<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 September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from
_______ to ________
----------------------------------------
Commission file number 0-7616
I.R.S. Employer Identification Number 23-1739078
Avatar Holdings Inc.
(a Delaware Corporation)
201 Alhambra Circle
Coral Gables, Florida 33134
(305) 442-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 8,405,938 shares of Avatar's
common stock ($1.00 par value) were outstanding as of October 31, 2000.
1
<PAGE> 2
AVATAR HOLDINGS INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets --
September 30, 2000 and December 31, 1999............................................ 3
Consolidated Statements of Operations --
Nine months and three months ended September 30, 2000 and 1999...................... 4
Consolidated Statements of Cash Flows --
Nine months ended September 30, 2000 and 1999....................................... 5
Notes to Consolidated Financial Statements............................................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................. 18
</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>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 89,558 $ 143,259
Restricted cash 1,012 3,552
Investments - marketable securities 26,562 15,547
Contracts and mortgage notes receivable, net 5,545 7,685
Other receivables, net 6,573 3,328
Land and other inventories 173,173 157,473
Property, plant and equipment, net 55,358 41,384
Other assets 13,817 14,774
Deferred income taxes 2,545 4,133
--------- ---------
Total Assets $ 374,143 $ 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 18,533 18,605
Accounts payable 1,728 8,997
Accrued and other liabilities 35,167 50,488
--------- ---------
Total Liabilities 170,288 197,558
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share
Authorized: 50,000,000 shares at September 30, 2000
15,500,000 shares at December 31, 1999
Issued: 9,170,102 shares 9,170 9,170
Additional paid-in capital 157,141 157,141
Retained earnings 50,093 39,815
--------- ---------
216,404 206,126
Treasury stock, at cost, 764,164 shares (12,549) (12,549)
--------- ---------
Total Stockholders' Equity 203,855 193,577
--------- ---------
Total Liabilities and Stockholders' Equity $ 374,143 $ 391,135
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Nine and Three months ended September 30, 2000 and 1999
(Unaudited)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Nine Months Three Months
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Real estate sales $ 97,221 $ 131,952 $ 36,033 $ 30,982
Deferred gross profit 1,592 2,700 478 685
Trading account profit (loss) 5,200 (12) 11,165 (12)
Interest income 5,563 5,592 1,712 2,592
Other 9,274 1,442 4,736 435
--------- --------- --------- ---------
Total revenues 118,850 141,674 54,124 34,682
EXPENSES
Real estate expenses 93,110 121,006 33,427 30,482
General and administrative expenses 7,726 8,974 2,500 3,544
Interest expense 4,816 7,240 1,850 1,939
Other 2,626 959 860 322
--------- --------- --------- ---------
Total expenses 108,278 138,179 38,637 36,287
--------- --------- --------- ---------
Income (loss) from continuing operations before income taxes 10,572 3,495 15,487 (1,605)
Income tax expense (benefit) 294 1,361 1,360 (617)
--------- --------- --------- ---------
Income (loss) from continuing operations after income taxes 10,278 2,134 14,127 (988)
Discontinued operations:
Income from discontinued operations less income tax
expense of $572 and $1 for the nine and three months ended 1999 -- 674 -- 3
Gain (loss) on sale of discontinued operations less income tax
expense of $12,170 and $4,517 for the nine and three months
ended 1999 -- 90,417 -- (4,517)
Estimated loss on disposal, less income tax benefit of $817 for
the nine months ended 1999 -- (1,333) -- --
--------- --------- --------- ---------
Net income (loss) $ 10,278 $ 91,892 $ 14,127 $ (5,502)
========= ========= ========= =========
BASIC EPS:
Income (loss) from continuing operations after income taxes $ 1.22 $ 0.23 $ 1.68 $ (0.11)
Income from discontinued operations -- 0.07 -- --
Gain (loss) on sale of discontinued operations -- 9.87 -- (0.49)
Estimated loss on disposal -- (0.15) -- --
--------- --------- --------- ---------
Net income (loss) $ 1.22 $ 10.02 $ 1.68 $ (0.60)
========= ========= ========= =========
DILUTED EPS:
Income (loss) from continuing operations after income taxes $ 1.17 $ 0.23 $ 1.29 $ (0.11)
Income from discontinued operations -- 0.07 -- --
Gain (loss) on sale of discontinued operations -- 9.87 -- (0.49)
Estimated loss on disposal -- (0.15) -- --
