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Note 5

6 Months Ended

Apr. 30, 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 six months ended April 30, 2013 and 2012, our discount rates used for the impairments recorded ranged from 18.0% to 18.8% and from 16.8% to 18.5%, respectively. 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. During the six months ended April 30, 2013, we evaluated inventories of all 344 communities under development and held for future development for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment. We performed detailed impairment calculations for 29 of those communities (i.e., those with a projected operating loss or other impairment indicators) with an aggregate carrying value of $82.0 million. As impairment indicators are assessed on a quarterly basis, some of the communities evaluated during the six months ended April 30, 2013 were evaluated in more than one quarterly period. Of those communities tested for impairment, one community with an aggregate carrying value of $2.7 million had undiscounted future cash flow that only exceeded the carrying amount by less than 20%. As a result of our impairment analysis, we recorded impairment losses, which are included in the Condensed Consolidated Statement of Operations and deducted from inventory, of $0.9 million and $2.1 million for the three months ended April 30, 2013 and 2012, respectively, and $1.5 million and $5.2 million for the six months ended April 30, 2013 and 2012, respectively.

The following tables represent inventory impairments by homebuilding segment for the three and six months ended April 30, 2013 and 2012:

(Dollars in millions)	Three Months Ended April 30, 2013						Three Months Ended April 30, 2012
	Number of Communities		Dollar Amount of Impairment		Pre- Impairment Value(1)		Number of Communities		Dollar Amount of Impairment		Pre- Impairment Value(1)
Northeast		1	$	0.9	$	2.3		-	$	-	$	-
Mid-Atlantic		-		-		-		1		0.1		0.2
Midwest		-		-		-		-		-		-
Southeast		-		-		-		5		2.0		4.5
Southwest		-		-		-		-		-		-
West		-		-		-		-		-		-
Total		1	$	0.9	$	2.3		6	$	2.1	$	4.7

(Dollars in millions)	Six Months Ended April 30, 2013						Six Months Ended April 30, 2012
	Number of Communities		Dollar Amount of Impairment(2)		Pre- Impairment Value(1)		Number of Communities		Dollar Amount of Impairment		Pre- Impairment Value(1)
Northeast		2	$	1.5	$	5.2		5	$	2.4	$	16.1
Mid-Atlantic		1		-		0.1		3		0.4		0.8
Midwest		-		-		-		1		0.1		1.1
Southeast		1		-		0.4		8		2.3		5.4
Southwest		-		-		-		-		-		-
West		-		-		-		-		-		-
Total		4	$	1.5	$	5.7		17	$	5.2	$	23.4

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

(2)	During the six months ended April 30, 2013, the Mid-Atlantic had an impairment totaling $2 thousand and the Southeast had an impairment totaling $17 thousand.

The Condensed Consolidated Statement of Operations line item 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 $1.3 million and $1.1 million for the three months ended April 30, 2013 and 2012, respectively, and $1.4 million and $1.3 million for the six months ended April 30, 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 tables represent 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 and six months ended April 30, 2013 and 2012:

	Three Months Ended April 30,
	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(1)
Northeast		300	$	0.1		-	$	0.3
Mid-Atlantic		24		-		3		0.1
Midwest		-		-		67		0.1
Southeast		-		0.1		593		0.6
Southwest		189		1.1		165		-
West		-		-		-		-
Total		513	$	1.3		828	$	1.1

	Six Months Ended April 30,
	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(1)
Northeast		300	$	0.2		-	$	0.3
Mid-Atlantic		164		-		182		0.2
Midwest		-		-		105		0.1
Southeast		-		0.1		734		0.7
Southwest		234		1.1		165		-
West		-		-		-		-
Total		698	$	1.4		1,186	$	1.3

(1)

During the three and six months ended April 30, 2013 there were write-offs in the Mid-Atlantic totaling $2 thousand and $8 thousand, respectively. During the three and six months ended April 30, 2012 there were write-offs in the Southwest totaling $44 thousand and $52 thousand, respectively.

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 half of fiscal 2013, we mothballed one community and we re-activated two previously mothballed communities. As of April 30, 2013, the net book value associated with our 52 total mothballed communities was $125.2 million, net of impairment charges recorded in prior periods of $455.2 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 in accordance with ASC 360-20-40-38, these sale and leaseback transactions are considered a financing rather than a sale. Therefore, for purposes of our Condensed Consolidated Balance Sheet, at April 30, 2013, inventory of $34.2 million was recorded to consolidated inventory not owned, with a corresponding amount of $33.6 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, in accordance with ASC 360-20-40-38, this transaction is considered a financing rather than a sale. For purposes of our Condensed Consolidated Balance Sheet, at April 30, 2013, inventory of $71.9 million was recorded as “Consolidated inventory not owned – other options”, with a corresponding amount of $57.5 million recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.