1
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 June 30, 2000
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)
201 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: 8,405,938 shares of Avatar's
common stock ($1.00 par value) were outstanding as of July 31, 2000.
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AVATAR HOLDINGS INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets --
June 30, 2000 and December 31, 1999 .............................. 3
Consolidated Statements of Operations --
Six months and three months ended June 30, 2000 and 1999.......... 4
Consolidated Statements of Cash Flows --
Six months ended June 30, 2000 and 1999 .......................... 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 19
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
June 30, December 31,
2000 1999
--------- ---------
ASSETS
Cash and cash equivalents $ 93,338 $ 143,259
Restricted cash 1,810 3,552
Investments - marketable securities 12,689 15,547
Contracts and mortgage notes receivable, net 6,240 7,685
Other receivables, net 5,570 3,328
Land and other inventories 167,060 157,473
Property, plant and equipment, net 56,484 41,384
Other assets 15,742 14,774
Deferred income taxes 4,843 4,133
--------- ---------
Total Assets $ 363,776 $ 391,135
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes, mortgage notes and other debt:
Corporate $ 112,367 $ 112,367
Real estate 2,493 7,101
Estimated development liability for sold land 18,510 18,605
Accounts payable 3,105 8,997
Accrued and other liabilities 37,573 50,488
--------- ---------
Total Liabilities 174,048 197,558
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share
Authorized: 50,000,000 shares at June 30, 2000
15,500,000 shares at December 31, 1999
Issued: 9,170,102 shares 9,170 9,170
Additional paid-in capital 157,141 157,141
Retained earnings 35,966 39,815
--------- ---------
202,277 206,126
Treasury stock, at cost, 764,164 shares (12,549) (12,549)
--------- ---------
Total Stockholders' Equity 189,728 193,577
--------- ---------
Total Liabilities and Stockholders' Equity $ 363,776 $ 391,135
========= =========
See notes to consolidated financial statements.
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AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Six and Three months ended June 30, 2000 and 1999
(Unaudited)
(Dollars in thousands except per share data)
Six Months Three Months
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
REVENUES
Real estate sales $ 61,188 $ 100,970 $ 33,725 $ 73,057
Deferred gross profit 1,114 2,015 520 965
Interest income 3,851 3,000 1,840 2,007
Other 4,538 1,007 3,043 550
--------- --------- --------- ---------
Total revenues 70,691 106,992 39,128 76,579
EXPENSES
Real estate expenses 59,683 90,524 32,916 63,482
General and administrative expenses 5,226 5,430 2,684 2,889
Trading account loss (profit) 5,965 -- (414) --
Interest expense 2,966 5,301 1,468 2,587
Other 1,766 637 917 321
--------- --------- --------- ---------
Total expenses 75,606 101,892 37,571 69,279
--------- --------- --------- ---------
(Loss) income from continuing operations before income taxes (4,915) 5,100 1,557 7,300
Income tax (benefit) expense (1,066) 1,978 565 2,773
--------- --------- --------- ---------
(Loss) income from continuing operations after income taxes (3,849) 3,122 992 4,527
Discontinued operations:
Income (loss) from discontinued operations less income tax
expense of $571 and $64 for the six and three months ended 1999 -- 671 -- (137)
Gain on sale of discontinued operations less income tax
expense of $7,653 for the six and three months ended 1999 -- 94,934 -- 94,934
Estimated loss on disposal, less income tax benefit of $817 for
the six and three months ended 1999 -- (1,333) -- (1,333)
--------- --------- --------- ---------
Net (loss) income $ (3,849) $ 97,394 $ 992 $ 97,991
========= ========= ========= =========
BASIC AND DILUTED EPS:
(Loss) income from continuing operations after income taxes $ (0.46) $ 0.34 $ 0.12 $ 0.49
(Loss) income from discontinued operations -- 0.07 -- (0.01)
Gain on sale of discontinued operations -- 10.36 -- 10.36
Estimated loss on disposal -- (0.15) -- (0.15)
--------- --------- --------- ---------
Net (loss) income $ (0.46) $ 10.62 $ 0.12 $ 10.69
========= ========= ========= =========
See notes to consolidated financial statements.
