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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999 -- Commission
File Number 0-7616
AVATAR HOLDINGS INC.
(Exact name of registrant as specified in its charter)
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Delaware 23-1739078
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Alhambra Circle, Coral Gables, Florida 33134
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (305) 442-7000
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Securities registered pursuant to section 12(g) of the Act:
Convertible Subordinated Notes Due 2005,
Convertible into Common Stock, $1.00 Par Value
COMMON STOCK, $1.00 PAR VALUE
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(Title of Class)
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was $149,331,178 as of February 29, 2000.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, $1.00 par value, issued and outstanding.
As of February 29, 2000, there were 8,405,938 shares of common stock, $1.00 par
value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III.
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AVATAR HOLDINGS INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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Forward Looking Statements.......................................................................................... 3
PART I
Item 1. Business........................................................................................... 3
Item 2. Properties......................................................................................... 9
Item 3. Legal Proceedings.................................................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders................................................ 9
Executive Officers of Registrant................................................................... 10
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters............................... 12
Item 6. Selected Financial Data............................................................................ 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................... 25
Item 8. Financial Statements and Supplementary Data........................................................ 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.............. 56
PART III
Item 10. Directors and Executive Officers of the Registrant................................................. 56
Item 11. Executive Compensation............................................................................ 56
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 56
Item 13. Certain Relationships and Related Transactions..................................................... 56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................... 57
Exhibit Index....................................................................................................... 64
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FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business), Item 3 (Legal
Proceedings), Item 7 (Management's Discussion and Analysis of Financial
Condition and Results of Operations), and elsewhere in this Form 10-K 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 the 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; access to future financing; competition; changes in, or the
failure or inability to comply with, government regulations; and other factors
as are described at the end of Item 7 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) of this Form 10-K.
Dollar amounts specified herein are in thousands, except for per share
amounts or as otherwise indicated.
PART I
Item 1. Business
GENERAL
Avatar is engaged in real estate operations. Our primary activities
include the development of active adult communities in Florida and residential
communities in Florida and Arizona. In 1999, we disposed of certain non-core
assets and may continue to do so in the future.
In December 1998, we commenced development in Poinciana, Florida, of
our first active adult community. In addition to development and construction of
housing products, active adult community development includes construction and
operation of a variety of community amenities, including golf courses, health
and fitness centers, restaurants and social and educational facilities.
Our primary residential community development activities range from
custom, semi-custom and mid-priced homebuilding to the operation of amenities
and resorts, as well as a variety of related activities, including the
development, leasing and management of improved commercial and industrial
properties, cable television operations and property management services. We
continue to own and operate the water and wastewater utilities at Rio Rico and
have a financial interest in the water facility in North Ft. Myers Beach,
Florida.
Avatar Holdings Inc. was incorporated in the state of Delaware in 1970.
Our principal executive offices are located at 201 Alhambra Circle, Coral
Gables, Florida 33134 (telephone (305) 442-7000).
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Item 1. Business - continued
BUSINESS STRATEGY
Our primary business strategy is focused on the development of
lifestyle communities, primarily active adult and semi-custom residential
communities, and the establishment of Avatar as a brand name in that business.
In the near term, we expect that these communities will be developed on our
existing land portfolio. We anticipate developing additional communities on
properties beyond our current landholdings, either through direct investments in
real estate or through joint ventures or management arrangements. In addition,
we may pursue other real estate opportunities unrelated to our current
operations.
As part of our plan, we determined to dispose of certain non-core
assets in order to reposition our operations and increase our liquidity. In
accordance with that plan, we took the following actions in 1999:
o In April, we sold water and wastewater utilities assets located in
the counties of Brevard, Collier, Hillsborough, Lee, Osceola, Polk
and Sarasota, Florida, for a cash sales price of approximately
$208,619, subject to certain adjustments. The transaction resulted
in pre-tax proceeds of approximately $139,249 after payment of debt
and expenses and redemption of utilities preferred stock.
o In June, we sold certain real estate assets located in Cape Coral,
Florida for approximately $44,859, subject to certain adjustments,
which resulted in net cash proceeds to Avatar of approximately
$37,000, after the payment of related indebtedness and expenses.
o In July, we exited the vacation ownership (timeshare) business in a
transaction involving the sale of subsidiaries resulting in cash
proceeds of approximately $3,497, subject to certain adjustments,
and the relief from the obligation for approximately $21,433 of
associated debt obligations.
o In December, we sold 2,842 lots in Rio Rico, Arizona, which
comprised approximately 21% of Avatar's total landholdings in Rio
Rico.
o As part of our business strategy, we acquired 1,130 acres of
undeveloped land adjacent to Poinciana, Florida, for a purchase
price of approximately $8,200. This parcel, which includes frontage
of approximately one mile along Lake Tohopekaliga, one of the
largest lakes in Florida, is suitable for development consistent
with our business strategy as either an active adult or primary
residential community.
REAL ESTATE OPERATIONS
ACTIVE ADULT COMMUNITY DEVELOPMENT
Recognizing the potential of highly amenitized communities to
accommodate the active lifestyles of retirees and pre-retirees, in 1998 we
commenced the design and development of a 3,300-acre active adult community,
Solivita, within our Central Florida master-planned community of Poinciana. We
have identified significant additional acreage within the community, which may
enable us to expand beyond the 3,300 acres.
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Item 1. Business - continued
By the expected commencement of sales in the second quarter of 2000,
approximately 100,000 square feet of recreation and service facilities will be
available, including a fitness center, a golf clubhouse, restaurants, arts and
crafts rooms, a cafe/newsstand and other meeting and theater facilities. We also
substantially completed development of a Ron Garl-designed 18-hole golf course,
which incorporates many of the property's natural and manmade environmental
features. Future plans include the development and construction of an additional
25,000 square feet of recreation and service facilities.
We have financed development and construction of Solivita through
available capital. However, we have formed a Community Development District
which will issue tax-exempt bonds to fund and manage portions of infrastructure
consisting primarily of stormwater management facilities, drainage works,
irrigation facilities, water and wastewater utilities and offsite roadways.
The 3,300-acre Solivita community, which incorporates the natural
topography of the land, its natural resources including more than 1,200 acres of
wetlands and a spectacular oak hammock, is designed to accommodate in excess of
4,000 homes. Opening of the community is planned for the second quarter of 2000.
We are considering the appropriate location for commencement of
development of a second active adult community within Florida, either on
property currently owned or in a joint venture with another property owner.
PRIMARY RESIDENTIAL COMMUNITY DEVELOPMENT
Prior to the third quarter of 1997, our business plan emphasized the
construction and sale of mid-priced single-family homes. Current sales prices
range from the $80's to the $170's. Although our real estate business strategy
is intended to shift Avatar's future capital expenditures and sources of revenue
to potentially higher profit-margin businesses, we continue the construction and
sale of mid-priced homes, both on scattered lots and on contiguous parcels as
part of planned communities, within our existing Poinciana, Florida and Rio
Rico, Arizona communities. Since commencement of mid-priced homebuilding
activities in 1997 our average sales price increased from $115 to $142 for 1999.
We sold our homebuilding inventory in Cape Coral, Florida because we did not
believe we could be successful in significantly raising the profit level of our
homebuilding activities in that community.
COMMERCIAL AND INDUSTRIAL, RESORTS AND OTHER REAL ESTATE OPERATIONS
The sale of real estate assets at Cape Coral included the Cape Coral
Golf and Country Club, the Camelot Isles Shopping Center and other commercial
properties. In 1999 we also leased the Poinciana Golf and Racquet club to a
third party operator. These assets represented a substantial portion of Avatar's
income-producing commercial and resort properties.
However, we continue to generate revenues through the rental and lease
of our community shopping centers and commercial operations in Poinciana and Rio
Rico, the Rio Rico Resort and County Club, the marina at Harbor Islands, cable
television operation at Poinciana and property management services.
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Item 1. Business - continued
REAL ESTATE ASSETS
Avatar's assets include real estate inventory in the states of Florida,
Arizona and California. In the Florida communities of Harbor Islands and
Poinciana, the Arizona community of Rio Rico and at Florida properties in Cape
Coral and Ocala Springs, Avatar's aggregate landholdings consist of over 21,700
developed, partially developed or developable acres, of which approximately
15,600 acres have been platted and/or zoned and approximately 6,100 acres have
not been platted. The types of activities conducted vary from community to
community. We are currently developing certain parcels and are considering
development or alternative strategies for other parcels. Avatar owns other sites
including Banyan Bay in Martin County, Florida; the Natoma tract in Los Angeles
County, California; and a small number of homesites and other acreage at Golden
Gate and Leisure Lakes, Florida.
The Harbor Islands project, one of our residential community
developments, encompasses 192 acres, including 30 acres conveyed to the City of
Hollywood for future parks, adjoining the Intracoastal Waterway in Hollywood,
Florida. During 1999, we substantially sold out of the developed single-family
parcels and anticipate closing on those sales by the end of 2000 or beginning of
2001. In 1999, we received deposits on sales for 109 single-family homes and
townhomes with sales value of approximately $62,597. When completed, Harbor
Islands will consist of distinctive, separate villages on three connected
islands. We have approval to build up to 2,400 residential units (including
those already built), consisting of single-family homes, townhomes, villas,
mid-rise and high-rise condominium units in this water-oriented community.
During 1999, we began an evaluation to determine the feasibility and
marketability of an appropriate product mix for the undeveloped parcels at
Harbor Islands. Additionally, this community includes a 196-boat slip marina.
Poinciana, one of our residential community developments, is located in
central Florida approximately 21 miles south of Orlando and 20 miles from Walt
Disney World and consists of 47,000 acres of land. Of approximately 18,200 acres
owned by Avatar, approximately 8,100 acres are not currently developable and are
reserved for open space and other purposes. This master-planned community
development includes subdivisions for single- and multi-family housing,
commercial/industrial areas and active adult communities. As of December 31,
1999, approximately 10,000 developed and developable single family acres
remained in inventory at Poinciana, approximately 1,700 acres of which are zoned
and/or planned for industrial and commercial property. Included within the
10,000 acres are approximately 4,300 acres of large, contiguous, debt-free
parcels planned for active adult community development, which includes Solivita,
our 3,300-acre active adult community. We anticipate opening and commencement of
sales in the second quarter of 2000. (See "Real Estate Operations - Active Adult
Community Development".)
Avatar's housing programs in Poinciana include the residential
communities of Crescent Lakes, Cypress Woods and the Estates of Deerwood, as
well as scattered lot housing programs. During 1999, we received deposits on
sales for 271 single-family homes with sales value of approximately $32,046.
Recreational facilities owned by Avatar at the Poinciana development include an
18-hole Devlin Von-Hagge championship golf course, tennis courts, a golf and
racquet club with a swimming pool and a community center. Avatar also owns and
operates a cable television subsidiary at Poinciana.
In 1999, Avatar acquired 1,130 acres of undeveloped land adjacent to
Poinciana, Florida, at a purchase price of approximately $8,200 which is
suitable for development consistent with our business strategy. The parcel
includes approximately one-mile frontage along Lake Tohopekaliga, one of the
largest lakes in Florida.
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Item 1. Business - continued
Cape Coral, located on Florida's west coast seven miles west of Fort
Myers, is a 60,700-acre community. On June 30, 1999, Avatar Properties Inc., a
wholly-owned subsidiary, closed on the sale of substantially all of its
previously owned real estate assets located in Cape Coral. The sales price was
$44,859, subject to certain adjustments. The close-out of our remaining housing
inventory in Cape Coral includes the residential communities of Emerald Cove,
Cape Harbour, Rose Garden and scattered lot programs. After the June 30, 1999
sale of the Cape Coral assets, we retained approximately 740 acres of which
approximately 692 acres are suitable for a planned community development.
Rio Rico, located 57 miles south of Tucson, is a 55,000-acre community
development in southern Arizona. Of approximately 12,500 acres owned by Avatar
approximately 5,400 acres are considered developable and 7,100 acres include
areas reserved for open space, areas which are not developable and areas for
which development is not economically feasible. We own and operate a 180-room
hotel complex, which is rated a Four-Diamond resort, an 18-hole Robert Trent
Jones, Sr. designed championship golf course and a 36,800 square foot shopping
center, which was completely occupied as of December 31, 1999. In 1999, we
received deposits on sales of 65 single-family homes with sales value of
approximately $7,642.
Banyan Bay, located in Martin County, Florida, consists of 250 acres
suitable for the development of a water-oriented planned community.
Ocala Springs, located five miles northeast of Ocala in Marion County,
Florida, is comprised of approximately 4,600 acres of land, of which
approximately 4,200 acres would accommodate an active adult community of at
least 14,700 units. The remaining 400 acres would be available for the
development of a golf course, recreational facilities and up to 2.9 million
square feet of commercial and industrial facilities.
The Natoma tract located in Woodland Hills in northwest Los Angeles
County, California encompasses approximately 350 acres of land. Conceptual
planning for this tract has been completed for 49 luxury homesites. An
environmental impact report has been filed and has been accepted by the City of
Los Angeles and documents are pending for Tentative Tract Map approval with the
City. Currently, this property is being held for sale.
At Golden Gate City, located east of Naples in southwest Florida,
remaining inventory at December 31, 1999 consisted of 28 homesites. At Golden
Gate Estates and Golden Gate Acres, remaining inventory as of December 31, 1999
consisted of 300 acres of land held for future use.
Avatar's landholdings in Leisure Lakes, located near the city of Lake
Placid in South Central Florida, consists of approximately 800 homesites in
inventory at December 31, 1999.
UTILITIES
On April 15, 1999, Florida Cities Water Company and Poinciana
Utilities, Inc., two operating subsidiaries of Avatar Utilities Inc., a
wholly-owned subsidiary, closed on the sale of substantially all of their water
and wastewater utilities assets located in the counties of Brevard, Collier,
Hillsborough, Lee, Osceola, Polk and Sarasota, Florida, to The Florida
Governmental Utility Authority. Avatar maintains and operates the water and
wastewater utilities operations in Rio Rico, Arizona, and has a financial
interest in the water facility in North Ft. Myers Beach, Florida.
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Item 1. Business - continued
BUSINESS SEGMENT INFORMATION
Avatar's business segment information regarding revenues, results of
operations and assets is incorporated herein by reference to Note Q to the
Consolidated Financial Statements included in Item 8 of Part II of this Report.
EMPLOYEES
As of December 31, 1999, Avatar employed approximately 474 individuals
on a full-time or part-time basis, compared to 943 as of December 31, 1998.
Reduction in the number of employees is primarily due to the sale of
discontinued operations, sale of real estate assets at Cape Coral and leasing of
the Poinciana resort facility. Avatar also utilizes on a daily basis such
additional personnel as may be required in connection with various land
development activities. Avatar's relations with its employees are satisfactory
and there have been no work stoppages.
REGULATION
Avatar's operations, including matters such as planning, zoning,
design, construction of improvements, environmental considerations and sales
activities are regulated by various local, regional, state and federal agencies,
including the Federal Trade Commission. For its community developments in
Florida and Arizona, state laws and regulations may require the filing of
registration statements, copies of promotional materials and numerous supporting
documents, and the delivery of an approved disclosure report to purchasers,
prior to the execution of a sales contract. In addition to Florida and Arizona,
certain states impose requirements relating to the inspection of properties,
approval of sales literature, disclosures to purchasers of specified
information, assurances of future improvements, approval of terms of sale and
delivery to purchasers of a report describing the property. Federal regulations
adopted pursuant to the Interstate Land Sales Full Disclosure Act provide for
the filing or certification of a registration statement with the Office of
Interstate Land Sales Regulation of the Department of Housing and Urban
Development.
Avatar's limited utilities operations and rate structures are regulated
by various federal, state and county agencies and must comply with federal and
state treatment standards. All sources of water and wastewater effluent are
required to be tested on a regular basis and purified in order to comply with
governmental standards.
Avatar believes it is in compliance with applicable laws and
regulations in all-material respects.
COMPETITION
Avatar's residential homebuilding, planned community development and
other real estate operations, particularly in the state of Florida, are highly
competitive. In its sales of housing units, Avatar competes, as to price and
product, with several national homebuilding companies that are entering or
expanding their presence in planned community development for the discretionary
income of individuals who desire eventually to relocate or establish a second
home in Florida or Arizona. In recent years, there have been extensive housing
projects in the geographical areas in which Avatar operates.
