Attached files

file filename
EX-3.7 - HOMEFED CERTIFICATE OF AMENDMENT - HOMEFED CORPhfcexhibit.htm
EX-21 - HOMEFED CORPORATION LIST OF SUBSIDIARIES - HOMEFED CORPhfcexhibit21.htm
EX-23 - HOMEFED CORPORATION PWC CONSENT - HOMEFED CORPhfcpwcconsent.htm
EX-31.2 - ERIN N. RUHE EXHIBIT 31.2 - HOMEFED CORPeruheexhibit312.htm
EX-32.2 - ERIN N. RUHE EXHIBIT 32.2 - HOMEFED CORPeruheexhibit322.htm
EX-32.1 - PAUL J. BORDEN EXHIBIT 32.1 - HOMEFED CORPbordenexhibit321.htm
EX-31.1 - PAUL J. BORDEN EXHIBIT 31.1 - HOMEFED CORPbordenexhibit311.htm


 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
[x]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
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 Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
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 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 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, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer," "accelerated filer,” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer                                        [   ]
Accelerated filer                                  [ x ]
Non-accelerated filer                                           [   ]
Smaller reporting company                   [    ]
 
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, 2010, the aggregate market value of the Registrant’s Common Stock held by non-affiliates was approximately $83,630,000 on that date.
 
As of February 10, 2011, there were 7,879,500 outstanding shares of the Registrant’s Common Stock, par value $.01 per share.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.
 
1

 
 
 
 
 
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 California.  The Company also investigates the acquisition of new real estate projects, both residential and commercial, within and outside California.  However, 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.  The Company also owns the Rampage property, a 1,544 acre grape vineyard located in southern Madera County, California, which is not currently entitled for commercial or residential development.  In January 2011, the Company acquired the Fanita Ranch property, a 2,600 acre parcel of vacant land located in Santee, California.  The Company acquired Fanita Ranch with the intention of modifying and completing the necessary entitlements to develop the property as a master-planned community; obtaining all the entitlements is expected to take several years.
 
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 has received expressions of interest from buyers for 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, adequate water supply, as well as open space, in compliance with regulations regarding reduction in emissions of greenhouse gasses.  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 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 in California are typically required 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 (title is owned in fee simple).  The San Elijo Hills project, a master-planned community located in the City of San Marcos in San Diego County, California, will be a community of approximately 3,500 homes and apartments, as well as a commercial and residential Towncenter.  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 provides 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.  Through its ownership interest in CDS, the Company has an effective 68% indirect equity interest in the San Elijo Hills project, after considering noncontrolling interests held by former owners of the project before CDS acquired its interest.  Before amounts are distributed to the noncontrolling shareholders, the Company has the right to receive repayment of any amounts advanced by it to the project and to receive a preferred return on any advances.  For more information on the noncontrolling interests, see Note 6 of Notes to Consolidated Financial Statements.

 
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Current Market Developments: Throughout much of the period that the Company has been developing the San Elijo Hills project, the Company’s sales efforts greatly benefited from a strong regional and national residential housing market.  However, beginning in 2006, residential property sales volume, prices and new building starts declined significantly in many U.S. markets, including California and the greater San Diego region, which negatively affected sales and profits.  The slowdown in residential sales was exacerbated by the turmoil in the mortgage lending and credit markets, which resulted in stricter lending standards and reduced liquidity for prospective home buyers.  Sales of new homes and re-sales of existing homes declined substantially from the early years of the project’s development; based on information obtained from homebuilders and other public sources, the Company estimates that total home sales (both new and re-sales) at the San Elijo Hills project were approximately 194 in 2010 as compared to 860 in 2004.  As of December 31, 2010, the San Elijo Hills project has sold 2,007 of its 2,364 single family lots and 1,068 of its 1,099 multi-family units.
 
During the past two years San Elijo Hills received increased interest from homebuilders concerning certain of the project’s remaining single family lots and multi-family units, and the Company was able to sell some single family lots and multi-family units at acceptable prices.  Although these developments are encouraging, it is too soon to determine if the long slump in the housing market is coming to an end, or when the Company will be able to sell its remaining inventory.  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 fully recovers.  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, on an ongoing basis the Company evaluates the local real estate market and economic conditions in general, 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.
 
Estimates of future property available for sale, the timing of the sales, selling prices and future development costs are based upon current development plans for the project and will change based on the strength of the real estate market or other factors that are not within the control of the Company.
 
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 will be deferred and not immediately recognized as revenue if the Company is required to complete improvements to the sold property.  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.  As of December 31, 2010, the Company had completed all of the required improvements to sold properties and had fully recognized into income all remaining deferred revenue.
 
   
For the Year Ended December 31,
 
   
2010
   
2009
   
2008
 
   
(Dollars in thousands)
 
                   
Number of residential units sold (1)
    192       32       -  
Aggregate sales proceeds from sales of residential
                       
    units, net of closing costs
  $ 35,600     $ 7,000     $ -  
Aggregate proceeds from the sales of
                       
    non-residential sites, net of closing costs (2)
  $ -     $ 1,950     $ 1,300  
Development management fees earned (3)
  $ 2,050     $ 500     $ 80  
 
 
(1)
Units are comprised of single family lots, multi-family units and residential condominium units.
(2)
Reflects the sale of the visitor center in 2009 and the church and swim and tennis club sites in 2008.
(3)
Development management fees 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.

 
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As of December 31, 2010, the remaining land at the San Elijo Hills project to be sold or leased consists of the following (including real estate under contract for sale):
 
Single family lots
    357  
Multi-family units
    31  
Square footage of commercial space
    51,200  
 
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 included 12 residential condominium units and 11,000 square feet of commercial space.  Nine of the twelve condominium units were sold during 2010, and seven of the nine phase one retail spaces covering 8,800 square feet have been leased.  The Company has decided that it will not proceed with its existing plan for phase two of the Towncenter, which included a mixture of retail and office space, and it will have to develop a new plan for phase two.  As a result, in the fourth quarter of 2010 the Company concluded that the carrying value of phase two of the Towncenter was not recoverable and recorded a provision of $5,400,000 to reduce the carrying amount to its estimated fair value.  See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein.
 
In January 2011, the Company closed on the sale of 32 single family lots for sales proceeds of $7,000,000, net of closing costs.
 
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 Lumbermens Mutual Group (“Lumbermens”), formerly known as the Kemper Insurance Companies.  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.
 
Lumbermens has ceased underwriting operations and is operating under the administrative supervision of its insurance regulators.  Although Lumbermens is not in receivership proceedings, it is operating under restrictive orders entered by insurance regulators.  It is uncertain whether Lumbermens 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 any claim (the Company has not made any claims to date).  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 August 1, 2007.  In July 2007, the Company purchased a new $1,000,000 primary insurance policy and $10,000,000 excess insurance policy that provides coverage for general liability claims, but not professional liability claims, relating to homes sold at the San Elijo Hills project from July 29, 2007 through August 1, 2011.
 
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 (title is owned in fee simple).  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 many years.  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 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.
 

 
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In 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.  During the first quarter of 2006, the Company sold approximately 115 acres of non-developable land for $1,500,000.
 
During 2010, five acres of mitigation land were sold to a land owner who needed mitigation land to complete his development in another area in the City of Chula Vista.  The Company received proceeds of $200,000 and recognized a gain of $150,000.
 
After considering the above transactions, Otay Land Company owns approximately 2,800 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 2,100 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 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, there will be an excess of mitigation land in Otay Ranch.  In that event, Otay Land Company will have to find buyers for its mitigation land outside the Otay Ranch General Plan Area, which the Company believes it can do.
 
The Company continues to evaluate how to maximize the value of this investment while 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 April 2008, the City of Chula Vista approved an agreement whereby the Company will dedicate 50 acres of development land in the Otay Ranch project and 160 acres of open space land in the unincorporated area of San Diego County and has committed to pay an endowment of $2,000,000 (of which $1,000,000 has been paid) to fund costs associated with establishing a higher education facility on the property.  Subject to numerous public hearings and the discretionary action of the City Council, the City committed to allocate a maximum of 6,050 residential units and 1.8 million square feet of commercial development space to the Company’s project, and has agreed to process its development applications by August 2011.  If such applications are not approved and implemented on the same terms as set forth in the agreement, the City will be required to return to the Company the endowment funds and the dedicated land.  The Company retains the right to withdraw these development applications if it determines, in its sole discretion, that it is economically infeasible or undesirable to continue with such applications.
 
During 2007, the San Diego Expressway Limited Partnership (“SDELP”) completed construction of a toll road designated as SR 125 through south San Diego County.  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.  The toll road was designed with one or more interchanges, which have yet to be built, on or adjacent to land parcels owned by the Company.  When complete, these interchanges will significantly improve access to this area in the southern portion of Otay Ranch, which could increase the value of the Company’s land.  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.  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.
 

 
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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 2003, the Company purchased a 2,159 acre grape vineyard located in southern Madera County, California (title is owned in fee simple).  The purchase price for the property was $5,700,000, excluding expenses.
 
In July 2005, the Company sold approximately 600 acres of the property to a neighboring land owner for approximately $4,950,000.  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 had been devalued by approximately $3,000,000 due to poor farming practices.  The sale resolved any remaining dispute with respect to the purchase options.  During 2008, the Company entered into an agreement to settle the farming practices complaint pursuant to which the Company paid the buyer $1,150,000, and the buyer purchased a 17 acre parcel at the Rampage property for a cash payment to the Company of $300,000.
 
Although this property is not currently entitled for residential development, it is located in a growing residential area northwest 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, including meeting requirements with respect to adequate water supply.  In California, laws require that any large size residential community have sufficient water supplies to meet the water demands of the project for a period of 20 years.  A preliminary site plan for development of the Rampage property showed that the land would support a master-planned community, but even if all entitlements are received, the build out and sale of homes will take many years.  The entitlement process takes several years and no assurance can be given that such entitlements will be obtained, or that that future market conditions will support development of the Rampage property into a master-planned community.  In the interim, the Company has been conducting farming activities at the vineyard and in 2010 generated positive cash flows from selling grapes.
 
The Company is reevaluating its plans for the Rampage property, and as part of that process 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.  Once the Company receives offers for the property, if any, it will evaluate whether to sell the Rampage property or continue to conduct farming activities while it explores possible development as a master-planned community.
 
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.
 

 
6

 
 
 
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 and significantly increase development costs.
 
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.  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.  We have not received any claim or notification from any private party or governmental authority concerning environmental conditions at any of our properties other than as disclosed below.
 
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 260 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 $11,150,000, and accrued that amount as an operating expense.  The estimated liability was neither discounted nor reduced for 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.  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 $250,000, primarily for consulting costs.  The liability is reduced for payments related to the development of a remediation plan, onsite testing and legal and other expenses.  The Company periodically examines, and when appropriate, 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.  At December 31, 2010, the liability for environmental remediation was $9,650,000.
 
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 California Environmental Protection Agency designated DEH as the lead 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, which was subsequently approved by the DEH.  Flat Rock submitted a Remedial Investigation and Feasibility Study (“RI/FS”) to the DEH for review and approval; DEH requested State Department of Toxic Substances Control assistance in its review of the RI/FS.  Once the RI/FS is approved, a remedial action plan will be prepared and submitted to DEH for approval and subject to public comment prior to the commencement of the remediation.  The Company is unable to predict with certainty when the remediation will commence and there is no regulatory requirement to commence remediation by a fixed date.
 
Otay Land Company and Flat Rock commenced a lawsuit in the U.S. District Court for the Southern District of California seeking compensation from the parties who Otay Land Company and Flat Rock believe are responsible for the contamination.   On July 20, 2006, the District Court dismissed the federal environmental law claims and refused to retain jurisdiction on the related state law claims.  Otay Land Company and Flat Rock immediately filed an action in the Superior Court for the State of California, County of San Diego asserting all related state law claims against the same parties to preserve those claims while seeking appellate review of the District Court’s ruling.  That action was stayed by the Superior Court pending the federal appeal.  On appeal, the U.S. Court of Appeals for the Ninth Circuit declined to address the District Court’s grounds for its dismissal of the federal environmental law claims, and instead dismissed the lawsuit on the grounds that the federal environmental law claims were not yet ripe for judicial review as of that time.  Rather than re-file in Federal Court, the Company elected to pursue only the state law claims in Superior Court seeking recovery of the Company’s damages associated with the investigation and anticipated future costs associated with the eventual remediation of the contamination.  The stay has been lifted by the Superior Court and the case remains in the pleading stage.  Trial is expected to commence in the latter part of 2011.  The Company has not reduced its estimated liability for environmental remediation for potential recoveries from these parties.  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.
 
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Employees
 
At December 31, 2010, the Company and its consolidated subsidiaries had 13 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 100 F Street, N.E., Washington, D.C.  20549 or by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an Internet site (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.
 
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, those set forth in Item 1A. Risk Factors and elsewhere in this Report and in the Company’s other public filings with the SEC.
 
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 1A.  Risk Factors.
 
