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Note 5

9 Months Ended

Jul. 31, 2013

Inventory Impairments And Land Option Cost Write Offs [Abstract]

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 nine months ended July 31, 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 nine months ended July 31, 2013, we evaluated inventories of all 374 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 30 of those communities (i.e., those with a projected operating loss or other impairment indicators) with an aggregate carrying value of $82.5 million. As impairment indicators are assessed on a quarterly basis, some of the communities evaluated during the nine months ended July 31, 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 $0.1 million and $0.2 million for the three months ended July 31, 2013 and 2012, respectively, and $1.6 million and $5.4 million for the nine months ended July 31, 2013 and 2012, respectively.

The following tables represent inventory impairments by homebuilding segment for the three and nine months ended July 31, 2013 and 2012:

(Dollars in millions)	Three Months Ended July 31, 2013						Three Months Ended July 31, 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	$	0.1	$	0.4		1	$	0.1	$	0.3
Mid-Atlantic		-		-		-		-		-		-
Midwest		-		-		-		-		-		-
Southeast		-		-		-		2		0.1		0.3
Southwest		-		-		-		-		-		-
West		-		-		-		-		-		-
Total		1	$	0.1	$	0.4		3	$	0.2	$	0.6

(Dollars in millions)	Nine Months Ended July 31, 2013						Nine Months Ended July 31, 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		3	$	1.6	$	5.6		6	$	2.5	$	16.4
Mid-Atlantic		1		-		0.1		3		0.4		0.8
Midwest		-		-		-		1		0.1		1.1
Southeast		1		-		0.4		10		2.4		5.8
Southwest		-		-		-		-		-		-
West		-		-		-		-		-		-
Total		5	$	1.6	$	6.1		20	$	5.4	$	24.1

(1)

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

(2)

During the nine months ended July 31, 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 $0.5 million for both three months ended July 31, 2013 and 2012, and $1.9 million and $1.8 million for the nine months ended July 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 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 nine months ended July 31, 2013 and 2012:

	Three Months Ended July 31,
	2013				2012
(Dollars in millions)	Number of Walk-Away Lots		Dollar Amount of Write-Offs		Number of Walk-Away Lots		Dollar Amount of Write-Offs
Northeast		73	$	0.2		210	$	0.1
Mid-Atlantic		-		-		-		-
Midwest		13		-		89		0.1
Southeast		113		0.1		-		-
Southwest		12		0.2		116		0.3
West		-		-		-		-
Total		211	$	0.5		415	$	0.5

	Nine Months Ended July 31,
	2013				2012
(Dollars in millions)	Number of Walk-Away Lots		Dollar Amount of Write-Offs		Number of Walk-Away Lots		Dollar Amount of Write-Offs
Northeast		373	$	0.4		210	$	0.4
Mid-Atlantic		164		-		182		0.2
Midwest		13		-		194		0.2
Southeast		113		0.2		734		0.7
Southwest		246		1.3		281		0.3
West		-		-		-		-
Total		909	$	1.9		1,601	$	1.8

We can incur costs while investigating land options, whereby we decide not to pursue the opportunity before we control the lots. These costs are expensed in the period we decide to no longer pursue the opportunity. For the three and nine months ended July 31, 2013, such costs were not significant and are therefore not shown in the tables above. In addition, we sometimes walk-away from a lot option when we have only incurred costs of less than $50,000; such costs are not shown in the tables above.

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 nine months of fiscal 2013, we mothballed one community and we re-activated three previously mothballed communities. As of July 31, 2013, the net book value associated with our 51 total mothballed communities was $124.9 million, net of impairment charges recorded in prior periods of $442.9 million.

From time to time we enter into option agreements that include specific performance requirements, whereby we are required to purchase a minimum number of lots. Because of our obligation to purchase these lots, for accounting purposes in accordance with ASC 360-20-40-38, we are required to record this inventory on our Condensed Consolidated Balance Sheets. As of July 31, 2013, we had $0.8 million of specific performance options recorded on our Condensed Consolidated Balance Sheets to consolidated inventory not owned, with a corresponding amount recorded to liabilities from inventory not owned. Consolidated inventory not owned also consists of other options that were included on our balance sheet in accordance with GAAP.

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 July 31, 2013, inventory of $48.3 million was recorded to consolidated inventory not owned, with a corresponding amount of $46.1 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 July 31, 2013, inventory of $60.6 million was recorded as consolidated inventory not owned, with a corresponding amount of $47.6 million recorded to “Liabilities from inventory not owned” for the amount of net cash received from the transactions.