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Note 10 - Operating and Reporting Segments
 12 Months Ended
Oct. 31, 2020
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

10. Operating and Reporting Segments

 

HEI’s operating segments are components of the Company’s business for which discrete financial information is available and reviewed regularly by the chief operating decision maker, our Chief Executive Officer, to evaluate performance and make operating decisions. Based on this criteria, each of the Company's communities qualifies as an operating segment, and therefore, it is impractical to provide segment disclosures for this many segments. As such, HEI has aggregated the homebuilding operating segments into six reportable segments.

 

HEI’s homebuilding operating segments are aggregated into reportable segments based primarily upon geographic proximity, similar regulatory environments, land acquisition characteristics and similar methods used to construct and sell homes. HEI’s reportable segments consist of the following six homebuilding segments and a financial services segment noted below.

 

Homebuilding:

 

(1)

Northeast (New Jersey and Pennsylvania)

 

(2)

Mid-Atlantic (Delaware, Maryland, Virginia, Washington D.C. and West Virginia)

 

(3)

Midwest (Illinois and Ohio)

 

(4)

Southeast (Florida, Georgia and South Carolina)

 

(5)

Southwest (Arizona and Texas)

 

(6)

West (California)

  

Financial Services

 

Operations of the Homebuilding segments primarily include the sale and construction of single-family attached and detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. In addition, from time to time, operations of the homebuilding segments include sales of land. Operations of the Financial Services segment include mortgage banking and title services provided to the homebuilding operations’ customers. Our financial services subsidiaries do not typically retain or service mortgages that we originate but rather sell the mortgages and related servicing rights to investors. 

 

Corporate and unallocated primarily represents operations at our headquarters in New Jersey. This includes our executive offices, information services, human resources, corporate accounting, training, treasury, process redesign, internal audit, construction services, and administration of insurance, quality and safety. It also includes interest income and interest expense resulting from interest incurred that cannot be capitalized in inventory in the Homebuilding segments, as well as the gains or losses on extinguishment of debt from any debt repurchases or exchanges.  

 

Evaluation of segment performance is based primarily on operating earnings from continuing operations before provision for income taxes (“Income (loss) before income taxes”). Income (loss) before income taxes for the Homebuilding segments consist of revenues generated from the sales of homes and land, income (loss) from unconsolidated entities, management fees and other income, less the cost of homes and land sold, selling, general and administrative expenses and interest expense. Income (loss) before income taxes for the Financial Services segment consist of revenues generated from mortgage financing, title insurance and closing services, less the cost of such services and selling, general and administrative expenses incurred by the Financial Services segment. 

 

Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent stand-alone entity during the periods presented.  

 

Financial information relating to HEI’s segment operations was as follows:  

 

  

Year Ended October 31,

 

(In thousands)

 

2020

  

2019

  

2018

 

Revenues:

            

Northeast

 $192,069  $124,372  $116,296 

Mid-Atlantic

  403,669   357,247   354,690 

Midwest

  225,718   204,461   196,599 

Southeast

  232,730   220,082   241,620 

Southwest

  744,197   629,344   638,282 

West

  472,889   425,516   384,627 

Total homebuilding

  2,271,272   1,961,022   1,932,114 

Financial services

  72,162   54,152   53,355 

Corporate and unallocated

  467   1,742   5,764 

Total revenues

 $2,343,901  $2,016,916  $1,991,233 

Income (loss) before income taxes:

            

Northeast

 $30,371  $20,954  $20,869 

Mid-Atlantic

  34,570   14,327   18,757 

Midwest

  (1,805)  (649)  1,528 

Southeast

  1,355   (10,060)  (9,914)

Southwest

  68,184   33,459   49,852 

West

  16,415   40,018   47,987 

Total homebuilding

  149,090   98,049   129,079 

Financial services

  32,102   17,627   18,227 

Corporate and unallocated (1)

  (125,789)  (155,344)  (139,160)

Income (loss) before income taxes

 $55,403  $(39,668) $8,146 

 

