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Note 6 - Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

6.	Fair Value Measurements

ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis:

						Fair Value
Financial Instrument		Hierarchy				June 30, 2015				December 31, 2014
						(Dollars in thousands)
Marketable securities (available-for-sale)
Equity securities		Level 1				$	134,609			$	129,560
Debt securities - maturity less than 1 year		Level 2					2,399				1,511
Debt securities - maturity 1 to 5 years		Level 2					167				7,643
Debt securities - maturity greater than 5 years		Level 2					368				17,426
Total available-for-sale marketable securities						$	137,543			$	156,140

Mortgage loans held-for-sale, net		Level 2				$	79,728			$	88,392

Metropolitan district bond securities (related party) (available-for-sale)		Level 3				$	22,259			$	18,203

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and cash equivalents, restricted cash, trade and other receivables, prepaid and other assets, accounts payable, and accrued liabilities. Fair value approximates carrying value.

Marketable Securities. We have marketable debt and equity securities. Our equity securities consist of holdings in corporate equities and holdings in mutual fund securities, which are primarily invested in debt securities. Our debt securities consist primarily of fixed and floating rate interest earning debt securities, which may include, among others, United States government and government agency debt and corporate debt. We measure the fair value of our debt securities using a third party pricing service that either provides quoted prices in less active markets for identical or similar securities or uses observable inputs for their pricing, both of which are level 2 inputs. As of June 30, 2015 and December 31, 2014, all of our marketable securities were treated as available-for-sale investments and, as such, we have recorded all of our marketable securities at fair value with changes in fair value being recorded as a component of AOCI.

Each quarter we assess all of our securities in an unrealized loss position for potential other-than-temporary impairment (“OTTI”). Our assessment includes a consideration of many factors, both qualitative and quantitative, including the amount of the unrealized loss, the period of time the security has been in a loss position, the financial condition of the issuer and whether we have the intent and ability to hold the securities, among other factors. Based on our assessments, no OTTI was recorded for the three and six months ended June 30, 2015 or 2014.

The following table sets forth the amortized cost and estimated fair value of our available-for-sale marketable securities:

		June 30, 2015								December 31, 2014
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
		(Dollars in thousands)
Homebuilding:
Equity securities		$	120,061			$	122,737			$	116,009			$	120,274
Debt securities			360				368				20,660				20,604
Total homebuilding available-for-sale marketable securities		$	120,421			$	123,105			$	136,669			$	140,878

Financial Services:
Equity securities		$	12,026				11,872			$	9,028			$	9,286
Debt securities			2,532				2,566				5,930				5,976
Total financial services available-for-sale marketable securities		$	14,558			$	14,438			$	14,958			$	15,262

Total available-for-sale marketable securities		$	134,979			$	137,543			$	151,627			$	156,140

As of June 30, 2015 and December 31, 2014, our marketable securities were in net unrealized gain positions totaling $2.6 million and $4.5 million, respectively. Our marketable securities that were in unrealized loss positions aggregated to unrealized losses of $3.1 million and $3.1 million as of June 30, 2015 and December 31, 2014, respectively. The table below sets forth the debt and equity securities that were in an aggregate loss position. We do not believe that the unrealized loss related to our equity securities as of June 30, 2015 is material to our operations.

		June 30, 2015												December 31, 2014
		Number of Securities in Loss Position				Aggregate Loss Position				Aggregate Fair Value of Securities in a Loss Position				Number of Securities in Loss Position				Aggregate Loss Position				Aggregate Fair Value of Securities in a Loss Position
		(Dollars in thousands)
Type of Investment
Debt			-			$	-			$	-				52			$	(359	)		$	14,536
Equity			10				(3,066	)			89,948				6				(2,738	)			74,999
Total			10			$	(3,066	)		$	89,948				58			$	(3,097	)		$	89,535

The following table sets forth gross realized gains and losses from the sale of available-for-sale marketable securities, which were included in either interest and other income in the homebuilding section or interest and other income in the financial services section of our consolidated statements of operations:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2015				2014				2015				2014
		(Dollars in thousands)
Gross realized gains on sales of available-for-sale securities
Equity securities		$	638			$	-			$	875			$	5,518
Debt securities			205				100				371				1,920
Total		$	843			$	100			$	1,246			$	7,438

