Item 15. Exhibits and Financial Statement Schedules.

| --- | --- |

The following documents are filed as part of this report:

1.	Financial Statements

NVR, Inc. - Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

2.	Exhibits

Exhibit Number		Description
3.1		Restated Articles of Incorporation of NVR, Inc. Filed as Exhibit 3.1 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.
3.2		Bylaws, as amended, of NVR, Inc. Filed as Exhibit 3.2 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.

Exhibit Number		Description
4.1		Indenture dated as of April 14, 1998 between NVR, Inc., as issuer and the Bank of New York as trustee. Filed as Exhibit 4.3 to NVR’s Current Report on Form 8-K filed on April 23, 1998 and incorporated herein by reference.
4.2		Form of Note (included in Indenture filed as Exhibit 4.1).
4.3		Fifth Supplemental Indenture dated September 10, 2012 among NVR, Inc. and U.S. Bank Trust National Association. Filed as Exhibit 4.1 to NVR’s Form 8-K filed on September 10, 2012 and incorporated herein by reference.
4.4		Form of Global Note. Filed as Exhibit 4.2 to NVR’s Form 8-K filed on September 10, 2012 and incorporated herein by reference.
10.1*		Employment Agreement between NVR, Inc. and Paul C. Saville dated December 21, 2010. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on December 21, 2010 and incorporated herein by reference.
10.2*		Employment Agreement between NVR, Inc. and Robert W. Henley dated December 21, 2010. Filed as Exhibit 10.4 to NVR’s Form 8-K filed on December 21, 2010 and incorporated herein by reference.
10.3*		Amendment No. 1 to the Employment Agreement between NVR, Inc. and Robert W. Henley dated December 21, 2010. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on May 31, 2012 and incorporated herein by reference.
10.4*		Amendment No. 2 to the Employment Agreement between NVR, Inc. and Robert W. Henley dated December 21, 2010. Filed as Exhibit 10.5 to NVR’s Form 10-K filed on February 19, 2013 and incorporated herein by reference.
10.5*		Employment Agreement between NVR, Inc. and Eugene J. Bredow dated May 31, 2012. Filed as Exhibit 10.2 to NVR’s Form 8-K filed on May 31, 2012 and incorporated herein by reference.
10.6*		Amendment No. 1 to the Employment Agreement between NVR, Inc. and Eugene J. Bredow dated May 31, 2012. Filed as Exhibit 10.7 to NVR’s Form 10-K filed on February 19, 2013 and incorporated herein by reference.
10.7*		Employment Agreement between NVR, Inc. and Daniel D. Malzahn dated February 19, 2013. Filed as Exhibit 10.8 to NVR’s Form 10-K filed on February 19, 2013 and incorporated herein by reference.
10.8*		Profit Sharing Plan of NVR, Inc. and Affiliated Companies. Filed as Exhibit 4.1 to NVR’s Registration Statement on Form S-8 (No. 333-29241) filed on June 13, 1997 and incorporated herein by reference.
10.9*		Employee Stock Ownership Plan of NVR, Inc. Incorporated herein by reference to NVR’s Annual Report on Form 10-K/A for the year ended December 31, 1994.
10.10*		NVR, Inc. 1998 Management Long-Term Stock Option Plan. Filed as Exhibit 4 to NVR’s Registration Statement on Form S-8 (No. 333-79951) filed on June 4, 1999 and incorporated herein by reference.
10.11*		NVR, Inc. 1998 Directors’ Long-Term Stock Option Plan. Filed as Exhibit 4 to NVR’s Registration Statement on Form S-8 (No. 333-79949) filed on June 4, 1999 and incorporated herein by reference.
10.12*		NVR, Inc. 2000 Broadly-Based Stock Option Plan. Filed as Exhibit 99.1 to NVR’s Registration Statement on Form S-8 (No. 333-56732) filed on March 8, 2001 and incorporated herein by reference.
10.13*		NVR, Inc. Nonqualified Deferred Compensation Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on December 16, 2005 and incorporated herein by reference.
10.14*		Description of the Board of Directors’ compensation arrangement. Filed as Exhibit 10.27 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference.
10.15*		NVR, Inc. 2014 Equity Incentive Plan. Filed as Exhibit 10.1 to NVR’s Form S-8 (No. 333-195756) filed on May 7, 2014 and incorporated herein by reference.
10.16*		The Form of Non-Qualified Stock Option Agreement (Management time-based grants) under the NVR, Inc. 2014 Equity Incentive Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on May 7, 2014 and incorporated herein by reference.
10.17*		The Form of Non-Qualified Stock Option Agreement (Director time-based grants) under the NVR, Inc. 2014 Equity Incentive Plan. Filed as Exhibit 10.2 to NVR’s Form 8-K filed on May 7, 2014 and incorporated herein by reference.
10.18*		The Form of Non-Qualified Stock Option Agreement (Management performance-based grants) under the NVR, Inc. 2014 Equity Incentive Plan. Filed as Exhibit 10.3 to NVR’s Form 8-K filed on May 7, 2014 and incorporated herein by reference.

Exhibit Number		Description
10.19*		The Form of Non-Qualified Stock Option Agreement (Director performance-based grants) under the NVR, Inc. 2014 Equity Incentive Plan. Filed as Exhibit 10.4 to NVR’s Form 8-K filed on May 7, 2014 and incorporated herein by reference.
10.20*		NVR, Inc. 2010 Equity Incentive Plan. Filed as Exhibit 10.1 to NVR’s Form S-8 (No. 333-166512) filed on May 4, 2010 and incorporated herein by reference.
10.21*		The Form of Non-Qualified Stock Option Agreement (Management grants) under the NVR, Inc. 2010 Equity Incentive Plan. Filed as Exhibit 10.1 to NVR’s Form 10-Q filed on July 30, 2013 and incorporated herein by reference.
10.22*		The Form of Non-Qualified Stock Option Agreement (Director grants) under the NVR, Inc. 2010 Equity Incentive Plan. Filed as Exhibit 10.2 to NVR’s Form 8-K filed on May 6, 2010 and incorporated herein by reference.
10.23*		The Form of Restricted Share Units Agreement (Management grants) under the NVR, Inc. 2010 Equity Incentive Plan. Filed as Exhibit 10.2 to NVR’s Form 10-Q filed on July 30, 2013 and incorporated herein by reference.
10.24*		The Form of Restricted Share Units Agreement (Director grants) under the NVR, Inc. 2010 Equity Incentive Plan. Filed as Exhibit 10.4 to NVR’s Form 8-K filed on May 6, 2010 and incorporated herein by reference.
10.25*		The Form of Non-Qualified Stock Option Agreement under the NVR, Inc. 2000 Broadly Based Stock Option Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on January 3, 2008 and incorporated herein by reference.
10.26*		The Form of Non-Qualified Stock Option Agreement under the 1998 Directors’ Long-Term Stock Option Plan. Filed as Exhibit 10.34 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.
10.27*		Summary of 2015 Named Executive Officer annual incentive compensation plan. Filed herewith.
21		NVR, Inc. Subsidiaries. Filed herewith.
23		Consent of KPMG LLP (Independent Registered Public Accounting Firm). Filed herewith.
31.1		Certification of NVR’s Chief Executive Officer pursuant to Rule 13a-14(a). Filed herewith.
31.2		Certification of NVR’s Chief Financial Officer pursuant to Rule 13a-14(a). Filed herewith.
32		Certification of NVR’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Exhibit is a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NVR, Inc.
By:		/s/ Paul C. Saville
		Paul C. Saville
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title		Date
/s/ Dwight C. Schar		Chairman		February 19, 2015
Dwight C. Schar
/s/ C. E. Andrews		Director		February 19, 2015
C. E. Andrews
/s/ Robert C. Butler		Director		February 19, 2015
Robert C. Butler
/s/ Timothy M. Donahue		Director		February 19, 2015
Timothy M. Donahue
/s/ Thomas D. Eckert		Director		February 19, 2015
Thomas D. Eckert
/s/ Alfred E. Festa		Director		February 19, 2015
Alfred E. Festa
/s/ Ed Grier		Director		February 19, 2015
Ed Grier
/s/ Manuel H. Johnson		Director		February 19, 2015
Manuel H. Johnson
/s/ Mel Martinez		Director		February 19, 2015
Mel Martinez
/s/ William A. Moran		Director		February 19, 2015
William A. Moran
/s/ David A. Preiser		Director		February 19, 2015
David A. Preiser
/s/ W. Grady Rosier		Director		February 19, 2015
W. Grady Rosier
/s/ Paul W. Whetsell		Director		February 19, 2015
Paul W. Whetsell
/s/ Paul C. Saville		Principal Executive Officer		February 19, 2015
Paul C. Saville
/s/ Daniel D. Malzahn		Principal Financial Officer		February 19, 2015
Daniel D. Malzahn
/s/ Eugene J. Bredow		Principal Accounting Officer		February 19, 2015
Eugene J. Bredow

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

NVR, Inc.:

We have audited the accompanying consolidated balance sheets of NVR, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NVR, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NVR, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 19, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

KPMG LLP

McLean, Virginia

February 19, 2015

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

NVR, Inc.:

