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Note 18 - Investments in Unconsolidated Homebuilding and Land Development Joint Ventures

9 Months Ended

Jul. 31, 2015

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures Disclosure [Text Block]

18.

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 home buyers. 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, 2015
		Homebuilding				Land Development				Total
Assets:
Cash and cash equivalents			$20,420				$739				$21,159
Inventories			322,448				13,543				335,991
Other assets			9,388				-				9,388
Total assets			$352,256				$14,282				$366,538

Liabilities and equity:
Accounts payable and accrued liabilities			$28,601				$604				$29,205
Notes payable			101,522				4,593				106,115
Total liabilities			130,123				5,197				135,320
Equity of:
Hovnanian Enterprises, Inc.			63,497				2,943				66,440
Others			158,636				6,142				164,778
Total equity			222,133				9,085				231,218
Total liabilities and equity			$352,256				$14,282				$366,538
Debt to capitalization ratio			31	%			34	%			31	%

(Dollars in thousands)		October 31, 2014
		Homebuilding				Land Development				Total
Assets:
Cash and cash equivalents			$22,415				$205				$22,620
Inventories			208,620				16,194				224,814
Other assets			11,986				-				11,986
Total assets			$243,021				$16,399				$259,420

Liabilities and equity:
Accounts payable and accrued liabilities			$27,175				$1,039				$28,214
Notes payable			45,506				5,650				51,156
Total liabilities			72,681				6,689				79,370
Equity of:
Hovnanian Enterprises, Inc.			59,106				2,990				62,096
Others			111,234				6,720				117,954
Total equity			170,340				9,710				180,050
Total liabilities and equity			$243,021				$16,399				$259,420
Debt to capitalization ratio			21	%			37	%			22	%

As of July 31, 2015 and October 31, 2014, we had advances outstanding of approximately $1.0 million and $1.8 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 $66.5 million and $63.9 million at July 31, 2015 and October 31, 2014, respectively.

		For the Three Months Ended July 31, 2015
(In thousands)		Homebuilding				Land Development				Total

Revenues			$27,459				$1,394				$28,853
Cost of sales and expenses			(29,705	)			(1,296	)			(31,001	)
Joint venture net (loss) income			$(2,246	)			$98				$(2,148	)
Our share of net (loss) income			$(488	)			$49				$(439	)

		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 Nine Months Ended July 31, 2015
(In thousands)		Homebuilding				Land Development				Total

Revenues			$91,300				$4,009				$95,309
Cost of sales and expenses			(53,821	)			(4,103	)			(57,924	)
Joint venture net income (loss)			$37,479				$(94	)			$37,385
Our share of net income (loss)			$728				$(47	)			$681

		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

“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 in the tables above compared to the Condensed Consolidated Statements of Operations for the three and nine months ended July 31, 2015 and 2014, is due primarily to 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 $1.2 million and $1.3 million, for the three months ended July 31, 2015 and 2014, respectively, and $3.6 million and $5.0 million for the nine months ended July 31, 2015 and 2014, 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 some of our joint ventures, obtaining financing was challenging, therefore, some of our joint ventures are capitalized only with equity. Including the impact of impairments recorded by the joint ventures, the total debt to capitalization ratio of all our joint ventures is currently 31%. 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 have determined that we are not the primary beneficiary, and therefore we do not consolidate these entities.