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Segment Information, Nature of Operations, and Certain Concentrations | 12 Months Ended
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Dec. 31, 2012
Segment Information, Nature of Operations, and Certain Concentrations |
2. | Segment Information, Nature of Operations, and Certain Concentrations
NVR’s homebuilding operations primarily construct and sell single-family detached homes, townhomes and condominium buildings under four trade names: Ryan Homes, NVHomes, Fox Ridge Homes and, as of January 1, 2013, Heartland Homes. The Ryan Homes and Fox Ridge Homes products are marketed primarily to first-time and first-time move-up buyers. Ryan Homes operates in twenty-seven 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, Kentucky and Tennessee. The Fox Ridge Homes product is sold solely in the Nashville, TN metropolitan area. The NVHomes and Heartland Homes products are marketed primarily to move-up and up-scale buyers. The NVHomes product is sold in Delaware and the Washington, D.C., Baltimore, MD and Philadelphia, PA metropolitan areas. The Heartland Homes product is sold in the Pittsburgh, PA metropolitan area. NVR derived approximately 47% of its 2012 homebuilding revenues in the Washington, D.C. and Baltimore, MD metropolitan areas. NVR’s mortgage banking segment is a regional mortgage banking operation. Substantially all of the mortgage banking segment’s loan closing activity is for NVR’s homebuilding customers. NVR’s mortgage banking business generates revenues primarily from origination fees, gains on sales of loans, and title fees. A substantial portion of the Company’s 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 the Company’s 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: Homebuilding Mid Atlantic—Virginia, West Virginia, Maryland, Delaware and Washington, D.C. Homebuilding North East—New Jersey and eastern Pennsylvania Homebuilding Mid East—Kentucky, New York, Ohio, western Pennsylvania, Indiana and Illinois Homebuilding 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 eliminates in consolidation, is based on the segment’s average net assets employed, and is charged using a consistent methodology in the years presented. 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 the Company’s 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 not included in the operating segment’s corporate capital allocation charge, nor in the CODM’s evaluation of the operating segment’s performance. The Company records 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 determination to terminate a finished lot purchase agreement with the developer, or to restructure 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 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. NVR’s overhead functions, such as accounting, treasury, human resources, etc., are centrally performed and the costs are not allocated to the Company’s 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 the Company’s operating segments. Likewise, equity-based compensation expense is not charged to the operating segments. External corporate interest expense is primarily comprised of interest charges on the Company’s 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, 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, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |
Homebuilding Mid Atlantic |  | $ | 1,877,905 |  |  | $ | 1,582,826 |  |  | $ | 1,780,521 |
Homebuilding North East |  |  | 278,715 |  |  |  | 221,146 |  |  |  | 287,561 |
Homebuilding Mid East |  |  | 630,367 |  |  |  | 549,384 |  |  |  | 632,377 |
Homebuilding South East |  |  | 334,257 |  |  |  | 257,839 |  |  |  | 280,299 |
Mortgage Banking |  |  | 63,406 |  |  |  | 47,954 |  |  |  | 61,134 |
Total consolidated revenues |  | $ | 3,184,650 |  |  | $ | 2,659,149 |  |  | $ | 3,041,892 |
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Profit: |  |  |  |  |  |  |  |  |  |  |  |
