##### 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, 2009
 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
 
 þ o
 o 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 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, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations      Three months ended March 31, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows      Three months ended March 31, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    

Managements
Discussion and Analysis of Financial     Condition and Results of Operations
    
    
    25Item 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 6.
    
    Exhibits
    
    
    42EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I   FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 AVATAR HOLDINGS INC. AND SUBSIDIARIES
 March 31,
    
    
    December 31,2009
    
    
    2008AssetsCash and cash equivalents
    
    $
    172,430
    
    
    $
    175,396Restricted cash
    
    
    1,111
    
    
    
    1,614Receivables, net
    
    
    3,753
    
    
    
    3,144Income tax receivable
    
    
    21,503
    
    
    
    21,503Land and other inventories
    
    
    299,980
    
    
    
    304,196Property and equipment, net
    
    
    52,654
    
    
    
    53,485Poinciana Parkway
    
    
    15,732
    
    
    
    16,043Investment in and notes receivable from unconsolidated entities
    
    
    5,808
    
    
    
    5,790Prepaid expenses and other assets
    
    
    9,639
    
    
    
    10,806Deferred income taxes
    
    
    2,835
    
    
    
    2,835Total Assets
    
    $
    585,445
    
    
    $
    594,812Liabilities and Stockholders EquityLiabilitiesAccounts payable
    
    $
    1,697
    
    
    $
    1,484Accrued and other liabilities
    
    
    9,023
    
    
    
    8,677Amount owed for settlement of 4.50% Note repurchase
    
    
    6,038
    
    
    
    Customer deposits and deferred revenues
    
    
    3,694
    
    
    
    3,611Estimated development liability for sold land
    
    
    20,424
    
    
    
    20,468Notes, mortgage notes and other debt:Corporate
    
    
    68,219
    
    
    
    74,950Real estate
    
    
    56,086
    
    
    
    56,111Total Liabilities
    
    
    165,181
    
    
    
    165,301Commitments and ContingenciesStockholders EquityCommon Stock, par value $1 per share
Authorized: 50,000,000 shares
Issued: 11,488,259 shares at March 31, 2009
and December 31, 2008
    
    
    11,488
    
    
    
    11,488Additional paid-in capital
    
    
    244,396
    
    
    
    245,049Retained earnings
    
    
    243,317
    
    
    
    251,911499,201
    
    
    
    508,448Treasury stock: at cost, 2,658,461 shares at March 31, 2009
and December 31, 2008
    
    
    (78,937
    )
    
    
    (78,937
    )Total Stockholders Equity
    
    
    420,264
    
    
    
    429,511Total Liabilities and Stockholders Equity
    
    $
    585,445
    
    
    $
    594,812
  3




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 Three Months2009
    
    
    2008RevenuesReal estate revenues
    
    $
    13,751
    
    
    $
    29,395Interest income
    
    
    199
    
    
    
    1,014Other
    
    
    1,397
    
    
    
    123Total revenues
    
    
    15,347
    
    
    
    30,532ExpensesReal estate expenses
    
    
    18,205
    
    
    
    26,214General and administrative expenses
    
    
    4,667
    
    
    
    5,137Interest expense
    
    
    1,837
    
    
    
    527Total expenses
    
    
    24,709
    
    
    
    31,878Equity losses from unconsolidated entities
    
    
    (62
    )
    
    
    (49
    )Loss before income taxes
    
    
    (9,424
    )
    
    
    (1,395
    )Income tax benefit
    
    
    830
    
    
    
    523Net loss
    
    $
    (8,594
    )
    
    $
    (872
    )Basic and Diluted Loss Per Share
    
    $
    (0.99
    )
    
    $
    (0.10
    )
  4




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 2009
    
    
    2008OPERATING ACTIVITIESNet loss
    
    $
    (8,594
    )
    
    $
    (872
    )Adjustments to reconcile net loss to
net cash used in operating activities:Depreciation and amortization
    
    
    1,386
    
    
    
    1,627Amortization of stock-based compensation
    
    
    475
    
    
    
    690Impairment of land and other inventories
    
    
    430
    
    
    
    Impairment of the Poinciana Parkway
    
    
    318
    
    
    
    Gain from repurchase of 4.50% Notes
    
    
    (1,365
    )
    
