Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2014

Summary of Significant Accounting Policies

The consolidated financial statements include the accounts of the Company and its 100 percent-owned subsidiaries. Noncontrolling interest represents the selling entities' ownership interests in land and lot option purchase contracts. (See "Variable Interest Entities" within this footnote.) Intercompany transactions have been eliminated in consolidation. Information is presented on a continuing operations basis unless otherwise noted. The results from continuing and discontinued operations are presented separately in the consolidated financial statements. (See Note N, "Discontinued Operations.") All prior period amounts have been reclassified to conform to the 2014 presentation. (See "Critical Accounting Policies" within Management's Discussion and Analysis of Financial Condition and Results of Operations.)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents totaled $521.2 million and $228.0 million at December 31, 2014 and 2013, respectively. The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less and cash held in escrow accounts to be cash equivalents.

Restricted Cash

At December 31, 2014 and 2013, the Company had restricted cash of $35.7 million and $90.0 million, respectively. The Company has various secured letter of credit agreements that require it to maintain cash deposits as collateral for outstanding letters of credit. Cash restricted under these agreements totaled $33.8 million and $89.5 million at December 31, 2014 and 2013, respectively. In addition, RMC had restricted cash related to funds held in trust for third parties that totaled $1.9 million and $487,000 at December 31, 2014 and 2013, respectively.

Marketable Securities, Available-for-sale

The Company considers its investment portfolio to be available-for-sale. Accordingly, these investments are recorded at their fair values, with unrealized gains or losses recorded in other comprehensive income. (See Note F, "Marketable Securities, Available-for-sale.")

Homebuilding Revenues

In accordance with ASC 976, homebuilding revenues are recognized when home and lot sales are closed; title and possession are transferred to the buyer; and there is no significant continuing involvement from the homebuilder. Sales incentives offset revenues and are recognized when homes are closed.

Housing Inventories

Housing inventory includes land and development costs; direct construction costs; certain capitalized indirect construction costs; capitalized interest; and real estate taxes. The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. Inventories to be held and used are stated at cost unless a community is determined to be impaired, in which case the impaired inventories are written down to their fair values.

As required by ASC 360, inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and undiscounted cash flows signify that the carrying amount of an asset is not recoverable, impairment charges must be recorded if the fair value of the asset is less than its carrying amount. The Company reviews all communities on a quarterly basis for changes in events or circumstances indicating signs of impairment. Examples of events or changes in circumstances include, but are not limited to, price declines resulting from sustained competitive pressures; a change in the manner in which the asset is being used; a change in assessments by a regulator or municipality; cost increases; the expectation that, more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life; or the impact of local economic or macroeconomic conditions, such as employment or housing supply, on the market for a given product. Signs of impairment may include, but are not limited to, very low or negative profit margins, the absence of sales activity in an open community and/or significant price differences for comparable parcels of land held-for-sale.

If it is determined that indicators of impairment exist in a community, undiscounted cash flows are prepared and analyzed at a community level based on expected pricing; sales absorption rates; construction costs; local municipality fees; warranty, closing, carrying, selling, overhead and other related costs; or on market studies that are performed for comparable parcels of land held-for-sale to determine if the realizable values of the assets held are less than their respective carrying amounts. In order to determine assumed sales prices included in cash flow models, the Company analyzes historical sales prices on homes delivered in the community and in other communities located within the same geographic area, as well as sales prices included in its current backlog for such communities. In addition, it analyzes market studies and trends, which generally include statistics on sales prices of similar products in neighboring communities and sales prices of similar products in non-neighboring communities located within the same geographic area. In order to estimate the costs of building and delivering homes, the Company generally assumes cost structures reflecting contracts currently in place with vendors, adjusted for any anticipated cost-reduction initiatives or increases. The Company's analysis of each community generally assumes current pricing equal to current sales orders for a particular or comparable community. For a minority of communities that the Company does not intend to operate for an extended period of time or where the operating life extends several years, slight increases over current sales prices may be assumed in later years. Once a community is considered to be impaired, the Company's determinations of fair value and new cost basis are primarily based on discounting estimated cash flows at rates commensurate with inherent risks associated with the continuing assets. Due to the fact that estimates and assumptions included in cash flow models are based on historical results and projected trends, unexpected changes in market conditions that may lead to additional impairment charges in the future cannot be anticipated.

