avatar holdings inc.

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AVATAR HOLDINGS INC.
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TO OUR STOCKHOLDERS
AVATAR HOLDINGS INC.
AUDITORS
Ernst & Whinney
CORPORATE COUNSEL
Weil, Gotshal & Manges, New York, NY
Blackwell Walker Gray Powers Flick & Hoehl, Miami, H.
TRANSFER AGENT AND REGISTRAR
Manufacturers Hanover Tmst Company
450 West 33rd Street
New York, NY 10001
STOCKHOLDER INFORMATION, CONTACT:
Juanita I. Rivera
Vice President and Secretary
Avatar Holdings Inc.
201 Alhambra Circle ·
Coral Gables, H. 33134
(305) 442-7000 (Ext. 278)
A copy of the Company's annual report. on
Form 10-K, filed with the Securities and
Exchange Commission, will be furnished
without charge to any stockholder upon
written request to Juanita I. Rivera.
SHARES LISTED
NASDAQ-NMS
Symbol AVTR
AVATAR HOLDINGS INC.
201 Alhambra Circle
Coral Gables, H. 33134
(305) 442-7000
1986 ANNUAL MEETING OF STOCKHOLDERS
Grand Bay Hotel
2669 South Bayshore Drive
Miami (Coconut Grove), H. 33133
May 29, 1986 - 10 a.m.
TABLE OF CONTENTS
Letter to Stockholders
Description of Business
2
Real Estate Operations
3
Proposed Developments
6
Utilities and Other
7
Financial Statements
8
Notes to Consolidated Financial Statements
12
Opinion of Independent Certified Public
Accountants
19
Market for Common Stock and Related
Stockholder Matters
19
Management Discussion and Analysis of Financial
Condition and Results of Operations
20
Supplemental Information of Effects of Changing
Prices and Selected Financial Data (Unaudited)
22
Directors and Officers
24
Avatar's net income for the year ended December 31, 1985
was $4,088,000, or $.50 per share, on revenues of
$69,419,000. Included in net income are extraordinary credits
of $3,538,000, related to termination of one of the Company's pension plans, acquisition of $486,400 principal
amount of the 8% Senior Debentures and utilization of prior
years' operating losses which, as in 1984, obviated the payment of income taxes. Exclusive of income taxes and extraordinary items, continuing operations resulted in earnings of
$1,072,000, or $.13 per share.
Net..income for 1984 was $6,204,000, or$. 70 per share,
on revenues of $77,953,000. Results for 1984 included a
pre- tax gain on sale of operations of $10, 7 50,000, extraordinary credits of $3,351,000 and income from discontinued
operations of $455,000. Excluding the effects of these items,
the Company's continuing operations for the year ended
December 31, 1984 resulted in a pre-tax loss of $6,075,000
( $. 69 per share).
The Company in 1985 continued its development of ongoing projects, while expanding both the utility operations
and the land and housing sales programs.
Avatar Utilities increased operating revenues as a result of
additions to its customer base combined with approved rate
increases. During the year constmction was completed and
operations commenced at the Fiesta Village advanced wastewater treatment plant n'ear Ft. Myers, Florida. This 5,000,000
gallon per day treatment plant represents the utility company's
largest single construction project to date and will enable the
company to further expand its customer base.
.
A favorable economy and declining interest rates enabled
management to concentrate on expanding the Company's land
and housing sales programs. The nationwide sales and marketing network, composed of company-owned offices and
independent brokers, was reorganized and augmented at the
beginning of 1985. As a result, land and housing sales
increased as the year progressed.
.
The Company now offers a variety of housing products,
including quadruplex townhomes, single family homes and
manufactured/ modular homes. Other housing products are
planned for 19 86.
Your Company's management looks forward to continuing
improvements throughout 1986.
~CL~
LAWRENCE WILKOV
President and Chief Operating Officer
~J1~----?~'>P
PETER SHARP
Chief Executive Officer
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REAL ESTATE OPERATIONS
DESCRIPTION OF BUSINESS
Avatar Holdings Inc. is a diversified holding company primarily
engaged through its various subsidiaries in real estate and
utilities operations. Real estate operations include the development and sale of improved and unimproved real estate; construction and sale of shelter units; and amenities, resorts and
cable television operations in Avatar-developed communities.
Utility operations include the purification and distribution of
water and treatment and disposal of wastewater. During 1985,
approximately 51% and 49 Ofo of total revenues were generated through real estate and utility operations, respectively.
Marketing and sales efforts for Avatar's retail land and shelter
unit sales programs at its communities were expanded during
1985. Shelter units were constructed in Avatar's communities
on a "pre-sold" basis, with construction commencing following
mortgage approval. Shelter unit sales amounted to
$9,014,000 during 1985 at prices from the mid $30,000's
to the high $70,000's , while homesite sales amounted to
$8 , 791,000 during the same period.
POINCIANA
NEW TOWNSHIP
FLORIDA
D "Harmony with nature" is the theme throughout the entire
47,000 acres of this planned unit community located close
to Disney World in Central Florida. Thousands of acres of
greenways and forests complement the Avatar-owned recreational facilities and residential areas.
Avatar's 1,200-acre Poinciana Office and Industrial Park
is also the center of a great deal' of activity as evidenced by
sales of commercial/industrial land during 1985 totaling
$1,630,000. Approximately 2,000 acres of commercial/industrial property remain in inventory at December 31, 1985.
An 18-hole Devlin Von Hagge championship golf course,
rated in Florida's top fifty, is featured at Poinciana. The
extensive clubhouse facilities include a pro shop, restaurant,
pool, bar and tennis courts.
Remaining inventory also includes 11,700 acres of land
held for future development or sale.
Avatar's 21,000 square foot Doverplum Shopping Center,
which features a number of retail and business service
establishments, was fully occupied during 1985. For 1986,
a 15,000 square foot addition to Doverplum Shopping Center
is being considered to keep pace with Poinciana's rapid growth.
ARIZONA
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Avatar Utilities Inc., a wholly-owned subsidiary of Avatar
Holdings Inc., operates 36 water plants and 12 wastewater
treatment plants, which serve 25 communities in Florida,
Indiana, Missouri , Michigan and Ohio. These plants provide
for the treatment, distribution and sale of water for public
and private use and treatment and disposal of wastewater in
portions of the 25 communities served.
Avatar Holdings Inc. is headquartered in Coral Gables,
Florida and employs approximately 930 full-time and parttime personnel. As of December 31, 1985, total assets at
cost approximated $340 million.
2
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Avatar's retail land sales were enhanced by a site inspection program, which contributed to the sale of 165 homesites
in Poinciana during 1985. As of December 31, 1985, approximately 4 , 300 single family homesites and 1, 100 acres of land
zoned for multifamily use with a planned density of 17,700
dwelling units remained in inventory.
Shelter unit sales increased in 1985, with the Coopersmith,
Mediterranean-style quadruplex units, and single family homes
constructed on a ((pre-sold" basis. Estimates indicate that during 1986 a total of 500 shelter units constructed by Avatar
and other builders will be added to the nearly 1,600 existing
units. Avatar's shelter units to be constructed during 1986
will include multifamily units of various designs, single family
homes and manufactured homes.
