Investments in Unconsolidated Joint Ventures

The Company has investments in unconsolidated joint ventures that conduct land acquisition, development and/or other homebuilding activities in various markets where its homebuilding operations are located. The Company’s partners in these unconsolidated joint ventures are unrelated homebuilders, and/or land developers and other real estate entities, or commercial enterprises. These investments are designed primarily to reduce market and development risks and to increase the number of homesites owned or controlled by the Company. In some instances, participating in unconsolidated joint ventures has enabled the Company to acquire and develop land that it might not otherwise have had access to due to a project’s size, financing needs, duration of development or other circumstances. While the Company considers its participation in unconsolidated joint ventures as potentially beneficial to its homebuilding activities, it does not view such participation as essential and has unwound its participation in a number of unconsolidated joint ventures in the past few years.

The Company typically has obtained rights to purchase portions of the land held by the unconsolidated joint ventures in which it currently participates. When an unconsolidated joint venture sells land to the Company’s homebuilding operations, the Company defers recognition of its share of such unconsolidated joint venture’s earnings until a home sale is closed and title passes to a homebuyer, at which time the Company accounts for those earnings as a reduction of the cost of purchasing the land from the unconsolidated joint venture.

The Company and its unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis equal to their respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.

Each unconsolidated joint venture is obligated to maintain financial statements in accordance with GAAP. The Company shares in the profits and losses of these unconsolidated joint ventures generally in accordance with its respective equity interests. In some instances, the Company recognizes profits and losses related to its investment in an unconsolidated joint venture that differ from its equity interest in the unconsolidated joint venture. This may arise from impairments recognized by the Company related to its investment that differ from the recognition of impairments by the unconsolidated joint venture with respect to the unconsolidated joint venture’s assets; differences between the Company’s basis in assets it has transferred to the unconsolidated joint venture and the unconsolidated joint venture’s basis in those assets; the deferral of the unconsolidated joint venture profits from land sales to the Company; or other items.

With respect to the Company’s investments in unconsolidated joint ventures, its equity in loss of unconsolidated joint ventures included no impairment charges for the nine months ended August 31, 2012 and $53.7 million of such charges for the nine months ended August 31, 2011. The impairment charges for the nine months ended August 31, 2011 reflected the write-off of the Company’s remaining investment in South Edge, LLC (“South Edge”). South Edge was a residential development joint venture in the Company’s Southwest homebuilding reporting segment. The Company wrote off its remaining investment in South Edge based on the Company’s determination that South Edge was no longer able to perform its activities as originally intended following a court decision in the first quarter of 2011 to enter an order for relief on a Chapter 11 involuntary bankruptcy petition filed against the joint venture.

The following table presents information from the combined condensed statements of operations of the Company’s unconsolidated joint ventures (in thousands):



	Nine Months Ended August 31,						Three Months Ended August 31,
	2012			2011			2012			2011
Revenues	$	27,859		$	230		$	27,859		$	—
Construction and land costs	(19,303		)	(201		)	(19,309		)	—
Other income (expenses), net	(1,189		)	(4,505		)	(442		)	101
Income (loss)	$	7,367		$	(4,476	)	$	8,108		$	101

For the three months and nine months ended August 31, 2012, combined revenues, construction and land costs, and income (loss) from our unconsolidated joint ventures increased from the corresponding year-earlier periods due to a land sale completed by an unconsolidated joint venture in Maryland during the quarter ended August 31, 2012.

The following table presents combined condensed balance sheet information for the Company’s unconsolidated joint ventures (in thousands):



	August 31, 2012		November 30, 2011
Assets
Cash	$	29,057	$	8,923
Receivables	8,034		19,503
Inventories	347,460		368,306
Other assets	872		151
Total assets	$	385,423	$	396,883
Liabilities and equity
Accounts payable and other liabilities	$	86,927	$	96,981
Equity	298,496		299,902
Total liabilities and equity	$	385,423	$	396,883

The following table presents information relating to the Company’s investments in unconsolidated joint ventures (dollars in thousands).



	August 31, 2012		November 30, 2011
Number of investments in unconsolidated joint ventures (a)	8		8
Investments in unconsolidated joint ventures (a)	$	122,155	$	127,926

(a)

The Company’s investments in unconsolidated joint ventures as of August 31, 2012 and November 30, 2011 include Inspirada Builders, LLC, an unconsolidated joint venture that was formed in 2011 in connection with the South Edge Plan (as defined below) and in which a wholly owned subsidiary of the Company is a member. As part of the South Edge Plan, land previously owned by South Edge was transferred to Inspirada Builders, LLC in November 2011. The Company anticipates that it will acquire its share of the land from Inspirada Builders, LLC through a future distribution.

The Company’s unconsolidated joint ventures finance land and inventory investments for a project through a variety of arrangements. To finance their respective land acquisition and development activities, certain of the Company’s unconsolidated joint ventures have obtained loans from third-party lenders that are secured by the underlying property and related project assets. However, none of the Company’s unconsolidated joint ventures had outstanding debt at August 31, 2012 or November 30, 2011.

In certain instances, the Company and/or its partner(s) in an unconsolidated joint venture have provided completion and/or carve-out guarantees to the unconsolidated joint venture’s lenders. A completion guaranty refers to the physical completion of improvements for a project and/or the obligation to contribute capital to an unconsolidated joint venture to enable it to fund its completion obligations. The Company’s potential responsibility under its completion guarantees, if triggered, is highly dependent on the facts of a particular case. A carve-out guaranty refers to the payment of losses a lender suffers due to certain bad acts or omissions by an unconsolidated joint venture or its partners, such as fraud or misappropriation, or due to environmental liabilities arising with respect to the relevant project. The Company does not believe it currently has exposure with respect to any of its completion or carve-out guarantees.

In the first quarter of 2011, as a result of recording a probable obligation related to a limited several repayment guaranty (the “Springing Guaranty”) that the Company had provided to the administrative agent for the lenders to South Edge, and taking into account accruals it had previously established with respect to its investment in South Edge, the Company recognized a charge of $22.8 million that was reflected as a loss on loan guaranty in its consolidated statements of operations. This charge was in addition to the joint venture impairment charge of $53.7 million to write off the Company’s remaining investment in South Edge. In the second quarter of 2011, in updating the estimate of its probable net payment obligation to reflect the terms of an agreement regarding a proposed consensual plan of reorganization for South Edge (the “South Edge Plan”), the Company recorded an additional loss on loan guaranty of $14.6 million. South Edge underwent and completed a bankruptcy reorganization under the South Edge Plan in 2011. In connection with a bankruptcy court’s confirmation of the South Edge Plan in November 2011 and the resolution of other matters concerning South Edge, the Company’s obligations under the Springing Guaranty were eliminated in the fourth quarter of 2011.