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

				Incorporated by Reference
Exhibit Number		Exhibit Description		Form		File Number		Exhibit Number		Filing Date
3.1		Restated Articles of Incorporation of NVR, Inc.		10-K				3.1		2/25/2011
3.2		Bylaws, as amended, of NVR, Inc.		8-K				3.1		3/17/2016
4.1		Indenture dated as of April 14, 1998 between NVR, Inc., as issuer and the Bank of New York as trustee.		8-K				4.3		4/23/1998
4.2		Form of Note (included in Indenture).		8-K				4.5		4/23/1998
4.3		Fifth Supplemental Indenture dated September 10, 2012 among NVR, Inc. and U.S. Bank Trust National Association.		8-K				4.1		9/10/2012
4.4		Form of Global Note.		8-K				4.2		9/10/2012
10.1*		Amended and Restated Employment Agreement between NVR, Inc. and Paul C. Saville dated November 4, 2015.		10-Q				10.1		11/6/2015
10.2*		Amended and Restated Employment Agreement between NVR, Inc. and Daniel D. Malzahn dated November 4, 2015.		10-Q				10.2		11/6/2015
10.3*		Amended and Restated Employment Agreement between NVR, Inc. and Robert W. Henley dated November 4, 2015.		10-Q				10.3		11/6/2015
10.4*		Amended and Restated Employment Agreement between NVR, Inc. and Eugene J. Bredow dated November 4, 2015.		10-Q				10.4		11/6/2015
10.5*		Employment Agreement between NVR, Inc. and Jeffrey D. Martchek dated January 1, 2016.		10-K				10.5		2/17/2016
10.6*		Amendment No. 1 to Employment Agreement between NVR, Inc. and Jeffrey D. Martchek dated April 18, 2017.		8-K				10.1		4/18/2017
10.7*		Profit Sharing Plan of NVR, Inc. and Affiliated Companies.		S-8		333-29241		4.1		6/13/1997
10.8*		Employee Stock Ownership Plan of NVR, Inc.		10-K/A						12/31/1994
10.9*		NVR, Inc. 1998 Management Long-Term Stock Option Plan.		S-8		333-79951		4		6/4/1999
10.10*		NVR, Inc. 2000 Broadly-Based Stock Option Plan.		S-8		333-56732		99.1		3/8/2001
10.11*		Amended and Restated NVR, Inc. Nonqualified Deferred Compensation Plan.		10-Q				10.5		11/6/2015
10.12*		First Amendment to NVR, Inc. Nonqualified Deferred Compensation Plan.		10-K				10.36		2/15/2017
10.13*		Description of the Board of Directors’ compensation arrangement.		10-K				10.27		2/28/2005

				Incorporated by Reference
Exhibit Number		Exhibit Description		Form		File Number		Exhibit Number		Filing Date
10.14*		NVR, Inc. 2014 Equity Incentive Plan.		S-8		333-195756		10.1		5/7/2014
10.15*		The Form of Non-Qualified Stock Option Agreement (Management time-based grants) under the NVR, Inc. 2014 Equity Incentive Plan. Filed herewith.
10.16*		The Form of Non-Qualified Stock Option Agreement (Director time-based grants) under the NVR, Inc. 2014 Equity Incentive Plan.		8-K				10.2		5/7/2014
10.17*		The Form of Non-Qualified Stock Option Agreement (Management performance-based grants) under the NVR, Inc. 2014 Equity Incentive Plan. Filed herewith.
10.18*		The Form of Non-Qualified Stock Option Agreement (Director performance-based grants) under the NVR, Inc. 2014 Equity Incentive Plan.		8-K				10.4		5/7/2014
10.19*		NVR, Inc. 2010 Equity Incentive Plan.		S-8		333-166512		10.1		5/4/2010
10.20*		The Form of Non-Qualified Stock Option Agreement (Management grants) under the NVR, Inc. 2010 Equity Incentive Plan.		10-Q				10.1		7/30/2013
10.21*		The Form of Non-Qualified Stock Option Agreement (Director grants) under the NVR, Inc. 2010 Equity Incentive Plan.		8-K				10.2		5/6/2010
10.22*		The Form of Restricted Share Units Agreement (Management grants) under the NVR, Inc. 2010 Equity Incentive Plan.		10-Q				10.2		7/30/2013
10.23*		The Form of Restricted Share Units Agreement (Director grants) under the NVR, Inc. 2010 Equity Incentive Plan.		8-K				10.4		5/6/2010
10.24*		The Form of Non-Qualified Stock Option Agreement under the NVR, Inc. 2000 Broadly-Based Stock Option Plan.		8-K				10.1		1/7/2008
10.25		Amended and Restated Master Repurchase Agreement dated as of August 2, 2011, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		8-K				10.1		1/21/2016
10.26		First Amendment to Amended and Restated Master Repurchase Agreement dated as of August 1, 2012, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		8-K				10.2		1/21/2016
10.27		Second Amendment to Amended and Restated Master Repurchase Agreement dated as of November 13, 2012, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		8-K				10.3		1/21/2016
10.28		Third Amendment to Amended and Restated Master Repurchase Agreement dated as of November 29, 2012, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		8-K				10.4		1/21/2016
10.29		Fourth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 31, 2013, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		8-K				10.5		1/21/2016
10.30		Fifth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 30, 2014, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		8-K				10.6		1/21/2016
10.31		Sixth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 29, 2015, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		8-K				10.7		1/21/2016

				Incorporated by Reference
Exhibit Number		Exhibit Description		Form		File Number		Exhibit Number		Filing Date
10.32		Seventh Amendment to Amended and Restated Master Repurchase Agreement dated as of January 18, 2016, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		8-K				10.8		1/21/2016
10.33		Eighth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 27, 2016, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		10-Q				10.2		7/28/2016
10.34		Ninth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 26, 2017, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.		10-Q				10.1		7/28/2017
10.35		Credit Agreement dated as of July 15, 2016 among NVR, Inc. and the lenders party hereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Book Runner.		8-K				10.1		7/18/2016
10.36*		Summary of 2018 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 14, 2018
Dwight C. Schar
/s/ C. E. Andrews		Director		February 14, 2018
C. E. Andrews
/s/ Timothy M. Donahue		Director		February 14, 2018
Timothy M. Donahue
/s/ Thomas D. Eckert		Director		February 14, 2018
Thomas D. Eckert
/s/ Alfred E. Festa		Director		February 14, 2018
Alfred E. Festa
/s/ Ed Grier		Director		February 14, 2018
Ed Grier
/s/ Manuel H. Johnson		Director		February 14, 2018
Manuel H. Johnson
/s/ Mel Martinez		Director		February 14, 2018
Mel Martinez
/s/ William A. Moran		Director		February 14, 2018
William A. Moran
/s/ David A. Preiser		Director		February 14, 2018
David A. Preiser
/s/ W. Grady Rosier		Director		February 14, 2018
W. Grady Rosier
/s/ Susan Williamson Ross		Director		February 14, 2018
Susan Williamson Ross
/s/ Paul W. Whetsell		Director		February 14, 2018
Paul W. Whetsell
/s/ Paul C. Saville		Principal Executive Officer		February 14, 2018
Paul C. Saville
/s/ Daniel D. Malzahn		Principal Financial Officer		February 14, 2018
Daniel D. Malzahn
/s/ Eugene J. Bredow		Principal Accounting Officer		February 14, 2018
Eugene J. Bredow

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

NVR, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of NVR, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017, 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 Sates) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 14, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the excess tax benefit from stock option exercises prospectively beginning January 1, 2017 in accordance with the adoption of Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting.

