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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, 1993 -- Commission File Number 0-7616
AVATAR HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 23-1739078
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
255 Alhambra Circle, Coral Gables, Florida 33134
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (305) 442-7000
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $1.00 Par Value
(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 requirements 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.
Aggregate market value of the voting stock held by non-affiliates of the
registrant was $329,054,208 as of February 28, 1994.
(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 28, 1994, there were 9,095,102 shares of common
Stock, $1.00 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 1994 Annual Meeting
of Stockholders are incorporated by reference into Part III.
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AVATAR HOLDINGS INC.
1993 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I Page
Item 1. Business.................................................. 3
Item 2. Properties................................................ 7
Item 3. Legal Proceedings......................................... 7
Item 4. Submission of Matters to a Vote of Security Holders....... 8
Executive Officers of the Registrant.................................. 9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholders
Matters ................................................... 11
Item 6. Selected Financial Data................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 8. Financial Statements and Supplementary Data............... 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................. 46
PART III
Item 10. Directors and Executive Officers of the Registrant........ 46
Item 11. Executive Compensation.................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
and Management............................................. 46
Item 13. Certain Relationships and Related Transactions............ 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................ 47
Exhibit Index......................................................... 58
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3
PART I
Item 1. Business
Avatar Holdings Inc. (a Delaware corporation incorporated in 1970)
and its subsidiaries (collectively, "Avatar" or the "Company") are
engaged in two principal business activities: real estate and water
and wastewater utilities operations. Avatar's real estate operations,
which are located in the states of Florida, Arizona and California,
include the development and sale of homesites; the development and
sale of improved and unimproved homesites and commercial/industrial
land tracts; the construction and sale of single family and
multifamily housing; operations of amenities and resorts;
development, sale and management of vacation ownership units in
Avatar's Poinciana community; cable television operations and property
management services. Avatar provides financing for a large portion
of its homesite sales, mainly under a deed and mortgage arrangement.
Avatar's utility operations consist of water and wastewater treatment
plants which serve communities in Florida and Arizona. During 1993,
approximately 56% and 44% of the total revenues were generated through
real estate and utility operations, respectively, net of the gain on
the sale of the midwest water utilities discussed below.
On August 31, 1993, the Company sold its water and wastewater
utilities located in Indiana, Missouri, Ohio, and Michigan (the
"Midwest Water Utilities") for an aggregate selling price of
$62,000,000, resulting in a pre-tax gain of $21,822,000.
In the current year the Company has invested approximately
$51,000,000 cash in an investment trading portfolio.
(See Liquidity section)
Avatar's revised business strategy includes a shift away from
homesite sales and toward housing, retail and industrial real estate
development, sales of vacation ownership intervals and resort
operations. Certain of Avatar's properties are being developed and
such developments are at different stages of completion. In addition,
Avatar is examining each of its remaining principal properties in an
effort to determine the best long-term use or development.
Information regarding revenues, results of operations and assets
of the two business segments noted above are included in Item 8 under
the caption "Notes to Consolidated Financial Statements".
Real Estate
Avatar's assets include real estate inventory in the states of
Florida, Arizona and California. In its Florida communities of
Poinciana, Barefoot Bay, Cape Coral, Golden Gate and Leisure Lakes, as
well as in its Arizona community of Rio Rico, Avatar's activities
include homesite and industrial/commercial land sales, the construction
and sale of single family and multifamily housing, and the
construction, sale and management of vacation ownership units, with the
types of activities varying from community to community. Avatar owns
other sites including Harbor Islands in Hollywood, Florida;
Banyan Bay in Martin County, Florida; Ocala Springs in Marion County,
Florida; and Woodland Hills in Los Angeles County, California.
Poinciana, located in central Florida approximately 21 miles south
of Orlando and 10 miles from Walt Disney World, encompasses 47,000
acres of land, approximately 15,500 of which are owned by Avatar.
This planned community development includes subdivisions for single
family, multifamily and manufactured housing, and commercial/industrial
areas. Since 1971, 21,860 homesites have been sold and approximately
4,219 housing units, primarily single family houses and townhouses,
have been
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Item 1. Business -- Continued
constructed by Avatar and other non-affiliated builders. As of
December 31, 1993, approximately 12,965 developed and undeveloped
homesites remained in inventory at Poinciana. Additionally,
approximately 4,456 acres of land zoned for industrial/commercial
and multifamily use also remained in inventory. At
December 31, 1993, Avatar had firm contracts at Poinciana to construct
49 single family units with a total sales volume of $3,726,488.
Avatar's real estate activities at Poinciana also include the
construction, sale and management of vacation ownership units. As of
December 31, 1993, 1,606 unit weeks had been sold and 1,306 unit weeks
remained in inventory at Poinciana. Avatar also owns and operates a
31,100 square foot shopping center at Poinciana that was 100% occupied
at December 31, 1993. Recreational facilities owned and operated 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, a community center and a series of nature walks and
trails.
Barefoot Bay is located on Florida's east coast, midway between
Vero Beach and Melbourne. Avatar's operations at Barefoot Bay include
the sale of manufactured homes and homesites. Since operations
commenced in 1970, approximately 94% of the 5,020 available homesites
have been sold. At December 31, 1993, Avatar had firm contracts to
construct 8 housing units at a total selling price of $683,000.
Recreational facilities owned and operated at Barefoot Bay by Avatar
include an 18-hole executive golf course, a community center, swimming
pools, tennis courts, a private beach and a fishing pier. Avatar also
owns and operates a 13,420 square foot shopping center in Barefoot Bay
that was 100% occupied at December 31, 1993.
Avatar also owns 268 acres adjacent to Barefoot Bay. Platting,
design and engineering for this proposed golf course community of 630
conventional single-family and zero-lot line homesites commenced in
1989 and is continuing through 1994.
Cape Coral is a 60,700-acre community, of which approximately
3,727 acres are owned by Avatar, located on Florida's west coast seven
miles west of Fort Myers. Its population has increased from 11,470
in 1970 to approximately 84,000 in 1993. To accommodate
this increase, Avatar constructed, during 1991, the Camelot Isles
Shopping Center, a 70,000 square foot retail center that opened in
February 1992. At December 31, 1993, the shopping center was 89%
occupied. Remaining inventory at December 31, 1993, included
approximately 3,734 single family homesites and 2,700 acres of land
zoned for commercial, industrial and multifamily use. Avatar's Tarpon
Point Marina, which is located in Cape Coral, accommodates 175
vessels and features dockmaster facilities, a ship's store and fueling
facilities. The Camelot Marina, for which the initial phase of
construction was completed in 1991, will accommodate 76 vessels and
feature 3,500 feet of boardwalk upon completion. Other amenities
available to the residents of Cape Coral include Avatar's Cape Coral
Golf and Tennis Resort that features an 18-hole championship golf
course, a 9-hole executive golf course, eight tennis courts and a 100-
room motel.
Golden Gate City, located east of Naples in southwest Florida, had
remaining inventory as of December 31, 1993 which included 32 single
family and duplex homesites, 43 acres of land zoned for multifamily use
and 10 acres zoned for commercial use.
Golden Gate Estates comprises 2,497 acres of land subdivided into
5,800 homesites. Remaining inventory as of December 31, 1993, includes
approximately 130 homesites of varying size, the majority of which are
approximately 1 and 1-1/4 acre homesites, and 7,400 acres of land held
for future use.
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Item 1. Business -- Continued
Avatar's land holdings in Leisure Lakes, located near the city of
Lake Placid in South Central Florida, consist of 3,244 homesites
remaining in inventory at December 31, 1993. Amenities at Leisure
Lakes include a 9-hole executive golf course, a small lakefront motel,
tennis courts, shuffleboard courts, a swimming pool, a club house with
pro shop, a coffee shop, a private beach, a boat ramp, a card room and
various lakes available for water sports.
Rio Rico, a 55,000-acre community development in southern Arizona,
is located 57 miles south of Tucson. This community, with a population
of approximately 4,700 residents, consists of single family homes and
townhouses and includes several areas zoned for commercial and
industrial development. Avatar owns and operates a 175-room hotel
complex, an 18-hole Robert Trent Jones designed championship golf
course and a 36,800 square foot shopping center, which was 98% occupied
as of December 31, 1993. Remaining inventory at Rio Rico at December
31, 1993 included approximately 3,575 single family homesites, 2,536
acres of land zoned for commercial, industrial and multifamily use,
4,762 acres of land held for future development, sale or other use, and
2,838 acres of undeveloped mountain range reserved for open space.
The Harbor Islands Project encompasses 191 acres, including 30
acres conveyed to the city of Hollywood for future parks, adjoining the
Intra-coastal Waterway in Hollywood, Florida. An approved plan for
this water-oriented community provides for 2,700 high-rise condominium
units, 447 townhouses and triplex dwelling units, 28 single family
homesites, 65,000 square feet of commercial space and a 150-room hotel.
Additionally, permits have been obtained and preliminary construction
completed on a 196-boat slip marina.
Banyan Bay, located in Martin County, Florida, comprises 251 acres
of land. Future plans contemplate a medium-density residential
development of two and four story condominiums.
Ocala Springs, located five miles northeast of Ocala in Marion
County, Florida, comprises 4,600 acres of land. The concept plan for
this project provides for 700 single family ranchettes on 1-1/4 to 1-
1/2 acre lots, 4,800 single family homesites on 1/4 to 1/2 acre lots,
400 homesites for manufactured housing and 1,000 multifamily
condominium units. Also planned are an 18-hole golf course and more
than 130 acres for commercial, industrial and service facilities.
These plans have been reviewed by all appropriate state, regional and
local governmental agencies and the plat for Phase I has been filed
with and accepted by Marion County.
Woodland Hills, located in northwest Los Angeles County,
California, consists of the Natoma tract that encompasses approximately
430 acres of land. Conceptual planning for this tract has been
completed for 108 luxury homesites. An environmental impact report has
been filed and is being reviewed by the City of Los Angeles.
In addition to the real estate holdings described above, Avatar
owns approximately 2,500 acres of land in Florida that is being held
for future development or bulk sales.
Utilities
Avatar's water and wastewater treatment facilities include 12
water treatment facilities and 10 wastewater treatment facilities
serving 6 communities in Florida (including Poinciana, Barefoot Bay and
Golden Gate). These facilities provide for the treatment, distribution
and sale of water for public and
5
6
Item 1. Business -- Continued
private use, and the treatment and disposal of wastewater. At December
31, 1993, Avatar's utility operations had approximately 35,000 water
customers and 29,000 wastewater customers.
On January 30, 1993, the Company entered into stock purchase
agreements for the sale of its Midwest Water Utilities. The closing of
the sale of the Midwest Water Utilities took place on August 31, 1993,
for an aggregate selling price of $62,000,000, resulting in a pre-tax
gain of $21,822,000.
An Avatar subsidiary provides consulting, data processing and
other services to non-affiliated utility companies as well as to
various Avatar subsidiaries. This subsidiary is beginning to operate
water and wastewater systems under contracts with unaffiliated
companies.
Employees
As of December 31, 1993, Avatar employed approximately 950
individuals on a full-time or part-time basis. In addition, Avatar
utilizes on a daily basis such additional personnel as may be required
to perform various land development activities. Avatar's relations
with its employees are satisfactory and there have been no work
stoppages.
Regulation
Avatar's real estate operations are regulated by various local,
regional, state and federal agencies, including the Federal Trade
Commission (FTC). The extent and nature of these regulations include
matters such as planning, zoning, design, construction of improvements,
environmental considerations and sales activities. 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
land 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 homesite installment sales activities are required to comply
with the Federal Consumer Credit Protection ("Truth-in-Lending") Act.
Avatar's utility 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.
