##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 
 x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2008ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission File Number0-7616
 AVATAR HOLDINGS INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other Jurisdiction of Incorporation or Organization)
    
    23-1739078(I.R.S. Employer Identification No.)201 Alhambra Circle, Coral Gables, Florida(Address of Principal Executive Offices)
    
    33134(Zip Code)
 Registrants telephone number, including area code (305) 442-7000
 
  x o
   Large accelerated filer o
    
    Accelerated
filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o x




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##### 



AVATAR HOLDINGS INC. AND SUBSIDIARIES
 INDEX
 PAGEPART
I. Financial Information
    
    
    3Item 1.Financial Statements:
    
    
    3Consolidated Balance Sheets 
June 30, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations (Unaudited) 
Six and three months ended June 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows (Unaudited) 
Six months ended June 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    19Item 3.Quantitative and Qualitative Disclosure About Market Risk
    
    
    32Item 4.Controls and Procedures
    
    
    32PART II.Other InformationItem 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 4.Submission of Matters to a Vote of Security Holders
    
    
    34Item 6.Exhibits
    
    
    35EX-10.1 Director CompensationEX-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
   
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PART I   FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 AVATAR HOLDINGS INC. AND SUBSIDIARIES
 (Unaudited)June 30,
    
    
    December 31,2008
    
    
    2007AssetsCash and cash equivalents
    
    $
    156,037
    
    
    $
    192,258Restricted cash
    
    
    1,527
    
    
    
    3,161Receivables, net
    
    
    10,147
    
    
    
    7,269Land and other inventories
    
    
    393,215
    
    
    
    389,457Property and equipment, net
    
    
    55,808
    
    
    
    56,502Parkway under development
    
    
    44,190
    
    
    
    31,793Investment in unconsolidated joint ventures
    
    
    7,913
    
    
    
    8,002Prepaid expenses and other assets
    
    
    16,225
    
    
    
    18,099Total Assets
    
    $
    685,062
    
    
    $
    706,541Liabilities and Stockholders EquityLiabilitiesAccounts payable
    
    $
    3,103
    
    
    $
    3,882Accrued and other liabilities
    
    
    12,587
    
    
    
    12,041Customer deposits and deferred revenues
    
    
    5,525
    
    
    
    4,916Deferred income taxes
    
    
    5,896
    
    
    
    6,546Estimated development liability for sold land
    
    
    20,779
    
    
    
    20,687Notes, mortgage notes and other debt:Corporate
    
    
    114,800
    
    
    
    114,800Real estate
    
    
    130
    
    
    
    15,966Total Liabilities
    
    
    162,820
    
    
    
    178,838Commitments and ContingenciesStockholders EquityCommon Stock, par value $1 per shareAuthorized: 50,000,000 sharesIssued: 11,091,624 shares at June 30, 200811,076,644 shares at December 31, 2007
    
    
    11,092
    
    
    
    11,077Additional paid-in capital
    
    
    229,211
    
    
    
    227,591Retained earnings
    
    
    357,928
    
    
    
    365,024598,231
    
    
    
    603,692Treasury stock: at cost, 2,551,232 shares at June 30, 2008at cost, 2,551,232 shares at December 31, 2007
    
    
    (75,989
    )
    
    
    (75,989
    )Total Stockholders Equity
    
    
    522,242
    
    
    
    527,703Total Liabilities and Stockholders Equity
    
    $
    685,062
    
    
    $
    706,541
  3




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 Six Months
    
    
    Three Months2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesReal estate revenues
    
    $
    53,646
    
    
    $
    168,528
    
    
    $
    24,251
    
    
    $
    78,435Interest income
    
    
    1,650
    
    
    
    4,237
    
    
    
    636
    
    
    
    2,021Other
    
    
    166
    
    
    
    935
    
    
    
    43
    
    
    
    799Total revenues
    
    
    55,462
    
    
    
    173,700
    
    
    
    24,930
    
    
    
