Investments in Unconsolidated Joint Ventures

We have investments in unconsolidated joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. Our 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 lots owned and controlled by us. In some instances, participating in unconsolidated joint ventures has enabled us to acquire and develop land that we might not otherwise have had access to due to a project’s size, financing needs, duration of development or other circumstances. While we consider our participation in unconsolidated joint ventures as potentially beneficial to our homebuilding activities, we do not view such participation as essential and have unwound our participation in a number of unconsolidated joint ventures in the past few years.

We typically have obtained rights to acquire portions of the land held by the unconsolidated joint ventures in which we currently participate. When an unconsolidated joint venture sells land to our homebuilding operations, we defer recognition of our share of such unconsolidated joint venture’s earnings until a home sale is closed and title passes to a homebuyer, at which time we account for those earnings as a reduction of the cost of purchasing the land from the unconsolidated joint venture.

We and our unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis equal to our respective equity interests. The obligations to make capital contributions are governed by each 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. We share in the profits and losses of these unconsolidated joint ventures generally in accordance with our respective equity interests. In some instances, we recognize profits and losses related to our investment in an unconsolidated joint venture that differ from our equity interest in the unconsolidated joint venture. This may arise from impairments that we recognize related to our investment that differ from the impairments the unconsolidated joint venture recognizes with respect to the unconsolidated joint venture’s assets; differences between our basis in assets we have transferred to the unconsolidated joint venture and the unconsolidated joint venture’s basis in those assets; our deferral of the unconsolidated joint venture’s profits from land sales to us; or other items.

With respect to our investments in unconsolidated joint ventures, our equity in loss of unconsolidated joint ventures included impairment charges of $53.7 million in 2011. There were no such impairment charges in 2012 or 2010. In 2011, the impairment charge reflected the write off of our remaining investment in South Edge, a residential development joint venture in our Southwest reporting segment. We wrote off our remaining investment based on our 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 into an order for relief on a Chapter 11 involuntary bankruptcy petition (the “Petition”) filed against South Edge.

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



	Years Ended November 30,
	2012			2011			2010
Revenues	$	31,772		$	230		$	122,200
Construction and land costs	(21,467		)	(54		)	(120,010		)
Other expenses, net	(2,009		)	(4,506		)	(19,362		)
Income (loss)	$	8,296		$	(4,330	)	$	(17,172	)

The following table presents combined condensed balance sheet information for our unconsolidated joint ventures (in thousands):



	November 30,
	2012		2011
Assets
Cash	$	29,721	$	8,923
Receivables	6,104		19,503
Inventories	352,791		368,306
Other assets	1,175		151
Total assets	$	389,791	$	396,883
Liabilities and equity
Accounts payable and other liabilities	$	88,027	$	96,981
Equity	301,764		299,902
Total liabilities and equity	$	389,791	$	396,883

The following table presents information relating to our investments in unconsolidated joint ventures (dollars in thousands):



	November 30,
	2012		2011
Number of investments in unconsolidated joint ventures	8		8
Investments in unconsolidated joint ventures	$	123,674	$	127,926

Our unconsolidated joint ventures finance land and inventory investments for a project through a variety of arrangements, and certain of our unconsolidated joint ventures have obtained loans from third-party lenders that are secured by the underlying property and related project assets. However, none of our unconsolidated joint ventures had outstanding debt at November 30, 2012 or 2011.

In certain instances, we and/or our 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. Our potential responsibility under our 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. As none of our unconsolidated joint ventures had outstanding debt at November 30, 2012 or 2011, we did not have exposure with respect to any related completion or carve-out guarantees as of those dates.

In addition to completion and carve-out guarantees, we provided the Springing Guaranty to the Administrative Agent in connection with secured loans made to South Edge. On February 3, 2011, a bankruptcy court entered an order for relief on the Petition filed against South Edge and appointed a Chapter 11 trustee for South Edge. Although we believed that there were potential offsets or defenses to prevent or minimize the enforcement of the Springing Guaranty, as a result of the February 3, 2011 order for relief on the Petition, we considered it probable, based on the terms of the Springing Guaranty, that we became responsible to pay certain amounts to the Administrative Agent related to the Springing Guaranty. Therefore, beginning in the first quarter of 2011, our consolidated financial statements reflected a net payment obligation, representing our estimate of the probable amount that we would pay to the Administrative Agent (on behalf of the South Edge lenders) related to the Springing Guaranty and to pay for certain fees, expenses and charges and for certain allowed general unsecured claims in the South Edge bankruptcy case. This estimate was evaluated at the end of each subsequent quarterly period in 2011 and updated to reflect our belief of our probable net payment obligation at the time. In connection with the South Edge Plan and the resolution of other matters surrounding South Edge, we made payments of $251.9 million in the fourth quarter of 2011, including a payment to the Administrative Agent, which satisfied the respective liens of the Administrative Agent and most of the South Edge lenders on the land South Edge owned. Accordingly, our obligations under the Springing Guaranty were eliminated. As a result of recording a probable obligation related to the Springing Guaranty and the bankruptcy court’s confirmation of the South Edge Plan, and taking into account accruals we had previously established with respect to our investment in South Edge, we recognized an aggregate loss on loan guaranty charge of $30.8 million in our consolidated statements of operations for the year ended November 30, 2011. This charge was in addition to the joint venture impairment charge of $53.7 million that we recognized in 2011 to write off our remaining investment in South Edge.

Our investments in unconsolidated joint ventures as of November 30, 2012 and 2011 included our investment of $71.0 million and $75.5 million, respectively, in Inspirada Builders, LLC, an unconsolidated joint venture that was formed in 2011 in connection with the South Edge Plan and in which a wholly owned subsidiary of ours is a member. As part of the terms of the South Edge Plan, land previously owned by the South Edge joint venture, including our share that consists of approximately 600 developable acres, was acquired by Inspirada Builders, LLC in November 2011. We anticipate that we will acquire our share of the land from Inspirada Builders, LLC through a future distribution.

Our initial investment of $75.5 million in Inspirada Builders, LLC consisted of $75.2 million, the estimated fair value as of November 30, 2011 of our share of the land the venture holds, and a $.3 million initial capital contribution to fund the venture’s operations. We calculated this estimated fair value of our share of the land using a present value methodology and assumed that we would develop the land, build and sell homes on most of the land, and sell the remainder of the developed land. This fair value estimate at November 30, 2011 reflected our expectations of the price we would receive for our share of the land in the land’s then-current state in an orderly (not a forced) transaction under then-prevailing market conditions. This fair value estimate of our share of the land reflected judgments and assumptions believed to be appropriate based on the information known to us at the time concerning, among other things, (a) southern Nevada housing market supply and demand conditions, including estimates of average selling prices; (b) potential future home sales and cancellation rates; (c) entitlements and development plans for the land; (d) land development, home construction and overhead costs to be incurred; and (e) a risk-free rate of return and an expected risk premium, in each case in relation to an expected 15-year life for the project. This fair value estimate was corroborated by a third-party appraisal conducted in the fourth quarter of 2011. Due to the judgments and assumptions applied in the fair value estimation process, it is possible that actual results could differ substantially from those estimated; however, we did not identify any impairment to our investment in Inspirada Builders, LLC as of November 30, 2012.