Note 7 - Inventories

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Text Block]

7.       Inventories

a. Inventories Owned

Inventories owned consisted of the following at:

	June 30, 2012
	California		Southwest		Southeast		Total
	(Dollars in thousands)
Land and land under development	$	583,684	$	255,519	$	248,006	$	1,087,209
Homes completed and under construction		247,259		67,510		88,131		402,900
Model homes		83,690		14,196		17,143		115,029
Total inventories owned	$	914,633	$	337,225	$	353,280	$	1,605,138

	December 31, 2011
	California		Southwest		Southeast		Total
	(Dollars in thousands)
Land and land under development	$	614,668	$	221,481	$	200,680	$	1,036,829
Homes completed and under construction		205,515		67,200		67,134		339,849
Model homes		70,117		14,005		16,439		100,561
Total inventories owned	$	890,300	$	302,686	$	284,253	$	1,477,239

In accordance with ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), we record impairment losses on inventories when events and circumstances indicate that they may be impaired, and the future undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts.  Inventories that are determined to be impaired are written down to their estimated fair value.  We calculate the fair value of a project under a land residual value analysis and in certain cases in conjunction with a discounted cash flow analysis.  During the six months ended June 30, 2012 and 2011, the total number of projects included in inventories-owned and reviewed for impairment were 264 and 251, respectively.  Based on the impairment review, we did not record any inventory impairments during the three and six months ended June 30, 2012, and recorded $6.0 million of inventory impairments during the three and six months ended June 30, 2011.

b. Inventories Not Owned

Inventories not owned consisted of the following at:

	June 30, 2012		December 31, 2011
	(Dollars in thousands)
Land purchase and lot option deposits	$	25,559	$	24,379
Other lot option contracts, net of deposits		60,875		35,461
Total inventories not owned	$	86,434	$	59,840

Under ASC Topic 810, Consolidation (“ASC 810”), a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur.  Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property.  In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown.  Such costs are classified as inventories owned, which we would have to write off should we not exercise the option.  Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a variable interest entity (“VIE”) may have been created.  As of June 30, 2012, we were not required to consolidate any VIEs.  In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.  Other lot option contracts noted in the table above represent specific performance obligations where the land option contract contains a binding obligation requiring us to complete the lot purchases.

We incurred pretax charges of $0.1 million related to deposit write-offs for the six months ended June 30, 2012.  These charges related to our Southeast reportable segment and were included in other income (expense) in the accompanying condensed consolidated statements of operations.  We did not record any deposit write-offs during the six months ended June 30, 2011.We continue to evaluate the terms of open land option and purchase contracts and may write-off option deposits in the future, particularly in those instances where land sellers are unwilling to renegotiate significant contract terms.