    81,255ExpensesReal estate expenses
    
    
    54,546
    
    
    
    135,722
    
    
    
    28,676
    
    
    
    66,471General and administrative expenses
    
    
    10,983
    
    
    
    13,186
    
    
    
    5,846
    
    
    
    7,127Interest expense
    
    
    951
    
    
    
    
    
    
    
    594
    
    
    
    Total expenses
    
    
    66,480
    
    
    
    148,908
    
    
    
    35,116
    
    
    
    73,598Equity in earnings (loss) from unconsolidated joint ventures
    
    
    (462
    )
    
    
    41
    
    
    
    (413
    )
    
    
    (2
    )Income (loss) before income taxes
    
    
    (11,480
    )
    
    
    24,833
    
    
    
    (10,599
    )
    
    
    7,655Income tax benefit (expense)
    
    
    4,384
    
    
    
    (8,454
    )
    
    
    4,059
    
    
    
    (2,384
    )Net income (loss)
    
    
    ($7,096
    )
    
    $
    16,379
    
    
    
    ($6,540
    )
    
    $
    5,271Basic Earnings (Loss) Per Share
    
    
    ($0.83
    )
    
    $
    1.98
    
    
    
    ($0.77
    )
    
    $
    0.64Diluted Earnings (Loss) Per Share
    
    
    ($0.83
    )
    
    $
    1.63
    
    
    
    ($0.77
    )
    
    $
    0.55
  4




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 2008
    
    
    2007OPERATING ACTIVITIESNet income (loss)
    
    
    ($7,096
    )
    
    $
    16,379Adjustments to reconcile net income (loss) tonet cash provided by (used in) operating activities:Depreciation and amortization
    
    
    1,970
    
    
    
    1,762Amortization of stock-based compensation
    
    
    1,447
    
    
    
    2,431Impairment of land and other inventories
    
    
    
    
    
    
    2,000Distributions (return) of earnings from an unconsolidated joint venture
    
    
    (133
    )
    
    
    (55
    )Equity in earnings (loss) from unconsolidated joint ventures
    
    
    462
    
    
    
    (41
    )Deferred income taxes
    
    
    (660
    )
    
    
    300Excess income tax benefit from exercise of stock options and restricted stock units
    
    
    10
    
    
    
    (1,816
    )Changes in operating assets and liabilities:Restricted cash
    
    
    1,634
    
    
    
    (426
    )Receivables, net
    
    
    (2,878
    )
    
    
    7,311Land and other inventories
    
    
    (3,965
    )
    
    
    13,300Prepaid expenses and other assets
    
    
    1,874
    
    
    
    (1,131
    )Accounts payable and accrued and other liabilities
    
    
    (486
    )
    
    
    (30,697
    )Customer deposits and deferred revenues
    
    
    609
    
    
    
    (7,343
    )NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    
    
    (7,212
    )
    
    
    1,974INVESTING ACTIVITIESInvestment in property and equipment
    
    
    (938
    )
    
    
    (3,167
    )Investment in Parkway under development
    
    
    (12,397
    )
    
    
    (18,902
    )Investment in unconsolidated joint ventures
    
    
    (26
    )
    
    
    (106
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (13,361
    )
    
    
    (22,175
    )FINANCING ACTIVITIESPrincipal payments of real estate borrowings
    
    
    (15,836
    )
    
    
    (374
    )Proceeds from exercise of stock options
    
    
    250
    
    
    
    2,100Excess income tax benefit from exercise of stock options and restricted stock units
    
    
    (10
    )
    
    
    1,816Payment of withholding taxes related to restricted stock units withheld
    
    
    (52
    )
    
    
    (374
    )NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
    
    (15,648
    )
    
    
    3,168DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (36,221
    )
    
    
    (17,033
    )Cash and cash equivalents at beginning of period
    
    
    192,258
    
    
    
