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Inventory And Land Held For Sale | 12 Months Ended
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Dec. 31, 2011
Inventory Disclosure [Abstract] |
Inventory Disclosure | Inventory and land held for sale Major components of inventory at December 31, 2011 and 2010 were ($000’s omitted):
| 2011 |  | 2010
Homes under construction | $ | 1,210,717 |  |  | $ | 1,331,618 |
Land under development | 2,610,501 |  |  | 2,541,829 |
Land held for future development | 815,250 |  |  | 908,366 |
| $ | 4,636,468 |  |  | $ | 4,781,813 |
We capitalize interest cost into inventory during the active development and construction of our communities. Each layer of capitalized interest is amortized over a period that approximates the average life of communities under development. Interest expense is allocated over the period based on the cyclical timing of home closings. Interest expensed to Homebuilding cost of revenues for 2011, 2010, and 2009 included $5.4 million, $27.6 million, and $68.2 million, respectively, of capitalized interest related to inventory impairments. During 2011 and 2009, we capitalized all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. During 2010, we capitalized all Homebuilding interest costs into inventory except $1.5 million that was expensed directly to interest expense due to our debt levels exceeding our active inventory levels for a portion of the year. Information related to interest capitalized into inventory is as follows ($000’s omitted):
| Years Ended December 31,
| 2011 |  | 2010 |  | 2009
Interest in inventory, beginning of period | $ | 323,379 |  |  | $ | 239,365 |  |  | $ | 170,020 |
Interest capitalized | 221,071 |  |  | 264,932 |  |  | 234,700 |
Interest expensed | (189,382 | ) |  | (180,918 | ) |  | (165,355 | )
Interest in inventory, end of period | $ | 355,068 |  |  | $ | 323,379 |  |  | $ | 239,365 |
Interest incurred* | $ | 221,071 |  |  | $ | 266,474 |  |  | $ | 234,700 |
* | Homebuilding interest incurred includes interest on senior debt and other financing arrangements and excludes interest incurred by the Financial Services segment and certain other interest costs.
Land valuation adjustments and write-offs Impairment of inventory In accordance with ASC 360, “Property, Plant, and Equipment” (“ASC 360”), we record valuation adjustments on land inventory and related communities under development when events and circumstances indicate that they may be impaired and when the cash flows estimated to be generated by those assets are less than their carrying amounts. Such indicators include gross margin or sales paces significantly below expectations, construction costs or land development costs significantly in excess of budgeted amounts, significant delays or changes in the planned development for the community, and other known qualitative factors. For communities that are not yet active, a significant additional consideration includes an evaluation of the probability, timing, and cost of obtaining necessary approvals from local municipalities and any potential concessions that may be necessary in order to obtain such approvals. We also consider potential changes to the product offerings in a community and any alternative strategies for the land, such as the sale of the land either in whole or in parcels. Communities that demonstrate potential impairment indicators are tested for impairment. We compare the expected undiscounted cash flows for these communities to their carrying value. For those communities whose carrying values exceed the expected undiscounted cash flows, we calculate the fair value of the community in accordance with ASC 360. Impairment charges are required to be recorded if the fair value of the community's inventory is less than its carrying value. We determine the fair value of a community's inventory using a combination of market comparable land transactions, where available, and discounted cash flow models. These estimated cash flows are significantly impacted by estimates related to expected average selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. The assumptions used in the discounted cash flow models are specific to each community tested for impairment and typically do not assume improvements in market conditions in the near term. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, and the long life cycles of many communities, actual results could differ significantly from such estimates. Our determination of fair value also requires discounting the estimated cash flows at a rate commensurate with the inherent risks associated with each of the assets and related estimated cash flow streams. The discount rate used in determining each community's fair value depends on the stage of development of the community and other specific factors that increase or decrease the inherent risks associated with the community's cash flow streams. For example, communities that are entitled and near completion will generally require a lower discount rate than communities that are not entitled and consist of multiple phases spanning several years of development and construction activity. The table below provides, as of the date indicated, the number of communities for which we recognized impairment charges, the fair value of those communities at such date (net of impairment charges), and the amount of impairment charges recognized ($000’s omitted):
