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 March 31, 2001
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 April 30, 2001.
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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, 2001 and December 31, 2000 ................... 3
Consolidated Statements of Operations --
Three months ended March 31, 2001 and 2000 .......... 4
Consolidated Statements of Cash Flows --
Three months ended March 31, 2001 and 2000 ............. 5
Notes to Consolidated Financial Statements ............... 6
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 ................... 17
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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,
2001 2000
----------- -------------
ASSETS
Cash and cash equivalents $ 37,177 $ 49,161
Restricted cash 732 869
Investment - marketable securities 71,560 69,966
Contracts and mortgage notes receivable, net 4,585 5,061
Other receivables, net 4,478 6,374
Land and other inventories 172,032 171,906
Property, plant and equipment, net 51,834 51,764
Other assets 23,882 12,679
Deferred income taxes 607 1,412
--------- ---------
Total Assets $ 366,887 369,192
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes, mortgage notes and other debt:
Corporate $ 112,367 $ 112,367
Real estate 1,300 2,493
Estimated development liability for sold land 18,488 18,320
Accounts payable 1,612 2,414
Accrued and other liabilities 29,051 30,611
--------- ---------
Total Liabilities 162,818 166,205
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share
Authorized: 50,000,000 shares
Issued: 9,170,102 shares 9,170 9,170
Additional paid-in capital 157,237 157,237
Retained earnings 50,211 49,129
--------- ---------
216,618 215,536
Treasury stock, at cost, 764,164 shares (12,549) (12,549)
--------- ---------
Total Stockholders' Equity 204,069 202,987
--------- ---------
Total Liabilities and Stockholders' Equity $ 366,887 $ 369,192
========= =========
See notes to consolidated financial statements.
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AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three months ended March 31, 2001 and 2000
(Unaudited)
(Dollars in thousands except per share data)
2001 2000
-------- --------
REVENUES
Real estate sales $ 32,992 $ 27,463
Deferred gross profit 394 594
Interest income 1,529 2,011
Trading account profit (loss) 1,579 (6,379)
Other 1,025 1,495
-------- --------
Total revenues 37,519 25,184
EXPENSES
Real estate expenses 31,697 26,767
General and administrative expenses 2,126 2,542
Interest expense 1,448 1,498
Other 475 849
-------- --------
Total expenses 35,746 31,656
-------- --------
Income (loss) before income taxes 1,773 (6,472)
Income tax expense (benefit) 691 (1,631)
-------- --------
Net income (loss) $ 1,082 ($ 4,841)
======== ========
BASIC AND DILUTED EPS:
Net income (loss) $ 0.13 ($ 0.58)
======== ========
See notes to consolidated financial statements.
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5
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Three months ended March 31, 2001 and 2000
(Dollars in Thousands)
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net income (loss) $ 1,082 ($ 4,841)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,244 777
Deferred gross profit (394) (594)
Unrealized gain on trading account (profit) loss (1,579) 6,379
Deferred income taxes 805 (2,049)
Changes in operating assets and liabilities:
Restricted cash 137 699
Principal payments on contracts receivable 1,141 1,787
Receivables (271) (354)
Other receivables 1,881 (640)
Inventories 42 (4,004)
Other assets (11,555) (911)
Accounts payable and accrued and other liabilities (2,362) (14,709)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (9,829) (18,460)
INVESTING ACTIVITIES
Investment in property, plant and equipment (962) (11,868)
Investment in marketable securities -- (3,107)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (962) (14,975)
FINANCING ACTIVITIES
Principal payments on long-term borrowings (1,193) (4,608)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (1,193) (4,608)
--------- ---------
DECREASE IN CASH (11,984) (38,043)
Cash and cash equivalents at beginning of period 49,161 143,259
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,177 $ 105,216
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for: 2001 2000
--------- ---------
Interest - (net of amount capitalized of $732 and
$726 in 2001 and 2000, respectively) $ (407) $ (366)
========= =========
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 March 31, 2001 and December 31,
2000, and the related consolidated statements of operations for the three months
ended March 31, 2001 and 2000 and the consolidated statements of cash flows for
the three months ended March 31, 2001 and 2000 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 2000 Annual Report on Form 10-K and the notes to
Avatar's consolidated financial statements included therein.
RECLASSIFICATIONS
Certain 2000 financial statement items have been reclassified to
conform to the 2001 presentation.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
shares outstanding of 8,405,938 for the three months ended March 31, 2001 and
2000. Basic earnings per share is computed by dividing earnings attributable to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of Avatar. The computation of earnings
per share for the three months ended March 31, 2001 and 2000 did not assume the
conversion of the Notes and employee stock options, as the effect of both is
anti-dilutive. There is no difference between basic and diluted earnings per
share for 2001 and 2000.
