Note 9 - Inventories

9 Months Ended

Sep. 30, 2016

9.	Inventories

Inventories Owned

Inventories owned consisted of the following at:

	September 30, 2016
	North		Southeast		Southwest		West		Total
	(Dollars in thousands)

Land and land under development (1)	$	441,119	$	1,121,369	$	631,520	$	1,258,888	$	3,452,896
Homes completed and under construction		341,535		651,531		713,662		874,834		2,581,562
Model homes		76,905		131,147		115,784		174,753		498,589
Total inventories owned	$	859,559	$	1,904,047	$	1,460,966	$	2,308,475	$	6,533,047

	December 31, 2015
	North		Southeast		Southwest		West		Total
	(Dollars in thousands)

Land and land under development (1)	$	370,584	$	1,169,350	$	687,792	$	1,318,563	$	3,546,289
Homes completed and under construction		266,967		464,668		599,183		708,779		2,039,597
Model homes		66,100		119,283		113,549		185,141		484,073
Total inventories owned	$	703,651	$	1,753,301	$	1,400,524	$	2,212,483	$	6,069,959

__________________________
	(1)	During the nine months ended September 30, 2016, we purchased $680.9 million of land (10,048 homesites), of which 25% (based on homesites) were located in the North, 25% in the Southeast, 25% in the Southwest, and 25% in the West. During the year ended December 31, 2015, we purchased $515.3 million of land (6,631 homesites) and acquired an additional 40,245 homesites as a result of the merger with Ryland. The homesites we purchased during 2015, other than through the merger, were located as follows: 12% (based on homesites) were located in the North, 39% in the Southeast, 18% in the Southwest, and 31% in the West.

In accordance with ASC Topic 360,

Property, Plant, and Equipment

("ASC 360"), we record impairment losses on inventories when events and circumstances indicate that they may be impaired, and the future 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 community under a land residual value analysis and in certain cases in conjunction with a discounted cash flow analysis. As of September 30, 2016 and 2015, the total active and future communities that we owned were 879 and 380, respectively. During the nine months ended September 30, 2016 and 2015, we reviewed all communities for indicators of impairment and based on our review we did not record any inventory impairments during these periods.

b. Inventories Not Owned

Inventories not owned as of September 30, 2016 and December 31, 2015 consisted of land purchase and lot option deposits outstanding at the end of each period, and purchase price allocated to lot option contracts assumed in connection with business acquisitions. Under ASC Topic 810,

Consolidation

("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. In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.