Our business is subject to a number of risks.  You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this Report, before you decide whether to purchase our common stock.  The risks set out below are not the only risks we face.  If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected.  In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.
 
Our results of operations and financial condition are greatly affected by the performance of the real estate industry.  The real estate development industry has historically been subject to up and down cycles driven by numerous market and economic factors, both national and local, beyond the control of the real estate developer.  Because of the effect these factors have on real estate values, it is difficult to predict with certainty when future sales will occur or what the sales price will be.
 
Changes in mortgage interest rate levels could impact demand for housing.  Our business is dependent upon the availability and cost of mortgage financing for potential homebuyers.  Any significant increase in the prevailing low mortgage interest rate environment or decrease in available credit could reduce consumer demand for housing, and result in fewer home sales or lower sale prices.
 

 
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Recent turmoil in the mortgage lending market has adversely affected our results and will continue to negatively impact our results in the future.  The residential real estate development industry is dependent upon the availability of financing for both homebuilders and homebuyers.  The recent turmoil in the credit markets has resulted in a tightening of credit standards for residential and commercial mortgages and significantly reduced liquidity, which has adversely affected the ability of homebuilders and homebuyers to obtain financing, which in turn has adversely impacted our ability to sell lots.
 
Our business is currently concentrated in Southern California, specifically in the San Diego area.  As a result, our financial results are dependent on the economic strength of that region.  Significant increases in local unemployment and cost of living, including increases in residential property taxes, or concerns about the financial condition of the municipalities in which the Company has properties, could adversely affect consumer demand for our housing projects and negatively impact our financial results.
 
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.  A worsening of current economic conditions could cause a decline in estimated future cash flows expected to be generated from the Company’s real estate projects, potentially resulting in impairment charges for real estate assets.  When reviewing real estate assets for impairment, the most significant assumption made to determine estimated future cash flows is the estimated future selling prices of the Company’s real estate assets.  If current conditions worsen and/or if the Company lowers its estimate of future selling prices, impairment charges could be recorded.
 
Changes in domestic laws and government regulations or in the implementation and/or enforcement of government rules and regulations may delay our projects or increase our costs.  Our plans for development projects require numerous government approvals, licenses, permits and agreements, which we must obtain before we can begin development and construction.  Our negotiations with local authorities often result in requirements for us to incur development expenses related to improvements for roads, sewers or other common areas that are both inside and outside of our project area.  The approval process can be delayed by withdrawals or modifications of preliminary approvals, by litigation and appeals challenging development rights and by changes in prevailing local circumstances or applicable laws that may require additional approvals.  Regulatory requirements may delay the start or completion of our projects and/or increase our costs.
 
Demographic changes in the U.S. generally and California in particular could reduce the demand for housing.  If the current trend of population increases in California were not to continue, or in the event of any significant reductions in employment, demand for real estate in California may decline from current levels.
 
Increases in real estate taxes and other local government fees could adversely affect our results.  Increases in real estate taxes and other government fees may make it more expensive to own the properties that we are currently developing, which would increase our carrying costs of owning the properties.
 
Significant competition from other real estate developers and homebuilders could adversely affect our results.  Many of our competitors may have advantages over us, such as more favorable locations which may provide better schools and easier access to roads and shopping, or amenities that we may not offer, as well as greater financial resources and/or access to cheaper capital.  In addition, the downturn in the real estate markets nationwide could result in an influx of lower-priced lots and homes coming onto the market, as competitors need to address their individual liquidity needs.  Lower-priced homes and lots would increase the competition the Company faces, and could adversely affect our ability to sell lots and/or pricing.
 
Delays in construction schedules and cost overruns could adversely affect us.  Any material delays could adversely affect our ability to complete our projects, significantly increasing the costs of doing so, or drive potential customers to purchase competitors’ products.
 
Increased costs for land, materials and for labor could adversely affect us.  If these costs increase, it will increase the costs of completing our projects; if we are not able to recoup these increased costs, our results of operations would be adversely affected.
 
Imposition of limitations on our ability to develop our properties resulting from condemnations, environmental laws and regulations and developments in or new applications thereof could increase our costs and delay our projects.  When we acquire our projects, our estimate of future profits and cash flows is derived from our estimates of future selling prices and development costs, less acquisition costs.  Subsequent to acquisition, if environmental laws or other regulations change resulting in additional unanticipated costs, future profitability and cash flows could be reduced, and impairment charges might have to be recorded.
 

 
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Property in California is at risk from earthquakes, fires and other natural disasters.  Damage to any of our properties, whether by natural disasters, including earthquakes, and fires or otherwise, may either delay or preclude our ability to develop and sell our properties, or affect the price at which we may sell such properties.
 
Under California law we could be liable for some construction defects in structures we build or that are built on land that we develop.  California law imposes some liabilities on developers of land on which homes are built as well as on builders.  Future construction defect litigation could be based on a strict liability theory based on our involvement in the project or it could be related to infrastructure improvements or grading, even if we are not building homes ourselves.
 
We may not be able to insure certain risks economically.  We may experience economic harm if any damage to our properties is not covered by insurance.  We cannot be certain that we will be able to insure all risks that we desire to insure economically or that all of our insurers will be financially viable if we make a claim.
 
Shortages of adequate water resources and reliable energy sources in the areas where we own real estate projects could adversely affect the value of our properties or restrict us from commencing development.  If we are unable to obtain adequate water resources and reliable energy sources for our development projects, development of the projects might be delayed, resulting in reduced profitability and cash flows.
 
The actual cost of environmental liabilities concerning land owned in San Diego County, California could exceed the amount we reserved for such matter.  If the actual cost of the environmental remediation for land owned by Flat Rock is more than amounts reserved for additional expenses will have to be recorded.
 
Opposition from local community or political groups with respect to construction or development at a particular site could increase development costs.
 
We may not be able to generate sufficient taxable income to fully realize our net deferred tax asset.  If we are unable to generate sufficient taxable income to fully realize our net deferred tax asset the valuation allowance would have to be increased resulting in reduced profitability.
 
Significant influence over our affairs may be exercised by our principal stockholders.  As of February 10, 2011, the significant stockholders of our Company are Leucadia (approximately 31.4% beneficial ownership), our Chairman, Joseph S. Steinberg (approximately 9.4% beneficial ownership, including ownership by trusts for the benefit of his respective family members, but excluding Mr. Steinberg's private charitable foundation) and one of our directors, Ian M. Cumming (approximately 7.7% beneficial ownership, including ownership by certain family members, but excluding Mr. Cumming's charitable foundation).  Mr. Steinberg is also President, a director and a significant stockholder of Leucadia.  Mr. Cumming is also Chairman of the Board, a director and a significant stockholder of Leucadia. Accordingly, Leucadia and Messrs. Steinberg and Cumming could exert significant influence over all matters requiring approval by our stockholders, including the election or removal of directors and the approval of mergers or other business combination transactions.
 
Our common stock is subject to transfer restrictions. We and certain of our subsidiaries have net operating loss carryforwards (“NOLs”) and other tax attributes, the amount and availability of which are subject to certain qualifications, limitations and uncertainties.  In order to reduce the possibility that certain changes in ownership could result in limitations on the use of the tax attributes, our certificate of incorporation contains provisions that generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of 5% or more of our common stock and the ability of persons or entities now owning 5% or more of our common stock from acquiring additional common stock.  The restriction will remain until the earliest of (a) December 31, 2028, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) and (c) the beginning of our taxable year to which these tax attributes may no longer be carried forward.  The restriction may be waived by our board of directors.  Stockholders are advised to carefully monitor their ownership of our common stock and consult their own legal advisors and/or us to determine whether their ownership of our common stock approaches the proscribed level.
 
Our common stock is not traded on NASDAQ or listed on any securities exchange.  Prices for our common stock are quoted on the Over-the-Counter (OTC) Bulletin Board.  Securities whose prices are quoted on the OTC Bulletin Board do not enjoy the same liquidity as securities that trade on a recognized market or securities exchange.  As a result, stockholders may find it more difficult to dispose of or obtain accurate quotations as to the market value of the securities.

 
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Item 1B.  Unresolved Staff Comments.
 
Not applicable.
 
Item 2.  Properties.
 
At December 31, 2010, the Company is the developer of two real estate properties, the San Elijo Hills project and the Otay Land Company project, and owns the Rampage property, all of which are described under Item 1, Business.  Real estate had an aggregate book value of approximately $87,900,000 at December 31, 2010.
 
The Company leases 11,364 square feet for its corporate headquarters which is located at 1903 Wright Place, Suite 220, Carlsbad, California 92008.  The Company rents office space at its corporate headquarters to Leucadia for an annual rent of $12,000, payable monthly.
 
Item 3.  Legal Proceedings.
 
From time to time the Company and its subsidiaries may be parties to legal proceedings that are considered to be either ordinary, routine litigation, incidental to its business or not material to the Company’s consolidated financial position or liquidity.
 
As previously disclosed, on June 25, 2009, a lawsuit was filed against the Company, its President and certain affiliates of the Company by a minority stockholder of CDS Devco, Inc. (“Devco”), a subsidiary of the Company.
 
The action, entitled Walter E. Wolf v. Paul J. Borden, CDS Devco, Inc., CDS Holding, Inc., San Elijo Ranch, Inc. and HomeFed Corporation was filed in the Superior Court of the State of California for the County of San Diego.  The complaint alleges breach of fiduciary duty, fraud, breach of contract and intentional interference with contract in connection with the Company's relationship with its majority-owned subsidiary, San Elijo Ranch, Inc.
 
The complaint alleges that the plaintiff should have received additional distributions from Devco, and that Devco should have received additional distributions from San Elijo Ranch, Inc.  The action seeks recovery of unspecified monetary damages, declaratory relief, an accounting and such other relief as the court may award.
 
In March 2010, the Court dismissed the plaintiff’s claim for fraud, intentional interference with contract and unjust enrichment.  The remaining claims are scheduled for trial in April 2011.  The Company has filed a motion for summary adjudication, which is scheduled to be heard by the Court in March 2011. The Company believes that the case is without merit and intends to vigorously defend itself.
 
 
 
 

 
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PART II
 
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
The Company’s common stock is traded in the over-the-counter market under the symbol “HOFD.”  The Company’s common stock is not listed on any stock exchange, and price information for the common stock is not regularly quoted on any automated quotation system.
 
The following table sets forth, for the calendar periods indicated, the high and low bid price of the Company’s common stock, as published by the National Association of Securities Dealers OTC Bulletin Board Service.
 
   
High
   
Low
 
             
2009
           
First Quarter
  $ 19.00     $ 11.00  
Second Quarter
    20.00       14.50  
Third Quarter
    25.50       19.00  
Fourth Quarter
    25.00       19.00  
                 
2010
               
First Quarter
  $ 33.00     $ 18.25  
Second Quarter
    27.98       21.00  
Third Quarter
    25.00       20.05  
Fourth Quarter
    25.00       20.38  
                 
2011
               
First quarter (through February 10, 2011)
  $ 26.00     $ 21.80  
 
The over-the-counter quotations reflect inter-dealer prices, without retail mark up, markdown or commission, and may not represent actual transactions.  On February 10, 2011, the closing bid price for the Company’s common stock was $26.00 per share.  As of that date, there were 482 stockholders of record.  No dividends were paid during 2010 or 2009.
 
The Company does not currently meet certain requirements for listing on a national securities exchange or inclusion on the Nasdaq Stock Market.
 
The Company and certain of its subsidiaries have NOLs and other tax attributes, the amount and availability of which are subject to certain qualifications, limitations and uncertainties.  In order to reduce the possibility that certain changes in ownership could result in limitations on the use of its tax attributes, the Company's certificate of incorporation contains provisions which generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of five percent or more of the common stock and the ability of persons or entities now owning five percent or more of the common stock from acquiring additional common stock.  The restrictions will remain in effect until the earliest of (a) December 31, 2028, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) and (c) the beginning of a taxable year of the Company to which certain tax benefits may no longer be carried forward.
 
The transfer agent for the Company’s common stock is American Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York 10038.
 
In July 2004, the Board of Directors approved the repurchase of up to 500,000 shares of the Company’s common stock.  In October 2008, the Company purchased 394,931 shares of the Company’s common stock for approximately $5,900,000 in a private transaction with an unrelated party.  In March 2009, the Company purchased 478 shares of the Company’s common stock in an open market transaction in accordance with the Company’s repurchase plan.  After considering these transactions, the Company can repurchase up to 104,591 common shares without board approval.  Repurchased shares would be available for, among other things, use in connection with the Company’s stock option plan.  The shares may be purchased from time to time, subject to prevailing market conditions, in the open market, in privately negotiated transactions or otherwise.  Any such purchases may be commenced or suspended at any time without prior notice.

 
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Stockholder Return Performance Graph
 
Set forth below is a graph comparing the cumulative total stockholder return on the Company’s common stock against the cumulative total return of the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Homebuilding-500 Index for the period commencing December 31, 2005 to December 31, 2010.  Index data was furnished by Standard & Poor’s Capital IQ.  The graph assumes that $100 was invested on December 31, 2005 in each of our common stock, the S&P 500 Index and the S&P 500 Homebuilding Index and that all dividends were reinvested.
 