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Item 2. Properties
Avatar's real estate operations are described in Item 1 above. Land
developed and in the process of being developed, or held for investment and/or
future development, has an aggregate cost of approximately $107,645 at December
31, 1999.
Avatar's corporate headquarters are located at 201 Alhambra Circle,
Coral Gables, Florida, in 26,300 square feet of leased office space. For
additional information concerning properties leased by Avatar, see Item 8,
"Notes to Consolidated Financial Statements."
Item 3. Legal Proceedings
The information, which is set forth in Note P (Contingencies) of the
Notes to Consolidated Financial Statements included in Item 8 of Part II of this
Report, is incorporated herein by reference.
Avatar is involved in various pending litigation matters primarily
arising in the normal course of its business. Although the outcome of these
matters cannot be determined, management believes that the resolution of these
matters will not have a material effect on Avatar's business or financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders
None
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Executive Officers of the Registrant
Pursuant to General Instruction G (3) to Form 10-K, the following list
is included as an unnumbered item in Part I of this report in lieu of being
included in the Proxy Statement for the Annual Meeting of Stockholders to be
held on May 25, 2000.
The following is a list of names and ages of all of the executive
officers of Avatar, indicating principal positions and offices with Avatar or a
subsidiary held by each such person and each such person's principal
occupation(s) or employment during the past five years unless otherwise
indicated. Officers of Avatar have been elected to serve until the next annual
election of officers (which is expected to occur on May 25, 2000), when they are
re-appointed or their successors are elected or until their earlier resignation
or removal.
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NAME AGE OFFICE AND BUSINESS EXPERIENCE
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Leon Levy 74 Chairman of the Board since January 1981; General Partner,
Odyssey Partners, L.P., a private investment partnership;
Chairman of the Board of Oppenheimer Funds; Chairman of the Board
of Oppenheimer Management Corp. from 1974 to 1985.
Gerald D. Kelfer 54 President since February 1997, Chief Executive Officer since July
1997, Chairman of the Executive Committee since May 1999, Vice
Chairman of the Board since December 1996, and a member of the
Board of Directors since October 1996. Formerly a principal of
Odyssey Partners, L.P. from July 1994 to February 1997; Executive
Vice President, Senior General Counsel and Director of Olympia &
York Companies (U.S.) from 1985 to 1994.
Jonathan Fels 47 President, Avatar Properties Inc. since December 1997; founding
partner and President of various Brookman-Fels companies since
July 1980.
Michael Levy 41 Executive Vice President and Chief Operating Officer, Avatar
Properties Inc. since December 1997; partner and Vice President
of various Brookman-Fels companies since April 1983.
Michael S. Rubin 56 President, Avatar Retirement Communities, Inc. since October
1997; formerly President and Chief Operating Officer, Hilcoast
Development Corp., from August 1992 to October 1997.
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Executive Officers of the Registrant - continued
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Dennis J. Getman 55 Executive Vice President since March 1984. Senior Vice President
from September 1981 to March 1984 and General Counsel since
September 1981.
Charles L. McNairy 53 Executive Vice President since September 1993 and Treasurer since
September 1992. Chief Financial Officer from September 1992 to
December 1998. Senior Vice President from September 1992 to
September 1993. Vice President - Finance from January 1985 to
September 1992, except from April 1987 to September 1988.
Lawrence R. Sherry 56 Executive Vice President and Chief Financial Officer since
January 1999; formerly Partner, Ernst & Young LLP from June 1995
to December 1998. Partner, Kenneth Leventhal and Company from
1977 to June 1995.
Juanita I. Kerrigan 53 Vice President and Secretary since September 1980.
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The above executive officers have held their present positions with
Avatar for more than five years, except as otherwise noted.
No director or executive officer of Avatar has any family relationship
with any other director or executive officer of Avatar.
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Common Stock of Avatar Holdings Inc. is traded through The Nasdaq
Stock Market under the symbol AVTR. There were 7,210 record holders of Common
Stock at February 29, 2000.
High and low quotations, as reported, for the last two years were:
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QUOTATIONS
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QUARTER ENDED 1999 1998
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HIGH LOW HIGH LOW
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March 31 21.563 15.375 31.625 23.625
June 30 23.750 18.000 28.750 24.750
September 30 22.000 18.250 28.125 16.500
December 31 19.750 16.000 19.125 13.500
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Avatar has not declared any cash dividends on Common Stock since its
issuance and has no present intention to pay cash dividends. Avatar is subject
to certain restrictions on the payment of dividends as set forth in Item 8,
"Notes to Consolidated Financial Statements."
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Item 6. Selected Financial Data
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
Dollars in thousands (except per-share data)
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YEAR ENDED DECEMBER 31
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1999 1998 1997 1996 1995
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STATEMENT OF INCOME DATA
Revenues $ 190,690 $ 113,482 $ 96,016 $ 109,705 $ 65,144
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Loss from continuing operations after income taxes
before discontinued operations
and extraordinary items $ (1,030) $ (17,720) $(31,299) $ (757) $ (9,604)
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Discontinued operations:
Income (loss) from discontinued operations
less income tax expense of $659 for 1999
and $0 for 1998, 1997, 1996, 1995 $ 634 $ 3,643 $ 4,310 $ 1,797 $ (735)
Gain on sale of discontinued operations, less
income tax expense of $13,309 for 1999 89,879 -- -- -- --
Estimated loss on disposal, less income tax benefit
of $817 for 1999 and $0 for 1998 (1,333)* (6,400)* -- -- --
Extraordinary item:
Loss on early extinguishment of debt,
less income tax expense of $0 -- (2,308) -- -- --
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Net income (loss) $ 88,150 $ (22,785) $(26,989) $ 1,040 $(10,399)
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BASIC AND DILUTED PER SHARE DATA:
Loss from continuing operations after income tax
before discontinued operations and
extraordinary items $ (0.11) $ (1.93) $ (3.43) $ (0.08) $ (1.06)
Discontinued operations:
Income (loss) from discontinued operations 0.07 0.40 0.47 0.19 (0.08)
Gain on sale of discontinued operations 9.83 -- -- -- --
Estimated loss on disposal (0.15) (0.70) -- -- --
Extraordinary item:
Loss on early extinguishment of debt -- (0.25) -- -- --
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Net income (loss) $ 9.64 $ (2.48) $ (2.96) $ 0.11 $ (1.14)
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BALANCE SHEET DATA
DECEMBER 31
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1999 1998 1997 1996 1995
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Total assets $391,135 $472,991 $439,368 $443,185 $470,632
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Notes, mortgage notes and
other debt $119,468 $157,553 $107,235 $96,640 $122,501
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Stockholders' equity $193,577 $112,257 $135,042 $159,452 $158,412
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* Relates to an estimated loss on the disposal of the timeshare (vacation
ownership) business. See Note U to the Consolidated Financial Statements
included in Item 8 of Part II of this Report.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands)
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto, included
elsewhere in this Form 10-K.
OVERVIEW
Avatar is engaged in real estate operations. Our primary activities
include the development of active adult communities in Florida and residential
communities in Florida and Arizona. In 1999, we disposed of certain non-core
assets and may continue to do so in the future.
In December 1998, we commenced development of our first planned active
adult community in Poinciana, Florida. In addition to development and
construction of housing products, active adult community development includes
construction and operation of a variety of community amenities, including golf
courses, health and fitness centers, restaurants and social and educational
facilities.
Our primary residential community development activities range from
custom, semi-custom and mid-priced homebuilding to the operation of amenities
and resorts, as well as a variety of related activities, including the
development, leasing and management of improved commercial and industrial
properties, cable television operations and property management services. We
continue to own and operate the water and wastewater utilities at Rio Rico and
have a financial interest in the water facility in North Ft. Myers Beach,
Florida.
ACTIVE ADULT COMMUNITIES. Recognizing the potential of highly
amenitized communities to accommodate the active lifestyles of retirees and
pre-retirees, in 1998 we commenced the design and development of a 3,300-acre
active adult community, Solivita, within our Central Florida master-planned
community of Poinciana. We have identified significant additional acreage within
the community which may enable us to expand beyond the 3,300 acres.
By the expected commencement of sales in the second quarter of 2000,
approximately 100,000 square feet of recreation and service facilities will be
available, including a fitness center, a golf clubhouse, restaurants, arts and
crafts rooms, a cafe/newsstand and other meeting and theater facilities. We also
substantially completed development of a Ron-Garl designed 18-hole golf course
which incorporates many of the property's natural and manmade environmental
features. Future plans include the development and construction of an additional
25,000 square feet of recreation and service facilities.
We have financed development and construction of Solivita through
available capital. However, we have formed a Community Development District
which will issue tax-exempt bonds to fund and manage portions of infrastructure
consisting primarily of stormwater management facilities, water and wastewater
utilities and offsite roadways.
The 3,300-acre Solivita community, which incorporates the natural
topography of the land, its natural resources including more than 1,200 acres of
wetlands and a spectacular oak hammock, is designed to accommodate in excess of
4,000 homes. Opening of the community is planned for the second quarter of 2000.
We are considering the appropriate location for commencing the
development of a second active adult community within Florida, either on
property currently owned or in a joint venture with another property owner.
14
<PAGE> 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
RESIDENTIAL DEVELOPMENT. Residential development activities are located
in Poinciana and Harbor Islands in Hollywood, Florida and Rio Rico, Arizona. The
residential activities in Cape Coral are in the closeout phase. We anticipate
all remaining housing inventory, as of December 31, 1999, will be closed during
2000. In addition, during 1999, we began an evaluation to determine the
feasibility and marketability of an appropriate product mix for the undeveloped
parcels at Harbor Islands.
The following table sets forth revenues and sales data derived
from homebuilding operations for the years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1999 1998 1997
-------------- ----------- ------------
<S> <C> <C> <C>
Revenues $107,223 $71,494 $57,912
Other data:
Number of units closed 521 483 436
Number of units sold 463 504 509
Number of units in backlog 339 397 376
</TABLE>
COMMERCIAL AND INDUSTRIAL LAND SALES. Under our current real estate
business strategy, we are focusing on developing, leasing and operating
commercial and industrial properties rather than selling them. However, we
intend to continue our policy of selling non-core assets as opportunities arise
under prevailing market conditions. Revenues from commercial and industrial land
sales were $5,045, $3,120 and $5,441 in 1999, 1998 and 1997, respectively.
Future demand for commercial and industrial land and facilities at our
properties is expected to increase as a result of the development by both Avatar
and other developers of homes and planned communities.
RESORT OPERATIONS. During 1999, we reduced emphasis on resort operations
by the sale of the Cape Coral Golf and Country Club and the leasing of the
Poinciana Golf and Racquet Club operations. However, we believe that the Rio
Rico Resort and Country Club enhances the value of the land in the surrounding
areas of Rio Rico and we have retained ownership of that resort. The resort
operations have generated revenues on an annual basis of $10,725, $13,591 and
$13,787 in 1999, 1998 and 1997, respectively.
OTHER REAL ESTATE REVENUES. We also generate revenues through the rental
and lease of our community shopping centers and commercial operations in
Poinciana and Rio Rico, the marina at Harbor Islands, cable television operation
at Poinciana and property management services. Revenues from these operations
were $5,757, $5,171 and $5,163 in 1999, 1998 and 1997, respectively.
DISCONTINUED OPERATIONS. 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, closed on the sale of substantially
all of their water and wastewater utilities assets located in the counties of
Brevard, Collier, Hillsborough, Lee, Osceola, Polk and Sarasota, Florida to The
Florida Governmental Utility Authority. On July 30, 1999, we exited the vacation
ownership (timeshare) business in a transaction involving the sale of
subsidiaries under a contract executed during the second quarter of 1999. We
accounted for the Florida Utilities and vacation ownership operations as
discontinued operations. Reference is made to Note U in Item 8 under the caption
"Notes to Consolidated Financial Statements."
15
<PAGE> 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected Avatar during the periods included in the
accompanying consolidated statements of operations.
A summary of the period to period changes in the items included in the
consolidated statements of income is shown below.
<TABLE>
<CAPTION>
COMPARISON OF
TWELVE MONTHS ENDED DECEMBER 31
-------------------------------------------
1999 AND 1998 1998 AND 1997
------------------- -------------------
INCREASE (DECREASE)
-------------------------------------------
CHANGE CHANGE
------------------- -------------------
<S> <C> <C>
REVENUES
Real estate sales $73,715 $16,812
Deferred gross profit on homesite sales (943) 265
Interest income 2,692 263
Trading account profit, net 1,948 (71)
Other (204) 197
------------------- -------------------
Total revenues 77,208 17,466
EXPENSES
Real estate expenses 63,516 13,269
Real estate inventory write-down -- (14,667)
General and administrative expenses 1,551 1,593
Interest expense (4,015) 3,526
Other 29 166
------------------- -------------------
Total expenses 61,081 3,887
------------------- -------------------
Income before income taxes from continuing
operations 16,127 13,579
Income tax benefit 563 --
Discontinued operations:
Income (loss) from operations (3,009) (667)
Net income (loss) on sale of discontinued
operations 94,946 (6,400)*
Extraordinary item:
Loss on early extinguishment of debt 2,308 (2,308)
------------------- -------------------
Net income $110,935 $4,204
=================== ===================
</TABLE>
* Relates to an estimated loss on the disposal of the time share (vacation
ownership) business. See Note U to the Consolidated Financial Statements
included in Item 8 of Part II of this Report.
Avatar uses the installment method of profit recognition for homesite
sales. Under the installment method the gross profit on recorded homesite sales
is deferred and recognized in income of future periods, as principal payments on
contracts are received. Fluctuations in deferred gross profit result from
collections of principal payments on contracts and cancellations from prior
years' homesite sales.
16
<PAGE> 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS -- continued
Data from homebuilding operations for the years ended December 31,
1999, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C>
UNITS CLOSED
Number of units 521 483 436
Aggregate dollar volume $107,223 $71,494 $57,912
Average price per unit $206 $148 $133
UNITS SOLD, NET
Number of units 463 504 509
Aggregate dollar volume $112,833 $99,162 $73,571
Average price per unit $244 $197 $145
BACKLOG
Number of units 339 397 376
Aggregate dollar volume $90,321 $84,711 $57,043
Average price per unit $266 $213 $152
</TABLE>
Operations for the years ended December 31, 1999, 1998 and 1997
resulted in income (loss) of $88,150, ($22,785) and ($26,989), respectively. The
increase in income for 1999 compared to 1998 is primarily attributable to an
increase in real estate contribution margin, interest income, trading account
profits, a net gain from the sale of the discontinued operations and a decrease
in interest expense partially mitigated by an increase in general and
administrative expenditures. The decrease in the loss for 1998 compared to 1997
is primarily attributable to an increase in real estate contribution margin and
an impairment loss during 1997 to the carrying amount of Harbor Islands
partially mitigated by an increase in interest expense and general and
administrative expenditures as well as an estimated loss on disposal of the
discontinued vacation ownership operations.
Avatar continued to develop a diversified mix of products and services
by planning and developing active adult communities, introducing additional
housing products, developing amenities and support facilities and converting
land holdings into income producing operations.
Gross real estate revenues increased $73,715 or 72.5% during 1999 when
compared to 1998 and increased $16,812 or 19.8% during 1998 when compared to
1997. The increase in real estate revenues for 1999 when compared to 1998 is
generally a result of increased residential homebuilding revenues and closings
partially mitigated by a decrease in resort revenues as well as bulk and other
land sales. Also contributing to the increase in real estate revenues for the
year ended December 31, 1999 compared to 1998 was the sale of substantially all
of Avatar's real estate assets located in Cape Coral, Florida for $44,859.
