Inventory Impairments and Land Option Contract Abandonments

Each community or land parcel in our owned inventory is assessed on a quarterly basis to determine if indicators of potential impairment exist. We record an inventory impairment charge when indicators of potential impairment exist and the carrying value of a real estate asset is greater than the undiscounted future net cash flows the asset is expected to generate. These real estate assets are written down to fair value, which is primarily based on the estimated future net cash flows discounted for inherent risk associated with each such asset. We evaluated 32 and 26 communities or land parcels for recoverability during the six months ended May 31, 2016 and 2015, respectively. The carrying value of the communities or land parcels evaluated during the six months ended May 31, 2016 and 2015 was $248.7 million and $212.5 million, respectively. Some of the communities or land parcels evaluated during the six months ended May 31, 2016 and 2015 were evaluated in more than one quarterly period. Communities or land parcels evaluated for recoverability in more than one quarterly period, if any, were counted only once for each six-month period.

The following table summarizes ranges for significant quantitative unobservable inputs we utilized in our fair value measurements with respect to the impaired communities written down to fair value during the periods presented:



	Six Months Ended May 31,		Three Months Ended May 31,
Unobservable Input (a)	2016	2015	2016	2015
Average selling price	$280,100 - $310,000	—	$280,100	—
Deliveries per month	1 - 4	—	4	—
Discount rate	17% - 20%	—	20%	—


(a)	The ranges of inputs used in each period primarily reflect differences between the housing markets where each of the impacted communities are located, rather than fluctuations in prevailing market conditions.

Based on the results of our evaluations, we recognized inventory impairment charges of $9.9 million for the three months ended May 31, 2016 and $11.3 million for the six months ended May 31, 2016. Inventory impairment charges for the three months and six months ended May 31, 2016 included $5.4 million associated with the planned future sales of two land parcels in the Metro Washington, D.C. market, reflecting our decision in the current quarter to wind down our operations in this market, and $4.6 million associated with one community in California where we decided to change our operational and marketing strategy in order to monetize our investment more quickly by accelerating the overall timing for selling, building and delivering homes on land that had been held for future development. The estimated fair value of the Metro Washington, D.C. land parcels was based on broker quotes. Inventory impairment charges for the six months ended May 31, 2016 also included $.6 million related to a property in Florida where we decided to change our operational and marketing strategy in order to monetize our investment more quickly by accelerating the overall timing for selling, building and delivering homes on land that had been held for future development. The balance of the charges for the six months ended May 31, 2016 related to the sales of our last remaining land parcels in the Rio Grande Valley area of Texas, where we decided to change our strategy and monetize our investment through land sales rather than build and sell homes on the parcels as previously intended. The estimated fair value of the Rio Grande Valley parcels was based on executed sales contracts. These sales closed in the second quarter of 2016. We had no inventory impairment charges in the three months or six months ended May 31, 2015.

As of May 31, 2016, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $221.4 million, representing 24 communities and various other land parcels. As of November 30, 2015, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $254.2 million, representing 28 communities and various other land parcels.

Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our internal investment and marketing standards. When a decision is made not to exercise certain land option contracts and other similar contracts due to market conditions and/or changes in our strategy, we write off the related inventory costs, including non-refundable deposits and unrecoverable pre-acquisition costs. Based on the results of our assessments, we recognized land option contract abandonment charges of $1.8 million corresponding to 312 lots for the three months ended May 31, 2016, and $2.4 million of such charges corresponding to 492 lots for the six months ended May 31, 2016. Of the land option contract abandonment charges recognized for the three months and six months ended May 31, 2016, $1.4 million related to the wind-down of our Metro Washington, D.C. operations. We recognized land option contract abandonment charges of $.5 million corresponding to 114 lots for the three months ended May 31, 2015 and $1.0 million of such charges corresponding to 426 lots for the six months ended May 31, 2015.

Due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, it is possible that actual results could differ substantially from those estimated.