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AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Six months ended June 30 , 2000 and 1999
(Dollars in Thousands)
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net (loss) income $ (3,849) $ 97,394
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:
Depreciation and amortization 1,796 1,780
Gain on sale of Florida Utilities assets -- (94,934)
Estimated loss on disposal of discontinued operations -- 1,333
Deferred gross profit (1,114) (2,015)
Trading account loss 5,965 --
Changes in operating assets and liabilities:
Restricted cash 1,742 (625)
Principal payments on contracts receivable 3,064 5,066
Receivables (505) 856
Other receivables (2,242) 457
Inventories (9,682) 26,741
Deferred income taxes (710) (6,261)
Other assets (1,672) 456
Income taxes payable -- 11,450
Accounts payable and accrued and other liabilities (18,807) (19,335)
Assets/liabilities from discontinued operations, net -- (5,250)
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (26,014) 17,113
INVESTING ACTIVITIES
(Investment)/sale in property, plant and equipment (16,192) 2,404
Net proceeds from sale of Florida Utilities assets -- 164,071
Investment in marketable securities (3,107) --
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (19,299) 166,475
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term borrowings -- 109
Principal payments on revolving lines of credit and long-term borrowings (4,608) (39,678)
Repurchase of 7% Convertible Subordinated Notes -- (2,633)
Purchase of treasury stock -- (480)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,608) (42,682)
--------- ---------
(DECREASE ) INCREASE IN CASH (49,921) 140,906
Cash and cash equivalents at beginning of period 143,259 32,521
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,338 $ 173,427
========= =========
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AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) -- continued
For the Six months ended June 30, 2000 and 1999
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
2000 1999
------ ------
Cash paid during the period for:
Interest - Continuing operations (net of amount
capitalized of $1,482 and $234
in 2000 and 1999, respectively) $2,787 $4,632
Interest - Discontinued operations (net of amount
capitalized of $0 and $33 in 2000 and
1999, respectively) $ -- $2,361
------ ------
Income taxes paid $1,700 $ --
====== ======
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 sheets as of June 30, 2000 and December 31,
1999, and the related consolidated statements of operations for the six and
three month periods ended June 30, 2000 and 1999 and the consolidated statements
of cash flows for the six months ended June 30, 2000 and 1999 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 Avatar's other accounting policies, refer
to Avatar Holdings Inc.'s 1999 Annual Report on Form 10-K and the notes to
Avatar's consolidated financial statements included therein.
RECLASSIFICATIONS
Certain 1999 financial statement items have been reclassified to
conform to the 2000 presentation.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
shares outstanding of 8,405,938 for the six and three months ended June 30, 2000
and 9,166,675 and 9,163,286 for the six and three months ended June 30, 1999,
respectively. For computing earnings per share for the six and three months
ended June 30, 2000 and 1999, the conversion of the Notes and employee stock
options were not assumed, as the effect of both would be antidilutive. There is
no difference between basic and diluted earnings per share for 2000 and 1999.
REPURCHASE OF COMMON STOCK AND NOTES
On January 27, 2000, Avatar's Board of Directors authorized the
expenditure of up to $20,000 to purchase, from time to time, shares of its
common stock and/or its 7% Convertible Subordinated Notes (the "Notes") in the
open market, through privately negotiated transactions or otherwise, depending
on market and business conditions and other factors.
As of June 30, 2000, none of these authorized expenditures had been made.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Avatar considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Due to the short
maturity period of the cash equivalents, the carrying amount of these
instruments approximates their fair values. Restricted cash includes deposits of
$1,810 and $3,552 as of June 30, 2000 and December 31, 1999, respectively. These
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH - CONTINUED
balances are comprised primarily of housing deposits that will become available
to Avatar when the housing contracts close.
STOCK OPTIONS
Under Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," companies are allowed to measure
compensation cost in connection with employee stock compensation plans, using a
fair value based method; or to use an intrinsic value based method in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Avatar has elected to follow APB 25 and related
interpretations in accounting for its employee stock options.
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 - MARKETABLE SECURITIES
Avatar classifies its entire investment portfolio as trading. This
category is defined to include 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
loss in the accompanying consolidated statements of operations. Fair values for
actively traded debt securities and equity securities are based on quoted market
prices on national markets. While the aggregate purchase price of the marketable
securities was $16,706, the book basis (including a $1,948 unrealized gain
recorded at December 31, 1999) was $18,654. The fair value of Avatar's
investment portfolio at June 30, 2000 was $12,689; resulting in the recording of
a trading account loss of $5,965 for the six months ended June 30, 2000 and a
trading account profit of $414 for the three months ended June 30, 2000. As of
June 30, 2000, the portfolio did not include any forward foreign exchange
contracts. As of July 31, 2000 the fair value of the investment portfolio was
$12,638.
