##### 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 June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 0-7616
 AVATAR HOLDINGS INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    23-1739078(State or other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 201 Alhambra Circle, Coral Gables, Florida
    
    33134(Address of Principal Executive Offices)
    
    (Zip Code)
 (305) 442-7000
(Registrants telephone number, including area code)
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



AVATAR HOLDINGS INC. AND SUBSIDIARIES
 INDEX
 PAGEPART I. Financial InformationItem 1. Financial Statements (Unaudited):Consolidated Balance Sheets 
June 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations 
Six and three months ended June 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows 
Six months ended June 30, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    38PART II. Other InformationItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 6. Exhibits
    
    
    40EX-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
 
 
 June 30,
    
    
    December 31,2010
    
    
    2009AssetsCash and cash equivalents
    
    $
    160,266
    
    
    $
    217,132Restricted cash
    
    
    23,080
    
    
    
    699Receivables, net
    
    
    6,841
    
    
    
    6,656Income tax receivable
    
    
    1,391
    
    
    
    35,018Land and other inventories
    
    
    263,594
    
    
    
    264,236Property and equipment, net
    
    
    46,493
    
    
    
    48,010Poinciana Parkway
    
    
    8,452
    
    
    
    8,482Investment in and notes receivable from unconsolidated entities
    
    
    5,228
    
    
    
    5,321Prepaid expenses and other assets
    
    
    8,913
    
    
    
    9,165Total Assets
    
    $
    524,258
    
    
    $
    594,719Liabilities and Stockholders EquityLiabilitiesAccounts payable
    
    $
    1,401
    
    
    $
    2,014Accrued and other liabilities
    
    
    6,228
    
    
    
    5,293Customer deposits and deferred revenues
    
    
    2,895
    
    
    
    2,874Estimated development liability for sold land
    
    
    20,347
    
    
    
    20,417Notes, mortgage notes and other debt:Corporate
    
    
    63,728
    
    
    
    63,010Real estate
    
    
    111
    
    
    
    55,992Total Liabilities
    
    
    94,710
    
    
    
    149,600Commitments and ContingenciesStockholders EquityCommon Stock, par value $1 per shareAuthorized: 50,000,000 sharesIssued: 14,019,792 shares at June 30, 2010
14,013,912 shares at December 31, 2009
    
    
    14,020
    
    
    
    14,014Additional paid-in capital
    
    
    286,670
    
    
    
    286,096Retained earnings
    
    
    207,049
    
    
    
    222,928507,739
    
    
    
    523,038Treasury stock: at cost, 2,658,461 shares at June 30, 2010
and December 31, 2009
    
    
    (78,937
    )
    
    
    (78,937
    )Total Avatar stockholders equity
    
    
    428,802
    
    
    
    444,101Non-controlling interest
    
    
    746
    
    
    
    1,018Total Equity
    
    
    429,548
    
    
    
    445,119Total Liabilities and Stockholders Equity
    
    $
    524,258
    
    
    $
    594,719
  3




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 
 
 Six Months
    
    
    Three Months2010
    
    
    2009
    
    
    2010
    
    
    2009RevenuesReal estate revenues
    
    $
    25,938
    
    
    $
    32,012
    
    
    $
    16,496
    
    
    $
    18,261Interest income
    
    
    254
    
    
    
    378
    
    
    
    132
    
    
    
    179Other
    
    
    733
    
    
    
    2,312
    
    
    
    674
    
    
    
    915Total revenues
    
    
    26,925
    
    
    
    34,702
    
    
    
    17,302
    
    
    
    19,355ExpensesReal estate expenses
    
    
    31,694
    
    
    
    39,518
    
    
    
    17,819
    
    
    
    22,061Impairment charges
    
    
    168
    
    
    
    1,676
    
    
    
    
    
    
    
    928General and administrative expenses
    
    
    7,845
    
    
    
    9,011
    
    
    
    3,762
    
    
    
    4,344Interest expense
    
    
    3,162
    
    
    
    3,550
    
    
    
    1,486
    
    
    
    1,713Total expenses
    
    
    42,869
    
    
    
    53,755
    
    
    
    23,067
    
    
    
    29,046Equity losses from unconsolidated entities
    
    
    (207
    )
    
    
    (148
    )
    
    
    (117
    )
    
    
    (86
    )Loss before income taxes
    
    
    (16,151
    )
    
    
    (19,201
    )
    
    
    (5,882
    )
    
    
    (9,777
    )Income tax benefit
    
    
    
    
    
    
    830
    
    
    
    
    
    
    
