##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 OR
 o
    
    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)
 Delaware
    
    23-1739078(State or other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 201 Alhambra Circle, Coral Gables, Florida
    
    33134(Address of Principal Executive Offices)
    
    (Zip Code)
 (305) 442-7000
(Registrants telephone number, including area code)
 
 þ o
 o o
  Large accelerated filer: o
    
    Accelerated filer: þ
    
    Non-accelerated filer: o
    
    Smaller reporting company: o
 o þ




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##### 



AVATAR HOLDINGS INC. AND SUBSIDIARIES
 INDEX
 PAGEPART I.
    
    Financial Information
    
    
    3Item 1.
    
    Financial Statements (Unaudited):Consolidated Balance Sheets March 31, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations Three months ended March 31, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows Three months ended March 31, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    
    40Item 4.
    
    Controls and Procedures
    
    
    40PART II.
    
    Other InformationItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 5.
    
    Other Information
    
    
    41Item 6.
    
    Exhibits
    
    
    42EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I   FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 AVATAR HOLDINGS INC. AND SUBSIDIARIES
 March 31,
    
    
    December 31,2010
    
    
    2009AssetsCash and cash equivalents
    
    $
    213,233
    
    
    $
    217,132Restricted cash
    
    
    1,019
    
    
    
    699Receivables, net
    
    
    6,800
    
    
    
    6,656Income tax receivable
    
    
    35,018
    
    
    
    35,018Land and other inventories
    
    
    260,903
    
    
    
    264,236Property and equipment, net
    
    
    47,255
    
    
    
    48,010Poinciana Parkway
    
    
    8,452
    
    
    
    8,482Investment in and notes receivable from unconsolidated entities
    
    
    5,263
    
    
    
    5,321Prepaid expenses and other assets
    
    
    8,495
    
    
    
    9,165Total Assets
    
    $
    586,438
    
    
    $
    594,719Liabilities and Stockholders EquityLiabilitiesAccounts payable
    
    $
    1,389
    
    
    $
    2,014Accrued and other liabilities
    
    
    7,006
    
    
    
    5,293Customer deposits and deferred revenues
    
    
    3,243
    
    
    
    2,874Estimated development liability for sold land
    
    
    20,347
    
    
    
    20,417Notes, mortgage notes and other debt:Corporate
    
    
    63,369
    
    
    
    63,010Real estate
    
    
    55,953
    
    
    
    55,992Total Liabilities
    
    
    151,307
    
    
    
    149,600Commitments and ContingenciesStockholders EquityCommon Stock, par value $1 per shareAuthorized: 50,000,000 sharesIssued: 14,013,912 shares at March 31, 2010
and December 31, 2009
    
    
    14,014
    
    
    
    14,014Additional paid-in capital
    
    
    286,377
    
    
    
    286,096Retained earnings
    
    
    212,792
    
    
    
    222,928513,183
    
    
    
    523,038Treasury stock: at cost, 2,658,461 shares at March 31, 2010
and December 31, 2009
    
    
    (78,937
    )
    
    
    (78,937
    )Total Avatar stockholders equity
    
    
    434,246
    
    
    
    444,101Non-controlling interest
    
    
    885
    
    
    
    1,018Total Equity
    
    
    435,131
    
    
    
    445,119Total Liabilities and Stockholders Equity
    
    $
    586,438
    
    
    $
    594,719
  3




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 Three Months2010
    
    
    2009RevenuesReal estate revenues
    
    $
    9,442
    
    
    $
    13,751Interest income
    
    
    122
    
    
    
    199Other
    
    
    59
    
    
    
    1,397Total revenues
    
    
    9,623
    
    
    
    15,347ExpensesReal estate expenses
    
    
    13,875
    
    
    
    17,457Impairment charges
    
    
    168
    
    
    
    748General and administrative expenses
    
    
    4,083
    
    
    
    4,667Interest expense
    
    
    1,676
    
    
    
    1,837Total expenses
    
    
    19,802
    
    
    
    24,709Equity losses from unconsolidated entities
    
    
    (90
    )
    
    
    (62
    )Loss before income taxes
    
    
    (10,269
    )
    
    
    (9,424
    )Income tax benefit
    
    
    
    
    
    
    830Net loss (including net loss attributable to non-controlling interests)
    
    
    (10,269
    )
    