We have audited NVR, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). NVR, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, NVR, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NVR, Inc. and subsidiaries as of December 31, 2014 and 2013 and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated February 19, 2015 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

McLean, Virginia

February 19, 2015

NVR, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

		December 31,
		2014				2013
ASSETS
Homebuilding:
Cash and cash equivalents		$	514,780			$	844,274
Receivables			10,021				9,529
Inventory:
Lots and housing units, covered under sales agreements with customers			690,955				568,831
Unsold lots and housing units			131,938				117,467
Land under development			33,689				41,328
Building materials and other			12,904				10,939
			869,486				738,565
Assets related to consolidated variable interest entity			3,590				7,268
Contract land deposits, net			294,676				236,885
Property, plant and equipment, net			46,242				32,599
Reorganization value in excess of amounts allocable to identifiable assets, net			41,580				41,580
Goodwill and finite-lived intangible assets, net			5,364				6,747
Deferred tax assets, net			165,189				162,378
Other assets			137,091				145,555
			2,088,019				2,225,380
Mortgage Banking:
Cash and cash equivalents			30,158				21,311
Mortgage loans held for sale, net			205,664				210,641
Property and equipment, net			6,189				4,699
Reorganization value in excess of amounts allocable to identifiable assets, net			7,347				7,347
Other assets			13,958				16,770
			263,316				260,768
Total assets		$	2,351,335			$	2,486,148
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable		$	204,622			$	181,687
Accrued expenses and other liabilities			289,058				316,227
Liabilities related to consolidated variable interest entity			1,618				1,646
Non-recourse debt related to consolidated variable interest entity			64				3,365
Customer deposits			106,755				101,022
Senior notes			599,166				599,075
			1,201,283				1,203,022
Mortgage Banking:
Accounts payable and other liabilities			25,797				21,774
			25,797				21,774
Total liabilities			1,227,080				1,224,796
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,555,330 shares issued as of both December 31, 2014 and 2013			206				206
Additional paid-in capital			1,325,495				1,212,050
Deferred compensation trust – 108,614 and 109,256 shares of NVR, Inc. common stock as of December 31, 2014 and 2013, respectively			(17,333	)			(17,741	)
Deferred compensation liability			17,333				17,741
Retained earnings			4,887,187				4,605,557
Less treasury stock at cost – 16,506,229 and 16,121,605 shares as of December 31, 2014 and 2013, respectively			(5,088,633	)			(4,556,461	)
Total shareholders' equity			1,124,255				1,261,352
Total liabilities and shareholders' equity		$	2,351,335			$	2,486,148

See notes to consolidated financial statements.

NVR, Inc.

Consolidated Statements of Income

(in thousands, except per share data)

		Year Ended December 31,
		2014				2013				2012
Homebuilding:
Revenues		$	4,375,059			$	4,134,481			$	3,121,244
Other income			2,853				3,962				3,486
Cost of sales			(3,568,586	)			(3,424,204	)			(2,575,639	)
Selling, general and administrative			(358,851	)			(313,029	)			(301,184	)
Operating income			450,475				401,210				247,907
Interest expense			(22,591	)			(21,840	)			(6,983	)
Homebuilding income			427,884				379,370				240,924
Mortgage Banking:
Mortgage banking fees			69,509				76,786				63,406
Interest income			4,940				4,983				4,504
Other income			778				696				564
General and administrative			(49,016	)			(42,594	)			(33,775	)
Interest expense			(549	)			(545	)			(546	)
Mortgage banking income			25,662				39,326				34,153
Income before taxes			453,546				418,696				275,077
Income tax expense			(171,916	)			(152,219	)			(94,489	)
Net income		$	281,630			$	266,477			$	180,588
Basic earnings per share		$	65.83			$	56.25			$	36.04
Diluted earnings per share		$	63.50			$	54.81			$	35.12
Basic weighted average shares outstanding			4,278				4,737				5,011
Diluted weighted average shares outstanding			4,435				4,862				5,142

See notes to consolidated financial statements.

NVR, Inc.

Consolidated Statements of Shareholders’ Equity

(in thousands)

		Common Stock				Additional Paid-In Capital				Retained Earnings				Treasury Stock				Deferred Compensation Trust				Deferred Compensation Liability				Total
Balance, December 31, 2011		$	206			$	1,072,779			$	4,158,492			$	(3,856,678	)		$	(25,581	)		$	25,581			$	1,374,799
Net income			—				—				180,588				—				—				—				180,588
Deferred compensation activity			—				—				—				—				250				(250	)			—
Purchase of common stock for treasury			—				—				—				(227,281	)			—				—				(227,281	)
Equity-based compensation			—				64,841				—				—				—				—				64,841
Tax benefit from equity benefit plan activity			—				14,319				—				—				—				—				14,319
Proceeds from stock options exercised			—				73,211				—				—				—				—				73,211
Treasury stock issued upon option exercise and restricted share vesting			—				(55,451	)			—				55,451				—				—				—
Balance, December 31, 2012			206				1,169,699				4,339,080				(4,028,508	)			(25,331	)			25,331				1,480,477
Net income			—				—				266,477				—				—				—				266,477
Deferred compensation activity			—				—				—				—				7,590				(7,590	)			—
Purchase of common stock for treasury			—				—				—				(554,491	)			—				—				(554,491	)
Equity-based compensation			—				34,296				—				—				—				—				34,296
Tax benefit from equity benefit plan activity			—				20,636				—				—				—				—				20,636
Proceeds from stock options exercised			—				13,957				—				—				—				—				13,957
Treasury stock issued upon option exercise and restricted share vesting			—				(26,538	)			—				26,538				—				—				—
Balance, December 31, 2013			206				1,212,050				4,605,557				(4,556,461	)			(17,741	)			17,741				1,261,352
Net income			—				—				281,630				—				—				—				281,630
Deferred compensation activity			—				—				—				—				408				(408	)			—
Purchase of common stock for treasury			—				—				—				(567,544	)			—				—				(567,544	)
Equity-based compensation			—				63,227				—				—				—				—				63,227
Tax benefit from equity benefit plan activity			—				9,437				—				—				—				—				9,437
Proceeds from stock options exercised			—				76,153				—				—				—				—				76,153
Treasury stock issued upon option exercise and restricted share vesting			—				(35,372	)			—				35,372				—				—				—
Balance, December 31, 2014		$	206			$	1,325,495			$	4,887,187			$	(5,088,633	)		$	(17,333	)		$	17,333			$	1,124,255

See notes to consolidated financial statements

NVR, Inc.

Consolidated Statements of Cash Flows

(in thousands)

		Year Ended December 31,
		2014				2013				2012
Cash flows from operating activities:
Net income		$	281,630			$	266,477			$	180,588
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			17,614				13,391				8,100
Excess income tax benefit from equity-based compensation			(9,437	)			(20,636	)			(14,319	)
Equity-based compensation expense			63,227				34,296				64,841
Contract land deposit recoveries			(225	)			(5,313	)			(2,003	)
Gain on sale of loans			(47,791	)			(56,528	)			(47,019	)
Deferred tax (benefit) expense			(4,176	)			(16,848	)			11,843
Mortgage loans closed			(2,469,876	)			(2,307,796	)			(2,016,084	)
Mortgage loans sold and principal payments on mortgage loans held for sale			2,525,706				2,338,701				2,125,439
Distribution of earnings from unconsolidated joint ventures			8,431				5,676				4,232
Net change in assets and liabilities:
Increase in inventory			(127,729	)			(52,861	)			(97,750	)
Increase in contract land deposits			(57,566	)			(40,034	)			(53,942	)
Increase in receivables			(533	)			(260	)			(1,818	)
Increase in accounts payable and accrued expenses			60				113,121				71,932
Increase in customer deposits			5,733				1,335				38,464
Other, net			(519	)			(2,499	)			(8,120	)
Net cash provided by operating activities			184,549				270,222				264,384
Cash flows from investing activities:
Investments in and advances to unconsolidated joint ventures			—				(22,850	)			(1,000	)
Distribution of capital from unconsolidated joint ventures			11,569				6,782				4,692
Purchase of property, plant and equipment			(31,672	)			(19,016	)			(12,365	)
Proceeds from the sale of property, plant and equipment			1,021				607				319
Acquisition, net of cash acquired			—				—				(14,257	)
Net cash used in investing activities			(19,082	)			(34,477	)			(22,611	)
Cash flows from financing activities:
Purchase of treasury stock			(567,544	)			(554,491	)			(227,281	)
Net repayments under note payable and credit lines			(115	)			(642	)			(856	)
Repayments on loans assumed in acquisition			—				—				(21,910	)
Repayments under non-recourse debt related to consolidated variable interest entity			(3,301	)			(4,314	)			(6,566	)
Borrowings under non-recourse debt related to consolidated variable interest entity			—				3,105				6,157
Distributions to partner in consolidated variable interest entity			(931	)			(1,250	)			—
Excess income tax benefit from equity-based compensation			9,437				20,636				14,319
Proceeds from issuance of Senior Notes due 2022			—				—				598,962
Debt issuance costs for Senior Notes due 2022			—				—				(5,096	)
Proceeds from the exercise of stock options			76,153				13,957				73,211
Net cash (used in) provided by financing activities			(486,301	)			(522,999	)			430,940
Net (decrease) increase in cash and cash equivalents			(320,834	)			(287,254	)			672,713
Cash and cash equivalents, beginning of the year			866,253				1,153,507				480,794
Cash and cash equivalents, end of the year		$	545,419			$	866,253			$	1,153,507
Supplemental disclosures of cash flow information:
Interest paid during the year, net of interest capitalized		$	24,464			$	24,876			$	1,041
Income taxes paid during the year, net of refunds		$	181,840			$	113,224			$	59,604
Supplemental disclosures of non-cash activities:
Increase in assets in connection with acquisition		$	—			$	—			$	55,759
Increase in liabilities in connection with acquisition		$	—			$	—			$	41,502

See notes to consolidated financial statements.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

1.	Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of NVR, Inc. and its subsidiaries (“NVR” or the “Company”) and certain other entities in which the Company is deemed to be the primary beneficiary (see Notes 3 and 4 herein for additional information). All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Management continually evaluates the estimates used to prepare the consolidated financial statements and updates those estimates as necessary. In general, the Company’s estimates are based on historical experience, on information from third party professionals, and other various assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ materially from those estimates made by management.

