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-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 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 33% and 13% of its 2014 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 eliminates 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 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 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 is primarily comprised 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,
	2014		2013		2012
Revenues:
Homebuilding Mid Atlantic	$	2,617,108	$	2,439,387	$	1,877,905
Homebuilding North East		376,862		332,681		278,715
Homebuilding Mid East		892,513		908,198		630,367
Homebuilding South East		488,576		454,215		334,257
Mortgage Banking		69,509		76,786		63,406
Total consolidated revenues	$	4,444,568	$	4,211,267	$	3,184,650

	Year Ended December 31,
	2014			2013			2012
Profit before taxes:
Homebuilding Mid Atlantic	$	271,965		$	276,399		$	189,089
Homebuilding North East		33,390			14,294			21,529
Homebuilding Mid East		47,538			55,537			39,847
Homebuilding South East		37,525			35,001			20,674
Mortgage Banking		30,388			42,075			38,135
Total segment profit		420,806			423,306			309,274
Contract land deposit reserve adjustment (1)		3,612			5,313			5,333
Equity-based compensation expense (2)		(63,227	)		(34,296	)		(64,841	)
Corporate capital allocation (3)		152,140			116,457			91,507
Unallocated corporate overhead		(61,108	)		(72,703	)		(70,258	)
Consolidation adjustments and other		23,867			2,362			10,858
Corporate interest expense (4)		(22,544	)		(21,743	)		(6,796	)
Reconciling items sub-total		32,740			(4,610	)		(34,197	)
Consolidated profit before taxes	$	453,546		$	418,696		$	275,077

	As of December 31,
	2014			2013
Assets:
Homebuilding Mid Atlantic	$	917,689		$	810,270
Homebuilding North East		103,631			84,958
Homebuilding Mid East		192,781			172,167
Homebuilding South East		144,939			106,389
Mortgage Banking		255,969			253,421
Total segment assets		1,615,009			1,427,205
Consolidated variable interest entity		3,590			7,268
Cash and cash equivalents		514,780			844,274
Deferred taxes		165,189			162,378
Intangible assets and goodwill		54,291			55,674
Contract land deposit reserve		(56,074	)		(59,761	)
Consolidation adjustments and other		54,550			49,110
Reconciling items sub-total		736,326			1,058,943
Consolidated assets	$	2,351,335		$	2,486,148

	Year Ended December 31,
	2014		2013		2012
Interest Income:
Mortgage Banking	$	4,940	$	4,983	$	4,504
Total segment interest income		4,940		4,983		4,504
Other unallocated interest income		1,311		2,319		1,388
Consolidated interest income	$	6,251	$	7,302	$	5,892

	Year Ended December 31,
	2014			2013			2012
Interest Expense:
Homebuilding Mid Atlantic	$	96,364		$	72,351		$	59,310
Homebuilding North East		12,114			9,466			8,196
Homebuilding Mid East		26,300			22,587			15,043
Homebuilding South East		17,409			12,151			9,145
Mortgage Banking		549			545			546
Total segment interest expense		152,736			117,100			92,240
Corporate capital allocation		(152,140	)		(116,457	)		(91,507	)
Senior notes and other interest		22,544			21,742			6,796
Consolidated interest expense	$	23,140		$	22,385		$	7,529

	Year Ended December 31,
	2014		2013		2012
Depreciation and Amortization:
Homebuilding Mid Atlantic	$	6,489	$	4,784	$	3,886
Homebuilding North East		1,208		853		631
Homebuilding Mid East		3,212		1,911		1,473
Homebuilding South East		1,715		1,008		808
Mortgage Banking		1,089		669		397
Total segment depreciation and amortization		13,713		9,225		7,195
Unallocated corporate		3,901		4,166		905
Consolidated depreciation and amortization	$	17,614	$	13,391	$	8,100

	Year Ended December 31,
	2014		2013		2012
Expenditures for Property and Equipment:
Homebuilding Mid Atlantic	$	9,047	$	7,947	$	3,595
Homebuilding North East		2,311		1,454		1,703
Homebuilding Mid East		6,982		3,282		1,886
Homebuilding South East		3,472		2,662		1,260
Mortgage Banking		2,580		2,933		1,169
Total segment expenditures for property and equipment		24,392		18,278		9,613
Unallocated corporate		7,280		738		2,752
Consolidated expenditures for property and equipment	$	31,672	$	19,016	$	12,365

(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 lower in 2013 due to RSUs issued in 2010 under the 2010 Equity Incentive Plan (the “2010 Plan”) becoming fully vested effective December 31, 2012 and 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. These reductions were partially offset by equity-based compensation expense incurred in 2013 related to RSUs issued in the second quarter of 2013 under the 2010 Plan.

(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,
Corporate Capital Allocation Charge:	2014		2013		2012
Homebuilding Mid Atlantic	$	96,328	$	72,271	$	59,144
Homebuilding North East		12,107		9,461		8,187
Homebuilding Mid East		26,299		22,580		15,039
Homebuilding South East		17,406		12,145		9,137
Total	$	152,140	$	116,457	$	91,507

(4)	Corporate interest expense is attributable primarily to interest on the Senior Notes which were issued in the third quarter of 2012.