    
    (8,594
    )Less: Net loss attributable to non-controlling interests
    
    
    (133
    )
    
    
    Net loss attributable to Avatar
    
    
    ($10,136
    )
    
    
    ($8,594
    )Basic and Diluted Loss Per Share
    
    
    ($0.90
    )
    
    
    ($0.99
    )
  4




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 2010
    
    
    2009OPERATING ACTIVITIESNet loss (including net loss attributable to non-controlling interests)
    
    
    ($10,269
    )
    
    
    ($8,594
    )Adjustments to reconcile net loss to
net cash used in operating activities:Depreciation and amortization
    
    
    1,230
    
    
    
    1,386Amortization of stock-based compensation
    
    
    281
    
    
    
    475Impairment of land and other inventories
    
    
    168
    
    
    
    430Impairment of the Poinciana Parkway
    
    
    
    
    
    
    318Gain from repurchase of 4.50% Notes
    
    
    
    
    
    
    (1,365
    )Return of earnings from an unconsolidated entity
    
    
    (32
    )
    
    
    (57
    )Equity losses from unconsolidated entities
    
    
    90
    
    
    
    62Deferred income taxes
    
    
    
    
    
    
    (830
    )Changes in operating assets and liabilities:Restricted cash
    
    
    (320
    )
    
    
    503Receivables, net
    
    
    (144
    )
    
    
    (609
    )Land and other inventories
    
    
    3,189
    
    
    
    3,950Prepaid expenses and other assets
    
    
    670
    
    
    
    1,104Accounts payable and accrued and other liabilities
    
    
    898
    
    
    
    310Customer deposits and deferred revenues
    
    
    369
    
    
    
    83NET CASH USED IN OPERATING ACTIVITIES
    
    
    (3,870
    )
    
    
    (2,834
    )INVESTING ACTIVITIESInvestment in property and equipment
    
    
    (20
    )
    
    
    (77
    )Return from (investment in) Poinciana Parkway
    
    
    30
    
    
    
    (7
    )Investment in unconsolidated entities
    
    
    
    
    
    
    (23
    )NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
    
    10
    
    
    
    (107
    )FINANCING ACTIVITIESPrincipal payments of real estate borrowings
    
    
    (39
    )
    
    
    (25
    )NET CASH USED IN FINANCING ACTIVITIES
    
    
    (39
    )
    
    
    (25
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (3,899
    )
    
    
    (2,966
    )Cash and cash equivalents at beginning of period
    
    
    217,132
    
    
    
    175,396CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    213,233
    
    
    $
    172,430
  5




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AVATAR HOLDINGS INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Unaudited)  March 31, 2010
(Dollars in thousands except share and per share data)
 Basis of Financial Statement Presentation and Summary of Significant Accounting Policies
     Reclassifications
  Cash and Cash Equivalents
  Income Tax Receivable
  6




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Land and Other Inventories
  Property, Plant and Equipment
      7




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Land and Other Inventories  continued
 
    
    The average price on sales closed from primary residential homebuilding operations
has decreased approximately 8% from $213 during the first quarter 2009 to $197 during
the first quarter of 2010. Our average sales price on sales contracts entered into
during the first quarter of 2010 was $179 compared to $178 during the first quarter of
2009. Additionally, the average contribution margin on closings from primary residential
homebuilding operations has declined from approximately 8% during the first quarter of
2009 to approximately (5%) during the first quarter of 2010.
    
    The average price on sales closed from active adult homebuilding operations has
decreased approximately 26% from $256 during the first quarter of 2009 to $190 during
the first quarter of 2010. Our average sales price on sales contracts entered into
during the first quarter of 2010 increased approximately 12% to $211 from $188 during
the first quarter of 2009. Additionally, the average contribution margin on closings
from active adult homebuilding operations has declined from approximately 19% during the
first quarter of 2009 to approximately 4% during the first quarter of 2010.
  Housing communities:
   8




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Land and Other Inventories  continued
 Land developed and/or held for future development or sale:
   March 31,
    
    
    December 31,2010
    
    
    2009Land developed and in process of development
    
    $
    136,210
    
    
    $
    136,578Land held for future development or sale
    
    
    98,790
    
    
    
    98,818Homes completed or under construction
    
    
    25,090
    
    
    
    27,971Other
    
    
    813
    
    
    