Reclassifications

Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the 2014 presentation. Reclassifications did not impact net income, total assets or total liabilities, or statement of cash flow classifications.

Cash and Cash Equivalents

Cash and cash equivalents include short-term investments with original maturities of three months or less. At December 31, 2014 and 2013, $481 and $668, respectively, of cash related to a consolidated variable interest entity is included in “Assets related to consolidated variable interest entity” on the accompanying consolidated balance sheet.

The homebuilding segment had restricted cash of $24,106 and $20,563 at December 31, 2014 and 2013, respectively. Restricted cash in both 2014 and 2013 was attributable to holding requirements related to outstanding letters of credit issued under the Company’s letter of credit agreement as discussed further in Note 13 herein. In addition, restricted cash relates to customer deposits for certain home sales. Restricted cash is recorded in “Other assets” in the homebuilding section of the accompanying consolidated balance sheets.

The mortgage banking segment had restricted cash of $1,947 and $2,860 at December 31, 2014 and 2013, respectively, which included amounts collected from customers for loans in process and closed mortgage loans held for sale. The mortgage banking segment’s restricted cash is recorded in “Other assets” in the mortgage banking section of the accompanying consolidated balance sheets.

Homebuilding Inventory

The carrying value of inventory is stated at the lower of cost or market value. Cost of lots and completed and uncompleted housing units represent the accumulated actual cost of the units. Field construction supervisors’ salaries and related direct overhead expenses are included in inventory costs. Interest costs are not capitalized into inventory, with the exception of land under development and joint venture investments, as applicable (see below). Upon settlement, the cost of the unit is expensed on a specific identification basis. Cost of building materials is determined on a first-in, first-out basis.

Sold inventory is evaluated for impairment based on the contractual selling price compared to the total estimated cost to construct. Unsold inventory is evaluated for impairment by analyzing recent comparable sales prices within the applicable community compared to the costs incurred to date plus the expected costs to complete. Any calculated impairments are recorded immediately.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

Contract Land Deposits

The Company purchases finished lots under fixed price purchase agreements that require deposits that may be forfeited if NVR fails to perform under the contract. The deposits are in the form of cash or letters of credit in varying amounts and represent a percentage of the aggregate purchase price of the finished lots.

NVR maintains an allowance for losses on contract land deposits that reflects the Company’s judgment of the present loss exposure in the existing contract land deposit portfolio at the end of the reporting period. To analyze contract land deposit impairments, NVR utilizes an Accounting Standards Codification (“ASC”) 450, Contingencies, loss contingency analysis that is conducted each quarter. In addition to considering market and economic conditions, NVR assesses contract land deposit impairments on a community-by-community basis pursuant to the purchase contract terms, analyzing, as applicable, current sales absorption levels, recent sales’ gross profit, the dollar differential between the contractual purchase price and the current market price for lots, a developer’s financial stability, a developer’s financial ability or willingness to reduce lot prices to current market prices, and the contract’s default status by either the Company or the developer along with an analysis of the expected outcome of any such default.

NVR’s analysis is focused on whether the Company can sell houses profitably in a particular community in the current market with which the Company is faced. Because the Company does not own the finished lots on which the Company has placed a contract land deposit, if the above analysis leads to a determination that the Company cannot sell homes profitably at the current contractual lot price, the Company then determines whether it will elect to default under the contract, forfeit the deposit and terminate the contract, or whether the Company will attempt to restructure the lot purchase contract, which may require it to forfeit the deposit to obtain contract concessions from a developer. The Company also assesses whether impairment is present due to collectability issues resulting from a developer’s non-performance because of financial or other conditions.

For the years ended December 31, 2014, 2013 and 2012, the Company recognized pre-tax recoveries of approximately $225, $5,300 and $2,000, respectively, of contract land deposits previously determined to be uncollectible. The contract land deposit asset on the accompanying consolidated balance sheets is shown net of an approximate $56,100 and $59,800 impairment valuation allowance at December 31, 2014, and 2013, respectively.

Land Under Development

On a very limited basis, NVR directly acquires raw parcels of land already zoned for its intended use to develop into finished lots. Land under development includes the land acquisition costs, direct improvement costs, capitalized interest, where applicable, and real estate taxes.

Land under development, including the land under development held by the Company’s unconsolidated joint ventures and the related joint venture investments, is reviewed for potential write-downs when impairment indicators are present. In addition to considering market and economic conditions, the Company assesses land under development impairments on a community-by-community basis, analyzing, as applicable, current sales absorption levels, recent sales’ gross profit, and the dollar differential between the projected fully-developed cost of the lots and the current market price for lots. If indicators of impairment are present for a community, NVR performs an analysis to determine if the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, and if so, impairment charges are required to be recorded if the fair value of such assets is less than their carrying amounts. For those assets deemed to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company’s determination of fair value is primarily based on discounting the estimated future cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams. NVR does not believe that any of the land under development is impaired at this time.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is based on the estimated useful lives of the assets using the straight-line method. Amortization of capital lease assets is included in depreciation expense. Model home furniture and fixtures are generally depreciated over a two-year period, office facilities and other equipment are depreciated over a period from three to ten years, production facilities are depreciated over periods of from five to forty years and property under capital leases is depreciated in a manner consistent with the Company’s depreciation policy for owned assets, or the lease-term if shorter.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

Intangible Assets

On December 31, 2012, the Company acquired substantially all of the assets of Heartland Homes, Inc., which resulted in the Company recording finite-lived intangible assets and goodwill. The Company completed its annual assessment for impairment of goodwill and management determined that there was no impairment. As of December 31, 2014 and 2013, finite-lived intangible assets attributable to the Heartland Homes, Inc. acquisition, net of accumulated amortization, totaled $4,923 and $6,306, respectively. As of both December 31, 2014 and 2013, the goodwill value was $441. The remaining finite-lived intangible assets will be amortized on a straight-line basis over a weighted average life of 4 years.

Warranty/Product Liability Accruals

The Company establishes warranty and product liability reserves to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to NVR’s homebuilding business. Liability estimates are determined based on management’s judgment considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with the Company’s General Counsel and outside counsel retained to handle specific product liability cases.

Mortgage Loans Held for Sale, Derivatives and Hedging Activities

NVR originates several different loan products to its customers to finance the purchase of a home through its wholly-owned mortgage subsidiary, NVR Mortgage Finance, Inc. (“NVRM”). NVRM sells all of the loans it originates into the secondary market on a servicing released basis, typically within 30 days from origination. All of the loans that NVRM originates are underwritten to the standards and specifications of the ultimate investor. Those underwriting standards are typically equal to or more stringent than the underwriting standards required by Fannie Mae (“FNMA”), Department of Veterans Affairs (“VA”) and the Federal Housing Administration (“FHA”). Insofar as NVRM underwrites its originated loans to those standards, NVRM bears no increased concentration of credit risk from the issuance of loans, except in certain limited instances where early payment default occurs. NVRM employs a quality control department to ensure that its underwriting controls are effectively operating, and further assesses the underwriting function as part of its assessment of internal controls over financial reporting. NVRM maintains an allowance for losses on mortgage loans originated that reflects NVR’s judgment of the present loss exposure in the loans that NVRM has originated and sold. The allowance is calculated based on an analysis of historical experience and exposure (see Note 15 herein for further information).

Mortgage loans held for sale are recorded at fair value at closing and thereafter are carried at the lower of cost or fair value, net of deferred origination costs, until sold.

In the normal course of business, NVRM enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time frames established by NVRM. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to a broker/dealer. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, NVRM enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. NVRM does not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives, and, accordingly, are marked to fair value through earnings. At December 31, 2014, there were contractual commitments to extend credit to borrowers aggregating $237,989, and open forward delivery sale contracts aggregating $424,966 (see Note 14 herein for a description of the Company’s fair value accounting).

