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Inventory | 12 Months Ended
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Sep. 30, 2014
Real Estate [Abstract] |
Inventory | Inventory
(In thousands) | September 30, 2014 |  | September 30, 2013
Homes under construction | $ | 282,095 |  |  | $ | 262,476 |
Development projects in progress | 786,768 |  |  | 578,453 |
Land held for future development | 301,048 |  |  | 341,986 |
Land held for sale | 51,672 |  |  | 31,331 |
Capitalized interest | 87,619 |  |  | 52,562 |
Model homes | 48,294 |  |  | 37,886 |
Total owned inventory | $ | 1,557,496 |  |  | $ | 1,304,694 |
Homes under construction includes homes substantially finished and ready for delivery and homes in various stages of construction. We had 205 ($48.0 million) and 113 ($30.7 million) substantially completed homes that were not subject to a sales contract (spec homes) at September 30, 2014 and 2013, 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. The decrease in land held for future development relates to our activation of certain projects during fiscal 2014. Land held for sale in Unallocated and Other as of September 30, 2014 included land held for sale in the markets we have decided to exit including Jacksonville, Florida and Charlotte, North Carolina. Total owned inventory, by reportable segment, is set forth in the table below. Inventory located in California, the state with our largest concentration of inventory, was $426.1 million and $388.1 million at September 30, 2014 and 2013, respectively.
(In thousands) | Projects in Progress |  | Held for Future Development |  | Land Held for Sale |  | Total Owned Inventory
September 30, 2014 |  |  |  |  |  |  |
West Segment | $ | 462,508 |  |  | $ | 260,898 |  |  | $ | 10,026 |  |  | $ | 733,432 |
East Segment | 353,859 |  |  | 29,239 |  |  | 34,530 |  |  | 417,628 |
Southeast Segment | 264,843 |  |  | 10,911 |  |  | 4,821 |  |  | 280,575 |
Unallocated & Other | 123,566 |  |  | — |  |  | 2,295 |  |  | 125,861 |
Total | $ | 1,204,776 |  |  | $ | 301,048 |  |  | $ | 51,672 |  |  | $ | 1,557,496 |
September 30, 2013 |  |  |  |  |  |  |
West Segment | $ | 339,319 |  |  | $ | 292,875 |  |  | $ | 16,572 |  |  | $ | 648,766 |
East Segment | 331,894 |  |  | 25,491 |  |  | 3,833 |  |  | 361,218 |
Southeast Segment | 178,624 |  |  | 23,620 |  |  | 8,208 |  |  | 210,452 |
Unallocated & Other | 81,540 |  |  | — |  |  | 2,718 |  |  | 84,258 |
Total | $ | 931,377 |  |  | $ | 341,986 |  |  | $ | 31,331 |  |  | $ | 1,304,694 |
Inventory Impairments. When conducting our community level review for the recoverability of our homebuilding inventories held for development, we establish a quarterly “watch list” of communities with generally more than 10 homes remaining that carry profit margins in backlog and in our forecast that are below a minimum threshold of profitability. Assets on the quarterly watch list are subject to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. 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. For communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific information. In our undiscounted cash flow impairment analyses for the year ended September 30, 2014, we did not assume any market improvements. 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, 2014, 2013 and 2012. 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. 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.