    Net loss (including net loss attributable to
non-controlling interests)
    
    
    (16,151
    )
    
    
    (18,371
    )
    
    
    (5,882
    )
    
    
    (9,777
    )Less: Net loss attributable to non-controlling interests
    
    
    (272
    )
    
    
    
    
    
    
    (139
    )
    
    
    Net loss attributable to Avatar
    
    
    ($15,879
    )
    
    
    ($18,371
    )
    
    
    ($5,743
    )
    
    
    ($9,777
    )Basic and Diluted Loss Per Share
    
    
    ($1.41
    )
    
    
    ($2.12
    )
    
    
    ($0.51
    )
    
    
    ($1.13
    )
  4




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 
 
 2010
    
    
    2009OPERATING ACTIVITIESNet loss (including net loss attributable to non-controlling interests)
    
    
    ($16,151
    )
    
    
    ($18,371
    )Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    2,379
    
    
    
    2,788Amortization of stock-based compensation
    
    
    580
    
    
    
    980Impairment of land and other inventories
    
    
    168
    
    
    
    1,228Impairment of the Poinciana Parkway
    
    
    
    
    
    
    448Gain from repurchase of 4.50% Notes
    
    
    
    
    
    
    (1,783
    )Return of earnings from an unconsolidated entity
    
    
    (32
    )
    
    
    (95
    )Equity losses from unconsolidated entities
    
    
    207
    
    
    
    148Deferred income taxes
    
    
    
    
    
    
    2,005Changes in operating assets and liabilities:Restricted cash
    
    
    (22,381
    )
    
    
    397Receivables, net
    
    
    (185
    )
    
    
    (795
    )Income tax receivable
    
    
    33,627
    
    
    
    18,522Land and other inventories
    
    
    446
    
    
    
    13,977Prepaid expenses and other assets
    
    
    252
    
    
    
    1,096Accounts payable and accrued and other liabilities
    
    
    184
    
    
    
    (970
    )Customer deposits and deferred revenues
    
    
    21
    
    
    
    (886
    )NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    
    
    (885
    )
    
    
    18,689INVESTING ACTIVITIESInvestment in property and equipment
    
    
    (48
    )
    
    
    (34
    )Return from (investment in) Poinciana Parkway
    
    
    30
    
    
    
    (5
    )Investment in unconsolidated entities
    
    
    (82
    )
    
    
    (23
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (100
    )
    
    
    (62
    )FINANCING ACTIVITIESRepurchase of 4.50% Notes
    
    
    
    
    
    
    (11,627
    )Principal payments of real estate borrowings
    
    
    (55,881
    )
    
    
    (97
    )NET CASH USED IN FINANCING ACTIVITIES
    
    
    (55,881
    )
    
    
    (11,724
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (56,866
    )
    
    
    6,903Cash and cash equivalents at beginning of period
    
    
    217,132
    
    
    
    175,396CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    160,266
    
    
    $
    182,299
  5




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AVATAR HOLDINGS INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements (Unaudited)
 June 30, 2010
 (Dollars in thousands except share and per share data)
 Basis of Financial Statement Presentation and Summary of Significant Accounting
Policies
     Reclassifications
  Cash and Cash Equivalents and Restricted Cash
   6




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




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Land and Other Inventories  continued
  Primary
Residential Communities.
 The average price on sales closed from primary residential homebuilding operations
during the six and three months ended June 30, 2010 increased from $183 and $164 during the six and three months ended June 30, 2009 to
$203 and $212 during the comparable periods in 2010. Our average sales price on sales
contracts entered into during the six and three months ended June 30, 2010 was $237 and
$321, respectively, compared to $163 and $151 during the six and three months ended June
30, 2009, respectively. The increases in average sales price were due to changes in mix
between our lower and higher price communities. The average contribution margin on
closings from primary residential homebuilding operations was approximately 2% and 10%
during the six and three months ended June 30, 2010, respectively, compared to
approximately 5% and 0.1% during the six and three months ended June, 30, 2009. Active
Adult Communities.
 The average price on sales closed from active adult homebuilding operations during
the six and three months ended June 30, 2010 decreased from $246 and $242 during the six and three months ended June 30, 2009 to
$185 and $184 during the comparable periods in 2010. Our average sales price on sales
contracts entered into during the six and three months ended June 30, 2010 was $203 and
$189, respectively, compared to $203 and $220 during the six and three months ended June
30, 2009, respectively. The decreases in average sales prices for sales and closing were
due to the lower sales prices at Seasons at Traditions compared to Solivita.
Additionally, the average contribution margin on closings from active adult homebuilding
operations was approximately 34% and 38% during the six and three months ended June 30,
2010, respectively, compared to approximately 17% and 16% during the six and three
months ended June, 30, 2009. The increase in average contribution margins on closings
from active adult homebuilding operations is attributable to the
closings at Seasons at Tradition which generated higher margins as a
result of our acquisition price. During the six and three months
ended June 30, 2010, at Seasons at Tradition, we had 42 closings
with an aggregate dollar value of approximately $6,766. As of
June 30, 2010, we have 45 completed homes remaining to close.
  Housing communities:
 8




