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 September 30, 1997
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:
9,170,102 shares of the Company's common stock ($1.00 par value)
were outstanding as of October 31, 1997.
1 OF 20
2
AVATAR HOLDINGS INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets --
September 30, 1997 and December 31, 1996................ 3
Consolidated Statements of Operations --
Nine and three months ended September 30, 1997
and 1996................................................ 4
Consolidated Statements of Cash Flows --
Nine months ended September 30, 1997 and
1996.................................................... 5
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 14
PART II. Other Information
Item 1. Legal Proceedings................................ 17
Item 6. Exhibits and Reports on Form 8-K................. 17
Exhibit Index............................................. 19
2
3
PART I -- FINANCIAL INFORMATION
-----------------------------------
ITEM 1. FINANCIAL STATEMENTS
------- ---------------------
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets - (Unaudited)
(Dollars in thousands)
September 30, December 30,
1997 1996
------------ ------------
Assets
------
Cash $3,311 $6,463
Restricted cash 1,728 1,583
Investments - trading 4,358 4,535
Contracts and mortgage notes receivables, net 27,080 38,200
Other receivables, net 5,498 7,066
Land and other inventories 175,862 162,204
Property, plant and equipment, net 187,839 186,378
Other assets 13,609 12,916
Regulatory assets 3,405 3,768
Net assets of discontinued operations 26,561 20,072
-------- --------
Total Assets $449,251 $443,185
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Notes, mortgage notes and other debt:
Corporate $44,669 $33,149
Notes collateralized by contracts and mortgage
notes receivable 26,766 36,030
Real Estate 35,727 27,461
Utilities 38,747 42,152
Estimated development liability for sold land 8,778 8,459
Accounts payable 5,136 7,116
Accrued and other liabilities 33,558 30,842
Deferred customer betterment fees 17,897 18,430
Minority interest in consolidated subsidiaries 7,264 9,064
Net liabilities of discontinued operations 16,235 11,785
-------- --------
Total Liabilities 234,777 224,488
Commitments and contingent liabilities
Contributions in aid of construction 61,603 59,245
Stockholders' Equity
--------------------
Common Stock, par value $1 per share
Authorized: 15,500,000 shares
Issued: 12,715,448 shares 12,715 12,715
Additional paid-in capital 207,271 207,271
(Deficit) retained earnings (5,142) 1,439
-------- --------
214,844 221,425
Treasury stock, at cost, 3,620,346 shares 61,973 61,973
-------- --------
Total Stockholders' Equity 152,871 159,452
-------- --------
Total Liabilities and Stockholders' Equity $449,251 $443,185
======== ========
See notes to consolidated financial statements.
3
4
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Nine and Three Months Ended September 30, 1997 and 1996
(Unaudited)
(Dollars in thousands except per share data)
Nine Months Three Months
1997 1996 1997 1996
------- ------- ------- -------
Revenues
--------
Real estate sales $60,284 $60,373 $17,535 $19,761
Deferred gross profit 3,010 1,587 935 1,210
Utility revenues 26,153 24,245 8,242 7,810
Interest income 4,110 6,035 1,188 1,918
Trading account profit, net 257 2,047 50 450
Other 601 471 217 229
------- ------- ------- -------
Total revenues 94,415 94,758 28,167 31,378
Expenses
--------
Real estate expenses 66,308 61,525 20,955 20,827
Utility expenses 19,207 19,022 6,315 6,202
General and administrative expenses 6,919 6,660 2,141 1,976
Interest expense 8,743 8,353 3,558 2,961
Other 518 611 163 203
------- ------- ------- -------
Total expenses 101,695 96,171 33,132 32,169
------- ------- ------- -------
Loss from continuing
operations before income taxes (7,280) (1,413) (4,965) (791)
Provision for income taxes - - - -
------- ------- ------- -------
Net loss from continuing operations (7,280) (1,413) (4,965) (791)
Discontinued operations:
Income (loss) from operations,
less income tax expense of $0 699 73 (48) 434
------- ------- ------- -------
Net loss ($6,581) ($1,340) ($5,013) ($357)
======= ======= ======= =======
Per share amounts:
Net loss from continuing operations ($0.80) ($0.16) ($0.54) ($0.09)
======= ======= ======= =======
Income (loss) from discontinued
operations $0.08 $0.01 ($0.01) $0.05
======= ======= ======= =======
Net loss ($0.72) ($0.15) ($0.55) ($0.04)
======= ======= ======= =======
See notes to consolidated financial statements.
