AVATAR HOLDINGS INC.
201 ALHAMBRA CIRCLE
CORAL GABLES, FLORIDA 33134
June 21, 2006
BY EDGAR correspondence
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Mr. John Cash
Senior Assistant Chief Accountant
Division of Corporation Finance
U.S. Securities and Exchange Commission
Mail Stop 7010
100 F Street, N.E.
Washington, D.C. 20549
Re: Avatar Holdings Inc.
Response to Staff Comments on:
Form 10-K for the fiscal year ended December 31, 2005
Filed March 15, 2006
File No. 1-7395
Dear Mr. Cash:
On behalf of Avatar Holdings Inc. ("Avatar"), this letter responds to your
letter dated June 7, 2006, relating to comments of the staff of the U.S.
Securities and Exchange Commission (the "Commission") on the above-referenced
filing of Avatar. The responses to the Staff's comments are numbered to relate
to the corresponding comments in your letter.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
Note G. Notes, Mortgage Notes and Other Debt, page 64
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1. WE HAVE REVIEWED YOUR RESPONSE TO OUR PRIOR COMMENT NINE. IN YOUR ANALYSIS
OF PARAGRAPH 11(A) OF SFAS NO. 133, IT IS UNCLEAR TO US HOW YOU HAVE
CONSIDERED PARAGRAPH 4 OF EITF 00-19. WE NOTE THAT THE HOLDERS OF YOUR 4.5%
CONVERTIBLE SENIOR NOTES CAN RECEIVE THEIR PROCEEDS IN A FIXED NUMBER OF
SHARES OR EQUIVALENT AMOUNT OF CASH, OR A COMBINATION OF SHARES OF COMMON
STOCK AND CASH. GIVEN THAT THE SETTLEMENT TERMS OF THE CONVERSION OPTION
INCLUDE A PROVISION FOR A COMBINATION OF SHARES AND CASH, IT APPEARS THAT
THE INSTRUMENT IS NOT CONVENTIONAL CONVERTIBLE AND FURTHER ANALYSIS IS
REQUIRED. PLEASE PROVIDE US WITH A DETAILED EVALUATION OF THE APPLICABILITY
OF THE CRITERIA IN PARAGRAPH 12 THROUGH 32 OF EITF 00-19 TO THE EMBEDDED
CONVERSION FEATURE.
Mr. John Cash
June 21, 2006
Page 2
Pursuant to the 4.5% Convertible Senior Notes (the "Notes") and the related
indenture, holders may only realize the value of the conversion option
(represented by the Notes) by exercising the option and receiving the entire
proceeds in a fixed number of shares (for each $1,000 principal amount of Notes
surrendered for conversion, a holder will receive 19.0006 shares of our common
stock) or an equivalent amount of cash, at our discretion. Additionally, we can
issue, at our discretion, a combination of shares of common stock and cash. The
holder, however, can only require settlement in shares of common stock.
Paragraph 4 of EITF 00-19 provides for an exception to the requirements of
paragraphs 12 through 32 of EITF 00-19 for contracts such as the Notes which are
"conventional convertible instruments in which the holder may only realize the
value of the conversion option by exercising the option and receiving the entire
proceeds in a fixed number of shares or the equivalent amount of cash (at the
discretion of the issuer)." Convertible debt that provides the holder with an
option to convert into a fixed number of shares (or equivalent amount of cash at
the discretion of the issuer) for which the ability to exercise the option is
based on the passage of time or a contingent event should be considered
"conventional" for purposes of applying EITF 00-19. Although the settlement
terms of the conversion option may include a combination of shares and cash, we
believe the Notes are conventional convertible debt instruments within the
meaning of EITF 00-19 since the form of settlement is at our discretion.
Moreover, pursuant to paragraph 4 of EITF 00-19, the requirements of paragraphs
12 through 32 of EITF 00-19 do not apply and no evaluation of the applicability
of these criteria to the conversion option is necessary.
Note O. Financial Information Relating to Industry Segments, page 73
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2. WE READ THAT YOU HAVE FOUR REPORTABLE SEGMENTS: PRIMARY RESIDENTIAL, ACTIVE
ADULT COMMUNITY, COMMERCIAL AND INDUSTRIAL AND OTHER LAND SALES, AND OTHER
OPERATIONS. WE ALSO NOTE THAT YOU OPERATE IN TWO DISTINCT AREAS OF THE
COUNTRY - FLORIDA AND ARIZONA. PLEASE TELL US WHAT CONSIDERATION YOU GAVE
TO THE DIFFERENT MARKETS IN FLORIDA AND ARIZONA WHEN DETERMINING YOUR
REPORTABLE SEGMENTS. IN THIS REGARD, IT IS UNCLEAR TO US THAT THE MARKETS
IN FLORIDA AND ARIZONA MEET THE CRITERIA OF PARAGRAPH 17 OF SFAS 131 AND
EITF 04-10, INCLUDING SHARING SIMILAR LONG-TERM AVERAGE GROSS MARGINS, TO
PERMIT THE AGGREGATION OF THESE REGIONS WITHIN EACH REPORTABLE SEGMENT. TO
HELP US BETTER UNDERSTAND THIS MATTER, PLEASE ALSO PROVIDE US WITH COPIES
OF THE INTERNAL REPORTS THAT WERE REVIEWED BY YOUR CHIEF OPERATING DECISION
MAKER (CODM) FOR THE PURPOSES OF ALLOCATING RESOURCES AND ASSESSING
PERFORMANCE FOR THE MOST RECENT FISCAL QUARTER AND COPIES OF ANY REPORTS
THAT WERE PROVIDED TO YOUR BOARD OF DIRECTORS.
Mr. John Cash
June 21, 2006
Page 3
We are engaged in homebuilding operations in the southern Arizona community
of Rio Rico. The nature of the products sold, the construction process, the
type or class of customer and the method by which we deliver homes are
similar characteristics to the primary residential homebuilding operations
in Florida. The reported revenues and operating income of our Arizona
operations for the year ended December 31, 2005 represented 3.36% of
combined revenues and 1.29% of combined operating income, respectively, of
all operating segments. The total assets from our Arizona operations as of
December 31, 2005 represented 4.96% of combined total assets of all
operating segments. Paragraph 18 of SFAS 131 requires an enterprise to
report separately information about an operating segment that meets certain
quantitative thresholds as a "reportable segment". None of the quantitative
thresholds set forth in paragraph 18 of SFAS 131 were met. Therefore, we
concluded that based on the similarities of the characteristics of the
Arizona homebuilding activities to our Florida primary residential
homebuilding activities and the insignificance of the Arizona operations to
our overall business, it was appropriate to include the homebuilding
operations of our Arizona activities in the primary residential reportable
segment. Avatar is supplementally providing the Staff with copies of the
materials requested in the last sentence of this comment No. 2.
If you have any questions or would like additional information, please
contact the undersigned at (305) 442-7000.
Very truly yours,
AVATAR HOLDINGS INC.
By: /s/ Charles L. McNairy
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Charles L. McNairy
Executive Vice President, Chief Financial
Officer and Treasurer