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 March 31, 2001, none
of these authorized expenditures had been made.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
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
$732 and $869 as of March 31, 2001 and December 31, 2000, respectively. These
balances are comprised primarily of housing deposits from customers that will
become available 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. Actual results, however, could differ from those estimated.
INVESTMENTS - MARKETABLE SECURITIES
Investments in marketable securities are accounted for in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity."
Avatar's portfolio consists of held-to-maturity securities and trading
securities. Under SFAS No. 115, held-to-maturity securities include debt
securities with the intent and ability to hold to maturity and are measured at
amortized cost. During 2000, Avatar invested in U.S. Government issues, which
mature in one year or less. The amortized cost balance at March 31, 2001 and
December 31, 2000 was $41,983 and $41,968, respectively. Under SFAS No. 115,
trading securities 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 measured at fair market value and both realized
and unrealized gains and losses are included in net trading account profit 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 trading
securities was $19,414, the book basis (including unrealized gains of $6,636 and
$1,948 recorded at December 31, 2000 and 1999, respectively) was $27,998. The
fair value of Avatar's trading investment portfolio at March 31, 2001 and 2000
was $29,577 and $12,275, respectively, resulting in a trading account profit of
$1,579 and loss of $6,379 for the three months ended March 31, 2001 and 2000,
respectively. As of March 31, 2001 and 2000, the portfolio did not include any
forward foreign exchange contracts.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
INVESTMENTS - MARKETABLE SECURITIES - CONTINUED
During the second quarter of 2001, Avatar sold substantially all of its
trading account securities portfolio for net cash proceeds of $34,806. The
aggregate purchase price of the trading securities sold was $19,393 producing a
total pre-tax gain of $15,413, which includes the $1,579 profit for the first
quarter of 2001 and a $5,250 pre-tax gain for the second quarter of 2001
relative to this transaction.
CONTRACTS AND MORTGAGE NOTES RECEIVABLES
Contracts and mortgage notes receivables are summarized as follows:
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Contracts and mortgage notes receivable $ 9,407 $10,369
------- -------
Less:
Deferred gross profit 4,224 4,657
Other 598 651
------- -------
4,822 5,308
------- -------
$ 4,585 $ 5,061
======= =======
OTHER ASSETS
Other assets are summarized as follows:
MARCH 31, DECEMBER 31,
2001 2000
------------ ---------------
Prepaid expenses $ 5,863 $ 1,411
Goodwill 3,589 3,941
Deposits 8,020 320
Other 6,410 7,007
------- -------
$23,882 $12,679
======= =======
LAND AND OTHER INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
2001 2000
------------ -------------
Land developed and in process of development $ 78,016 $ 79,908
Land held for future development or sale 25,508 25,524
Dwelling units completed or under construction
and community development in process 67,925 65,988
Other 583 486
-------- --------
$172,032 $171,906
======== ========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
INCOME TAXES
The components of income tax expense (benefit) from continuing
operations for the three months ended March 31, 2001, and 2000 are as follows:
MARCH 31, MARCH 31,
2001 2000
---------- ----------
Current
Federal ($ 97) $ 357
State (17) 61
------- -------
Total current (114) 418
Deferred
Federal 688 (1,752)
State 117 (297)
------- -------
Total deferred 805 (2,049)
------- -------
Total income tax expense (benefit) $ 691 ($1,631)
======= =======
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 March
31, 2001 and December 31, 2000 are as follows:
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Deferred income tax assets
Tax over book basis of land inventory $ 21,000 $ 21,000
Unrecoverable land development costs 1,000 1,000
Tax over book basis of depreciable assets 4,000 4,000
Other 5,607 5,412
-------- --------
Total deferred income tax assets 31,607 31,412
Valuation allowance for deferred income tax assets (26,000) (26,000)
-------- --------
Deferred income tax assets after valuation allowance 5,607 5,412
Deferred income tax liabilities
Book over tax income recognized on homesite sales (1,000) (1,000)
Unrealized gain on marketable securities (4,000) (3,000)
-------- --------
Total deferred income tax liabilities (5,000) (4,000)
-------- --------
Net deferred income taxes $ 607 $ 1,412
======== ========
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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 three months ended
March 31, 2001 and 2000 is as follows:
2001 2000
------- -------
Income tax expense (credit) computed at statutory rate $ 621 ($2,265)
State income tax (credit), net of federal effect 64 (231)
Other, net 6 (135)
Change in valuation allowance on deferred tax assets -- 1,000
------- -------
Income tax expense (benefit) $ 691 ($1,631)
======= =======
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 dated December 6,
1998. 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. Interest in the amount of $181 has been recorded as of March 31, 2001.
