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 three trade names: Ryan Homes, NVHomes and Heartland Homes. The Ryan Homes product is marketed primarily to first-time and first-time move-up buyers. Ryan Homes operates in twenty-nine 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. The NVHomes and Heartland Homes products are marketed primarily to move-up and luxury 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 30% and 11% of its 2017 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, 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. 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 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,
	2017		2016		2015
Revenues:
Homebuilding Mid Atlantic	$	3,543,687	$	3,319,776	$	3,022,789
Homebuilding North East	517,141		462,385		432,145
Homebuilding Mid East	1,250,165		1,192,472		1,014,920
Homebuilding South East	864,528		734,590		595,346
Mortgage Banking	130,319		113,321		93,808
Consolidated revenues	$	6,305,840	$	5,822,544	$	5,159,008



	Year Ended December 31,
	2017			2016			2015
Profit before taxes:
Homebuilding Mid Atlantic	$	398,494		$	301,173		$	322,829
Homebuilding North East	60,218			21,947			37,914
Homebuilding Mid East	149,639			121,166			86,336
Homebuilding South East	95,826			71,098			57,384
Mortgage Banking	73,959			63,711			51,236
Total segment profit	778,136			579,095			555,699
Reconciling items:
Contract land deposit reserve adjustment (1)	1,307			10,933			13,805
Equity-based compensation expense	(44,562		)	(43,598		)	(54,091		)
Corporate capital allocation (2)	198,384			189,992			171,170
Unallocated corporate overhead	(89,514		)	(89,376		)	(83,124		)
Consolidation adjustments and other	26,143			35,204			22,622
Corporate interest expense	(22,983		)	(20,553		)	(22,869		)
Reconciling items sub-total	68,775			82,602			47,513
Consolidated profit before taxes	$	846,911		$	661,697		$	603,212



	As of December 31,
	2017			2016
Assets:
Homebuilding Mid Atlantic	$	1,079,225		$	1,054,779
Homebuilding North East	143,008			126,720
Homebuilding Mid East	263,019			222,736
Homebuilding South East	277,705			214,225
Mortgage Banking	397,052			403,250
Total segment assets	2,160,009			2,021,710
Reconciling items:
Cash and cash equivalents	645,087			375,748
Deferred taxes	111,953			170,652
Intangible assets and goodwill	50,144			51,526
Contract land deposit reserve	(29,999		)	(31,306		)
Consolidation adjustments and other	52,085			55,613
Reconciling items sub-total	829,270			622,233
Consolidated assets	$	2,989,279		$	2,643,943



	Year Ended December 31,
	2017		2016		2015
Interest income:
Mortgage Banking	$	7,850	$	7,569	$	6,485
Total segment interest income	7,850		7,569		6,485
Other unallocated interest income	4,554		1,111		1,211
Consolidated interest income	$	12,404	$	8,680	$	7,696



	Year Ended December 31,
	2017			2016			2015
Interest expense:
Homebuilding Mid Atlantic	$	123,075		$	119,808		$	107,748
Homebuilding North East	16,117			18,141			16,991
Homebuilding Mid East	29,663			28,307			27,263
Homebuilding South East	29,583			23,804			19,217
Mortgage Banking	1,148			1,086			641
Total segment interest expense	199,586			191,146			171,860
Corporate capital allocation (2)	(198,384		)	(189,992		)	(171,170		)
Senior Notes and other interest	22,983			20,553			22,869
Consolidated interest expense	$	24,185		$	21,707		$	23,559



	Year Ended December 31,
	2017		2016		2015
Depreciation and amortization:
Homebuilding Mid Atlantic	$	8,095	$	8,089	$	7,876
Homebuilding North East	2,034		2,053		1,571
Homebuilding Mid East	3,590		3,748		4,003
Homebuilding South East	2,531		2,276		2,191
Mortgage Banking	1,297		1,117		1,136
Total segment depreciation and amortization	17,547		17,283		16,777
Unallocated corporate	5,120		4,986		4,757
Consolidated depreciation and amortization	$	22,667	$	22,269	$	21,534



	Year Ended December 31,
	2017		2016		2015
Expenditures for property and equipment:
Homebuilding Mid Atlantic	$	9,257	$	8,838	$	8,287
Homebuilding North East	1,299		3,423		2,220
Homebuilding Mid East	3,117		4,027		3,774
Homebuilding South East	3,313		3,594		1,753
Mortgage Banking	2,723		726		265
Total segment expenditures for property and equipment	19,709		20,608		16,299
Unallocated corporate	560		1,761		1,978
Consolidated expenditures for property and equipment	$	20,269	$	22,369	$	18,277


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


(2)	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,
	2017		2016		2015
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	123,028	$	119,758	$	107,705
Homebuilding North East	16,115		18,132		16,987
Homebuilding Mid East	29,663		28,303		27,263
Homebuilding South East	29,578		23,799		19,215
Total corporate capital allocation charge	$	198,384	$	189,992	$	171,170