--------- --------- --------- ---------
Net income (loss) $ 1.17 $ 10.02 $ 1.29 $ (0.60)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Nine months ended September 30, 2000 and 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,278 $ 91,892
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 2,829 2,563
Gain on sale of Florida Utilities assets -- (90,417)
Estimated loss on disposal of discontinued operations -- 1,333
Deferred gross profit (1,592) (2,700)
Trading account (profit) loss (5,200) 12
Changes in operating assets and liabilities:
Restricted cash 2,540 647
Principal payments on contracts receivable 3,998 7,017
Receivables (266) 654
Other receivables (3,245) (663)
Inventories (15,772) 24,521
Deferred income taxes 1,588 (5,765)
Other assets (185) 2,166
Income taxes payable -- 1,854
Accounts payable and accrued and other liabilities (22,590) (19,428)
Assets/liabilities from discontinued operations, net -- (5,609)
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (27,617) 8,077
INVESTING ACTIVITIES
Investment in property, plant and equipment (15,661) (4,636)
Net proceeds from sale of Florida Utilities assets -- 164,071
Investment in marketable securities (5,815) (2,212)
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (21,476) 157,223
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and long-term borrowings -- 109
Principal payments on revolving lines of credit and long-term borrowings (4,608) (39,679)
Repurchase of 7% Convertible Subordinated Notes -- (2,633)
Purchase of treasury stock -- (637)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,608) (42,840)
--------- ---------
(DECREASE) INCREASE IN CASH (53,701) 122,460
Cash and cash equivalents at beginning of period 143,259 32,521
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 89,558 $ 154,981
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) -- continued
For the Nine months ended September 30, 2000 and 1999
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Cash paid during the period for: 2000 1999
------ -------
<S> <C> <C>
Interest - Continuing operations (net of amount
capitalized of $1,854 and $523
in 2000 and 1999, respectively) $2,415 $ 8,209
====== =======
Interest - Discontinued operations (net of amount
capitalized of $0 and $33 in 2000 and
1999, respectively) $ -- $ 2,547
====== =======
Income taxes paid $1,700 $13,000
====== =======
</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 September 30, 2000 and December
31, 1999, and the related consolidated statements of operations for the nine and
three month periods ended September 30, 2000 and 1999 and the consolidated
statements of cash flows for the nine months ended September 30, 2000 and 1999
have been prepared in accordance with generally accepted accounting principles
for interim financial information, the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
For a complete description of Avatar's other accounting policies, refer
to Avatar Holdings Inc.'s 1999 Annual Report on Form 10-K and the notes to
Avatar's consolidated financial statements included therein.
RECLASSIFICATIONS
Certain 1999 financial statement items have been reclassified to
conform to the 2000 presentation.
EARNINGS PER SHARE
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. Basic and diluted
earnings per share for the nine and three months ended September 30, 2000 were
calculated as follows:
<TABLE>
<CAPTION>
Nine Months Three Months
2000 2000
----------- ------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share -
Income from continuing operations after income taxes $10,278 $14,127
Interest on 7% Convertible Subordinated Notes, net of tax 3,658 1,219
------- -------
Numerator for diluted earnings per share $13,936 $15,346
Denominator:
Denominator for basic earnings per share -
weighted average shares 8,406 8,406
Effect of dilutive securities:
7% Convertible Subordinated Notes 3,534 3,534
------- -------
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed conversion 11,940 11,940
------- -------
Basic earnings per share $ 1.22 $ 1.68
======= =======
Diluted earnings per share $ 1.17 $ 1.29
======= =======
</TABLE>
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
EARNINGS PER SHARE - CONTINUED
Earnings per share is computed based on the weighted average number of
shares outstanding of 8,405,938 for the nine and three months ended September
30, 2000 and 9,157,818 and 9,139,075 for the nine and three months ended
September 30, 1999, respectively. For computing earnings per share for the nine
and three months ended September 30, 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.