4
5
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
(Dollars in Thousands)
1997 1996
-------- --------
OPERATING ACTIVITIES
--------------------
Net loss ($6,581) ($1,340)
Adjustments to reconcile net loss to
net cash (used in) provided by operating
activities:
Depreciation and amortization 7,551 7,487
Deferred gross profit (3,010) (1,587)
Inventory writedown 200 -
Cost of homesite sales not requiring cash 5,172 3,591
Trading account profit, net (257) (2,047)
Changes in operating assets and liabilities:
Restricted cash (145) 1,418
Investments - trading 528 45,554
Principal payments on contracts receivable 13,876 10,714
Receivables 289 (484)
Other receivables 1,533 (132)
Inventories (18,711) (22,210)
Other assets 363 (202)
Assets/liabilities from discontinued
operations, net (2,039) (2,276)
Accounts payable and accrued and other
liabilities (584) (2,116)
-------- --------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (1,815) 36,370
INVESTING ACTIVITIES
--------------------
Investment in property, plant and equipment (6,654) (10,173)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,654) (10,173)
FINANCING ACTIVITIES
--------------------
Net proceeds from revolving lines of credit and
long-term borrowings 46,070 50,283
Principal payments on revolving lines of credit and
long-term borrowings (38,953) (72,013)
Redemption of 9% cumulative preferred stock (1,800) -
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 5,317 (21,730)
-------- --------
(DECREASE) INCREASE IN CASH (3,152) 4,467
Cash at beginning of period 6,463 2,436
-------- --------
CASH AT END OF PERIOD $3,311 $6,903
======== ========
5
6
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) -- continued
For the Nine Months Ended September 30, 1997 and 1996
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
--------------------------------------------------
Cash paid during the period for: 1997 1996
------ ------
Interest - Continuing operations
(net of amount capitalized of $2,289
and $2,850 in 1997 and 1996 respectively) $6,485 $6,106
------ ------
Interest - Discontinued operations
(net of amount capitalized of $13 and
$127 in 1997 and 1996 respectively) $811 $616
====== ======
Income taxes $ - $ -
====== ======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
------------------------------------------------------
1997 1996
------ ------
Contributions in aid of construction $4,401 $3,085
====== ======
See notes to consolidated financial statements.
6
7
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 sheets as of September 30, 1997 and
December 31, 1996, and the related consolidated statements of
operations for the nine month and three month periods ended
September 30, 1997 and 1996 and the consolidated statements of
cash flows for the nine month periods ended September 30, 1997
and 1996 have been prepared in accordance with generally accepted
accounting principles for interim financial information, 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 1996 Annual Report on
Form 10-K and the notes to Avatar's consolidated financial
statements included therein.
Reclassifications
-----------------
Certain amounts presented for 1996 have been reclassified in
the financial statements for comparative purposes.
Net (Loss) Income Per Common Share
----------------------------------
For the nine and three months ended September 30, 1997 and
1996, net (loss)/income per common share is computed on the basis
of the weighted average number of shares outstanding of
9,095,102.
Restricted Cash
---------------
Restricted cash, at September 30, 1997, includes utility
deposits of $57, as well as housing deposits of $1,671, which
have been placed in escrow. The housing deposits will become
available to the Company when the housing contracts close. Net
assets from discontinued operations, at September 30, 1997,
includes $332 in restricted cash.
Stock Options
-------------
The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting
for its employee stock options. Under APB 25, because the
exercise price of the Company's stock options is higher than the
market price of the Company's common stock on September 30, 1997,
no compensation expense has been recognized.
7
8
Notes to Consolidated Financial Statements (Unaudited) --
-----------------------------------------------
continued
Use of Estimates
----------------
The preparation of the financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Accordingly, actual results could differ from those reported.
Investments - trading
---------------------
The Company classifies 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. 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 .
Avatar's investment portfolio at September 30, 1997 and
December 31, 1996 included bonds rated B- or above by Moody's
and/or Standard and Poor's, non-rated bonds and money market
accounts. At December 31, 1996, the portfolio also included
equity securities and non-rated bonds of companies which are in
bankruptcy and have defaulted as to payments of principal and
interest on such bonds.