    203,760CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    156,037
    
    
    $
    186,727SUPPLEMENTAL 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)  June 30, 2008
(Dollars in thousands except share and per share data)
 Basis of Financial Statement Presentation and Summary of Significant Accounting Policies
     Reclassifications
  Land and Other Inventories
  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  continued
 Accounting for
the Impairment or Disposal of Long-Lived Assets ,
  Housing communities:
 Disclosure about Segments of an Enterprise and Related
Information.
 Land held for future development or sale:
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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
   June 30,2008
    
    
    December 31,(Unaudited)
    
    
    2007Land developed and in process of development
    
    $
    232,640
    
    
    $
    229,526Land held for future development or sale
    
    
    95,546
    
    
    
    95,554Homes completed or under construction
    
    
    64,315
    
    
    
    63,755Other
    
    
    714
    
    
    
    622$
    393,215
    
    
    $
    389,457
    Property and Equipment and Parkway Under Development
  8




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Property and Equipment and Parkway Under Development  continued
      9




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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
     10




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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
  
    
    a reduction in the amount of the facility from $125,000 to $100,000 (the facility is
expandable up to $150,000, subject to certain conditions and lender approval);
    
    an approval for us to obtain financing for the Parkway of up to $140,000, subject to
certain conditions;
 
    
    modifications to certain covenants including: (i) reducing the minimum adjusted
EBITDA/Debt Service ratio (as defined) from 2.75 to 2.0, and providing for an
alternative requirement of maintaining a maximum leverage ratio and minimum liquidity
level if the minimum adjusted EBITDA/Debt Service ratio cannot be maintained; (ii)
reducing the Leverage Ratio (as defined) from 2.0 to 1.75, and allowing us to net
unrestricted cash in excess of $35,000 against outstanding debt in determining total
liabilities; and (iii) amending our covenant regarding speculative homes and models
whereby if we maintain a Leverage Ratio (as defined) below 1.0, we have no financial
covenant as to the number of speculative homes and models we can maintain; however, if
our Leverage Ratio exceeds 1.0, the number of speculative homes and models cannot exceed
35% of unit closings for the trailing twelve month period; and
 
    
    an increased pricing of the facility as follows: (i) the LIBOR Margin is increased
from a range of 1.75% to 2.25% to a range of 2.0% to 2.75%, and depending on our
EBITDA/Debt Service ratio, our rate on outstanding borrowings could be increased up to
an additional 50 basis points; (ii) our fee for outstanding letters of credit increased
from 1% to 50 basis points below our LIBOR Margin; and (iii) our unused fee changed from
25 basis points to a range of 25 basis points to 50 basis points, depending on our
usage.
 Debtors Accounting for Changes in Line-of-Credit or
Revolving-Debt Arrangements,
   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
   Warranty Costs
 
  Six Months
    
    
    Three Months2008
    
    
    2007
    
    
    2008
    
    
    2007Accrued warranty reserve, beginning of period
    
    $
    1,134
    
    
    $
    2,319
    
    
    $
    757
    
    
    $
    1,806Estimated warranty expense
    
    
    362
    
    
    
    1,105
    
    
    
    193
    
    
    
    541Amounts charged against warranty reserve
    
    
    (851
    )
    
    
    (1,775
    )
    
    
    (305
    )
    
    
    (698
    )Accrued warranty reserve, end of period
    
    $
    645
    
    
    $
    1,649
    
    
    $
    645
    
    
    $
    1,649
 Earnings (Loss) Per Share
 Earnings Per Share.
 12




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Earnings (Loss) Per Share  continued
   Six Months
    
    
    Three Months2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Basic earnings (loss) per share  net income (loss)
    
    
    ($7,096
    )
    
    $
    16,379
    
    
    
    ($6,540
    )
    
    $
    5,271Interest on 4.50% Notes, net of tax
    
    
    
    
    
    
    1,629
    
    
    
    
    
    
    
    813Diluted earnings (loss) per share  net income (loss)
    
    
    ($7,096
    )
    
    $
    18,008
    
    
    
    ($6,540
    )
    
    $
    6,084Denominator:Basic weighted average shares outstanding
    
    
    8,542,765
    
    
    
