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Inventory | 12 Months Ended
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Sep. 30, 2011
Inventory [Abstract] |
Inventory |
(4) | Inventory
|  | September 30, |  |  | September 30, |
|  | 2011 |  |  | 2010 |
|  | (In thousands) |
Homes under construction |  | $ | 277,331 |  |  | $ | 210,104 |
Development projects in progress |  |  | 424,055 |  |  |  | 444,062 |
Land held for future development |  |  | 384,761 |  |  |  | 382,889 |
Land held for sale |  |  | 12,837 |  |  |  | 36,259 |
Capitalized interest |  |  | 45,973 |  |  |  | 36,884 |
Model homes |  |  | 47,423 |  |  |  | 43,505 |
Total owned inventory |  | $ | 1,192,380 |  |  | $ | 1,153,703 |
Homes under construction includes homes finished and ready for delivery and homes in various stages of construction. We had 334 ($59.3 million) and 423 ($71.5 million) substantially completed homes that were not subject to a sales contract (spec homes) at September 30, 2011 and 2010, respectively. Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a deposit or sales contract. Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate taxes on land held for future development are expensed as incurred. Land held for sale as of September 30, 2011 principally included land held for sale in the markets we have decided to exit including Denver, Colorado, Charlotte, North Carolina, and Jacksonville, Florida. The value related to previously owned homes acquired by our Pre-Owned Homes Division is reported as property, plant and equipment, excluded from the inventory information provided, and depreciated over the asset’s estimated remaining useful life. These homes are within select communities in markets in which the Company currently operates and will be repaired, rented to consumers and eventually resold. Total owned inventory, by reportable segment, is set forth in the table below (in thousands):
|  | Projects in |  |  | Held for Future |  |  | Land Held |  |  | Total Owned |
|  | Progress |  |  | Development |  |  | for Sale |  |  | Inventory |
September 30, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
West Segment |  | $ | 294,208 |  |  | $ | 318,732 |  |  | $ | 2,681 |  |  | $ | 615,621 |
East Segment |  |  | 304,648 |  |  |  | 41,993 |  |  |  | 5,056 |  |  |  | 351,697 |
Southeast Segment |  |  | 122,126 |  |  |  | 24,036 |  |  |  | 75 |  |  |  | 146,237 |
Unallocated |  |  | 65,474 |  |  |  | — |  |  |  | — |  |  |  | 65,474 |
Discontinued Operations |  |  | 8,326 |  |  |  | — |  |  |  | 5,025 |  |  |  | 13,351 |
Total |  | $ | 794,782 |  |  | $ | 384,761 |  |  | $ | 12,837 |  |  | $ | 1,192,380 |
September 30, 2010 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
West Segment |  | $ | 281,912 |  |  | $ | 311,472 |  |  | $ | 5,273 |  |  | $ | 598,657 |
East Segment |  |  | 269,210 |  |  |  | 47,381 |  |  |  | 1,376 |  |  |  | 317,967 |
Southeast Segment |  |  | 115,716 |  |  |  | 24,036 |  |  |  | — |  |  |  | 139,752 |
Unallocated |  |  | 53,157 |  |  |  | — |  |  |  | — |  |  |  | 53,157 |
Discontinued Operations |  |  | 14,560 |  |  |  | — |  |  |  | 29,610 |  |  |  | 44,170 |
Total |  | $ | 734,555 |  |  | $ | 382,889 |  |  | $ | 36,259 |  |  | $ | 1,153,703 |
Inventory located in California, the state with our largest concentration of inventory, was $367.8 million and $345.7 million at September 30, 2011 and 2010, respectively. Inventory Impairments. In our fiscal 2011 analyses, we have assumed limited market improvements in some communities beginning in fiscal 2013 and continuing improvement in these communities in subsequent years. For any communities scheduled to close out in fiscal 2012, we did not assume any market improvements. The discount rate used may be different for each community and ranged from 12.6% to 18.2% for the communities analyzed in the fiscal year ended September 30, 2011 from 13.7% to 19.8% for the fiscal year ended September 30, 2010 and 17.0% to 22.4% for the fiscal year ended September 30, 2009. The following tables represent the results, by reportable segment of our community level review of the recoverability of our inventory assets held for development as of September 30, 2011 and 2010 ($ in thousands). We have elected to aggregate our disclosure at the reportable segment level because we believe this level of disclosure is most meaningful to the readers of our financial statements. As previously discussed, communities included on our “watch list” typically carry profit margins in backlog and in our forecast that are below a minimum threshold of profitability. The aggregate undiscounted cash flow fair value as a percentage of book value for the communities represented below is consistent with our expectations given our “watch list” methodology.