Residential homebuilding revenues (including Harbor Islands) increased $35,729
or 50.0% in 1999 when compared to 1998. Housing units closed, excluding Harbor
Islands, totaled 434 units with sales volume of $61,062 compared to 454 units
with sales volume of $56,618 in 1998. Harbor Islands closed 87 units with sales
volume of $46,161 during 1999 compared to 29 units with sales volume of $14,876
in 1998. The decrease in resort revenues is due to the sale of the Cape Coral
Golf and Country Club and the leasing of the Poinciana Golf and Racquet Club
operations. The increase in real estate revenues for 1998 when compared to 1997
was generally a result of increased closings at Avatar's residential communities
in Poinciana, Cape Coral and Rio Rico and
17
<PAGE> 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS -- continued
an increase in bulk and other land sales. Residential homebuilding revenues
(including Harbor Islands) increased $13,582 or 23.5% in 1998 when compared to
1997. The increase in bulk and other land sales is generally due to the bulk
land sale at Golden Gate. Housing units closed, excluding Harbor Islands,
totaled 454 units with sales volume of $56,870 compared to 400 units with sales
volume of $43,364 in 1997. Harbor Islands closed 29 units with sales volume of
$14,624 during 1998 compared to 36 units with sales volume of $14,548 in 1997.
Real estate expenses increased $63,516 or 59.5% during 1999 when
compared to 1998 and increased $13,269 or 14.2% during 1998 when compared to
1997. The increases in real estate expenses for 1999 and 1998 is primarily a
result of increased residential homebuilding expenses associated with an
increase in residential homebuilding revenues and an increase in expenses
associated with Solivita, Avatar's new active adult community in Poinciana. Also
contributing to the increase in real estate expenses in 1999 is cost of sales of
$37,930 associated with the sale of the Cape Coral real estate assets, the sale
of 2,842 lots in Rio Rico that carried a book basis of $6,950 and a write-off of
$2,317 of cancelled delinquent contracts at Poinciana, Cape Coral, Rio Rico and
Leisure Lakes as these amounts were deemed uncollectible.
Operating profits for residential homebuilding (including Harbor
Islands) increased in 1999 and 1998 primarily due to increases in revenues and
closings and the decrease in general homebuilding and marketing expenditures.
The average selling price (excluding Harbor Islands) of housing units
closed for 1999 was $141, an increase of 12.8% when compared to 1998. This
increase is primarily attributable to the increase in sales price at Avatar's
Poinciana community and remaining homebuilding activities at Cape Coral. The
average selling price at Harbor Islands of housing units closed for 1999 was
$531, an increase of 3.5% when compared to 1998. This increase is primarily due
to the increased closings during 1999 of the higher-priced product at Harbor
Islands. The average selling price (excluding Harbor Islands) of housing units
closed for 1998 was $125, an increase of 15.8% when compared to 1997. This
increase is primarily attributable to the increase in sales price at the
Poinciana and Cape Coral communities. The average selling price at Harbor
Islands of housing units closed for 1998 was $513, an increase of 27.0% when
compared to 1997. This increase is primarily due to the increased closings
during 1998 of the higher-priced Harbor Islands' Parcel 10 product. The average
selling price (including Harbor Islands) of housing units in backlog of $266 at
December 31, 1999 increased by 24.9% over 1998 due to the increased number of
sales in backlog at Harbor Islands. The average selling price (including Harbor
Islands) of housing units in backlog of $213 at December 31, 1998 increased by
40.1% over 1997 due to the increased number of sales in backlog at Harbor
Islands.
Interest income increased $2,692 or 49.3% during 1999 when compared to
1998 and increased $263 or 5.1% during 1998 when compared to 1997. The increase
is primarily attributable to higher interest income earned during 1999 from the
investment of the proceeds generated from the sale of Florida Utilities and Cape
Coral assets. The increase in 1998 is primarily attributable to the interest
income earned from the proceeds invested from the 7% Convertible Subordinated
Notes due 2005 (Notes) issued February 2, 1998. The increases in 1999 and 1998
were partially offset by the decreases in interest income attributable to lower
average aggregate balances of the contract and mortgage notes receivable
portfolio, caused by collections and cancellations. The average balance of the
receivable portfolio was $20,331, $32,735, and $51,006 for 1999, 1998 and 1997,
respectively. See Note D to the Consolidated Financial Statements included in
Item 8 of Part II of this Report.
18
<PAGE> 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS - continued
Trading account profit, net increased $1,948 for 1999 when compared to
1998. The trading account profit, net was $1,948, $0 and $71 for 1999, 1998 and
1997, respectively. Trading account profit, net represents realized and
unrealized gains and losses related to the trading investment portfolio, net of
commissions payable to investment advisors.
General and administrative expenses increased $1,551 or 15.0% in 1999
compared to 1998 and increased $1,593 or 18.2% in 1998 compared to 1997. The
increase in both 1999 and 1998 when compared to the previous periods is
primarily attributed to increased executive compensation and professional fees.
Interest expense decreased $4,015 or 31.5% in 1999 when compared to
1998 and increased $3,526 or 38.2% in 1998 when compared to 1997. The decrease
in 1999 when compared to 1998 is primarily attributable to a reduction of the
outstanding debt associated with real estate and notes collateralized by
contracts and mortgage notes receivable. The increase in 1998 when compared to
1997 is primarily attributable to the interest expense incurred from the Notes
issued February 2, 1998. Also contributing to the increase in interest expense
is the reduction of $2,202 in capitalized interest in 1998 compared to 1997.
Income from discontinued operations (vacation ownership and Florida
utilities operations) before income taxes decreased $2,350 in 1999 when compared
to 1998 and decreased $667 in 1998 when compared to 1997. Income before income
taxes from the Florida Utilities operations decreased $3,988 in 1999 when
compared to 1998 and increased $676 in 1998 when compared to 1997. The decrease
in Florida utilities operations for 1999 compared to 1998 primarily results from
reduced operations due to the sale of the assets of the Florida Utilities
operations. The increase for 1998 compared to 1997 was a result of customer
growth and increased contract management operations. On July 30, 1999, Avatar
closed on the sale of its timeshare subsidiary under a contract executed during
the second quarter of 1999. The net cash sales price was $3,497, subject to
certain adjustments. In addition, Avatar revised the estimate of the net
realizable value of the discontinued operations based on the July 30, 1999
closing and current business conditions. As a result, Avatar recorded an
estimated loss on the disposal of the timeshare operations of $2,150 and $6,400
during 1999 and 1998, respectively, less income tax benefit of $817 and $0 for
the year ended December 31, 1999 and 1998, respectively.
For the year ended December 31, 1998, Avatar recorded a $2,308
extraordinary loss due to the early extinguishment of the $33,000 aggregate
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 amount of 8% and 9% Senior Debentures due 2000 written off upon
extinguishment.
LIQUIDITY AND CAPITAL RESOURCES
Avatar's current real estate business strategy is designed to
capitalize on its distinct competitive advantages and emphasize higher profit
margin businesses by concentrating on the development and management of active
adult communities, upscale custom and semi-custom homes and communities, and
commercial and industrial properties in its existing community developments.
Avatar also seeks to identify additional sites that are suitable for development
consistent with its business strategy and anticipates that it will acquire or
develop them directly or through joint venture or management arrangements.
Avatar's primary business activities are capital intensive in nature.
Significant capital resources are required to finance planned active adult
communities, homebuilding construction in process, community infrastructure,
selling expenses and working capital needs, including funding of debt service
requirements, operating deficits and the carrying
19
<PAGE> 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
LIQUIDITY AND CAPITAL RESOURCES - continued
cost of land. Avatar expects to fund its operations and capital requirements
through a combination of cash, operating cash flows, proceeds from the sale of
certain non-core assets and external borrowings.
On June 30, 1999, Avatar Properties Inc., a wholly-owned subsidiary,
closed on the sale of substantially all of its real estate assets located in
Cape Coral, Florida. The sales price was $44,859, subject to certain
adjustments. The available net cash proceeds from the sale were approximately
$37,000 after the payment of related indebtedness and expenses. Avatar retains a
692-acre site in northeast Cape Coral for potential future inclusion in its
active adult community development operations.
As described in "Results of Operations", substantially all of the
assets used in the Florida Utilities operations were sold on April 15, 1999 for
a cash sales price of $208,619, subject to certain adjustments. The transaction
resulted in pre-tax proceeds of approximately $139,249, after payment of debt
and expenses and redemption of utilities preferred stock.
During 1999, Avatar invested $13,599 in an investment portfolio held as
trading. This category is defined as including 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 profit in the accompanying consolidated statements of
operations. Avatar has recorded a trading account profit of $1,948 for the year
ended December 31, 1999. Fair values for actively traded debt securities and
equity securities are based on quoted market prices on national markets. The
fair value of the investment portfolio was $8,867 at March 9, 2000 compared to
$15,547 at December 31, 1999.
On April 26, 1999 and January 27, 2000, Avatar's Board of Directors
authorized the expenditure of up to $15,000 and $20,000, respectively, 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 December 31, 1999,
Avatar utilized the $15,000 authorization with the repurchase of $2,633
principal amount of the Notes and $12,549 of its common stock.
As of December 31, 1999, we had cash and marketable securities of
approximately $158,800. We anticipate that after expenditures for completion of
development of Solivita and expenditures related to development at Harbor
Islands, we will have sufficient liquidity to enable us to realize opportunities
on existing landholdings or new real estate opportunities we may identify.
In 1999, net cash provided by operating activities amounted to $29,296,
primarily as a result of the proceeds of approximately $37,000 from the sale of
the real estate assets in Cape Coral; partially offset by a decrease in accounts
payable and other liabilities of $6,029. Net cash provided by investing
activities of $136,195 resulted from proceeds from the sale of Florida Utilities
assets of $165,071 partially offset by investments in property, plant and
equipment of $18,775 and marketable securities of $13,599. Net cash used in
financing activities of $54,753 resulted primarily from repayment of $39,680 in
land development and construction loans and the purchase of treasury stock of
$12,549.
In 1998, net cash used in operating activities amounted to $15,175 as a
result of an increase in inventories, which included expenditures for land
development and housing operations of $11,354, partially offset by principal
payments collected on contracts receivable of $13,109. Net cash used in
investing activities of $1,021 in 1998 resulted primarily from investments in
property, plant and equipment. Net cash provided by financing activities of
$44,857 resulted primarily from the net proceeds of $111,500 from the Notes
after
20
<PAGE> 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
LIQUIDITY AND CAPITAL RESOURCES - continued
repayment of $33,000 of the 8% and 9% Senior Debentures due 2000 and $42,354 in
land, construction and development loans.
In 1997, net cash used in operating activities amounted to $16,256,
primarily as a result of expenditures used for land development and housing
operations. Net cash provided by investing activities of $3,652 in 1997 resulted
primarily from proceeds of the investment portfolio of $4,606 partially offset
by investment in property, plant and equipment of $954. Net cash provided by
financing activities of $10,595 resulted primarily from principal payments on
revolving lines of credit and long-term borrowings of $51,584, less net proceeds
from revolving lines of credit and long-term borrowings of $62,179.
During the second quarter of 1999, Avatar repaid all unsecured and
secured lines of credit, exclusive of timeshare credit facilities which were
assumed by the buyer of the timeshare subsidiary on July 30, 1999.
EFFECTS OF INFLATION AND ECONOMIC CONDITIONS
Inflation has had a minimal impact on Avatar's operations over the past
several years, and management believes its effect has been neither significant
nor greater than its effect on the industry as a whole. It is anticipated that
the impact of inflation on Avatar's operations for 2000 will not be significant.
IMPACT OF TAX INSTALLMENT METHOD
In years 1988 through 1998, Avatar elected the installment method for
recording a substantial amount of its homesite and vacation ownership sales in
its federal income tax return, which deferred taxable income into future fiscal
periods. As a result of this election, Avatar will be required to pay compound
interest on federal income taxes in 1999 attributable to the taxable income
deferred under the installment method to the extent that any of this deferred
income is realized in 1999. Avatar anticipates that the interest amount for 1999
will be approximately $930 net of tax benefits.
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. Avatar conducted a comprehensive
review of its computer systems to identify those systems that could have been
affected by the Year 2000 issue and developed an implementation plan to resolve
the issue. Because of the review and implementation plan, Avatar has not
encountered any significant Year 2000 issues. Total expenditures related to the
Year 2000 project were estimated to be less than $200.
21
<PAGE> 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
FORWARD-LOOKING STATEMENTS
Certain statements discussed under the caption "Business," "Legal
Proceedings," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Form 10-K 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:
History of Losses; Negative Cash Flow
Avatar's net income of $88,150 in 1999 resulted primarily from the sale
of discontinued operations. Historically, Avatar has experienced net losses from
operations and sold non-strategic assets to fund operating deficits and utilized
short-term borrowings to provide working capital. Net losses for 1998, 1997,
1995 and 1994 were approximately $22,785, $26,989, $10,339 and $14,621,
respectively.
Real estate development requires investment of substantial capital, a
significant portion of which is expended before any revenues may be realized.
Avatar may not achieve or sustain operating profitability or positive cash flows
from operating activities until after 2000. If Avatar cannot achieve operating
profitability or positive cash flow from operating activities, it may not be
able to service or meet its other debt service or working capital requirements.
Real Estate Business Strategy
Avatar's real estate business strategy is largely unproven, with little
operating history to serve as the basis for a prediction of its probable success
or failure. Implementation of the business strategy has required, and will
continue to require, among other things, the addition of new management
personnel and employees, as well as the development of additional expertise by
existing management personnel and employees and the expenditure of significant
amounts of capital. The loss of the services of certain members of the senior
management team could have a material adverse effect on Avatar and, in
particular, on the success of the real estate business strategy. In addition,
Avatar's ability to manage growth and to redeploy its resources effectively will
require it to continue to implement and improve its operational, financial and
sales systems. There can be no assurance that Avatar will be able to compete
successfully with its current or potential competitors or that the
implementation of the current business strategy will be successful.
Real Estate, Economic, and Other Conditions Generally
The real estate industry is highly cyclical and is affected by changes
in national, global and local economic conditions and events, such as employment
levels, availability of financing, interest rates, consumer confidence and the
demand for housing and other types of construction. Real estate developers are
subject to various risks, many of which are outside the control of the
developer, including real estate market conditions (both where its communities
and homebuilding operations are located and in areas where its potential
customers reside), and changing demographic conditions, adverse weather
conditions and natural disasters, such as hurricanes, tornadoes, wildfires,
delays in construction schedules, cost overruns, changes in government
regulations or requirements, increases in real estate taxes and other local
government fees and availability and cost of land, materials and labor. The
occurrence of any of the foregoing could have a material adverse effect on
Avatar's financial conditions.
22
<PAGE> 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
FORWARD-LOOKING STATEMENTS - continued
Interest Rates; Mortgage Financing
Certain purchasers of Avatar's homes finance their purchases through
third-party lenders providing mortgage financing. In general, housing demand is
dependent on home equity, consumer savings and third-party financing and will be
adversely affected by increases in interest rates, unavailability of mortgage
financing, increasing housing costs and unemployment levels. The amount or value
of discretionary income and savings, including retirement assets, available to
home purchasers can be affected by a decline in the capital markets. If mortgage
interest rates increase or the capital markets decline or undergo a major
correction, the ability of prospective buyers to finance home purchases will be
adversely affected, which may have an adverse effect on Avatar's financial
condition.
Geographic Concentration
Avatar's development activities are primarily focused on locations in
Florida and therefore depend to a significant degree on the levels of
immigration to Florida from outside the United States and in-migration to
Florida from within the United States in addition to other local market
conditions. Avatar's geographic concentration and limited number of projects may
create increased vulnerability to regional economic downturns or other adverse
project-specific matters. A decline in the economy in Florida could have an
adverse effect on Avatar's financial condition.
Development of Communities
Avatar's communities will be developed over time. Therefore, the
medium- and long-term future of Avatar will be dependent on its ability to
develop and market future communities successfully. Committing the financial and
managerial resources to develop a community involves significant risks. Before a
community generates any revenues, material expenditures are required, among
other things, to obtain development approvals to construct project
infrastructure, recreation centers, model homes and sales facilities and, where
opportunities are suitable and appropriate, to acquire land. It generally takes
several years for a community development to achieve cumulative positive cash
flow. No assurance can be given that Avatar will successfully develop and market
communities in the future. Avatar's inability to develop and market its
communities successfully and to generate positive cash flows from such
operations in a timely manner would have an adverse effect on its ability to
service its debt and to meet its working capital requirements.
Access to Financing
Avatar's business is capital intensive and requires expenditures for
land and infrastructure development, housing construction and working capital.