Basis for Opinion

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

KPMG LLP

We have served as the Company's auditor since 1987.

McLean, Virginia

February 14, 2018

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

NVR, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited NVR, Inc.’s and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, 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) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the “consolidated financial statements”), and our report dated February 14, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

KPMG LLP

McLean, Virginia

February 14, 2018

NVR, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

	December 31, 2017				December 31, 2016
ASSETS
Homebuilding:
Cash and cash equivalents	$	645,087			$	375,748
Restricted cash	19,438				17,561
Receivables	20,026				18,937
Inventory:
Lots and housing units, covered under sales agreements with customers	1,046,094				883,868
Unsold lots and housing units	148,620				145,065
Land under development	34,212				46,999
Building materials and other	17,273				16,168
	1,246,199				1,092,100
Contract land deposits, net	370,429				379,844
Property, plant and equipment, net	43,191				45,915
Reorganization value in excess of amounts allocable to identifiable assets, net	41,580				41,580
Deferred tax assets, net	111,953				170,652
Other assets	86,977				91,009
	2,584,880				2,233,346
Mortgage Banking:
Cash and cash equivalents	21,707				19,657
Restricted cash	2,256				1,857
Mortgage loans held for sale, net	352,489				351,958
Property and equipment, net	6,327				4,903
Reorganization value in excess of amounts allocable to identifiable assets, net	7,347				7,347
Other assets	14,273				24,875
	404,399				410,597
Total assets	$	2,989,279			$	2,643,943
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable	$	261,973			$	251,212
Accrued expenses and other liabilities	341,891				337,200
Customer deposits	150,033				122,236
Senior notes	597,066				596,455
	1,350,963				1,307,103
Mortgage Banking:
Accounts payable and other liabilities	32,824				32,399
	32,824				32,399
Total liabilities	1,383,787				1,339,502
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, 2017 and December 31, 2016	206				206
Additional paid-in capital	1,644,197				1,515,828
Deferred compensation trust – 108,640 shares of NVR, Inc. common stock as of both December 31, 2017 and December 31, 2016	(17,383		)		(17,375		)
Deferred compensation liability	17,383				17,375
Retained earnings	6,231,940				5,695,376
Less treasury stock at cost – 16,864,324 and 16,862,327 shares as of December 31, 2017 and December 31, 2016, respectively	(6,270,851		)		(5,906,969		)
Total shareholders' equity	1,605,492				1,304,441
Total liabilities and shareholders' equity	$	2,989,279			$	2,643,943

See notes to consolidated financial statements.

NVR, Inc.

Consolidated Statements of Income

(in thousands, except per share data)

	Year Ended December 31,
	2017				2016				2015
Homebuilding:
Revenues	$	6,175,521			$	5,709,223			$	5,065,200
Other income	6,536				2,820				2,956
Cost of sales	(4,990,378		)		(4,707,861		)		(4,118,782		)
Selling, general and administrative	(392,272		)		(382,459		)		(371,127		)
Operating income	799,407				621,723				578,247
Interest expense	(23,037		)		(20,621		)		(22,918		)
Homebuilding income	776,370				601,102				555,329
Mortgage Banking:
Mortgage banking fees	130,319				113,321				93,808
Interest income	7,850				7,569				6,485
Other income	2,048				1,652				1,113
General and administrative	(68,528		)		(60,861		)		(52,882		)
Interest expense	(1,148		)		(1,086		)		(641		)
Mortgage banking income	70,541				60,595				47,883
Income before taxes	846,911				661,697				603,212
Income tax expense	(309,390		)		(236,435		)		(220,285		)
Net income	$	537,521			$	425,262			$	382,927
Basic earnings per share	$	144.00			$	110.53			$	95.21
Diluted earnings per share	$	126.77			$	103.61			$	89.99
Basic weighted average shares outstanding	3,733				3,847				4,022
Diluted weighted average shares outstanding	4,240				4,104				4,255

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, 2014	$	206			$	1,325,495			$	4,887,187			$	(5,088,633	)		$	(17,333	)		$	17,333			$	1,124,255
Net income	—				—				382,927				—				—				—				382,927
Purchase of common stock for treasury	—				—				—				(431,367		)		—				—				(431,367		)
Equity-based compensation	—				54,091				—				—				—				—				54,091
Tax benefit from equity benefit plan activity	—				23,311				—				—				—				—				23,311
Proceeds from stock options exercised	—				85,948				—				—				—				—				85,948
Treasury stock issued upon option exercise and restricted share vesting	—				(41,050		)		—				41,050				—				—				—
Balance, December 31, 2015	206				1,447,795				5,270,114				(5,478,950		)		(17,333		)		17,333				1,239,165
Net income	—				—				425,262				—				—				—				425,262
Deferred compensation activity	—				—				—				—				(42		)		42				—
Purchase of common stock for treasury	—				—				—				(455,351		)		—				—				(455,351		)
Equity-based compensation	—				43,598				—				—				—				—				43,598
Tax benefit from equity benefit plan activity	—				13,661				—				—				—				—				13,661
Proceeds from stock options exercised	—				38,106				—				—				—				—				38,106
Treasury stock issued upon option exercise and restricted share vesting	—				(27,332		)		—				27,332				—				—				—
Balance, December 31, 2016	206				1,515,828				5,695,376				(5,906,969		)		(17,375		)		17,375				1,304,441
Cumulative-effect adjustment from adoption of ASU 2016-09, net of tax	—				1,566				(957		)		—				—				—				609
Net income	—				—				537,521				—				—				—				537,521
Deferred compensation activity	—				—				—				—				(8		)		8				—
Purchase of common stock for treasury	—				—				—				(422,166		)		—				—				(422,166		)
Equity-based compensation	—				44,562				—				—				—				—				44,562
Proceeds from stock options exercised	—				140,525				—				—				—				—				140,525
Treasury stock issued upon option exercise and restricted share vesting	—				(58,284		)		—				58,284				—				—				—
Balance, December 31, 2017	$	206			$	1,644,197			$	6,231,940			$	(6,270,851	)		$	(17,383	)		$	17,383			$	1,605,492

See notes to consolidated financial statements.

