<PAGE> 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, 1999
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: 9,170,102 shares of the
Company's common stock ($1.00 par value) were outstanding as of April 30, 1999.
<PAGE> 2
AVATAR HOLDINGS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
Consolidated Balance Sheets --
March 31, 1999 and December 31, 1998 ........................ 3
Consolidated Statements of Operations --
Three months ended March 31, 1999 and 1998 ................. 4
Consolidated Statements of Cash Flows --
Three months ended March 31, 1999 and 1998 .................. 5
Notes to Consolidated Financial Statements .................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ......... 18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................ 26
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 23,100 $ 32,521
Restricted cash 4,624 5,232
Contracts and mortgage notes receivable, net 11,806 13,737
Other receivables, net 4,127 4,257
Land and other inventories 171,901 170,555
Property, plant and equipment, net 26,362 26,366
Other assets 11,350 11,724
Deferred income taxes 288 --
Assets of discontinued operations 207,105 208,599
--------- ---------
Total Assets $ 460,663 $ 472,991
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes, mortgage notes and other debt:
Corporate $ 130,000 $ 130,000
Notes, collateralized by contracts and mortgage notes receivable 7,435 9,060
Real estate 16,798 18,493
Estimated development liability for sold land 8,527 8,671
Accounts payable 2,649 3,385
Accrued and other liabilities 30,411 35,182
Deferred customer betterment fees 18,606 18,837
Liabilities of discontinued operations 134,577 137,106
--------- ---------
Total Liabilities 349,003 360,734
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share
Authorized: 15,500,000 shares
Issued: 9,170,102 shares 9,170 9,170
Additional paid-in capital 151,422 151,422
Deficit (48,932) (48,335)
--------- ---------
Total Stockholders' Equity 111,660 112,257
--------- ---------
Total Liabilities and Stockholders' Equity $ 460,663 $ 472,991
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
REVENUES
Real estate sales $ 27,913 $ 21,293
Deferred gross profit 1,050 1,133
Interest income 993 1,607
Other 457 452
-------- --------
Total revenues 30,413 24,485
EXPENSES
Real estate expenses 27,042 22,052
General and administrative expenses 2,541 2,478
Interest expense 2,714 3,477
Other 316 290
-------- --------
Total expenses 32,613 28,297
-------- --------
Loss from continuing operations before income taxes (2,200) (3,812)
Income tax benefit (795) --
-------- --------
Loss from continuing operations after income taxes (1,405) (3,812)
Discontinued operations:
Income from discontinued operations
less income tax expense of $507 for 1999
and $0 for 1998 808 1,045
Extraordinary item:
Loss on early extinguishment of debt,
less income tax expense of $0 -- (2,308)
-------- --------
Net loss $ (597) $ (5,075)
======== ========
Basic and Diluted EPS:
Loss from continuing operations after income taxes $ (0.15) $ (0.42)
Income from discontinued operations $ 0.09 $ 0.12
Loss from extraordinary item -- $ (0.25)
Net loss $ (0.06) $ (0.55)
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 1999 and 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (597) $ (5,075)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 872 795
Loss on early extinguishment of debt -- 2,308
Deferred gross profit (1,050) (1,133)
Deferred income taxes (288) --
Cost of homesite sales not requiring cash 561 367
Changes in operating assets and liabilities:
Restricted cash 608 (230)
Principal payments on contracts receivable 2,958 1,947
Receivables 23 1,810
Other receivables 130 (1,352)
Inventories (2,051) (2,431)
Other assets 21 (519)
Accounts payable and accrued and other liabilities (5,738) (2,652)
Assets/liabilities from discontinued operations, net (1,035) (2,130)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (5,586) (8,295)
INVESTING ACTIVITIES
Investment in property, plant and equipment (515) (288)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (515) (288)
FINANCING ACTIVITIES
Proceeds from issuance of 7% Convertible Subordinated Notes -- 115,000
Payment of financing fees -- (3,450)
Proceeds from revolving lines of credit and
long-term borrowings 52 5,713
Principal payments on revolving lines of credit and
long-term borrowings (3,372) (63,435)
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,320) 53,828
--------- ---------
(DECREASE) INCREASE IN CASH (9,421) 45,245
Cash and cash equivalents at beginning of period 32,521 3,860
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,100 $ 49,105
========= =========
</TABLE>
5
<PAGE> 6
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) -- continued
For the Three Months Ended March 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for: 1999 1998
------ ------
<S> <C> <C>
Interest - Continuing operations (net of amount
capitalized of $200 and $0
in 1999 and 1998, respectively) $4,296 $2,424
------ ------
Interest - Discontinued operations (net of amount
capitalized of $33 and $20 in 1999
and 1998, respectively) 1,240 483
====== ======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
1999 1998
------ ------
Contributions in aid of construction $ -- $ 552
====== ======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 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 March 31, 1999 and December 31,
1998, and the related consolidated statements of operations for the three months
ended March 31, 1999 and 1998 and the consolidated statements of cash flows for
the three months ended March 31, 1999 and 1998 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 1998 Annual Report on Form 10-K and the notes to
Avatar's consolidated financial statements included therein.