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Land and Other Inventories  continued
   Land developed and/or held for future development or sale:
   June 30,
    
    
    December 31,2010
    
    
    2009Land developed and in process of development
    
    $
    135,430
    
    
    $
    136,578Land held for future development or sale
    
    
    105,028
    
    
    
    98,818Homes completed or under construction
    
    
    22,294
    
    
    
    27,971Other
    
    
    842
    
    
    
    869$
    263,594
    
    
    $
    264,236
  9




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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
   Property and Equipment
    Poinciana Parkway
   10




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




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Notes, Mortgage Notes and Other Debt  continued
   Debt with Conversion
Options  Cash Conversion
  June 30,
    
    
    December 31,2010
    
    
    20094.50% NotesPrincipal amount
    
    $
    64,804
    
    
    $
    64,804Unamortized discount
    
    
    (1,076
    )
    
    
    (1,794
    )Net carrying amount
    
    $
    63,728
    
    
    $
    63,010Equity Component, net of income tax benefit
    
    $
    13,737
    
    
    $
    13,737
  12




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Notes, Mortgage Notes and Other Debt  continued
     Six Months
    
    
    Three Months2010
    
    
    2009
    
    
    2010
    
    
    2009Interest incurred
    
    $
    3,219
    
    
    $
    3,809
    
    
    $
    1,528
    
    
    $
    1,836Interest capitalized
    
    
    (57
    )
    
    
    (259
    )
    
    
    (42
    )
    
    
    (123
    )Interest expense
    
    $
    3,162
    
    
    $
    3,550
    
    
    $
    1,486
    
    
    $
    1,713
  Warranty Costs
   Six Months
    
    
    Three Months2010
    
    
    2009
    
    
    2010
    
    
    2009Accrued warranty reserve, beginning of period
    
    $
    458
    
    
    $
    468
    
    
    $
    397
    
    
    $
    421Estimated warranty expense
    
    
    257
    
    
    
    337
    
    
    
    174
    
    
    
    242Amounts charged against warranty reserve
    
    
    (231
    )
    
    
    (292
    )
    
    
    (87
    )
    
    
    (150
    )Accrued warranty reserve, end of period
    
    $
    484
    
    
    $
    513
    
    
    $
    484
    
    
    $
    513
 13




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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.
   Six Months
    
    
    Three Months2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Basic and diluted loss per share  net loss
    
    
    ($15,879
    )
    
    
    ($18,371
    )
    
    
    ($5,743
    )
    
    
    ($9,777
    )Denominator:Basic and diluted weighted average shares
outstanding
    
    
    11,245,520
    
    
    
    8,654,284
    
    
    
    11,250,226
    
    
    
    8,655,811
 Repurchase of Common Stock
  Non-controlling Interest
  14




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Comprehensive Loss
  Share-Based Payments and Other Executive Compensation
     Income Taxes
  Income Taxes
  15




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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 and Disclosures
 Fair Value Measurements and Disclosures  Overall  Transition and Open
Effective Date Information Fair Value Measurements and Disclosures  Overall
       16




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Fair Value Disclosures  continued
  Fair Value
    
    Fair Value atNon-financial Assets
    
    Hierarchy
    
    June 30, 2010
    
    LossesHomes completed or under construction
    
    Level 2
    
    $
    1,493
    
    
    $
    0
  June 30, 2010
    
    December 31, 2009Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueCash and cash equivalents
    
    $
    160,266
    
    
    $
    166,266
    
    
    $
    217,132
    
    
    $
    217,132Restricted cash
    
    $
    23,080
    
    
    $
    23,080
    
    
    $
    699
    
    
    $
    699Receivables, net
    
    $
    6,841
    
    
    $
    6,841
    
    
    $
    6,656
    
    
    $
    6,656Income tax receivable
    
    $
    1,391
    
    
    $
    1,391
    
    
    $
    35,018
    
    
    $
    35,018Notes, mortgage notes and other debt:Corporate:4.50% Notes
    
    $
    63,728
    
    
    $
    63,994
    
    
    $
    63,010
    
    
    $
    61,969Real estate:5.50% Term Bonds payable
    
    $
    111
    
    
    $
    108
    
    
    $
    111
    
    
    $
    105Amended Unsecured Credit Facility
    
    $
    
    
    
