<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, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to ________
----------
Commission file number 0-7616
I.R.S. Employer Identification Number 23-1739078
Avatar Holdings Inc.
(a Delaware Corporation)
201 Alhambra Circle
Coral Gables, Florida 33134
(305) 442-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 8,405,938 shares of Avatar's
common stock ($1.00 par value) were outstanding as of April 30, 2000.
<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, 2000 and December 31, 1999 ........................ 3
Consolidated Statements of Operations --
Three months ended March 31, 2000 and 1999 ............... 4
Consolidated Statements of Cash Flows --
Three months ended March 31, 2000 and 1999 .................. 5
Notes to Consolidated Financial Statements .................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .... 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................ 16
</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,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 105,216 $ 143,259
Restricted cash 2,853 3,552
Investment - marketable securities 12,275 15,547
Contracts and mortgage notes receivable, net 6,846 7,685
Other receivables, net 3,968 3,328
Land and other inventories 164,247 157,473
Property, plant and equipment, net 50,041 41,384
Other assets 15,332 14,774
Deferred income taxes 6,182 4,133
--------- ---------
Total Assets $ 366,960 $ 391,135
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes, mortgage notes and other debt:
Corporate $ 112,367 $ 112,367
Real estate 2,493 7,101
Estimated development liability for sold land 18,588 18,605
Accounts payable 2,867 8,997
Accrued and other liabilities 41,909 50,488
--------- ---------
Total Liabilities 178,224 197,558
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 157,141 157,141
Retained earnings 34,974 39,815
--------- ---------
201,285 206,126
Treasury stock, at cost, 764,164 shares (12,549) (12,549)
--------- ---------
Total Stockholders' Equity 188,736 193,577
--------- ---------
Total Liabilities and Stockholders' Equity $ 366,960 $ 391,135
========= =========
</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, 2000 and 1999
(Unaudited)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
REVENUES
Real estate sales $ 27,463 $ 27,913
Deferred gross profit 594 1,050
Interest income 2,011 993
Other 1,495 457
-------- --------
Total revenues 31,563 30,413
EXPENSES
Real estate expenses 26,767 27,042
General and administrative expenses 2,542 2,541
Trading account loss 6,379 --
Interest expense 1,498 2,714
Other 849 316
-------- --------
Total expenses 38,035 32,613
-------- --------
Loss from continuing operations before income taxes (6,472) (2,200)
Income tax benefit (1,631) (795)
-------- --------
Loss from continuing operations after income taxes (4,841) (1,405)
Discontinued operations:
Income from discontinued operations less income
tax expense of $507 for 1999 -- 808
-------- --------
Net loss $ (4,841) $ (597)
======== ========
BASIC AND DILUTED EPS:
Loss from continuing operations after income taxes $ (0.58) $ (0.15)
Income from discontinued operations $ -- $ 0.09
Net loss $ (0.58) $ (0.06)
</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, 2000 and 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,841) $ (597)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 777 872
Deferred gross profit (594) (1,050)
Trading account loss, net 6,379 --
Changes in operating assets and liabilities:
Restricted cash 699 608
Principal payments on contracts receivable 1,787 2,958
Receivables (354) 23
Other receivables (640) 130
Inventories (4,004) (1,490)
Deferred income taxes (2,049) (288)
Other assets (911) 21
Accounts payable and accrued and other liabilities (14,709) (5,738)
Assets/liabilities from discontinued operations, net -- (1,035)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (18,460) (5,586)
INVESTING ACTIVITIES
Investment in property, plant and equipment (11,868) (515)
Investment in marketable securities (3,107) --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (14,975) (515)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term borrowings -- 52
Principal payments on revolving lines of credit and long-term borrowings (4,608) (3,372)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,608) (3,320)
--------- ---------
DECREASE IN CASH (38,043) (9,421)
Cash and cash equivalents at beginning of period 143,259 32,521
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 105,216 $ 23,100
========= =========
</TABLE>
5
<PAGE> 6
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) -- continued
For the Three months ended March 31, 2000 and 1999
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Cash paid during the period for:
Interest - Continuing operations (net of amount
capitalized of $726 and $200
in 2000 and 1999, respectively) $ -- $ 4,296
======= =======
Interest - Discontinued operations (net of amount
capitalized of $0 and $33 in 2000
and 1999, respectively) $ -- $ 1,240
======= =======
Income taxes paid $ 1,700 $ --
======= =======
</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, 2000 and December 31,
1999, and the related consolidated statements of operations for the three months
ended March 31, 2000 and 1999 and the consolidated statements of cash flows for
the three months ended March 31, 2000 and 1999 have been prepared in accordance
with generally accepted accounting principles for interim financial information,
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statement presentation. In
the opinion of management, all adjustments necessary for a fair presentation of
such financial statements have been included. Such adjustments consisted only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.