 
 
 
Item 6.  Selected Financial Data.
 
The following selected financial data have been summarized from the Company’s consolidated financial statements and are qualified in their entirety by reference to, and should be read in conjunction with, such consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in Item 7 of this Report.
 

 
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Year Ended December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(In thousands, except per share amounts)
 
                               
SELECTED INCOME STATEMENT DATA:
                             
  Revenues
  $ 35,943     $ 14,874     $ 10,432     $ 23,674     $ 69,442  
  Expenses (a)
    30,755       11,410       17,220       16,773       29,246  
  Net income (loss) (a) (b)
    4,420       2,794       (10,455 )     8,520       28,133  
  Net income (loss) attributable to HomeFed
                                       
    Corporation common shareholders (a) (b)
    3,529       2,807       (9,927 )     6,820       17,176  
  Basic earnings (loss) per share (a) (b)
  $ 0.45     $ 0.36     $ (1.21 )   $ 0.82     $ 2.08  
  Diluted earnings (loss) per share (a) (b)
  $ 0.45     $ 0.36     $ (1.21 )   $ 0.82     $ 2.08  
 
   
At December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(In thousands, except per share amounts)
 
                               
SELECTED BALANCE SHEET DATA:
                             
  Cash and cash equivalents
  $ 43,788     $ 9,127     $ 16,353     $ 10,574     $ 47,177  
  Investments
    38,287       57,038       57,735       95,940       83,829  
  Real estate
    87,909       104,273       98,544       88,200       79,341  
  Total assets
    184,510       185,704       190,397       219,255       237,299  
  Notes payable
          7,834       8,218       8,953       9,898  
  HomeFed Corporation shareholders’ equity
    152,995       149,313       146,419       162,117       154,780  
  Shares outstanding
    7,880       7,880       7,880       8,274       8,274  
  Book value per share (c)
  $ 19.42     $ 18.95     $ 18.58     $ 19.59     $ 18.71  
  Cash dividend per share
  $     $     $     $     $ 0.50  
 
 
(a)  
For the years ended December 31, 2010 and 2008, the Company recorded provisions for impairment losses on real estate of $5,400,000 and $4,150,000, respectively.
(b)  
For the year ended December 31, 2008, the Company increased its deferred tax valuation allowance by recording an increase to its income tax provision of $9,100,000.
(c)  
Excludes noncontrolling interest.
 
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The purpose of this section is to discuss and analyze the Company’s consolidated financial condition, liquidity and capital resources and results of operations.  This analysis should be read in conjunction with the consolidated financial statements, related footnote disclosures and “Cautionary Statements for Forward-Looking Information,” which appear elsewhere in this Report.
 
Liquidity and Capital Resources
 
During 2010, net cash of $23,700,000 was provided by operating activities, principally from the proceeds from the sale of real estate at the San Elijo Hills project.  The Company used net cash for operating activities of $8,950,000 and $27,850,000 for the years ended December 31, 2009 and 2008, respectively, principally for real estate improvement expenditures at the San Elijo Hills project and for the payment of general and administrative expenses and federal and state income tax payments.  The Company’s ability to generate positive cash flows from operating activities is dependent upon the amount and timing of real estate sales, principally at the San Elijo Hills project.  Information about the remaining real estate to be sold at the San Elijo Hills project is provided below.  Because of the nature of its real estate projects, the Company does not expect operating cash flows will be consistent from year to year.
 
Throughout much of the period that the Company has been developing the San Elijo Hills project, the Company’s sales efforts greatly benefited from a strong regional and national residential housing market.  However, beginning in 2006, residential property sales volume, prices and new building starts declined significantly in many U.S. markets, including California and the greater San Diego region, which negatively affected sales and profits.  The slowdown in residential sales was exacerbated by the turmoil in the mortgage lending and credit markets, which resulted in stricter lending standards and reduced liquidity for prospective home buyers.  Sales of new homes and re-sales of existing homes declined substantially from the early years of the project’s development; based on information obtained from homebuilders and other public sources, the Company estimates that total home sales (both new and re-sales) at the San Elijo Hills project were approximately 194 in 2010 as compared to 860 in 2004.
 

 
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During the past two years San Elijo Hills received increased interest from homebuilders concerning certain of the project’s remaining single family lots and multi-family units, and the Company was able to sell some single family lots and multi-family units at acceptable prices.  Although these developments are encouraging, it is too soon to determine if the long slump in the housing market is coming to an end, or when the Company will be able to sell its remaining inventory.  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 fully recovers.  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, on an ongoing basis the Company evaluates the local real estate market and economic conditions in general, 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 parent company’s principal sources of funds are cash and cash equivalents and investments, proceeds from the sale of real estate, fee income from the San Elijo Hills project, dividends and tax sharing payments from its subsidiaries and borrowings from or repayment of advances by its subsidiaries.  As of December 31, 2010, the Company had consolidated cash and cash equivalents and marketable securities aggregating $82,100,000, substantially all of which was held by the parent company and available to be used without restriction.
 
The Company expects that its cash and cash equivalents and marketable securities classified as available for sale, together with the other sources described above, will be sufficient for both its short and long term liquidity needs.  Residential sales at the San Elijo Hills project are expected to be a source of funds to the Company in the future; however, the amount and timing is uncertain due to current market conditions.   The Company is not relying on receipt of funds from Otay Land Company for the foreseeable future, since the timing of sales of undeveloped property, development activity and sales of developable and undevelopable property cannot be predicted with any certainty.   However, with the possible exception of the environmental remediation matter discussed below, Otay Land Company is not expected to require material funds in the short term, and long term needs will not be determined until a development plan is established.  The Company is currently marketing the Rampage property for sale; however, if the property is not sold, property development expenditures, if any, are not expected to be significant for the next few years.  In the interim, the Company has been conducting farming activities at the vineyard and in 2010 generated positive cash flows from selling grapes. Except for the acquisition of the Fanita Ranch property discussed below, the Company is not committed to acquire any new real estate projects, but it believes it has sufficient liquidity to take advantage of appropriate acquisition opportunities if they are presented.
 
During 2010, the Company closed on the sale of one neighborhood in the San Elijo Hills project consisting of 52 single family lots for aggregate sales proceeds of $13,600,000, net of closing costs.   In addition, the Company sold 131 multi-family units at the San Elijo Hills project for aggregate cash proceeds of $18,000,000, net of closing costs.  The Company also sold nine condominium units in the San Elijo Hills Towncenter for aggregate cash proceeds of $4,100,000, net of closing costs.  As of December 31, 2010, the Company had completed all required improvements to these and previously sold properties.
 
As of December 31, 2010, the remaining land at the San Elijo Hills project to be sold or leased consists of the following (including real estate under contract for sale):
 
Single family lots
    357  
Multi-family units
    31  
Square footage of commercial space
    51,200  
 
In January 2011, the Company sold 32 single family lots to a homebuilder for aggregate cash proceeds of $7,000,000, pursuant to which it had previously received a non-refundable option payment of $650,000 in 2009.
 
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 2010, and seven of the nine phase one retail spaces covering 8,800 square feet have been leased.  The Company has decided that it will not proceed with its existing plan for phase two of the Towncenter, which included a mixture of retail and office space, and it will have to develop a new plan for phase two.
 

 
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Estimates of future property available for sale, the timing of the sales, selling prices and future development costs are based upon current development plans for the project and will change based on the strength of the real estate market or other factors that are not within the control of the Company.
 
In December 2010, the notes payable to the trust deed holders on the San Elijo Hills project aggregating $7,850,000 were paid off in full.
 
Since 1999, the San Elijo Hills project has carried $50,000,000 of general liability and professional liability insurance under a policy issued by Lumbermens.  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.  To date, the Company has not made any claims under the policy.
 
Lumbermens has ceased underwriting operations and has submitted a voluntary run-off plan to its insurance regulators.  Although Lumbermens is not in receivership proceedings, it is operating under orders entered by insurance regulators.  It is uncertain whether Lumbermens 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 any claim (the Company has not made any claims to date).  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 August 1, 2007.  In July 2007, the Company purchased a new $1,000,000 primary insurance policy and $10,000,000 excess insurance policy that provides coverage for general liability claims, but not professional liability claims, relating to homes sold at the San Elijo Hills project from July 29, 2007 through August 1, 2011.
 
The Company is reevaluating its plans for the Rampage property, and as part of that process 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.  Once the Company receives offers for the property, if any, it will evaluate whether to sell the Rampage property or continue to conduct farming activities while it explores possible development as a master-planned community.
 
In January 2011, the Company acquired the Fanita Ranch property, a 2,600 acre parcel of vacant land located in Santee, California.  The Company initially acquired the secured note on the property from the lender for $11,000,000 and immediately obtained title to the property in a foreclosure sale.  Fanita Ranch is partially entitled for approximately 1,400 residential units.  The Company acquired the property with the intention of modifying and completing the necessary entitlements to develop the property as a master-planned community; obtaining all the entitlements is expected to take several years.  The Company’s return on this investment, if any, will be dependent upon the Company’s success in obtaining the necessary entitlements to develop the property in accordance with its plan, the actual development costs and the sales prices which can be realized for the developed lots, all of which are uncertain.
 
In July 2004, the Board of Directors approved the repurchase of up to 500,000 shares of the Company’s common stock, representing approximately 6% of the Company’s outstanding stock.  Repurchased shares would be available for, among other things, use in connection with the Company’s stock option plan.  The shares may be purchased from time to time, subject to prevailing market conditions, in the open market, in privately negotiated transactions or otherwise.  Any such purchases may be commenced or suspended at any time without prior notice.  In October 2008, the Company purchased 394,931 shares of the Company’s common stock for approximately $5,900,000 in a private transaction with an unrelated party.  In March 2009, the Company purchased 478 shares of the Company’s common stock in an open market transaction in accordance with the Company’s repurchase plan.  No other shares have been purchased to date.
 
As indicated in the table below, at December 31, 2010, the Company’s contractual cash obligations consisted solely of its operating lease, which net of sublease income totaled $1,000,000.
 
   
Payments Due by Period (in thousands)
 
 
 
 
Contractual Obligations
 
Total Amounts Committed
   
 
Less Than 1 Year
   
 
 
1-3 Years
   
 
 
4-5 Years
   
 
After 5
Years
 
                               
Operating lease, net of sublease income
  $ 1,000     $ 363     $ 637     $ -     $ -  

 
The above amounts do not include liabilities for unrecognized tax benefits as the timing of payments, if any, is uncertain.  Such amounts aggregated $150,000 at December 31, 2010; for more information see Note 10 of Notes to Consolidated Financial Statements.

 
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As of December 31, 2010, the Company had NOLs of $24,450,000 available to reduce its future federal income tax liabilities and $31,050,000 of alternative minimum tax credit carryovers.  The federal NOLs are not available to reduce federal alternative minimum taxable income, which is currently taxed at the rate of 20%.  As a result, the Company expects to pay federal income tax at a rate of 20% during future periods.  For more information, see Note 10 of Notes to Consolidated Financial Statements.
 
Off-Balance Sheet Arrangements
 
The Company is required to obtain infrastructure improvement bonds primarily for the benefit of the City of San Marcos prior to the beginning of lot construction work and warranty bonds upon completion of such improvements at the San Elijo Hills project.  These bonds provide funds primarily to the City in the event the Company is unable or unwilling to complete certain infrastructure improvements in the San Elijo Hills project.  Leucadia is contractually obligated to obtain these bonds on behalf of CDS and its subsidiaries pursuant to the terms of agreements entered into when CDS was acquired by the Company.  CDS is responsible for paying all third party fees related to obtaining the bonds.  Should the City or others draw on the bonds for any reason, certain of the Company’s subsidiaries would be obligated to reimburse Leucadia for the amount drawn.  As of December 31, 2010, the amount of outstanding bonds was approximately $2,850,000, none of which has been drawn upon.
 
Results of Operations
 
Critical Accounting Estimates
 
The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).  The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities.  On an on-going basis, the Company evaluates all of these estimates and assumptions.  Actual results could differ from those estimates.
 
Profit Recognition on Sales of Real Estate – When the Company has an obligation to complete improvements on property subsequent to the date of sale, it utilizes the percentage of completion method of accounting to record revenues and cost of sales.  Under percentage of completion accounting, the Company recognizes revenues and cost of sales based upon the ratio of development costs completed as of the date of sale to an estimate of total development costs which will ultimately be incurred, including an estimate for common areas.  Revenues which cannot be recognized as of the date of sale are reported as deferred revenue on the consolidated balance sheets.
 
The Company believes it can reasonably estimate its future costs and profit allocation in order to determine how much revenue should be deferred.  However, such estimates are based on numerous assumptions and require management’s judgment.  For example, the estimate of future development costs includes an assumption about the cost of construction services for which the Company has no current contractual arrangement.  If the estimate of these future costs proves to be too low, then the Company will have recognized too much profit as of the date of sale resulting in less profit to be reported as the improvements are completed.  However, to date the Company’s estimates of future development costs that have been used to determine the amount of revenue to be deferred at the date of sale have subsequently been proven to be reasonably accurate.
 