FCWC appealed the order, which was affirmed by the DCA by opinion dated December
22, 2000. FCWC is now preparing to effect the refund, which should be completed
by July 31, 2001. Upon the completion of the refund this matter will be
considered closed.
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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 three months ended March 31, 2001 and 2000:
FOR THE THREE MONTHS ENDED
MARCH 31
--------------------------
2001 2000
-------- --------
REVENUES:
Segment revenues
Residential development $ 22,543 $ 23,353
Active adult 6,384 --
Resorts 1,785 2,125
Commercial and industrial 346 438
Rental, leasing, cable and
other real estate operations 1,411 1,085
All other 1,315 1,904
-------- --------
33,784 28,905
Unallocated revenues
Deferred gross profit 394 594
Trading account profit (loss) 1,579 (6,379)
Interest income 1,529 2,011
Other 233 53
-------- --------
Total revenues $ 37,519 $ 25,184
======== ========
OPERATING INCOME (LOSS):
Segment operating income (loss)
Residential development $ 4,175 $ 2,757
Active adult (2,718) (1,779)
Resorts (79) 105
Commercial and industrial 273 385
Rental, leasing, cable and
other real estate operations 349 191
All other 854 659
-------- --------
2,854 2,318
Unallocated income (expenses)
Deferred gross profit 394 594
Interest income 1,529 2,011
Trading account profit (loss) 1,579 (6,379)
General and administrative expenses (2,126) (2,542)
Interest expense (1,448) (1,498)
Other (1,009) (976)
-------- --------
Income (loss) before income taxes $ 1,773 ($ 6,472)
======== ========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - continued
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
ASSETS:
Segment assets
Residential development $ 52,452 $ 55,976
Active adult 87,810 88,763
Resorts 5,353 5,360
Commercial and industrial 9,856 9,194
Rental, leasing, cable and
other real estate operations 4,600 4,651
Unallocated assets 207,500 205,248
-------- --------
Total assets $367,571 $369,192
======== ========
(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 three months ended March 31, 2001 and 2000, are results of management
services and water facility operations, which Avatar retained in Florida.
(e) There is no interest expense from residential development, active adult
communities, resorts and rental/leasing, included in segment profit/(loss)
for the three months ended March 31, 2001 and 2000.
(f) Included in operating profit/(loss) for the three months ended March 31,
2001 is depreciation expense of $192, $414, $158, $54 and $73 from
residential development, active adult communities, resorts, rental/leasing
and all other, respectively. Included in operating profit/(loss) for the
three months ended March 31, 2000 is depreciation expense of $55, $0, $154,
$150 and $44 from residential development, active adult communities,
resorts, rental/leasing and all other, respectively.
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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 and active adult communities operations for the
three months ended March 31, 2001 and 2000 is summarized as follows:
FOR THE THREE MONTHS ENDED
---------------------------
2001 2000
------- -------
UNITS CLOSED
Number of units 146 125
Aggregate dollar volume $28,346 $22,950
Average price per unit $ 194 $ 184
UNITS SOLD, NET
Number of units 240 100
Aggregate dollar volume $40,046 $15,580
Average price per unit $ 167 $ 156
AS OF MARCH 31,
-----------------------
2001 2000
------- -------
BACKLOG
Number of units 487 314
Aggregate dollar volume $83,200 $82,951
Average price per unit $ 171 $ 264
For the three months ended March 31, 2001, 77 contracts were written
with an aggregate sales volume of $12,470 at Solivita, Avatar's active adult
community in Poinciana. Revenues from Solivita homebuilding operations for 2001
totaled $5,851 or 41 units. Backlog as of March 31, 2001 totaled $28,293 or 188
units. Initial sales and closings at Solivita commenced during the second and
third quarters of 2000, respectively.
Net income (loss) for the three months ended March 31, 2001 and 2000
was $1,082 or $0.13 per share and ($4,841) or ($0.58) per share, respectively.
The increase in net income for the three months ended March 31, 2001, was
primarily attributable to improved real estate operating results and a trading
account profit from investments in marketable securities; as well as a decrease
in general and administrative expenses; partially mitigated by a decrease in
interest income.
Avatar's real estate revenues for the three months ended March 31, 2001
increased $5,529 or 20.1%, while real estate expenses increased by $4,930 or
18.4% when compared to the same period of 2000. The increase in real estate
revenues and expenses for the three months ended March 31, 2001 is generally the
result of revenues and expenses generated by Solivita operations. The increase
in real estate margins is due to improved residential development operating
income partially offset by an increase in active adult communities operating
losses. For the three months ended March 31, 2001, residential development
operating income increased $1,418 or 51.4%. This increase is primarily due to
the closing of higher priced product and a
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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
decrease in project administration expenses at Harbor Islands. For the three
months ended March 31, 2001, active adult operating losses increased $939 or
52.8% which is primarily attributable to the increase in selling, general and
administrative expenses for Solivita. Initial sales and marketing efforts at
Solivita commenced during the second quarter of 2000.