| 2011 |  | 2010
Quarter Ended | Number of Communities Impaired |  | Fair Value of Communities Impaired, Net of Impairment Charges |  | Impairment Charges |  | Number of Communities Impaired |  | Fair Value of Communities Impaired, Net of Impairment Charges |  | Impairment Charges
March 31 | 1 |  |  | $ | 483 |  |  | $ | 103 |  |  | 10 |  |  | $ | 7,233 |  |  | $ | 4,537 |
June 30 | 6 |  |  | 6,665 |  |  | 3,300 |  |  | 16 |  |  | 35,122 |  |  | 25,546 |
September 30 | 3 |  |  | 6,416 |  |  | 1,494 |  |  | 28 |  |  | 33,407 |  |  | 57,453 |
December 31 | 25 |  |  | 23,766 |  |  | 11,043 |  |  | 73 |  |  | 70,862 |  |  | 82,186 |
|  |  |  |  | $ | 15,940 |  |  |  |  |  |  | $ | 169,722 |
We recorded these valuation adjustments within Homebuilding home sale cost of revenues. In 2011, we reviewed each of our land positions for potential impairment indicators and performed detailed impairment calculations for approximately 100 communities. In determining the fair value for the impaired communities, we used discount rates ranging from 12% to 17%, with an aggregate average of 13%. During 2011, we experienced relative stability in market conditions generally consistent with our expectations, though at somewhat lower volumes, which resulted in total valuation adjustments significantly below those experienced in recent years. However, if conditions in the homebuilding industry or our local markets worsen in the future, if the current difficult market conditions extend beyond our expectations, or if our strategy related to certain communities changes, we may be required to evaluate our assets for future impairments or write-downs, which could result in future charges that might be significant. Net realizable value adjustments – land held for sale We acquire land primarily for the construction of homes for sale to customers but may periodically elect to sell select parcels of land to third parties for commercial or other development. Additionally, we may determine that certain land assets no longer fit into our strategic operating plans. Assuming the criteria in ASC 360 are met, we classify such land as land held for sale. Land held for sale is valued at the lower of carrying value or fair value less costs to sell. In determining the fair value of land held for sale, we consider recent offers received, prices for land in recent comparable sales transactions, and other factors. During 2011, 2010, and 2009, we recognized net realizable value adjustments related to land held for sale of $9.8 million, $39.1 million, and $113.7 million, respectively. We record these net realizable value adjustments within Homebuilding land sale cost of revenues. During 2011, the land held for sale balance increased as the result of the reclassification from inventory of certain non-strategic parcels scheduled to be sold within the next year. Land held for sale at December 31, 2011 and 2010 was as follows ($000’s omitted):
| 2011 |  | 2010
Land held for sale, gross | $ | 190,099 |  |  | $ | 124,919 |
Net realizable value reserves | (54,792 | ) |  | (53,864 | )
Land held for sale, net | $ | 135,307 |  |  | $ | 71,055 |
Write-off of deposits and pre-acquisition costs We write off deposits and pre-acquisition costs related to land option contracts when it becomes probable that we will not go forward with the project or recover the capitalized costs. Such decisions take into consideration changes in local market conditions, the willingness of land sellers to modify terms of the related purchase agreements, the timing of required land takedowns, the availability and best use of necessary incremental capital, and other factors. We wrote off (net of recoveries) deposits and pre-acquisition costs in the amount of $10.0 million, $5.6 million, and $54.3 million, during 2011, 2010, and 2009, respectively. We record these write-offs of deposits and pre-acquisition costs within other expense (income), net.

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- Definition The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.6) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Chapter 3 -Section A -Paragraph 9 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 6 -Subparagraph a, b, c -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6361739&loc=d3e7789-107766 + Details
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