The Company believes it is in compliance with applicable laws and
regulations in all material respects.
Competition
Avatar's real estate operations, particularly in the state of
Florida, are highly competitive. In its sales of homesites and housing
units, Avatar competes, as to price and product, with several land
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Item 1. Business -- Continued
development companies 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 land development
projects in the geographical areas in which Avatar operates. The
vacation ownership sales business is also highly competitive with
companies throughout the United States and abroad selling vacation
ownership unit weeks on terms similar to those offered by Avatar.
Item 2. Properties
Avatar's real estate operations are described in Item 1 above.
Land in the process of being developed, or held for investment and/or
future development, has an aggregate cost of approximately $113,623,000
as of December 31, 1993.
Avatar's utility operations include water and wastewater plants
and equipment located in Florida. Such properties have a net book
value of $150,812,206 at December 31, 1993.
Avatar's corporate headquarters are located at 255 Alhambra
Circle, Coral Gables, Florida, in approximately 26,595 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
Avatar is involved in various pending litigation matters primarily
arising in the normal course of its business. Although the outcome of
these and the following matters can not be determined, it is the
opinion of management that the resolution of such matters will not have
a material effect on Avatar's business or financial position.
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. S1251
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 $25,000
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.
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Item 3. Legal Proceedings -- Continued
On February 25, 1994, Mr. Wilkov commenced a lawsuit against
Avatar, Mr. Jacobson and Odyssey Partners, L.P. ("Odyssey"), in
the Circuit Court of Eleventh Judicial Circuit in and for Dade
County Florida, claiming damages arising out of Mr. Wilkov's
termination of his employment purportedly for "Good Reason" (as
defined in his employment agreement). Mr. Wilkov also seeks to
recover damages from Avatar for libel and slander and from
Odyssey and Mr. Jacobson based on their alleged malicious
interference with his employment agreement. Avatar denies that
Mr. Wilkov had Good Reason to terminate his employment agreement.
Avatar, Odyssey and Mr. Jacobson do not believe there is any
valid basis for Mr. Wilkov's claims, and various affirmative
defenses have been asserted. Avatar also has asserted
counterclaims against Mr. Wilkov for breach of contract,
promissory estoppel and improper inducement in connection with
amendments to Mr. Wilkov's employment agreement.
Item 4. Submission of Matters to a Vote 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 26, 1994.
The following is a list of names and ages of all of the executive
officers of Avatar, indicating all positions and offices with Avatar
held by each such person and each such person's principal occupation(s)
or employment during the past five years unless otherwise indicated.
All such persons have been elected to serve until the next annual
election of officers (which is expected to occur on May 26, 1994) when
they are reappointed or their successors are elected, or until their
earlier resignation or removal.
Name Age Office and Business Experience
Leon Levy 68 Chairman of the Board since January
1981; General Partner, Odyssey
Partners, L.P., a private
partnership engaged in investment,
trading and related activities;
Chairman of the Board of
Oppenheimer Funds; former Chairman
of the Board (1974-1985) of
Oppenheimer Management Corp.;
Director of: Electra Investment
Trust PLC, Mercury Assets
Management, Ltd., and S.G.
Warburg & Co., Ltd. (Jersey
Funds).
Edwin Jacobson 64 President and Chief Executive
Officer since February 1994;
Chairman of the Executive Committee
since June 1992; President and
Chief Executive Officer of Chicago
Milwaukee Corporation since June
1985; President and Chief
Executive Officer of CMC Heartland
Partners since September 1990, and
President and Chief Executive
Officer, since June 1985, of
Milwaukee Land Company, a non-
diversified, closed-end management
investment company, publicly traded
since July 1993.
Dennis J. Getman 49 Executive Vice President since
March 1984. Senior Vice President
from September 1981 to March 1984
and General Counsel since September
1981.
Charles L. McNairy 47 Executive Vice President since
September 1993 and Treasurer and
Chief Financial Officer since
September 1992. 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.
Juanita I. Kerrigan 47 Vice President and Secretary since
September 1980.
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Executive Officers of the Registrant -- continued
G. Patrick Settles 45 Vice President since November 1986
and Assistant General Counsel since
September 1983.
John J. Yanopoulos 37 Vice President -- Finance and
Controller since September 1992.
Assistant Vice President from May
1990 to September 1992 and
Corporate Controller since May
1989. Formerly Senior Audit
Manager, Kenneth Leventhal and
Company from 1986 to 1989.
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
National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") under the symbol AVTR.
The approximate number of record holders of Common Stock at February
28, 1994, was 9,100.
High and low quotations, as reported, for the last two years were:
Quotations
Quarter Ended 1993 1992
------ ------
High Low High Low
------ ------ ------ ------
March 31 38 3/4 33 3/4 26 3/4 22 1/2
June 30 38 33 1/2 28 1/2 24 1/2
September 30 37 27 1/2 31 24 1/2
December 31 35 1/4 30 1/2 35 28 3/4
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)
Year ended December 31
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Statement of Income Data
Revenues (1) $126,048 $105,161 $104,083 $147,449 $152,193
======== ======== ======== ======== ========
Income (loss) from
continuing operations
before extraodinary
item and changes in
methods of accounting $5,474 ($4,342) ($8,635) $11,132 $572
======== ======== ======== ======== ========
Extraordinary item - ($2,402) - - -
======== ======== ======== ======== ========
Cumulative effect of
change in method of
accounting for
income taxes ($964) - - - -
======== ======== ======== ======== ========
Cumulative effect of
change in method
of accounting for
investments (net of income
taxes of $238) $388 - - - -
======== ======== ======== ======== ========
Income (loss) from
continuing operations
before extraorinary item
and changes in methods of
accounting per share $0.56 ($0.59) ($1.17) $1.41 $0.08
======== ======== ======== ======== ========
Extraordinary item - ($0.32) - - -
======== ======== ======== ======== ========
Cumulative effect of
change in method of
accounting for income
taxes per share ($0.10) - - - -
======== ======== ======== ======== ========
Cumulative effect of
change in method of
accounting for
investments
per share (net of
income taxes of $238) $0.04 - - - -
======== ======== ======== ======== ========
Balance Sheet Data December 31
-------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Total assets $461,482 $474,448 $572,890 $557,127 $525,566
======== ======== ======== ======== ========
Notes, mortgage notes
and other debt $135,557 $235,491 $239,414 $221,347 $203,886
Less notes, mortgage
notes and other debt
classified as property
held for sale - 41,075 - - -
-------- -------- -------- -------- --------
$135,557 $194,416 $239,414 $221,347 $203,886
======== ======== ======== ======== ========
Stockholders' equity $183,372 $144,639 $151,244 $159,879 $147,747
======== ======== ======== ======== ========
(1) The Company adopted the installment method for homesite sales
effective January 1, 1989. Prior to 1989, Avatar used the
full accrual method of profit recognition for homesite sales.
During 1993, the sale of the Midwest Water Utilities was
completed. (See Results of Operations.)
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (dollars in thousands)
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.
Comparison of
Twelve months ended December 31
-------------------------------
1993 and 1992 1992 and 1991
------------- -------------
Increase (Decrease)
-------------------
$ % $ %
Revenues Change Change Change Change
------- ------- ------- --------
Real estate sales $5,203 15.0 % ($2,980) (7.9)%
Deferred gross profit on
homesite sales (1,044) (446.2) 2,668 91.9
Utility revenues (7,252) (13.6) 4,078 8.3
Interest income (2,411) (14.7) (2,686) (14.1)
Gain on sale of subsidiaries 21,822 - - -
Other 4,569 458.7 (2) (0.2)
------ ------ ------- ------
Total revenues 20,887 19.9 1,078 1.0
Expenses
Real estate expenses 2,594 5.8 (7,831) (14.9)
Utility expenses (1,991) (5.4) 1,173 3.3
General and administrative
expenses 811 10.4 196 2.6
Interest expense (2,822) (15.3) (738) (3.8)
Other (283) (18.3) 313 25.4
------ ------ ------- ------
Total expenses (1,691) (1.5) (6,887) (5.9)
------ ------ ------- ------
Income (loss) before
income taxes, changes
in methods of accounting
and extraordinary item 22,578 N/A 7,965 64.7
Income Taxes (12,762) - 3,672 100.0
Extraordinary item 2,402 100.0 (2,402) -
Changes in methods of
accounting (576) - - -
------- ------ ------- ------
Net Income $11,642 N/A $1,891 21.9
======= ======= ======= ======
Operations for the years ended December 31, 1993, 1992 and 1991
resulted in a pre-tax gain (loss) before the changes in accounting
methods and extraordinary item of $18,236, ($4,342) and ($12,307),
respectively. The improvement in pre-tax income during 1993 compared
to 1992 is primarily attributable to the sale of the Midwest Water
Utilities for $62,000 which resulted in a pre-tax gain of $21,822 and
an adjustment to the estimated development liability for sold land as a
result of the purchase of Rio Rico Utilities of $4,532. The
improvement in pre-tax results of operations in 1992 compared to 1991
was primarily attributable to higher profit contributions from the
Company's utility operations and lower real estate selling expenses.
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS -- continued
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 deferred gross profit on current
homesite sales less recognized deferred gross profit on prior years'
homesite sales.
In accordance with the Company's business plan, the Company
continued its gradual transition from selling predominantly Avatar-
owned homesites to providing a diversified mix of products and
services including introducing additional housing products, developing
amenities and support facilities, expanding vacation ownership
operations, expanding property management services and converting
land holdings into income producing operations.
Avatar's business plan also established objectives of modifying the
Company's historic homesite sales program with the goal of maintaining
or slightly increasing homesite sales volume. A slight improvement in
consumer confidence and the economy combined to enable the Company to
achieve budgeted levels for homesite sales volume in 1993. The 1993
average selling prices of housing and homesites were comparable to
1992 levels.
Gross real estate revenues increased 15% during 1993 when compared
to 1992 and decreased 7.9% during 1992 when compared to 1991. The
increase in real estate revenues for 1993 when compared to 1992 is
primarily a result of increased housing and homesite sales volume.
Real estate expenses increased $2,594 or 5.8% in 1993
when compared to 1992 and decreased $7,831 or 14.9% in
1992 when compared to 1991. The increase in real estate expenses for
1993 when compared to 1992 is primarily a result of an increase in cost
of products sold due to the increase in real estate sales. Margins
have improved based on a reduction in related costs as a percentage of
real estate sales and a more profitable sales mix of increased homesite
and housing sales for 1993 when compared to 1992. The decline in real
estate revenues and expenses for 1992 when compared to 1991 resulted
primarily from decreased homesite and housing sales during 1992.
Utility revenues decreased $7,252 or 13.6% during 1993 when
compared to 1992 and increased $4,078 or 8.3% during 1992 when compared
to 1991. Utility expenses decreased $1,991 or 5.4% during 1993 when
compared to 1992 and increased $1,173 or 3.3% during 1992 when compared
to 1991. Utility revenues decreased in 1993 as a result of the sale of
the Midwest Water Utilities which closed on August 31, 1993. Utility
expenses did not decline correspondingly primarily due to increased
expenses relating to postretirement benefit costs. The increases for
1992 when compared to 1991 are due to increases in Avatar's customer
base and rate increases. In comparing the remaining utility
subsidiaries, revenues increased $1,565 or 6.4% in 1993 when compared
to 1992 and expenses increased $4,699 or 38.9% in 1993 when compared to
1992. The increase in expenses is primarily a result of
postretirement benefit costs, the amortization of rate
case costs, and the accrual of professional fees.
Interest income decreased $2,411 or 14.7% during 1993 when
compared to 1992 and $2,686 or 14.1% during 1992 when compared to 1991.
