1
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__________________________________________________
[X] Quarterly report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1994
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 0-7616
I.R.S. Employer Identification Number 23-1739078
Avatar Holdings Inc.
(a Delaware Corporation)
255 Alhambra Circle
Coral Gables, Florida 33134
(305) 442-7000
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
9,095,102 shares of the Company's common stock ($1.00 par value)
were outstanding as of April 30, 1994.
1 of 15
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AVATAR HOLDINGS INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets --
March 31, 1994 and December 31, 1993............. 3
Consolidated Statements of Operations --
Three months ended March 31, 1994 and 1993....... 4
Consolidated Statements of Cash Flows --
Three months ended March 31, 1994 and 1993....... 5
Notes to Consolidated Financial Statements......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K......... 15
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
March 31, December 31,
---------- -----------
1994 1993
----- ----
Assets
------
Cash $7,247 $7,178
Restricted cash 1,616 1,442
Investments 51,713 51,184
Contracts, mortgage notes and other receivables, net 79,499 82,996
Land and other inventories 118,554 117,557
Property, plant and equipment, net 179,855 178,940
Other assets 16,241 15,460
Regulatory assets 7,437 7,437
-------- --------
Total assets $462,162 $462,194
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Notes, mortgage notes and other debt:
Real estate and corporate $95,820 $96,768
Utilities 38,764 38,789
Estimated development liability for sold land 19,825 19,331
Accrued and other liabilities 30,214 27,558
Deferred customer betterment fees 19,493 19,537
Minority interest in consolidated subsidiaries 9,059 9,058
Regulatory liabilities 4,526 4,447
-------- --------
Total liabilities 217,701 215,488
Commitments and contingent liabilities
Contributions in aid of construction 62,936 63,334
Stockholders' Equity, net 181,525 183,372
-------- --------
Total Liabilities and Stockholders' Equity $462,162 $462,194
======== ========
See notes to consolidated financial statements.
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4
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands except per share data)
For the Three Months Ended March 31,
-------------------------------------
1994 1993
----- -----
Revenues:
Real estate sales $11,526 $11,375
Deferred gross profit (804) (766)
Utility revenues 7,288 13,823
Interest income 2,836 3,516
Trading account profit (net) 477 -
Other 124 45
------- ------
Total revenues 21,447 27,993
Expenses:
---------
Real estate expenses 11,703 11,095
Utility expenses 5,659 9,685
General and administrative expenses 2,318 2,082
Interest expense 3,155 4,452
Other 204 359
------- -------
Total expenses 23,039 27,673
------- -------
(Loss) income before income taxes and
cumulative effect of change in method
of accounting for income taxes (1,592) 320
Provision for income taxes 255 396
-------- --------
Loss before cumulative effect
of change in method of accounting for
income taxes (1,847) (76)
Cumulative effect of change in method of
accounting for income taxes - (964)
--------- --------
Net loss ($1,847) ($1,040)
========= ========
Per share amounts:
Primary
Loss before cumulative effect of change
in method of accounting for income taxes ($.20) ($.01)
Cumulative effect of change in method
of accounting for income taxes - (.13)
-------- --------
Net loss ($.20) ($.14)
======== ========
Fully Diluted
Loss before cumulative effect of change
in method of accounting for income taxes ($.20) ($.01)
Cumulative effect of change in method
of accounting for income taxes - (.13)
-------- --------
Net loss ($.20) ($.14)
======== ========
See notes to consolidated financial statements.
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5
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
For the three months ended March 31,
------------------------------------
1994 1993
OPERATING ACTIVITIES ---- ----
- - --------------------
Net loss ($1,847) ($1,040)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 2,016 1,855
Deferred gross profit 804 766
Deferred income taxes - 234
Cost of sales not requiring cash 521 502
Cumulative effect of change in method of accounting
for income taxes - 964
Trading account profit (529) -
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash (174) 231
Principal payments on contracts receivable 6,535 4,753
Increase in receivables (3,841) (2,411)
(Increase) decrease in other receivables (1) 1,349
Increase in inventories (1,024) (939)
Increase in other assets (781) (2,220)
Increase in accrued and other liabilities 2,691 1,489
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,370 5,533
INVESTING ACTIVITIES
- - --------------------
Investment in property, plant, and equipment (3,329) (1,229)
Investment in marketable securities - (50)
Proceeds from the sale of marketable securities - 14,813
------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (3,329) 13,534
FINANCING ACTIVITIES
- - --------------------
Net proceeds from revolving lines of credit
and long-term borrowings 3,272 12,614
Principal payments on revolving lines of credit and
long-term borrowings (4,244) (21,714)
Net proceeds from issuance of common stock in conjunction
with the redemption/conversion of 5 1/4% debentures - 3
------- -------
NET CASH USED IN FINANCING ACTIVITIES (972) (9,097)
------- -------
INCREASE IN CASH 69 9,970
Cash at beginning of period 7,178 2,644
------- -------
CASH AT END OF PERIOD $7,247 $12,614
======= =======
See notes to consolidated financial statements.
