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Note 10 - Operating and Reporting Segments
 12 Months Ended
Oct. 31, 2022
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 resource allocations.

 

We currently have homebuilding operations in 14 states that are aggregated into reportable segments based primarily upon geographic proximity.

 

Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment. During the fourth quarter of fiscal 2022, we reevaluated our reportable segments as a result of changes in the business and our management thereof. In particular, we considered the fact that, since our segments were last established, the Company had exited the Minnesota, North Carolina and Tampa markets and is currently in the process of exiting the Chicago market. Applying the principles set forth under ASC 280, including that our business trends are reflective of economic conditions in markets with general geographic proximity, we realigned our homebuilding operating segments.

 

HEI’s reportable segments now consist of the following three homebuilding segments and a financial services segment.

 

Homebuilding:

 

(1)

Northeast (Delaware, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia)

 

(2)

Southeast (Florida, Georgia and South Carolina)

 

(3)

West (Arizona, California and Texas)

  

All prior period amounts related to the segment change have been retrospectively reclassified throughout to conform to the new presentation.

 

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 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, 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 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 corporate general and administrative expenses. 

 

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 our reportable segments are as follows:  

 

  

Year Ended October 31,

 

(In thousands)

 

2022

  

2021

  

2020

 

Revenues:

            

Northeast

 $1,085,081  $871,091  $821,456 

Southeast

  323,961   285,658   232,730 

West

  1,450,632   1,544,397   1,217,086 

Total homebuilding

  2,859,674   2,701,146   2,271,272 

Financial services

  61,540   81,692   72,162 

Corporate and unallocated

  1,017   19   467 

Total revenues

 $2,922,231  $2,782,857  $2,343,901 

Income before income taxes:

            

Northeast

 $177,406  $102,896  $63,136 

Southeast

  60,178   17,764   1,355 

West

  207,519   198,343   84,599 

Total homebuilding

  445,103   319,003   149,090 

Financial services

  19,121   37,563   32,102 

Corporate and unallocated (1)

  (144,471)  (166,705)  (125,789)

Income before income taxes

 $319,753  $189,861  $55,403 

 

(1) Corporate and unallocated for the year ended October 31, 2022 included corporate general and administrative expenses of $102.6 million, interest expense of $28.6 million (a component of Other interest in our Consolidated Statements of Operations), loss on extinguishment of debt of $6.8 million and $6.5 million of other expenses. Corporate and unallocated for the year ended October 31, 2021 included corporate general and administrative expenses of $106.7 million, interest expense of $57.1 million, loss on extinguishment of debt of $3.7 million and $0.8 million of other income. Corporate and unallocated for the year ended October 31, 2020 included corporate general and administrative expenses of $80.5 million, interest expense of $61.9 million, gain on extinguishment of debt of $13.3 million and $3.3 million of other income.

 

  

October 31,

 

(In thousands)

 

2022

  

2021

 

Assets:

        

Northeast

 $530,884  $491,507 

Southeast

  330,894   257,044 

West

  802,704   643,342 

Total homebuilding

  1,664,482   1,391,893 

Financial services

  155,993   202,758 

Corporate and unallocated

  741,555   725,857 

Total assets

 $2,562,030  $2,320,508 

 

  

October 31,

 

(In thousands)

 

2022

  

2021

 

Investments in and advances to unconsolidated joint ventures:

        

Northeast

 $20,241  $18,920 

Southeast

  52,651   40,563 

West

  174   268 

Total homebuilding

  73,066   59,751 

Corporate and unallocated

  1,874   1,146 

Total investments in and advances to unconsolidated joint ventures

 $74,940  $60,897 

 

  

Year Ended October 31,

 

(In thousands)

 

2022

  

2021

  

2020

 

Homebuilding interest expense:

            

Northeast

 $31,552  $30,212  $39,089 

Southeast

  17,403   19,490   17,005 

West

  55,056   55,029   60,120 

Total homebuilding

  104,011   104,731   116,214 

Corporate and unallocated

  28,572   57,085   61,917 

Financial services interest expense (income) (1)

  (213)  (35)  (35)

Total interest expense, net

 $132,370  $161,781  $178,096 

 

 

(1)

Financial services interest expense (income) is included in Financial services revenue or expense in the Consolidated Statements of Operations.

  

  

Year Ended October 31,

 

(In thousands)

 

2022

  

2021

  

2020

 

Depreciation:

            

Northeast

 $1,542  $1,459  $1,605 

Southeast

  291   214   327 

West

  1,298   1,811   1,500 

Total homebuilding

  3,131   3,484   3,432 

Financial services

  5   13   13 

Corporate and unallocated

  2,321   1,783   1,859 

Total depreciation

 $5,457  $5,280  $5,304 

 

  

Year Ended October 31,

 

(In thousands)

 

2022

  

2021

  

2020

 

Net additions to property and equipment:

            

Northeast

 $1,848  $1,271  $1,069 

Southeast

  229   256   102 

West

  1,841   1,174   1,622 

Total homebuilding

  3,918   2,701   2,793 

Financial services

  28   -   - 

Corporate and unallocated

  8,646   3,241   587 

Total net additions to property and equipment

 $12,592  $5,942  $3,380 

 

  

Year Ended October 31,

 

(In thousands)

 

2022

  

2021

  

2020

 

Equity in earnings from unconsolidated joint ventures:

            

Northeast

 $12,674  $2,958  $10,644 

Southeast

  16,359   2,061   820 

West

  -   3,830   5,101 

Total equity in earnings from unconsolidated joint ventures

 $29,033  $8,849  $16,565