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-eight 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 13% of its 2015 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:		Maryland, Virginia, West Virginia, 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, Tennessee and Florida

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 is eliminated in consolidation and is based on the segment’s average net assets employed. 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 neither 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 corporate 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. External corporate interest expense primarily consists 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 before taxes, 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,
	2015		2014		2013
Revenues:
Homebuilding Mid Atlantic	$	3,022,789	$	2,617,108	$	2,439,387
Homebuilding North East		432,145		376,862		332,681
Homebuilding Mid East		1,014,920		892,513		908,198
Homebuilding South East		595,346		488,576		454,215
Mortgage Banking		93,808		69,509		76,786
Consolidated revenues	$	5,159,008	$	4,444,568	$	4,211,267

	Year Ended December 31,
	2015			2014			2013
Profit before taxes:
Homebuilding Mid Atlantic	$	322,829		$	271,965		$	276,399
Homebuilding North East		37,914			33,390			14,294
Homebuilding Mid East		86,336			47,538			55,537
Homebuilding South East		57,384			37,525			35,001
Mortgage Banking		51,236			30,388			42,075
Total segment profit		555,699			420,806			423,306
Reconciling items:
Contract land deposit reserve adjustment (1)		13,805			3,612			5,313
Equity-based compensation expense (2)		(54,091	)		(63,227	)		(34,296	)
Corporate capital allocation (3)		171,170			152,140			116,458
Unallocated corporate overhead		(83,124	)		(61,108	)		(72,703	)
Consolidation adjustments and other		22,622			23,867			2,361
Corporate interest expense		(22,869	)		(22,544	)		(21,743	)
Reconciling items sub-total		47,513			32,740			(4,610	)
Consolidated profit before taxes	$	603,212		$	453,546		$	418,696

	As of December 31,
	2015			2014
Assets:
Homebuilding Mid Atlantic	$	994,804		$	917,689
Homebuilding North East		133,106			103,631
Homebuilding Mid East		220,094			192,781
Homebuilding South East		175,572			144,939
Mortgage Banking		372,203			255,969
Total segment assets		1,895,779			1,615,009
Reconciling items:
Consolidated variable interest entity		1,749			3,590
Cash and cash equivalents		397,522			514,780
Deferred taxes		161,805			165,189
Intangible assets and goodwill		52,909			54,291
Contract land deposit reserve		(42,239	)		(56,074	)
Consolidation adjustments and other		47,606			54,550
Reconciling items sub-total		619,352			736,326
Consolidated assets	$	2,515,131		$	2,351,335

	Year Ended December 31,
	2015		2014		2013
Interest income:
Mortgage Banking	$	6,485	$	4,940	$	4,983
Total segment interest income		6,485		4,940		4,983
Other unallocated interest income		1,211		1,311		2,319
Consolidated interest income	$	7,696	$	6,251	$	7,302

	Year Ended December 31,
	2015			2014			2013
Interest expense:
Homebuilding Mid Atlantic	$	107,748		$	96,364		$	72,351
Homebuilding North East		16,991			12,114			9,466
Homebuilding Mid East		27,263			26,300			22,587
Homebuilding South East		19,217			17,409			12,151
Mortgage Banking		641			549			545
Total segment interest expense		171,860			152,736			117,100
Corporate capital allocation		(171,170	)		(152,140	)		(116,458	)
Senior Notes and other interest		22,869			22,544			21,743
Consolidated interest expense	$	23,559		$	23,140		$	22,385

	Year Ended December 31,
	2015		2014		2013
Depreciation and amortization:
Homebuilding Mid Atlantic	$	7,876	$	6,489	$	4,784
Homebuilding North East		1,571		1,208		853
Homebuilding Mid East		4,003		3,212		1,911
Homebuilding South East		2,191		1,715		1,008
Mortgage Banking		1,136		1,089		669
Total segment depreciation and amortization		16,777		13,713		9,225
Unallocated corporate		4,757		3,901		4,166
Consolidated depreciation and amortization	$	21,534	$	17,614	$	13,391

	Year Ended December 31,
	2015		2014		2013
Expenditures for property and equipment:
Homebuilding Mid Atlantic	$	8,287	$	9,047	$	7,947
Homebuilding North East		2,220		2,311		1,454
Homebuilding Mid East		3,774		6,982		3,282
Homebuilding South East		1,753		3,472		2,662
Mortgage Banking		265		2,580		2,933
Total segment expenditures for property and equipment		16,299		24,392		18,278
Unallocated corporate		1,978		7,280		738
Consolidated expenditures for property and equipment	$	18,277	$	31,672	$	19,016

(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 2014 is primarily attributable to the issuance of stock options under the NVR, Inc. 2014 Equity Incentive Plan (the “2014 Plan”) and restricted share units (“RSUs”) issued in the second quarter of 2013. Equity-based compensation expense was also lower in 2013 due to an approximate $7,900 pre-tax compensation expense reversal in 2013 attributable to an adjustment of the stock option forfeiture rates based on the Company’s actual forfeiture experience.

(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,
	2015		2014		2013
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	107,705	$	96,328	$	72,272
Homebuilding North East		16,987		12,107		9,461
Homebuilding Mid East		27,263		26,299		22,580
Homebuilding South East		19,215		17,406		12,145
Total corporate capital allocation charge	$	171,170	$	152,140	$	116,458