Coopersmith's quadruplex units at Poinciana New Township
3
REAL ESTATE OPERATIONS
e
CAPE CORAL
D
Seven miles west of Fort Myers, bounded on the east and
south by the Caloosahatchee River and on the west by the
Pine Island Sound and the Gulf of Mexico, this Avatar community was incorporated as a city in 1970. One of the fastest
growing communities in Florida, Cape Coral has a population of approximately 50,000 persons in this 60, 700-acre
community. Laced by more than 300 miles of canals, this
established city has been termed "The Venice of Florida."
Avatar's retail land sales program at Cape Coral resulted
in the sale of 161 single family homesites during 1985, while
the demand for commercial/industrial land continued to grow
as evidenced by related sales of $ 7 64,000. Remaining inventory at December 31, 1985 includes 5,900 single family
homesites, 300 acres of land zoned for commercial/industrial
use, 2,100 acres of land zoned for multifamily use with a
planned density of 17,900 dwelling units and 1, 000 acres
of land held for future development or sale.
During 1986, Avatar plans to market single family homes
in Cape Coral. Planned for future development are Tarpon
Point with 656 residential units, a harbor and a marina, and
Camelot, a 506-unit multifamily and 185-unit single family
waterfront community.
Amenities available to the residents of Cape Coral include
Avatar's Cape Coral Inn and Country Club which features
an 18-hole championship golf course, a 9-hole executive golf
course, five tennis courts and a 100-room inn.
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BAREFOOT BAY
D
Situated along U.S. 1 on Florida's east coast, midway
between Vero Beach and Melbourne, this 1, 100-acre manufac~ured/ modular home community overlooks the Indian River.
Since its opening in 1970, approximately 4,100 of Barefoot
Bay's 5,020 homesites have been sold.
Attracted by the unique, leisurely lifestyle and recreational
facilities, the current year-round population of approximately
4,000 persons consists primarily of retirees. Avatar-owned
amenities presently available to residents include an 18-hole
executive golf course, a multi-purpose clubhouse and community center, two large pools and tennis and shuffleboard
courts.
Located within the community is an Avatar-owned 11,120
square foot shopping center which was fully occupied during
1985 and features a doctor's office, a post office and a savings and loan association, as well as grocery and specialty
shops . Lake facilities provide fishing and boating activities
to the residents of Barefoot Bay. On the Indian River at the
community's U.S. 1 entrance is a 776-foot lighted fishing
pier owned by Avatar.
Avatar's sales activities at Barefoot Bay include the sale of
manufactured homes and homesites. Approximately 900
homesites remained in inventory at December 31, 1985. All
of the homes currently sold are "double-wide" with screenenclosed patios or porches and are permanently installed with
masonry skirting, ,paved driveways, carports and landscaping.
Over 85 clubs and organizations within the community provide residents with social activities throughout the year.
c:;)
RIO RICO
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D Mountains and canyons surround Avatar's Arizona community, its lowest elevation being 3, 300 feet above sea level.
Rio Rico, a sprawling 55,000-acre community, is located 13
miles north of Nogales, Arizona and Nogales, Sonora (Mexico)
and 57 miles south of Tucson.
During 1985, Avatar curtailed its retail land sales program
at Rio Rico due to concentration on sales and marketing of
the Florida_properties. It is anticipated t~at a retail land sales
program will be re-emphasized for the Rio Rico homesites
within 12 to 18 months. Avatar owns and operates an 18-hole
Robert Trent Jones designed championship golf course and
a 36,800 square foot shopping center.
Serving both Rio Rico and Southern Arizona, the South
Industrial Park includes more than 40 business operations,
mostly in the produce industry, but including light manufacturing and electronics firms. The community's location provides unique production advantages in the ability to compete
in both national and international markets.
Remaining inventory at December 31, 1985 includes 5,000
single family homesites, 2,100 acres of land zoned for
multifamily use with a planned density of 6, 200 dwelling
units, 1, 200 acres of land zoned for commercial/industrial
use and 8,200 acres of land held for future development,
sale or open space.
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GOLDEN GATE
D Located seven miles east of Naples and the Gulf of Mexico,
Golden Gate is comprised of an estates area of approximately 100,000 acres and a 2,500 acre "city" area.
Avatar's retail land sales activities at Golden Gate continued
during 1985 resulting in sales of approximately $830,000.
Remaining inventory at December 31, 1985 includes 8 7 single
family and duplex homesites with a planned density of 153
dwelling units, 104 acres of land zoned for multifamily use
with a planned density of 890 dwelling units and some 7,400
acres in the estates area which is primarily being held for future
use with sales on a selected basis.
Enhancing this community are non-Avatar-owned amenities
which include the Golden Gate Country Club with its 18-hole
golf course, tennis courts and pool, a 102-room motel and
a community center.
Bicycling in Golden Gate ·
Clubhouse at Rio Rico's 18-hole golf course
Cape Coral Country Club and Inn
4
Avatar's model home center at its Barefoot Bay community ·
5
UTILITIES AND OTHER
PRQPOSED DEVELOPMENTS
AVATAR UTILITIES INC.
In addition to its ongoing projects, Avatar owns prime
Avatar Utilities Inc. is regulated by various federal, state
and county agencies and must comply with federal and state
treatment standards. All sources of water are tested on a regular
basis and purified as required to comply with governmental
standards to ensure a supply of safe water.
OCALA SPRINGS, FLORIDA
acreage in Florida and California. While immediate development of such properties is not scheduled, Avatar continues
D Located five miles northeast of Ocala in Marion County,
to preserve and maintain the governmental permits and
this 4, 700-acre property is bisected by State Road 326, connecting directly with 1-75. A naturaL spring-fed lake, which
is planned for limited recreational use, enchances this property's rolling hills and hardwood hammocks.
The recently-developed concept plan for this project provides for 700 single family ranchettes on 1 114 to 1 112 acre
lots, 4,600 single family homesites on 1;4 to 112 acre lots,
400 manufactured/modular homesites and 1,000 multifamily
condominium units. Approval of the concept plan has been
obtained from all appropriate state, regional and local governmental agencies.
Also planned are an 18-hole golf course and more than
300 acres for commercial, industrial and service facilities.
Ground breaking for an elementary school took place in the
first quarter of 1986 with opening scheduled for the fall term.
approvals necessary for undertaking such development.
BANYAN BAY,
STUART, FLORIDA
D An approved planned unit development (PUD) golf and
water-oriented community, this 25 1-acre site near Stuart in
Martin County has a three-quarter mile river frontage,
navigable to the Intracoastal Waterway and the Atlantic Ocean.
Zoning approvals have been obtained for a maximum of 1, 170
units.
Contemplated for Banyan Bay is a medium density residential development of two and four story condominiums with
central amenities to include an 18-hole golf course and related
club facilities.
LOCATION OF
AVATAR UTILITIES INC.
SUBSIDIARIES
1. CALUMET
2. WABASH
3. SOMERSET
4. SUMMITVILLE
5. CRAWFORDSVILLE
6. NOBLESVILLE
7. GREENWOOD
B. SHELBYVILLE
9. FRANKLIN
10. NEWBURGH
11. ROCKPORT
12. JEFFERSONVILLE
13. NEW ALBANY
14. ST. CHARLES COUNTY
15. BRUNSWICK
16. WARRENSBURG
17. PARKVILLE
18. MEXICO
19. HUBER HEIGHTS
20. BAREFOOT BAY
21. CARROLLWOOD
22. SOUTH SARASOTA
COUNTY
23. LEE COUNTY
24. GOLDEN GATE
25. POINCIANA
WOODLAND HILLS, CALIFORNIA
HARBOUR ISLANDS,
HOLLYWOOD, FLORIDA
D This 191-acre project is comprised of three islands,
adjoining the Intracoastal Waterway, within the City of
Hollywood on Florida's east coast.