Gross realized losses on sales of available-for-sale securities
Equity securities		$	(232	)		$	(467	)		$	(557	)		$	(709	)
Debt securities			(138	)			(182	)			(227	)			(373	)
Total		$	(370	)		$	(649	)		$	(784	)		$	(1,082	)

Net realized gain (loss) on sales of available-for-sale securities		$	473			$	(549	)		$	462			$	6,356

Mortgage Loans Held-for-Sale, Net. As of June 30, 2015, the primary components of our mortgage loans held-for-sale that are measured at fair value on a recurring basis are: (1) mortgage loans held-for-sale under commitments to sell; and (2) mortgage loans held-for-sale not under commitments to sell. At June 30, 2015 and December 31, 2014, we had $64.7 million and $74.2 million, respectively, of mortgage loans held-for-sale under commitments to sell for which fair value was based upon Level 2 inputs, which were the quoted market prices for those mortgage loans. At June 30, 2015 and December 31, 2014, we had $15.0 million and $14.2 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.

Metropolitan District Bond Securities (Related Party). The Metropolitan district bond securities (the “Metro Bonds”) are included in the homebuilding section of our accompanying consolidated balance sheets. We acquired the Metro Bonds from a quasi-municipal corporation in the state of Colorado (the “Metro District”), which was formed to help fund and maintain the infrastructure associated with a master-planned community being developed by our Company. Cash flows received by the Company from these securities reflect principal and interest payments from the Metro District, which are generally received in the fourth quarter, and are supported by an annual levy on the taxable value of real estate and personal property within the Metro District’s boundaries. The stated year of maturity for the Metro Bonds is 2037. However, if the unpaid principal and all accrued interest are not paid off by the year 2037, the Company will continue to receive principal and interest payments in perpetuity until the unpaid principal and accrued interest is paid in full. Since 2007 and through the first quarter of 2013, we accounted for these securities under the cost recovery method and they were not carried at fair value in accordance with ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”).

In the second quarter of 2013, we determined that these securities no longer were required to be accounted for under the cost recovery method due to an increase in the number of new homes delivered in the community coupled with improvements in property values within the Metro District. In accordance with ASC 310-30, we adjust the bond principal balance using an interest accretion model that utilizes future cash flows expected to be collected. Furthermore, as this investment is accounted for as an available-for-sale asset, we update its fair value on a quarterly basis, with the adjustment being recorded through AOCI. The fair value is based upon a discounted future cash flow model, which uses Level 3 inputs. The two primary unobservable inputs used in our discounted cash flow model are the forecasted number of homes to be closed, as they drive any increases to the tax base for the Metro District, and the discount rate. Cash receipts, which are typically only received in the fourth quarter, reduce the carrying value of the Metro Bonds. The table below provides quantitative data, as of June 30, 2015, regarding each unobservable input and the sensitivity of fair value to potential changes in those unobservable inputs.

Quantitative Data

Sensitivity Analysis

Unobservable Input

Range

Weighted Average

Movement in
Fair Value from
Increase in Input

Movement in
Fair Value from
Decrease in Input

Number of homes closed per year

0 to 130

93

Increase

Decrease

Discount rate

5% to 12%

8.8%

Decrease

Increase

The table set forth below summarizes the activity for our Metro Bonds:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2015				2014				2015				2014
		(Dollars in thousands)
Balance at beginning of period		$	19,978			$	13,027			$	18,203			$	12,729
Increase in fair value (recorded in other comprehensive income)			1,925				959				3,343				959
Change due to accretion of principal			356				305				713				603
Cash receipts			-				-				-				-
Balance at end of period		$	22,259			$	14,291			$	22,259			$	14,291

Mortgage Repurchase Facility. The debt associated with our mortgage repurchase facility (see Note 18 for further discussion) is at floating rates or at fixed rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on Level 2 inputs.

Senior Notes. The estimated values of the senior notes in the following table are based on Level 2 inputs, including market prices of other homebuilder bonds.

		June 30, 2015								December 31, 2014
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
		(Dollars in thousands)
5⅝% Senior Notes due February 2020, net		$	246,752			$	263,203			$	246,450			$	257,950
5½% Senior Notes due January 2024			250,000				245,369				250,000				242,608
6% Senior Notes due January 2043			350,000				294,000				350,000				296,555
Total		$	846,752			$	802,572			$	846,450			$	797,113

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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