Segment Information, Nature of Operations, and Certain Concentrations

12 Months Ended

Dec. 31, 2019

Segment Information, Nature of Operations, and Certain Concentrations

Our homebuilding operations primarily construct and sell single-family detached homes, townhomes and condominium buildings under three trade names: Ryan Homes, NVHomes and Heartland Homes. The Ryan Homes product is marketed primarily to first-time and first-time move-up buyers. Ryan Homes operates in thirty-two metropolitan areas located in Maryland, Virginia, Washington, D.C., West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Florida, Ohio, New Jersey, Delaware, Indiana, Illinois and Tennessee. The NVHomes and Heartland Homes products are marketed primarily to move-up and luxury buyers. NVHomes operates in Delaware and the Washington, D.C., Baltimore, MD and Philadelphia, PA metropolitan areas. Heartland Homes operates in the Pittsburgh, PA metropolitan area. We derived approximately 27% and 11% of our 2019 homebuilding revenues from the Washington, D.C. and Baltimore, MD metropolitan areas, respectively.

Our mortgage banking segment is a regional mortgage banking operation. Substantially all of the mortgage banking segment’s loan closing activity is for our homebuilding customers. Our mortgage banking business generates revenues primarily from origination fees, gains on sales of loans, and title fees. A substantial portion of our mortgage operations is conducted in the Washington, D.C. and Baltimore, MD metropolitan areas.

The following disclosure includes four homebuilding reportable segments that aggregate geographically our homebuilding operating segments, and the mortgage banking operations presented as a single reportable segment. The homebuilding reportable segments are comprised of operating divisions in the following geographic areas:



Mid Atlantic:		Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East:		New Jersey and Eastern Pennsylvania
Mid East:		New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East:		North Carolina, South Carolina, Florida and Tennessee

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge. The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering our cost of capital. In addition, certain assets including goodwill and intangible assets, and consolidation adjustments as discussed further below, are not allocated to the operating segments as those assets are neither included in the operating segment’s corporate capital allocation charge, nor in the CODM’s evaluation of the operating segment’s performance. We record charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the termination of a Lot Purchase Agreement with the developer, or the restructuring of a Lot Purchase Agreement resulting in the

forfeiture of the deposit. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a corporate capital allocation charge.

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. Our overhead functions, such as accounting, treasury and human resources are centrally performed and the costs are not allocated to our operating segments. Consolidation adjustments consist of such items necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to our operating segments. External corporate interest expense primarily consists of interest charges on our 3.95% Senior Notes due 2022 (the “Senior Notes”) and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

Following are tables presenting segment revenues, profit before taxes, assets, interest income, interest expense, depreciation and amortization and expenditures for property and equipment, with reconciliations to the amounts reported for the consolidated enterprise, where applicable:



	Year Ended December 31,
	2019		2018		2017
Revenues:
Homebuilding Mid Atlantic	$	3,901,573	$	3,893,358	$	3,543,687
Homebuilding North East	514,804		580,726		517,141
Homebuilding Mid East	1,501,139		1,455,834		1,250,165
Homebuilding South East	1,303,328		1,074,386		864,528
Mortgage Banking	167,820		159,370		130,319
Consolidated revenues	$	7,388,664	$	7,163,674	$	6,305,840



	Year Ended December 31,
	2019			2018			2017
Profit before taxes:
Homebuilding Mid Atlantic	$	478,537		$	462,178		$	398,494
Homebuilding North East	51,728			69,789			60,218
Homebuilding Mid East	173,374			175,134			149,639
Homebuilding South East	155,144			118,296			95,826
Mortgage Banking	105,292			93,462			73,959
Total segment profit	964,075			918,859			778,136
Reconciling items:
Equity-based compensation expense (1)	(78,532		)	(75,701		)	(44,562		)
Corporate capital allocation (2)	224,468			213,903			198,384
Unallocated corporate overhead	(105,125		)	(89,973		)	(89,514		)
Consolidation adjustments and other	45,130			16,612			27,450
Corporate interest expense	(24,221		)	(23,968		)	(22,983		)
Reconciling items sub-total	61,720			40,873			68,775
Consolidated profit before taxes	$	1,025,795		$	959,732		$	846,911


(1)	The increase in equity-based compensation expense for the year ended December 31, 2018 was primarily attributable to the issuance of Options and RSUs in the second quarter of 2018. See Note 12 for additional discussion of equity-based compensation.