An approved plan for this water-oriented community provides for 2,582 high rise condominium units, 474 townhouse
and triplex dwelling units, 28 single family homesites, 65,000
square feet of commercial space, a 150-room hotel and a 200boat slip marina facility.
6
D An ideal site for the future development of a luxury single
family community because of its northwestern Los Angeles
County location, this 955-acre property consists of two tracts.
Plans for the Reseda tract call for 178 homesites for which
tentative approval has been obtained. Plans for the Natoma
tract are being formulated.
D
New Fiesta Village 5,000,000 gallon per day wastewater treatment
plant in South Lee County, Florida.
Avatar Utilities Inc., is engaged primarily in the purification and distribution of water for public and private use.
Twenty-five communities, with a total population of over
AMERICAN CABLEVISION SERVICES, INC.
500,000 located in the states of Florida, Indiana, Michigan,
Missouri and Ohio are served by the utilities company. Sewer
service is also provided in portions of operating areas served.
At December 31, 1985, Avatar Utilities Inc. had approximately 126,000 water and 40,000 sewer customers. In
addition, it operates a data processing service bureau which
provides computer services to outside customers, including
other utility companies. Three of the 25 communities served
include the Avatar developments of Barefoot Bay, Golden Gate
and Poinciana New Township.
In 1985, Avatar Utilities Inc. put in service a new
5,000,000 gallon per day state-of-the-art advanced wastewater treatment plant in its South Fort Myers, Florida service
area near Cape Coral. This project was the largest ever undertaken by the utilities company at a cost of $12,000,000.
Barefoot Bay, Poinciana and Rio Rico communities. During
1985, subscribers in the Company's remaining systems
increased 12010 to 3,800. Approximately 24% of the basic
subscribers also purchased premium service. American
Cablevision Services, Inc. had total revenues of $561,000
O This company provides cablevision services to Avatar's
during 1985.
OTHER REAL ESTATE
D Avatar also owns approximately 1, 200 acres of bulk land
in Florida. These properties are held as inventory for future
use or sale on a selected basis.
7
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
8
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
AVATAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(Dollars in thousands except per-share data)
Balance January 1, 1983
Net (loss)
Credit for Federal income tax effect of
contributions in aid of construction
Miscellaneous reorganization items
Balance December 31, 1983
Net income
Purchase of 381 ,098 shares of treasury stock
Treasury stock received (535,427 shares)
pursuant to second distribution under the
Plan for stub interests
Credit for Federal income tax effect of
contributions in aid of construction
Balance December 31, 1984
Net income
Purchase of 197,528 shares of treasury
stock
Elimination of reserves relating to the
Federal Trade Commission Modified
Consent Order
Credit for Federal income tax effect of
contributions in aid of construction
Miscellaneous reorganization items
Balance December 31, 1985
CONSOLIDATED STATEMENTS OF CHANGES
IN FINANCIAL POSITION
Common
Stock(a)
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)(b)
$10,009
$112,100
$(2,367)
(5,782)
10,009
207
i ,367
113,674
(8, 149)
6,204
Treasury
Stock(c)
$10,290
10,290
5,987
3,396
10,009
247
113 ,921
(1 ,945)
4,088
19,673
3,561
11,086
$10,009
200
(250)
$124,957
$ 2,143
$23,234
(a) $1 par value per share; 15,500,000 shares authorized; 10,009,005 shares issued.
(b) Retained earnings (deficit) is subsequent to the October 1, 1980 Plan of Reorganization.
(c) Treasury stock included 1,974,631, 1 ,777, 103 and 860,578 shares at December 31, 1985,
1984 and 1983, respectively.
Authorized 5,000,000 shares of preferred stock; none issued .
See notes to consolidated financial statements.
10
For the year ended December 31
1985
1984
1983
(Dollars in thousands)
Cash provided:
Continuing operations
Income (loss) from continuing operations before
extraordinary items
Add (deduct):
Depreciation
Unrecoverable land development costs
Gain on sale of mortgage portfolio
Deferred income taxes
Gain on debt retirement
Gain on sale of operations
Other
Discontinued operations
Cash provided from (used for) operations
Extraordinary credit, net of items not providing cash
Reduction in other assets resu lting from distribution
of stub interests
Decrease in contracts, mortgages and other
receivables
Cost of real estate sold, not requiring cash
Collection of receivable relating to sale of subsidiary
Retirement of property, plant and equipment
Increase in notes, mortgages and other debt
Contributions in aid of construction
Proceeds from sale of mortgages
Preferred stock issued by utility subsidiary
Proceeds from insurance settlement
Proceeds from sales of operations
Total
Cash used:
Land inventory improvements including amenities
Purchase of stub interest units
Purchase of 8% senior debentures
Reduction in notes, mortgages and other debt
Additions to property, plant and equipment
Increase in treasury stock
Increase in contracts, mortgages and other
receivables
Total
Increase (decrease) in cash
$
550
~ 2,398
$ (5,605)
3,815
3,820
2,160
4,291
1,547
(305)
(515)
(10 ,750)
1,782
(1 ,41 0)
988
(422)
(765)
(950)
3,754
2,272
136
2,408
(356)
466
357
4,832
4,832
7,234
1,543
9,593
5,208
19,374
4,326
5,803
6,224
2,779
4,207
57,125
18,472
52 ,432
45 ,121
5,862
15,273
304
11,833
27,652
3,561
5,851
4,483
19,336
9,383
9,776
16,212
5,896
55,108
$ 2,017
54,326
$ (1 ,894)
42,669
$ 2,452
3,044
1,442
22,010
4,861
9,936
7,000
4,000
2,899
7,905
13,923
2,758
See notes to consolidated financial statements.
11
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA)
NOTE A
SUMMARY
ACCOUNTING POLICIES
OF SIGNIFICANT
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 sewer utility services .
Land Inventories:
land inventories are stated at the lower of cost or
· estimated net realizable values. Cost includes expenditures for acquisition, construction, development and carrying charges. Interest costs incurred during the period
of land development are capitalized as part of the cost
of such projects and are subsequently charged to operations when the project units are sold. land acquisition
costs are allocated to individual land parcels based upon
the relationship that the estimated sales prices or appraised
values of specific parcels bear to the total sales price or
appraised value of the entire community. Construction and
development costs are added to the value of the specific
parcels for which the costs are incurred. Estimated land
construction and development costs are based primarily
on external engineering reports.
Revenues:
Retail land sales are made primarily under installment
mortgage arrangements requiring payments over seven to
ten year periods . Retail land sales are recognized in full
at the time total payments, including principal and interest,
amount to at least 10% of the contract price and the period
for cancellation with refund has expired.
Sales of shelter units are recognized in full upon the
transfer of title to the purchaser. Revenues from commercial land and bulk land sales are recognized in full at closing
provided the purchaser's initial investment is adequate, all
financing is considered collectible and Avatar is not obligated to perform significant future activities.
Utility revenues are recorded as earned.
I
Ill,
Property, Plant and Equipment:
I
~ II
I
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.