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AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows -- continued
(Unaudited)
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the three months ended
March 31,
Cash paid during the period for: 1994 1993
----- ------
Interest $1,063 $3,804
====== =======
Income taxes - $85
====== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
1994 1993
----- -----
Contributions in aid of construction $45 $779
===== =====
See notes to consolidated financial statements.
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AVATAR HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands)
Basis of Statement Presentation and Summary of Significant
----------------------------------------------------------
Accounting Policies
-------------------
The consolidated balance sheet as of March 31, 1994, the
related consolidated statements of operations for the three
months ended March 31, 1994 and 1993 and the consolidated
statements of cash flows for the three months ended March 31,
1994 and 1993 have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statement
presentation. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements
have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative
of results for a full year.
For a complete description of the Company's other accounting
policies, refer to Avatar Holdings Inc.'s 1993 Annual Report and
the notes to Avatar's consolidated financial statements included
therein.
Reclassifications
-----------------
Certain amounts presented for 1993 have been reclassified in
the financial statements for comparative purposes.
Net Income per Common Share
---------------------------
For the three months ended March 31, 1994 net income per
common share is computed on the basis of the weighted average
number of shares outstanding.
For the three months ended March 31, 1993 net income per
common share is computed on the basis of the weighted average
number of shares outstanding plus common stock equivalents, if
any, that would result from the dilutive effect of the assumed
conversion (and associated purchase) of the 5 1/4% convertible-
purchase subordinated debentures. These common stock equivalents
were anti-dilutive for the three months ended March 31, 1993.
Average common shares outstanding for the three months ended
March 31, 1994 and 1993 totaled 9,095,102 and 7,406,610,
respectively.
Regulatory Assets and Regulatory Liabilities
--------------------------------------------
The cumulative effect of adopting FASB Statement No. 109 --
"Accounting for Income Taxes", and FASB Statement No. 106 --
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" for Avatar Utilities' subsidiaries was recorded as a
regulatory liability or regulatory asset in accordance with
accounting procedures applicable to regulated enterprises.
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Notes to Consolidated Financial Statement (Unaudited) -- continued
-----------------------------------------
Investments
-----------
The Company has classified all of its investment portfolio as
trading. This category is defined as including debt and
marketable equity securities held for resale in anticipation of
earning profits from short-term movements in market prices.
Trading account securities are carried at fair market value and
both realized and unrealized gains and losses are included in net
trading account profit.
Investments at March 31, 1994 includes $21,195 invested in
corporate bonds rated B- or above by Moody's and/or Standard and
Poor's and $14,076 invested in non-rated bonds of companies which
are in bankruptcy and have defaulted as to payments of principal
and interest on such bonds. The non-rated bonds are thinly
traded and may require sixty to ninety days to liquidate. The
portfolio also includes an unsecured claim on a company in
bankruptcy of $6,290 which is not readily marketable, $3,994 of
equity securities, $2,940 of money market accounts and $3,218 of
U.S. Government and Agency securities.
Investments at December 31, 1993 includes $20,045 invested in
corporate bonds rated B- or above by Moody's and/or Standard and
Poor's and $12,775 invested in non-rated bonds of companies which
are in bankruptcy and have defaulted as to payments of principal
and interest on such bonds. The non-rated bonds are thinly
traded and may require sixty to ninety days to liquidate. The
portfolio also includes an unsecured claim on a company in
bankruptcy of $5,689 which is not readily marketable, $7,020 of
equity securities, $1,661 of money market accounts and $3,994 of
U.S. Government and Agency securities.
Fair values for actively traded debt securities and equity
securities are based on quoted market prices on national markets.
Fair values for thinly traded investment securities are generally
based on prices quoted by investment brokerage companies.
