Business Segments

9 Months Ended

Sep. 30, 2019

Segment Reporting Disclosure [Text Block]

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 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 and have elected to aggregate our operating segments into separate reportable segments as they share similar aggregation characteristics 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.

During 2019, we decided to wind down our Washington, D.C. operations, which we expect to substantially complete by the end of 2019. As a result, during the second quarter of 2019, we re-evaluated our reportable segments and determined that none of our separate Mid-Atlantic operating segments met the reportable criteria set forth in ASC 280. Therefore, we elected to aggregate our Charlotte and Raleigh, North Carolina and Washington, D.C. operating segments into our existing Southern region based on the aggregation criteria described above. All prior year segment information has been recast to conform with the 2019 presentation. The change in the reportable segments has no effect on the Company's condensed consolidated balance sheets, statement of income or statement of cash flows for the periods presented.

As a result of this re-evaluation, we have determined our reportable segments are: Northern homebuilding; Southern homebuilding; and financial services operations.

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



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


(a)

During 2019, we decided to wind down our Washington, D.C. operations, which we expect to substantially complete by the end of 2019.

The following table shows, by segment: revenue, operating income and interest expense for the three and nine months ended September 30, 2019 and 2018, 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)	2019			2018			2019			2018
Revenue:
Northern homebuilding	$	270,063		$	236,803		$	723,295		$	622,325
Southern homebuilding	369,828			318,846			995,305			902,377
Financial services ^(a)	13,454			12,193			39,540			39,095
Total revenue	$	653,345		$	567,842		$	1,758,140		$	1,563,797

Operating income:
Northern homebuilding^(b)	$	29,587		$	24,179		$	70,559		$	55,377
Southern homebuilding	32,500			27,133			76,308			69,051
Financial services^(a)	6,609			5,681			19,943			21,159
Less: Corporate selling, general and administrative expense	(14,047		)	(13,131		)	(35,556		)	(32,079		)
Total operating income^(b)	$	54,649		$	43,862		$	131,254		$	113,508

Interest expense:
Northern homebuilding	$	1,505		$	1,297		$	5,360		$	5,175
Southern homebuilding	2,146			2,294			8,602			7,718
Financial services ^(a)	986			835			2,664			2,299
Total interest expense	$	4,637		$	4,426		$	16,626		$	15,192

Equity in income from joint venture arrangements	(52		)	(44		)	(118		)	(268		)
Acquisition and integration costs^(c)	—			—			—			1,700

Income before income taxes	$	50,064		$	39,480		$	114,746		$	96,884


(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 $0.1 million and $0.7 million of acquisition-related charges taken during the three months ended September 30, 2019 and 2018, respectively, and $0.6 million and $4.5 million of acquisition-related charges taken during the nine months ended September 30, 2019 and 2018, respectively, as a result of our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018.


(c)	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 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, 2019 and December 31, 2018:



	September 30, 2019
(In thousands)	Northern		Southern			Corporate, Financial Services and Unallocated			Total
Deposits on real estate under option or contract	$	3,688	$	24,703		$	—		$	28,391
Inventory ^(a)	784,533		1,014,144			—			1,798,677
Investments in joint venture arrangements	2,768		44,789			—			47,557
Other assets^(d)	32,296		58,377		^(b)	216,305		^(c)	306,978
Total assets	$	823,285	$	1,142,013		$	216,305		$	2,181,603



	December 31, 2018
(In thousands)	Northern		Southern			Corporate, Financial Services and Unallocated			Total
Deposits on real estate under option or contract	$	5,725	$	27,937		$	—		$	33,662
Inventory ^(a)	696,057		944,741			—			1,640,798
Investments in joint venture arrangements	1,562		34,308			—			35,870
Other assets	19,524		43,086		^(b)	248,641		^(c)	311,251
Total assets	$	722,868	$	1,050,072		$	248,641		$	2,021,581


(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.


(c)	Includes asset held for sale for $5.6 million.

(d)

Includes $19.1 million of operating lease right-of-use assets recorded as a result of the adoption of ASU 2016-02 on January 1, 2019. See Note 1 and Note 15 for further information.