Prior to 2010, the percentage of completion method of accounting was applied for sold properties; however, during the fourth quarter of 2009, the Company completed all the required improvements for sold properties and all of the remaining deferred revenue was recognized in income.  In 2010, since all required improvements to sold properties had been completed as of the closing date, the Company applied the full accrual method for those sales.  Accordingly, the Company recognized total sales proceeds, net of closing costs, in revenues and all costs in cost of sales on the closing date.
 
Income Taxes – The Company records a valuation allowance to reduce its net deferred tax asset to an amount that the Company expects is more likely than not to be realized.  If the Company’s estimate of the realizability of its deferred tax asset changes in the future, an adjustment to the valuation allowance would be recorded which would either increase or decrease income tax expense in such period.   The valuation allowance is determined after considering all relevant facts and circumstances, and is based, in significant part, on the Company’s projection of taxable income in the future.  The Company’s estimate does not include any real estate development profit at the Otay Ranch and Rampage properties, since the Company’s plans for development of these properties are uncertain.  The Company calculated the allowance based on the assumption that it would be able to generate future taxable income which would be sufficient to utilize approximately $22,450,000 of the Company’s NOLs, but not any of its alternative minimum tax credit carryovers.

 
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The calculation of the valuation allowance recognizes that the Company’s NOLs will not be available to offset alternative minimum taxable income, which is currently taxed at a federal tax rate of 20%.  When the Company pays alternative minimum tax, it generates an alternative minimum tax credit carryover, which generally can be used to reduce its future federal income tax once it has used all of its NOLs and becomes subject to the regular tax (as opposed to the alternative minimum tax).  Assuming the Company generates sufficient taxable income in the future to fully utilize its NOLs, it will have paid approximately $36,000,000 in federal alternative minimum taxes, generating minimum tax credit carryovers of the same amount to reduce future federal income taxes payable.  Alternative minimum tax credit carryovers have no expiration date.  However, because the minimum tax credit carryovers do not offset alternative minimum tax, effectively they are only able to reduce the Company’s federal income tax rate to 20% in any given year, which means the Company would have to generate an additional $240,000,000 of taxable income above its current estimate to fully use all of the credits.  The Company has fully reserved for this benefit in its valuation allowance.
 
The projection of future taxable income is based upon numerous assumptions about the future, including future market conditions where the Company’s projects are located, regulatory requirements, estimates of future real estate revenues and development costs, the ability of the Company to realize taxable profits prior to the expiration of its NOLs, future interest expense, operating and overhead costs and other factors.  To the extent the Company’s actual taxable income in the future exceeds its estimate, the Company will recognize additional tax benefits and reduce its valuation allowance; conversely, if the actual taxable income is less than the amounts projected, an addition to the valuation allowance would be recorded that would increase tax expense in the future.  Adjustments to the valuation allowance in the future should be expected.
 
During the fourth quarter of 2008, local, national and worldwide economic conditions deteriorated significantly, which adversely affected the real estate market at the San Elijo Hills project and across the country.  The Company updated its projections of future taxable income for its remaining property at the San Elijo Hills project and concluded that an increase to the deferred tax valuation allowance of $9,100,000 was required.
 
Provision for Environmental Remediation – The Company records environmental liabilities when it is probable that a liability has been incurred and the amount or range of the liability is reasonably estimable.  During 2002, the Company recorded a charge of $11,150,000 representing its estimate of the cost (including legal fees) to implement the most likely remediation alternative with respect to approximately 30 acres of undeveloped land owned by the Company’s subsidiary, Flat Rock.  The estimated liability was neither discounted nor reduced for 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.  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 $250,000, primarily for consulting costs.  The liability is reduced for payments related to the development of a remediation plan, onsite testing and legal and other expenses.  The Company is unable to predict with certainty when the remediation will commence and there is no regulatory requirement to commence remediation by a fixed date.
 
In 2005, Flat Rock completed the site investigation and subsequently submitted a remedial investigation and feasibility study to the appropriate regulatory authority for review and approval.  At any time prior to the completion of the remediation, the Company may conclude that the current estimate of its liability needs to be adjusted.  A change to the current estimate could result from, among other things, a conclusion that a different remediation alternative is more appropriate (which could increase or decrease the estimate), that the cost to implement any remediation alternative is different than the Company’s current estimate and/or requirements imposed by regulatory authorities that the Company did not anticipate but is nevertheless required to implement.  The Company periodically examines, and when appropriate, 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.
 
Provision for Impairment Losses on Real Estate – The Company’s real estate is carried at cost.  Whenever events or changes in circumstances suggest that the carrying amount may not be recoverable, management assesses the recoverability of the carrying amount of its real estate in accordance with GAAP and, if impaired, reduces the carrying amount to its estimated fair value.  The process involved in evaluating assets for impairment and determining fair value requires estimates as to future events and market conditions.  This estimation process may assume that the Company has the ability to complete development and dispose of its real estate properties in the ordinary course of business based on management’s present plans and intentions.  If management determines that the carrying value of a specific real estate investment is impaired, a write-down is recorded as a charge to current period operations.  The evaluation process is based on estimates and assumptions and the ultimate outcome may be different.
 

 
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During the fourth quarter of 2008, the estimated market prices for residential condominium units at phase one of the San Elijo Hills Towncenter decreased significantly.  The selling prices for similar units in the surrounding area had been adversely impacted by deteriorating general economic conditions both locally and nationally.  The Company planned to sell the residential units in the San Elijo Hills Towncenter during the ensuing years, and the Company concluded that the falling prices of similar units in the area indicated that the expected selling prices for the Towncenter condominium units might not be realizable.  The Company evaluated the recoverability of the carrying amount of the Towncenter condominium units, and concluded that the carrying value of units was not recoverable and recorded a provision of $4,150,000 to reduce the carrying amount of the units to their estimated fair value of $800,000 at December 31, 2008.
 
Since the Company utilized a discounted cash flow technique to determine the fair value of the condominium units, the fair value determined was considered to be based on Level 3 inputs (significant unobservable inputs).  The condominium units were still under development and as required by GAAP the Company’s projection of future cash flows was reduced by estimates of all future development costs, including capitalized interest.  Future selling prices were based on the Company’s best estimate of market conditions when the units would be available for sale, discounted using a rate that appropriately reflected the inherent risks.
 
In the fourth quarter of 2010, the Company concluded that current market rents for retail tenants at the San Elijo Hills Towncenter were less than rents which the Company had been projecting.  As a result, the Company evaluated the recoverability of phase one of the Towncenter, which is built and substantially leased, and concluded that the carrying value of phase one was recoverable.
 
The Company also reevaluated phase two of the Towncenter, which is yet to be built, concluding that the existing plan containing retail and office space will not provide adequate economic returns, particularly in the current economic environment, and will not be built.  Accordingly, the Company recorded a provision for loss on real estate of $5,400,000 to reduce the carrying amount of phase two of the Towncenter to its estimated fair value of $1,200,000.
 
Since the new plan for phase two of the Towncenter has not yet been determined, the Company employed various approaches to determine its fair value at December 31, 2010.  Phase two of the Towncenter is comprised of just over two acres of developable land at the center of the San Elijo Hills project.  The Company made its own estimate of the amount which could be realized from selling the land, based upon its general knowledge of the project, conversations it has had with potential buyers of other land in the project and comparisons to similar, but not identical, sales of other properties in the market.  The Company also obtained a broker estimate of the current value of the land if marketed for sale with its current entitlements in an “as is” condition.   In addition, the Company received indications of interest from builders who would purchase and develop phase two, some with a residential component.  The estimated fair values from these approaches ranged from $1,200,000 to $1,400,000 and the Company reduced the carrying amount of phase two of the Towncenter to the lower end of that range.  The fair value estimate is considered to be based on Level 3 inputs.  The ultimate amount to be realized from phase two of the Towncenter will depend greatly on a new development plan, the cost to implement that plan and the selling prices and/or rent rates actually received when the new plan is marketed.  If development costs are more than projected, or if the revenues derived from phase two are less than estimated, further reductions to the carrying amount could be required.
 
The Company did not record any provisions for impairment losses during the year ended December 31, 2009.
 
 
Statement of Operations
 
The Company currently has three significant real estate development projects, the San Elijo Hills project, the Otay Ranch project and the Fanita Ranch project purchased in January 2011.  The San Elijo Hills project is a master-planned community that, when completed, will contain approximately 2,364 single family lots, 823 multi-family units, 276 very low income apartment units, two school sites and commercial space which will be sold or leased.  As of February 10, 2011, the remaining land at the San Elijo Hills project to be developed and sold or leased consisted of 325 single family lots, 31 multi-family units and 51,200 square feet of commercial space.   The Company has substantially completed the development of its remaining single family residential lots and has completed development of the first phase of the Towncenter; design options for phase two of the Towncenter are currently being reevaluated.  As discussed above, the timing of the sales of the remaining lot inventory at the San Elijo Hills project is uncertain.  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, on an ongoing basis the Company evaluates the local real estate market and economic conditions in general, 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.

 
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While the San Elijo Hills project is a development community that has been developing and selling lots since 2002, sales at the Otay Ranch project have principally consisted of four individual transactions for relatively large amounts of land.  Individual lot development at the Otay Ranch project has not yet begun, as the Company continues to evaluate how to maximize the value of this investment while processing further entitlements on portions of the property.  If and when the Company determines to commence lot development at the Otay Ranch project, it is expected to last many years.  Assuming the Rampage property is not sold as an operating vineyard, it is not expected to have sales activity for several years.  Any residential development at the Rampage property can only commence after approvals are obtained from multiple government agencies.
 
Real Estate Sales Activity
 
San Elijo Hills Project:
 
For the three years ended December 31, 2010, the Company has closed on sales of real estate and recognized revenues as follows:
 
   
2010
   
2009
   
2008
 
   
(Dollars in thousands)
 
                   
Single family units
    52       32       -  
Multi-family units
    131       -       -  
Residential condominium units
    9       -       -  
Commercial sales – planned square feet
    -       6,450       -  
Purchase price, net of closing costs:
                       
  Single family units
  $ 13,600     $ 7,000     $ -  
  Multi-family units
  $ 18,000     $ -     $ -  
  Residential condominium units
  $ 4,100     -     -  
  Commercial lot sales
  $ -     $ 1,950     $ 1,300  
 
The full purchase price reflected in the table above, net of closing costs, was recognized as revenues on the closing date as all required improvements to the property had been completed.  As discussed above, a portion of the revenue from sales 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.  In addition to revenues recognized on the closing date reflected in the table above, revenues include previously deferred amounts of $5,750,000 and $8,600,000 for 2009 and 2008, respectively, which were recognized upon completion of certain required improvements.  As of December 31, 2009, all previously deferred revenue had been recognized in income since all of the required improvements were completed.
 
During 2008, the Company repurchased a 131 unit multi-family site for $6,000,000 that had previously been sold to a homebuilder in 2005.  The Company’s obligation to the homebuilder to complete certain improvements under the original contract was terminated upon reacquisition of the property; accordingly, the Company recognized all the remainder of the previously deferred revenue of $1,350,000.
 
During 2010, 2009 and 2008, cost of sales of real estate aggregated $16,000,000, $4,400,000 and $1,250,000, respectively.  Prior to 2010, cost of sales was recognized in the same proportion to the amount of revenue recognized under the percentage of completion method of accounting.  In 2010, since all required improvements to sold properties had been completed as of the closing date, the Company applied the full accrual method for those sales and recognized in full as cost of sales the cost of properties sold on the closing date.
 
As discussed above, the Company recorded provisions for impairment losses on real estate at the San Elijo Hills project of $5,400,000 and $4,150,000 for the years ended December 31, 2010 and 2008, respectively.
 
Otay Ranch Project:
 
During 2010, five acres of mitigation land were sold to a project owner who needed mitigation land to complete his development in another area in the City of Chula Vista.  The Company received proceeds of $200,000 and recognized a gain of $150,000.  There were no sales of real estate at the Otay Ranch project during 2009 and 2008.
 

 
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Rampage Property:
 
During 2008, in connection with the settlement of certain litigation the Company sold a 17 acre parcel at the Rampage property for a cash payment to the Company of $300,000.  The Company recognized a gain of $250,000 on the sale.
 
Other Results of Operations Activity
 
The Company recorded co-op marketing and advertising fees of approximately $100,000, $150,000 and $200,000 for the years ended December 31, 2010, 2009 and 2008, 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 for the San Elijo Hills project.
 
The Company capitalized interest of $40,000 for the year ended December 31, 2008.  Interest was capitalized for the notes payable to trust deed holders on the San Elijo Hills project.  Capitalized interest was not material in subsequent years and the notes were fully repaid in December 2010.
 