    
    Return of earnings from an unconsolidated entity
    
    
    (57
    )
    
    
    (67
    )Equity losses from unconsolidated entities
    
    
    62
    
    
    
    49Deferred income taxes
    
    
    (830
    )
    
    
    (329
    )Excess income tax benefit from exercise of stock options and restricted stock units
    
    
    
    
    
    
    (20
    )Changes in operating assets and liabilities:Restricted cash
    
    
    503
    
    
    
    (520
    )Receivables, net
    
    
    (609
    )
    
    
    (2,800
    )Land and other inventories
    
    
    3,950
    
    
    
    (3,930
    )Prepaid expenses and other assets
    
    
    1,104
    
    
    
    935Accounts payable and accrued and other liabilities
    
    
    310
    
    
    
    (1,622
    )Customer deposits and deferred revenues
    
    
    83
    
    
    
    1,076NET CASH USED IN OPERATING ACTIVITIES
    
    
    (2,834
    )
    
    
    (5,783
    )INVESTING ACTIVITIESInvestment in property and equipment
    
    
    (77
    )
    
    
    (817
    )Investment in Poinciana Parkway
    
    
    (7
    )
    
    
    (11,210
    )Investment in unconsolidated entities
    
    
    (23
    )
    
    
    (14
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (107
    )
    
    
    (12,041
    )FINANCING ACTIVITIESPrincipal payments of real estate borrowings
    
    
    (25
    )
    
    
    (15,765
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    250Excess income tax benefit from exercise of stock options and restricted stock units
    
    
    
    
    
    
    20Payment of withholding taxes related to restricted stock units withheld
    
    
    
    
    
    
    (52
    )NET CASH USED IN FINANCING ACTIVITIES
    
    
    (25
    )
    
    
    (15,547
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,966
    )
    
    
    (33,371
    )Cash and cash equivalents at beginning of period
    
    
    175,396
    
    
    
    192,258CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    172,430
    
    
    $
    158,887
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AVATAR HOLDINGS INC. AND SUBSIDIARIES  Notes to Consolidated Financial Statements (Unaudited)  March 31, 2009
(Dollars in thousands except share and per share data)
 Basis of Financial Statement Presentation and Summary of Significant Accounting Policies
     Reclassifications
  Adoption of New Accounting Pronouncement
 Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)
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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Adoption of New Accounting Pronouncement  continued
   Capitalization of Interest Cost.
  As Originally
    
    As
    
    Effect ofReported
    
    Adjusted
    
    ChangeLand and other inventories
    
    $
    299,621
    
    
    $
    304,196
    
    
    $
    4,575Poinciana Parkway
    
    $
    15,310
    
    
    $
    16,043
    
    
    $
    733Prepaid expenses and other assets
    
    $
    12,162
    
    
    $
    10,806
    
    
    $
    (1,356
    )Notes, mortgage notes and other debt (Corporate)
    
    $
    78,880
    
    
    $
    74,950
    
    
    $
    (3,930
    )Additional paid-in capital
    
    $
    231,279
    
    
    $
    245,049
    
    
    $
    13,770Retained earnings
    
    $
    257,799
    
    
    $
    251,911
    
    
    $
    (5,888
    )
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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Adoption of New Accounting Pronouncement  continued
  Three MonthsAs Originally
    
    As
    
    Effect ofReported
    
    Adjusted
    
    ChangeReal estate expenses
    
    $
    25,870
    
    
    $
    26,214
    
    
    $
    344Interest expense
    
    $
    357
    
    
    $
    527
    
    
    $
    170Loss before income taxes
    
    $
    (881
    )
    
    $
    (1,395
    )
    
    $
    (514
    )Income tax benefit
    
    $
    325
    
    
    $
    523
    
    
    $
    198Net loss
    
    $
    (556
    )
    
    $
    (872
    )
    
    $
    (316
    )Basic and diluted loss per share
    
    $
    (0.07
    )
    
    $
    (0.10
    )
    
    $
    (0.03
    )
 Land and Other Inventories:
  Accounting for
the Impairment or Disposal of Long-Lived Assets ,
   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
   
    
    The average price on sales closed from primary residential homebuilding operations
has decreased approximately 34% from $323 in 2006 to $213 during the first quarter of
2009. Our average sales price on sales contracts entered into during the first quarter
of 2009 declined to approximately $178 as compared to $250 during the fourth quarter of
2008. Additionally, the average contribution margin on closings from primary residential
homebuilding operations has declined from approximately 34% in 2006 to approximately 8%
during the first quarter of 2009.
    