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 September 30, 2000,
none of these authorized expenditures had been made.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Avatar considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Due to the short
maturity period of the cash equivalents, the carrying amount of these
instruments approximates their fair values. Restricted cash includes deposits of
$1,012 and $3,552 as of September 30, 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.
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
8
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
INVESTMENTS - MARKETABLE SECURITIES - CONTINUED
account profit (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 $19,414, the book basis (including a $1,948
unrealized gain recorded at December 31, 1999) was $21,362. The fair value of
Avatar's investment portfolio at September 30, 2000 was $26,562; resulting in
the recording of a trading account profit of $5,200 and $11,165 for the nine and
three months ended September 30, 2000, respectively. The fair value of Avatar's
investment portfolio at September 30, 1999 was $2,200 with an aggregate cost of
$2,212; resulting in the recording of a trading account loss of $12 for the nine
and three months ended September 1999. As of September 30, 2000, the portfolio
did not include any forward foreign exchange contracts. As of November 6, 2000
the fair value of the investment portfolio was $25,306.
CONTRACTS AND MORTGAGE NOTES RECEIVABLES
Contracts and mortgage notes receivables are summarized as follows:
September 30, December 31,
2000 1999
------------- ------------
Contracts and mortgage notes receivable $11,352 $15,669
------- -------
Less:
Deferred gross profit 5,072 6,857
Other 735 1,127
------- -------
5,807 7,984
------- -------
$ 5,545 $ 7,685
======= =======
LAND AND OTHER INVENTORIES
Inventories consist of the following:
September 30, December 31,
2000 1999
------------- ------------
Land developed and in process of development $ 74,504 $ 73,861
Land held for future development or sale 33,679 33,784
Dwelling units completed or under construction
and community development in process 64,379 49,345
Other 611 483
-------- --------
$173,173 $157,473
======== ========
INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Avatar's deferred income tax assets and liabilities as of
September 30, 2000 and December 31, 1999 are as follows:
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
INCOME TAXES - CONTINUED
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Deferred income tax assets
Tax over book basis of land inventory $ 22,000 $ 25,000
Unrecoverable land development costs 1,000 1,000
Tax over book basis of depreciable assets 4,000 4,000
Other 5,545 5,133
-------- --------
Total deferred income taxes 32,545 35,133
Valuation allowance for deferred income tax assets (26,000) (30,000)
-------- --------
Deferred income tax assets after valuation allowance 6,545 5,133
Deferred income tax liabilities
Unrealized gain on marketable securities (3,000) --
Book over tax income recognized on homesite sales (1,000) (1,000)
-------- --------
Total deferred income tax liabilities (4,000) (1,000)
-------- --------
Net deferred income taxes $ 2,545 $ 4,133
======== ========
</TABLE>
A reconciliation of income tax expense to the expected income tax
expense (credit) at the federal statutory rate of 35% for the nine months ended
September 30, 2000 and 1999 is as follows:
2000 1999
------- -------
Income tax expense (credit) computed at statutory rate $ 3,700 $ 1,223
State income tax (credit), net of federal effect 380 126
Other, net 214 12
Change in valuation allowance on deferred tax assets (4,000) --
------- -------
Provision (benefit) for income taxes $ 294 $ 1,361
======= =======
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
10
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
CONTINGENCIES - CONTINUED
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 $128. Notwithstanding, FCWC believes that there is a reasonable basis it will
prevail in this matter.
