e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-12378
NVR, Inc.
(Exact
name of registrant as specified in its charter)
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Virginia
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54-1394360 |
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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11700 Plaza America Drive, Suite 500
Reston, Virginia 20190
(703) 956-4000
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
(Not Applicable)
(Former name, former address, and former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of October 20, 2006 there were 5,588,179 total shares of common stock outstanding.
NVR, Inc.
Form 10-Q
INDEX
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Page |
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PART I |
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FINANCIAL INFORMATION |
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Item 1. |
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NVR, Inc. Condensed Consolidated Financial Statements |
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Condensed Consolidated Balance Sheets at September 30, 2006
(unaudited) and December 31, 2005 |
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3 |
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Condensed Consolidated Statements of Income for the
Three Months Ended September 30, 2006 (unaudited)
and September 30, 2005 (unaudited) and the Nine Months
Ended September 30, 2006 (unaudited) and September 30, 2005
(unaudited) |
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5 |
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Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2006 (unaudited) and
September 30, 2005 (unaudited) |
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6 |
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Notes to Condensed Consolidated Financial Statements |
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7 |
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Item 2. |
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Managements Discussion and Analysis of Financial
Condition and Results of Operations |
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18 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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27 |
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Item 4. |
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Controls and Procedures |
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27 |
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PART II |
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OTHER INFORMATION |
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Item 1. |
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Legal Proceedings |
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27 |
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Item 1A. |
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Risk Factors |
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27 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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27 |
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Item 6. |
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Exhibits |
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28 |
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Signature |
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29 |
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Exhibit Index |
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30 |
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2
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PART I. |
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FINANCIAL INFORMATION |
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Item 1. |
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Financial Statements |
NVR, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
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September 30, 2006 |
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December 31, 2005 |
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(unaudited) |
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ASSETS |
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Homebuilding: |
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Cash and cash equivalents |
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$ |
235,771 |
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$ |
170,090 |
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Receivables |
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16,762 |
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40,562 |
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Inventory: |
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Lots and housing units, covered under
sales agreements with customers |
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912,111 |
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723,657 |
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Unsold lots and housing units |
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89,765 |
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60,419 |
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Manufacturing materials and other |
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9,263 |
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9,899 |
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1,011,139 |
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793,975 |
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Assets not owned, consolidated
per FIN 46R |
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262,534 |
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275,306 |
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Property, plant and equipment, net |
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36,985 |
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31,096 |
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Reorganization value in excess of amounts
allocable to identifiable assets, net |
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41,580 |
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41,580 |
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Goodwill and indefinite life intangibles, net |
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11,686 |
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11,686 |
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Definite life intangibles, net |
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281 |
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375 |
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Contract land deposits, net |
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437,519 |
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517,241 |
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Other assets |
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201,167 |
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142,851 |
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2,255,424 |
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2,024,762 |
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Mortgage Banking: |
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Cash and cash equivalents |
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2,834 |
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7,436 |
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Mortgage loans held for sale, net |
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203,443 |
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193,932 |
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Property and equipment, net |
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1,260 |
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1,003 |
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Reorganization value in excess of amounts
allocable to identifiable assets, net |
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7,347 |
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7,347 |
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Other assets |
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2,437 |
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3,189 |
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217,321 |
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212,907 |
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Total assets |
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$ |
2,472,745 |
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$ |
2,237,669 |
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See notes to condensed consolidated financial statements.