Interest income for the three months ended March 31, 2001 decreased
$482 or 24.0% when compared to the same period in 2000. This decrease is
attributed to a decrease in cash and cash equivalents, lower interest rates and
lower interest income earned on contracts receivable.
General and administrative expenses for the three months ended March
31, 2001 decreased $416 or 16.4% as compared to the same period in 2000. The
decrease is primarily due to reductions in salaries and professional fees.
Trading account profit of $1,579 was recognized during the three months
ended March 31, 2001, as compared to a trading account loss of $6,379 during the
three months ended March 31, 2000. Trading account profits or losses represent
realized and unrealized gains or losses related to the trading investment
portfolio, and include commissions payable to investment brokers.
Income taxes were provided for at an effective tax rate of 39.0% and
25.2% for the three months ended March 31, 2001 and 2000, respectively. For the
three months ended March 31, 2000, Avatar increased the valuation allowance for
deferred income tax assets by $1,000, which is the primary cause for the
increase in the effective tax rate for March 31, 2001. Reference is made to the
Income Taxes note to the Consolidated Financial Statements included in Item 1 of
Part I of this Report.
LIQUIDITY AND CAPITAL RESOURCES
Avatar's current real estate business strategy is designed to
capitalize on its distinct competitive advantages and emphasize higher profit
margin businesses by concentrating on the development and management of active
adult communities, upscale custom and semi-custom homes and communities, and
commercial and industrial properties in its existing community developments.
Avatar also seeks to identify additional sites that are suitable for development
consistent with its business strategy and anticipates that it will acquire or
develop them directly or through joint venture or management arrangements.
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,
operating cash flows, proceeds from the sale of certain non-core assets and
external borrowings.
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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
Avatar's portfolio consists of held-to-maturity securities and trading
securities. Held-to-maturity securities include debt securities with the intent
and ability to hold to maturity and are measured at amortized cost. During 2000,
Avatar invested in U.S. Government issues, which mature in one year or less. The
amortized cost balance at March 31, 2001 and December 31, 2000 was $41,983 and
$41,968, respectively. Trading securities 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 measured at fair
market value and both realized and unrealized gains and losses are included in
net trading account profit 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 trading securities was $19,414, the book basis
(including unrealized gains of $6,636 and $1,948 recorded at December 31, 2000
and 1999, respectively) was $27,998. The fair value of Avatar's trading
investment portfolio at March 31, 2001 and 2000 was $29,577 and $12,275,
respectively, resulting in a trading account profit of $1,579 and loss of $6,379
for the three months ended March 31, 2001 and 2000, respectively.
During the second quarter of 2001, Avatar sold substantially all of its
trading account securities portfolio for net cash proceeds of $34,806. The
aggregate purchase price of the trading securities sold was $19,393 producing a
total pre-tax gain of $15,413, which includes the $1,579 profit for
the first quarter of 2001 and a $5,250 pre-tax gain for the second quarter of
2001 relative to this transaction.
For the three months ended March 31, 2001, net cash used in operating
activities amounted to $9,829; primarily as a result of an increase in other
assets of $11,555, a decrease in accounts payable and accrued and other
liabilities of $2,362, partially offset by principal payments collected on
contract receivables and other receivables of $1,141 and $1,896, respectively.
Net cash used in investing activities of $962 resulted from investments in
property, plant and equipment. Net cash used in financing activities of $1,193
resulted from the repayment of notes payable.
For the three months ended March 31, 2000, net cash used in operating
activities amounted to $18,460, primarily as a result of a decrease in accounts
payable and accrued and other liabilities of $14,709, and expenditures on land
development and housing operations of $4,004, partially offset by principal
payments collected on contract receivables of $1,787. Net cash used in investing
activities of $14,975 resulted from investments in property, plant and equipment
of $11,868 and marketable securities of $3,107. Net cash used in financing
activities of $4,608 resulted from the repayment of notes payable.
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 March 31, 2001, 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,
2000.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
10(a) Employment agreement dated March 31, 2001 between Avatar Holdings
Inc. and Dennis J. Getman (filed herewith).
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2001.
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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 14, 2001 By: /s/ Charles L. McNairy
---------------- -------------------------------------------
Charles L. McNairy
Executive Vice President, Treasurer and
Chief Financial Officer
Date: May 14, 2001 By: /s/ Michael P. Rama
---------------- -------------------------------------------
Michael P. Rama
Chief Accounting Officer
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