Note 20

3 Months Ended

Jan. 31, 2013

Equity Method Investments and Joint Ventures Disclosure [Text Block]

20. 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.

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.

(Dollars in thousands)	January 31, 2013
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	22,671		$	302		$	22,973
Inventories		163,805			13,810			177,615
Other assets		9,151			5			9,156
Total assets	$	195,627		$	14,117		$	209,744

Liabilities and equity:
Accounts payable and accrued liabilities	$	18,120		$	5,888		$	24,008
Notes payable		74,964			-			74,964
Total liabilities		93,084			5,888			98,972
Equity of:
Hovnanian Enterprises, Inc.		44,865			2,842			47,707
Others		57,678			5,387			63,065
Total equity		102,543			8,229			110,772
Total liabilities and equity	$	195,627		$	14,117		$	209,744
Debt to capitalization ratio		42	%		0	%		40	%

(Dollars in thousands)	October 31, 2012
	Homebuilding			Land Development			Total
Assets:
Cash and cash equivalents	$	29,657		$	1,686		$	31,343
Inventories		177,170			14,853			192,023
Other assets		12,886			5			12,891
Total assets	$	219,713		$	16,544		$	236,257

Liabilities and equity:
Accounts payable and accrued liabilities	$	24,651		$	12,233		$	36,884
Notes payable		79,675			-			79,675
Total liabilities		104,326			12,233			116,559
Equity of:
Hovnanian Enterprises, Inc.		45,285			794			46,079
Others		70,102			3,517			73,619
Total equity		115,387			4,311			119,698
Total liabilities and equity	$	219,713		$	16,544		$	236,257
Debt to capitalization ratio		41	%		0	%		40	%

As of January 31, 2013 and October 31, 2012, we had advances outstanding of approximately $5.7 million and $15.0 million, respectively, to these unconsolidated joint ventures, which were included in the “Accounts payable and accrued liabilities” balances in the tables above. On our Condensed Consolidated Balance Sheets our “Investments in and advances to unconsolidated joint ventures” amounted to $53.4 million and $61.1 million at January 31, 2013 and October 31, 2012, respectively. In some cases, our net investment in these joint ventures is less than our proportionate share of the equity reflected in the tables 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 our joint venture equity investments are recorded when we deem a decline in fair value to be other than temporary while impairments recorded in the joint ventures are recorded when undiscounted cash flows of its community indicate that the carrying amount is not recoverable. During fiscal 2012 and the first three months of fiscal 2013, we did not write down any joint venture investments based on our determination that none of the investments in our joint ventures sustained an other than temporary impairment during those periods.

	For the Three Months Ended January 31, 2013
(In thousands)	Homebuilding			Land Development			Total

Revenues	$	60,143		$	7,814		$	67,957
Cost of sales and expenses		(56,288	)		(2,949	)		(59,237	)
Joint venture net income	$	3,855		$	4,865		$	8,720
Our share of net (loss) income	$	(93	)	$	2,433		$	2,340

	For the Three Months Ended January 31, 2012
(In thousands)	Homebuilding			Land Development			Total

Revenues	$	52,596		$	3,355		$	55,951
Cost of sales and expenses		(52,770	)		(3,203	)		(55,973	)
Joint venture net (loss) income	$	(174	)	$	152		$	(22	)
Our share of net (loss) income	$	(51	)	$	116		$	65

“Income (loss) from unconsolidated joint ventures” is reflected as a separate line in the accompanying Condensed Consolidated Statements of Operations and reflects our proportionate share of the income or loss 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 Condensed Consolidated Statements of Operations for the three months ended January 31, 2013 and 2012, 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. To compensate us for the administrative services we provide as the manager of certain joint ventures, we receive a management fee based on a percentage of the applicable joint venture’s revenues. These management fees, which totaled $2.8 million and $2.4 million, for the three months ended January 31, 2013 and 2012, respectively, are recorded in “Homebuilding-Selling, general and administrative” on the Condensed Consolidated Statement of Operations.

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 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 40%. 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 VIE 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.

- Definition

The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.

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