Note 4 - Inventories

12 Months Ended

Dec. 31, 2011

Inventory Disclosure [Text Block]

4. Inventories

a. Inventories Owned

Inventories from continuing operations consisted of the following at:

	December 31, 2011
	California		Southwest		Southeast		Total
	(Dollars in thousands)
Land and land under development	$	614,668	$	221,481	$	200,680	$	1,036,829
Homes completed and under construction		205,515		67,200		67,134		339,849
Model homes		70,117		14,005		16,439		100,561
Total inventories owned	$	890,300	$	302,686	$	284,253	$	1,477,239

	December 31, 2010
	California		Southwest		Southeast		Total
	(Dollars in thousands)
Land and land under development	$	492,501	$	158,324	$	150,856	$	801,681
Homes completed and under construction		164,237		51,382		66,161		281,780
Model homes		70,579		13,085		14,572		98,236
Total inventories owned	$	727,317	$	222,791	$	231,589	$	1,181,697

In accordance with ASC 360, we record impairment losses on inventories when events and circumstances indicate that they may be impaired, and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts.  Inventories that are determined to be impaired are written down to their estimated fair value.  We calculate the fair value of a project under a land residual value analysis and in certain cases in conjunction with a discounted cash flow analysis.  The operating margins (defined as gross margin less direct selling and marketing costs) used to calculate land residual values and related fair values for the majority of our projects during the years ended December 31, 2011, 2010 and 2009, were generally in the 6% to 12% range and discount rates were generally in the 20% to 30% range.  The following table summarizes inventory impairments recorded during the years ended December 31, 2011, 2010 and 2009:

	Year Ended December 31,
	2011		2010		2009
	(Dollars in thousands)
Inventory impairments related to:
Land under development and homes completed and under construction	$	13,189	$	1,818	$	46,063
Land held for sale or sold		―		―		14,387
Total inventory impairments	$	13,189	$	1,818	$	60,450
Remaining carrying value of inventory impaired at year end	$	15,755	$	4,558	$	73,844
Number of projects impaired during the year		7		3		27
Total number of projects included in inventories-owned and reviewed for impairment during the year (1)		262		240		262

(1) Represents the peak number of real estate projects that we had outstanding during each respective year.  The number of projects outstanding at the end of each year is less than the number of projects listed herein.

The inventory impairments related to land under development and homes completed and under construction were included in cost of home sales and the impairments related to land held for sale or sold were included in cost of land sales in the accompanying consolidated statements of operations (please see Note 3 for a breakout of impairment charges by segment).  The impairment charges recorded during the periods noted above resulted primarily from lower home prices, which were driven by price reductions required to address weak demand and economic conditions, including record foreclosures, high unemployment, low consumer confidence and tighter mortgage credit standards.

b. Inventories Not Owned

Inventories not owned consisted of the following at:

	December 31,
	2011		2010
	(Dollars in thousands)
Land purchase and lot option deposits	$	24,379	$	18,499
Other lot option contracts, net of deposits		35,461		500
Total inventories not owned	$	59,840	$	18,999

Under ASC 810, a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur.  Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property.  In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown.  Such costs are classified as inventories owned, which we would have to write off should we not exercise the option.  Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a variable interest entity (“VIE”) may have been created.  As of December 31, 2011 and December 31, 2010, we were not required to consolidate any VIEs.  In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

Other lot option contracts noted in the table above represent specific performance obligations to purchase lots that we have with various land sellers.  In certain instances, the land option contract contains a binding obligation requiring us to complete the lot purchases.  In other instances, the land option contract does not obligate us to complete the lot purchases but, due to the magnitude of our capitalized preacquisition costs, development and construction expenditures, we are considered economically compelled to complete the lot purchases.

We incurred pretax charges of $2.1 million, $0.1 million and $2.5 million related to deposit write-offs for the years ended December 31, 2011, 2010 and 2009, respectively.  These charges were included in other income (expense) in the accompanying consolidated statements of operations.  We continue to evaluate the terms of open land option and purchase contracts in light of slower housing market conditions and may write-off option deposits in the future, particularly in those instances where land sellers are unwilling to renegotiate significant contract terms.