grapes) for the three and nine month periods ended September 30, 2009. The change in interest and other income, net for the nine month periods ended September 30, 2010 as compared to the same period in 2009 also reflects a decrease in farming expenses at the Rampage property of $500,000 resulting from decreased vineyard rejuvenation, replanting and repairs. Interest and other income, net also reflects a decline in interest income for the three and nine month periods ended September 30, 2010 as compared to the same periods in 2009 of $60,000 and $300,000, respectively, due to lower interest rates and a lower amount of invested assets reflecting cash used for operating activities. Rental income increased for the three and nine month periods ended September 30, 2010 as compared to the same periods in 2009 by $100,000 and $250,000, respectively, primarily due to the leasing of retail spaces at the San Elijo Hills Towncenter. During the third quarter of 2009, the Company recognized in interest and other income, net $400,000 of previously deferred fees that had been prepaid by a homebuilder. The fees were recognized in income because the homebuilder’s lender foreclosed on the property, which removed any contingent obligation related to the fees.

As a result of the expiration of the statute of limitations, the Company recognized in each of the three and nine month 2010 and 2009 periods $250,000 of previously unrecognized tax benefits, which were reflected as a reduction to income tax expense. The income tax provision also includes provisions for state income taxes. These items account for the differences between the effective income tax rate and the federal statutory rate.

Cautionary Statement for Forward-Looking Information

Statements included in this Report may contain forward-looking statements. Such statements may relate, but are not limited, to projections of revenues, income or loss, development expenditures, plans for growth and future operations, competition and regulation, as well as assumptions relating to the foregoing. Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. When used in this Report, the words “estimates,” “expects,” “anticipates,” “believes,” “plans,” “intends” and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.

Factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or may materially and adversely affect the Company’s actual results include but are not limited to the following: the performance of the real estate industry in general; changes in mortgage interest rate levels or changes in consumer lending practices that reduce demand for housing; recent turmoil in the mortgage lending markets; the economic strength of the Southern California region where our business is currently concentrated; changes in domestic laws and government regulations or in the implementation and/or enforcement of government rules and regulations; demographic changes in the United States generally and California in particular that reduce the demand for housing; increases in real estate taxes and other local government fees; significant competition from other real estate developers and homebuilders; delays in construction schedules and cost overruns; increased costs for land, materials and labor; imposition of limitations on our ability to develop our properties resulting from condemnations, environmental laws and regulations and developments in or new applications thereof; earthquakes, fires and other natural disasters where our properties are located; construction defect liability on structures we build or that are built on land that we develop; our ability to insure certain risks economically; shortages of adequate water resources and reliable energy sources in the areas where we own real estate projects; changes in the composition of our assets and liabilities through acquisitions or divestitures; the actual cost of environmental liabilities concerning our land could exceed liabilities recorded; opposition from local community or political groups at our development projects; and our ability to generate sufficient taxable income to fully realize our deferred tax asset. For additional information see Part I, Item 1A. Risk Factors in the 2009 10-K.

Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof. The Company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this Report or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Information required under this Item is contained in Item 7A of the 2009 10-K and is incorporated by reference herein.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

(a)

The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2010. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2010.

Changes in internal control over financial reporting

(b)

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended September 30, 2010, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 6. Exhibits.

31.1

Certification of President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Vice President, Treasurer and Controller pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HomeFed Corporation
		(Registrant)


Date: November 1, 2010	By:	/s/ Erin N. Ruhe
		Name: Erin N. Ruhe
		Title: Vice President, Treasurer and Controller
		(Principal Accounting Officer)

EXHIBIT INDEX

Exhibit Number Description

31.1

Certification of President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Vice President, Treasurer and Controller pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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