CONTRACTS AND MORTGAGE NOTES RECEIVABLES
Contracts and mortgage notes receivables are summarized as follows:
June 30, December 31,
2000 1999
-------- -----------
Contracts and mortgage notes receivable $12,656 $15,669
Less:
Deferred gross profit 5,601 6,857
Other 815 1,127
------- -------
6,416 7,984
------- -------
$ 6,240 $ 7,685
======= =======
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
LAND AND OTHER INVENTORIES
Inventories consist of the following:
June 30, December 31,
2000 1999
-------- -----------
Land developed and in process of development $72,756 $73,861
Land held for future development or sale 33,784 33,784
Dwelling units completed or under construction
and community development in process 59,954 49,345
Other 566 483
-------- --------
$167,060 $157,473
======== ========
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 Avatar's deferred income tax assets and liabilities as of June 30,
2000 and December 31, 1999 are as follows:
2000 1999
------- --------
Deferred income tax assets
Tax over book basis of land inventory $ 24,000 $ 25,000
Unrecoverable land development costs 1,000 1,000
Tax over book basis of depreciable assets 4,000 4,000
Other 7,843 5,133
-------- --------
Total deferred income taxes 36,843 35,133
Valuation allowance for deferred income tax assets (31,000) (30,000)
-------- --------
Deferred income tax assets after valuation allowance 5,843 5,133
Deferred income tax liabilities
Book over tax income recognized on homesite sales (1,000) (1,000)
-------- --------
Total deferred income tax liabilities (1,000) (1,000)
-------- --------
Net deferred income taxes $ 4,843 $ 4,133
======== ========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
INCOME TAXES - continued
A reconciliation of income tax expense to the expected income tax
expense (credit) at the federal statutory rate of 35% for the six months ended
June 30, 2000 and 1999 is as follows:
2000 1999
------- -------
Income tax expense (credit) computed at statutory rate $(1,720) $ 1,785
State income tax (credit), net of federal effect (175) 183
Other, net (171) 10
Change in valuation allowance on deferred tax assets 1,000 --
------- -------
Provision (benefit) for income taxes $(1,066) $ 1,978
======= =======
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 matter cannot be determined, management believes that the
resolution of these matters will not have a material effect on Avatar's business
or financial statements.
In May 1995, a wastewater rate increase was filed for the North Fort
Myers Division of Florida Cities Water Company (FCWC), a utilities subsidiary of
Avatar. In November 1995, the Florida Public Service Commission (FPSC) issued an
order authorizing a rate increase of approximately 18% (an annualized revenue
increase of approximately $378). Following a challenge to the order by the
Office of Public Counsel (the customer advocate) and certain customers, FCWC
requested implementation of the rates granted in the order. After a hearing, the
FPSC issued a new order in September 1996 authorizing final rates which were
approximately 5% lower than rates in effect prior to the rate increase filing.
FCWC filed an appeal with the District Court of Appeal of Florida, First
District (DCA) and in January 1998, DCA reversed and remanded the September 1996
order. By order dated April 14, 1998, the FPSC ordered the record reopened and
scheduled a hearing in December 1998 to take testimony on one issue remanded by
the DCA. FCWC's challenge of this FPSC action was denied by the DCA on June 17,
1998 and the remand hearing was held on December 8 and 9, 1998. On April 8,
1999, the FPSC rendered its Final order which did not reflect a material change
in its position on the issue in dispute. On April 15, 1999, FCWC sold the plant
assets which are the subject of this rate matter, however, this sale did not
jeopardize FCWC's right to appeal the FPSC Final order. On May 10, 1999, FCWC
filed a notice of appeal of the FPSC Final order to the DCA and by DCA order
dated December 6, 1999, FCWC was granted until February 14, 2000 to file its
initial brief. FCWC filed the brief on February 11, 2000. The rates implemented
in January 1996 were collected by FCWC until April 15, 1999 and approximately
$838 plus interest is subject to refund pending ultimate resolution of this
matter. After the sale of the plant assets, which are the subject of this
matter, FCWC recorded a reserve on its balance sheet in the amount of $838 to
cover refunds and recorded interest liability applicable thereto in the amount
of $113. Notwithstanding, FCWC believes that there is a reasonable basis it will
prevail in this matter.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
Avatar is primarily engaged in real estate operations in Florida and
Arizona. The principal real estate operations are conducted at Poinciana in
central Florida near Orlando, Harbor Islands on Florida's east coast and Rio
Rico, south of Tucson, Arizona. Avatar owns and develops land, primarily in
various locations in Florida and Arizona. Current and planned real estate
operations include the following segments: the development, sale and management
of active adult communities; the development and sale of residential communities
(including construction of upscale custom and semi-custom homes, mid-priced
single- and multi-family homes); the development, leasing and management of
improved commercial and industrial properties; operation of amenities and
resorts; cable television operations; and property management services.