NVR, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2017				2016				2015
Cash flows from operating activities:
Net income	$	537,521			$	425,262			$	382,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	22,667				22,269				21,534
Equity-based compensation expense	44,562				43,598				54,091
Contract land deposit impairments (recoveries), net	1,238				(4,269		)		(11,058		)
Gain on sale of loans, net	(99,132		)		(85,535		)		(67,891		)
Deferred tax expense (benefit)	61,290				(10,024		)		1,902
Mortgage loans closed	(4,077,372		)		(3,660,269		)		(3,111,413		)
Mortgage loans sold and principal payments on mortgage loans held for sale	4,182,220				3,710,250				3,059,889
Distribution of earnings from unconsolidated joint ventures	5,614				9,094				15,511
Net change in assets and liabilities:
Increase in inventory	(154,099		)		(85,194		)		(134,803		)
Decrease (increase) in contract land deposits	8,177				(32,280		)		(37,561		)
Increase in receivables	(502		)		(9,083		)		(1,527		)
Increase in accounts payable and accrued expenses	10,789				58,532				55,404
Increase in customer deposits	27,797				11,271				4,210
Other, net	(1,866		)		4,504				(4,513		)
Net cash provided by operating activities	568,904				398,126				226,702
Cash flows from investing activities:
Investments in and advances to unconsolidated joint ventures	(3,800		)		(653		)		(1,917		)
Distribution of capital from unconsolidated joint ventures	7,203				12,594				18,489
Purchase of property, plant and equipment	(20,269		)		(22,369		)		(18,277		)
Proceeds from the sale of property, plant and equipment	847				1,000				683
Net cash used in investing activities	(16,019		)		(9,428		)		(1,022		)
Cash flows from financing activities:
Purchase of treasury stock	(422,166		)		(455,351		)		(431,367		)
Repayments under non-recourse debt related to consolidated variable interest entity	—				—				(64		)
Distributions to partner in consolidated variable interest entity	—				(150		)		(300		)
Proceeds from the exercise of stock options	140,525				38,106				85,948
Net cash used in financing activities	(281,641		)		(417,395		)		(345,783		)
Net increase (decrease) in cash and cash equivalents	271,244				(28,697		)		(120,103		)
Cash and cash equivalents, beginning of the year	396,619				425,316				545,419
Cash and cash equivalents, end of the year	$	667,863			$	396,619			$	425,316
Supplemental disclosures of cash flow information:
Interest paid during the year, net of interest capitalized	$	23,251			$	20,922			$	24,546
Income taxes paid during the year, net of refunds	$	260,232			$	218,984			$	194,670

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.

Cash and Cash Equivalents

Cash and cash equivalents include short-term investments with original maturities of three months or less.

Homebuilding restricted cash was attributable to customer deposits for certain home sales. Mortgage banking restricted cash included amounts collected from customers for loans in process and closed mortgage loans held for sale.

At December 31, 2017 and 2016, $1,069 and $1,214, respectively, of cash related to a consolidated variable interest entity is included in homebuilding “Other assets ” on the accompanying consolidated balance sheet.

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 sales 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.

Contract Land Deposits

The Company purchases finished lots under fixed price lot purchase agreements (“Lot 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 guidance from Accounting Standards Codification (“ASC”) 450, Contingencies, and conducts a loss contingency analysis 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’ direct 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 at an acceptable margin and sales pace 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 at an acceptable margin and sales pace 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

NVR, Inc.

Notes to Consolidated Financial Statements

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

whether impairment is present due to collectability issues resulting from a developer’s non-performance because of financial or other conditions.

For the year ended December 31, 2017, the Company incurred net pre-tax charges of $1,238 related to the impairment of contract land deposits. For the years ended December 31, 2016 and 2015, the Company recognized net pre-tax recoveries of $4,269 and $11,058, respectively, of contract land deposits previously determined to be unrecoverable. The contract land deposit assets on the accompanying consolidated balance sheets are shown net of the allowance for losses of $29,999 and $31,306 at December 31, 2017 and 2016, respectively.

Land Under Development

On a 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’ direct 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 as of December 31, 2017.

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. Model home furniture and fixtures are generally depreciated over a two-year period, office facilities and other equipment are depreciated over a period of three to ten years and production facilities are depreciated over periods of five to forty years.

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, 2017 and 2016, finite-lived intangible assets, net of accumulated amortization, totaled $776 and $2,158, respectively. The remaining finite-lived intangible assets will be amortized on a straight-line basis over 5 years. As of both December 31, 2017 and 2016, the goodwill value was $441. Finite-lived intangible assets and goodwill are included in homebuilding "Other assets" in the accompanying consolidated balance sheets.

Warranty/Product Liability Reserves

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.

NVR, Inc.

Notes to Consolidated Financial Statements

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

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”), Freddie Mac ("FHLMC"), the 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 a reserve 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 reserve is calculated based on an analysis of historical experience and exposure (see Note 15 herein for further information).

Mortgage loans held for sale 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, 2017, there were contractual commitments to extend credit to borrowers aggregating $490,184, and open forward delivery sale contracts aggregating $705,405, which hedge both the rate lock loan commitments and closed loans held for sale (see Note 14 herein for a description of the Company’s fair value accounting).

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, 2017, 2016 and 2015:

		Year Ended December 31,
		2017			2016			2015
Weighted average number of shares outstanding used to calculate basic EPS		3,733			3,847			4,022
Dilutive securities:
Stock options and restricted share units		507			257			233
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS		4,240			4,104			4,255

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 and the amount of compensation cost attributed to future services not yet recognized.

The following stock options issued under equity incentive plans were outstanding during the years ended December 31, 2017, 2016 and 2015, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

		Year Ended December 31,
		2017			2016			2015
Anti-dilutive securities		15			87			50

NVR, Inc.

Notes to Consolidated Financial Statements

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

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. See Note 11 herein for discussion of the impact on the Company's deferred tax asset resulting from the enactment of the Tax Cuts and Jobs Act in December 2017.

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 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, 2017, 2016 and 2015, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying consolidated financial statements.

NVR, Inc.