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

Earnings per Share

The following weighted average shares and share equivalents were used to calculate basic and diluted earnings per share for the years ended December 31, 2014, 2013 and 2012:

		Year Ended December 31,
		2014				2013				2012
Weighted average number of shares outstanding used to calculate basic EPS			4,278				4,737				5,011
Dilutive securities:
Stock options and restricted share units			157				125				131
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS			4,435				4,862				5,142

The assumed proceeds used in the treasury method for calculating NVR’s diluted earnings per share includes the amount the employee must pay upon exercise, the amount of compensation cost attributed to future services not yet recognized and the amount of tax benefits that would be credited or charged to additional paid-in-capital assuming exercise of the stock option or vesting of the restricted share unit. The assumed amount credited to additional paid-in-capital equals the tax benefit from assumed exercise of stock options or the assumed vesting of restricted share units after consideration of the intrinsic value upon assumed exercise or vesting less the actual stock-based compensation expense to be recognized in the income statement.

The following stock options and restricted share units issued under equity incentive plans were outstanding during the years ended December 31, 2014, 2013 and 2012; however, they were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

		Year Ended December 31,
		2014				2013				2012
Anti-dilutive securities			757				157				194

Revenues – Homebuilding Operations

NVR builds single-family detached homes, townhomes and condominium buildings, which generally are constructed on a pre-sold basis for the ultimate customer. Revenues are recognized at the time the unit is settled and title passes to the customer, adequate cash payment has been received and there is no continuing involvement. In situations where the buyer’s financing is originated by NVRM and the buyer has not made an adequate initial or continuing investment as prescribed by GAAP, the profit on such settlement is deferred until the sale of the related loan to a third-party investor has been completed.

Mortgage Banking Fees

Mortgage banking fees include income earned by NVRM for originating mortgage loans, servicing mortgage loans held on an interim basis, title fees, gains and losses on the sale of mortgage loans and mortgage servicing and other activities incidental to mortgage banking. Mortgage banking fees are generally recognized after the loan has been sold to an unaffiliated, third party investor.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740-10, Income Taxes, provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not (defined as a likelihood of more than 50%) that the position will be sustained upon examination, including resolution of any

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

related appeals or litigation processes, based on the technical merits. If a tax position does not meet the more-likely-than-not recognition threshold, despite the Company’s belief that its filing position is supportable, the benefit of that tax position is not recognized in the statements of income. The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. Based on its historical experience in dealing with various taxing authorities, the Company has found that it is the administrative practice of the taxing authorities to not seek penalties from the Company for the tax positions it has taken on its returns, related to its unrecognized tax benefits. Therefore, the Company does not accrue penalties for the positions in which it has an unrecognized tax benefit. However, if such penalties were to be accrued, they would be recorded as a component of income tax expense. The Company recognizes unrecognized tax benefits in the period that the uncertainty is eliminated by either affirmative agreement of the uncertain tax position by the applicable taxing authority, by expiration of the applicable statute of limitation, or by determination in accordance with certain states’ administrative practices that the uncertain tax position has been effectively settled (see Note 11 herein for further information).

Financial Instruments

Except as otherwise noted herein, NVR believes that insignificant differences exist between the carrying value and the fair value of its financial instruments (see Note 14 herein for further information).

Equity-Based Compensation

The company accounts for its equity-based compensation in accordance with ASC 718, Compensation – Stock Compensation. ASC 718 requires an entity to recognize an expense within its income statement for all share-based payment arrangements, which includes employee stock option and restricted share unit plans. The expense is based on the grant-date fair value of the stock options and restricted share units granted, and is recognized ratably over the requisite service period. Recognition of compensation expense for the stock options which are subject to a performance condition are treated as a separate award from the “service-only” stock options, and expense is recognized when it becomes probable that the stated performance target will be achieved. The Company calculates the fair value of its non-publicly traded, employee stock options using the Black-Scholes option-pricing model. The grant date fair value of the restricted share units is the closing price of the Company’s common stock on the day immediately preceding the date of grant. The Company’s equity-based compensation programs are accounted for as equity-classified awards (see Note 12 herein for further discussion of equity-based compensation plans).

Comprehensive Income

For the years ended December 31, 2014, 2013 and 2012, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard is effective for the Company on January 1, 2017. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

In August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The standard requires an entity’s management to evaluate at each annual and interim reporting period whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related footnote disclosures. The standard is effective for the first annual period ending after December 15, 2016, and interim periods thereafter. The Company does not believe that the adoption of this standard will have a material effect on its consolidated financial statements and related disclosures.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

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.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

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

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

		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

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

	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.

3.	Variable Interest Entities

Fixed Price Purchase Agreements

NVR generally does not engage in the land development business. Instead, the Company typically acquires finished building lots at market prices from various development entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if NVR fails to perform under the agreements. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots.

NVR believes this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. NVR may, at its option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of its intent not to acquire the finished lots under contract. NVR’s sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained within the purchase agreements. In other words, if NVR does not perform under a purchase agreement, NVR loses only its deposit. None of the creditors of any of the development entities with which NVR enters fixed price purchase agreements have recourse to the general credit of NVR. NVR generally does not have any specific performance obligations to purchase a certain number or any of the lots, nor does NVR guarantee completion of the development by the developer or guarantee any of the developers’ financial or other liabilities.

NVR is not involved in the design or creation of any of the development entities from which the Company purchases lots under fixed price purchase agreements. The developer’s equity holders have the power to direct 100% of the operating activities of the development entity. NVR has no voting rights in any of the development entities. The sole purpose of the development entity’s activities is to generate positive cash flow returns to the equity holders. Further, NVR does not share in any of the profit or loss generated by the project’s development. The profits and losses are passed directly to the developer’s equity holders.

The deposit placed by NVR pursuant to the fixed price purchase agreement is deemed to be a variable interest in the respective development entities. Those development entities are deemed to be variable interest entities (“VIE”). Therefore, the development entities with which NVR enters fixed price purchase agreements, including the joint venture limited liability corporations, as discussed below, are evaluated for possible consolidation by NVR. An enterprise must consolidate a VIE when that enterprise has a controlling financial interest in the VIE. An enterprise is deemed to have a controlling financial interest if it has i) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE.

NVR believes the activities that most significantly impact a development entity’s economic performance are the operating activities of the entity. Unless and until a development entity completes finished building lots through the development process to be

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

able to sell, the process of which the development entities’ equity investors bear the full risk, the entity does not earn any revenues. The operating development activities are managed solely by the development entity’s equity investors.

The development entities with which NVR contracts to buy finished lots typically select the respective projects, obtain the necessary zoning approvals, obtain the financing required with no support or guarantees from NVR, select who will purchase the finished lots and at what price, and manage the completion of the infrastructure improvements, all for the purpose of generating a cash flow return to the development entity’s equity holders and all independent of NVR. The Company possesses no more than limited protective legal rights through the purchase agreement in the specific finished lots that it is purchasing, and NVR possesses no participative rights in the development entities. Accordingly, NVR does not have the power to direct the activities of a developer that most significantly impact the developer’s economic performance. For this reason, NVR has concluded that it is not the primary beneficiary of the development entities with which the Company enters fixed price purchase agreements, and therefore, NVR does not consolidate any of these VIEs.

As of December 31, 2014, NVR controlled approximately 62,800 lots through fixed price purchase agreements with deposits in cash and letters of credit totaling $348,400 and $1,700, respectively. As noted above, NVR’s sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained within the purchase agreements and in very limited circumstances, specific performance obligations. In addition, NVR has certain properties under contract with land owners that are expected to yield approximately 5,700 lots, which are not included in the number of total lots controlled. Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits and letters of credit totaling approximately $2,300 and $3,000, respectively as of December 31, 2014, of which approximately $2,600 is refundable if NVR does not perform under the contract. NVR generally expects to assign the raw land contracts to a land developer and simultaneously enter into a lot purchase agreement with the assignee if the project is determined to be feasible. NVR’s total risk of loss related to contract land deposits as of December 31, 2014 and 2013 was as follows:

		December 31,
		2014				2013
Contract land deposits		$	350,750			$	296,646
Loss reserve on contract land deposits			(56,074	)			(59,761	)
Contract land deposits, net			294,676				236,885
Contingent obligations in the form of letters of credit			4,674				2,459
Contingent specific performance obligations (1)			1,505				1,707
Total risk of loss		$	300,855			$	241,051

(1)	At December 31, 2014 and 2013, the Company was committed to purchase 10 and 13 finished lots under specific performance obligations, respectively.

4.	Joint Ventures

On a limited basis, NVR also obtains finished lots using joint venture limited liability corporations (“JVs”). The JVs are typically structured such that NVR is a non-controlling member and is at risk only for the amount the Company has invested, or committed to invest, in addition to any deposits placed under fixed price purchase agreements with the joint venture. NVR is not a borrower, guarantor or obligor on any debt of the JVs, as applicable. The Company enters into a standard fixed price purchase agreement to purchase lots from these JVs, and as a result has a variable interest in these JVs.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

At December 31, 2014, the Company had an aggregate investment totaling approximately $82,000 in five JVs that are expected to produce approximately 8,800 finished lots, of which approximately 3,300 were not under contract with NVR. In addition, NVR had additional funding commitments in the aggregate totaling $11,850 to two of the JVs at December 31, 2014. The Company has determined that it is not the primary beneficiary of four of the JVs because NVR and the other JV partner either share power or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately $80,100 and $90,500 at December 31, 2014 and 2013, respectively, and is reported in the “Other assets” line item on the accompanying consolidated balance sheets. For the remaining JV, NVR has concluded that it is the primary beneficiary because the Company has the controlling financial interest in the JV.