For a complete description of Avatar's other accounting policies, refer
to Avatar Holdings Inc.'s 1999 Annual Report on Form 10-K and the notes to
Avatar's consolidated financial statements included therein.
RECLASSIFICATIONS
Certain 1999 financial statement items have been reclassified to
conform to the 2000 presentation.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
shares outstanding of 8,405,938 and 9,170,102 for the three months ended March
31, 2000 and 1999, respectively. For computing earnings per share for the three
months ended March 31, 2000 and 1999, the conversion of the Notes and employee
stock options were not assumed, as the effect of both would be antidilutive.
There is no difference between basic and diluted earnings per share for 2000 and
1999.
REPURCHASE OF COMMON STOCK AND NOTES
On January 27, 2000, Avatar's Board of Directors authorized the
expenditure of up to $20,000 to purchase, from time to time, shares of its
common stock and/or its 7% Convertible Subordinated Notes (the "Notes") in the
open market, through privately negotiated transactions or otherwise, depending
on market and business conditions and other factors. As of March 31, 2000, none
of these authorized expenditures had been made.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Avatar considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Due to the short
maturity period of the cash equivalents, the carrying amount of these
instruments approximates their fair values. Restricted cash includes deposits of
$2,853 and $3,552 as of March 31, 2000 and December 31, 1999, respectively.
These balances are comprised primarily of housing deposits that will become
available to Avatar when the housing contracts close.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
STOCK OPTIONS
Under Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," companies are allowed to measure
compensation cost in connection with employee stock compensation plans, using a
fair value based method; or to use an intrinsic value based method in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Avatar has elected to follow APB 25 and related
interpretations in accounting for its employee stock options.
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Accordingly, actual results could differ from those
reported.
INVESTMENTS - MARKETABLE SECURITIES
Avatar classifies its entire investment portfolio as trading. This
category is defined to include debt and marketable equity securities held for
resale in anticipation of earning profits from short-term movements in market
prices. Trading account securities are carried at fair market value and both
realized and unrealized gains and losses are included in net trading account
loss in the accompanying consolidated statements of operations. Fair values for
actively traded debt securities and equity securities are based on quoted market
prices on national markets. While the aggregate purchase price of the marketable
securities was $16,706, the book basis (including a $1,948 unrealized gain
recorded at December 31, 1999) was $18,654. The fair value of Avatar's
investment portfolio at March 31, 2000 was $12,275; resulting in the recording
of a trading account loss of $6,379 for the three months ended March 31, 2000.
As of March 31, 2000, the portfolio did not include any forward foreign exchange
contracts. As of May 8, 2000 the fair value of the investment portfolio was
$12,120.
