Segment Disclosures

3 Months Ended

Mar. 31, 2020

We disclose four homebuilding reportable segments that aggregate geographically our homebuilding operating segments, and our mortgage banking operations presented as one 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.

Assets not allocated to the operating segments are not included in either the operating segment’s corporate capital allocation charge or 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 generally 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. Overhead functions such as accounting, treasury and human resources are centrally performed and these 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.

The following tables present segment revenues, profit and assets with reconciliations to the amounts reported for the consolidated enterprise, where applicable:


	Three Months Ended March 31,
	2020		2019
Revenues:
Homebuilding Mid Atlantic	$	774,057	$	881,324
Homebuilding North East	106,136		122,627
Homebuilding Mid East	320,695		338,549
Homebuilding South East	354,818		300,706
Mortgage Banking	26,821		43,805
Total consolidated revenues	$	1,582,527	$	1,687,011


	Three Months Ended March 31,
	2020		2019
Income before taxes:
Homebuilding Mid Atlantic	$	81,673	$	99,364
Homebuilding North East	10,151		11,460
Homebuilding Mid East	31,164		35,475
Homebuilding South East	47,144		35,036
Mortgage Banking	11,879		29,558
Total segment profit before taxes	182,011		210,893
Reconciling items:
Contract land deposit reserve adjustment (1)	(35,615)		950
Equity-based compensation expense (2)	(7,492)		(19,333)
Corporate capital allocation (3)	56,650		54,559
Unallocated corporate overhead	(37,639)		(31,735)
Consolidation adjustments and other	9,654		9,247
Corporate interest expense	(6,194)		(5,974)
Reconciling items sub-total	(20,636)		7,714
Consolidated income before taxes	$	161,375	$	218,607

(1)This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable segments. See further discussion of lot deposit impairment charges in Note 2.

(2)The decrease in equity-based compensation expense for the three-month period ended March 31, 2020 was primarily attributable to the reversal of approximately $6,500 in equity based compensation related to forfeited stock options during the quarter, coupled with the stock options issued in 2014 under the 2014 Equity Incentive Plan becoming fully vested effective December 31, 2019.

(3)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 periods presented:


	Three Months Ended March 31,
	2020		2019
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	29,755	$	30,417
Homebuilding North East	5,558		4,727
Homebuilding Mid East	9,363		9,015
Homebuilding South East	11,974		10,400
Total	$	56,650	$	54,559


	March 31, 2020		December 31, 2019
Assets:
Homebuilding Mid Atlantic	$	1,118,067	$	1,024,996
Homebuilding North East	190,991		166,860
Homebuilding Mid East	325,693		293,773
Homebuilding South East	421,978		400,979
Mortgage Banking	522,530		560,407
Total segment assets	2,579,259		2,447,015
Reconciling items:
Cash and cash equivalents	1,078,598		1,110,892
Deferred taxes	117,868		115,731
Intangible assets and goodwill	49,795		49,834
Operating lease right-of-use assets	60,003		63,825
Contract land deposit reserve	(63,188)		(27,572)
Consolidation adjustments and other	65,188		50,090
Reconciling items sub-total	1,308,264		1,362,800
Consolidated assets	$	3,887,523	$	3,809,815