The condensed balance sheets at December 31, 2014 and 2013 of the consolidated JV were as follows:

		December 31,
		2014				2013
Cash		$	481			$	668
Restricted cash			160				248
Other assets			332				542
Land under development			2,617				5,810
Total assets		$	3,590			$	7,268
Debt		$	64			$	3,365
Accrued expenses			1,231				862
Equity			2,295				3,041
Total liabilities and equity		$	3,590			$	7,268

During 2013, NVR invested an additional $11,000 in the Company’s existing JV with Morgan Stanley Real Estate Investing and $11,850 in a newly formed JV with an unrelated party. The newly formed JV is expected to produce approximately 1,300 lots with approximately 50% of those lots being sold to the Company. At December 31, 2013, the Company had an aggregate investment totaling approximately $92,700 in four JVs that were expected to produce approximately 9,300 finished lots, of which approximately 3,400 were not under contract with NVR. In addition, at December 31, 2013, NVR had additional funding commitments in the aggregate totaling $11,850 to two of the JVs.

Distributions received from the unconsolidated JVs are allocated between return of capital and distributions of earnings based on the ratio of capital contributed by NVR to the total expected returns for the respective JVs, and are classified within the accompanying consolidated statements of cash flows as cash flows from investing activities and operating activities, respectively.

5.	Land Under Development

As of December 31, 2014, NVR directly owned four separate raw parcels of land with a carrying value of $33,689 that it intends to develop into approximately 480 finished lots primarily for use in its homebuilding operations. Of the total finished lots, 94 lots are under contract to be sold to an unrelated party under lot purchase agreements. During 2014 and 2013, the Company sold 19 and 15 lots, respectively, to an unrelated party at an aggregate purchase price of approximately $3,100 and $2,600, respectively. The Company capitalizes interest costs to land under development during the active development of finished lots (see Note 6 for further discussion of capitalized interest). None of the raw parcels had any indicators of impairment as of December 31, 2014. Based on current market conditions, NVR may, on a limited basis, directly acquire additional raw parcels to develop into finished lots.

As of December 31, 2013, NVR directly owned five separate raw parcels of land with a carrying value of $41,328 and expected to produce approximately 650 finished lots.

6.	Capitalized Interest

The Company capitalizes interest costs to land under development during the active development of finished lots. In addition, the Company capitalizes interest costs to its joint venture investments while the investments are considered qualified assets pursuant to ASC 835-20, Interest. Capitalized interest is transferred to sold or unsold inventory as the development of finished lots is completed, then charged to cost of sales upon the Company’s settlement of homes and the respective lots. Interest incurred during the period in

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

excess of the interest capitalizable based on the level of qualified assets is expensed in the period incurred. NVR’s interest costs incurred, capitalized, expensed and charged to cost of sales during the years ended December 31, 2014 and 2013 was as follows:

		December 31,
		2014				2013
Interest capitalized, beginning of period		$	3,294			$	893
Interest incurred			24,994				25,048
Interest charged to interest expense			(23,140	)			(22,385	)
Interest charged to cost of sales			(1,076	)			(262	)
Interest capitalized, end of period		$	4,072			$	3,294

7.	Related Party Transactions

During the year ended December 31, 2014, NVR entered into fixed price purchase agreements to purchase finished building lots for a total purchase price of approximately $40,800 with Elm Street Development, Inc. (“Elm Street”), which is controlled by one of the Company’s directors, William Moran. The independent members of the Company’s Board of Directors approved these transactions. During 2014, 2013 and 2012, NVR purchased developed lots at market prices from Elm Street for approximately $50,100, $38,400 and $54,600, respectively. The Company also continues to control a parcel of raw land expected to yield approximately 2,400 finished lots through a joint venture entered into with Elm Street during 2009. NVR did not make any additional capital contributions to that joint venture in 2014 or 2013. Further, during 2014, 2013 and 2012, the Company paid Elm Street $143 per year to manage the development of a property that the Company purchased from Elm Street in 2010.

8.	Property, Plant and Equipment, net

		December 31,
		2014				2013
Homebuilding:
Office facilities and other		$	29,326			$	19,547
Model home furniture and fixtures			28,945				22,432
Production facilities			47,796				39,396
Property under capital leases			—				3,976
			106,067				85,351
Less: accumulated depreciation			(59,825	)			(52,752	)
		$	46,242			$	32,599
Mortgage Banking:
Office facilities and other		$	10,508			$	8,118
Less: accumulated depreciation			(4,319	)			(3,419	)
		$	6,189			$	4,699

Certain property, plant and equipment listed above is collateral for certain debt of NVR as more fully described in Note 9 herein.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

9.	Debt

		December 31,
		2014				2013
Homebuilding:
Other term debt:
Capital lease obligations due in monthly installments through 2014 (a)		$	—			$	115
Senior notes (b)		$	599,166			$	599,075
Mortgage Banking:
Master repurchase agreement (c)		$	—			$	—

(a)	The capital lease ended in March 2014. The capital lease obligation had a fixed interest rate of 13.0% and was collateralized by buildings and equipment with a net book value of approximately $47 at December 31, 2013.

(b)

On September 10, 2012, NVR completed an offering for $600,000 of Senior Notes under a shelf registration statement filed on September 5, 2012 with the Securities and Exchange Commission (the “SEC”). The Senior Notes were issued at a discount to yield 3.97% and have been reflected net of the unamortized discount in the accompanying consolidated balance sheet. The offering of the Senior Notes resulted in aggregate net proceeds of approximately $593,900, after deducting underwriting discounts and other offering expenses. The Senior Notes mature on September 15, 2022 and bear interest at 3.95%, payable semi-annually in arrears on March 15 and September 15. The Senior Notes are senior unsecured obligations and rank equally in right of payment with any of NVR’s existing and future unsecured senior indebtedness, will rank senior in right of payment to any of NVR’s future indebtedness that is by its terms expressly subordinated to the Senior Notes and will be effectively subordinated to any of NVR’s existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The indenture governing the Senior Notes has, among other items, and subject to certain exceptions, covenants that restrict the Company’s ability to create, incur, assume or guarantee secured debt, enter into sale and leaseback transactions and conditions related to mergers and/or the sale of assets.

(c)	On July 30, 2014, NVRM renewed and amended its revolving mortgage repurchase agreement with U.S. Bank National Association (the “Repurchase Agreement”). The purpose of the Repurchase Agreement is to finance the origination of mortgage loans by NVRM. The Repurchase Agreement provides for loan purchases up to $25,000, subject to certain sub limits. The Repurchase Agreement expires on July 29, 2015.

Advances under the Repurchase Agreement carry a Pricing Rate based on the LIBOR Rate plus the LIBOR Margin, as determined under the Repurchase Agreement, provided that the Pricing Rate shall not be less than 2.825%. There are several restrictions on purchased loans, including that they cannot be sold to others, they cannot be pledged to anyone other than the agent, and they cannot support any other borrowing or repurchase agreement. As of December 31, 2014 and 2013, there was no debt outstanding under the Repurchase Agreement. There were no borrowing base limitations at December 31, 2014.

The Repurchase Agreement contains various affirmative and negative covenants. The negative covenants include, among others, certain limitations on transactions involving acquisitions, mergers, the incurrence of debt, sale of assets and creation of liens upon any of its Mortgage Notes. Additional covenants include (i) a tangible net worth requirement, (ii) a minimum liquidity requirement, (iii) a minimum net income requirement, and (iv) a maximum leverage ratio requirement. The Company was in compliance with all covenants under the Repurchase Agreement at December 31, 2014.

10.	Common Stock

There were approximately 4,049 and 4,434 common shares outstanding at December 31, 2014 and 2013, respectively. As of December 31, 2014, NVR had reacquired a total of approximately 23,800 shares of NVR common stock at an aggregate cost of approximately $5,876,000 since December 31, 1993.

The Company made the following share repurchases during the years indicated:

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

		Year Ended December 31,
		2014				2013				2012
Aggregate Purchase Price		$	567,544			$	554,491			$	227,281
Number of Shares Repurchased			508				581				286

Since 1999, the Company has issued shares from the treasury for all stock option exercises. There have been approximately 7,287 shares reissued from the treasury in satisfaction of stock option exercises, vesting of restricted share units and other employee benefit obligations. The Company issued 123, 102 and 222 such shares during 2014, 2013 and 2012, respectively.