(2)	This item represents the elimination of the corporate capital allocation charge included in the respective homebuilding reportable segments. The corporate capital allocation charge is based on the segment’s monthly average asset balance, and was as follows for the years presented:



	Year Ended December 31,
	2019		2018		2017
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	123,130	$	123,855	$	123,028
Homebuilding North East	19,755		17,893		16,115
Homebuilding Mid East	37,263		35,803		29,663
Homebuilding South East	44,320		36,352		29,578
Total corporate capital allocation charge	$	224,468	$	213,903	$	198,384



	As of December 31,
	2019			2018
Assets:
Homebuilding Mid Atlantic	$	1,024,996		$	1,018,953
Homebuilding North East	166,860			144,412
Homebuilding Mid East	293,773			290,815
Homebuilding South East	400,979			332,468
Mortgage Banking	560,407			517,075
Total segment assets	2,447,015			2,303,723
Reconciling items:
Cash and cash equivalents	1,110,892			688,783
Deferred taxes	115,731			112,333
Intangible assets and goodwill	49,834			49,989
Operating lease right-of-use assets	63,825			—
Contract land deposit reserve	(27,572		)	(29,216		)
Consolidation adjustments and other	50,090			40,321
Reconciling items sub-total	1,362,800			862,210
Consolidated assets	$	3,809,815		$	3,165,933



	Year Ended December 31,
	2019		2018		2017
Interest income:
Mortgage Banking	$	12,142	$	11,593	$	7,850
Total segment interest income	12,142		11,593		7,850
Other unallocated interest income	20,635		8,588		4,554
Consolidated interest income	$	32,777	$	20,181	$	12,404



	Year Ended December 31,
	2019			2018			2017
Interest expense:
Homebuilding Mid Atlantic	$	123,178		$	123,908		$	123,075
Homebuilding North East	19,804			17,897			16,117
Homebuilding Mid East	37,266			35,804			29,663
Homebuilding South East	44,334			36,362			29,583
Mortgage Banking	1,045			1,045			1,148
Total segment interest expense	225,627			215,016			199,586
Corporate capital allocation (2)	(224,468		)	(213,903		)	(198,384		)
Senior Notes and other interest	24,221			23,968			22,983
Consolidated interest expense	$	25,380		$	25,081		$	24,185



	Year Ended December 31,
	2019		2018		2017
Depreciation and amortization:
Homebuilding Mid Atlantic	$	7,069	$	7,753	$	8,095
Homebuilding North East	1,411		1,600		2,034
Homebuilding Mid East	4,348		3,481		3,590
Homebuilding South East	3,086		2,523		2,531
Mortgage Banking	1,581		1,489		1,297
Total segment depreciation and amortization	17,495		16,846		17,547
Unallocated corporate	3,323		3,322		5,120
Consolidated depreciation and amortization	$	20,818	$	20,168	$	22,667



	Year Ended December 31,
	2019		2018		2017
Expenditures for property and equipment:
Homebuilding Mid Atlantic	$	9,218	$	6,657	$	9,257
Homebuilding North East	2,000		1,074		1,299
Homebuilding Mid East	5,221		4,302		3,117
Homebuilding South East	3,944		2,732		3,313
Mortgage Banking	899		1,677		2,723
Total segment expenditures for property and equipment	21,282		16,442		19,709
Unallocated corporate	1,417		3,223		560
Consolidated expenditures for property and equipment	$	22,699	$	19,665	$	20,269