The following table sets forth the fair values of
investments:
September 30, December 31,
1997 1996
------------- ------------
Non-rated bonds $100 $77
Equity securities - 81
Other rated bonds 2,212 2,172
Money market accounts 2,046 2,205
------------- ------------
Total market value $4,358 $4,535
============= ============
Aggregate cost $3,657 $3,975
============= ============
8
9
Notes to Consolidated Financial Statements (Unaudited) --
-----------------------------------------------
continued
Contracts and Mortgage Notes Receivables
----------------------------------------
Contracts and mortgage notes receivable (net of receivables
from discontinued operations, refer to Discontinued Operations
note on page 12) is summarized as follows:
September 30, December 31,
1997 1996
------------- -----------
Contracts and mortgage notes receivable $45,021 $61,534
Less:
*Deferred gross profit 17,109 21,878
Allowance for doubtful accounts 832 1,456
------------- -----------
17,941 23,334
------------- -----------
$27,080 $38,200
============= ===========
* Under the installment sales method, the gross profit on recorded
sales is deferred and recognized in income of future periods as
principal payments on contracts receivable are received; deferred
gross profit is inlcuded on the balance sheet, as a reduction of
contracts receivable, until recognized.
Land and Other Inventories
--------------------------
Inventories (net of inventories from discontinued
operations, refer to Discontinued Operations note on page 12)
consist of the following:
September 30, December 31,
1997 1996
------------- ------------
Land developed and in process of development $110,715 $105,617
Land held for future development or sale 33,544 33,544
Dwelling units completed or under construction 30,850 22,270
Other 753 773
------------- ------------
$175,862 $162,204
============= ============
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:
September 30, December 31,
1997 1996
------------- ------------
9% Cumulative preferred stock $7,200 $9,000
Other 64 64
------------- ------------
$7,264 $9,064
============= ============
9
10
Notes to Consolidated Financial Statements (Unaudited) --
-----------------------------------------------
continued
Minority Interest in Consolidated Subsidiaries -- continued
-----------------------------------------------
Avatar's utility subsidiary's 9% cumulative preferred stock
issue provides for mandatory redemption of a minimum of $1,800
per annum beginning in 1997. During the first quarter Avatar
redeemed $1,800 of the preferred stock. A redemption of all
outstanding shares shall occur no later than March 1, 2001.
Charges to operations recorded as "Other expense" relate
to preferred stock dividends of subsidiaries for the nine months
ended September 30, 1997 and 1996, which amounted to $518 and
$611 , respectively, and for the three months ended September 30,
1997 and 1996, which amounted to $163 and $203, respectively.
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
September 30, 1997 and 1996 are as follows:
1997 1996
-------- -------
Deferred income tax assets
Net operating loss carryforward $19,000 $16,000
Tax over book basis of land inventory 23,000 24,000
Unrecoverable land development costs 3,000 3,000
Tax over book basis of depreciable assets 6,000 7,000
Alternative minimum tax and investment tax
credit carryforward 4,000 4,000
Other 3,000 3,000
-------- -------
Total deferred income taxes 58,000 57,000
Valuation allowance for deferred income
tax assets (43,000) (42,000)
-------- -------
Deferred income tax assets after valuation allowance 15,000 15,000
Deferred income tax liabilities
Book over tax income recognized on
homesite sales (2,000) (3,000)
Book over tax income recognized from
discontinued operations (4,000) (3,000)
Deferred carrying charges on utility plant (2,000) (2,000)
Other (7,000) (7,000)
-------- -------
Total deferred income tax liabilities (15,000) (15,000)
-------- -------
Net deferred income taxes $0 $0
======== =======
10
11
Notes to Consolidated Financial Statements (Unaudited) --
-----------------------------------------------
continued
Income Taxes -- continued
------------
A reconciliation of income tax expense before discontinued
operations to the expected income tax expense (credit) at the
federal statutory rate of 34% for the nine months ended September
30, 1997 and 1996 is as follows:
1997 1996
-------- -------
Income tax (credit) computed at statutory rate ($2,475) ($480)
Income tax effect of non-deductible dividends
on preferred stock of subsidiary 176 207
State income tax (credit), net of federal effect (265) (21)
Other, net 564 294
Change in valuation allowance on deferred tax assets 2,000 -
-------- -------
Provision for income taxes $0 $0
======== =======
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, management believes 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 Florida Cities Water Company (``Florida Cities ''), a
utility subsidiary of Avatar Holdings Inc. ( " Avatar "), in the
U.S. District Court for the Middle District of Florida, United
States v. Florida Cities Water Company, Civil Action No. 93-281-
CIV-FTM-21, alleging that Florida Cities' Waterway Estates
treatment plant, located in Lee County, Florida operated in
violation of the Federal Clean Water Act (" Act " ), 33 U.S.C.