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 nine and three months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine Months Three Months
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Segment revenues
Residential communities $ 78,149 $ 71,276 $ 25,420 $ 28,156
Active adult communities 1,950 -- 1,853 --
Resorts 5,646 9,072 1,617 1,526
Commercial and industrial 6,431 2,477 5,722 --
Rental, leasing, cable and
other real estate operations 4,150 4,040 1,352 1,130
All other 9,890 46,165 4,696 550
-------- -------- -------- --------
106,216 133,030 40,660 31,362
Unallocated revenues
Deferred gross profit 1,592 2,700 478 685
Interest income 5,563 5,592 1,712 2,592
Trading account profit, net 5,200 -- 11,165 --
Other 279 352 109 43
-------- -------- -------- --------
Total revenues $118,850 $141,674 $ 54,124 $ 34,682
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - CONTINUED
<TABLE>
<CAPTION>
Nine Months Three Months
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING INCOME (LOSS):
Segment operating income (loss)
Residential communities $ 10,871 $ 7,861 $ 3,548 $ 3,285
Active adult communities (7,886) (1,561) (3,000) (728)
Resorts (328) 138 (365) (459)
Commercial and industrial 4,184 2,022 3,711 (56)
Rental, leasing, cable and
other real estate operations 649 1,157 224 231
All other 6,781 7,187 3,810 118
-------- -------- -------- --------
14,271 16,804 7,928 2,391
Unallocated income (expenses)
Deferred gross profit 1,592 2,700 478 685
Interest income 5,563 5,592 1,712 2,592
Trading account profit (loss) 5,200 (12) 11,165 (12)
General and administrative expenses (7,726) (8,974) (2,500) (3,544)
Interest expense (4,816) (6,628) (1,850) (1,915)
Other (3,512) (5,987) (1,446) (1,802)
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes $ 10,572 $ 3,495 $ 15,487 $ (1,605)
======== ======== ======== ========
September 30, December 31,
ASSETS: 2000 1999
------------- ------------
Segment assets
Residential communities $ 60,596 $ 72,371
Active adult communities 89,101 51,144
Resorts 5,461 4,903
Commercial and industrial 11,380 11,844
Rental, leasing, cable and
other real estate operations 4,860 4,465
Unallocated assets 202,745 246,408
-------- --------
Total assets $374,143 $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, 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 nine and three months ended September 30, 2000, are management
services and water facility operating results, which Avatar retained in
Florida. In 1999, these operations were classified as discontinued.
(e) There is no interest expense from residential development, resorts and
rental/leasing included in segment profit/(loss) for the nine and three
months ended September 30, 2000. Included in segment profit/(loss) for
the nine months ended September 30, 1999 is interest expense of $268,
$59 and $285 from residential development, resorts and rental/leasing,
respectively. Included in segment profit/(loss) for the three months
ended September 30, 1999 is interest expense of $24, $0 and $0 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 the nine months ended in 2000
is depreciation expense of $143, $227, $473, $460 and $137 from
residential development, active adult communities, resorts,
rental/leasing and unallocated corporate, respectively. Included in
operating profit/(loss) for the nine months ended in 1999 is
depreciation expense of $143, $0, $901, $347 and $115 from residential
development, active adult communities, resorts, rental/leasing, and
unallocated corporate, respectively. Included in operating
profit/(loss) for the three months ended in 2000 is depreciation
expense of $12, $227, $161, $155 and $52 from residential development,
active adult communities, resorts, rental/leasing and unallocated
corporate, respectively. Included in operating profit/(loss) for the
three months ended in 1999 is depreciation expense of $31, $0, $151,
$80 and $35 from residential development, active adult communities,
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 nine and three months ended September 30, 1999 are segregated and
reported as discontinued operations in the accompanying statements of operations
and cash flows.
Consolidated operating results relating to the discontinued operations
for the nine and three months ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------------------
Nine Months Three Months
---------------------------------------- ----------------------------------------
Vacation Florida Vacation Florida
Ownership Utilities Total Ownership Utilities Total
------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Real estate sales $ 8,076 $ -- $ 8,076 $ 1,684 $ -- $ 1,684
Utilities revenues -- 17,950 17,950 -- 3,086 3,086
Interest income 1,955 -- 1,955 296 -- 296
Other 613 (529) 84 110 149 259
-------- -------- -------- -------- -------- --------
Total revenues 10,644 17,421 28,065 2,090 3,235 5,325
EXPENSES
Real estate expenses $ 8,935 $ -- $ 8,935 $ 2,009 $ -- $ 2,009
Utilities expenses -- 14,830 14,830 -- 3,084 3,084
Interest expense 1,527 1,089 2,616 211 17 228
Minority interest -- 438 438 -- -- --
-------- -------- -------- -------- -------- --------
Total expenses 10,462 16,357 26,819 2,220 3,101 5,321
Income (loss) from discontinued
operations before income taxes 182 1,064 1,246 (130) 134 4
-------- -------- -------- -------- -------- --------
Income tax expense (benefit) 84 488 572 (59) 60 1
-------- -------- -------- -------- -------- --------
Income (loss) from
discontinued operations $ 98 $ 576 $ 674 $ (71) $ 74 $ 3
======== ======== ======== ======== ======== ========
</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)
RESULTS OF OPERATIONS
The following discussion of Avatar's financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Form 10-Q.