I
12
Income Taxes:
No provision is made for deferred income taxes related
to timing differences (other than those related to certain
long-lived utility assets) in the recognition of certain income
and expense items for tax and financial reporting purposes
due to significant available net operating loss carryforwards
(see Note L). Tax benefits realized from the utilization
of net operating loss carryforwards related to years prior
to reorganization are credited to '~ditional Paid-In
Capital''.
NOTED - CONTRACTS, MORTGAGES AND OTHER
RECEIVABLES
Installment land receivables are collectible over seven
to ten year periods and bear interest at rates ranging from
6% to 13 liz% per annum (weighted average rate
10.6%). An installment is considered delinquent if the
scheduled payment remains unpaid 30 days after its due
date. Delinquent installment land receivables at
December 31, 1985 and 1984 were $337 and $357,
respectively. Estimated maturities for the five years subsequent to 1985 are: 1986- $2,280; 1987- $2,109;
1988 - $1,806; 1989 - $1,874; 1990- $1,923.
During the second quarter of 1985, Avatar sold the
major portion of its mortgage loan portfolio for $9,936.
The sale resulted in a gain of $356 , which is included
in "Other Revenues".
Provision for doubtful accounts charged to operations
were: 1985 - $598; 1984 - $1,993; 1983 - $599.
Amounts charged (credited) to other valuation reserves
for mortgage portfolio market declines were: 1985- $3;
1984 - $1,544; 1983 - $(1).
Estimated costs to complete development of areas designated for homesite sales. (excluding Rio Rico utilities
which is estimated at $20,591) at December 31, 1985
amounted to $18,618. Of this amount Avatar expects to
expend $4,468 in 1986, $1,000 in 1987 and $13,150
thereafter. Because the timing of the expenditures after
198 7 is dependent upon certain future occurrences beyond
Avatar's control, projection by year is not presently practicable. However, it is management's opinion that a substantial portion thereof will be expended after 1990.
At its Arizona community (Rio Rico), Avatar entered
into various service and construction agreements with
Citizens Utilities Company {Citizens), a non-related company, generally requiring that Avatar construct certain utility
facilities and deed them to Citizens. Avatar's expenditures,
related to the construction of these facilities, are expected
to be reimbursed from Citizens and 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. The
estimated unexpended costs to complete these facilities
at December 31, 1985 aggregate $30,026 (current costs)
and are included in the accompanying Consolidated Balance
Sheets, less estimated recoveries.
Avatar may be obligated to advance approximately
$34 ,550 (current costs) to complete water and sewer utility
facilities at Avatar's Poinciana subdivision. These possible future obligations are based on internal engineering
studies and are not included in the estimated development liability discussed above. All such past and future
expenditures are expected to be recovered from customers' fees and future revenues.
NOTE E - LAND AND OTHER INVENTORIES
NOTE F - PROPERTY, PLANT AND EQUIPMENT
Contracts, mortgages and other receivables are summarized as follows:
Installment land and mortgage
receivables
Notes and other receivables
Total
1985
1984
$18,882
13,184
$27,025
13,902
32,066
40,927
1,286
256
I ,518
2,032
1,542
3,550
$30,524
$37,377
Less:
Allowance for doubtful accounts
Other valuation reserves
Pension Plans:
Avatar's policy is to fund at least the minimum amount
required by ERISA and to amortize prior service costs over
a period of thirty years .
Additional Paid-In Capital:
Charges and credits known to pertain to periods prior
to reorganization are recorded as adjustments to '~di­
tional Paid-In Capital".
Contribution 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".
The related depreciation of the utility plant is charged to
this account to the extent required by regulatory agencies.
Reclassifications:
Certain 1984 and 1983 financial statement items have
been reclassified to conform with 1985 presentations.
NOTE B - REORGANIZATION
Avatar Holdings Inc., formerly GAC Corporation, and
certain of its subsidiaries were involved in reorganization
proceedings pursuant to the Federal Bankruptcy Act. The
Bankruptcy Court confirmed the Trustees' Plan of
Reorganization (Plan) and declared it effective October 1,
1980. On October 16, 1981, the Bankruptcy Court issued
a final decree and discharged the Trustees from their duties.
NOTE C- CASH
Cash included short-term investments of $11,441 and
$5,234 at December 31, 1985 and 1984, respectively.
At December 31, 1985, cash aggregating $580 was
restricted primarily for general unsecured creditors under
the Plan.
As of December 31, 1985, cash included $10,070
in U.S. Treasury Notes which were pledged as collateral
for outstanding borrowings under reverse repurchase
agreements (see Note H) .
Inventories consist of the following:
Land developed and in process
of development
Land held for future development
or sale
Shelter units completed or under
construction
Other
1985
1984
$ 65,200
$ 67,029
34,667
32,508
3,826
1,254
2 ,288
I ,492
$104,947
$103,317
Property, plant and equipment and accumulated
depreciation consist of the following:
Utility plants and equipment
Land and depreciable
improvements
Building and improvements
Machinery, equipment and
fixtures
Other
Less accumulated depreciation
As of December 31, 1985, Avatar estimates that it
will cost approximately $39,209 to complete required land
development improvements in all areas designated for
homesite sales. The company records as "Estimated development liability for sold land" on its balance sheet only
that portion of the land development costs which relate
to recorded land sales. At December 31, 1985 the estimated development liability for sold land was $24,654.
1984
1985
$192,270
$168,573
5,739
8,054
5,382
8 ,101
14,125
6,619
14,661
5,642
226,807
36,928
202 ,359
33, 753
$189,879
$168,606
Depreciation charged to operations during 1985, 1984
and 1983 was $3,815, $4,138, and $4,604 , respectively, of which $-0-, $318 and $3 13 , respectively, related
to discontinued operations. Depreciation capitali zed during 1985, 1984 and 1983 was $1, 5 26 , $ 1,928 and
$1,335. Gain on the sale of operations in 1984 included gains related to the sales of major portions of Avatar's
cable television business and an apartment complex.
NOTE G- STUB INTEREST UNITS
In June 1984, all judicial appeals concerning various
disallowed claims under the Plan were resolved in favor
of the holders of stub interest units, including Avatar. Stub
interest units are contingent entitlements to future distributions of securities and cash pursuant to the Plan. As a
result of the resolution of the above claims, substantially
all remaining Avatar common stock and senior debentures,
cash and GAC Liquidating Trust units held by an escrow
agent and Avatar were distributed to the holders of stub
interest units. Prior to settlement, cash amounts included
$3,300 which had been held by Avatar in escrow and
included in its liability to generai unsecured creditors.
In 1984, as a result of its ownership of stub interest
units, Avatar received 535 shares of its common stock,
$2,945 principal amount of its senior debentures, 214
GAC Liquidating Trust units and cash of $2,807.
