Note 8 - Capitalization of Interest

3 Months Ended

Mar. 31, 2013

8. Capitalization of Interest

We follow the practice of capitalizing interest to inventories owned during the period of development and to investments in unconsolidated homebuilding and land development joint ventures in accordance with ASC Topic 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories owned is included in cost of sales as related units or lots are sold. Interest capitalized to investments in unconsolidated homebuilding and land development joint ventures is included as a reduction of income from unconsolidated joint ventures when the related homes or lots are sold to third parties. Interest capitalized to investments in unconsolidated land development joint ventures is transferred to inventories owned if the underlying lots are purchased by us. To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred by us. Qualified assets represent projects that are actively selling or under development as well as investments in unconsolidated joint ventures. During the 2013 first quarter, our qualified assets exceeded our debt, and as of March 31, 2013, the amount of our qualified assets in excess of our debt was $186.4 million. As a result, all of our interest incurred during the three months ended March 31, 2013 was capitalized in accordance with ASC 835. During the three months ended March 31, 2012, we expensed $2.5 million of interest costs related to the portion of our debt in excess of our qualified assets in accordance with ASC 835.

The following is a summary of homebuilding interest capitalized to inventories owned and investments in unconsolidated joint ventures, amortized to cost of sales and loss from unconsolidated joint ventures and expensed as interest expense, for the three months ended March 31, 2013 and 2012:

	Three Months Ended March 31,
	2013			2012
	(Dollars in thousands)

Total interest incurred (1)	$	35,027		$	35,315
Less: Interest capitalized to inventories owned		(34,201	)		(30,992	)
Less: Interest capitalized to investments in unconsolidated joint ventures		(826	)		(1,793	)
Interest expense	$	―		$	2,530

Interest previously capitalized to inventories owned, included in cost of home sales	$	27,696		$	18,556
Interest previously capitalized to inventories owned, included in cost of land sales	$	189		$	19
Interest previously capitalized to investments in unconsolidated joint ventures, included in income (loss) from unconsolidated joint ventures	$	169		$	204
Interest capitalized in ending inventories owned	$	227,718		$	200,943
Interest capitalized as a percentage of inventories owned		11.1	%		13.2	%
Interest capitalized in ending investments in unconsolidated joint ventures	$	7,578		$	10,700
Interest capitalized as a percentage of investments in unconsolidated joint ventures		14.3	%		13.0	%

(1)

For each of the three months ended March 31, 2013 and 2012, interest incurred included the noncash amortization of $2.6 million, respectively, of interest related to interest rate swap agreements that were terminated in the 2010 fourth quarter (please see Note 15 “Derivative Instruments and Hedging Activities”).