($ in thousands) |  |  | Undiscounted Cash Flow Analyses Prepared
Segment | # of Communities on Watch List |  | # of Communities |  | Pre-analysis Book Value (BV) |  | Aggregate Undiscounted Cash Flow as a % of BV
Year Ended September 30, 2014 |  |  |  |  |  |  |
West | 5 |  |  | 3 |  |  | $ | 25,191 |  |  | 90.9 | %
East (a) | 1 |  |  | — |  |  | — |  |  | — | %
Southeast | 2 |  |  | 1 |  |  | 7,479 |  |  | 120.2 | %
Unallocated | — |  |  | — |  |  | 2,558 |  |  | 100.0 | %
Total | 8 |  |  | 4 |  |  | $ | 35,228 |  |  | 97.8 | %
Year Ended September 30, 2013 |  |  |  |  |  |  |
West | 1 |  |  | 1 |  |  | $ | 11,080 |  |  | 117.6 | %
East | 3 |  |  | 3 |  |  | 9,588 |  |  | 107.0 | %
Southeast | 1 |  |  | 1 |  |  | 5,257 |  |  | 128.6 | %
Unallocated | — |  |  | — |  |  | 1,755 |  |  | 100.0 | %
Total | 5 |  |  | 5 |  |  | $ | 27,680 |  |  | 114.9 | %
Year Ended September 30, 2012 |  |  |  |  |  |  |
West | 14 |  |  | 8 |  |  | $ | 28,467 |  |  | 94.7 | %
East | 12 |  |  | 8 |  |  | 30,052 |  |  | 91.8 | %
Southeast | 5 |  |  | 3 |  |  | 9,247 |  |  | 116.5 | %
Unallocated | — |  |  | — |  |  | 5,193 |  |  | 100.0 | %
Total | 31 |  |  | 19 |  |  | $ | 72,959 |  |  | 96.7 | %
(a) During the year ended September 30, 2014, we recorded an impairment charge of $0.1 million in our East segment. The community had less than 10 lots remaining to close at the time of the analysis and therefore, consistent with our policy, we did not prepare an undiscounted or discounted cash flow analysis related to this community. The table below summarizes the results of our discounted cash flow analysis for the fiscal years 2014 and 2012. There were no impairments recorded during the fiscal year ended September 30, 2013 related to our impairment analyses. The discount rate in our discounted cash flow analyses may be different for each community and ranged from 13.0% to 15.0% for the communities analyzed in the fiscal year ended September 30, 2014 and 11.2% to 17.0% for the fiscal year ended September 30, 2012. The projected cash flows used to evaluate the fair value of inventory are significantly impacted by changes in market conditions including the changes in sales prices and absorption estimates and management’s assumptions relative to future results. Impairment charges in two communities during the fiscal year ended September 30, 2014 and five communities during the fiscal year ended September 30, 2012 were taken as a result of these discounted cash flow analyses. The estimated fair value of the impaired inventory is determined immediately after a community’s impairment.
($ in thousands) | Results of Discounted Cash Flow Analyses Prepared
Segment | # of Communities Impaired |  | # of Lots Impaired |  | Impairment Charge |  | Estimated Fair Value of Impaired Inventory at Period End
Year Ended September 30, 2014
West | 2 |  |  | 180 |  |  | $ | 4,948 |  |  | $ | 14,379 |
East (a) | — |  |  | — |  |  | — |  |  | — |
Southeast | — |  |  | — |  |  | — |  |  | — |
Unallocated | — |  |  | — |  |  | 373 |  |  | — |
Continuing Operations (a) | 2 |  |  | 180 |  |  | 5,321 |  |  | 14,379 |
Discontinued Operations | — |  |  | — |  |  | — |  |  | — |
Total (a) | 2 |  |  | 180 |  |  | $ | 5,321 |  |  | $ | 14,379 |
Year Ended September 30, 2012 |  |  |
West | 2 |  |  | 116 |  |  | $ | 3,902 |  |  | $ | 11,058 |
East | 2 |  |  | 93 |  |  | 4,316 |  |  | 7,342 |
Southeast | 1 |  |  | 37 |  |  | 796 |  |  | 2,457 |
Unallocated | — |  |  | — |  |  | 473 |  |  | — |
Continuing Operations | 5 |  |  | 246 |  |  | 9,487 |  |  | 20,857 |
Discontinued Operations | — |  |  | — |  |  | 60 |  |  | — |
Total | 5 |  |  | 246 |  |  | $ | 9,547 |  |  | $ | 20,857 |