Homebuilding Mid Atlantic |  | $ | 189,089 |  |  | $ | 148,373 |  |  | $ | 209,496 |
Homebuilding North East |  |  | 21,529 |  |  |  | 13,463 |  |  |  | 25,090 |
Homebuilding Mid East |  |  | 39,847 |  |  |  | 27,194 |  |  |  | 56,882 |
Homebuilding South East |  |  | 20,674 |  |  |  | 14,162 |  |  |  | 10,870 |
Mortgage Banking |  |  | 38,135 |  |  |  | 26,102 |  |  |  | 35,704 |
Total segment profit |  |  | 309,274 |  |  |  | 229,294 |  |  |  | 338,042 |
Contract land deposit reserve adjustment (1) |  |  | 5,333 |  |  |  | (2,878 | ) |  |  | 16,206 |
Equity-based compensation expense (2) |  |  | (64,841 | ) |  |  | (64,473 | ) |  |  | (53,136 | )
Corporate capital allocation (3) |  |  | 91,507 |  |  |  | 71,226 |  |  |  | 65,971 |
Unallocated corporate overhead (4) |  |  | (70,258 | ) |  |  | (45,355 | ) |  |  | (55,992 | )
Consolidation adjustments and other |  |  | 10,858 |  |  |  | 20,477 |  |  |  | 15,848 |
Corporate interest expense (5) |  |  | (6,796 | ) |  |  | (715 | ) |  |  | (4,546 | )
Reconciling items sub-total |  |  | (34,197 | ) |  |  | (21,718 | ) |  |  | (15,649 | )
Consolidated income before taxes |  | $ | 275,077 |  |  | $ | 207,576 |  |  | $ | 322,393 |
|  | As of December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Homebuilding Mid Atlantic |  | $ | 726,335 |  |  | $ | 626,157 |  |  | $ | 492,148 |
Homebuilding North East |  |  | 64,568 |  |  |  | 55,948 |  |  |  | 35,827 |
Homebuilding Mid East |  |  | 166,859 |  |  |  | 94,593 |  |  |  | 78,246 |
Homebuilding South East |  |  | 85,521 |  |  |  | 63,263 |  |  |  | 43,041 |
Mortgage Banking |  |  | 215,225 |  |  |  | 270,820 |  |  |  | 196,441 |
Total segment assets |  |  | 1,258,508 |  |  |  | 1,110,781 |  |  |  | 845,703 |
Consolidated variable interest entity |  |  | 15,626 |  |  |  | 20,182 |  |  |  | 22,371 |
Cash and cash equivalents |  |  | 1,139,103 |  |  |  | 475,566 |  |  |  | 1,190,731 |
Deferred taxes |  |  | 145,618 |  |  |  | 155,881 |  |  |  | 184,930 |
Intangible assets and goodwill |  |  | 58,146 |  |  |  | 48,927 |  |  |  | 48,927 |
Contract land deposit reserve |  |  | (65,039 | ) |  |  | (70,333 | ) |  |  | (73,517 | )
Consolidation adjustments and other |  |  | 52,880 |  |  |  | 38,481 |  |  |  | 40,916 |
Reconciling items sub-total |  |  | 1,346,334 |  |  |  | 668,704 |  |  |  | 1,414,358 |
Consolidated assets |  | $ | 2,604,842 |  |  | $ | 1,779,485 |  |  | $ | 2,260,061 |
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Interest Income: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage Banking |  | $ | 4,504 |  |  | $ | 5,702 |  |  | $ | 5,411 |
Total segment interest income |  |  | 4,504 |  |  |  | 5,702 |  |  |  | 5,411 |
Other unallocated interest income |  |  | 1,388 |  |  |  | 3,202 |  |  |  | 5,301 |
Consolidated interest income |  | $ | 5,892 |  |  | $ | 8,904 |  |  | $ | 10,712 |
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Interest Expense: |  |  |  |  |  |  |  |  |  |  |  |
Homebuilding Mid Atlantic |  | $ | 59,310 |  |  | $ | 48,971 |  |  | $ | 45,082 |
Homebuilding North East |  |  | 8,196 |  |  |  | 5,776 |  |  |  | 5,936 |
Homebuilding Mid East |  |  | 15,043 |  |  |  | 11,080 |  |  |  | 9,669 |
Homebuilding South East |  |  | 9,145 |  |  |  | 5,701 |  |  |  | 5,641 |
Mortgage Banking |  |  | 546 |  |  |  | 875 |  |  |  | 1,126 |
Total segment interest expense |  |  | 92,240 |  |  |  | 72,403 |  |  |  | 67,454 |
Corporate capital allocation |  |  | (91,507 | ) |  |  | (71,226 | ) |  |  | (65,971 | )
Senior notes and other interest |  |  | 6,796 |  |  |  | 715 |  |  |  | 4,546 |
Consolidated interest expense |  | $ | 7,529 |  |  | $ | 1,892 |  |  | $ | 6,029 |
Depreciation and Amortization: |  |  |  |  |  |  |  |  |  |  |  |
Homebuilding Mid Atlantic |  | $ | 3,886 |  |  | $ | 3,353 |  |  | $ | 3,369 |
Homebuilding North East |  |  | 631 |  |  |  | 409 |  |  |  | 515 |
Homebuilding Mid East |  |  | 1,473 |  |  |  | 1,398 |  |  |  | 1,224 |
Homebuilding South East |  |  | 808 |  |  |  | 729 |  |  |  | 758 |