The following table summarizes Avatar's information for reportable
segments for the six and three months ended June 30, 2000 and 1999:
Six Months Three Months
------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
REVENUES:
Segment revenues
Residential communities $ 52,729 $ 43,120 $ 29,376 $ 21,173
Active adult communities 97 -- 97 --
Resorts 4,029 7,546 1,904 3,124
Commercial and industrial 709 2,477 271 2,477
Rental, leasing, cable and
other real estate operations 2,798 2,910 1,713 1,366
All other 5,194 45,615 3,290 45,292
--------- --------- --------- ---------
65,556 101,668 36,651 73,432
Unallocated revenues
Deferred gross profit 1,114 2,015 520 965
Interest income 3,851 3,000 1,840 2,007
Other 170 309 117 175
--------- --------- --------- ---------
Total revenues $ 70,691 $ 106,992 $ 39,128 $ 76,579
--------- --------- --------- ---------
OPERATING INCOME (LOSS):
Segment operating income (loss)
Residential communities $ 7,323 $ 4,587 $ 4,566 $ 2,431
Active adult communities (4,886) (833) (3,107) (432)
Resorts 37 597 (68) (251)
Commercial and industrial 473 2,078 88 2,145
Rental, leasing, cable and
other real estate operations 425 926 234 593
All other 2,971 7,069 2,312 7,098
--------- --------- --------- ---------
6,343 14,424 4,025 11,584
Unallocated income (expenses)
Deferred gross profit 1,114 2,015 520 965
Interest income 3,851 3,000 1,840 2,007
Trading account profit (loss) (5,965) -- 414 --
General and administrative expenses (5,226) (5,430) (2,684) (2,889)
Interest expense (2,966) (4,713) (1,468) (2,367)
Other (2,066) (4,196) (1,090) (2,000)
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes $ (4,915) $ 5,100 $ 1,557 $ 7,300
========= ========= ========= =========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - CONTINUED
June 30, December 31,
2000 1999
-------- ------------
ASSETS:
Segment assets
Residential communities $ 66,809 $ 72,371
Active adult communities 76,374 51,144
Resorts 5,126 4,903
Commercial and industrial 11,661 11,844
Rental, leasing, cable and
other real estate operations 4,563 4,465
Unallocated assets 199,243 246,408
-------- --------
Total assets $363,776 $391,135
======== ========
- -----------------
(a) Avatar's businesses are primarily conducted in the United States.
(b) Identifiable assets by segment are those assets that are used in the
operations of each segment.
(c) No significant part of the business is dependent upon a single customer
or group of customers.
(d) Bulk land sales, Arizona utilities, the cost to carry land and the sale
of Cape Coral assets do not qualify individually as separate reportable
segments and are included in "All Other". Also included in "All Other"
for the six and three months ended June 30, 2000, are management
services and water facility operating results, which Avatar retained in
Florida. In 1999, these operations were classified as discontinued.
(e) There is no interest expense from residential development, resorts and
rental/leasing included in segment profit/(loss) for the six and three
months ended June 30, 2000. Included in segment profit/(loss) for the
six months ended June 30, 1999 is interest expense of $244, $59 and
$285 from residential development, resorts and rental/leasing,
respectively. Included in segment profit/(loss) for the three months
ended June 30, 1999 is interest expense of $62, $21 and $137 from
residential development, resorts and rental/leasing, respectively.