Notes to Consolidated Financial Statements

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year's presentation.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, effective January 1, 2017. In connection with the adoption of ASU 2016-09, the Company:

•	Recorded the excess tax benefit from stock option exercises as a reduction to income tax expense prospectively beginning January 1, 2017. In 2016 and 2015, the excess tax benefit was recorded to additional paid-in capital within shareholders’ equity. The excess tax benefit recognized during 2017, 2016 and 2015 was $58,681, $13,661 and $23,311, respectively.

•

Presented the aforementioned excess tax benefit recognized as an operating activity on the statement of cash flows and retrospectively adjusted the prior year Statement of Cash Flows accordingly. In the prior years, the excess tax benefit was recognized as a cash inflow from financing activities and a corresponding cash outflow from operating activities. The retrospective adjustment to the prior year Statement of Cash Flows resulted in increases of $13,661 and $23,311 to net cash provided by operating activities in 2016 and 2015, respectively, and increases of $13,661 and $23,311 to net cash used in financing activities in 2016 and 2015, respectively.

•

Made the election to recognize forfeitures of equity-based awards in the period in which they occur. This election was applied using the modified retrospective transition method, which resulted in the Company recording a cumulative-effect adjustment, net of tax, to reduce beginning retained earnings as of January 1, 2017 by $957. In prior years, the Company estimated forfeitures based on its historical forfeiture rate.

No other adjustments were made as a result of the adoption of ASU 2016-09.

The Company also adopted ASU 2015-11, Inventory – Simplifying the Measurement of Inventory effective January 1, 2017. The standard requires inventory to be measured at the lower of cost or net realizable value. Under prior GAAP, impaired inventory was written down to net realizable value less a normal profit margin. Under the new standard, impaired inventory is written down to the net realizable value. ASU 2015-11 was adopted prospectively and did not have a material effect on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In May 2014, FASB issued 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 is effective for the Company as of January 1, 2018 and replaces most existing revenue recognition guidance in GAAP. The Company will adopt the standard using the cumulative effect transition method. The Company has determined that the adoption of this standard will not have a material effect on its consolidated financial statements and related disclosures.

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on-balance sheet with a liability equal to the present value of lease payments over the lease term and a right-of-use asset for the right to use the underlying asset over the lease term. Lessees will recognize expenses on their income statements in a manner similar to current GAAP. The standard also requires additional disclosures of key information about leasing arrangements. The standard is effective for the Company as of January 1, 2019. The Company believes that the adoption of this standard will have a material effect on both assets and liabilities presented on the balance sheet, and is further evaluating the impact of its adoption.

In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which significantly changes the way impairment of financial assets is recognized. The standard will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. The standard’s provisions will be applied as a cumulative-effect adjustment to beginning retained earnings as of the effective date. The standard is effective for the Company as of January 1, 2020. Early adoption is permitted for annual and interim periods beginning January 1, 2019. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

In August 2016, FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The objective of the standard is to address the diversity in practice of how certain cash receipts and payments are presented on the statement of cash flows. The standard requires that the guidance be applied retrospectively in the first interim and annual periods in which an entity adopts the

NVR, Inc.

Notes to Consolidated Financial Statements

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

guidance. The standard is effective for the Company as of January 1, 2018. The Company expects the standard to affect the presentation of distributions from joint ventures on its consolidated statements of cash flows.

In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The amendments in the standard require that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash or restricted cash equivalents. As a result, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. The standard is effective for the Company as of January 1, 2018. The Company does not believe that the adoption of this standard will have a material effect on its consolidated statements of cash flows and related disclosures.

In January 2017, FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The standard’s objective is to simplify the subsequent measurement of goodwill by eliminating the second step from the goodwill impairment test. Under the amendments in the standard, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would then be recognized, not to exceed the amount of goodwill allocated to that reporting unit. The standard is effective for the Company on January 1, 2020, and early adoption is permitted. The Company does not believe that the adoption of this standard will have a material effect on its consolidated financial statements and related disclosures.

In May 2017, FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in the standard clarify when changes in a share-based payment award must be accounted for as a modification, and will allow entities to make certain changes to share-based payment awards without accounting for them as modifications. Under the new guidance, entities will only apply modification accounting if there are substantive changes made to share-based payment awards. If a change made to a share-based payment award does not affect the fair value, vesting conditions and classification as either an equity or liability instrument, modification accounting will not need to be applied. The standard is effective for the Company on January 1, 2018. The Company does not believe that the adoption of this standard will have a material effect on its consolidated financial statements and related disclosures.

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 three trade names: Ryan Homes, NVHomes and Heartland Homes. The Ryan Homes product is marketed primarily to first-time and first-time move-up buyers. Ryan Homes operates in twenty-nine metropolitan areas located in Maryland, Virginia, Washington, D.C., West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Florida, Ohio, New Jersey, Delaware, Indiana, Illinois and Tennessee. The NVHomes and Heartland Homes products are marketed primarily to move-up and luxury buyers. NVHomes operates in Delaware and the Washington, D.C., Baltimore, MD, Philadelphia, PA and Raleigh, NC metropolitan areas. Heartland Homes operates in the Pittsburgh, PA metropolitan area. NVR derived approximately 30% and 11% of its 2017 homebuilding revenues from the Washington, D.C. and Baltimore, MD metropolitan areas, respectively.

NVR’s mortgage banking segment is a regional mortgage banking operation. Substantially all of the mortgage banking segment’s loan closing activity is for NVR’s homebuilding customers. NVR’s mortgage banking business generates revenues primarily from origination fees, gains on sales of loans, and title fees. A substantial portion of the Company’s mortgage operations is conducted in the Washington, D.C. and Baltimore, MD metropolitan areas.

The following disclosure includes four homebuilding reportable segments that aggregate geographically the Company’s homebuilding operating segments, and the mortgage banking operations presented as a single reportable segment. The homebuilding reportable segments are comprised of operating divisions in the following geographic areas:

Mid Atlantic:		Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East:		New Jersey and Eastern Pennsylvania
Mid East:		New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East:		North Carolina, South Carolina, Florida and Tennessee

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge. The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital. In addition, certain assets including goodwill and intangible assets, and consolidation adjustments as discussed further below, are not allocated to the operating segments as those assets are neither included in the operating segment’s corporate capital allocation charge, nor in the CODM’s evaluation of the operating

NVR, Inc.

Notes to Consolidated Financial Statements

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

segment’s performance. The Company records charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a Lot Purchase Agreement with the developer, or to restructure a Lot Purchase Agreement resulting in the forfeiture of the deposit. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a corporate capital allocation charge.

