Note 13 - Reduction of Inventory to Fair Value

12 Months Ended

Oct. 31, 2012

Inventory Impairments And Land Option Cost Write Offs [Text Block]

13. Reduction of Inventory to Fair Value

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the year ended October 31, 2012, our discount rates used for the impairments recorded range from 16.8% to 18.5%. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may be required to recognize additional impairments. We recorded impairment losses, which are included in the Consolidated Statements of Operations and deducted from inventory, of $9.8 million, $77.5 million, and $122.5 million for the years ended October 31, 2012, 2011, and 2010, respectively.

The following table represents impairments by segment for fiscal 2012, 2011, and 2010:

(Dollars in millions)	Year Ended October 31, 2012
	Number of Communities		Dollar Amount of Impairment		Pre- Impairment Value $
Northeast		10	$	2.8	$	19.6
Mid-Atlantic		3		0.4		0.8
Midwest		2		1.6		4.5
Southeast		12		2.8		8.3
Southwest		-		-		-
West		5		2.2		4.9
Total		32	$	9.8	$	38.1

(Dollars in millions)	Year Ended October 31, 2011
	Number of Communities		Dollar Amount of Impairment		Pre- Impairment Value $
Northeast		11	$	54.9	$	179.9
Mid-Atlantic		5		3.4		17.3
Midwest		7		1.1		4.2
Southeast		11		1.5		5.1
Southwest		1		0.1		0.3
West		6		16.5		45.2
Total		41	$	77.5	$	252.0

(Dollars in millions)	Year Ended October 31, 2010
	Number of Communities		Dollar Amount of Impairment		Pre- Impairment Value $
Northeast		14	$	72.2	$	156.5
Mid-Atlantic		8		3.4		7.1
Midwest		15		4.6		8.2
Southeast		21		2.2		8.0
Southwest		6		0.9		10.8
West		19		39.2		62.8
Total		83	$	122.5	$	253.4

The Consolidated Statements of Operations line entitled “Homebuilding-Inventory impairment loss and land option write-offs” also includes write-offs of options and approval, engineering and capitalized interest costs that we record when we redesign communities and/or abandon certain engineering costs and we do not exercise options in various locations because the communities’ pro forma profitability is not projected to produce adequate returns on investment commensurate with the risk. The total aggregate write-offs were $2.7 million, $24.3 million, and $13.2 million for the years ended October 31, 2012, 2011, and 2010, respectively. Occasionally, these write-offs are offset by recovered deposits (sometimes through legal action) that had been written off in a prior period as walk-away costs. Historically, these recoveries have not been significant in comparison to the total costs written off.

The following table represents write-offs of such costs by segment for fiscal 2012, 2011, and 2010:

	Year Ended October 31,
(In millions)	2012		2011		2010
Northeast	$	0.7	$	13.4	$	4.5
Mid-Atlantic		0.6		6.1		8.9
Midwest		0.2		0.5		0.0
Southeast		0.7		0.8		(0.6	)
Southwest		0.4		0.4		0.3
West		0.1		3.1		0.1
Total	$	2.7	$	24.3	$	13.2