(f) Included in operating profit/(loss) for the six months ended in 2000 is
depreciation expense of $131, $312, $305 and $85 from residential
development, resorts, rental/leasing and unallocated corporate,
respectively. Included in operating profit/(loss) for the six months
ended in 1999 is depreciation expense of $112, $617, $267 and $80 from
residential development, resorts, rental/leasing and unallocated
corporate, respectively. Included in operating profit/(loss) for the
three months ended in 2000 is depreciation expense of $76, $158, $155
and $41 from residential development, resorts, rental/leasing and
unallocated corporate, respectively. Included in operating
profit/(loss) for the three months ended in 1999 is depreciation
expense of $55, $314, $149 and $39 from residential development,
resorts, rental/leasing and unallocated corporate, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
DISCONTINUED OPERATIONS
During 1999, Avatar disposed of substantially all of the assets used in
its Florida Utilities operations and exited the vacation ownership (timeshare)
business in a transaction involving the sale of subsidiaries. Operating results
for the six and three months ended June 30, 1999 are segregated and reported as
discontinued operations in the accompanying statements of operations and cash
flows.
Consolidated operating results relating to the discontinued operations
for the six and three months ended June 30, 1999 are as follows:
Six Months Three Months
-------------------------------- ---------------------------------
Vacation Florida Vacation Florida
Ownership Utilities Total Ownership Utilities Total
--------- --------- ----- --------- --------- -----
REVENUES
Real estate sales $ 6,392 $ -- $ 6,392 $ 4,008 $ -- $ 4,008
Utilities revenues -- 14,864 14,864 -- 5,388 5,388
Interest income 1,659 -- 1,659 848 -- 848
Other 503 (678) (175) 249 (700) (451)
-------- -------- -------- -------- -------- --------
Total revenues 8,554 14,186 22,740 5,105 4,688 9,793
EXPENSES
Real estate expenses $ 6,926 $ -- $ 6,926 $ 3,906 $ -- $ 3,906
Utilities expenses -- 11,746 11,746 -- 4,633 4,633
Interest expense 1,316 1,072 2,388 667 332 999
Minority interest -- 438 438 -- 328 328
-------- -------- -------- -------- -------- --------
Total expenses 8,242 13,256 21,498 4,573 5,293 9,866
-------- -------- -------- -------- -------- --------
Income (loss) from discontinued
operations before income taxes 312 930 1,242 532 (605) (73)
Income tax expense (benefit) 143 428 571 228 (164) 64
-------- -------- -------- -------- -------- --------
Net (loss) income from discontinued
operations $ 169 $ 502 $ 671 $ 304 $ (441) $ (137)
======== ======= ======== ======== ======== ========
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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
The following discussion of Avatar'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.
Data from residential communities operations for the six and three
months ended June 30, 2000 and 1999 are summarized as follows:
Six Months Three Months
------------------------- -------------------------
2000 1999 2000 1999
------- ------- ------- -------
UNITS CLOSED
Number of units 259 220 134 109
Aggregate dollar volume $52,299 $42,198 $29,349 $20,449
Average price per unit $202 $192 $219 $188
UNITS SOLD, NET
Number of units 193 273 93 120
Aggregate dollar volume $29,082 $58,835 $13,502 $28,910
Average price per unit $151 $216 $145 $240
June 30,
-------------------------
2000 1999
------- -------
BACKLOG
Number of units 273 450
Aggregate dollar volume $67,104 $101,348
Average price per unit $246 $225
The number of contracts signed and units in backlog for the six and
three months ended June 30, 2000 are lower than the comparable periods of 1999
due to the sale of Avatar's homebuilding operations at Cape Coral in June 1999
and the sellout of developed single-family parcels at Harbor Islands. The lower
average price for contracts signed during the six and three months ended June
30, 2000 compared to the same periods of 1999 reflect the lower volume of higher
priced product due to the sellout of developed parcels at Harbor Islands.
Initial marketing efforts at Solivita, which commenced in the second
quarter of 2000, have resulted in sales of 49 units for the six and three months
ended June 30, 2000, which are not included in the above table. Closings are
expected to commence in the third quarter of 2000.
