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Note 8 - Capitalization of Interest

6 Months Ended

Jun. 30, 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 three and six months ended June 30, 2013, our qualified assets exceeded our debt, and as of June 30, 2013, the amount of our qualified assets in excess of our debt was $396.8 million. As a result, all of our interest incurred during the three and six months ended June 30, 2013 was capitalized in accordance with ASC 835. During the six months ended June 30, 2012, we expensed $4.1 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 and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Dollars in thousands)

Total interest incurred (1)	$	33,526		$	35,305		$	68,553		$	70,620
Less: Interest capitalized to inventories owned		(32,782	)		(31,876	)		(66,983	)		(62,868	)
Less: Interest capitalized to investments in unconsolidated joint ventures		(744	)		(1,812	)		(1,570	)		(3,605	)
Interest expense	$	―		$	1,617		$	―		$	4,147

Interest previously capitalized to inventories owned, included in cost of home sales	$	30,337		$	24,465		$	58,033		$	43,021
Interest previously capitalized to inventories owned, included in cost of land sales	$	325		―			$	514		$	19
Interest previously capitalized to investments in unconsolidated joint ventures, included in income (loss) from unconsolidated joint ventures	$	123		$	231		$	292		$	435
Interest capitalized in ending inventories owned (2)	$	231,974		$	208,354		$	231,974		$	208,354
Interest capitalized as a percentage of inventories owned		10.0	%		13.0	%		10.0	%		13.0	%
Interest capitalized in ending investments in unconsolidated joint ventures (2)	$	6,063		$	12,281		$	6,063		$	12,281
Interest capitalized as a percentage of investments in unconsolidated joint ventures		10.5	%		14.4	%		10.5	%		14.4	%

(1)

For the three and six months ended June 30, 2013, interest incurred included the noncash amortization of $1.0 million and $3.6 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”). For the three and six months ended June 30, 2012, interest incurred included the noncash amortization of $2.6 million and $5.2 million, respectively, of interest related to the terminated interest rate swap agreements.

(2)

During the three and six months ended June 30, 2013, in connection with lot purchases from our joint ventures, $2.1 million of capitalized interest was transferred from investments in unconsolidated joint ventures to inventories owned.