    $
    
    
    
    $
    55,881
    
    
    $
    54,750
  Cash and cash equivalents and Restricted cash:
 Receivables, net and Income tax receivable:
 4.50% Notes:
 Real Estate Notes Payable:
 17




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Variable Interest Entities
 Consolidation
  Consolidation of Variable Interest Entities
     18




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Variable Interest Entities  continued
 Unconsolidated Variable Interest Entities
      June 30,
    
    
    December 31,2010
    
    
    2009Assets:Cash
    
    $
    393
    
    
    $
    243Land and other inventory
    
    
    11,574
    
    
    
    11,573Other assets
    
    
    
    
    
    
    25Total assets
    
    $
    11,967
    
    
    $
    11,841Liabilities and Partners Capital:Accounts payable and accrued liabilities
    
    $
    1,275
    
    
    $
    893Notes and interest payable to Avatar
    
    
    3,724
    
    
    
    3,724Partners Capital of:Avatar
    
    
    1,504
    
    
    
    1,597Equity partner
    
    
    5,464
    
    
    
    5,627Total liabilities and partners capital
    
    $
    11,967
    
    
    $
    11,841
 19




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Variable Interest Entities  continued
  Six Months
    
    
    Three Months2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    5
    
    
    $
    31
    
    
    $
    5
    
    
    $
    16Costs and expenses
    
    
    627
    
    
    
    397
    
    
    
    323
    
    
    
    226Net loss from unconsolidated entities
    
    
    ($622
    )
    
    
    ($366
    )
    
    
    ($318
    )
    
    
    ($210
    )Avatars share of loss from unconsolidated entities
    
    
    ($207
    )
    
    
    ($148
    )
    
    
    ($117
    )
    
    
    ($86
    )
 Recently Issued Accounting Pronouncements
  Estimated Development Liability for Sold Land
  June 30,
    
    
    December 31,2010
    
    
    2009Gross estimated unexpended costs
    
    $
    26,254
    
    
    $
    26,389Less costs relating to unsold homesites
    
    
    (5,907
    )
    
    
    (5,972
    )Estimated development liability for sold land
    
    $
    20,347
    
    
    $
    20,417
  20




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Notes to Consolidated Financial Statements (dollars in thousands except share and per
share data) (Unaudited)  continued
 Commitments and Contingencies
 Loss
Contingencies .
  Financial Information Relating To Reportable Segments
  Six Months
    
    
    Three Months2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Segment revenuesPrimary residential
    
    $
    8,315
    
    
    $
    11,840
    
    
    $
    3,693
    
    
    $
    6,304Active adult communities
    
    
    17,053
    
    
    
    17,676
    
    
    
    12,375
    
    
    
    11,478Commercial and industrial and other land sales
    
    
    23
    
    
    
    2,064
    
    
    
    23
    
    
    
    239Other operations
    
    
    599
    
    
    
    531
    
    
    
    408
    
    
    
    30325,990
    
    
    
    32,111
    
    
    
    16,499
    
    
    
    18,324Unallocated revenuesInterest income
    
    
    254
    
    
    
    378
    
    
    
    132
    
    
    
    179Gain on repurchase of 4.50% Notes
    
    
    
    
    
    
    1,783
    
    
    
    
    
    
    
    418Other
    
    
    681
    
    
    
    430
    
    
    
    671
    
    
    
    434Total revenues
    
    $
    26,925
    
    
    $
    34,702
    
    
    $
    17,302
    
    
    $
    19,355Operating income (loss):Segment operating income (loss)Primary residential
    
    
    ($2,503
    )
    
    
    ($4,259
    )
    
    
    ($861
    )
    
    
    ($2,361
    )Active adult communities
    
    
    (1,478
    )
    
    
    (2,253
    )
    
    
    535
    
    
    
    (821
    )Commercial and industrial and other land sales
    
    
    (27
    )
    
    
    1,987
    
    
    
    10
    
    
    
    209Other operations
    
    
    270
    
    
    
    105
    
    
    
    279
    
    
    
    94(3,738
    )
    
    
    (4,420
    )
    
    
    (37
    )
    
    
    (2,879
    )Unallocated income (expenses)Interest income
    
    
    254
    
    
    
    378
    
    
    
    132
    
    
    