Valuation adjustments are recorded against homes completed, homes under construction, land under development or improved lots. Write-downs of impaired inventories to their fair values are recorded as adjustments to the cost basis of the respective inventory. At December 31, 2014 and 2013, valuation reserves related to impaired inventories totaled $122.0 million and $154.8 million, respectively. The net carrying values of the related inventories totaled $137.7 million and $155.9 million at December 31, 2014 and 2013, respectively. The Company periodically writes off earnest money deposits and preacquisition feasibility costs related to land and lot option purchase contracts that it no longer plans to pursue. The Company wrote off $2.5 million, $1.9 million, and $996,000 in preacquisition feasibility costs during the years ended 2014, 2013 and 2012, respectively. Additionally, the Company wrote off $3.2 million of earnest money deposits and $1.9 million of inventory valuation adjustments during 2012. Should homebuilding market conditions weaken or the Company be unsuccessful in renegotiating certain land option purchase contracts, it may write off additional earnest money deposits and preacquisition feasibility costs in future periods.

Interest and taxes are capitalized during active development and construction stages. Capitalized interest is amortized and included in land costs within cost of sales when the related inventory is delivered to homebuyers. The following table summarizes the activity that relates to capitalized interest:

(in thousands)		2014			2013			2012

Capitalized interest at January 1	$	89,619		$	82,773		$	81,058
Interest capitalized		68,788			59,208			42,327
Interest amortized to cost of sales		(50,597	)		(52,362	)		(40,612	)

Capitalized interest at December 31	$	107,810		$	89,619		$	82,773

Interest incurred	$	69,802		$	68,184		$	59,503

The following table summarizes each reporting segment's total number of lots owned and lots controlled under option agreements (unaudited):

	DECEMBER 31, 2014				DECEMBER 31, 2013
		LOTS OWNED	LOTS OPTIONED	TOTAL		LOTS OWNED	LOTS OPTIONED	TOTAL

North		7,396	6,335	13,731		6,382	7,455	13,837
Southeast		8,646	3,535	12,181		8,114	2,439	10,553
Texas		3,938	3,083	7,021		3,886	3,147	7,033
West		5,323	717	6,040		5,158	1,561	6,719

Total		25,303	13,670	38,973		23,540	14,602	38,142

Additionally, at December 31, 2014 and 2013, the Company controlled five lots associated with discontinued operations, all of which were owned.

Goodwill

The Company records goodwill associated with its business acquisitions when the consideration paid exceeds the fair value of the net tangible and identifiable intangible assets acquired. Goodwill was included in "Other" assets within the Consolidated Balance Sheets.

The following table provides the Company's goodwill balance by segment at December 31, 2014 and 2013:

(in thousands)		2014		2013

North	$	13,555	$	13,749
Southeast		8,125		8,125
Texas		6,550		6,550
West		8,661		8,661

Total	$	36,891	$	37,085

ASC No. 350 ("ASC 350"), "Intangibles—Goodwill and Other," requires that goodwill and certain intangible assets be reviewed for impairment at least annually. The Company performs impairment tests of its goodwill annually as of November 30, or whenever significant events or changes occur that indicate impairment of goodwill may exist. ASC 350 allows an entity to qualitatively assess whether it is necessary to perform step one of the prescribed two-step goodwill impairment test. In testing for a potential impairment of goodwill, the Company qualitatively evaluates, based on the weight of available evidence, the significance of all identified events and circumstances in their totality, including both positive and negative events, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Examples of events or changes in circumstances that may indicate that an asset is impaired include, but are not limited to, price declines resulting from sustained competitive pressures; a change in the manner in which the asset is being used; a change in assessments by a regulator or municipality; cost increases; the expectation that, more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life; or the impact of local economic or macroeconomic conditions, such as employment or housing supply, on the market for a given product. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the two-step goodwill impairment test is not required. The Company performed a qualitative assessment of its goodwill at November 30, 2014 and 2013, and determined that the two-step process was not necessary. The Company recorded no goodwill impairments during the years ended December 31, 2014, 2013 and 2012.