The declines in interest income are attributable to lower average
aggregate balances of the Company's contract and mortgage notes
receivable portfolio. The
14
15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (dollars in thousands) -- continued
RESULTS OF OPERATIONS -- continued
average balance of Avatar's receivable portfolio was $127,909, $153,053
and $181,550 for 1993, 1992 and 1991, respectively. This decrease in
interest income was partially offset by earnings from Avatar's
investment securities of $903, $479 and $927 for 1993,
1992 and 1991, respectively.
Pre-tax gain on sale of subsidiaries of $21,822 in 1993 is a
result of the sale of the Midwest Water Utilities which generated net
proceeds of approximately $59,371.
Other revenues for 1993 includes a reduction of the estimated
development liability for sold land of $4,532 as a result of the
purchase of Rio Rico Utilities.
General and administrative expenses increased $811 or 10.4% in
1993 compared to 1992 and $196 or 2.6% during 1992 when compared to
1991. The increases in 1993 and 1992 are primarily a result of
incentive compensation recorded for senior officers and an increase in
professional fees. Additionally, an increase in real estate revenue
contributed to the increase for 1993.
Interest expense decreased $2,822 or 15.3% in 1993 when compared
to 1992 and $738 or 3.8% during 1992 when compared to 1991. These
decreases are attributable to an overall decrease in notes, mortgage
notes and other debt outstanding during 1993 and lower interest rates
during 1992 than in 1991.
LIQUIDITY AND CAPITAL RESOURCES
Avatar's primary business activities, which include homesite
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.
In 1993, net cash provided by operating activities amounted to
$9,925 and resulted primarily from operations including principal
payments on contracts receivable of $21,249. Net cash provided by
investing activities of $14,823 in 1993 resulted from the proceeds from
the sale of subsidiaries of $59,371 and proceeds from the sale of
securities of $17,444 reduced by investments in property, plant
and equipment of $11,567 and investments in securities
of $50,425. Net cash used in financing activities of $20,214 resulted
primarily from the principal payment on revolving lines of credit and
long-term borrowings of $48,538 and the purchase of treasury stock of
$27,000 less net proceeds from revolving lines of credit and long-term
borrowings of $26,121 and proceeds from the issuance of common stock in
conjunction with the redemption/conversion of the 5-1/4% Debentures (as
defined below) of $30,340.
Avatar renegotiated certain of its existing bank credit lines and
established a new credit line, thereby increasing its secured lines of
credit from $36,200 at December 31, 1992, to $45,534 at December 31,
1993. Avatar's unsecured credit lines were decreased from $44,500 at
December 31, 1992, to $15,000 at December 31, 1993. The unused
portions of these credit lines were $17,000 and $10,325 for the secured
and unsecured lines, respectively, at December 31, 1993. Included in
these lines of credit is a new line of credit entered into during 1993,
secured by investments, which had
15
16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (dollars in thousands) -- continued
LIQUIDITY AND CAPITAL RESOURCES -- continued
an outstanding balance at December 31, 1993 of $13,000 and will mature
during the fourth quarter of 1994. Also included is an amended and
restated line of credit with a balance outstanding at December 31, 1993
of $15,534 collateralized by certain contracts receivables and due May
31, 1995.
Avatar has planned utility construction for 1994 totaling
approximately $22,000. Additionally, the Company has planned land
development expenditures of $9,700 during 1994, which will result in
additional homesite inventory and preservation of development permits.
It is anticipated that land development and utility construction
expenditures for 1994 will be funded by operating cash flow and
borrowings from external sources.
On June 4, 1993 the Company called for the redemption of all its
outstanding 5-1/4% convertible-purchase subordinated debentures due May
1, 2007 (the ``5-1/4% Debentures ) at a redemption price of 100% of
the principal amount plus accrued and unpaid interest from January 15,
1993 through the redemption date of July 4, 1993. The principal
purpose of the redemption was to reduce the Company's annual interest
expense, improve its liquidity and increase its stockholders' equity.
Holders were entitled to convert their 5-1/4% Debentures into shares of
the Company's common stock at a conversion price of $23.00 per share
provided they paid in cash an amount equal to the principal amount of
the 5-1/4% Debentures being converted, for which they received
additional shares of common stock equal to the number issued on
conversion. A total of $30,917 principal amount of the 5-1/4%
Debentures were converted and 2,688,276 shares of common stock were
issued. The remaining $57 principal amount of 5-1/4% Debentures were
redeemed as of July 4, 1993. The net result of this transaction,
after expenses, was an increase in cash of $30,340, a decrease in
debt of $30,973 and an increase in stockholders' equity of $60,835.
The closing of the sale of the Midwest Water Utilities took place
on August 31, 1993, with an aggregate selling price of $62,000,
resulting in a pre-tax gain of $21,822.
The Company has invested approximately $51,000 in investment
securities 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. Avatar's investment
portfolio 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. These 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. Goverment and Agency
securities. As of December 31, 1993, $39,932 of the investments
serves as collateral for a secured line of credit with an outstanding
balance of $13,000.
On September 30, 1993 the Company purchased 1,000,000 shares of
the Company's common stock from the estate of Peter J. Sharp for $27.00
per share resulting in a decrease in cash of $27,000 and a
corresponding decrease in stockholders' equity. These shares are being
held in the Company's treasury for future corporate purposes.
16
17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (dollars in thousands) -- continued
LIQUIDITY AND CAPITAL RESOURCES -- continued
Avatar's Board of Directors has authorized expenditures for the
purchase of Avatar's 8% and 9% senior debentures. During 1993, Avatar
expended $31 for the purchase of its 8% senior debentures and $1,106
for the purchase of its 9% debentures. As of December 31, 1993, the
remaining authorization for such expenditures was $4,301.
As a result of the proceeds received from the sale of the Midwest
Water Utilities and the redemption/conversion of the 5-1/4% Debentures,
net of the funds expended for the stock repurchase, the Company
believes it has sufficient capital resources to satisfy anticipated
liquidity requirements.
Management does not anticipate a significant change in interest
rates for 1994, and accordingly, does not expect Avatar's primary
business activities to be adversely affected by interest rates.
Avatar's homesite sales are not dependent upon the customer obtaining
third party financing. A high interest rate environment would be
likely to adversely affect Avatar's real estate results of operations
and liquidity because certain of Avatar's debt obligations are tied to
prevailing interest rates. Increases in interest rates affecting the
Company's utility operations generally are passed on to the consumer
through the regulatory process.
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 to the industry as a whole.
It is anticipated that the impact of inflation on Avatar's operations
for 1994 will not be significant.
IMPACT OF TAX INSTALLMENT METHOD
In 1992, 1991, 1989 and 1988, the Company elected the
installment method for recording a substantial amount of its homesite
sales in its federal income tax return, which deferred taxable income
into future fiscal periods. As a result of this election, the Company
may be required to pay compound interest on certain federal income
taxes in future fiscal periods attributable to the taxable income
deferred under the installment method. The Company believes that the
potential interest amount, if any, will not be material to its
financial position and results of operations of the affected future
periods.
RETIREMENT PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In December 1990, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The
Company adopted this statement in 1993, as required. This statement
requires the accrual of postretirement benefits (such as health care
benefits) during the years an employee provides services. These
benefits for retirees are currently provided only to the employees of
the Company's utility subsidiaries. The costs of these benefits were
previously expensed on a pay-as-you-go basis. The accrual for
postretirement benefit costs at December 31, 1993 amounted to $712.
17
18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (dollars in thousands) -- continued
RETIREMENT PLANS AND POSTRETIREMENT BENEFITS OTHER THAN
PENSIONS--continued
As discussed in Notes J and K to the consolidated financial
statements, the weighted average discount rate used in determining
both the projected benefit obligation for the Company's defined benefit
pension plan and the accumulated postretirement benefit obligation for
its postretirement benefit plan is 8%. If the Company were to lower
the discount rate by 1/2% in 1994, it would result in an increase in
the obligation. To illustrate, a decrease in the discount rate from
8% to 7-1/2% in determining the projected benefit obligation for the
Company's defined benefit pension plan, would increase the obligation
by approximately $275 and pension expense by approximately $44. The
same change in discount rate in estimating the accumulated
postretirement benefit obligation for the Company's defined benefit
postretirement plan, would increase the obligation by approximately
$200. Because the Company has elected to record the transition
obligation for postretirement benefits over 20 years, as allowed by
Statement No. 106, the effect of reducing the discount rate from 8% to
7-1/2% in 1994 would be less than $30.
18
19
Item 8. Financial Statements and Supplementary Data
Report of Independent Certified Public Accountants.......... 20
Consolidated Balance Sheets -- December 31, 1993 and 1992... 21
Consolidated Statements of Operations -- For the years ended
December 31, 1993, 1992, 1991.............................. 22
Consolidated Statements of Stockholders' Equity -- For the
years ended December 31, 1993, 1992, 1991................. 23
Consolidated Statements of Cash Flows -- For the years ended
December 31, 1993, 1992, 1991............................... 24
Notes to Consolidated Financial Statements.................. 26
19
20
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, 1993, and 1992, and
the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1993. Our audits also included the financial statement
schedules listed in the Index at Item 14. These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and related schedules 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, 1993
and 1992, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set
forth therein.
As discussed in Note A to the consolidated financial statements, in
1993 the Company changed its methods of accounting for income taxes,
investments and postretirement benefits other than pensions.
/s/ ERNST & YOUNG
Miami, Florida
February 23, 1994,
except for the third paragraph of Note R,
as to which the date is March 1, 1994
20
21
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
December 31, December 31,
1993 1992
------------ -----------
Assets
Cash $7,178 $2,433
Restricted cash 1,442 1,820
Investments 51,184 17,314
Contracts, mortgage notes and other
receivables, net 82,996 99,736
Land and other inventories 117,557 111,285
Property, plant and equipment, net 178,940 175,227
Property held for sale - 41,320
Other assets 15,460 25,313
Regulatory assets 6,725 -
-------- --------
Total Assets $461,482 $474,448
======== ========
Liabilities and Stockholders' Equity
Liabilities
Notes, mortgage notes and other debt:
Real estate and corporate $96,768 $144,864
Utilities 38,789 49,552
Estimated development liability for
sold land 19,331 24,139
Accrued and other liabilities 26,846 16,903
Deferred customer betterment fees 19,537 20,157
Deferred income taxes - 7,648
Minority interest in consolidated
subsidiaries 9,058 14,324
Regulatory liabilities 4,447 -
-------- --------
Total Liabilities 214,776 277,587
Commitments and contingent liabilities
Contributions in aid of construction 63,334 52,222
Stockholders' Equity
Common Stock 12,715 10,027
Additional paid-in capital 207,271 149,124
Retained earnings 25,359 20,461
-------- --------
245,345 179,612
-------- --------
Treasury stock, at cost 61,973 34,973
-------- --------
Total Stockholders' Equity 183,372 144,639
-------- --------
Total Liabilities and Stockholders'
Equity $461,482 $474,448
======== ========
See notes to consolidated financial statements.
