AVATAR HOLDINGS INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-7616
AVATAR HOLDINGS INC.
(Exact name of registrant as specified in its charter)
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| Delaware
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23-1739078 |
| (State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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| 201 Alhambra Circle, Coral Gables, Florida
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33134 |
| (Address of principal executive offices)
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(Zip code) |
Registrant’s telephone number, including area code (305) 442-7000
Securities registered pursuant to section 12(b) of the Act:
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| Title of each class
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Name of each exchange on which registered |
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| Common Stock, $1.00 Par Value
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NASDAQ Stock Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter periods that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes þ No o
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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
Aggregate market value of the voting and non-voting common equity held by non-affiliates of
the registrant was $335,245,776 as of June 30, 2006.
As of March 13, 2007, there were 8,204,751 shares of common stock, $1.00 par value, issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its 2007 Annual Meeting of Stockholders are
incorporated by reference into Part III.
AVATAR HOLDINGS INC.
2006 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
Certain statements discussed in Item 1 (Business), Item 3 (Legal Proceedings), Item 7
(Management’s Discussion and Analysis of Financial Condition and Results of Operations), and
elsewhere in this Form 10-K constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the actual results,
performance or achievements of results to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others: the successful implementation of Avatar’s business
strategy; shifts in demographic trends affecting demand for active adult (55 years and older) and
primary housing; the level of immigration and in-migration into the areas in which we conduct real
estate activities; the level of competition in geographic areas in which we do business; the number
of investor and speculator resale homes for sale in our communities and in the geographic areas in
which we develop and sell homes; international (in particular Latin America), national and local
economic conditions and events, including employment levels, income levels, interest rates,
mortgage rates, consumer confidence, the availability and terms of residential mortgage financing
and subprime mortgage financing and demand for new and existing housing; Avatar’s access to
financing; geopolitical risks; changes in, or the failure or inability to comply with, government
regulations; and other factors as are described in Item 1A (Risk Factors) and at the end of Item 7
(Management’s Discussion and Analysis of Financial Condition and Results of Operations) of this
Form 10-K.
Dollar amounts specified herein are in thousands, except for per share amounts or as otherwise
indicated.
PART I
Item 1 . Business
General
Avatar Holdings Inc. was incorporated in the state of Delaware in 1970. Our principal
executive offices are located at 201 Alhambra Circle, Coral Gables, Florida 33134 (telephone (305)
442-7000).
We are engaged in the business of real estate operations in Florida and Arizona. Our
residential community development activities include the development of active adult and primary
residential communities. We also engage in a variety of other real estate related activities, such
as the operation of amenities, the sale for third-party development of commercial and industrial
land and the operation of a title insurance agency.
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Item 1. Business — continued
Business Strategy
Our primary business strategy continues to be the development of lifestyle communities,
including active adult (55 years and older) and primary residential communities, as well as
development and construction of housing on scattered lots. From time to time we dispose of
non-core assets.
We are actively pursuing other business opportunities. Future opportunities may be in those
real estate businesses in which we are presently engaged or may extend to other real estate
activities or unrelated businesses.
Real Estate Operations
We are primarily engaged in real estate operations as summarized below. For further
information please see “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
Active Adult Community Development
Within the Central Florida master-planned community of Poinciana we are developing the
highly-amenitized active adult communities of Solivita and Solivita West. Solivita incorporates
the natural topography of the land, including more than 1,200 acres of wetlands and an oak hammock.
The community currently includes approximately 100,000 square feet of recreation and service
facilities, as well as two 18-hole golf courses and an active park housing a variety of sporting
and games facilities.
During 2006, we commenced development of an additional amenity complex on approximately five
acres within Solivita West. This complex will contain an approximately 19,000 square foot building
with various recreation and service facilities.
Information relating to our backlog is incorporated herein by reference to Item 7 of Part II
of this Report under the heading “Results of Operations”.
Primary Residential Community Development
Our primary residential community development business includes construction of homes,
both on scattered lots and on contiguous parcels as part of planned communities, in Florida and Rio
Rico, Arizona.
In addition to ongoing development at our various communities within Florida, during 2006, we
commenced sales at Terralargo, our single-family community in Lakeland, Florida; and closings of
single-family homes in Woodslanding, our Palm Beach County, Florida community; and closings within
Sterling Hill in Hernando County, Florida.
Information relating to our backlog is incorporated herein by reference to Item 7 of Part II
of this Report under the heading “Results of Operations”.
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Item 1. Business — continued
Highrise Joint Venture
In December 2002, our subsidiary, Avatar Ocean Palms, Inc., entered into a joint
venture for development of a 38-story, 240-unit highrise condominium on a 3.5-acre oceanfront site
in Hollywood, Florida. Since the commencement of sales in 2003 through December 31, 2006, all units
have been sold and closed at an aggregate sales volume of $203,717. Closings of condominium units
commenced during February 2006 and were completed during the second quarter of 2006. During 2006,
the Ocean Palms Joint Venture realized cash proceeds from closings whereby the construction
financing was repaid during the first quarter of 2006 and cash distributions were made to the
members. We received cash distributions of $49,038 during the year ended December 31, 2006
representing $29,038 from cumulative earnings generated by closings of condominium units at Ocean
Palms and $20,000 from our investment in the Ocean Palms Joint Venture. We recognized cumulative
earnings of $33,464 from inception through December 31, 2006 from our investment in the Ocean Palms
Joint Venture.
Poinciana Parkway and Toll Road
In December 2006, we entered into agreements with Osceola and Polk Counties in Florida
for us to develop and construct a 9.66 mile four-lane road in the Counties, to be known as the
Poinciana Parkway. The Parkway is intended, among other things, to improve the flow of vehicular
traffic in the Counties, including in and around Poinciana, Florida. It will include a 4.15 mile
segment to be operated as a private toll road. We will pay the costs associated with the
right-of-way acquisition, development and construction of the Parkway. Except for the toll road,
the Parkway will be owned, maintained and operated by the Counties upon completion. We will own
the toll road, and under our agreements we have the right to sell it to a third party together with
our right to operate the toll road. Based on preliminary discussions
with potential third-party purchasers, we believe that the value of
the toll road, upon completion, would be not less than our estimated
right-of-way acquisition, development and construction costs.
Commercial and Industrial and Other Operations
We also generate revenues through the sale of commercial and industrial land for
third-party development, primarily in Poinciana, as well as other operations, including title
insurance agency operations.
Real Estate Assets
Our assets consist primarily of real estate in the states of Florida and Arizona.
During December 2006, we closed on the sale of our approximately 4,400-acre property known as Ocala
Springs in Marion County, Florida (the “Ocala Property”). As of December 31, 2006, we owned more
than 17,000 acres of developed, partially developed or developable residential, commercial and
industrial property. Some portion of these acres may be developed as roads, retention ponds, parks,
school sites, community amenities and for other similar uses.
Within Florida and Arizona we also own more than 15,000 acres of preserves, wetlands, open
space and other areas that at this time are not developable, permitable and/or economically
feasible to develop, but may at some future date have an economic value for preservation or
conservation purposes.
For further description of the various communities and the operations conducted therein,
please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
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Item 1. Business — continued
Title Insurance Agency
Prominent Title Insurance Agency, Inc., a subsidiary of Avatar Properties Inc.,
maintains operations at our headquarters in Coral Gables, Florida, as well as in Poinciana,
Florida. Services are offered to purchasers of homes from Avatar as well as unrelated parties.
Business Segment Information
Our business segment information regarding revenues, results of operations and assets
is incorporated herein by reference to Note O to the Consolidated Financial Statements included in
Item 8 of Part II of this Report.
Employees
As of December 31, 2006, we employed approximately 483 individuals on a full-time or
part-time basis, compared to 585 individuals as of December 31, 2005. We also utilize on a daily
basis such additional personnel as may be required in connection with various activities.
Relations with our employees are satisfactory and there have been no work stoppages.
Investor Information
We are subject to the informational requirements of the Securities Exchange Act of 1934
(the “Exchange Act”). Accordingly, we file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission (the “SEC”). You may read and
copy materials that we have filed with the SEC at the Public Reference Room of the SEC at 100 F
Street, NE, Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding issuers that file electronically.
You can access financial and other information on our website, at www.avatarholdings.com. We
make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such
material electronically or otherwise with the SEC. You may download this information from our
website or may request us to mail specific information to you. Information regarding equity
transactions by our directors, officers and 10% holders may also be obtained on our website.
Regulation
Our land use, commercial and residential operations are regulated by various
governmental laws and regulations. These laws and regulations include provisions which restrict
the discharge into the environment of hazardous materials, regulate density, and require certain
design and construction materials and fixtures. There are also laws that require disclosure of
energy ratings and manufacturers warranties. These laws and regulations are frequently amended and
can increase construction costs. In some instances, we are required to contribute land and/or
provide improvements and infrastructure as a condition precedent to obtaining government approvals
for development and/or construction. Compliance with these requirements can significantly impact
construction costs.
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Item 1. Business — continued
Our homebuilding activities are subject to additional requirements regarding protection
of public health and the environment. The applicable federal, state and local laws and ordinances
govern infrastructure such as mitigation of wetlands damage, storm water drainage, irrigation
restrictions, use of reclaimed water, and the preservation of environmentally sensitive land, flora
or fauna. Delays due to environmental requirements can cause us to incur significant costs or to
lose land to governmental or nature groups and result in delays of construction and additional,
unbudgeted costs of development.
For our community developments in Arizona, state laws and regulations require that each buyer
of a home be given a state approved property report. In Florida, there is no requirement that a
filing be made with the state for the sale of homes. Sales of
unimproved lots may also be subject to federal and/or state
regulations. 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 unless the lot or home sales are exempt from the Act.
We believe
that we are in material compliance with applicable laws and
regulations.
Competition
Our residential homebuilding, planned community development and other real estate
operations, particularly in the state of Florida, are subject to significant competition. In the
sales of housing units, we compete, as to price and product, with several national and regional
homebuilding companies that are larger and/or better capitalized than we are. In recent years,
there has been extensive residential development by other developers in the Central and South
Florida areas in which we operate; and we currently compete with resales in our communities as well
as our competitors’ communities by real estate investors and speculators.
Item 1A. Risk Factors
In addition to risks and uncertainties in the ordinary course of business that are
common to all businesses, important factors that are specific to our industry and our company could
materially impact our future performance and results. We have provided below a list of these risk
factors. These are not all the risks we face, and other factors, including those currently
considered immaterial or unknown to us, may impact our future operations.
Our access to financing may be limited
Our business is capital intensive and requires expenditures for land and infrastructure
development, housing construction, working capital and new development opportunities. Accordingly,
we anticipate incurring indebtedness to fund real estate development activities. As of December 31,
2006, total consolidated indebtedness was $136,925, including the $120,000 principal amount of our
4.50% Convertible Senior Notes due 2024 (the “4.50% Notes”). We may not sustain profitability or
positive cash flows from operating activities. We anticipate, but cannot assure, that the amounts
available from internally generated funds, cash on hand, the sale of non-core assets, and existing
and future financing will be sufficient to fund the anticipated operations, meet debt service and
working capital requirements, and provide sufficient liquidity to develop and build the Poinciana
Parkway. We may be required to seek additional capital in the form of equity or debt financing from
a variety of potential sources, including additional bank financing and sales of debt or equity
securities. We cannot assure that such financing will be available or, if available, will be on
favorable terms. If we are not successful in obtaining sufficient capital to fund the
implementation of our business strategy and other expenditures, development projects may be delayed
or abandoned. Any such delay or abandonment could result in a reduction in sales and would
adversely affect future results of operations.
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Item 1A. Risk Factors — continued
The degree to which we are leveraged could adversely affect our ability to obtain further
financing for working capital, acquisitions or other purposes and could make us more vulnerable to
industry downturns and competitive pressures. Our ability to meet our debt service obligations
will be dependent upon our future performance, which will be subject to residential market factors
and financial, business and other factors affecting our operations, many of which are beyond our
control. Moreover, market conditions for the sale of new homes in the geographic areas in which we
operate have significantly deteriorated since 2005, and the number of new home sales by Avatar and
we believe others, in the aggregate, has significantly declined. We anticipate that currently and
in the near future, as we attempt to increase sales, our operating margins will decline.
A rise in interest rates or a decline in the capital markets could have an adverse effect on our
business
A majority of the purchasers of our homes finance their purchases through third-party lenders
providing mortgage financing or, to some extent, rely upon investment income. In general, housing
demand is dependent on home equity, consumer savings and third-party financing and could be
adversely affected by increases in interest rates, less favorable mortgage terms, the tightening of
underwriting standards for subprime and other mortgage loans, decreases in investment income,
unavailability of mortgage financing, increasing housing costs and declining employment and income
levels. The amount or value of discretionary income and savings, including retirement assets,
available to home purchasers can be affected by a decline in the capital markets. Since 2005,
mortgage rates have increased and some lenders, particularly subprime lenders, are imposing or
likely will impose more stringent credit requirements. If mortgage interest rates continue to
increase and/or lending restrictions continue to be tightened or the capital markets decline or
undergo a major correction, the ability of prospective buyers to finance home purchases may be
adversely affected, which would likely have an adverse effect on our business.
Our success significantly depends on our key personnel and our ability to attract and retain
additional personnel
Our real estate business strategy requires, among other things, the addition of new management
personnel and employees, as well as the development of additional expertise by existing management
personnel and employees. The loss of the services of certain members of the senior and middle
management team, or the inability to attract new personnel, could have a material adverse effect on
the success of our real estate business strategy and on our ability to expand our operations.
We may not succeed in obtaining new development, investment and business opportunities
We have under development or in the planning process a substantial portion of Avatar’s
historical landholdings that we believe can be profitably developed over time. Although we are
actively pursuing other development and business opportunities, we cannot assure that we will
succeed in our efforts to obtain additional development and business opportunities.
Our industry is highly cyclical and is affected by general economic conditions and other factors
beyond our control
The real estate industry is highly cyclical and is affected by changes in national, global and
local economic conditions and events, such as employment and income levels, availability of
financing, interest rates, consumer confidence and the demand for housing and other types of
construction. As a real estate developer we are subject to various risks, many of which are
outside our control, including real estate market conditions (both where communities and
homebuilding operations are located and in areas where potential customers reside), changing
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Item 1A. Risk Factors — continued
demographic conditions, adverse weather conditions and natural disasters, such as hurricanes,
tornadoes and wildfires, delays in construction schedules, cost overruns, changes in government
regulations or requirements, increases in real estate taxes and other local government fees, and
availability and cost of land, materials and labor. The occurrence of any of the foregoing has and
could result in a reduction or cancellation of sales and/or lower gross margins for sales. Lower
than expected sales as a result of these occurrences could have a material adverse effect on the
level of our profits and the timing and amounts of our cash flows. For example, during 2005,
shortages of labor and material within the homebuilding industry as the result of a robust economy
and adverse weather conditions, particularly, Hurricanes Katrina, Rita and Wilma, had an adverse
impact on our 2005 sales efforts and caused construction delays. We also believe that the market
for new single-family and multi-family residences began to weaken in the third quarter of 2005 and
has continued to weaken through February 2007.
Further decline of the residential real estate market could result in future impairment (as
defined by Statement of Financial Accounting Standards No. 144) to certain of our land assets
acquired in recent years. A substantial portion of our landholdings has been owned for many years
and are carried at book values which we believe are substantially below current market values and,
therefore, in our opinion less likely to be adversely affected. However, certain of our recent
acquisitions of land and our standing inventory of unsold homes, both
completed and under construction, could be subject to impairment charges if the residential real estate market continues
to decline.
In addition, the availability and cost of property insurance to us has been adversely affected
by severe weather conditions that occurred during 2004 and 2005. The inability to obtain adequate
insurance at economically feasible rates could adversely affect our financial condition and risk
management.
We are concentrated geographically, which could adversely affect our business
Our land and development activities are located in Florida and Arizona. These development
activities depend to a significant degree on the levels of immigration to Florida from outside the
United States, migration to Florida from within the United States and purchases in Florida of
second and/or vacation homes, in addition to other local market conditions. Our geographic
concentration may create increased vulnerability during regional economic downturns or other
Florida-related events which may result in reduced levels of profitability or reduced cash flows
and adversely affect our financial condition. During the second half of 2005 and calendar year
2006, our ability to sell new homes in Florida and Arizona and the level of cancellations of
executed contracts were negatively impacted by the condition of the markets in which we are
located.
If we are unable to develop and market our communities, our cash flow could decline
Our communities will be developed over time. Therefore, our medium- and long-term future is
dependent on our ability to develop and market existing and future communities successfully.
Committing the financial and managerial resources to develop a community involves significant
risks. Before a community generates any revenues, material expenditures are required, among other
things, to obtain development approvals to construct project infrastructure, model homes and sales
facilities. It generally requires several years for a community development to achieve cumulative
positive cash flow. No assurance can be given that we will successfully develop and market
communities in the future. In addition, appropriate roadway routes and levels of vehicular traffic
contribute to the success of our marketing of existing and future communities, and accordingly,
inadequate road capacity could adversely affect sales. For example, if vehicular traffic
congestion in Poinciana, Florida, were to reach unacceptable levels, our revenues could be
materially adversely affected. Our inability to develop and market our communities successfully and
to generate positive cash flows from such operations in a timely manner would have an adverse
effect on the ability to meet debt and working capital requirements.
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Item 1A. Risk Factors — continued
Our joint ventures and partnerships may not achieve anticipated results
In connection with our business strategy, we seek additional joint venture or partnership
arrangements. A joint venture or other partnership may involve special risks associated with the
possibility that a partner or partnership at any time (i) may have economic or business interests
or goals that are inconsistent with ours, (ii) may take actions contrary to our instructions or
requests or contrary to our policies or objectives with respect to our real estate investments or
(iii) could experience financial difficulties. Actions by a partner may have the result of
subjecting property owned by the joint venture or partnership to liabilities in excess of those
contemplated by the terms of the joint venture or partnership agreement or have other adverse
consequences. As a participant in certain joint ventures or partnerships, we may be jointly and
severally liable for the debts and liabilities of a joint venture or partnership. We cannot assure
that any joint venture or partnership arrangements will achieve the results anticipated or
otherwise prove successful.
The results of our operations are subject to fluctuations, which could hinder our ability to
service debt and meet working capital requirements
Our real estate projects are long-term in nature. Sales activity at active adult and other
community and real estate developments varies from period to period, and the ultimate success of
any community cannot be determined from results in any particular period or periods. A community
may generate significantly higher sales levels at inception (whether because of local pent-up
demand or other reasons) than it does during later periods over the life of the community. Revenues
and earnings will also be affected by period-to-period fluctuations in the mix of product,
subdivisions and home closings among our homebuilding operations. Thus, the timing and amount of
revenues are subject to considerable uncertainty. The inability to manage effectively the cash
flows from operations could have an adverse effect on our ability to service debt and to meet
working capital requirements.
Our business is subject to substantial competition
Our homebuilding, planned community development and other real estate operations are subject
to substantial existing and potential competition (including competition from a number of national
homebuilders). Some current and potential competitors have longer operating histories and greater
financial, sales, marketing, technical and other resources than we have and offer significant
discounts and incentives due to the current weak market conditions. Competition within the
geographic locations of our developments extends from price and design of products, to the ability
to acquire diminishing supplies of land, to retain and employ experienced real estate development,
management and sales personnel and to contract with development and construction firms. We cannot
assure that we will have sufficient resources to compete successfully in our market or against our
competitors. Accordingly, we may lose market share to existing and new competitors. In addition,
we currently compete with resales by real estate investors and speculators.
We are subject to extensive governmental regulation and environmental considerations
Our business is subject to extensive federal, state and, in particular, local regulatory
requirements, the broad discretion that governmental agencies have in administering those
requirements and “no growth” or “slow growth” policies, all of which can prevent, delay, make
uneconomic or significantly increase the costs of development. Various governmental approvals and
permits are required throughout the development process, and no assurance can be given as to the
receipt (or timing of receipt) of these approvals or permits. For example, in connection with our
construction in Poinciana of a parkway under agreements with Osceola and Polk Counties, we will
require permits and approvals of various agencies (not limited to the Counties). We have agreed
with the Counties to complete the
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Item 1A. Risk Factors — continued
Parkway by October 31, 2008, barring delays for some period of time resulting from causes beyond
our reasonable control. We have experienced some delays in obtaining necessary rights-of-way,
permits and approvals for the parkway, and therefore its completion may be delayed beyond October
31, 2008. The incurrence
of substantial compliance costs, denial or postponement of necessary development permits or the
imposition of delays and other regulatory burdens could have a material adverse effect on our
operations.
Furthermore, various federal, state and local laws subject property owners or operators to
liability for the costs of removal or remediation of certain hazardous substances released on a
property. Such laws often impose liability without regard to whether the owner knew of, or was
responsible for, the release of the hazardous substances. The presence of such hazardous substances
at one or more properties, and the requirement to remove or remediate such substances, could result
in significant cost.
Certain events could trigger the acceleration of payment of the 4.50% Notes
Certain events, including cessation of trading of our common stock, failure to pay interest
when due on our 4.50% Notes, final judgment(s) for the payment of money in excess of $20,000
rendered against us or any of our subsidiaries if not discharged for any periods of 30 consecutive
days during which a stay of enforcement is not in effect, could result in a default under our 4.50%
Notes. Such default would result in the requirement for payment of the 4.50% Notes prior to the
due date thereof. Our inability to make such accelerated payment could have a material adverse
effect upon our business.
Item 1B. Unresolved Staff Comments
None.
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Avatar’s real estate operations are summarized in “Item 1. Business” above and described in
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Land developed and in the process of being developed, or held for investment and/or future
development, is set forth in Note C of the Notes to Consolidated Financial Statements in Item 8.
Our corporate headquarters are located at 201 Alhambra Circle, Coral Gables, Florida, in
29,000 square feet of leased office space. For additional information concerning properties leased
by Avatar, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Contractual Obligations” and “Item 8. Notes to Consolidated Financial Statements.”
Item 3 . Legal Proceedings
The information set forth in Note M (Contingencies) of the Notes to Consolidated Financial
Statements included in Item 8 of Part II of this Report is incorporated herein by reference.
We are involved in various pending litigation matters primarily arising in the normal course
of business. Although the outcome of these matters cannot be determined, management believes that
the resolution of these matters will not have a material effect on our business or financial
statements.
We have no tax-related penalties required to be disclosed in this Item 3 pursuant to Section
6707A(e) of the Internal Revenue Code.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Executive Officers of the Registrant
Pursuant to General Instruction G (3) to Form 10-K, the following list is included as an
unnumbered item in Part I of this report in lieu of being included in the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 31, 2007.
The following is a list of names and ages of all of the executive officers of Avatar,
indicating principal positions and offices with Avatar or a subsidiary held by each such person and
each such person’s principal occupation(s) or employment during the past five years unless
otherwise indicated. Officers of Avatar have been elected to serve until the next annual election
of officers (which is expected to occur on May 31, 2007), when they are re-appointed or their
successors are elected or until their earlier resignation or removal.
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Age |
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Office and Business Experience |
Gerald D. Kelfer
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61 |
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President since February 1997,
Chief Executive Officer since July
1997, Chairman of the Executive
Committee since May 1999, Vice
Chairman of the Board since
December 1996, and a member of the
Board of Directors since October
1996, of Avatar Holdings Inc.; and
holds various positions with
various subsidiaries. |
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Jonathan Fels
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54 |
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President, Avatar Properties Inc.,
since December 1997; and holds
various positions with various
other subsidiaries. |
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Michael Levy
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48 |
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Executive Vice President and Chief
Operating Officer, Avatar
Properties Inc., since December
1997; and holds various positions
with various other subsidiaries. |
|
|
|
|
|
|
|
Patricia Kimball Fletcher
|
|
|
49 |
|
|
Executive Vice President and
General Counsel since January 2007;
formerly Partner and Chair of
Florida Real Estate and Finance
Department, Duane Morris LLP, from
January 2002 to December 2006, and
holds various positions with
various subsidiaries. |
|
|
|
|
|
|
|
Dennis J. Getman
|
|
|
62 |
|
|
Executive Vice President since
March 1984, Senior Vice President
from September 1981 to March 1984
and General Counsel from September
1981 to December 2006; and holds
various positions with various
subsidiaries. |
|
|
|
|
|
|
|
Charles L. McNairy
|
|
|
60 |
|
|
Executive Vice President since
September 1993, Treasurer since
September 1992, Chief Financial
Officer since September 1992,
except from January 1999 to October
2000, and Senior Vice President
from September 1992 to September
1993; and holds various positions
with various subsidiaries. |
|
|
|
|
|
|
|
Juanita I. Kerrigan
|
|
|
60 |
|
|
Vice President and Secretary since
September 1980; and holds various
positions with various
subsidiaries. |
The above executive officers have held their present positions with Avatar for more than five
years, except as otherwise noted. No executive officer of Avatar has any family relationship with
any other executive officer or director of Avatar.
13
PART II
Item 5 . Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Common Stock of Avatar Holdings Inc. is traded through The Nasdaq Stock Market under the
symbol AVTR. There were 4,767 record holders of Common Stock at February 28, 2007.
High and low quotations, as reported, for the last two years were:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quotations |
| Quarter Ended |
|
2006 |
|
2005 |
| |
|
High |
|
Low |
|
High |
|
Low |
March 31 |
|
$ |
61.00 |
|
|
$ |
54.35 |
|
|
$ |
53.19 |
|
|
$ |
44.70 |
|
June 30 |
|
$ |
63.37 |
|
|
$ |
50.64 |
|
|
$ |
50.27 |
|
|
$ |
46.14 |
|
September 30 |
|
$ |
60.48 |
|
|
$ |
50.02 |
|
|
$ |
59.24 |
|
|
$ |
49.63 |
|
December 31 |
|
$ |
84.54 |
|
|
$ |
58.34 |
|
|
$ |
59.46 |
|
|
$ |
54.68 |
|
Avatar has not declared any cash dividends on Common Stock since its issuance and has no
present intention to pay cash dividends.
For the three months ended December 31, 2006, Avatar did not repurchase shares under the stock
repurchase authorization as reflected in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Maximum |
|
| |
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
Amount That |
|
| |
|
|
|
|
|
|
|
|
|
Part of a |
|
|
May Yet Be |
|
| |
|
Total |
|
|
Average |
|
|
Publicly |
|
|
Purchased |
|
| |
|
Number |
|
|
Price |
|
|
Announced |
|
|
Under the |
|
| |
|
of Shares |
|
|
Paid Per |
|
|
Plan or |
|
|
Plan or |
|
| Period |
|
Purchased |
|
|
Share |
|
|
Program (1) |
|
|
Program (1) |
|
October 1, 2006 to October 31, 2006 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
15,829 |
|
November 1, 2006 to November 30, 2006 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
15,829 |
|
December 1, 2006 to December 31, 2006 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
15,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
On March 20, 2003, Avatar’s Board of Directors authorized the expenditure of up to $30,000 to
purchase, from time to time, shares of its common stock and/or 7% Convertible Subordinated
Notes due April 2005 (the “7% Notes”), which were subsequently called for redemption, in the
open market, through privately negotiated transactions or otherwise, depending on market and
business conditions and other factors. On June 29, 2005, Avatar’s Board of Directors amended
the March 20, 2003 repurchase authorization to include the 4.50% Notes in addition to shares
of its common stock. As of December 31, 2006, the remaining authorization for purchase of
shares of Avatar’s common stock was $15,829. During the three months ended December 31, 2006,
Avatar did not repurchase shares of its common stock and/or 4.50% Notes. |
14
Item 6 . Selected Financial Data
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
Dollars in thousands (except share and per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At or for the Years ended December 31 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004(1) |
|
|
2003(1) |
|
|
2002(1) |
|
Statement of Income Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
835,079 |
|
|
$ |
516,848 |
|
|
$ |
334,205 |
|
|
$ |
248,966 |
|
|
$ |
186,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes and discontinued operations |
|
$ |
258,752 |
|
|
$ |
87,189 |
|
|
$ |
37,956 |
|
|
$ |
10,013 |
|
|
$ |
5,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
(84,026 |
) |
|
|
(29,990 |
) |
|
|
(12,678 |
) |
|
|
8,515 |
|
|
|
(2,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
174,726 |
|
|
|
57,199 |
|
|
|
25,278 |
|
|
|
18,528 |
|
|
|
3,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
(including gain on disposal of $8,322, $6,465
and $2,649 for 2005, 2004 and 2002, respectively) |
|
|
— |
|
|
|
9,562 |
|
|
|
6,905 |
|
|
|
(104 |
) |
|
|
1,511 |
|
Income tax (expense) benefit |
|
|
— |
|
|
|
(3,634 |
) |
|
|
(2,624 |
) |
|
|
39 |
|
|
|
894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations |
|
|
— |
|
|
|
5,928 |
|
|
|
4,281 |
|
|
|
(65 |
) |
|
|
2,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
174,726 |
|
|
$ |
63,127 |
|
|
$ |
29,559 |
|
|
$ |
18,463 |
|
|
$ |
5,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
21.33 |
|
|
$ |
7.10 |
|
|
$ |
2.98 |
|
|
$ |
2.14 |
|
|
$ |
0.37 |
|
Income (loss) on discontinued operations |
|
|
— |
|
|
|
0.73 |
|
|
|
0.51 |
|
|
|
(0.01 |
) |
|
|
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21.33 |
|
|
$ |
7.83 |
|
|
$ |
3.49 |
|
|
$ |
2.13 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
16.59 |
|
|
$ |
5.72 |
|
|
$ |
2.69 |
|
|
$ |
2.12 |
|
|
$ |
0.37 |
|
Income (loss) on discontinued operations |
|
|
— |
|
|
|
0.56 |
|
|
|
0.41 |
|
|
|
(0.01 |
) |
|
|
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
16.59 |
|
|
$ |
6.28 |
|
|
$ |
3.10 |
|
|
$ |
2.11 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
751,072 |
|
|
$ |
626,410 |
|
|
$ |
508,264 |
|
|
$ |
365,551 |
|
|
$ |
386,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes, mortgage notes and other debt |
|
$ |
136,925 |
|
|
$ |
144,107 |
|
|
$ |
139,384 |
|
|
$ |
19,771 |
|
|
$ |
107,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
$ |
505,356 |
|
|
$ |
312,892 |
|
|
$ |
246,235 |
|
|
$ |
265,899 |
|
|
$ |
222,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (assuming conversion of 4.50% Notes) (2) |
|
$ |
621,733 |
|
|
$ |
429,059 |
|
|
$ |
362,192 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding |
|
|
8,193,736 |
|
|
|
8,179,463 |
|
|
|
8,058,129 |
|
|
|
9,389,772 |
|
|
|
8,780,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding (assuming conversion of 4.50% Notes(2) |
|
|
10,473,804 |
|
|
|
10,459,531 |
|
|
|
10,338,197 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity per share |
|
$ |
61.68 |
|
|
$ |
38.25 |
|
|
$ |
30.56 |
|
|
$ |
28.32 |
|
|
$ |
25.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity per share
(assuming conversion of 4.50% Notes)(2) |
|
$ |
59.36 |
|
|
$ |
41.02 |
|
|
$ |
35.03 |
|
|
$ |
28.32 |
|
|
$ |
25.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
During the fourth quarter of 2005, we sold our utility operations in Arizona, our
shopping center in Poinciana and our mini storage facility in Poinciana. As a result of
these sales, the results of operations have been reclassified as discontinued operations
to conform to the 2005 presentation. |
| |
| (2) |
|
Assuming conversion of the 4.50% Notes would increase stockholders’ equity by
$120,000 as of December 31, 2006, 2005 and 2004 as well as decrease stockholders’ equity
by $3,623, $3,833 and $4,043 related to the unamortized issuance costs associated with
the 4.50% Notes as of December 31, 2006, 2005 and 2004, respectively. The 4.50% Notes
were issued on March 30, 2004. The 4.50% Notes are convertible into 2,280,068 shares of
Avatar’s common stock. |
15
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) |
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with “Selected Financial Data” and our audited consolidated financial
statements and accompanying notes included elsewhere in this document.
FORWARD-LOOKING STATEMENTS
Certain
statements discussed under the captions “Business,” “Risk Factors,” “Legal
Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere in this Form 10-K constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of results to differ materially from any future
results, performance or achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others, those contained under the
caption “Risk Factors” in Item 1A.
OVERVIEW
We are engaged in the business of real estate operations in Florida and Arizona. Our
residential community development activities include the development of active adult (55 years and
older) and primary residential communities. We also engage in a variety of other real estate
related activities, such as the operation of amenities, the sale for third-party development of
commercial and industrial properties and the operation of a title insurance agency.
Our real estate business strategy is designed to emphasize higher profit margin businesses by
concentrating on the development and management of active adult communities, production homes and
communities, and utilizing third-party commercial and industrial development to maximize the value
of our residential community developments. We also seek to identify additional sites that are
suitable for development consistent with our business strategy and anticipate that we will acquire
or develop them directly or through joint venture, partnership or management arrangements. Our
primary business activities are capital intensive in nature. Significant capital resources are
required to finance planned primary residential and active adult communities, homebuilding
construction in process, community infrastructure, selling expenses, new projects and working
capital needs, including funding of debt service requirements, operating deficits and the carrying
cost of land.
