Segment Information, Nature of Operations, and Certain Concentrations

12 Months Ended

Dec. 31, 2011

Segment Information, Nature of Operations, and Certain Concentrations [Abstract]

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 Rymarc Homes. The Ryan Homes, Fox Ridge Homes, and Rymarc Homes products are marketed primarily to first-time homeowners and first-time move-up buyers. The Ryan Homes product is sold in twenty-five metropolitan areas located in Maryland, Virginia, West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Florida, Ohio, New Jersey, Delaware, Indiana, Illinois and Kentucky. The Fox Ridge Homes product is sold solely in the Nashville, TN metropolitan area. The Rymarc Homes product is sold solely in the Columbia, SC metropolitan area. The NVHomes product is sold in the Washington, D.C., Baltimore, MD, Philadelphia, PA and Maryland Eastern Shore metropolitan areas, and is marketed primarily to move-up and up-scale buyers. NVR derived approximately 46% of its 2011 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, and Delaware

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 to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital. 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,
	2011		2010		2009
Revenues:
Homebuilding Mid Atlantic	$	1,582,826	$	1,780,521	$	1,661,244
Homebuilding North East		221,146		287,561		254,654
Homebuilding Mid East		549,384		632,377		505,431
Homebuilding South East		257,839		280,299		262,138
Mortgage Banking		47,954		61,134		60,381
Total Consolidated Revenues	$	2,659,149	$	3,041,892	$	2,743,848

	Year Ended December 31,
	2011			2010			2009
Profit:
Homebuilding Mid Atlantic	$	148,373		$	209,496		$	185,861
Homebuilding North East		13,463			25,090			19,572
Homebuilding Mid East		27,194			56,882			38,012
Homebuilding South East		14,162			10,870			7,384
Mortgage Banking		26,102			35,704			38,138
Total Segment Profit		229,294			338,042			288,967
Contract land deposit impairment reserve (1)		(2,878	)		16,206			42,939
Equity-based compensation expense (2)		(64,473	)		(53,136	)		(46,302	)
Corporate capital allocation (3)		71,226			65,971			61,753
Unallocated corporate overhead (4)		(45,355	)		(55,992	)		(44,103	)
Consolidation adjustments and other		20,477			15,848			4,970
Corporate interest expense (5)		(715	)		(4,546	)		(9,810	)
Reconciling items sub-total		(21,718	)		(15,649	)		9,447
Consolidated Income before Taxes	$	207,576		$	322,393		$	298,414

	As of December 31,
	2011			2010			2009
Assets:
Homebuilding Mid Atlantic	$	626,157		$	492,148		$	448,019
Homebuilding North East		55,948			35,827			54,132
Homebuilding Mid East		94,593			78,246			94,225
Homebuilding South East		63,263			43,041			37,663
Mortgage Banking		270,820			196,441			52,696
Total Segment Assets		1,110,781			845,703			686,735
Consolidated variable interest entities		20,182			22,371			70,430
Cash and cash equivalents		475,566			1,190,731			1,248,689
Marketable securities		—			—			219,535
Deferred taxes		155,881			184,930			200,340
Intangible assets		48,927			48,927			48,927
Contract land deposit reserve		(70,333	)		(73,517	)		(94,940	)
Consolidation adjustments and other		38,481			40,916			16,054
Reconciling items sub-total		668,704			1,414,358			1,709,035
Consolidated Assets	$	1,779,485		$	2,260,061		$	2,395,770

	Year Ended December 31,
	2011		2010		2009
Interest Income:
Mortgage Banking	$	5,702	$	5,411	$	2,979
Total Segment Interest Income		5,702		5,411		2,979
Other unallocated interest income		3,202		5,301		5,407
Consolidated Interest Income	$	8,904	$	10,712	$	8,386

	Year Ended December 31,
	2011			2010			2009
Interest Expense:
Homebuilding Mid Atlantic	$	48,971		$	45,082		$	41,130
Homebuilding North East		5,776			5,936			6,475
Homebuilding Mid East		11,080			9,669			8,873
Homebuilding South East		5,701			5,641			5,661
Mortgage Banking		875			1,126			1,184
Total Segment Interest Expense		72,403			67,454			63,323
Corporate capital allocation		(71,226	)		(65,971	)		(61,753	)
Senior Note and other interest		715			4,546			9,810
Consolidated Interest Expense	$	1,892		$	6,029		$	11,380
Depreciation and Amortization:
Homebuilding Mid Atlantic	$	3,353		$	3,369		$	4,351
Homebuilding North East		409			515			612
Homebuilding Mid East		1,398			1,224			1,233
Homebuilding South East		729			758			1,163
Mortgage Banking		295			362			357
Total Segment Depreciation and Amortization		6,184			6,228			7,716
Unallocated corporate		488			1,035			1,997
Consolidated Depreciation and Amortization	$	6,672		$	7,263		$	9,713
Expenditures for Property and Equipment:
Homebuilding Mid Atlantic	$	3,784		$	2,165		$	1,511
Homebuilding North East		424			440			414
Homebuilding Mid East		5,611			2,247			741
Homebuilding South East		369			583			269
Mortgage Banking		1,049			883			87
Total Segment Expenditures for Property and Equipment		11,237			6,318			3,022
Unallocated corporate		207			625			22
Consolidated Expenditures for Property and Equipment	$	11,444		$	6,943		$	3,044

(1) This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable segments. The 2011 and 2010 variances are attributable to year over year reductions in amounts allocated to our operating segments that had been previously reserved.

(2) The increase in equity-based compensation expense in 2011 compared to the prior year was primarily 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, stock-based compensation expense in 2010 was reduced by an approximate $7,000 pre-tax reversal of stock-based compensation expense attributable to the adjustment of our option forfeiture estimates based on our 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,
	2011		2010		2009
Homebuilding Mid Atlantic	$	48,697	$	44,758	$	40,765
Homebuilding North East		5,763		5,926		6,473
Homebuilding Mid East		11,074		9,657		8,863
Homebuilding South East		5,692		5,630		5,652
Total	$	71,226	$	65,971	$	61,753

(4) The decrease in unallocated corporate overhead in 2011 from 2010 was attributable to reduced management incentive costs year over year. The increase in costs in 2010 from 2009 was attributable to increased personnel levels year over year and to higher management incentive costs as the 2009 incentive plan was limited to a payout of 50% of the maximum bonus opportunity, while no similar restrictions were imposed on 2010 incentive compensation.

(5) The decrease in corporate interest expense in 2011 from 2010 was attributable to the redemption upon maturity of the outstanding senior notes in the second quarter of 2010 and the termination of the working capital credit facility in the fourth quarter of 2010.