(a) During the year ended September 30, 2014, we recorded an impairment charge of $0.1 million in our East segment. The community had less than 10 lots remaining to close at the time of the analysis and therefore, consistent with our policy, we did not prepare an undiscounted or discounted cash flow analysis related to this community. 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 based on current market conditions and our review of recent comparable transactions at the applicable period end. The fiscal 2013 land held for sale impairment in the Southeast Segment related to our decision to reposition one community in South Carolina to address consumer demand, including the decision to sell a portion of the lots in this community. 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 deteriorate. Also, we have determined the proper course of action with respect to a number of communities within each homebuilding segment was to not exercise certain options and to write-off the deposits securing the option takedowns and pre-acquisition costs, as applicable. In determining whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property. If we intend to abandon or walk-away from a property, we record a charge to earnings in the period such decision is made for the deposit amount and any related capitalized costs. Abandonment charges generally relate to our decision to abandon lots or not exercise certain option contracts that are not projected to produce adequate results or no longer fit in our long-term strategic plan. Included in the abandonments below for the fiscal year ended September 30, 2014 is a $1.7 million abandonment of certain lots related to wetlands permitting issues in the Southeast segment. The following table sets forth, by reportable homebuilding segment, the inventory impairments and lot option abandonment charges recorded for the fiscal years ended September 30, 2014, 2013 and 2012:
| Fiscal Year Ended September 30,
(In thousands) | 2014 |  | 2013 |  | 2012
Development projects and homes in process (Held for Development) |  |  |  |  |
West | $ | 4,948 |  |  | $ | 46 |  |  | $ | 3,902 |
East | 100 |  |  | 13 |  |  | 4,316 |
Southeast | — |  |  | — |  |  | 796 |
Unallocated | 373 |  |  | — |  |  | 473 |
Subtotal | $ | 5,421 |  |  | $ | 59 |  |  | $ | 9,487 |
Land Held for Sale |  |  |  |  |
West | $ | — |  |  | $ | 228 |  |  | $ | — |
East | 232 |  |  | 123 |  |  | 100 |
Southeast | 28 |  |  | 1,778 |  |  | 208 |
Subtotal | $ | 260 |  |  | $ | 2,129 |  |  | $ | 308 |
Lot Option Abandonments |  |  |  |  |
West | $ | — |  |  | $ | 104 |  |  | $ | 301 |
East | 131 |  |  | 20 |  |  | 1,320 |
Southeast | 2,495 |  |  | 321 |  |  | 792 |
Unallocated | — |  |  | — |  |  | 2 |
Subtotal | $ | 2,626 |  |  | $ | 445 |  |  | $ | 2,415 |
Continuing Operations | $ | 8,307 |  |  | $ | 2,633 |  |  | $ | 12,210 |
Discontinued Operations |  |  |  |  |
Held for Development | $ | — |  |  | $ | — |  |  | $ | 60 |
Land Held for Sale | — |  |  | 17 |  |  | 503 |
Lot Option Abandonments | — |  |  | — |  |  | 16 |
Subtotal | $ | — |  |  | $ | 17 |  |  | $ | 579 |
Total Company | $ | 8,307 |  |  | $ | 2,650 |  |  | $ | 12,789 |
Lot Option Agreements and Variable Interest Entities (VIE). 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 $43.5 million at September 30, 2014. The total remaining purchase price, net of cash deposits, committed under all options was $420.5 million as of September 30, 2014. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, all 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 present the related option deposits as 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, 2014 and September 30, 2013:
(In thousands) | Deposits & Non-refundable Preacquisition Costs Incurred |  | Remaining Obligation |  | Land Not Owned - Under Option Agreements
As of September 30, 2014 |  |  |  |  |
Consolidated VIEs | $ | 941 |  |  | $ | 2,916 |  |  | $ | 3,857 |
Unconsolidated lot option agreements | 42,588 |  |  | 417,618 |  |  | — |
Total lot option agreements | $ | 43,529 |  |  | $ | 420,534 |  |  | $ | 3,857 |
As of September 30, 2013 |  |  |  |  |
Consolidated VIEs | $ | 4,491 |  |  | $ | 4,633 |  |  | $ | 9,124 |
Unconsolidated lot option agreements | 32,822 |  |  | 284,005 |  |  | — |
Total lot option agreements | $ | 37,313 |  |  | $ | 288,638 |  |  | $ | 9,124 |

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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 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6361739&loc=d3e7789-107766 Reference 2: 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 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 + Details
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