    8,255,859
    
    
    
    8,545,350
    
    
    
    8,297,456Effect of dilutive restricted stock units
    
    
    
    
    
    
    472,641
    
    
    
    
    
    
    
    471,383Effect of dilutive employee stock options
    
    
    
    
    
    
    31,864
    
    
    
    
    
    
    
    15,963Effect of dilutive 4.50% Notes
    
    
    
    
    
    
    2,278,041
    
    
    
    
    
    
    
    2,276,268Diluted weighted average shares outstanding
    
    
    8,542,765
    
    
    
    11,038,405
    
    
    
    8,545,350
    
    
    
    11,061,070
 Repurchase and Exchange of Common Stock
  Comprehensive Income
  13




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Share-Based Payments and Other Executive Compensation
      14




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Income Taxes
  Investments in Unconsolidated Joint Ventures
 Consolidation of Variable Interest Entities),
    15




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Recently Issued Accounting Pronouncements
 Fair Value Measurements Effective Date of FASB Statement No. 157,
 The Fair Value Option for Financial Assets
and Financial Liabilities
 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
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 16




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Recently Issued Accounting Pronouncements  continued
  Disclosures About Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging
Activities
 Estimated Development Liability for Sold Land
  June 30,2008
    
    
    December 31,(Unaudited)
    
    
    2007Gross estimated unexpended costs
    
    $
    26,727
    
    
    $
    26,737Less costs relating to unsold homesites
    
    
    (5,948
    )
    
    
    (6,050
    )Estimated development liability for sold land
    
    $
    20,779
    
    
    $
    20,687
  Commitments and Contingencies
 Accounting for Contingencies, .
 17




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Commitments and Contingencies  continued
  Financial Information Relating To Reportable Segments
  Six Months
    
    
    Three Months2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Segment revenuesPrimary residential
    
    $
    21,873
    
    
    $
    105,992
    
    
    $
    12,068
    
    
    $
    53,670Active adult communities
    
    
    21,331
    
    
    
    51,742
    
    
    
    9,706
    
    
    
    20,432Commercial and industrial and other land sales
    
    
    9,562
    
    
    
    9,049
    
    
    
    2,134
    
    
    
    3,489Other operations
    
    
    890
    
    
    
    1,862
    
    
    
    328
    
    
    
    87453,656
    
    
    
    168,645
    
    
    
    24,236
    
    
    
    78,465Unallocated revenuesInterest income
    
    
    1,650
    
    
    
    4,237
    
    
    
    636
    
    
    
    2,021Other
    
    
    156
    
    
    
    818
    
    
    
    58
    
    
    
    769Total revenues
    
    $
    55,462
    
    
    $
    173,700
    
    
    $
    24,930
    
    
    $
    81,255Operating income (loss):Segment operating income (loss)Primary residential
    
    
    ($4,052
    )
    
    $
    20,745
    
    
    
    ($1,944
    )
    
    $
    9,581Active adult communities
    
    
    (1,141
    )
    
    
    8,606
    
    
    
    (1,304
    )
    
    
    1,677Commercial and industrial and other land sales
    
    
    9,107
    
    
    
    7,137
    
    
    
    2,037
    
    
    
    2,379Other operations
    
    
    (52
    )
    
    
    423
    
    
    
    (137
    )
    
    
    2363,862
    
    
    
    36,911
    
    
    
    (1,348
    )
    
    
    13,873Unallocated income (expenses)Equity in earnings (loss) from
unconsolidated joint ventures
    
    
    (462
    )
    
    
    41
    
    
    
    (413
    )
    
    
    (2
    )Interest income
    
    
    1,650
    
    
    
    4,237
    
    
    
    636
    
    
    
    2,021General and administrative expenses
    
    
    (10,983
    )
    
    
    (13,186
    )
    
    
    (5,846
    )
    
    
    (7,127
    )Interest expense
    
    
    (951
    )
    
    
    
    
    
    
    (594
    )
    
