XML 43 R27.htm IDEA: XBRL DOCUMENT v2.4.0.6
Note 20 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures
 12 Months Ended
Oct. 31, 2011
Equity Method Investments Disclosure [Text Block]
20. Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile, leveraging our capital base and enhancing returns on capital.  Our homebuilding joint ventures are generally entered into with third-party investors to develop land and construct homes that are sold directly to third-party homebuyers.  Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other third parties.

During the three months ended January 31, 2011, we entered into a joint venture agreement to acquire a portfolio of homebuilding projects, including land we previously owned. We sold the land we owned to the joint venture for net proceeds of $36.1 million, which was equal to our book value in the land at that time, and recorded an investment in unconsolidated joint ventures of $19.7 million for our interest in the venture.  During the three months ended April 30, 2011, we expanded this joint venture, selling additional land we owned to the joint venture for net proceeds of $27.2 million, which was equal to our book value in the land at that time, and recorded an additional investment of $11.4 million for our interest in the venture.  Separately, during the three months ended January 31, 2011, our partner in a land development joint venture transferred its interest in the venture to us.  The consolidation resulted in increases in inventory and non-recourse land mortgages of $9.5 million and $18.5 million, respectively, and a decrease in other liabilities of $9.0 million.

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method.

   
October 31, 2011
 
(Dollars In Thousands)
 
Homebuilding
   
Land Development
   
Total
 
Assets:
                 
Cash and cash equivalents
  $ 21,380     $ 287     $ 21,667  
Inventories
    310,743       14,786       325,529  
Other assets
    25,388               25,388  
Total assets
  $ 357,511     $ 15,073     $ 372,584  
Liabilities and equity:
                       
Accounts payable and accrued
liabilities
  $ 21,035     $ 11,710     $ 32,745  
Notes payable
    199,821       21       199,842  
        Total liabilities
    220,856       11,731       232,587  
Equity of:
                       
Hovnanian Enterprises, Inc.
    52,013       1,312       53,325  
Others
    84,642       2,030       86,672  
Total equity
    136,655       3,342       139,997  
Total liabilities and equity
  $ 357,511     $ 15,073     $ 372,584  
Debt to capitalization ratio
    59 %     1 %     59 %

   
October 31, 2010
 
(Dollars In Thousands)
 
Homebuilding
   
Land Development
   
Total
 
Assets:
                 
Cash and cash equivalents
  $ 17,538     $ 161     $ 17,699  
Inventories
    247,790       73,864       321,654  
Other assets
    20,321               20,321  
Total assets
  $ 285,649     $ 74,025     $ 359,674  
Liabilities and equity:
                       
Accounts payable and accrued
liabilities
  $ 19,076     $ 17,266     $ 36,342  
Notes payable
    159,715       36,791       196,506  
        Total liabilities
    178,791       54,057       232,848  
Equity of:
                       
Hovnanian Enterprises, Inc.
    29,208       2,510       31,718  
Others
    77,650       17,458       95,108  
Total equity
    106,858       19,968       126,826  
Total liabilities and equity
  $ 285,649     $ 74,025     $ 359,674  
Debt to capitalization ratio
    60 %     65 %     61 %

As of October 31, 2011 and 2010, we had advances outstanding of approximately $11.7 and $13.5 million to these unconsolidated joint ventures, which were included in the “Accounts payable and accrued liabilities” balances in the table above. On our Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to $57.8 million and $38.0 million at October 31, 2011 and 2010, respectively. In some cases, our net investment in these joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our joint venture investments and any impairments recorded in the applicable joint venture.  Impairments of joint venture investments are recorded at fair value while impairments recorded in the joint venture are recorded when undiscounted cash flows trigger the impairment. During fiscal 2009, we wrote down certain joint venture investments by $26.4 million based on our determination that the investment in these joint ventures has sustained an other than temporary impairment.  During fiscal 2011 and fiscal 2010, we did not write-down any joint venture investments, however, one of our joint ventures in the Northeast recorded an asset impairment in the fourth quarter of fiscal 2011.  We recorded our proportionale share of this impairment charge as part of our  share of the net loss of the venture.

   
For The Twelve Months Ended October 31, 2011
 
(Dollars In Thousands)
 
Homebuilding
   
Land Development
   
Total
 
Revenues
  $ 177,301     $ 12,226     $ 189,527  
Cost of sales and expenses
    (181,651 )     (11,114 )     (192,765 )
Joint venture net (loss) income
  $ (4,350 )   $ 1,112     $ (3,238 )
Our share of net (loss) income
  $ (8,395 )   $ 647     $ (7,748 )

   
For The Twelve Months Ended October 31, 2010
 
(Dollars In Thousands)
 
Homebuilding
   
Land Development
   
Total
 
Revenues
  $ 137,073     $ 19,307     $ 156,380  
Cost of sales and expenses
    (135,878 )     (21,260 )     (157,138 )
Joint venture net income (loss)
  $ 1,195     $ (1,953 )   $ (758 )
Our share of net income
  $ 683     $ 469     $ 1,152  

   
For The Twelve Months Ended October 31, 2009
 
(Dollars In Thousands)
 
Homebuilding
   
Land Development
   
Total
 
Revenues
  $ 117,725     $ 13,626     $ 131,351  
Cost of sales and expenses
    (231,751 )     (18,367 )     (250,118 )
Joint venture net loss
  $ (114,026 )   $ (4,741 )   $ (118,767 )
Our share of net loss
  $ (24,279 )   $ (2,252 )   $ (26,531 )

“(Loss) income from unconsolidated joint ventures” is reflected as a separate line in the accompanying Consolidated Statements of Operations and reflects our proportionate share of the loss or income of these unconsolidated homebuilding and land development joint ventures.  The difference between our share of the loss or income from these unconsolidated joint ventures disclosed in the tables above compared to the Consolidated Statements of Operations for fiscal 2011 and fiscal 2010, is due primarily to one joint venture that had net income for which we do not get any share of the profit because of the cumulative equity position of the joint venture, the reclassification of the intercompany portion of management fee income from certain joint ventures, and the deferral of income for lots purchased by us from certain joint ventures. For fiscal 2009, the difference between our share of the loss disclosed in the tables compared to the Consolidated Statements of Operations was primarily due to the write down of our investment in one joint venture where we determined that our investment had an other than temporary impairment.

 For the twelve months ended October 31 2011, we incurred losses that exceeded the sum of the losses (and gains) earned by the joint ventures. This was largely the result of the mix of our share of either the profit or loss in each of the joint ventures. Our ownership interests in the joint ventures vary but our voting interests are generally 50% or less.

In determining whether or not we must consolidate joint ventures where we are the manager of the joint venture, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture.  In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing. The amount of financing is generally targeted to be no more than 50% of the joint venture’s total assets.  For our more recent joint ventures obtaining financing has become challenging, therefore, some of our joint ventures are capitalized only with equity. However, for our most recent joint venture, a portion of our partner's capital contribution was in the form of mortgage financing. Including the impact of impairments recorded by the joint ventures, the average debt to capitalization ratio of all our joint ventures is currently 59%. Any joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing.  In some instances, the joint venture entity is considered a variable interest entity under ASC 810-10 "Consolidation – Overall" due to the returns being capped to the equity holders; however, in these instances, we are not the primary beneficiary, and therefore we do not consolidate these entities.