Business Segments

12 Months Ended

Dec. 31, 2019

Segment Reporting Disclosure [Text Block]

Business Segments

The application of segment reporting requires significant judgment in determining our operating segments. Operating segments are defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Company’s chief operating decision makers to evaluate performance, make operating decisions and determine how to allocate resources. The Company’s chief operating decision makers evaluate the Company’s performance in various ways, including: (1) the results of our 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 because 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. Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating segments by centralizing key administrative functions such as accounting, finance, treasury, information technology, insurance and risk management, legal, marketing and human resources.

During 2019, we decided to wind down our Washington, D.C. operations, which was substantially complete by December 31, 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 operating segments (and our remaining Washington, D.C. operations, which was immaterial as of December 31, 2019) into our existing Southern region based on the aggregation criteria described in ASC 280. 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 Consolidated Balance Sheets, Statement of Income or Statement of Cash Flows for the periods presented.

As a result of this re-evaluation and in accordance with the aggregation criteria defined in ASC 280, we have determined our reportable segments as follows: Northern homebuilding, Southern homebuilding, and financial services operations. The homebuilding operating segments included in 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. We may, however, be required to reclassify our reportable segments if markets that currently are being aggregated do not continue to share these aggregation characteristics.

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

The following table shows, by segment, revenue, operating income and interest expense for 2019, 2018 and 2017, as well as the Company’s income before income taxes for such periods:



	Year Ended December 31,
(In thousands)	2019			2018			2017
Revenue:
Northern homebuilding	$	1,027,291		$	933,119		$	742,577
Southern homebuilding	1,417,676			1,300,967			1,169,701
Financial services ^(a)	55,323			52,196			49,693
Total revenue	$	2,500,290		$	2,286,282		$	1,961,971

Operating income:
Northern homebuilding^(b)	$	96,239		$	86,131		$	81,522
Southern homebuilding ^(c)	115,082			95,912			72,396
Financial services ^(a)	27,350			27,482			27,288
Less: Corporate selling, general and administrative expense	(51,582		)	(46,364		)	(42,547		)
Total operating income ^{(b) (c) (d)}	$	187,089		$	163,161		$	138,659

Interest expense:
Northern homebuilding	$	7,474		$	7,142		$	5,010
Southern homebuilding	10,250			10,073			11,107
Financial services ^(a)	3,651			3,269			2,757
Total interest expense	$	21,375		$	20,484		$	18,874

Equity in income from joint venture arrangements	$	(311	)	$	(312	)	$	(539	)
Acquisition and integration costs ^(e)	—			1,700			—

Income before income taxes	$	166,025		$	141,289		$	120,324

Depreciation and amortization:
Northern homebuilding	$	2,944		$	2,448		$	2,069
Southern homebuilding	4,778			4,472			4,579
Financial services	2,095			1,281			1,503
Corporate	6,133			6,330			6,023
Total depreciation and amortization	$	15,950		$	14,531		$	14,174


(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 $0.6 million and 5.1 million of acquisition-related charges taken during 2019 and 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 (as more fully discussed in Note 8 to our Consolidated Financial Statements) taken during 2017.


(d)	For the years ended December 31, 2019, 2018 and 2017, total operating income was reduced by $5.0 million, $5.8 million and $7.7 million, respectively, related to asset impairment charges taken during the period.


(e)	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 December 31, 2019 and 2018:



	December 31, 2019
(In thousands)	Northern		Southern			Corporate, Financial Services and Unallocated		Total
Deposits on real estate under option or contract	$	3,655	$	24,877		$	—	$	28,532
Inventory ^(a)	783,972		957,003			—		1,740,975
Investments in joint venture arrangements	1,672		36,213			—		37,885
Other assets ^(d)	21,564		52,662		^(b)	223,976		298,202
Total assets	$	810,863	$	1,070,755		$	223,976	$	2,105,594



	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 $18.4 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 9 to our Consolidated Financial Statements for further information.