|  |  |  |  | Undiscounted Cash Flow Analyses Prepared |
|  |  |  |  |  |  |  |  |  |  | Aggregate |
|  | # of |  |  |  |  |  |  |  |  | Undiscounted |
|  | Communities |  |  | # of |  |  | Book Value |  |  | Cash Flow as a |
Segment |  | on Watch List |  |  | Communities |  |  | (BV) |  |  | % of BV |
Year Ended September 30, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
West |  |  | 18 |  |  |  | 15 |  |  | $ | 58,848 |  |  |  | 88.4 | %
East |  |  | 7 |  |  |  | 5 |  |  |  | 16,436 |  |  |  | 94.6 | %
Southeast |  |  | 4 |  |  |  | 3 |  |  |  | 11,017 |  |  |  | 60.3 | %
Other |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | n/a |
Unallocated |  |  | — |  |  |  | — |  |  |  | 9,707 |  |  |  | 100.0 | %
Total |  |  | 30 |  |  |  | 23 |  |  | $ | 96,008 |  |  |  | 87.4 | %
Year Ended September 30, 2010 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
West |  |  | 20 |  |  |  | 20 |  |  | $ | 80,270 |  |  |  | 90.8 | %
East |  |  | 12 |  |  |  | 10 |  |  |  | 43,655 |  |  |  | 79.7 | %
Southeast |  |  | 6 |  |  |  | 5 |  |  |  | 16,394 |  |  |  | 80.8 | %
Discontinued Operations |  |  | 5 |  |  |  | 5 |  |  |  | 7,882 |  |  |  | 93.8 | %
Unallocated |  |  | — |  |  |  | — |  |  |  | 13,728 |  |  |  | 100.0 | %
Total |  |  | 43 |  |  |  | 40 |  |  | $ | 161,929 |  |  |  | 87.7 | %
The table below summarizes the results of our discounted cash flow analysis for the years ended September 30, 2011, 2010 and 2009. The impairment charges below include impairments taken as a result of these discounted cash flow analyses and also impairment charges recorded for individual homes sold and in backlog with net contribution margins below a minimum threshold of profitability in communities that were otherwise impaired through our discounted cash flow analyses. The estimated fair value of the impaired inventory is determined immediately after a community’s impairment. If a community was impaired in more than one quarter in the same fiscal year, it is only counted once in the number of communities impaired. In addition, the information below only includes the last fiscal impairment information with respect to the number of lots impaired and the estimated fair value at period end for those communities impaired multiple times in the same fiscal year.