S1251 et seq. On May 5 and June 26, 1996, the United States
amended its complaint to include allegations against Florida
Cities for violations of the Act at two other Florida
wastewater treatment plants, Barefoot Bay, located in
Brevard County, and Carrollwood, located in Hillsborough
County. In addition, the government amended the complaint to
include Avatar, the Parent corporation, as a defendant. A trial
was held in March and April 1996. On August 20, 1996, the Court
issued its final judgment, incorporating earlier rulings. The
Court found Avatar not liable on any of the government's claims
and entered judgment in Avatar's favor. The Court found Florida
Cities not liable on certain of the government's claims, but
liable on other claims, and awarded the government $310 in civil
penalties against Florida Cities. On October 18, 1996, the
government filed a notice of appeal to the U.S. Court of Appeals
for the Eleventh Circuit. In June of 1997, the parties filed a
joint motion to dismiss all related appeals with prejudice. The
U.S. Court of Appeals dismissed all appeals with prejudice on
August 6, 1997, and the civil penalties have been paid by
Florida Cities.
11
12
Notes to Consolidated Financial Statements (Unaudited) --
-----------------------------------------------
continued
Discontinued operations
-----------------------
During the third quarter of 1997, the Company executed a
letter of intent to sell its timeshare business. The expected
sales price is approximately $11.0 million. Accordingly, net
assets and liabilities of the timeshare business have been
segregated from continuing operations in the accompanying
consolidated balance sheets, and operating results are segregated
and reported as discontinued operations in the accompanying
consolidated statements of operations and cash flows.
Information relating to the discontinued operations for the
nine and three months ended September 30, 1997 and 1996 are as
follows (dollars in thousands):
Nine Months Three Months
1997 1996 1997 1996
------- ------ ------ ------
Revenues
--------
Real estate sales $9,827 $7,824 $3,412 $4,293
Interest income 1,228 632 479 263
Other 284 292 43 64
------- ------ ------ ------
Total revenues 11,339 8,748 3,934 4,620
Expenses
--------
Real estate expenses 9,476 8,200 3,516 4,093
Interest expense 1,164 475 466 93
------- ------ ------ ------
Total expenses 10,640 8,675 3,982 4,186
Income (loss) before
income taxes 699 73 (48) 434
Provision for income taxes - - - -
------- ------ ------ ------
Net income (loss) $699 $73 ($48) $434
======= ====== ====== ======
12
13
Notes to Consolidated Financial Statements (Unaudited) --
-----------------------------------------------
continued
Discontinued operations -- continued
-----------------------
The net assets and liabilities of the discontinued
operations included in the accompanying consolidated balance
sheets as of September 30, 1997 and December 31, 1996 are as
follows:
September 30, December 31,
1997 1996
------------- ------------
Assets
------
Cash $49 $53
Restricted cash 332 198
Contracts, mortgage notes and other
receivables, net 15,452 11,278
Land and other inventories 8,024 6,007
Property, plant and equipment, net 278 237
Other assets 2,426 2,299
------------- ------------
Total Assets $26,561 $20,072
============= ============
Liabilities
-----------
Notes, mortgage notes and other debt:
Real estate $14,973 $10,191
Accounts payable 785 349
Accrued and other liabilities 477 1,245
------------- ------------
Total Liabilities $16,235 $11,785
============= ============
Subsequent Event
----------------
In accordance with the Company's plan to develop active
adult / retirement communities at various properties, the
Company acquired, on October 3, 1997, key executives, systems and
software from Hilcoast Development Corp. (Hilcoast), the
developers of Century Village, in exchange for 75,000 shares of
Avatar Common Stock. Additionally, Avatar acquired an
option to purchase from a direct wholly owned subsidiary of
Hilcoast, all rights to use the name " Century Village",
together with any trademarks or other intellectual property
rights. The option is exercisable by the Company until October 3,
1998, and upon closing the purchase, the Company would be
obligated to issue a number of shares of Avatar Common Stock
having a fair market value on the day immediately preceding the
closing equal to $1,719.
