QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from
________ to ________
Commission file number 0-7616
I.R.S. Employer Identification Number 23-1739078
Avatar Holdings Inc.
(a Delaware Corporation)
255 Alhambra Circle
Coral Gables, Florida 33134
(305) 442-7000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
9,095,102 shares of the Company's common stock ($1.00 par value)
were outstanding as of April 30, 1994.
1 of 15
AVATAR HOLDINGS INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets --
March 31, 1994 and December 31, 1993............. 3
Consolidated Statements of Operations --
Three months ended March 31, 1994 and 1993....... 4
Consolidated Statements of Cash Flows --
Three months ended March 31, 1994 and 1993....... 5
Notes to Consolidated Financial Statements......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K......... 15
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
March 31, December 31,
---------- -----------
1994 1993
----- ----
Assets
------
Cash $7,247 $7,178
Restricted cash 1,616 1,442
Investments 51,713 51,184
Contracts, mortgage notes and other receivables, net 79,499 82,996
Land and other inventories 118,554 117,557
Property, plant and equipment, net 179,855 178,940
Other assets 16,241 15,460
Regulatory assets 7,437 7,437
-------- --------
Total assets $462,162 $462,194
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Notes, mortgage notes and other debt:
Real estate and corporate $95,820 $96,768
Utilities 38,764 38,789
Estimated development liability for sold land 19,825 19,331
Accrued and other liabilities 30,214 27,558
Deferred customer betterment fees 19,493 19,537
Minority interest in consolidated subsidiaries 9,059 9,058
Regulatory liabilities 4,526 4,447
-------- --------
Total liabilities 217,701 215,488
Commitments and contingent liabilities
Contributions in aid of construction 62,936 63,334
Stockholders' Equity, net 181,525 183,372
-------- --------
Total Liabilities and Stockholders' Equity $462,162 $462,194
======== ========
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See notes to consolidated financial statements.
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands except per share data)
For the Three Months Ended March 31,
-------------------------------------
1994 1993
----- -----
Revenues:
Real estate sales $11,526 $11,375
Deferred gross profit (804) (766)
Utility revenues 7,288 13,823
Interest income 2,836 3,516
Trading account profit (net) 477 -
Other 124 45
------- ------
Total revenues 21,447 27,993
Expenses:
---------
Real estate expenses 11,703 11,095
Utility expenses 5,659 9,685
General and administrative expenses 2,318 2,082
Interest expense 3,155 4,452
Other 204 359
------- -------
Total expenses 23,039 27,673
------- -------
(Loss) income before income taxes and
cumulative effect of change in method
of accounting for income taxes (1,592) 320
Provision for income taxes 255 396
-------- --------
Loss before cumulative effect
of change in method of accounting for
income taxes (1,847) (76)
Cumulative effect of change in method of
accounting for income taxes - (964)
--------- --------
Net loss ($1,847) ($1,040)
========= ========
Per share amounts:
Primary
Loss before cumulative effect of change
in method of accounting for income taxes ($.20) ($.01)
Cumulative effect of change in method
of accounting for income taxes - (.13)
-------- --------
Net loss ($.20) ($.14)
======== ========
Fully Diluted
Loss before cumulative effect of change
in method of accounting for income taxes ($.20) ($.01)
Cumulative effect of change in method
of accounting for income taxes - (.13)
-------- --------
Net loss ($.20) ($.14)
======== ========
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See notes to consolidated financial statements.