    The average price on sales closed from active adult homebuilding operations has
decreased approximately 14% from $298 in 2006 to $256 during the first quarter of 2009.
Our average sales price on sales contracts entered into during the first quarter of 2009
declined to approximately $188 as compared to $210 during the fourth quarter of 2008.
Additionally, the average contribution margin on closings from active adult homebuilding
operations has declined from approximately 33% in 2006 to approximately 19% during the
first quarter of 2009.
  Housing communities:
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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:
  10




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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
  March 31,
    
    December 31,2009
    
    2008Land developed and in process of development
    
    $
    153,677
    
    
    $
    153,623Land held for future development or sale
    
    
    96,054
    
    
    
    96,054Homes completed or under construction
    
    
    49,624
    
    
    
    53,817Other
    
    
    625
    
    
    
    702$
    299,980
    
    
    $
    304,196
    Property and Equipment
    11




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Poinciana Parkway
      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
    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
  March 31,
    
    December 31,2009
    
    20084.50% NotesPrincipal amount
    
    $
    71,380
    
    
    $
    78,880Unamortized discount
    
    
    (3,161
    )
    
    
    (3,930
    )Net carrying amount
    
    $
    68,219
    
    
    $
    74,950Equity Component, net of income tax benefit
    
    $
    13,472
    
    
    $
    13,770
    
    
    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 Poinciana 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) of 1.0 or less, 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
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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
 
    
    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,
      15




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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
   Three Months2009
    
    2008Accrued warranty reserve, beginning of period
    
    $
    468
    
    
    $
    1,134Estimated warranty expense
    
    
    95
    
    
    
    169Amounts charged against warranty reserve
    
    
    (142
    )
    
    
    (546
    )Accrued warranty reserve, end of period
    
    $
    421
    
    
    $
    757
 16




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Loss Per Share
 Earnings Per Share.
   Three Months2009
    
    2008Numerator:Basic and diluted loss per share  net loss
    
    $
    (8,594
    )
    
    $
    (872
    )Denominator:Basic and diluted weighted average shares
outstanding
    
    
    8,652,740
    
    
    
    8,540,195
 Repurchase and Exchange of Common Stock
  Comprehensive Loss
  Share-Based Payments and Other Executive Compensation
  17




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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  continued
    Income Taxes
  Accounting for Income Taxes (
  18




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Income Taxes  continued
  Fair Value Disclosures
 Fair
Value Measurements
  Level 1: Fair value determined based on quoted market prices in active markets for
identical assets and liabilitiesLevel 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 at
    
    TotalNon-financial Assets
    
    Hierarchy
    
    March 31, 2009
    
    LossesHomes completed or under construction
    
    Level 3
    
    $
    5,842
    
    
    $
    430Poinciana Parkway
    
    Level 3
    
    $
    15,732
    
    
    $
    318
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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Fair Value Disclosures  continued
     Investments in and Notes Receivable from Unconsolidated Entities
 Consolidation of Variable Interest Entities Consolidated Financial Statements,
    20




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Investments in and Notes Receivable from Unconsolidated Entities  continued
  March 31,
    
    December 31,2009
    
    2008Assets:Cash
    
    $
    636
    
    
    $
    645Receivables
    
    
    1,522
    
    
    
    1,500Land and other inventory
    
    
    10,731
    
    
    
    10,686Total assets
    
    $
    12,889
    
    
    $
    12,831Liabilities and Partners Capital:Accounts payable and accrued liabilities
    
    $
    793
    
    
    $
    731Notes payable to Avatar
    
    
    3,669
    
    
    
    3,669Partners Capital of:Avatar
    
    
    2,139
    
    
    
    2,121Equity partner
    
    
    6,288
    
    
    
    6,310Total liabilities and partners capital
    
    $
    12,889
    
    
    $
    12,831
  Three Months2009
    
    2008Revenues
    
    $
    15
    
    
    $
    30Costs and expenses
    
    
    171
    
    
    