Mortgage Banking |  |  | 397 |  |  |  | 295 |  |  |  | 362 |
Total segment depreciation and amortization |  |  | 7,195 |  |  |  | 6,184 |  |  |  | 6,228 |
Unallocated corporate |  |  | 905 |  |  |  | 488 |  |  |  | 1,035 |
Consolidated depreciation and amortization |  | $ | 8,100 |  |  | $ | 6,672 |  |  | $ | 7,263 |
Expenditures for Property and Equipment: |  |  |  |  |  |  |  |  |  |  |  |
Homebuilding Mid Atlantic |  | $ | 3,595 |  |  | $ | 3,784 |  |  | $ | 2,165 |
Homebuilding North East |  |  | 1,703 |  |  |  | 424 |  |  |  | 440 |
Homebuilding Mid East |  |  | 1,886 |  |  |  | 5,611 |  |  |  | 2,247 |
Homebuilding South East |  |  | 1,260 |  |  |  | 369 |  |  |  | 583 |
Mortgage Banking |  |  | 1,169 |  |  |  | 1,049 |  |  |  | 883 |
Total segment expenditures for property and equipment |  |  | 9,613 |  |  |  | 11,237 |  |  |  | 6,318 |
Unallocated corporate |  |  | 2,752 |  |  |  | 207 |  |  |  | 625 |
Consolidated expenditures for property and equipment |  | $ | 12,365 |  |  | $ | 11,444 |  |  | $ | 6,943 |
(1) | This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable segments.
(2) | The increase in equity-based compensation expense in 2011 compared to 2010 was due to recognizing a full year of expense in 2011 related to non-qualified stock options and restricted share units granted in the second quarter of 2010 under the 2010 Equity Incentive Plan. In addition, equity based compensation in 2010 was reduced as a result of an adjustment to option forfeiture estimates based on our actual forfeiture experience (see Note 10 herein for further discussion).
(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 years presented:
|  | Year Ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Homebuilding Mid Atlantic |  | $ | 59,144 |  |  | $ | 48,697 |  |  | $ | 44,758 |
Homebuilding North East |  |  | 8,187 |  |  |  | 5,763 |  |  |  | 5,926 |
Homebuilding Mid East |  |  | 15,039 |  |  |  | 11,074 |  |  |  | 9,657 |
Homebuilding South East |  |  | 9,137 |  |  |  | 5,692 |  |  |  | 5,630 |
Total |  | $ | 91,507 |  |  | $ | 71,226 |  |  | $ | 65,971 |
(4) | The increase in unallocated corporate overhead in 2012 from 2011 was attributable to increased management incentive costs year over year. The decrease in unallocated corporate overhead in 2011 from 2010 was attributable to decreased management incentive costs year over year.
(5) | The increase in corporate interest expense in 2012 from 2011 was attributable to the issuance of 3.95% Senior Notes due 2022 in the third quarter of 2012. The decrease in corporate interest expense in 2011 from 2010 was attributable to the redemption upon maturity of the outstanding 5% Senior Notes due 2010 in the second quarter of 2010 and the termination of the working capital credit facility in the fourth quarter of 2010.

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 29 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8864-108599 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8906-108599 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8933-108599 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8984-108599 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8380-108599 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8538-108599 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9054-108599 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 12 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8595-108599 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 131 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8981-108599 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 33 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8971-108599 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8844-108599 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e8924-108599 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9031-108599 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=6534315&loc=d3e9038-108599 + Details
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