Residential Real Estate
Revenues and sales data derived from primary and active adult homebuilding operations for the
years ended December 31, 2006, 2005 and 2004 are summarized under “Results of Operations.”
16
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
Communities Under Development
Active Adult Community
Solivita and Solivita West
Solivita and Solivita West are located in Poinciana, Florida, approximately 21 miles south of
Orlando and 20 miles from Walt Disney World. At Solivita, we have developed approximately 100,000
square feet of recreation and service facilities, including a fitness center, a golf clubhouse,
restaurants, arts and crafts rooms, a café, other meeting and ballroom facilities, and two 18-hole
golf courses. The community’s active park houses a variety of sporting and games facilities,
including an official softball field, a basketball court and five tennis courts.
Solivita opened during the second quarter of 2000. During December 2004, we commenced the
development of an expansion of Solivita, Solivita West, on 907 acres of land in Poinciana acquired
in 2003. Sales of single-family units commenced during the first quarter of 2005 and closings
commenced during 2006.
During 2006, we commenced development of an additional amenity complex on approximately five
acres within Solivita West. This additional complex will contain an approximately 19,000 square
foot building with various recreation and service facilities.
From inception, we have closed 2,946 homes in Solivita and Solivita West, and approximately
5,100 individuals resided in the communities, as of December 31, 2006.
During 2006, we signed 237 contracts, net of cancellations, at Solivita and Solivita West,
with net sales value of approximately $85,089 (see “Results of Operations”).
Primary Residential Development
Our primary residential development includes construction of homes, both on scattered lots and
in planned communities in Florida and Rio Rico, Arizona. In addition to the development at our
various communities within Florida, during 2006 we commenced sales of Terralargo, our single-family
community in Lakeland, Florida, where we commenced development in 2005; closings of single-family
homes in Woodslanding, our Palm Beach County, Florida community, where we commenced sales and
construction in 2005; and within Sterling Hill in Hernando County, Florida, where sales commenced
during the fourth quarter of 2004; and commenced development of additional communities within
Poinciana. In December 2005, we obtained approval for development of Frenchman’s Yacht Club. During
2004, we obtained master plan approval from Martin County, Florida, for permitting of our Banyan
Bay community.
During January 2006, we closed for a cash purchase price of approximately $18,300 on 1,288
acres, the remaining phases of land in Poinciana which we contracted to acquire in October 2003 and
which were classified as land inventory not owned and obligations related to land inventory not
owned on the accompanying consolidated balance sheet as of December 31, 2005. We have not
contracted to option or purchase land since January 2005. During 2005, we closed on purchases of
various parcels of land in Florida for residential development for an aggregate purchase price of
approximately $58,817 (of which we contributed approximately $13,000 to an unconsolidated joint
venture).
17
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
Poinciana
Our housing programs in Poinciana include several residential communities, as well as
scattered lot housing programs. During 2006, we signed 216 contracts, net of cancellations, with a
net sales value of approximately $62,789 (see “Results of Operations”). We also have several
communities under development within Poinciana for which sales have not yet commenced.
In December 2006, we entered into agreements with Osceola and Polk Counties in Florida for us
to develop and construct a 9.66 mile four-lane road in the Counties, to be known as the Poinciana
Parkway. The Parkway is intended, among other things, to improve the flow of vehicular traffic in
the Counties, including in and around Poinciana, Florida. It will include a 4.15 mile segment to
be operated as a private toll road. We will pay the costs associated with the right-of-way
acquisition, development and construction of the Parkway. Except for the toll road, the Parkway
will be owned, maintained and operated by the Counties upon completion. We will own the toll road,
and under our agreements we have the right to sell it to a third party together with our right to
operate the toll road. Under our agreements with the Counties, the Parkway is to be substantially
complete and open to traffic by October 31, 2008, barring delays for some period of time resulting
from causes beyond our reasonable control. We have agreed to indemnify Osceola and Polk Counties
against liability for loss, injury or damage to persons or property, including, without limitation,
consequential damages, imposed on the Counties, except for any such loss, injury or damage that is
caused by or results from the gross negligence or willful misconduct of the Counties.
We have made significant progress toward obtaining the various necessary governmental and
environmental permits and approvals for the construction of the Parkway. We currently estimate our
acquisition, development and construction costs for the Parkway to be approximately $117,000 of
which approximately $10,000 has been expended, but no assurances of the ultimate amount can be
given at this early stage. Currently, we are in the process of seeking bids for construction of
the Parkway. Based on preliminary discussions
with potential third-party purchasers, we believe that the value of
the toll road, upon completion, would be not less than our estimated
right-of-way acquisition, development and construction costs.
Bellalago and Isles of Bellalago
Bellalago includes approximately one-mile of frontage along Lake Tohopekaliga, one of the
largest lakes in Florida, and frontage on Pleasant Hill Road. Bellalago is planned for
approximately 1,880 single-family homes, with additional land available for multi-family
development. Sales of housing units at Bellalago commenced during 2002 and closings commenced
during 2003. During 2004, we commenced development on land historically owned of an expansion of
Bellalago, Isles of Bellalago, which is planned for 537 single-family homes. Sales of housing units
commenced during the second quarter of 2005 and closings commenced during 2006. During 2006, we
signed 131 contracts, net of cancellations, with a net sales value of approximately $63,609 (see
“Results of Operations”).
Cory Lake Isles
During 2003, we commenced sales of homes within the water-oriented, master-planned community
of Cory Lake Isles in Tampa, Florida, planned for 358 single-family homes and 172 townhomes in
three separate neighborhoods. During 2006, the downturn in the local residential real estate market
resulted in cancellations in excess of contracts signed, for a net loss of 5 contracts totaling
$3,734 (see “Results of Operations”).
Sterling Hill
During September 2005 and September 2004, we acquired developed land within the master-planned
community of Sterling Hill in Hernando County, Florida. During 2006, the downturn in the local
residential real estate market resulted in cancellations in excess of contracts signed, for a net
loss of 15 contracts totaling $2,851 (see “Results of Operations”). At December 31, 2006, 29 homes
remained for sale.
18
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
Terralargo
Located within the City of Lakeland in southwest Polk County, Florida, Terralargo is being
developed as a 618 single-family home community on 640 acres including a 390-acre preservation
area. The community includes a clubhouse facility with pool, spa, deck overlooking a lake, and a
children’s playground. Development and sales commenced during 2006. During the fourth quarter of
2006, we signed 28 contracts, net of cancellations, with a net sales value of approximately $9,311
(see “Results of Operations”).
Woodslanding
In November 2004, we acquired 23 homesites in the community of Woodslanding in Palm Beach
County, Florida. We commenced sales in April 2005 and closings commenced during the first quarter
of 2006. During 2006, the downturn in the local residential real estate market resulted in
cancellations in excess of contracts signed, for a net loss of 3 contracts totaling $2,557 (see
“Results of Operations”). At December 31, 2006, six homes remained for sale.
Rio Rico
Rio Rico is located 57 miles south of Tucson in southern Arizona. During 2006, we signed 17
contracts, net of cancellations, with a sales value of approximately $5,202 (see “Results of
Operations”).
Banyan Bay
Banyan Bay, located in Martin County, Florida, with frontage on the St. Lucie River, consists
of 250 acres. We have obtained master plan approval from Martin County for permitting on this
historical land holding of a community of approximately 280 single- and multi-family homes.
Development of Banyan Bay commenced in 2006.
Frenchman’s Yacht Club
Frenchman’s Yacht Club is currently approved for 113 condominium-type residential units within
four midrise buildings plus various amenity features on approximately 15 acres of land in Palm
Beach County, Florida, which we acquired in October 2005. Pre-development commenced in 2006.
Cancellations
During
2006, cancellations of signed contracts totaled 517, compared to 245
for 2005. We have not
experienced any improvement in the market for single-family homes in the first two months of 2007. While there is no certainty, it is our belief that the market in the geographic areas
in which we develop and sell new homes may further deteriorate in the near future.
19
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
Other Residential Real Estate Assets
In December 2002, our subsidiary, Avatar Ocean Palms, Inc., entered into a joint venture for
development of Ocean Palms, a 38-story, 240-unit highrise condominium on a 3.5-acre oceanfront site
in Hollywood, Florida (the “Ocean Palms Joint Venture”). We have a 50% equity interest in the
Ocean Palms Joint Venture and account for the investment in the Ocean Palms Joint Venture under the
equity method whereby we recognize our proportionate share of the profits and losses. Since the
commencement of sales in 2003 through December 31, 2006, all condominium units have been sold at an
aggregate sales volume of $203,717. Closings of condominium units commenced during February 2006
and were completed during the second quarter of 2006. During 2006, the Ocean Palms Joint Venture
realized cash proceeds from closings whereby the construction financing was repaid during the first
quarter of 2006 and cash distributions were made to the members. We received cash distributions of
$49,038 during the year ended December 31, 2006 representing $29,038 from cumulative earnings
generated by closings of condominium units at Ocean Palms and $20,000 from our investment in the
Ocean Palms Joint Venture. We recognized cumulative earnings of $33,464 from inception through
December 31, 2006 from our investment in the Ocean Palms Joint Venture.
Commercial and Industrial and Other Land Sales
We continue to sell commercial and industrial land, principally in Poinciana, for third-party
development. For the year ended December 31, 2006, pre-tax profits on sales of commercial and
industrial land were $39,927 on aggregate sales of $44,110.
Also during 2006, pre-tax profits on sales of other land were $64,051 on aggregate sales of
$76,171. Included in other land sales is the sale of our approximately 4,400-acre property known as
Ocala Springs in Marion County, Florida (the “Ocala Property”). The aggregate sales price for the
Ocala Property was $75,122 which resulted in pre-tax profit of approximately $62,800. We also
realized, during 2006, pre-tax profits of $4,327 from the collection of a promissory note and
accrued interest totaling $13,185 from the sale of our equity interest in the Regalia Joint Venture
which was sold on June 30, 2005.
During the year ended December 31, 2005, pre-tax profits on sales of commercial and industrial
land were $9,469 on aggregate sales of $13,145. Also during 2005, pre-tax profits on sales of
other land were $12,170 on aggregate sales of $21,423. Included in other land sales for 2005 is
the sale of our 50% equity interest in the Blueview Joint Venture (defined later under the heading
“Liquidity and Capital Resources”) for a sales price of $13,887 which resulted in a pre-tax gain of
approximately $4,100. Also included in other land sales is our 50% equity interest in an
unconsolidated joint venture, the sole asset of which is land, for a sales price of $11,000 which
resulted in a pre-tax gain of approximately $4,500.
During 2004, pre-tax profits on sales of commercial and industrial land were $3,015 on
aggregate sales of $3,772. Also during 2004, pre-tax profits on sales of other land were $1,385 on
aggregate sales of $1,512.
Revenues from commercial and industrial and other land sales, which vary from year to year
depending upon demand, ensuing negotiations and timing of closings, were $133,466, $48,455 and
$5,284 in 2006, 2005 and 2004, respectively.
20
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
Other Operations
We also generate revenues through rental and other operations, including a small community
shopping center in Rio Rico, recreational facilities and title insurance agency operations.
Revenues from these operations were $7,405, $6,668, and $6,842 in 2006, 2005 and 2004,
respectively. The increase in revenues in 2006 compared to 2005 resulted primarily from increased
title insurance agency operations. The decrease in revenues in 2005 compared to 2004 resulted from
approximately $1,300 recognized and earned in 2004 from escrowed funds associated with the sale of
substantially all of the assets from the utilities operation in Florida during 1999 which was
mitigated by increased revenues from title insurance agency operations and rental operations.
Discontinued Operations
During the fourth quarter of 2005, we sold the stock of Rio Rico Utilities, Inc., our water
and wastewater utilities operations in Rio Rico, Arizona, for a sales price of approximately
$8,674. The pre-tax loss of approximately $2,472 on this sale and the operating results for 2005
and 2004 have been reported as discontinued operations in the accompanying consolidated statements
of income.
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our shopping center located in Poinciana for a sales price of approximately $6,000. The pre-tax
gain of approximately $4,702 on this sale and the operating results for 2005 and 2004 have been
reported as discontinued operations in the accompanying consolidated statements of income.
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our mini storage facility located in Poinciana for a sales price of approximately $9,125. The
pre-tax gain of approximately $6,092 on this sale and the operating results for 2005 have been
reported as discontinued operations in the accompanying consolidated statements of income. We
developed and constructed the mini storage facility and commenced operations in April 2005.
On June 1, 2004, we closed on the sale of substantially all of the assets of our cable
operations located in Poinciana for a sales price of approximately $6,175. The pre-tax gain of
approximately $3,779 on this sale and the operating results for 2004 have been reported as
discontinued operations in the accompanying consolidated statements of income.
During February 2004, we closed on the sale of the Harbor Islands marina located in Hollywood,
Florida, for a sales price of approximately $6,711. The pre-tax gain of approximately $2,686 on
this sale and the operating results for 2004 have been reported as discontinued operations in the
accompanying consolidated statements of income.
Reference is made to Note R in Item 8 under the caption “Notes to Consolidated Financial
Statements.”
21
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In the preparation of our financial statements, we apply United States generally accepted
accounting principles. The application of U.S. generally accepted accounting principles may require
management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying results.
As discussed in Note A to the Consolidated Financial Statements, in accordance with SFAS No.
66, “Accounting for Sales of Real Estate”, revenues from the sales of housing units are recognized
when the sales are closed and title passes to the purchasers. In addition, revenues from
commercial, industrial and other land sales are recognized in full at closing, provided the
purchaser’s initial investment is adequate, all financing is considered collectible and we are not
obligated to perform significant future activities. As a result, our revenue recognition process
does not involve significant judgments or estimations.
We rely on certain estimates to determine construction, land costs and other infrastructure
improvements and the resulting gross margins. Our land and construction costs are comprised of
direct and allocated costs, including estimated costs for future warranties. Land acquisition,
construction and development costs are assigned to individual components of projects based on
specific identification or other allocation methods based upon U.S. generally accepted accounting
principles. Land and land development costs generally include interest incurred until development
is substantially completed. The costs of amenities deeded to appropriate homeowner associations are
considered community-wide costs and are allocated using the relative sales value method or other
methods which approximate the relative sales value method based on U.S. generally accepted
accounting principles. Amenities owned by us are capitalized as Property, Plant and Equipment and
depreciated principally by the straight-line method over the useful lives of the assets.
Based on Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”, we are required to review the carrying value of each
of our long-lived assets and write down the value of those long-lived assets for which we believe
the values are not recoverable. SFAS No. 144 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.
SFAS No. 144 also addresses the accounting for long-lived assets that are expected to be disposed
of. We periodically review the carrying value of our long-lived assets and, if such reviews
indicate a lack of recovery of the net book value based on estimates on undiscounted future cash
flows, adjust the assets accordingly based on fair value. Fair value is generally based on
management’s estimate of the property’s fair value. No impairment existed at December 31, 2006 and
2005. An unconsolidated joint venture decided to terminate an option agreement to acquire property
in Florida, which, although not considered an impairment for accounting purposes, resulted in a
write-off of our investment of $1,765 in this joint venture during
2006. As of February 28, 2007, we do not have any
pending options or contracts for the purchase of land.
The FASB issued Interpretation No. 46(R) (“FIN 46(R)”), (which further clarified and amended
FIN 46, “Consolidation of Variable Interest Entities”) which requires the consolidation of entities
by the primary beneficiary which is the enterprise that absorbs a majority of the entity’s expected
losses, receives a majority of the entity’s expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. We evaluate the impact of FIN
46(R) as it relates to the joint ventures we enter into to determine whether or not the entity is a
variable interest entity and we are the primary beneficiary. If we determine that we are not the
primary beneficiary since we are not the entity that absorbs a majority of the expected losses
and/or receives a majority of the expected residual returns, these joint ventures are recorded as
unconsolidated joint ventures using the equity method of accounting.
22
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES — continued
Income taxes have been provided using the liability method in accordance with SFAS No. 109,
“Accounting for Income Taxes”. Under SFAS No. 109, the liability method is used in accounting for
income taxes where deferred income tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect when the differences reverse. A
deferred tax asset valuation is recorded based on the judgment of when it is more-likely-than-not
that all or a portion of the deferred tax asset will not be realized.
Warranty reserves for houses are established to cover potential costs for materials and labor
with regard to warranty-type claims to be incurred subsequent to the closing of a house. Reserves
are determined based on historical data and other relevant factors. Actual future warranty costs
could differ from our currently estimated amounts.
Construction reserves for closed houses are established to cover potential costs for
completion of houses closed. These reserves are determined on a per house basis based on estimated
house budgets and other relevant factors. Actual construction costs could differ from our currently
estimated amounts.
The estimated development liability consists primarily of utilities improvements in Poinciana
and Rio Rico for more than 8,000 homesites previously sold. The estimated development liability for
sold land is reduced by actual expenditures and is evaluated and adjusted, as appropriate, to
reflect management’s estimate of anticipated costs. During the first quarter of 2005, we began
evaluating the required utilities improvements of more than 8,000 residential homesites in
Poinciana and Rio Rico substantially sold prior to the termination of retail homesite sales
programs in 1996 and obtained third-party engineer evaluations which concluded during the third
quarter of 2005. We recorded charges of approximately $7,872 for 2005. During 2006, we continued
to obtain third-party engineer evaluations and recorded charges of approximately $1,086 for 2006.
Future increases or decreases of costs for construction, material and labor, as well as other land
development and utilities infrastructure costs may have a significant effect on the estimated
development liability.
Prior to January 1, 2006, we accounted for our stock-based compensation plans in accordance
with the recognition and measurement provisions of Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations, as permitted by
SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Accordingly, for
restricted stock units granted, compensation expense was recognized in the consolidated statements
of income prior to January 1, 2006 based on the market price of Avatar’s common stock on the date
the specified hurdle price was probable of being achieved, provided such provisions are applicable,
or the date of grant. For stock options granted, no compensation expense was recognized in the
consolidated statements of income prior to January 1, 2006 since all stock options granted had
exercise prices greater than the market value of Avatar’s stock on the grant date. Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS No. 123(R)”) using the modified-prospective transition method. Under
this transition method, compensation expense recognized during the year ended December 31, 2006
included: (a) compensation expense for all share-based awards granted prior to, but not yet vested
as of January 1, 2006, based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (b) compensation expense for all share-based awards granted
subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123(R). In accordance with the modified-prospective-transition method,
results for prior periods have not been restated.
23
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES — continued
As of December 31, 2006, there was $8,380 of unrecognized compensation expense related to
unvested restricted stock units and unvested stock options, of which $8,093 relates to restricted
stock units and $287 relates to stock options. That expense is expected to be recognized over a
weighted-average period of 2.2 years.
The calculation of the fair values of our stock-based compensation plans requires estimates
that require management’s judgments. The fair value of each stock option is estimated on the grant
date using the Black-Scholes option-pricing model. The fair value of restricted stock awards which
contain a specified hurdle price condition is estimated on the grant date using the Monte-Carlo
option valuation model (like a lattice model). The fair value of restricted stock awards which do
not contain a specified hurdle price condition is based on the market price of our common stock on
the date of grant. The valuation models require assumptions and estimates to determine expected
volatility, expected life, expected dividends and expected risk-free interest rates. The expected
volatility was determined using historical volatility of our stock based on the contractual life of
the award. The risk-free interest rate assumption was based on the yield on zero-coupon U.S.
Treasury strips at the award grant date. We also used historical data to estimate forfeiture
experience.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157
is effective for financial statements issued for fiscal years beginning after November 15, 2007,
which will be January 1, 2008 for us, and interim periods within those fiscal years. We are
currently evaluating the provisions of SFAS No. 157 and assessing the impact it may have on our
financial position and results of operations.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s
financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. FIN 48
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. The
interpretation also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006, which is January 1, 2007 for us. We have evaluated
the provision of FIN 48 and adoption of FIN 48 will not have a material impact on our financial
position and results of operations.
In September 2006, the Securities and Exchange Commission Staff issued Staff Accounting
Bulletin 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements
in Current Year Financial Statements” (SAB 108). SAB 108 addresses how the effects of prior year
uncorrected financial statement misstatements should be considered in current year financial
statements. SAB 108 requires registrants to quantify misstatements using both balance sheet and
income statement approaches and to evaluate whether either approach results in quantifying an error
that is material in light of relative quantitative and qualitative factors. SAB 108 is effective
for annual financial statements covering the first fiscal year ending after November 15, 2006 (our
fiscal year ended December 31, 2006). SAB 108 did not have an effect on our financial position and
results of operations.
24
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (dollars in thousands except per share data) — continued |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS — continued
In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8, “Applicability of
the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66, Accounting for Sales
of Real Estate, for Sales of Condominiums” (EITF 06-8). EITF 06-8 establishes that a company should
evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize
profit under the percentage-of-completion method. EITF 06-8 is effective for the first annual
reporting period beginning after March 15, 2007 (our fiscal year begins January 1, 2008). The
effect of EITF 06-8 is not expected to be material to our financial position and results of
operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities” (SFAS No. 159). SFAS No. 159 provides companies with an option to report
selected financial assets and liabilities at fair value. SFAS No. 159’s objective is to reduce
both complexity in accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently. SFAS No. 159 is effective for the first
fiscal year that begins after November 15, 2007 (our fiscal year begins January 1, 2008). We have
not yet determined what, if any, impact SFAS No. 159 will have on our financial position or results
of operations.
RESULTS OF OPERATIONS
The discussion in this section may contain “forward-looking statements” within the meaning of
the Private Securities Litigation Act of 1995. Please see our discussion under the heading
“Forward-Looking Statements” above.
The following management’s discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial statements and notes
thereto included elsewhere in this Annual Report on Form 10-K. In the preparation of our financial
statements, we apply United States generally accepted accounting principles. The application of
U.S. generally accepted accounting principles may require management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying results.
25
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
RESULTS OF OPERATIONS — continued
The following table provides a comparison of certain financial data related to our operations:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
Primary residential |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
447,487 |
|
|
$ |
309,608 |
|
|
$ |
214,107 |
|
Expenses |
|
|
316,409 |
|
|
|
242,519 |
|
|
|
175,616 |
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
131,078 |
|
|
|
67,089 |
|
|
|
38,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active adult community |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
241,866 |
|
|
|
148,515 |
|
|
|
105,663 |
|
Expenses |
|
|
182,911 |
|
|
|
133,513 |
|
|
|
100,201 |
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
58,955 |
|
|
|
15,002 |
|
|
|
5,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial and other land sales |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
133,466 |
|
|
|
48,455 |
|
|
|
5,284 |
|
Expenses |
|
|
25,161 |
|
|
|
22,685 |
|
|
|
884 |
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
108,305 |
|
|
|
25,770 |
|
|
|
4,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operations |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
7,405 |
|
|
|
6,668 |
|
|
|
6,842 |
|
Expenses |
|
|
4,420 |
|
|
|
4,286 |
|
|
|
3,447 |
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
2,985 |
|
|
|
2,382 |
|
|
|
3,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
301,323 |
|
|
|
110,243 |
|
|
|
51,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings (loss) from unconsolidated joint ventures |
|
|
(193 |
) |
|
|
17,871 |
|
|
|
14,918 |
|
Interest income |
|
|
3,363 |
|
|
|
1,419 |
|
|
|
1,222 |
|
General and administrative expenses |
|
|
(36,306 |
) |
|
|
(27,142 |
) |
|
|
(19,673 |
) |
Interest expense |
|
|
— |
|
|
|
(475 |
) |
|
|
(1,539 |
) |
Other real estate expenses |
|
|
(9,435 |
) |
|
|
(14,727 |
) |
|
|
(8,720 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
258,752 |
|
|
|
87,189 |
|
|
|
37,956 |
|
Income tax expense |
|
|
(84,026 |
) |
|
|
(29,990 |
) |
|
|
(12,678 |
) |
Income from discontinued operations |
|
|
— |
|
|
|
5,928 |
|
|
|
4,281 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
174,726 |
|
|
$ |
63,127 |
|
|
$ |
29,559 |
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (dollars in thousands except per share data) — continued |
RESULTS OF OPERATIONS — continued
Data from single-family primary residential and active adult homebuilding operations for the
years ended December 31, 2006, 2005 and 2004 is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Units closed |
|
|
|
|
|
|
|
|
|
|
|
|
Number of units |
|
|
2,122 |
|
|
|
1,914 |
|
|
|
1,427 |
|
Aggregate dollar volume |
|
$ |
666,578 |
|
|
$ |
445,485 |
|
|
$ |
307,678 |
|
Average price per unit |
|
$ |
314 |
|
|
$ |
233 |
|
|
$ |
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts signed, net of cancellations |
|
|
|
|
|
|
|
|
|
|
|
|
Number of units |
|
|
606 |
|
|
|
1,791 |
|
|
|
2,237 |
|
Aggregate dollar volume |
|
$ |
221,207 |
|
|
$ |
555,370 |
|
|
$ |
540,690 |
|
Average price per unit |
|
$ |
365 |
|
|
$ |
310 |
|
|
$ |
242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog at December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of units |
|
|
549 |
|
|
|
2,065 |
|
|
|
2,188 |
|
Aggregate dollar volume |
|
$ |
189,292 |
|
|
$ |
634,663 |
|
|
$ |
524,778 |
|
Average price per unit |
|
$ |
345 |
|
|
$ |
307 |
|
|
$ |
240 |
|
The number of net housing contracts signed during the year ended December 31, 2006 compared to
the same period in 2005 declined by 66.2%, while the dollar volume of housing contracts signed
declined by 60.2%. The decline in housing contracts signed for the year ended December 31, 2006
continues to reflect the accelerated weakening of the market for new residences in the geographic
areas where our developments are located.
We continued to experience through December 31, 2006 increases in cancellations of home sales
contracts. Our communities are located in areas of Florida and Arizona, where there is for sale an
excess of investor and speculator-owned units and an increasing use of various sales incentives by
residential builders in our markets, including Avatar.
During
2006, total cancellations of signed contracts totaled 517, compared
to 245 for 2005. We have not experienced any improvement in the market for single-family homes in the first two months
of 2007. While there is no certainty, it is our belief that the market in the
geographic areas in which we develop and sell new homes may further deteriorate in the near
future.
Although the dollar volume of housing contracts signed during 2005 exceeded by 2.7% the dollar
volume for 2004, the number of housing contracts signed in 2005 declined by 19.9% due to several
factors including: adverse weather conditions, including near-record rainfall in Central Florida
during June 2005 and hurricane conditions in a substantial part of the state during portions of the
third and fourth quarters; establishment of sales policies intended to reduce the backlog; and
institution of programs to discourage the purchase by investors and speculators in our active adult
community.
We achieved an increase in home closings during the year ended December 31, 2006 compared to
the years ended December 31, 2005 and 2004. The number of houses closed increased by 10.9% and the
dollar volume by 49.6% for the year ended December 31, 2006 compared to the same period in 2005.
The number of houses closed increased by 34.1% and the dollar volume by 44.8% for the year ended
December 31, 2005 compared to the same
27
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
RESULTS OF OPERATIONS — continued
period in 2004. We anticipate that we will close in excess of 80% of the homes in backlog as of
December 31, 2006 during the subsequent 12-month period, subject to cancellations by purchasers
prior to scheduled delivery dates.
In addition to development of single-family residential communities, we are an equity partner
in the Ocean Palms Joint Venture for development and construction of a 240-unit highrise
condominium which was completed in 2006. Since the commencement of sales in 2003 through December
31, 2006, all 240 units were sold at an aggregate sales volume of $203,717. Closings commenced in
February 2006 and were completed during the second quarter of 2006.
In general, prices of homes sold during 2006 ranged from $100 to $916 in our primary
residential operations. At Solivita and Solivita West, prices ranged from $170 to $769 on homes
sold during 2006. Closings on production homes generally occur within 180 to 210 days from sale.
In addition, due to the nature of the market, a substantial number of units at our active adult
community close approximately 12 months or longer from the date of sale.
Fiscal Year 2007
Although we achieved record results for both revenue and net profit in 2006, the market for
single-family and multi-family residences began to deteriorate in the third quarter of 2005 and
continued to deteriorate through December 31, 2006. Our current
new sales are at lower gross margins than over margins for new sales
in 2006. Increased inventory levels in our markets have
put significant downward pressure on prices and absorptions. Our year-end backlog is significantly
lower than last year. We are focusing our efforts on the sale of existing standing inventory units
resulting primarily from contract cancellations and the introduction of new more affordable
products in our communities.
There is a significant overhang of investor and speculator owned units for sale in all of our
communities. Potential homebuyers are also being offered substantial discounts on new homes for
sale by other builders in competing communities. This unusually high inventory will continue to
adversely affect home prices and absorption for the near term. Buyer sentiment is weak and the
availability of sub-prime mortgages has become more difficult. We do not believe that the current
imbalance of houses available for immediate and future occupancy against demand will correct itself
within the near future.
During 2006, Avatar experienced significantly higher cancellations on existing contracts than
it had in prior years. As of December 31, 2006, there is no indication of any improvement in sales
pace in our markets. Although the level of cancellations decreased during the months of January and
February 2007, we are not experiencing any improvement in the market for single-family homes in the
first two months of 2007, and believe we are experiencing further deterioration in absorptions and
price levels compared to 2006 levels. While there is no certainty, it is our belief that the market
in the geographic areas in which we develop and sell new homes will further deteriorate in the near
future.
As of December 31, 2006, the book cost of our standing inventory of unsold homes, both
completed and under construction, totaled $63,352. As of February 28, 2007,
the book cost of our standing inventory of unsold homes, both completed and under construction,
totaled $58,541. We believe that the realizable value is in excess of
our book cost.
Additionally, pending purchases of significant amounts of land inventory have been abandoned
by homebuilders in one form or another. A significant part of this land remains in the hands of
investors. Future development of this surplus land will represent a further potential surplus of
new houses which will ultimately be required to be absorbed by the market.
28
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
RESULTS OF OPERATIONS — continued
During 2006, we began designing new homes with lower square footage and smaller lots to enable
us to sell lower priced houses at meaningful profit margins. We introduced a new multi-family
product at Solivita in the fourth quarter of 2006, a smaller product for our scattered lot program
in February 2007 and anticipate introducing smaller lots and smaller houses in Bellalago in 2007.
We do not anticipate a meaningful improvement in our markets in the near term. It is not our
intention to implement programs which may offer some short-term earnings advantage, but which could
compromise our long-term objectives. We anticipate that we will close in excess of 80% of the homes
in backlog as of December 31, 2006 during the subsequent 12-month period, subject to cancellations
by purchasers prior to scheduled delivery dates. Visibility for 2007 continues to remain difficult,
and our level of profitability is expected to be significantly lower
than 2006; however, we expect to be profitable for 2007.
Anticipating a downturn in our markets, we have not contracted to acquire any new land since
January 2005. Moreover, we entered into contracts to sell two of our remaining three multi-family
condominium sites in 2005, realizing profits of $4,100 in 2005 and $4,327 in 2006. With
approximately $200,000 in cash at year end and available credit capacity, we are in a position to
take advantage of opportunities that may be presented during this challenging period.
Fiscal Year 2006 Compared to Fiscal 2005
Net income for the years ended December 31, 2006 and 2005 was $174,726 or $16.59 per diluted
share ($21.33 per basic share) and $63,127 or $6.28 per diluted share ($7.83 per basic share),
respectively. The increase in net income for 2006 compared to 2005 was primarily due to increased
profitability of primary residential operations, active adult operating results and commercial and
industrial and other land sales, in particular the sale of the Ocala property in December 2006.
Also contributing to the increase in net income is a decrease in other real estate expenses. The
increase in net income for 2006 was partially mitigated by a decrease in earnings recognized from
unconsolidated joint ventures and an increase in general and administrative expenses.
Revenues and expenses from primary residential operations increased $137,879 or 44.5% and
$73,890 or 30.5%, respectively, during 2006 when compared to 2005. The increase in revenues is
primarily attributable to increased closings at Bellalago, Cory Lake Isles and Rio Rico, as well as
the commencement of closings at Sterling Hill and Woodslanding and higher average price per unit
closed in all primary residential communities. The increase in expenses is attributable to higher
volume of closings and the associated costs related to price increases for materials and services.
Revenues and expenses from active adult operations increased $93,351 or 62.9% and $49,398 or
37.0%, respectively, during 2006 when compared to 2005. The increase in revenues is primarily due
to the increased number of closings, higher average price per unit and increased activity at the
amenity operations at Solivita. The increase in expenses in active adult operations is attributable
to higher volume of closings and the associated costs related to the higher volume of closings at
Solivita and price increases for materials and services.