Variable Interest Entities ("VIE")

As required by ASC No. 810 ("ASC 810"), "Consolidation of Variable Interest Entities," a VIE is to be consolidated by a company if that company has a controlling financial interest in the VIE, defined as both the power to direct the VIE's activities that most significantly impact the VIE's economic performance, as well as the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. ASC 810 also requires disclosures about VIEs that a company is not obligated to consolidate, but in which it has a significant, though not primary, variable interest.

The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots. Its investment in these joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement. At December 31, 2014 and 2013, all of the Company's joint ventures were unconsolidated and accounted for under the equity method as the Company did not have a financial controlling interest in the joint ventures. (See "Investments in Joint Ventures" within this footnote.) Additionally, in the ordinary course of business, the Company enters into lot option purchase contracts in order to procure land for the construction of homes. Under such lot option purchase contracts, the Company funds stated deposits in consideration for the right to purchase lots at a future point in time at predetermined prices. The Company's liability is generally limited to forfeiture of nonrefundable deposits, letters of credit and other nonrefundable amounts incurred. In accordance with the requirements of ASC 810, certain of the Company's lot option purchase contracts may result in the creation of a variable interest in a VIE.

In compliance with the provisions of ASC 810, the Company consolidated $30.8 million and $33.2 million of inventory not owned related to land and lot option purchase contracts at December 31, 2014 and 2013, respectively. Although the Company may not have had legal title to the optioned land, under ASC 810 it had the primary variable interest and was required to consolidate the particular VIE's assets under option at fair value. To reflect the fair value of the inventory consolidated under ASC 810, the Company included $16.4 million and $17.3 million of its related cash deposits for lot option purchase contracts at December 31, 2014 and 2013, respectively, in "Consolidated inventory not owned" within the Consolidated Balance Sheets. Noncontrolling interest totaled $14.4 million and $15.9 million with respect to the consolidation of these contracts at December 31, 2014 and 2013, respectively, representing the selling entities' ownership interests in the VIE. Additionally, the Company had cash deposits and/or letters of credit totaling $25.0 million and $36.6 million at December 31, 2014 and 2013, respectively, that were associated with lot option purchase contracts having aggregate purchase prices of $368.7 million and $482.8 million, respectively. As the Company did not have the primary variable interest in these contracts, it was not required to consolidate them.

Investments in Joint Ventures

The Company enters into joint ventures, from time to time, for the purpose of acquisition and co-development of land parcels and lots, which are then sold to the Company, its joint venture partners or others at market prices. It participates in a number of joint ventures in which it has less than a controlling interest. As of December 31, 2014, the Company participated in six active homebuilding joint ventures in the Austin, Chicago, Denver, San Antonio and Washington, D.C., markets. The Company recognizes its share of the respective joint ventures' earnings or losses from the sale of lots to other homebuilders. It does not, however, recognize earnings from lots that it purchases from the joint ventures. Instead, the Company reduces its cost basis in each lot by its share of the earnings from the lot.

The following table summarizes each reporting segment's total estimated share of lots owned by the Company under its joint ventures (unaudited) at December 31, 2014 and 2013:

	2014	2013

North	155	150
Texas	242	252
West	226	226

Total	623	628

At December 31, 2014 and 2013, the Company's investments in its unconsolidated joint ventures totaled $12.6 million and $13.6 million, respectively, which included $837,000 and $987,000, respectively, of homebuilding interest capitalized to investments in unconsolidated joint ventures. Its investments in unconsolidated joint ventures were included in "Other" assets within the Consolidated Balance Sheets. The Company's equity in earnings from its unconsolidated joint ventures totaled $1.4 million for the year ended December 31, 2014, and $1.2 million for the years ended December 31, 2013 and 2012 and were included in "Cost of sales" within the Consolidated Statement of Earnings.