RECLASSIFICATIONS
Certain 1998 financial statement items have been reclassified to
conform to the 1999 presentation.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
shares outstanding of 9,170,102 for three months ended March 31, 1999 and 1998,
respectively. For computing earnings per share for the three months ended March
31, 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 1999 and 1998.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The Company 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
$4,624 and $5,232 as of March 31, 1999 and December 31, 1998, respectively.
These balances are comprised primarily of housing deposits that will become
available to the Company when the housing contracts close.
Restricted cash from discontinued operations includes deposits of $136
and $198 for vacation ownership and $40 and $35 for Florida utilities operations
as of March 31, 1999 and December 31, 1998, respectively. Vacation ownership
deposits are deposits received from purchasers that are held in escrow until a
certificate of occupancy is obtained or the legal rescission period has expired.
Florida utilities deposits received are from water utilities customers.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation." Statement No. 123
allows companies 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). The Company 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.
CONTRACTS AND MORTGAGE NOTES RECEIVABLES
Contracts and mortgage notes receivables is summarized as follows:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- ----------
<S> <C> <C>
Contracts and mortgage notes receivable $22,022 $24,992
------- -------
Less:
Deferred gross profit 9,346 10,532
Other 870 723
------- -------
10,216 11,255
------- -------
$11,806 $13,737
======= =======
</TABLE>
LAND AND OTHER INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- -----------
<S> <C> <C>
Land developed and in process of development $ 97,823 $100,414
Land held for future development or sale 31,027 31,027
Dwelling units completed or under construction 42,582 38,590
Other 469 524
-------- --------
$171,901 $170,555
======== ========
</TABLE>
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
As of March 31, 1999 and December 31, 1998, preferred stock outstanding
of the Florida utilities (classified as Discontinued Operations) owned by
minority interests is as follows:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------ -----------
<C> <C> <C>
9% Cumulative preferred stock $3,600 $5,400
Other 74 72
------ ------
$3,674 $5,472
====== ======
</TABLE>
The Florida utilities subsidiary's 9% cumulative preferred stock
provides for redemption of a minimum of $1,800 of the preferred stock each year
beginning in 1997. During each of the first quarters of 1999 and 1998, Avatar
redeemed $1,800 of the preferred stock. Redemption of all outstanding shares
shall occur no later than March 1, 2001.
Charges to operations recorded as "Other Expenses" (see Discontinued
Operations) relating to preferred stock dividends of subsidiaries amounted to
$110 in 1999 and $150 in 1998.
NOTES, MORTGAGE NOTES AND OTHER DEBT
On February 2, 1998 the Company issued $115,000 principal amount of 7%
Convertible Subordinated Notes due 2005 (the "Notes"). The Notes are convertible
into common stock of Avatar at the option of the holder at any time at or before
maturity, unless previously redeemed, at a conversion price of $31.80 per share.
The Notes are subordinated to all present and future senior indebtedness of
Avatar and are effectively subordinated to all indebtedness and other
liabilities of subsidiaries of Avatar. The net proceeds of $111,550 after
deducting expenses were used to repay $33,000 aggregate amount of 8% Senior
Debentures due 2000 and 9% Senior Debentures due 2000. The proceeds from the
issuance of the Notes have impacted the Company's liquidity and the remaining
proceeds are being used to implement the development of the Company's new active
adult communities, to expand its homebuilding operations, to reduce higher
interest rate borrowings, to provide additional working capital and for other
corporate purposes. The early extinguishment of the 8% and 9% Senior Debentures
resulted in an extraordinary loss of $2,308 pertaining to the unamortized
portion of discounts associated with these debentures.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income tax assets and liabilities as of
March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred income tax assets
Net operating loss carry forward $ 27,000 $ 27,000
Tax over book basis of land inventory 32,000 31,000
Unrecoverable land development costs 3,000 3,000
Tax over book basis of depreciable assets 5,000 5,000
Alternative minimum tax and investment tax credit carry-forward 4,000 4,000
Attributable to Discontinued Operations 3,000 4,000
Other 288 1,000
-------- --------
Total deferred income taxes 74,288 75,000
Valuation allowance for deferred income tax assets (59,000) (59,000)
-------- --------
Deferred income tax assets after valuation allowance 15,288 16,000
Deferred income tax liabilities
Book over tax income recognized on homesite sales (1,000) (2,000)
Attributable to Discontinued Operations (14,000) (14,000)
-------- --------
Total deferred income tax liabilities (15,000) (16,000)
-------- --------
Net deferred income taxes $ 288 $ 0
======== ========
</TABLE>
A reconciliation of income tax expense (credit) before discontinued
operations to the expected income tax expense (credit) at the federal statutory
rate of 35% for the three months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Income tax expense (credit) computed at statutory rate $ (770) $ (888)
Income tax effect of non-deductible dividends
on preferred stock of subsidiary 39 51
State income tax (credit), net of federal effect (74) (96)
Other, net 10 (67)
Change in valuation allowance on deferred tax assets 0 1,000
------- -------
Provision (benefit) for income taxes $ (795) $ 0
======= =======
</TABLE>
10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
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.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
The Company is primarily engaged in real estate operations. The Company
owns and develops land, primarily in various locations in Florida and Arizona.