    118Net loss from unconsolidated entities
    
    $
    (156
    )
    
    $
    (88
    )Avatars share of loss from unconsolidated entities
    
    $
    (62
    )
    
    $
    (49
    )
 Recently Issued Accounting Pronouncements
 Business Combinations Business Combinations
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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
 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
  Disclosure by Public
Entities (Enterprises) About Transfers of Financial Assets and Interests in Variable Interest
Entities Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities
  i)
    
    FASB Staff Position SFAS No. 157-4, Determining Whether a Market Is Not Active
and a Transaction Is Not Distressed(FSP SFAS No. 157-4) provides guidelines for making
fair value measurements more consistent with the principles presented in SFAS No. 157.
FSP SFAS No. 157-4 provides additional authoritative guidance in determining whether a
market is active or inactive, and whether a transaction is distressed, is applicable to
all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced
disclosures.
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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
 ii)
    
    FASB Staff Position SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairmentsprovides additional guidance to provide greater
clarity about the credit and noncredit component of an other-than-temporary impairment
event and to improve presentation and disclosure of other than temporary impairments in
the financial statements.iii)
    
    FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instrumentsamends FASB Statement No. 107, Disclosures about Fair
Value of Financial Instruments,to require disclosures about fair value of financial
instruments in interim as well as in annual financial statements. This FSP also amends
APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all
interim financial statements.
 Estimated Development Liability for Sold Land
  March 31,
    
    December 31,2009
    
    2008Gross estimated unexpended costs
    
    $
    26,485
    
    
    $
    26,518Less costs relating to unsold homesites
    
    
    (6,061
    )
    
    
    (6,050
    )Estimated development liability for sold land
    
    $
    20,424
    
    
    $
    20,468
  Commitments and Contingencies
 Accounting for Contingencies, .
  23




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Notes to Consolidated Financial Statements (dollars in thousands except share and per share
data) (Unaudited)  continued
 Financial Information Relating To Reportable Segments
  Three Months2009
    
    2008Revenues:Segment revenuesPrimary residential
    
    $
    5,536
    
    
    $
    9,805Active adult communities
    
    
    6,198
    
    
    
    11,625Commercial and industrial and other land sales
    
    
    1,825
    
    
    
    7,428Other operations
    
    
    228
    
    
    
    56213,787
    
    
    
    29,420Unallocated revenuesInterest income
    
    
    199
    
    
    
    1,014Other
    
    
    1,361
    
    
    
    98Total revenues
    
    $
    15,347
    
    
    $
    30,532Operating income (loss):Segment operating income (loss)Primary residential
    
    $
    (1,898
    )
    
    $
    (2,266
    )Active adult communities
    
    
    (1,432
    )
    
    
    (23
    )Commercial and industrial and other land sales
    
    
    1,778
    
    
    
    7,070Other operations
    
    
    11
    
    
    
    85(1,541
    )
    
    
    4,866Unallocated income (expenses)Interest income
    
    
    199
    
    
    
    1,014Gain on repurchase of 4.50% Notes
    
    
    1,365
    
    
    
    Equity loss from unconsolidated entities
    
    
    (62
    )
    
    
    (49
    )General and administrative expenses
    
    
    (4,667
    )
    
    
    (5,137
    )Interest expense
    
    
    (1,837
    )
    
    
    (527
    )Other real estate expenses
    
    
    (2,563
    )
    
    
    (1,562
    )Impairment of the Poinciana Parkway
    
    
    (318
    )
    
    
    Loss before income taxes
    
    $
    (9,424
    )
    
    $
    (1,395
    )
 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)
    EXECUTIVE SUMMARY
    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
 EXECUTIVE SUMMARY  continued
     26




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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 Months2009
    
    2008Operating income (loss):Primary residentialRevenues
    
    $
    5,536
    
    
    $
    9,805Expenses
    
    
    7,434
    
    
    
    12,071Segment operating loss
    
    
    (1,898
    )
    
    
    (2,266
    )Active adult communitiesRevenues
    
    
    6,198
    
    
    
    11,625Expenses
    
    
    7,630
    
    
    
    11,648Segment operating loss
    
    
    (1,432
    )
    