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. NVR’s overhead functions, such as accounting, treasury and human resources are centrally performed and the costs are not allocated to the Company’s operating segments. Consolidation adjustments consist of such items necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to the Company’s operating segments. External corporate interest expense primarily consists of interest charges on the Company’s 3.95% Senior Notes due 2022 (the “Senior Notes”) and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

Following are tables presenting segment revenues, profit before taxes, assets, interest income, interest expense, depreciation and amortization and expenditures for property and equipment, with reconciliations to the amounts reported for the consolidated enterprise, where applicable:

		Year Ended December 31,
		2017				2016				2015
Revenues:
Homebuilding Mid Atlantic		$	3,543,687			$	3,319,776			$	3,022,789
Homebuilding North East		517,141				462,385				432,145
Homebuilding Mid East		1,250,165				1,192,472				1,014,920
Homebuilding South East		864,528				734,590				595,346
Mortgage Banking		130,319				113,321				93,808
Consolidated revenues		$	6,305,840			$	5,822,544			$	5,159,008

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

NVR, Inc.

Notes to Consolidated Financial Statements

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

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

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

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

NVR, Inc.

Notes to Consolidated Financial Statements

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

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

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

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

(2)	This item represents the elimination of the corporate capital allocation charge included in the respective homebuilding reportable segments. The corporate capital allocation charge is based on the segment’s monthly average asset balance, and was as follows for the years presented:

		Year Ended December 31,
		2017				2016				2015
Corporate capital allocation charge:
Homebuilding Mid Atlantic		$	123,028			$	119,758			$	107,705
Homebuilding North East		16,115				18,132				16,987
Homebuilding Mid East		29,663				28,303				27,263
Homebuilding South East		29,578				23,799				19,215
Total corporate capital allocation charge		$	198,384			$	189,992			$	171,170

3. Variable Interest Entities

Lot 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 Lot Purchase Agreements. The Lot Purchase Agreements require deposits that may be forfeited if NVR fails to perform under the Lot Purchase Agreements. The deposits required under the Lot 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 Lot Purchase

NVR, Inc.

Notes to Consolidated Financial Statements

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

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 Lot Purchase Agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained within the Lot Purchase Agreements. In other words, if NVR does not perform under a Lot Purchase Agreement, NVR loses only its deposit. None of the creditors of any of the development entities with which NVR enters Lot 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 the development entities from which the Company purchases lots under Lot 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 for 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 Lot 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 into Lot Purchase Agreements, including the joint venture limited liability corporations, 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 VIE 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 able to sell, the process of which the development entity’s 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 Lot 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 into Lot Purchase Agreements, and therefore NVR does not consolidate any of these VIEs.

As of December 31, 2017, NVR controlled approximately 84,300 lots under Lot Purchase Agreements with third parties through deposits in cash and letters of credit totaling approximately $393,900 and $1,900, respectively. As noted above, NVR’s sole legal obligation and economic loss for failure to perform under these Lot Purchase Agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained in the Lot 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 10,700 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 in cash and letters of credit totaling approximately $6,600 and $100, respectively, as of December 31, 2017, of which approximately $5,800 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, Inc.

Notes to Consolidated Financial Statements

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

NVR’s total risk of loss related to contract land deposits as of December 31, 2017 and 2016 was as follows:

		December 31,
		2017				2016
Contract land deposits		$	400,428			$	411,150
Loss reserve on contract land deposits		(29,999		)		(31,306		)
Contract land deposits, net		370,429				379,844
Contingent obligations in the form of letters of credit		1,996				2,379
Contingent specific performance obligations (1)		1,505				1,505
Total risk of loss		$	373,930			$	383,728

(1)	As of both December 31, 2017 and 2016, the Company was committed to purchase 10 finished lots under specific performance obligations.

4. Joint Ventures

On a limited basis, NVR 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 Lot 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 Lot Purchase Agreement to purchase lots from these JVs, and as a result has a variable interest in these JVs.

At December 31, 2017, the Company had an aggregate investment totaling approximately $45,500 in six JVs that are expected to produce approximately 7,300 finished lots, of which approximately 3,900 lots were controlled by the Company and the remaining approximately 3,400 lots were either under contract with unrelated parties or not currently under contract. In addition, NVR had additional funding commitments in the aggregate totaling $5,300 to three of the JVs at December 31, 2017. The Company has determined that it is not the primary beneficiary of five 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 $45,200 and $49,000 at December 31, 2017 and 2016, 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 of the consolidated JV at December 31, 2017 and 2016 were as follows:

		December 31,
		2017				2016
Assets:
Cash		$	1,069			$	1,214
Other assets		37				37
Total assets		$	1,106			$	1,251
Liabilities and equity:
Accrued expenses		487				550
Equity		619				701
Total liabilities and equity		$	1,106			$	1,251

At December 31, 2016, the Company had an aggregate investment totaling approximately $49,400 in six JVs that were expected to produce approximately 7,400 finished lots, of which approximately 4,200 lots were controlled by the Company and the remaining approximately 3,200 lots were either under contract with unrelated parties or not currently under contract. In addition, at December 31, 2016, NVR had additional funding commitments in the aggregate totaling $6,200 to three of the JVs.

The Company recognizes income from the JVs as a reduction to the lot cost of the lots purchased from the respective JVs when homes are settled and is based on expected total profitability and the total number of lots expected to be produced by the respective 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.

NVR, Inc.

Notes to Consolidated Financial Statements

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

5. Land Under Development

On a limited basis, NVR directly acquires raw land parcels 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.

In October 2017, the Company purchased a raw land parcel for approximately $14,800. The parcel is expected to produce approximately 150 lots.

As of December 31, 2017, NVR directly owned four separate raw parcels of land with a carrying value of $34,212 that it intends to develop into approximately 500 finished lots primarily for use in its homebuilding operations. The Company also has additional funding commitments of approximately $7,900 under a joint development agreement related to one parcel, a portion of which the Company expects will be offset by development credits of approximately $4,700. None of the raw parcels had any indicators of impairment as of December 31, 2017.

As of December 31, 2016, NVR directly owned four separate raw parcels of land with a carrying value of $46,999, which were expected to produce approximately 600 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 in 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, 2017, 2016 and 2015 was as follows:

		December 31,
		2017				2016				2015
Interest capitalized, beginning of year		$	5,106			$	4,434			$	4,072
Interest incurred		26,384				25,951				25,155
Interest charged to interest expense		(24,185		)		(21,707		)		(23,559		)
Interest charged to cost of sales		(1,722		)		(3,572		)		(1,234		)
Interest capitalized, end of year		$	5,583			$	5,106			$	4,434

7. Related Party Transactions

During the year ended December 31, 2017, NVR entered into Lot Purchase Agreements to purchase finished building lots for a total purchase price of approximately $66,600 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 2017, 2016 and 2015, NVR purchased developed lots at market prices from Elm Street for approximately $37,100, $44,500 and $41,200, respectively. The Company also continues to control a parcel of raw land expected to yield approximately 2,400 finished lots through a JV entered into with Elm Street during 2009. NVR and Elm Street each made an additional investment of $2,900 in the JV in 2017. NVR did not make any investments in the JV in 2016. Further, during 2016 and 2015, the Company paid Elm Street $143 per year to manage the development of a property that the Company purchased from Elm Street in 2010. No management fees were paid to Elm Street in 2017 related to this property.