|  | Results of Discounted Cash Flow Analyses Prepared |
|  |  |  |  |  |  |  |  |  |  | Estimated Fair |
|  |  |  |  |  |  |  |  |  |  | Value of |
|  | # of |  |  |  |  |  |  |  |  | Impaired |
|  | Communities |  |  | # of Lots |  |  | Impairment |  |  | Inventory at |
Segment |  | Impaired |  |  | Impaired |  |  | Charge |  |  | Period End |
|  | ($ in thousands) |
Year Ended September 30, 2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
West |  |  | 12 |  |  |  | 859 |  |  | $ | 20,150 |  |  | $ | 33,066 |
East |  |  | 4 |  |  |  | 86 |  |  |  | 1,611 |  |  |  | 10,671 |
Southeast |  |  | 3 |  |  |  | 278 |  |  |  | 5,182 |  |  |  | 6,022 |
Unallocated |  |  | — |  |  |  | — |  |  |  | 2,362 |  |  |  | — |
Continuing Operations |  |  | 19 |  |  |  | 1,223 |  |  |  | 29,305 |  |  |  | 49,759 |
Discontinued Operations |  |  | — |  |  |  | — |  |  |  | 276 |  |  |  | — |
Total |  |  | 19 |  |  |  | 1,223 |  |  | $ | 29,581 |  |  | $ | 49,759 |
Year Ended September 30, 2010 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
West |  |  | 14 |  |  |  | 618 |  |  | $ | 18,056 |  |  | $ | 38,830 |
East |  |  | 6 |  |  |  | 847 |  |  |  | 18,703 |  |  |  | 17,020 |
Southeast |  |  | 5 |  |  |  | 362 |  |  |  | 7,510 |  |  |  | 10,984 |
Unallocated |  |  | — |  |  |  | — |  |  |  | 3,404 |  |  |  | — |
Continuing Operations |  |  | 25 |  |  |  | 1,827 |  |  |  | 47,673 |  |  |  | 66,834 |
Discontinued Operations |  |  | 4 |  |  |  | 68 |  |  |  | 1,244 |  |  |  | 5,972 |
Total |  |  | 29 |  |  |  | 1,895 |  |  | $ | 48,917 |  |  | $ | 72,806 |
Year Ended September 30, 2009 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
West |  |  | 15 |  |  |  | 1,703 |  |  | $ | 42,704 |  |  | $ | 49,801 |
East |  |  | 5 |  |  |  | 131 |  |  |  | 6,383 |  |  |  | 15,709 |
Southeast |  |  | 12 |  |  |  | 1,444 |  |  |  | 22,925 |  |  |  | 32,479 |
Unallocated |  |  | — |  |  |  | — |  |  |  | 5,116 |  |  |  | — |
Continuing Operations |  |  | 32 |  |  |  | 3,278 |  |  |  | 77,128 |  |  |  | 97,989 |
Discontinued Operations |  |  | 3 |  |  |  | 204 |  |  |  | 3,088 |  |  |  | 8,100 |
Total |  |  | 35 |  |  |  | 3,482 |  |  | $ | 80,216 |  |  | $ | 106,089 |
Our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. During these periods, for certain communities we determined that it was prudent to reduce sales prices or further increase sales incentives in response to factors including competitive market conditions in those specific submarkets for the product and locations of these communities. Because the projected cash flows used to evaluate the fair value of inventory are significantly impacted by changes in market conditions including decreased sales prices, the change in sales prices and changes in absorption estimates based on current market conditions and management’s assumptions relative to future results led to additional impairments in certain communities during the years ended September 30, 2011, 2010 and 2009. Market deterioration that exceeds our estimates may lead us to incur additional impairment charges on previously impaired homebuilding assets in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if the market continues to deteriorate. The impairments on land held for sale below represent further write downs of these properties to net realizable value, less estimated costs to sell and are as a result of challenging market conditions and our review of recent comparable transactions. The negative impairments for the fiscal year ended September 30, 2011 are due to adjustments to accruals for estimated selling costs related to either our strategic decision to develop a previously held-for-sale land position or revised estimates based on pending sales transactions. Our assumptions about land sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We calculated the estimated fair values of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions continue to deteriorate. Also, we have determined the proper course of action with respect to a number of communities within each homebuilding segment was to abandon the remaining lots under option and to write-off the deposits securing the option takedowns, as well as pre-acquisition costs. In determining whether to abandon a lot option contract, we evaluate the lot option primarily based upon the expected cash flows from the property that is the subject of the option. If we intend to abandon or walk-away from a lot option contract, we record a charge to earnings in the period such decision is made for the deposit amount and any related capitalized costs associated with the lot option contract. We recorded lot option abandonment charges during the year ended September 30, 2011, 2010 and 2009 as indicated in the table below. The abandonment charges relate to our decision to abandon certain option contracts that no longer fit in our long-term strategic plan. The following tables set forth, by reportable homebuilding segment, the inventory impairments and lot option abandonment charges recorded for the fiscal 2011, 2010 and 2009 (in thousands) :