13
14
Item 2. Management's Discussion and Analysis of Financial
-------- -------------------------------------------------------
Condition and Results of Operations (dollars in thousands except
-----------------------------------------------------------------
per share data)
---------------
RESULTS OF OPERATIONS
---------------------
The following discussion of the Company's financial
condition and results of operations should be read in conjunction
with the consolidated financial statements and notes thereto
included elsewhere in this Form 10-Q.
Operations for the nine and three month periods ended
September 30, 1997, resulted in a net loss of $6,581 and a net
loss of $5,013 or $.72 and $.55 per share, respectively, compared
to a net loss of $1,340 and a net loss of $357 or $.15 and $.04
per share, respectively, for the same period of 1996. The
decrease in operating results for the nine and three month
periods was primarily attributable to a decrease in real estate
operating results and trading account profits as well as an
increase in net interest expense, partially offset by an increase
in deferred gross profit recognition and utility operating
results.
Avatar's real estate revenues for the nine and three months
ended September 30, 1997, decreased $89 or 0.15% and $2,226 or
11.3% , respectively, while real estate expenses increased $4,783
or 7.8% and $128 or 0.60%, respectively, when compared to the
same period of 1996. The decrease in real estate revenues for the
nine and three months ended September 30, 1997 is generally a
result of the reduced closings at the Company's Harbor Islands
project and reduced homesite sales, partially mitigated by the
overall increase in housing closings. The increase in real estate
expenses for the nine months ended September 30, 1997,
when compared to the same period of 1996, is essentially a result
of increased selling expenses associated with the increased home-
building sales volume as well as nonrecurring expenditures
associated with product development at the Company's Poinciana
project. The aggregate dollar volume on housing units sold
increased from $47,755 to $60,586 or 26.8%.
Data from home-building operations for the nine and three
months ended September 30, 1997 and 1996 is summarized as follows:
Nine Months Three Months
1997 1996 1997 1996
------- ------- ------- -------
Units closed
------------
Number of units 316 192 102 82
Aggregate dollar volume $41,411 $34,358 $13,543 $15,365
Average price per unit $131 $179 $133 $187
Units sold, net
---------------
Number of units 472 362 133 139
Aggregate dollar volum $60,586 $47,755 $16,682 $18,786
Average price per unit $128 $132 $125 $135
Backlog September 30,
-------
1997 1996
------- -------
Number of units 462 322
Aggregate dollar volum $60,524 $44,674
Average price per unit $131 $139
14
15
Item 2. Management's Discussion and Analysis of Financial
------- --------------------------------------------------------
Condition and Results of Operations (dollars in thousands except
-----------------------------------------------------------------
per share data) -- continued
---------------
RESULTS OF OPERATIONS -- continued
---------------------
Data from the national and international retail land sales
programs, terminated in the second quarter of 1996, is a follows:
September 30,
1997 1996
------- --------
Balance Sheet Data
------------------
Contracts and mortgage notes receivable, net $27,080 $43,615
Debt collateralized by contracts and
mortgages receivable 26,766 32,284
Statement of Operations Data
----------------------------
Sales volume - 4,364
Cost of sales - 718
Selling expense - 3,522
Deferred gross profit 3,010 1,587
Interest Income 4,110 6,035
Loss on contract cancellations 872 856
Contract servicing expense 437 623
Interest expense 2,173 2,242
Contract servicing expense and loss on contract cancellations are
included under the caption real estate expenses on the
consolidated statement of operations.
Utility revenues for the nine and three months ended
September 30, 1997, increased $1,908 or 7.9% and $432 or 5.5%,
respectively, when compared to the same period of 1996. The
increase in utility revenues for the nine and three months is
primarily attributable to customer growth, the implementation of
rate increases that were not effective during the first nine
months of 1996, and increased revenues from contract services.
Utility expenses for the nine and three months ended September
30, 1997, increased $185 or 1.0% and $113 or 1.8%, respectively,
when compared to the same period of 1996. The increase in utility
expenses for the nine and three month periods is primarily
attributable to increases in general and administrative expenses,
purchased power and other operational expenses, mitigated by a
decrease in legal fees.
Interest income for the nine and three months ended
September 30, 1997, decreased $1,925 or 31.9% and $730 or 38.1%,
respectively, when compared to the same period for 1996. The
decline in interest income is due in part to lower average
aggregate amounts outstanding in the Company's contract and
mortgage notes receivable portfolio. Avatar's contracts and
mortgage notes receivable portfolio amounted to $45,021 at
September 30, 1997, compared to $68,484 at September 30, 1996.