21
22
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands except per share data)
For the year ended December 31
------------------------------
1993 1992 1991
------ ------ ------
Revenues:
Real estate sales $39,997 $34,794 $37,774
Deferred gross profit on homesite sales (1,278) (234) (2,902)
Utility revenues 45,957 53,209 49,131
Interest income 13,985 16,396 19,082
Gain on sale of subsidiaries 21,822 - -
Other 5,565 996 998
------- ------- -------
Total revenues 126,048 105,161 104,083
Expenses:
Real estate expenses 47,494 44,900 52,731
Utility expenses 34,781 36,772 35,599
General and administrative expenses 8,620 7,809 7,613
Interest expense 15,656 18,478 19,216
Other 1,261 1,544 1,231
------- ------- -------
Total expenses 107,812 109,503 116,390
------- ------- -------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of changes in methods of
accounting 18,236 (4,342) (12,307)
Provision (credit) for income taxes 12,762 - (3,672)
------- ------- --------
Income (loss) before extraordinary
item and cumulative effect of
changes in methods of accounting 5,474 (4,342) (8,635)
Extraordinary item:
Loss on extinguishment of 8% debentures - (2,402) -
Cumulative effect of change in method of
accounting for income taxes (964) - -
Cumulative effect of change in method of
accounting for investments
(net of income taxes of $238) 388 - -
------- ------- --------
Net income (loss) $4,898 ($6,744) ($8,635)
======= ======= ========
Per share amounts:
Primary
Income (loss) before extraordinary
item and cumulative effect of
changes in methods of accounting $0.56 ($0.59) ($1.17)
Extraordinary item (0.32) -
Cumulative effect of change in method
of accounting for income taxes (0.10) - -
Cumulative effect of change in method
of accounting for
investments 0.04 - -
------- ------- --------
Net income (loss) $0.50 ($0.91) ($1.17)
======= ======= ========
Fully Diluted
Income (loss) before extraordinary
item and cumulative effect of
changes in methods of accounting $0.56 ($0.59) ($1.17)
Extraordinary item (0.32)
Cumulative effect of change in method
of accounting for income taxes (0.10) - -
Cumulative effect of change in method of
of accounting for
investments 0.04 - -
------- ------- --------
Net income (loss) $0.50 ($0.91) ($1.17)
======= ======= ========
See notes to consolidated financial statements.
22
23
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands except per-share data)
Additional
Common Paid-in Retained Treasury
Stock (a) Capital Earnings (b) Stock (c)
Balance January 1, 1991 $10,021 $148,991 $35,840 $34,973
Net (loss) - - (8,635) -
------- -------- ------- -------
Balance December 31, 1991 10,021 148,991 27,205 34,973
Net (loss) - - (6,744) -
Conversion of 5-1/4%
debentures 6 133 - -
------- -------- ------- -------
Balance December 31, 1992 10,027 149,124 20,461 34,973
Net income - - 4,898 -
Conversion of 5-1/4%
debtentures 2,688 58,147 - -
Purchase of treasury
stock - - - 27,000
------- -------- ------- -------
Balance December 31, 1993 $12,715 $207,271 $25,359 $61,973
======= ======== ======= =======
(a) $1 par value per share; 15,500,000 shares authorized and
12,715,448, 10,026,956, and 10,020,827, shares issued at
December 31, 1993, 1992 and 1991, respectively, including
treasury stock.
(b) Retained earnings is subsequent to the October 1, 1980 Plan of
Reorganization.
(c) Treasury stock included 3,620,346 shares at December 31, 1993
and 2,620,346 shares at December 31, 1992 and 1991.
There are 5,000,000 authorized shares of preferred stock, none of
which are issued.
See notes to consolidated financial statements.
23
24
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
For the year ended December 31,
1993 1992 1991
------ ------ ------
OPERATING ACTIVITIES
Net income (loss) $4,898 ($6,744) ($8,635)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Gain on sale of subsidiaries (21,822) - -
Depreciation and amortization 9,441 10,239 8,905
Deferred gross profit 1,278 234 2,902
Deferred income taxes 11,897 - (2,788)
Loss on extinguishment of 8% debentures
for 9% debentures - 2,402 -
Cost of sales not requiring cash 1,962 2,246 3,155
Cumulative effect of change in method of
accounting for income taxes 964 - -
Cumulative effect of change in method of
accounting for investments
(net of income taxes of $238) (388) - -
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 189 (1,820) -
Principal payments on contracts receivable 21,249 18,589 15,052
(Increase) decrease in receivables (9,934) (600) 2,008
Decrease (increase) in other receivables 4,386 592 (135)
Increase in inventories (13,033) (4,764) (5,008)
Increase in prepaid expenses and other
assets (4,636) (3,977) (2,736)
Increase (decrease) in accounts payable
and accrued and other liabilities 3,474 (626) (612)
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,925 15,771 12,108
------ ------ ------
INVESTING ACTIVITIES
Investment in property, plant, and equipment (11,567) (13,785) (29,445)
Net proceeds from sale of subsidiaries 59,371 - -
Investment in securities (50,425) (5,614) (9,890)
Proceeds from the sale of
securities 17,444 9,302 2,985
NET CASH PROVIDED BY (USED IN) INVESTING ------ ------ ------
ACTIVITIES 14,823 (10,097) (36,350)
------ ------ ------
FINANCING ACTIVITIES
Net proceeds from revolving lines of credit
and long-term borrowings 26,121 70,592 26,327
Principal payments on revolving lines of
credit and long-term borrowings (48,538) (76,023) (8,683)
Purchase of 8% debentures (31) (380) (203)
Purchase of 9% debentures (1,106) - -
Proceeds from sale of utility preferred stock - - 9,000
Net proceeds from issuance of common stock in
conjunction with the redemption/conversion
of 5 1/4% debentures 30,340 69 -
Purchase of treasury stock (27,000) - -
Reduction in bond discount on the
extinquishment of 8% debentures - (313) -
Costs of exchanging 8% debentures for 9%
debentures - (1,222) -
NET CASH (USED IN) PROVIDED BY FINANCING ------- ------- -------
ACTIVITIES ($20,214) ($7,277) $26,441
------- ------- -------
24
25
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows -- continued
(Dollars in Thousands)
For the year ended December 31,
1993 1992 1991
------ ------ ------
INCREASE (DECREASE) IN CASH $4,534 ($1,603) $2,199
Cash at beginning of year 2,644 4,247 2,048
------- ------- -------
CASH AT END OF YEAR $7,178 $2,644 $4,247
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
Transfers of assets and liabilities to
property held for sale
(midwest water utilities):
Cash - ($211) -
Other receivables - (3,457) -
Inventory - (456) -
Property, plant and equipment, net - (128,455) -
Other assets - (4,756) -
Mortgages and notes payable - 41,075 -
Intercompany debt - 6,149 -
Accounts payable and other accrued
liabilities - 9,390 -
Deferred income taxes - 3,166 -
Contributions in aid of construction - 35,153 -
Minority interest in consolidated
subsidiaries - 1,082 -
------ -------- ------
Total midwest water utilities - ($41,320) -
====== ======== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the year ended December 31,
1993 1992 1991
------ ------ ------
Cash paid during the period for:
Interest $15,327 $18,253 $19,565
======= ======= =======
Income taxes $2,038 $1,752 $726
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
1993 1992 1991
------ ------ ------
Redemption/conversion of 5-1/4% debentures $30,917 - -
======= ======= =======
Contributions in aid of construction $5,046 $7,145 $6,394
======= ======= =======
Retirement of 8% debentures, net - $21,976 -
======= ======= =======
Issuance of 9% debentures, net - $22,843 -
======= ======= =======
See notes to consolidated financial statements.
25
26
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
(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 ("Avatar"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
General:
Avatar is principally engaged in the business of developing and
selling improved and unimproved real estate, single and multifamily
residential housing and providing water and wastewater utility
services.
Restricted Cash:
Restricted cash represents collections of monthly payments on
pledged mortgage notes receivable. These collections will be applied
to reduce the related mortgage trust notes (See Note H).
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.
Revenues:
The Company uses the installment method of profit recognition for
sales of homesites and vacation ownership units. Under the installment
method, the gross profit on recorded sales is deferred and recognized
in income of future periods as principal payments on related contracts
are received. Under the installment method, deferred profit is
included in the balance sheet, as a reduction of contracts receivable,
until recognized.
Sales of housing units are recognized in full upon the transfer of
title to a 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.
Utility revenues are recorded as the service is provided.
26
27
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
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.
Property Held for Sale:
Property held for sale consists principally of utility property,
plant and equipment related to certain water and wastewater utilities
which were held for sale at December 31, 1992, and which were sold
during 1993. Such assets are reflected at historical cost.
Income Taxes:
Effective January 1, 1993, the Company adopted Financial
Accounting Standards Board ("FASB") 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.
Under this method, 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. Prior to the adoption of Statement No. 109, income tax
expense was based on items of income and expense that were reported in
different years in the financial statements and tax returns and were
measured at the tax rates in effect in the year the difference
originated (deferred method).
As permitted by Statement No. 109, the Company has elected not to
restate the financial statements of any prior years. The cumulative
effect of adopting Statement No. 109 resulted in a charge to net income
during the first quarter of 1993 of $964. The cumulative effect of
adopting Statement No. 109 for Avatar's utility 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. The regulatory liabilities and
regulatory assets will generally be amortized to income or expense over
the useful life of the utility system and reflect probable future
revenue reductions or increases from ratepayers. The effect of the
change on income from continuing operations for the year ended December
31, 1993 was not material.
Deferred Customer Betterment Fees:
Amounts collected from customers for utility improvements are
classified as "Deferred Customer Betterment Fees". These fees will be
reclassified to "Contributions in Aid of Construction" when service to
the customer begins.
Contributions in Aid of Construction:
Advances from real estate developers and other direct
contributions to utility subsidiaries for plant construction are
recorded as "Contributions in Aid of Construction". To the extent
required by regulatory agencies, the account balance is amortized over
the depreciable life of the utility plant as an offset to depreciation
expense.
27
28
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
Investments:
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" which, among other things, requires companies to
classify certain debt and equity securities as "held to maturity",
"available for sale" or "trading."
The Company elected to adopt Statement No. 115 as of December 31,
1993, and has classified all of its investment portfolio 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 value which was $51,184 at December 31, 1993.
Subsequent to the initial adoption of Statement No. 115, both realized
and unrealized gains and losses will be included in net trading account
profit. The cumulative effect as of December 31, 1993 of adopting
Statement No. 115 was an increase in net income of $388 (net of income
taxes of $238) or $.04 per share.
Postretirement Benefits:
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". This statement requires the accrual of
postretirement benefits (such as health care benefits) during the years
an employee provides services. These benefits for retirees currently
are provided only to the employees of the Company's utility
subsidiaries. The costs of these benefits were previously expensed on
a pay-as-you-go basis.
Net Income Per Common Share:
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. In 1993, $30,917
of the Company's 5-1/4% convertible-purchase subordinated Debentures
were converted into 2,688,276 shares of common stock.
The result of this redemption and conversion was dilutive for the year
ended December 31, 1993. The primary and fully diluted computations
assume the actual conversion occurred at the beginning of the year.
Reclassifications:
Certain 1992 and 1991 financial statement items have been
reclassified to conform with 1993 presentation.
28
29
NOTE B - REAL ESTATE SALES
The components of real estate sales are as follows:
For the year ended December 31,
-------------------------------
1993 1992 1991
----- ------ -----
Gross homesite sales $10,913 $8,913 $10,917
Housing and vacation
ownership sales 7,798 7,225 7,914
Resorts revenues 13,540 12,349 12,667
Commercial/Industrial
land sales 2,149 1,075 1,181
Rental, leasing, cable
and other real estate
operations 5,597 5,232 5,095
------- ------- -------
Total real estate sales $39,997 $34,794 $37,774
======= ======= =======
NOTE C - INVESTMENTS
Avatar's investment portfolio 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.
These 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.
At December 31, 1992 investments securities consisted of U.S.
Treasury Notes and Bills. Investments securities at December 31, 1992
are carried at cost which approximates market value.