    
    (23
    )Commercial and industrial and other land salesRevenues
    
    
    1,825
    
    
    
    7,428Expenses
    
    
    47
    
    
    
    358Segment operating income
    
    
    1,778
    
    
    
    7,070Other operationsRevenues
    
    
    228
    
    
    
    562Expenses
    
    
    217
    
    
    
    477Segment operating income
    
    
    11
    
    
    
    85Operating income (loss)
    
    
    (1,541
    )
    
    
    4,866Unallocated income (expenses):Interest income
    
    
    199
    
    
    
    1,014Gain on repurchase of 4.50% Notes
    
    
    1,365
    
    
    
    Equity loss from unconsolidated entities
    
    
    (62
    )
    
    
    (49
    )General and administrative expenses
    
    
    (4,667
    )
    
    
    (5,137
    )Interest expense
    
    
    (1,837
    )
    
    
    (527
    )Other real estate expenses
    
    
    (2,563
    )
    
    
    (1,562
    )Impairment of the Poinciana Parkway
    
    
    (318
    )
    
    
    Loss before income taxes
    
    
    (9,424
    )
    
    
    (1,395
    )Income tax benefit
    
    
    830
    
    
    
    523Net loss
    
    $
    (8,594
    )
    
    $
    (872
    )
 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
 RESULTS OF OPERATIONS 
  Number of
    
    
    
    
    
    Average PriceFor the three months ended March 31,
    
    Units
    
    Revenues
    
    Per Unit2009Primary residential
    
    
    22
    
    
    $
    4,684
    
    
    $
    213Active adult communities
    
    
    12
    
    
    
    3,071
    
    
    $
    256Total
    
    
    34
    
    
    $
    7,755
    
    
    $
    2282008Primary residential
    
    
    36
    
    
    $
    9,309
    
    
    $
    259Active adult communities
    
    
    29
    
    
    
    8,168
    
    
    $
    282Total
    
    
    65
    
    
    $
    17,477
    
    
    $
    269
  Gross Number
    
    
    
    
    
    Contracts
    
    
    
    
    
    Averageof Contracts
    
    
    
    
    
    Signed, Net of
    
    
    
    
    
    Price PerFor the three months ended March 31,
    
    Signed
    
    Cancellations
    
    Cancellations
    
    Dollar Value
    
    Unit2009Primary residential
    
    
    48
    
    
    
    9
    
    
    
    39
    
    
    $
    6,951
    
    
    $
    178Active adult communities
    
    
    23
    
    
    
    5
    
    
    
    18
    
    
    
    3,387
    
    
    $
    188Total
    
    
    71
    
    
    
    14
    
    
    
    57
    
    
    $
    10,338
    
    
    $
    1812008Primary residential
    
    
    57
    
    
    
    21
    
    
    
    36
    
    
    $
    9,136
    
    
    $
    254Active adult communities
    
    
    36
    
    
    
    19
    
    
    
    17
    
    
    
    3,137
    
    
    $
    185Total
    
    
    93
    
    
    
    40
    
    
    
    53
    
    
    $
    12,273
    
    
    $
    232
 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 
  Number of
    
    Dollar
    
    Average PriceAs of March 31,
    
    Units
    
    Volume
    
    Per Unit2009Primary residential
    
    
    33
    
    
    
    6,868
    
    
    $
    208Active adult communities
    
    
    46
    
    
    
    11,793
    
    
    $
    256Total
    
    
    79
    
    
    $
    18,661
    
    
    $
    2362008Primary residential
    
    
    72
    
    
    $
    20,888
    
    
    $
    290Active adult communities
    
    
    63
    
    
    
    19,038
    
    
    $
    302Total
    
    
    135
    
    
    $
    39,926
    
    
    $
    296
    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 
      30




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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 
         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 
  LIQUIDITY AND CAPITAL RESOURCES
       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  continued
    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
   March 31,
    
    December 31,2009
    
    20084.50% NotesPrincipal amount
    
    $
    71,380
    
    
    $
    78,880Unamortized discount
    
    
    (3,161
    )
    
    
    (3,930
    )Net carrying amount
    
    $
    68,219
    
    
    $
    74,950Equity Component, net of income tax benefit
    
    $
    13,472
    
    
    $
    13,770
    
    
    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 Poinciana 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
 34