    
    Other real estate expenses
    
    
    (4,596
    )
    
    
    (3,170
    )
    
    
    (3,034
    )
    
    
    (1,110
    )Income (loss) before income taxes
    
    
    ($11,480
    )
    
    $
    24,833
    
    
    
    ($10,599
    )
    
    $
    7,655
 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)
    EXECUTIVE SUMMARY
    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
 EXECUTIVE
SUMMARY
     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
 RESULTS OF OPERATIONS
 
 Six Months
    
    
    Three Months2008
    
    
    2007
    
    
    2008
    
    
    2007Operating income:Primary residentialRevenues
    
    $
    21,873
    
    
    $
    105,992
    
    
    $
    12,068
    
    
    $
    53,670Expenses
    
    
    25,925
    
    
    
    85,247
    
    
    
    14,012
    
    
    
    44,089Segment operating income (loss)
    
    
    (4,052
    )
    
    
    20,745
    
    
    
    (1,944
    )
    
    
    9,581Active adult communitiesRevenues
    
    
    21,331
    
    
    
    51,742
    
    
    
    9,706
    
    
    
    20,432Expenses
    
    
    22,472
    
    
    
    43,136
    
    
    
    11,010
    
    
    
    18,755Segment operating income (loss)
    
    
    (1,141
    )
    
    
    8,606
    
    
    
    (1,304
    )
    
    
    1,677Commercial and industrial and other land salesRevenues
    
    
    9,562
    
    
    
    9,049
    
    
    
    2,134
    
    
    
    3,489Expenses
    
    
    455
    
    
    
    1,912
    
    
    
    97
    
    
    
    1,110Segment operating income
    
    
    9,107
    
    
    
    7,137
    
    
    
    2,037
    
    
    
    2,379Other operationsRevenues
    
    
    890
    
    
    
    1,862
    
    
    
    328
    
    
    
    874Expenses
    
    
    942
    
    
    
    1,439
    
    
    
    465
    
    
    
    638Segment operating income (loss)
    
    
    (52
    )
    
    
    423
    
    
    
    (137
    )
    
    
    236Operating income (loss)
    
    
    3,862
    
    
    
    36,911
    
    
    
    (1,348
    )
    
    
    13,873Unallocated income (expenses):Equity in earnings (loss) from
unconsolidated joint ventures
    
    
    (462
    )
    
    
    41
    
    
    
    (413
    )
    
    
    (2
    )Interest income
    
    
    1,650
    
    
    
    4,237
    
    
    
    636
    
    
    
    2,021General and administrative expenses
    
    
    (10,983
    )
    
    
    (13,186
    )
    
    
    (5,846
    )
    
    
    (7,127
    )Interest expense
    
    
    (951
    )
    
    
    
    
    
    
    (594
    )
    
    
    Other real estate expenses
    
    
    (4,596
    )
    
    
    (3,170
    )
    
    
    (3,034
    )
    
    
    (1,110
    )Income (loss) before income taxes
    
    
    (11,480
    )
    
    
    24,833
    
    
    
    (10,599
    )
    
    
    7,655Income tax benefit (expense)
    
    
    4,384
    
    
    
    (8,454
    )
    
    
    4,059
    
    
    
    (2,384
    )Net income (loss)
    
    
    ($7,096
    )
    
    $
    16,379
    
    
    
    ($6,540
    )
    
    $
    5,271
 21




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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
  Number of
    
    
    
    
    
    
    Average PriceUnits
    
    
    Revenues
    
    
    Per UnitFor the six months ended June 30,2008Primary residential
    
    
    82
    
    
    $
    20,603
    
    
    $
    251Active adult communities
    
    
    53
    
    
    
    14,929
    
    
    $
    282Total
    
    
    135
    
    
    $
    35,532
    
    
    $
    2632007Primary residential
    
    
    325
    
    
    $
    103,611
    
    
    $
    319Active adult communities
    
    
    127
    
    
    
