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 on a community or land parcel that is active or held for future development when indicators of potential impairment exist and the carrying value of the 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 determined based on the estimated future net cash flows discounted for inherent risk associated with each such asset, or other valuation techniques. We record an inventory impairment charge on land held for sale when the carrying value of a land parcel is greater than its fair value. These real estate assets are written down to fair value, less associated costs to sell. The estimated fair values of such assets are generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.

We evaluated 42 and 43 communities or land parcels for recoverability during the six months ended May 31, 2018 and 2017, respectively. The carrying value of those communities or land parcels evaluated during the six months ended May 31, 2018 and 2017 was $284.1 million and $381.1 million, respectively. The communities or land parcels evaluated during the six months ended May 31, 2018 and 2017 included certain communities or land parcels previously held for future development that were reactivated as part of our efforts to improve our asset efficiency under our Returns-Focused Growth Plan.

Based on the results of our evaluations, we recognized inventory impairment charges of $6.0 million for the three months ended May 31, 2018 and $10.7 million for the six months ended May 31, 2018. For the three months and six months ended May 31, 2017, we recognized inventory impairment charges of $4.3 million and $7.5 million, respectively. The inventory impairment charges for the three-month and six-month periods ended May 31, 2018 and 2017 reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities by accelerating the overall pace for selling, building and delivering homes on land previously held for future development.

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:



	Three Months Ended May 31,		Six Months Ended May 31,
Unobservable Input (a)	2018	2017	2018	2017
Average selling price	$339,400 - $460,500	$231,000 - $399,800	$339,400 - $774,100	$231,000 - $399,800
Deliveries per month	4 - 5	3 - 4	3 - 5	3 - 4
Discount rate	17%	18%	17% - 18%	17% - 18%


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

As of May 31, 2018, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $169.8 million, representing 18 communities and various other land parcels. As of November 30, 2017, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $177.8 million, representing 24 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 investment return 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 marketing 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 $.5 million for the three months ended May 31, 2018 and $.8 million for the six months ended May 31, 2018. For the three-month and six-month periods ended May 31, 2017, we recognized land option contract abandonment charges of $1.7 million and $2.5 million, respectively.

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