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
For the three months ended March 31,
------------------------------------
1994 1993
OPERATING ACTIVITIES ---- ----
- - --------------------
Net loss ($1,847) ($1,040)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 2,016 1,855
Deferred gross profit 804 766
Deferred income taxes - 234
Cost of sales not requiring cash 521 502
Cumulative effect of change in method of accounting
for income taxes - 964
Trading account profit (529) -
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash (174) 231
Principal payments on contracts receivable 6,535 4,753
Increase in receivables (3,841) (2,411)
(Increase) decrease in other receivables (1) 1,349
Increase in inventories (1,024) (939)
Increase in other assets (781) (2,220)
Increase in accrued and other liabilities 2,691 1,489
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,370 5,533
INVESTING ACTIVITIES
- - --------------------
Investment in property, plant, and equipment (3,329) (1,229)
Investment in marketable securities - (50)
Proceeds from the sale of marketable securities - 14,813
------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (3,329) 13,534
FINANCING ACTIVITIES
- - --------------------
Net proceeds from revolving lines of credit
and long-term borrowings 3,272 12,614
Principal payments on revolving lines of credit and
long-term borrowings (4,244) (21,714)
Net proceeds from issuance of common stock in conjunction
with the redemption/conversion of 5 1/4% debentures - 3
------- -------
NET CASH USED IN FINANCING ACTIVITIES (972) (9,097)
------- -------
INCREASE IN CASH 69 9,970
Cash at beginning of period 7,178 2,644
------- -------
CASH AT END OF PERIOD $7,247 $12,614
======= =======
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See notes to consolidated financial statements.
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows -- continued
(Unaudited)
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the three months ended
March 31,
Cash paid during the period for: 1994 1993
----- ------
Interest $1,063 $3,804
====== =======
Income taxes - $85
====== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
1994 1993
----- -----
Contributions in aid of construction $45 $779
===== =====
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See notes to consolidated financial statements.
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands)
For a complete description of the Company's other accounting policies, refer to Avatar Holdings Inc.'s 1993 Annual Report and the notes to Avatar's consolidated financial statements included therein.
For the three months ended March 31, 1993 net income per common share is computed on the basis of the weighted average number of shares outstanding plus common stock equivalents, if any, that would result from the dilutive effect of the assumed conversion (and associated purchase) of the 5 1/4% convertible- purchase subordinated debentures. These common stock equivalents were anti-dilutive for the three months ended March 31, 1993.
Average common shares outstanding for the three months ended March 31, 1994 and 1993 totaled 9,095,102 and 7,406,610, respectively.
Investments at March 31, 1994 includes $21,195 invested in corporate bonds rated B- or above by Moody's and/or Standard and Poor's and $14,076 invested in non-rated bonds of companies which are in bankruptcy and have defaulted as to payments of principal and interest on such bonds. The non-rated bonds are thinly traded and may require sixty to ninety days to liquidate. The portfolio also includes an unsecured claim on a company in bankruptcy of $6,290 which is not readily marketable, $3,994 of equity securities, $2,940 of money market accounts and $3,218 of U.S. Government and Agency securities.
Investments at December 31, 1993 includes $20,045 invested in corporate bonds rated B- or above by Moody's and/or Standard and Poor's and $12,775 invested in non-rated bonds of companies which are in bankruptcy and have defaulted as to payments of principal and interest on such bonds. The non-rated bonds are thinly traded and may require sixty to ninety days to liquidate. The portfolio also includes an unsecured claim on a company in bankruptcy of $5,689 which is not readily marketable, $7,020 of equity securities, $1,661 of money market accounts and $3,994 of U.S. Government and Agency securities.
Fair values for actively traded debt securities and equity securities are based on quoted market prices on national markets. Fair values for thinly traded investment securities are generally based on prices quoted by investment brokerage companies.
