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Note 12 - Reduction of Inventory to Fair Value | 12 Months Ended
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Oct. 31, 2016
Notes to Financial Statements |
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, 2016, 2015 and 2014, our discount rates used for the impairments recorded ranged from 16.8% to 18.8%, 17.3% to 19.8% and 16.8% to 17.3%, 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, 2016 and 2015, we evaluated inventories of all 413 and 523 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, 2016 and 2015 for 30 and 26 of those communities (i.e., those with a projected operating loss or other impairment indicators), respectively, with an aggregate carrying value of $125.4 million and $108.1 million, respectively. As impairment indicators are assessed on a quarterly basis, some of the communities evaluated during the years ended October 31, 2016 and 2015 were evaluated in more than one quarterly period. Of those communities tested for impairment during the years ended October 31, 2016 and 2015, 9 and 12 communities with an aggregate carrying value of $43.5 million and $54.9 million, respectively, had undiscounted future cash flows that 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 on the line entitled “Homebuilding: Inventory impairment loss and land option write offs” and deducted from inventory, of $24.5 million, $7.3 million and $1.2 million for the years ended October 31, 2016, 2015 and 2014, respectively. The impairments recorded for the year ended October 31, 2016 were mainly for land held for sale in the Midwest and Northeast. The inventory has been written down to fair value based on recent offers received for the properties. The following table represents impairments by segment for fiscal 2016, 2015 and 2014:
(Dollars in millions) |  | Year Ended October 31, 2016 |
|  | Number of Communities |  |  | Dollar Amount of Impairment |  |  | Pre- Impairment Value (1) |
Northeast |  | 5 |  |  | $9.5 |  |  | $33.8 |
Mid-Atlantic |  | - |  |  | - |  |  | - |
Midwest |  | 12 |  |  | 13.5 |  |  | 43.7 |
Southeast |  | 3 |  |  | 1.5 |  |  | 10.9 |
Southwest |  | - |  |  | - |  |  | - |
West |  | - |  |  | - |  |  | - |
Total |  | 20 |  |  | $24.5 |  |  | $88.4 |
(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 |
(1) | Represents carrying value, net of prior period impairments, if any, at the time of recording the applicable period’s impairments.
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 $8.9 million, $4.7 million and $4.0 million for the years ended October 31, 2016, 2015 and 2014, 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 2016, 2015 and 2014:
|  | Year Ended October 31, |
(In millions) |  | 2016 |  |  | 2015 |  |  | 2014 |
Northeast |  | $1.6 |  |  | $0.9 |  |  | $0.9 |
Mid-Atlantic |  | 0.8 |  |  | 0.2 |  |  | 0.2 |
Midwest |  | 1.3 |  |  | 0.6 |  |  | 1.0 |
Southeast |  | 1.8 |  |  | 1.3 |  |  | 0.7 |
Southwest |  | 3.2 |  |  | 1.4 |  |  | 1.2 |
West |  | 0.2 |  |  | 0.3 |  |  | - |
Total |  | $8.9 |  |  | $4.7 |  |  | $4.0 |

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