Revenues and expenses from commercial and industrial and other land sales increased $85,011 or
175.4% and $2,476 or 10.9%, respectively, during 2006 when compared to 2005. For the year ended
December 31, 2006, pre-tax profits on sales of commercial and industrial land were $39,927 on
aggregate sales of $44,110. Also during 2006, pre-tax profits on sales of other land were $64,051
on aggregate sales of $76,171. Included in other land sales is the sale of the Ocala Property. The
aggregate sales price for the Ocala Property was $75,122 which resulted in pre-tax profit of
approximately $62,800. We also realized, during 2006, pre-tax profits of $4,327 from the collection
of a promissory note and accrued interest totaling $13,185 from the sale of our equity interest in
the Regalia Joint
29
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
RESULTS OF OPERATIONS — continued
Venture which was sold on June 30, 2005. The amount and types of commercial and industrial and
other land sold vary from year to year depending upon demand, ensuing negotiations and the timing
of the closings of these sales.
Revenues and expenses from other operations increased $737 or 11.1% and $134 or 3.1%,
respectively, during 2006 when compared to 2005. The increase in revenues is primarily due to
increased revenues from our title insurance agency operations. The increase in expenses is
primarily attributable to increased operating expenses associated with our title insurance agency
operations.
Equity earnings from unconsolidated joint ventures represent our proportionate share of
profits and losses from our investment in unconsolidated joint ventures whereby we account for our
investment under the equity method. We recognized $1,573 and $17,955 of earnings for 2006 and
2005, respectively, from our investment in the Ocean Palms Joint Venture. Earnings from the Ocean
Palms Joint Venture are recognized on the percentage of completion method of accounting, and as of
December 31, 2006 substantially all earnings have been recognized. Construction of the highrise
condominium building was completed during 2006. Closings of units commenced in February 2006 and
were completed during the second quarter of 2006. Also during 2006, an unconsolidated joint
venture decided to terminate an option agreement to acquire property in Florida, which, although
not considered an impairment for accounting purposes, results in a write-off of our investment of
$1,765 in this joint venture during 2006. As of February 28,
2007, we do not have any pending options or contracts for the
purchase of land.
Interest income increased $1,944 or 137.0% for 2006 compared to 2005. The increase was
primarily attributable to higher interest rates earned on cash and cash equivalents as well as higher cash
and cash equivalents balances during 2006 compared to 2005.
General and administrative expenses increased $9,164 or 33.8% for 2006 compared to 2005. The
increases were primarily due to increases in incentive compensation and compensation expense.
Interest expense decreased $475 or 100% for 2006 compared to 2005. The decrease in interest
expense for 2006 is due to the increase in amount of interest expense capitalized due to increases
in development and construction activities in our various projects.
Other real estate expenses, which represent real estate taxes and property maintenance not
allocable to specific operations, decreased by $5,292 or 35.9% for 2006 compared to 2005. During
the first quarter of 2005, we began evaluating the required utilities improvements of more than
8,000 residential homesites in Poinciana and Rio Rico substantially sold prior to the termination
of retail homesite sales programs in 1996 and obtained third-party engineer evaluations which
concluded during the third quarter of 2005. Based on these evaluations we recorded charges of
approximately $7,872 for 2005. During 2006, we continued to obtain third-party engineer evaluations
and recorded charges of approximately $1,086 for 2006. Future increases or decreases of costs for
construction, material and labor, as well as other land development and utilities infrastructure
costs may have a significant effect on the estimated development liability.
During the fourth quarter of 2005, we sold the stock of Rio Rico Utilities, Inc., our water
and wastewater utilities operations in Rio Rico, Arizona, for a sales price of approximately
$8,674. The pre-tax loss of approximately $2,472 on this sale and the operating results for 2005
and 2004 have been reported as discontinued operations in the accompanying consolidated statements
of income.
30
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
RESULTS OF OPERATIONS — continued
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our shopping center located in Poinciana for a sales price of approximately $6,000. The pre-tax
gain of approximately $4,702 on this sale and the operating results for 2005 and 2004 have been
reported as discontinued operations in the accompanying consolidated statements of income.
Income tax expense was provided for at an effective tax rate of 32.5% for 2006 compared to
34.8% for 2005. As of December 31, 2006, based on our tax planning strategy with respect to the
deferred income tax liabilities of $23,798 from the sale of the Ocala Property, we determined that
certain of our gross deferred tax assets, which had an associated valuation allowance of $14,053,
were more-likely-than-not realizable resulting in the elimination of such valuation allowance. We
believe the tax planning strategy is prudent and feasible and we have the ability and intent to
purchase and sell, if necessary, replacement property to realize these deferred tax assets. During
2005, we decreased the valuation allowance by $2,947 which is primarily attributable to the tax
over book basis of land inventory in Poinciana and to the tax over book basis of depreciable assets
which were demolished being more-likely-than-not realizable. Reference is made to the Income Taxes
note to the Consolidated Financial Statements included in Item 8 of Part II of this Report.
Fiscal Year 2005 Compared to Fiscal 2004
Net income for the years ended December 31, 2005 and 2004 was $63,127 or $6.28 per diluted
share ($7.83 per basic share) and $29,559 or $3.10 per diluted share ($3.49 per basic share),
respectively. The increase in net income for 2005 compared to 2004 was primarily due to increases
in primary residential operations, active adult operating results and commercial and industrial
land sales, as well as increases in earnings recognized from the Ocean Palms Joint Venture and
gains from sales of discontinued operations. The increase in net income for 2005 was partially
mitigated by increases in general and administrative expenses, and other real estate expenses.
Revenues and expenses from primary residential operations increased $95,501 or 44.6% and
$66,903 or 38.1%, respectively, during 2005 when compared to 2004. The increase in revenues was
primarily attributable to increased closings at Poinciana, Bellalago, Cory Lake Isles and Rio Rico
and higher average price per unit closed in all primary residential communities. The increase in
expenses was attributable to higher volume of closings and the associated costs related to price
increases for materials and services, and for 2004 included approximately $1,758 of hurricane
related expenses incurred at Poinciana and Bellalago.
Revenues and expenses from active adult operations increased $42,852 or 40.6% and $33,312 or
33.2%, respectively, during 2005 when compared to 2004. The increase in revenues was primarily due
to the increased number of units closed and increased activity at the amenity operations at
Solivita. The increase in expenses in active adult operations was attributable to higher volume of
closings and the associated costs related to the higher volume of closings at Solivita and price
increases for materials and services, and for 2004 included approximately $1,666 of hurricane
related expenses incurred at Solivita.
Revenues and expenses from commercial and industrial and other land sales increased $43,171 or
817.0% and $21,801 or 2,466.2%, respectively, during 2005 when compared to 2004. During 2005, we
closed on sales of over 70 acres of land for third-party construction. Furthermore, during 2005,
we sold our 50% equity interest in the Blueview Joint Venture (defined later under the heading
“Liquidity and Capital Resources”) which resulted in a pre-tax gain of approximately $4,100. We
also sold in 2005 a 50% equity interest in an unconsolidated joint venture, the sole asset of which
is land, which resulted in a pre-tax gain of approximately $4,500. The amount and types of
commercial and industrial and other land sold vary from year to year depending upon demand, ensuing
negotiations and the timing of the closings of these sales.
31
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
RESULTS OF OPERATIONS — continued
Revenues from other operations decreased $174 or 2.5% and expenses increased $839 or 24.3%,
respectively, during 2005 when compared to 2004. The decrease in revenues was primarily due to
approximately $1,300 recognized and earned in 2004 from escrowed funds associated with the sale of
substantially all of the assets from the utilities operations in Florida during 1999 partially
mitigated by increased revenues from our title insurance agency and rental operations. The increase
in expenses was primarily attributable to increased operating expenses associated with our title
insurance agency and rental operations.
Equity earnings from unconsolidated joint ventures represent our proportionate share of
profits and losses from our investment in unconsolidated joint ventures whereby we account for our
investment under the equity method. We recognized $17,955 and $14,918 of earnings for 2005 and
2004, respectively, from our investment in the Ocean Palms Joint Venture. Earnings from the Ocean
Palms Joint Venture are recognized on the percentage of completion method of accounting. During
the first quarter of 2004, construction of the highrise condominium building surpassed the
preliminary stage of construction whereby recognition of profits under the percentage of completion
method commenced. Construction of the highrise condominium building was substantially completed
and closings of units commenced in February 2006.
General and administrative expenses increased $7,469 or 38.0% for 2005 compared to 2004. The
increases were primarily due to increases in professional fees, incentive compensation and
compensation expense.
Interest expense decreased $1,064 or 69.1% for 2005 compared to 2004. The decrease in interest
expense for 2005 was due to the increase in amount of interest expense capitalized due to increases
in development and construction activities in our various projects.
Other real estate expenses, which represent real estate taxes and property maintenance not
allocable to specific operations, increased by $6,007 or 68.9% for 2005 compared to 2004. The
increase was primarily attributable to increased estimated development liability for utilities
improvements for more than 8,000 residential homesites in Poinciana and Rio Rico, most of which
were sold prior to the termination of retail homesite sales programs in 1996. Early in fiscal year
2005, we began evaluating required improvements in Poinciana and Rio Rico and obtained third-party
engineer evaluations which were concluded in the third quarter of 2005 and further evaluated during
the fourth quarter of 2005. Based on these evaluations we recorded charges of approximately $7,872
for 2005. For fiscal year 2004, we recorded charges of $4,758, of which $4,458 was recorded in the
fourth quarter based on third-party engineer evaluations concluded in the fourth quarter of 2004.
During the fourth quarter of 2005, we sold the stock of Rio Rico Utilities, Inc., our water
and wastewater utilities operations in Rio Rico, Arizona, for a sales price of approximately
$8,674. The pre-tax loss of approximately $2,472 on this sale and the operating results for 2005
and 2004 have been reported as discontinued operations in the accompanying consolidated statements
of income.
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our shopping center located in Poinciana for a sales price of approximately $6,000. The pre-tax
gain of approximately $4,702 on this sale and the operating results for 2005 and 2004 have been
reported as discontinued operations in the accompanying consolidated statements of income.
32
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
RESULTS OF OPERATIONS — continued
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our mini storage facility located in Poinciana for a sales price of approximately $9,125. The
pre-tax gain of approximately $6,092 on this sale and the operating results for 2005 have been
reported as discontinued operations in the accompanying consolidated statements of income. We
developed and constructed the mini storage facility and commenced operations in April 2005.
On June 1, 2004, we closed on the sale of substantially all of the assets of our cable
operations located in Poinciana for a sales price of approximately $6,175. The pre-tax gain of
approximately $3,779 on this sale and the operating results for 2004
have been reported as
discontinued operations in the accompanying consolidated statements of income.
During February 2004, we closed on the sale of the Harbor Islands marina located in Hollywood,
Florida, for a sales price of approximately $6,711. The pre-tax gain of approximately $2,686 on
this sale and the operating results for 2004 have been reported as discontinued operations in the
accompanying consolidated statements of income.
Income tax expense was provided for at an effective tax rate of 34.8% for 2005 compared to
34.1% for 2004. Reference is made to the Income Taxes note to the Consolidated Financial Statements
included in Item 8 of Part II of this Report.
LIQUIDITY AND CAPITAL RESOURCES
Our real estate business strategy is designed to capitalize on our competitive advantages and
emphasize higher profit margin businesses by concentrating on the development and management of
active adult communities and primary residential communities, and utilizing third-party commercial
and industrial development to maximize the value of our residential community developments. We also
seek to identify additional sites that are suitable for development consistent with our business
strategy and anticipate that we will acquire or develop them directly or through joint venture,
partnership or management arrangements. Our primary business activities are capital intensive in
nature. Significant capital resources are required to finance primary residential and active adult
communities, homebuilding construction in process, community infrastructure, selling expenses, new
projects and working capital needs, including funding of debt service requirements and the carrying
cost of land.
Our operating cash flows fluctuate relative to the status of development within existing
communities, expenditures for land, new developments or other real estate activities, and sales of
various homebuilding product lines within those communities and other developments. From time to
time we have generated, and may continue to generate, additional cash flow through sales of
non-core assets.
As of December 31, 2006, the amount of cash available totaled $203,760, substantially
generated through homebuilding operations and sales of commercial and industrial properties, as
well as approximately $73,000 from the sale of the approximate 4,400-acre property of Ocala
Springs. As of March 13, 2007, the amount of cash available totaled approximately $201,000.
On September 20, 2005, we entered into a Credit Agreement and a Guaranty Agreement for a
$100,000 (expandable up to $175,000), four-year senior unsecured revolving credit facility (the
“Unsecured Credit Facility”), by and among our wholly-owned subsidiary, Avatar Properties Inc. (as
Borrower), Wachovia Bank, National Association (as Administrative Agent and Lender), and certain
financial institutions as lenders. Interest on borrowings under the Unsecured Credit Facility
ranges from LIBOR plus 1.75% to 2.25%. Our borrowing rate under the Unsecured Credit Facility as of
December 31, 2006 was 7.07%.
33
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
LIQUIDITY AND CAPITAL RESOURCES — continued
The initial principal amount under the Unsecured Credit Facility is $100,000; however, so long
as no default or event of default has occurred and is continuing, increases may be requested,
subject to lender approval, up to $175,000. We received lender approval on October 21, 2005 to
increase the principal amount under the Unsecured Credit Facility to $125,000. This Unsecured
Credit Facility includes a $7,500 swing line commitment and had a $10,000 sublimit for the issuance
of standby letters of credit.
On May 25, 2006, we amended the Unsecured Credit Facility to clarify the timing of applicable
interest rate adjustments and increase the availability for letters of credit from $10,000 to
$50,000.
The Unsecured Credit Facility contains customary representations, warranties and covenants
limiting liens, guaranties, mergers and consolidations, substantial asset sales, investments and
loans. In addition, the Unsecured Credit Facility contains covenants to the effect that we (i)
will maintain a minimum consolidated tangible net worth (as defined in the Unsecured Credit
Facility), (ii) shall maintain an adjusted EBITDA/debt service ratio (as defined in the Unsecured
Credit Facility) of not less than 2.75 to 1.0, and (iii) will not permit the leverage ratio (as
defined in the Unsecured Credit Facility) to exceed 2.0 to 1.0, and (iv) the sum of the net book
value of unentitled land, entitled land, land under development and finished lots shall not exceed
150% of consolidated tangible net worth. Borrowings under the Unsecured Credit Facility may be
limited based on the amount of borrowing base available. We are in compliance with these covenants
as of December 31, 2006. The Unsecured Credit Facility also contains a covenant whereby the sum of
speculative homes and models cannot exceed 25% of the aggregate number of unit sales for the last
twelve month period. As of December 31, 2006, we exceeded this limitation. However, during the
fourth quarter of 2006, we obtained a waiver of this requirement for the quarter ended December 31,
2006 and the entirety of 2007.
In the event of a default under the Unsecured Credit Facility, including cross-defaults
relating to specified other debt of Avatar or its consolidated subsidiaries in excess of $1,000,
the lenders may terminate the commitments under the Unsecured Credit Facility and declare the
amounts outstanding, and all accrued interest, immediately due and payable.
The Unsecured Credit Facility provides that once each fiscal year, we may request a
twelve-month extension of the maturity date. During August 2006, the Unsecured Credit Facility was
amended to extend the maturity date of the Unsecured Credit Facility from September 20, 2009 to
September 20, 2010. As of December 31, 2006, we had borrowings totaling $0 under the Unsecured
Credit Facility and $109,769 was available for borrowing under the Unsecured Credit Facility, net
of $15,231 outstanding letters of credit.
Payments of all amounts due under the Unsecured Credit Facility are guaranteed by Avatar
Holdings Inc. pursuant to the Restated Guaranty Agreement dated as of October 21, 2005.
On March 30, 2004, we issued $120,000 aggregate principal amount of 4.50% Convertible Senior
Notes due 2024 (the “4.50% Notes”) in a private, unregistered offering, subsequent to which we
filed, for the benefit of the 4.50% Notes holders, a shelf registration statement covering resales
of the 4.50% Notes and the shares of our common stock issuable upon the conversion of the 4.50%
Notes. Interest is payable semiannually on April 1 and October 1. The 4.50% Notes are senior,
unsecured obligations and rank equal in right of payment to all of our existing and future
unsecured and senior indebtedness. However, the 4.50% Notes are effectively subordinated to all of
our existing and future secured debt to the extent of the collateral securing such indebtedness,
and to all existing and future liabilities of our subsidiaries. Each $1 in principal amount of the
4.50% Notes is convertible, at the option of the holder, at a conversion price of $52.63, or
19.0006 shares of our common stock, upon the satisfaction of one of the following conditions: a)
during any calendar quarter (but only during such calendar quarter) commencing after
34
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
LIQUIDITY AND CAPITAL RESOURCES — continued
June 30, 2004 if the closing sale price of our common stock for at least 20 trading days in a
period of 30 consecutive trading days ending on the last trading day of the preceding calendar
quarter is more than 120% of the conversion price per share of common stock on such last day; or b)
during the five business day period after any five-consecutive-trading-day period in which the
trading price per $1 principal amount of the 4.50% Notes for each day of that period was less than
98% of the product of the closing sale price for our common stock for each day of that period and
the number of shares of common stock issuable upon conversion of $1 principal amount of the 4.50%
Notes, provided that if on the date of any such conversion that is on or after April 1, 2019, the
closing sale price of Avatar’s common stock is greater than the conversion price, then holders will
receive, in lieu of common stock based on the conversion price, cash or common stock or a
combination thereof, at our option, with a value equal to the principal amount of the 4.50% Notes
plus accrued and unpaid interest, as of the conversion date. During the fourth quarter of 2006,
the closing price of Avatar’s common stock exceeded 120% ($63.156) of the conversion price for 20
trading days out of 30 consecutive trading days. Therefore the 4.50% Notes became convertible for
the quarter beginning January 1, 2007.
We may, at our option, redeem for cash all or a portion of the 4.50% Notes at any time on or
after April 5, 2011. Holders may require us to repurchase the 4.50% Notes for cash on April 1,
2011, April 1, 2014 and April 1, 2019 or in certain circumstances involving a designated event, as
defined in the indenture for the 4.50% Notes. In each case, we will pay a repurchase price equal
to 100% of their principal amount, plus accrued and unpaid interest, if any.
At our community of Solivita, tax-exempt bond financing is utilized to fund and manage
portions of public infrastructure consisting primarily of stormwater management facilities,
drainage works, irrigation facilities, and water and wastewater utilities. The bonds were issued by
the Poinciana Community Development District (the “CDD”), an independent special-purpose unit of
county government, established and operating in accordance with Chapter 190 of the Florida
Statutes. The bonds are serviced by non-ad valorem special assessments levied on certain
developable and developed property within Solivita, and the assessments constitute a liability
against the developable and developed property and are intended to secure the CDD’s ability to meet
its bond servicing obligations. The assessments are not a liability of Avatar or any other
landowner within the CDD but are obligations secured by the land. For the developable and developed
parcels Avatar owns within the CDD, Avatar pays the assessments until such parcels are sold. After
a sale by Avatar, Avatar no longer pays the assessments on the parcel sold and any future
assessments become the responsibility of the new owner and its successors in title until the bonds
are paid in full.
During 2006, we closed on the remaining phases of land in Poinciana, which was contracted for
in 2003, for a cash purchase price of approximately $18,300. This land was classified as land
inventory not owned and obligations related to land inventory not owned on the accompanying
consolidated balance sheet as of December 31, 2005.
In conjunction with the acquisition of developed land in Florida in September 2005 and
September 2004, we assumed approximately $5,900 of Community Development District term bond
obligations due 2010. These term bonds are secured by the land and bear an interest rate of 5.50%.
As of December 31, 2006, we had $1,195 outstanding under these obligations.
In conjunction with the acquisition of certain undeveloped land in Florida during November
2004, we paid $3,000 in cash and the remaining balance of $15,730 in the form of a purchase money
note. The purchase money note is secured by a mortgage on this land. This note matures November
2009. Under the original terms of the note, the interest rate is 2% per annum above prime rate of
interest published from time to time in the Wall Street Journal
35
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
LIQUIDITY AND CAPITAL RESOURCES — continued
adjusted every six months during the term of the note. However, effective February 1, 2006, the
purchase money note was amended to fix the interest rate at 6% for the period February 1, 2006
through January 31, 2008. From February 1, 2008 through maturity, the interest rate reverts to a
variable rate as previously described.
On June 29, 2005, our Board of Directors amended the March 20, 2003 authorization which allows
us to purchase, from time to time, shares of our common stock in the open market, through privately
negotiated transactions or otherwise, depending on market and business conditions and other
factors, to also include repurchases of the 4.50% Notes. For the year ended December 31, 2006, we
did not repurchase any of our common stock and/or the 4.50% Notes. As of December 31, 2006, we are
authorized to repurchase $15,829 of our common stock and/or 4.50% Notes.
On March 17, 2004, a subsidiary, Avatar Regalia, Inc., entered into a joint venture for
possible investment in and/or development of Regalia (the “Regalia Joint Venture”), a luxury
residential highrise condominium on an approximately 1.18-acre oceanfront site in Sunny Isles
Beach, Florida (the “Property”), approximately three miles south of Hollywood, Florida whereby we
had a 50% equity interest in the Regalia Joint Venture. On June 30, 2005, we assigned our 50%
equity interest in the Regalia Joint Venture to our 50% equity partner for which we received a
promissory note in the amount of approximately $11,500 secured by a mortgage on the Property. Under
the terms of the promissory note, we could advance up to an additional $750. The interest rate on
this promissory note was 8% per annum. Unpaid principal and interest of $13,185 under this
promissory note was due and collected on June 30, 2006 resulting in the recognition of a sale and
pre-tax gain of $4,327. The consolidated assets and liabilities of the Regalia Joint Venture were
reflected in the accompanying consolidated balance sheets as of December 31, 2005 as “Assets of
business transferred under contractual arrangements” and “Liabilities of business transferred under
contractual arrangement” because until June 30, 2006 the risks of ownership had not been
transferred to allow us to recognize this transaction as a sale.
In December 2002, our subsidiary, Avatar Ocean Palms, Inc., entered into a joint venture for
development of Ocean Palms, a 38-story, 240-unit highrise condominium on a 3.5-acre oceanfront site
in Hollywood, Florida (the “Ocean Palms Joint Venture”). We have a 50% equity interest in the
Ocean Palms Joint Venture and account for the investment in the Ocean Palms Joint Venture under the
equity method whereby we recognize our proportionate share of the profits and losses. Since the
commencement of sales in 2003 through December 31, 2006, all condominium units have been sold at an
aggregate sales volume of $203,717.
Construction by the Ocean Palms Joint Venture of its highrise condominium in Hollywood,
Florida was completed during the second quarter of 2006. Closings of condominium units commenced
during February 2006 and were completed during the second quarter of 2006. During 2006, the Ocean
Palms Joint Venture realized cash proceeds from closings and the construction financing was repaid.
We received cash distributions of $49,038 during the year ended December 31, 2006 representing
$29,038 from cumulative earnings generated by closings of condominium units at Ocean Palms and
$20,000 from our investment in the Ocean Palms Joint Venture. We recognized cumulative earnings of
$33,464 from inception through December 31, 2006 from our investment in the Ocean Palms Joint
Venture.
On March 9, 2004, we agreed to lend up to $5,000 to the sole stockholder of the Ocean Palms
Joint Venture member, represented by a two-year interest-bearing promissory note. We recognized
interest income from this promissory note of $292 and $763 for the years ended December 31, 2006
and 2005, respectively. Advances under the promissory note were subject to certain requirements and
conditions related to sales at Ocean Palms, which conditions and requirements were satisfied during
July 2004. During April 2006, the advances under this promissory note and accrued interest totaling
$5,455 were repaid by the Ocean Palms Joint Venture member.
36
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
LIQUIDITY AND CAPITAL RESOURCES — continued
During the fourth quarter of 2005, we sold the stock of Rio Rico Utilities, Inc., our water
and wastewater utilities operations in Rio Rico, Arizona for a sales price of approximately $8,674.
This sale resulted in a pre-tax loss of approximately $2,472.
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our shopping center located in Poinciana for a sales price of approximately $6,000. This sale
resulted in a pre-tax gain of approximately $4,702.
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our mini storage facility located in Poinciana for a sales price of approximately $9,125. This
sale resulted in a pre-tax gain of approximately $6,092.
On February 25, 2004, we closed on the sale of the Harbor Islands marina located in Hollywood,
Florida, for a sales price of approximately $6,711. This sale resulted in a pre-tax gain of
approximately $2,686 for 2004.
On June 1, 2004, we closed on the sale of substantially all of the assets of our cable
operations in Poinciana, Florida, for a sales price of approximately $6,175. This sale resulted in
a pre-tax gain of approximately $3,779 for 2004.
In 2006, net cash provided by operating activities amounted to $156,875, primarily as a result
of net income of $174,726 and distributions of earnings from an unconsolidated joint venture of
$29,038, proceeds from the collection of a promissory note and accrued interest totaling $13,185
from the sale of our equity interest in the Regalia Joint Venture and proceeds of $11,092 from the
collection of receivables. Partially offsetting net cash provided by operating activities is the
increase in land and other inventories of $62,503 and decrease in customer deposits of $39,446.
Contributing to the increase in inventories for 2006 were land acquisitions of approximately
$18,300 and expenditures on construction and land development of $44,203. Net cash provided by
investing activities amounted to $15,198 primarily as a result of distributions of capital from an
unconsolidated joint venture of $20,000 and return of advances of $4,910 from a promissory note to
our Ocean Palms Joint Venture member offset by expenditures of $8,679 for investments in property,
plant and equipment, as well as expenditures of $1,033 for investments in unconsolidated joint
ventures. Net cash used in financing activities of $6,792 resulted from repayment of $17,182 in
real estate debt, partially offset by borrowings of $10,000 from a revolving line of credit and
proceeds of $250 from the exercise of stock options.
In 2005, net cash used in operating activities amounted to $7,136, primarily as a result of
increases in land and other inventories of $86,033 partially offset by net income of $63,127 and an
increase in customer deposits of $11,994. Contributing to the increase in inventories for 2005 were
land acquisitions of $45,817 and expenditures on construction and land development of approximately
$40,216. Net cash provided by investing activities amounted to $14,330, primarily as a result of
net proceeds of $23,844 from the sales of Rio Rico Utilities, our shopping center and our mini
storage facility in Poinciana, offset by $1,012 resulting from expenditures for investments in
property, plant and equipment and investments in unconsolidated joint ventures of $8,502. Net cash
provided by financing activities of $1,787 resulted from borrowings of $86,933 from the Unsecured
Credit Facility, partially offset by repayment of real estate debt of $82,735, the purchase of $428
of treasury stock as well as $1,708 used in connection with the issuance of restricted stock.
37
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
LIQUIDITY AND CAPITAL RESOURCES — continued
In 2004, net cash used in operating activities amounted to $48,999, primarily as a result of
increases in land and other inventories of $57,635 and prepaid expenses of $12,157, partially
offset by an increase in customer deposits of $21,245. Contributing to the increase in inventories
for 2004 were land acquisitions of $42,577. Net cash provided by investing activities amounted to
$10,188, primarily as a result of net proceeds of $12,868 from the sales of the Harbor Islands
marina and cable operations in Poinciana, offset by $2,680 resulting from investments in property,
plant and equipment. Net cash provided by financing activities of $43,709 resulted from the
proceeds of $120,000 from the issuance of the 4.50% Notes, partially offset by purchase of $52,998
of treasury stock, of which $42,905 was in connection with the issuance of the 4.50% Notes, and
repayment of real estate debt of $20,107.
As described above (see “Overview — Primary Residential Development — Poinciana”), in December
2006, we entered into agreements with Osceola and Polk Counties in Florida for us to develop and
construct a 9.66 mile four-lane road in the Counties, to be known as the Poinciana Parkway. Under
our agreements with the Counties, the Parkway is to be substantially complete and open to traffic
by October 31, 2008, barring delays for some period of time resulting from causes beyond our
reasonable control. We currently estimate our right-of-way acquisition, development and
construction costs for the Parkway to be approximately $117,000 of which approximately $10,000 has
been expended, but no assurances of the ultimate amount can be given
at this early stage. Based on preliminary discussions
with potential third-party purchasers, we believe that the value of
the toll road, upon completion, would be not less than our estimated
right-of-way acquisition, development and construction costs.
We anticipate that cash on hand, cash flow generated through homebuilding and related
operations, sales of commercial and industrial land, sales of non-core assets and external
borrowings, positions us to be able to continue to acquire new development opportunities and expand
operations at our existing communities, fund the right-of-way acquisition, development and
construction of the Poinciana Parkway, as well as to commence appropriate development of new
projects on properties currently owned and/or to be acquired. (See “Results of Operations – Fiscal
Year 2007.”)
OFF-BALANCE SHEET ARRANGEMENTS
In general, our operations do not include transactions categorized as off-balance sheet
arrangements. However, certain amendments or certain interpretations of accounting rules could
provide for such categorization of certain joint venture transactions.
In December 2002, our subsidiary, Avatar Ocean Palms, Inc., entered into a joint venture for
development of a 38-story, 240-unit highrise condominium on a 3.5-acre oceanfront site in
Hollywood, Florida. We are accounting for the operating profits or losses under the equity method
of accounting. Since the commencement of sales in 2003 through December 31, 2006, all units have
been sold and closed at an aggregate sales volume of $203,717. Closings of condominium units
commenced during February 2006 and were completed during the second quarter of 2006. During 2006,
the Ocean Palms Joint Venture realized cash proceeds from closings and the construction financing
was repaid. We received cash distributions of $49,038 during the year ended December 31, 2006
representing $29,038 from cumulative earnings generated by closings of condominium units at Ocean
Palms and $20,000 from our investment in the Ocean Palms Joint Venture. We recognized cumulative
earnings of $33,464 from inception through December 31, 2006 from our investment in the Ocean Palms
Joint Venture. Reference is made to Note F in Item 8 under the caption “Notes to Consolidated
Financial Statements” for the balance sheet and statement of operations of the Ocean Palms Joint
Venture.
38
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
OFF-BALANCE SHEET ARRANGEMENTS — continued
As of December 31, 2006, we own an equity interest in a joint venture (excluding Ocean Palms
Joint Venture described above) formed for the acquisition and/or development of land in which we do
not have a controlling interest. This entity meets the criteria of variable interest entities
(VIEs) under FIN 46(R). We evaluated the impact of FIN 46(R) as it relates to this joint venture
and determined that we are not the primary beneficiary since we are not the entity that will absorb
a majority of the expected losses and/or receive a majority of the expected residual returns
(profits). Therefore, this joint venture is accounted for using the equity method of accounting.
Our investment in this entity as of December 31, 2006 is the amount invested of $7,686. This entity
has assets totaling approximately $15,313 at December 31, 2006.
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table reflects contractual obligations as of December 31, 2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments due by period |
| |
|
|
|
|
|
Less than |
|
1 - 3 |
|
3 - 5 |
|
More than |
| Contractual Obligations |
|
Total |
|
1 Year |
|
Years (1) |
|
Years |
|
5 Years years |
| |
Long-Term Debt Obligations |
|
$ |
136,925 |
|
|
$ |
— |
|
|
$ |
15,730 |
|
|
$ |
1,195 |
|
|
$ |
120,000 |
|
Interest Obligations on Long-Term Debt |
|
$ |
96,896 |
|
|
$ |
6,423 |
|
|
$ |
13,523 |
|
|
$ |
10,800 |
|
|
$ |
66,150 |
|
Capital Lease Obligations (includes interest) |
|
$ |
1,086 |
|
|
$ |
496 |
|
|
$ |
578 |
|
|
$ |
12 |
|
|
$ |
— |
|
Operating Lease Obligations |
|
$ |
4,119 |
|
|
$ |
1,811 |
|
|
$ |
1,782 |
|
|
$ |
361 |
|
|
$ |
165 |
|
Purchase Obligations – Residential
Development |
|
$ |
95,019 |
|
|
$ |
95,019 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Purchase Obligations – Other |
|
$ |
23,634 |
|
|
$ |
7,328 |
|
|
$ |
11,195 |
|
|
$ |
5,111 |
|
|
$ |
— |
|
Other Long-Term Liabilities Reflected on the
Balance Sheet under GAAP |
|
$ |
24,693 |
|
|
$ |
1,000 |
|
|
$ |
2,000 |
|
|
$ |
2,000 |
|
|
$ |
19,693 |
|
Long-term debt obligations represent:
| |
• |
|
$15,730 outstanding under a purchase money mortgage associated with land acquired in
Poinciana, payable by 2009 |
| |
| |
• |
|
$1,195 community development district obligations associated with Sterling Hill in
Hernando County, Florida, payable by 2010 |
| |
| |
• |
|
$120,000 outstanding under the 4.50% Convertible Senior Notes due 2024 |
| |
| |
• |
|
$0 outstanding under the Unsecured Credit Facility due 2010 |
Purchase obligations (residential development) represent purchase commitments of $95,019 as of
December 31, 2006 for land development and construction expenditures, substantially for
homebuilding operations which relate to contracts for services, materials and supplies, which
obligations generally relate to corresponding contracts for sales of homes. Other purchase
obligations – represents compensation to executives pursuant to employment contracts.
