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

12 Months Ended

Oct. 31, 2012

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.

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 in the consolidated group. We sold the land we owned to the joint venture for net proceeds of $36.1 million, which was equal to our basis 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 of 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. 

During the three months ended July 31, 2012, we purchased our partners’ interest in one of our unconsolidated homebuilding joint ventures.  The consolidation of this entity resulted in increases in inventory, other assets, non-recourse land mortgages and accounts payables and other liabilities of $34.3 million, $5.0 million, $20.6 million and $15.8 million, respectively.

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, 2012
(Dollars In Thousands)	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	%

	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	%

As of October 31, 2012 and 2011, we had advances outstanding of approximately $15.0 million and $11.7 million, respectively, to these unconsolidated joint ventures, which were included in the “Accounts payable and accrued liabilities” balances in the tables above.  On our  Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures” amounted to $61.1 million and $57.8 million at October 31, 2012 and 2011, 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 the community indicate that the carrying amount is not recoverable.  During fiscal 2011 and fiscal 2012, 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 Twelve Months Ended October 31, 2012
(Dollars In Thousands)	Homebuilding			Land Development			Total
Revenues	$	323,177		$	11,531		$	334,708
Cost of sales and expenses		(300,892	)		(9,318	)		(310,210	)
Joint venture net income	$	22,285		$	2,213		$	24,498
Our share of net income	$	4,763		$	1,108		$	5,871

	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

“Income (loss) from unconsolidated joint ventures” in the accompanying Consolidated Statements of Operations 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 in the tables above compared to the Consolidated Statements of Operations 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 $15.2 million, $7.6 million and $6.3 million for the years ended October 31, 2012, 2011 and 2010, respectively, are recorded in homebuilding selling, general and administrative on the 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. 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 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.