Inventory

12 Months Ended

Oct. 31, 2011

2. Inventory

Inventory at October 31, 2011 and 2010 consisted of the following (amounts in thousands):


	2011		2010
Land controlled for future communities	$	46,581	$	31,899
Land owned for future communities		979,145		923,972
Operating communities		2,390,997		2,285,854

	$	3,416,723	$	3,241,725

During fiscal 2010 and 2009, the Company sold non-strategic inventory for $22.5 million and $47.7 million, respectively, and recognized income of $0.9 million in fiscal 2010 and a loss of $0.1 million in fiscal 2009. The Company did not sell any non-strategic inventory in fiscal 2011. The net gain/loss, including the related capitalized interest, is included in interest and other income in the Company’s Consolidated Statements of Operations for fiscals 2010 and 2009.

Operating communities include communities offering homes for sale, communities that have sold all available home sites but have not completed delivery of the homes, communities that were previously offering homes for sale but are temporarily closed due to business conditions or non-availability of improved home sites and that are expected to reopen within twelve months of the end of the fiscal year being reported on, and communities preparing to open for sale. The carrying value attributable to operating communities includes the cost of homes under construction, land and land development costs, the carrying cost of home sites in current and future phases of these communities and the carrying cost of model homes.

Communities that were previously offering homes for sale but are temporarily closed due to business conditions that do not have any remaining backlog and are not expected to reopen within twelve months of the end of the fiscal period being reported on have been classified as land owned for future communities.

Information regarding the classification, number and carrying value of these temporarily closed communities at October 31, 2011, 2010 and 2009 is provided in the table below ($ amounts in thousands).


	2011		2010		2009
Land owned for future communities:
Number of communities		43		36		16
Carrying value (in thousands)	$	256,468	$	212,882	$	75,942
Operating communities:
Number of communities		2		13		16
Carrying value (in thousands)	$	11,076	$	78,100	$	91,477

The Company provided for inventory impairment charges and the expensing of costs that it believed not to be recoverable in each of the three fiscal years ended October 31, 2011, 2010 and 2009 as shown in the table below (amounts in thousands).


	2011		2010		2009
Land controlled for future communities	$	17,752	$	6,069	$	28,518
Land owned for future communities		17,000		55,700		169,488
Operating communities		17,085		53,489		267,405

	$	51,837	$	115,258	$	465,411

The table below provides, for the periods indicated, the number of operating communities that the Company tested for potential impairment, the number of operating communities in which the Company recognized impairment charges, and the amount of impairment charges recognized, and, as of the end of the period indicated, the fair value of those communities, net of impairment charges ($ amounts in millions).


			Impaired Communities
					Fair Value of
					Communities
	Number of				Net of
	Communities		Number of		Impairment		Impairment
Three months ended:	Tested		Communities		Charges		Charges
Fiscal 2011:
January 31		143		6	$	56,105	$	5,475
April 30		142		9	$	40,765		10,725
July 31		129		2	$	867		175
October 31		114		3	$	3,367		710

							$	17,085

Fiscal 2010:
January 31		260		14	$	60,519	$	22,750
April 30		161		7	$	53,594		15,020
July 31		155		7	$	21,457		6,600
October 31		144		12	$	39,209		9,119

							$	53,489

Fiscal 2009:
January 31		289		41	$	216,227	$	108,300
April 30		288		36	$	181,790		67,410
July 31		288		14	$	67,713		46,822
October 31		254		21	$	116,379		44,873

							$	267,405

At October 31, 2011, the Company evaluated its land purchase contracts to determine if any of the selling entities were VIEs and, if they were, whether the Company was the primary beneficiary of any of them. Under these land purchase contracts, the Company does not possess legal title to the land and its risk is generally limited to deposits paid to the sellers and the creditors of the sellers generally have no recourse against the Company. At October 31, 2011, the Company determined that 48 land purchase contracts, with an aggregate purchase price of $453.0 million, on which it had made aggregate deposits totaling $24.2 million, were VIEs, and that it was not the primary beneficiary of any VIE related to its land purchase contracts.

Interest incurred, capitalized and expensed in each of the three fiscal years ended October 31, 2011, 2010 and 2009 was as follows (amounts in thousands):


	2011			2010			2009
Interest capitalized, beginning of year	$	267,278		$	259,818		$	238,832
Interest incurred		114,761			114,975			118,026
Interest expensed to cost of revenues		(77,623	)		(75,876	)		(78,661	)
Interest directly expensed to statement of operations		(1,504	)		(22,751	)		(7,949	)
Write-off against other income		(1,155	)		(8,369	)		(10,116	)
Interest reclassified to property, construction and office equipment		(3,000	)		(519	)
Capitalized interest applicable to inventory transferred to joint ventures								(314	)

Interest capitalized, end of year	$	298,757		$	267,278		$	259,818

Inventory impairment charges are recognized against all inventory costs of a community, such as land, land improvements, cost of home construction and capitalized interest. The amounts included in the table directly above reflect the gross amount of capitalized interest without allocation of any impairment charges recognized. The Company estimates that, had inventory impairment charges been allocated on a pro rata basis to the individual components of inventory, capitalized interest at October 31, 2011, 2010 and 2009 would have been reduced by approximately $54.0 million, $53.3 million and $57.5 million, respectively.

During fiscal 2011, the Company reclassified $20.0 million of inventory related to commercial retail space located in one of its high-rise projects to property, construction and office equipment. The $20.0 million was reclassified due to the completion of construction of the facilities and the substantial completion of the high-rise project of which the facilities are a part.

During fiscal 2010, the Company reclassified $18.7 million of inventory related to two non-equity golf course facilities to property, construction and office equipment. The $18.7 million was reclassified due to the completion of construction of the facilities and the substantial completion of the master planned communities of which the golf facilities are a part.