2.	Recently Issued Accounting Standards

Adoption of New Accounting Standards

Accounting Standards Update (“ASU”)

2018

02,

Income Statement – Reporting Comprehensive Income (Topic

220

)

(“ASU

2018

02”

). ASU

2018

allows for a reclassification from accumulated other comprehensive income to retained earnings for certain tax effects resulting from the Tax Cuts and Jobs Act that was signed into law in

December

2017

(the “Act”). ASU

2018

is effective for our interim and annual reporting periods beginning

January 1, 2018,

and is to be applied either (a) at the beginning of the period of adoption or (b) retrospectively to each period in which the income tax effects of the Act related to items remaining in accumulated other comprehensive income are recognized. On

January 1, 2018,

we adopted ASU

2018

by recognizing an adjustment to the opening balance of retained earnings for certain tax effects related to net unrealized gains on equity investments. The comparative information has

not

been restated and continues to be reported under the accounting standards in effect for the period. Please see the table below for a summary of all transition adjustments from adoption of new accounting guidance

ASU

2016

18,

Statement of Cash Flows (Topic

230

): Restricted Cash

consensus of the FASB Emerging Issues Task Force

(“ASU

2016

18”

). ASU

2016

amends ASC

830,

Statement of Cash Flows

and requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. In certain states, we are restricted from using deposits received from our customers who enter into home sale contracts for general purposes unless we take measures to release state imposed restrictions on such deposits received from homebuyers, which

may

include posting blanket surety bonds. As a result, cash deposits with such restrictions are classified as restricted cash. On

January 1, 2018,

we adopted ASU

2016

using the retrospective transition method. The comparative information in our statement of cash flows has been restated and the impact from adoption of this guidance was

not

material to our statement of cash flows.

ASU

2016

15,

Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)

(“ASU

2016

15”

). ASU

2016

amends ASC

830,

Statement of Cash Flows

and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. On

January 1, 2018,

we adopted ASU

2016

15 using

the retrospective transition method. There were

items in our comparative statement of cash flows that required restatement as a result of the adoption of ASU

2016

and the impact from adoption of this guidance was

not

material to our statement of cash flows.

ASU

2016

01,

Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities

(“ASU

2016

01”

). On

January 1, 2018,

we adopted ASU

2016

using a modified retrospective transition method. Prior to this amendment, our equity investments with readily determinable fair values were classified as available for sale with changes in fair value being reported through other comprehensive income. Under the amended standard, any changes in fair value of equity investments with readily determinable fair values are now recognized in net income. We adopted the changes from ASU

2016

by recognizing an adjustment to beginning retained earnings for our net unrealized gains/losses on equity investments with readily determinable fair values. The comparative information has

not

three

months ended

March 31, 2018

was a reduction to income before income taxes of approximately

$1.4

million.

ASU

2014

09,

Revenue from Contracts with Customers

(“ASU

2014

09”

). In

May 2014,

ASU

2014

was issued which created ASC Topic

606,

Revenue from Contracts with Customers

(“ASC

606”

) and is a comprehensive new revenue recognition model. In addition, ASU

2014

amended ASC

340,

Other Assets and Deferred Costs,

by adding ASC

340

40,

Other Assets and Deferred Costs – Contracts with Customers

(“ASC

340

40”

). On

January 1, 2018,

we adopted ASC

606

and ASC

340

using the modified retrospective transition method applied to contracts that were

not

completed as of

January 1, 2018.

We recognized the cumulative effect of initially applying ASC

606

and ASC

340

as an adjustment to the opening balance of retained earnings. The comparative information has

not

606

and ASC

340

40,

there was

not

a material impact to our consolidated balance sheets or consolidated statements of operations and comprehensive income. Furthermore, there were

significant changes to our internal controls, processes, or systems as a result of adoption of this new guidance.

The cumulative effect of the changes made to our consolidated

January 1, 2018

balance sheet for the adoption of ASU

2018

02,

ASU

2016

and ASU

2014

was as follows:

	Balance at December 31, 2017		Adjustments due to ASU 2018-02			Adjustments due to ASU 2016-01			Adjustments due to ASU 2014-09			Balance at January 1, 2018
Balance Sheet
	(Dollars in thousands)
Assets:
Homebuilding:
Housing completed or under construction	$	936,685	$	-		$	-		$	7,406		$	944,091
Property and equipment, net		26,439		-			-			25,270			51,709
Prepaid and other assets		75,666		-			-			(34,227	)		41,439
Deferred tax asset, net		41,480		-			-			(573	)		40,907

Financial Services:
Other assets		9,617		-			-			3,898			13,515

Stockholders' Equity:
Retained earnings		258,164		(860	)		4,852			1,774			263,930
Accumulated other comprehensive income		3,992		860			(4,852	)		-			-

As substantially all of our contracts are completed within a year, we will

not

disclose the value of unsatisfied performance obligations. At

January 1, 2018

and

March 31, 2018,

receivables from contracts with customers were

$32.6

million and

$32.8

million, respectively.

