Inventories

9 Months Ended

Aug. 01, 2020

Note 2 Inventories

New home inventory is carried at the lower of cost or net realizable value. The cost of finished home inventories determined on the specific identification method is removed from inventories and recorded as a component of cost of sales at the time revenue is recognized. In addition, an allocation of depreciation and amortization is included in cost of goods sold. Under the specific identification method, if finished home inventory can be sold for a profit there is no basis to write down the inventory below the lower of cost or net realizable value.

The Company acquired certain repossessed

pre-owned

inventory (Buy Back Inventory) in 2011 as part of an Amendment of the Finance Revenue Sharing Agreement with 21

Mortgage Corporation. This inventory is valued at the Company’s cost to acquire determined on the specific identification method, plus refurbishment costs (any item on the home that needs to be repaired or replaced) incurred to date to bring the inventory to a more saleable state. The Buy Back Inventory amount is reduced where necessary on a unit specific basis by a valuation reserve which management believes results in inventory being valued at market.

Other

pre-owned

homes are acquired (Repossessions Inventory) as a convenience to the Company’s joint venture partner, 21st Mortgage Corporation. This inventory has been repossessed by 21

Mortgage Corporation or through mortgage foreclosure. The Company acquired this inventory at the amount of the uncollected balance of the financing at the time of the foreclosure/repossessions by 21st Mortgage Corporation. The Company records this inventory at cost determined on the specific identification method. All of the refurbishment costs are paid by 21

Mortgage Corporation. This arrangement assists 21

Mortgage Corporation with liquidation of their repossessed inventory. The timing of these repurchases by the Company is unpredictable as it is based on the repossessions 21

Mortgage Corporation incurs in the portfolio. When the home is sold, the Company retains the cost of the home, an interest factor on the cost of the home and a sales commissione, from the sales proceeds. Any additional proceeds are paid to 21

Mortgage. Any shortfall from the proceeds to cover these amounts is paid by 21

Mortgage to the Company. As the Company has no risk of loss on the sale, there is no valuation allowance necessary for this inventory.

Inventory held at consignment locations by affiliated entities is included in the Company’s inventory on the Company’s condensed consolidated balance sheets. Consigned inventory was $1,784,688 and $1,540,949 as of August 1, 2020 and November 2, 2019, respectively.

Pre-owned

homes are also taken as

trade-ins

on new home sales

(Trade-in

Inventory). This inventory is recorded at estimated actual wholesale value, which is generally lower than market value, determined on the specific identification method, plus refurbishment costs incurred to date to bring the inventory to a more saleable state. The

Trade-in

Inventory amount is reduced where necessary on a unit specific basis by a valuation reserve, which management believes results in inventory being valued at market.

Other inventory costs are determined on a

first-in,

first-out

basis. A breakdown of the elements of inventory is as follows:


	August 1,			November 2,
	2020			2019
Raw materials	$	947,610		$	941,206
Work-in-process		98,265			125,371
Inventory consigned to affiliated entities		1,784,688			1,540,949
Finished homes		7,632,876			7,888,879
Model home furniture		174,181			120,372

Inventories	$	10,637,620		$	10,616,777

Pre-owned homes	$	1,694,645		$	1,311,626
Inventory impairment reserve		(169,817	)		(172,395	)

		1,524,828			1,139,231
Less homes expected to sell in 12 months		(253,060	)		(331,103	)

Pre-owned homes, long-term	$	1,271,768		$	808,128