NOTE H- NOTES, MORTGAGES AND OTHER DEBT
Notes, mortgages and other debt are summarized as
follows:
Bank credit lines
Construction loans
Mortgage obligations, interest
rates 6.5% to 12.25%, due
from 1986-96
Utility first mortgage bonds,
due serially from 1986-2005,
interest rates 4.4% to 16.6%,
net of unamortized discount
of $505 and $584,
respectively
Utility promissory notes, due in
equal annual principal payments, through 1996, net of
unamortized discount of $18
and $27, respectively
8% senior debentures, due
2000, net of unamortized
discount of $9,854 and
$10,311, respectively
Borrowings under reverse
i·epurchase agreements,
interest rates 7.9% to 8.12%
(see Note C)
Other
Cumulative preferred stock of
utility subsidiaries
1985
$ 5,160
782
1,817
36,624
1984
$ 13,840
853
2,777
26,877
9,545
9,654
30,025
30 ,052
BOO
10,125
178
668
94,256
85,521
9,602
2,821
$103,858
$ 88,342
At December 31, 1985, Avatar had unsecured bank
credit lines of $26,500 and secured bank credit lines of
$.1:),000. The unused portions of these lines were $22,005
and $4,365 for the unsecured and secured lines, respec-
14
tively, at December 31, 1985. Interest rates for borrowings under these lines are prime to 0. 7 5% above the prime
interest rates. Under the terms of these agreements, which
expire at various dates through September 198 7, Avatar
is restricted from paying dividends and is required to maintain a minimum net worth as defined. The secured lines
are collateralized by mortgages receivable. Irrevocable letters
of credit, primarily to secure land development requirements, totaling $11,717 at December 31, 1985 have been
issued pursuant to various other bank credit lines.
The Trust Indenture for the 8% senior debentures provides for an annual sinking fund payment each October
sufficient to redeem $2,000 face amount of the debentures. In 1985, Avatar cancelled approximately $10,600
face amount of the debentures previously acquired and
plans to have these debentures applied toward sinking fund
requirements through 1989 . Interest on the debentures
is paid semi-annually. The indenture terms, among other
things, restrict: the declaration and payment of dividends
or distribution to any class of stock; the purchase, redemption , retirement or other acquisition for value of any share
of Avatar's common stock, unless the consolidated net
worth of Avatar would exceed $60,000 immediately following any such aforementioned transaction and all sinking fund obligations are current.
During 1985, Avatar repurchased $484 face amount
of its senior debentures in the open market, resulting in
a gain of $55 (net of income taxes), which is recorded
as an "Extraordinary Credit". Avatar presently plans to
maintain these debentures in its treasury to meet subsequent years' sinking fund requirements.
During 1984, Avatar repurchased $9,635 of its senior
debentures in the open market and received $2,945 principal amount relative to its ownership of stub interest units
(see Note G). These reductions in the outstanding amount
of the senior debentures resulted in an operating gain of
$515 recorded in "Other Revenues" and an extraordinary
gain of $2,232 ($.25 per share), net of income taxes.
During November 1985, a utility subsidiary of Avatar
issued $7,000 of 11% cumulative preferred stock. The
stock issue provides for redemption to occur no earlier than
November 1990, in whole or in part, but no less than
$525 per annum beginning in 1990. A redemption of
all outstanding shares is to occur no later than November
15, 2000. This subsidiary has other preferred stock
outstanding with dividends ranging from 5 112 % to 6 112 %
with an annual required redemption through 1989 of
$218. The total preferred stock outstanding at December
31, 1985 and December 31, 1984 is as follows:
Charges to operations recorded as "Other Expenses"
relating to preferred stock dividends of subsidiaries
amounted to $265 in 1985, $177 in 1984 and $196
in 1983.
Maturities of notes, mortgages and other debt at
December 31, 1985 are as follows:
1986
1987
1988
1989
1990
Thereafter
Interest expense capitalized during 1985, 1984 and
1983 amounted to $1,240, $397 and $387, respectively.
Property, plant and equipment and inventory pledged
as collateral for notes, mortgages and other indebtedness
had a net book value of approximately $176,000 at
December 31, 1985.
NOTE I - PENSION PLANS
11% cumulative preferred stock
5V2% to 6V2% cumulative preferred
stock
1984
2,602
$2,821
$9,602
$2,821
Avatar leases most of its administration and sales offices
under operating leases which expire at varying times
through 1998. Rental expenses for the years 1985, 1984
and 1983 were $1,954, $2,375 and $2,269, respectively, less sublease rentals of $123, $540 and $491,
respectively. Minimum rental commitments under noncancellable operating leases as of December 31,. 1985 were
as follows: 1986- $1,173; 1987- $964; 1988- $358;
1989- $175; 1990- $84; and thereafter- $196.
NOTE K- ACCRUED AND OTHER LIABILITES
Accrued and other liabilities are summarized as follows:
On June 30, 1985, Avatar terminated its noncontributing defined benefit plan that covered substantially
all employees not covered by the defined benefit plan of
its subsidiary, Avatar Utilities Inc. Effe~tive January 1,
1986, Avatar replaced the terminated plan with a defined
contribution savings plan. Under the savings plan, the
company contributes to a trust based upon specified percentages of employee voluntary contributions.
Upon termination of the pension plan all participants
became fully vested and entitled to receive their plan
benefits. Avatar has received regulatory approval of the
Pension Benefit Guaranty Corp. for discontinuance of this
plan. Upon liquidation of the plan assets, Avatar will
receive assets equal to the overfunding of approximately
$3,000. This pension refund, along with the reversal of
accrued pension liabilities, re~ulted in a $1, 7 3 2 extraordinary credit, net of an income tax provi~ion of $1,643.
Accumulated plan benefits and plan assets for Avatar's
defined benefit,plan covering employees of Avatar Utilities
Inc., as of the latest valuation date are presented below.
January 1
1985
1984
Actuarial ,present value of accumu lated
benefits:
Vested
Non-vested
In computing the actuarial present value of accumulated plan benefits the assumed rate of return was 8%
in 1985 and 7% in 1984.
NOTE ] - LEASE COMMITMENTS
$103,858
Net assets available for benefits
1985
$7,000
$ 17,446
5,778
1'118
1,924
4,396
73,196
The total pension expense charged to continuing 0 perations for 1985, 1984 and 1983 was $177, $555 and
$646, respectively.
$1,533
188
$1,651
219
$1,721
$1,870
$3,016
$2,644
Deferred customer betterment fees
Customer deposits
Reserve for Federal Trade
Commission orders
Property taxes
Interest
Other
1985
$14,475
2,230
1984
$13,261
601
4,207
812
18,542
11,300
5,059
1,018
22,119
$40,266
$53,358
Customer betterment fees collected, which have been
deferred, will be reclassified to contributions in aid of construction when related utility connections are completed
and service begins.
Pursuant to a Federal Trade Commission Modified Consent Order ("Order"), issued in April of 1979 and entered
into in September 1980, .Avatar had maintained reserves
approximating $11,300, for the benefit of lot .purchasers
in certain areas of its Golden Gate development. The Order
provided for the maintenance of these reserves through
September 1985 or until such. amounts were depleted by
adjustments for the benefit of certain lot purchasers. As
of September 30, 1985, having fully complied with all
the requirements of the Order, Avatar eliminated all reserves
relating to the Order. The elimination of these reserves
resulted in a credit to 'Additional Paid-In Capital" of
$11,086.
15
NOTE L- INCOME TAXES
Avatar anticipates that its 1985 Consolidated Federal
Income Tax Return will reflect a net operating loss carryforward of approximately $94,000, which expires as
follows: 1992 - $35,000; 1993 - $5,000; 1995 $42,000; 1997 - $7,000; 2000 - $5,000. In addition, an investment tax credit carryforward of approximately
$7,000 is available, which will expire in years 1989 to
2000. These carryforwards have not been approved by
the Internal Revenue Service.