(1) Corporate and unallocated for the year ended October 31, 2020 included corporate general and administrative costs of $80.5 million, interest expense of $61.9 million (a component of Other interest on our Consolidated Statements of Operations), gain on extinguishment of debt of $13.3 million, and $3.3 million of other income and expenses, along with the adjustment to our insurance reserves. Corporate and unallocated for the year ended October 31, 2019 included corporate general and administrative costs of $66.4 million, interest expense of $55.5 million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $42.4 million, and $9.0 million of other income and expenses, along with the adjustment to our insurance reserves. Corporate and unallocated for the year ended October 31, 2018 included corporate general and administrative costs of $69.6 million, interest expense of $76.2 million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $7.5 million, $14.1 million of other income and expenses primarily related to interest income and gain on the sale of our former corporate headquarters building, along with the adjustment to our insurance reserves.  

 

  

October 31,

 

(In thousands)

 

2020

  

2019

 

Assets:

        

Northeast

 $107,748  $163,342 

Mid-Atlantic

  271,867   264,894 

Midwest

  106,774   117,242 

Southeast

  248,506   281,654 

Southwest

  357,444   357,052 

West

  278,811   311,919 

Total homebuilding

  1,371,150   1,496,103 

Financial services

  140,607   199,275 

Corporate and unallocated

  315,585   186,046 

Total assets

 $1,827,342  $1,881,424 

 

  

October 31,

 

(In thousands)

 

2020

  

2019

 

Investments in and advances to unconsolidated joint ventures:

        

Northeast

 $14,646  $49,340 

Mid-Atlantic

  11,055   9,166 

Midwest

  498   4,382 

Southeast

  66,234   52,983 

Southwest

  9,965   10,019 

West

  64   (33)

Total homebuilding

  102,462   125,857 

Corporate and unallocated

  702   1,181 

Total investments in and advances to unconsolidated joint ventures

 $103,164  $127,038 

 

  

Year Ended October 31,

 

(In thousands)

 

2020

  

2019

  

2018

 

Homebuilding interest expense:

            

Northeast

 $13,636  $10,011  $11,811 

Mid-Atlantic

  16,076   18,563   15,051 

Midwest

  9,377   7,121   5,874 

Southeast

  17,005   18,798   14,934 

Southwest

  29,898   27,731   21,820 

West

  30,222   23,051   18,309 

Total homebuilding

  116,214   105,275   87,799 

Corporate and unallocated

  61,917   55,506   76,183 

Financial services interest expense (1)

  (35)  334   104 

Total interest expense, net

 $178,096  $161,115  $164,086 

 

 

(1)

Financial services interest expenses are included in the Financial services lines on the Consolidated Statements of Operations in the respective revenues and expenses sections.

  

  

Year Ended October 31,

 

(In thousands)

 

2020

  

2019

  

2018

 

Depreciation:

            

Northeast

 $229  $188  $135 

Mid-Atlantic

  264   209   63 

Midwest

  1,112   1,097   1,106 

Southeast

  327   230   124 

Southwest

  699   331   70 

West

  801   326   45 

Total homebuilding

  3,432   2,381   1,543 

Financial services

  13   14   14 

Corporate and unallocated

  1,859   1,777   1,599 

Total depreciation

 $5,304  $4,172  $3,156 

 

  

Year Ended October 31,

 

(In thousands)

 

2020

  

2019

  

2018

 

Net additions to operating properties and equipment:

            

Northeast

 $43  $107  $142 

Mid-Atlantic

  165   168   318 

Midwest

  861   237   621 

Southeast

  102   221   701 

Southwest

  776   741   23 

West

  846   921   55 

Total homebuilding

  2,793   2,395   1,860 

Financial services

  -   -   - 

Corporate and unallocated

  587   1,610   3,333 

Total net additions to operating properties and equipment

 $3,380  $4,005  $5,193 

 

  

Year Ended October 31,

 

(In thousands)

 

2020

  

2019

  

2018

 

Equity in earnings (losses) from unconsolidated joint ventures:

            

Northeast

 $11,039  $19,242  $20,231 

Mid-Atlantic

  (292)  3,404   799 

Midwest

  (103)  (432)  (775)

Southeast

  820   1,310   (2,032)

Southwest

  5,111   7,951   5,165 

West

  (10)  (2,543)  645 

Total equity in earnings from unconsolidated joint ventures

 $16,565  $28,932  $24,033