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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
RESULTS OF OPERATIONS - CONTINUED
Net income (loss) for the six and three months ended June 30, 2000 was
($3,849) or ($0.46) per share and $992 or $0.12 per share, respectively,
compared to net income of $97,394 or $10.62 per share and $97,991 or $10.69 per
share for the same periods of 1999. The decrease in net income for the six and
three months was primarily attributable to a decrease in real estate operations,
an after-tax gain during the second quarter of 1999 on the sale of the assets of
Florida Utilities, a decrease in the recognition of deferred gross profit and an
increase in other expenses, partially mitigated by an increase in other
revenues, and a decrease in interest expense. Also contributing to the decrease
for the six months ended June 30, 2000 is a trading account loss from
investments in marketable securities, partially mitigated by an increase in
interest income. Exclusive of the trading account loss (profit) and start-up
expenses related to Solivita, operations for the six and three months ended June
30, 2000, including interest income, resulted in pre-tax income of $5,936 and
$4,250 respectively.
Avatar's real estate revenues for the six and three months ended June
30, 2000 decreased $39,782 or 39.4% and $39,332 or 53.8%, respectively, while
real estate expenses decreased by $30,841 or 34.1% and $30,566 or 48.1% when
compared to the same periods of 1999. The decrease in real estate revenues and
expenses for the six and three month periods ended is generally the result of
the sale of real estate assets located in Cape Coral during the second quarter
of 1999 and decreases in commercial/industrial sales and resort revenues and
expenses. The decreases in resort revenues and expenses are primarily due to the
sale of Cape Coral Golf and Country Club and the leasing of the Poinciana Golf
and Racquet Club operations during 1999. The decrease in real estate revenues
and expenses was partially mitigated by increased homebuilding operations.
Operating profits for homebuilding increased due to higher revenues from more
closings and decreases in general homebuilding and marketing expenses. On June
30, 1999, Avatar closed on the sale of substantially all of its real estate
assets located at Cape Coral. The sales price was $44,852 resulting in a pre-tax
gain of $7,024.
Interest income for the six months ended June 30, 2000 increased $851
or 28.4% compared to the same period in 1999. The increase is primarily
attributable to higher interest income earned during 2000 from the investment of
the proceeds generated from the sale of Florida Utilities and Cape Coral assets
in the second quarter of 1999.
Interest expense for the six and three months ended June 30, 2000
decreased $2,335 or 44.0% and $1,119 or 43.3%, respectively, compared to the
same periods in 1999. The decrease is primarily attributable to a reduction of
the outstanding debt associated with real estate and notes collateralized by
contracts and mortgage notes receivable and an increase in capitalized interest.
Other revenues and expenses for the six months ended June 30, 2000
increased $3,531 and $1,129, respectively, and increased $2,493 and $596 for the
three months ended June 30, 2000. These increases are primarily attributable to
operating revenues and expenses associated with the management services and
water facility operations that Avatar retained in Florida and to revenues of
$1,480 recognized and earned from escrowed funds associated with the Florida
Utilities sale that closed on April 15, 1999. Pursuant to the Utility System
Asset Acquisition Agreement (Agreement) dated April 1, 1999, proceeds from the
closing in the amount of $1,480 were deposited into an escrow account
guaranteeing that billed revenues for the twelve month period commencing on
April 16, 1999 would be at least equal to an amount as defined in the Agreement.
During the second quarter of 2000, Florida Utilities met the required minimum
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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
guaranteed billed revenues and the escrowed funds were released during the third
quarter of 2000.
The trading account loss (profit) was $5,965 and ($414) for the six and
three months ended June 30, 2000, respectively. Trading account loss (profit)
represents realized and unrealized gains and a loss related to the trading
investment portfolio, and includes commissions payable to investment brokers.
The trading account loss is based on the fair value of Avatar's investment
portfolio at June 30, 2000 of $12,689 compared to the book basis (including a
$1,948 unrealized gain recorded at December 31, 1999) of $18,654, which is
higher than the aggregate actual cost of $16,706.
LIQUIDITY AND CAPITAL RESOURCES
Avatar's primary business activities are capital intensive in nature.
Significant capital resources are required to finance planned active adult
communities, homebuilding construction in process, community infrastructure,
selling expenses and working capital needs, including funding of debt service
requirements, operating deficits and the carrying cost of land. Avatar expects
to fund its operations and capital requirements through a combination of cash
and operating cash flows.
