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Inventory | 3 Months Ended
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Dec. 31, 2014
Real Estate [Abstract] |
Inventory | Inventory
(In thousands) | December 31, 2014 |  | September 30, 2014
Homes under construction | $ | 325,074 |  |  | $ | 282,095 |
Development projects in progress | 811,021 |  |  | 786,768 |
Land held for future development | 312,148 |  |  | 301,048 |
Land held for sale | 68,358 |  |  | 51,672 |
Capitalized interest | 99,868 |  |  | 87,619 |
Model homes | 61,142 |  |  | 48,294 |
Total owned inventory | $ | 1,677,611 |  |  | $ | 1,557,496 |
Homes under construction includes homes substantially finished and ready for delivery and homes in various stages of construction. We had 169 ($42.3 million) and 205 ($48.0 million) substantially completed homes that were not subject to a sales contract (spec homes) at December 31, 2014 and September 30, 2014, 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. During the current quarter, there was a reclassification of a land parcel in Las Vegas from development projects in progress to land held for future development while certain financial issues involving this parcel are resolved. All applicable interest and real estate taxes on land held for future development are expensed as incurred. Land held for sale in Unallocated and Other as of December 31, 2014 includes land held for sale in the markets we have decided to exit including Charlotte, North Carolina and Detroit, Michigan. Total owned inventory, by reportable segment, is set forth in the table below:
(In thousands) | Projects in Progress |  | Held for Future Development |  | Land Held for Sale |  | Total Owned Inventory
December 31, 2014 |  |  |  |  |  |  |
West Segment | $ | 479,550 |  |  | $ | 272,009 |  |  | $ | 12,446 |  |  | $ | 764,005 |
East Segment | 379,191 |  |  | 29,215 |  |  | 36,958 |  |  | 445,364 |
Southeast Segment | 283,014 |  |  | 10,924 |  |  | 16,658 |  |  | 310,596 |
Unallocated and Other | 155,350 |  |  | — |  |  | 2,296 |  |  | 157,646 |
Total | $ | 1,297,105 |  |  | $ | 312,148 |  |  | $ | 68,358 |  |  | $ | 1,677,611 |
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 and Other | 123,566 |  |  | — |  |  | 2,295 |  |  | 125,861 |
Total | $ | 1,204,776 |  |  | $ | 301,048 |  |  | $ | 51,672 |  |  | $ | 1,557,496 |
Inventory Impairments. When conducting our community level review for the recoverability of our homebuilding held for development inventories, 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. 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. Our assumptions about future home sales prices and absorption rates require significant judgment because the residential home building industry is cyclical and is highly sensitive to changes in economic conditions. Market deterioration that exceeds our estimates may lead us to incur impairment charges on previously impaired homebuilding assets in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if markets deteriorate. As of December 31, 2014, two communities in our West segment were on our quarterly watch list as compared to one community in our West segment as of December 31, 2013. After additional financial and operational review, we determined that the factors contributing to profit margins below our threshold were temporary in nature and therefore the communities were not subjected to further analysis. Accordingly, there were no impairments recorded during the three months ended December 31, 2014 or 2013 related to our analyses.
Impairments on land held for sale generally 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. 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, from time to time, we determine the proper course of action with respect to a community is to not exercise an option and to write-off the deposit securing an option takedown 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 the 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. Lot option abandonment charges recorded for the three months ended December 31, 2014 and 2013 were $0 and $31,000, respectively.
Lot Option Agreements and Variable Interest Entities (VIEs). 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. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, 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, 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 unaudited condensed 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 December 31, 2014 and September 30, 2014:
(In thousands) | Deposits & Non-refundable Preacquisition Costs Incurred |  | Remaining Obligation |  | Land Not Owned Under Option Agreements
As of December 31, 2014 |  |  |  |  |
Consolidated VIEs | $ | 195 |  |  | $ | 1,248 |  |  | $ | 1,443 |
Unconsolidated lot option agreements | 44,538 |  |  | 379,482 |  |  | — |
Total lot option agreements | $ | 44,733 |  |  | $ | 380,730 |  |  | $ | 1,443 |
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 |

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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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