Note 5

3 Months Ended

Jan. 31, 2013

Inventory Impairments And Land Option Cost Write Offs [Text Block]

5. We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the three months ended January 31, 2013, our discount rate used for impairments recorded was 18.8%. For the three months ended January 31, 2012, our discount rates used for impairments recorded ranged from 16.8% to 18.5%. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may need to recognize additional impairments. We recorded impairment losses, which are included in the Condensed Consolidated Statement of Operations and deducted from inventory, of $0.6 million and $3.1 million for the three months ended January 31, 2013 and 2012, respectively.

The following table represents inventory impairments by homebuilding segment for the three months ended January 31, 2013 and 2012:

	Three Months Ended						Three Months Ended
(Dollars in millions)	January 31, 2013						January 31, 2012
	Number of Communities		Dollar Amount of Impairment(1)		Pre- Impairment Value(2)		Number of Communities		Dollar Amount of Impairment		Pre- Impairment Value(2)
Northeast		1	$	0.6	$	2.9		5	$	2.4	$	16.1
Mid-Atlantic		1		-		0.1		2		0.3		0.6
Midwest		-		-		-		1		0.1		1.1
Southeast		1		-		0.4		3		0.3		0.9
Southwest		-		-		-		-		-		-
West		-		-		-		-		-		-
Total		3	$	0.6	$	3.4		11	$	3.1	$	18.7

(1) During the three months ended January 31, 2013, there were impairments totaling $587 thousand. The impairments were in the Northeast $568 thousand, in the Mid-Atlantic $2 thousand and in the Southeast $17 thousand.

(2) Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period’s impairments.

The Condensed Consolidated Statement of Operations line entitled “Homebuilding: Inventory impairment loss and land option write-offs” also includes write-offs of options, and approval, engineering and capitalized interest costs that we record when we redesign communities and/or abandon certain engineering costs and we do not exercise options in various locations because the communities' pro forma profitability is not projected to produce adequate returns on investment commensurate with the risk. Total aggregate write-offs related to these items were $0.1 million and $0.2 million for the three months ended January 31, 2013 and 2012, respectively. Occasionally, these write-offs are offset by recovered deposits (sometimes through legal action) that had been written off in a prior period as walk-away costs. Historically, these recoveries have not been significant in comparison to the total cost written off.

The following table represents write-offs of such costs (after giving effect to any recovered deposits in the applicable period) and the number of lots walked away from by homebuilding segment for the three months ended January 31, 2013 and 2012:

	Three Months Ended January 31,
	2013				2012
(Dollars in millions)	Number of Walk-Away Lots		Dollar Amount of Write-Offs (1)		Number of Walk-Away Lots		Dollar Amount of Write-Offs

Northeast		-	$	-		-	$	-
Mid-Atlantic		140		-		179		0.1
Midwest		-		-		38		-
Southeast		-		-		141		0.1
Southwest		45		-		-		-
West		-		-		-		-
Total		185	$	0.1		358	$	0.2

(1) During the three months ended January 31, 2013 there were write-offs totaling $79 thousand. The write-offs were in the Northeast $29 thousand, in the Mid-Atlantic $6 thousand, in the Southeast $19 thousand, in the Southwest $11 thousand, and in the West $14 thousand.

We have decided to mothball (or stop development on) certain communities when we have determined the current performance does not justify further investment at the time. When we decide to mothball a community, the inventory is reclassified from “Sold and unsold homes and lots under development” to “Land and land options held for future development or sale”. During the first quarter of fiscal 2013, we did not mothball any communities but re-activated one previously mothballed community. As of January 31, 2013, the net book value associated with our 52 total mothballed communities was $124.2 million, net of impairment charges recorded in prior periods of $465.9 million.

During fiscal 2012 and 2013, we sold and leased back certain of our model homes with the right to participate in the potential profit when each home is sold to a third party at the end of the respective lease. As a result of our continued involvement, for accounting purposes, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Condensed Consolidated Balance Sheet, at January 31, 2013, inventory of $33.8 million was recorded to consolidated inventory not owned, with a corresponding amount of $32.9 million recorded to liabilities from inventory not owned.

In addition, we entered into a land banking arrangement in fiscal 2012 with GSO Capital Partners LP ("GSO"), that continued in fiscal 2013, whereby we sold a portfolio of our land parcels to GSO, and GSO provided us an option to purchase back finished lots on a quarterly basis. Because of our option to repurchase these parcels, for accounting purposes, this transaction is considered a financing rather than a sale. For purposes of our Condensed Consolidated Balance Sheet, at January 31, 2013, inventory of $57.1 million was recorded as consolidated inventory not owned, with a corresponding amount of $45.3 million recorded to liabilities from inventory not owned.