CONTRACTS AND MORTGAGE NOTES RECEIVABLES
Contracts and mortgage notes receivables are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Contracts and mortgage notes receivable $13,873 $15,669
------- -------
Less:
Deferred gross profit 6,130 6,857
Other 897 1,127
------- -------
7,027 7,984
------- -------
$ 6,846 $ 7,685
======= =======
</TABLE>
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
LAND AND OTHER INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Land developed and in process of development $ 74,178 $ 73,861
Land held for future development or sale 33,051 33,784
Dwelling units completed or under construction
and community development in process 56,536 49,345
Other 482 483
-------- --------
$164,247 $157,473
======== ========
</TABLE>
INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Avatar's deferred income tax assets and liabilities as of March
31, 2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Deferred income tax assets
Tax over book basis of land inventory $ 25,000 $ 25,000
Unrecoverable land development costs 1,000 1,000
Tax over book basis of depreciable assets 4,000 4,000
Other 8,182 5,133
-------- --------
Total deferred income taxes 38,182 35,133
Valuation allowance for deferred income tax assets (31,000) (30,000)
-------- --------
Deferred income tax assets after valuation allowance 7,182 5,133
Deferred income tax liabilities
Book over tax income recognized on homesite sales (1,000) (1,000)
-------- --------
Total deferred income tax liabilities (1,000) (1,000)
-------- --------
Net deferred income taxes $ 6,182 $ 4,133
======== ========
</TABLE>
9
<PAGE> 10
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, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Income tax expense (credit) computed at statutory rate $(2,265) $ (770)
Income tax effect of non-deductible dividends on
preferred stock of subsidiary -- 39
State income tax (credit), net of federal effect (231) (74)
Other, net (135) 10
Change in valuation allowance on deferred tax assets 1,000 --
------- -------
Provision for income taxes $(1,631) $ (795)
======= =======
</TABLE>
CONTINGENCIES
Avatar is involved in various pending litigation matters primarily
arising in the normal course of its business. Although the outcome of these and
the following matter cannot be determined, management believes that the
resolution of these matters will not have a material effect on Avatar's business
or financial statements.
In May 1995, a wastewater rate increase was filed for the North Fort
Myers Division of Florida Cities Water Company (FCWC), a utilities subsidiary of
Avatar. In November 1995, the Florida Public Service Commission (FPSC) issued an
order authorizing a rate increase of approximately 18% (an annualized revenue
increase of approximately $378). Following a challenge to the order by the
Office of Public Counsel (the customer advocate) and certain customers, FCWC
requested implementation of the rates granted in the order. After a hearing, the
FPSC issued a new order in September 1996 authorizing final rates which were
approximately 5% lower than rates in effect prior to the rate increase filing.
FCWC filed an appeal with the District Court of Appeal of Florida, First
District (DCA) and in January 1998, DCA reversed and remanded the September 1996
order. By order dated April 14, 1998, the FPSC ordered the record reopened and
scheduled a hearing in December 1998 to take testimony on one issue remanded by
the DCA. FCWC's challenge of this FPSC action was denied by the DCA on June 17,
1998 and the remand hearing was held on December 8 and 9, 1998. On April 8,
1999, the FPSC rendered its Final order which did not reflect a material change
in its position on the issue in dispute. On April 15, 1999, FCWC sold the plant
assets which are the subject of this rate matter, however, this sale did not
jeopardize FCWC's right to appeal the FPSC Final order. On May 10, 1999, FCWC
filed a notice of appeal of the FPSC Final order to the DCA and by DCA order
dated December 6, 1999, FCWC was granted until February 14, 2000 to file its
initial brief. FCWC filed the brief on February 11, 2000. The rates implemented
in January 1996 were collected by FCWC until April 15, 1999 and approximately
$838 plus interest is subject to refund pending ultimate resolution of this
matter. After the sale of the plant assets, which are the subject of this
matter, FCWC recorded a reserve on its balance sheet in the amount of $838 to
cover refunds and recorded interest liability applicable thereto in the amount
of $113. Notwithstanding, FCWC believes that there is a reasonable basis it will
prevail in this matter.