As a result of our adoption of ASU

2014

09,

our significant accounting policies have been updated as follows:

Revenue Recognition for Homebuilding Segments.

We recognize home sale revenues from home deliveries when we have satisfied the performance obligations within the sales agreement, which is generally when title to and possession of the home are transferred to the buyer at the home closing date. Revenue from a home delivery includes the base sales price and any purchased options and upgrades and is reduced for any sales price incentives.

We generally do

not

record the sale of a home or recognize the associated revenue if all of the following criteria are present: (

) HomeAmerican originates the mortgage loan and has

not

sold the mortgage loan, or loans, as of the end of the pertinent reporting period; and (

) the homebuyer does

not

meet certain collectability thresholds, based on the type of mortgage loan, related to their credit score, debt to income ratio and loan to value ratio. The deferral is subsequently recognized at the time HomeAmerican sells the respective loan to a

third

-party purchaser. In the event the gross margin is a loss, we recognize such loss at the time the home is closed.

In certain states that we build, we are

not

always able to complete certain outdoor features (such as landscaping or pools) prior to closing the home. To the extent these separate deliverables are

not

complete upon the closing of a home, we will defer home sale revenues related to incomplete outdoor features, and recognize revenue upon completion of the outdoor features.

Home Cost of Sales

. Home cost of sales includes the specific construction costs of each home and all applicable land acquisition, land development and related costs, warranty costs and finance and closing costs, including closing cost incentives. We use the specific identification method for the purpose of accumulating home construction costs and allocate costs to each lot within a subdivision associated with land acquisition and land development based upon relative fair value of the lots prior to home construction. Lots within a subdivision typically have comparable fair values, and, as such, we generally allocate costs equally to each lot within a subdivision. We record all home cost of sales when a home is closed and performance obligations have been completed on a house-by-house basis.

When a home is closed, we

may

not

have paid for all costs necessary to complete the construction of the home. This includes (

) construction that has been completed on a house but has

not

yet been billed or (

) work still to be performed on a home (such as limited punch-list items or certain outdoor features). For each of these items, we create an estimate of the total expected costs to be incurred and, with the exclusion of outdoor features, the estimated total costs for those items, less any amounts paid to date, are included in home cost of sales. Actual results could differ from such estimates. For incomplete outdoor features, we will defer the revenue and any cost of sales on this separate stand-alone deliverable until complete.

Costs Related to Sales Facilities.

Certain marketing costs related to model homes or on-site sales facilities are either recorded as inventory, capitalized as property and equipment, or expensed as incurred. Costs related to interior and exterior upgrades to the home that will be sold as part of the home, such as wall treatments and additional upgraded landscaping, are recorded as inventory costs attributable to homes completed or under construction. Costs to furnish and ready the model home or on-site sales facility that will

not

be sold as part of the model home, such as furniture, construction of the sales facility parking lot or construction of the sales center, are capitalized as property and equipment, net. Other costs incurred related to the marketing of the community and readying the model home for sale are expensed as incurred.

Property and Equipment, net.

Property and equipment is carried at cost less accumulated depreciation. For property and equipment related to on-site sales facilities, depreciation is recorded using a units of production method as homes are delivered. For all other property and equipment, depreciation is recorded using a straight-line method over the estimated useful lives of the related assets, which range from

years.

Accounting Standards Issued But

Not

Yet Adopted

February 2016,

the FASB issued ASU

2016

02,

Leases

(“ASU

2016

02”

), which requires a lessee to recognize a right-of-use asset and a corresponding lease liability for virtually all leases. The liability will be equal to the present value of the remaining lease payments while the right-of-use asset will be based on the liability, subject to adjustment, such as for initial direct costs. In addition, ASU

2016

expands the disclosure requirements for lessees. Upon adoption, we will be required to record a lease asset and lease liability related to our operating leases. ASU

2016

is effective for our interim and annual reporting periods beginning

January 1, 2019

and is to be applied using a modified retrospective transition method. Early adoption is permitted. We do

not

plan to early adopt the guidance and we are currently evaluating the impact the update will have on our consolidated financial statements and related disclosures.

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments—Credit Losses (Topic

326

Measurement of Credit Losses on Financial Instruments

(“ASU

2016

13”

), which requires measurement and recognition of expected credit losses for financial assets held. The amendments in ASU

2016

eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. ASU

2016

is effective for our interim and annual reporting periods beginning

January 1, 2021,

and is to be applied using a modified retrospective transition method. Earlier adoption is permitted. We do

not

plan to early adopt ASU

2016

and with our current holdings of financial instruments that are subject to credit losses, we do

not

believe adoption of this guidance will be material to our financial statements.