29
30
NOTE D - CONTRACTS, MORTGAGE NOTES AND OTHER RECEIVABLES
Contracts, mortgage notes and other receivables are summarized as
as follows:
December 31,
------------
1993 1992
------ ------
Contracts and mortgage notes receivable $117,249 $138,569
Notes and other receivables 5,639 9,355
-------- --------
122,888 147,924
-------- --------
Less:
Allowance for doubtful accounts 2,631 3,051
Market valuation reserve 2,082 3,297
Deferred gross profit 31,969 34,950
Other 3,210 3,433
-------- --------
39,892 44,731
-------- --------
82,996 103,193
Reclassified to property held for sale - 3,457
-------- --------
$82,996 $99,736
======== ========
Contracts and mortgage notes receivable are 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,
1993, 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%). 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 notes receivable at December 31, 1993, and 1992
were $13,442 or 11.5% and $18,365 or 13.3%, respectively. Scheduled
maturities for the five years subsequent to 1993 are: 1994 - $16,072;
1995 - $19,289; 1996 - $20,209; 1997 - $19,546 and 1998 - $16,285.
NOTE E - LAND AND OTHER INVENTORIES
Inventories consist of the following:
December 31
-----------
1993 1992
------ ------
Land developed and in process of development $76,145 $70,474
Land held for future development or sale 37,478 37,014
Dwelling units completed or under construction 2,407 2,217
Other 1,527 2,036
------- -------
117,557 111,741
Reclassified to property held for sale - 456
------- -------
$117,557 $111,285
======= =======
30
31
NOTE F - ESTIMATED DEVELOPMENT LIABILITY FOR SOLD LAND
The estimated cost to complete required land and utility
improvements in all areas designated for homesite sales is summarized
as follows:
December 31
-----------
1993 1992
------ ------
Gross unexpended costs (net of recoveries
of $12,688 in 1993 and $18,950 in 1992) $29,933 $30,787
Less costs relating to unsold homesites 10,602 6,648
------- -------
Estimated development liability for sold land $19,331 $24,139
======= =======
These estimates are based on engineering studies of quantities of
work to be performed based on current estimated costs. These estimates
are reevaluated annually and adjusted accordingly.
A major portion of the estimated development liability for sold
land relates to utility extensions for homesites at Avatar's Arizona
community (Rio Rico) which were sold prior to 1980. At Rio Rico,
Avatar entered into various service and construction agreements with
Citizens Utilities Company (Citizens), a non-related company, generally
providing for Avatar to construct certain utility facilities and deed
them to Citizens. Avatar's expenditures, related to the construction
of some of these facilities, are expected to be reimbursed from
Citizens' present and future customers. Some of these reimbursable
amounts are determined by specific formulas. The recovery of these
expenditures is dependent upon the community attaining an occupancy
and/or usage level sufficient to allow reimbursement prior to the
expiration of the agreements. During 1993, Avatar purchased Citizens
Utilities' water and wastewater treatment division thereby eliminating
the portion of the existing agreement relating to water and wastewater
extensions, leaving only the electrical portion.
Avatar may be obligated to advance to its utility subsidiary
approximately $9,200 (current costs) to complete water and wastewater
utility facilities at its Poinciana subdivision. These possible future
obligations are based on internal engineering studies and are not
included in the estimated development liability discussed above. As
such, past and future expenditures are expected to be recovered from
customers' fees and future revenues.
Expenditures, net of recoveries, for homesite improvement costs
totaling $29,933 are estimated as follows: 1994-$8,967, 1995-$8,381
and $12,585 thereafter. Because the timing of the expenditures after
1995 is dependent upon certain future occurrences beyond Avatar's
control, projection by year after 1995 is not presently practicable.
31
32
NOTE G - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation consist
of the following:
December 31
-----------
1993 1992
------ ------
Utility land, plant and equipment $193,745 $330,870
Land and improvements 12,126 12,577
Buildings and improvements 20,296 20,022
Machinery, equipment and fixtures 13,661 13,702
Other 396 267
-------- --------
240,224 377,438
Less accumulated depreciation 61,284 73,756
-------- --------
$178,940 $303,682
Reclassified to property held for sale, net - 128,455
-------- --------
$178,940 $175,227
======== ========
Depreciation charged to operations during 1993, 1992 and 1991
was $6,524, $7,607 and $6,373, respectively, net of amortization
of contributions in aid of construction of $2,917, $2,632 and $2,532,
during 1993, 1992 and 1991, respectively.
NOTE H - NOTES, MORTGAGE NOTES AND OTHER DEBT
Notes, mortgage notes and other debt are summarized as follows:
December 31
-----------
1993 1992
------ ------
Real estate and corporate
Bank credit lines $28,534 $27,794
8% senior debentures, due 2000, net of
unamortized discount of $1,384 and $1,514,
respectively 6,243 6,145
9% senior debentures, due 2000, net of
unamortized discount of $3,502 and $3995,
respectively 22,229 22,842
5-1/4% convertible-purchase subordinated
debentures, due 2007 - 30,977
Mortgage note obligations, interest rates
from 9 1/4% to 10%, due from 1994 - 1997 7,323 11,311
Avatar Homesite Mortgage Trust 1992- 1,
7% Notes 32,439 45,795
------- --------
$96,768 $144,864
======= ========
Utilities
Bank credit lines $4,675 $24,665
Utility first mortgage bonds due serially
from 1996 - 2007, interest rates from 7 3/4%
to 11 1/2% 26,433 56,851
Utility promissory notes, due 1994 - 2002 7,681 9,111
Other - -
------- -------
38,789 90,627
Reclassified to property held for sale - 41,075
------- -------
$38,789 $49,552
======= =======
32
33
NOTE H - NOTES, MORTGAGE NOTES AND OTHER DEBT - continued
At December 31, 1993, Avatar had unsecured bank credit lines of
$15,000 and secured bank credit lines of $45,534. The unused portions
of the unsecured and secured lines were $10,325 and $17,000,
respectively. Interest rates for borrowings under these lines range from
4 1/2% to 6% on the unsecured bank credit lines and from 4 3/4% to
6 1/4% on the secured bank credit lines at December 31, 1993.
Additionally, certain credit lines provide for fixed rate
borrowing pursuant to Eurodollar interest rates.
Under the terms of these agreements Avatar is
restricted from paying dividends with certain exceptions and is
required to maintain a minimum net worth as defined. The secured lines
are collateralized by certain contracts and mortgage notes receivable
of $20,712 and investment securities of $39,932 at
December 31, 1993.
In July 1992, Avatar issued $51,160 of 7% Mortgage
Trust Notes, pursuant to the securitization of a
portion of its homesite receivables. The notes
mature on December 15, 2002, however, the Company expects the notes to
be repaid in approximately 36 months through the collection of
principal payments, including principal prepayments and late
collections and all interest payments, net of servicing fee and other
adjustments on the mortgage loans. Additionally, all liquidation
proceeds with respect to the mortgage loans, proceeds from the sale of
property acquired through foreclosure or deed-in-lieu of foreclosure
proceedings and proceeds from the purchase of mortgage loans by the
issuer are required to be applied to these notes. The balance of these
notes at December 31, 1993 was $32,439.
Maturities of notes, mortgage notes and other debt at December 31,
1993, are as follows:
Real estate Utilities Total
----------- --------- -------
1994 $18,664 $7,163 $25,827
1995 17,386 2,380 19,766
1996 2,817 4,780 7,597
1997 2,938 4,159 7,097
1998 3,115 3,470 6,585
thereafter 51,848 16,837 68,685
------- ------- --------
$96,768 $38,789 $135,557
======= ======= ========
Maturities for 1994 include approximately $15,633 related to the
Company's bank credit lines. There is no assurance that Avatar will be
able to obtain satisfactory extensions or refinancing of these or other
credit lines.
Interest capitalized during 1993, 1992 and 1991 amounted to $381,
$772, and $746, respectively.
Property, plant and equipment and inventory pledged as collateral
for notes, mortgage notes and other indebtedness had a net book value
of approximately $151,000 at December 31, 1993.
33
34
NOTE I - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
As of December 31, 1993 and 1992, preferred stock outstanding is
as follows:
December 31
-----------
1993 1992
------ ------
9% Cumulative preferred stock $9,000 $9,000
11% Cumulative preferred stock - 4,920
5 1/2% to 6% cumulative preferred stock 1,342
Other 58 144
------ ------
9,058 15,406
Reclassified to property held for sale - 1,082
------ -------
$9,058 $14,324
====== =======
Avatar's utility subsidiary's 9% cumulative preferred stock issue
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.
Maturities of preferred stock are as follows: 1997-$1,800, 1998
- $1,800 and $5,458 thereafter.
Charges to operations recorded as "Other Expenses" relating to
preferred stock dividends of subsidiaries amounted to $1,261 in 1993,
$1,544 in 1992, and $1,231 in 1991.
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 highest 5 out of the last 10 years of
employment. 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.
34
35
NOTE J - RETIREMENT PLANS - continued
The following table sets forth the defined benefit plan's funded
status as of December 31, 1993, 1992 and 1991 and the retirement
expense recognized in the consolidated statements of income for the
years then ended.
1993 1992 1991
------ ------ ------
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of $3,316,
$4,969, and $4,418, respectively $3,382 $5,060 $4,478
======= ======= =======
Projected benefit obligation for services
rendered to date ($4,201) ($7,520) ($6,826)
Plan assets at fair value 4,800 7,132 6,594
------- ------- -------
Projected benefit obligation less than
(in excess of) plan assets 599 (388) (232)
Unrecognized net gain (788) (733) (817)
Prior service cost not yet recognized
in net periodic pension cost 192 571 636
Unrecognized net assets at January 1, 1986,
net of amortization (102) (73) (81)
------- ------- -------
Accrued pension cost included in accrued
and other liabilities ($99) ($623) ($494)
======= ======= =======
Net retirement cost included the following components:
Defined benefit plan:
Service cost -- benefits earned
during the period $220 $434 $398
Interest cost on projected benefit obligation 190 537 488
Actual return on plan assets (241) (489) (726)
Net amortization and deferral 51 (1) 308
------- ------- -------
Net pension cost 220 481 468
Defined contribution plan 89 90 204
------- ------- -------
Total retirement expense $309 $571 $672
======= ======= =======
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 8% and 6%, respectively, at
December 31, 1993, 1992 and 1991. The expected long-term rate of return
on plan assets for 1993, 1992 and 1991 was 8%.
At December 31, 1993, and 1992, the plan assets are invested in a
group annuity contract with a major insurance company. Approximately
70% and 80%, respectively, of the plan assets at December 31, 1993
and 1992, are invested in a general asset fund of the insurance
company that is comprised primarily of fixed income securities. The
remaining assets are invested in equity securities, public bonds and
cash equivalents in the insurance company's separate accounts.
35
36
NOTE K - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Avatar's utility subsidiary sponsors a defined benefit
postretirement plan that provides medical and life insurance benefits
to both salaried and nonsalaried employees after retirement. The
postretirement medical and life insurance plan is non-contributory.
Avatar's utility subsidiary's funding policy for its
postretirement plan is to fund on a pay-as-you-go basis. Prior to
1993, the expense was also measured on this basis. In 1993, the
Company adopted FASB Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", which requires
accounting for postretirement benefits on an accrual basis. The effect
of adopting Statement No. 106 increased net periodic postretirement
benefit expense by $712 for 1993. Postretirement expense for 1992 and
1991 has not been restated.
The following table sets forth the plan's status as of December
31, 1993:
Accumulated postretirement benefit obligation:
Retirees ($594)
Fully eligible active plan participants (778)
Other active plan participants (2,264)
------
(3,636)
Plan assets at fair value 0
------
Accumulated postretirement benefit
obligation in excess of plan assets (3,636)
Unrecognized net gain from past experience
different from that assumed and from
changes in assumptions (24)
Unrecognized transition obligation 2,948
------
Accrued postretirement benefit cost ($712)
======
Net periodic postretirement benefit cost
for the year ended December 31, 1993 included
the following components:
Service cost $342
Interest cost on accumulated postretirement
benefit obligation 246
Amortization of transition obligation
over 20 years 155
------
Net periodic postretirement benefit cost 743
======
For measurement purposes, a 13% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1993;
the rate of increase was assumed to decrease gradually to 6% for the
year 2000 and remain at that level thereafter. The health care cost
trend rate assumption has a significant effect on the amounts reported.
