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Note 20 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

9 Months Ended

Jul. 31, 2014

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures 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.

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)	July 31, 2014
	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$17,621		$92		$17,713
Inventories	202,204		11,336		213,540
Other assets	9,361		-		9,361
Total assets	$229,186		$11,428		$240,614

Liabilities and equity:
Accounts payable and accrued liabilities	$28,726		$4,177		$32,903
Notes payable	43,962		-		43,962
Total liabilities	72,688		4,177		76,865
Equity of:
Hovnanian Enterprises, Inc.	55,779		2,834		58,613
Others	100,719		4,417		105,136
Total equity	156,498		7,251		163,749
Total liabilities and equity	$229,186		$11,428		$240,614
Debt to capitalization ratio	22	%	0	%	21	%

(Dollars in thousands)	October 31, 2013
	Homebuilding		Land Development		Total
Assets:
Cash and cash equivalents	$30,102		$639		$30,741
Inventories	101,735		11,080		112,815
Other assets	6,868		-		6,868
Total assets	$138,705		$11,719		$150,424

Liabilities and equity:
Accounts payable and accrued liabilities	$28,016		$4,047		$32,063
Notes payable	23,904		-		23,904
Total liabilities	51,920		4,047		55,967
Equity of:
Hovnanian Enterprises, Inc.	44,141		2,703		46,844
Others	42,644		4,969		47,613
Total equity	86,785		7,672		94,457
Total liabilities and equity	$138,705		$11,719		$150,424
Debt to capitalization ratio	22	%	0	%	20	%

As of July 31, 2014 and October 31, 2013, we had advances outstanding of approximately $3.7 million and $4.6 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 $62.3 million and $51.4 million at July 31, 2014 and October 31, 2013, respectively.

	For the Three Months Ended July 31, 2014
(In thousands)	Homebuilding		Land Development		Total

Revenues	$29,283		$612		$29,895
Cost of sales and expenses	(27,631	)	(534	)	(28,165	)
Joint venture net income	$1,652		$78		$1,730
Our share of net income	$201		$39		$240

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

Revenues	$76,842		$2,992		$79,834
Cost of sales and expenses	(67,526	)	(3,300	)	(70,826	)
Joint venture net income (loss)	$9,316		$(308	)	$9,008
Our share of net income (loss)	$3,654		$(154	)	$3,500

	For the Nine Months Ended July 31, 2014
(In thousands)	Homebuilding		Land Development		Total

Revenues	$114,304		$5,881		$120,185
Cost of sales and expenses	(105,409	)	(5,619	)	(111,028	)
Joint venture net income	$8,895		$262		$9,157
Our share of net income	$3,780		$131		$3,911

	For the Nine Months Ended July 31, 2013
(In thousands)	Homebuilding		Land Development		Total

Revenues	$211,408		$12,468		$223,876
Cost of sales and expenses	(194,667	)	(7,755	)	(202,422	)
Joint venture net income	$16,741		$4,713		$21,454
Our share of net income	$4,372		$2,356		$6,728

“Income 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 income or loss from these unconsolidated joint ventures disclosed in the tables above compared to the Condensed Consolidated Statements of Operations for the three and nine months ended July 31, 2014 and 2013, is due primarily to the reclassification of the intercompany portion of management fee income from certain joint ventures (discussed below) 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 $1.3 million and $3.4 million, for the three months ended July 31, 2014 and 2013, respectively, and $5.0 million and $9.0 million for the nine months ended July 31, 2014 and 2013, 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 that we manage, 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. The total debt to capitalization ratio of all our joint ventures as of July 31, 2014 was 21%. 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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