Contracts, Mortgage Notes and Other Receivables
-----------------------------------------------
Contracts, mortgage notes, and other receivables are summarized
as follows:
March 31, December 31,
1994 1993
--------- -----------
Contracts and mortgage notes receivable $113,196 $117,249
Notes and other receivables 5,519 5,639
-------- --------
118,715 122,888
-------- --------
Less:
Allowance for doubtful accounts 2,226 2,631
Market valuation reserve 1,863 2,082
Deferred gross profit 31,447 31,969
Other 3,680 3,210
-------- --------
39,216 39,892
-------- --------
$79,499 $82,996
======== ========
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Notes to Consolidated Financial Statements (Unaudited) -- continued
------------------------------------------
Land and Other Inventories
--------------------------
Inventories consist of the following:
March 31, December 31,
1994 1993
--------- -----------
Land developed and in process of development $77,245 $76,145
Land held for future development or sale 37,632 37,478
Dwelling units completed or under construction 2,212 2,407
Other 1,465 1,527
-------- --------
$118,554 $117,557
======== ========
Minority Interest in Consolidated Subsidiaries
----------------------------------------------
Minority interest in consolidated subsidiaries is represented
by preferred stock of Avatar Utilities' subsidiaries. Total
preferred stock outstanding is as follows:
March 31, December 31,
1994 1993
--------- -----------
9% Cumulative preferred stock $9,000 $9,000
Other 59 58
------ ------
$9,059 $9,058
====== ======
Avatar's utility subsidiary's 9% cumulative preferred stock
provides for redemption to occur no earlier than March 1, 1997,
in whole or in part; however, a minimum of $1,800 of the
preferred stock must be redeemed per annum beginning in 1997. A
redemption of all outstanding shares shall occur no later than
March 1, 2001.
Charges to operations recorded as "Other expenses" relating to
preferred stock dividends of subsidiaries for the three months
ended March 31, 1994 and 1993 amounted to $204 and $359,
respectively.
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Notes to Consolidated Financial Statements (Unaudited) -- continued
------------------------------------------
Income Taxes
------------
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred income tax assets and liabilities as of March 31, 1994
are as follows:
Deferred income tax assets
Net operating loss carryover $7,000
Tax over book basis of land inventory 21,000
Unrecoverable land development costs 5,000
Tax over book basis of depreciable assets 5,000
Alternative minimum tax and investment tax credit carryforward 5,000
Other 3,000
------
Total deferred income taxes 46,000
Valuation allowance for deferred income tax assets (34,000)
-------
Deferred income tax assets after valuation allowance 12,000
Deferred income tax liabilities
Book over tax income recognized on land sales (3,000)
Deferred carrying charges on utility plant (3,000)
Other (6,000)
-------
Total deferred income tax liabilities (12,000)
-------
Net deferred income taxes $0
=======
The provision for income taxes for the three months ended
March 31, 1994 and 1993 consists of the following:
Three months ended March 31,
1994 1993
---------------------------
Federal:
Current $255 $40
Deferred - 234
---- ---
255 274
State:
Current - 122
Deferred - -
---- ----
Total $255 $396
==== ====
10
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Notes to Consolidated Financial Statements (Unaudited) -- continued
------------------------------------------
A reconciliation of income tax expense to the expected income
tax expense at the federal rate of 34% is as follows:
1994 1993
---- ----
Income tax expense ( credit) computed
at statutory rate ($541) $109
Income tax effect of non-deductible dividends
on preferred stock of subsidiary 69 122
State income tax (credit), net of federal effect (53) 27
Gross up tax received on contributions
in aid of construction 13 -
Federal and state taxes of unconsolidated
subsidiary in excess of amount computed
at statutory rate - 138
Change in valuation allowance on deferred tax assets 767 -
----- ----
Provision for income taxes $255 $396
===== ====
Contingencies
-------------
Avatar is involved in various pending litigation matters
primarily arising in the normal course of its business. Although
the outcome of these and the following matters cannot be
determined, it is the opinion of management that the resolution
of these matters will not have a material effect on Avatar's
business or financial position.
On October 1, 1993, the United States, on behalf of the
U.S. Environmental Protection Agency, filed a civil action
against a utility subsidiary of Avatar in the U.S. District Court
for the Middle District of Florida. (United States vs. Florida
Cities Water Company, Civil Action No. 93-281-C1) The complaint
alleges that the subsidiary's wastewater treatment plant in North
Fort Myers, Florida, committed various violations of the Clean
Water Act, 33 U.S.C. Sect. 1251 et seq., including (1) discharge
of pollutants without an operating permit from October 1, 1988 to
October 31, 1989; (2) discharging from an unpermitted discharge
location from November 1, 1989 until July 14, 1992; and (3)
discharging pollutants in excess of permit limitations at various
times from July 1991 to June of 1992. The government is seeking
the statutory maximum civil penalties of $25 per day, per
violation based upon the allegations. The subsidiary strongly
believes that there are mitigating facts as well as valid legal
defenses that could reduce or eliminate the imposition of
monetary sanctions.
On March 1, 1994, the Wisconsin Department of Natural
Resources (the "Department") sent Avatar notice that the
Department had recently issued a second Record of Decision
("ROD") in connection with the Edgerton Sand & Gravel Landfill
site (the "Site"). The ROD calls for the City of Edgerton's
public water supply system to be extended to the owners of
private wells in the vicinity of the Site. The ROD also states
that other work related to soil and groundwater remedial action
would be required at the Site. The Department demanded that all
potentially responsible parties ("PRPs) associated with the
Site organize into a PRP group to undertake the implementation of
the ROD. Avatar was previously identified as a PRP by the
Department. Avatar believes that it is not liable for any claims
by any governmental or private party in connection with the Site.
