CAPITALIZED INTEREST

The Company capitalizes interest costs incurred to inventory during active development and construction (active inventory). Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. During periods in which the Company’s active inventory is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred. During the first six months of fiscal 2018 and fiscal 2017, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three and six months ended March 31, 2018 and 2017:



	Three Months Ended March 31,						Six Months Ended March 31,
	2018			2017			2018			2017
	(In millions)
Capitalized interest, beginning of period	$	170.3		$	190.0		$	167.9		$	191.2
Interest incurred (1)	31.8			33.5			62.8			67.0
Interest charged to cost of sales	(32.0		)	(37.3		)	(60.6		)	(72.0		)
Capitalized interest, end of period	$	170.1		$	186.2		$	170.1		$	186.2

_______________

(1)

Interest incurred includes interest on the Company's mortgage repurchase facility of $2.4 million and $4.5 million in the three and six months ended March 31, 2018, respectively, and $1.8 million and $3.5 million in the same periods of fiscal 2017. Also included in the fiscal 2018 amounts is the interest incurred by Forestar of $1.3 million in the three months ended March 31, 2018 and $1.4 million from the acquisition date through March 31, 2018.