To illustrate, increasing the assumed health care cost trend rates by
1 percentage point each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by $626 and
the aggregate of the service and interest cost components of net
periodic postretirement benefit for the year then ended by $122.
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation is 8%.
36
37
NOTE L - LEASE COMMITMENTS
Avatar leases the majority of its administration and sales offices
under operating leases that expire at varying times through 1999.
Rental expenses for the years 1993, 1992 and 1991 were $1,186, $1,513,
and $2,037, respectively. Minimum rental commitments under
noncancelable operating leases as of December 31, 1993 were as follows:
1994 - $954; 1995 - $929; 1996 - $923; 1997-$746; 1998 - $618; and
thereafter - $1,512.
NOTE M - ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities are summarized as follows:
December 31
-----------
1993 1992
------ ------
Customer deposits and advances $2,380 $7,263
Accounts payable 4,501 4,893
Property taxes 1,427 3,006
Interest 1,576 2,299
Other 16,962 8,832
------- -------
26,846 26,293
Reclassified to property held for sale - 9,390
------- -------
$26,846 $16,903
======= =======
As of December 31, 1993, the Company had agreements with four executive
officers providing as incentive compensation a cash payment to each
officer (to the extent vested), within ten days following the respective
fifth anniversary date 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. Each of these executive officers
will vest in the rights to this incentive compensation with respect to
one-fifth thereof on 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 year
ended December 31, 1993, the Company recorded incentive compensation
of $469 associated with these agreements. The liability for incentive
compensation included in other liabilities at December 31, 1993 and
1992 is $754 and $285, respectively. (See Note R - Contingencies)
NOTE N - INCOME TAXES
Avatar Holdings Inc. is the successor in interest to GAC
Corporation. GAC, together with certain of its subsidiaries, was
reorganized pursuant to Chapter X of the Federal Bankruptcy Act of
1898. The Bankruptcy Court confirmed the Trustees' Plan of
Reorganization and issued a final decree on October 16, 1981,
discharging the Trustees from their duties.
Under the installment method of tax reporting for homesite sales,
Avatar anticipates that its 1993 consolidated federal income tax return
will reflect a net operating loss carryforward of approximately
$18,000, which expires in years 2003 through 2004. The net operating
loss carryforward was generated after the reorganization as a result of
electing the installment method of reporting homesite sales for tax
purposes. In addition, investment tax credits and alternative minimum
tax credit carryforwards of approximately $5,000 are available, a
portion of which expires in years 1994 to 2001. These
37
38
NOTE N - INCOME TAXES - continued
carryforwards have not been examined by the Internal Revenue Service.
The Company has recorded a valuation allowance of $33,000 with
respect to the deferred income tax assets which remain after offset by
the deferred income tax liabilities. Included in the valuation
allowance for deferred income tax assets is approximately $9,000 which,
if utilized, will be credited to additional paid-in capital.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred income tax
assets and liabilities as of December 31, 1993 are as follows:
Deferred income tax assets
Net operating loss carryover $7,000
Tax over book basis of land inventory 20,000
Unrecoverable land development costs 5,000
Tax over book basis of depreciable assets 6,000
Alternative minimum tax and investment tax
credit carryforward 5,000
Other 2,000
-------
Total deferred income taxes 45,000
Valuation allowance for deferred income tax
assets (33,000)
--------
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
========
The provision for income taxes consists of the following:
Liability Deferred
Method Method
1993 1992 1991
--------- -------- --------
Federal:
Current $321 $ - ($1,288)
Deferred 10,884 - (1,798)
State:
Current 544 - 404
Deferred 1,013 - (990)
--------- -------- --------
Total $12,762 $ - ($3,672)
========= ======== ========
Deferred income tax credits result from timing differences in the
recognition of certain expenses for tax and financial reporting
purposes. For the years ended December 31, 1992 and 1991, the
principal components of deferred income tax credits are the theoretical
income tax related to the interest discount
38
39
NOTE N - INCOME TAXES - continued
on debentures issued as part of the reorganization and the deferred
income tax attributable to the difference between book and income tax
depreciation on certain utility assets with long useful lives.
A reconciliation of income tax expense (credit) to the expected
income tax expense (credit) at the federal statutory rate of 35% for
the twelve months ended December 31 is as follows:
Liability Deferred
Method Method
--------- ---------
1993 1992 1991
--------- -------- --------
Income tax expense (credit) computed
at statutory rate $6,382 ($2,293) ($4,184)
Income tax effect of non-deductible
dividends on preferred stock
of subsidiary 441 525 419
Depreciation on assets contributed to
utility companies - (665) (615)
FTC settlement - - 230
State income tax (credit), net of
federal effect 1,012 - (387)
Loss not available for carryback - 2,433 865
Difference between book and tax basis
of midwest water utilities 2,051 - -
Gross up tax received on contributions
in aid of construction 206 - -
Change in valuation allowance on
deferred tax assets 2,670 - -
--------- -------- ---------
Provision for income taxes $12,762 $ - ($3,672)
========= ======== =========
In 1992, 1991, 1989 and 1988, the Company elected the installment
method for recording a substantial amount of its homesite sales in its
federal income tax return, which deferred taxable income into future
fiscal periods. As a result of such election, the Company may be
required to pay compound interest on certain federal income taxes in
future fiscal periods attributable to the taxable income deferred under
the installment method. The Company believes that the potential
interest amount, if any, will not be material to its financial position
and results of operations of the affected future periods.
NOTE O - SALE OF SUBSIDIARIES
On January 30, 1993, the Company entered into stock purchase
agreements for the sale of its Midwest Water Utilities located in
Indiana, Missouri, Ohio, and Michigan. The closing of the sale of
the midwest water utilities took place on August 31, 1993, with an
aggregate selling price of $62,000, resulting in a pre-tax gain of
$21,822, subject to post-closing adjustments.
NOTE P - REDEMPTION/CONVERSION OF 5-1/4% CONVERTIBLE-PURCHASE
SUBORDINATED DEBENTURES
On June 4, 1993 the Company called for the redemption of all its
outstanding 5-1/4% convertible-purchase subordinated Debentures due May
1, 2007 at a redemption price of 100% of the principal amount plus
accrued and unpaid interest from January 15, 1993 through the redemption
date, July 4, 1993. Holders were entitled to convert their 5-1/4%
Debentures into shares of the Company's common stock at a conversion
price of $23.00 per share provided they paid in cash an amount equal to
the principal amount of the 5-1/4% Debentures being converted, for
which they received additional shares of common stock equal to the
number issued on conversion. A total of $30,917 principal amount of
the 5-1/4% Debentures were converted and 2,688,276 shares of common
stock were
39
40
NOTE P - REDEMPTION/CONVERSION OF 5-1/4% CONVERTIBLE-PURCHASE
SUBORDINATED DEBENTURES - continued
issued. The remaining $57 principal amount of 5-1/4% Debentures were
redeemed as of July 4, 1993. The net result of this transaction,
after expenses, was an increase in cash of $30,340, a decrease in
debt of $30,973 and an increase in stockholders' equity of $60,835.
NOTE Q - TREASURY STOCK PURCHASE
On September 30, 1993 the Company purchased 1,000,000 shares of
the Company's common stock from the estate of Peter J. Sharp at a
purchase price of $27.00 per share. These shares are being held in the
Company's treasury for future corporate purposes.
NOTE R - CONTINGENCIES
Avatar is involved in various pending litigation matters primarily
arising in the normal course of its business. Although the outcome of
these and the following matters can not be determined, it is the
opinion of management that the resolution of these matters will not
have a material effect on Avatar's business or financial position.
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. S1251
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 $25,000
per day, per violation based upon the allegations. The Subsidiary
strongly believes that there are mitigating factors 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 ("PRP's") 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.
40
41
On February 25, 1994, the Company's former President and Chief
Executive Officer commenced a lawsuit against Avatar and others
claiming damages arising out of his termination of his employment
purportedly for "Good Reason" (as defined in his employment
agreement.) He also seeks to recover damages from Avatar for libel
and slander and from the other defendants based on their alleged
malicious interference with his employment agreement. Avatar denies
that he had Good Reason to terminate his employment agreement.
Avatar does not believe there is any valid basis for his claims,
and various affirmative defenses have been asserted. Avatar also
has asserted counterclaims against him for breach of contract,
promissory estoppel and improper inducement in connection with
amendments to his employment agreement.
42
NOTE S - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
For the year ended December 31
1993 1992 1991
-------- ------- -------
Revenues:
Real estate
Unaffiliated customers $58,206 $51,561 $54,689
Intersegment 343 324 309
-------- ------- -------
58,549 51,885 54,998
Utility
Unaffiliated customers 67,842 53,600 49,394
Intersegment - - -
-------- ------- -------
67,842 53,600 49,394
Elimination of
intersegment revenues (343) (324) (309)
-------- -------- --------
Total Revenues $126,048 $105,161 $104,083
======== ======== ========
Operating profit:
Real estate $2,435 ($824) ($5,346)
Utility 31,457 14,960 12,255
-------- -------- --------
Total operating profit 33,892 14,136 6,909
Interest expense (15,656) (18,478) (19,216)
-------- -------- --------
Income (loss) before income taxes,
extraordinary item and effect of
changes in methods of accounting $18,236 ($4,342) ($12,307)
======== ======== ========
Depreciation and amortization:
Real estate $2,030 $2,747 $1,961
Utility 4,494 4,860 4,412
-------- -------- --------
Total $6,524 $7,607 $6,373
======== ======== ========
Capital expenditures:
Real estate $1,857 $2,834 $7,403
Utility 15,226 18,788 24,410
-------- -------- --------
$17,083 $21,622 $31,813
======== ======== ========
December 31
1993 1992 1991
-------- ------- -------
Identifiable assets:
Real estate $228,708 $232,016 $249,065
Utility 181,172 233,486 310,372
-------- -------- --------
Total Identifiable assets 409,880 465,502 559,437
General corporate assets 51,602 8,946 13,453
-------- -------- --------
Total Assets $461,482 $474,448 $572,890
======== ======== ========
42
43
NOTE S - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS --
continued
(a) Avatar's businesses are primarily conducted in the United
States.
(b) In computing operating profit, interest has been reflected
separately.
(c) Intersegment revenues contain primarily intercompany interest
and management fees charged to affiliates.
(d) Identifiable assets by segment are those assets that are used in
the operations of each segment. General corporate assets are
principally cash, receivables and investments.
(e) No significant part of the business is dependent upon a single
customer or group of customers.
(f) Cable TV, mortgage and hotel and recreational operations which
primarily serve Avatar communities do not qualify individually
as separate reportable segments and are included in the real
estate segment.
(g) General corporate expenses are included in the real estate
segment.
NOTE T- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1993, are as follows:
Carrying Fair
Amount Value
-------- -------
Cash and restricted cash $8,620 $8,620
Investments 51,184 51,184
Contract, mortgage notes
and other receivables 82,996 85,048
Notes, mortgage notes, and other debt:
Short term bank credit lines 33,209 33,209
Mortgage obligations, first mortgage bonds
and promissory notes 41,437 45,079
Senior debentures 28,472 31,643
Mortgage trust notes 32,439 32,439
The following methods and assumptions were used by the Company in
estimating the fair value of financial instruments:
Cash and restricted cash: The carrying amount reported in the
balance sheet for cash approximates its fair value.