Additional cumulative expenses and losses aggregating
approximately $60,000, which have been deducted for
financial statement purposes, have not been recognized
by Avatar for federal income tax purposes. Cumulative
expenses and losses referred to above include principally
land inventory write-downs and estimated unrecoverable
land development costs not deducted for federal income
tax purposes. Avatar also has cumulative income items
amounting to approximately $20,000, which have been
recognized for financial statement purposes, that will be
recognized as income on future income tax returns. Cumulative income items referred to above include principally
differences in reporting future taxable income from estimated recoverable land development expenditures.
Deferred income tax credits result from timing differences
in the recognition of certain expenses for tax and financial reporting purposes. The principal component of deferred income tax credit is the theoretical income tax effect
of the interest discount of debentures issued as a part of
the reorganization which amounted to $4,799 and $5,021
as of December 31, 1985 and 1984, respectively.
Federal and state income taxes charged to operations
were as follows:
Federal
State
Total
1985
$468
54
$522
1984
$2,044
233
$2,277
The income tax expense for 1985 and 1984 includes
deferred income tax provision of $466 and a deferred income tax credit of $305 , respectively.
A reconciliation of income tax expense (credit) to the
expected income tax expense (credit) at the federal rate
of 46% is as follows:
1985
Income tax expense (credit)
computed at statutory rate
Income tax effect of operating
loss carryforwards generated
State income tax (net of
federal effect)
Provision for income taxes
1984
$493 $2,151
1983
$(2,660)
2,660
29
126
$522 $2,277 $
Certain deferred income tax credits and charges related
to years after the reorganization were eliminated and/or
not provided due to the financial basis losses subsequent
to reorganization of approximately $2, 7 7 3. To the extent
that these loss carryforwards are recognized in future
periods, the deferred income tax credits and charges
eliminated and/or not provided will be reinstated .
Avatar and its subsidiaries file a Consolidated Federal
Income Tax Return. These returns have not been examined
by the Internal Revenue Service since 1969.
NOTE 0 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
Revenues:
Real Estate
Unaffiliated customers
lntersegment
Utility
Unaffiliated customers
Intersegment
Total Revenues
In December 1984, Avatar sold a subsidiary, T & T
Co. Holding Company, for approximately $9, 7 SO. This
subsidiary was engaged in the business of underwriting
title insurance policies and selling property abstracts in
Florida. As a result of the sale, Avatar recognized a gain
of $700, including income tax benefits of $3,340. The
tax benefits recognized exceed the net loss on sale due
to a permanent difference in the tax basis compared to
the financial statement basis of approximately $4,100.
A summary of certain operating results ofT & T Co.
Holding Company is as follows:
Operations:
Net revenues
Loss before taxes
Benefit of income taxes
1984
1983
$17,224
$15,551
$
Net loss from operations
Disposal:
Loss on disposal
Benefit of income taxes
$
$
455
(177)
Operating profit (loss) :
Real estate
Utility
$ 35,425
1,743
37,168
$ 45 ,997
6,792
$ 36,942
3,261
52 ,789
40,203
31 ,956
80
30,447
168
32 ,036
(6,872)
30,615
(3,429)
$ 77 ,953
$ 67,389
$ . 3,732
11 ,259
$ (5,746)
11,848
14,991
(1 0,316)
6,102
(11 ,707)
$
4,675
$ (5,605)
(748)
10,996
10,248
(9, 176)
$ 1,072
$
Operating profit
Interest expense
Income (loss) before income taxes
Depreciation and amortization:
Real estate
Utility
Discontinued operations
Total
Capital expenditures:
Real estate
Utility
Discontinued operations
Total
Identifiable assets
Real estate
Utility
Discontinued operations
Total identifiable assets
General corporate a~sets
$
1983
$
1,444
2,371
$
1,702
2,118
318
$
2,230
2,061
313
$
3,815
$
4,138
$
4,604
$
2,946
24,706
$
4,513
14,823
325
$
6,417
9,469
326
$ 27,652
$ 19,661
$ 16,212
1985
1984
1983
$140,044
180,938
$150,051
161,989
$168,455
151 ,069
13,833
320,982
19,516
$340,498
312,040
10,954
333,357
10,871
$322,994
$344,228
(177)
{2,640)
3,340
700
Net income from disposal
Net inome (loss) from
discontinued operations
(478)
233
{245)
1984
33,994
60
34,054
(1 ,803)
$ 69,419
Elimination of intersegment
NOTE M - DISCONTINUED OPERATIONS
1985
Total Assets
(177)
NOTE N - CONTINGENCIES
Pursuant to the sale ofT & T Co. Holding Company
referred to in Note M above, Avatar has agreed to be
responsible for certain litigation matters and to share with
the buyer in certain losses in the event certain claims arise.
Such litigation matters and known claims aggregated
approximately $3,800. In management's opinion, adequate provision has been made in the accompanying 1985
financial statements for losses applicable to such litigation matters and known claims.
At December 31, 1985, Avatar was defendant in a
class action law suit which alleged civil conspiracy, trespass,
conversion and fraud with regard to removal of certain spoil
bank materials. This action seeks compensatory and punitive damages in excess of $25,000. It is the opinion of
management and legal counsel that this lawsuit will not
have a m.aterial adverse effect on Avatar's financial position.
(a)
Avatar's businesses are conducted in the United States.
(e)
(b)
In computing operating profit or loss, interest has been
reflected separately.
No significant part of the business is dependent upon
a single customer or group of customers.
(0
(c)
lntersegment revenues contain primarily intercompany
interest and management fees charged to affiliates.
Cable TV, mortgage and hotel and recreational operations which primarily service Avatar communities do not
qualify individually as separate reportable segments and
are included in the real estate segment.
(d)
lndentifiable assets by segment are those assets that
are used in the operations of each segment. General
corporate assets are principally cash , receivabiGJs and
investments.
II
16
17
Opinion of Independent Certified Public Accountants
NOTE P- QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1985 and 1984 is as follows:
First
$15 ,988
16,628
(640)
Net revenues
Expenses
Income (loss) before extraordinary items
Extraordinary items
Net income (loss)
Earnings per share: (c)
From continuing operations
Before extraordinary items
Net income (loss)
(640)
$
(.08)
(.08)
(.08)
First
Net revenues
Expenses
Income (loss) from continuing operations
Income (loss) from discontinued operations
Gain on sale of discontinued operations
Income (loss) before extraordinary items
Extrao rdinary items
Net income
Earnings per share : (c)
From continu ing operati ons
Before extraordinary items
Net income (loss)
(a)
Revenues include gains ($10,750) related to the sales
of a major portion of Avatar's cable television business
and an apartment complex.
(b)
Reversal of extraordinary items in 1984 is substantially
due to fourth quarter operating losses.
$28,808(a)
22,392
6,4 16
48
1985 Quarter
Second
Third
$15,976
15,518
458
80
538
$17,782
17,352
430
(14)
416
$
$
(c)
.71
.71
1.09
.06
.06
.07
.05
.05
.05
$19,673
19,371
302
3,472
3,774
Stockholders and Board of Directors
Avatar Holdings Inc.
Coral Gables, Florida
$
We have examined the consolidated balance sheets of Avatar Holdings Inc. and subsidiaries as of
December 31, 1985 and 1984 and the related consolidated statements of operations, stockholders' equity
and changes in financial position for each of the three years in the period ended December 31, 1985.
