
NOTE C —	INVENTORY IMPAIRMENTS AND LAND OPTION COST WRITE-OFFS

During fiscal 2011, when the Company performed its quarterly inventory impairment analyses by reviewing the performance and outlook for all of its communities, the assumptions utilized reflected the Company’s expectation of continued challenging conditions and uncertainties in the homebuilding industry and in its markets. As of September 30, 2011, the Company evaluated communities with a combined carrying value of $391.5 million for impairment. The analysis of the majority of these communities assumed that sales prices in future periods will be equal to or lower than current sales order prices in each community, or in comparable communities, in order to generate an acceptable absorption rate. For a minority of communities that the Company does not intend to develop or operate in current market conditions, some increases over current sales prices were assumed. While it is difficult to determine a timeframe for a given community in the current market conditions, the remaining lives of these communities were estimated to be in a range from six months to in excess of ten years. In performing this analysis, the Company utilized a range of discount rates for communities of 12% to 18%. Through this evaluation process, it was determined that communities with a carrying value of $37.1 million as of September 30, 2011 were impaired. As a result, during the three months ended September 30, 2011, impairment charges of $10.2 million were recorded to reduce the carrying value of the impaired communities to their estimated fair value, as compared to $29.1 million in the same period of 2010. During fiscal 2011, 2010 and 2009, impairment charges totaled $37.3 million, $62.3 million and $377.8 million, respectively. During fiscal 2011, approximately 78% of the impairment charges were recorded to residential land and lots and land held for development, and approximately 22% of the charges were recorded to residential construction in progress and finished homes inventory, compared to 93% and 7%, respectively, in fiscal 2010 and 85% and 15%, respectively, in fiscal 2009.

The Company’s estimate of undiscounted cash flows from communities analyzed may change and could result in a future need to record impairment charges to adjust the carrying value of these assets to their estimated fair value. There are several factors which could lead to changes in the estimates of undiscounted future cash flows for a given community. The most significant of these include pricing and incentive levels actually realized by the community, the rate at which the homes are sold and the costs incurred to develop the lots and construct the homes. The pricing and incentive levels are often inter-related with sales pace within a community, such that a price reduction can typically be expected to increase the sales pace. Further, both of these factors are heavily influenced by the competitive pressures facing a given community from both new homes and existing homes, some of which may result from foreclosures. If conditions in the broader economy, homebuilding industry or specific markets in which the Company operates worsen, and as the Company re-evaluates specific community pricing and incentives, construction and development plans, and its overall land sale strategies, it may be required to evaluate additional communities or re-evaluate previously impaired communities for potential impairment. These evaluations may result in additional impairment charges.

At September 30, 2011 and 2010, the Company had $26.3 million and $3.3 million, respectively, of land held for sale, consisting of land held for development and land under development that met the criteria of land held for sale.

During fiscal 2011, 2010 and 2009, the Company wrote off $8.1 million, $2.4 million and $29.9 million, respectively, of earnest money deposits and pre-acquisition costs related to land option contracts which are not expected to be acquired.