General and administrative expenses increased during 2010 as compared to 2009 primarily due to greater legal, compensation, marketing and higher depreciation expenses.  Legal expenses increased by $1,050,000, 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 $1,000,000, primarily due to higher general bonus expense, as well as share-based compensation expense; and marketing expenses increased by $250,000, as a result of a new advertising campaign for the release of new inventory by homebuilders at the San Elijo Hills project.  Depreciation expense increased by $150,000, primarily due to the September 2009 opening of the retail spaces at the San Elijo Hills Towncenter.  General and administrative expenses for 2009 also reflect $150,000 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 2010.
 
General and administrative expenses decreased by $4,800,000 during 2009 as compared to 2008 primarily due to the settlement of a lawsuit in 2008 related to the Rampage property for $1,150,000.  The decline in general and administrative expenses in 2009 also reflects $900,000 of lower marketing expenses as a result of a reduction in advertisements due to the limited number of new homes for sale at the San Elijo Hills project; $500,000 of lower compensation expense principally due to workforce reductions; $500,000 of lower legal expenses; $400,000 of lower professional fees; and $150,000 of lower travel expenses.  In addition, during 2008, the Company incurred $400,000 of additional expenses related to the termination of certain employees, and spent $500,000 investigating a potential real estate project that was not acquired.  General and administrative expenses for 2009 and 2008 also reflect payments of $100,000 and $200,000, respectively, to acquire an option to purchase water storage capacity for the Rampage property.
 
Interest and other income, net includes farming income at the Rampage property of $3,950,000 for 2010 as compared to $3,000,000 for 2009 (of which $1,050,000 related to insurance proceeds received as a result of weather damage to the grapes).  Other income, net includes farming expenses at the Rampage property of $2,700,000 for 2010 as compared to $3,150,000 for 2009, resulting from decreased vineyard rejuvenation, replanting and repairs.  Interest and other income, net also reflects a decline in interest income of $300,000 in 2010 as compared to 2009, due to lower interest rates and a lower amount of invested assets.  Rental income increased in 2010 as compared to 2009 by $350,000, primarily due to the leasing of retail spaces at the San Elijo Hills Towncenter.  During 2009, the Company recognized in interest and other income $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.
 
The decrease in interest and other income, net during 2009 as compared to 2008 primarily reflects a decline in interest income of $1,750,000, due to lower interest rates and a lower amount of invested assets reflecting cash used for operating and financing activities.  Other income, net includes increased farming income of $1,300,000 in 2009 (of which $1,050,000 related to insurance proceeds received as a result of weather damage to the grapes) as compared to 2008.  Other income, net includes increased farming expenses of $1,950,000 in 2009 as compared to 2008, resulting from an increase in acreage being farmed from 500 acres to 1,400 acres.  The additional acreage being farmed was previously leased to a third-party.  Interest and other income, net for 2009 also included $400,000 of homebuilder fees, discussed above.

 
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The Company’s effective income tax rate during 2010, 2009 and 2008 is higher than the federal statutory rate due to California state income taxes and, in 2008, due to an increase in the deferred tax valuation allowance of $9,100,000.
 
Inflation
 
The Company, as well as the real estate development and homebuilding industry in general, may be adversely affected by inflation, primarily because of either reduced rates of savings by consumers during periods of low inflation or higher land and construction costs during periods of high inflation.  Low inflation could adversely affect consumer demand by limiting growth of savings for down payments, ultimately adversely affecting demand for real estate and the Company’s revenues.  High inflation increases the Company’s costs of labor and materials.  The Company would attempt to pass through to its customers any increases in its costs through increased selling prices.  To date, high or low rates of inflation have not had a material adverse effect on the Company’s results of operations.  However, there is no assurance that high or low rates of inflation will not have a material adverse impact on the Company’s future results of operation.
 
Interest Rates
 
The Company’s operations are interest-rate sensitive.  The Company had indirectly benefited from the prevailing low mortgage interest rate environment, since low rates made housing more affordable for the home buyer, thereby increasing demand for homes.  The Company can not predict whether interest rates will remain low and what impact an increase in interest rates and mortgage rates would have on the Company’s operations, although any significant increase in these rates could have a chilling effect on the housing market, which could adversely affect the Company’s results of operations.
 
Item 7A.  Quantitative and Qualitative Disclosure About Market Risk.
 
The Company’s market risk arises principally from interest rate risk related to its investment portfolio and borrowing activities.
 
At December 31, 2010, the Company had investments of approximately $38,300,000 in securities issued by the U.S. Government.  The Company’s investment portfolio is classified as available for sale, and is reflected in the balance sheet at fair value with unrealized gains and losses reflected in equity.  The U.S. Government securities in the portfolio are rated “AAA” and “Aaa” by Standard & Poor’s and Moody’s, respectively.  All of these fixed income securities mature in 2011; the estimated weighted average remaining life of these fixed income securities was approximately 0.3 years at December 31, 2010.  At December 31, 2009, the Company’s investments consisted of fixed income securities with an estimated weighted average remaining life of approximately 0.2 years and a weighted average interest rate of 0.4%.  The Company’s fixed income securities, like all fixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase.
 
   
Expected Maturity Date
 
   
2011
   
2012
   
2013
   
2014
   
2015
   
Thereafter
   
Total
   
Fair Value
 
   
(Dollars in thousands)
 
                                                 
Rate Sensitive Assets:
                                               
 Available for Sale Fixed
   Income Securities
                                               
   U.S. Treasury Securities
  $ 38,287     $ -     $ -     $ -     $ -     $ -     $ 38,287     $ 38,287  
     Weighted Average
  Interest Rate
    0.18 %     -       -       -       -       -       -          
 
 
Item 8.   Financial Statements and Supplementary Data.
 
Financial Statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 15(a) below.
 

 
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Item 9.   Changes and Disagreements with Accountants on Accounting and Financial Disclosure.
 
None.
 
Item 9A.  Controls and Procedures.
 
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 December 31, 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 December 31, 2010.
 
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 December 31, 2010, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
 
Management’s Report on Internal Control Over Financial Reporting
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934.  Internal control over financial reporting is a process designed 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 and includes those policies and procedures that:
 
·  
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of the Company;
 
·  
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
·  
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010.  In making this assessment, the Company’s management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
 
Based on our assessment and those criteria, management concluded that, as of December 31, 2010, the Company’s internal control over financial reporting is effective.
 
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8.
 
Item 9B.  Other Information.
 
Not applicable.
 

 
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PART III
 
Item 10.   Directors, Executive Officers and Corporate Governance.
 
 
As of February 10, 2011, the directors and executive officers of the Company, their ages, the positions with the Company held by each of them, the periods during which they have served in such positions and a summary of their recent business experience is set forth below.  Each of the biographies of the current directors listed below also contains information regarding such person’s service as a director, business experience, director positions with other public companies held currently or at anytime during the past five years, and the experience, qualifications, attributes and skills that the Board of Directors considered in selecting each of them to serve as a director of the Company.
 
 
Patrick D. Bienvenue, age 56.  Mr. Bienvenue has served as a director since August 1998.  Since January 1996, Mr. Bienvenue has served in a variety of executive capacities with real estate related subsidiaries of Leucadia and has been active in the community redevelopment activities of those subsidiaries. Mr. Bienvenue has both managerial and development experience in the real estate sector.
 
 
Paul J. Borden, age 62.  Mr. Borden has served as a director and our President since May 1998.  Mr. Borden was a Vice President of Leucadia from August 1988 through October 2000, responsible for overseeing many of Leucadia’s real estate investments.  Prior to working for Leucadia he had a 16 year career in commercial lending.  Mr. Borden has managerial and development experience in the real estate sector.
 
 
Timothy M. Considine, age 70.  Mr. Considine has served as a director since January 1992, serving as Chairman of the Board from 1992 to December 1999, and is employed on a part-time basis by Considine and Considine, an accounting firm in San Diego, California, where he was a partner from 1965 to 2002. Mr. Considine has accounting and managerial experience.  He also has experience advising the Port of San Diego on various real estate matters.  Mr. Considine also has experience serving on the boards of private entities.
 
 
Ian M. Cumming, age 70.  Mr. Cumming has served as a director since May 1999.  He has been a director and Chairman of the Board of Leucadia since June 1978 and a director of Skywest, Inc., a Utah-based regional air carrier, since June 1986.  Mr. Cumming is also a director of Fortescue Metals Group Ltd (“Fortescue”), an Australian public company that is engaged in the mining of iron ore, in which Leucadia has an 8% equity interest.  Mr. Cumming is also a director of Jefferies Group, Inc. (“Jefferies”), a publicly traded full service global investment bank and institutional securities firm serving companies and other investors in which Leucadia has an approximate 28% interest.  Mr. Cumming was also a director of AmeriCredit Corp.  Mr. Cumming had been Chairman of the Board of The FINOVA Group Inc. (“FINOVA”), and a member of the Board of Managers of Premier Entertainment Biloxi, LLC.  Mr. Cumming has managerial and investing experience in a broad range of businesses through his more than 30 years as Chairman and Chief Executive Officer of Leucadia.  He also has experience serving on the boards of directors and committees of both public and private entities.
 
 
Michael A. Lobatz, age 61.  Dr. Lobatz has served as a director since February 1995 and has been a practicing physician in San Diego, California since 1981.  Dr. Lobatz has managerial experience in both the real estate and healthcare sectors and has experience serving on the boards of private and not-for-profit entities.
 
 
Joseph S. Steinberg, age 67.  Mr. Steinberg has served as a director since August 1998 and as Chairman of the Board since December 1999. Mr. Steinberg has been President of Leucadia since January 1979 and a director of Leucadia since December 1978.  Mr. Steinberg is also an alternate director of Fortescue and a director of Jefferies.  Mr. Steinberg had previously served as a director of Jordan Industries, Inc., White Mountains Insurance Group, Ltd and FINOVA, and was a member of the Board of Managers of Premier Entertainment Biloxi, LLC.  Mr. Steinberg has managerial and investing experience in a broad range of businesses through his more than 30 years as President and a director of Leucadia.  He also has experience serving on the boards and committees of both public and private companies.
 

 
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Curt R. Noland, age 54.  Mr. Noland has served as Vice President of the Company since October 1998.  He has worked in the land development industry in San Diego County as a design consultant, merchant builder and a master developer since the 1980s.  From November 1997 until joining the Company, Mr. Noland was employed by the prior development manager of San Elijo Hills and served as Director of Development for San Elijo Hills.  Prior to November 1997, Mr. Noland was employed for eight years by Aviara Land Associates, LP, a 1,000 acre master-planned resort community in Carlsbad, California.  He is also a licensed civil engineer and real estate broker.
 
 
Erin N. Ruhe, age 45.  Ms. Ruhe has served as Vice President of the Company since April 2000, Treasurer since March 2004 and has been employed by the Company as Controller since January 1999.  Previously, Ms. Ruhe was Vice President since December 1995 and Controller since November 1994 of HSD Venture, a real estate subsidiary of Leucadia.
 
 
Audit Committee
 
 
The Board of Directors has a standing Audit Committee, established in accordance with the requirements of the SEC.  The Board of Directors has adopted a charter for the Audit Committee that was filed with the Company’s proxy statement for its 2008 Annual Meeting of Stockholders.  The Audit Committee consists of Mr. Considine (Chairman) and Dr. Lobatz.  The Board of Directors has determined that Mr. Considine is qualified as an audit committee financial expert within the meaning of regulations of the Securities and Exchange Commission and is independent applying the NASDAQ Stock Market’s listing standards for independence.
 
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
 
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission.  Based solely upon a review of the copies of the forms furnished to us and written representations from our executive officers, directors and greater than 10% beneficial shareholders, we believe that during the year ended December 31, 2010, all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis.
 
 
Code of Business Practice
 
 
We have a Code of Business Practice, which is applicable to all of our directors, officers and employees, and includes a Code of Practice applicable to our principal executive officers and senior financial officers.  Both the Code of Business Practice and the Code of Practice are available without charge upon request. Requests should be addressed to Corporate Secretary, HomeFed Corporation, 1903 Wright Place, Suite 220, Carlsbad, California 92008.  If any amendments to or waivers of our Code of Practice applicable to our principal executive officers and senior financial officers occur, we will file with the Securities and Exchange Commission all required information under cover of a Form 8-K.
 
Item 11.   Executive Compensation.
 
Compensation Discussion and Analysis
 
Introduction
 
 
The Board of Directors has a compensation committee consisting of Joseph S. Steinberg that determines and approves the compensation of the executive officers of the Company, including those named in the Summary Compensation Table (the “Named Executive Officers”).
 
 
Compensation Objectives and Philosophy
 
Our compensation philosophy is based upon rewarding current and past contributions, performance and dedication and providing incentives for superior long-term performance.  We believe that there should be a strong link between pay and performance of both the Company and the individual.  Accordingly, a large percentage of annual compensation consists of discretionary bonus compensation.  This ensures that compensation paid to an executive reflects the individual’s specific contributions to our success, the level and degree of complexity involved in his/her contributions to the Company and the Company’s overall performance.  We believe our compensation package aligns the interests of executive officers with those of our stockholders.
 

 
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The Company believes that our current compensation program fits within our overall compensation philosophy of providing a straight-forward compensation package and strikes the appropriate balance between short and long-term performance objectives.
 