NVR, Inc.

Notes to Consolidated Financial Statements

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

8. Property, Plant and Equipment (“PP&E”)

		December 31,
		2017				2016
Homebuilding:
Office facilities and other		$	35,219			$	33,352
Model home furniture and fixtures		33,901				34,924
Production facilities		61,348				58,068
Gross Homebuilding PP&E		130,468				126,344
Less: accumulated depreciation		(87,277		)		(80,429		)
Net Homebuilding PP&E		$	43,191			$	45,915
Mortgage Banking:
Office facilities and other		$	14,069			$	11,379
Less: accumulated depreciation		(7,742		)		(6,476		)
Net Mortgage Banking PP&E		$	6,327			$	4,903

9. Debt

Senior Notes

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 have been reflected net of unamortized debt issuance costs of $2,395 and $2,904 as of December 31, 2017 and 2016, respectively.

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.

Credit Agreement

On July 15, 2016, NVR entered into an unsecured Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Book Runner, and the other lenders party thereto, which provides for aggregate revolving loan commitments of $200,000 (the “Facility”). Proceeds of the borrowings under the Facility will be used for working capital and general corporate purposes. Under the Credit Agreement, the Company may request increases of up to $300,000 to the Facility in the form of revolving loan commitments or term loans to the extent that new or existing lenders agree to provide additional revolving loan or term loan commitments. The Credit Agreement provides for a $100,000 sublimit for the issuance of letters of credit of which approximately $7,300 was outstanding at December 31, 2017, and a $25,000 sublimit for a swing line commitment. Borrowings under the Credit Agreement generally bear interest for Base Rate Loans at a Base Rate equal to the highest of (i) a Federal Funds Rate plus one-half of one percent, (ii) Bank of America’s publicly announced “prime rate,” and (iii) the Eurodollar Rate plus one percent, plus the Applicable Rate which is based on the Company’s debt rating, or for Eurodollar Rate Loans, at the Eurodollar Rate equal to LIBOR plus the Applicable Rate.

The Credit Agreement contains various representations and affirmative and negative covenants that are generally customary for credit facilities of this type. Such covenants include, among others, the following financial maintenance covenants: (i) minimum consolidated tangible net worth, (ii) minimum interest coverage ratio or minimum liquidity and (iii) a maximum leverage ratio. The negative covenants include, among others, certain limitations on liens, investments and fundamental changes. The Credit Agreement

termination date is July 15, 2021. The Company was in compliance with all covenants under the Credit Agreement at December 31, 2017. There was no debt outstanding under the Facility at December 31, 2017.

Repurchase Agreement

On July 26, 2017, NVRM entered into the Ninth Amendment (the “Amendment”) to its Amended and Restated Master Repurchase Agreement dated August 2, 2011 with U.S. Bank National Association (as amended by the Amendment and eight earlier amendments, 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 $150,000, subject to certain sub limits, and provides for an incremental commitment pursuant to which NVRM may from time to time request increases in the total commitment available under the Repurchase Agreement by up to $50,000 in the aggregate. 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 2.125%. The Pricing Rate at December 31, 2017 was 3.75%. 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. Amounts outstanding under the Repurchase Agreement are collateralized by the Company’s mortgage loans held for sale. At December 31, 2017, there were no borrowing base limitations reducing the amount available under the Repurchase Agreement. As of both December 31, 2017 and 2016, there was no debt outstanding under the Repurchase Agreement. The Repurchase Agreement expires on July 25, 2018.

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, 2017.

10. Common Stock

There were approximately 3,691 and 3,693 common shares outstanding at December 31, 2017 and 2016, respectively. The Company made the following share repurchases during the years indicated:

		Year Ended December 31,
		2017				2016				2015
Aggregate purchase price		$	422,166			$	455,351			$	431,367
Number of shares repurchased		167				280				290

The Company issues shares from the treasury account for all equity plan activity. The Company issued 165, 83 and 131 such shares during 2017, 2016 and 2015, respectively.

11. Income Taxes

During 2017, the Company's provision for income taxes and effective tax rate were impacted by the following items:

•	The enactment of the Tax Cuts and Jobs Act in December 2017 required a remeasurement of the Company's net deferred tax assets and resulted in additional income tax expense of $62,702.

•	The Company's January 1, 2017 adoption of ASU 2016-09 (see Note 1) resulted in the Company recognizing a current income tax benefit of $58,681 related to excess tax benefits from equity-based compensation in 2017.

NVR, Inc.

Notes to Consolidated Financial Statements

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

The provision for income taxes consists of the following:

		Year Ended December 31,
		2017				2016				2015
Current:
Federal		$	211,641			$	209,454			$	180,895
State		37,006				38,095				36,142
Deferred:
Federal		60,785				(9,230		)		2,681
State		(42		)		(1,884		)		567
		$	309,390			$	236,435			$	220,285

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

		Year Ended December 31,
		2017				2016				2015
Income tax benefits arising from compensation expense for tax purposes in excess of amounts recognized for financial statement purposes (1)		$	—			$	13,661			$	23,311

(1) During 2017, these income tax benefits were recognized in the consolidated statement of income as required under ASU 2016-09.

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

		December 31,
		2017				2016
Deferred tax assets:
Other accrued expenses and contract land deposit reserve		$	49,063			$	76,498
Deferred compensation		4,743				7,075
Equity-based compensation expense		36,799				55,077
Inventory		9,393				13,514
Unrecognized tax benefit		14,351				23,954
Other		9,681				10,106
Total deferred tax assets		124,030				186,224
Less: Deferred tax liabilities		4,511				5,414
Net deferred tax asset		$	119,519			$	180,810

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. The decrease to the Company's deferred tax assets in 2017 was primarily attributable to the remeasurement as a result of the enactment of the Tax Cut and Jobs Act in December 2017.

Management believes that the Company will have sufficient 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 $614,562 for the year ended December 31, 2017, and was $578,882 for the year ended December 31, 2016.

NVR, Inc.