Data from residential communities operations for the nine and three
months ended September 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Nine months Three Months
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
UNITS CLOSED
Number of units 371 356 112 136
Aggregate dollar volume $77,647 $70,071 $25,348 $27,873
Average price per unit $209 $197 $226 $205
UNITS SOLD, NET
Number of units 289 403 96 130
Aggregate dollar volume $43,048 $93,030 $13,966 $34,195
Average price per unit $149 $231 $145 $263
September 30,
--------------------
2000 1999
-------- --------
BACKLOG
Number of units 257 444
Aggregate dollar volume $55,722 $107,670
Average price per unit $217 $243
</TABLE>
The number of signed contracts and units in backlog for the nine and
three months ended September 30, 2000 are lower than the comparable periods of
1999 due to the sale of Avatar's homebuilding operations at Cape Coral in June
1999 and the sellout of developed single-family parcels at Harbor Islands. The
lower average price for contracts signed during the nine and three months ended
September 30, 2000 compared to the same periods of 1999 reflect the lower volume
of higher priced product due to the sellout of developed parcels at Harbor
Islands.
Initial marketing efforts at Solivita, which commenced in the second
quarter of 2000, have resulted in sales of 119 and 70 units and aggregate sales
volume of $17,287 and $10,348 for the nine and three months ended September 30,
2000, respectively, which are not included in the above table. Revenues from
Solivita operations for the nine and three months ended September 30, 2000
totaled $1,648 or 12 units. Backlog as of September 30, 2000 totaled 107 units.
Net income for the nine and three months ended September 30, 2000 was
$10,278 or $1.22 basic EPS (or $1.17 diluted EPS) and $14,127 or $1.68 basic EPS
(or $1.29 diluted EPS), respectively, compared to net income of $91,892 or
$10.02 per share and loss of $5,502 or ($0.60) per share for the same periods of
1999. The decrease in net income for the nine months was primarily attributable
to a decrease in real estate operations (which includes pretax gain during the
second quarter in 1999 of $7,043 from the sale of Cape Coral assets), an
after-tax gain during the second quarter of 1999 on the sale of the assets of
Florida Utilities, a decrease in the recognition of deferred gross profit and an
increase in other expenses, partially mitigated by
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
an increase in other revenues and a trading account profit, a decrease in
interest expense and a decrease in general and administrative expenses. The
increase in net income for the three months is primarily due to an increase in
trading account profit from investments in marketable securities, an increase in
real estate operating results and other revenues, and a decrease in general and
administrative expenses. Exclusive of the trading account profit and operating
losses related to Solivita, operations for the nine and three months ended
September 30, 2000, including interest income, resulted in pre-tax income of
$13,258 and $7,322 respectively.
Avatar's real estate revenues for the nine and three months ended
September 30, 2000 decreased $34,731 or 26.3% and increased $5,051 or 16.3%,
respectively, while real estate expenses decreased by $27,896 or 23.1% and
increased by $2,945 or 9.7%, respectively, when compared to the same periods of
1999. The decrease in real estate revenues and expenses for the nine months
ended is generally the result of the sale of real estate assets located in Cape
Coral during the second quarter of 1999 and decreases in resort revenues and
expenses partially mitigated by an increase in commercial/industrial sales and
revenues generated from Avatar's active adult operations. The decreases in
resort revenues and expenses are primarily due to the sale of Cape Coral Golf
and Country Club and the leasing of the Poinciana Golf and Racquet Club
operations during 1999. The decrease in real estate revenues and expenses was
partially mitigated by increased homebuilding operations. Operating profits for
homebuilding increased due to higher revenues from increased volume of closings
and decreases in general homebuilding and marketing expenses. During the second
quarter of 1999, Avatar closed on the sale of substantially all of its real
estate assets located at Cape Coral. The sales price was $44,852 resulting in a
pre-tax gain of $7,043. The increase in real-estate revenues for the three
months ended September 30, 2000, as compared to the same period in 1999, is
generally the result of an increase in commercial/industrial and revenues
generated from active adult operations.