10
<PAGE> 11
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, 2000 and 1999:
<TABLE>
<CAPTION>
For the three months ended
March 31
-----------------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Segment revenues
Residential development $ 23,353 $ 21,947
Active adult -- --
Resorts 2,125 4,422
Commercial and industrial 438 --
Rental, leasing, cable and
other real estate operations 1,085 1,544
All other 1,904 323
-------- --------
28,905 28,236
Unallocated revenues
Deferred gross profit 594 1,050
Interest income 2,011 993
Other 53 134
-------- --------
Total revenues $ 31,563 $ 30,413
======== ========
OPERATING INCOME (LOSS):
Segment operating income (loss)
Residential development $ 2,757 $ 2,156
Active adult (1,779) (401)
Resorts 105 848
Commercial and industrial 385 (67)
Rental, leasing, cable and
other real estate operations 191 333
All other 659 (29)
-------- --------
2,318 2,840
Unallocated income (expenses)
Deferred gross profit 594 1,050
Interest income 2,011 993
Trading account profit (loss) (6,379) --
General and administrative expenses (2,542) (2,541)
Interest expense (1,498) (2,346)
Other (976) (2,196)
-------- --------
Loss from continuing operations before income taxes $ (6,472) $ (2,200)
======== ========
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) -- continued
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - CONTINUED
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS:
Segment assets
Residential development $ 72,316 $ 72,371
Active adult 63,700 51,144
Resorts 5,153 4,903
Commercial and industrial 10,097 11,844
Rental, leasing, cable and
other real estate operations 4,304 4,465
Unallocated assets 211,390 246,408
-------- --------
Total assets $366,960 $391,135
======== ========
</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". Also included in "All Other" for the three months ended
March 31, 2000, are management services and water facility operating
results, which Avatar retained in Florida. In 1999, these operations
were classified as discontinued.
(e) There is no interest expense from residential development, resorts and
rental/leasing included in segment profit/(loss) for the three months
ended March 31, 2000. Included in segment profit/(loss) for the three
months ended March 31, 1999 is interest expense of $182, $38 and $148
from residential development, resorts and rental/leasing, respectively.
(f) Included in operating profit/(loss) for the three months ended in 2000
is depreciation expense of $55, $154, $150 and $44 from residential
development, resorts, rental/leasing and unallocated corporate,
respectively. Included in operating profit/(loss) for the three months
ended in 1999 is depreciation expense of $57, $303, $118 and $41 from
residential development, resorts, rental/leasing and unallocated
corporate, respectively.
DISCONTINUED OPERATIONS
During 1999, Avatar disposed of substantially all of the assets used in
its Florida Utilities operations and exited the vacation ownership (timeshare)
business in a transaction involving the sale of subsidiaries. Operating results
for the three months ended March 31, 1999 are segregated and reported as
discontinued operations in the accompanying statements of operations and cash
flows.
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - continued
DISCONTINUED OPERATIONS - CONTINUED
Consolidated operating results relating to the discontinued operations
for the three months ended March 31, 1999 are as follows:
<TABLE>
<CAPTION>
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>
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 homebuilding operations for the three months ended March 31,
2000 and 1999 is summarized as follows:
<TABLE>
<CAPTION>
Three Months
--------------------------
2000 1999
------- -------
<S> <C> <C>
UNITS CLOSED
Number of units 125 111
Aggregate dollar volume $22,950 $21,749
Average price per unit $ 184 $ 196
UNITS SOLD, NET
Number of units 100 153
Aggregate dollar volume $15,580 $29,925
Average price per unit $ 156 $ 196
</TABLE>
<TABLE>
<CAPTION>
March 31,
--------------------------
2000 1999
------- -------
<S> <C> <C>
BACKLOG
Number of units 314 439
Aggregate dollar volume $82,951 $92,887
Average price per unit $ 264 $ 212
</TABLE>
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
Net loss for the three months ended March 31, 2000 and 1999 was $4,841
or $0.58 per share and $597 or $0.06 per share, respectively. The increase in
net loss for the three months was primarily attributable to a decrease in the
recognition of deferred gross profit and a trading account loss from investments
in marketable securities, partially mitigated by an increase in interest income
and other revenues, and a decrease in interest expense. Exclusive of the trading
account loss and start-up expenses related to Solivita, operations for the three
months ended March 31, 2000, including interest income, resulted in pre-tax
income of $1,686.
Avatar's real estate revenues for the three months ended March 31, 2000
decreased $450 or 1.61%, while the real estate expenses decreased by $275 or
1.02% when compared to the same period of 1999. The decrease in real estate
revenues and expenses for the three months ended is generally the result of
decreases in resort revenues and expenses. These decreases are primarily due to
the sale of Cape Coral Golf and Country Club and the leasing of the Poinciana
Golf and Racquet Club operations during 1999. The decrease in real estate
revenues and expenses was partially mitigated by increased homebuilding
operations. Operating profits for homebuilding increased due to higher revenues
from more closings and decreases in general homebuilding and marketing expenses.
