##### 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, 2007
 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)
 Registrants telephone number, including area code (305) 442-7000
 
  x o
  o x o
  o x




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 INDEX
 PAGEPART I. Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets  March 31, 2007 (unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Income (Unaudited)  Three months ended March 31, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows (Unaudited)  Three months ended March 31, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. Other InformationItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 6. Exhibits
    
    
    27EX-10.1 McNairy Severance AgreementEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
 2




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PART  I   FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 AVATAR HOLDINGS INC. AND SUBSIDIARIES
 (Unaudited)March 31
    
    
    December 312007
    
    
    2006AssetsCash and cash equivalents
    
    $
    190,745
    
    
    $
    203,760Restricted cash
    
    
    3,462
    
    
    
    3,637Receivables, net
    
    
    6,578
    
    
    
    13,863Land and other inventories
    
    
    438,606
    
    
    
    443,825Property, plant and equipment, net
    
    
    64,375
    
    
    
    59,756Investment in unconsolidated joint ventures
    
    
    7,662
    
    
    
    7,583Prepaid expenses
    
    
    10,118
    
    
    
    10,066Other assets
    
    
    7,859
    
    
    
    8,487Deferred income taxes
    
    
    1,039
    
    
    
    95Total Assets
    
    $
    730,444
    
    
    $
    751,072Liabilities and Stockholders EquityLiabilitiesNotes, mortgage notes and other debt:Corporate
    
    $
    119,800
    
    
    $
    120,000Real estate
    
    
    16,664
    
    
    
    16,925Estimated development liability for sold land
    
    
    24,602
    
    
    
    24,693Accounts payable
    
    
    12,379
    
    
    
    22,053Accrued and other liabilities
    
    
    22,640
    
    
    
    43,694Customer deposits
    
    
    13,968
    
    
    
    18,351Total Liabilities
    
    
    210,053
    
    
    
    245,716Commitments and ContingenciesStockholders EquityCommon Stock, par value $1 per shareAuthorized: 50,000,000 sharesIssued: 10,800,374 shares at March 31, 200710,725,559 shares at December 31, 2006
    
    
    10,800
    
    
    
    10,726Additional paid-in capital
    
    
    229,866
    
    
    
    226,013Retained earnings
    
    
    354,749
    
    
    
    343,641595,415
    
    
    
    580,380Treasury stock: at cost, 2,531,823 shares at March 31, 2007
and December 31, 2006
    
    
    (75,024
    )
    
    
    (75,024
    )Total Stockholders Equity
    
    
    520,391
    
    
    
    505,356Total Liabilities and Stockholders Equity
    
    $
    730,444
    
    
    $
    751,072
  3




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 2007
    
    
    2006RevenuesReal estate revenues
    
    $
    90,093
    
    
    $
    154,306Interest income
    
    
    2,216
    
    
    
    637Other
    
    
    136
    
    
    
    271Total revenues
    
    
    92,445
    
    
    
    155,214ExpensesReal estate expenses
    
    
    69,251
    
    
    
    115,062General and administrative expenses
    
    
    6,059
    
    
    
    6,572Total expenses
    
    
    75,310
    
    
    
    121,634Equity earnings from unconsolidated joint ventures
    
    
    43
    
    
    
    1,630Income before income taxes
    
    
    17,178
    
    
    
    35,210Income tax expense
    
    
    (6,070
    )
    
    
    (10,574
    )Net income
    
    $
    11,108
    
    
    $
    24,636Basic Earnings Per Share
    
    $
    1.35
    
    
    $
    3.01Diluted Earnings Per Share
    
    $
    1.08
    
    
    $
    2.39
  4




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    11,108
    
    
    $
    24,636Adjustments to reconcile net income to
net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    896
    
    
    
    1,038Amortization of stock-based compensation
    
    
    1,249
    
    
    
    2,237Impairment of goodwill
    
    
    
    
    
    
    654Impairment of land and other inventories
    
    
    2,000
    
    
    
    Distributions of earnings from an unconsolidated joint venture
    
    
    
    
    
    
    5,200Equity earnings from unconsolidated joint ventures
    
    
    (43
    )
    
    
    (1,629
    )Deferred income taxes
    
    
    413
    
    
    
    (3,355
    )Excess income tax benefit from exercise of stock options and restricted stock units
    
    
    (1,357
    )
    
    
    (116
    )Changes in operating assets and liabilities:Restricted cash
    
    
    175
    
    
    
    (1,646
    )Receivables, net
    
    
    7,897
    
    
    
    (225
    )Land and other inventories
    
    
    (3,091
    )
    
    
    (26,848
    )Prepaid expenses
    
    
    (52
    )
    
    
    (667
    )Other assets
    
    
    623
    
    
    
    4Accounts payable and accrued and other liabilities
    
    
    (24,618
    )
    
    
    (1,308
    )Customer deposits
    
    
    (4,383
    )
    