Trading account profit, net for the nine and three
months ended September 30, 1997, decreased $1,790 or 87.4% and
$400 or 88.9%, respectively, compared to the same period for
15
16
Item 2. Management's Discussion and Analysis of Financial
------- --------------------------------------------------------
Condition and Results of Operations (dollars in thousands except
-----------------------------------------------------------------
per share data) -- continued
---------------
RESULTS OF OPERATIONS -- continued
---------------------
1996, primarily due to the lower average balance of investment
securities. Trading account profit represents interest income
and realized and unrealized gains and losses related to the
trading investment portfolio, net of commissions payable to
brokers.
General and administrative expenses for the nine and three
month periods ended September 30, 1997 increased $259 or 3.9% and
$165 or 8.4%, respectively, compared to the same periods of 1996.
The increase for the nine months ended September 30, 1997 is
primarily attributable to increased executive compensation, as
well as an increase in the accrual for incentive compensation;
while the increase in the three month period is primarily
attributable to increased executive compensation.
Interest expense for the nine and three months ended
September 30, 1997, increased $390 or 4.7% and $597 or 20.2%,
respectively, compared to the same period of 1996. The increase
for the nine and three month periods is primarily attributed to a
reduction in capitalized interest, as well as additional
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Avatar's primary business activities, which include housing,
land development, resort operations and utility services, are
capital intensive in nature. Avatar has historically funded
its operations and capital requirements through a combination of
cash and investment securities on hand, operating cash flows,
proceeds from the sale of certain non-core assets and external
borrowings. The company is currently evaluating its long and
short term financing requirements with the goal of enhancing
liquidity and providing increased operational finanical
flexibility.
Net cash (used in) provided by operating activities was
($1,815) and $36,370 for the nine months ended September 30, 1997
and 1996, respectively. The increase in net cash used in
operating activities was due primarily to the decrease in the
withdrawals from investments for the nine months ended September
30, 1997 in comparison to the same period of 1996.
Net cash used in investing activities was $6,654 and $10,173
for the nine months ended September 30, 1997 and 1996,
respectively. The decrease in net cash used in investing
activities was due to the decrease in the investment of property,
plant and equipment.
Net cash provided by (used in) financing activities was
$5,317 and ($21,730) for the nine months ended September 30, 1997
and 1996, respectively. The increase in net cash provided by
financing activities was due primarily to the decreases in
principal payments on revolving lines of credit and long-term
borrowings.
Avatar had approximately $4,358 in investments, at September
30, 1997, which were 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.
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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 -- continued
-------------------------------
Substantially all of the investment portfolio collateralizes
a $3,350 line of credit which had an outstanding balance at
September 30, 1997, of $3,350 and will mature during the second
quarter of 1998.
During the third quarter of 1997, the Company's Harbor
Islands development and construction loans were renegotiated to
modify the terms and conditions of the loan provisions. Such
modification extended the principal reduction requirement date of
both loans to December 31, 1998; and extended the maturity dates
of the land development and construction loans until April 26,
2000 and October 26, 2001, respectively.
Certain of the matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this Form 10-Q
constitute "forward-looking statements'' within the meaning of
the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company, or
industry results, to differ materially from any future results,
performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other
important factors include, among others: general economic and
business conditions; industry capacity; industry trends;
competition, real estate costs and availability; changes in
business strategy or development plans; availability of qualified
personnel; changes in, or failure or inability to comply with,
government regulations; and other factors referenced in this Form
10-Q.
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
------- -----------------
The information, which is set forth in the final paragraph
under the caption ``Contingencies'' in the Notes to Consolidated
Financial Statements (Unaudited) in Item 1 of Part I of this
Report, relating to the October 31, 1993 civil action against
Avatar, is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
Exhibits
--------
27 Financial Data Schedule (filed herewith)
17
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OTHER INFORMATION -- continued
-----------------
Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
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: November 14, 1997 By: /s/ Lawrence L. Colditz
----------------- ------------------------
Lawrence L. Colditz
Controller
Date: November 14, 1997 By: /s/ Charles L. McNairy
----------------- ------------------------
Charles L. McNairy
Executive Vice President,
Treasurer and Chief Financial
Officer
18
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Exhibit Index
27 Financial Data Schedule (filed herewith)..... 20
19