11
12
Notes to Consolidated Financial Statements (Unaudited) -- continued
------------------------------------------
On February 25, 1994, Avatar's former president and chief
executive officer commenced a lawsuit against the Company and
certain other persons seeking damages arising from the
termination of his employment with the Company and other events.
Avatar has denied any liability in connection with such lawsuit
and has asserted various affirmative defenses and counterclaims.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (dollars in thousands
except per share data)
RESULTS OF OPERATIONS
---------------------
Operations for the three month period ended March 31, 1994
resulted in a net loss of $1,847 or $.20 per share compared to a
net loss of $1,040 or $.14 per share for the same period of 1993.
The decline in operations for the three month period ended March
31, 1994 is primarily a result of the decrease in revenues in
comparison to the same period for 1993. This decline in revenues
is attributable to the sale of the certain utility subsidiaries
which occurred on August 31, 1993.
Avatar's real estate revenues for the three months ended March
31, 1994 increased $151 or 1.3% while real estate expenses
increased $608 or 5.5% when compared to the same period of 1993.
The increase in real estate revenues for the three month period
ended March 31, 1994 is primarily a result of an increase in
homesite sales, as a result of an increase in customer traffic,
of $343 when compared to the same period of 1993. The increase
in homesite sales volume is primarily attributable to an increase
in customer traffic. The increase in real estate expenses for the
three months ended March 31, 1994, when compared to the same
period in 1993, is primarily a result of an increase in sales and
marketing expenses and an increase in losses on contract
cancellations for homesites sold in prior years.
Utility revenues for the three months ended March 31, 1994
decreased $6,535 or 47.3% when compared to the same period of
1993 which includes revenues of the utility subsidiaries sold on
August 31, 1993. Utility expenses decreased $4,026 or 41.6% for
the three months ended March 31, 1994 when compared to the same
period of 1993, which includes expenses of the utility
subsidiaries sold on August 31, 1993. For the utility
subsidiaries that remain, revenues and expenses for the three
months ended March 31, 1994, were comparable to the same period
of 1993.
Interest income for the three months ended March 31, 1994
decreased $680 or 19.3% when compared to the same period for
1993. The decline in interest income is primarily attributable
to lower average aggregate amounts in the Company's contracts and
mortgage notes receivable portfolio. Avatar's contracts and
mortgage notes receivable portfolio amounted to $113,196 at March
31, 1994 compared to $133,132 at March 31, 1993.
Trading account profit for the three months ended March 31,
1994 represents interest income and realized and unrealized gains
and losses related to the investment portfolio, net of
commissions payable to broker. These investments were acquired
during the fourth quarter of 1993.
General and administrative expenses for the three months ended
March 31, 1994 increased $236 or 11.3%, compared to the same
period of 1993. This increase is primarily attributable to an
increase in professional fees and an increase in the accrual for
incentive compensation.
Interest expense for the three months ended March 31, 1994
decreased $1,297 or 29.1% compared to the same period of 1993.
The decrease is primarily attributable to an overall decrease in
notes, mortgage notes and other debt.
13
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (dollars in thousands
except per share data) -- continued
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Avatar's primary business activities, which include retail
land sales, land development and utility services, are capital
intensive in nature. Avatar expects to fund its operations and
capital requirements through a combination of cash and investment
securities on hand, operating cash flows and external borrowings.
Avatar has approximately $51,713 in investments which are
classified as trading. The Company intends to continue to
actively trade such securities in an effort to generate profits
and will reinvest such profits until such time as the Company's
cash requirements necessitate the use or partial use of the
portfolio proceeds.
A portion of the investment portfolio is used to secure a
$30,000 line of credit which had an outstanding balance at March
31, 1994 of $15,000 and will mature during the fourth quarter of
1994.
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PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
Exhibits
--------
4(a)* Instruments defining the rights of security
holders, including indenture for 8% senior
debentures (previously filed as an exhibit to the
Form 8-K dated as of September 12, 1980).
4(b)* Supplemental Indenture for 8% senior debentures
dated as of December 19, 1992 (previously filed as
an exhibit to the Form 10-K for the period ended
December 31, 1992).
4(c)* Indenture for 9% senior debentures dated as of
December 19, 1992 (previously filed as an exhibit
to the Form 10-K for the period ended December 31,
1992).
Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
* This exhibit is incorporated by reference and is on file with
the Securities and Exchange Commission.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AVATAR HOLDINGS INC.
Date: May 16, 1994 By: /s/John J. Yanopoulos
------------ ---------------------
John J. Yanopoulos
Vice President -- Finance and
Corporate Controller
Date: May 16, 1994 By: /s/Charles. L. McNairy
------------ ----------------------
Charles L. McNairy
Executive Vice President,
Treasurer and Chief Financial
Officer
15