11.	Income Taxes

The provision for income taxes consists of the following:

		Year Ended December 31,
		2014				2013				2012
Current:
Federal		$	148,221			$	137,675			$	76,599
State			28,881				30,352				3,066
Deferred:
Federal			(4,451	)			(13,402	)			13,086
State			(735	)			(2,406	)			1,738
		$	171,916			$	152,219			$	94,489

In addition to amounts applicable to income before taxes, the following income tax benefits were recorded in shareholders’ equity:

		Year Ended December 31,
		2014				2013				2012
Income tax benefits arising from compensation expense for tax purposes in excess of amounts recognized for financial statement purposes		$	9,437			$	20,636			$	14,319

Deferred income taxes on NVR’s consolidated balance sheets were comprised of the following:

		December 31,
		2014				2013
Deferred tax assets:
Other accrued expenses and contract land deposit reserve		$	84,817			$	90,372
Deferred compensation			7,500				8,049
Equity-based compensation expense			46,257				35,298
Inventory			11,153				11,099
Unrecognized tax benefit			24,485				23,784
Other			5,847				4,200
Total deferred tax assets			180,059				172,802
Less: deferred tax liabilities			7,371				4,290
Net deferred tax position		$	172,688			$	168,512

Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes and equity-based compensation expense, which are not currently deductible for tax return purposes.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

Management believes that the Company will have sufficient available carry-backs and future taxable income to make it more likely than not that the net deferred tax assets will be realized. Federal taxable income is estimated to be approximately $388,000 for the year ended December 31, 2014, and was $362,978 for the year ended December 31, 2013.

A reconciliation of income tax expense in the accompanying consolidated statements of income to the amount computed by applying the statutory federal income tax rate of 35% to income before taxes is as follows:

		Year Ended December 31,
		2014				2013				2012
Income taxes computed at the federal statutory rate		$	158,741			$	146,544			$	96,277
State income taxes, net of federal income tax benefit			18,800				18,210				3,226
Other, net			(5,625	)			(12,535	)			(5,014	)
		$	171,916			$	152,219			$	94,489

The Company’s effective tax rate in 2014, 2013 and 2012 was 37.90%, 36.36% and 34.35%, respectively. During 2014, the Company recognized income tax expense of approximately $7,000 due to the reversal of certain previously recognized tax deductions. During 2012, the Company reduced its provision for unrecognized tax benefits by $9,154, which reduced the 2012 effective tax rate. The reduction resulted from settlements with, and an audit by, certain taxing authorities during 2012 which led the Company to update its evaluation of the administrative practice in other states for similar uncertain tax positions to determine whether the positions taken in those states were effectively settled.

The Company files a consolidated U.S. federal income tax return, as well as state and local tax returns in all jurisdictions where the Company maintains operations. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2011.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

		Year Ended December 31,
		2014				2013
Balance at beginning of year		$	43,796			$	40,244
Additions based on tax positions related to the current year			6,008				5,618
Reductions for tax positions of prior years			(3,800	)			(2,066	)
Settlements			—				—
Balance at end of year		$	46,004			$	43,796

If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (net of the federal tax benefit) is $29,902 as of December 31, 2014.

The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. For the year ended December 31, 2014, the Company recognized a net reversal of accrued interest on unrecognized tax benefits in the amount of $184. For the year ended December 31, 2013, the Company had a net addition to accrued interest on unrecognized tax benefits in the amount of $625. For the year ended December 31, 2012, the Company recognized a net reversal of accrued interest on unrecognized tax benefits in the amount of $4,116. As of December 31, 2014 and 2013, the Company had a total of $21,096 and $21,281, respectively, of accrued interest on unrecognized tax benefits which are included in “Accrued expenses and other liabilities” on the accompanying consolidated balance sheets. Based on its historical experience in dealing with various taxing authorities, the Company has found that it is the administrative practice of these authorities to not seek penalties from the Company for the tax positions it has taken on its returns, related to its unrecognized tax benefits. Therefore, the Company does not accrue penalties for the positions in which it has an unrecognized tax benefit. However, if such penalties were to be accrued, they would be recorded as a component of income tax expense.

The Company believes that within the next 12 months, it is reasonably possible that the unrecognized tax benefits as of December 31, 2014 will be reduced by approximately $6,339 due to statute expiration and effectively settled positions in various state jurisdictions. The Company is currently under audit by the state of Pennsylvania.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

12.	Equity-Based Compensation, Profit Sharing and Deferred Compensation Plans

Equity-Based Compensation Plans

NVR’s equity-based compensation plans provide for the granting of non-qualified stock options to purchase shares of NVR common stock (“Options”) and restricted share units (“RSUs”) to key management employees, including executive officers and Board members, of the Company. The exercise price of Options granted is equal to the closing price of the Company’s common stock on the New York Stock Exchange (the “NYSE”) on the day prior to the date of grant, and RSUs are issued at a $0 exercise price. Options are granted for a ten-year term and typically vest in separate tranches over periods of 3 to 6 years. The vesting for certain Options is contingent solely on continued employment or service as a Director, while vesting for other Options is contingent upon both continued employment or service as a Director and the achievement of a performance metric as discussed further in the summary description of the 2014 Plan below. RSUs generally vest in separate tranches over periods of 2 to 3 years, based solely on continued employment or continued service as a Director. At December 31, 2014, there was an aggregate of 1,201 options and 55 RSUs outstanding, and there were an additional 362 available shares to be granted under existing equity-based compensation plans. Of the available shares to be granted, up to 33 shares may be granted in the form of RSUs.

The following is a summary description of each of the Company’s equity-based compensation plans for any plan with grants outstanding at December 31, 2014:

●

During 1999, the Company’s shareholders approved the 1998 Management Long-Term Stock Option Plan (the “1998 Option Plan”). There were 1,000 Options authorized under the 1998 Option Plan. All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant. The Options expire 10 years after the dates upon which they were granted, and were fully vested as of December 31, 2013. There are no grants remaining available to issue under the 1998 Option Plan.

●

During 1999, the Company’s shareholders approved the 1998 Directors’ Long Term Stock Option Plan (the “1998 Directors’ Plan”). There were 150 Options to purchase shares of common stock authorized for grant to the Company’s outside directors under the 1998 Directors’ Plan. All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant. The outstanding Options were granted for a 10-year term and were fully vested as of December 31, 2012. There are no grants remaining available to issue under the 1998 Directors’ Plan.

●

During 2000, the Board approved the 2000 Broadly-Based Stock Option Plan (the “2000 Plan”). The Company did not seek approval from its shareholders for the 2000 Plan. There were 2,000 Options authorized under the 2000 Plan. All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant. Grants under the 2000 Plan were available to both employees and members of the Board. Options granted under the 2000 Plan expire 10 years from the date of grant, and generally vest annually in 25% increments based on the date of grant. There are no grants remaining available to issue under the 2000 Plan.

●

During 2010, the Company’s shareholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan authorizes the Company to issue Options and RSUs to key management employees, including executive officers and Board members, to acquire up to an aggregate of 700 shares of the Company’s common stock. Of the 700 aggregate shares available to issue, up to 240 may be granted in the form of RSUs. All Options are granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant, and all RSUs are granted at a $0 exercise price. The Options are granted for a 10-year term. The RSUs and Options initially granted under the 2010 Plan each vested annually in 50% increments beginning December 31, 2011 and December 31, 2013, respectively. At December 31, 2014, there were 41 shares available to be granted under the 2010 Plan, of which 33 may be granted as RSUs.

●

During 2014, the Company’s shareholders approved the NVR, Inc. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan authorizes the Company to issue Options to key management employees, including executive officers and Board members, to acquire up to an aggregate 950 shares of the Company’s common stock. Option grants under the 2014 Plan are generally divided such that vesting for 50% of the Option grant is solely contingent upon continued employment or continued service as a Director, while vesting for the remaining 50% of the Option grant is contingent upon both continued employment or service as a Director and the achievement of a performance metric based on the Company’s return on capital performance during 2014 through 2016. Options granted under the 2014 Plan generally vest annually over four years in 25% increments beginning on December 31, 2016. All Options are granted at an exercise price equal to

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

	the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant. The Options are granted for a 10-year term. At December 31, 2014, there were 321 shares available to be granted under the 2014 Plan.

During 2014, the Company issued 634 Options under the 2014 Plan. The Options were granted at an exercise price equal to the closing price of the Company’s common stock on the day prior to the date of grant. Substantially all of the Options granted in 2014 will vest annually over four years in 25% increments beginning on December 31, 2016. Vesting for 338 of the Options granted is contingent both upon continued employment or continued service as a director and the Company’s return on capital performance during the years 2014 through 2016. Vesting for the other 296 Options granted under the 2014 Plan is contingent solely upon continued employment or continued service as a director. The Options expire ten years from the date of grant.

During 2014, the Company also issued 49 Options under the 2010 Plan. The Options were granted at an exercise price equal to the closing price of the Company’s common stock on the day prior to the date of grant. Substantially all of the 2010 Plan Options granted during 2014 under the 2010 Plan will vest annually over four years in 25% increments beginning on December 31, 2016. The vesting for the Options granted under the 2010 Plan is based solely on continued employment. The Options expire ten years from the date of grant.

The Company also issued 16 RSUs from the 2010 Plan during 2014. Each RSU was granted at a $0 exercise price. The RSUs vest in 33% increments on December 31, 2016, 2017 and 2018, based solely on continued employment.