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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
 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) of 1.0
or less, 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,
    35




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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
    
    $
    259,927
    
    
    $
    420,264Leverage Ratio (a)
    
    Less than or equal to 1.00
    
    
    
    0.09EBITDA/Debt Service Ratio
    
    
    (b)
    
    
    
    (b)AFFCO Ratio
    
    
    (b)
    
    
    
    (b)Liquidity/Cash Requirements
    
    
    $75,000/$35,000
    
    
    
    $174,998/$172,430Notes 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%
    
    
    
    1.4%Book value of raw land,
land under development
and developed lots (as a
percent of Tangible Net
Worth)
    
    Less than or equal to 150%
    
    
    
    58%
 36




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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 is greater than or equal to 2.00 to 1,
the Leverage Ratio requirement is less than or equal to 1.75 to 1. If our Adjusted
EBITDA/Debt Service Ratio is greater than or equal to 1.50 to 1, the Leverage Ratio
requirement is less than or equal to 1.50 to 1. If our Adjusted EBITDA/Debt Service
Ratio is greater than or equal to 1.00 to 1, the Leverage Ratio requirement is less
than or equal to 1.25 to 1. If our Adjusted EBITDA/Debt Service Ratio is less than 1.00
to 1, the Leverage Ratio requirement is less than or equal to 1.00 to 1.(b)
    
    Our Adjusted EBITDA/Debt Service Ratio of negative 8.9 was less than 1.00 to 1
as of March 31, 2009. Our AFFCO Ratio of negative 0.7 was less than 1.50 to 1 as of
March 31, 2009. We are required to maintain Liquidity of $75,000 of which $35,000 is
cash and cash equivalents.
      37




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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
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 38




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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
 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
  Disclosure by Public
Entities (Enterprises) About Transfers of Financial Assets and Interests in Variable Interest
Entities Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities
  i)
    
    FASB Staff Position SFAS No. 157-4, Determining Whether a Market Is Not Active
and a Transaction Is Not Distressed(FSP SFAS No. 157-4) provides guidelines for making
fair value measurements more consistent with the principles presented in SFAS No. 157.
FSP SFAS No. 157-4 provides additional authoritative guidance in determining whether a
market is active or inactive, and whether a transaction is distressed, is applicable to
all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced
disclosures.ii)
    
    FASB Staff Position SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairmentsprovides additional guidance to provide greater
clarity about the credit and noncredit component of an other-than-temporary impairment
event and to improve presentation and disclosure of other than temporary impairments in
the financial statements.iii)
    
    FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instrumentsamends FASB Statement No. 107, Disclosures about Fair
Value of Financial Instruments,to require disclosures about fair value of financial
instruments in interim as well as in annual financial statements. This FSP also amends
APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all
interim financial statements.
 39




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




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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)
 Repurchases of Equity Securities
  Total Numberof SharesPurchased as
    
    MaximumPart of a
    
    Amount ThatAverage
    
    Publicly
    
    May Yet BeTotal Number
    
    Price
    
    Announced
    
    Purchasedof Shares
    
    Paid Per
    
    Plan or
    
    Under the PlanPeriod
    
    Purchased
    
    Share
    
    Program (1)
    
    or Program (1)January 1, 2009 to January 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,000February 1, 2009 to February 28, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,000March 1, 2009 to March 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    23,962Total
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    On March 20, 2003, our 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, our Board
of Directors amended the March 20, 2003 repurchase authorization to include the 4.50% Notes
in addition to shares of our common stock. 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. The settlement of this transaction
occurred on April 2, 2009. As of March 31, 2009, the remaining authorization for purchase
of shares of Avatars common stock and/or 4.50% Notes was $23,962. 41




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##### Table of Contents



Item 6. Exhibits
 10.1
    
    Compensation of Certain Named Executive Officers (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 11, 2009
    By:
    /s/ Randy L. KotlerRandy L. KotlerExecutive Vice President, Chief
Financial Officer and TreasurerDate: May 11, 2009
    By:
    /s/ Michael P. RamaMichael P. RamaController and Chief Accounting Officer 43




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##### Table of Contents



Exhibit Index
 10.1
    
    Compensation of Certain Named Executive Officers (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