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 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 and Tennessee. Fox Ridge Homes operates in the Nashville, TN metropolitan area. The NVHomes and Heartland Homes products are marketed primarily to move-up and up-scale buyers. NVHomes operates in Delaware and the Washington, D.C., Baltimore, MD, Philadelphia, PA and Raleigh, NC metropolitan areas. Heartland Homes operates in the Pittsburgh, PA metropolitan area. NVR derived approximately 31% and 15% of its 2013 homebuilding revenues from the Washington, D.C. and Baltimore, MD metropolitan areas, respectively.

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:

Mid Atlantic – Virginia, West Virginia, Maryland, 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 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 and human resources 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 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.

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,
	2013		2012		2011
Revenues:
Homebuilding Mid Atlantic	$	2,439,387	$	1,877,905	$	1,582,826
Homebuilding North East		332,681		278,715		221,146
Homebuilding Mid East		908,198		630,367		549,384
Homebuilding South East		454,215		334,257		257,839
Mortgage Banking		76,786		63,406		47,954

Total consolidated revenues	$	4,211,267	$	3,184,650	$	2,659,149


	Year Ended December 31,
	2013			2012			2011
Profit:
Homebuilding Mid Atlantic	$	276,399		$	189,089		$	148,373
Homebuilding North East		14,294			21,529			13,463
Homebuilding Mid East		55,537			39,847			27,194
Homebuilding South East		35,001			20,674			14,162
Mortgage Banking		42,075			38,135			26,102

Total segment profit		423,306			309,274			229,294

Contract land deposit reserve adjustment (1)		5,313			5,333			(2,878	)
Equity-based compensation expense (2)		(34,296	)		(64,841	)		(64,473	)
Corporate capital allocation (3)		116,457			91,507			71,226
Unallocated corporate overhead (4)		(72,703	)		(70,258	)		(45,355	)
Consolidation adjustments and other		2,362			10,858			20,477
Corporate interest expense (5)		(21,743	)		(6,796	)		(715	)

Reconciling items sub-total		(4,610	)		(34,197	)		(21,718	)

Consolidated income before taxes	$	418,696		$	275,077		$	207,576


	As of December 31,
	2013			2012
Assets:
Homebuilding Mid Atlantic	$	797,642		$	726,335
Homebuilding North East		84,958			64,568
Homebuilding Mid East		172,167			166,859
Homebuilding South East		106,389			85,521
Mortgage Banking		253,421			215,225

Total segment assets		1,414,577			1,258,508

Consolidated variable interest entity		7,268			15,626
Cash and cash equivalents		844,274			1,139,103
Deferred taxes		162,378			145,618
Intangible assets and goodwill		55,674			58,146
Contract land deposit reserve		(59,761	)		(65,039	)
Consolidation adjustments and other		61,738			52,880

Reconciling items sub-total		1,071,571			1,346,334

Consolidated assets	$	2,486,148		$	2,604,842


	Year Ended December 31,
	2013		2012		2011
Interest Income:
Mortgage Banking	$	4,983	$	4,504	$	5,702

Total segment interest income		4,983		4,504		5,702
Other unallocated interest income		2,319		1,388		3,202

Consolidated interest income	$	7,302	$	5,892	$	8,904


	Year Ended December 31,
	2013			2012			2011
Interest Expense:
Homebuilding Mid Atlantic	$	72,351		$	59,310		$	48,971
Homebuilding North East		9,466			8,196			5,776
Homebuilding Mid East		22,587			15,043			11,080
Homebuilding South East		12,151			9,145			5,701
Mortgage Banking		545			546			875

Total segment interest expense		117,100			92,240			72,403
Corporate capital allocation		(116,457	)		(91,507	)		(71,226	)
Senior notes and other interest		21,742			6,796			715

Consolidated interest expense	$	22,385		$	7,529		$	1,892


Depreciation and Amortization:
Homebuilding Mid Atlantic	$	4,784		$	3,886		$	3,353
Homebuilding North East		853			631			409
Homebuilding Mid East		1,911			1,473			1,398
Homebuilding South East		1,008			808			729
Mortgage Banking		669			397			295

Total segment depreciation and amortization		9,225			7,195			6,184
Unallocated corporate		4,166			905			488

Consolidated depreciation and amortization	$	13,391		$	8,100		$	6,672


Expenditures for Property and Equipment:
Homebuilding Mid Atlantic	$	7,947		$	3,595		$	3,784
Homebuilding North East		1,454			1,703			424
Homebuilding Mid East		3,282			1,886			5,611
Homebuilding South East		2,662			1,260			369
Mortgage Banking		2,933			1,169			1,049

Total segment expenditures for property and equipment		18,278			9,613			11,237
Unallocated corporate		738			2,752			207

Consolidated expenditures for property and equipment	$	19,016		$	12,365		$	11,444

(1)	This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable segments.

(2)

Equity-based compensation expense is lower in 2013 due to RSUs issued in 2010 under the 2010 Equity Incentive Plan becoming fully vested effective December 31, 2012 and an approximate $7,900 pre-tax compensation expense reversal attributable to an adjustment of the option forfeiture rates based on the Company’s actual forfeiture experience. These reductions were partially offset by equity-based compensation expense incurred in 2013 related to RSUs issued in May 2013 under the 2010 Equity Incentive Plan.

(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,
	2013		2012		2011
Homebuilding Mid Atlantic	$	72,271	$	59,144	$	48,697
Homebuilding North East		9,461		8,187		5,763
Homebuilding Mid East		22,580		15,039		11,074
Homebuilding South East		12,145		9,137		5,692

Total	$	116,457	$	91,507	$	71,226

(4)	The increase in unallocated corporate overhead in 2012 from 2011 was attributable to increased management incentive costs year over year.

(5)	Corporate interest expense is attributable primarily to interest on the Senior Notes which were issued in the third quarter of 2012.