Other long-term contractual obligations represent the estimated cost to complete certain
utilities improvements in areas within Poinciana and Rio Rico where homesites have been sold.
39
|
|
|
| Item 7. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data) — continued |
DISCLOSURE OF CONTRACTUAL OBLIGATIONS — continued
(1) Timing and amount are currently estimated. Therefore, amount is not included within the
table. In December 2006, we entered into agreements with Osceola and Polk Counties in Florida
for us to develop and construct a 9.66 mile four-lane road in Osceola and Polk Counties in
Florida, to be known as the Poinciana Parkway. It will include a 4.15 mile segment to be
operated as a private toll road. We will pay the costs associated with the right-of-way
acquisition, development and construction of the Parkway. Except for the toll road, the Parkway
will be owned, maintained and operated by the Counties upon completion. We will own the toll
road, and under our agreements we have the right to sell it to a third party together with our
rights to operate the toll road. Under our agreements with the Counties, the Parkway is to be
substantially complete and open to traffic by October 31, 2008, barring delays for some period
of time resulting from causes beyond our reasonable control. We have agreed to indemnify Osceola
and Polk Counties against liability for loss, injury or damage to persons or property,
including, without limitation, consequential damages, imposed on the Counties, except for any
such loss, injury or damage that is caused by or results from the gross negligence or willful
misconduct of the Counties.
We have made significant progress toward obtaining the various necessary governmental and
environmental permits and approvals for construction of the Parkway. We currently estimate our
acquisition, development and construction costs for the Parkway to be approximately $117,000 of
which approximately $10,000 has been expensed, but no assurances of the ultimate amount can be
given at this early stage. Currently, we are in the process of seeking bids from third parties
for construction of the Parkway. Based on preliminary discussions
with potential third-party purchasers, we believe that the value of
the toll road, upon completion, would be not less than our estimated
right-of-way acquisition, development and construction costs.
EFFECTS OF INFLATION AND ECONOMIC CONDITIONS
Our operations may be negatively affected by inflation and general economic conditions.
Adverse changes in employment levels, consumer income, available financing and interest rates may
result in fewer sales. A low interest rate environment contributes significantly to the ability of
purchasers to obtain financing for home purchases. Higher interest rates and higher sales prices
may reduce demand for housing. Also, increasing competition for raw land and development
opportunities has resulted in higher prices for raw land and development opportunities. Other
economic conditions could affect operations (see “Risk Factors”).
In
addition, the weakening of the residential real estate market, which we believe began in
the third quarter of 2005 and has continued to date, has resulted in reduced demand for new
single-family and multi-family residences in the geographic areas in which we develop and sell
residences. Higher interest rates, stricter requirements of mortgage lenders and other factors,
including the volume of resales of units purchased by real estate investors and speculators, have
contributed to an increase in cancellations of new home sales, as well as higher volume of
inventory units resulting from purchasers’ inability to close on completed units. However, since
December 31, 2006, cancellations have decreased significantly.
40
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Avatar is subject to market risk associated with changes in interest rates and the cyclical
nature of the real estate industry. A majority of the purchasers of our homes finance their
purchases through third-party lenders providing mortgage financing or, to some extent, rely upon
investment income. In general, housing demand is dependent on home equity, consumer savings,
employment and income levels and third-party financing and could be adversely affected by increases
in interest rates, unavailability of mortgage financing, increasing housing costs and unemployment
levels. The amount or value of discretionary income and savings, including retirement assets,
available to home purchasers can be affected by a decline in the capital markets. Fluctuations in
interest rates could adversely affect our real estate results of operations and liquidity because
of the negative impact on the housing industry. Real estate developers are subject to various
risks, many of which are outside their control, including real estate market conditions (both where
our communities and homebuilding operations are located and in areas where our potential customers
reside), changing demographic conditions, adverse weather conditions and natural disasters, such as
hurricanes, tornadoes and wildfires, delays in construction schedules, cost overruns, changes in
government regulations or requirements, increases in real estate taxes and other local government
fees and availability and cost of land, materials and labor. In addition, Avatar is subject to
market risk related to potential adverse changes in interest rates on the Unsecured Credit
Facility. The interest rate for the Unsecured Credit Facility fluctuates with LIBOR lending rates,
both upwards and downwards. See Notes G and P (debt payout and fair values) to the Consolidated
Financial Statements included in Item 8 of Part II of this Report. (See “Item 7. Risk Factors” for
further discussion of risks.)
41
Item 8 . Financial Statements and Supplementary Data
42
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of internal
control over financial reporting of Avatar Holdings Inc. and subsidiaries as of the end of the
period covered by this report based on the framework in “Internal Control—Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that
assessment, our Chief Executive Officer and Chief Financial Officer concluded that our internal
control over financial reporting was effective as of December 31, 2006 to provide reasonable
assurance regarding the reliability of our financial reporting and the preparation of our financial
statements for external purposes in accordance with United States generally accepted accounting
principles.
Ernst & Young LLP, an independent registered public accounting firm, that audited the consolidated
financial statements of Avatar Holdings Inc. and subsidiaries included in this annual report, has
issued an attestation report on management’s assessment of our internal control over financial
reporting. The attestation report follows this report.
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Avatar Holdings Inc.
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control over Financial Reporting, that Avatar Holdings Inc. and subsidiaries maintained
effective internal control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Avatar Holdings Inc.’s management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on management’s assessment and an opinion on the effectiveness of the
company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Avatar Holdings Inc. and subsidiaries maintained
effective internal control over financial reporting as of December 31, 2006, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, Avatar Holdings Inc.
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2006, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Avatar Holdings Inc. and subsidiaries as
of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2006 and our
report dated March 5, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Certified Public Accountants
West Palm Beach, Florida
March 5, 2007
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2006 and 2005, and the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2006. Our audits also included the financial statement schedule listed in the index at Item
15(a)(2). These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Avatar Holdings Inc. and subsidiaries at December
31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2006, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Avatar Holdings Inc. and subsidiaries’ internal control
over financial reporting as of December 31, 2006, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 5, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Certified Public Accountants
West Palm Beach, Florida
March 5, 2007
45
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
|
December 31 |
|
| |
|
2006 |
|
|
2005 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
203,760 |
|
|
$ |
38,479 |
|
Restricted cash |
|
|
3,637 |
|
|
|
6,020 |
|
Receivables, net |
|
|
13,863 |
|
|
|
29,865 |
|
Land and other inventories |
|
|
456,549 |
|
|
|
392,843 |
|
Land inventory not owned |
|
|
— |
|
|
|
18,171 |
|
Property, plant and equipment, net |
|
|
47,032 |
|
|
|
41,444 |
|
Investment in unconsolidated joint ventures |
|
|
7,583 |
|
|
|
55,781 |
|
Prepaid expenses |
|
|
10,066 |
|
|
|
13,985 |
|
Other assets |
|
|
8,487 |
|
|
|
9,110 |
|
Deferred income taxes |
|
|
95 |
|
|
|
3,823 |
|
Assets of business transferred under contractual arrangements |
|
|
— |
|
|
|
16,889 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
751,072 |
|
|
$ |
626,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Notes, mortgage notes and other debt: |
|
|
|
|
|
|
|
|
Corporate |
|
$ |
120,000 |
|
|
$ |
120,000 |
|
Real estate |
|
|
16,925 |
|
|
|
24,107 |
|
Obligations related to land inventory not owned |
|
|
— |
|
|
|
18,171 |
|
Estimated development liability for sold land |
|
|
24,693 |
|
|
|
26,717 |
|
Accounts payable |
|
|
22,053 |
|
|
|
16,526 |
|
Accrued and other liabilities |
|
|
43,694 |
|
|
|
42,087 |
|
Customer deposits |
|
|
18,351 |
|
|
|
57,797 |
|
Liabilities of business transferred under contractual arrangements |
|
|
— |
|
|
|
8,113 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
245,716 |
|
|
|
313,518 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Common Stock, par value $1 per share |
|
|
|
|
|
|
|
|
Authorized: 50,000,000 shares |
|
|
|
|
|
|
|
|
Issued:
10,725,559 shares at
December 31, 2006
10,711,286 shares at December 31, 2005 |
|
|
10,726 |
|
|
|
10,711 |
|
Additional paid-in capital |
|
|
226,013 |
|
|
|
214,873 |
|
Unearned restricted stock units |
|
|
— |
|
|
|
(6,583 |
) |
Retained earnings |
|
|
343,641 |
|
|
|
168,915 |
|
|
|
|
|
|
|
|
|
|
|
580,380 |
|
|
|
387,916 |
|
Treasury stock: at cost, 2,531,823 shares at December 31, 2006
and December 31, 2005 |
|
|
(75,024 |
) |
|
|
(75,024 |
) |
|
|
|
|
|
|
|
Total Stockholders’ Equity |
|
|
505,356 |
|
|
|
312,892 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
751,072 |
|
|
$ |
626,410 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
46
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands except per-share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate revenues |
|
$ |
829,606 |
|
|
$ |
512,653 |
|
|
$ |
330,148 |
|
Interest income |
|
|
3,363 |
|
|
|
1,419 |
|
|
|
1,222 |
|
Other |
|
|
2,110 |
|
|
|
2,776 |
|
|
|
2,835 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
835,079 |
|
|
|
516,848 |
|
|
|
334,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate expenses |
|
|
539,828 |
|
|
|
419,913 |
|
|
|
289,955 |
|
General and administrative expenses |
|
|
36,306 |
|
|
|
27,142 |
|
|
|
19,673 |
|
Interest expense |
|
|
— |
|
|
|
475 |
|
|
|
1,539 |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
576,134 |
|
|
|
447,530 |
|
|
|
311,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings (loss) from unconsolidated joint ventures |
|
|
(193 |
) |
|
|
17,871 |
|
|
|
14,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
258,752 |
|
|
|
87,189 |
|
|
|
37,956 |
|
Income tax expense |
|
|
(84,026 |
) |
|
|
(29,990 |
) |
|
|
(12,678 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
174,726 |
|
|
|
57,199 |
|
|
|
25,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
(including gain on disposal of $8,322 and $6,465 in 2005
and 2004, respectively) |
|
|
— |
|
|
|
9,562 |
|
|
|
6,905 |
|
Income tax expense |
|
|
— |
|
|
|
(3,634 |
) |
|
|
(2,624 |
) |
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
— |
|
|
|
5,928 |
|
|
|
4,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
174,726 |
|
|
$ |
63,127 |
|
|
$ |
29,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
21.33 |
|
|
$ |
7.10 |
|
|
$ |
2.98 |
|
Income from discontinued operations |
|
|
— |
|
|
|
0.73 |
|
|
|
0.51 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21.33 |
|
|
$ |
7.83 |
|
|
$ |
3.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
16.59 |
|
|
$ |
5.72 |
|
|
$ |
2.69 |
|
Income from discontinued operations |
|
|
— |
|
|
|
0.56 |
|
|
|
0.41 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
16.59 |
|
|
$ |
6.28 |
|
|
$ |
3.10 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
47
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional |
|
|
Restricted |
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
Paid-in |
|
|
Stock |
|
|
Retained |
|
|
Treasury Stock |
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Units |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2004 |
|
|
10,541,394 |
|
|
$ |
10,541 |
|
|
$ |
206,874 |
|
|
|
($6,147 |
) |
|
$ |
76,229 |
|
|
|
(1,151,622 |
) |
|
|
($21,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit for income tax effect of
utilizing pre-reorganization
deferred income tax assets |
|
|
— |
|
|
|
— |
|
|
|
64 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of stock options |
|
|
39,994 |
|
|
|
40 |
|
|
|
1,201 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchase of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,371,637 |
) |
|
|
(52,998 |
) |
Grant of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
4,336 |
|
|
|
(4,336 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of restricted
stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,470 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29,559 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
10,581,388 |
|
|
|
10,581 |
|
|
|
212,475 |
|
|
|
(8,013 |
) |
|
|
105,788 |
|
|
|
(2,523,259 |
) |
|
|
(74,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit for income tax effect of
utilizing pre-reorganization
deferred income tax assets |
|
|
— |
|
|
|
— |
|
|
|
241 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuances from exercise of stock
options and restricted stock
units |
|
|
159,898 |
|
|
|
160 |
|
|
|
88 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for statutory
minimum withholding taxes
related to issuance of restricted
stock units |
|
|
(30,000 |
) |
|
|
(30 |
) |
|
|
(1,678 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Tax benefit from vesting of
restricted stock units and
exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
1,639 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Grant of restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
1,681 |
|
|
|
(1,681 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of restricted
stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,111 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Earnings participation
stock award |
|
|
— |
|
|
|
— |
|
|
|
351 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other share based compensation |
|
|
— |
|
|
|
— |
|
|
|
76 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Purchase of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,564 |
) |
|
|
(428 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
63,127 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
10,711,286 |
|
|
|
10,711 |
|
|
|
214,873 |
|
|
|
(6,583 |
) |
|
|
168,915 |
|
|
|
(2,531,823 |
) |
|
|
(75,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit for income tax effect of
utilizing pre-reorganization
deferred income tax assets |
|
|
— |
|
|
|
— |
|
|
|
611 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuances from exercise of stock
options and restricted stock
units |
|
|
14,273 |
|
|
|
15 |
|
|
|
240 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
See notes to consolidated financial statements.
48
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity — continued
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional |
|
|
Restricted |
|
|
|
|
|
|
|
| |
|
Common Stock |
|
|
Paid-in |
|
|
Stock |
|
|
Retained |
|
|
Treasury Stock |
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Units |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from exercise
of stock options |
|
|
— |
|
|
|
— |
|
|
|
140 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfer of unearned restricted
stock to additional paid in
capital upon adoption of SFAS
123(R) |
|
|
— |
|
|
|
— |
|
|
|
(6,583 |
) |
|
|
6,583 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of restricted stock
units and stock options |
|
|
— |
|
|
|
— |
|
|
|
3,104 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Earnings participation stock
award |
|
|
— |
|
|
|
— |
|
|
|
13,478 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other share based compensation |
|
|
— |
|
|
|
— |
|
|
|
150 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
174,726 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
10,725,559 |
|
|
$ |
10,726 |
|
|
$ |
226,013 |
|
|
$ |
— |
|
|
$ |
343,641 |
|
|
|
(2,531,823 |
) |
|
|
($75,024 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
There are 10,000,000 authorized shares of $0.10 par value preferred stock, none of which are
issued.
See notes to consolidated financial statements.
49
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
174,726 |
|
|
$ |
63,127 |
|
|
$ |
29,559 |
|
Adjustments to reconcile net income to
net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,503 |
|
|
|
4,589 |
|
|
|
4,680 |
|
Amortization of stock based compensation |
|
|
16,737 |
|
|
|
3,538 |
|
|
|
2,470 |
|
Impairment of goodwill |
|
|
654 |
|
|
|
— |
|
|
|
— |
|
Income on disposal from discontinued operations, net of taxes |
|
|
— |
|
|
|
(5,160 |
) |
|
|
(4,008 |
) |
Equity earnings (loss) from unconsolidated joint ventures |
|
|
193 |
|
|
|
(17,871 |
) |
|
|
(14,918 |
) |
Distributions of earnings from unconsolidated joint venture |
|
|
29,038 |
|
|
|
4,528 |
|
|
|
— |
|
Deferred income taxes |
|
|
4,479 |
|
|
|
(287 |
) |
|
|
4,240 |
|
Excess income tax benefit from exercise of stock options |
|
|
(140 |
) |
|
|
— |
|
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
2,383 |
|
|
|
(33 |
) |
|
|
(3,796 |
) |
Receivables |
|
|
11,092 |
|
|
|
(8,394 |
) |
|
|
(7,509 |
) |
Inventories |
|
|
(62,503 |
) |
|
|
(86,033 |
) |
|
|
(57,635 |
) |
Prepaid expenses |
|
|
3,919 |
|
|
|
4,958 |
|
|
|
(12,157 |
) |
Other assets |
|
|
(31 |
) |
|
|
3,934 |
|
|
|
(6,024 |
) |
Accounts payable and accrued and other liabilities |
|
|
2,495 |
|
|
|
16,101 |
|
|
|
2,536 |
|
Customer deposits |
|
|
(39,446 |
) |
|
|
11,994 |
|
|
|
21,245 |
|
Assets/liabilities of business transferred under contractual
arrangements |
|
|
8,776 |
|
|
|
(1,359 |
) |
|
|
(7,409 |
) |
Assets/liabilities of discontinued operations |
|
|
— |
|
|
|
(768 |
) |
|
|
(273 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
|
|
156,875 |
|
|
|
(7,136 |
) |
|
|
(48,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in property, plant and equipment |
|
|
(8,679 |
) |
|
|
(1,012 |
) |
|
|
(2,680 |
) |
Investment in unconsolidated joint ventures |
|
|
(1,033 |
) |
|
|
(8,502 |
) |
|
|
— |
|
Repayment of advances from promissory note |
|
|
4,910 |
|
|
|
— |
|
|
|
— |
|
Distributions of capital from an unconsolidated joint venture |
|
|
20,000 |
|
|
|
— |
|
|
|
— |
|
Net proceeds from sales of discontinued operations |
|
|
— |
|
|
|
23,844 |
|
|
|
12,868 |
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY INVESTING ACTIVITIES |
|
|
15,198 |
|
|
|
14,330 |
|
|
|
10,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from revolving line of credit |
|
|
10,000 |
|
|
|
86,933 |
|
|
|
— |
|
Proceeds from issuance of 4.5% Notes |
|
|
— |
|
|
|
— |
|
|
|
120,000 |
|
Payment of debt issuance costs |
|
|
— |
|
|
|
(523 |
) |
|
|
(4,186 |
) |
Principal payments of real estate borrowings |
|
|
(17,182 |
) |
|
|
(82,735 |
) |
|
|
(20,107 |
) |
Purchase of treasury stock |
|
|
— |
|
|
|
(428 |
) |
|
|
(52,998 |
) |
Proceeds from exercise of stock options |
|
|
250 |
|
|
|
248 |
|
|
|
1,000 |
|
Excess income tax benefit from exercise of stock options |
|
|
140 |
|
|
|
— |
|
|
|
— |
|
Payment of withholding taxes related to restricted stock units withheld |
|
|
— |
|
|
|
(1,708 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
|
|
(6,792 |
) |
|
|
1,787 |
|
|
|
43,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
165,281 |
|
|
|
8,981 |
|
|
|
4,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
38,479 |
|
|
|
29,498 |
|
|
|
24,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
$ |
203,760 |
|
|
$ |
38,479 |
|
|
$ |
29,498 |
|
|
|
|
|
|
|
|
|
|
|
50
AVATAR HOLDINGS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows — continued
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31 |
| |
|
2006 |
|
2005 |
|
2004 |
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Land and other inventories |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,720 |
|
Notes, mortgage notes and other debt: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,720 |
|
See notes to consolidated financial statements.
51
AVATAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
(Dollars in thousands except per-share data)
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation:
The consolidated accompanying financial statements include the accounts of Avatar Holdings
Inc. and all subsidiaries, partnerships and other entities in which Avatar Holdings Inc. has a
controlling interest and variable interest entities for which we are deemed to be the primary
beneficiary (“Avatar”, “we”, “us” or “our”). Our investments in unconsolidated joint ventures in
which we have less than a controlling interest are accounted for using the equity method. All
significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of our financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Accordingly, actual
results could differ from those reported.
Due to our normal operating cycle being in excess of one year, Avatar presents unclassified
consolidated balance sheets.
Certain 2005 and 2004 financial statement items have been reclassified to conform to the 2006
presentation including the effects of reclassifications from discontinued operations.
General:
We are engaged in the business of real estate operations in Florida and Arizona. Our
residential community development activities include the development of active adult (55 years and
older) and primary residential communities. We also engage in a variety of other real estate
related activities, such as the operation of amenities, the sale for third-party development of
commercial and industrial land and the operation of a title insurance agency.
Cash and Cash Equivalents and Restricted Cash:
We consider all highly liquid investments purchased with an initial maturity of three months
or less to be cash equivalents. We also consider closing proceeds from our house closings held by
our title insurance agency as a
cash equivalent which was $18,824 and $18,138 as of December 31, 2006 and 2005, respectively. Due
to the short maturity period of the cash equivalents, the carrying amount of these instruments
approximates their fair values.
Restricted cash includes deposits of $3,637 and $6,020 as of December 31, 2006 and 2005,
respectively. These balances are comprised primarily of housing deposits from customers that will
become available when the housing contracts close. We had escrow funds of $331 and $939 as of
December 31, 2006 and 2005, respectively, that are not considered assets of ours and, therefore,
are excluded from restricted cash in the accompanying consolidated balance sheets.
52
NOTE A
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Receivables, net:
Receivables, net includes amounts in transit or due from title companies for house closings
and contracts and mortgage notes receivable from the sale of homesites. As of December 31, 2006,
the balance includes deferred gross profit and allowance for bad debts of $69 and $287,
respectively, and as of December 31, 2005, the balance includes deferred gross profit and allowance
for bad debts of $125 and $343, respectively.
Land Inventories:
Land inventories are stated at cost. Cost includes expenditures for acquisition, construction,
development and carrying charges. Interest cost incurred during the period of land development and
construction, when applicable, is capitalized as part of the cost of such projects. Land
acquisition, construction and development costs are assigned to individual components of projects
based on specific identification or other allocation methods based upon U.S. generally accepted
accounting principles. The costs of amenities deeded to appropriate homeowner associations are
considered community-wide costs and are allocated using the relative sales value method or other
methods which approximate the relative sales value method based on U.S. generally accepted
accounting principles. Amenities owned by us are capitalized as Property, Plant and Equipment and
depreciated principally using the straight-line method over the useful lives of the assets.
Inventories to be disposed of are carried at the lower of cost or fair value less cost to sell.
Impairment of Long-Lived Assets:
Based on Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets”, we are required to review the carrying value of each
of our long-lived assets and write down the value of those long-lived assets for which we believe
the values are not recoverable. SFAS No. 144 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.
SFAS No. 144 also addresses the accounting for long-lived assets that are held for sale and
expected to be disposed of. We periodically review the carrying value of our long-lived assets
and, if such reviews indicate a lack of recovery of the net book value based on estimates on
undiscounted future cash flows, we reduce the carrying value of the assets accordingly based on
fair value. No impairment existed at December 31, 2006 and 2005. In accordance with the provisions
of SFAS No. 144, we presented the sale of Rio Rico Utilities, the sale of the assets of a mini
storage facility and shopping center in Poinciana during 2005, as well as the sale of substantially
all of the assets of our cable operations located in Poinciana and the sale of the Harbor Islands
marina located in Hollywood, Florida during 2004, as discontinued operations.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and depreciation is computed principally by
the straight-line method over the following estimated useful lives of the assets: land improvements
10 to 25 years; buildings and improvements 8 to 39 years; and machinery, equipment and fixtures 3
to 7 years. Maintenance and operating expenses of equipment utilized in the development of land are
capitalized as land inventory cost. Repairs and maintenance are expensed as incurred.
53
NOTE A
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Goodwill and Indefinite-Lived Intangible Assets:
Goodwill and indefinite-lived intangible assets are not amortized; however, they are subject
to evaluation for impairment at least annually or more frequently if facts and circumstances
warrant, using a fair value based test. The fair value based test is a two-step test. The first
step involves comparing the fair value of each of our reporting units to the carrying value of
those reporting units. If the carrying value of a reporting unit exceeds the fair value of the
reporting unit, then we are required to proceed to the second step. In the second step, the fair
value of the reporting unit would be allocated to the assets (including unrecognized intangibles)
and liabilities of the reporting unit, with any residual representing the implied fair value of
goodwill. An impairment loss would be recognized if, and to the extent that, the carrying value of
goodwill exceeded the implied value. In accordance with SFAS No. 142 “Goodwill and Intangible
Assets”, we perform annual impairment testing on our goodwill and other intangible assets, or more
frequently if facts and circumstances indicate a potential impairment. We perform our annual test
as of December 31 each year. However, during the first quarter of 2006, we performed an interim
impairment test in accordance with SFAS No. 142 on goodwill associated with the Harbor Islands
community because facts and circumstances indicated a potential impairment. Based on this
impairment test, we determined that this goodwill was impaired as a result of the closing of the
final housing unit in this community. Since the Harbor Islands community was completed during the
first quarter of 2006, the associated goodwill of $654 was written-off under the caption of Real
Estate Expense in the consolidated statement of income for 2006. Except for the Harbor Islands
goodwill previously discussed, we did not experience any impairment losses related to goodwill
during the years ended December 31, 2006, 2005 and 2004. Goodwill of $1,685 is included in Other
Assets as of December 31, 2006 and 2005 in the consolidated balance sheets.
Revenues:
In accordance with SFAS No. 66, “Accounting for Sales of Real Estate”, revenues from the sales
of housing units are recognized when the sales are closed and title passes to the purchasers. In
addition, revenues from commercial, industrial and other land sales are recognized in full at
closing, provided the purchaser’s initial investment is adequate, all financing is considered
collectible and we are not obligated to perform significant future activities.
Advertising Costs:
Advertising costs are expensed as incurred. For the years ended December 31, 2006, 2005 and
2004, advertising costs totaled $4,844, $3,518, and $3,191, respectively, and are included in real
estate expenses in the accompanying consolidated statements of income.
Warranty Costs:
Warranty reserves for houses are established to cover potential costs for materials and labor
with regard to warranty-type claims to be incurred subsequent to the closing of a house. Reserves
are determined based on historical data and other relevant factors. We may have recourse against
subcontractors for claims relating to workmanship and materials. Warranty reserves are included in
Accrued and Other Liabilities in the consolidated balance sheets.
54
NOTE A
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
During the years ended December 31, 2006, 2005 and 2004 changes in the warranty reserve
consist of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Warranty reserve as of January 1 |
|
$ |
1,616 |
|
|
$ |
1,370 |
|
|
$ |
977 |
|
Estimated warranty expense |
|
|
4,187 |
|
|
|
2,455 |
|
|
|
1,953 |
|
Amounts charged against warranty reserve |
|
|
(3,484 |
) |
|
|
(2,209 |
) |
|
|
(1,560 |
) |
|
|
|
|
|
|
|
|
|
|
Warranty reserve as of December 31 |
|
$ |
2,319 |
|
|
$ |
1,616 |
|
|
$ |
1,370 |
|
|
|
|
|
|
|
|
|
|
|
Income Taxes:
Income taxes have been provided using the liability method in accordance with SFAS No. 109,
“Accounting for Income Taxes”. Under SFAS No. 109, the liability method is used in accounting for
income taxes where deferred income tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect when the differences reverse. A
deferred tax asset valuation is recorded based on the judgment of when it is more-likely-than-not
that all or a portion of the deferred tax asset will not be realized.
Share-Based Compensation:
The Amended and Restated 1997 Incentive and Capital Accumulation Plan (2005 Restatement), as
amended (the “Incentive Plan”) provides that stock options, including incentive stock options and
non-qualified stock options; stock appreciation rights; stock awards; performance-conditioned stock
awards (“restricted stock units”) and stock units may be granted to officers, employees and
directors of Avatar. The exercise prices of stock options may not be less than the market value of
our common stock on the date of grant. Stock option awards under the Incentive Plan generally
expire 10 years after the date of grant.
As of December 31, 2006, an aggregate of 1,105,829 shares of our Common Stock, subject to
certain adjustments, were available for issuance under the Incentive Plan, including an aggregate
of 796,255 options and stock units granted. There were 309,574 shares available for grant at
December 31, 2006.
Prior to January 1, 2006, we accounted for our stock-based compensation plans in accordance
with the recognition and measurement provisions of Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations, as permitted by
SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Accordingly, for
restricted stock units granted, compensation expense was recognized in the consolidated statements
of income prior to January 1, 2006 based on the market price of Avatar’s common stock on the date
the specified hurdle price was probable of being achieved, provided such provisions are applicable,
or the date of grant. For stock options granted, no compensation expense was recognized
in the consolidated statements of income prior to January 1, 2006 since all stock options
granted had exercise prices greater than the market value of Avatar’s stock on the grant date.
Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123
(revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”) using the modified-prospective transition
method. Under this transition method, compensation expense recognized during the year ended
December 31, 2006 included: (a) compensation expense for all share-based awards granted prior to,
but not yet vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123, and (b) compensation expense for all
share-based awards granted subsequent to January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123(R). In accordance with the
modified-prospective-transition method, results for periods prior to adoption have not been
restated.
55
NOTE A
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
As a result of the adoption of SFAS No. 123(R), the charge to income from continuing
operations before income taxes and net income for the year ended December 31, 2006 was $283 and
$176, respectively. The impact of adopting SFAS 123(R) on both basic and diluted earnings per share
for the year ended December 31, 2006 was $0.02.
SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition
and Disclosure”, required disclosure of pro forma income and pro forma income per share as if the
fair value based method had been applied in measuring compensation expense. The following table
summarizes pro forma net income and earnings per share in accordance with SFAS No. 123, for the
years ended December 31, 2005 and 2004 had compensation expense for stock-based compensation
awarded under our stock-based incentive compensation plan been based on fair value at the grant
date. For purposes of this pro forma disclosure, the value of the stock options granted is
estimated using the Black-Scholes option-pricing model and the Monte-Carlo option valuation model
(like a lattice model) for restricted stock units granted.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Restated |
|
|
As Reported |
|
| |
|
2005 |
|
|
2004 |
|
|
2004 |
|
Net income – as reported |
|
$ |
63,127 |
|
|
$ |
29,559 |
|
|
$ |
29,559 |
|
Add: Stock-based compensation expense
included in reported net income,
net of related tax expense |
|
|
1,929 |
|
|
|
1,532 |
|
|
|
1,532 |
|
Deduct: stock-based compensation
expense
determined using the fair value
method,
net of related tax effects |
|
|
(1,714 |
) |
|
|
(840 |
) |
|
|
(1,714 |
) |
|
|
|
|
|
|
|
|
|
|
Net income – pro forma |
|
$ |
63,342 |
|
|
$ |
30,251 |
|
|
$ |
29,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
7.83 |
|
|
$ |
3.49 |
|
|
$ |
3.49 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
7.86 |
|
|
$ |
3.57 |
|
|
$ |
3.47 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
6.28 |
|
|
$ |
3.10 |
|
|
$ |
3.10 |
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
6.30 |
|
|
$ |
3.17 |
|
|
$ |
3.09 |
|
|
|
|
|
|
|
|
|
|
|
The amounts previously reported for 2004 for stock-based compensation under the fair value
method for the pro forma disclosure in the table above have been restated to reflect the correction
of assumptions used in determining the stock-based compensation under the fair value method with
respect to certain market conditioned restricted stock units. With respect to pro forma amounts
previously reported, management’s assumptions used in determining the stock-based compensation
under the fair value method excluded consideration of the market
conditions of the restricted stock units. These corrected assumptions did not affect the
actual reported net income or earnings per share.
56
NOTE A
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Repurchase of Common Stock and Notes:
On March 20, 2003, Avatar’s Board of Directors authorized the expenditure of up to $30,000 to
purchase, from time to time, shares of its common stock and/or 7% Convertible Subordinated Notes
due April 2005 (the “7% Notes”), which were subsequently called for redemption, in the open market,
through privately negotiated transactions or otherwise, depending on market and business conditions
and other factors. On June 29, 2005, Avatar’s Board of Directors amended the March 20, 2003
repurchase authorization to include the 4.50% Notes in addition to shares of its common stock. As
of December 31, 2006, the remaining authorization for purchase of shares of Avatar’s common stock
was $15,829. During 2006, Avatar did not repurchase shares of its common stock and/or 4.50% Notes.
Earnings Per Share:
We present earnings per share in accordance with SFAS No. 128, “Earnings Per Share”. Basic
earnings per share is computed by dividing earnings available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of Avatar.
The weighted average number of shares outstanding in calculating basic earnings per share
includes the issuance of 14,273, 129,898 and 39,994 shares of our common stock for 2006, 2005 and
2004, respectively, due to the exercise of stock options, restricted stock units and stock units.