    869$
    260,903
    
    
    $
    264,236
   9




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Property and Equipment
    Poinciana Parkway
    10




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Poinciana Parkway  continued
    Notes, Mortgage Notes and Other Debt
   11




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Notes, Mortgage Notes and Other Debt  continued
   Debt with Conversion
Options  Cash Conversion
  March 31,
    
    
    December 31,2010
    
    
    20094.50% NotesPrincipal amount
    
    $
    64,804
    
    
    $
    64,804Unamortized discount
    
    
    (1,435
    )
    
    
    (1,794
    )Net carrying amount
    
    $
    63,369
    
    
    $
    63,010Equity Component, net of income tax benefit
    
    $
    13,737
    
    
    $
    13,737
   12




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Notes, Mortgage Notes and Other Debt  continued
   
    
    the amount of the facility was $100,000 (the facility was expandable up to $150,000,
subject to certain conditions and lender approval);
    
    financing for the Poinciana Parkway was permitted up to $140,000, subject to certain
conditions;
    
    certain covenants included: (i) the minimum adjusted EBITDA/Debt Service ratio (as
defined) was 2.0, and provided for an alternative requirement of maintaining a maximum
leverage ratio and minimum liquidity level if the minimum adjusted EBITDA/Debt Service
ratio could not be maintained; (ii) the Leverage Ratio (as defined) was 1.75, and
allowed us to net unrestricted cash in excess of $35,000 against outstanding debt in
determining total liabilities; and (iii) we had no financial covenant as to the number
of speculative homes and models if we maintained a Leverage Ratio (as defined) of 1.0 or
less, however, if our Leverage Ratio exceeded 1.0, the number of speculative homes and
models could not exceed 35% of unit closings for the trailing twelve month period; and
    
    the pricing of the facility included: (i) the LIBOR Margin was a range of 2.0% to
2.75%, and depended on our EBITDA/Debt Service ratio, our rate on outstanding borrowings
could have been increased up to an additional 50 basis points; (ii) our fee for
outstanding letters of credit was 50 basis points below our LIBOR Margin; and (iii) our
unused fee was a range of 25 basis points to 50 basis points, depending on our usage.
    13




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Notes, Mortgage Notes and Other Debt  continued
       2010
    
    
    2009Interest incurred
    
    $
    1,691
    
    
    $
    1,973Interest capitalized
    
    
    (15
    )
    
    
    (136
    )Interest expense
    
    $
    1,676
    
    
    $
    1,837
  14




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Warranty Costs
   Three Months2010
    
    
    2009Accrued warranty reserve, beginning of period
    
    $
    458
    
    
    $
    468Estimated warranty expense
    
    
    83
    
    
    
    95Amounts charged against warranty reserve
    
    
    (144
    )
    
    
    (142
    )Accrued warranty reserve, end of period
    
    $
    397
    
    
    $
    421
 Loss Per Share
 Earnings Per Share.
   Three Months2010
    
    
    2009Numerator:Basic and diluted loss per share  net loss
    
    
    ($10,136
    )
    
    
    ($8,594
    )Denominator:Basic and diluted weighted average shares
outstanding
    
    
    11,240,760
    
    
    
    8,652,740
 15




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Repurchase of Common Stock
  Non-controlling Interest
  Comprehensive Loss
  Share-Based Payments and Other Executive Compensation
     16




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Income Taxes
  Income Taxes
   Fair Value Disclosures
 Fair Value Measurements and Disclosures
 Fair Value Measurements and Disclosures  Overall  Transition and Open
Effective Date Information Fair Value Measurements and Disclosures  Overall
  17




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Fair Value Disclosures  continued
 Level 1:
    
    Fair value determined based on quoted market prices in active markets for
identical assets and liabilities.
 Level 2:
    
    Fair value determined using significant observable inputs, such as quoted
prices for similar assets or liabilities or quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices
that are observable for the asset or liability, or inputs that are derived principally
from or corroborated by observable market data, by correlation or other means.
 Level 3:
    
    Fair value determined using significant unobservable inputs, such as
discounted cash flows, or similar techniques.
    Fair Value
    
    Fair Value atNon-financial Assets
    
    Hierarchy
    
    March 31, 2010
    
    LossesHomes completed or under construction
    
    Level 2
    
    $
    8,057
    
    
    $
    168
    March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueCash and cash equivalents
    
