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Fair Value Disclosures
 6 Months Ended
May 31, 2012
Fair Value Disclosures [Abstract]  
Fair Value Disclosures
7. Fair Value Disclosures

Accounting Standards Codification Topic No. 820, “Fair Value Measurements and Disclosures,” provides a framework for measuring the fair value of assets and liabilities under GAAP, and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:

 

     

  Level 1

   Fair value determined based on quoted prices in active markets for identical assets or liabilities.
   

  Level 2

   Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.
   

  Level 3

   Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate the carrying value is not recoverable. The following table presents the Company’s assets measured at fair value on a nonrecurring basis during the six months ended May 31, 2012 and the year ended November 30, 2011 (in thousands):

 

                     
    Fair Value  

Description

   Hierarchy   May 31,
2012 (a)		     November 30,
2011 (a)		  

Long-lived assets held and used

   Level 2   $ —       $ 75  

Long-lived assets held and used

   Level 3     27,396       33,947  
       

 

 

    

 

 

  

Total

       $ 27,396     $ 34,022  
       

 

 

    

 

 

  

 

(a) Amounts represent the aggregate fair values for communities or land parcels for which the Company recognized inventory impairment charges during the period, as of the date that the fair value measurements were made. The carrying value for these communities or land parcels may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

 

In accordance with the provisions of ASC 360, long-lived assets held and used with a carrying value of $43.9 million were written down to their fair value of $27.4 million during the six months ended May 31, 2012, resulting in inventory impairment charges of $16.5 million. Long-lived assets held and used with a carrying value of $56.7 million were written down to their fair value of $34.0 million during the year ended November 30, 2011, resulting in inventory impairment charges of $22.7 million.

The fair values for the Company’s long-lived assets held and used that were determined using Level 2 inputs were based on an executed contract. The fair values for long-lived assets held and used that were determined using Level 3 inputs were primarily based on the estimated future net cash flows discounted for inherent risk associated with each asset as described in Note 6. Inventory Impairments and Land Option Contract Abandonments. The discount rates used were impacted by the following: the risk-free rate of return; expected risk premium based on estimated land development, construction and delivery timelines; market risk from potential future price erosion; cost uncertainty due to development or construction cost increases; and other risks specific to the asset or conditions in the market in which the asset was located at the time the assessment was made. These factors were specific to each affected community or land parcel and may have varied among communities or land parcels.

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, mortgages and notes receivable, senior notes, and mortgages and land contracts due to land sellers and other loans. Fair value measurements of financial instruments are determined by various market data and other valuation techniques as appropriate. When available, the Company uses quoted market prices in active markets to determine fair value.

The following table presents the fair value hierarchy, carrying values and estimated fair values of the Company’s financial instruments, except those for which the carrying values approximate fair values (in thousands):

 

                                         
          May 31, 2012     November 30, 2011  
    Fair Value
Hierarchy		     Carrying
Value		     Estimated
Fair Value		     Carrying
Value		     Estimated
Fair Value		  

Financial Liabilities:

                                        

Senior notes due 2014 at 5  3/4%

     Level 2     $ 193,482     $ 191,033     $ 249,647     $ 232,500  

Senior notes due 2015 at 5  7/8%

     Level 2       169,657       163,207       299,273       270,000  

Senior notes due 2015 at 6  1/4%

     Level 2       296,179       285,556       449,795       401,625  

Senior notes due 2017 at 9.10%

     Level 2       261,141       267,650       260,865       235,519  

Senior notes due 2018 at 7  1/4%

     Level 2       299,067       282,000       299,007       251,625  

Senior notes due 2020 at 8.00%

     Level 2       344,973       339,500       —         —    

The fair values of the Company’s senior notes are estimated based on quoted market prices.

The carrying values reported for cash and cash equivalents, restricted cash, mortgages and notes receivable, and mortgages and land contracts due to land sellers and other loans approximate fair values.