The following table provides additional information relative to NVR’s equity-based compensation plans for the year ended December 31, 2014:

		Shares				Weighted Avg. Per Share Exercise Price				Weighted Avg. Remaining Contract Life (years)				Aggregate Intrinsic Value
Stock Options
Outstanding at December 31, 2013			667			$	740.18
Granted			683				1,095.69
Exercised			(118	)			644.60
Forfeited			(31	)			910.36
Outstanding at December 31, 2014			1,201			$	947.39				7.9			$	393,866
Exercisable at December 31, 2014			346			$	676.37				5.1			$	207,487
RSUs (1)
Outstanding at December 31, 2013			45
Granted			16
Vested			(5	)
Forfeited			(1	)
Outstanding at December 31, 2014			55											$	70,773
Vested, but not issued at December 31, 2014			2											$	2,713

(1)	RSU grants were issued at a $0 exercise price.

To estimate the grant-date fair value of its Options, the Company uses the Black-Scholes option-pricing model (the “Pricing Model”). The Pricing Model estimates the per share fair value of an option on its date of grant based on the following factors: the option’s exercise price; the price of the underlying stock on the date of grant; the estimated dividend yield; a risk-free interest rate; the estimated option term; and the expected volatility. For the risk-free interest rate, the Company uses U.S. Treasury STRIPS which mature at approximately the same time as the option’s expected holding term. For expected volatility, NVR has concluded that its historical volatility over the option’s expected holding term provides the most reasonable basis for this estimate. The fair value of the Options granted during 2014, 2013 and 2012 was estimated on the grant date using the Pricing Model, based on the following assumptions:

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

		2014				2013				2012
Estimated option life		5.16 years				5.20 years				4.95 years
Risk free interest rate (range)		1.06%-2.49%				0.42%-2.10%				0.35%-1.84%
Expected volatility (range)		18.26%-30.57%				17.98%-32.72%				17.71%-34.43%
Expected dividend rate			0.00%				0.00%				0.00%
Weighted average grant-date fair value per share of options granted		$	267.66			$	268.13			$	221.45

In accordance with ASC 718, Compensation – Stock Compensation, the fair value of the RSUs is measured as if they were vested and issued on the grant date. Additionally, under ASC 718, service-only restrictions on vesting of RSUs are not reflected in the fair value calculation at the grant date. As a result, the fair value of the RSUs was the closing price of the Company’s common stock on the day immediately preceding the date of grant. The weighted average fair value of the RSUs granted in the current year was $1,153.41 per share.

Compensation cost for Options and RSUs is recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant). For the recognition of equity-based compensation, the RSUs are treated as a separate award from the Options. Additionally, the Options which are subject to a performance condition are treated as a separate award from the “service-only” Options, and compensation expense is recognized when it becomes probable that the stated performance target will be achieved. The Company currently believes that it is probable that the performance condition will be satisfied at the target level and is recognizing compensation expense related to such Options accordingly. Compensation cost is recognized within the income statement in the same expense line as the cash compensation paid to the respective employees. ASC 718 also requires the Company to estimate forfeitures in calculating the expense related to equity-based compensation and requires that the compensation costs of equity-based awards be recognized net of estimated forfeitures. The impact on compensation costs due to changes in the expected forfeiture rate will be recognized in the period that they become known. In 2014, 2013 and 2012, the Company recognized approximately $63,227, $34,296, and $64,841 in equity-based compensation costs, respectively, and approximately $22,900, $12,100, and $23,900 in tax benefit related to equity-based compensation costs, respectively. In 2013, the Company reversed approximately $7,900 in equity-based compensation expense previously recorded to adjust stock option forfeiture rates based on actual forfeiture experience. The reversal was made to the accounts originally charged as follows; approximately $7,100 and $300 from homebuilding general and administrative and cost of sales expense, respectively, and approximately $500 from NVRM general and administrative expense.

As of December 31, 2014, the total unrecognized compensation cost for all outstanding Options and RSUs equaled approximately $195,400, net of estimated forfeitures. The unrecognized compensation cost will be recognized over each grant’s applicable vesting period with the latest vesting date being December 31, 2020. The weighted-average period over which the unrecognized compensation will be recorded is equal to approximately 2.7 years.

The Company settles Option exercises and vesting of RSUs by issuing shares of treasury stock to Option holders. Shares are relieved from the treasury account based on the weighted average cost of treasury shares acquired. During the years ended December 31, 2014, 2013 and 2012, the Company issued 123, 102 and 222 shares, respectively, from the treasury account for Option exercises and vesting of RSUs. Information with respect to the vested RSUs and exercised Options is as follows:

		Year Ended December 31,
		2014				2013				2012
Aggregate exercise proceeds (1)		$	76,153			$	14,834			$	73,211
Aggregate intrinsic value on exercise dates		$	62,136			$	84,908			$	101,334

(1)	Aggregate exercise proceeds include the Option exercise price received in cash or the fair market value of NVR stock surrendered by the optionee in lieu of cash.

Profit Sharing Plans

NVR has a trustee-administered, profit sharing retirement plan (the “Profit Sharing Plan”) and an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees. The Profit Sharing Plan and the ESOP provide for annual discretionary contributions in amounts as determined by the NVR Board of Directors. The combined plan contribution for the years ended

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

December 31, 2014, 2013 and 2012 was $16,980, $12,012 and $9,575, respectively. The ESOP purchased approximately 14 and 10 shares of NVR common stock in the open market for the 2014 and 2013 plan year contributions, respectively, using cash contributions provided by the Company. As of December 31, 2014, all shares held by the ESOP had been allocated to participants’ accounts. The 2014 plan year contribution was funded and fully allocated to participants in February 2015.

Deferred Compensation Plans

The Company has two deferred compensation plans (“Deferred Comp Plans”). The specific purpose of the Deferred Comp Plans is to i) establish a vehicle whereby named executive officers may defer the receipt of salary and bonus that otherwise would be nondeductible for Company tax purposes into a period where the Company would realize a tax deduction for the amounts paid, and ii) to enable certain employees who are subject to the Company’s stock holding requirements to acquire shares of the Company’s common stock on a pre-tax basis in order to more quickly meet, and maintain compliance with those stock holding requirements. Amounts deferred into the Deferred Comp Plans are invested in NVR common stock, held in a rabbi trust account, and are paid out in a fixed number of shares upon expiration of the deferral period.

The rabbi trust account held 109 shares of NVR common stock as of both December 31, 2014 and 2013. During 2013, 43 shares of NVR common stock were issued from the rabbi trust related to deferred compensation for which the deferral period ended. There were no shares of NVR common stock contributed to the rabbi trust in 2014 or 2013. Shares held by the Deferred Comp Plans are treated as outstanding shares in the Company’s earnings per share calculation for each of the years ended December 31, 2014, 2013 and 2012.

13.	Commitments and Contingent Liabilities

NVR is committed under multiple non-cancelable operating leases involving office space, model homes, production facilities, automobiles and equipment. Future minimum lease payments under these operating leases as of December 31, 2014 are as follows:

Year Ending December 31,
2015		$	24,012
2016			17,352
2017			15,024
2018			11,654
2019			11,155
Thereafter			28,092
			107,289
Sublease income			(282	)
		$	107,007

Total rent expense incurred under operating leases was $45,508, $39,608 and $33,399 for the years ended December 31, 2014, 2013 and 2012, respectively.

The Company generally does not engage in the land development business. Instead, the Company typically acquires finished building lots at market prices from various development entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if the Company fails to perform under the agreement. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots. The Company believes this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. The Company generally seeks to maintain control over a supply of lots believed to be suitable to meet its five-year business plan. At December 31, 2014, assuming that contractual development milestones are met, the Company is committed to placing additional forfeitable deposits with land developers under existing lot option contracts of approximately $75,200. The Company also has one specific performance contract pursuant to which the Company is committed to purchase 10 finished lots at an aggregate purchase price of approximately $1,500.

During the ordinary course of operating the homebuilding and mortgage banking businesses, the Company is required to enter into bond or letter of credit arrangements with local municipalities, government agencies, or land developers to collateralize its obligations under various contracts. The Company had approximately $59,400 of contingent obligations under such agreements,

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

including approximately $11,400 for letters of credit issued under an uncommitted, collateralized letter of credit facility as of December 31, 2014. The Company believes it will fulfill its obligations under the related contracts and does not anticipate any material losses under these bonds or letters of credit.

The following table reflects the changes in the Company’s warranty reserve (see Note 1 herein for further discussion of warranty/product liability reserves):

		Year Ended December 31,
		2014				2013				2012
Warranty reserve, beginning of year		$	101,507			$	62,742			$	64,008
Provision			51,668				82,860				41,138
Payments			(59,115	)			(44,095	)			(42,404	)
Warranty reserve, end of year		$	94,060			$	101,507			$	62,742

The warranty reserve provision for 2013 included two warranty accrual charges totaling approximately $31,600. The first charge of approximately $15,600 related to remediation of primarily water infiltration issues in a single completed community. The second charge of approximately $16,000 was recorded to increase the warranty accrual for a non-recurring service issue.