 
Setting Executive Compensation
 
In determining compensation for our Named Executive Officers, the Compensation Committee does not rely on any specific formula, benchmarking or pre-determined targets.  The Compensation Committee focuses primarily on its subjective determination of the performance of the individual executive officer, as well as on the performance of the Company.
 
In considering executive compensation, the Compensation Committee takes into account an executive officer’s responsibilities, as well as the services rendered by the executive officer to the Company.
 
 
Elements of Compensation
 
Our compensation package for executive officers consists of three basic elements: (1) base salary; (2) annual bonus compensation; and (3) long-term incentives in the form of stock options granted pursuant to our amended and restated 1999 stock incentive plan (the “Option Plan”).
 
Other elements of compensation include medical and life insurance benefits available to employees generally.  Additionally, certain perquisites may be available to executive officers that are not available to other employees generally.
 
Each element of compensation serves a different purpose.  Salary and bonus payments are designed mainly to reward current and past performance, while stock options are designed to provide incentive for strong long-term future performance and are directly linked to stockholders’ interests because the value of the awards will increase or decrease based upon the future price of our common stock.
 
None of our executive officers is a party to an employment agreement with the Company.
 
 
Base Salary
 
Base salary is consistent with the executive’s office and level of responsibility, with annual salary increases which generally amount to a small percentage of the executive’s prior base salary, primarily reflecting cost of living increases.
 
 
Short-Term Incentives – Annual Bonus Compensation
 
Annual bonus compensation of executive officers is determined by the Compensation Committee based on its subjective assessment of an executive’s and the Company’s performance, given the cyclical nature of the real estate development industry.  Bonuses are subjective and are not based upon any formula or the application of any mathematical criteria.   While there is no agreement to pay annual bonuses, at the time each of the executive officers was employed by the Company there was a discussion that, in all but exceptional circumstances, annual subjective bonuses would be paid. The Compensation Committee considers the Company’s actual and estimated results of operations for the year in question, as well as operating results and bonus compensation for prior years.  The Committee also considers self-evaluations completed by each executive officer for the year, which provide the Compensation Committee with each executive’s subjective assessment of his or her achievements for the year, as well as identify personal goals for the coming year, and bonus recommendations from the Company’s President.
 
In evaluating each executive’s performance, the Compensation Committee takes into account the incremental value to the Company of obtaining project approvals and entitlements as the Company’s development projects progress, and places more emphasis on whether the executive’s performance has increased the long term value of the Company, rather than on the Company’s earnings for that year.  The Compensation Committee also recognizes that, due to the extended length of time that it takes to obtain land entitlements, especially in California where the Company’s business is centered, the current efforts of its executive officers may not result in operating profits for many years in the future.
 
Bonuses, which have varied from year to year, also reflect the Company’s profitability and activities for the year in question.  For example, in years in which the Company is actively selling real estate, the Compensation Committee is likely to subjectively consider the executive’s contribution to the sales effort and in years in which the Company is actively engaged in land acquisition, entitlement and land development efforts, the Compensation Committee is likely to consider the executive’s contribution to these efforts.  The Compensation Committee also subjectively considers the executive’s contribution in evaluating new opportunities, and also places importance upon the executive’s critical analysis that can result in avoiding making investments that do not meet the Company’s investment criteria and are not consummated, as well as on those opportunities that are consummated.
 

 
26

 

 
 
The Compensation Committee considered Mr. Borden’s efforts in 2010 in continuing to identify and investigate new land acquisition opportunities, managing the Company’s litigation, and providing support to the ongoing sales effort at San Elijo Hills.  The Compensation Committee also considered Mr. Borden’s leadership in ensuring that the company made progress in its planning and entitlement of the Otay Land Company property, improving the operations and value of the Rampage Property and helping to advance the plan to resolve the environmental cleanup of the Flat Rock property.  With Mr. Borden’s leadership, in 2010 the Company continued to control costs and spending, resulting in a stronger balance sheet and increased liquidity.
 
For Mr. Noland, the Compensation Committee considered the continuing progress made in advancing the planning and entitlement of the Otay Land Company property, the ongoing sales of lots at San Elijo Hills and his successful effort to increase and strengthen the Company’s relationships with numerous home builders and developers. The Committee also recognized Mr. Noland’s increased support of the Company’s efforts to investigate new acquisition opportunities, control costs and resolve litigation.
 
For Ms. Ruhe, the Compensation Committee acknowledged her continuing efforts to control costs and spending.  The Compensation Committee also considered her accomplishments in 2010 managing the Company’s accounting and internal controls; no compliance issues or areas of weakness in internal controls over financial reporting were discovered during the annual audit.  The Compensation Committee also recognized her capable management of the Company’s cash and investments which included efforts to investigate alternative opportunities to improve current returns.  The Compensation Committee also recognized Ms. Ruhe’s excellent work done in support of the Company’s litigation and compliance with information requests.
 
Based upon the foregoing, on January 5, 2011, the Compensation Committee approved annual salary increases (effective January 1, 2011) and discretionary 2010 cash bonuses for each of the Named Executive Officers reflected in the Summary Compensation Table below.
 
Additionally, all employees of the Company received a discretionary 2010 year-end bonus equal to approximately 3% of base salary.
 
 
Long-Term Incentives – Stock Options
 
 
By means of our Option Plan, we seek to retain the services of persons now holding key positions and to secure the services of persons capable of filling such positions.
 
 
Options Awarded to Executive Officers
 
 
Occasionally, stock options may be awarded which, under the terms of our Option Plan, permit the executive officer or other employee to purchase shares of our common stock at not less than the fair market value of the shares of common stock at the date of grant.  The extent to which the employee realizes any gain is, therefore, directly related to increases in the price of our common stock and, therefore, stockholder value, during the period of the option.  In certain circumstances, options having an exercise price below the fair market value of our common stock on the date of grant may be issued (although none have been granted to date).  Options granted to executive officers generally become exercisable at the rate of 20% per year, commencing one year after the date of grant.  The number of stock options awarded to an executive officer is generally not based on any specific formula, but rather on a subjective assessment of the executive’s performance and the Company’s performance.  Options are priced at the closing price on the date of grant and are not granted to precede the announcement of favorable information.  In May 2010, options to purchase an aggregate of 32,500 shares of common stock were granted to executive officers under the Company’s stock option plan at an exercise price of $25.00 per share, the then current market price per share.  Prior to these option awards, the last time options were granted to executive officers was 2000, excluding options granted to Paul J. Borden in his capacity as a director as discussed below.
 
 
Options Awarded to Directors
 
 
Under the terms of our Option Plan, each director is automatically granted options to purchase 1,000 shares on the date on which the annual meeting of our stockholders is held each year.  As stated above, options are priced at the closing price on the date of grant.
 
 
In August 2010, pursuant to this automatic grant, Paul J. Borden was granted options to purchase 1,000 shares of our common stock with an exercise price of $21.00 per share, which become exercisable at the rate of 25% per year, commencing one year after the date of grant.
 

 
27

 

 
 
 
 
Other Benefits; Executive Perquisites
 
 
Medical and life insurance benefits and matching contributions to our 401(k) plan are available to employees generally.
 
 
Mr. Borden maintains his primary residence in New Jersey.  We reimburse him for costs of maintaining a temporary residence in California, airfare to and from his primary residence and transportation costs including the personal use of a Company car while in California.  Such reimbursements are considered to be taxable compensation reportable by Mr. Borden under federal income tax rules, which results in a net cash cost to him, even though he does not gain any incremental financial benefit from these reimbursements.  As a result, beginning in 2005, the Board of Directors (without Mr. Borden’s participation) agreed to pay Mr. Borden additional compensation which, after taxes, will provide him with sufficient funds to pay the taxes due on the expense amounts reimbursed by us.  In 2010, we paid Mr. Borden $50,300 with respect to additional taxable compensation reported by Mr. Borden for reimbursements made during 2010.
 
 
Mr. Noland receives the use of a Company owned car and certain related benefits.
 
 
No other Named Executive Officers receive perquisites.
 
 
Stock Ownership Requirements
 
We do not have a formal stock ownership requirement.
 
 
Accounting and Tax Matters
 
 
The cost of all share-based payments to employees or directors is recognized in the financial statements based on their fair values.  The cost is recognized as an expense over the vesting period of the award.
 
 
Under the provisions of Section 162(m) of the Internal Revenue Code of 1986, we would not be able to deduct compensation to our executive officers whose compensation is required to be disclosed for such year in excess of $1 million per year unless such compensation was within the definition of “performance-based compensation” or meets certain other criteria.  To qualify as “performance-based compensation,” in addition to certain other requirements, compensation generally must be based on achieving certain pre-established objective performance criteria.  The Board of Directors believes that compensation at such levels is not likely to be a recurring event and that it is in our interest to retain maximum flexibility in our compensation programs to enable us to appropriately reward, retain and attract the executive talent necessary to the Company’s success.  The Board recognizes that in appropriate circumstances compensation that is not deductible under Section 162(m) may be warranted and could be paid in the Board of Directors’ discretion.
 
 
Compensation Committee Report
 
 
I have reviewed and discussed with the Company’s management the above Compensation Discussion and Analysis (“CD&A”).  Based upon my review and discussions, I have recommended to the Board of Directors that the CD&A be included in this Form 10-K.
 
Compensation Committee
 
Joseph S. Steinberg

 
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Summary Compensation Table
 
                                 
                       
All Other
       
Name and Principal
Position
Year
 
Salary
   
Bonus
   
Option
Awards (1)
   
Compensation (2)
   
Total
 
                                 
Paul J. Borden,
2010
  $ 271,317     $ 258,140     $ 143,539     $ 184,098 (3)   $ 857,094  
  President
2009
  $ 263,415     $ 157,902     $ 8,662     $ 152,659     $ 582,638  
 
2008
  $ 255,742     $ 182,672     $ 10,200     $ 202,984     $ 651,598  
                                           
Curt R. Noland,
2010
  $ 175,579     $ 280,267     $ 109,895     $ 24,170 (4)   $ 589,911  
  Vice President
2009
  $ 170,465     $ 155,114     $ -     $ 16,308     $ 341,887  
 
2008
  $ 165,500     $ 104,965     $ -     $ 17,274     $ 287,739  
                                           
Erin N. Ruhe,
2010
  $ 142,055     $ 229,262     $ 109,895     $ 12,576     $ 493,788  
  Vice President,
2009
  $ 137,917     $ 129,138     $ -     $ 9,800     $ 276,855  
  Treasurer and
2008
  $ 133,900     $ 129,017     $ -     $ 9,200     $ 272,117  
  Controller
                                         
 
(1)
This column represents the fair value of stock options granted to the named executive in accordance with GAAP.  Information on the valuation assumptions made when calculating the amounts in this column is found in Note 7 to the Company’s consolidated financial statements contained herein.
 
(2)
Certain items included in this column (including personal use of company cars) are currently taxable to the Named Executive Officer.  The amount of taxable income for the individual is determined pursuant to Internal Revenue Service rules which may differ from the amounts reflected in this column.
 
(3)
For 2010, consists of non-cash compensation of $35,794 for maintaining a temporary residence in California and $21,849 for airfare to and from his primary residence in New Jersey, and director fees from the Company of $24,000. This column also includes transportation and the personal use of a Company car while in California and related expenses, as well as contributions made by the Company to a defined contribution 401(k) plan on behalf of Mr. Borden, none of which exceeded the greater of $25,000 or 10% of the total amount of these benefits for Mr. Borden.  For 2010, also includes $50,300 in additional cash compensation which, after taxes, is intended to provide Mr. Borden with sufficient funds to pay the taxes due on the expense amounts reimbursed by us.
 
(4)
Consists of non-cash compensation for use of a Company car and related expenses and contributions made by the Company to a defined contribution 401(k) plan on behalf of Mr. Noland, none of which exceeded the greater of $25,000 or 10% of the total amount of these benefits for Mr. Noland.
 
Grants of Plan-Based Awards in 2010
 
This table provides information about equity awards granted to the named executives in 2010 under our 1999 Stock Option Plan.  As discussed in the CD&A, in August 2010 Mr. Borden was granted 1,000 options pursuant to the automatic grant to directors under the 1999 stock incentive plan.
 


     
All Other Option
             
     
Awards: Number of
   
Exercise or Base
   
Grant Date Fair
 
     
Securities Underlying
   
Price of Option
   
Value of Stock and
 
Name
Grant Date
 
Options (#) (1)
   
Awards ($/sh) (2)
   
Option Awards (3)
 
                     
Paul J. Borden,
  8/2/10
    1,000     $ 21.00     $ 6,170  
  President
5/11/10
    12,500     $ 25.00     $ 137,369  
                           
Curt R. Noland,
5/11/10
    10,000     $ 25.00     $ 109,895  
  Vice President
                         
                           
Erin N. Ruhe,
5/11/10
    10,000     $ 25.00     $ 109,895  
  Vice President,
                         
  Treasurer and
                         
  Controller
                         

 
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(1)
This column shows the number of common shares issuable under options granted in 2010.  Employee options, which were granted on May 11, 2010, vest and become exercisable in five equal installments beginning one year after the grant date.  Options granted to Mr. Borden as a director vest and become exercisable in four equal installments beginning one year after the grant date.
 