    $
    213,233
    
    
    $
    213,233
    
    
    $
    217,132
    
    
    $
    217,132Restricted cash
    
    $
    1,019
    
    
    $
    1,019
    
    
    $
    699
    
    
    $
    699Receivables, net
    
    $
    6,800
    
    
    $
    6,800
    
    
    $
    6,656
    
    
    $
    6,656Income tax receivable
    
    $
    35,018
    
    
    $
    35,018
    
    
    $
    35,018
    
    
    $
    35,018Notes, mortgage notes and other debt:Corporate:4.50% Notes
    
    $
    63,369
    
    
    $
    63,832
    
    
    $
    63,010
    
    
    $
    61,969Real estate:5.50% Term Bonds payable
    
    $
    111
    
    
    $
    107
    
    
    $
    111
    
    
    $
    105Amended Unsecured Credit Facility
    
    $
    55,842
    
    
    $
    55,080
    
    
    $
    55,881
    
    
    $
    54,750
 18




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Fair Value Disclosures  continued
  Cash and cash equivalents and Restricted cash:
 Receivables, net and Income tax receivable:
 4.50% Notes:
 Real Estate Notes Payable:
 Variable Interest Entities
 Consolidation
  Consolidation of Variable Interest Entities
     19




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Variable Interest Entities  continued
 Unconsolidated Variable Interest Entities
      March 31
    
    
    December 312010
    
    
    2009Assets:Cash
    
    $
    187
    
    
    $
    243Land and other inventory
    
    
    11,573
    
    
    
    11,573Other assets
    
    
    17
    
    
    
    25Total assets
    
    $
    11,777
    
    
    $
    11,841Liabilities and Partners Capital:Accounts payable and accrued liabilities
    
    $
    1,069
    
    
    $
    893Notes and interest payable to Avatar
    
    
    3,724
    
    
    
    3,724Partners Capital of:Avatar
    
    
    1,539
    
    
    
    1,597Equity partner
    
    
    5,445
    
    
    
    5,627Total liabilities and partners capital
    
    $
    11,777
    
    
    $
    11,841
 20




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Variable Interest Entities  continued
  2010
    
    
    2009Revenues
    
    $
    
    
    
    $
    15Costs and expenses
    
    
    304
    
    
    
    171Net loss from unconsolidated entities
    
    
    ($304
    )
    
    
    ($156
    )Avatars share of loss from unconsolidated entities
    
    
    ($90
    )
    
    
    ($62
    )
 Recently Issued Accounting Pronouncements
  Estimated Development Liability for Sold Land
  March 31,
    
    
    December 31,2010
    
    
    2009Gross estimated unexpended costs
    
    $
    26,256
    
    
    $
    26,389Less costs relating to unsold homesites
    
    
    (5,909
    )
    
    
    (5,972
    )Estimated development liability for sold land
    
    $
    20,347
    
    
    $
    20,417
  21




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Commitments and Contingencies
 Loss
Contingencies .
  Financial Information Relating To Reportable Segments
  Three Months2010
    
    
    2009Revenues:Segment revenuesPrimary residential
    
    $
    4,622
    
    
    $
    5,536Active adult communities
    
    
    4,678
    
    
    
    6,198Commercial and industrial and other land sales
    
    
    
    
    
    
    1,825Other operations
    
    
    191
    
    
    
    2289,491
    
    
    
    13,787Unallocated revenuesInterest income
    
    
    122
    
    
    
    199Other
    
    
    10
    
    
    
    1,361Total revenues
    
    $
    9,623
    
    
    $
    15,347Operating income (loss):Segment operating income (loss)Primary residential
    
    
    ($1,642
    )
    
    
    ($1,898
    )Active adult communities
    
    
    (2,013
    )
    
    
    (1,432
    )Commercial and industrial and other land sales
    
    
    (37
    )
    
    
    1,778Other operations
    
    
    (9
    )
    
    
    11(3,701
    )
    
    
    (1,541
    )Unallocated income (expenses)Interest income
    
    
    122
    
    
    
    199Gain on repurchase of 4.50% Notes
    
    
    
    
    
    
    1,365Equity loss from unconsolidated entities
    
    
    (90
    )
    
    
    (62
    )Net loss attributable to non-controlling interests
    
    
    133
    
    
    