    179Gain on repurchase of 4.50% Notes
    
    
    
    
    
    
    1,783
    
    
    
    
    
    
    
    418Equity loss from unconsolidated entities
    
    
    (207
    )
    
    
    (148
    )
    
    
    (117
    )
    
    
    (86
    )Net loss attributable to non-controlling interests
    
    
    272
    
    
    
    
    
    
    
    139
    
    
    
    General and administrative expenses
    
    
    (7,845
    )
    
    
    (9,011
    )
    
    
    (3,762
    )
    
    
    (4,344
    )Interest expense
    
    
    (3,162
    )
    
    
    (3,550
    )
    
    
    (1,486
    )
    
    
    (1,713
    )Other real estate expenses
    
    
    (1,453
    )
    
    
    (3,785
    )
    
    
    (612
    )
    
    
    (1,222
    )Impairment of the Poinciana Parkway
    
    
    
    
    
    
    (448
    )
    
    
    
    
    
    
    (130
    )Loss before income taxes
    
    
    ($15,879
    )
    
    
    ($19,201
    )
    
    
    ($5,743
    )
    
    
    ($9,777
    )
 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)
    EXECUTIVE SUMMARY
   22




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##### Table of Contents



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




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (dollars in thousands except share and per share data) continued
 EXECUTIVE SUMMARY  continued
 Land Inventory  continued
  Estimated Planned Lots/Units (1)Acquisition Date
    
    Contract Date
    
    
    Developed
    
    
    Partially Developed
    
    
    Raw (2)
    
    
    Total
    
    
    Book ValueResidentialOsceola County, FloridaPre-1980
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    2,200
    
    
    
    2,400
    
    
    $
    5,1981999-2001
    
    
    
    
    
    
    500
    
    
    
    700
    
    
    
    
    
    
    
    1,200
    
    
    
    45,0182003
    
    
    2002-2003
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    7,8802004
    
    
    2002-2003
    
    
    
    
    
    
    
    
    
    
    
    1,400
    
    
    
    1,400
    
    
    
    19,3072006
    
    
    2002-2003
    
    
    
    
    
    
    
    
    
    
    
    1,600
    
    
    
    1,600
    
    
    
    19,281Total Osceola County
    
    
    700
    
    
    
    700
    
    
    
    6,200
    
    
    
    7,600
    
    
    
    96,684Polk County, FloridaPre-1980
    
    
    
    
    
    
    900
    
    
    
    1,000
    
    
    
    2,400
    
    
    
    4,300
    
    
    
    20,9142003
    
    
    2002-2003
    
    
    
    900
    
    
    
    
    
    
    
    100
    
    
    
    1,000
    
    
    
    30,7322004
    
    
    2002-2003
    
    
    
    
    
    
    
    
    
    
    
    2,500
    
    
    
    2,500
    
    
    
    19,966Total Polk County
    
    
    1,800
    
    
    
    1,000
    
    
    
    5,000
    
    
    
    7,800
    
    
    
    71,612St. Lucie County, Florida2009
    
    
    2009
    
    
    
    267
    
    
    
    364
    
    
    
    400
    
    
    
    1,031
    
    
    
    2,416Hernando County, Florida2004-2005
    
    
    2003
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    30Collier and Lee Counties, FloridaPre-1980
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    187Highlands County, FloridaPre-1980
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40
    
    
    
    80
    
    
    
    102Santa Cruz County,(Rio Rico), ArizonaPre-1980
    
    
    
    
    
    
    600
    
    
    
    300
    
    
    
    3,700
    
    
    
    4,600
    
    
    
    10,446Pinal County, Arizona2010
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    1,064
    
    
    
    1,064
    
    
    
    5,683Pima County, Arizona2009
    
    
    2009
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    3,725Total Residential
    
    
    
    
    
    
    3,543
    
    
    
    2,369
    
    
    
    16,404
    
    
    
    22,316
    
    
    $
    190,885Consolidated LLCs(4)Polk County, Florida2005
    
    
    2004
    
    
    
    200
    
    
    
    
    
    
    
    300
    
    
    
    500
    
    
    $
    1,774Martin County, Florida1981-1987
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    200
    
    
    
    275
    
    
    
    1,666Total Consolidated LLCs
    
    
    275
    
    
    
    
    
    
    
    500
    
    
    
    775
    
    
    $
    3,440
 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
 EXECUTIVE SUMMARY  continued
 Land Inventory  continued
 Acquisition
    
    Contract
    
    
    Estimated
    
    
    BookDate
    
    Date
    
    
    Acres
    
    
    ValueCommercial/Industrial/InstitutionalFloridaPre-1980
    
    
    
