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Note 12 - Reduction of Inventory to Fair Value

12 Months Ended

Oct. 31, 2022

Inventory Impairments and Land Option Cost Write-offs [Text Block]

12. Reduction of Inventory to Fair Value

We had 374 communities under development and held for future development or sale at both October 31, 2022 and 2021, and 354 communities under development and held for future development or sale at October 31, 2020, which we evaluated for impairment indicators. We had an indicator of impairment on one community during the year ended October 31, 2022, with a carrying value of $10.6 million. We performed an impairment analysis on the community which included increased land development costs from previous projections. The increased land development costs, along with the recent downturn in the market, resulted in an impairment of $8.4 million for the year ended October 31, 2022. We performed undiscounted future cash flow analyses for three communities (i.e., those with a projected operating loss or other impairment indicators) during the year ended October 31, 2021, with an aggregate carrying value of $11.5 million. As a result of our undiscounted future cash flow analyses, we performed discounted cash flow analyses for all three of those communities, resulting in impairments of $2.0 million. We performed undiscounted future cash flow analyses for three communities during the year ended October 31, 2020, with an aggregate carrying value of $5.4 million. As a result of our undiscounted future cash flow analyses, we performed discounted cash flow analyses for two of those communities, resulting in impairments 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%. Our discount rates used for all impairments recorded during fiscal 2021 and fiscal 2020 ranged from 17.3% to 19.3%. Our aggregate impairment charges are included within "Inventory impairments and land option write-offs" in the Consolidated Statement of Operations and deducted from inventory.

The following table represents impairments by segment for fiscal 2022, 2021 and 2020:

(Dollars in millions)	*Year Ended October 31, 2022*
			*Dollar*		*Pre-*
	*Number of*		*Amount of*		*Impairment*
	*Communities*		*Impairment*		*Value (1)*
Northeast		-	$	-	$	-
Southeast		-		-		-
West		1		8.4		10.6
Total		1	$	8.4	$	10.6

(Dollars in millions)	*Year Ended October 31, 2021*
			*Dollar*		*Pre-*
	*Number of*		*Amount of*		*Impairment*
	*Communities*		*Impairment*		*Value (1)*
Northeast		-	$	-	$	-
Southeast		2		1.2		9.2
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		2	$	2.0	$	4.8
Southeast		-		-		-
West		-		-		-
Total		2	$	2.0	$	4.8

(1)

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

Write-offs of options, engineering and capitalized interest costs are also recorded in "Inventory impairments and land option write-offs" when we redesign communities, abandon certain engineering costs or do not exercise options in various locations because the 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 $5.7 million, $1.6 million and $6.8 million for the years ended October 31, 2022, 2021 and 2020, respectively. Occasionally, these write-offs are offset by recovered deposits, sometimes through legal action, which 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 2022, 2021 and 2020:

	*Year Ended October 31,*
(In millions)	*2022*		*2021*		*2020*
Northeast	$	0.4	$	0.3	$	5.0
Southeast		0.9		0.2		0.8
West		4.4		1.1		1.0
Total	$	5.7	$	1.6	$	6.8