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Commitments and Contingencies
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6 Months Ended |
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Jun. 30, 2011
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| Commitments and Contingencies [Abstract] | |
| COMMITMENTS AND CONTINGENCIES |
NOTE 11 — COMMITMENTS AND CONTINGENCIES
We are involved in various routine legal proceedings incidental to our business, some of which
are covered by insurance. With respect to the majority of pending litigation matters, our ultimate
legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases,
any potential losses related to those matters are not considered probable. We evaluate our accruals
for litigation at least quarterly and, as appropriate, adjust them to reflect (i) facts and
circumstances known to us at the time; (ii) advice and analyses of outside counsel (if applicable);
and (iii) assumptions and judgment of management. We have reserved approximately $10.1 million for
losses related to litigation and asserted claims where our ultimate exposure is considered probable
and the potential loss can be reasonably estimated, which is classified within accrued liabilities,
“other” accruals, on our June 30, 2011 balance sheet as discussed in Note 1 to these financial
statements. Additionally, we have $25.9 million of warranty reserves, primarily relating to the
correction of home construction defects and general customer warranty claims. Historically, most of
these matters are resolved prior to litigation. We believe that none of these matters will have a
material adverse impact upon our consolidated financial condition, results of operations, or cash
flows.
Joint Venture Litigation
We and our co-venturers in a project known as “South Edge” are defendants in a lawsuit filed
by the lenders to this project and an appeal from an arbitration proceeding instituted by a
co-venturer in the project. The project involves a large master-planned community located in
Henderson, Nevada, which was acquired by an unconsolidated joint venture with capital supplied by
the co-venturers, and a syndicated loan on the project, which at June 30, 2011 had a principal
balance of $328 million (a reconciliation of additional past due obligations, if any, related to
interest and penalties have not been provided to us). In connection with the general operations of
the venture, we provided various guarantees relating to the project, covering our pro rata amount
of the project financing.
On December 9, 2010, three of the lenders filed a petition seeking to place the venture into
an involuntary bankruptcy. On June 6, 2011, we received a demand letter from the lenders,
requesting full payment of $13.2 million associated with the springing repayment guarantee,
including past-due interest and penalties. The lenders claim that the involuntary bankruptcy filed
by three of the lenders triggered the “springing” repayment guarantee. We do not believe the
lenders have an enforceable position associated with their $13.2 million claim and do not believe
we will be required to pay such amount. In connection with the on-going legal proceedings, we have
established reserves for amounts that we believe are appropriate for both potential settlements and
legal costs. The amount we have reserved is less than the aggregate amount of our guarantees and
our pro rata share of a damage claim entered in the arbitration proceeding that is currently
subject to appeal, because it takes into account: (i) defenses we believe we possess, many of which
are unique to our position in the
venture, as well as (ii) potential claims we may have against the joint venture, the lenders,
and our co-venturers. At June 30, 2011, our maximum pro rata exposure under the repayment
guarantee was $13.2 million. Our 3.53% investment in the venture has been previously fully
impaired. We do not believe that the ultimate disposition of these matters will have a material
adverse affect on our financial condition. See Part II, Item 1, Legal Proceedings, for additional
discussion regarding these proceedings.
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