Our examinations were made in accordance with generally accepted auditing standards and, accordingly,
included such tests of the accounting records and such other auditing procedures as we considered necessary
in the circumstances.
1984 Quarter
Third
Second
$17 ,362
17,630
(268)
110
(156)
1,975
1,819
(158)
2,221
2,063
$
(.04)
(.02)
.20
$
.04
.04
.47
Fourth
$16,392
16,724
(332)
176
6,464
3,500
9,964
$
Fourth
(.03)
(.02)
.23
$15 ,391
18,809
(3,418)
(579)
700
(3 ,297)
(4 ,345)(b)
(7 ,642)
$
(.41)
(.40)
(.92)
Because of treasury stock purchases in 1985 and 1984
and receipt of Avatar common stock in 1984 resulting
from Avatar's ownership of Stub Interest units, quarterly earnings per-share data for 1985 and 1984 will not
add to the earnings per-share data for the respective
years.
The financial statements for the years ended 1984 and 1983 included the following adjustments recognized
in the fourth quarter. There were no significant adjustments recognized in the fourth quarter of 1985.
1984
18
In our opinion, the financial statements referred to above present fairly the consolidated financial position of Avatar Holdings Inc. and subsidiaries at December 31, 1985 and 1984 and the consolidated
results of their operations and changes in their financial position for each of the three years in the period
ended December 31, 1985, in conformity with generally accepted accounting principles applied on a
consistent basis.
Miami, Florida
March 7, 1986
Market for Common Stock and Related Stockholder Matters
1983
Increase (decrease) effect in results of operations
Amount
Per
Share
Reserve for market decline on mortgage loans held for sale
Operating expense adjustments related to discontinued operations
Unrecoverable land and utility development costs
Additional provision for doubtful accounts
$ (805)
(8 17)
$(.09)
(.09)
(258)
(.03)
$(1,880)
$(.21)
Amount
Per
Share
$ (685)
(2 ,842)
$(.08)
(.31)
$(3 ,527)
$(.39)
The common stock of Avatar Holdings Inc. is
traded in the over-the-counter market, and price
quotations are reported through the National
Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the symbol AVTR. On February 14, 1984, Avatar was
entered in NASDAQ's National Market System
("NMS"). The approximate number of record
holders of common stock at December 31, 1985
was 12,000.
High and low quotations, as reported, for the
last two years were:
Quarter Ended
Quotations
1985
1984
High
Low
High
Low
March 31
June 30
September 30
December 31
177/a
18 7/a
20
18 7/a
151/2
173/a
16 7/a
171/4
16 1/2
161/4
161/4
18 1/2
Foregoing information includes bid quotations
through February 13, 1984, which reflect interdealer prices without retail mark-up, mark-down
or commissions and may not necessarily represent
actual transactions. Quotations subsequent to
Avatar's entry into the NMS are high and low sales
prices.
Avatar has not declared any dividends on common stock since its issuance in January 1981 and
has no present intention to pay dividends. Avatar
is subject to certain restrictions on the payment
of dividends as set forth in "Notes to Consolidated
Financial Statements''.
13
145 /a
131/4
151/4
19
AVATAR HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Revenues
Expenses
During the first quarter of 1985, Avatar reorganized
its sales and marketing operations, resulting in an increase in real estate revenues of $4 77 or 2% for the
year and an increase of $3,685 or 56% for the fourth
quarter compared to 1984. These 1985 increases are
also attributable, in part, to increases in commercial
and industrial land sales. The 1984 real estate revenues
decreased $728 or 2% compared to 1983 due to the
absence of revenue related to a major portion of Avatar's
cable television operations and its Georgetown apartment building complex, which were sold during the
first quarter of 1984. Increases in retail land sales revenues in 1984 were offset by a decrease in shelter sales.
Utility revenues increased $2,554 or 8% in 1985
compared ro 1984 and $1,978 or 7% in 1984 compared to 1983. These anticipated increases are attributable to new customers, rate increases granted by
regulatory agencies and a greater demand for service.
Interest income increased $83 in 1985 compared
to 1984 and declined $305 in 1984 compared to
1983. The 1985 increase in interest income is due
to increases in amounts of cash invested on a shortterm basis. The 1984 decline is due to the declining
balance of outstanding mortgages and other receivables
and a gradual decline in interest rates.
Gains on the sale of operations in 1984 include a
gain of $10,7 50 related to the sale of a major portion
of Avatar's cable television business ($9,800) and its
Georgetown apartment complex {$950). These operations, as well as T & T Co. Holding Company, were
sold to enable management to concentrate its efforts
on Avatar's primary business activities, real estate development and utility operations. See "Notes to Consolidated Financial Statements" for a further explanation
of the sale of T & T Co. Holding Company.
Real estate expenses decreased $2,991 or 9% in
1985 compared to 1984 and decreased $2,592 or 7%
in 1984 compared to 1983. The 1985 decrease in these
expenses was due primarily to a reduction in the rate
of inflation assumed in the computation of the estimated
development liability for sold land. Real estate expenses
in 1984 included $2,160 relating to the escalation for
inflation of the estimated development liability for sold
land. The 1984 decrease in expenses was primarily
due to lower cost of sales related to the decline in shelter
revenue.
Expenses related to utility operations increased
$2,175 or 11% in 1985 compared to 1984 and increased $2,025 or 11% in 1984 compared to 1983.
While the relationship of utility expenses to utility revenues has generally been consistent, reflecting the regulatory nature that is predominant in this industry, utility
expenses increased at a higher rate than utility revenues
due to pending regulatory approvals for rate increases.
General and administrative expenses decreased
$1,043 or 13% in 1985 compared to 1984 and increased $241 or 3% in 1984 compared to 1983. The
1985 decrease is primarily attributable to management's
efforts to reduce these expenses. The 1984 increase
is primarily due to an increase in professional fees
incurred during the year.
Interest expense decreased $1, 140 in 1985 compared to 1984 due to an increase in construction interest capitalized. An increase in the 1985 interest expense
due to greater amounts of debt outstanding was mitigated by a decline in interest rates. In 1984 interest
expense decreased $1,391 compared to 1983 due to
a gradual decline in interest rates and a decrease in debt
outstanding.
Funds to meet Avatar's operating needs will be
derived from the following:
•
Real estate operations including sales and leasing
activities.
• Collection of utility operating re~enues.
• Collection of principal and interest from installment
land sales, contracts, mortgages and other receivables. During 1986, the total principal and interest
collectible from these will approximate $8,500.
Land sales contracts receivable at December 31,
1985 will generate cash of $22,000 over the next
10 years.
• Revolving credit facilities.
Avatar has planned utility construction, land developments and other capital expenditures for 1986 totaling approximately $33,900. These funds will be
expended for utility plant construction of $26,300,
land development of $6,200, and other capital expenditures of $1,400. Approximately 50% of the capital
expenditures for 1986 will be funded by borrowings
from external sources.
Under the terms of the Indenture for the 8% senior
debentures, there are restrictions on indebtedness, in
that Avatar may not incur any additional long-term debt
which, when added to the outstanding principal amount
of the debentures, would result in an amount greater
than its net worth at issuance. Indebtedness incurred
by Avatar Utilities or Parkway Mortgage is expressly
exempted from being included in the calculation of the
maximum permissible long-term debt. In addition,
under the terms of one of its credit agreements, Avatar
and its real estate subsidiaries are precluded, among
other things, from incurring additional long-term debt,
with certain exceptions.
