Business Segments

The Company’s chief operating decision makers evaluate the Company’s performance in various ways, including: (1) the results of our 16 individual homebuilding operating segments and the results of our financial services operations; (2) the results of our three homebuilding reportable segments; and (3) our consolidated financial results.

In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating segment as each homebuilding division engages in business activities from which it earns revenue, primarily from the sale and construction of single-family attached and detached homes, acquisition and development of land, and the occasional sale of lots to third parties. Our financial services operations generate revenue primarily from the origination, sale and servicing of mortgage loans and title services primarily for purchasers of the Company’s homes and are included in our financial services reportable segment. In accordance with the aggregation criteria defined in ASC 280, we have identified each homebuilding division as an operating segment and have determined our reportable segments are as follows: Midwest homebuilding; Southern homebuilding; Mid-Atlantic homebuilding; and financial services operations. The homebuilding operating segments that are included within each reportable segment have been aggregated because they share similar aggregation characteristics as prescribed in ASC 280 in the following regards: (1) long-term economic characteristics; (2) historical and expected future long-term gross margin percentages; (3) housing products, production processes and methods of distribution; and (4) geographical proximity.

The homebuilding operating segments that comprise each of our reportable segments are as follows:



Midwest	Southern	Mid-Atlantic
Chicago, Illinois	Orlando, Florida	Charlotte, North Carolina
Cincinnati, Ohio	Sarasota, Florida	Raleigh, North Carolina
Columbus, Ohio	Tampa, Florida	Washington, D.C.
Indianapolis, Indiana	Austin, Texas
Minneapolis/St. Paul, Minnesota	Dallas/Fort Worth, Texas
Detroit, Michigan	Houston, Texas
	San Antonio, Texas

The following table shows, by segment: revenue, operating income and interest expense for the three and nine months ended September 30, 2018 and 2017, as well as the Company’s income before income taxes for such periods:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2018			2017			2018			2017
Revenue:
Midwest homebuilding	$	236,803		$	180,488		$	622,325		$	495,379
Southern homebuilding	221,044			176,502			649,014			504,647
Mid-Atlantic homebuilding	97,802			107,670			253,363			302,305
Financial services ^(a)	12,193			11,763			39,095			37,938
Total revenue	$	567,842		$	476,423		$	1,563,797		$	1,340,269

Operating income:
Midwest homebuilding^(b)	$	24,179		$	20,887		$	55,377		$	53,730
Southern homebuilding ^(c)	18,922			13,082			53,142			26,503
Mid-Atlantic homebuilding	8,211			9,969			15,909			26,810
Financial services^(a)	5,681			5,887			21,159			21,977
Less: Corporate selling, general and administrative expense	(13,131		)	(10,548		)	(32,079		)	(29,178		)
Total operating income^{(b) (c)}	$	43,862		$	39,277		$	113,508		$	99,842

Interest expense:
Midwest homebuilding	$	1,297		$	1,319		$	5,175		$	3,559
Southern homebuilding	1,679			2,143			5,874			6,311
Mid-Atlantic homebuilding	615			557			1,844			1,988
Financial services ^(a)	835			656			2,299			1,989
Total interest expense	$	4,426		$	4,675		$	15,192		$	13,847

Equity in income from joint venture arrangements	(44		)	(71		)	(268		)	(198		)
Acquisition and integration costs^(d)	—			—			1,700			—

Income before income taxes	$	39,480		$	34,673		$	96,884		$	86,193


(a)	Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of an immaterial amount of mortgage refinancing.


(b)	Includes $0.7 million and $4.5 million of charges related to purchase accounting adjustments taken during the three and nine months ended September 30, 2018, respectively, as a result of our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018.


(c)	Includes an $8.5 million charge for stucco-related repair costs in certain of our Florida communities taken during the nine months ended September 30, 2017 (as more fully discussed in Note 6 to our financial statements).


(d)	Represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses, and miscellaneous expenses related to our recent acquisition of Pinnacle Homes. As these costs are not eligible for capitalization as initial direct costs, such amounts are expensed as incurred.

The following tables show total assets by segment at September 30, 2018 and December 31, 2017:



	September 30, 2018
(In thousands)	Midwest		Southern			Mid-Atlantic		Corporate, Financial Services and Unallocated		Total
Deposits on real estate under option or contract	$	5,480	$	20,194		$	6,448	$	—	$	32,122
Inventory ^(a)	716,502		736,966			265,935		—		1,719,403
Investments in joint venture arrangements	534		5,342			18,692		—		24,568
Other assets	27,820		46,036		^(b)	8,331		200,055		282,242
Total assets	$	750,336	$	808,538		$	299,406	$	200,055	$	2,058,335



	December 31, 2017
(In thousands)	Midwest		Southern			Mid-Atlantic		Corporate, Financial Services and Unallocated		Total
Deposits on real estate under option or contract	$	4,933	$	20,719		$	6,904	$	—	$	32,556
Inventory ^(a)	500,671		636,019			245,328		—		1,382,018
Investments in joint venture arrangements	4,410		9,677			6,438		—		20,525
Other assets	13,573		38,784		^(b)	13,311		364,004		429,672
Total assets	$	523,587	$	705,199		$	271,981	$	364,004	$	1,864,771


(a)	Inventory includes single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.


(b)	Includes development reimbursements from local municipalities.