The following table represents a reconciliation of the income from continuing operations, net
income and weighted average shares outstanding for the calculation of basic and diluted earnings
per share for the years ended December 31, 2006, 2005 and 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share – income from continuing operations |
|
$ |
174,726 |
|
|
$ |
57,199 |
|
|
$ |
25,278 |
|
Interest expense on 4.50% Notes, net of tax |
|
|
3,266 |
|
|
|
3,285 |
|
|
|
2,618 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share – income from continuing
operations |
|
$ |
177,992 |
|
|
$ |
60,484 |
|
|
$ |
27,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share – net income |
|
$ |
174,726 |
|
|
$ |
63,127 |
|
|
$ |
29,559 |
|
Interest expense on 4.50% Notes, net of tax |
|
|
3,266 |
|
|
|
3,285 |
|
|
|
2,618 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share – net income |
|
$ |
177,992 |
|
|
$ |
66,412 |
|
|
$ |
32,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
8,193,136 |
|
|
|
8,058,634 |
|
|
|
8,474,988 |
|
Effect of dilutive restricted stock |
|
|
217,745 |
|
|
|
195,913 |
|
|
|
131,594 |
|
Effect of dilutive employee stock options |
|
|
39,671 |
|
|
|
44,347 |
|
|
|
38,897 |
|
Effect of dilutive 4.50% Notes |
|
|
2,280,068 |
|
|
|
2,280,068 |
|
|
|
1,722,579 |
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
10,730,620 |
|
|
|
10,578,962 |
|
|
|
10,368,058 |
|
|
|
|
|
|
|
|
|
|
|
57
NOTE A
— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued
Recently Issued Accounting Pronouncements:
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,
“Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, which is January 1, 2008 for us, and interim periods
within those fiscal years. We are currently evaluating the provisions of SFAS No.157 and assessing
the impact it may have on our financial position and results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, and interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in a company’s financial statements in
accordance with SFAS No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. The interpretation also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006,
which is January 1, 2007 for us. We have evaluated the provisions of FIN 48 and adoption of FIN 48
will not have a material impact on our financial position and results of operations.
In September 2006, the Securities and Exchange Commission Staff issued Staff Accounting
Bulletin 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements
in Current Year Financial Statements” (SAB 108). SAB 108 addresses how the effects of prior year
uncorrected financial statement misstatements should be considered in current year financial
statements. SAB 108 requires registrants to quantify misstatements using both balance sheet and
income statement approaches and to evaluate whether either approach results in quantifying an error
that is material in light of relative quantitative and qualitative factors. SAB 108 is effective
for annual financial statements covering the first fiscal year ending after November 15, 2006 (our
fiscal year ended December 31, 2006). SAB 108 did not have an effect on our financial position and
results of operations.
In November 2006, the FASB issued Emerging Issues Task Force Issue No. 06-8, “Applicability of
the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66. Accounting for
Sales of Real Estate, for Sales of Condominiums” (EITF 06-8). EITF 06-8 establishes that a company
should evaluate the adequacy of the buyer’s continuing investment in determining whether to
recognize profit under the percentage-of-completion method. EITF 06-8 is effective for the first
annual reporting period beginning after March 15, 2007 (our fiscal year begins January 1, 2008).
The effect of EITF 06-8 is not expected to be material to our financial position and results of
operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities” (SFAS No. 159). SFAS No. 159 provides companies with an option to report
selected financial assets and liabilities at fair value. SFAS No. 159’s objective is to reduce
both complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related assets and
liabilities differently. SFAS No. 159 is effective for the first fiscal year that begins after
November 15, 2007 (our fiscal year begins January 1, 2008). We have not yet determined what, if
any, impact SFAS No. 159 will have on our financial position or results of operations.
58
NOTE B — REAL ESTATE REVENUES
The components of real estate revenues are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the year ended December 31 |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Primary residential |
|
$ |
447,487 |
|
|
$ |
309,608 |
|
|
$ |
214,107 |
|
Active adult community |
|
|
241,866 |
|
|
|
148,515 |
|
|
|
105,663 |
|
Commercial/industrial and other land sales |
|
|
133,466 |
|
|
|
48,455 |
|
|
|
5,284 |
|
Rental, leasing and other
real estate operations |
|
|
6,787 |
|
|
|
6,075 |
|
|
|
5,094 |
|
|
|
|
|
|
|
|
|
|
|
Total real estate revenues |
|
$ |
829,606 |
|
|
$ |
512,653 |
|
|
$ |
330,148 |
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2006, we realized pre-tax profits of $108,305 on revenues
of $133,466 from commercial and industrial and other land sales. For the year ended December 31,
2005, we realized pre-tax profits of $25,770 on revenues of $48,455 from commercial and industrial
and other land sales. For the year ended December 31, 2004, we realized pre-tax profits of $4,400
on revenues of $5,284 from commercial and industrial and other land sales.
For the year ended December 31, 2006, pre-tax profits on sales of commercial and industrial
land were $39,927 on aggregate sales of $44,110. Also during 2006, pre-tax profits on sales of
other land were $64,051 on aggregate sales of $76,171. Included in other land sales is the sale of
our approximately 4,400-acre property known as Ocala Springs in Marion County, Florida (the “Ocala
Property”). The aggregate sales price for the Ocala Property was $75,122 which resulted in pre-tax
profit of approximately $62,800. We also realized, during 2006, pre-tax profits of $4,327 from the
collection of a promissory note and accrued interest totaling $13,185 from the sale of our equity
interest in the Regalia Joint Venture which was sold on June 30, 2005.
During the year ended December 31, 2005, pre-tax profits on sales of commercial and industrial
land were $9,469 on aggregate sales of $13,145. Also during 2005, pre-tax profits on sales of
other land were $12,170 on aggregate sales of $21,423. Included in other land sales for 2005 is
the sale of our 50% equity interest in the Blueview Joint Venture (defined later) for a sales price
of $13,887 which resulted in a pre-tax gain of approximately $4,100. Also included in other land
sales is our 50% equity interest in an unconsolidated joint venture, the sole asset of which is
land, for a sales price of $11,000 which resulted in a pre-tax gain of approximately $4,258.
During 2004, pre-tax profits on sales of commercial and industrial land were $3,015 on
aggregate sales of $3,772. Also during 2004, pre-tax profits on sales of other land were $1,385 on
aggregate sales of $1,512.
See “Financial Information Relating to Industry Segments” in Note O.
59
NOTE C — LAND AND OTHER INVENTORIES
Inventories consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2006 |
|
|
2005 |
|
Land developed and in process of development |
|
$ |
233,127 |
|
|
$ |
177,752 |
|
Land held for future development or sale |
|
|
96,214 |
|
|
|
84,667 |
|
Dwelling units completed or under construction |
|
|
126,482 |
|
|
|
129,851 |
|
Other |
|
|
726 |
|
|
|
573 |
|
|
|
|
|
|
|
|
|
|
$ |
456,549 |
|
|
$ |
392,843 |
|
|
|
|
|
|
|
|
During January 2006, we closed for a cash purchase price of approximately $18,300 on 1,288
acres, the remaining phases of land in Poinciana which we contracted to acquire in October 2003 and
which were classified as land inventory not owned and obligations related to land inventory not
owned on the accompanying consolidated balance sheet as of December 31, 2005. We have not
contracted to purchase land since January 2005.
NOTE D — PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2006 |
|
|
2005 |
|
Land and improvements |
|
$ |
22,302 |
|
|
$ |
15,981 |
|
Buildings and improvements |
|
|
29,964 |
|
|
|
26,861 |
|
Machinery, equipment and fixtures |
|
|
12,537 |
|
|
|
11,382 |
|
Amenities construction in progress |
|
|
4,176 |
|
|
|
6,615 |
|
|
|
|
|
|
|
|
|
|
|
68,979 |
|
|
|
60,839 |
|
Less accumulated depreciation |
|
|
(21,947 |
) |
|
|
(19,395 |
) |
|
|
|
|
|
|
|
|
|
$ |
47,032 |
|
|
$ |
41,444 |
|
|
|
|
|
|
|
|
Amenities owned by Avatar and which are not held for future transfer to homeowners
associations are included in property, plant and equipment. The book values of these amenities
(excluding amenities construction in progress) were $40,109 and $32,207 as of December 31, 2006 and
2005, respectively.
Depreciation charged to operations during 2006, 2005 and 2004 was $3,091, $2,568 and $2,601,
respectively.
60
NOTE E — ESTIMATED DEVELOPMENT LIABILITY FOR SOLD LAND
The estimated development liability consists primarily of utilities improvements in Poinciana
and Rio Rico for more than 8,000 homesites previously sold and is summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2006 |
|
|
2005 |
|
Gross unexpended costs |
|
$ |
31,045 |
|
|
$ |
36,689 |
|
Less costs relating to unsold homesites |
|
|
(6,352 |
) |
|
|
(9,972 |
) |
|
|
|
|
|
|
|
Estimated development liability for sold land |
|
$ |
24,693 |
|
|
$ |
26,717 |
|
|
|
|
|
|
|
|
The estimated development liability for sold land is reduced by actual expenditures and is
evaluated and adjusted, as appropriate, to reflect management’s estimate of anticipated costs.
During the first quarter of 2005, we began evaluating the required improvements in Poinciana and
Rio Rico and obtained third-party engineer evaluations which concluded during the third and fourth
quarters of 2005. During 2006, we continued to obtain quarterly third-party engineer evaluations
and recorded charges of approximately $1,086 for 2006. For fiscal year 2005 and 2004, we recorded
charges of $7,872 and $4,758, respectively. Costs for construction, material and labor, as well as
other land development and utilities infrastructure costs, increased substantially during 2004 and
2005. Future increases or decreases of costs for construction, material and labor as well as other
land development and utilities infrastructure costs may have a significant effect on the estimated
development liability.
NOTE F — CONSOLIDATION OF VARIABLE INTEREST ENTITIES
The FASB issued Interpretation No. 46(R) (“FIN 46(R)”) (which further clarified and amended
FIN 46, “Consolidation of Variable Interest Entities”), which requires the consolidation of
entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a
majority of the entity’s expected residual returns, or both, as a result of ownership, contractual
or other financial interests in the entity.
Investments in Consolidated Joint Venture
On March 17, 2004, a subsidiary, Avatar Regalia, Inc., entered into a joint venture for
possible investment in and/or development of Regalia (the “Regalia Joint Venture”), a luxury
residential highrise condominium on an approximately 1.18-acre oceanfront site in Sunny Isles
Beach, Florida (the “Property”), approximately three miles south of Hollywood, Florida whereby we
had a 50% equity interest in the Regalia Joint Venture. We evaluated the impact of FIN 46(R) as it
relates to our equity interest in the Regalia Joint Venture and determined that we were the primary
beneficiary since we were the entity that would absorb a majority of the losses and/or receive a
majority of the expected residual returns (profits). Thus, under the provisions of FIN 46 (R), we
commenced consolidating the Regalia Joint Venture into our financial statements during the first
quarter of 2004. On June 30, 2005, we assigned our 50% equity interest in the Regalia Joint Venture
to our 50% equity partner for which we received a promissory
note in the amount of approximately $11,500 secured by a mortgage on the Property. Under the terms
of the promissory note, we could advance up to an additional $750. The interest rate on this
promissory note was 8% per annum. Unpaid principal and interest of $13,185 under this promissory
note was due and collected on June 30, 2006 resulting in the recognition of a sale and pre-tax gain
of $4,327. The consolidated assets and liabilities of the Regalia Joint Venture are reflected in
the accompanying consolidated balance sheets as of December 31, 2005 as “Assets of business
transferred under contractual arrangements” and “Liabilities of business transferred under
contractual arrangement”, because until June 30, 2006 the risks of ownership had not been
transferred to allow us to recognize this transaction as a sale.
61
NOTE F
— CONSOLIDATION OF VARIABLE INTEREST ENTITIES — continued
On January 28, 2005, a subsidiary, Avatar Properties at Doral, Inc., entered into a joint
venture for the acquisition of land and development of Blueview Golf Villas (the “Blueview Joint
Venture”) on a 16-acre parcel of property in South Florida whereby we had a 50% equity interest in
the Blueview Joint Venture. We evaluated the impact of FIN 46(R) as it relates to our equity
interest in the Blueview Joint Venture and determined that we were the primary beneficiary since we
were the entity that would absorb a majority of the losses and/or receive a majority of the
expected residual returns (profits). Thus, under the provisions of FIN 46 (R), we commenced
consolidating the Blueview Joint Venture into our financial statements during the first quarter of
2005. We contributed $9,790 to the Blueview Joint Venture through October 5, 2005 towards
acquisition of the property and reimbursement of certain third party costs. On October 5, 2005, we
sold and assigned our 50% equity interest in the Blueview Joint Venture to the Blueview Joint
Venture for a cash sales price of $13,887. This sale resulted in a pre-tax gain of approximately
$4,100.
Investments in Unconsolidated Joint Ventures:
As of December 31, 2006, we own an equity interest in a joint venture formed for the
acquisition and/or development of land in which we do not have a controlling interest. This entity
meets the criteria of VIEs under FIN 46(R). We evaluated the impact of FIN 46(R) as it relates to
this joint venture and determined that we are not the primary beneficiary since we are not the
entity that will absorb a majority of the losses and/or receive a majority of the expected residual
returns (profits). Therefore, this joint venture is accounted for using the equity method of
accounting. Our investment in this entity as of December 31, 2006 is the amount invested of $7,686.
This entity has assets consisting solely of land totaling approximately $15,313 at December 31,
2006. During the fourth quarter of 2005, we sold a 50% equity interest in this unconsolidated joint
venture (which had been consolidated when formed during the fourth quarter), which resulted in a
pre-tax gain of approximately $4,500.
During 2006, an unconsolidated joint venture decided to terminate an option agreement to
acquire property in Florida, which, although not considered an impairment for accounting purposes,
resulted in a write-off of our investment of $1,765 in this joint venture during 2006. During
January 2007, the partners decided to dissolve this joint venture.
In December 2002, our subsidiary, Avatar Ocean Palms, Inc., entered into a joint venture in
which it committed to fund up to $25,000 for the development of Ocean Palms (the “Ocean Palms Joint
Venture”), a 38-story, 240-unit highrise condominium on a 3.5-acre oceanfront site in Hollywood,
Florida. We evaluated the impact of FIN 46(R) as it related to our equity interest in the Ocean
Palms Joint Venture and determined that it does not qualify as a variable interest entity; thus,
the Ocean Palms Joint Venture is not subject to the consolidation provisions of FIN 46(R). We are
accounting for our investment in the Ocean Palms Joint Venture under the equity method whereby we
recognize our share of profits and losses. Since the commencement of sales in 2003 through December
31, 2006, all units have been sold and closed at an aggregate sales volume of $203,717. Closings
of condominium units commenced during February 2006 and were completed during the second quarter of
2006. During 2006, the Ocean Palms Joint Venture realized cash proceeds from closings and the
construction financing was repaid. We received cash distributions of $49,038 during the year ended
December 31, 2006 representing
$29,038 from cumulative earnings generated by closings of condominium units at Ocean Palms and
$20,000 from our investment in the Ocean Palms Joint Venture. We recognized cumulative earnings of
$33,464 from inception through December 31, 2006 from our investment in the Ocean Palms Joint
Venture.
On March 9, 2004, we agreed to lend up to $5,000 to the sole stockholder of the Ocean Palms
Joint Venture member, represented by a two-year interest-bearing promissory note. We recognized
interest income from this promissory note of $289, $763 and $72 for the years ended December 31,
2006, 2005 and 2004, respectively. Advances under the promissory note were subject to certain
requirements and conditions related to sales at Ocean Palms, which conditions and requirements were
satisfied during July 2004. During April 2006, the advances under this promissory note and accrued
interest totaling $5,455 were repaid by the Ocean Palms Joint Venture member.
62
NOTE F
— CONSOLIDATION OF VARIABLE INTEREST ENTITIES — continued
The following is the Ocean Palms Joint Venture’s condensed balance sheets as of December 31,
2006 and 2005:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2006 |
|
|
2005 |
|
Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
227 |
|
|
$ |
1,073 |
|
Restricted cash |
|
|
— |
|
|
|
28,885 |
|
Customer receivables |
|
|
— |
|
|
|
146,114 |
|
Sales center |
|
|
168 |
|
|
|
168 |
|
Other assets |
|
|
14 |
|
|
|
915 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
409 |
|
|
$ |
177,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members’ (Deficit) Capital: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
615 |
|
|
$ |
15,429 |
|
Construction and notes payable |
|
|
— |
|
|
|
77,445 |
|
Members’ (Deficit) Capital of: |
|
|
|
|
|
|
|
|
Avatar |
|
|
(103 |
) |
|
|
47,363 |
|
Joint venture partner |
|
|
(103 |
) |
|
|
36,918 |
|
|
|
|
|
|
|
|
Total liabilities and members’ (deficit) capital |
|
$ |
409 |
|
|
$ |
177,155 |
|
|
|
|
|
|
|
|
The following is the Ocean Palms Joint Venture’s condensed statements of income for the years
ended December 31, 2006, 2005 and 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of condominiums |
|
$ |
6,256 |
|
|
$ |
106,276 |
|
|
$ |
98,014 |
|
Interest and other income |
|
|
995 |
|
|
|
3,089 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
7,251 |
|
|
|
109,365 |
|
|
|
98,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
4,539 |
|
|
|
70,431 |
|
|
|
66,313 |
|
Operating costs and expenses |
|
|
112 |
|
|
|
299 |
|
|
|
1,169 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
4,651 |
|
|
|
70,730 |
|
|
|
67,482 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,600 |
|
|
$ |
38,635 |
|
|
$ |
30,816 |
|
|
|
|
|
|
|
|
|
|
|
Our share of the net income from the Ocean Palms Joint Venture was $1,573, $17,955 and $14,918
for the years ended December 31, 2006, 2005 and 2004, respectively.
During 2007, the Ocean Palms Joint Venture operations will primarily consist of the sale of
the remaining parking spaces, sale of the realty operations and activities related to winding down
the Ocean Palms Joint Venture, which are anticipated to fund the deficit in members’ capital and
pay the liabilities of the Ocean Palms Joint Venture.
63
NOTE G — NOTES, MORTGAGE NOTES AND OTHER DEBT
Notes, mortgage notes and other debt are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2006 |
|
|
2005 |
|
Corporate: |
|
|
|
|
|
|
|
|
4.50% Convertible Senior Notes, due 2024 |
|
$ |
120,000 |
|
|
$ |
120,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
Purchase Money Mortgage Note payable, prime + 2%, due 2009 * |
|
$ |
15,730 |
|
|
$ |
15,730 |
|
5.50% Term Bonds payable, due 2010 |
|
|
1,195 |
|
|
|
3,377 |
|
Unsecured Credit Facility, due 2010 |
|
|
— |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
$ |
16,925 |
|
|
$ |
24,107 |
|
|
|
|
|
|
|
|
|
|
|
| * |
|
Effective February 1, 2006, this note was amended to fix the interest rate at 6%
for the period February 1, 2006 through January 31, 2008. |
Corporate:
On March 30, 2004, we issued $120,000 aggregate principal amount of 4.50% Convertible Senior
Notes due 2024 (the “4.50% Notes”) in a private, unregistered offering, subsequent to which we
filed, for the benefit of the 4.50% Notes holders, a shelf registration statement covering resales
of the 4.50% Notes and the shares of our common stock issuable upon the conversion of the 4.50%
Notes. Interest is payable semiannually on April 1 and October 1. The 4.50% Notes are senior,
unsecured obligations and rank equal in right of payment to all of our existing and future
unsecured and senior indebtedness. However, the 4.50% Notes are effectively subordinated to all of
our existing and future secured debt to the extent of the collateral securing such indebtedness,
and to all existing and future liabilities of our subsidiaries. Each $1 in principal amount of the
4.50% Notes is convertible, at the option of the holder, at a conversion price of $52.63, or
19.0006 shares of our common stock, upon the satisfaction of one of the following conditions: a)
during any calendar quarter (but only during such calendar quarter) commencing after June 30, 2004
if the closing sale price of our common stock for at least 20 trading days in a period of 30
consecutive trading days ending on the last trading day of the preceding calendar quarter is more
than 120% of the conversion price per share of common stock on such last day; or b) during the five
business day period after any five-consecutive-trading-day period in which the trading price per $1
principal amount of the 4.50% Notes for each day of that period was less than 98% of the product of
the closing sale price for our common stock for each day of that period and the number of shares of
common stock issuable upon conversion of $1 principal amount of the 4.50% Notes, provided that if
on the date of any such conversion that is on or after April 1, 2019, the closing sale price of
Avatar’s common stock is greater than the conversion price, then holders will receive, in lieu of
common stock based on the conversion price, cash or common stock or a combination thereof, at our
option, with a value equal to the principal amount of the 4.50% Notes plus accrued and unpaid
interest, as of the conversion date. During the fourth quarter of 2006, the closing price of
Avatar’s common stock exceeded 120% ($63.156) of the conversion price for 20 trading days out of 30
consecutive trading days. Therefore the 4.50% Notes became convertible for the quarter beginning
January 1, 2007.
We may, at our option, redeem for cash all or a portion of the 4.50% Notes at any time on or
after April 5, 2011. Holders may require us to repurchase the 4.50% Notes for cash on April 1,
2011, April 1, 2014 and April 1, 2019 or in certain circumstances involving a designated event, as
defined in the indenture for the 4.50% Notes, holders may require us to purchase all or a portion
of their 4.50% Notes. In each case, we will pay a repurchase price equal to 100% of their
principal amount, plus accrued and unpaid interest, if any.
64
NOTE G — NOTES, MORTGAGE NOTES AND OTHER DEBT — continued
Real Estate:
In conjunction with the acquisition of undeveloped land in Florida during November 2004, we
paid $3,000 in cash and the remaining balance of $15,730 in the form of a purchase money note. The
purchase money note is secured by a mortgage on this land. This note matures November 2009. Under
the original terms of the note, the interest rate is 2% per annum above prime rate of interest
published from time to time in the Wall Street Journal adjusted every six months during the term of
the note. However, effective February 1, 2006, the purchase money note was amended to fix the
interest rate at 6% for the period February 1, 2006 through January 31, 2008. From February 1, 2008
through maturity, the interest rate reverts to a variable rate as previously described. The
amendment of this note is not substantially different from the original note in accordance with
EITF 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”.
In conjunction with developed land acquired in Florida in September 2005 and September 2004,
we assumed approximately $5,900 of Community Development District term bond obligations due 2010.
These term bonds are secured by the land and bear an interest rate of 5.50%. The outstanding
balance as of December 31, 2006 and 2005 was $1,195 and $3,377, respectively.
On September 20, 2005, we entered into a Credit Agreement and a Guaranty Agreement for a
$100,000 (expandable up to $175,000), four-year senior unsecured revolving credit facility (the
“Unsecured Credit Facility”), by and among our wholly-owned subsidiary, Avatar Properties Inc. (as
Borrower), Wachovia Bank, National Association (as Administrative Agent and Lender), and certain
financial institutions as lenders. Interest on borrowings under the Unsecured Credit Facility
ranges from LIBOR plus 1.75% to 2.25%. Our borrowing rate under the Unsecured Credit Facility as of
December 31, 2006 was 7.07%.
The initial principal amount under the Unsecured Credit Facility is $100,000; however, so long
as no default or event of default has occurred and is continuing, increases may be requested,
subject to lender approval, up to $175,000. We received lender approval on October 21, 2005 to
increase the principal amount under the Unsecured Credit Facility to $125,000. This Unsecured
Credit Facility includes a $7,500 swing line commitment and had a $10,000 sublimit for the issuance
of standby letters of credit.
On May 25, 2006, we amended the Unsecured Credit Facility to clarify the timing of applicable
interest rate adjustments and increase the availability for letters of credit from $10,000 to
$50,000.
The Unsecured Credit Facility contains customary representations, warranties and covenants
limiting liens, guaranties, mergers and consolidations, substantial asset sales, investments and
loans. In addition, the Unsecured Credit Facility contains covenants to the effect that we (i)
will maintain a minimum consolidated tangible net worth (as defined in the Unsecured Credit
Facility), (ii) shall maintain an adjusted EBITDA/debt service ratio (as defined in the Unsecured
Credit Facility) of not less than 2.75 to 1.0, and (iii) will not permit the leverage ratio (as
defined in the Unsecured Credit Facility) to exceed 2.0 to 1.0, and (iv) the sum of the net book
value of unentitled land, entitled land, land under development and finished lots shall not exceed
150% of consolidated tangible net worth.
Borrowings under the Unsecured Credit Facility may be limited based on the amount of borrowing
base available. We are in compliance with these covenants as of December 31, 2006. The Unsecured
Credit Facility also contains a covenant whereby the sum of speculative homes and models cannot
exceed 25% of the aggregate number of unit sales for the last twelve month period. As of December
31, 2006, we exceeded this limitation. However, during the fourth quarter of 2006, we obtained a
waiver of this requirement for the quarter ended December 31, 2006 and the entirety of 2007.
65
NOTE G
— NOTES, MORTGAGE NOTES AND OTHER DEBT — continued
In the event of a default under the Unsecured Credit Facility, including cross-defaults
relating to specified other debt of Avatar or its consolidated subsidiaries in excess of $1,000,
the lenders may terminate the commitments under the Unsecured Credit Facility and declare the
amounts outstanding, and all accrued interest, immediately due and payable.
The Unsecured Credit Facility provides that once each fiscal year, we may request a
twelve-month extension of the maturity date. During August 2006, the Unsecured Credit Facility was
amended to extend the maturity date of the Unsecured Credit Facility from September 20, 2009 to
September 20, 2010. As of December 31, 2006, we had borrowings totaling $0 under the Unsecured
Credit Facility and $109,769 was available for borrowing under the Unsecured Credit Facility, net
of $15,231 outstanding letters of credit.
Payments of all amounts due under the Unsecured Credit Facility are guaranteed by Avatar
Holdings Inc. pursuant to the Restated Guaranty Agreement dated as of October 21, 2005.
Maturities of notes, mortgage notes and other debt at December 31, 2006, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Corporate |
|
|
Real Estate |
|
|
Total |
|
2007 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
2009 |
|
|
— |
|
|
|
15,730 |
|
|
|
15,730 |
|
2010 |
|
|
— |
|
|
|
1,195 |
|
|
|
1,195 |
|
2011 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Thereafter |
|
|
120,000 |
|
|
|
— |
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
120,000 |
|
|
$ |
16,925 |
|
|
$ |
136,925 |
|
|
|
|
|
|
|
|
|
|
|
The following table represents interest incurred; interest capitalized; and interest expense
for 2006, 2005 and 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Interest incurred |
|
$ |
7,762 |
|
|
$ |
9,361 |
|
|
$ |
5,251 |
|
Interest capitalized |
|
|
(7,762 |
) |
|
|
(8,886 |
) |
|
|
(3,712 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
— |
|
|
$ |
475 |
|
|
$ |
1,539 |
|
|
|
|
|
|
|
|
|
|
|
We made interest payments of $7,118, $8,559 and $3,074 for the years ended December 31, 2006,
2005 and 2004, respectively.
NOTE H
— EMPLOYEE BENEFIT PLANS
We have a defined contribution savings plan that covers substantially all employees. Under
this savings plan, we contribute to the plan based upon specified percentages of employees’
voluntary contributions. Our contributions to the plan for the years ended December 31, 2006, 2005
and 2004 were $293, $240 and $201, respectively.
NOTE I — LEASE COMMITMENTS
We lease the majority of our administration and sales offices under operating leases that
expire at varying times through 2009. Rental expense for the years 2006, 2005 and 2004 were
$2,116, $1,871 and $1,690, respectively. Minimum rental commitments under non-cancelable operating
leases as of December 31, 2006 were as follows: 2007 — $1,811; 2008 — $1,464; 2009 — $318; 2010 -
$219; 2011 — $142; thereafter -$165.
66
NOTE J — ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities are summarized as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2006 |
|
|
2005 |
|
Property taxes and assessments |
|
$ |
400 |
|
|
$ |
468 |
|
Interest |
|
|
1,431 |
|
|
|
1,694 |
|
Accrued compensation |
|
|
3,784 |
|
|
|
9,934 |
|
Contract retention |
|
|
6,864 |
|
|
|
4,280 |
|
Warranty reserve |
|
|
2,319 |
|
|
|
1,616 |
|
Accrued income taxes payable |
|
|
15,206 |
|
|
|
15,009 |
|
Other |
|
|
13,690 |
|
|
|
9,086 |
|
|
|
|
|
|
|
|
|
|
$ |
43,694 |
|
|
$ |
42,087 |
|
|
|
|
|
|
|
|
NOTE K
— SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION
The Amended and Restated 1997 Incentive and Capital Accumulation Plan (2005 Restatement), as
amended (the “Incentive Plan”) provides that stock options, including incentive stock options and
non-qualified stock options; stock appreciation rights; stock awards; performance-conditioned stock
awards (“restricted stock units”) and stock units may be granted to officers, employees and
directors of Avatar. The exercise prices of stock options may not be less than the market value of
our common stock on the date of grant. Stock option awards under the Incentive Plan generally
expire 10 years after the date of grant. As of December 31, 2006, an aggregate of 1,105,829 shares
of our Common Stock, subject to certain adjustments, were available for issuance under the
Incentive Plan, including an aggregate of 796,255 options and stock units granted. There were
309,574 shares available for grant at December 31, 2006.
Prior to January 1, 2006, we accounted for our stock-based compensation plans in accordance
with the recognition and measurement provisions of Accounting Principles Board Opinion No.25,
“Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations, as permitted by
SFAS No.123, “Accounting for Stock-Based Compensation” (“SFAS No.123”). Accordingly, for
restricted stock units granted, compensation expense was recognized in the consolidated statements
of income prior to January 1, 2006 based on the market price of Avatar’s common stock on the date
the specified hurdle price was probable of being achieved, provided such provisions are applicable,
or the date of grant. For stock options granted, no compensation expense was recognized in the
consolidated statements of income prior to January 1, 2006 since all stock options granted had
exercise prices greater than the market value of Avatar’s stock on the grant date. Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No.123 (revised 2004),
“Share-Based Payment” (“SFAS No.123(R)”) using the modified-prospective transition method. Under
this transition method, compensation expense recognized during the year ended December 31, 2006
included: (a) compensation expense for all share-based awards granted prior to, but not yet vested
as of January 1, 2006, based on the grant date fair value estimated in accordance with the original
provisions of SFAS No. 123, and (b) compensation expense for all share-based awards granted
subsequent to
January 1, 2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123(R). In accordance with the modified-prospective-transition method,
results for periods prior to adoption have not been restated.
As a result of the adoption of SFAS No.123(R), the charge to income from continuing operations
before income taxes and net income for the year ended December 31, 2006 was $283 and $176,
respectively. The impact of adopting SFAS No. 123(R) on both basic and diluted earnings per share
for the year ended December 31, 2006 was $0.02.
67
NOTE K
— SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION — continued
Prior to the adoption of SFAS No.123(R), we presented all tax benefits related to deductions
resulting from the exercise of restricted stock units and stock options as operating activities in
the consolidated statements of cash flows. SFAS No.123(R) requires that tax benefits resulting
from tax deductions in excess of the compensation expense recognized for those options (“excess tax
benefits”) be classified and reported as both an operating cash outflow and a financing cash inflow
upon adoption.
Compensation expense related to the stock option and restricted stock unit awards for the year
ended December 31, 2006 was $3,104, of which $287 related to stock options and $2,817 related to
restricted stock units. During the years ended December 31, 2005 and 2004, compensation expense
related to our restricted stock unit awards was $3,111 and $2,470, respectively. The total income
tax benefit recognized in the consolidated statements of income for stock options and restricted
stock units during the year ended December 31, 2006 was $1,180, of which $109 related to stock
options and $1,071 related to restricted stock units. The income tax benefit recognized in the
consolidated statements of income during the years ended December 31, 2005 and 2004 for the
restricted stock units was $595 and $859, respectively.
Cash received from stock options exercised during the years ended December 31, 2006, 2005 and
2004 was $250, $248 and $1,000, respectively. The tax benefit related to the exercise of stock
options and restricted stock units during the years ended December 31, 2006, 2005 and 2004 was
$140, $1,639 and $242, respectively.
Under SFAS No.123(R), the fair value of each stock option is estimated on the grant date using
the Black-Scholes option-pricing model. Under SFAS No.123(R), the fair value of restricted stock
awards which contain a specified hurdle price condition is estimated on the grant date using the
Monte-Carlo option valuation model (like a lattice model). Under SFAS No.123(R), the fair value of
restricted stock awards which do not contain a specified hurdle price condition is based on the
market price of our common stock on the date of grant. The valuation models require assumptions
and estimates to determine expected volatility, expected life, expected dividend yield and expected
risk-free interest rates. The expected volatility was determined using historical volatility of
our stock based on the contractual life of the award. The risk-free interest rate assumption was
based on the yield on zero-coupon U.S. Treasury strips at the award grant date. We also used
historical data to estimate forfeiture experience. The significant weighted average assumptions
used for the years ended December 31, 2006, 2005 and 2004 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
Dividend yield |
|
|
N/A |
* |
|
|
0 |
% |
|
|
0 |
% |
Volatility rate |
|
|
N/A |
* |
|
|
35.8% - 38.3 |
% |
|
|
40.0 |
% |
Risk-free interest rate |
|
|
N/A |
* |
|
|
3.7% - 4.1 |
% |
|
|
3.5 |
% |
Expected life (years) |
|
|
N/A |
* |
|
|
5 |
|
|
|
4 |
|
Weighted average fair value of units granted |
|
$ |
61.17 |
|
|
$ |
28.36 |
|
|
$ |
41.44 |
|
|
|
|
| * |
|
Not applicable since no stock options or restricted stock awards with specified hurdle
price condition as discussed above were granted during 2006. |
68
NOTE K
— SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION — continued
A summary of the status of the stock option activity for the years ended of December 31, 2006,
2005 and 2004 is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
| |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
| |
|
Stock |
|
Exercise |
|
Stock |
|
Exercise |
|
Stock |
|
Exercise |
| |
|
Options |
|
Price |
|
Options |
|
Price |
|
Options |
|
Price |
| |
|
|
Outstanding at beginning of
year |
|
|
250,102 |
|
|
$ |
25.00 |
|
|
|
260,000 |
|
|
$ |
25.00 |
|
|
|
299,994 |
|
|
$ |
25.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(10,000 |
) |
|
|
25.00 |
|
|
|
(9,898 |
) |
|
|
25.00 |
|
|
|
(39,994 |
) |
|
|
25.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
240,102 |
|
|
$ |
25.00 |
|
|
|
250,102 |
|
|
$ |
25.00 |
|
|
|
260,000 |
|
|
$ |
25.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
120,102 |
|
|
$ |
25.00 |
|
|
|
130,102 |
|
|
$ |
25.00 |
|
|
|
140,000 |
|
|
$ |
25.00 |
|
| |
|
|
|
|
|
|
The weighted average remaining contractual life of stock options outstanding as of December
31, 2006 was 4.2 years. The total intrinsic value of stock options exercised during the year ended
December 31, 2006 was $306.