The Company's 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; operations of amenities and resorts; cable television
operations; and property management services.
The Company's utilities operations include the purification and
distribution of water and the treatment and disposal of wastewater through
plants in Florida and Arizona, as well as contract management services for
affiliated and unaffiliated water and wastewater utilities. On April 15, 1999,
two operating subsidiaries of the Company closed on the sale of the assets used
in their Florida utilities operations (see Subsequent Events). Accordingly, the
Company has classified the Florida utilities as a discontinued operation (see
Discontinued Operations).
The following table summarizes the Company's information for reportable
segments for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
For the three months ended March 31
1999 1998
------- -------
<S> <C> <C>
REVENUES:
Segment revenues
Residential development $21,947 $15,264
Active adult -- --
Resorts 4,422 4,622
Commercial and industrial -- 107
Rental, leasing, cable and
other real estate operations 1,544 1,268
All other 323 320
------- -------
28,236 21,581
Unallocated revenues
Deferred gross profit 1,050 1,133
Interest income 993 1,607
Other 134 164
------- -------
Total revenues $30,413 $24,485
======= =======
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - CONTINUED
<TABLE>
<CAPTION>
For the three months ended March 31
-----------------------------------
1999 1998
------------- ---------------
<S> <C> <C>
OPERATING INCOME (LOSS):
Segment operating income (loss)
Residential development $ 2,156 $ 239
Active adult (401) (175)
Resorts 848 687
Commercial and industrial (67) (60)
Rental, leasing, cable and
other real estate operations 333 330
All other (29) (37)
--------- ---------
2,840 984
Unallocated income (expenses)
Deferred gross profit 1,050 1,133
Interest income 993 1,607
General and administrative expenses (2,541) (2,478)
Interest expense (2,346) (2,855)
Other (2,196) (2,203)
--------- ---------
Loss from continuing operations $ (2,200) $ (3,812)
========= =========
ASSETS: March 31 December 31
1999 1998
--------- ---------
Segment assets
Residential development $ 85,907 $ 87,795
Active adult 21,150 19,710
Resorts 8,803 9,318
Commercial and industrial 14,081 14,081
Rental, leasing, cable and
other real estate operations 10,724 10,685
Discontinued assets 209,055 208,599
Unallocated assets 110,943 122,803
--------- ---------
Total assets $ 460,663 $ 472,991
========= =========
</TABLE>
(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 and the cost to carry land do not
qualify individually as separate reportable segments and are included in
all other.
(e) Included in segment profit/(loss) for 1999 is interest expense of $182,
$38 and $148 from residential development, resorts and rental/leasing,
respectively. Included in segment profit/(loss) for 1998 is interest
expense of $441, $40 and $141 from residential development, resorts and
rental/leasing, respectively.
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - CONTINUED
(f) Included in operating profit/(loss) for 1999 is depreciation expense of
$57, $303, $118 and $41 from residential development, resorts,
rental/leasing and unallocated corporate, respectively. Included in
operating profit/(loss) for 1998 is depreciation expense of $66, $312,
$103 and $86 from residential development, resorts, rental/leasing and
unallocated corporate, respectively.
DISCONTINUED OPERATIONS
During 1997, the Company developed a formal plan for the disposition of
its timeshare business. During the second quarter of 1999, the Company entered
into a contract for the sale of the timeshare operation; however, there is no
assurance that the transaction will be consummated. Net assets and liabilities
of the timeshare business have been segregated from the continuing operations in
the accompanying balance sheets, and operating results are segregated and
reported as discontinued operations in the accompanying consolidated statements
of operations and cash flows.
On April 15, 1999, two operating subsidiaries of the Company closed on
the sale of the assets used in their Florida utilities operations. Net assets
and liabilities of the Florida utilities operations have been segregated from
the continuing operations in the accompanying balance sheets, and operating
results are segregated and reported as discontinued operations in the
accompanying consolidated statements of operations and cash flows (see
Subsequent Events).