Accordingly, Avatar anticipates incurring indebtedness to fund its real estate
development activities. As of December 31, 1999, total consolidated indebtedness
was $119,468 (including $112,367 outstanding principal of the 7% Convertible
Subordinated Notes). There can be no assurance that the amounts available from
internally generated funds, cash on hand and the sale of non-strategic assets
will be sufficient to fund the anticipated operations. Avatar may be required to
seek additional capital in the form of equity or debt financing from a variety
of potential sources, including additional bank financing and sales of debt or
equity securities. No assurance can be given that such financing will be
available or, if available, will be on favorable terms. If Avatar is not
successful in obtaining sufficient capital to fund the implementation of its
business strategy and other expenditures, development projects may be delayed or
abandoned. Any such delay or abandonment could result in a reduction in sales
and would adversely affect future results of operations.
23
<PAGE> 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
FORWARD-LOOKING STATEMENTS - continued
Joint Venture Risks
In connection with its business strategy, Avatar may seek joint venture
arrangements with entities whose complementary resources or other business
strengths will contribute to Avatar's competitive position. A joint venture may
involve special risks associated with the possibility that a venture partner (i)
at any time may have economic or business interests or goals that are
inconsistent with those of Avatar, (ii) may take actions contrary to Avatar's
instructions or requests or contrary to Avatar's policies or objectives with
respect to its real estate investments or (iii) could experience financial
difficulties. Actions by a venture partner may have the result of subjecting
property owned by the joint venture to liabilities in excess of those
contemplated by the terms of the joint venture agreement or have other adverse
consequences. As a participant in certain joint ventures, Avatar may be jointly
and severally liable for the debts and liabilities of the joint venture. No
assurance can be given that any joint venture arrangements entered into will
achieve the results anticipated or otherwise prove successful.
Period-to-Period Fluctuations
Avatar's real estate projects are long-term in nature. Sales activity
at newly planned active adult communities and other real estate developments
varies from period to period, and the ultimate success of any community cannot
be determined from results in any particular period or periods. A community may
generate significantly higher sales levels at inception (whether because of
local pent-up demand or other reasons) than it does during later periods over
the life of the community. Revenues and earnings will also be affected by
period-to-period fluctuations in the mix of product, subdivisions and home
closings among Avatar's communities and conventional homebuilding operations.
Thus, the timing and amount of revenues arising from capital expenditures are
subject to considerable uncertainty. The inability to manage effectively its
cash flows from operations would have an adverse effect on the ability to
service its debt and to meet its working capital requirements.
Competition
Avatar's homebuilding, planned community development and other real
estate operations are subject to substantial existing and potential competition
(including increased competition from a number of national homebuilders that are
entering or expanding their presence in planned community development). Some
current and potential competitors have longer operating histories and greater
financial, sales, marketing, technical and other competitive resources than
Avatar. Existing and future competition may have an adverse effect on Avatar's
financial condition.
Governmental Regulation and Environmental Considerations
Avatar's business is subject to extensive federal, state and local
regulatory requirements, the broad discretion that governmental agencies have in
administering those requirements and "no growth" or "slow growth" policies, all
of which can prevent, delay, make uneconomic or significantly increase the costs
of its
24
<PAGE> 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (dollars in thousands) -- continued
FORWARD-LOOKING STATEMENTS - continued
Governmental Regulation and Environmental Considerations - continued
developments. Various governmental approvals and permits are required throughout
the development process (to the extent they have not already been obtained), and
no assurance can be given as to the receipt (or timing of receipt) of these
approvals or permits. The incurrence of substantial compliance costs and the
imposition of delays and other regulatory burdens could have a material adverse
effect on Avatar's operations.
Furthermore, various federal, state and local laws subject property
owners or operators to liability for the costs of removal or remediation of
certain hazardous substances released on a property. Such laws often impose
liability without regard to whether the owner knew of, or was responsible for,
the release of the hazardous substances. The presence of such hazardous
substance at one or more properties, and the requirement to remove or remediate
such substances, may result in significant cost.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Avatar is subject to market risk associated with changes in interest
rates. Certain purchasers of Avatar's homes finance their purchases through
third-party lenders providing mortgage financing. In general, housing demand is
dependent on home equity, consumer savings and third-party financing and will be
adversely affected by increases in interest rates, unavailability of mortgage
financing, increasing housing costs and unemployment levels. The amount or value
of discretionary income and savings, including retirement assets, available to
home purchasers can be affected by a decline in the capital markets. A high
interest rate environment would be likely to adversely affect Avatar's real
estate results of operations and liquidity because of its negative impact on the
housing industry. See Notes H and R (debt payout and fair values) to the
Consolidated Financial Statements included in Item 8 of Part II of this Report.
(See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion of risks.)
25
<PAGE> 26
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants.......................................... 27
Consolidated Balance Sheets -- December 31, 1999 and 1998................................... 28
Consolidated Statements of Operations -- For the years ended
December 31, 1999, 1998 and 1997....................................................... 29
Consolidated Statements of Stockholders' Equity -- For the years ended
December 31, 1999, 1998 and 1997....................................................... 30
Consolidated Statements of Cash Flows -- For the years ended
December 31, 1999, 1998 and 1997....................................................... 31
Notes to Consolidated Financial Statements.................................................. 33
</TABLE>
26
<PAGE> 27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Avatar Holdings Inc.
We have audited the accompanying consolidated balance sheets of Avatar Holdings
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
related schedule are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Avatar
Holdings Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
ERNST & YOUNG LLP
Miami, Florida
March 9, 2000
27
<PAGE> 28
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 143,259 $ 32,521
Restricted cash 3,552 5,232
Investment in marketable securities 15,547 --
Contracts and mortgage notes receivables, net 7,685 13,737
Other receivables, net 3,328 4,257
Land and other inventories 157,473 170,555
Property, plant and equipment, net 41,384 26,366
Other assets 14,774 11,724
Deferred income taxes 4,133 --
Assets of discontinued operations -- 208,599
--------- ---------
Total Assets $ 391,135 $ 472,991
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes, mortgage notes and other debt:
Corporate $ 112,367 $ 130,000
Notes, collateralized by contracts and mortgage notes receivable -- 9,060
Real estate 7,101 18,493
Estimated development liability for sold land 18,605 8,671
Accounts payable 8,997 3,385
Accrued and other liabilities 50,488 35,182
Deferred customer betterment fees -- 18,837
Liabilities of discontinued operations -- 137,106
--------- ---------
Total Liabilities 197,558 360,734
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 157,141 151,422
Retained earnings (deficit) 39,815 (48,335)
--------- ---------
206,126 112,257
Treasury stock, at cost, 764,164 shares (12,549) --
--------- ---------
Total Stockholders' Equity 193,577 112,257
--------- ---------
Total Liabilities and Stockholders' Equity $ 391,135 $ 472,991
========= =========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per-share amounts)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
REVENUES
Real estate sales $ 175,382 $ 101,667 $ 84,855
Deferred gross profit on homesite sales 3,320 4,263 3,998
Interest income 8,155 5,463 5,200
Trading account profit, net 1,948 -- 71
Other 1,885 2,089 1,892
--------- --------- ---------
Total revenues 190,690 113,482 96,016
EXPENSES
Real estate expenses 170,344 106,828 93,559
Real estate inventory write-down -- -- 14,667
General and administrative expenses 11,900 10,349 8,756
Interest expense 8,744 12,759 9,233
Other 1,295 1,266 1,100
--------- --------- ---------
Total expenses 192,283 131,202 127,315
--------- --------- ---------
Loss from continuing operations before income taxes (1,593) (17,720) (31,299)
Income tax benefit 563 -- --
--------- --------- ---------
Loss from continuing operations after income taxes (1,030) (17,720) (31,299)
Discontinued operations:
Income from discontinued operations, less income tax
expense of $659 for 1999 and $0 for 1998 and 1997 634 3,643 4,310
Gain on sale of discontinued operations, less income
tax expense of $13,309 for 1999 89,879 -- --
Estimated loss on disposal, less
income tax benefit of $817 for 1999
and $0 for 1998 (1,333) (6,400) --
--------- --------- ---------
Income (loss) before extraordinary item 88,150 (20,477) (26,989)
Extraordinary item:
Loss on early extinguishment of debt
less income tax expense of $0 -- (2,308) --
--------- --------- ---------
Net income (loss) $ 88,150 ($ 22,785) $ (26,989)
========= ========= =========
Basic and Diluted EPS:
Loss from continuing operations after income taxes $ (0.11) $ (1.93) $ (3.43)
Income from discontinued operations $ 0.07 $ 0.40 $ 0.47
Gain from the sale of discontinued operations $ 9.83 -- --
Estimated loss on disposal $ (0.15) $ (0.70) --
Loss from extraordinary item -- $ (0.25) --
Net income (loss) $ 9.64 $ (2.48) ($2.96)
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONAL (DEFICIT)
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 12,715 $ 207,271 $ 1,439 $ 61,973
Issuance of common stock 75 2,503 -- --
Retirement of treasury stock (3,620) (58,352) -- (61,973)
Net loss -- -- (26,989) --
-------- --------- -------- --------
Balance at December 31, 1997 9,170 151,422 (25,550) --
Net loss -- -- (22,785) --
-------- --------- -------- --------
Balance at December 31, 1998 9,170 151,422 (48,335) --
Credit for income tax effect of
utilizing pre-reorganization deferred
income tax assets -- 5,719 -- --
Purchase of treasury stock -- -- -- 12,549
Net income -- -- 88,150 --
-------- --------- -------- --------
Balance at December 31, 1999 $ 9,170 $ 157,141 $ 39,815 $ 12,549
======== ========= ======== ========
</TABLE>
There are 5,000,000 authorized shares of preferred stock, none of which are
issued.
See notes to consolidated financial statements.
30
<PAGE> 31
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------- -- -------------- -- ------------
1999 1998 1997
------------- -------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 88,150 ($ 22,785) ($26,989)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 3,313 3,672 2,346
Gain on sale of Florida Utilities (89,879) -- --
Loss on early extinguishment of debt -- 2,308 --
Estimated loss on disposal of discontinued operations 1,333 6,400 --
Deferred gross profit (3,320) (4,263) (3,998)
Inventory writedown -- -- 14,667
Trading account profit, net (1,948) -- (71)
Changes in operating assets and liabilities:
Restricted cash 1,680 (603) (3,090)
Principal payments on contracts receivable 8,588 13,109 14,435
Receivables 784 1,736 3,444
Other receivables 665 (1,644) 485
Inventories 27,134 (11,354) (13,375)
Other assets (91) (790) (7,730)
Deferred income taxes (4,133) -- --
Accounts payable and accrued and other liabilities (6,029) 5,105 6,646
Assets/liabilities of discontinued operations 3,049 (6,066) (3,026)
--------- --------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 29,296 (15,175) (16,256)
INVESTING ACTIVITIES
Investment in property, plant and equipment (18,775) (1,021) (954)
Net proceeds from sale of Florida Utilities assets 165,072 -- --
Net proceeds from sale of timeshare subsidiaries 3,497 -- --
Payment of investment in marketable securities (13,599) -- --
Proceeds from investment in marketable securities -- -- 4,606
--------- --------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 136,195 (1,021) 3,652
FINANCING ACTIVITIES
Proceeds from issuance of 7% Convertible Subordinated Notes -- 115,000 --
Payment of financing costs -- (3,450) --
Proceeds from revolving lines of credit and long-term borrowings, net of fees 109 8,661 62,179
Principal payments on revolving lines of credit and long term borrowings (39,680) (75,354) (51,584)
Repurchase of 7% Convertible Subordinated Notes (2,633) -- --
Purchase of treasury stock (12,549) -- --
--------- --------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (54,753) 44,857 10,595
--------- --------- --------
INCREASE (DECREASE) IN CASH 110,738 28,661 (2,009)
Cash and cash equivalents at beginning of year 32,521 3,860 5,869
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 143,259 $ 32,521 $ 3,860
========= ========= ========
</TABLE>
31
<PAGE> 32
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Land and other inventories $ 4,118 $ -- $ --
Short term notes payable (4,118) -- --
Contributions in aid of construction -- 1,791 5,250
Common stock -- -- 75
Additional paid in capital -- -- 2,503
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest - Continuing operations (net of amount capitalized of $1,257,
$695 and $2,897 in 1999, 1998
and 1997, respectively) $ 7,604 $8,663 $6,508
======== ====== ======
Interest - Discontinued operations (net of amount capitalized of $33,
$305 and $302 in 1999, 1998
and 1997, respectively) $ 2,547 $4,757 $4,289
======== ====== ======
Income taxes paid $ 13,000 $ -- $ --
======== ====== ======
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Dollars in thousands except per-share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include Avatar Holdings Inc. and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
GENERAL:
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. Avatar'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.
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
$3,552 and $5,232 as of December 31, 1999 and 1998, respectively. These balances
are comprised primarily of housing deposits that will become available when the
housing contracts close.
LAND INVENTORIES:
Land inventories are stated at the lower of cost or estimated net
realizable value. Cost includes expenditures for acquisition, construction,
development and carrying charges. Interest costs incurred during the period of
land development, when applicable, are capitalized as part of the cost of such
projects. Land acquisition costs are allocated to individual land parcels based
upon the relationship that the estimated sales prices of specific parcels bear
to the total sales price of the entire community. Construction and development
costs are added to the value of the specific parcels for which the costs are
incurred.
IMPAIRMENT OF LONG-LIVED ASSETS:
Avatar evaluates the impairment of its long-lived assets pursuant to
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Statement 121 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. During 1997, Avatar
recorded an inventory writedown of $14,667 to the carrying value of its Harbor
Islands community; there have been no subsequent impairment losses recorded.
33
<PAGE> 34
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
REVENUES:
Sales of housing units are recognized when the sales are closed and
title passes to the purchaser. Revenues from commercial land and bulk land sales
are recognized in full at closing, provided the purchaser's initial investment
is adequate, all financing is considered collectible and Avatar is not obligated
to perform significant future activities.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost and depreciation is
computed principally by the straight-line method over the estimated useful lives
of the assets. Depreciation, maintenance and operating expenses of equipment
utilized in the development of land are capitalized as land inventory cost.
INCOME TAXES:
Income taxes have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under Statement No. 109, the liability method is used in
accounting for income taxes where deferred income tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that are expected to be in effect when the differences reverse.
The cumulative effect of adopting Statement No. 109 for Avatar's
utilities subsidiaries was not credited or charged to net income, but was
recorded as a regulatory liability or regulatory asset in accordance with
accounting procedures applicable to regulated enterprises. Until the sale of
substantially all of the assets used in the Florida Utilities on April 15, 1999
(as described in Note U), the regulatory liabilities and regulatory assets were
generally amortized to income or expense over the useful lives of the utilities
systems and reflected probable future revenue reductions or increases from
ratepayers.
CONTRIBUTIONS IN AID OF CONSTRUCTION:
Advances from real estate developers and other direct contributions to
utilities subsidiaries for plant construction are recorded as "Contributions in
Aid of Construction." Prior to 1999, the account balance was amortized over the
depreciable life of the utilities plant as an offset to depreciation expense.
This was classified with discontinued operations. See Note U.
DEFERRED CUSTOMER BETTERMENT FEES:
Amounts collected from customers for utilities improvements are
classified as "Deferred Customer Betterment Fees." Prior to 1999 these fees were
reclassified to "Contributions in Aid of Construction" when service to the
customer began.
STOCK OPTIONS:
Under Statement 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 and has provided the appropriate disclosure in Note N to comply with
Statement No. 123.
34
<PAGE> 35
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
POSTRETIREMENT BENEFITS:
Avatar accrues postretirement benefits (such as health care benefits)
during the years an employee provides services. These benefits for retirees were
previously provided only to employees of the utilities subsidiaries.
ADVERTISING COSTS:
Advertising costs are expensed as incurred. For the years ended
December 31, 1999, 1998 and 1997, advertising costs totaled $1,950, $2,414 and
$3,749, respectively.
REPURCHASE OF COMMON STOCK AND NOTES
On April 26, 1999 and January 27, 2000, Avatar's Board of Directors
authorized the expenditure of up to $15,000 and $20,000, respectively, to
purchase, from time to time, shares of Avatar's common stock and/or 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 December 31, 1999, Avatar utilized the
$15,000 authorization with the repurchase of $2,633 principal amount of the
Notes and $12,549 of its common stock.
