Note 9 - Capitalization of Interest

3 Months Ended

Jun. 30, 2011

9. 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 accounted for under the equity method. For the three months ended June 30, 2011 and 2010, we expensed $7.4 million and $10.5 million, respectively, of interest costs related primarily to the portion of real estate inventories held for development that were deemed unqualified assets in accordance with ASC 835. For the six months ended June 30, 2011 and 2010, we expensed $18.0 million and $22.5 million, respectively, of interest costs 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, 2011 and 2010:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(Dollars in thousands)

Total interest incurred (1)	$	35,353		$	27,730		$	70,207		$	53,960
Less: Interest capitalized to inventories owned		(26,186	)		(16,515	)		(48,896	)		(30,114	)
Less: Interest capitalized to investments in unconsolidated joint ventures		(1,723	)		(736	)		(3,352	)		(1,382	)
Interest expense	$	7,444		$	10,479		$	17,959		$	22,464

Interest previously capitalized to inventories owned, included in cost of home sales	$	16,108		$	20,943		$	27,088		$	32,306
Interest previously capitalized to inventories owned, included in cost of land sales	$	38		$	382		$	38		$	815
Interest previously capitalized to investments in unconsolidated joint ventures, included in loss from unconsolidated joint ventures	$	121		$	62		$	258		$	99
Interest capitalized in ending inventories owned (2)	$	169,705		$	138,521		$	169,705		$	138,521
Interest capitalized as a percentage of inventories owned		12.3	%		13.1	%		12.3	%		13.1	%
Interest capitalized in ending investments in unconsolidated joint ventures (2)	$	7,571		$	3,157		$	7,571		$	3,157
Interest capitalized as a percentage of investments in unconsolidated joint ventures		9.2	%		7.5	%		9.2	%		7.5	%

(1)

For the three and six months ended June 30, 2011, interest incurred included the noncash amortization of $2.6 million and $5.1 million, respectively, of interest related to the Term Loan B swap that was unwound in the 2010 fourth quarter (please see Note 17 “Derivative Instruments and Hedging Activities”).

(2)

During the three and six months ended June 30, 2010, in connection with lot purchases from our unconsolidated joint ventures and joint venture purchases and unwinds, $34 thousand and $65 thousand, respectively, of capitalized interest was transferred from investments in unconsolidated joint ventures to inventories owned.