Consolidated operating results relating to the discontinued operations
for the three months ended March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999
-----------------------------------
Vacation Florida
Ownership Utilities Total
--------- --------- -------
<S> <C> <C> <C>
REVENUES
Real estate sales $ 2,384 $ -- $ 2,384
Utilities revenues -- 9,476 9,476
Interest income 811 -- 811
Other 254 22 276
------- ------- -------
Total revenues 3,449 9,498 12,947
EXPENSES
Real estate expenses 3,020 -- 3,020
Utilities expenses -- 7,113 7,113
Interest expense 649 740 1,389
Minority interest -- 110 110
------- ------- -------
Total expenses 3,669 7,963 11,632
------- ------- -------
Income (loss) from discontinued operations before
income taxes (220) 1,535 1,315
Income tax expense (benefit) (85) 592 507
------- ------- -------
Net (loss) income from discontinued operations $ (135) $ 943 $ 808
======= ======= =======
</TABLE>
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
DISCONTINUED OPERATIONS -- continued
<TABLE>
<CAPTION>
1998
------------------------------------
Vacation Florida
Ownership Utilities Total
--------- --------- -------
<S> <C> <C> <C>
REVENUES
Real estate sales $ 2,116 $ -- $ 2,116
Utilities revenues -- 8,565 8,565
Interest income 599 -- 599
Other 242 (29) 213
------- ------- -------
Total revenues 2,957 8,536 11,493
EXPENSES
Real estate expenses 2,563 -- 2,563
Utilities expenses -- 6,395 6,395
Interest expense 549 791 1,340
Minority interest -- 150 150
------- ------- -------
Total expenses 3,112 7,336 10,448
------- ------- -------
Net (loss) income from discontinued operations $ (155) $ 1,200 $ 1,045
======= ======= =======
</TABLE>
The net assets and liabilities of the discontinued operations included
in the accompanying consolidated balance sheets as of March 31, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
As of March 31, 1999
----------------------------------------
Vacation Florida
Ownership Utilities Total
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 70 $ 887 $ 957
Restricted cash 136 40 176
Contracts and mortgage notes receivable, net 22,766 -- 22,766
Other receivables, net 123 4,277 4,400
Land and other inventories 6,958 261 7,219
Property, plant and equipment, net 173 163,375 163,548
Other assets 1,846 9,872 11,718
Regulatory assets -- 2,721 2,721
Reserve for estimated loss on disposal (6,400) -- (6,400)
--------- --------- ---------
Total assets $ 25,672 $ 181,433 $ 207,105
========= ========= =========
LIABILITIES AND CONTRIBUTIONS IN AID OF CONSTRUCTION
Notes, mortgage notes and other debt:
Notes, collateralized by contracts and mortgage
notes receivable $ 18,478 $ -- $ 18,478
Real estate 3,233 -- 3,233
Utilities -- 37,450 37,450
Accounts payable 94 1,967 2,061
Accrued and other liabilities 231 9,087 9,318
Minority interest -- 3,674 3,674
--------- --------- ---------
Total liabilities 22,036 52,178 74,214
Contributions in aid of construction -- 60,363 60,363
--------- --------- ---------
Total liabilities & contributions in
aid of construction $ 22,036 $ 112,541 $ 134,577
========= ========= =========
</TABLE>
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
DISCONTINUED OPERATIONS -- continued
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------------
Vacation Florida
Ownership Utilities Total
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 32 $ 471 $ 503
Restricted cash 198 35 233
Contracts and mortgage notes receivable, net 22,861 -- 22,861
Other receivables, net 319 3,959 4,278
Land and other inventories 7,357 256 7,613
Property, plant and equipment, net 196 164,751 164,947
Other assets 1,916 9,812 11,728
Regulatory assets -- 2,836 2,836
Reserve for estimated loss on disposal (6,400) -- (6,400)
--------- --------- ---------
Total assets $ 26,479 $ 182,120 $ 208,599
========= ========= =========
LIABILITIES AND CONTRIBUTIONS IN AID OF CONSTRUCTION
Notes, mortgage notes and other debt:
Notes, collateralized by contracts and mortgage
notes receivable $ 18,298 $ -- $ 18,298
Real estate 3,647 -- 3,647
Utilities -- 39,219 39,219
Accounts payable 38 1,171 1,209
Accrued and other liabilities 266 8,374 8,640
Minority interest -- 5,472 5,472
--------- --------- ---------
Total liabilities 22,249 54,236 76,485
Contributions in aid of construction -- 60,621 60,621
--------- --------- ---------
Total liabilities & contributions
in aid of construction $ 22,249 $ 114,857 $ 137,106
========= ========= =========
</TABLE>
SUBSEQUENT EVENTS
On April 15, 1999, Florida Cities Water Company and Poinciana
Utilities, Inc., two operating subsidiaries of Avatar Utilities Inc., a
wholly-owned subsidiary of Avatar Holdings Inc., that own and operate water and
wastewater utilities located in the counties of Brevard, Collier, Hillsborough,
Lee, Osceola, Polk and Sarasota, Florida, closed on the sale of substantially
all of their assets used in the Florida utilities operations to The Florida
Governmental Utility Authority for a cash sales price of $208,619, subject to
certain adjustments. For purposes of the transaction, certain of the counties
organized The Florida Governmental Utility Authority. The Florida Governmental
Utility Authority obtained the financing for the acquisition through the
issuance of municipal bonds. Avatar's contract management services subsidiary
has entered into agreements to provide operation and maintenance services as
well as billing and customer services for each of the water and wastewater
systems. These agreements have initial terms ranging from 14 months to five
years.
The following unaudited pro forma condensed consolidated balance sheet
of the Company gives effect to the sale of substantially all of the assets used
in the Florida utilities operations as if it had occurred on March 31, 1999. For
the three months ended March 31, 1999, the Company's consolidated statement of
operations presents the Florida utilities operations as discontinued. The gain
on the sale transaction will be classified in the Company's consolidated
statement of operations during the six months ended June 30, 1999 as a gain from
the sale of discontinued operations. Consequently, the sale transaction will
have no effect on the Company's
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
SUBSEQUENT EVENTS - CONTINUED
loss from continuing operations or loss per share from continuing operations,
and accordingly, no pro forma condensed consolidated statement of operations is
presented herein.