EARNINGS PER SHARE:
Earnings per share is computed based on the weighted average number of
shares outstanding of 9,144,931 for 1999, 9,170,102 for 1998 and 9,113,595 for
1997. The computation of earnings per share for 1999 and 1998 did not assume the
conversion of the Notes and employee stock options, as the effect of both would
be antidilutive. The computation of earnings per share for 1997 did not assume
the conversion of the employee stock options, as the effect would be
antidilutive. There is no difference between basic and diluted earnings per
share for 1999, 1998 and 1997.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results, however, could differ from those estimates.
RECLASSIFICATIONS:
Certain 1998 and 1997 financial statement items have been reclassified
to conform to the 1999 presentations.
35
<PAGE> 36
NOTE B - REAL ESTATE SALES
The components of real estate sales are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997
---------------- ------------ --------------
<S> <C> <C> <C>
Revenues from homebuilding activities $107,538 $71,494 $57,912
Resort revenues 10,725 13,591 13,787
Gross homesite sales* 1,458 8,291 2,552
Proceeds from sale of Cape Coral assets 44,859 -- --
Rental, leasing, cable and other
real estate operations 5,757 5,171 5,163
Commercial/industrial land sales 5,045 3,120 5,441
---------------- ------------ --------------
Total real estate sales $175,382 $101,667 $84,855
================ ============ ==============
</TABLE>
* Includes $6,555 of bulk land sales in 1998.
NOTE C - 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
profit in the accompanying consolidated statements of operations. Avatar has
recorded a trading account gain of $1,948 for the year ended December 31,1999.
Fair values for actively traded debt securities and equity securities are based
on quoted market prices on national markets. The fair value of the investment
portfolio was $15,547 at December 31, 1999 with an aggregate cost of $13,599. As
of December 31, 1999, the portfolio did not include any forward foreign exchange
contracts. As of March 9, 2000 the fair value of the investment portfolio was
$8,867.
NOTE D - CONTRACTS AND MORTGAGE NOTES RECEIVABLES
Contracts and mortgage notes receivables are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Contracts and mortgage notes receivable $15,669 $24,992
----------------- ----------------
Less:
Deferred gross profit 6,857 10,532
Other 1,127 723
----------------- ----------------
7,984 11,255
----------------- ----------------
$7,685 $13,737
================= ================
</TABLE>
Contracts and mortgage notes receivable were generated through the sale
of homesites at various sales offices located throughout the northeast, midwest
and west coast of the United States. A significant portion of the contracts and
mortgage notes receivable at December 31, 1999 resulted from sales made to
customers in the northeast.
Contracts receivable are collectible primarily over a ten year period
and bear interest at rates primarily ranging from 7 1/2% to 12% per annum
(weighted average rate 9.9%). Avatar generally requires that customers pledge
the homesites as collateral for contracts and mortgages receivable and such
collateral can be repossessed in the event of default. A contract receivable is
considered delinquent if the scheduled installment payment remains unpaid 30
days after its due date. Delinquent principal amounts of contracts and mortgage
36
<PAGE> 37
NOTE D - CONTRACTS AND MORTGAGE NOTES RECEIVABLES - continued
notes receivable at December 31, 1999 and 1998 were $2,827 or 17.84% and $3,542
or 14.17%, respectively. Estimated maturities for the five years subsequent to
1999 are 2000 - $4,551; 2001 - $3,346; 2002 - $2,678; 2003 - $2,135; and 2004 -
$1,551.
NOTE E - LAND AND OTHER INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C>
Land developed and in process of development $73,861 $100,414
Land held for future development or sale 33,784 31,027
Dwelling units completed or under construction 49,345 38,590
Other 483 524
------------------- --------------------
$157,473 $170,555
=================== ====================
</TABLE>
NOTE F - ESTIMATED DEVELOPMENT LIABILITY FOR SOLD LAND
The estimated cost to complete consists of required land and utilities
improvements in all areas designated for homesite sales and are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Gross unexpended costs (net of recoveries
of $3,329 in 1999 and $11,112 in 1998) $19,848 $11,613
Less costs relating to unsold homesites 1,243 2,942
-------------- --------------
Estimated development liability for sold land $18,605 $8,671
============== ==============
</TABLE>
These estimates are based on annual engineering studies of quantities
of work to be performed based on current estimated costs. These estimates are
evaluated and adjusted accordingly.
As a result of the Florida Utilities sale on April 15, 1999, Avatar
became obligated to expend approximately $8,500 to complete water and wastewater
utilities related to sold but unpiped homesites at the Poinciana subdivision. At
the time these homesites were sold Avatar recorded amounts due from purchasers
for the cost of utility improvements and classified these amounts as deferred
customer betterment fees. Accordingly, the Florida Utilities sale is the primary
cause for the increase in estimated development liability and a decrease in
deferred customer betterment fees as of December 31, 1999.
Expenditures, net of recoveries, for homesite improvement costs
totaling $18,605 are estimated as follows: 2000-$3,000 and thereafter-$15,605.
Because the timing of the expenditures after 2000 is dependent upon certain
future occurrences beyond Avatar's control, projection by year after 2000 is not
presently practicable.
37
<PAGE> 38
NOTE G - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1999 1998
----------------- --------------
<S> <C> <C>
Land and improvements $10,660 $12,215
Buildings and improvements 27,336 31,733
Machinery, equipment and fixtures 8,990 10,942
Construction in progress 19,408 -
----------------- --------------
66,394 54,890
Less accumulated depreciation 25,010 28,524
----------------- --------------
$41,384 $26,366
================= ==============
</TABLE>
Depreciation charged to operations during 1999, 1998 and 1997 was
$1,863, $2,470 and $2,346, respectively.
The increase in property, plant and equipment at December 31, 1999 as
compared to December 31, 1998 is due to the capital expenditures from the
development of Solivita's village center and golf course. Solivita is a
3,300-acre active adult community located within Avatar's central Florida
master-planned community of Poinciana. Partially mitigating the increase was the
sale of the operating property assets of the Cape Coral project located in
Florida.
Property, plant and equipment of discontinued operations include
$164,751 for the Florida utilities operations as of December 31, 1998.
Accumulated depreciation is $77,793 as of December 31, 1998. Amortization of
contributions and advances in aid of construction of $0, $4,658 and $4,559 was
incurred during 1999, 1998 and 1997, respectively.
NOTE H - NOTES, MORTGAGE NOTES AND OTHER DEBT
Notes, mortgage notes and other debt are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Corporate:
7% Convertible Subordinated Notes $112,367 $115,000
Bank credit lines -- 15,000
-------- --------
$112,367 $130,000
======== ========
Notes, collateralized by contracts and mortgage notes receivable:
Bank credit lines $ -- $ 9,060
======== ========
Real estate:
Mortgage note obligations, interest rates ranging from
8.25% to 9.25% $ -- $ 6,154
6% Note payable, due 2000 4,119 --
8% Note payable, due 2000 588 588
Note payable, non-interest bearing, due 2000-2002 2,394 2,380
Development and construction loans,
interest rates ranging from prime +1/2% to prime + 1 1/2% -- 9,371
-------- --------
$ 7,101 $ 18,493
======== ========
</TABLE>
38
<PAGE> 39
NOTE H - NOTES, MORTGAGE NOTES AND OTHER DEBT- continued
On February 2, 1998, Avatar 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 in part used to repay $33,000 aggregate principal amount
outstanding of 8% Senior Debentures due 2000 and 9% Senior Debentures due 2000.
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. During 1999, Avatar repurchased $2,633
principal amount of the Notes.
During the second quarter of 1999 Avatar repaid all unsecured and
secured lines of credit, exclusive of timeshare credit facilities which were
assumed by the buyer of the timeshare subsidiary on July 30, 1999.
Interest capitalized during 1999, 1998 and 1997 amounted to $1,257,
$1,000 and $3,199, respectively.
Maturities of notes, mortgage notes and other debt at December 31,
1999, are as follows:
<TABLE>
<CAPTION>
CORPORATE REAL ESTATE TOTAL
---------------- ----------------- -------------
<S> <C> <C> <C> <C>
2000 $ -- $ 5,801 $ 5,801
2001 -- 667 667
2002 -- 633 633
2003 -- -- --
2004 -- -- --
Thereafter 112,367 -- 112,367
---------------- ----------------- -------------
$ 112,367 $ 7,101 $119,468
================ ================= =============
</TABLE>
Included in notes, mortgage notes and other debt is a related party
note, payable to Brookman-Fels in installments commencing February 1, 1998 and
ending November 1, 2002. Under the agreement as amended in 1999, the payment
including interest, of $800 due November 1, 1999, was deferred and paid in
January 2000. The outstanding principal balance at December 31, 1999 was $2,394.
Notes, mortgage notes and other debt of discontinued operations at
December 31, 1998 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
VACATION OWNERSHIP
Notes, collateralized by contracts and mortgage notes receivable:
Bank credit lines $18,298
Construction and development loans,
interest rates at prime + 2-1/4% 3,647
---------------
$21,945
===============
FLORIDA UTILITIES:
Bank credit lines $2,719
Utilities first mortgage bonds due serially from
1999-2007, interest rates ranging from 7.79% to 9.19% 12,276
Utilities senior notes, 7.27% 18,000
Utilities promissory notes, interest rates ranging from 6.3% to
8.65% 6,224
---------------
$39,219
===============
</TABLE>
39
<PAGE> 40
NOTE I - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
As of December 31, 1999 and 1998, preferred stock outstanding of the
Florida Utilities (December 31, 1998 amounts are classified as Discontinued
Operations - see Note U) owned by minority interests is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
9% cumulative preferred stock $ -- $5,400
Other 27 72
--------------- ----------------
$ 27 $5,472
=============== ================
</TABLE>
The Florida Utilities subsidiary's 9% cumulative preferred stock
provided 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. In addition, during the second quarter
of 1999, after the sale of Florida Utilities, the remaining $3,600 of preferred
stock was redeemed. Charges to operations recorded as "Other Expenses" (see Note
U - Discontinued Operations) relating to preferred stock dividends of
subsidiaries amounted to $0 in 1999, $520 in 1998 and $681 in 1997.
NOTE J - RETIREMENT PLANS
Avatar has two defined contribution savings plans that cover
substantially all employees. Under one of the savings plans, Avatar contributes
to the plan based upon specified percentages of employees' voluntary
contributions. The other savings plan does not provide for contributions by
Avatar.
Avatar's non-contributory defined benefit pension plan covers
substantially all employees of its subsidiary, Avatar Utilities Inc. The
benefits are based on years of service and the employees' compensation during
the five highest years of earnings. Avatar's funding policy is to contribute
amounts to the plan sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974.
40
<PAGE> 41
NOTE J - RETIREMENT PLANS - continued
The following table sets forth the defined benefit plan's funded status
as of December 31, 1999, 1998 and 1997 and the retirement expense recognized in
the consolidated statements of operations for the years then ended.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $4,709, $4,073 and $3,832, respectively $ 4,771 $ 4,296 $ 3,942
======= ======= =======
Projected benefit obligation for services rendered to date $(5,430) $(4,972) $(4,574)
Plan assets at fair value 5,201 5,235 4,604
------- ------- -------
Projected benefit obligation less than plan assets (229) 263 30
Unrecognized net gain (91) (407) (271)
Prior service cost not yet recognized in net periodic pension cost 220 268 315
Unrecognized net assets at January 1, 1986, net of amortization (15) (29) (43)
------- ------- -------
Accrued pension cost included in accrued and other liabilities $ (115) $ 95 $ 31
======= ======= =======
Net retirement cost included the following components:
Defined benefit plan:
Service cost - benefits earned during the period $ 228 $ 200 $ 204
Interest cost on projected benefit obligation 370 333 307
Actual return on plan assets (176) (539) (423)
Net amortization and deferral (214) 200 122
------- ------- -------
Net pension cost 208 194 210
Defined contribution plan 126 121 125
------- ------- -------
Total retirement expense $ 334 $ 315 $ 335
======= ======= =======
Change in benefit obligations:
Projected benefit obligation at beginning of year $ 4,972 $ 4,574 $ 3,885
Service cost 228 200 204
Interest cost 370 333 307
Loss on benefit obligation 69 30 334
Benefits paid (209) (165) (156)
------- ------- -------
Projected benefit obligation at end of year $ 5,430 $ 4,972 $ 4,574
======= ======= =======
Change in plan assets:
Plan assets at beginning of year $ 5,235 $ 4,604 $ 4,060
Employer contributions -- 257 277
Return on plan assets 175 539 423
Benefits paid (209) (165) (156)
------- ------- -------
Plan assets at end of year $ 5,201 $ 5,235 $ 4,604
======= ======= =======
</TABLE>
The actuarial assumptions used in determining the present value of the
projected benefit obligation were: weighted average discount rate of 7.5% in
1999, 1998 and 1997, rate of increase in future compensation levels of 5% in
1999, 1998 and 1997, and expected long-term rate of return on plan assets of 8%
in 1999, 1998 and 1997.
Plan assets are invested in the general asset fund of a major insurance
company, which is composed primarily of fixed income securities, and a separate
account, which is composed of equity securities, public bonds or cash
equivalents.
41
<PAGE> 42
NOTE K - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
A utilities subsidiary of Avatar sponsors a defined non-contributory
benefit postretirement plan that provides medical and life insurance benefits to
both salaried and nonsalaried employees after retirement. Participants
contribute a portion of such benefits. The utilities' funding policy for its
postretirement plan is to fund on a pay-as-you-go basis.
The following table sets forth the plan's status as of December 31, 1999, 1998
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation ($1,808) ($3,243) ($2,908)
Plan assets at fair value -- -- --
------- ------- -------
Accumulated postretirement benefit obligation in excess of
plan assets (1,808) (3,243) (2,908)
Unrecognized net gain from past experience different from that
assumed and from changes in assumptions (3,479) (2,163) (2,320)
Unrecognized transition obligation 2,178 2,334 2,489
------- ------- -------
Accrued postretirement benefit cost
included in accrued and other liabilities ($3,109) ($3,072) ($2,739)
======= ======= =======
Net periodic postretirement benefit cost included the following components:
Service cost $ 125 $ 186 $ 170
Interest cost on accumulated postretirement
benefit obligation 128 228 205
Amortization of transition obligation over 20 years 155 155 155
Other (358) (200) (217)
------- ------- -------
Net periodic postretirement benefit cost $ 50 $ 369 $ 313
======= ======= =======
</TABLE>
For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits assumed for 1999, 1998 and 1997 was 8%, 6%
and 10%, respectively; the rate of increase was assumed to remain at 6% for the
year 2000 and thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing
(decreasing) the assumed health care cost trend rates by one percentage point
each year would increase (decrease) the accumulated postretirement benefit
obligation as of December 31, 1999 by $2,092 and ($1,577) and the aggregate of
the service and interest cost components of net periodic postretirement benefit
for the year then ended by $300 and ($216).
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for 1999, 1998 and 1997.
NOTE L - LEASE COMMITMENTS
Avatar leases the majority of its administration and sales offices
under operating leases that expire at varying times through 2009. Rental
expenses for the years 1999, 1998 and 1997 were $1,584, $1,747, and $2,089,
respectively. Minimum rental commitments under non-cancelable operating leases
as of December 31, 1999 were as follows: 2000 - $1,022; 2001 - $671; 2002 -
$629; 2003 - $630; 2004 -$630; thereafter $2,800.
42
<PAGE> 43
NOTE M - ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Property taxes $1,259 $4,662
Customer deposits and advances 16,401 14,734
Interest 2,398 2,258
Accrued treasury stock 9,708 --
Other 20,722 13,528
-------------- --------------
$50,488 $35,182
============== ==============
</TABLE>
As of December 31, 1999, certain incentive compensation agreements with
employees provided for a cash payment (to the extent vested), within ten days
following the respective fifth anniversary date (payment terms are subject to
renewal agreements) of the respective agreement (or the termination date, if
earlier), in an amount equal to the excess of a formula amount based upon the
closing prices of Avatar common stock during a specified period prior to the
respective fifth anniversary date (or termination date, if earlier) over the
closing price of Avatar common stock on the date of the respective agreement
(strike price). Each eligible employee will vest in the rights to this incentive
compensation with respect to one-fifth thereof in each of the first through
fifth anniversaries, subject to certain terms and conditions of the contracts
should their employment status change prior to the fifth anniversary. For the
years ended December 31, 1999, 1998 and 1997, the Company recorded incentive
compensation of $0, ($351) and ($471), respectively, associated with these
agreements. As of December 31, 1999, the closing price of Avatar common stock
was lower than the defined strike price. There is no liability for incentive
compensation included in other liabilities at December 31, 1999 and 1998.