|  | Fiscal Year Ended September 30, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Development projects and homes in process (Held for Development) |  |  |  |  |  |  |  |  |  |  |  |
West |  | $ | 20,150 |  |  | $ | 18,056 |  |  | $ | 42,704 |
East |  |  | 1,611 |  |  |  | 18,703 |  |  |  | 6,383 |
Southeast |  |  | 5,182 |  |  |  | 7,510 |  |  |  | 22,925 |
Unallocated |  |  | 2,362 |  |  |  | 3,404 |  |  |  | 5,116 |
Subtotal |  | $ | 29,305 |  |  | $ | 47,673 |  |  | $ | 77,128 |
Land Held for Sale |  |  |  |  |  |  |  |  |  |  |  |
West |  | $ | (51 | ) |  | $ | 1,061 |  |  | $ | 9,357 |
East |  |  | 193 |  |  |  | — |  |  |  | 1,071 |
Southeast |  |  | 169 |  |  |  | — |  |  |  | 2,094 |
Subtotal |  | $ | 311 |  |  | $ | 1,061 |  |  | $ | 12,522 |
Lot Option Abandonments |  |  |  |  |  |  |  |  |  |  |  |
West |  | $ | 405 |  |  | $ | 783 |  |  | $ | 99 |
East |  |  | 2,048 |  |  |  | 35 |  |  |  | 2,884 |
Southeast |  |  | 390 |  |  |  | 14 |  |  |  | 972 |
Subtotal |  | $ | 2,843 |  |  | $ | 832 |  |  | $ | 3,955 |
Continuing Operations |  | $ | 32,459 |  |  | $ | 49,566 |  |  | $ | 93,605 |
Discontinued Operations |  |  |  |  |  |  |  |  |  |  |  |
Held for Development |  | $ | 276 |  |  | $ | 1,244 |  |  | $ | 3,088 |
Land Held for Sale |  |  | 78 |  |  |  | 1,003 |  |  |  | 9,370 |
Lot Option Abandonments |  |  | 2,552 |  |  |  | 26 |  |  |  | 1,064 |
Subtotal |  | $ | 2,906 |  |  | $ | 2,273 |  |  | $ | 13,522 |
Total Company |  | $ | 35,365 |  |  | $ | 51,839 |  |  | $ | 107,127 |
Lot Option Agreements and Variable Interest Entities. As previously discussed, we also have access to land inventory through lot option contracts, which generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. A majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a certain price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred, which aggregated approximately $25.9 million at September 30, 2011. This amount includes non-refundable letters of credit of approximately $1.0 million. The total remaining purchase price, net of cash deposits, committed under all options was $225.2 million as of September 30, 2011. We expect to exercise, subject to market conditions, most of our remaining option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised. For the VIEs in which we are the primary beneficiary of the VIE, we have consolidated the VIE and reflected such assets and liabilities as land not owned under option agreements in our balance sheets. For VIEs we were required to consolidate, we recorded the remaining contractual purchase price under the applicable lot option agreement to land not owned under option agreements with an offsetting increase to obligations related to land not owned under option agreements. Also, to reflect the purchase price of this inventory consolidated, we reclassified the related option deposits from land under development to land not owned under option agreement in the accompanying Consolidated Balance Sheets. Consolidation of these VIEs has no impact on the Company’s results of operations or cash flows. The following provides a summary of our interests in lot option agreements as of September 30, 2011 (in thousands):
|  | Deposits & Non- |  |  |  |  |  |  |
|  | refundable |  |  |  |  |  | Land Not Owned — |
|  | Preacquisition |  |  | Remaining |  |  | Under Option |
|  | Costs Incurred |  |  | Obligation |  |  | Agreements |
Consolidated VIEs |  | $ | 6,201 |  |  | $ | 1,214 |  |  | $ | 7,415 |
Other consolidated lot option agreements(a) |  |  | 164 |  |  |  | 4,175 |  |  |  | 4,338 |
Unconsolidated lot option agreements |  |  | 13,732 |  |  |  | 219,841 |  |  |  | — |
Total lot option agreements |  | $ | 20,097 |  |  | $ | 225,230 |  |  | $ | 11,753 |
(a) |  | Represents lot option agreements with non-VIE entities that we have deemed to be “financing arrangements” pursuant to ASC 470-40, Product Financing Arrangements.

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- Definition The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.6) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Chapter 3 -Section A -Paragraph 9 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 6 -Subparagraph a, b, c -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6361739&loc=d3e7789-107766 + Details
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