March 31, December 31,
1994 1993
--------- -----------
Contracts and mortgage notes receivable $113,196 $117,249
Notes and other receivables 5,519 5,639
-------- --------
118,715 122,888
-------- --------
Less:
Allowance for doubtful accounts 2,226 2,631
Market valuation reserve 1,863 2,082
Deferred gross profit 31,447 31,969
Other 3,680 3,210
-------- --------
39,216 39,892
-------- --------
$79,499 $82,996
======== ========
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March 31, December 31,
1994 1993
--------- -----------
Land developed and in process of development $77,245 $76,145
Land held for future development or sale 37,632 37,478
Dwelling units completed or under construction 2,212 2,407
Other 1,465 1,527
-------- --------
$118,554 $117,557
======== ========
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March 31, December 31,
1994 1993
--------- -----------
9% Cumulative preferred stock $9,000 $9,000
Other 59 58
------ ------
$9,059 $9,058
====== ======
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Avatar's utility subsidiary's 9% cumulative preferred stock provides for redemption to occur no earlier than March 1, 1997, in whole or in part; however, a minimum of $1,800 of the preferred stock must be redeemed per annum beginning in 1997. A redemption of all outstanding shares shall occur no later than March 1, 2001.
Charges to operations recorded as "Other expenses" relating to preferred stock dividends of subsidiaries for the three months ended March 31, 1994 and 1993 amounted to $204 and $359, respectively.
Deferred income tax assets
Net operating loss carryover $7,000
Tax over book basis of land inventory 21,000
Unrecoverable land development costs 5,000
Tax over book basis of depreciable assets 5,000
Alternative minimum tax and investment tax credit carryforward 5,000
Other 3,000
------
Total deferred income taxes 46,000
Valuation allowance for deferred income tax assets (34,000)
-------
Deferred income tax assets after valuation allowance 12,000
Deferred income tax liabilities
Book over tax income recognized on land sales (3,000)
Deferred carrying charges on utility plant (3,000)
Other (6,000)
-------
Total deferred income tax liabilities (12,000)
-------
Net deferred income taxes $0
=======
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The provision for income taxes for the three months ended March 31, 1994 and 1993 consists of the following:
Three months ended March 31,
1994 1993
---------------------------
Federal:
Current $255 $40
Deferred - 234
---- ---
255 274
State:
Current - 122
Deferred - -
---- ----
Total $255 $396
==== ====
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1994 1993
---- ----
Income tax expense ( credit) computed
at statutory rate ($541) $109
Income tax effect of non-deductible dividends
on preferred stock of subsidiary 69 122
State income tax (credit), net of federal effect (53) 27
Gross up tax received on contributions
in aid of construction 13 -
Federal and state taxes of unconsolidated
subsidiary in excess of amount computed
at statutory rate - 138
Change in valuation allowance on deferred tax assets 767 -
----- ----
Provision for income taxes $255 $396
===== ====
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On October 1, 1993, the United States, on behalf of the U.S. Environmental Protection Agency, filed a civil action against a utility subsidiary of Avatar in the U.S. District Court for the Middle District of Florida. (United States vs. Florida Cities Water Company, Civil Action No. 93-281-C1) The complaint alleges that the subsidiary's wastewater treatment plant in North Fort Myers, Florida, committed various violations of the Clean Water Act, 33 U.S.C. Sect. 1251 et seq., including (1) discharge of pollutants without an operating permit from October 1, 1988 to October 31, 1989; (2) discharging from an unpermitted discharge location from November 1, 1989 until July 14, 1992; and (3) discharging pollutants in excess of permit limitations at various times from July 1991 to June of 1992. The government is seeking the statutory maximum civil penalties of $25 per day, per violation based upon the allegations. The subsidiary strongly believes that there are mitigating facts as well as valid legal defenses that could reduce or eliminate the imposition of monetary sanctions.
On March 1, 1994, the Wisconsin Department of Natural Resources (the "Department") sent Avatar notice that the Department had recently issued a second Record of Decision ("ROD") in connection with the Edgerton Sand & Gravel Landfill site (the "Site"). The ROD calls for the City of Edgerton's public water supply system to be extended to the owners of private wells in the vicinity of the Site. The ROD also states that other work related to soil and groundwater remedial action would be required at the Site. The Department demanded that all potentially responsible parties ("PRPs) associated with the Site organize into a PRP group to undertake the implementation of the ROD. Avatar was previously identified as a PRP by the Department. Avatar believes that it is not liable for any claims by any governmental or private party in connection with the Site.