NOTE N - STOCK OPTIONS
Avatar's 1997 Incentive and Capital Accumulation Plan (the "Incentive
Plan") was adopted by the Incentive Plan Committee (Committee), ratified by the
Board of Directors on February 13, 1997 and approved by the stockholders at the
Annual Meeting on May 29, 1997. The Incentive Plan makes available 425,000
shares of Avatar common stock subject to certain adjustments. On February 13,
1997 Avatar entered into a Nonqualified Stock Option Agreement (the Options)
with the Avatar's President and granted him an option to purchase 225,000 shares
of Avatar common stock at $34 per share (such price being in the judgment of the
Incentive Plan Committee not less than 100% of the then Fair Market Value as
defined in the Incentive Plan). The Options become exercisable with respect to
45,000 shares on February 13, 1998 and on each February 13 thereafter through
2002, and any unexercised portion of the Options will expire on February 13,
2007.
On February 19, 1999, Avatar entered into Nonqualified Stock Option
Agreements with certain members of management and granted them options to
purchase 160,000 shares of Avatar common stock at $25 per share (such price
being in the judgment of the Committee not less than 100% of the Fair Market
Value as defined in the Incentive Plan). The Options become exercisable at a
rate of 33 1/3% on February 19, 2000 and on each February 19 thereafter through
2002, and any unexercised portion of the Options will expire on February 19,
2009.
On April 9, 1999, Avatar entered into a Nonqualified Stock Option
Agreement with an individual who is now a former member of management, under
which agreement an option to purchase 30,000 shares of Avatar common stock at
$25 per share was granted (such price being in the judgment of the Committee not
less than 100% of the Fair Market Value as defined in the Incentive Plan). The
Options will become exercisable at a rate of 50% each on April 1, 2000 and 2001,
and any unexercised portion of the Options will expire on April 1, 2009.
43
<PAGE> 44
NOTE N - STOCK OPTIONS - continued
A summary of the status of the Incentive Plan as of December 31, 1999
and 1998 and changes during the years then ending is presented below:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
(000's) EXERCISE PRICE
1999 1998 1999 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 225 225 $34 $34
Granted 190 -- 25 --
Exercised -- -- -- --
Forfeited -- -- -- --
-------------------------- --------------------------
Outstanding at end of year 415 225 $30 $34
========================== ==========================
Exercisable at end of year 90 45
Weighted-average per share
fair value of options
granted during the year $8.42 $--
==========================
</TABLE>
Avatar applies APB 25 and related interpretations in accounting for the
Incentive Plan. No compensation expense was recognized in 1999 and 1998 because
all stock options granted have an exercise price greater than the average market
value of Avatar's stock on the date of grant. If Avatar had elected to account
for the Incentive Plan under Statement No. 123, compensation cost for the
Incentive Plan would have been determined based on the fair value at the grant
dates. The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
per share, fair value of options granted and assumptions:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE OF RISK-FREE EXPECTED DIVIDEND
DATE OF GRANT OPTIONS GRANTED INTEREST RATE VOLATILITY YIELD EXPECTED LIFE
- ---------------------- -------------------------- ----------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
February 1997 $16.59 6.38% 17.6% 0.0% 10 Years
February 1999 $8.49 5.06% 31.3% 0.0% 10 Years
April 1999 $8.06 5.27% 31.3% 0.0% 10 Years
</TABLE>
The following table summarizes pro forma income from continuing
operations, net income (loss) and earnings per share in accordance with
Statement No. 123 for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
1999 1998 1999 1998
--------------------------- --------------------------------
<S> <C> <C> <C> <C>
Loss from continuing operations ($1,030) ($17,720) ($2,260) ($18,467)
Net income (loss) $88,150 ($22,785) $86,920 ($23,532)
Basic and Diluted Per Share Data:
Loss from continuing operations ($0.11) ($1.93) ($0.25) ($2.01)
Net income (loss) $9.64 ($2.48) $9.50 ($2.57)
</TABLE>
44
<PAGE> 45
NOTE O - INCOME TAXES
Avatar anticipates that its 1999 consolidated federal income tax return
will reflect the utilization of $62,433 of net operating loss carryforward and
$3,637 of alternative minimum tax credit and investment tax credit carryforwards
from its 1998 consolidated federal income tax return. The Internal Revenue
Service has not examined these carryforwards.
Avatar has recorded a valuation allowance of $30,000 with respect to
the deferred income tax assets that remain after offset by the deferred income
tax liabilities. Included in the valuation allowance for deferred income tax
assets is approximately $3,300 which, if utilized, will be credited to
additional paid-in capital. During 1999, Avatar decreased the valuation
allowance by $29,000, which is primarily attributable to the full utilization of
the net operating loss carryover. Included in this valuation allowance was
$5,719, which was credited to additional paid in capital representing the
benefit of utilizing deferred income tax assets, which were generated in years
prior to re-organization on October 1, 1980.
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 deferred income tax assets and liabilities as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Deferred income tax assets
Net operating loss carryover $ -- $ 27,000
Tax over book basis of land inventory 25,000 31,000
Unrecoverable land development costs 1,000 3,000
Tax over book basis of depreciable assets 4,000 5,000
Alternative minimum tax and investment tax credit carryforward -- 4,000
Attributable to Discontinued Operations -- 4,000
Other 5,133 1,000
-------- --------
Total deferred income tax assets 35,133 75,000
Valuation allowance for deferred income tax assets (30,000) (59,000)
-------- --------
Deferred income tax assets after valuation allowance 5,133 16,000
Deferred income tax liabilities
Book over tax income recognized on homesite sales (1,000) (2,000)
Attributable to discontinued operations -- (14,000)
-------- --------
Total deferred income tax liabilities (1,000) (16,000)
-------- --------
Net deferred income taxes $ 4,133 $ --
======== ========
</TABLE>
45
<PAGE> 46
NOTE O - INCOME TAXES -- continued
A reconciliation of income tax expense (credit) before discontinued
operations to the expected income tax expense (credit) at the federal statutory
rate of 35%, 34% and 34% for the year ended December 31, 1999, 1998 and 1997,
respectively, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax expense (credit) computed
at statutory rate ($558) ($6,025) ($10,642)
Income tax effect of non-deductible dividends
on preferred stock of subsidiary -- 177 232
State income tax expense (credit), net of federal effect (52) (676) (1,207)
Other 47 524 (383)
Discontinued Operations and Extraordinary Items -- (2,000) 2,000
Change in valuation allowance on deferred tax assets -- 8,000 10,000
----- ------- --------
Income tax benefit ($563) $ -- $ --
===== ======= ========
</TABLE>
In years 1988 through 1998, Avatar elected the installment method for
recording a substantial amount of its homesite and vacation ownership sales in
its federal income tax return, which deferred taxable income into future fiscal
periods. As a result of this election, Avatar will be required to pay compound
interest on federal income taxes in 1999 attributable to the taxable income
deferred under the installment method to the extent that any of this deferred
income is realized in 1999. Avatar anticipates that the interest amount for 1999
will be approximately $930 net of tax benefits. This is a component of the tax
expense on the gain on sale of discontinued operations. Avatar made a $13,000
estimated tax payment during 1999.
NOTE P - 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.
46
<PAGE> 47
NOTE Q - 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 information for reportable segments for
the years ended December 31, 1999, 1998 and 1997:
FOR THE YEAR ENDED DECEMBER 31
----------------------------------
1999 1998 1997
---- ---- ----
REVENUES:
Segment revenues
Residential development $108,386 $ 73,230 $58,924
Active adult -- -- --
Resorts 10,725 13,591 13,787
Commercial and industrial 5,045 3,120 5,441
Rental, leasing, cable and
other real estate operations 5,757 5,171 5,163
All other 46,618 7,850 2,765
-------- -------- -------
176,531 102,962 86,080
Unallocated revenues
Deferred gross profit 3,320 4,263 3,998
Interest income 8,155 5,463 5,200
Trading account profit, net 1,948 -- 71
Other 736 794 667
-------- -------- -------
Total revenues $190,690 $113,482 $96,016
======== ======== =======
47
<PAGE> 48
NOTE Q - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - continued
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
OPERATING INCOME (LOSS):
Segment operating income (loss)
Residential development $ 14,129 $ 413 $ (4,314)
Active adult (3,409) (1,074) (150)
Resorts (106) (1,454) (1,853)
Commercial and industrial 3,798 1,863 4,810
Rental, leasing, cable and
other real estate operations 1,391 1,229 1,073
All other 5 4,022 406
-------- -------- --------
15,808 4,999 (28)
Unallocated income (expenses)
Deferred gross profit 3,320 4,263 3,998
Interest income 8,155 5,463 5,200
Trading account profit, net 1,948 -- 71
Real estate inventory write-down -- -- (14,667)
General and administrative expenses (11,900) (10,349) (8,756)
Interest expense (8,132) (11,115) (7,013)
Other (10,792) (10,981) (10,104)
-------- -------- --------
Loss from continuing operations $ (1,593) $(17,720) $(31,299)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS:
Segment assets
Residential development $72,371 $87,795
Active adult 51,144 19,710
Resorts 4,903 9,318
Commercial and industrial 11,844 14,081
Rental, leasing, cable and
other real estate operations 4,465 10,685
Discontinued assets -- 208,599
Unallocated assets 246,408 122,803
--------------- ---------------
Total assets $391,135 $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, sale of Cape Coral assets 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 $268, $59
and $285 from residential development, resorts and rental/leasing,
respectively. Included in segment profit/(loss) for 1998 is interest
expense of $932, $159 and $553 from residential development, resorts and
rental/leasing, respectively. Included in segment profit/(loss) for 1997 is
interest expense of $1,573, $152 and $495 from residential development,
resorts and rental/leasing, respectively.
48
<PAGE> 49
NOTE Q - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS - continued
(f) Included in operating profit/(loss) for 1999 is depreciation expense of
$195, $1,012, $507 and $149 from residential development, resorts,
rental/leasing and unallocated corporate, respectively. Included in
operating profit/(loss) for 1998 is depreciation expense of $256, $1,264,
$634 and $316 from residential development, resorts, rental/leasing and
unallocated corporate, respectively. Included in operating profit/(loss)
for 1997 is depreciation expense of $434, $1,248, $423 and $241 from
residential development, resorts, rental/leasing and unallocated corporate,
respectively.
NOTE R - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of Avatar's financial instruments,
all of which are held for purposes other than trading, except for investments in
marketable securities, at December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $143,259 $143,259 $ 32,521 $ 32,521
Restricted cash 3,552 3,552 5,232 5,232
Investment in marketable securities 15,547 15,547 -- --
Contracts and mortgage notes receivables, net 7,685 7,611 13,737 13,412
Other receivables, net 3,328 3,328 4,257 4,257
Notes, mortgage notes and other debt:
Corporate:
Short term bank credit lines -- -- 15,000 15,000
Convertible Subordinated Notes 112,367 97,057 115,000 94,875
-------- -------- -------- --------
Total corporate $112,367 $ 97,057 $130,000 $109,875
======== ======== ======== ========
Notes, collateralized by contracts and mortgage
notes receivable $ -- $ -- $ 9,060 $ 9,060
======== ======== ======== ========
Real estate:
Note payable $ 7,101 $ 6,761 $ 2,968 $ 2,587
Short term development and construction loans -- -- 2,804 2,804
Long term development and construction loans -- -- 12,721 $ 12,434
-------- -------- -------- --------
Total real estate $ 7,101 $ 6,761 $ 18,493 $ 17,825
======== ======== ======== ========
Discontinued Operations:
Cash and cash equivalents and restricted cash $ -- $ -- $ 773 $ 773
Contracts and mortgage notes receivables, net -- -- 22,861 22,903
Other receivables, net -- -- 4,278 4,278
Notes, collateralized by contracts and mortgage
notes receivable -- -- 18,298 18,346
Real estate -- -- 3,647 3,534
Utility short term bank credit lines -- -- 2,719 2,719
Utility mortgage obligations, first mortgage
bonds and promissory notes -- -- 36,500 34,262
</TABLE>
49
<PAGE> 50
NOTE R- FAIR VALUE OF FINANCIAL INSTRUMENTS - continued
Avatar, in estimating the fair value of financial instruments, used the
following methods and assumptions:
Cash and cash equivalents and restricted cash: The carrying amount reported
in the balance sheet for cash approximates its fair value.
Contracts and mortgage notes receivables: The fair value amounts of the
contracts, mortgage notes and other receivables are estimated based on a
discounted cash flow analysis.
Other receivables: The carrying amount reported in the balance sheet for
other receivables approximates its fair value.
Notes, mortgage notes and other debt: The carrying amounts of the
borrowings under its short term bank credit lines and short term development and
construction loans approximate their fair value. The fair values of mortgage
obligations, mortgage bonds and promissory notes are estimated using discounted
cash flow analysis based on the current incremental borrowing rates for similar
types of borrowing arrangements.
Convertible Subordinated Notes: At December 31, 1999, the fair values of
the notes are estimated based on quoted market prices.
50
<PAGE> 51
NOTE S - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 QUARTER
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenues $30,413 $76,579 $34,682 $49,016
Expenses 32,613 69,279 36,287 54,104
------------- -------------- --------------- ---------------
Income (loss) from continuing operations (2,200) 7,300 (1,605) (5,088)
Income tax expense (benefit) (795) 2,773 (617) (1,924)
Income (loss) from discontinued operations 808 93,464 (4,514) (578)
------------- -------------- --------------- ---------------
Net income (loss) ($597) $97,991 ($5,502) ($3,742)
============= ============== =============== ===============
Basic and Diluted EPS:
Net income (loss) ($0.06) $10.69 ($0.60) ($0.39)
============= ============== =============== ===============
1998 QUARTER
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------- -------------- -------------- ---------------
Net revenues $24,485 $27,781 $21,668 $39,548
Expenses 28,297 31,635 28,311 42,959
------------- -------------- -------------- ---------------
Loss from continuing operations (3,812) (3,854) (6,643) (3,411)
Income (loss) from discontinued operations 1,045 (392) 1,086 (4,496)
(Loss) on early extinguishment of debt (2,308) -- -- --
------------- -------------- -------------- ---------------
Net loss ($5,075) ($4,246) ($5,557) ($7,907)
============= ============== ============== ===============
Basic and Diluted EPS:
Net loss ($0.55) ($0.46) ($0.61) ($0.86)
============= ============== ============== ===============
</TABLE>
1) During the second quarter of 1999, Avatar closed on the sale of
substantially all of its real estate assets located in Cape Coral, Florida
for a pre-tax gain of $6,929.
2) During the second quarter of 1999, Avatar closed on the sale of
substantially all of the assets used in the Florida Utilities operations
for an after tax gain of $89,879.
3) During the fourth quarter of 1999, Avatar closed on the sale of 2,842 lots
in Rio Rico for a pre-tax loss of $6,947 and recorded an expense of $2,317
for cancelled delinquent contracts at Poinciana, Cape Coral, Rio Rico and
Leisure Lakes as these amounts were deemed uncollectible.
4) Avatar recorded $1,333 (net of income tax benefit of $817) estimated losses
on the disposal of the discontinued vacation ownership operations during
the second quarter of 1999. Avatar recorded $2,000 and $4,400 estimated
losses on the disposal of the discontinued vacation ownership operations
during the second and fourth quarters of 1998, respectively.
51
<PAGE> 52
NOTE T -DEVELOPMENTS
In accordance with plans to develop active adult communities, Avatar
acquired, on October 3, 1997, key executives, systems and software from Hilcoast
Development Corp. (Hilcoast), the developers of Century Village, in exchange for
75,000 shares of Avatar common stock. This acquisition was accounted for as a
purchase. The excess of the purchase price over the estimated fair value of the
acquired assets is being amortized using the straight-line method over 10 years.