In October 2004, Patrick Tracy, whom NVR had employed as a Sales and Marketing Representative (“SMR”), filed a lawsuit against the Company in the U.S. District Court for the Western District of New York alleging that NVR had misclassified him and other SMRs as outside sales personnel exempt from certain state and federal wage laws, including overtime pay requirements. Mr. Tracy’s attorneys subsequently filed several other lawsuits in various courts asserting substantially similar claims on behalf of various classes or groups of SMRs. None of those courts have held that the claims are appropriate for class, collective, or other group treatment, and the Western District of New York ruled in April 2013 that the claims in Mr. Tracy’s case could not proceed on such a basis. The Western District of New York reached the same conclusion in July 2014 regarding a separate case that Mr. Tracy’s attorneys brought on behalf of other SMRs.

In October 2013, Mr. Tracy’s individual claims were tried by a jury, which returned a unanimous verdict in NVR’s favor and found that the Company had properly classified Mr. Tracy as an exempt outside sales person. The plaintiff has sought review in the U.S. Court of Appeals for the Second Circuit, in which he challenges the legal standard that the trial court applied in crafting its jury instructions regarding the outside sales exemption, in addition to rulings that the trial court made at earlier stages of the case. That appeal is fully briefed, and the parties are awaiting a ruling or an oral argument date. The remainder of the cases noted above are in various stages of pre-trial proceedings, many of them stayed or administratively closed pending a final disposition of the Tracy action.

The Company believes that the compensation practices in regard to SMRs are entirely lawful and have vigorously defended all claims challenging those practices. In light of the points noted above, the Company has not recorded any associated liabilities on the accompanying consolidated balance sheets in conjunction with any of those claims.

In June 2010, the Company received a Request for Information from the United States Environmental Protection Agency (“EPA”) pursuant to Section 308 of the Clean Water Act. The request sought information about storm water discharge practices in connection with homebuilding projects completed or underway by the Company in New York and New Jersey. The Company cooperated with this request, and provided information to the EPA. The Company was subsequently informed by the United States Department of Justice (“DOJ”) that the EPA forwarded the information on the matter to the DOJ, and the DOJ requested that the Company meet with the government to discuss the status of the case. Meetings took place in January 2012, August 2012 and November 2014 with representatives from both the EPA and DOJ. The Company has continued discussions with the EPA and DOJ. It is as yet unclear what next steps the DOJ will take in the matter. The Company intends to continue cooperating with any future EPA and/or DOJ inquiries. At this time, the Company cannot predict the outcome of this inquiry, nor can it reasonably estimate the potential costs that may be associated with its eventual resolution.

The Company and its subsidiaries are also involved in various other litigation arising in the ordinary course of business. In the opinion of management, and based on advice of legal counsel, this litigation is not expected to have a material adverse effect on the financial position, results of operations or cash flows of the Company. Legal costs incurred in connection with outstanding litigation are expensed as incurred.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

14.	Fair Value

Financial Instruments

The estimated fair value of NVR’s Senior Notes as of December 31, 2014 was $622,800. The estimated fair value is based on recent market prices of similar transactions, which is classified as Level 2 within the fair value hierarchy. The carrying value was $599,166 at December 31, 2014. Except as otherwise noted below, NVR believes that insignificant differences exist between the carrying value and the fair value of its financial instruments, which consists primarily of cash equivalents, due to their short term nature.

Derivative Instruments and Mortgage Loans Held for Sale

In the normal course of business, NVRM enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time frames established by NVRM. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to a broker/dealer. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, NVRM enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. NVRM does not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives and, accordingly, are marked to fair value through earnings. At December 31, 2014, there were contractual commitments to extend credit to borrowers aggregating $237,989 and open forward delivery contracts aggregating $424,966, which hedge both the rate lock loan commitments and closed loans held for sale.

GAAP assigns a fair value hierarchy to the inputs used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets and liabilities. Level 2 inputs are inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs. The fair value of the Company’s rate lock commitments to borrowers and the related input levels includes, as applicable:

i)	the assumed gain/loss of the expected resultant loan sale (Level 2);

ii)	the effects of interest rate movements between the date of the rate lock and the balance sheet date (Level 2); and

iii)	the value of the servicing rights associated with the loan (Level 2).

The assumed gain/loss considers the amount, if any, that NVRM has discounted the price to the borrower from par for competitive reasons and the excess servicing to be received or buydown fees to be paid upon securitization of the loan. The excess servicing and buydown fees are calculated pursuant to contractual terms with investors. To calculate the effects of interest rate movements, NVRM utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount. NVRM sells all of its loans on a servicing released basis, and receives a servicing released premium upon sale. Thus, the value of the servicing rights, which averaged 114 basis points of the loan amount as of December 31, 2014, is included in the fair value measurement and is based upon contractual terms with investors and varies depending on the loan type. NVRM assumes an approximate 11% fallout rate when measuring the fair value of rate lock commitments. Fallout is defined as locked loan commitments for which NVRM does not close a mortgage loan and is based on historical experience.

The fair value of NVRM’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date (Level 2). The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

Mortgage loans held for sale are recorded at fair value when closed, and thereafter are carried at the lower of cost or fair value, net of deferred origination costs, until sold. Fair value is measured using Level 2 inputs. The fair value of loans held for sale of $205,664 included on the accompanying consolidated balance sheet has been increased by $2,359 from the aggregate principal balance of $203,305.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

The undesignated derivative instruments are included on the accompanying consolidated balance sheet, as of December 31, 2014, as follows:

		Balance Sheet Location		Fair Value
Derivative Assets:
Rate lock commitments		NVRM - Other assets		$	2,374
Derivative Liabilities:
Forward sales contracts		NVRM - Accounts payable and other liabilities		$	909

The fair value measurement as of December 31, 2014 was as follows:

		Notional or Principal Amount				Assumed Gain/(Loss) From Loan Sale				Interest Rate Movement Effect				Servicing Rights Value				Security Price Change				Total Fair Value Measurement Gain/(Loss)
Rate lock commitments		$	237,989			$	(602	)		$	559			$	2,417			$	—			$	2,374
Forward sales contracts		$	424,966				—				—				—				(909	)			(909	)
Mortgages held for sale		$	203,305				(354	)			423				2,290				—				2,359
Total Fair Value Measurement						$	(956	)		$	982			$	4,707			$	(909	)		$	3,824

For the years ended December 31, 2014 and 2013, NVRM recorded a fair value adjustment to income of $3,305 and $3,021, respectively. For the year ended December 31, 2012 NVRM recorded a fair value adjustment to expense of $2,431. Unrealized gains/losses from the change in the fair value measurements are included in earnings as a component of mortgage banking fees in the accompanying condensed consolidated statements of income. The fair value measurement will be impacted in the future by the change in the value of the servicing rights, interest rate movements, security price fluctuations, and the volume and product mix of NVRM’s closed loans and locked loan commitments.

15.	Mortgage Loan Loss Allowance

During the years ended December 31, 2014, 2013 and 2012, the Company recognized pre-tax charges for loan losses related to mortgage loans sold of approximately $2,400, $2,300 and $1,300, respectively. Included in the Mortgage Banking segment’s “Accounts payable and other liabilities” line item on the accompanying consolidated balance sheets is a mortgage loan loss allowance equal to approximately $10,000 and $8,200 at December 31, 2014 and 2013, respectively.

16.	Quarterly Results (unaudited)

The following table sets forth unaudited selected financial data and operating information on a quarterly basis for the years ended December 31, 2014 and 2013.

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

		Year Ended December 31, 2014
		4th Quarter				3rd Quarter				2nd Quarter				1st Quarter
Revenues – homebuilding operations		$	1,306,632			$	1,185,160			$	1,084,080			$	799,187
Gross profit – homebuilding operations		$	236,031			$	225,105			$	201,302			$	144,035
Mortgage banking fees		$	21,406			$	18,006			$	17,974			$	12,123
Net income		$	99,451			$	90,152			$	68,178			$	23,849
Diluted earnings per share		$	23.24			$	20.70			$	15.17			$	5.16
Contracts for sale, net of cancellations (units)			2,713				2,936				3,415				3,325
Settlements (units)			3,469				3,236				2,943				2,211
Backlog, end of period (units)			5,475				6,231				6,531				6,059
Loans closed		$	881,930			$	803,125			$	675,625			$	472,933

		Year Ended December 31, 2013
		4th Quarter				3rd Quarter				2nd Quarter				1st Quarter
Revenues – homebuilding operations		$	1,223,808			$	1,167,595			$	992,210			$	750,868
Gross profit – homebuilding operations		$	222,393			$	203,179			$	157,922			$	126,783
Mortgage banking fees		$	18,344			$	21,372			$	17,682			$	19,388
Net income		$	97,811			$	82,935			$	50,690			$	35,041
Diluted earnings per share		$	21.15			$	17.67			$	10.11			$	6.84
Contracts for sale, net of cancellations (units)			2,631				2,381				3,278				3,510
Settlements (units)			3,342				3,342				2,878				2,272
Backlog, end of period (units)			4,945				5,656				6,617				6,217
Loans closed		$	721,926			$	695,930			$	646,450			$	473,766