Inventory

12 Months Ended

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.