    
    
    
    1,300
    
    
    $
    7,1052004 (3)
    
    
    2004
    
    
    
    300
    
    
    
    14,7902005 (3)
    
    
    2004
    
    
    
    400
    
    
    
    15,948Total Florida
    
    
    
    
    
    
    2,000
    
    
    
    37,843ArizonaPre-1980
    
    
    
    
    
    
    200
    
    
    
    267Total Commercial/Industrial/Institutional
    
    
    2,200
    
    
    $
    38,110OtherPreserves, wetlands, open spacePre-1980
    
    
    
    
    
    
    
    
    
    
    3,176Other
    
    
    
    
    
    
    
    
    
    
    4,847Total Other
    
    
    
    
    
    
    
    
    
    $
    8,023
 
 (1)
    
    Estimated planned lots/units are based on historical densities for our land. New
projects may ultimately be developed into more or less than the number of lots/units stated.(2)
    
    We anticipate that with respect to our inventory of undeveloped land, new lots
developed over the next several years are likely to be developed at greater density per acre
than the density per acre we have undertaken over the past several years. We anticipate
evolving market demand for smaller, less amenitized and/or more affordable homes.
Accordingly, the number of lots we ultimately develop per acre from our inventory of raw land
may exceed the units set forth in this schedule.(3)
    
    During the fourth quarter 2008, our plans for this property changed from
developing it as single family housing to permitting as commercial/industrial/institutional
land.(4)
    
    These landholdings were sold during 2009 to two newly formed LLCs in which we own
a minority interest. These LLCs are consolidated for accounting purposes. As a result, the
transactions did not qualify as sales for financial reporting purposes. 25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (dollars in thousands except share and per share data) continued
 EXECUTIVE SUMMARY  continued
     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
 RESULTS OF OPERATIONS
  Six Months
    
    
    Three Months2010
    
    
    2009
    
    
    2010
    
    
    2009Operating income (loss):Primary residentialRevenues
    
    $
    8,315
    
    
    $
    11,840
    
    
    $
    3,693
    
    
    $
    6,304Expenses
    
    
    10,818
    
    
    
    16,099
    
    
    
    4,554
    
    
    
    8,665Segment operating loss
    
    
    (2,503
    )
    
    
    (4,259
    )
    
    
    (861
    )
    
    
    (2,361
    )Active adult communitiesRevenues
    
    
    17,053
    
    
    
    17,676
    
    
    
    12,375
    
    
    
    11,478Expenses
    
    
    18,531
    
    
    
    19,929
    
    
    
    11,840
    
    
    
    12,299Segment operating loss
    
    
    (1,478
    )
    
    
    (2,253
    )
    
    
    535
    
    
    
    (821
    )Commercial and industrial and other land salesRevenues
    
    
    23
    
    
    
    2,064
    
    
    
    23
    
    
    
    239Expenses
    
    
    50
    
    
    
    77
    
    
    
    13
    
    
    
    30Segment operating income
    
    
    (27
    )
    
    
    1,987
    
    
    
    10
    
    
    
    209Other operationsRevenues
    
    
    599
    
    
    
    531
    
    
    
    408
    
    
    
    303Expenses
    
    
    329
    
    
    
    426
    
    
    
    129
    
    
    
    209Segment operating income (loss)
    
    
    270
    
    
    
    105
    
    
    
    279
    
    
    
    94Operating income (loss)
    
    
    (3,738
    )
    
    
    (4,420
    )
    
    
    (37
    )
    
    
    (2,879
    )Unallocated income (expenses):Interest income
    
    
    254
    
    
    
    378
    
    
    
    132
    
    
    
    179Gain on repurchase of 4.50% Notes
    
    
    
    
    
    
    1,783
    
    
    
    
    
    
    
    418Equity loss from unconsolidated entities
    
    
    (207
    )
    
    
    (148
    )
    
    
    (117
    )
    
    
    (86
    )Net loss attributable to non-controlling interests
    
    
    272
    
    
    
    
    
    
    
    139
    
    
    
    General and administrative expenses
    
    
    (7,845
    )
    
    
    (9,011
    )
    
    
    (3,762
    )
    
    
    (4,344
    )Interest expense
    
    
    (3,162
    )
    
    
    (3,550
    )
    
    
    (1,486
    )
    
    
    (1,713
    )Other real estate expenses
    
    
    (1,453
    )
    
    
    (3,785
    )
    
    
    (612
    )
    
    
    (1,222
    )Impairment of the Poinciana Parkway
    
    
    