Amortization of the excess purchase price was $281 for the years ended December
31, 1999 and 1998.
In order to expand its upscale homebuilding business, Avatar, on
December 4, 1997, entered into an asset purchase agreement to acquire certain
assets of Brookman-Fels, Jeff Ian, Inc. (Brookman-Fels), and employed, as
officers, the three partners, for an aggregate of $3,899 payable (including $885
of imputed interest) in installments commencing February 1, 1998 and ending
November 1, 2002. This acquisition was accounted for as a purchase. The excess
purchase price over the estimated fair value of the acquired assets is being
amortized using the straight-line method over 5 years. Amortization of the
excess purchase price was $630 for the years ended December 31, 1999 and 1998.
Brookman-Fels is a well-known regional developer of custom and semi-custom homes
and single-family residential communities in South Florida.
During 1997, a subsidiary entered into a joint venture and construction
management agreement with a subsidiary of Brookman-Fels for the development of
certain parcels at Harbor Islands. On June 1, 1998, Avatar paid $1,995 to
acquire certain assets from its joint venture partner at Harbor Islands, and the
joint venture and construction management agreements were modified whereby
Avatar's subsidiary receives a 6% construction management fee to manage
construction at Harbor Islands. The purchase price approximated the estimated
fair value of the acquired assets, therefore, no goodwill was recorded in
connection with this transaction. The purchase price is being expensed through
cost of real estate sales, using the straight-line method over 4 years. Avatar
expensed through cost of real estate sales $499 and $291 for the years ended
December 31, 1999 and 1998, respectively.
On June 1, 1998, a newly formed Avatar subsidiary and Brookman-Fels at
Presidential Estates formed a joint venture and an Avatar subsidiary entered
into a construction management agreement for Presidential Estates. Avatar's
subsidiary receives a 6% construction management fee to manage construction at
Presidential Estates. Avatar paid $588 for a 49% interest in the joint venture
and a 50% interest in the profits in the form of a promissory note, bearing
interest at an annual rate of 8%, payable, together with accrued interest, upon
the closing of agreed upon units.
52
<PAGE> 53
NOTE U - DISCONTINUED OPERATIONS
During 1997, Avatar developed a formal plan for the disposition of its
timeshare business. On July 30, 1999, Avatar closed on the sale of its timeshare
subsidiaries under a contract executed during the second quarter of 1999. The
net cash sales price was $3,497, subject to certain adjustments. Avatar revised
the estimate of the net realizable value of the discontinued operations based on
the July 30, 1999 closing and current business conditions. As a result, Avatar
recorded an estimated loss on the disposal of the timeshare operations of $2,150
and $6,400 for the year ended December 31, 1999 and 1998, respectively, less
income tax benefit of $817 and $0, respectively. 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 closed on the sale of
substantially all of the assets used in their Florida Utilities operations for a
cash sales price of $208,619 subject to certain adjustments. The sale
transaction resulted in a gain of $89,879, net of income tax expense of $13,309
that is classified in the accompanying consolidated statement of operations as a
gain from the sale of discontinued operations. For December 31, 1998 net assets
and liabilities of the Florida Utilities operations have been segregated from
the continuing operations in the accompanying balance sheets. Operating results
for the years ended December 31, 1999, 1998 and 1997 are segregated and reported
as discontinued operations in the accompanying consolidated statements of
operations and cash flows.
53
<PAGE> 54
NOTE U - DISCONTINUED OPERATIONS - continued
Consolidated operating results relating to the discontinued operations
for the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------
VACATION FLORIDA
OWNERSHIP UTILITIES TOTAL
-------------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Real estate sales $8,076 $ -- $8,076
Utilities revenues -- 18,343 18,343
Interest income 1,955 -- 1,955
Other 613 90 703
-------------------- ---------------- ----------------
Total revenues 10,644 18,433 29,077
EXPENSES
Real estate expenses 8,937 -- 8,937
Utilities expenses -- 15,778 15,778
Interest expense 1,527 1,102 2,629
Minority interest -- 440 440
-------------------- ---------------- ----------------
Total expenses 10,464 17,320 27,784
Income from discontinued operations
before income taxes 180 1,113 1,293
Income tax expense (benefit) 92 567 659
-------------------- ---------------- ----------------
Income from discontinued operations $88 $546 $634
==================== ================ ================
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
VACATION FLORIDA
OWNERSHIP UTILITIES TOTAL
-------------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Real estate sales $16,829 $ -- $16,829
Utilities revenues -- 34,594 34,594
Interest income 2,665 -- 2,665
Other 1,750 -- 1,750
-------------------- ---------------- ----------------
Total revenues 21,244 34,594 55,838
EXPENSES
Real estate expenses 20,432 -- 20,432
Utilities expenses -- 25,870 25,870
Interest expense 2,270 3,103 5,373
Minority interest -- 520 520
-------------------- ---------------- ----------------
Total expenses 22,702 29,493 52,195
-------------------- ---------------- ----------------
Income (loss) from discontinued operations ($1,458) $5,101 $3,643
==================== ================ ================
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
VACATION FLORIDA
OWNERSHIP UTILITIES TOTAL
-------------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUES
Real estate sales $12,094 $ -- $12,094
Utilities revenues -- 33,068 33,068
Interest income 1,799 -- 1,799
Other 707 -- 707
-------------------- ---------------- ----------------
Total revenues 14,600 33,068 47,668
EXPENSES
Real estate expenses 13,464 -- 13,464
Utilities expenses -- 24,527 24,527
Interest expense 1,251 3,435 4,686
Minority interest -- 681 681
-------------------- ---------------- ----------------
Total expenses 14,715 28,643 43,358
-------------------- ---------------- ----------------
Income (loss) from discontinued operations ($115) $4,425 $4,310
==================== ================ ================
</TABLE>
54
<PAGE> 55
NOTE U - DISCONTINUED OPERATIONS - continued
The net assets and liabilities of the discontinued operations included in the
accompanying balance sheets as of December 31, 1998 are as follows:
<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 receivables, 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>
55
<PAGE> 56
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Identification of Directors
The information called for in this item is incorporated by
reference to Avatar's 2000 definitive proxy statement (under
"Election of Directors") to be filed with the Securities and
Exchange Commission on or before April 28, 2000.
B. Identification of Executive Officers
For information with respect to the executive officers of
Avatar, see "Executive Officers of the Registrant" at the end
of Part I of this report.
C. Compliance with Section 16(a) of the Exchange Act
The information required by this item is incorporated by
reference to Avatar's 2000 definitive proxy statement (under
the caption "Section 16(a) Beneficial Ownership Reporting
Compliance"), to be filed with the Securities and Exchange
Commission on or before April 28, 2000.
Item 11. Executive Compensation
The information called for by this item is incorporated by reference to
Avatar's 2000 definitive proxy statement (under the caption "Executive
Compensation and Other Information") to be filed with the Securities and
Exchange Commission on or before April 28, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is incorporated by reference to
Avatar's 2000 definitive proxy statement (under the captions "Principal
Stockholders" and "Security Ownership of Management") to be filed with the
Securities and Exchange Commission on or before April 28, 2000.
Item 13. Certain Relationships and Related Transactions
The information called for by this item is incorporated by reference to
Avatar's 2000 definitive proxy statement (under the caption "Certain
Relationships and Related Transactions") to be filed with the Securities and
Exchange Commission on or before April 28, 2000.
56
<PAGE> 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
FINANCIAL STATEMENTS AND SCHEDULES:
See Item 8 "Financial Statements and Supplementary Data" on Page 26 of
this report.
SCHEDULES:
II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted, since the information
required is not applicable or is included in the financial statements or
notes thereto.
EXHIBITS:
2.1* Utility System Asset Acquisition Agreement, dated as of
April 1, 1999, by and between Florida Governmental Utility
Authority and Florida Cities Water Company and Poinciana
Utilities, Inc. (previously filed as Exhibit 2.1 to Form 8-K
as of April 15, 1999).
2.2* Addendum to Utility System Asset Acquisition Agreement
concerning the Fort Myers Utility System, dated as of April
1, 1999 (previously filed as Exhibit 2.2 to Form 8-K as of
April 15, 1999).
2.3* Assignment (of the Fort Myers Utility System to Lee
County), dated as of April 1, 1999, by and among Florida
Governmental Utility Authority; Board of County
Commissioners of Lee County, Florida; Florida Cities Water
Company; and Poinciana Utilities, Inc. (previously filed as
Exhibit 2.3 to Form 8-K as of April 15, 1999).
3(a)* Certificate of Incorporation, as amended and restated May
28, 1998 (previously filed as Exhibit 3(a) to the Form 10-Q
for the quarter ended June 30, 1998).
3(b)* By-laws, as amended and restated May 28, 1998 (previously
filed as Exhibit 3(b) to the Form 10-Q for the quarter ended
June 30, 1998).
4(a)* Instruments defining the rights of security holders,
including indenture for 8% senior debentures (previously
filed as Exhibit i to the Form 8-K dated as of September 12,
1980).
4(b)* Supplemental Indenture for 8% senior debentures dated as
of December 19, 1992 (previously filed as Exhibit 4(b) to
Form 10-K for the year ended December 31, 1992).
4(c)* Indenture for 9% senior debentures dated as of December
19, 1992 (previously filed as Exhibit 4(c) to Form 10-K for
the year ended December 31, 1992).
57
<PAGE> 58
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - continued
4(d)* Indenture, dated as of February 2, 1998, between Avatar
Holdings Inc. and The Chase Manhattan Bank, as Trustee, in
respect of 7% Convertible Subordinated Notes due 2005
(previously filed as Exhibit 4(d) to Form 10-K for the year
ended December 31, 1997).
10(a)*(1) Employment Agreement, dated as of June 15, 1992, by and
between Avatar Holdings Inc. and Edwin Jacobson (previously
filed as Exhibit 10(c) to Form 10-K for the year ended
December 31, 1992).
10(b)*(1) Amendment to Employment Agreement, dated as of March 1,
1994, by and between Avatar Holdings Inc. and Edwin
Jacobson (previously filed as Exhibit 10(d) on Form 10-K
for the year ended December 31, 1993).
10(c)*(1) Employment Agreement, dated as of July 27, 1995, by and
between Avatar Holdings Inc. and Edwin Jacobson (previously
filed as Exhibit 10(m) to Form 10-Q for the quarter ended
September 30, 1995).
10(d)*(1) Amendment to Employment Agreement, dated as of February 13,
1997, to Employment Agreement, dated as of June 15, 1992
(as amended as of March 1, 1994) and Employment Agreement,
dated as of July 27, 1995, by and between Avatar Holdings
Inc. and Edwin Jacobson (previously filed as Exhibit 10(f)
to the Form 10-K for the year ended December 31, 1996).
10(e)*(1) Employment Agreement, dated as of February 13, 1997, by and
between Avatar Holdings Inc. and Gerald D. Kelfer
(previously filed as Exhibit 10(g) to the Form 10-K for the
year ended December 31, 1996).
10(f)*(1) Nonqualified Stock Option Agreement, dated as of February
13, 1997, by and between Avatar Holdings Inc. and Gerald D.
Kelfer (previously filed as Exhibit 10(h) to the Form 10-K
for the year ended December 31, 1996).
10(g)*(1) Amendment to Employment Agreement, dated as of June 13,
1997, to Employment Agreement, dated as of July 27, 1995,
by and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(i) to the Form 10-Q for the
quarter ended June 30, 1997).
10(h)*(1) Avatar Holdings Inc. 1997 Incentive and Capital
Accumulation Plan (previously filed as Exhibit 10(k) to
Form 10-K for the year ended December 31, 1997).
10(i)* Registration Rights Agreement dated as of February 2,
1998, between Avatar Holdings Inc. and Leon Levy
(previously filed as Exhibit 10(l) to Form 10-K for the
year ended December 31, 1997).
10(j)*(1) Success Fee Agreement, dated December 7, 1998, by and
between Avatar Holdings Inc. and Gerald D. Kelfer
(previously filed as Exhibit 10(m) to Form 10-K for the
year ended December 31, 1998).
58
<PAGE> 59
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - continued
10(k)*(1) Employment Agreement, dated as of December 4, 1997, by and
between Avatar Properties Inc. and Jonathan Fels
(previously filed as Exhibit 10(n) to Form 10-K for the
year ended December 31, 1998).
10(l)*(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Properties Inc.
and Jonathan Fels (previously filed as Exhibit 10(o) to
Form 10-K for the year ended December 31, 1998).
10(m)*(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Jonathan
Fels (previously filed as Exhibit 10(p) to Form 10-K for
the year ended December 31, 1998).
10(n)*(1) Employment Agreement, dated as of December 4, 1997, by and
between Avatar Properties Inc. and Michael Levy (previously
filed as Exhibit 10(q) to Form 10-K for the year ended
December 31, 1998).
10(o)*(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Properties Inc.
and Michael Levy (previously filed as Exhibit 10(r) to Form
10-K for the year ended December 31, 1998).
10(p)*(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Michael
Levy (previously filed as Exhibit 10(s) to Form 10-K for
the year ended December 31, 1998).
10(q)*(1) Employment Agreement, dated as of October 6, 1997, by and
between Avatar Retirement Communities, Inc. and Michael S.
Rubin (previously filed as Exhibit 10(t) to Form 10-K for
the year ended December 31, 1998).
10(r)*(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Retirement
Communities, Inc. and Michael S. Rubin (previously filed as
Exhibit 10(u) to Form 10-K for the year ended December 31,
1998).
10(s)*(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Michael
S. Rubin (previously filed as Exhibit 10(v) to Form 10-K
for the year ended December 31, 1998).
10(t)*(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Dennis J.
Getman (previously filed as Exhibit 10(w) to Form 10-K for
the year ended December 31, 1998).
10(u)*(1) Amendment to Employment Agreement, dated as of March 25,
1999, to Employment Agreement, dated as of July 27, 1995,
by and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(x) to Form 10-K for the
year ended December 31, 1998).
59
<PAGE> 60
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - continued
10(v)*(1) Amended and Restated in 1997 Incentive and Capital
Accumulation Plan (previously filed as Exhibit 10(a) to
Form 10-Q for the quarter ended June 30, 1999).
10(w)*(1) Restricted Stock Unit Agreement, dated as of December 7,
1998, between Gerald D. Kelfer (previously filed as Exhibit
10(b) to Form 10-Q for the quarter ended June 30, 1999).
10(x)*(1) Employment agreement dated as of April 1, 1999 between
Avatar Holdings Inc. and Deborah G. Tomusko (previously
filed as Exhibit 10(c) to Form 10-Q for the quarter ended
June 30, 1999).
11 Computations of earnings per share (filed herewith).
21 Subsidiaries of Registrant (filed herewith).
27 Financial Data Schedule (filed herewith).
* These exhibits are incorporated by reference and are on file with the
Securities and Exchange Commission.
(1) Employment and Compensation agreements.
60
<PAGE> 61
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTION PERIOD
----------------- -------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Deducted from asset accounts:
Deferred gross profit on
homesite sales $10,532 ($3,320) (1) $355 (2) $6,857
Allowance for doubtful accounts 133 96 59 (2) 170
Market valuation account 13 -- 6 (3) 7
Valuation allowance for deferred
tax assets 59,000 -- 29,000 30,000
----------------- -------------------- --------------- -----------------
Total $69,678 ($3,224) $29,420 $37,034
================= ==================== =============== =================
Year ended December 31, 1998:
Deducted from asset accounts:
Deferred gross profit on
homesite sales $15,659 ($4,263) (1) $864 (2) $10,532
Allowance for doubtful accounts -- 133 -- (2) 133
Market valuation account 43 -- 30 (3) 13
Valuation allowance for deferred
tax assets 51,000 8,000 -- 59,000
----------------- -------------------- --------------- -----------------
Total $66,702 $3,870 $894 $69,678
================= ==================== =============== =================
Year ended December 31, 1997:
Deducted from asset accounts:
Deferred gross profit on
homesite sales $21,878 ($3,998) (1) $2,221 (2) $15,659
Allowance for doubtful accounts 179 160 339 (2) -
Market valuation account 133 -- 90 (3) 43
Valuation allowance for deferred
tax assets 41,000 10,000 -- 51,000
----------------- -------------------- --------------- -----------------
Total $63,190 $6,162 $2,650 $66,702
================= ==================== =============== =================
</TABLE>
(1) (Credit) charge to operations as an (increase) decrease to revenues.