<TABLE>
<CAPTION>
March 31, Florida March 31,
1999 Utilities 1999
As Reported Disposition Pro Forma
----------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 23,100 $ 139,249 (a) $ 162,349
Restricted cash 4,624 -- 4,624
Contracts and mortgage notes receivable, net 11,806 -- 11,806
Other receivables, net 4,127 -- 4,127
Land and other inventories 171,901 3,965 (d) 175,866
Property, plant and equipment, net 26,362 (2,787)(d) 23,575
Other assets 11,350 2,852 (d) 14,202
Deferred income taxes 288 14,071 (e) 14,359
Assets of discontinued operations 207,105 (166,682)(b) 40,423
--------- --------- ---------
Total Assets $ 460,663 $ (9,332) $ 451,331
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes, mortgage notes and other debt:
Corporate $ 130,000 $ (15,000)(a) $ 115,000
Notes, collateralized by contracts and mortgage
notes receivable 7,435 -- 7,435
Real estate 16,798 -- 16,798
Estimated development liability for sold land 8,527 8,525 (d) 17,052
Accounts payable 2,649 -- 2,649
Accrued and other liabilities 30,411 1,000 (d) 31,411
Deferred customer betterment fees 18,606 (18,597)(d) 9
Income taxes payable -- 14,359 (e) 14,359
Liabilities of discontinued operations 134,577 (102,040)(c) 32,537
--------- --------- ---------
Total Liabilities 349,003 (111,753) 237,250
Stockholders' equity, net 111,660 102,421 214,081
--------- --------- ---------
Total Liabilities and Stockholders' Equity $ 460,663 $ (9,332) $ 451,331
========= ========= =========
</TABLE>
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
SUBSEQUENT EVENTS - CONTINUED
The pro forma adjustments to the pro forma condensed consolidated balance sheet
as of March 31, 1999 are as follows:
(a) To record the estimated proceeds from the sale transaction and the
anticipated use of proceeds therefrom:
Total cash proceeds from sale $ 208,619
Transaction expenses related to the sale (1,568)
Contingent proceeds remaining in escrow (2,900)
Repayment of utilities loans and preferred stock (42,041)
Repayment of bank credit line (15,000)
Cash included in discontinued operations
for payment of utilities liabilities (7,861)
---------
Net cash $ 139,249
=========
(b) To record the disposal of the Florida utilities assets as a result of this
sale transaction.
(c) To record the effect on the liabilities of discontinued operations as it
relates to the disposal of the assets used in the Florida utilities
operations:
Repayment of utilities loans and preferred stock $(42,041)
Extinguishment of CIAC (60,105)
Change in accruals of utilities liabilities 106
--------
$(102,040)
========
Contributions in aid of construction (CIAC) are advances from real estate
developers and other direct contributions for plant construction.
(d) Adjustments to the basis of assets sold and retained that were applicable
to utilities operations and the accrual of liabilities as a result of this
sale transaction.
(e) Reflects the effect of deferred tax assets and current tax liabilities as a
result of this sale transaction.
On May 5, 1999, Avatar Properties Inc., a wholly-owned subsidiary of the
Avatar Holdings Inc., entered into a contract for the sale of substantially all
of its real estate assets located in Cape Coral, Florida. Assuming substantially
all of the Cape Coral assets are sold, it is anticipated that the purchase price
will approximate $45,000, subject to certain adjustments and customary closing
conditions. Avatar will retain a 692-acre site in northeast Cape Coral for
potential future inclusion in its active adult community development operations,
as well as its homebuilding operations.
17
<PAGE> 18
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 three month period ended March 31, 1999 resulted in
a net loss of $597 or $0.06 per share, compared to a net loss of $5,075 or
$0.55 per share for the same period of 1998. The increase in operating results
for the three months was primarily attributable to an increase in real estate
operating results, a decrease in interest expense and an extraordinary loss on
the early extinguisnment of debt recorded during the first quarter of 1998. The
increase in operating results was partially offset by a decrease in interest
income.
Avatar's real estate revenues for the three months ended March 31, 1999
increased $6,620 or 31.1%, while the real estate expenses increased by $4,990 or
22.6% when compared to the same period of 1998. The increase in real estate
revenues for the three months ended March 31, 1999 is generally a result of
increased residential homebuilding revenues. The increase in real estate
expenses for the three month period ended March 31, 1999, when compared to the
same period of 1998, is generally a result of related costs associated with the
increased sales volume. Operating profits for residential homebuilding increased
for the three months ended March 31, 1999 when compared to the same period of
1998 due to the increased closings of higher-margin product at Harbor Islands.
Data from homebuilding operations for the three months ended March 31,
1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
Three Months
1999 1998
------- -------
<S> <C> <C>
UNITS CLOSED
Number of units 111 110
Aggregate dollar volume $21,749 $14,931
Average price per unit $196 $136
UNITS SOLD, NET
Number of units 153 135
Aggregate dollar volume $29,925 $21,408
Average price per unit $196 $159
BACKLOG March 31,
1999 1998
------- -------
Number of units 439 401
Aggregate dollar volume $92,887 $63,520
Average price per unit $212 $158
</TABLE>
18
<PAGE> 19
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, are as follows:
<TABLE>
<CAPTION>
March 31,
1999 1998
-------- --------
<S> <C> <C>
RETAIL LAND SALES OPERATIONS DATA
Deferred gross profit $ 1,050 $ 1,133
Interest income 549 1,213
Loss on contract cancellations (71) (52)
Contract servicing expense (134) (189)
Interest expense (111) (567)
BALANCE SHEET DATA
Contracts and mortgage notes receivable, net 11,806 21,695
Debt collateralized by contracts and mortgage receivable 7,435 15,220
</TABLE>
Contract servicing expense and loss on contract cancellations are included under
the caption "Real estate expenses" on the consolidated statements of operations.
