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Note 17 - Operating and Reporting Segments
 9 Months Ended
Jul. 31, 2021
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

17.

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 or benefit 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:

 

  

Three Months Ended

  

Nine Months Ended

 
  

July 31,

  

July 31,

 

(In thousands)

 

2021

  

2020

  

2021

  

2020

 
                 

Revenues:

                

Northeast

 $35,255  $41,370  $97,488  $133,444 

Mid-Atlantic

  106,419   111,402   311,564   288,899 

Midwest

  60,659   63,003   183,895   166,120 

Southeast

  68,854   65,790   195,545   158,933 

Southwest

  213,127   214,918   620,848   549,471 

West

  186,519   110,323   498,084   313,547 

Total homebuilding

  670,833   606,806   1,907,424   1,610,414 

Financial services

  19,845   21,295   61,070   49,670 

Corporate and unallocated

  5   35   15   459 

Total revenues

 $690,683  $628,136  $1,968,509  $1,660,543 
                 

Income before income taxes:

                

Northeast

 $6,765  $5,240  $16,427  $17,703 

Mid-Atlantic

  15,907   11,024   38,618   20,548 

Midwest

  3,358   765   11,070   (3,063)

Southeast

  2,682   (253)  9,540   (4,514)

Southwest

  28,523   20,072   78,848   41,744 

West

  27,189   226   58,729   4,560 

Total homebuilding

  84,424   37,074   213,232   76,978 

Financial services

  8,607   10,802   28,117   19,993 

Corporate and unallocated (1)

  (31,232)  (31,660)  (128,933)  (84,012)

Income before income taxes

 $61,799  $16,216  $112,416  $12,959 

 

(1)

Corporate and unallocated for the three months ended July 31, 2021 included corporate general and administrative costs of $17.3 million, interest expense of $14.4 million (a component of Other interest on our Condensed Consolidated Statements of Operations), $0.3 million of loss on extinguishment of debt and $0.8 million of other income and expenses primarily related to interest income and stock compensation. Corporate and unallocated for the nine months ended July 31, 2021 included corporate general and administrative costs of $81.1 million, interest expense of $48.1 million (a component of Other interest on our Condensed Consolidated Statements of Operations), $0.3 million of loss on extinguishment of debt and $0.6 million of other income and expenses. Corporate and unallocated for the three months ended  July 31, 2020 included corporate general and administrative costs of $19.3 million, interest expense of $15.9 million (a component of Other interest on our Condensed Consolidated Statements of Operations), $(4.1) million of gain on extinguishment of debt and $0.6 million of other income and expenses primarily related to interest income and stock compensation. Corporate and unallocated for the nine months ended July 31, 2020 included corporate general and administrative costs of $54.3 million, interest expense of $44.6 million (a component of Other interest on our Condensed Consolidated Statements of Operations), $(13.3) million of gain on extinguishment of debt and $(1.6) million of other income and expenses. 

 

  

July 31,

  

October 31,

 

(In thousands)

 

2021

  

2020

 
         

Assets:

        

Northeast

 $132,020  $107,748 

Mid-Atlantic

  277,378   271,867 

Midwest

  99,851   106,774 

Southeast

  253,522   248,506 

Southwest

  446,355   357,444 

West

  240,815   278,811 

Total homebuilding

  1,449,941   1,371,150 

Financial services (1)

  180,218   140,607 

Corporate and unallocated

  681,885   315,585 

Total assets

 $2,312,044  $1,827,342 

 

(1)   Deferred tax assets for the Financial services segment are included in the Deferred tax assets, net line on the Condensed Consolidated Balance Sheets.