    
    4,853Assets/liabilities of business transferred under contractual arrangements
    
    
    
    
    
    
    (81
    )NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    
    
    (9,183
    )
    
    
    2,747INVESTING ACTIVITIESInvestment in property, plant and equipment
    
    
    (5,406
    )
    
    
    (931
    )Investment in unconsolidated joint ventures
    
    
    (36
    )
    
    
    (108
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (5,442
    )
    
    
    (1,039
    )FINANCING ACTIVITIESPrincipal payments of real estate borrowings
    
    
    (261
    )
    
    
    (5,307
    )Proceeds from exercise of stock options
    
    
    888
    
    
    
    250Excess income tax benefit from exercise of stock options and restricted stock units
    
    
    1,357
    
    
    
    116Payment of withholding taxes related to restricted stock units withheld
    
    
    (374
    )
    
    
    NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    1,610
    
    
    
    (4,941
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (13,015
    )
    
    
    (3,233
    )Cash and cash equivalents at beginning of period
    
    
    203,760
    
    
    
    38,479CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    190,745
    
    
    $
    35,246SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIESConversion of 4.50% Notes into Equity
    
    $
    200
    
    
    $
    
  5




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AVATAR HOLDINGS INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Unaudited)  March 31, 2007
(Dollars in thousands except share and per share data)
 Basis of Financial Statement Presentation and Summary of Significant Accounting Policies
     Reclassifications
  Impairment of Long-Lived Assets
 Accounting for
the Impairment or Disposal of Long-Lived Assets,
 6




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Impairment of Long-Lived Assets  continued
 Disclosure about Segments
of an Enterprise and Related Information.
 Land and Other Inventories
  March 31,2007
    
    
    December 31,(Unaudited)
    
    
    2006Land developed and in process of development
    
    $
    239,310
    
    
    $
    220,403Land held for future development or sale
    
    
    96,203
    
    
    
    96,214Homes completed or under construction
    
    
    102,054
    
    
    
    126,482Other
    
    
    1,039
    
    
    
    726$
    438,606
    
    
    $
    443,825
   Goodwill and Indefinite-Lived Intangible Assets
 Goodwill and Intangible Assets
 7




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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
      8




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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
      Warranty Costs
  9




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Warranty Costs  continued
  March 31,
    
    
    March 31,2007
    
    
    2006Accrued warranty reserve, beginning of period
    
    $
    2,319
    
    
    $
    1,616Estimated warranty expense
    
    
    564
    
    
    
    949Amounts charged against warranty reserve
    
    
    (1,077
    )
    
    
    (641
    )Accrued warranty reserve, end of period
    
    $
    1,806
    
    
    $
    1,924
 Earnings Per Share
 Earnings Per Share.
   2007
    
    
    2006Numerator:Basic earnings per share  net income
    
    $
    11,108
    
    
    $
    24,636Interest on 4.50% Notes, net of tax
    
    
    816
    
    
    
    816Diluted earnings per share  net income
    
    $
    11,924
    
    
    $
    25,452Denominator:Basic weighted average shares outstanding
    
    
    8,209,509
    
    
    
    8,184,352Effect of dilutive restricted stock units
    
    
    473,899
    
    
    
    143,088Effect of dilutive employee stock options
    
    
    47,765
    
    
    
    37,568Effect of dilutive 4.50% Notes
    
    
    2,279,815
    
    
    
    2,280,068Diluted weighted average shares outstanding
    
    
    11,010,988
    
    
    
    10,645,076
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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Repurchase and Exchange of Common Stock
  Comprehensive Income
  Share-Based Payments and Other Executive Compensation
      11




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Income Taxes
   Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 Accounting for Income Taxes
   Investments in Unconsolidated Joint Ventures
 Consolidation of Variable Interest Entities)
  12




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Investments in Unconsolidated Joint Ventures  continued
  Recently Issued Accounting Pronouncements
 Fair Value Measurements
 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 Fair Value Option for Financial Assets
and Financial Liabilities
 13




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Commitments and Contingencies
    14




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Financial Information Relating To Industry Segments
  2007
    
    
    2006Revenues:Segment revenuesPrimary residential
    
    $
    52,322
    
    
    $
    95,476Active adult community
    
    
    31,310
    
    
    
    47,851Commercial and industrial and other land sales
    
    
    5,560
    
    
    
    8,775Other operations
    
    
    988
    
    
    
    2,31290,180
    
    
    
    154,414Unallocated revenuesInterest income
    
    
    2,216
    
    
    
    637Other
    
    
    49
    
    
    
    163Total revenues
    
    $
    92,445
    
    
    $
    155,214Operating income:Segment operating incomePrimary residential
    
    $
    11,164
    
    
    $
    23,675Active adult community
    
    
    6,929
    
    
    
    9,773Commercial and industrial and other land sales
    
    
    4,758
    
    
    