Interest income for the three months ended March 31, 1999 decreased
$614 or 38.2%, compared to the same period in 1998. The decrease is primarily
attributable to lower interest income earned from the proceeds invested from the
7% Convertible Subordinated Notes issued February 2, 1998. In addition, the
decrease in interest income was due to lower average aggregate balances of the
Company's contract and mortgage notes receivable portfolio, caused by
collections and cancellations.
Interest expense for the three months ended March 31, 1999 decreased
$763 or 21.9%, compared to the same period in 1998. The decrease is primarily
attributable to a reduction of the real estate and notes collateralized by
contracts and mortgage notes receivable outstanding debt.
For the three months ended March 31, 1998, the Company recorded a
$2,308 extraordinary loss due to the early extinguishment of the $33,000
aggregate principal amount of 8% and 9% Senior Debentures due 2000. The
extraordinary loss resulted from the unamortized portion of the discounts
associated with the $33,000 aggregate principal amount of 8% and 9% Senior
Debentures due 2000 written off upon extinguishment.
19
<PAGE> 20
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
Income (loss) from discontinued operations before income taxes
(vacation ownership and Florida utilities operations) for the three months ended
March 31, 1999 increased $270 or 25.8% compared to the same period of 1998. Loss
before income taxes from the vacation ownership operations increased $65 in 1999
when compared to 1998. The decrease in operating results in 1999 when compared
to 1998 is due to changes in product mix as compared to 1998. Income (loss)
before taxes from the Florida utilities operations increased $335 in 1999 when
compared to 1998. The increase in Florida utilities operations for 1999 is a
result of customer growth and increased contract management operations.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, management began implementing its current real estate
business strategy to capitalize on the Company's distinct competitive advantages
and emphasize higher profit margin businesses. The Company intends to
concentrate on development and management of active adult and other planned
communities, construction of custom and semi-custom homes, and development and
acquisition of commercial and industrial properties. The Company does not
anticipate that its real estate business strategy will achieve or sustain
profitability or positive cash flow until the year 2000 or later. The Company's
primary business activities are capital intensive in nature. Significant capital
resources are required to finance planned active adult communities, homebuilding
construction in process, infrastructure for roads, water and wastewater
utilities, selling expenses and working capital needs, including funding of debt
service requirements, operating deficits and the carrying cost of land. The
Company expects to fund its operations and capital requirements through a
combination of cash, operating cash flows and external borrowings.
On April 15, 1999, Florida Cities Water Company and Ponciana Utilities,
Inc., two operating susidiaries of Avatar Utilities, Inc., a wholly owned
subsidiary of Avatar Holdings Inc., that owns and operates water and wastewater
utilities located in the counties of Brevard, Collier, Hillsborough, Lee,
Osceola, Polk and Sarasota, Florida closed on the sale of the assets used in
their Florida Utilities operations. The cash sales price is approximately
$208,619, subject to certain adjustments. The available net cash proceeds from
the sale will be approximately $139,249 after the payment of indebtedness,
certain other liabilities and expenses and the redemption of the preferred
stock.
On May 5, 1999, Avatar Properties Inc., a wholly-owned subsidiary of Avatar
Holdings Inc., entered into a contract for the sale of substantially all of its
real estate assets located in Cape Coral, Florida. Assuming substantially all of
the Cape Coral assets are sold, it is anticipated that the purchase price will
approximate $45,000, subject to certain adjustments and customary closing
conditions. Upon consummation of the transaction, the pre-tax net cash proceeds
from the sale will approximate $37,000 after payment of associated indebtedness
and expenses of the transaction. Avatar will retain a 692-acre site in northeast
Cape Coral for potential future inclusion in its active adult community
development operations, as well as its homebuilding operations.
20
<PAGE> 21
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
For the three months ended March 31, 1999, net cash used in operating
activities amounted to $5,586 as a result of an increase in inventories, which
included expenditures from land development and housing operations of $2,051,
and a decrease in accounts payable and accrued and other liabilities of $5,738,
partially offset by principal payments collected on contract receivables of
$2,958. Net cash used in investing activities of $515 resulted primarily from
investments in property, plant and equipment. Net cash used in financing
activities of $3,320 resulted primarily from repayment of $3,372 in land
development and construction loans.
For the three months ended March 31, 1998, net cash used in operating
activities amounted to $8,295 as a result of an increase in inventories, which
included expenditures from land development and housing operations of $2,431,
and a decrease in accounts payable and accrued and other liabilities of $2,652,
partially offset by principal payments collected on contract receivables of
$1,947. Net cash used in investing activities of $288 resulted primarily from
investments in property, plant and equipment. Net cash provided by financing
activities of $53,828 resulted primarily from proceeds of $111,550 from the 7%
Convertible Subordinated Notes after repayment of $33,000 aggregate principal
amount of the 8% and 9% Senior Debentures due 2000 and $31,289 in land
development and construction loans.