Investments: The carrying amount in the balance sheet for
investments is at fair market value which is generally
determined by quoted market prices.
Contracts, mortgage notes and other receivables: The fair value
amount of the Company's contracts, mortgage notes, and other
receivables are estimated based on a discounted cash flow analysis.
Notes, mortgage notes and other debt: The carrying amounts of the
Company's borrowings under its short-term bank credit lines
approximate their fair value. The fair values of the Company's
mortgage obligations, mortgage bonds, and promissory notes are
estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
43
44
NOTE T- FAIR VALUE OF FINANCIAL INSTRUMENTS - continued
Senior debentures: The fair values of the Company's Senior and
Subordinated debentures are estimated based on quoted market prices.
Mortgage trust notes: The carrying amount in the balance sheet for
mortgage trust notes approximates its fair value. The current
market rate for similar types of borrowing arrangements approximates
the rate of the mortgage trust notes.
44
45
NOTE U - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 is as
follows:
1993 Quarter
------------
First Second Third Fourth
----- ------ ----- ------
Net revenues (1) $27,993 $27,153 $46,335 $24,567
Expenses 27,673 27,330 25,872 26,937
------- ------- ------- -------
Income (loss) before income
taxes and changes in methods
of accounting 320 (177) 20,463 (2,370)
Provision for income taxes (396) (278) (10,118) (1,970)
Changes in methods of
accounting (964) - - 388
------- ------- ------- -------
Net income (loss) ($1,040) ($455) $10,345 ($3,952)
======= ======= ======= =======
Per share amounts:
Primary
Income (loss) before
cumulative effect of
changes in methods
of accounting ($0.01) ($0.06) $1.03 ($0.48)
Cumulative effect of
change in method of
accounting for income
taxes (0.13) - - -
Cumulative effect of
change in method of
accounting for
investments - - - 0.04
------- ------- ------- -------
Net (loss) ($0.14) ($0.06) $1.03 ($0.44)
======= ======= ======= =======
Fully Diluted
Income (loss) before
cumulative effect of
changes in methods
of accounting ($0.01) ($0.06) $1.03 ($0.48)
Cumulative effect of
change in method of
accounting for income
taxes (0.13) - - -
Cumulative effect of
change in method of
accounting for
investments - - - 0.04
------- ------- ------- -------
Net (loss) ($0.14) ($0.06) $1.03 ($0.44)
======= ======= ======= =======
1992 Quarter
------------
First Second Third Fourth
----- ------ ----- ------
Net revenues (1) $26,251 $25,889 $25,834 $27,187
Expenses 27,011 25,968 26,894 29,630
------- ------- ------- -------
Loss before extraordinary item (760) (79) (1,060) (2,443)
Loss on extinguishment of debt - - - (2,402)
------- ------- ------- -------
Net Loss ($760) ($79) ($1,060) ($4,845)
======= ======= ======= =======
Per share amounts:
Primary
Net Income (loss) before
extraordinary item ($0.10) ($0.01) ($0.14) ($0.34)
Extraordinary item - - - (0.32)
------- ------- ------- -------
Net (loss) ($0.10) ($0.01) ($0.14) ($0.66)
======= ======= ======= =======
Fully Diluted
Net Income (loss) before
extraordinary item ($0.10) ($0.01) ($0.14) ($0.34)
Extraordinary item - - (0.32)
------- ------- ------- -------
Net (loss) ($0.10) ($0.01) ($0.14) ($0.66)
======= ======= ======= =======
(1) Net revenues include homesite sales which are recorded on the
installment method of profit recognition.
45
46
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 1994 definitive proxy statement (under
"Election of Directors") to be filed with the Securities and
Exchange Commission on or before April 30, 1994.
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.
Item 11. Executive Compensation
The information called for by this item is incorporated by
reference to Avatar's 1994 definitive proxy statement (under the
caption "Executive Compensation and Other Information") to be filed
with the Securities and Exchange Commission on or before April 30,
1994.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information called for by this item is incorporated by
reference to Avatar's 1994 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 30, 1994.
Item 13. Certain Relationships and Related Transactions
None
46
47
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
17 of this report.
Schedules:
I - Marketable Securities and Other Investments
V - Property, Plant and Equipment
VI - Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
VIII - Valuation and Qualifying Accounts
IX - Short-Term Borrowings
X - Supplementary Income Statement Information
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:
3(a) * Certificate of Incorporation, as amended (previously
filed as an exhibit to the Form 10-K for the year ended
December 31, 1986).
3(b) By-laws, as amended through March 24, 1994 (filed
herewith).
4(a) * Instruments defining the rights of security holders,
including indenture for 8% senior debentures
(previously filed as an exhibit 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 an exhibit
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 an exhibit to Form 10-K
for the year ended December 31, 1992).
4(d) * Indenture for 5-1/4% convertible-purchase subordinated
debentures dated May 1, 1987 (previously filed as an
exhibit to Form 10-Q for the period ended March 31,
1987).
47
48
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K -- continued
10(a) * Consulting Agreement, dated as of December 31, 1990,
by and between Avatar Properties Inc. and John Sladkus
(previously filed as an exhibit to Form 10-K for the
year ended December 31, 1990).
Consulting Agreement, dated as of December 31, 1990,
by and between Avatar Utilities Inc. and John Sladkus
(previously filed as an exhibit to Form 10-K for the
year ended December 31, 1990).
10(b) * 1 Employment Agreement, dated as of June 15, 1992, by
and between Avatar Holdings Inc. and Lawrence Wilkov
(previously filed as an exhibit to Form 10-K for the
year ended December 31, 1992).
10(c) * 1 Employment Agreement, dated as of June 15, 1992, by
and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as an exhibit to Form 10-K for the
year ended December 31, 1992).
10(d) 1 Amendment to Employment Agreement, dated as of March
1, 1994, by and between Avatar Holdings Inc. and
Edwin Jacobson (filed herewith).
10(e) * Four separate Stock Purchase Agreements dated January
30, 1993, with respect to the sale of the Registrant's
utilities located in Indiana, Missouri, Ohio and
Michigan, respectively (previously filed as an exhibit
to Form 8-K dated as of February 3, 1993).
10(f) * Agreement dated January 30, 1993, with respect to the
transactions contemplated by the Stock Purchase
Agreements (previously filed as an exhibit to Form 8-K
dated as of February 3, 1993).
10(g) * Guarantee by the Registrant (previously filed as an
exhibit to Form 8-K dated as of February 3, 1993).
10(h) * Guarantee by American Water Works Company, Inc.
(previously filed as an exhibit to Form 8-K dated as of
February 3, 1993).
10(i) 1 Incentive Compensation Agreement, dated as of January
18, 1993 by and between Avatar Holdings Inc. and
Dennis Getman (filed herewith).
10(j) 1 Incentive Compensation Agreement, dated as of
September 9, 1993 by and between Avatar Holdings Inc.
and Charles McNairy (filed herewith).
10(k) Revolving Credit Agreement between Avatar Properties
Inc. and BHF Bank dated November 30, 1993 (filed
herewith).
11 Statement Re: Computation of per share earnings (filed
herewith).
48
49
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K -- continued
22 Subsidiaries of the Registrant (filed herewith).
Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
December 31, 1993.
* These exhibits are incorporated by reference and are on file
with the Securities and Exchange Commission.
1 Employment and compensation agreements.
49
50
SCHEDULE I - MARKETABLE SECURITIES AND OTHER INVESTMENTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands, except number of shares)
12/31/93 12/31/93
Principal Market Carrying
Amount Cost Value Value
--------- ------- -------- ---------
DEBT SECURITIES
U.S. GOVERNMENT AND AGENCIES 3,903 $3,983 $3,994 $3,994
CORPORATE BONDS AND OTHER INVESTMENTS
AIM MGMT GROUP 9.000 11/15/03 700 700 718 718
AMERICAN ANNUITY GRP INC. 9.500 8/15/01 1,000 1,028 1,056 1,056
ARMCO INC. 9.375 11/01/00 700 700 711 711
CLARK OIL & REF CORP DEB 10.500 12/01/01 1,000 1,087 1,084 1,084
CMI INDUSTRIES INC. 9.5000 10/01/03 700 695 707 707
CTC MANSFIELD FDG CORP 10.250 03/30/03 750 800 796 796
DOMINION TEXTILE USA INC 8.875 11/01/03 700 697 702 702
ENVIROSOURCE INC. 9.750 06/15/03 1,000 990 975 975
INDORAYON SR NTS 9.125 10/15/00 750 750 765 765
INLAND STEEL CO. FMB 12.000 12/01/98 1,000 1,129 1,141 1,141
KEARNY ST REAL ESTATE CO 9.560 07/15/03 750 777 774 774
LEVITZ FURNITURE CORP 9.625 07/15/03 1,000 1,027 1,076 1,076
MAXUS ENERGY CORP 9.375 11/01/03 750 750 752 752
PATHMARK STORES INC. 9.625 05/01/03 750 744 759 759
PIEDMONT AVIATION SER F 10.150 03/28/03 1,000 995 1,012 1,012
PRESIDENTIAL LIFE CORP 9.500 12/15/00 700 700 709 709
RALPHS GROCERY CO. 9.000 04/01/03 700 707 713 713
RELIANCE GRP HLDGS INC 9.00 11/15/00 700 700 714 714
REVLON CONSUMER PRODUCTS 9.500 06/01/99 1,000 1,014 996 996
RIVERWOOD INTL CORP 10.750 06/15/00 1,000 1,096 1,090 1,090
SEQUA CORP 8.75 12/15/01 750 750 752 752
USG CORP 10.250 12/15/02 1,000 1,078 1,028 1,028
RJR NABISCO INC 8.00 01/15/00 1,000 984 1,015 1,015
(1) BANK OF NEW ENGLAND 9.5% 2/15/96 1,000 331 290 290
(1) FIRST EXEC CIG NEBRASKA 8.34% 11/93 300 237 243 243
(1) FIRST EXEC TENNESSE 8.68% 9/15/96 3,340 2,542 2,639 2,639
(1) INTEGRATED RESOURCES 10% 1990 4,000 2,486 2,486 2,486
(1) IRE UNSECURED CLAIM 15,694 5,689 5,689 5,689
(1) JIM WALTER 13.75% 2/1/03 3,800 2,679 3,173 3,173
(1) MAXWELL COMMUNICATIONS 5% 1995 CHF 9,315 2,643 2,546 2,546
(1) MAXWELL COMMUNICATIONS 6% 1993 145 36 34 34
(1) MAXWELL COMMUNICATIONS 8.375% 1993 ECU 2,600 1,162 1,130 1,130
(1) SOUTHEAST BANK EURO FLOAT 6,600 990 1,056 1,056
------- ------ ------ ------
Sub-total 70,097 42,676 43,325 43,325
Number of Market Carrying
Shares Cost Value Value
--------- ------- -------- --------
EQUITY SECURITIES 127,600 7,043 7,020 7,020
MONEY MARKET ACCOUNTS 1,661,371 1,661 1,661 1,661
------ ------ ------
Sub-total 8,704 8,681 8,681
Payable to Broker (822) (822) (822)
------- ------- -------
Marketable securities and
other investments at December 31, 1993 $50,558 $51,184 $51,184
======= ======= =======
(1) Corporation in Bankruptcy/Principal and Interest in Default
50
51
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands)
Balance at Balance
Beginning Additions Transfers at End of
Classification of Period at Cost Retirements in (out) Period
--------- --------- ----------- ----------- ---------
Year ended December 31, 1993
Utility land, plant and equipment $175,386 $15,226 ($2,174) $5,307 $193,745
Land and improvements 12,577 164 (220) (395) 12,126
Buildings and improvements 20,022 463 (225) 36 20,296
Machinery, equipment and fixtures 13,702 1,058 (1,079) (20) 13,661
Other 267 172 - (43) 396
-------- ------- -------- ------ --------
Total $221,954 $17,083 ($3,698) $4,885 $240,224
======== ======= ======== ====== ========
Year ended December 31, 1992
Utility land, plant and equipment $316,262 $18,788 ($4,180) ($155,484) $175,386
Land and improvements 10,926 433 (3) 1,221 12,577
Buildings and improvements 21,223 57 (329) (929) 20,022
Machinery, equipment and fixtures 12,575 737 (2) 392 13,702
Other 956 (5) - (684) 267
-------- ------- -------- -------- --------
Total $361,942 $20,010 ($4,514) ($155,484) $221,954
======== ======= ======== ======== ========
Year ended December 31, 1991
Utility land, plant and equipment $293,503 $24,410 ($1,651) $ - $316,262
Land and improvements 9,742 74 (67) 1,177 10,926
Buildings and improvements 14,404 6,420 (27) 426 21,223
Machinery, equipment and fixtures 12,242 629 (332) 36 12,575
Other 887 280 - (211) 956
-------- ------- -------- -------- --------
Total $330,778 $31,813 ($2,077) $1,428 $361,942
======== ======= ======== ======== ========
51
52
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPEMNT
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands)
Other
Balance at Charges- Balance
Beginning Additions Transfers Add (deduct) at End of
Classification of Period at Cost Retirements in (out) Describe (a) Period
Year ended December 31, 1993
Utility land, plant and equipment $24,686 $4,494 ($1,628) $8,160 $2,917 $38,629
Land and improvements 3,481 385 (103) (28) - 3,735
Buildings and improvements 7,626 754 (225) 30 - 8,185
Machinery, equipment and fixtures 10,934 891 (1,088) (2) - 10,735
------- ------ -------- ------ -------- -------
Total $46,727 $6,524 ($3,044) $8,160 $2,917 $61,284
======= ====== ======== ====== ======== =======
Year ended December 31, 1992
Utility land, plant and equipment $46,225 $4,860 ($2,002) ($27,029) $2,632 $24,686
Land and improvements 3,137 337 - 7 - 3,481
Building and improvements 6,786 894 (54) - - 7,626
Machinery, equipment and fixtures 10,166 1,516 (741) (7) - 10,934
------- ------ -------- -------- -------- ------
Total $66,314 $7,607 ($2,797) ($27,029) $2,632 $46,727
======= ====== ======== ======== ======== =======
Year ended December 31, 1991
Utility land, plant and equipment $41,049 $4,412 ($1,768) - $2,532 $46,225
Land and improvements 2,933 257 (53) - - 3,137
Buildings and improvements 6,163 633 (10) - - 6,786
Machinery, equipment and fixtures 9,407 1,071 (312) - - 10,166
------- ------- -------- ------ -------- -------
Total $59,552 $6,373 ($2,143) - $2,532 $66,314
======= ======= ======== ====== ======== =======
(1) The annual provisions for depreciation have been computed
principally in accordance with the following ranges of rates:
Utility, plant and equipment 1.5% to 10%
Other property, plant and equipment 5% to 20%
(a) Charged principally to estimated cost of development of
land sold and amortization of contributions in aid of
construction.
