Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Measurements

5. Fair Value Measurements

ASC 820, as updated and amended by ASU 2011-04, defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis:

		Fair Value
Financial Instrument	Hierarchy	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Marketable Securities (available-for-sale)
Equity securities	Level 1	$	208,818	$	160,021
Debt securities - maturity less than 1 year	Level 2		54,388		157,685
Debt securities - maturity 1 to 5 years	Level 2		277,514		202,237
Debt securities - maturity greater than 5 years	Level 2		11,218		-
Total available-for-sale securities		$	551,938	$	519,943
Mortgage loans held-for-sale, net	Level 2	$	119,953	$	78,335

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents.  For cash and cash equivalents, the fair value approximates carrying value.

Marketable Securities.  Our marketable securities consist of fixed rate and floating rate interest earning securities, primarily: (1) debt securities, which may include, among others, United States government and government agency debt and corporate debt; (2) holdings in mutual fund equity securities, which invest primarily in corporate bonds and other fixed income securities; and (3) deposit securities, which may include, among others, certificates of deposit and time deposits. As of December 31, 2012 and December 31, 2011, all of our marketable securities were treated as available-for-sale investments and, as such, we have recorded all of our marketable securities at fair value with changes in fair value being recorded as a component of accumulated other comprehensive income (loss).

The following tables set forth the amortized cost and estimated fair value of our available-for-sale marketable securities.

	December 31, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Homebuilding:	(Dollars in thousands)
Equity security	$	208,279	$	208,818	$	169,565	$	160,021
Debt securities		306,793		310,647		323,454		325,413
Total homebuilding available-for-sale securities	$	515,072	$	519,465	$	493,019	$	485,434
Financial Services:
Total financial services available-for-sale debt securities	$	32,028	$	32,473	$	34,164	$	34,509
Total available-for-sale marketable securities	$	547,100	$	551,938	$	527,183	$	519,943

As of December 31, 2012 and 2011, our marketable securities in homebuilding and financial services in the aggregate were in an unrealized gain position of $4.8 million and an unrealized loss position of $7.2 million, respectively. Of our four mutual fund equity securities, we had one which was in an unrealized loss position of $2.1 million as of December 31, 2012. Management currently has the ability and intent to hold this security before the anticipated recovery of its cost basis occurs. The unrealized loss related to this equity security at December 31, 2011 was $6.5 million. Given the significant improvement in the unrealized loss since December, 31, 2011 and the fact that the decline in market value occurred during a period of overall decline in market values, the unrealized loss is believed to be temporary and therefore the unrealized loss was not recognized in our consolidated statements of operations.

Mortgage Loans Held-for-Sale, Net.  As of December 31, 2012, the primary components of our mortgage loans held-for-sale that are measured at fair value on a recurring basis are: (1) mortgage loans held-for-sale under commitments to sell; and (2) mortgage loans held-for-sale not under commitments to sell. At December 31, 2012 and December 31, 2011, we had $108.3 million and $77.5 million, respectively, of mortgage loans held-for-sale under commitments to sell for which fair value was based upon Level 2 inputs, which were the quoted market prices for those mortgage loans. At December 31, 2012 and December 31, 2011, we had $11.7 million and $0.8 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party which is a Level 2 fair value input.

Metro District Bond Securities (Related Party).  The Metro District Bond Securities are included in prepaid expenses and other assets in the Homebuilding section of our accompanying consolidated balance sheets. We acquired the Metro District Bond Securities from a quasi-municipal corporation in the state of Colorado (see Note 14 for further discussion related to the acquisition of these securities). Because these assets are accounted for under the cost-recovery method, they are not carried at fair value. We estimated the fair value of the bonds based upon discounted cash flows as we do not believe there is a readily available market for such assets. The estimated cash flows from the bonds are ultimately based upon our estimated cash flows associated with building, selling and closing homes in one of our Colorado communities. The estimated fair values of these assets are based upon Level 3 cash flow inputs. Based upon this evaluation, the carrying value and estimated fair value of the bonds at December 31, 2012 was $5.8 million and $12.9 million, respectively. At December 31, 2011, the fair value of the bonds approximated its carrying value which was $6.7 million as of December 31, 2011. The increase in fair value of the bonds from 2011 to 2012 was due to an increase in guaranteed future cash flows in our future cash flow model as they are no longer dependent on future closings of homes in one of our Colorado communities.

Mortgage Repurchase Facility.  Our Mortgage Repurchase Facility is at floating rates or at fixed rates that approximate current market rates and have relatively short-term maturities, generally between 15 to 40 days. The fair value approximates carrying value.

Senior Notes.  The estimated values of the senior notes in the following table are based on Level 2 inputs, including market prices of other homebuilder bonds.

	December 31, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
5.375% Senior Notes due 2014	$	249,621	$	267,208	$	249,438	$	254,667
5.375% Senior Notes due 2015		249,895		268,867		249,857		252,083
5.625% Senior Notes due 2020		245,326		273,125		244,813		227,467
Total	$	744,842	$	809,200	$	744,108	$	734,217

Inventories.  The table below shows the carrying value, at each year end, of all inventories that were impaired during each year presented.

	Carrying Value of Impaired Inventory at December 31, 2012						Carrying Value of Impaired Inventory at December 31, 2011
	Land and Land Under Development		Housing Completed or Under Construction		Total Inventory		Land and Land Under Development		Housing Completed or Under Construction		Total Inventory
	(Dollars in thousands)
West	$	-	$	-	$	-	$	12,904	$	6,517	$	19,421
Mountain		-		-		-		1,000		466		1,466
East		1,100		1,635		2,735		1,225		2,309		3,534
Total	$	1,100	$	1,635	$	2,735	$	15,129	$	9,292	$	24,421

Inventories with a carrying value of $3.8 million and $54.6 million were determined to be impaired during the years ended December 31, 2012 and 2011, respectively. The carrying value for some of these inventories at their respective year ends may not represent the fair value they were impaired to due to activities that occurred subsequent to the measurement date. The fair values of impaired inventories were determined using Level 3 inputs. We generally determine the estimated fair value of each subdivision by determining the present value of the estimated future cash flows at discount rates that are commensurate with the risk of the subdivision under evaluation.