At March 31, 1999, the Company's secured real estate lines of credit,
exclusive of timeshare credit facilities, amounted to $7,435, all of which were
fully utilized. These real estate lines were secured by contracts and mortgage
receivables aggregating $8,092; however, during the second quarter of 1999 these
lines of credit were repaid. Corporate secured lines of credit were $20,000 at
March 31, 1999, the unused and available portions were $5,000; however, during
the second quarter of 1999 these lines of credit were repaid.
At March 31, 1999, utilities unsecured lines of credit were $15,000 and
the unused and available portion was $14,050. The utilities lines were repaid
during the second quarter of 1999 in conjunction with the sale of Florida
Utilities (see Notes to Consolidated Financial Statements Subsequent Events).
On April 26, 1999, Avatar's Board of Directors authorized the
expenditure of up to $15,000 to purchase from time to time shares of its common
stock and/or its 7% Convertible Subordinated Notes in the open market, through
privately negotiated transactions or otherwise, depending on market and business
conditions and other factors.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) --CONTINUED
YEAR 2000
The Year 2000 issue relates to computer systems programmed to use two
digits rather than four to define the applicable year. Computer systems and
other programmable devices utilizing time/date-sensitive software and hardware
may recognize a date using "00" as the year 1900 rather than the Year 2000 which
could result in the computer or device shutting down, performing incorrect
computations or performing inconsistently.
Various systems could be affected, ranging from complex information
technology (IT) computer systems and applications which may be impacted by the
Year 2000 issue and the actions related to non-IT systems and equipment which
include embedded technology which may be impacted by the Year 2000 problem and
the actions related thereto. In addition, the failure to be Year 2000 compliant
by third party vendors and suppliers with whom a company has material
relationships could adversely affect such company.
The Company's systems that integrate all major aspects of the Company's
business, including inventory control, planning, labor utilization and financial
reporting, were designed in the early 1990's and are substantially Year 2000
compliant. Since 1997, the Company has been continually assessing the ability of
the information system to handle the "Year 2000 Issue", and currently does not
expect this issue to be material to the Company's business based upon its
assessment of its own system.
State of Readiness
The Company has conducted a comprehensive review of its computer
systems to identify those systems that could be affected by the Year 2000 issue
and has developed an implementation plan to resolve the issue. The
implementation plan includes the following phases: formation of a team of
internal resources to inventory affected technology and assess the impact of the
Year 2000 issue; develop solution plans; modify or replace existing processes,
hardware and software; test and certify modified, existing and new processes;
and develop contingency plans. All components of software and hardware of the
Company are currently in various phases of review, modification or
implementation.
As of March 31, 1999 all critical hardware and software systems
utilized by the Company have been tested and/or verified as either Year 2000
compliant or appropriate remediation was taken or will be taken to effect
compliance. Certain non-critical software systems were determined not to be Year
2000 compliant and have been or will be modified or converted to compliant
systems. Systems utilized by the Company's utilities subsidiaries were not
compliant, and during the 1997 fiscal year financial systems were converted to
compliant systems previously in use by the Company. Conversion of additional
non-critical systems is in process. Meter reading devices used by the Company's
utilities subsidiaries include certain embedded systems that may fail; however,
such failure would be immaterial as billing for utilities services can be
estimated based on historical usage pending necessary remediation or
replacement. Testing systems utilized to verify compliance include the posting
to the systems of the date of January 1, 2000 as though the date were effective.
The Company has tested all critical IT and non-IT systems as of March 31, 1999.
Any necessary additional modifications or replacement
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) --CONTINUED
YEAR 2000 - CONTINUED
are expected to be completed by the end of the second quarter of 1999 and
offsite testing of critical systems is expected to be conducted by the end of
the second quarter of 1999 in conjunction with the Company's standard testing of
its business recovery program.
The Company also developed a third-party vendor and business partner
awareness program, which communicates matters of concern to the Company
pertaining to the Year 2000 issue. A comprehensive Year 2000 questionnaire has
been circulated to material third-party vendors and business partners to enable
the Company to ascertain their status of Year 2000 readiness and/or compliance.
The Company's questionnaire was prepared and circulated as of September 17, 1998
to more than 300 parties. There can be no assurance that systems of third
parties on which the Company relies will be converted in a timely manner, or
that a failure to properly convert by another company would not have a material
adverse effect on the Company. However, the Company continues to review the
materiality of third-party vendors and business partners who report failure to
be compliant or who do not respond to the Company's questionnaire with a view
toward locating appropriate alternate parties where applicable and possible.
This review is expected to be completed during the second quarter of 1999.
Cost of addressing Year 2000
The Company is well underway with its implementation plan to address
Year 2000 issues and anticipates completion during the second quarter of 1999.
During the past few years nominal expenditures were effected to upgrade and/or
replace certain software, which expenditures were not directly related to Year
2000 issues but to general improvements to the systems. Total expenditures
related to the Year 2000 project are estimated not to exceed $200 with $50
related to equipment and $150 to software. All costs associated with the
Company's Year 2000 effort have come from, or are expected to come from, cash
flow from operations or borrowings.