(2) Uncollectible accounts written off.
(3) Credited principally to interest income or allowance for doubtful accounts
upon write-off of uncollectible accounts.
61
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AVATAR HOLDINGS INC.
DATED: MARCH 23, 2000 By: /s/ Charles L. McNairy
- --------------------- ------------------------------------
Charles L. McNairy, Executive
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
DATED: MARCH 23, 2000 By: /s/ Gerald D. Kelfer
- --------------------- ------------------------------------
Gerald D. Kelfer, Director, President,
Vice Chairman of the Board of
Directors, Chief Executive Officer and
Chairman of the Executive Committee
DATED: MARCH 23, 2000 By: /s/ Lawrence R. Sherry
- --------------------- ------------------------------------
Lawrence R. Sherry, Executive Vice
President and Chief Financial Officer
DATED: MARCH 23, 2000 By: /s/ Michael P. Rama
- --------------------- ------------------------------------
Michael P. Rama, Chief Accounting
Officer
DATED: MARCH 23, 2000 By: /s/ Milton Dresner
- --------------------- ------------------------------------
Milton Dresner, Director and
Audit Committee Member
DATED: MARCH 23, 2000 By: /s/ Leon Levy
- --------------------- ------------------------------------
Leon Levy, Chairman of the Board of
Directors and Executive Committee
Member
DATED: MARCH 23, 2000 By: /s/ Martin Meyerson
- --------------------- ------------------------------------
Martin Meyerson, Director and
Audit Committee Member
DATED: MARCH 23, 2000 By: /s/ Gernot H. Reiners
- --------------------- ------------------------------------
Gernot H. Reiners, Director
DATED: MARCH 23, 2000 By: /s/ Kenneth T. Rosen
- --------------------- ------------------------------------
Kenneth T. Rosen, Director and Chairman of
the Audit Committee
</TABLE>
62
<PAGE> 63
<TABLE>
<CAPTION>
<S> <C>
DATED: MARCH 23, 2000 By: /s/ Fred Stanton Smith
- --------------------- ------------------------------------
Fred Stanton Smith, Director, Executive
Committee Member and Audit Committee Member
DATED: MARCH 23, 2000 By: /s/ William G. Spears
- --------------------- ------------------------------------
William G. Spears, Director
DATED: MARCH 23, 2000 By: /s/ Henry King Stanford
- --------------------- ------------------------------------
Henry King Stanford, Director
</TABLE>
63
<PAGE> 64
EXHIBIT INDEX
* These exhibits are incorporated by reference and are on file with the
Securities and Exchange Commission.
(1) Employment and Compensation agreements.
2.1* Utility System Asset Acquisition Agreement, dated as of
April 1, 1999, by and between Florida Governmental Utility
Authority and Florida Cities Water Company and Poinciana
Utilities, Inc. (previously filed as Exhibit 2.1 to the Form
8-K dated as of April 15, 1999).
2.2* Addendum to Utility System Asset Acquisition Agreement
concerning the Fort Myers Utility System, dated as of April
1, 1999 (previously filed as Exhibit 2.2 to the Form 8-K
dated as of April 15, 1999).
2.3* Assignment (of the Fort Myers Utility System to Lee County),
dated as of April 1, 1999, by and among Florida Governmental
Utility Authority; Board of County Commissioners of Lee
County, Florida; Florida Cities Water Company; and Poinciana
Utilities, Inc. (previously filed as Exhibit 2.3 to the Form
8-K dated as of April 15, 1999).
3(a)* Certificate of Incorporation, as amended and restated May
28, 1998 (previously filed as Exhibit 3(a) to the Form 10-Q
for the quarter ended June 30, 1998).
3(b)* By-laws, as amended and restated May 28, 1998 (previously
filed as Exhibit 3(b) to the Form 10-Q for the quarter ended
June 30, 1998).
4(a)* Instruments defining the rights of security holders,
including indenture for 8% senior debentures (previously
filed as Exhibit i to the Form 8-K dated as of September 12,
1980).
4(b)* Supplemental Indenture for 8% senior debentures dated as of
December 19, 1992 (previously filed as Exhibit 4(b) to Form
10-K for the year ended December 31, 1992).
4(c)* Indenture for 9% senior debentures dated as of December 19,
1992 (previously filed as Exhibit 4(c) to Form 10-K for the
year ended December 31, 1992).
4(d)* Indenture, dated as of February 2, 1998, between Avatar
Holdings Inc. and The Chase Manhattan Bank, as Trustee, in
respect of 7% Convertible Subordinated Notes due 2005
(previously filed as Exhibit 4(d) to Form 10-K for the year
ended December 31, 1997).
10(a)*(1) Employment Agreement, dated as of June 15, 1992, by and
between Avatar Holdings Inc. and Edwin Jacobson (previously
filed as Exhibit 10(c) to Form 10-K for the year ended
December 31, 1992).
10(b)*(1) Amendment to Employment Agreement, dated as of March 1,
1994, by and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(d) on Form 10-K for the year
ended December 31, 1993).
10(c)*(1) Employment Agreement, dated as of July 27, 1995, by and
between Avatar Holdings Inc. and Edwin Jacobson (previously
filed as Exhibit 10(m) to Form 10-Q for the quarter ended
September 30, 1995).
64
<PAGE> 65
Exhibits Index - continued.
10(d)*(1) Amendment to Employment Agreement, dated as of February 13,
1997, to Employment Agreement, dated as of June 15, 1992 (as
amended as of March 1, 1994) and Employment Agreement, dated
as of July 27, 1995, by and between Avatar Holdings Inc. and
Edwin Jacobson (previously filed as Exhibit 10(f) to the
Form 10-K for the year ended December 31, 1996).
10(e)*(1) Employment Agreement, dated as of February 13, 1997, by and
between Avatar Holdings Inc. and Gerald D. Kelfer
(previously filed as Exhibit 10(g) to the Form 10-K for the
year ended December 31, 1996).
10(f)*(1) Nonqualified Stock Option Agreement, dated as of February
13, 1997, by and between Avatar Holdings Inc. and Gerald D.
Kelfer (previously filed as Exhibit 10(h) to the Form 10-K
for the year ended December 31, 1996).
10(g)*(1) Amendment to Employment Agreement, dated as of June 13,
1997, to Employment Agreement, dated as of July 27, 1995, by
and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(i) to the Form 10-Q for the
quarter ended June 30, 1997).
10(h)*(1) Avatar Holdings Inc. 1997 Incentive and Capital Accumulation
Plan (previously filed as Exhibit 10(k) to Form 10-K for the
year ended December 31, 1997).
10(i)* Registration Rights Agreement dated as of February 2, 1998,
between Avatar Holdings Inc. and Leon Levy (previously filed
as Exhibit 10(l) to Form 10-K for the year ended December
31, 1997).
10(j)*(1) Success Fee Agreement, dated December 7, 1998, by and
between Avatar Holdings Inc. and Gerald D. Kelfer
(previously filed as Exhibit 10(m) to Form 10-K for the year
ended December 31, 1998).
10(k)*(1) Employment Agreement, dated as of December 4, 1997, by and
between Avatar Properties Inc. and Jonathan Fels (previously
filed as Exhibit 10(n) to Form 10-K for the year ended
December 31, 1998).
10(l)*(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Properties Inc. and
Jonathan Fels (previously filed as Exhibit 10(o) to Form
10-K for the year ended December 31, 1998).
10(m)*(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Jonathan
Fels (previously filed as Exhibit 10(p) to Form 10-K for the
year ended December 31, 1998).
10(n)*(1) Employment Agreement, dated as of December 4, 1997, by and
between Avatar Properties Inc. and Michael Levy (previously
filed as Exhibit 10(q) to Form 10-K for the year ended
December 31, 1998).
65
<PAGE> 66
Exhibits Index - continued.
10(o)*(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Properties Inc. and
Michael Levy (previously filed as Exhibit 10(r) to Form 10-K
for the year ended December 31, 1998).
10(p)*(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Michael
Levy (previously filed as Exhibit 10(s) to Form 10-K for the
year ended December 31, 1998).
10(q)*(1) Employment Agreement, dated as of October 6, 1997, by and
between Avatar Retirement Communities, Inc. and Michael S.
Rubin (previously filed as Exhibit 10(t) to Form 10-K for
the year ended December 31, 1998).
10(r)*(1) First Amendment to Employment Agreement, dated as of
February 15, 1999, by and between Avatar Retirement
Communities, Inc. and Michael S. Rubin (previously filed as
Exhibit 10(u) to form 10-K for the year ended December 31,
1998).
10(s)*(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Michael S.
Rubin (previously filed as Exhibit 10(v) to Form 10-K for
the year ended December 31, 1998).
10(t)*(1) Nonqualified Stock Option Agreement, dated as of February
19, 1999, by and between Avatar Holdings Inc. and Dennis J.
Getman (previously filed as Exhibit 10(w) to Form 10-K for
the year ended December 31, 1998).
10(u)*(1) Amendment to Employment Agreement, dated as of March 25,
1999, to Employment Agreement, dated as of July 27, 1995, by
and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as Exhibit 10(x) to Form 10-K for the year
ended December 31, 1998).
10(v)*(1) Amended and Restated in 1997 Incentive and Capital
Accumulation Plan (previously filed as Exhibit 10(a) to Form
10-Q for the quarter ended June 30, 1999).
10(w)*(1) Restricted Stock Unit Agreement, dated as of December 7,
1998, between Gerald D. Kelfer (previously filed as Exhibit
10(b) to Form 10-Q for the quarter ended June 30, 1999).
10(x)*(1) Employment agreement dated as of April 1, 1999 between
Avatar Holdings Inc. and Deborah G. Tomusko (previously
filed as Exhibit 10(c) to Form 10-Q for the quarter ended
June 30, 1999).
11 Computations of earnings per share (filed herewith).
21 Subsidiaries of Registrant (filed herewith).
27 Financial Data Schedule (filed herewith).
66
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------- ------------ -----------
<S> <C> <C> <C>
BASIC
Loss from continuing operations after income taxes (1,030) (17,720) (31,299)
Income from discontinued operations 634 3,643 4,310
Gain from sale of discontinued operations 89,879 -- --
Estimated loss on disposal (1,333) (6,400) --
Loss from extraordinary item -- (2,308) --
------------- ------------ -----------
Net income (loss) 88,150 (22,785) (26,989)
============= ============ ===========
Shares:
Weighted average number of
common shares outstanding 9,144,931 9,170,102 9,113,595
============= ============ ===========
Basic earnings per common share:
Loss from continuing operations after income taxes ($0.11) ($1.93) ($3.43)
Income from discontinued operations $0.07 $0.40 $0.47
Gain from sale of discontinued operations $9.83 -- --
Estimated loss on disposal ($0.15) ($0.70) --
Loss from extraordinary item $0.00 ($0.25) --
------------- ------------ -----------
Net income (loss) $9.64 ($2.48) ($2.96)
============= ============ ===========
DILUTED
Loss from continuing operations after income taxes (1,030) (17,720) (31,299)
Income from discontinued operations 634 3,643 4,310
Gain from sale of discontinued operations 89,879 -- --
Estimated loss on disposal (1,333) (6,400) --
Loss from extraordinary item -- (2,308) --
------------- ------------ -----------
Net income (loss) 88,150 (22,785) (26,989)
============= ============ ===========
Shares:
Weighted average number of
common shares outstanding 9,144,931 9,170,102 9,113,595
============= ============ ============
Diluted earnings per common share:
Loss from continuing operations after income taxes ($0.11) ($1.93) ($3.43)
Income from discontinued operations $0.07 $0.40 $0.47
Gain from sale of discontinued operations $9.83 -- --
Estimated loss on disposal ($0.15) ($0.70) --
Loss from extraordinary item $0.00 ($0.25) --
------------- ------------ ------------
Net income (loss) $9.64 ($2.48) ($2.96)
============= ============ ============
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Unless otherwise indicated, Avatar owns, directly or through a
subsidiary, all of the outstanding capital stock of each of the below listed
active subsidiaries.
NAME STATE OF INCORPORATION
- ---- ----------------------
American Cablevision Services, Inc. Florida
Avatar Properties Inc. Florida
Avatar Communities, Inc. Florida
Avatar Finance, Inc. Delaware
Avatar New Homes of Florida, Inc. Florida
Avatar Presidential Estates, Inc. Florida
Avatar Realty Inc. Delaware
Avatar Condominium Management Inc. Florida
Avatar Asset Management, Inc. Florida
Avatar Development Corporation Florida
Avatar Harbor Islands, Inc. Florida
Harbor Islands Clubs, Inc. Florida
Harbor Islands Community Management, Inc. Florida
Harbor Islands Community Services, Inc. Florida
Harbor Islands Realty, Inc. Florida
Avatar Realty of Arizona, Inc. Arizona
Brookman-Fels Construction Management, Inc. Florida
Dorten, Inc. Florida
GACL, Inc. of California California
Mulholland Hills Associates California (1)
Optimum Environments Inc. California
Barefoot Bay Corporation Florida
Barefoot Bay Development Corporation Florida
Cape Coral Development Corporation Florida
Cape Coral Realty, Inc. Florida
Lee Investment Company, Inc. Florida
Poinciana Golf and Racquet Club, Inc. Florida
Poinciana New Township, Inc. Florida
Avatar Poinciana, Inc. Florida
Prominent Title Insurance Agency, Inc. Florida
Rio Rico Properties Inc. Florida
Avatar Homes of Arizona, Inc. Arizona
Rio Rico Golf and Country Club Arizona
Rio Rico Properties at Kino Springs, Inc. Arizona
Rio Rico Resort Hotel, Inc. Arizona
Rio Rico Realty, Inc. Arizona
Avatar Retirement Communities. Inc. Delaware
Solivita at Poinciana, Inc. Florida
Solivita at Poinciana Food and Beverage, Inc. Florida
Solivita at Poinciana Golf Club, Inc. Florida
Solivita at Poinciana Recreation, Inc. Florida
Solivita Realty, Inc. Florida
<PAGE> 2
Exhibit 21 - Subsidiaries of Registrant - continued
Avatar Utilities Inc. Delaware (2)
Avatar Utility Services, Inc. Florida
Utility Services Group Inc. Florida
Poinciana Utilities Inc. Florida
Barefoot Bay Propane Gas Company Florida
Consolidated Water Company Delaware (3)
FCWC Holdings, Inc. Delaware (4)
Florida Cities Water Company Florida
Brookman-Fels Communities, Inc. Delaware
Rio Rico Utilities Inc. Arizona
Notes to Exhibit 21 - Subsidiaries of Registrant:
(1) Partnership owned 99% by GACL, Inc. of California and 1% by Lee Investment
Company, Inc.
(2) Avatar Utilities Inc. owns over 99% of the outstanding shares of common
stock of Consolidated Water Company.
(3) Consolidated Water Company owns all outstanding common stock of FCWC
Holdings, Inc.
(4) FCWC Holdings, Inc. owns all of the common stock of Florida Cities Water
Company.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 146,811
<SECURITIES> 15,547
<RECEIVABLES> 15,669
<ALLOWANCES> 7,984
<INVENTORY> 157,473
<CURRENT-ASSETS> 0
<PP&E> 41,384
<DEPRECIATION> 0
<TOTAL-ASSETS> 391,135<F1>
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 119,468
0
0
<COMMON> 9,170
<OTHER-SE> (12,549)
<TOTAL-LIABILITY-AND-EQUITY> 391,135
<SALES> 175,382
<TOTAL-REVENUES> 190,690
<CGS> 170,344
<TOTAL-COSTS> 192,283
<OTHER-EXPENSES> 13,195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,744
<INCOME-PRETAX> (1,593)
<INCOME-TAX> 563
<INCOME-CONTINUING> (1,030)
<DISCONTINUED> 89,180
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,150
<EPS-BASIC> 9.64
<EPS-DILUTED> 9.64
<FN>
<F1>Total Current Assets and Total Current Liabilities are not applicable
because Registrant does not present a classified balance sheet.
</FN>
</TABLE>