(2)
This column shows the exercise price for the stock options granted, which was the closing price of the Company’s common stock on the date of grant.
 
(3)
This column shows the fair value of stock options granted to the Named Executive Officers in 2010.  The fair value was determined in accordance with GAAP on the grant date, and is being recognized as an expense over the vesting period.  For information on the valuation assumptions with respect to this grant refer to Note 7 to our consolidated financial statements contained herein.
 

Outstanding Equity Awards at Fiscal Year-End
 

This table provides information on the holdings of option awards by the Named Executive Officers at December 31, 2010.  This table includes exercisable and unexercisable options.  Employee options, which were granted on May 11, 2010, vest and become exercisable in five equal annual installments, commencing one year from the grant date.  Other options granted to Mr. Borden as a director vest and become exercisable in four equal annual installments, commencing one year from the grant date.  For additional information about the option awards, see Options Awarded to Executive Officers in the CD&A.
 
 
     
Option Awards
     
Number of Securities
 Underlying Unexercised
 Options
   
Option
 Exercise
 
 
Option
 Expiration
Name
Grant Date
 
Exercisable
   
Unexercisable
   
Price
 
Date
                       
Paul J. Borden,
7/18/06
    1,000       -     $ 65.50  
7/18/11
  President
7/10/07
    750       250     $ 62.75  
7/10/12
 
7/15/08
    500       500     $ 40.25  
7/15/13
 
7/14/09
    250       750     $ 23.00  
7/14/14
 
5/11/10
    -       12,500     $ 25.00  
5/11/16
 
8/2/10
    -       1,000     $ 21.00  
  8/2/15
                             
Curt R. Noland,
5/11/10
    -       10,000     $ 25.00  
5/11/16
  Vice President
                           
                             
Erin N. Ruhe,
5/11/10
    -       10,000     $ 25.00  
5/11/16
  Vice President,
                           
  Treasurer and
                           
  Controller
                           
 
 
Option Exercises and Stock Vested in Fiscal 2010
 
No stock options were exercised by the Named Executive Officers during 2010 and no stock awards were outstanding.
 
Director Compensation
 
In 2010, each director received a retainer of $24,000 for serving on the Board of Directors.  In addition, Mr. Considine was paid $26,000 for serving as Chairman of the Audit Committee, and Dr. Lobatz was paid $17,000 for serving on the Audit Committee.  Under the terms of our Amended and Restated 1999 Stock Incentive Plan, each director is automatically granted options to purchase 1,000 shares on the date on which the annual meeting of our stockholders is held each year.  The purchase price of the shares covered by such options is the fair market value of such shares on the date of grant.  These options become exercisable at the rate of 25% per year commencing one year after the date of grant. As a result of this provision, options to purchase 1,000 shares of Common Stock at an exercise price of $21.00 per share were awarded to each of Messrs. Bienvenue, Considine, Cumming, Lobatz and Steinberg on August 2, 2010.  The Company reimburses directors for reasonable travel expenses incurred in attending board and committee meetings.
 

 
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This table sets forth compensation paid to the non-employee directors during 2010.
 
 
 
 
Name
 
Fees Earned or
Paid in
Cash (1)
   
 
Option
Awards (2)
   
 
 
Total (3)
 
                   
Patrick D. Bienvenue
  $ 24,000     $ 6,170     $ 30,170  
Timothy M. Considine
  $ 50,000     $ 6,170     $ 56,170  
Ian M. Cumming
  $ 24,000     $ 6,170     $ 30,170  
Michael A. Lobatz
  $ 41,000     $ 6,170     $ 47,170  
Joseph S. Steinberg
  $ 24,000     $ 6,170     $ 30,170  
 
(1)
This column reports the amount of cash compensation earned in 2010 for Board and committee service.
 
(2)
This column represents the fair value of options granted to directors in 2010 calculated in accordance with GAAP.  Information on the valuation assumptions made when calculating the amounts in this column is found in Note 7 to the Company’s consolidated financial statements contained herein.
 
(3)
This table does not include disclosure for any perquisites and other personal benefits for any non-employee director because such amounts did not exceed $10,000 in the aggregate per director.
 
Potential Payment Upon Termination of Employment
 
None of the Named Executive Officers is a party to an employment agreement.  However, under the terms of our current 1999 Stock Incentive Plan, the time within which to exercise vested options may be extended in accordance with the 1999 Stock Incentive Plan, but not beyond the expiration date of the Option, for a period of either three months, one year or three years, depending on the triggering event (which are various forms of termination of employment); these triggering events do not result in any acceleration of any unvested Options.  For the number of Options exercisable by each Named Executive Officer as of December 31, 2010 see the “Outstanding Equity Awards at Fiscal Year-End” table.
 
Upon the occurrence of an Extraordinary Event of the Company (as defined in the 1999 Stock Incentive Plan, including a change in control of the Company) all then-outstanding Options that have not vested or become exercisable will immediately become exercisable.  Had an Extraordinary Event occurred on December 31, 2010, Paul J. Borden, would have received $1,000 for his outstanding stock options (determined by multiplying (A) the spread between the $21.80 per common share closing price on December 31, 2010 and the per common share exercise price for each option that has an exercise price less than that closing price by (B) the number of common shares covered by previously unvested options).  Since the exercise price of all outstanding stock options held by Curt R. Noland and Erin N. Ruhe is greater than the per share common closing price on December 31, 2010 they would have not received any payment.
 
Compensation Policies and Risk Management
 
As discussed herein, the Company does not have a formal compensation plan for any of its 13 full time employees.  Annually, the compensation committee will consider awarding incentive compensation awards that are purely discretionary, taking into account the employee’s individual performance as well as the Company’s performance for the particular year.  Accordingly, the Company believes that its compensation policies do not reward employees for imprudent risk taking.
 
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 

 
31

 
Equity Compensation Plan Information
 
The following table summarizes information regarding the Company’s equity compensation plans as of December 31, 2010.  All outstanding awards relate to the Company’s Common Stock.
 
 
 
 
 
 
 
 
Plan Category
 
Number of Securities
to be issued upon
exercise of outstanding options,
warrants and rights
(a)
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
   
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
 
                   
Equity compensation
  plans approved by
  security holders
      104,500     $ 30.02         395,400  
                         
Equity compensation
                       
  plans not approved
                       
  by security holders
     -        -        -  
                         
Total
    104,500     $ 30.02       395,400  
 
Present Beneficial Ownership
 
Set forth below is certain information as of February 10, 2011, with respect to the beneficial ownership determined in accordance with Rule 13d-3 under the Securities and Exchange Act of 1934, as amended, of our common stock by (1) each person, who, to our knowledge, is the beneficial owner of more than 5% of our outstanding common stock, which is our only class of voting securities, (2) each director and nominee for director, (3) each of the executive officers named in the Summary Compensation Table under “Executive Compensation,” (4) the trusts for the benefit of Mr. Steinberg’s children and  charitable foundations established by Mr. Cumming and Mr. Steinberg and (5) all of our executive officers and directors as a group.  Unless otherwise stated, the business address of each person listed is c/o HomeFed Corporation, 1903 Wright Place, Suite 220, Carlsbad, California 92008.
 
Name and Address of Beneficial Owner
 
Number of Shares
and Nature of
Beneficial Ownership
 
Percent
of Class
 
               
Leucadia National Corporation (a)                                                                                 
    2,474,226         31.4 %
Beck, Mack & Oliver LLC (b)                                                                                 
    1,091,146  
  (b)
    13.8 %
Patrick D. Bienvenue                                                                                 
    3,900  
  (c)
    *  
Paul J. Borden                                                                                 
    2,700  
  (c)
    *  
Timothy M. Considine                                                                                 
    4,400  
  (d)
    *  
Ian M. Cumming                                                                                 
    607,233  
  (e)(f)
    7.7 %
Michael A. Lobatz                                                                                 
    3,900  
  (c)
    *  
Curt R. Noland                                                                                 
    5,000         *  
Erin N. Ruhe                                                                                 
    5,000         *  
Joseph S. Steinberg                                                                                 
    744,520  
  (f)(g)
    9.4 %
The Steinberg 1989 Trust                                                                                 
    27,532  
  (h)
    .3 %
Cumming Foundation                                                                                 
    172,330  
  (i)
    2.2 %
The Joseph S. and Diane H. Steinberg
     1992 Charitable Trust                                                                                 
    42,381  
  (j)
    .5 %
All Directors and executive officers
   as a group (8 persons)                                                                                 
    1,376,653  
  (k)
    17.4 %
___________________
* Less than .1%.
 
 
32

 
 
 
(a)
The business address of this beneficial owner is 315 Park Avenue South, New York, New York 10010.

 
(b)
The business address of the beneficial owner is 360 Madison Avenue, New York, New York 10017.  Based upon a Schedule 13G filed with the SEC on January 26, 2011, by Beck, Mack & Oliver LLC (“BMO”) and discussions with BMO, the securities reported in BMO’s Schedule 13G are beneficially owned by separate managed account holders which, pursuant to individual advisory contracts, are advised by BMO.  Such advisory contracts grant to BMO all investment and voting power over the securities owned by such advisory clients.  Beneficial ownership of these common shares, including all rights to distributions in respect thereof and the proceeds of a sale or disposition, is held by the separate, unrelated account holders, and BMO disclaims beneficial ownership of such common shares.
 
(c)
Includes 2,500 shares that may be acquired upon the exercise of currently exercisable stock options.
 
(d)
Includes 500 shares held by the Seeseeanoh Inc. Retirement Plan.  Mr. Considine and his wife are the sole owners of Seeseeanoh, a real estate company in San Diego, California.  Also includes (i) 1,400 shares held by The Considine Family 1981 Trust, of which Mr. Considine and his wife are trustees and (ii) 2,500 shares that may be acquired upon exercise of currently exercisable stock options.
 
(e)
Includes (i) 9,530 shares (.1%) beneficially owned by Mr. Cumming’s wife (directly and through trusts for the benefit of Mr. Cumming’s children of which Mr. Cumming’s wife is trustee) as to which Mr. Cumming may be deemed to be the beneficial owner, (ii) 60,000 shares (.8%) held by a corporation which is 50% owned by Mr. Cumming and 50% owned by Mr. Cumming’s wife and (iii) 2,500 shares that may be acquired upon the exercise of currently exercisable stock options.  Does not include 2,474,226 shares held by Leucadia which Mr. Cumming may be deemed to beneficially own as a result of his beneficial ownership of Leucadia common shares.
 
(f)
Messrs. Cumming and Steinberg have an oral agreement pursuant to which they will consult with each other as to the election of a mutually acceptable Board of Directors of the Company.  The business address for Messrs. Cumming and Steinberg is c/o Leucadia National Corporation, 315 Park Avenue South, New York, New York 10010.
 
(g)
Includes (i) 3,676 shares (less than .1%) beneficially owned by Mr. Steinberg’s wife and daughter as to which Mr. Steinberg may be deemed to be the beneficial owner, (ii) 61,793 shares (.8%) owned by trusts for the benefit of Mr. Steinberg’s children and (iii) 2,500 shares that may be acquired upon the exercise of currently exercisable stock options.  Does not include 2,474,226 shares held by Leucadia which Mr. Steinberg may be deemed to beneficially own as a result of his beneficial ownership of Leucadia common shares.
 
(h)
Mr. Steinberg disclaims beneficial ownership of all of our common stock held by this trust.
 
(i)
Mr. Cumming is a trustee and President of the foundation and disclaims beneficial ownership of our common stock held by the foundation.
 
(j)
Mr. Steinberg and his wife are trustees of the trust.  Mr. Steinberg disclaims beneficial ownership of our common stock held by the trust.
 
(k)
Includes 15,000 shares that may be acquired upon the exercise of currently exercisable stock options.
 
As of February 10, 2011, Cede & Co. held of record 4,524,139 shares of our common stock (approximately 57.4% of our total common stock outstanding).  Cede & Co. held such shares as a nominee for broker-dealer members of The Depository Trust Company, which conducts clearing and settlement operations for securities transactions involving its members.
 
As described herein, our common stock are subject to transfer restrictions that are designed to reduce the possibility that certain changes in ownership could result in limitations on the use of our tax attributes.  Our certificate of incorporation contains provisions that generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of 5% or more of our common shares and the ability of persons or entities now owning 5% or more of our common shares from acquiring additional common shares.  Stockholders (and prospective stockholders) are advised that, under the tax law rules incorporated in these provisions, the acquisition of even a single share of common stock may be proscribed under our certificate of incorporation, given (among other things) the tax law ownership attribution rules as well as the tax law rules applicable to acquisitions made in coordination with or in concert with others.  The restriction will remain until the earliest of (a) December 31, 2028, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) and (c) the beginning of our taxable year to which these tax attributes may no longer be carried forward.  The restriction may be waived by our Board of Directors.