Interest income for the three months ended March 31, 2000 increased
$1,018 or 102.52% compared to the same period in 1999. The increase is primarily
attributable to higher interest income earned during 2000 from the investment of
the proceeds generated from the sale of Florida Utilities and Cape Coral assets
in the second quarter of 1999.
Interest expense for the three months ended March 31, 2000 decreased
$1,216 or 44.8%, compared to the same period in 1999. The decrease is primarily
attributable to a reduction of the outstanding debt associated with real estate
and notes collateralized by contracts and mortgage notes receivable and an
increase in capitalized interest.
Other revenues and expenses for the three months ended March 31, 2000
increased $1,038 and $533, respectively. The increases are primarily
attributable to operating revenues and expenses associated with the management
services and water facility operations that Avatar retained in Florida. In 1999,
these operations were classified as discontinued.
The trading account loss, net was $6,379 and $0 in 2000 and 1999,
respectively. Trading account loss, net represents realized and unrealized gains
and losses related to the trading investment portfolio, and includes commissions
payable to investment brokers. The trading account loss is based on the fair
value of Avatar's investment portfolio at March 31, 2000 of $12,275 compared to
the book basis (including a $1,948 unrealized gain recorded at December 31,
1999) of $18,654, which is higher than the aggregate actual cost of $16,706.
LIQUIDITY AND CAPITAL RESOURCES
Avatar's primary business activities are capital intensive in nature.
Significant capital resources are required to finance planned active adult
communities, homebuilding construction in process, community infrastructure,
selling expenses and working capital needs, including
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) -CONTINUED
RESULTS OF OPERATIONS - CONTINUED
funding of debt service requirements, operating deficits and the carrying cost
of land. Avatar expects to fund its operations and capital requirements through
a combination of cash and operating cash flows.
For the 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.
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 $1,490,
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.
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, 2000, none of these authorized expenditures had been
made.
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-Q constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of results, to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: the successful implementation of Avatar's business strategy; shifts in
demographic trends affecting active adult communities and other real estate
development; the level of immigration and in-migration to Avatar's regional
market areas; national and local economic conditions and events, including
employment levels, interest rates, consumer confidence, the availability of
mortgage financing and demand for new and existing housing; Avatar's access to
future financing; competition; changes in, or the failure or inability to comply
with, government regulations; and such other factors as are described in greater
detail in Avatar's filings with the Securities and Exchange Commission,
including its Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
15
<PAGE> 16
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
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, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVATAR HOLDINGS INC.
Date: May 12, 2000 By: /s/ Lawrence R. Sherry
------------ ---------------------------------------------
Lawrence R. Sherry
Executive Vice President and Chief Financial
Officer
Date: May 12, 2000 By: /s/ Charles L. McNairy
------------ ---------------------------------------------
Charles L. McNairy
Executive Vice President and Treasurer
Date: May 12, 2000 By: /s/ Michael P. Rama
------------ ---------------------------------------------
Michael P. Rama
Chief Accounting Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 108,069
<SECURITIES> 12,275
<RECEIVABLES> 13,873
<ALLOWANCES> (7,027)
<INVENTORY> 164,247
<CURRENT-ASSETS> 0<F1>
<PP&E> 50,041
<DEPRECIATION> 0
<TOTAL-ASSETS> 366,960
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 114,860
0
0
<COMMON> 9,170
<OTHER-SE> (12,549)
<TOTAL-LIABILITY-AND-EQUITY> 366,960
<SALES> 27,463
<TOTAL-REVENUES> 31,563
<CGS> 26,767
<TOTAL-COSTS> 38,035
<OTHER-EXPENSES> 3,391
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,498
<INCOME-PRETAX> (6,472)
<INCOME-TAX> (1,631)
<INCOME-CONTINUING> (4,841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,841)
<EPS-BASIC> (0.58)
<EPS-DILUTED> (0.58)
<FN>
<F1>Total Current Assets and Total Current Liabilities are not applicable because
Registrant does not present a classified balance sheet.
</FN>
</TABLE>