    
    
    
    (448
    )
    
    
    
    
    
    
    (130
    )Loss before income taxes
    
    
    (15,879
    )
    
    
    (19,201
    )
    
    
    (5,743
    )
    
    
    (9,777
    )Income tax benefit
    
    
    
    
    
    
    830
    
    
    
    
    
    
    
    Net loss
    
    
    ($15,879
    )
    
    
    ($18,371
    )
    
    
    ($5,743
    )
    
    
    ($9,777
    )
 27




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (dollars in thousands except share and per share data) continued
 RESULTS OF OPERATIONS 
  Number of
    
    
    
    
    
    
    Average PriceUnits
    
    
    Revenues
    
    
    Per UnitFor the six months ended June 30,2010Primary residential
    
    
    35
    
    
    $
    7,112
    
    
    $
    203Active adult communities
    
    
    60
    
    
    
    11,093
    
    
    $
    185Total
    
    
    95
    
    
    $
    18,205
    
    
    $
    1922009Primary residential
    
    
    56
    
    
    $
    10,255
    
    
    $
    183Active adult communities
    
    
    48
    
    
    
    11,800
    
    
    $
    246Total
    
    
    104
    
    
    $
    22,055
    
    
    $
    212For the three months ended June 30,2010Primary residential
    
    
    15
    
    
    $
    3,181
    
    
    $
    212Active adult communities
    
    
    52
    
    
    
    9,573
    
    
    $
    184Total
    
    
    67
    
    
    $
    12,754
    
    
    $
    1902009Primary residential
    
    
    34
    
    
    $
    5,571
    
    
    $
    164Active adult communities
    
    
    36
    
    
    
    8,728
    
    
    $
    242Total
    
    
    70
    
    
    $
    14,299
    
    
    $
    204
 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
  Gross Number
    
    
    
    
    
    
    Contracts
    
    
    
    
    
    
    Averageof Contracts
    
    
    
    
    
    
    Signed, Net of
    
    
    
    
    
    
    Price PerSigned
    
    
    Cancellations
    
    
    Cancellations
    
    
    Dollar Value
    
    
    UnitFor the six months ended June 30,2010Primary residential
    
    
    34
    
    
    
    (7
    )
    
    
    27
    
    
    $
    6,392
    
    
    $
    237Active adult communities
    
    
    78
    
    
    
    (7
    )
    
    
    71
    
    
    
    14,393
    
    
    $
    203Total
    
    
    112
    
    
    
    (14
    )
    
    
    98
    
    
    $
    20,785
    
    
    $
    2122009Primary residential
    
    
    108
    
    
    
    (19
    )
    
    
    89
    
    
    $
    14,506
    
    
    $
    163Active adult communities
    
    
    41
    
    
    
    (8
    )
    
    
    33
    
    
    
    6,690
    
    
    $
    203Total
    
    
    149
    
    
    
    (27
    )
    
    
    122
    
    
    $
    21,196
    
    
    $
    174For the three months ended June 30,2010Primary residential
    
    
    14
    
    
    
    (3
    )
    
    
    11
    
    
    $
    3,527
    
    
    $
    321Active adult communities
    
    
    31
    
    
    
    (4
    )
    
    
    27
    
    
    
    5,104
    
    
    $
    189Total
    
    
    45
    
    
    
    (7
    )
    
    
    38
    
    
    $
    8,631
    
    
    $
    2272009Primary residential
    
    
    60
    
    
    
    (10
    )
    
    
    50
    
    
    $
    7,555
    
    
    $
    151Active adult communities
    
    
    18
    
    
    
    (3
    )
    
    
    15
    
    
    
    3,303
    
    
    $
    220Total
    
    
    78
    
    
    
    (13
    )
    
    
    65
    
    
    $
    10,858
    
    
    $
    167
  Number of
    
    
    
    
    
    
    Average PriceUnits
    
    
    Dollar Volume
    
    
    Per UnitAs of June 30,2010Primary residential
    
    
    8
    
    
    $
    2,502
    
    
    $
    313Active adult communities
    
    
    20
    
    
    
    5,546
    
    
    $
    277Total
    
    
    28
    
    
    $
    8,048
    
    
    $
    2872009Primary residential
    
    
    49
    
    
    $
    8,853
    
    
    $
    181Active adult communities
    
    
    25
    
    
    
    6,367
    
    
    $
    255Total
    
    
    74
    
    
    $
    15,220
    
    
    $
    206
 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
 RESULTS OF OPERATIONS 
      30




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##### Table of Contents



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




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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
         33