Property, Plant and Equipment

Property, plant and equipment totaled $30.6 million and $25.4 million at December 31, 2014 and 2013, respectively. These amounts are carried at cost less accumulated depreciation and amortization. Depreciation is provided for, principally, by the straight-line method over the estimated useful lives of the assets. Property, plant and equipment included model home furnishings of $28.8 million and $24.1 million at December 31, 2014 and 2013, respectively, which is net of accumulated depreciation of $44.3 million and $37.8 million at December 31, 2014 and 2013, respectively. Model home furnishings are amortized over the life of the community as homes are closed. Amortization expense was included in "Selling, general and administrative" expense within the Consolidated Statements of Earnings.

Warranty Reserves

Warranty reserves are estimated and accrued at the time a home closes and are updated as experience requires. The Company provides product warranties covering workmanship and materials for one year, certain mechanical systems for two years and structural systems for ten years. It estimates and records warranty liabilities based upon historical experience and known risks at the time a home closes as a component of cost of sales, as well as upon identification and quantification of its obligations in cases of unexpected claims. Actual future warranty costs could differ from current estimates. (See Note L, "Commitments and Contingencies.")

Legal Reserves

The Company is party to various legal proceedings generally incidental to its businesses. Litigation reserves have been established based on discussions with counsel and on the Company's analysis of historical claims. The Company has, and requires its subcontractors to have, general liability insurance to protect it against a portion of its risk of loss and to cover it against construction-related claims. The Company establishes reserves to cover its self-insured retentions and deductible amounts under those policies. Key assumptions used in these estimates include claim frequencies, severities and settlement patterns, which can occur over an extended period of time. Due to the degree of judgment required and the potential for variability in these underlying assumptions, the Company's actual future costs could differ from those estimated. (See Note L, "Commitments and Contingencies.")

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising costs totaled $6.0 million, $5.4 million and $4.6 million in 2014, 2013 and 2012, respectively, and were included in "Selling, general and administrative" expense within the Consolidated Statements of Earnings.

Loan Origination Fees, Mortgage Discount Points and Loan Sales

Mortgage loans are recorded at fair value at the time of origination in accordance with ASC No. 825 ("ASC 825"), "Financial Instruments," and are classified as held-for-sale. Fair value measurements of mortgage loans held-for-sale improve the consistency of loan valuation between the date of borrower lock and the date of close. Loan origination fees, net of mortgage discount points, are recognized in current earnings upon origination of the related mortgage loan. Sales of mortgages and the related servicing rights are accounted for in accordance with ASC No. 860 ("ASC 860"), "Transfers and Servicing." Generally, in order for a transfer of financial assets to be recognized as a sale, ASC 860 requires that control of the loans be passed to the investor and that consideration other than beneficial interests be received in return. Interest income is earned from the date a mortgage loan is originated until the loan is sold.

Derivative Instruments

In the normal course of business and pursuant to its risk-management policy, the Company enters, as an end user, into derivative instruments, including forward-delivery contracts for loans; options on forward-delivery contracts; and options on futures contracts, to minimize the impact of movement in market interest rates on IRLCs. Major factors influencing the use of various hedging contracts include general market conditions, interest rates, types of mortgages originated and the percentage of IRLCs expected to fund. The market risk assumed while holding the hedging contracts generally mitigates the market risk associated with IRLCs. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to certain hedging contracts. Credit risk is limited to those instances where the Company is in a net unrealized gain position. It manages this credit risk by entering into agreements with counterparties meeting its credit standards and by monitoring position limits. The Company elected not to use hedge accounting treatment with respect to its economic hedging activities. Accordingly, all derivative instruments used as economic hedges were carried at their fair value in "Other" assets or "Accrued and other liabilities" within the Consolidated Balance Sheets, with changes in values recorded in current earnings. The Company's mortgage pipeline includes IRLCs, which represent commitments that have been extended by the Company to those borrowers who have applied for loan funding and have met certain defined credit and underwriting criteria. (See Note E, "Derivative Instruments.")