    General and administrative expenses
    
    
    (4,083
    )
    
    
    (4,667
    )Interest expense
    
    
    (1,676
    )
    
    
    (1,837
    )Other real estate expenses
    
    
    (841
    )
    
    
    (2,563
    )Impairment of the Poinciana Parkway
    
    
    
    
    
    
    (318
    )Loss before income taxes
    
    
    ($10,136
    )
    
    
    ($9,424
    )
 22




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)
    EXECUTIVE SUMMARY
   23




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 EXECUTIVE
SUMMARY  continued
      Land Inventory
   24




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 EXECUTIVE
SUMMARY  continued
 Land Inventory  continued
  Estimated Planned Lots/Units (1)Acquisition
    
    Contract
    
    
    
    
    
    
    Partially
    
    
    
    
    
    
    
    
    
    
    BookDate
    
    Date
    
    
    Developed
    
    
    Developed
    
    
    Raw (2)
    
    
    Total
    
    
    ValueResidentialOsceola County, FloridaPre-1980
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    2,200
    
    
    
    2,400
    
    
    $
    5,1991999-2001
    
    
    
    
    
    
    500
    
    
    
    700
    
    
    
    
    
    
    
    1,200
    
    
    
    45,1352003
    
    
    2002-2003
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    7,8802004
    
    
    2002-2003
    
    
    
    
    
    
    
    
    
    
    
    1,400
    
    
    
    1,400
    
    
    
    19,3072006
    
    
    2002-2003
    
    
    
    
    
    
    
    
    
    
    
    1,600
    
    
    
    1,600
    
    
    
    19,256Total Osceola County
    
    
    
    
    
    
    700
    
    
    
    700
    
    
    
    6,200
    
    
    
    7,600
    
    
    
    96,777Polk County, FloridaPre-1980
    
    
    
    
    
    
    900
    
    
    
    1,000
    
    
    
    2,400
    
    
    
    4,300
    
    
    
    19,8522003
    
    
    2002-2003
    
    
    
    900
    
    
    
    
    
    
    
    100
    
    
    
    1,000
    
    
    
    32,8402004
    
    
    2002-2003
    
    
    
    
    
    
    
    
    
    
    
    2,500
    
    
    
    2,500
    
    
    
    19,966Total Polk County
    
    
    
    
    
    
    1,800
    
    
    
    1,000
    
    
    
    5,000
    
    
    
    7,800
    
    
    
    72,658St. Lucie County, Florida2009
    
    
    2009
    
    
    
    267
    
    
    
    364
    
    
    
    400
    
    
    
    1,031
    
    
    
    2,020Hernando County, Florida2004-2005
    
    
    2003
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    30Collier County, FloridaPre-1980
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    191Highlands County, FloridaPre-1980
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40
    
    
    
    80
    
    
    
    102Santa Cruz County, (Rio Rico), ArizonaPre-1980
    
    
    
    
    
    
    600
    
    
    
    300
    
    
    
    3,700
    
    
    
    4,600
    
    
    
    10,117Pima County, Arizona2009
    
    
    2009
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    3,725Total Residential
    
    
    
    
    
    
    3,543
    
    
    
    2,369
    
    
    
    15,340
    
    
    
    21,252
    
    
    $
    185,620Consolidated LLCs(4)Polk County, Florida2005
    
    
    2004
    
    
    
    200
    
    
    
    
    
    
    
    300
    
    
    
    500
    
    
    $
    1,774Martin County, Florida1981-1987
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    200
    
    
    
    275
    
    
    
    1,666Total Consolidated LLCs
    
    
    
    
    
    
    275
    
    
    
    
    
    
    
    500
    
    
    
    775
    
    
    $
    3,440
 25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 EXECUTIVE
SUMMARY  continued
 Land Inventory  continued
 Acquisition
    
    Contract
    
    
    Estimated
    
    
    BookDate
    
    Date
    
    
    Acres
    
    
    ValueCommercial/Industrial/InstitutionalFloridaPre-1980
    
    
    
    
    
    
    1,300
    
    
    $
    7,1052004 (3)
    
    
    2004
    
    
    
    300
    
    
    
    14,7872005 (3)
    
    
    2004
    
    
    
    400
    
    
    
    15,758Total Florida
    
    
    
    
    
    
    2,000
    
    
    