Notes to Consolidated Financial Statements

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

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,
		2017				2016				2015
Income taxes computed at the federal statutory rate		$	296,419			$	231,595			$	211,124
State income taxes, net of federal income tax benefit (1)		30,046				23,738				23,919
Excess tax benefits from equity-based compensation		(58,681		)		—				—
Remeasurement of net deferred tax assets due to enactment of Tax Cut and Jobs Act		62,702				—				—
Other, net (2)		(21,096		)		(18,898		)		(14,758		)
		$	309,390			$	236,435			$	220,285

(1)	Excludes state excess tax benefits from equity-based compensation included in the line below.

(2)	Primarily attributable to tax benefits from the domestic production activities deduction.

The Company’s effective tax rate in 2017, 2016 and 2015 was 36.53%, 35.73% and 36.52%, respectively. As previously discussed, the 2017 effective tax rate was impacted by the enactment of the Tax Cut and Jobs Act and the Company's adoption of ASU 2016-09.

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 2014.

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

		Year Ended December 31,
		2017				2016
Balance at beginning of year		$	46,110			$	46,591
Additions based on tax positions related to the current year		4,793				4,440
Reductions for tax positions of prior years		(5,566		)		(4,921		)
Settlements		—				—
Balance at end of year		$	45,337			$	46,110

If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (net of the federal tax benefit) is $35,816 as of December 31, 2017.

The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2017 and 2016, the Company recognized a net reversal of accrued interest on unrecognized tax benefits in the amount of $1,065 and $1,582, respectively. For the year ended December 31, 2015, the Company recognized a net addition of accrued interest on unrecognized tax benefits in the amount of $125. As of December 31, 2017 and 2016, the Company had a total of $18,575 and $19,639, 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, 2017 will be reduced by approximately $11,971 due to statute expiration and effectively settled positions in various state jurisdictions. The Company is currently under audit by the states of New Jersey and North Carolina.

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 Equity Incentive Plan below. RSUs generally vest in separate tranches over periods of 2 to 4 years, based solely on continued employment or continued service as a Director.

The following table provides a summary of each of the Company’s equity-based compensation plans for any plan with grants outstanding at December 31, 2017:

Equity-Based Compensation Plans		Shares Authorized			Options/RSUs Outstanding			Shares Available to Issue
1998 Management Long-Term Stock Option Plan		1,000			6			—
2000 Broadly-Based Stock Option Plan		2,000			89			—
2010 Equity Incentive Plan (1)		700			218			38
2014 Equity Incentive Plan (2)		950			613			276

(1)

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. Of the 700 aggregate shares available to issue, up to 240 may be granted in the form of RSUs. There were 208 Options and 10 RSUs outstanding as of December 31, 2017. Of the 38 shares available to be issued under the 2010 Plan, substantially all may be granted as RSUs.

(2)

During 2014, the Company’s shareholders approved the 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. 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. The performance metric is based on the Company’s return on capital performance relative to a peer group during a specified three year period based on the date of Option grant, with the initial performance period being 2014 through 2016. Based on the Company's return on capital performance, the initial performance period metric was met. Future vesting of Option grants subject to the initial performance period are subject only to continued employment or continued service as a director. Options granted under the 2014 Plan vest annually over four years in 25% increments beginning on December 31, 2016, or later based on the date of grant.

During 2017, the Company issued 19 Options under the 2014 Plan. Substantially all of the Options granted in 2017 will vest annually over four years in 25% increments beginning on December 31, 2019. Vesting for 15 of the Options granted is contingent both upon continued employment or continued service as a director and the Company’s return on capital performance. Vesting for the other 4 Options granted under the 2014 Plan is contingent solely upon continued employment or continued service as a director.

The Company also issued 11 Options under the 2010 Plan during 2017. Substantially all of the 2010 Plan Options granted during 2017 will vest annually over four years in 25% increments beginning on December 31, 2019. The vesting for the Options granted under the 2010 Plan is based solely on continued employment.

NVR, Inc.

Notes to Consolidated Financial Statements

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

The following table provides additional information relative to NVR’s equity-based compensation plans for the year ended December 31, 2017:

		Shares			Weighted Avg. Per Share Exercise Price				Weighted Avg. Remaining Contract Life (years)		Aggregate Intrinsic Value
Stock Options
Outstanding at December 31, 2016		1,076			$	1,048.38
Granted		30			2,431.54
Exercised		(159	)		886.41
Forfeited		(31	)		1,099.68
Outstanding at December 31, 2017		916			$	1,119.92			6.0		$	2,187,430
Exercisable at December 31, 2017		461			$	957.50			5.0		$	1,176,843
RSUs
Outstanding at December 31, 2016		16
Granted		—
Vested		(6	)
Forfeited		—
Outstanding at December 31, 2017		10									$	34,945
Vested, but not issued at December 31, 2017		5									$	18,344

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 2017, 2016 and 2015 was estimated on the grant date using the Pricing Model, based on the following assumptions:

		2017				2016				2015
Estimated option life (years)		5.26				5.27				5.17
Risk free interest rate (range)		1.53%-2.38%				0.86%-2.21%				1.04%-2.07%
Expected volatility (range)		15.09%-17.95%				15.91%-23.49%				17.00%-26.79%
Expected dividend rate		—		%		—		%		—		%
Weighted average grant-date fair value per share of options granted		$	494.17			$	320.21			$	296.50

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. There were no RSUs granted during 2017.

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 current open performance condition will be satisfied at the target level and is recognizing compensation expense related to such

NVR, Inc.

Notes to Consolidated Financial Statements

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

Options accordingly. Compensation cost is recognized within the income statement in the same expense line as the cash compensation paid to the respective employees.

In connection with the adoption of ASU 2016-09 on January 1, 2017, the Company made the election to recognize forfeitures of equity-based awards as a reduction to compensation costs in the period in which they occur. For the years ended December 31, 2016 and 2015, the Company estimated forfeitures based on its historical forfeiture rate. In 2017, 2016 and 2015, the Company recognized $44,562, $43,598, and $54,091 in equity-based compensation costs, respectively, and approximately $17,100, $17,000, and $19,700 in tax benefit related to equity-based compensation costs, respectively.

As of December 31, 2017, the total unrecognized compensation cost for all outstanding Options and RSUs equaled approximately $100,000. The unrecognized compensation cost will be recognized over each grant’s applicable vesting period with the latest vesting date being December 31, 2023. The weighted-average period over which the unrecognized compensation will be recorded is equal to approximately 1.9 years.

