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Note 12 - Reduction of Inventory to Fair Value | 12 Months Ended
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Oct. 31, 2021
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 year ended October 31, 2021, our discount rate used for the impairments recorded ranged from 18.3% to 19.3%, for the year ended October 31, 2020, our discount rate used for the impairments recorded was 17.3%, and for the year ended October 31, 2019, our discount rates used for the impairments recorded ranged from 17.3% to 18.3%. 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, 2021 and 2020, we evaluated inventories of all 374 and 354 communities under development and held for future development or sale, respectively, for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment. We performed undiscounted future cash flow analyses for three of those communities (i.e., those with a projected operating loss or other impairment indicators) during the years ended October 31, 2021 and 2020, with an aggregate carrying value of $11.5 million and $5.4 million, respectively. As a result of our undiscounted future cash flow analyses, we performed discounted cash flow analyses for three of those communities for the fiscal year ended October 31, 2021, resulting in aggregate impairment losses of $2.0 million. During the year ended October 31, 2020, two communities that required discounted cash flow analyses were impaired, which resulted in recording aggregate impairment losses of $2.0 million. The one community that did not require a discounted cash flow analysis to be performed during the year ended October 31, 2020 had an aggregate carrying value of $0.6 million and did not have undiscounted future cash flows that exceeded the carrying amount by less than 20%. The pre-impairment value in the table below represents the carrying value, net of prior period impairments, if any, at the time of recording the impairments. Our aggregate impairment losses 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. The following table represents impairments by segment for fiscal 2021, 2020 and 2019:
(Dollars in millions) |  | Year Ended October 31, 2021 |
|  |  |  |  |  | Dollar |  |  | Pre- |
|  | Number of |  |  | Amount of |  |  | Impairment |
|  | Communities |  |  | Impairment |  |  | Value (1) |
Northeast |  |  | - |  |  | $ | - |  |  | $ | - |
Mid-Atlantic |  |  | - |  |  |  | - |  |  |  | - |
Midwest |  |  | - |  |  |  | - |  |  |  | - |
Southeast |  |  | 2 |  |  |  | 1.2 |  |  |  | 9.2 |
Southwest |  |  | - |  |  |  | - |  |  |  | - |
West |  |  | 1 |  |  |  | 0.8 |  |  |  | 2.3 |
Total |  |  | 3 |  |  | $ | 2.0 |  |  | $ | 11.5 |
(Dollars in millions) |  | Year Ended October 31, 2020 |
|  |  |  |  |  | Dollar |  |  | Pre- |
|  | Number of |  |  | Amount of |  |  | Impairment |
|  | Communities |  |  | Impairment |  |  | Value (1) |
Northeast |  |  | - |  |  | $ | - |  |  | $ | - |
Mid-Atlantic |  |  | - |  |  |  | - |  |  |  | - |
Midwest |  |  | 2 |  |  |  | 2.0 |  |  |  | 4.8 |
Southeast |  |  | - |  |  |  | - |  |  |  | - |
Southwest |  |  | - |  |  |  | - |  |  |  | - |
West |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 2 |  |  | $ | 2.0 |  |  | $ | 4.8 |
(Dollars in millions) |  | Year Ended October 31, 2019 |
|  |  |  |  |  | Dollar |  |  | Pre- |
|  | Number of |  |  | Amount of |  |  | Impairment |
|  | Communities |  |  | Impairment |  |  | Value (1) |
Northeast |  |  | 2 |  |  | $ | 0.2 |  |  | $ | 7.8 |
Mid-Atlantic |  |  | 1 |  |  |  | 0.3 |  |  |  | 1.7 |
Midwest |  |  | 1 |  |  |  | 1.4 |  |  |  | 4.6 |
Southeast |  |  | 1 |  |  |  | 0.7 |  |  |  | 2.2 |
Southwest |  |  | 1 |  |  |  | 0.1 |  |  |  | 1.2 |
West |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 6 |  |  | $ | 2.7 |  |  | $ | 17.5 |
(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 related to these items were $1.6 million, $6.8 million and $3.6 million for the years ended October 31, 2021, 2020 and 2019, 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 2021, 2020 and 2019:
|  | Year Ended October 31, |
(In millions) |  | 2021 |  |  | 2020 |  |  | 2019 |
Northeast |  | $ | - |  |  | $ | 1.5 |  |  | $ | 0.6 |
Mid-Atlantic |  |  | 0.3 |  |  |  | - |  |  |  | 0.5 |
Midwest |  |  | - |  |  |  | 3.5 |  |  |  | 0.9 |
Southeast |  |  | 0.2 |  |  |  | 0.8 |  |  |  | 0.3 |
Southwest |  |  | 0.2 |  |  |  | 0.6 |  |  |  | 0.6 |
West |  |  | 0.9 |  |  |  | 0.4 |  |  |  | 0.7 |
Total |  | $ | 1.6 |  |  | $ | 6.8 |  |  | $ | 3.6 |

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