Interest income for the three months ended September 30, 2000 decreased
$880 or 33.9% compared to the same period in 1999. The decrease is attributable
to a decrease in cash and cash equivalents during the comparable periods and
lower interest income earned on contracts receivable.
General and administrative expenses for the nine and three months ended
September 30, 2000 decreased $1,248 or 13.9% and $1,044 or 29.5%, respectively,
compared to the same period in 1999. This decrease is primarily due to a
reduction in salaries and professional fees.
Interest expense for the nine months ended September 30, 2000 decreased
$2,424 or 33.50%, 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 nine months ended September 30,
2000 increased $7,832 and $1,667, respectively, and increased $4,301 and $538
for the three months ended September 30, 2000 as compared to the same period in
1999. These increases are primarily attributable to operating revenues and
expenses associated with the management services and water facility operations
that Avatar retained in Florida, revenues of $1,475 associated with the
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) - CONTINUED
RESULTS OF OPERATIONS - CONTINUED
sale of certain Utility Assets, revenues of $1,761 due to the reduction of
eligible employees under the utilities non-contributory benefit postretirement
plan that provides medical and life insurance benefits to employees after
retirement, and revenues of $1,480 recognized and earned from escrowed funds
associated with the Florida Utilities sale that closed on April 15, 1999.
Pursuant to the Utility System Asset Acquisition Agreement (Agreement) dated
April 1, 1999, proceeds from the closing in the amount of $1,480 were deposited
into an escrow account guaranteeing that billed revenues for the twelve month
period commencing on April 16, 1999 would be at least equal to an amount as
defined in the Agreement. During the second quarter of 2000, Florida Utilities
met the required minimum guaranteed billed revenues and the escrowed funds were
released during the third quarter of 2000.
Trading account profit recognized was $5,200 and $11,165 for the nine
and three months ended September 30, 2000, respectively. Trading account profit
represents realized and unrealized gains related to the trading investment
portfolio, and includes commissions payable to investment brokers. The trading
account profit is based on the fair value of Avatar's investment portfolio at
September 30, 2000 of $26,562 compared to the book basis (including a $1,948
unrealized gain recorded at December 31, 1999) of $21,362 which is higher than
the aggregate actual cost of $19,414.
LIQUIDITY AND CAPITAL RESOURCES
Avatar's primary business activities are capital intensive in nature.
Significant capital resources are required to finance planned active adult
communities, homebuilding construction in process, community infrastructure,
selling expenses and working capital needs, including funding of debt service
requirements, operating deficits and the carrying cost of land. Avatar expects
to fund its operations and capital requirements through a combination of cash
and operating cash flows.
For the nine months ended September 30, 2000, net cash used in
operating activities amounted to $27,617, primarily as a result of a decrease in
accounts payable and accrued and other liabilities of $22,590, and expenditures
on land development and construction of residential and active adult communities
of $15,772, partially offset by principal payments collected on contract
receivables of $3,998. Net cash used in investing activities of $21,476 resulted
from investments in property, plant and equipment of $15,661 and marketable
securities of $5,815. Net cash used in financing activities of $4,608 resulted
from the repayment of notes payable.
For the nine months ended September 30, 1999, net cash provided by
operating activities amounted to $8,077 primarily as a result of proceeds of
approximately $37,000 from the sale of real estate assets in Cape Coral,
partially mitigated by a decrease in accounts payable and accrued and other
liabilities of $19,428. Net cash provided by investing activities of $157,223
resulted primarily from proceeds of the Florida Utilities sale of $164,071,
partially offset by investments in property, plant and equipment of $4,636 and
marketable securities of $2,212. Net cash used in financing activities of
$42,840 resulted primarily from repayment of $39,679 in land development and
construction loans.
16
<PAGE> 17
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
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 September 30, 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.
17
<PAGE> 18
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
September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVATAR HOLDINGS INC.
Date: November 13, 2000 By: /s/ Charles L. McNairy
---------------------------------
Charles L. McNairy
Executive Vice President, Treasurer and
Chief Financial Officer
Date: November 13, 2000 By: /s/ Michael P. Rama
--------------------------------------
Michael P. Rama
Chief Accounting Officer
18