For the six months ended June 30, 2000, net cash used in operating
activities amounted to $26,014, primarily as a result of a decrease in accounts
payable and accrued and other liabilities of $18,807, and expenditures on land
development and housing operations of $9,682, partially offset by principal
payments collected on contract receivables of $3,064. Net cash used in investing
activities of $19,299 resulted from investments in property, plant and equipment
of $16,192 and marketable securities of $3,107. Net cash used in financing
activities of $4,608 resulted from the repayment of notes payable.
For the six months ended June 30, 1999, net cash provided by operating
activities amounted to $17,113, primarily as a result of the proceeds of
approximately $37,000 from the sale of real estate assets in Cape Coral;
partially offset by a decrease in accounts payable and accrued and other
liabilities of $19,335. Net cash provided by investing activities of $166,475
resulted primarily from proceeds of the Florida Utilities sale of $164,071. Net
cash used in financing activities of $42,682 resulted primarily from repayment
of $35,267 in land development and construction loans.
On January 27, 2000, Avatar's Board of Directors authorized the
expenditure of up to $20,000 to purchase, from time to time, shares of its
common stock and/or the Notes in the open market, through privately negotiated
transactions or otherwise, depending on market and business conditions and other
factors. As of June 30, 2000, none of these authorized expenditures had been
made.
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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
FORWARD-LOOKING STATEMENTS
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 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: the successful implementation of Avatar's business strategy; shifts in
demographic trends affecting active adult communities and other real estate
development; the level of immigration and in-migration to Avatar's regional
market areas; national and local economic conditions and events, including
employment levels, interest rates, consumer confidence, the availability of
mortgage financing and demand for new and existing housing; Avatar's access to
future financing; competition; changes in, or the failure or inability to comply
with, government regulations; and such other factors as are described in greater
detail in Avatar's filings with the Securities and Exchange Commission,
including its Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
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18
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Avatar's Annual Meeting of Stockholders was held on May 25, 2000, in
Coral Gables, Florida, for the purpose of electing nine directors; considering
and voting upon a proposal to amend Article FOURTH of the Restated Certificate
of Incorporation; and approving the appointment of Ernst & Young LLP,
independent accountants, as auditors for the year ending December 31, 2000.
Proxies were solicited from holders of 8,405,938 outstanding shares of Common
Stock as of the close of business on March 31, 2000, as described in Avatar's
Proxy Statement dated April 27, 2000. All of management's nominees for directors
were re-elected, the proposal to amend Article FOURTH of the Restated
Certificate of Incorporation was approved, and the appointment of Ernst & Young
LLP was approved by the following votes:
ELECTION OF DIRECTORS
Name Votes FOR WITHHELD
---- --------- --------
Leon Levy 7,546,565 447,380
Milton Dresner 7,545,033 448,912
Gerald Kelfer 7,543,861 450,084
Martin Meyerson 7,546,464 447,481
Gernot H. Reiners 7,545,530 448,415
Kenneth T. Rosen 7,547,783 446,162
Fred Stanton Smith 7,545,475 448,470
William G. Spears 7,547,783 446,162
Henry King Stanford 7,544,257 449,688
APPROVAL OF PROPOSAL TO AMEND ARTICLE FOURTH OF THE RESTATED CERTIFICATE OF
INCORPORATION
Votes Votes
VOTES FOR AGAINST ABSTAINED
--------- --------- ---------
4,632,531 1,373,765 16,482
Broker Non-Votes 1,971,167
---------
3,344,932
APPOINTMENT OF AUDITORS
Shares Voted Shares
SHARES VOTED FOR AGAINST ABSTAINED
---------------- ------------ ---------
7,975,968 6,196 11,781
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
- --------
3(a) Certificate of Amendment of Restated Certificate of Incorporation of
Avatar Holdings Inc. dated May 26, 2000 (filed herewith).
27 Financial Data Schedule (filed herewith).
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2000.
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: August 3, 2000 By: /s/ Lawrence R. Sherry
--------------- --------------------------------------
Lawrence R. Sherry
Executive Vice President and
Chief Financial Officer
Date: August 3, 2000 By: /s/ Charles L. McNairy
--------------- --------------------------------------
Charles L. McNairy
Executive Vice President and Treasurer
Date: August 3, 2000 By: /s/ Michael P. Rama
--------------- --------------------------------------
Michael P. Rama
Chief Accounting Officer
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