    46,127
    
    
    $
    363Total
    
    
    452
    
    
    $
    149,738
    
    
    $
    331For the three months ended June 30,2008Primary residential
    
    
    46
    
    
    $
    11,294
    
    
    $
    246Active adult communities
    
    
    24
    
    
    
    6,761
    
    
    $
    282Total
    
    
    70
    
    
    $
    18,055
    
    
    $
    2582007Primary residential
    
    
    171
    
    
    $
    52,261
    
    
    $
    306Active adult communities
    
    
    51
    
    
    
    17,875
    
    
    $
    350Total
    
    
    222
    
    
    $
    70,136
    
    
    $
    316
 22




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition andResults of Operations (dollars in thousands except share and per share data) continued
 RESULTS OF OPERATIONS
  Gross Number
    
    
    
    
    
    
    Contracts
    
    
    
    
    
    
    Averageof Contracts
    
    
    
    
    
    
    Signed, Net of
    
    
    
    
    
    
    Price PerSigned
    
    
    Cancellations
    
    
    Cancellations
    
    
    Dollar Value
    
    
    UnitFor the six months ended June 30,2008Primary residential
    
    
    105
    
    
    
    (41
    )
    
    
    64
    
    
    $
    16,700
    
    
    $
    261Active adult communities
    
    
    83
    
    
    
    (28
    )
    
    
    55
    
    
    
    13,553
    
    
    $
    246Total
    
    
    188
    
    
    
    (69
    )
    
    
    119
    
    
    $
    30,253
    
    
    $
    2542007Primary residential
    
    
    327
    
    
    
    (131
    )
    
    
    196
    
    
    $
    41,542
    
    
    $
    212Active adult communities
    
    
    100
    
    
    
    (27
    )
    
    
    73
    
    
    
    23,478
    
    
    $
    322Total
    
    
    427
    
    
    
    (158
    )
    
    
    269
    
    
    $
    65,020
    
    
    $
    242For the three months ended June 30,2008Primary residential
    
    
    48
    
    
    
    (20
    )
    
    
    28
    
    
    $
    7,564
    
    
    $
    270Active adult communities
    
    
    47
    
    
    
    (9
    )
    
    
    38
    
    
    
    10,416
    
    
    $
    274Total
    
    
    95
    
    
    
    (29
    )
    
    
    66
    
    
    $
    17,980
    
    
    $
    2722007Primary residential
    
    
    188
    
    
    
    (83
    )
    
    
    105
    
    
    $
    19,381
    
    
    $
    185Active adult communities
    
    
    34
    
    
    
    (12
    )
    
    
    22
    
    
    
    7,548
    
    
    $
    343Total
    
    
    222
    
    
    
    (95
    )
    
    
    127
    
    
    $
    26,929
    
    
    $
    212
  Number of
    
    
    Dollar
    
    
    Average PriceAs of June 30,
    
    Units
    
    
    Volume
    
    
    Per Unit2008Primary residential
    
    
    54
    
    
    $
    17,159
    
    
    $
    318Active adult communities
    
    
    77
    
    
    
    22,693
    
    
    $
    295Total
    
    
    131
    
    
    $
    39,852
    
    
    $
    3042007Primary residential
    
    
    203
    
    
    $
    53,531
    
    
    $
    264Active adult communities
    
    
    163
    
    
    
    51,043
    
    
    $
    313Total
    
    
    366
    
    
    $
    104,574
    
    
    $
    286
 23




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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
      24




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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
       25




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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
     LIQUIDITY AND CAPITAL RESOURCES
     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
 LIQUIDITY AND CAPITAL RESOURCES  continued
       27