52
53
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands)
Balance Charged to Balance
at Beginning Costs and at End
of Period Expenses Deduction of Period
Year ended December 31, 1993:
Deducted from asset accounts:
Deferred gross profit on
homesite sales $34,950 $1,278 (1) $4,259 (2) $31,969
Allowance for doubtful accounts 3,051 2,342 2,762 (2) 2,631
Market valuation account 3,297 - 1,215 (3) 2,082
Valuation allowance for deferred
tax assets 30,330 (4) 2,670 - 33,000
------- ------ ------ -------
Total $71,628 $6,290 $8,236 $69,682
======= ====== ====== =======
Year ended December 31, 1992:
Deducted from asset accounts:
Deferred gross profit on
homesite sales $40,507 $234 (1) $5,791 (2) $34,950
Allowance for doubtful accounts 5,457 2,068 4,474 (2) 3,051
Market valuation account 4,899 - 1,602 (3) 3,297
------- ------ ------ -------
Total $50,863 $2,302 $11,867 $41,298
======= ====== ====== =======
Year ended December 31, 1991:
Deducted from asset accounts:
Deferred gross profit on
homesite sales $45,149 $2,902 (1) $7,544 (2) $40,507
Allowance for doubtful accounts 5,991 4,783 5,317 (2) 5,457
Market valuation account 6,559 - 1,660 (3) 4,899
------- ------ ------ -------
Total $57,699 $7,685 $14,521 $50,863
======= ====== ====== =======
(1) Charged to operations as a reduction of revenues.
(2) Uncollectible accounts written off
(3) Credited principally to interest income or allowance for
doubtful accounts upon write-off of uncollectible accounts.
(4) Valuation allowance for deferred tax assets recorded in
conjunction with the adoption of FASB Statement No. 109.
53
54
SCHEDULE IX - SHORT-TERM BORROWINGS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands)
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
at End Interest During the During the During the
Period Rate (3) Period Period (4) Period (5)
-------- --------- --------- ---------- ----------
Year ended December 31, 1993
Notes payable to bank $13,000 4.91% $46,143 $28,918 6.85%
Year ended December 31, 1992
Notes payable to bank (1) (6) 50,559 6.13% 98,375 74,101 6.16%
Year ended December 31, 1991
Notes payable (1) 98,472 6.67% 99,989 91,613 8.95%
Construction loans and loan
from broker (2) 9,169 5.81% 9,169 1,731 3.93%
(1) The notes payable to banks represents borrowings under unsecured lines of
credit and secured mortgage warehouse lines and lines of credit.
(2) The construction loans represent outstanding borrowings under construction
loan committments. The loan from broker represents borrowings under reverse
repurchase agreements.
(3) Represents weighted average interest rate at December 31.
(4) The average amount outstanding during the period was computed by dividing
the total of month-end outstanding principal balances by 12.
(5) The weighted average interest rate during the period was computed by
dividing the actual interest expense by the average short-term debt outstanding.
(6) Included in these amounts are property held for sale with notes payable to
banks of $11,860 at December 31, 1992, weighted average interest rate at
December 31, 1992 of 6%, maximum and average amounts outstanding of $12,871
and $11,248 and 6% weighted average interest rate during the period.
54
55
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands)
Item Charged to Costs and Expenses
---------------- -----------------------------
Year Ended December 31
----------------------
1993 1992 1991
------ ------ ------
Maintenance and repairs $5,896 $6,270 $6,603
====== ====== ======
Taxes, other than payroll and
income taxes
Real estate $7,587 $7,558 $7,629
Other 1,266 1,182 1,071
------ ------ ------
$8,853 $8,740 $8,700
====== ====== ======
Advertising costs $848 $817 $1,031
====== ====== ======
Amounts for royalties not presented as such amounts are
less than one percent of total revenue.
55
56
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 24, 1994 By: /s/Charles L. McNairy
Charles L. McNairy, Executive
Vice President, Treasurer and
Chief Financial Officer
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.
Dated: March 24, 1994 By: /s/Geoffrey C. Hazard, Jr.
Geoffrey C. Hazard, Jr., Director
and Audit Committee Member
Dated: March 24, 1994 By: /s/J. Edward Houston
J. Edward Houston, Director,
Chairman of the Audit Committee
and Executive Committee Member
Dated: March 24, 1994 By: /s/Edwin Jacobson
Edwin Jacobson, Director,
Chairman of the Executive
Committee, President and
Chief Executive Officer
Dated: March 24, 1994 By: /s/Leon T. Kendall
Leon T. Kendall, Director
and Audit Committee Member
Dated: March 24, 1994 By: /s/Leon Levy
Leon Levy, Chairman of the
Board of Directors and Executive
Committee Member
Dated: March 24, 1994 By: /s/Martin Meyerson
Martin Meyerson, Director
and Audit Committee Member
Dated: March 24, 1994 By: /s/William Porter
William Porter, Director
and Audit Committee Member
56
57
Dated: March 24, 1994 By: /s/Fred Stanton Smith
Fred Stanton Smith, Director and
Executive Committee Member
Dated: March 24, 1994 By: /s/Henry King Stanford
Henry King Stanford, Director
Dated: March 24, 1994: By:
Lawrence Wilkov, Director
Dated: March 24, 1994 By: /s/John J. Yanopoulos
John J. Yanopoulos,
Vice-President - Finance and
Controller
57
58
Exhibit Index
3(a) * Certificate of Incorporation, as amended (previously
filed as an exhibit to the Form 10-K for the year
ended December 31, 1986).
3(b) By-laws, as amended through March 24, 1994 (filed
herewith)........................................60
4(a) * Instruments defining the rights of security holders,
including indenture for 8% senior debentures
(previously filed as an exhibit 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 an
exhibit 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 an exhibit to
Form 10-K for the year ended December 31, 1992).
4(d) * Indenture for 5-1/4% convertible-purchase
subordinated debentures dated May 1, 1987
(previously filed as an exhibit to Form 10-Q for the
period ended March 31, 1987).
10(a) * Consulting Agreement, dated as of December 31, 1990,
by and between Avatar Properties Inc. and John
Sladkus (previously filed as an exhibit to Form 10-K
for the year ended December 31, 1990).
Consulting Agreement, dated as of December 31, 1990,
by and between Avatar Utilities Inc. and John Sladkus
(previously filed as an exhibit to Form 10-K for the
year ended December 31, 1990).
10(b) * Employment Agreement, dated as of June 15, 1992, by
1 and between Avatar Holdings Inc. and Lawrence Wilkov
(previously filed as an exhibit to Form 10-K for the
year ended December 31, 1992).
10(c) * Employment Agreement, dated June 15, 1992, by
1 and between Avatar Holdings Inc. and Edwin Jacobson
(previously filed as an exhibit to Form 10-K for the
year ended December 31, 1992).
10(d) Amendment to Employment Agreement, dated as of March
1, 1994, by and between Avatar Holdings Inc. and
Edwin Jacobson (filed herewith).................80
10(e) * Four separate Stock Purchase Agreements dated January
30, 1993, with respect to the sale of the
Registrant's utilities located in Indiana, Missouri,
Ohio and Michigan, respectively (previously filed as
an exhibit to Form 8-K dated as of February 3,
1993).
10(f) * Agreement dated January 30, 1993, with respect to
the transactions contemplated by the Stock Purchase
Agreements (previously filed as an exhibit to Form 8-
K dated as of February 3, 1993).
58
59
Exhibit Index -- continued
10(g) * Guarantee by the Registrant (previously filed as an
exhibit to Form 8-K dated as of February 3, 1993).
10(h) * Guarantee by American Water Works Company, Inc.
(previously filed as an exhibit to Form 8-K dated as
of February 3, 1993).
10(i) 1 Incentive Compensation Agreement, dated as of January
18, 1993 by and between Avatar Holdings Inc. and
Dennis Getman (filed herewith)......................82
10(j) 1 Incentive Compensation Agreement, dated as of
September 9, 1993 by and between Avatar Holdings Inc.
and Charles McNairy (filed herewith)............... 93
10(k) Revolving Credit Agreement between Avatar Properties
Inc. and BHF Bank dated November 30, 1993 (filed
herewith)..........................................102
11 Statement Re: Computation of per share earnings
(filed herewith)...................................138
22 Subsidiaries of the Registrant (filed
herewith)..........................................139
* These exhibits are incorporated by reference and are on file with
the Securities and Exchange Commission.
1 Employment and Compensation agreements.
59