As of December 31, 19 85, Avatar's Board of Directors has authorized the expenditure of up to $1,680
and $5,410 for the purchase of the Company's 8%
senior debentures and common stock, respecti!1ely. In
January 1986, the Board authorized an additional purchase of up to $5,000, principal amount, of the 8%
senior debentures.
Management is of the opinion that operating cash
flows, available credit lines and anticipated utility
borrowings will be sufficient to meet liquidity needs
for 1986.
See "Supplemental Information on Effects of
Changing Prices and Selected Financial Data" for a discussion of the impact of inflation on the business operations of Avatar.
I'
I
I,
I
I
I
I
20
21
AVATAR HOLDINGS INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ON EFFECTS
OF CHANGING PRICES AND SELECTED
FINANCIAL DATA - UNAUDITED
Statement of Financial Accounting Standards No.
33, as amended, requires certain companies to present supplemental information dealing with the effects
of changes in specific prices (current cost) on their financial statements. Income, as adjusted for general inflation and changes in specific prices, was determined by
restating cost of sales and depreciation expense into
current costs. All other elements of revenue and expense
have not been adjusted, as they are considered to be
stated in average 1985 dollars in the primary (historical)
financial statements.
It is important to note that the methods followed
require the use of assumptions, approximations and
estimates, and therefore the resulting measurements
should be viewed in that context and not as precise
indicators of the effects of inflation on Avatar.
The objective of the current cost method is to provide an estimate of the effects of changes in specific
prices on resources used by Avatar. The specific prices
of Avatar 's land and services have risen at a different
rate than the general inflation rate as measured by the
Consumer Price Index. The current cost method measures inventories and properties at their current cost
(rather than their historical cost) at the balance sheet
date; cost of sales is based on current cost at the date
of sale and depreciation is computed on average current cost for the year.
The purchasing power gain on net monetary liabilities
results , since during periods of inflation net monetary
liabilities will be paid in dollars of diminished purchasing
power. Monetary items are either claims to receive sums
of money or obligations to pay sums of money in
amounts which are fixed or determinable without reference to future prices of specific goods or services.
COMPARISON OF SELECTED FINANCIAL DATA
ADJUSTED FOR CHANGES IN SPECIFIC PRICES
(CURRENT COST)
Year Ended December 31, 1985
(Dollars in thousands except
per-share data)
Re~orted
Current
Costs
Revenues
$ 69,419
$ 69,419
10,321
45,035
3,815
9 ,176
13,143
45 ,035
7,734
9,176
68 ,347
75 ,088
1,072
522
(5 ,669)
522
550
$ (6 , 191)
Cost of sales
Other operating expenses
Depreciation
Interest expense
Total expenses
Income from continuing
operations before taxes
Income tax expense (1)
Income (loss) from continuing
operations
As
$
Income (loss) per common
share from continu ing
operations
$
Net assets at end of year (2)
$113 ,875
Comparison of the increase
in the general price level
and specific prices for invento ries and property, plant
and equipment: (2)
Increase in specific prices
Increase in general price
level
Increase in specific prices
over general price level
(1)
(2)
.07
$
(.76)
$379 ,155
$ 24,568
20,050
$
4,518
The FASB rules do not provide for adjusting income tax
expense for the increase in current costs.
Net assets, as reported , were adjusted to current cost
by replacing historical cost of inventory and property,
pla nt and equipment with related current cost. At
December 31, 1985, the current cost and historical cost
of inventory were $182,930 and $104,947, respectively;
the current cost and historical cost of property, plant and
equipment, net of accumulated depreciation, were
$377,176 and $189,879, respectively.
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
AND SUPPLEMENTARY DATA ADJUSTED FOR EFFECTS
OF CHANGES IN SPECIFIC PRICES
(Dollars in thousands except per-share data)
Revenues:
As reported
Income (loss) from continuing
operations:
As reported
Current average dollars
Income (loss) from continuing
operations per common share:
As reported
Current average dollars
Net assets end of year :
As reported
Current average dollars
Current year-end dollars
Purchasing power gain (loss) on
net monetary liabilities
Increase in specific prices over the
general price level
Quoted market price per common
share at year end (current dollars)
Average consumer price index
Total assets end of year
(historical cost)
Long term obligations end of year
(historical cost)
1985
1984
1983
1982
1981
$ 69 ,419
$ 77,953
$ 67,389
$ 52 ,536
$ 70,641
550
{6,1 91)
2,398
(5,380)
(5,605)
(11,906)
(5,038)
(8,950)
1,382
(3,533)
.07
{. 76)
.27
(.61)
(.61)
(1.30)
(.43)
(.97)
'14
(.37)
11 3,875
373,088
39 1' 155
102,312
366,502
372,417
105,244
354 ,285
360,003
109,452
386,973
393,218
108,823
341,556
347,068
3,493
3,668
(491)
2,532
3,388
4,518
(5,513)
(23,613)
43,808
37,805
18.75
322 .2
16.60
311 .1
13.75
298.4
13.28
289.1
15.12
272.4
340 ,498
322 ,994
344,228
345,320
342,428
87, 613
72 ,181
90,919
94,668
95,666
See "Management Discussion and Analysis of Financial Condition and Results of Operations" for
a description of gain on sale of operations included in revenues for 1984.
23
AVATAR HOLDINGS INC.
DIRECTORS
OFFICERS
Leon Levy*
Leon Levy
Chairman of the Board, Avatar
Holdings Inc. , Coral Gables, R ;
General Partner, Odyssey Partners,
New York , NY
Chairman 0f the Board
Chairman of the Executive Committee and Chief Executive Officer
Peter Sharp*
Lawrence Wilkov
Chairman of the Executive Committee
and Chief Executive Officer, Avatar
Holdings Inc., Coral Gables, R;
President, Peter Sharp & Co., Inc.,
New York , NY
Geoffrey C. Hazard, Jr. t
President and Chief Operating
Officer
Peter S. Kleinerman
Executive Vice President, Treasurer
and Chief Financial Officer
Professor, Yale law School
Hartford , CT; Director, American law
Institute, Philadelphia , PA
John K. Sladkus
J. Edward Houston*t
Dennis J. Getman
Chairman of the Board,
South Florida Savings Bank,
Miami, H.,
Executive Vice President and
General Counsel
Leon T. Kendallt
Vice President, Financial Operations
Chairman of the Board, Mortgage
Guaranty Insurance Corporation ,
Milwaukee, WI
Martin Myerson
Chairman, University of Pennsylvania
Foundation and President Emeritus ,
University of Pennsylvania,
Philadelphia , PA
William M. Portert
Former Vice Chairman of the Board ,
Context Industries , Inc. , Miami, R
Fred Stanton Smith*
President, The Keyes Company,
Miami , H.,
Henry King Stanford
President Emeritus, University of
Miami, Coral Gables, H.,
Lawrence Wilkov *
President and Chief Operating
Officer, Avatar Holdings Inc.,
Coral Gables, H.,
• Me mbe rs of Executi ve C ommittee
tM embers of Audi t Co mmittee
24
Peter Sharp
Executive Vice President, land and
Utility Operations
Barbara J. McGlynn
Charles L. McNairy
Vice President, Finance
Juanita I. Rivera
Vice President and Secretary
AVATAR HOLDINGS INC.
201
Alhambra Circle, Coral Gables, FL 33134, (305) 442- 7000