Segment Disclosures

The following disclosure includes four homebuilding reportable segments that aggregate geographically the Company’s homebuilding operating segments, and the mortgage banking operations presented as one 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, 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 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.

Certain assets 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 generally charged to the operating segment upon the termination of a Lot Purchase Agreement with the developer, or the restructuring of 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.

The following tables present segment revenues, profit and assets with reconciliations to the amounts reported for the consolidated enterprise, where applicable:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Revenues:
Homebuilding Mid Atlantic	$	991,077	$	927,551	$	2,807,251	$	2,521,967
Homebuilding North East	152,858		141,033		423,190		374,804
Homebuilding Mid East	391,933		338,900		1,045,458		895,168
Homebuilding South East	273,477		226,242		774,002		602,088
Mortgage Banking	43,062		34,194		119,225		95,477
Total consolidated revenues	$	1,852,407	$	1,667,920	$	5,169,126	$	4,489,504



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Income before taxes:
Homebuilding Mid Atlantic	$	115,180		$	109,417		$	318,447		$	274,527
Homebuilding North East	18,560			18,762			51,041			41,980
Homebuilding Mid East	51,744			44,990			121,129			103,135
Homebuilding South East	31,426			26,849			83,867			64,330
Mortgage Banking	27,183			19,336			69,418			53,293
Total segment profit before taxes	244,093			219,354			643,902			537,265
Reconciling items:
Contract land deposit reserve adjustment (1)	(689		)	1,910			2,031			(882		)
Equity-based compensation expense (2)	(23,586		)	(11,211		)	(51,690		)	(32,678		)
Corporate capital allocation (3)	55,438			51,904			160,091			147,737
Unallocated corporate overhead	(20,424		)	(18,768		)	(74,211		)	(69,362		)
Consolidation adjustments and other	831			7,087			20,142			20,513
Corporate interest expense	(5,953		)	(5,812		)	(17,971		)	(17,000		)
Reconciling items sub-total	5,617			25,110			38,392			48,328
Consolidated income before taxes	$	249,710		$	244,464		$	682,294		$	585,593


(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 the three and nine month periods ended September 30, 2018 was primarily attributable to the issuance of Options and RSUs in the second quarter of 2018. See Note 7 for additional discussion of equity-based compensation.


(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 periods presented:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	31,733	$	32,025	$	93,682	$	92,154
Homebuilding North East	4,565		4,244		13,325		12,191
Homebuilding Mid East	9,541		7,747		26,571		22,024
Homebuilding South East	9,599		7,888		26,513		21,368
Total	$	55,438	$	51,904	$	160,091	$	147,737



	September 30, 2018			December 31, 2017
Assets:
Homebuilding Mid Atlantic	$	1,098,095		$	1,079,225
Homebuilding North East	160,541			143,008
Homebuilding Mid East	324,253			263,019
Homebuilding South East	340,686			277,705
Mortgage Banking	365,862			397,052
Total segment assets	2,289,437			2,160,009
Reconciling items:
Cash and cash equivalents	598,789			645,087
Deferred taxes	115,824			111,953
Intangible assets and goodwill	50,028			50,144
Contract land deposit reserve	(27,968		)	(29,999		)
Consolidation adjustments and other	63,713			52,085
Reconciling items sub-total	800,386			829,270
Consolidated assets	$	3,089,823		$	2,989,279