On February 25, 1994, Avatar's former president and chief executive officer commenced a lawsuit against the Company and certain other persons seeking damages arising from the termination of his employment with the Company and other events. Avatar has denied any liability in connection with such lawsuit and has asserted various affirmative defenses and counterclaims.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (dollars in thousands
except per share data)
Avatar's real estate revenues for the three months ended March 31, 1994 increased $151 or 1.3% while real estate expenses increased $608 or 5.5% when compared to the same period of 1993. The increase in real estate revenues for the three month period ended March 31, 1994 is primarily a result of an increase in homesite sales, as a result of an increase in customer traffic, of $343 when compared to the same period of 1993. The increase in homesite sales volume is primarily attributable to an increase in customer traffic. The increase in real estate expenses for the three months ended March 31, 1994, when compared to the same period in 1993, is primarily a result of an increase in sales and marketing expenses and an increase in losses on contract cancellations for homesites sold in prior years.
Utility revenues for the three months ended March 31, 1994 decreased $6,535 or 47.3% when compared to the same period of 1993 which includes revenues of the utility subsidiaries sold on August 31, 1993. Utility expenses decreased $4,026 or 41.6% for the three months ended March 31, 1994 when compared to the same period of 1993, which includes expenses of the utility subsidiaries sold on August 31, 1993. For the utility subsidiaries that remain, revenues and expenses for the three months ended March 31, 1994, were comparable to the same period of 1993.
Interest income for the three months ended March 31, 1994 decreased $680 or 19.3% when compared to the same period for 1993. The decline in interest income is primarily attributable to lower average aggregate amounts in the Company's contracts and mortgage notes receivable portfolio. Avatar's contracts and mortgage notes receivable portfolio amounted to $113,196 at March 31, 1994 compared to $133,132 at March 31, 1993.
Trading account profit for the three months ended March 31, 1994 represents interest income and realized and unrealized gains and losses related to the investment portfolio, net of commissions payable to broker. These investments were acquired during the fourth quarter of 1993.
General and administrative expenses for the three months ended March 31, 1994 increased $236 or 11.3%, compared to the same period of 1993. This increase is primarily attributable to an increase in professional fees and an increase in the accrual for incentive compensation.
Interest expense for the three months ended March 31, 1994 decreased $1,297 or 29.1% compared to the same period of 1993. The decrease is primarily attributable to an overall decrease in notes, mortgage notes and other debt.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (dollars in thousands
except per share data) -- continued
Avatar's primary business activities, which include retail land sales, land development and utility services, are capital intensive in nature. Avatar expects to fund its operations and capital requirements through a combination of cash and investment securities on hand, operating cash flows and external borrowings.
Avatar has approximately $51,713 in investments which are classified as trading. The Company intends to continue to actively trade such securities in an effort to generate profits and will reinvest such profits until such time as the Company's cash requirements necessitate the use or partial use of the portfolio proceeds.
A portion of the investment portfolio is used to secure a $30,000 line of credit which had an outstanding balance at March 31, 1994 of $15,000 and will mature during the fourth quarter of 1994.
4(b)* Supplemental Indenture for 8% senior debentures dated as of December 19, 1992 (previously filed as an exhibit to the Form 10-K for the period ended December 31, 1992).
4(c)* Indenture for 9% senior debentures dated as of December 19, 1992 (previously filed as an exhibit to the Form 10-K for the period ended December 31, 1992).
* This exhibit is incorporated by reference and is on file with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AVATAR HOLDINGS INC.
Date: May 16, 1994 By: /s/John J. Yanopoulos
------------ ---------------------
John J. Yanopoulos
Vice President -- Finance and
Corporate Controller
Date: May 16, 1994 By: /s/Charles. L. McNairy
------------ ----------------------
Charles L. McNairy
Executive Vice President,
Treasurer and Chief Financial
Officer
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