A summary of the restricted stock units activity for the year ended December 31, 2006 is
presented below:
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
| |
|
|
|
|
|
Weighted |
|
| |
|
Restricted |
|
|
Average |
|
| |
|
Stock |
|
|
Grant Date |
|
| |
|
Units |
|
|
Fair Value |
|
| |
|
|
Outstanding at beginning of year |
|
|
543,854 |
|
|
$ |
25.10 |
|
Granted |
|
|
13,050 |
|
|
|
61.17 |
|
Exercised |
|
|
(4,000 |
) |
|
|
46.41 |
|
Forfeited |
|
|
(3,100 |
) |
|
|
51.99 |
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
549,804 |
|
|
$ |
25.84 |
|
|
|
|
|
|
|
|
As of December 31, 2006, there was $8,380 of unrecognized compensation expense related to
unvested restricted stock units and unvested stock options, of which $8,093 relates to restricted
stock units and $287 relates to stock options, which is expected to be recognized over a
weighted-average period of 2.2 years.
During March 2003, we entered into earnings participation award agreements with certain
executive officers providing for stock awards relating to achievement of performance goals. The
cash award entitles the executives to a cash payment (subject to certain maximum limitations) with
respect to each fiscal year beginning 2003 and ending
2007 equal to a percentage of the excess of Avatar’s gross profit (as defined) over minimum
levels established. Our gross profit for fiscal years 2006, 2005 and 2004 exceeded the minimum
levels established. Compensation expense of $186, $4,670 and $1,238 related to this cash award was
recorded for the years ended December 31, 2006, 2005 and 2004, respectively. The stock award
entitles the executives to receive a number of shares of our Common Stock having a fair market
value (as defined) equal to a percentage of the excess of actual gross profit (as defined) from
January 1, 2003 through December 31, 2007 over minimum levels established. Compensation expense of
$13,478, and $351 and $0 was recorded for the years ended December 31, 2006, 2005 and 2004,
respectively. The income tax benefit recognized in the consolidated statements of income for the
years ended December 31, 2006, 2005 and 2004 for these stock awards was $5,122, $133 and $0,
respectively.
69
NOTE K
— SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION — continued
During October 2000, we entered into cash bonus award agreements with certain executive
officers providing for periodic cash payments upon the attainment of certain levels of cash flow in
excess of a specified return to Avatar in the Harbor Islands project. We have recognized
compensation expense of $0, $1,942 and $2,595 for the years ended December 31, 2006, 2005 and 2004,
respectively, attributable to these cash bonus award agreements.
NOTE L — INCOME TAXES
The components of income tax expense (benefit) from continuing operations for the years ended
December 31, 2006, 2005 and 2004 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
67,326 |
|
|
$ |
27,498 |
|
|
$ |
8,843 |
|
State |
|
|
11,394 |
|
|
|
4,653 |
|
|
|
1,496 |
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
78,720 |
|
|
|
32,151 |
|
|
|
10,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
4,538 |
|
|
|
(1,848 |
) |
|
|
2,000 |
|
State |
|
|
768 |
|
|
|
(313 |
) |
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
5,306 |
|
|
|
(2,161 |
) |
|
|
2,339 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit) |
|
$ |
84,026 |
|
|
$ |
29,990 |
|
|
$ |
12,678 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of deferred income tax assets and liabilities as of December
31, 2006 and 2005 are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
Deferred income tax assets |
|
|
|
|
|
|
|
|
Tax over book basis of land inventory |
|
$ |
11,259 |
|
|
$ |
13,142 |
|
Unrecoverable land development costs |
|
|
2,521 |
|
|
|
2,427 |
|
Tax over book basis of depreciable assets |
|
|
204 |
|
|
|
(80 |
) |
Executive incentive compensation |
|
|
8,506 |
|
|
|
3,369 |
|
Other |
|
|
1,403 |
|
|
|
3,263 |
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
|
23,893 |
|
|
|
22,121 |
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred income tax assets |
|
|
— |
|
|
|
(14,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets after valuation allowance |
|
|
23,893 |
|
|
|
8,068 |
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
|
|
|
|
|
Book over tax income recognized on sale of the Ocala Property |
|
|
(23,798 |
) |
|
|
— |
|
Book over tax income recognized on Ocean Palms Joint Venture |
|
|
— |
|
|
|
(4,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes |
|
$ |
95 |
|
|
$ |
3,823 |
|
|
|
|
|
|
|
|
70
NOTE L
— INCOME TAXES — continued
As of December 31, 2006, based on our tax planning strategy with respect to the deferred
income tax liabilities of $23,798 from the sale of the Ocala Property, we determined that certain
of our gross deferred tax assets, which had an associated valuation allowance of $14,053, were
more-likely-than-not realizable resulting in the elimination of such valuation allowance. We
believe the tax planning strategy is prudent and feasible and we have the ability and intent to
purchase and sell, if necessary, replacement property to realize these deferred tax assets. During
2005, we decreased the valuation allowance by $2,947 which is primarily attributable to the tax
over book basis of land inventory in Poinciana and to the tax over book basis of depreciable assets
which were demolished being more-likely-than not realizable. During 2004, we decreased the
valuation allowance by $1,000 which is primarily attributable to the tax over book basis of land
inventory being more-likely-than not realizable.
Included in this change in valuation allowance was $611, which was credited to additional
paid-in capital representing the benefit of utilizing deferred income tax assets, which were
generated in years prior to reorganization on October 1, 1980.
The exercise and issuance of restricted stock units and stock options during 2006 generated
additional income tax benefits of $140 which is reflected as an increase to additional paid-in
capital.
A reconciliation of income tax expense from continuing operations to the expected income tax
expense at the federal statutory rate of 35% for each of the years ended December 31, 2006, 2005
and 2004 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Income tax expense computed at statutory rate |
|
$ |
90,563 |
|
|
$ |
30,516 |
|
|
$ |
13,285 |
|
State income tax expense, net of federal benefit |
|
|
7,657 |
|
|
|
2,562 |
|
|
|
1,308 |
|
Contribution of land |
|
|
— |
|
|
|
— |
|
|
|
(387 |
) |
Change in valuation allowance on deferred tax assets |
|
|
(14,053 |
) |
|
|
(2,947 |
) |
|
|
(1,000 |
) |
Other |
|
|
(141 |
) |
|
|
(141 |
) |
|
|
(528 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
84,026 |
|
|
$ |
29,990 |
|
|
$ |
12,678 |
|
|
|
|
|
|
|
|
|
|
|
We made income tax payments of approximately $79,350, $12,800 and $13,875 for the years ended
December 31, 2006, 2005 and 2004, respectively.
71
NOTE M
— COMMITMENTS AND CONTINGENCIES
We are involved in various pending litigation matters primarily arising in the normal course
of our business. Although the outcome of these matters cannot be determined, management believes
that the resolution of these matters will not have a material effect on our business or financial
statements.
In December 2006, we entered into agreements with Osceola and Polk Counties in Florida for us
to develop and construct a 9.66 mile four-lane road in Osceola and Polk Counties in Florida, to be
known as the Poinciana Parkway. It will include a 4.15 mile segment to be operated as a private
toll road. We will pay the costs associated with the right-of-way acquisition, development and
construction of the Parkway. Except for the toll road, the Parkway will be owned, maintained and
operated by the Counties upon completion. We will own the toll road, and under our agreements we
have the right to sell it to a third party together with our rights to operate the toll road. Under
our agreements with the Counties, the Parkway is to be substantially complete and open to traffic
by October 31, 2008, barring delays for some period of time resulting from causes beyond our
reasonable control. We have agreed to indemnify Osceola and Polk Counties against liability for
loss, injury or damage to persons or property, including, without limitation, consequential
damages, imposed on the Counties, except for any such loss, injury or damage that is caused by or
results from the gross negligence or willful misconduct of the Counties.
We have made significant progress toward obtaining the various necessary governmental and
environmental permits and approvals for construction of the Parkway. We currently estimate our
acquisition, development and construction costs for the Parkway to be approximately $117,000 of
which approximately $10,000 has been expended, but no assurances of the ultimate amount can be
given at this early stage. Currently, we are in the process of seeking bids from third parties for
construction of the Parkway.
NOTE N — OTHER MATTERS
At our community of Solivita, tax-exempt bond financing is utilized to fund and manage
portions of public infrastructure consisting primarily of stormwater management facilities,
drainage works, irrigation facilities, and water and wastewater utilities. The bonds were issued by
the Poinciana Community Development District (the “CDD”), an independent special-purpose unit of
county government, established and operating in accordance withChapter 190 of the Florida Statutes.
The bonds are serviced by non-ad valorem special assessments levied on certain developable and
developed property within Solivita, and the assessments constitute a liability against the
developable and developed property and are intended to secure the CDD’s ability to meet its bond
servicing obligations. The assessments are not liabilities of Avatar or any other landowner within
the CDD but are obligations secured by the land. For the developable and developed parcels Avatar
owns within the CDD, Avatar pays the assessments until such parcels are sold. After a sale by
Avatar, Avatar no longer pays the assessments on the parcel sold and any future assessments become
the responsibility of the new owner and its successors in title until the bonds are paid in full.
72
NOTE O — FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
In accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise and Related
Information” (SFAS No. 131), our current real estate operations include the following segments: the
development, sale and management of an active adult community; the development and sale of primary
residential communities; and the sale of commercial, industrial or other land. In accordance with
SFAS No. 131, our homebuilding operations in Arizona and our title insurance agency do not qualify
as separate reportable segments and are included in “Primary Residential” and “Other Operations”,
respectively.
The following tables summarize our information for reportable segments for the years ended
December 31, 2006, 2005 and 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Primary residential |
|
$ |
447,487 |
|
|
$ |
309,608 |
|
|
$ |
214,107 |
|
Active adult community |
|
|
241,866 |
|
|
|
148,515 |
|
|
|
105,663 |
|
Commercial and industrial and other land sales |
|
|
133,466 |
|
|
|
48,455 |
|
|
|
5,284 |
|
Other operations |
|
|
7,405 |
|
|
|
6,668 |
|
|
|
6,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
830,224 |
|
|
|
513,246 |
|
|
|
331,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,363 |
|
|
|
1,419 |
|
|
|
1,222 |
|
Other |
|
|
1,492 |
|
|
|
2,183 |
|
|
|
1,087 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
835,079 |
|
|
$ |
516,848 |
|
|
$ |
334,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
|
|
|
|
|
|
|
|
|
|
Primary residential |
|
$ |
131,078 |
|
|
$ |
67,089 |
|
|
$ |
38,491 |
|
Active adult community |
|
|
58,955 |
|
|
|
15,002 |
|
|
|
5,462 |
|
Commercial and industrial and other land sales |
|
|
108,305 |
|
|
|
25,770 |
|
|
|
4,400 |
|
Other operations |
|
|
2,985 |
|
|
|
2,382 |
|
|
|
3,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301,323 |
|
|
|
110,243 |
|
|
|
51,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity
earnings (loss) from unconsolidated joint venture |
|
|
(193 |
) |
|
|
17,871 |
|
|
|
14,918 |
|
Interest income |
|
|
3,363 |
|
|
|
1,419 |
|
|
|
1,222 |
|
General and administrative expenses |
|
|
(36,306 |
) |
|
|
(27,142 |
) |
|
|
(19,673 |
) |
Interest expense |
|
|
— |
|
|
|
(475 |
) |
|
|
(1,539 |
) |
Other real estate expenses |
|
|
(9,435 |
) |
|
|
(14,727 |
) |
|
|
(8,720 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
258,752 |
|
|
$ |
87,189 |
|
|
$ |
37,956 |
|
|
|
|
|
|
|
|
|
|
|
73
NOTE O
— FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS — continued
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
| |
|
2006 |
|
|
2005 |
|
Assets: |
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
Primary residential |
|
$ |
283,549 |
|
|
$ |
265,428 |
|
Active adult community |
|
|
146,278 |
|
|
|
132,307 |
|
Commercial and industrial and other land sales |
|
|
10,230 |
|
|
|
8,043 |
|
Assets of
business transferred under contractual arrangements |
|
|
— |
|
|
|
16,889 |
|
Unallocated assets |
|
|
311,015 |
|
|
|
203,743 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
751,072 |
|
|
$ |
626,410 |
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Our businesses are primarily conducted in the United States. |
| |
| (b) |
|
Identifiable assets by segment are those assets that are used in the operations of each
segment. |
| |
| (c) |
|
No significant part of the business is dependent upon a single customer or group of
customers. |
| |
| (d) |
|
Our homebuilding operations in Arizona and our title insurance agency do not qualify as
separate reportable segments and are included in “Primary Residential” and “Other Operations”. |
| |
| (e) |
|
The caption “Unallocated assets” under the table depicting the segment assets represents the
following as of December 31, 2006 and 2005 respectively: cash and cash equivalents of $202,585
and $13,847; land inventories of $86,624 and $110,841 (a majority of which is bulk land);
property, plant and equipment of $904 and $1,252; investment in unconsolidated joint ventures
of $7,583 and $55,781; receivables of $3,920 and $9,819; deferred income taxes of $95 and
$3,823; and prepaid expenses and other assets of $9,304 and $8,380. None of the foregoing
qualifies as a reportable segment in accordance with SFAS No. 131. |
| |
| (f) |
|
There is no interest expense from primary residential, active adult community, and
commercial, industrial and other land sales included in segment operating income/(loss) for
2006, 2005 and 2004. |
| |
| (g) |
|
Included in segment operating profit/(loss) for 2006 is depreciation expense of $792, $1,906
and $393 from primary residential, active adult community and unallocated corporate/other,
respectively. Included in segment operating income/(loss) for 2005 is depreciation expense of
$629, $1,649 and $290 from primary residential, active adult community, and unallocated
corporate/other, respectively. Included in segment operating income/(loss) for 2004 is
depreciation expense of $595, $1,640 and $366 from primary residential, active adult community
and unallocated corporate/other, respectively. |
| |
| (h) |
|
Goodwill of $1,684 as of December 31, 2006 and 2005 is included in segment assets for active
adult community. |
NOTE P — FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of our financial instruments at December 31, 2006 and
2005 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| |
|
Amount |
|
Value |
|
Amount |
|
Value |
Cash and cash equivalents |
|
$ |
203,760 |
|
|
$ |
203,760 |
|
|
$ |
38,479 |
|
|
$ |
38,479 |
|
Restricted cash |
|
$ |
3,637 |
|
|
$ |
3,637 |
|
|
$ |
6,020 |
|
|
$ |
6,020 |
|
Receivables, net |
|
$ |
13,863 |
|
|
$ |
13,863 |
|
|
$ |
29,865 |
|
|
$ |
29,865 |
|
Notes, mortgage notes and other debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.50% Convertible Senior Notes |
|
$ |
120,000 |
|
|
$ |
180,332 |
|
|
$ |
120,000 |
|
|
$ |
132,409 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Money Mortgage Note $15,730 |
|
$ |
15,730 |
|
|
$ |
13,276 |
|
|
$ |
15,730 |
|
|
$ |
11,155 |
|
5.50% Term Bonds payable |
|
$ |
1,195 |
|
|
$ |
964 |
|
|
$ |
3,377 |
|
|
$ |
2,578 |
|
Unsecured Credit Facility |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,000 |
|
|
$ |
3,937 |
|
74
NOTE P — FAIR VALUE OF FINANCIAL INSTRUMENTS — continued
In estimating the fair value of financial instruments, we used the following methods and
assumptions:
Cash and cash equivalents and restricted cash: The carrying amount reported in the consolidated
balance sheets for cash approximates its fair value.
Receivables, net: The carrying amount reported in the consolidated balance sheets for
receivables, net approximates its fair value since a significant portion of these receivables
represents amounts in transit or due from title companies for house closings and contracts.
Convertible Senior Notes: At December 31, 2006, the fair value of the 4.50% Notes is estimated
based on quoted market prices.
Real Estate Notes Payable: The fair values of notes payable are estimated using discounted cash
flow analysis based on the current incremental borrowing rates for similar types of borrowing
arrangements.
NOTE Q — QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2006 and 2005 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 Quarter |
|
| |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
Net revenues |
|
$ |
155,214 |
|
|
$ |
170,689 |
|
|
$ |
158,312 |
|
|
$ |
350,864 |
|
Expenses |
|
|
(121,634 |
) |
|
|
(126,571 |
) |
|
|
(120,875 |
) |
|
|
(207,054 |
) |
Equity earnings (losses) from unconsolidated joint ventures |
|
|
1,630 |
|
|
|
90 |
|
|
|
165 |
|
|
|
(2,078 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
35,210 |
|
|
|
44,208 |
|
|
|
37,602 |
|
|
|
141,732 |
|
Income tax expense |
|
|
(10,574 |
) |
|
|
(17,025 |
) |
|
|
(14,749 |
) |
|
|
(41,678 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
24,636 |
|
|
$ |
27,183 |
|
|
$ |
22,853 |
|
|
$ |
100,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.01 |
|
|
$ |
3.32 |
|
|
$ |
2.79 |
|
|
$ |
12.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
2.39 |
|
|
$ |
2.62 |
|
|
$ |
2.21 |
|
|
$ |
9.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
NOTE Q — QUARTERLY FINANCIAL DATA (UNAUDITED) — continued
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 Quarter |
|
| |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
Net revenues |
|
$ |
91,223 |
|
|
$ |
107,419 |
|
|
$ |
107,792 |
|
|
$ |
210,414 |
|
Expenses |
|
|
(79,316 |
) |
|
|
(97,172 |
) |
|
|
(104,409 |
) |
|
|
(166,633 |
) |
Equity earnings from unconsolidated joint venture |
|
|
7,569 |
|
|
|
4,755 |
|
|
|
3,534 |
|
|
|
2,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
19,476 |
|
|
|
15,002 |
|
|
|
6,917 |
|
|
|
45,794 |
|
Income tax expense |
|
|
(5,467 |
) |
|
|
(4,762 |
) |
|
|
(5,046 |
) |
|
|
(14,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
14,009 |
|
|
|
10,240 |
|
|
|
1,871 |
|
|
|
31,079 |
|
Income (loss) from discontinued operations |
|
|
161 |
|
|
|
(851 |
) |
|
|
(112 |
) |
|
|
6,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,170 |
|
|
$ |
9,389 |
|
|
$ |
1,759 |
|
|
$ |
37,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.76 |
|
|
$ |
1.17 |
|
|
$ |
0.22 |
|
|
$ |
4.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.42 |
|
|
$ |
0.96 |
|
|
$ |
0.21 |
|
|
$ |
3.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Quarterly and year-to-date computations of per share amounts are made independently.
Therefore, the sum of per share amounts for the quarters may not agree with the per share
amounts for the year. |
| |
| (2) |
|
During the fourth quarter of 2006, based on our tax planning strategy with respect to
the deferred income tax liabilities of $23,798 from the sale of the Ocala Property, we
determined that certain of our gross deferred tax assets, which had an associated valuation
allowance of $14,053, were more-likely-than-not realizable resulting in the elimination of
such valuation allowance. We believe the tax planning strategy is prudent and feasible and
we have the ability and intent to purchase and sell, if necessary, replacement property to
realize these deferred tax assets. |
| |
| (3) |
|
During the third quarter of 2005, we expensed approximately $4,458 related to the
increased estimated development liability for infrastructure construction materials and
services in Poinciana and Rio Rico. |
NOTE R — DISCONTINUED OPERATIONS
During the fourth quarter of 2005, we sold the stock of Rio Rico Utilities, Inc., our water
and wastewater utilities operations in Rio Rico, Arizona, for a sales price of approximately
$8,674. The pre-tax loss of approximately $2,472 on this sale and the operating results for 2005
and 2004 have been reported as discontinued operations in the accompanying consolidated statements
of income. Revenues from Rio Rico Utilities for 2005 and 2004 were $2,710 and $2,347,
respectively. These operations were previously reported as “Other Operations” in accordance with
SFAS No. 131.
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our shopping center located in Poinciana for a sales price of approximately $6,000. The pre-tax
gain of approximately $4,702 on this sale and the operating results for 2005 and 2004 have been
reported as discontinued operations in the accompanying consolidated statements of income.
Discontinued operations included revenues from operations of $879 and $847 for the years ended
December 31, 2005 and 2004, respectively. These operations were previously reported as “Other
Operations” in accordance with SFAS No. 131.
76
NOTE R
— DISCONTINUED OPERATIONS — continued
During the fourth quarter of 2005, we closed on the sale of substantially all of the assets of
our mini storage facility located in Poinciana for a sales price of approximately $9,125. The
pre-tax gain of approximately $6,092 on this sale and the operating results for 2005 have been
reported as discontinued operations in the accompanying consolidated statements of income.
Discontinued operations included the revenues from operations of $331 for the year ended December
31, 2005. We developed and constructed the mini storage facility and commenced operations in April
2005.
On June 1, 2004, we closed on the sale of substantially all of the assets of our cable
operations located in Poinciana for a sales price of approximately $6,175. The pre-tax gain of
approximately $3,779 on this sale and the operating results for 2004 have been reported as
discontinued operations in the accompanying consolidated statements of income. Discontinued
operations included revenues from operations of $527 for the year ended December 31, 2004. These
operations were previously reported as “Other Operations” in accordance with SFAS No. 131.
During February 2004, we closed on the sale of the Harbor Islands marina located in Hollywood,
Florida, for a sales price of approximately $6,711. The pre-tax gain of approximately $2,686 on
this sale and the operating results for 2004 have been reported as discontinued operations in the
accompanying consolidated statements of income. Discontinued operations included revenues from
operations of $34 for the year ended December 31, 2004. These operations were previously reported
as “Other Operations” in accordance with SFAS No. 131.
77
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Not applicable.
Item 9A. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective for the purpose of ensuring that material information required to be in
this report is made known to our management, including our Chief Executive Officer and Chief
Financial Officer, and others, as appropriate, to allow timely decisions regarding required
disclosures and are effective to provide reasonable assurance that such information is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we have determined that, during the fiscal quarter
ended December 31, 2006, there were no changes in our internal control over financial reporting (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that have
affected, or are reasonably likely to affect, materially, our internal control over financial
reporting.
See “Item 8. Financial Statements and Supplementary Data” for “Management’s Report on Internal
Control over Financial Reporting” and the “Report of Independent Registered Public Accounting
Firm”, as it relates to internal control over financial reporting, incorporated herein by
reference.
Item 9B. Other Information
None.
78
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 2007
definitive proxy statement to be filed with the Securities and Exchange Commission on
or before April 30, 2007. |
| |
| |
B. |
|
Identification of Executive Officers |
| |
| |
|
|
For information with respect to the executive officers of Avatar, see “Executive
Officers of the Registrant” at the end of Part I of this report. |
| |
| |
C. |
|
Compliance with Section 16(a) of the Exchange Act |
| |
| |
|
|
The information required by this Item is incorporated by reference to Avatar’s 2007
definitive proxy statement to be filed with the Securities and Exchange Commission on
or before April 30, 2007. |
| |
| |
D. |
|
Code of Ethics |
| |
| |
|
|
The information required by this Item is incorporated by reference to Avatar’s 2007
definitive proxy statement to be filed with the Securities and Exchange Commission on
or before April 30, 2007. |
Item 11 . Executive Compensation
The information called for by this Item is incorporated by reference to Avatar’s 2007
definitive proxy statement to be filed with the Securities and Exchange Commission on or before
April 30, 2007.
Item 12 . Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information called for by this Item is incorporated by reference to Avatar’s 2007
definitive proxy statement to be filed with the Securities and Exchange Commission on or before
April 30, 2007.
Item 13 . Certain Relationships and Related Transactions
The information called for by this Item is incorporated by reference to Avatar’s 2007
definitive proxy statement to be filed with the Securities and Exchange Commission on or before
April 30, 2007.
Item 14 . Principal Accounting Fees and Services
The information called for by this Item is incorporated by reference to Avatar’s 2007
definitive proxy statement to be filed with the Securities and Exchange Commission on or before
April 30, 2007.
79
PART IV
Item 15 . Exhibits and Financial Statement Schedules
(a) (1) Financial Statements and Schedules:
See Item 8 “Financial Statements and Supplementary Data” of this report.
(a) (2) Financial Statements Schedules:
Schedule II — Valuation and Qualifying Accounts
Consolidated financial statements of Ocean Palms, LLC for the years ended
December 31, 2006, 2005 and 2004.
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 and restated May 28, 1998 (filed
as Exhibit 3(a) to Form 10-Q for the quarter ended June 30, 1998 (File
No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
3(b)
|
|
*
|
|
Certificate of Amendment of Restated Certificate of Incorporation, dated
May 26, 2000 (filed as Exhibit 3(a) to Form 10-Q for the quarter ended
June 30, 2000 (File No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
3(c)
|
|
*
|
|
Amended and Restated By-laws as of March 5, 2004 (filed as Exhibit 3(d)
to Form 10-K for the year ended December 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
4(a)
|
|
*
|
|
Indenture, dated March 30, 2004, between Avatar Holdings Inc. and
JPMorgan Chase Bank, in respect of 4.50% Convertible Senior Notes due
2024 (filed as Exhibit 4.1 to Form 10-Q for the quarter ended March 31,
2004 (File No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
4(b)
|
|
*
|
|
Credit Agreement dated as of September 20, 2005 by and among Avatar
Properties Inc. (as Borrower), joined by Avatar Holdings Inc. (as
Guarantor) and Wachovia Bank, National Association (as Administrative
Agent and Lender), Guaranty Bank (as Syndication Agent and Lender),
Franklin Bank (as Lender) and Wachovia Capital Markets, LLC (as Lead
Arranger) (filed as Exhibit 10.1 to Form 8-K dated September 23, 2005
(File No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
4(c)
|
|
*
|
|
Guaranty Agreement dated as of September 20, 2005 made by Avatar Holdings
Inc. in favor of the lending institutions identified therein (the
Lenders) and Wachovia Bank, National Association (the Agent) (filed as
Exhibit 10.2 to Form 8-K dated September 23, 2005 (File No. 0-7616), and
incorporated herein by reference). |
80
Item 15.
Exhibits and Financial Statements Schedules — continued
| |
|
|
|
|
Exhibits: |
|
|
|
|
4(d)
|
|
*
|
|
Commitment and Acceptance dated as of October 21, 2005 by and among
Avatar Holdings Inc., its wholly-owned subsidiary, Avatar Properties Inc.
(as Borrower),Wachovia Bank, National Association (as Administrative
Agent and Lender), and certain financial institutions (filed as Exhibit
10.3 to Form 10-Q for the quarter ended September 30, 2005 (File No.
0-7616), and incorporated herein by reference). |
|
|
|
|
|
4(e)
|
|
*
|
|
Restated Guaranty Agreement dated as of October 21, 2005 made by Avatar
Holdings Inc. in favor of the lending institutions identified therein
(the Lenders) and Wachovia Bank, National Association (the Agent) (filed
as Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 2005
(File No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
4(f)
|
|
|
|
First Amendment to Credit Agreement dated as of May 25, 2006 by and among
Avatar Properties Inc. (as Borrower), joined by Avatar Holdings Inc. (as
Guarantor), Wachovia Capital Markets, LLC (as Lead Arranger), Wachovia
Bank, National Association (as Administrative Agent and Lender), Guaranty
Bank (as Syndication Agent and Lender), Franklin Bank (as Lender) (filed
herewith). |
|
|
|
|
|
4(g)
|
|
|
|
Second Amendment to Credit Agreement and Consent to Extension dated as of
August 28, 2006 by and among Avatar Properties Inc. (as Borrower), joined
by Avatar Holdings Inc. (as Guarantor) and Wachovia Bank, National
Association (as Administrative Agent acting on behalf of the Lenders)
(filed herewith). |
|
|
|
|
|
4(h)
|
|
|
|
Consent and Waiver dated as of December 4, 2006 by and among Avatar
Properties Inc. (as Borrower), joined by Avatar Holdings Inc. (as
Guarantor) and Wachovia Bank, National Association (as Administrative
Agent and Lender), Guaranty Bank (as Lender) and Franklin Bank (as
Lender) (filed herewith). |
|
|
|
|
|
10(a)
|
|
*
|
|
Registration Rights Agreement dated as of February 2, 1998, between
Avatar Holdings Inc. and Leon Levy (filed as Exhibit 10(l) to Form 10-K
for the year ended December 31, 1997 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(b)
|
|
* 1
|
|
Nonqualified Stock Option Agreement, dated as of February 19, 1999, by
and between Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit
10(p) to Form 10-K for the year ended December 31, 1998 (File No.
0-7616), and incorporated herein by reference). |
|
|
|
|
|
10(c)
|
|
* 1
|
|
Nonqualified Stock Option Agreement, dated as of February 19, 1999, by
and between Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10(s)
to Form 10-K for the year ended December 31, 1998 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(d)
|
|
* 1
|
|
Nonqualified Stock Option Agreement, dated as of February 19, 1999, by
and between Avatar Holdings Inc. and Dennis J. Getman (filed as Exhibit
10(w) to Form 10-K for the year ended December 31, 1998 (File No.
0-7616), and incorporated herein by reference). |
|
|
|
|
|
10(e)
|
|
*1
|
|
Amended and Restated 1997 Incentive and Capital Accumulation Plan (filed
as Exhibit 10(a) to Form 10-Q for the quarter ended June 30, 1999 (File
No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
10(f)
|
|
*1
|
|
Amendment to Amended and Restated 1997 Incentive and Capital Accumulation
Plan (filed as Exhibit 10(a) to Form 10-Q for the quarter ended June 30,
1999 (filed as Exhibit 99.3 to Registration Statement on Form S-8 (File
No. 333-63278), filed on June 19, 2001, and incorporated herein by
reference). |
81
Item 15.
Exhibits and Financial Statements Schedules — continued
| |
|
|
|
|
Exhibits: |
|
|
|
|
10(g)
|
|
*1
|
|
Restricted Stock Unit Agreement, dated as of December 7, 1998, between
Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10(b) to Form
10-Q for the quarter ended June 30, 1999 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(h)
|
|
*1
|
|
Nonqualified Stock Option Agreement, dated as of April 1, 1999, by and
between Avatar Holdings Inc. and Deborah G. Tomusko (filed as Exhibit
10(d) to Form 10-Q for the quarter ended June 30, 1999 (File No. 0-7616),
and incorporated herein by reference). |
|
|
|
|
|
10(i)
|
|
*1
|
|
Cash Bonus Award Agreement, dated October 20, 2000, between Avatar
Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10(aa) to Form 10-K
for the year ended December 31, 2000 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(j)
|
|
*1
|
|
Amended and Restated Restricted Stock Unit Agreement, dated as of October
20, 2000, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as
Exhibit 10(ab) to Form 10-K for the year ended December 31, 2000 (File
No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
10(k)
|
|
*1
|
|
Restricted Stock Unit Agreement, dated October 20, 2000, between Avatar
Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10(ac) to Form 10-K
for the year ended December 31, 2000 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(l)
|
|
*1
|
|
Cash Bonus Award Agreement, dated October 20, 2000, between Avatar
Holdings Inc. and Jonathan Fels (filed as Exhibit 10(ae) to Form 10-K for
the year ended December 31, 2000 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(m)
|
|
*1
|
|
Cash Bonus Award Agreement, dated October 20, 2000, between Avatar
Holdings Inc. and Michael Levy (filed as Exhibit 10(ag) to Form 10-K for
the year ended December 31, 2000 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(n)
|
|
*1
|
|
Executive Incentive Compensation Plan (filed as Exhibit 10(a) to Form
10-Q for the quarter ended June 30, 2001 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(o)
|
|
*1
|
|
Amendment to Amended and Restated Restricted Stock Unit Agreement, dated
as of March 27, 2003, between Avatar Holdings Inc. and Gerald D. Kelfer
(filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2003
(File No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
10(p)
|
|
*1
|
|
Earnings Participation Award Agreement, dated as of March 27, 2003,
between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10.3
to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(q)
|
|
*1
|
|
Restricted Stock Unit Agreement (50,000 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.4 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
|
|
|
|
|
10(r)
|
|
*1
|
|
Restricted Stock Unit Agreement (23,700 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.6 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
|
|
|
|
|
10(s)
|
|
*1
|
|
Restricted Stock Unit Agreement (20,000 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.7 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
82
Item 15.