    37,650ArizonaPre-1980
    
    
    
    
    
    
    200
    
    
    
    267Total Commercial/Industrial/Institutional
    
    
    2,200
    
    
    $
    37,917OtherPreserves, wetlands, open spacePre-1980
    
    
    
    
    
    
    
    
    
    
    3,176Other
    
    
    
    
    
    
    
    
    
    
    4,847Total Other
    
    
    
    
    
    
    
    
    
    $
    8,023
 
 (1)
    
    Estimated planned lots/units are based on historical densities for our land. New projects
may ultimately be developed into more or less than the number of lots/units stated.(2)
    
    We anticipate that with respect to our inventory of undeveloped land, new lots developed
over the next several years are likely to be developed at greater density per acre than the
density per acre we have undertaken over the past several years. We anticipate evolving
market demand for smaller, less amenitized and/or more affordable homes. Accordingly, the
number of lots we ultimately develop per acre from our inventory of raw land may exceed the
units set forth in this schedule.(3)
    
    During the fourth quarter 2008, our plans for this property changed from developing it as
single family housing to permitting as commercial/industrial/institutional land.(4)
    
    These landholdings were sold during 2009 to two newly formed LLCs in which we own a
minority interest. These LLCs are consolidated for accounting purposes. As a result, the
transactions did not qualify as sales for financial reporting purposes. 26




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 EXECUTIVE
SUMMARY  continued
     27




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 RESULTS OF OPERATIONS
  Three Months2010
    
    
    2009Operating income (loss):Primary residentialRevenues
    
    $
    4,622
    
    
    $
    5,536Expenses
    
    
    6,264
    
    
    
    7,434Segment operating loss
    
    
    (1,642
    )
    
    
    (1,898
    )Active adult communitiesRevenues
    
    
    4,678
    
    
    
    6,198Expenses
    
    
    6,691
    
    
    
    7,630Segment operating loss
    
    
    (2,013
    )
    
    
    (1,432
    )Commercial and industrial and other land salesRevenues
    
    
    
    
    
    
    1,825Expenses
    
    
    37
    
    
    
    47Segment operating income (loss)
    
    
    (37
    )
    
    
    1,778Other operationsRevenues
    
    
    191
    
    
    
    228Expenses
    
    
    200
    
    
    
    217Segment operating loss
    
    
    (9
    )
    
    
    11Operating income (loss)
    
    
    (3,701
    )
    
    
    (1,541
    )Unallocated income (expenses):Interest income
    
    
    122
    
    
    
    199Gain on repurchase of 4.50% Notes
    
    
    
    
    
    
    1,365Equity loss from unconsolidated entities
    
    
    (90
    )
    
    
    (62
    )Net loss attributable to non-controlling interests
    
    
    133
    
    
    
    General and administrative expenses
    
    
    (4,083
    )
    
    
    (4,667
    )Interest expense
    
    
    (1,676
    )
    
    
    (1,837
    )Other real estate expenses
    
    
    (841
    )
    
    
    (2,563
    )Impairment of the Poinciana Parkway
    
    
    
    
    
    
    (318
    )Loss before income taxes
    
    
    (10,136
    )
    
    
    (9,424
    )Income tax benefit
    
    
    
    
    
    
    830Net loss
    
    
    ($10,136
    )
    
    
    ($8,594
    )
 28




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 RESULTS
OF OPERATIONS  continued
  Number of
    
    
    
    
    
    
    Average PriceFor the three months ended March 31,
    
    Units
    
    
    Revenues
    
    
    Per Unit2010Primary residential
    
    
    20
    
    
    $
    3,931
    
    
    $
    197Active adult communities
    
    
    8
    
    
    
    1,520
    
    
    $
    190Total
    
    
    28
    
    
    $
    5,451
    
    
    $
    1952009Primary residential
    
    
    22
    
    
    $
    4,684
    
    
    $
    213Active adult communities
    
    
    12
    
    
    
    3,071
    
    
    $
    256Total
    
    
    34
    
    
    $
    7,755
    
    
    $
    228
  Gross Number
    
    
    
    
    
    
    Contracts
    
    
    
    
    
    
    Averageof Contracts
    
    
    
    
    
    
    Signed, Net of
    
    
    
    
    