Other Income

Other income primarily consists of cancellation income from forfeited sales contract deposits, insurance-related income, interest income and various other types of ancillary income. The Company's other income totaled $2.4 million, $1.7 million and $1.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Income Taxes

The Company files a consolidated federal income tax return. Certain items of income and expense are included in one period for financial reporting purposes and in another for income tax purposes. Deferred income taxes are provided in recognition of these differences. Deferred tax assets and liabilities are determined based on enacted tax rates and are subsequently adjusted for changes in these rates. A valuation allowance against the Company's deferred tax assets may be established if it is more likely than not that all or some portion of the deferred tax assets will not be realized. A change in deferred tax assets or liabilities results in a charge or credit to deferred tax expense. (See "Critical Accounting Policies" within Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note I, "Income Taxes.")

Per Share Data

The Company computes earnings per share in accordance with ASC No. 260 ("ASC 260"), "Earnings per Share," which requires the presentation of both basic and diluted earnings per common share to be calculated using the two-class method. Basic net earnings per common share is computed by dividing net earnings by the weighted-average number of common shares outstanding. The Company's nonvested outstanding shares of restricted stock with non-forfeitable dividends are classified as participating securities in accordance with ASC 260. As such, earnings or loss for the reporting period are allocated between common shareholders and these participating restricted stockholders, based upon their respective participating rights in dividends and undistributed earnings. For purposes of determining diluted earnings per common share, basic earnings per common share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options and warrants using the treasury stock method and convertible debt using the if-converted method. (See Note D, "Earnings Per Share Reconciliation.")

Stock-Based Compensation

In accordance with the terms of its shareholder-approved equity incentive plans, the Company issues various types of stock awards that include, but are not limited to, grants of stock options and restricted stock units to its employees. The Company records expense associated with these grants in accordance with the provisions of ASC 718, which requires that stock-based payments to employees be recognized, based on their estimated fair values, in the Consolidated Statements of Earnings as compensation expense over the vesting period of the awards.

Additionally, the Company grants stock awards to the non-employee members of its Board of Directors pursuant to its shareholder-approved director stock plan. Stock-based compensation is recognized over the service period for such awards. (See "Critical Accounting Policies" within Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note K, "Stock-Based Compensation.")

New Accounting Pronouncements

ASU 2014-08

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08 ("ASU 2014-08"), "Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The amendments in ASU 2014-08 are intended to change the criteria for reporting discontinued operations and enhance convergence between U.S. GAAP and International Financial Reporting Standards. Under the new guidance, only disposals representing a strategic shift in operations that has a major effect on the organization's operations and financial results should be presented as a discontinued operation. Additionally, expanded disclosures about discontinued operations are required, as well as disclosure of the pretax income attributable to the disposal of a significant part of an organization that does not qualify as a discontinued operation. A public entity is required to apply the amendments prospectively for annual reporting periods beginning after December 15, 2014, and for interim periods within those annual periods. Early adoption is permitted, but only for disposals (or classifications as held-for-sale) that have not been reported in financial statements previously issued or available for issuance. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

ASU 2014-09

In May 2014, the FASB issued ASU No. 2014-09 ("ASU 2014-09"), "Revenue from Contracts with Customers (Topic 606)." The amendments in ASU 2014-09 provide guidance on revenue recognition and supersede the revenue recognition requirements in Topic 605, "Revenue Recognition," most industry-specific guidance and some cost guidance included in Subtopic 605-35, "Revenue Recognition—Construction-Type and Production-Type Contracts." The core principle of ASU 2014-09 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than is currently required. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to be included in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company for interim and annual reporting periods beginning after December 15, 2016. At that time, the Company may adopt the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. The Company is currently evaluating the method of adoption of this guidance and does not anticipate that it will have a material impact on its consolidated financial statements.