Exhibits and Financial Statements Schedules — continued
| |
|
|
|
|
|
|
Exhibits: |
|
|
|
|
10(t)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (15,000 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.8 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
|
|
|
|
|
|
|
10(u)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (16,300 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.9 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
|
|
|
|
|
|
|
10(v)
|
|
|
*1 |
|
|
Earnings Participation Award Agreement, dated as of March 6, 2003,
between Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit 10.11 to
Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(w)
|
|
|
*1 |
|
|
Nonqualified Stock Option Agreement, dated as of March 13, 2003, between
Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit 10.12 to Form
10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(x)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement, dated as of March 27, 2003, between
Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit 10.13 to Form
10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(y)
|
|
|
*1 |
|
|
Earnings Participation Award Agreement, dated as of March 6, 2003,
between Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10.15 to
Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(z)
|
|
|
*1 |
|
|
Nonqualified Stock Option Agreement, dated as of March 13, 2003, between
Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10.16 to Form
10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(aa)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement, dated as of March 27, 2003, between
Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10.17 to Form
10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ab)
|
|
|
1 |
|
|
Employment Agreement, dated as of September 11, 2003, between Avatar
Holdings Inc. and Dennis J. Getman (filed herewith). Portions of this
exhibit have been omitted pursuant to a request for confidential
treatment. |
|
|
|
|
|
|
|
10(ac)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement, dated as of September 11, 2003 between
Avatar Holdings Inc. and Dennis J. Getman (filed as Exhibit 10.2 to Form
10-Q for the quarter ended September 30, 2003 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ad)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement, dated as of July 22, 2004, between
Avatar Holdings Inc. and Charles McNairy (filed as Exhibit 10.1 to Form
10-Q for the quarter ended June 30, 2004 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ae)
|
|
|
*1 |
|
|
Side Letter, dated as of July 22, 2004, between Avatar Holdings Inc. and
Charles McNairy (filed as Exhibit 10.2 to Form 10-Q for the quarter ended
June 30, 2004 (File No. 0-7616), and incorporated herein by reference). |
83
Item 15.
Exhibits and Financial Statements Schedules — continued
| |
|
|
|
|
|
|
Exhibits: |
|
|
|
|
10(af)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement, dated as of July 22, 2004, between
Avatar Holdings Inc. and Juanita Kerrigan (filed as Exhibit 10.3 to Form
10-Q for the quarter ended June 30, 2004 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ag)
|
|
|
1 |
|
|
First Amendment to Employment Agreement, dated as of August 11, 2004,
between Avatar Holdings Inc. and Dennis J. Getman (filed herewith).
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. |
|
|
|
|
|
|
|
10(ah)
|
|
|
*1 |
|
|
Non-Employee Director Compensation (filed as Exhibit 10(am) to Form 10-K
for the year ended December 31, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
|
|
10(ai)
|
|
|
*1 |
|
|
Certain Compensation of Certain Executive Officers (filed as Exhibit
10(an) to Form 10-K for the year ended December 31, 2005 (File No.
0-7616), and incorporated herein by reference). |
|
|
|
|
|
|
|
10(aj)
|
|
|
*1 |
|
|
Amended and Restated 1997 Incentive and Capital Accumulation Plan (2005
Restatement) (filed as Exhibit 10.1 to Form 8-K dated May 24, 2005 (File
No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
|
|
10(ak)
|
|
|
*1 |
|
|
2005 Executive Incentive Compensation Plan (filed as Exhibit 10.2 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
|
|
10(al)
|
|
|
*1 |
|
|
Letter Agreement, dated as of May 20, 2005, between Avatar Holdings Inc.
and Gerald D. Kelfer (filed as Exhibit 10.3 to Form 8-K dated May 24,
2005 (File No. 0-7616), and incorporated herein by reference). |
|
|
|
|
|
|
|
10(am)
|
|
|
*1 |
|
|
Amended and Restated Employment Agreement, dated as of April 15, 2005,
between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10.4
to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein
by reference). |
|
|
|
|
|
|
|
10(an)
|
|
|
*1 |
|
|
Amended and Restated Earnings Participation Award Agreement, dated as of
April 15, 2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10.5 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ao)
|
|
|
*1 |
|
|
Change in Control Award Agreement, dated as of April 15, 2005, between
Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10.6 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
|
|
10(ap)
|
|
|
*1 |
|
|
2008-2010 Earnings Participation Award Agreement, dated as of April 15,
2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.7 to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
|
|
10(aq)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (30,000 units @ $65.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10.8 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ar)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (30,000 units @ $72.50), dated as of
April 15, 2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10.9 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
84
Item 15.
Exhibits and Financial Statements Schedules — continued
| |
|
|
|
|
Exhibits: |
|
|
|
|
10(as)
|
|
*1
|
|
Restricted Stock Unit Agreement (30,000 units @ $80.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10.10 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(at)
|
|
*1
|
|
Letter Agreement, dated as of May 20, 2005, among Avatar Holdings Inc.,
Avatar Properties Inc. and Jonathan Fels (filed as Exhibit 10.11 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
10(au)
|
|
*1
|
|
Amended and Restated Employment Agreement, dated as of April 15, 2005,
between Avatar Properties Inc. and Jonathan Fels (filed as Exhibit 10.12
to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein
by reference). |
|
|
|
|
|
10(av)
|
|
*1
|
|
Amended and Restated Earnings Participation Award Agreement, dated as of
April 15, 2005, between Avatar Holdings Inc. and Jonathan Fels (filed as
Exhibit 10.13 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(aw)
|
|
*1
|
|
Change in Control Award Agreement, dated as of April 15, 2005, between
Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit 10.14 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
10(ax)
|
|
*1
|
|
2008-2010 Earnings Participation Award Agreement, dated as of April 15,
2005, between Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit
10.15 to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(ay)
|
|
*1
|
|
Restricted Stock Unit Agreement (25,000 units @ $65.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Jonathan Fels (filed as
Exhibit 10.16 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(az)
|
|
*1
|
|
Restricted Stock Unit Agreement (25,000 units @ $72.50), dated as of
April 15, 2005, between Avatar Holdings Inc. and Jonathan Fels (filed as
Exhibit 10.17 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(ba)
|
|
*1
|
|
Restricted Stock Unit Agreement (25,000 units @ $80.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Jonathan Fels (filed as
Exhibit 10.18 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(bb)
|
|
*1
|
|
Letter Agreement, dated as of May 20, 2005, among Avatar Holdings Inc.,
Avatar Properties Inc. and Michael Levy (filed as Exhibit 10.19 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
10(bc)
|
|
*1
|
|
Amended and Restated Employment Agreement, dated as of April 15, 2005,
between Avatar Properties Inc. and Michael Levy (filed as Exhibit 10.20
to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein
by reference). |
|
|
|
|
|
10(bd)
|
|
*1
|
|
Amended and Restated Earnings Participation Award Agreement, dated as of
April 15, 2005, between Avatar Holdings Inc. and Michael Levy (filed as
Exhibit 10.21 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(be)
|
|
*1
|
|
Change in Control Award Agreement, dated as of April 15, 2005, between
Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10.22 to Form 8-K
dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
85
Item 15.
Exhibits and Financial Statements Schedules — continued
| |
|
|
|
|
Exhibits: |
|
|
|
|
10(bf)
|
|
*1
|
|
2008-2010 Earnings Participation Award Agreement, dated as of April 15,
2005, between Avatar Holdings Inc. and Michael Levy (filed as Exhibit
10.23 to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(bg)
|
|
*1
|
|
Restricted Stock Unit Agreement (25,000 units @ $65.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Michael Levy (filed as
Exhibit 10.24 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(bh)
|
|
*1
|
|
Restricted Stock Unit Agreement (25,000 units @ $72.50), dated as of
April 15, 2005, between Avatar Holdings Inc. and Michael Levy (filed as
Exhibit 10.25 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(bi)
|
|
*1
|
|
Restricted Stock Unit Agreement (25,000 units @ $80.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Michael Levy (filed as
Exhibit 10.26 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(bj)
|
|
*1
|
|
Form of Deferred Compensation Agreement for Non-Employee Directors’ Fees
(filed as Exhibit 10.1 to Form 8-K dated June 13, 2005 (File No. 0-7616),
and incorporated herein by reference). |
|
|
|
|
|
10(bk)
|
|
*1
|
|
Form of Non-Employee Director Restricted Stock Unit Agreement (filed as
Exhibit 10.2 to Form 8-K dated June 13, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
10(bl)
|
|
*1
|
|
First Amendment, dated as of September 28, 2005, to the 2005 Amended and
Restated Employment Agreement, dated as of April 15, 2005, between Avatar
Properties Inc. and Jonathan Fels (filed as Exhibit 10.5 to Form 10-Q for
the quarter ended September 30, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(bm)
|
|
*1
|
|
First Amendment, dated as of September 28, 2005, to the 2005 Amended and
Restated Employment Agreement, dated as of April 15, 2005, between Avatar
Properties Inc. and Michael Levy (filed as Exhibit 10.6 to Form 10-Q for
the quarter ended September 30, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
10(bn)
|
|
*1
|
|
Amended Form of Non-Employee Director Restricted Stock Unit Agreement,
dated May 25, 2006 (260 RSU’s) (filed as Exhibit 10.1 to Form 8-K dated
May 26, 2006 (File No. 0-7616), and incorporated by reference). |
|
|
|
|
|
10(bo)
|
|
*1
|
|
Director Compensation (filed as Exhibit 10.2 to Form 8-K dated May 26,
2006 (File No. 0-7616), and incorporated by reference). |
|
|
|
|
|
10(bp)
|
|
*1
|
|
Option Agreement, dated October 20, 2006, between Avatar Properties Inc.
and The Nature Conservancy (filed as Exhibit 10.1 to Form 10-Q for the
quarter ended September 30, 2006 (File No. 0-7616), and incorporated by
reference). |
|
|
|
|
|
10(bq)
|
|
*1
|
|
Amendment to the Amended and Restated Employment Agreement, dated as of
December 26, 2006, between Avatar Holdings Inc. and Gerald D. Kelfer
(filed as Exhibit 10.1 to Form 8-K dated December 28, 2006 (File No.
0-7616), and incorporated by reference). |
|
|
|
|
|
10(br)
|
|
*1
|
|
Second Amended and Restated Earnings Participation Award Agreement, dated
as of December 26, 2006, between Avatar Holdings Inc. and Gerald D.
Kelfer (filed as Exhibit 10.2 to Form 8-K dated December 28, 2006 (File
No. 0-7616), and incorporated by reference). |
86
Item 15.
Exhibits and Financial Statements Schedules — continued
| |
|
|
|
|
|
|
Exhibits: |
|
|
|
|
10(bs)
|
|
|
*1 |
|
|
Second Amendment to the 2005 Amended and Restated Employment Agreement,
dated as of December 26, 2006, between Avatar Properties Inc. and
Jonathan Fels (filed as Exhibit 10.3 to Form 8-K dated December 28, 2006
(File No. 0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(bt)
|
|
|
*1 |
|
|
Second Amended and Restated Earnings Participation Award Agreement, dated
as of December 26, 2006, between Avatar Holdings Inc. and Jonathan Fels
(filed as Exhibit 10.4 to Form 8-K dated December 28, 2006 (File No.
0-7616), and incorporated by reference).
|
|
|
|
|
|
|
|
10(bu)
|
|
|
*1 |
|
|
Second Amendment to the 2005 Amended and Restated Employment Agreement,
dated as of December 26, 2006, between Avatar Properties Inc. and Michael
F. Levy (filed as Exhibit 10.5 to Form 8-K dated
December 28, 2006 (File No. 0-7616), and incorporated by reference).
|
|
|
|
|
|
|
|
10(bv)
|
|
|
*1 |
|
|
Second Amended and Restated Earnings Participation Award Agreement, dated
as of December 26, 2006, between Avatar Holdings Inc. and Michael F. Levy
(filed as Exhibit 10.6 to Form 8-K dated December 28,
2006 (File No. 0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(bw)
|
|
|
*1 |
|
|
Letter Agreement dated December 21, 2006, amending Employment Agreement
dated as of September 11, 2003, as amended August 11, 2004, between
Avatar Holdings Inc. and Dennis J. Getman (filed as Exhibit 10.7 to Form
8-K dated December 28, 2006 (File No. 0-7616), and incorporated by
reference). |
|
|
|
|
|
|
|
10(bx)
|
|
|
1 |
|
|
Employment Agreement, dated as of November 8, 2006, between Avatar
Holdings Inc. and Patricia Kimball Fletcher (filed herewith). |
|
|
|
|
|
|
|
10(by)
|
|
|
1 |
|
|
Restricted Stock Unit Agreement, dated as of November 8, 2006, between
Avatar Holdings Inc. and Patricia Kimball Fletcher (filed herewith). |
|
|
|
|
|
|
|
10(bz)
|
|
|
1 |
|
|
Letter Agreement, dated as of November 8, 2006, among Avatar Holdings
Inc. and Patricia Kimball Fletcher (filed herewith). |
|
|
|
|
|
|
|
10(ca)
|
|
|
|
|
|
Poinciana Parkway Regulatory Agreement dated as of December 15, 2006 by
and between Osceola County, Florida and Avatar Properties Inc. (filed
herewith). |
|
|
|
|
|
|
|
10(cb)
|
|
|
|
|
|
Poinciana Parkway Regulatory Agreement dated as of December 15, 2006 by
and between Polk County, Florida and Avatar Properties Inc. (filed
herewith). |
|
|
|
|
|
|
|
10(cc)
|
|
|
1 |
|
|
Amended and Restated Employment Agreement, dated as of December 28, 2006,
between Avatar Holdings Inc. and Dennis J. Getman (filed herewith).
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. |
|
|
|
|
|
|
|
10(cd)
|
|
|
1 |
|
|
Stock Award Agreement, dated as of December 28, 2006, between Avatar
Holdings Inc. and Dennis J. Getman (filed herewith). Portions of this
exhibit have been omitted pursuant to a request for confidential
treatment. |
|
|
|
|
|
|
|
11
|
|
|
|
|
|
Computations of earnings per share (filed herewith). |
87
Item 15.
Exhibits and Financial Statements Schedules — continued
| |
|
|
Exhibits: |
|
|
12
|
|
Computations of ratio of earnings to fixed charges (filed herewith). |
|
|
|
21
|
|
Subsidiaries of Registrant (filed herewith). |
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm (filed herewith). |
|
|
|
23.2
|
|
Consent of Independent Certified Public Accountants (filed herewith). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
32.1
|
|
Certification of Chief Executive Officer required by 18 U.S.C. Section
1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
(furnished herewith). |
|
|
|
32.2
|
|
Certification of Chief Financial Officer required by 18 U.S.C. Section
1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
(furnished herewith). |
|
|
|
| * |
|
These exhibits are incorporated by reference and are on file with the Securities and Exchange
Commission. |
| |
| 1 |
|
Management contract or compensatory plan or arrangement. |
88
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
AVATAR HOLDINGS INC. AND SUBSIDIARIES
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at |
|
|
Charged to |
|
|
|
|
|
Balance at |
|
| |
|
Beginning |
|
|
Costs and |
|
|
Deduction/ |
|
|
End of |
|
| |
|
of Period |
|
|
Expenses |
|
|
(Addition) |
|
|
Period |
|
Year ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gross profit on
homesite sales |
|
$ |
125 |
|
|
($ |
96 |
)(1) |
|
($ |
40 |
)(2) |
|
$ |
69 |
|
Allowance for doubtful accounts |
|
|
343 |
|
|
|
— |
|
|
|
56 |
(3) |
|
|
287 |
|
Valuation allowance for deferred
tax assets |
|
|
14,053 |
|
|
|
— |
|
|
|
14,053 |
(4) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,521 |
|
|
($ |
96 |
) |
|
$ |
14,069 |
|
|
$ |
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gross profit on
homesite sales |
|
$ |
379 |
|
|
($ |
298 |
)(1) |
|
($ |
44 |
)(2) |
|
$ |
125 |
|
Allowance for doubtful accounts |
|
|
697 |
|
|
|
— |
|
|
|
354 |
(3) |
|
|
343 |
|
Valuation allowance for deferred
tax assets |
|
|
17,000 |
|
|
|
— |
|
|
|
2,947 |
|
|
|
14,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,076 |
|
|
($ |
298 |
) |
|
$ |
3,257 |
|
|
$ |
14,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gross profit on
homesite sales |
|
$ |
890 |
|
|
($ |
586 |
)(1) |
|
($ |
75 |
) (2) |
|
$ |
379 |
|
Allowance for doubtful accounts |
|
|
504 |
|
|
|
— |
|
|
|
(193 |
) |
|
|
697 |
|
Valuation allowance for deferred
tax assets |
|
|
18,000 |
|
|
|
— |
|
|
|
1,000 |
|
|
|
17,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19,394 |
|
|
($ |
586 |
) |
|
$ |
732 |
|
|
$ |
18,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
(Credit) charge to operations as an (increase) decrease to revenues. |
| |
| (2) |
|
Charge to operations as an increase to real estate expenses. |
| |
| (3) |
|
Uncollectible accounts written off.
|
| |
| (4) |
|
As of December 31, 2006, based on our tax planning strategy with
respect to the deferred income tax liabilities of $23,798 from the sale
of the Ocala Property, we determined that certain of our gross deferred
tax assets, which had an associated valuation allowance of $14,053,
were more-likely-than-not realizable resulting in the elimination of
such valuation allowance. We believe the tax planning strategy is
prudent and feasible and we have the ability and intent to purchase and
sell, if necessary, replacement property to realize these deferred tax
assets. |
89
Audited Consolidated Financial Statements of Ocean Palms, LLC for the Years Ended December
31, 2006, 2005 and 2004.
Report of Independent Certified Public Accountants
The Members
Ocean Palms, LLC
We have audited the accompanying consolidated balance sheets of Ocean Palms, LLC and subsidiary
(the LLC) as of December 31, 2006 and 2005, and the related consolidated statements of income,
changes in members’ (deficit) capital, and cash flows for each of the three years in the period
ended December 31, 2006. These financial statements are the responsibility of the LLC’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the LLC’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the LLC’s internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and 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 the Ocean Palms, LLC at December 31, 2006
and 2005, and the consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2006 in conformity with accounting principles
generally accepted in the United States.
West Palm Beach, Florida
February 16, 2007
90
Ocean Palms, LLC
Consolidated Balance Sheets
| |
|
|
|
|
|
|
|
|
| |
|
December 31 |
| |
|
2006 |
|
2005 |
| |
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
227,245 |
|
|
$ |
1,072,513 |
|
Restricted cash |
|
|
— |
|
|
|
28,885,165 |
|
Customer receivables |
|
|
— |
|
|
|
146,114,255 |
|
Sales center |
|
|
168,307 |
|
|
|
168,307 |
|
Due from related party |
|
|
— |
|
|
|
455,000 |
|
Other assets |
|
|
13,883 |
|
|
|
460,179 |
|
| |
|
|
Total assets |
|
$ |
409,435 |
|
|
$ |
177,155,419 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and members’ (deficit) capital |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
87,964 |
|
|
$ |
4,050,443 |
|
Estimated condominium development
expenditures to be incurred |
|
|
526,827 |
|
|
|
7,585,779 |
|
Construction retainage payable |
|
|
— |
|
|
|
3,792,825 |
|
Construction loan payable |
|
|
— |
|
|
|
73,745,314 |
|
Notes payable |
|
|
— |
|
|
|
2,950,000 |
|
Other liabilities |
|
|
— |
|
|
|
750,000 |
|
| |
|
|
Total liabilities |
|
|
614,791 |
|
|
|
92,874,361 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members’ (deficit) capital |
|
|
(205,356 |
) |
|
|
84,281,058 |
|
| |
|
|
Total liabilities and members’ (deficit) capital |
|
$ |
409,435 |
|
|
$ |
177,155,419 |
|
| |
|
|
See accompanying notes.
91
Ocean Palms, LLC
Consolidated Statements of Income
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31 |
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales of condominiums |
|
$ |
6,255,456 |
|
|
$ |
106,275,933 |
|
|
$ |
98,013,961 |
|
Resale commission revenues, net |
|
|
563,297 |
|
|
|
2,457,493 |
|
|
|
— |
|
Interest and other income |
|
|
431,850 |
|
|
|
631,401 |
|
|
|
284,152 |
|
| |
|
|
Total revenues |
|
|
7,250,603 |
|
|
|
109,364,827 |
|
|
|
98,298,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of condominium sales |
|
|
4,538,741 |
|
|
|
70,431,071 |
|
|
|
66,312,994 |
|
Advertising and promotion |
|
|
42,073 |
|
|
|
162,515 |
|
|
|
1,131,210 |
|
General and administrative |
|
|
69,613 |
|
|
|
136,723 |
|
|
|
38,465 |
|
| |
|
|
Total operating expenses |
|
|
4,650,427 |
|
|
|
70,730,309 |
|
|
|
67,482,669 |
|
| |
|
|
Net income |
|
$ |
2,600,176 |
|
|
$ |
38,634,518 |
|
|
$ |
30,815,444 |
|
| |
|
|
See accompanying notes.
92
Ocean Palms, LLC
Consolidated Statements of Changes in Members’ (Deficit) Capital
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Avatar Ocean |
|
Plaza Luxury |
|
|
| |
|
Palms, Inc. |
|
Group, Inc. |
|
Total |
| |
|
|
Members’ capital at December 31, 2003 |
|
$ |
19,018,267 |
|
|
$ |
696,303 |
|
|
$ |
19,714,570 |
|
Net income |
|
|
14,918,173 |
|
|
|
15,897,271 |
|
|
|
30,815,444 |
|
| |
|
|
Members’ capital at December 31, 2004 |
|
|
33,936,440 |
|
|
|
16,593,574 |
|
|
|
50,530,014 |
|
Net income |
|
|
17,954,783 |
|
|
|
20,679,735 |
|
|
|
38,634,518 |
|
Distributions |
|
|
(4,528,561 |
) |
|
|
(354,913 |
) |
|
|
(4,883,474 |
) |
| |
|
|
Members’ capital at December 31, 2005 |
|
|
47,362,662 |
|
|
|
36,918,396 |
|
|
|
84,281,058 |
|
Net income |
|
|
1,573,052 |
|
|
|
1,027,124 |
|
|
|
2,600,176 |
|
Distributions |
|
|
(49,038,392 |
) |
|
|
(38,048,198 |
) |
|
|
(87,086,590 |
) |
| |
|
|
Members’ deficit at December 31, 2006 |
|
$ |
(102,678 |
) |
|
$ |
(102,678 |
) |
|
$ |
(205,356 |
) |
| |
|
|
See accompanying notes.
93
Ocean Palms, LLC
Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31 |
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,600,176 |
|
|
$ |
38,634,518 |
|
|
$ |
30,815,444 |
|
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
28,885,165 |
|
|
|
(9,408,543 |
) |
|
|
1,113,883 |
|
Condominium development in process |
|
|
(7,308,953 |
) |
|
|
23,331,580 |
|
|
|
23,402,214 |
|
Customer receivables |
|
|
146,114,255 |
|
|
|
(85,278,140 |
) |
|
|
(60,836,115 |
) |
Due from related party |
|
|
455,000 |
|
|
|
(455,000 |
) |
|
|
— |
|
Other assets |
|
|
446,297 |
|
|
|
776,622 |
|
|
|
854,203 |
|
Accounts payable |
|
|
(3,962,479 |
) |
|
|
(1,841,654 |
) |
|
|
5,491,523 |
|
Construction retainage payable |
|
|
(3,792,825 |
) |
|
|
1,324,492 |
|
|
|
2,274,555 |
|
Other liabilities |
|
|
(750,000 |
) |
|
|
— |
|
|
|
— |
|
Customer deposits |
|
|
– |
|
|
|
— |
|
|
|
(24,971,102 |
) |
| |
|
|
Net cash provided by (used in) operating activities |
|
|
162,686,636 |
|
|
|
(32,916,125 |
) |
|
|
(21,855,395 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from construction loan |
|
|
5,115,357 |
|
|
|
38,664,377 |
|
|
|
21,554,280 |
|
Payments of construction loan |
|
|
(78,860,671 |
) |
|
|
— |
|
|
|
— |
|
Payments of notes payable |
|
|
(2,700,000 |
) |
|
|
— |
|
|
|
— |
|
Distributions to members |
|
|
(87,086,590 |
) |
|
|
(4,883,474 |
) |
|
|
— |
|
| |
|
|
Net cash (used in) provided by financing activities |
|
|
(163,531,904 |
) |
|
|
33,780,903 |
|
|
|
21,554,280 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and
cash equivalents |
|
|
(845,268 |
) |
|
|
864,778 |
|
|
|
(301,115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
1,072,513 |
|
|
|
207,735 |
|
|
|
508,850 |
|
| |
|
|
Cash and cash equivalents at end of year |
|
$ |
227,245 |
|
|
$ |
1,072,513 |
|
|
$ |
207,735 |
|
| |
|
|
See accompanying notes.
94
Ocean Palms, LLC
Notes to Consolidated Financial Statements
December 31, 2006
1. Organization and Summary of Significant Accounting Policies
Organization and Operations
On December 23, 2002, the Ocean Palms, LLC and subsidiary (the LLC) was formed by and between
Avatar Ocean Palms, Inc. (Avatar), a wholly-owned subsidiary of Avatar Properties Inc., which is a
wholly-owned subsidiary of Avatar Holdings Inc., and Plaza Luxury Group, Inc (PLG). The purpose of
the LLC is for the development, construction and sale of units within Ocean Palms, a 38-story,
240-unit high-rise condominium on a 3.5-acre oceanfront site in Hollywood, Florida. Development and
construction of Ocean Palms was completed during 2006. Closings of units commenced during February
2006 and were completed during the second quarter of 2006. During 2007, the LLC operations will
primarily consist of the sale of the remaining parking spaces, sale of the realty operations and
activities related to winding down the LLC, which are anticipated to fund the deficit in members’
capital and pay the liabilities of the LLC.
Avatar and PLG each have a voting interest of 50% and hold a 50% equity interest in the LLC. PLG is
the Administrative member responsible for the construction and development of Ocean Palms in
conformity with the LLC’s business plan. The LLC is managed by an executive committee comprised of
three members from each of Avatar and PLG.
The initial contributions consisted of cash and certain development expenditures incurred prior to
the formation of the LLC. Avatar agreed to contribute up to $20,000,000 for pre-construction
expenses related to the acquisition of the property and marketing expenditures associated with the
project. Under certain circumstances Avatar may be required to contribute an additional $5,000,000.
Profits and losses of the LLC are allocated to the members’ capital accounts in accordance with the
operating agreement of the LLC, as amended. Cash distributions to members are distributed in
accordance with the operating agreement of the LLC, as amended.
The duration of the LLC commenced as of the date of filing of the Articles of Incorporation and,
unless sooner terminated as provided in the operating agreement of the LLC or under the Florida
Limited Liability Company Act, shall be perpetual.
95
Ocean Palms, LLC
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Method of Accounting and Basis of Presentation
The consolidated balance sheets as of December 31, 2006 and 2005, and the related consolidated
statements of income, changes in members’ (deficit) capital and cash flows for the years ended
December 31, 2006, 2005 and 2004 include the accounts of the LLC and its subsidiary and have been
prepared in accordance with accounting principles generally accepted in the United States. All
significant intercompany accounts and transactions have been eliminated in consolidation.
Due to the LLC’s normal operating cycle being in excess of one year, the LLC presents unclassified
balance sheets.
Revenue Recognition
Revenues and profits from sales of condominium units and related activities are recognized on the
percentage of completion method in accordance with accounting principles generally accepted in the
United States governing profit recognition for condominium sales. During the first quarter of 2004,
construction of the condominium building surpassed the preliminary stage of construction whereby
recognition of profits under the percentage of completion method commenced. Revenue recognized is
calculated based upon the percentage of total costs incurred in relation to estimated total costs.
As of December 31, 2006, the LLC has recognized all revenues and profits on condominium sales.
Revenues and profits from commissions earned from the resale of condominium units in the LLC’s
realty operations is recognized in full when the commission on the resale is earned and collected
in accordance with accounting principles generally accepted in the United States. Revenues and
profits from the sale of parking spaces is recognized in full when the sale of parking spaces is
earned and collected in accordance with accounting principles generally accepted in the United
States.
Cash and Cash Equivalents and Restricted Cash
The LLC considers all highly liquid investments with an initial maturity of three months or less to
be cash equivalents. Restricted cash as of December 31, 2005 consisted of deposits received from
buyers of condominium units, which were held in escrow as required by purchase contracts or law.
All restricted cash held in escrow was released upon the closing of the condominium units during
2006.
96
Ocean Palms, LLC
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Customer Receivables
Customer receivables represented amounts due from purchasers of condominium units under
non-cancelable condominium contracts accounted for using the percentage of completion method less
customer escrow deposits received totaling $0 and $58,175,639 as of December 31, 2006 and 2005,
respectively.
Condominium Development in Process and Sales Center
Condominium development in process is stated at cost. Cost includes expenditures for land,
construction, development, certain administrative direct and indirect costs, and capitalized
interest related to debt used to finance development and construction during the project
development period. Under the percentage of completion method of recognizing revenues and profits,
condominium development in process is expensed based on relative sales value of units sold and the
percentage of the condominium building completed based upon the percentage of total costs incurred
in relation to estimated total costs. Condominium development in process was $0 as of December 31,
2006 and 2005. The Sales Center cost represents the allocable cost of the condominium development
related to the sales center operations.
Impairment of Long-Lived Assets
Based on Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, the LLC is required to review the carrying value of each of its
long-lived assets and write down the value of those long-lived assets for which it believes the
values are not recoverable. SFAS No. 144 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets’ carrying amounts. The LLC
periodically reviews the carrying value of its long-lived assets and, if such reviews indicate an
inability to recover the net book value, adjusts the assets accordingly. No indicators of
impairment existed at December 31, 2006 and 2005.
Customer Escrow Deposits
Deposits from purchasers of condominium units are deposited in an escrow account through an
independent escrow agent. Deposits received from customers as of December 31, 2005 totaled
$58,175,639. All customer deposits held in escrow was released upon the closing of the condominium
units during 2006. As of December 31, 2005, customer deposits were classified as a reduction of
Customer Receivables on the accompanying consolidated balance sheet.
97
Ocean Palms, LLC
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Florida condominium law allows condominium developers to utilize customer deposits received in
excess of 10% of the sales price of each unit for construction costs. As of December 31, 2005,
customer deposits of $30,161,746 were used to fund construction costs.
Advertising Costs
The LLC expenses advertising costs as incurred. Advertising costs consist primarily of newspaper,
magazine, television, radio, direct mail, billboard, brochures and other media advertising
programs. Advertising expense was $42,073, $162,515 and $1,131,210 for the years ended December 31,
2006, 2005 and 2004, respectively.
Income Taxes
No provision has been made for federal and state income taxes in the accompanying consolidated
financial statements since each member includes its proportionate share of income or loss on its
respective income tax returns.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires companies to disclose
the estimated fair value of their financial instrument assets and liabilities. Fair value estimates
are made at a specific point in time, based upon relevant market information about the financial
instrument. These estimates do not reflect any premium or discount that could result from offering
for sale at one time our entire holdings of a particular instrument. The carrying values of cash
and cash equivalents and restricted cash approximate their fair values due to their short-term
nature. The carrying value of the construction loan payable and notes payable approximates their
fair values as substantially all of these instruments have debt has a fluctuating interest rate
based upon a current market index. The interest rate swap and interest rate cap are recorded at
fair value.
Derivative Instruments
The LLC applies the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for hedging activities.
All derivatives, whether designated in hedging relationships or not, are required to be recorded on
the balance sheet at fair value. If the derivative is designated as a fair
98
Ocean Palms, LLC
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
value hedge, the changes in the fair value of the derivative and of the hedged item attributable to
the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of changes in the fair value of the derivative are recorded in other
comprehensive income (loss) and are recognized in the statement of income when the hedged items
affect earnings. Ineffective portions of changes in the fair value of cash flow hedges are
recognized in earnings.
On December 23, 2003, the LLC entered into an interest rate swap agreement and an interest rate cap
agreement to reduce the exposure to market risks from changing interest rates under its variable
rate construction loan. The LLC’s strategy is to hedge the construction loan’s float at one-month
LIBOR plus a credit spread. This is to be accomplished under the interest rate swap, which locks in
a known fixed rate on a known principal balance, and interest rate cap, which establishes a known
maximum rate of interest on a known principal balance. Under the interest rate swap, the LLC agreed
to exchange, at specified intervals, the difference between fixed and variable interest amounts
calculated by reference to a notional principal amount. Any differences paid or received on
interest rate swap are recognized as adjustments to interest cost over the life of the swap,
thereby adjusting the effective interest rate on the underlying obligation. The interest rate swap
and interest rate cap have varying notional amounts ranging from approximately $9,900,000 to
$48,500,000 and approximately $4,200,000 to $20,800,000, respectively, which matured in January
2006.