    
    Price PerFor the three months ended March 31,
    
    Signed
    
    
    Cancellations
    
    
    Cancellations
    
    
    Dollar Value
    
    
    Unit2010Primary residential
    
    
    20
    
    
    
    (4
    )
    
    
    16
    
    
    $
    2,865
    
    
    $
    179Active adult communities
    
    
    47
    
    
    
    (3
    )
    
    
    44
    
    
    
    9,289
    
    
    $
    211Total
    
    
    67
    
    
    
    (7
    )
    
    
    60
    
    
    $
    12,154
    
    
    $
    2032009Primary residential
    
    
    48
    
    
    
    (9
    )
    
    
    39
    
    
    $
    6,951
    
    
    $
    178Active adult communities
    
    
    23
    
    
    
    (5
    )
    
    
    18
    
    
    
    3,387
    
    
    $
    188Total
    
    
    71
    
    
    
    (14
    )
    
    
    57
    
    
    $
    10,338
    
    
    $
    181
 29




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Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands except share and per share data)  continued
 RESULTS
OF OPERATIONS  continued
  Number of
    
    
    Dollar
    
    
    Average PriceAs of March 31,
    
    Units
    
    
    Volume
    
    
    Per Unit2010Primary residential
    
    
    12
    
    
    $
    2,157
    
    
    $
    180Active adult communities
    
    
    45
    
    
    
    10,015
    
    
    $
    223Total
    
    
    57
    
    
    $
    12,172
    
    
    $
    2142009Primary residential
    
    
    33
    
    
    
    6,868
    
    
    $
    208Active adult communities
    
    
    46
    
    
    
    11,793
    
    
    $
    256Total
    
    
    79
    
    
    $
    18,661
    
    
    $
    236
    30




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 RESULTS
OF OPERATIONS  continued
      31




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 RESULTS
OF OPERATIONS  continued
        32




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 LIQUIDITY AND CAPITAL RESOURCES
       33




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 LIQUIDITY
AND CAPITAL RESOURCES  continued
     34




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 LIQUIDITY
AND CAPITAL RESOURCES  continued
 Debt with Conversion
Options  Cash Conversion
  March 31,
    
    
    December 31,2010
    
    
    20094.50% NotesPrincipal amount
    
    $
    64,804
    
    
    $
    64,804Unamortized discount
    
    
    (1,435
    )
    
    
    (1,794
    )Net carrying amount
    
    $
    63,369
    
    
    $
    63,010Equity Component, net of income tax benefit
    
    $
    13,737
    
    
    $
    13,737
    35




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 LIQUIDITY AND CAPITAL RESOURCES  continued
  
    
    the amount of the facility was $100,000 (the facility was expandable up to $150,000,
subject to certain conditions and lender approval);
    
    financing for the Poinciana Parkway was permitted up to $140,000, subject to certain
conditions;
    
    certain covenants included: (i) the minimum adjusted EBITDA/Debt Service ratio (as
defined) was 2.0, and provided for an alternative requirement of maintaining a maximum
leverage ratio and minimum liquidity level if the minimum adjusted EBITDA/Debt Service
ratio could not be maintained; (ii) the Leverage Ratio (as defined) was 1.75, and
allowed us to net unrestricted cash in excess of $35,000 against outstanding debt in
determining total liabilities; and (iii) we had no financial covenant as to the number
of speculative homes and models if we maintained a Leverage Ratio (as defined) of 1.0 or
less, however, if our Leverage Ratio exceeded 1.0, the number of speculative homes and
models could not exceed 35% of unit closings for the trailing twelve month period; and
    
    the pricing of the facility included: (i) the LIBOR Margin was a range of 2.0% to
2.75%, and depended on our EBITDA/Debt Service ratio, our rate on outstanding borrowings
could have been increased up to an additional 50 basis points; (ii) our fee for
outstanding letters of credit was 50 basis points below our LIBOR Margin; and (iii) our
unused fee was a range of 25 basis points to 50 basis points, depending on our usage.
     36




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 LIQUIDITY AND CAPITAL RESOURCES  continued
      CovenantFinancial Covenant
    
    Requirement
    
    ActualMinimum Tangible Net Worth
    
    $
    292,174
    
    $
    435,131Leverage Ratio (a)
    
    Less than or equal to 1.00
    
    
    (0.03)EBITDA/Debt Service Ratio
    
    
    (b)
    