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##### Table of Contents



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




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (dollars in thousands except share and per share data) continued
 LIQUIDITY AND CAPITAL RESOURCES  continued
  June 30,
    
    
    December 31,2010
    
    
    20094.50% NotesPrincipal amount
    
    $
    64,804
    
    
    $
    64,804Unamortized discount
    
    
    (1,076
    )
    
    
    (1,794
    )Net carrying amount
    
    $
    63,728
    
    
    $
    63,010Equity Component, net of income tax benefit
    
    $
    13,737
    
    
    $
    13,737
     35




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (dollars in thousands except share and per share data) continued
 LIQUIDITY AND CAPITAL RESOURCES  continued
      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
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Consolidation
 37




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure About Market Risk
  
 Item 4. Controls and Procedures
   38




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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 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)April 1, 2010 to April 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,304May 1, 2010 to May 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,304June 1, 2010 to June 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18,304Total
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    On October 13, 2008, our Board of Directors amended its June 2005 authorization to
purchase the 4.50% Notes and/or common stock to allow expenditures up to $30,000, including
the $9,864 previously authorized. On October 17, 2008, we repurchased $35,920 principal
amount of the 4.50% Notes for approximately $28,112 including accrued interest. On December
12, 2008, our Board of Directors amended its June 2005 authorization to purchase the 4.50%
Notes and/or common stock to allow expenditures up to $30,000, including the $1,888
remaining after the October 2008 activities. On March 30, 2009, we repurchased $7,500
principal amount of the 4.50% Notes for approximately $6,038 including accrued interest. On
June 19, 2009, we repurchased $6,576 principal amount of the 4.50% Notes for approximately
$5,658 including accrued interest. As of June 30, 2010, the remaining authorization is
$18,304. 39




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##### Table of Contents



Item 6.
    
    Exhibits10.1
    
    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).99.1
    
    Guaranty Agreement dated May 18, 2010, executed on behalf of Avatar
Holdings, Inc., a Delaware corporation, in favor of Wells Fargo Bank,
N.A., successor by merger to Wachovia Bank, N.A. (filed as Exhibit
99.1 to Form 8-K dated May 24, 2010, and incorporated herein by
reference).99.2
    
    Continuing Letter of Credit Agreement dated May 18, 2010, executed on
behalf of Avatar Properties Inc., a Florida corporation, and Avatar
Holdings Inc., a Delaware corporation, in favor of Wells Fargo Bank,
N.A., successor by merger to Wachovia Bank, N.A. (filed as Exhibit
99.2 to Form 8-K dated May 24, 2010, and incorporated herein by
reference).99.3
    
    Security Agreement dated May 18, 2010, executed on behalf of Avatar
Properties Inc., a Florida corporation, and Avatar Holdings Inc., a
Delaware corporation, in favor of Wells Fargo Bank, N.A., successor
by merger to Wachovia Bank, N.A. (filed as Exhibit 99.3 to Form 8-K
dated May 24, 2010, and incorporated herein by reference).
 40




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##### Table of Contents



SIGNATURES
  AVATAR HOLDINGS INC.Date:      August 9, 2010
    By:
    /s/ Randy L. KotlerRandy L. KotlerExecutive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)Date:      August 9, 2010
    By:
    /s/ Michael P. RamaMichael P. RamaController and Chief Accounting Officer
(Principal Accounting Officer) 41




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##### Table of Contents



Exhibit Index10.1
    
    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).99.1
    
    Guaranty Agreement dated May 18, 2010, executed on behalf of Avatar
Holdings, Inc., a Delaware corporation, in favor of Wells Fargo Bank,
N.A., successor by merger to Wachovia Bank, N.A. (filed as Exhibit
99.1 to Form 8-K dated May 24, 2010, and incorporated herein by
reference).99.2
    
    Continuing Letter of Credit Agreement dated May 18, 2010, executed on
behalf of Avatar Properties Inc., a Florida corporation, and Avatar
Holdings Inc., a Delaware corporation, in favor of Wells Fargo Bank,
N.A., successor by merger to Wachovia Bank, N.A. (filed as Exhibit
99.2 to Form 8-K dated May 24, 2010, and incorporated herein by
reference).99.3
    
    Security Agreement dated May 18, 2010, executed on behalf of Avatar
Properties Inc., a Florida corporation, and Avatar Holdings Inc., a
Delaware corporation, in favor of Wells Fargo Bank, N.A., successor
by merger to Wachovia Bank, N.A. (filed as Exhibit 99.3 to Form 8-K
dated May 24, 2010, and incorporated herein by reference).
 42