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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 reduction in the amount of the facility from $125,000 to $100,000 (the facility is
expandable up to $150,000, subject to certain conditions and lender approval);
    
    an approval for us to obtain financing for the Parkway of up to $140,000, subject to
certain conditions;
 
    
    modifications to certain covenants including: (i) reducing the minimum adjusted
EBITDA/Debt Service ratio (as defined) from 2.75 to 2.0, and providing for an
alternative requirement of maintaining a maximum leverage ratio and minimum liquidity
level if the minimum adjusted EBITDA/Debt Service ratio cannot be maintained; (ii)
reducing the Leverage Ratio (as defined) from 2.0 to 1.75, and allowing us to net
unrestricted cash in excess of $35,000 against outstanding debt in determining total
liabilities; and (iii) amending our covenant regarding speculative homes and models
whereby if we maintain a Leverage Ratio (as defined) below 1.0, we have no financial
covenant as to the number of speculative homes and models we can maintain; however, if
our Leverage Ratio exceeds 1.0, the number of speculative homes and models cannot exceed
35% of unit closings for the trailing twelve month period; and
 28




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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
 
    
    an increased pricing of the facility as follows: (i) the LIBOR Margin is increased
from a range of 1.75% to 2.25% to a range of 2.0% to 2.75%, and depending on our
EBITDA/Debt Service ratio, our rate on outstanding borrowings could be increased up to
an additional 50 basis points; (ii) our fee for outstanding letters of credit increased
from 1% to 50 basis points below our LIBOR Margin; and (iii) our unused fee changed from
25 basis points to a range of 25 basis points to 50 basis points, depending on our
usage.
 Debtors Accounting for Changes in Line-of-Credit or
Revolving-Debt Arrangements,
      29




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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
  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
 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements Effective Date of FASB Statement No. 157,
 The Fair Value Option for Financial Assets
and Financial Liabilities
 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
 Business Combinations Business Combinations
 31




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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
 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS  continued
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Disclosures About Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging
Activities
 
 Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4.
    
    Controls and Procedures
   32




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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)April 1, 2008 to April 30, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    9,864May 1, 2008 to May 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    9,864June 1, 2008 to June 30, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    9,864Total
    
    
    
    
    
    $
    
    
    
    
    
 
 (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. During the three months ended June 30, 2008, Avatar did not repurchase
shares of its common stock and/or the 4.50% Notes. As of June 30, 2008, the remaining
authorization for purchase of shares of Avatars common stock and/or 4.50% Notes was $9,864. 33




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##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders
  ELECTION OF DIRECTORS
 Name
    
    Votes FOR

    
    WITHHELDPaul D. Barnett
    
    
    6,697,352
    
    
    
    40,021Eduardo A. Brea
    
    
    6,698,852
    
    
    
    38,521Milton H. Dresner
    
    
    6,654,286
    
    
    
    83,087Roger W. Einiger
    
    
    6,697,352
    
    
    
    40,021Gerald D. Kelfer
    
    
    6,698,091
    
    
    
    39,282Joshua Nash
    
    
    6,698,245
    
    
    
    39,128Kenneth T. Rosen
    
    
    6,696,418
    
    
    
    40,955Joel M. Simon
    
    
    6,697,352
    
    
    
    40,021Fred Stanton Smith
    
    
    6,697,061
    
    
    
    40,312Beth A. Stewart
    
    
    6,696,663
    
    
    
    40,710
 APPOINTMENT OF AUDITORS
 Shares Voted
    
    Shares Voted
    
    Shares
    
    BrokerFOR
    
    AGAINST
    
    ABSTAINED
    
    NON-VOTES6,725,177
    
    1,435
    
    10,761
    
    0
 34




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##### Table of Contents



Item 6.
    
    Exhibits
 10.1
    
    Director Compensation (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).
 35




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##### Table of Contents



SIGNATURES
 
 AVATAR HOLDINGS INC.Date:
    
    August 11, 2008
    
    
    
    By:
    
    /s/ Randy L. KotlerRandy L. KotlerExecutive Vice President, Chief
Financial Officer and TreasurerDate:
    
    August 11, 2008
    
    
    
    By:
    
    /s/ Michael P. RamaMichael P. RamaController and Chief Accounting Officer
 36




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##### Table of Contents



Exhibit Index
 10.1
    
    Director Compensation (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).
 37