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, as of January 1, 2013, 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, Kentucky and Tennessee. The Fox Ridge Homes product is sold solely in the Nashville, TN metropolitan area. The NVHomes and Heartland Homes products are marketed primarily to move-up and up-scale buyers. The NVHomes product is sold in Delaware and the Washington, D.C., Baltimore, MD and Philadelphia, PA metropolitan areas. The Heartland Homes product is sold in the Pittsburgh, PA metropolitan area. NVR derived approximately 47% of its 2012 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, Delaware and Washington, D.C.

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 (“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, 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,
	2012		2011		2010
Revenues:
Homebuilding Mid Atlantic	$	1,877,905	$	1,582,826	$	1,780,521
Homebuilding North East		278,715		221,146		287,561
Homebuilding Mid East		630,367		549,384		632,377
Homebuilding South East		334,257		257,839		280,299
Mortgage Banking		63,406		47,954		61,134

Total consolidated revenues	$	3,184,650	$	2,659,149	$	3,041,892


	Year Ended December 31,
	2012			2011			2010
Profit:
Homebuilding Mid Atlantic	$	189,089		$	148,373		$	209,496
Homebuilding North East		21,529			13,463			25,090
Homebuilding Mid East		39,847			27,194			56,882
Homebuilding South East		20,674			14,162			10,870
Mortgage Banking		38,135			26,102			35,704

Total segment profit		309,274			229,294			338,042

Contract land deposit reserve adjustment (1)		5,333			(2,878	)		16,206
Equity-based compensation expense (2)		(64,841	)		(64,473	)		(53,136	)
Corporate capital allocation (3)		91,507			71,226			65,971
Unallocated corporate overhead (4)		(70,258	)		(45,355	)		(55,992	)
Consolidation adjustments and other		10,858			20,477			15,848
Corporate interest expense (5)		(6,796	)		(715	)		(4,546	)

Reconciling items sub-total		(34,197	)		(21,718	)		(15,649	)

Consolidated income before taxes	$	275,077		$	207,576		$	322,393


	As of December 31,
	2012			2011			2010
Assets:
Homebuilding Mid Atlantic	$	726,335		$	626,157		$	492,148
Homebuilding North East		64,568			55,948			35,827
Homebuilding Mid East		166,859			94,593			78,246
Homebuilding South East		85,521			63,263			43,041
Mortgage Banking		215,225			270,820			196,441

Total segment assets		1,258,508			1,110,781			845,703

Consolidated variable interest entity		15,626			20,182			22,371
Cash and cash equivalents		1,139,103			475,566			1,190,731
Deferred taxes		145,618			155,881			184,930
Intangible assets and goodwill		58,146			48,927			48,927
Contract land deposit reserve		(65,039	)		(70,333	)		(73,517	)
Consolidation adjustments and other		52,880			38,481			40,916

Reconciling items sub-total		1,346,334			668,704			1,414,358

Consolidated assets	$	2,604,842		$	1,779,485		$	2,260,061


	Year Ended December 31,
	2012			2011			2010
Interest Income:
Mortgage Banking	$	4,504		$	5,702		$	5,411

Total segment interest income		4,504			5,702			5,411
Other unallocated interest income		1,388			3,202			5,301

Consolidated interest income	$	5,892		$	8,904		$	10,712


	Year Ended December 31,
	2012			2011			2010
Interest Expense:
Homebuilding Mid Atlantic	$	59,310		$	48,971		$	45,082
Homebuilding North East		8,196			5,776			5,936
Homebuilding Mid East		15,043			11,080			9,669
Homebuilding South East		9,145			5,701			5,641
Mortgage Banking		546			875			1,126

Total segment interest expense		92,240			72,403			67,454
Corporate capital allocation		(91,507	)		(71,226	)		(65,971	)
Senior notes and other interest		6,796			715			4,546

Consolidated interest expense	$	7,529		$	1,892		$	6,029

Depreciation and Amortization:
Homebuilding Mid Atlantic	$	3,886		$	3,353		$	3,369
Homebuilding North East		631			409			515
Homebuilding Mid East		1,473			1,398			1,224
Homebuilding South East		808			729			758
Mortgage Banking		397			295			362

Total segment depreciation and amortization		7,195			6,184			6,228
Unallocated corporate		905			488			1,035

Consolidated depreciation and amortization	$	8,100		$	6,672		$	7,263

Expenditures for Property and Equipment:
Homebuilding Mid Atlantic	$	3,595		$	3,784		$	2,165
Homebuilding North East		1,703			424			440
Homebuilding Mid East		1,886			5,611			2,247
Homebuilding South East		1,260			369			583
Mortgage Banking		1,169			1,049			883

Total segment expenditures for property and equipment		9,613			11,237			6,318
Unallocated corporate		2,752			207			625

Consolidated expenditures for property and equipment	$	12,365		$	11,444		$	6,943

(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 2011 compared to 2010 was 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, equity based compensation in 2010 was reduced as a result of an adjustment to option forfeiture estimates based on our actual forfeiture experience (see Note 10 herein for further discussion).

(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,
	2012		2011		2010
Homebuilding Mid Atlantic	$	59,144	$	48,697	$	44,758
Homebuilding North East		8,187		5,763		5,926
Homebuilding Mid East		15,039		11,074		9,657
Homebuilding South East		9,137		5,692		5,630

Total	$	91,507	$	71,226	$	65,971

(4)	The increase in unallocated corporate overhead in 2012 from 2011 was attributable to increased management incentive costs year over year. The decrease in unallocated corporate overhead in 2011 from 2010 was attributable to decreased management incentive costs year over year.

(5)

The increase in corporate interest expense in 2012 from 2011 was attributable to the issuance of 3.95% Senior Notes due 2022 in the third quarter of 2012. The decrease in corporate interest expense in 2011 from 2010 was attributable to the redemption upon maturity of the outstanding 5% Senior Notes due 2010 in the second quarter of 2010 and the termination of the working capital credit facility in the fourth quarter of 2010.