Because it was not necessary to replace the Company's midrange computer
and/or its major operating systems, nominal expenditures to date are estimated
to approximate $125. It is not possible to determine absolute expenditures
because appropriate modifications to software applications systems were made
from time to time as potential issues were discovered. Costs associated
therewith were not specifically designated and for the most part represented
installation of equipment and conversion and/or modification of systems
performed by employees of the Company.
The estimated cost of the Company's Year 2000 project and the dates on
which the Company believes it will complete such efforts are based on
management's best estimates, which were derived using numerous assumptions
regarding future events, including the number of man-hours to program and/or
install equipment and software, as well as response to the Company's
questionnaire regarding vendor readiness. The Company does not separately track
internal costs related to the Year 2000 issue. Such costs are principally the
related payroll costs for the Company's Business Information Systems personnel.
The Company's estimated total expenditures related to the Year 2000 of $200
represents less than 5% of the Company's aggregate IT budgets for 1997, 1998 and
1999. There can be no assurance that these estimates
23
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) --CONTINUED
YEAR 2000 - CONTINUED
will prove to be accurate. Specific factors that could cause material
differences with actual results include, but are not limited to, the results of
testing and the timeliness and effectiveness of remediation efforts of third
parties.
The Company believes its systems have been adequately and appropriately
reviewed and tested, and minor modifications and/or conversions have been or
will be effected as necessary.
Risk Presented by Year 2000 Issues
A failure by the Company to resolve a material Year 2000 issue could
result in the interruption in, or failure of, certain normal business activities
or operations and could materially and adversely affect the Company's financial
condition, results of operations and cash flows. The Company is currently
assessing those scenarios in which unexpected failures could have a material
adverse effect on the Company and will attempt to develop contingency plans
designed to deal with such scenarios. In general, the Company could continue
basic real estate operations in the event of failure of its computer systems.
The Company's utilities operations are highly regulated and the operating
systems were designed with manual overrides to operate the physical plants in
the event of failure of automated systems.
Based on current plans and assumptions, the Company does not expect
that the Year 2000 issue will have a material adverse impact on the Company as a
whole. Due to the general uncertainty inherent in the Year 2000 issue, however,
there can be no assurance that all Year 2000 issues will be foreseen and
corrected on a timely basis, or that no material disruption to the Company's
business operations will occur. Further, the Company's expectations are based on
the assumption that there will be no general failure of external local, national
or international systems (including power, communications, postal,
transportation, or financial systems) necessary for the ordinary conduct of
business.
Contingency Plan
The Company is in the process of developing a contingency plan designed
to address reasonably likely Year 2000 scenarios, and this plan is currently
expected to be completed during the second quarter of 1999. In the normal course
of business, the Company maintains contingency plans designed to address various
other potential interruptions. These preexisting contingency plans are being
incorporated into the Year 2000 contingency plan and are expected to assist in
mitigating any adverse effect due to interruption of support provided by third
parties resulting from their failure to be Year 2000 compliant. There can be no
assurance, however, that successful contingency plans to address the Year 2000
issue can, in fact, be developed or implemented or that certain development and
implementation would be economically feasible.
24
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS) - 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 the Company's new business strategy;
shifts in demographic trends affecting active adult communities and other real
estate development; the level of immigration and in-migration to the Company'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; the
Company's access to future financing; competition; changes in, or the failure or
inability of the Company to comply with, government regulations; the ability of
the Company and third parties to address Year 2000 issues adequately; and such
other factors as are described in greater detail in the Company's filings with
the Securities and Exchange Commission, including its Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
25
<PAGE> 26
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27 Financial Data Schedule (filed herewith)
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1999.
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, 1999 By: /s/ Lawrence R. Sherry
------------------- -----------------------------------------
Lawrence R. Sherry
Executive Vice President and
Chief Financial Officer
Date: May 14, 1999 By: /s/ Charles L. McNairy
------------------- -----------------------------------------
Charles L. McNairy
Executive Vice President and Treasurer
Date: May 14, 1999 By: /s/ Michael P. Rama
------------------- -----------------------------------------
Michael P. Rama
Chief Accounting Officer
26
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 27,724
<SECURITIES> 0
<RECEIVABLES> 22,022
<ALLOWANCES> (10,216)
<INVENTORY> 171,901
<CURRENT-ASSETS> 0
<PP&E> 26,362
<DEPRECIATION> 0
<TOTAL-ASSETS> 460,663<F1>
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 154,233
0
0
<COMMON> 9,170
<OTHER-SE> 111,660
<TOTAL-LIABILITY-AND-EQUITY> 460,663
<SALES> 27,913
<TOTAL-REVENUES> 30,413
<CGS> 27,042
<TOTAL-COSTS> 32,613
<OTHER-EXPENSES> 2,857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,714
<INCOME-PRETAX> (2,200)
<INCOME-TAX> (795)
<INCOME-CONTINUING> (1,405)
<DISCONTINUED> 808
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (597)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
<FN>
<F1>Total Current Assets and Total Current Liabilities are not applicable because
Registrant does not present a classified balance sheet.
</FN>
</TABLE>
