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Note 12 - Reduction of Inventory to Fair Value

12 Months Ended

Oct. 31, 2015

Inventory Impairments And Land Option Cost Write Offs [Abstract]

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

12. 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 years ended October 31, 2015, 2014 and 2013, our discount rates used for the impairments recorded ranged from 17.3% to 19.8%, 16.8% to 17.3% and 18.0% to 19.3%, respectively. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may need to recognize additional impairments.

During the years ended October 31, 2015 and 2014, we evaluated inventories of all 523 and 495 communities under development and held for future development, respectively, for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment. We performed detailed impairment calculations during the years ended October 31, 2015 and 2014 for 26 and 12 of those communities (i.e., those with a projected operating loss or other impairment indicators), respectively, with an aggregate carrying value of $108.1 million and $28.2 million, respectively, (fourteen and four were in the fourth quarter of fiscal 2015 and 2014, respectively, with an aggregate carrying value of $37.7 million and $7.1 million, respectively). As impairment indicators are assessed on a quarterly basis, some of the communities evaluated during the years ended October 31, 2015 and 2014 were evaluated in more than one quarterly period. Of those communities tested for impairment during the years ended October 31, 2015 and 2014, twelve and four communities with an aggregate carrying value of $54.9 million and $23.1 million, respectively, had undiscounted future cash flows that only exceeded the carrying amount by less than 20%. As a result of our impairment analysis, we recorded impairment losses, which are included in the Consolidated Statement of Operations and deducted from inventory, of $7.3 million, $1.2 million and $2.4 million for the years ended October 31, 2015, 2014 and 2013, respectively.

The following table represents impairments by segment for fiscal 2015, 2014 and 2013:

(Dollars in millions)	Year Ended October 31, 2015
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	2	$0.8	$0.9
Mid-Atlantic	1	0.9	2.5
Midwest	4	1.3	8.4
Southeast	4	2.5	10.1
Southwest	-	-	-
West	1	1.8	7.5
Total	12	$7.3	$29.4

(Dollars in millions)	Year Ended October 31, 2014
	Number of Communities	Dollar Amount of Impairment	Pre- Impairment Value (1)
Northeast	2	$0.3	$0.6
Mid-Atlantic	-	-	-
Midwest	3	0.9	3.8
Southeast	-	-	-
Southwest	-	-	-
West	-	-	-
Total	5	$1.2	$4.4

(Dollars in millions)	Year Ended October 31, 2013
	Number of Communities	Dollar Amount of Impairment(2)	Pre- Impairment Value (1)
Northeast	4	$2.4	$7.7
Mid-Atlantic	1	-	0.1
Midwest	-	-	-
Southeast	1	-	0.4
Southwest	-	-	-
West	-	-	-
Total	6	$2.4	$8.2

(1)	Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period’s impairments.

(2)

During the year ended October 31, 2013, the Mid-Atlantic had an impairment totaling $2 thousand and the Southeast had an impairment totaling $17 thousand.

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 $4.7 million, $4.0 million and $2.6 million for the years ended October 31, 2015, 2014 and 2013, 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 2015, 2014 and 2013:

	Year Ended October 31,
(In millions)	2015	2014	2013
Northeast	$0.9	$0.9	$0.7
Mid-Atlantic	0.2	0.2	0.1
Midwest	0.6	1.0	0.2
Southeast	1.3	0.7	0.2
Southwest	1.4	1.2	1.4
West	0.3	-	-
Total	$4.7	$4.0	$2.6