    7,970Other operations
    
    
    187
    
    
    
    1,09823,038
    
    
    
    42,516Unallocated income (expenses)Equity earnings from unconsolidated joint ventures
    
    
    43
    
    
    
    1,630Interest income
    
    
    2,216
    
    
    
    637General and administrative expenses
    
    
    (6,059
    )
    
    
    (6,572
    )Other real estate expenses
    
    
    (2,060
    )
    
    
    (3,001
    )Income before income taxes
    
    $
    17,178
    
    
    $
    35,210
 15




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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)
  RESULTS OF OPERATIONS
    2007
    
    
    2006Operating income:Primary residentialRevenues
    
    $
    52,322
    
    
    $
    95,476Expenses
    
    
    41,158
    
    
    
    71,801Segment operating income
    
    
    11,164
    
    
    
    23,675Active adult communityRevenues
    
    
    31,310
    
    
    
    47,851Expenses
    
    
    24,381
    
    
    
    38,078Segment operating income
    
    
    6,929
    
    
    
    9,773Commercial and industrial and other land salesRevenues
    
    
    5,560
    
    
    
    8,775Expenses
    
    
    802
    
    
    
    805Segment operating income
    
    
    4,758
    
    
    
    7,970Other operationsRevenues
    
    
    988
    
    
    
    2,312Expenses
    
    
    801
    
    
    
    1,214Segment operating income
    
    
    187
    
    
    
    1,098Operating income
    
    
    23,038
    
    
    
    42,516Unallocated income (expenses):Equity earnings from unconsolidated joint ventures
    
    
    43
    
    
    
    1,630Interest income
    
    
    2,216
    
    
    
    637General and administrative expenses
    
    
    (6,059
    )
    
    
    (6,572
    )Other real estate expenses
    
    
    (2,060
    )
    
    
    (3,001
    )Income before income taxes
    
    
    17,178
    
    
    
    35,210Income tax expense
    
    
    (6,070
    )
    
    
    (10,574
    )Net income
    
    $
    11,108
    
    
    $
    24,636
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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 
  2007
    
    
    2006Units closedNumber of units
    
    
    230
    
    
    
    516Aggregate dollar volume
    
    $
    79,602
    
    
    $
    138,528Average price per unit
    
    $
    346
    
    
    $
    268Contracts signed, net of cancellationsNumber of units
    
    
    142
    
    
    
    428Aggregate dollar volume
    
    $
    38,091
    
    
    $
    156,523Average price per unit
    
    $
    268
    
    
    $
    366Backlog at March 31Number of units
    
    
    461
    
    
    
    1,977Aggregate dollar volume
    
    $
    147,781
    
    
    $
    652,474Average price per unit
    
    $
    321
    
    
    $
    330
    Accounting for the Impairment or Disposal of Long-Lived
Assets,
 17




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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 
 Disclosure about Segments of an Enterprise and
Related Information.
      18




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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 
        19




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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
      20




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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
        21




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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
      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)  continued
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 Accounting for Income Taxes
    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 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 Fair Value Option for Financial Assets
and Financial Liabilities
 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
 FORWARDLOOKING STATEMENTS
  
 Item 3. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4. Controls and Procedures
   24




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PART II  OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (dollars in
thousands except share and per share data)
 Unregistered Sales of Equity Securities
    25




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (dollars in thousands
except share and per share data)  continued
 Repurchases of Equity Securities
  Total Number ofShares Purchased as
    
    
    Maximum Amount ThatPart of a Publicly
    
    
    May Yet BeTotal Number
    
    
    Average Price Paid
    
    
    Announced Plan or
    
    
    Purchased Under thePeriod
    
    of Shares Purchased
    
    
    Per Share
    
    
    Program (1)
    
    
    Plan or Program (1)January 1, 2007 to January 31, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    15,829February 1, 2007 to February 28, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,829March 1, 2007 to March 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,829Total
    
    
    
    
    
    $
    
    
    
    
    
 
 (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 Avatars 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 common stock. As of March 31, 2007, the remaining
authorization for purchase of shares of Avatars common stock and 4.50% notes was $15,829.
During the three months ended March 31, 2007, Avatar did not repurchase shares of its common
stock and/or 4.50% Notes. 26




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Item 6. Exhibits
 10.1
    
    Severance Arrangement with respect to Charles L. McNairy (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).
 27




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SIGNATURES
 
 AVATAR HOLDINGS INC.Date: May 10, 2007
    By:
    /s/ Charles L. McNairyCharles L. McNairyExecutive Vice President, Treasurer
and
Chief Financial OfficerDate: May 10, 2007
    By:
    /s/ Michael P. RamaMichael P. RamaController and Chief Accounting Officer 28




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Exhibit
    
    Index10.1
    
    
    Severance Arrangement with respect to Charles L. McNairy (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).
 29