The Company settles Option exercises and vesting of RSUs by issuing shares of treasury stock. Shares are relieved from the treasury account based on the weighted average cost of treasury shares acquired. During the years ended December 31, 2017, 2016 and 2015, the Company issued 165, 83 and 131 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,
		2017				2016				2015
Aggregate exercise proceeds (1)		$	140,525			$	38,106			$	85,948
Aggregate intrinsic value on exercise dates		$	206,890			$	96,600			$	99,288

(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 December 31, 2017, 2016 and 2015 was approximately $18,400, $16,700 and $17,900, respectively. The ESOP purchased approximately 6 and 9 shares of NVR common stock in the open market for the 2017 and 2016 plan year contributions, respectively, using cash contributions provided by the Company. As of December 31, 2017, all shares held by the ESOP had been allocated to participants’ accounts. The 2017 plan year contribution was funded and fully allocated to participants in February 2018.

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, 2017 and 2016. 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, 2017, 2016 and 2015.

NVR, Inc.

Notes to Consolidated Financial Statements

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

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, 2017 are as follows:

Year Ending December 31,
2018	$	29,366
2019	21,569
2020	17,799
2021	13,436
2022	10,780
Thereafter	17,202
	110,152
Sublease income	(30		)
	$	110,122

Total rent expense incurred under operating leases was approximately $49,400, $45,800 and $48,100 for the years ended December 31, 2017, 2016 and 2015, 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 Lot Purchase Agreements. The Lot Purchase Agreements require deposits that may be forfeited if the Company fails to perform under the agreement. The deposits required under the Lot 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. At December 31, 2017, assuming that contractual development milestones are met and the Company exercises its option, the Company expects to place additional forfeitable deposits with land developers under existing Lot Purchase Agreements of approximately $137,900. 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 $1,505. Additionally, as of December 31, 2017, we had funding commitments totaling approximately $7,900 under a joint development agreement related to our land under development, a portion of which we expect will be offset by development credits of approximately $4,700.

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 $44,300 of contingent obligations under such agreements, including approximately $7,300 for letters of credit issued under the Credit Agreement as of December 31, 2017. 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,
		2017				2016				2015
Warranty reserve, beginning of year		$	93,895			$	87,407			$	94,060
Provision		44,652				50,787				47,003
Payments		(44,034		)		(44,299		)		(53,656		)
Warranty reserve, end of year		$	94,513			$	93,895			$	87,407

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

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.

Financial Instruments

The estimated fair values of NVR’s Senior Notes as of December 31, 2017 and 2016 were $630,000 and $612,000, respectively. 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 values at December 31, 2017 and 2016 were $597,066 and $596,455, respectively. 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 sales contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sales 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, 2017, there were contractual commitments to extend credit to borrowers aggregating $490,184 and open forward delivery contracts aggregating $705,405, which hedge both the rate lock loan commitments and closed loans held for sale.

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 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 is included in the fair value measurement and is based upon contractual terms with investors and varies depending on the loan type. NVRM assumes a 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. As of December 31, 2017, the fair value of loans held for sale of $352,489 included on the accompanying consolidated balance sheet has been increased by $1,931 from the aggregate principal balance of $350,558. As of December 31, 2016, the fair value of loans held for sale of $351,958 were decreased by $5,954 from the aggregate principal balance of $357,912.

NVR, Inc.

Notes to Consolidated Financial Statements

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

The fair value measurement of NVRM's undesignated derivative instruments was as follows:

		As of December 31,
		2017				2016
Rate lock commitments:
Gross assets		$	5,400			$	5,403
Gross liabilities		1,832				3,327
Net rate lock commitments		$	3,568			$	2,076
Forward sales contracts:
Gross assets		$	992			$	9,148
Gross liabilities		667				1,084
Net forward sales contracts		$	325			$	8,064

The net rate lock commitments and net forward sales contracts are both reported in mortgage banking "Other assets" on the accompanying consolidated balance sheets.

The fair value measurement as of December 31, 2017 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		$	490,184			$	(666	)		$	(407	)		$	4,641			$	—			$	3,568
Forward sales contracts		$	705,405			—				—				—				325				325
Mortgages held for sale		$	350,558			(204		)		(1,726		)		3,861				—				1,931
Total fair value measurement						$	(870	)		$	(2,133	)		$	8,502			$	325			$	5,824

The total fair value measurement as of December 31, 2016 was $4,186. For the year ended December 31, 2017, NVRM recorded a fair value adjustment to income of $1,638. For the year ended December 31, 2016, NVRM recorded a fair value adjustment to expense of $3,147. For the year ended December 31, 2015, NVRM recorded a fair value adjustment to income of $3,508. 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 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 Repurchase Reserve

During the years ended December 31, 2017, 2016 and 2015, the Company recognized pre-tax charges for loan losses related to mortgage loans sold of approximately $2,900, $2,000 and $2,700, respectively. Included in the Mortgage Banking segment’s “Accounts payable and other liabilities” line item on the accompanying consolidated balance sheets is a mortgage repurchase reserve equal to approximately $14,000 and $12,700 at December 31, 2017 and 2016, respectively.

NVR, Inc.

Notes to Consolidated Financial Statements

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

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, 2017 and 2016.

		Year Ended December 31, 2017
		4th Quarter				3rd Quarter				2nd Quarter				1st Quarter
Revenues – homebuilding operations		$	1,781,494			$	1,633,726			$	1,512,714			$	1,247,587
Gross profit – homebuilding operations		$	343,187			$	325,755			$	294,631			$	221,570
Mortgage banking fees		$	34,842			$	34,194			$	31,778			$	29,505
Net income		$	124,619			$	162,102			$	147,877			$	102,923
Diluted earnings per share		$	28.88			$	38.02			$	35.19			$	25.12
New orders (units)		4,306				4,200				4,678				4,424
Settlements (units)		4,630				4,158				3,917				3,256
Backlog, end of period (units)		8,531				8,855				8,813				8,052
Loans closed		$	1,229,695			$	1,115,494			$	1,041,613			$	843,341

		Year Ended December 31, 2016
		4th Quarter				3rd Quarter				2nd Quarter				1st Quarter
Revenues – homebuilding operations		$	1,718,527			$	1,507,451			$	1,361,741			$	1,121,504
Gross profit – homebuilding operations		$	305,087			$	265,159			$	235,372			$	195,744
Mortgage banking fees		$	34,239			$	30,118			$	26,442			$	22,522
Net income		$	150,891			$	117,392			$	91,676			$	65,303
Diluted earnings per share		$	37.80			$	28.46			$	22.01			$	15.79
New orders (units)		3,645				3,477				4,324				4,137
Settlements (units)		4,419				3,922				3,581				3,006
Backlog, end of period (units)		6,884				7,658				8,103				7,360
Loans closed		$	1,201,164			$	1,055,163			$	942,407			$	753,840