The interest rate swap and interest rate cap were designated as cash flow hedges at inception,
which were 100% ineffective. Accordingly, changes in their fair values are recognized in earnings
each period. The fair value of the interest rate swap and the interest rate cap was approximately
$45,000 at December 31, 2005. The net gain (loss) recognized in earnings was approximately
($109,000) and $100,000 for the years ended December 31, 2005 and 2004, respectively, and is
included in Cost of Condominium Sales in the accompanying consolidated statements of income.
Comprehensive Income
For the periods presented, net income and comprehensive income are the same.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual results could differ from
those estimates.
99
Ocean Palms, LLC
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Reclassifications
Certain prior years financial statement items have been reclassified to conform to the 2006
presentation.
Recently Issued Accounting Pronouncements
On November 29, 2006, the Financial Accounting Standards Board (FASB) ratified EITF Issue No. 06-8,
Applicability of the Assessment of a Buyer’s Continuing Investment Under FASB Statement No. 66,
Accounting for Sales of Real Estate, for Sales of Condominiums . The EITF states that the adequacy
of the buyer’s continuing investment under SFAS 66 should be assessed in determining whether to
recognize profit under the percentage-of-completion method on the sale of individual units in a
condominium project. This consensus could require that additional deposits be collected by
developers of condominium projects that wish to recognize profit during the construction period
under the percentage-of-completion method. EITF 06-8 is effective for fiscal years beginning after
March 15, 2007. The adoption of EITF 06-8 will not impact the financial position or results of
operations of the LLC.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, which
replaces APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim
Financial Statements”. SFAS No. 154 retained accounting guidance related to changes in estimates,
changes in a reporting entity and error corrections. The statement requires retrospective
application of changes in an accounting principle to prior periods’ financial statements unless it
is impracticable to determine the period-specific effects or the cumulative effect of the change.
SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005, which was January 1, 2006 for the LLC. The adoption of SFAS No.
154 did not have an impact on the financial position or results of operations of the LLC.
2. Condominium Development in Process
Total costs incurred through December 31, 2006 for the Ocean Palms condominium project was
$140,924,286 (representing approximately 99.7% of the total estimated costs) in which $141,282,806
was expensed through cost of sales inception through 2006. The amount expensed through cost of
sales includes $526,827 of estimated condominium development expenditures to be incurred. Total
costs incurred through December 31, 2005 for the Ocean Palms condominium project was $129,326,593
(representing approximately 94.6% of the total estimated costs) in which $136,744,065 was expensed
through cost of sales inception through 2005. The amount expensed through cost of sales includes
$7,585,779 of estimated condominium development expenditures to be incurred.
100
Ocean Palms, LLC
Notes to Consolidated Financial Statements (continued)
3. Construction Loan Payable and Notes Payable
On December 23, 2003, the LLC entered into a $115,000,000 construction loan (the Loan) which
matured on June 20, 2006 for the construction of the residential condominium project with parking,
cabanas and related amenities and all required on and off-site improvements. The Loan was secured
by the property and all improvements thereon. The interest rate for the Loan was equal to LIBOR
plus 2.75% per annum. During March 2006, all borrowings under the Loan were repaid from proceeds
generated from the closings of the condominium units.
Included in notes payable was a purchase money mortgage pursuant to which the LLC was required to
pay $2,700,000 representing additional purchase price associated with the acquisition of the land.
The property on which the Ocean Palms building is situated was purchased for $21,500,000, of which
$3,500,000 was determined by a $50,000 per unit override to the seller of the property for any
additional zoning units added beyond 180 units. The property was approved for 250 units by the
various governmental entities. The developer agreed to build 240 units to settle a legal dispute.
During 2006, $2,450,000 of the purchase money mortgage was paid from proceeds generated from the
closings of the condominium units. The remaining $250,000 was treated as a reduction in the
purchase price of the land.
Also included in notes payable was a purchase money mortgage of $250,000 for payment associated
with the property west of the Ocean Palms building which currently is used for the sales center
operations for Ocean Palms. The purchase price of this property was $550,000 of which $300,000 was
paid in cash on March 18, 2003 with the balance of $250,000 was financed by a three-year purchase
money mortgage. During 2006, the LLC sold this property back to the original land seller for
$250,000 and settlement of this obligation. This transaction was treated as a reduction of the cost
of the condominium project.
Interest of $1,517,717, $4,197,729 and $1,915,961 was incurred and capitalized for the years ended
December 31, 2006, 2005 and 2004, respectively. Capitalized interest of $1,625,025, $4,237,721 and
$2,320,032 was expensed through Cost of Condominium Sales in the accompanying consolidated
statements of income for the years ended December 31, 2006, 2005 and 2004, respectively.
101
Ocean Palms, LLC
Notes to Consolidated Financial Statements (continued)
4. Cash Distributions to Members
During 2006, cash distributions of $49,038,392 and $38,048,198 were made to Avatar and PLG,
respectively, from proceeds generated primarily from the closing of the condominium units. During
2005, cash distributions of $4,528,561 and $354,913 were made to Avatar and PLG, respectively, from
proceeds generated primarily from earnings from the realty operations of the LLC.
5. Related Party Transactions
On March 9, 2004, Avatar Holdings Inc. agreed to lend to the sole stockholder of PLG up to
$5,000,000, represented by a two-year interest-bearing promissory note. Advances under the
promissory note are subject to certain requirements and conditions related to sales at Ocean Palms,
which conditions and requirements were satisfied during July 2004. As of December 31, 2005, the
sole stockholder of PLG owed $4,910,286 under the promissory note to Avatar Holdings Inc. During
April 2006, all advances and accrued interest thereon totaling $5,454,895 were paid to Avatar
Holdings Inc. from cash distributions payable to PLG from the LLC.
During 2005, the LLC made two interest free loans to an employee of PLG totaling $455,000. The
loans are advances on the gross profit from the sale of two Ocean Palms condominium units and were
secured by assignments of the contracts. These loans were repaid from the net proceeds generated
from the closing of these units during 2006.
6. Commitments and Contingencies
The LLC leased trailers for its sales operations under operating leases that expired on December
30, 2005; the LLC exercised the purchase option for these trailers on January 5, 2006 for $16,960.
Rent expense for these leases for the years ended December 31, 2006, 2005 and 2004 was $0, $28,303
and $21,916, respectively. There is no minimum rental commitment under these operating leases as of
December 31, 2006 and 2005. The rent expense associated with these leases was capitalized into
condominium development in process.
From time to time legal matters may arise out of the ordinary course of the LLC business
operations. The LLC does not believe that any other matters or proceedings will have a material
adverse effect on its consolidated financial position.
102
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.
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AVATAR HOLDINGS INC.
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| Dated: March 16, 2007 |
By: |
/s/ Charles L. McNairy
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Charles L. McNairy, Executive |
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Vice President, Treasurer and Chief Financial Officer |
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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.
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| Dated: March 16, 2007 |
By: |
/s/ Gerald D. Kelfer
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Gerald D. Kelfer, Director, President, |
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Vice Chairman of the Board of
Directors, Chief Executive Officer
(Principal Executive Officer) |
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| Dated: March 16, 2007 |
By: |
/s/ Charles L. McNairy
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Charles L. McNairy, Executive |
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Vice President, Treasurer and Chief
Financial Officer
(Principal Financial Officer) |
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| Dated: March 16, 2007 |
By: |
/s/ Michael P. Rama
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Michael P. Rama, Controller and
Chief Accounting Officer |
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(Principal Accounting Officer) |
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| Dated: March 16, 2007 |
By: |
/s/ Joshua Nash
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Joshua Nash, Chairman of the Board
of Directors |
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| Dated: March 16, 2007 |
By: |
/s/ Eduardo A. Brea
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Eduardo A. Brea, Director |
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| Dated: March 16, 2007 |
By: |
/s/ Milton Dresner
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Milton Dresner, Director |
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103
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| Dated: March 16, 2007 |
By: |
/s/ Roger W. Einiger
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Roger W. Einiger, Director |
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| Dated: March 16, 2007 |
By: |
/s/ Martin Meyerson
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Martin Meyerson, Director |
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| Dated: March 16, 2007 |
By: |
/s/ Kenneth T. Rosen
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Kenneth T. Rosen, Director |
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| Dated: March 16, 2007 |
By: |
/s/ Joel M. Simon
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Joel M. Simon, Director |
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| Dated: March 16, 2007 |
By: |
/s/ Fred Stanton Smith
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Fred Stanton Smith, Director |
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| Dated: March 16, 2007 |
By: |
/s/ William G. Spears
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William G. Spears, Director |
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| Dated: March 16, 2007 |
By: |
/s/ Beth A. Stewart
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Beth A. Stewart, Director |
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104
Exhibit Index
* These exhibits are incorporated by reference and are on file with the Securities and Exchange
Commission.
1 Management contract or compensatory plan or arrangement.
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3(a)
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* |
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Certificate of Incorporation, as amended and
restated May 28, 1998 (filed as Exhibit 3(a) to
Form 10-Q for the quarter ended June 30, 1998
(File No. 0-7616), and incorporated herein by
reference). |
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3(b)
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* |
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Certificate of Amendment of Restated Certificate
of Incorporation, dated May 26, 2000 (filed as
Exhibit 3(a) to Form 10-Q for the quarter ended
June 30, 2000 (File No. 0-7616), and incorporated
herein by reference). |
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3(c)
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* |
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Amended and Restated By-laws as of March 5, 2004
(filed as Exhibit 3(d) to Form 10-K for the year
ended December 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
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4(a)
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* |
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Indenture, dated March 30, 2004, between Avatar
Holdings Inc. and JPMorgan Chase Bank, in respect
of 4.50% Convertible Senior Notes due 2024 (filed
as Exhibit 4.1 to Form 10-Q for the quarter ended
March 31, 2004 (File No. 0-7616), and
incorporated herein by reference). |
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4(b)
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* |
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Credit Agreement dated as of September 20, 2005
by and among Avatar Properties Inc. (as
Borrower), joined by Avatar Holdings Inc. (as
Guarantor) and Wachovia Bank, National
Association (as Administrative Agent and Lender),
Guaranty Bank (as Syndication Agent and Lender),
Franklin Bank (as Lender) and Wachovia Capital
Markets, LLC (as Lead Arranger) (filed as Exhibit
10.1 to Form 8-K dated September 23, 2005 (File
No. 0-7616), and incorporated herein by
reference). |
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4(c)
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* |
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Guaranty Agreement dated as of September 20, 2005
made by Avatar Holdings Inc. in favor of the
lending institutions identified therein (the
Lenders) and Wachovia Bank, National Association
(the Agent) (filed as Exhibit 10.2 to Form 8-K
dated September 23, 2005 (File No. 0-7616), and
incorporated herein by reference). |
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4(d)
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* |
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Commitment and Acceptance dated as of October 21,
2005 by and among Avatar Holdings Inc., its
wholly-owned subsidiary, Avatar Properties Inc.
(as Borrower),Wachovia Bank, National Association
(as Administrative Agent and Lender), and certain
financial institutions (filed as Exhibit 10.3 to
Form 10-Q for the quarter ended September 30,
2005 (File No. 0-7616), and incorporated herein
by reference). |
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4(e)
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* |
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Restated Guaranty Agreement dated as of October
21, 2005 made by Avatar Holdings Inc. in favor of
the lending institutions identified therein (the
Lenders) and Wachovia Bank, National Association
(the Agent) (filed as Exhibit 10.4 to Form 10-Q
for the quarter ended September 30, 2005 (File
No. 0-7616), and incorporated herein by
reference). |
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4(f)
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First Amendment to Credit Agreement dated as of
May 25, 2006 by and among Avatar Properties Inc.
(as Borrower), joined by Avatar Holdings Inc. (as
Guarantor), Wachovia Capital Markets, LLC (as
Lead Arranger), Wachovia Bank, National
Association (as Administrative Agent and Lender),
Guaranty Bank (as Syndication Agent and Lender),
Franklin Bank (as Lender) (filed herewith). |
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4(g)
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Second Amendment to Credit Agreement and Consent
to Extension dated as of August 28, 2006 by and
among Avatar Properties Inc. (as Borrower),
joined by Avatar Holdings Inc. (as Guarantor) and
Wachovia Bank, National Association (as
Administrative Agent acting on behalf of the
Lenders) (filed herewith). |
105
Exhibit Index — continued
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4(h)
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Consent and Waiver dated as of December 4, 2006
by and among Avatar Properties Inc. (as
Borrower), joined by Avatar Holdings Inc. (as
Guarantor) and Wachovia Bank, National
Association (as Administrative Agent and Lender),
Guaranty Bank (as Lender) and Franklin Bank (as
Lender) (filed herewith). |
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10(a)
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* |
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Registration Rights Agreement dated as of
February 2, 1998, between Avatar Holdings Inc.
and Leon Levy (filed as Exhibit 10(l) to Form
10-K for the year ended December 31, 1997 (File
No. 0-7616), and incorporated herein by
reference). |
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10(b)
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*1 |
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Nonqualified Stock Option Agreement, dated as of
February 19, 1999, by and between Avatar Holdings
Inc. and Jonathan Fels (filed as Exhibit 10(p) to
Form 10-K for the year ended December 31, 1998
(File No. 0-7616), and incorporated herein by
reference). |
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10(c)
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*1 |
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Nonqualified Stock Option Agreement, dated as of
February 19, 1999, by and between Avatar Holdings
Inc. and Michael Levy (filed as Exhibit 10(s) to
Form 10-K for the year ended December 31, 1998
(File No. 0-7616), and incorporated herein by
reference). |
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10(d)
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*1 |
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Nonqualified Stock Option Agreement, dated as of
February 19, 1999, by and between Avatar Holdings
Inc. and Dennis J. Getman (filed as Exhibit 10(w)
to Form 10-K for the year ended December 31, 1998
(File No. 0-7616), and incorporated herein by
reference). |
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10(e)
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*1 |
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Amended and Restated 1997 Incentive and Capital
Accumulation Plan (filed as Exhibit 10(a) to Form
10-Q for the quarter ended June 30, 1999 (File
No. 0-7616), and incorporated herein by
reference). |
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10(f)
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*1 |
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Amendment to Amended and Restated 1997 Incentive
and Capital Accumulation Plan (filed as Exhibit
10(a) to Form 10-Q for the quarter ended June 30,
1999 (filed as Exhibit 99.3 to Registration
Statement on Form S-8 (File No. 333-63278), filed
on June 19, 2001, and incorporated herein by
reference). |
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10(g)
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*1 |
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Restricted Stock Unit Agreement, dated as of
December 7, 1998, between Avatar Holdings Inc.
and Gerald D. Kelfer (filed as Exhibit 10(b) to
Form 10-Q for the quarter ended June 30, 1999
(File No. 0-7616), and incorporated herein by
reference). |
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10(h)
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*1 |
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Nonqualified Stock Option Agreement, dated as of
April 1, 1999, by and between Avatar Holdings
Inc. and Deborah G. Tomusko (filed as Exhibit
10(d) to Form 10-Q for the quarter ended June 30,
1999 (File No. 0-7616), and incorporated herein
by reference). |
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10(i)
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*1 |
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Cash Bonus Award Agreement, dated October 20,
2000, between Avatar Holdings Inc. and Gerald D.
Kelfer (filed as Exhibit 10(aa) to Form 10-K for
the year ended December 31, 2000 (File No.
0-7616), and incorporated herein by reference). |
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10(j)
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*1 |
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Amended and Restated Restricted Stock Unit
Agreement, dated as of October 20, 2000, between
Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10(ab) to Form 10-K for the year ended
December 31, 2000 (File No. 0-7616), and
incorporated herein by reference). |
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10(k)
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*1 |
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Restricted Stock Unit Agreement, dated October
20, 2000, between Avatar Holdings Inc. and Gerald
D. Kelfer (filed as Exhibit 10(ac) to Form 10-K
for the year ended December 31, 2000 (File No.
0-7616), and incorporated herein by reference). |
106
Exhibit Index — continued
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10(l)
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*1 |
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Cash Bonus Award Agreement, dated October 20, 2000, between Avatar
Holdings Inc. and Jonathan Fels (filed as Exhibit 10(ae) to Form 10-K for
the year ended December 31, 2000 (File No. 0-7616), and incorporated
herein by reference). |
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10(m)
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*1 |
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Cash Bonus Award Agreement, dated October 20, 2000, between Avatar
Holdings Inc. and Michael Levy (filed as Exhibit 10(ag) to Form 10-K for
the year ended December 31, 2000 (File No. 0-7616), and incorporated
herein by reference). |
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10(n)
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*1 |
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Executive Incentive Compensation Plan (filed as Exhibit 10(a) to Form
10-Q for the quarter ended June 30, 2001 (File No. 0-7616), and
incorporated herein by reference). |
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10(o)
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*1 |
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Amendment to Amended and Restated Restricted Stock Unit Agreement, dated
as of March 27, 2003, between Avatar Holdings Inc. and Gerald D. Kelfer
(filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2003
(File No. 0-7616), and incorporated herein by reference). |
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10(p)
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*1 |
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Earnings Participation Award Agreement, dated as of March 27, 2003,
between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10.3
to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
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10(q)
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*1 |
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Restricted Stock Unit Agreement (50,000 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.4 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
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10(r)
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*1 |
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Restricted Stock Unit Agreement (23,700 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.6 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
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10(s)
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*1 |
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Restricted Stock Unit Agreement (20,000 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.7 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
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10(t)
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*1 |
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Restricted Stock Unit Agreement (15,000 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.8 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
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10(u)
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*1 |
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Restricted Stock Unit Agreement (16,300 units), dated as of March 27,
2003, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.9 to Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616),
and incorporated herein by reference). |
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10(v)
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*1 |
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Earnings Participation Award Agreement, dated as of March 6, 2003,
between Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit 10.11 to
Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
107
Exhibit Index — continued
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10(w)
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*1 |
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Nonqualified Stock Option Agreement, dated as of March 13, 2003, between
Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit 10.12 to Form
10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
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10(x)
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*1 |
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Restricted Stock Unit Agreement, dated as of March 27, 2003, between
Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit 10.13 to Form
10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
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10(y)
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*1 |
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Earnings Participation Award Agreement, dated as of March 6, 2003,
between Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10.15 to
Form 10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
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10(z)
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*1 |
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Nonqualified Stock Option Agreement, dated as of March 13, 2003, between
Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10.16 to Form
10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
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10(aa)
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*1 |
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Restricted Stock Unit Agreement, dated as of March 27, 2003, between
Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10.17 to Form
10-Q for the quarter ended March 31, 2003 (File No. 0-7616), and
incorporated herein by reference). |
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10(ab)
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1 |
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Employment Agreement, dated as of September 11, 2003, between Avatar
Holdings Inc. and Dennis J. Getman (filed herewith). Portions of this
exhibit have been omitted pursuant to a request for confidential
treatment. |
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10(ac)
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*1 |
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Restricted Stock Unit Agreement, dated as of September 11, 2003 between
Avatar Holdings Inc. and Dennis J. Getman (filed as Exhibit 10.2 to Form
10-Q for the quarter ended September 30, 2003 (File No. 0-7616), and
incorporated herein by reference). |
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10(ad)
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*1 |
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Restricted Stock Unit Agreement, dated as of July 22, 2004, between
Avatar Holdings Inc. and Charles McNairy (filed as Exhibit 10.1 to Form
10-Q for the quarter ended June 30, 2004 (File No. 0-7616), and
incorporated herein by reference). |
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10(ae)
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*1 |
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Side Letter, dated as of July 22, 2004, between Avatar Holdings Inc. and
Charles McNairy (filed as Exhibit 10.2 to Form 10-Q for the quarter ended
June 30, 2004 (File No. 0-7616), and incorporated herein by reference). |
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10(af)
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*1 |
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Restricted Stock Unit Agreement, dated as of July 22, 2004, between
Avatar Holdings Inc. and Juanita Kerrigan (filed as Exhibit 10.3 to Form
10-Q for the quarter ended June 30, 2004 (File No. 0-7616), and
incorporated herein by reference). |
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10(ag)
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1 |
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First Amendment to Employment Agreement, dated as of August 11, 2004,
between Avatar Holdings Inc. and Dennis J. Getman (filed herewith).
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. |
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10(ah)
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*1 |
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Non-Employee Director Compensation (filed as Exhibit 10(am) to Form 10-K
for the year ended December 31, 2005 (File No. 0-7616), and incorporated
herein by reference). |
108
Exhibit Index — continued
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10(ai)
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*1 |
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Certain Compensation of Certain Executive Officers (filed as Exhibit
10(an) to Form 10-K for the year ended December 31, 2005 (File No.
0-7616), and incorporated herein by reference). |
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10(aj)
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*1 |
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Amended and Restated 1997 Incentive and Capital Accumulation Plan (2005
Restatement) (filed as Exhibit 10.1 to Form 8-K dated May 24, 2005 (File
No. 0-7616), and incorporated herein by reference). |
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10(ak)
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*1 |
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2005 Executive Incentive Compensation Plan (filed as Exhibit 10.2 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
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10(al)
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*1 |
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Letter Agreement, dated as of May 20, 2005, between Avatar Holdings Inc.
and Gerald D. Kelfer (filed as Exhibit 10.3 to Form 8-K dated May 24,
2005 (File No. 0-7616), and incorporated herein by reference). |
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10(am)
|
|
|
*1 |
|
|
Amended and Restated Employment Agreement, dated as of April 15, 2005,
between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10.4
to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein
by reference). |
|
|
|
|
|
|
|
10(an)
|
|
|
*1 |
|
|
Amended and Restated Earnings Participation Award Agreement, dated as of
April 15, 2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10.5 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ao)
|
|
|
*1 |
|
|
Change in Control Award Agreement, dated as of April 15, 2005, between
Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit 10.6 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
|
|
10(ap)
|
|
|
*1 |
|
|
2008-2010 Earnings Participation Award Agreement, dated as of April 15,
2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed as Exhibit
10.7 to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
|
|
10(aq)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (30,000 units @ $65.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10.8 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ar)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (30,000 units @ $72.50), dated as of
April 15, 2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10.9 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(as)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (30,000 units @ $80.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Gerald D. Kelfer (filed
as Exhibit 10.10 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(at)
|
|
|
*1 |
|
|
Letter Agreement, dated as of May 20, 2005, among Avatar Holdings Inc.,
Avatar Properties Inc. and Jonathan Fels (filed as Exhibit 10.11 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
|
|
10(au)
|
|
|
*1 |
|
|
Amended and Restated Employment Agreement, dated as of April 15, 2005,
between Avatar Properties Inc. and Jonathan Fels (filed as Exhibit 10.12
to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein
by reference). |
109
Exhibit Index — continued
| |
|
|
|
|
|
|
10(av)
|
|
|
*1 |
|
|
Amended and Restated Earnings Participation Award Agreement, dated as of
April 15, 2005, between Avatar Holdings Inc. and Jonathan Fels (filed as
Exhibit 10.13 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(aw)
|
|
|
*1 |
|
|
Change in Control Award Agreement, dated as of April 15, 2005, between
Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit 10.14 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
|
|
10(ax)
|
|
|
*1 |
|
|
2008-2010 Earnings Participation Award Agreement, dated as of April 15,
2005, between Avatar Holdings Inc. and Jonathan Fels (filed as Exhibit
10.15 to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
|
|
10(ay)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (25,000 units @ $65.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Jonathan Fels (filed as
Exhibit 10.16 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(az)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (25,000 units @ $72.50), dated as of
April 15, 2005, between Avatar Holdings Inc. and Jonathan Fels (filed as
Exhibit 10.17 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(ba)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (25,000 units @ $80.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Jonathan Fels (filed as
Exhibit 10.18 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(bb)
|
|
|
*1 |
|
|
Letter Agreement, dated as of May 20, 2005, among Avatar Holdings Inc.,
Avatar Properties Inc. and Michael Levy (filed as Exhibit 10.19 to Form
8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
|
|
10(bc)
|
|
|
*1 |
|
|
Amended and Restated Employment Agreement, dated as of April 15, 2005,
between Avatar Properties Inc. and Michael Levy (filed as Exhibit 10.20
to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated herein
by reference). |
|
|
|
|
|
|
|
10(bd)
|
|
|
*1 |
|
|
Amended and Restated Earnings Participation Award Agreement, dated as of
April 15, 2005, between Avatar Holdings Inc. and Michael Levy (filed as
Exhibit 10.21 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(be)
|
|
|
*1 |
|
|
Change in Control Award Agreement, dated as of April 15, 2005, between
Avatar Holdings Inc. and Michael Levy (filed as Exhibit 10.22 to Form 8-K
dated May 24, 2005 (File No. 0-7616), and incorporated herein by
reference). |
|
|
|
|
|
|
|
10(bf)
|
|
|
*1 |
|
|
2008-2010 Earnings Participation Award Agreement, dated as of April 15,
2005, between Avatar Holdings Inc. and Michael Levy (filed as Exhibit
10.23 to Form 8-K dated May 24, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
|
|
10(bg)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (25,000 units @ $65.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Michael Levy (filed as
Exhibit 10.24 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(bh)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (25,000 units @ $72.50), dated as of
April 15, 2005, between Avatar Holdings Inc. and Michael Levy (filed as
Exhibit 10.25 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
110
Exhibit Index — continued
| |
|
|
|
|
|
|
10(bi)
|
|
|
*1 |
|
|
Restricted Stock Unit Agreement (25,000 units @ $80.00), dated as of
April 15, 2005, between Avatar Holdings Inc. and Michael Levy (filed as
Exhibit 10.26 to Form 8-K dated May 24, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(bj)
|
|
|
*1 |
|
|
Form of Deferred Compensation Agreement for Non-Employee Directors’ Fees
(filed as Exhibit 10.1 to Form 8-K dated June 13, 2005 (File No. 0-7616),
and incorporated herein by reference). |
|
|
|
|
|
|
|
10(bk)
|
|
|
*1 |
|
|
Form of Non-Employee Director Restricted Stock Unit Agreement (filed as
Exhibit 10.2 to Form 8-K dated June 13, 2005 (File No. 0-7616), and
incorporated herein by reference). |
|
|
|
|
|
|
|
10(bl)
|
|
|
*1 |
|
|
First Amendment, dated as of September 28, 2005, to the 2005 Amended and
Restated Employment Agreement, dated as of April 15, 2005, between Avatar
Properties Inc. and Jonathan Fels (filed as Exhibit 10.5 to Form 10-Q for
the quarter ended September 30, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
|
|
10(bm)
|
|
|
*1 |
|
|
First Amendment, dated as of September 28, 2005, to the 2005 Amended and
Restated Employment Agreement, dated as of April 15, 2005, between Avatar
Properties Inc. and Michael Levy (filed as Exhibit 10.6 to Form 10-Q for
the quarter ended September 30, 2005 (File No. 0-7616), and incorporated
herein by reference). |
|
|
|
|
|
|
|
10(bn)
|
|
|
*1 |
|
|
Amended Form of Non-Employee Director Restricted Stock Unit Agreement,
dated May 25, 2006 (260 RSU’s) (filed as Exhibit 10.1 to Form 8-K dated
May 26, 2006 (File No. 0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(bo)
|
|
|
*1 |
|
|
Director Compensation (filed as Exhibit 10.2 to Form 8-K dated May 26,
2006 (File No. 0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(bp)
|
|
|
*1 |
|
|
Option Agreement, dated October 20, 2006, between Avatar Properties Inc.
and The Nature Conservancy (filed as Exhibit 10.1 to Form 10-Q for the
quarter ended September 30, 2006 (File No. 0-7616), and incorporated by
reference). |
|
|
|
|
|
|
|
10(bq)
|
|
|
*1 |
|
|
Amendment to the Amended and Restated Employment Agreement, dated as of
December 26, 2006, between Avatar Holdings Inc. and Gerald D. Kelfer
(filed as Exhibit 10.1 to Form 8-K dated December 28, 2006 (File No.
0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(br)
|
|
|
*1 |
|
|
Second Amended and Restated Earnings Participation Award Agreement, dated
as of December 26, 2006, between Avatar Holdings Inc. and Gerald D.
Kelfer (filed as Exhibit 10.2 to Form 8-K dated December 28, 2006 (File
No. 0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(bs)
|
|
|
*1 |
|
|
Second Amendment to the 2005 Amended and Restated Employment Agreement,
dated as of December 26, 2006, between Avatar Properties Inc. and
Jonathan Fels (filed as Exhibit 10.3 to Form 8-K dated December 28, 2006
(File No. 0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(bt)
|
|
|
*1 |
|
|
Second Amended and Restated Earnings Participation Award Agreement, dated
as of December 26, 2006, between Avatar Holdings Inc. and Jonathan Fels
(filed as Exhibit 10.4 to Form 8-K dated December 28, 2006 (File No.
0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(bu)
|
|
|
*1 |
|
|
Second Amendment to the 2005 Amended and Restated Employment Agreement,
dated as of December 26, 2006, between Avatar Properties Inc. and Michael
F. Levy (filed as Exhibit 10.5 to Form 8-K dated December 28, 2006 (File
No. 0-7616), and incorporated by reference). |
111
Exhibit Index — continued
| |
|
|
|
|
|
|
10(bv)
|
|
|
*1 |
|
|
Second Amended and Restated Earnings Participation Award Agreement, dated
as of December 26, 2006, between Avatar Holdings Inc. and Michael F. Levy
(filed as Exhibit 10.6 to Form 8-K dated December 28, 2006 (File No.
0-7616), and incorporated by reference). |
|
|
|
|
|
|
|
10(bw)
|
|
|
*1 |
|
|
Letter Agreement dated December 21, 2006, amending Employment Agreement
dated as of September 11, 2003, as amended August 11, 2004, between
Avatar Holdings Inc. and Dennis J. Getman (filed as Exhibit 10.7 to Form
8-K dated December 28, 2006 (File No. 0-7616), and incorporated by
reference). |
|
|
|
|
|
|
|
10(bx)
|
|
|
1 |
|
|
Employment Agreement, dated as of November 8, 2006, between Avatar
Holdings Inc. and Patricia Kimball Fletcher (filed herewith). |
|
|
|
|
|
|
|
10(by)
|
|
|
1 |
|
|
Restricted Stock Unit Agreement, dated as of November 8, 2006, between
Avatar Holdings Inc. and Patricia Kimball Fletcher (filed herewith). |
|
|
|
|
|
|
|
10(bz)
|
|
|
1 |
|
|
Letter Agreement, dated as of November 8, 2006, among Avatar Holdings
Inc. and Patricia Kimball Fletcher (filed herewith). |
|
|
|
|
|
|
|
10(ca)
|
|
|
|
|
|
Poinciana Parkway Regulatory Agreement dated as of December 15, 2006 by
and between Osceola County, Florida and Avatar Properties Inc. (filed
herewith). |
|
|
|
|
|
|
|
10(cb)
|
|
|
|
|
|
Poinciana Parkway Regulatory Agreement dated as of December 15, 2006 by
and between Polk County, Florida and Avatar Properties Inc. (filed
herewith). |
|
|
|
|
|
|
|
10(cc)
|
|
|
1 |
|
|
Amended and Restated Employment Agreement, dated as of December 28, 2006,
between Avatar Holdings Inc. and Dennis J. Getman (filed herewith).
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. |
|
|
|
|
|
|
|
10(cd)
|
|
|
1 |
|
|
Stock Award Agreement, dated as of December 28, 2006, between Avatar
Holdings Inc. and Dennis J. Getman (filed herewith). Portions of this
exhibit have been omitted pursuant to a request for confidential
treatment. |
|
|
|
|
|
|
|
11
|
|
|
|
|
|
Computations of earnings per share (filed herewith). |
|
|
|
|
|
|
|
12
|
|
|
|
|
|
Computations of ratio of earnings to fixed charges (filed herewith). |
|
|
|
|
|
|
|
21
|
|
|
|
|
|
Subsidiaries of Registrant (filed herewith). |
|
|
|
|
|
|
|
23.1
|
|
|
|
|
|
Consent of Independent Registered Public Accounting Firm (filed herewith). |
|
|
|
|
|
|
|
23.2
|
|
|
|
|
|
Consent of Independent Certified Public Accountants (filed herewith). |
|
|
|
|
|
|
|
31.1
|
|
|
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
|
|
|
|
31.2
|
|
|
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). |
112
Exhibit Index — continued
| |
|
|
|
|
|
|
32.1
|
|
|
|
|
|
Certification of Chief Executive Officer required by 18 U.S.C. Section
1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
(furnished herewith). |
|
|
|
|
|
|
|
32.2
|
|
|
|
|
|
Certification of Chief Financial Officer required by 18 U.S.C. Section
1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
(furnished herewith). |
113