    
    (b)AFFCO Ratio
    
    
     (b)
    
    
    (b)Liquidity/Cash Requirements
    
    
        $75,000/$35,000
    
    
        $216,522/$213,233Notes Coverage Ratio
    
    Greater than or equal to 2.00
    
    
    4.2Investments in real estate
related joint
ventures
(as a percent of Tangible

Net Worth)
    
    Less than or equal to 25%
    
    
    1.2%Book value of raw land,
land under
development
and developed lots
(as a
percent of Tangible Net
Worth)
    
    Less than or equal to 150%
    
    
    53%
 37




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 LIQUIDITY
AND CAPITAL RESOURCES  continued
 (a)
    
    The Leverage Ratio requirement varies based on our Adjusted EBITDA/Debt Service
Ratio. If our Adjusted EBITDA/Debt Service Ratio was greater than or equal to 2.00 to
1, the Leverage Ratio requirement was less than or equal to 1.75 to 1. If our Adjusted
EBITDA/Debt Service Ratio was greater than or equal to 1.50 to 1, the Leverage Ratio
requirement was less than or equal to 1.50 to 1. If our Adjusted EBITDA/Debt Service
Ratio was greater than or equal to 1.00 to 1, the Leverage Ratio requirement was less
than or equal to 1.25 to 1. If our Adjusted EBITDA/Debt Service Ratio was less than
1.00 to 1, the Leverage Ratio requirement was less than or equal to 1.00 to 1.(b)
    
    Our Adjusted EBITDA/Debt Service Ratio of negative 5.5 was less than 1.00 to 1
as of March 31, 2010. Our AFFCO Ratio of 3.2 was more than 1.50 to 1 as of March 31,
2010. We were required to maintain Liquidity of $75,000 of which $35,000 was cash and
cash equivalents.
      38




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except share and per share data)  continued
 LIQUIDITY
AND CAPITAL RESOURCES  continued
      CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Consolidation
 39




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4. Controls and Procedures
   40




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (dollars in thousands
except share and per share data)
 Repurchases of Equity Securities
  Total Numberof Shares
    
    
    MaximumPurchased as
    
    
    Amount ThatPart of a
    
    
    May Yet BeTotal
    
    
    Average
    
    
    Publicly
    
    
    PurchasedNumber
    
    
    Price
    
    
    Announced
    
    
    Under theof Shares
    
    
    Paid Per
    
    
    Plan or
    
    
    Plan orPeriod
    
    Purchased
    
    
    Share
    
    
    Program (1)
    
    
    Program (1)January 1, 2010 to January 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,304February 1, 2010 to February 28, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,304March 1, 2010 to March 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,304Total
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    On October 13, 2008, our Board of Directors amended its June 2005 authorization to
purchase the 4.50% Notes and/or common stock to allow expenditures up to $30,000, including
the $9,864 previously authorized. On October 17, 2008, we repurchased $35,920 principal
amount of the 4.50% Notes for approximately $28,112 including accrued interest. On December
12, 2008, our Board of Directors amended its June 2005 authorization to purchase the 4.50%
Notes and/or common stock to allow expenditures up to $30,000, including the $1,888
remaining after the October 2008 activities. On March 30, 2009, we repurchased $7,500
principal amount of the 4.50% Notes for approximately $6,038 including accrued interest. On
June 19, 2009, we repurchased $6,576 principal amount of the 4.50% Notes for approximately
$5,658 including accrued interest. As of March 31, 2010, the remaining authorization is
$18,304. 
 Item 5. Other Information (dollars in thousands)
   41




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##### Table of Contents



Item 6. Exhibits
 10.1
    
    First Amendment to Amended and Restated Employment Agreement, dated
May 6, 2010, between Avatar Holdings Inc. and Randy Kotler (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).
 42




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##### Table of Contents



SIGNATURES
  AVATAR HOLDINGS INC.Date: May 10, 2010
    By:
    /s/ Randy L. KotlerRandy L. KotlerExecutive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer) Date: May 10, 2010
    By:
    /s/ Michael P. RamaMichael P. RamaController and Chief Accounting Officer
(Principal Accounting Officer) 43




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##### Table of Contents



Exhibit Index
 10.1
    
    First Amendment to Amended and Restated Employment Agreement, dated
May 6, 2010, between Avatar Holdings Inc. and Randy Kotler (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).
 44