Inventory

9 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

INVENTORY

INVENTORIES

At the end of each quarter, the Company reviews the performance and outlook for all of its communities and land inventories for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary. As of June 30, 2020, the Company performed detailed impairment evaluations of communities and land inventories with a combined carrying value of $52.1 million and determined that no communities or land inventories were impaired. Accordingly, no impairment charges were recorded during the three months ended June 30, 2020 compared to $6.8 million of impairment charges recorded in the prior year period. During the nine months ended June 30, 2020 and 2019, impairment charges totaled $1.7 million and $18.6 million, respectively. Inventory impairments and the land option charges discussed below are included in cost of sales in the consolidated statements of operations.

As the Company manages its inventory investments across its operating markets to optimize returns and cash flows, it may modify its pricing and incentives, construction and development plans or land sale strategies in individual active communities and land held for development, which could result in the affected communities being evaluated for potential impairment. During the latter part of March and into April, the impacts of the COVID-19 (C-19) pandemic and the related widespread reductions in economic activity began to adversely affect the Company’s business operations and the demand for its homes. Although demand for the Company’s homes was strong in May and June, there is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for the Company’s homes and availability of mortgage loans to homebuyers. The extent to which this impacts the Company’s operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on its customers, trade partners and employees, all of which are highly uncertain and cannot be predicted. If the housing market or economic conditions are adversely affected for a prolonged period due to C-19 or otherwise, the Company may be required to evaluate additional communities for potential impairment. These evaluations could result in additional impairment charges which could be significant.

During the three and nine months ended June 30, 2020, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $5.0 million and $16.1 million, respectively, compared to $12.4 million and $22.4 million in the same periods of fiscal 2019.