 
33

 

 
 
Stockholders are advised to carefully monitor their ownership of our common stock and consult their own legal advisors and/or us to determine whether their ownership of our common shares approaches the proscribed level.  Based upon discussions with BMO, we believe that the beneficial ownership (determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934) by BMO of our common stock as reflected in the table above is not in violation of the transfer restrictions contained in our certificate of incorporation.
 
Item 13.  Certain Relationships and Related Transactions and Director Independence.
 
Policies and Procedures with Respect to Transactions with Related Persons
 
The Board has adopted a policy for the review, approval and ratification of transactions that involve “related persons” and potential conflicts of interest (the “Related Person Transaction Policy”).
 
 
The Related Person Transaction Policy applies to each director and executive officer of the Company, any nominee for election as a director of the Company, any security holder who is known to own of record or beneficially more than five percent of any class of the Company’s voting securities, any immediate family member of any of the foregoing persons, and any corporation, firm, association or their entity in which one or more directors of the Company are directors or officers, or have a substantial financial interest (each a “Related Person”).
 
 
Under the Related Person Transaction Policy, a Related Person Transaction is defined as a transaction or arrangement involving a Related Person in which the Company is a participant or that would require disclosure in the Company’s filings with the SEC as a transaction with a Related Person.
 
 
Under the Related Person Transaction Policy, Related Persons must disclose to the Audit Committee any potential Related Person Transactions and must disclose all material facts with respect to such interest.  All Related Person Transactions will be reviewed by the Audit Committee and, in its discretion, approved or ratified.  In determining whether to approve or ratify a Related Person Transaction the Audit Committee will consider the relevant facts and circumstances of the Related Person Transaction, which may include factors such as the relationship of the Related Person with the Company, the materiality or significance of the transaction to the Company and the Related Person, the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis, and the impact of the transaction on the Company’s business and operations.
 
Related Person Transactions
 
The Company is required to obtain infrastructure improvement bonds primarily for the benefit of the City of San Marcos prior to the beginning of lot construction work and warranty bonds upon completion of such improvements in the San Elijo Hills project.  These bonds provide funds primarily to the City in the event the Company is unable or unwilling to complete certain infrastructure improvements in the San Elijo Hills project.  Leucadia is contractually obligated to obtain these bonds on behalf of the subsidiaries through which the San Elijo Hills project is owned pursuant to the terms of agreements entered into when those subsidiaries were acquired by the Company.  Those subsidiaries are responsible for paying all third party fees related to obtaining the bonds.  Should the City or others draw on the bonds for any reason, certain of the Company’s subsidiaries would be obligated to reimburse Leucadia for the amount drawn.  As of December 31, 2010, the amount of outstanding bonds was approximately $2,850,000, none of which has been drawn upon.
 
Since 1995, Leucadia has been providing administrative and accounting services to the Company.  Under the current administrative services agreement, Leucadia provides services to the Company for a monthly fee of $15,000 ($180,000 in the aggregate for all of 2010).  Pursuant to this agreement, Leucadia provides the services of Ms. Corinne A. Maki, the Company’s Secretary, in addition to various administrative functions.  Ms. Maki is an officer of subsidiaries of Leucadia.  The term of the administrative services agreement automatically renews for successive annual periods unless terminated in accordance with its terms.  Leucadia has the right to terminate the agreement by giving the Company not less than one year’s prior notice, in which event the then monthly fee will remain in effect until the end of the notice period.  The Company has the right to terminate the agreement, without restriction or penalty, upon 30 days prior written notice to Leucadia.  The agreement has not been terminated by either party.
 
The Audit Committee or the Board has approved or ratified each of the foregoing.
 
Director Independence
 
The Board of Directors has determined that Mr. Considine and Dr. Lobatz are independent, applying the NASDAQ Stock Market’s listing standards for independence.

 
34

 

 
 
Item 14.  Principal Accounting Fees and Services.
 
The Audit Committee has adopted policies and procedures for pre-approving all audit and non-audit work performed by the Company’s independent auditor, PricewaterhouseCoopers LLP.  The Audit Committee has pre-approved (i) certain general categories of work where no specific case-by-case approval is necessary (“general pre-approvals”) and (ii) categories of work which require the specific pre-approval of the Audit Committee (“specific pre-approvals”).  For additional services or services in an amount above the annual amount that has been pre-approved, additional authorization from the Audit Committee is required.  The Audit Committee has delegated to the Committee chair the ability to pre-approve all of these services.  Any pre-approval decisions made by the Committee chair under this delegated authority will be reported to the full Audit Committee.  All requests for services to be provided by PricewaterhouseCoopers LLP that do not require specific approval by the Audit Committee must be submitted to the Controller of the Company, who determines whether such services are in fact within the scope of those services that have received the general pre-approval of the Audit Committee.  The Controller reports to the Audit Committee periodically.
 
Audit Fees
 
In accordance with the SEC’s definitions and rules, Audit Fees are fees paid to PricewaterhouseCoopers LLP for professional services for the audit of the Company's consolidated financial statements included in the Company's Form 10-K, the review of financial statements included in the Company's Form 10-Qs, services that are normally provided in connection with statutory and regulatory filings or engagements, assurance and related services that are reasonably related to the performance of the audit or review of our financial statements including compliance with regulatory matters, the Sarbanes-Oxley Act, and consulting with respect to technical accounting and disclosure rules.  All such services were approved by the Audit Committee.  Such amounts aggregated $218,000 for each of the years ended December 31, 2010 and 2009.
 
PART IV
 
Item 15.  Exhibits and Financial Statement Schedules.
 
(a)(1)
Financial Statements.
 
(a)(2)
Financial Statement Schedules.
 
Report of Independent Registered Public Accounting Firm
F-1
   
Consolidated Balance Sheets at December 31, 2010 and 2009
F-2
   
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
F-3
   
Consolidated Statements of Changes in Equity for the years ended December 31, 2010, 2009 and 2008
F-4
   
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
F-5
   
Notes to Consolidated Financial Statements
F-6
 
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.
 
Amended and Restated 1999 Stock Incentive Plan (filed as Annex A to the Company’s Proxy Statement dated
June 18, 2009).
 
Form of Grant Letter for 1999 Stock Incentive Plan (filed as Exhibit 10.26 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005 10-K”)).

 
35

 

 
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.
 
All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by the Company, file number 1-10153, unless otherwise indicated.
 
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”)).
 
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).
 
3.7
Certificate of Amendment of the Certificate of Incorporation of the Company, dated August 2, 2010 (filed herewith).
 
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
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).
 
10.3
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”)).
 
10.4
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).
 
10.5
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).
 
10.6
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).
 
10.7
Form of Grant Letter for the 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.26 to the Company’s 2005 10-K).

 
36

 

 
10.8
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”)).
 
10.9
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).
 
10.10
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).
 
10.11
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).
 
10.12
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).
 
10.13
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).
 
10.14
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).
 
10.15
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).
 
10.16
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).
 
10.17
Amendment No. 7 dated as of December 31, 2004 to the Administrative Services Agreement dated as of March 1, 2000 (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (the “2004 10-K”)).
 
10.18
Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Annex A to the Company’s Proxy Statement dated June 18, 2009).
 
21
Subsidiaries of the Company.
 
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.
 

 
37

 

 
 
 
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  
       
February 17, 2011
By:
/s/   Erin N. Ruhe  
    Name:  Erin N. Ruhe  
    Title:    Vice President, Treasurer and Controller   
               (Principal Financial and Accounting Officer)  
 
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Date
Signature
Title
     
February 17, 2011
By /s/    Joseph S. Steinberg       
Chairman of the Board and Director
 
Joseph S. Steinberg
 
     
February 17, 2011
By /s/   Paul J. Borden          
President and Director
 
Paul J. Borden
(Principal Executive Officer)
     
February 17, 2011
By /s/   Erin N. Ruhe           
Vice President, Treasurer and Controller
 
Erin N. Ruhe
(Principal Financial and Accounting Officer)
     
February 17, 2011
By /s/   Patrick D. Bienvenue       
Director
 
Patrick D. Bienvenue
 
     
February 17, 2011
By /s/   Timothy Considine         
Director
 
Timothy Considine
 
     
February 17, 2011
By /s/   Ian M. Cumming          
Director
 
Ian M. Cumming
 
     
February 17, 2011
By /s/   Michael A. Lobatz             
Director
 
Michael A. Lobatz
 
 
 
 
 
 
38

 



 


Report of Independent Registered Public Accounting Firm
 
 
To the Board of Directors and Stockholders of HomeFed Corporation:
 
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of HomeFed Corporation and its subsidiaries at December 31, 2010 and 2009 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed 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.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
/s/ PricewaterhouseCoopers LLP
 
PricewaterhouseCoopers LLP
February 15, 2011
Irvine, California

 
 
F-1

 

HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2010 and 2009
(Dollars in thousands, except par value)
 
 
   
2010
   
2009
 
ASSETS
           
Real estate
  $ 87,909     $ 104,273  
Cash and cash equivalents
    43,788       9,127  
Investments available for sale (amortized cost of $38,282 and $56,967)
    38,287       57,038  
Accounts receivable, deposits and other assets
    1,219       936  
Net deferred tax asset
    13,307       14,330  
                 
TOTAL
  $ 184,510     $ 185,704  
                 
LIABILITIES
               
Notes payable
  $     $ 7,834  
Accounts payable and accrued liabilities
    3,940       2,922  
Non-refundable option payments
    650       650  
Liability for environmental remediation
    9,652       9,994  
Income taxes payable
    1,902       392  
Other liabilities
    254       373  
                 
Total liabilities
    16,398       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
    376,110       375,917  
Accumulated other comprehensive income
    3       43  
Accumulated deficit
    (223,197 )     (226,726 )
Total HomeFed Corporation common shareholders’ equity
    152,995       149,313  
Noncontrolling interest
    15,117       14,226  
Total equity
    168,112       163,539  
                 
TOTAL
  $ 184,510     $ 185,704  
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
 
F-2

 

HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2010, 2009 and 2008
(In thousands, except per share amounts)
 
 
   
2010
   
2009
   
2008
 
                   
REVENUES
                 
Sales of real estate
  $ 35,856     $ 14,707     $ 10,235  
Co-op marketing and advertising fees
    87       167       197  
      35,943       14,874       10,432  
                         
EXPENSES
                       
Cost of sales
    16,005       4,376       1,238  
Provision for impairment losses on real estate
    5,424             4,156  
General and administrative expenses
    9,146       6,854       11,646  
Administrative services fees to Leucadia National Corporation
    180       180       180  
      30,755       11,410       17,220  
                         
Income (loss) from operations
    5,188       3,464       (6,788 )
                         
Interest and other income, net
    2,046       1,022       2,976  
                         
Income (loss) before income taxes and noncontrolling interest
    7,234       4,486       (3,812 )
Income tax provision
    (2,814 )     (1,692 )     (6,643 )
                         
Net income (loss)
    4,420       2,794       (10,455 )
Net income (loss) attributable to noncontrolling interest
    891       (13 )     (528 )
                         
Net income (loss) attributable to HomeFed Corporation
common shareholders
  $ 3,529     $ 2,807     $ (9,927 )
                         
Basic earnings (loss) per common share attributable to
HomeFed Corporation common shareholders
  $ 0.45     $ 0.36     $ (1.21 )
                         
Diluted earnings (loss) per common share attributable to
HomeFed Corporation common shareholders
  $ 0.45     $ 0.36     $ (1.21 )
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
 
F-3

 

HOMEFED CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the years ended December 31, 2010, 2009 and 2008
(In thousands, except par value)
 

 
   
HomeFed Corporation Common Shareholders
             
   
Common
Stock
$.01 Par
Value
   
Additional
Paid-in
Capital
   
Accumulated
Other
Comprehensive
Income
   
 
Accumulated
Deficit
   
 
 
Subtotal
   
 
Noncontrolling
Interest
   
 
 
Total
 
                                           
Balance, January 1, 2008
  $ 83     $ 381,602     $ 38     $ (219,606 )   $ 162,117     $ 14,767     $ 176,884  
 
                                                       
Comprehensive loss:
                                                       
Net change in unrealized gain on
   investments, net of tax provision
   of $11
                    16               16               16  
Net loss
                            (9,927 )     (9,927 )     (528 )     (10,455 )
    Comprehensive loss
                                    (9,911 )     (528 )     (10,439 )
Share-based compensation expense
            123                       123               123  
Exercise of options to purchase common
   shares, including excess tax benefit
            14                       14               14  
Purchase of common shares for treasury
    (4 )     (5,920 )                     (5,924 )             (5,924 )
                                                         
Balance, December 31, 2008
    79       375,819       54       (229,533 )     146,419       14,239       160,658  
                                                         
Comprehensive income:
                                                       
Net change in unrealized gain on
    investments, net of tax benefit of $8
                    (11 )             (11 )             (11 )
Net income
                            2,807       2,807       (13 )     2,794  
    Comprehensive income
                                    2,796       (13 )     2,783  
Share-based compensation expense
            105                       105               105  
Purchase of common shares for treasury