(Continued)
3
NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)
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September 30, 2006 |
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December 31, 2005 |
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(unaudited) |
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LIABILITIES AND SHAREHOLDERS
EQUITY |
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Homebuilding: |
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Accounts payable |
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$ |
281,082 |
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$ |
262,086 |
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Accrued expenses and other liabilities |
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262,072 |
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276,702 |
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Liabilities related to assets not owned,
consolidated per FIN 46R |
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207,579 |
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215,284 |
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Obligations under incentive plans |
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39,669 |
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60,555 |
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Customer deposits |
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213,379 |
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256,837 |
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Other term debt |
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3,141 |
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3,325 |
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Senior notes |
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200,000 |
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200,000 |
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Notes payable |
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103,000 |
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1,206,922 |
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1,377,789 |
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Mortgage Banking: |
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Accounts payable and other liabilities |
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11,245 |
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25,902 |
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Note payable |
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168,062 |
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156,816 |
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179,307 |
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182,718 |
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Total liabilities |
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1,386,229 |
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1,560,507 |
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Commitments and contingencies |
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Shareholders equity: |
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Common stock, $0.01 par value; 60,000,000
shares authorized; 20,592,640 shares
issued as of both September 30, 2006 and
December 31, 2005 |
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206 |
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206 |
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Additional paid-in-capital |
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562,608 |
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473,886 |
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Deferred compensation trust 547,238 and
547,697 shares as of September 30, 2006
and December 31, 2005, respectively, of
NVR, Inc. common stock |
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(80,090 |
) |
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(76,303 |
) |
Deferred compensation liability |
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80,090 |
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76,303 |
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Retained earnings |
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3,060,873 |
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2,608,628 |
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Less treasury stock at cost 14,947,725 and
14,964,482 shares at September 30, 2006
and December 31, 2005, respectively |
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(2,537,171 |
) |
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(2,405,558 |
) |
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Total shareholders equity |
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1,086,516 |
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677,162 |
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Total liabilities and
shareholders equity |
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$ |
2,472,745 |
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$ |
2,237,669 |
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See notes to condensed consolidated financial statements.
4
NVR, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Homebuilding: |
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Revenues |
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$ |
1,528,964 |
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$ |
1,350,465 |
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$ |
4,435,503 |
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$ |
3,546,965 |
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Other income |
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3,238 |
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1,224 |
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8,248 |
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4,157 |
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Cost of sales |
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(1,238,671 |
) |
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(970,437 |
) |
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(3,403,893 |
) |
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(2,557,268 |
) |
Selling, general and administrative |
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(95,574 |
) |
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(86,626 |
) |
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(329,131 |
) |
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(243,276 |
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Operating income |
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197,957 |
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294,626 |
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710,727 |
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750,578 |
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Interest expense |
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(3,141 |
) |
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(2,905 |
) |
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(14,773 |
) |
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(8,835 |
) |
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Homebuilding income |
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194,816 |
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291,721 |
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695,954 |
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741,743 |
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Mortgage Banking: |
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Mortgage banking fees |
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24,447 |
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22,557 |
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71,491 |
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57,178 |
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Interest income |
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1,986 |
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|
1,492 |
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5,236 |
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|
3,276 |
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Other income |
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|
403 |
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|
435 |
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|
1,017 |
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|
1,022 |
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General and administrative |
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(8,847 |
) |
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(7,957 |
) |
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(27,867 |
) |
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(22,486 |
) |
Interest expense |
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(698 |
) |
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|
(277 |
) |
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(2,619 |
) |
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(730 |
) |
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Mortgage banking income |
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17,291 |
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|
16,250 |
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47,258 |
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38,260 |
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Income before taxes |
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212,107 |
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|
307,971 |
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743,212 |
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780,003 |
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Income tax expense |
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(82,774 |
) |
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(118,528 |
) |
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(290,967 |
) |
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(304,981 |
) |
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Net income |
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$ |
129,333 |
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$ |
189,443 |
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$ |
452,245 |
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$ |
475,022 |
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Basic earnings per share |
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$ |
22.59 |
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$ |
30.08 |
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$ |
79.60 |
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$ |
73.73 |
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Diluted earnings per share |
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$ |
19.63 |
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$ |
24.33 |
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$ |
67.23 |
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$ |
59.87 |
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|
Basic average shares outstanding |
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|
5,725 |
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|
|
6,298 |
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|
5,682 |
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|
|
6,443 |
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|
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|
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|
|
|
|
|
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|
|
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|
|
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|
Diluted average shares outstanding |
|
|
6,588 |
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|
|
7,787 |
|
|
|
6,727 |
|
|
|
7,934 |
|
|
|
|
|
|
|
|
|
|
|
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|
See notes to condensed consolidated financial statements.
5
NVR, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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|
|
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|
|
|
|
Nine Months Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities: |
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|
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|
|
|
Net income |
|
$ |
452,245 |
|
|
$ |
475,022 |
|
Adjustments to reconcile net income to
net cash provided by operating activities: |
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|
|
|
|
|
|
Depreciation and amortization |
|
|
10,089 |
|
|
|
7,418 |
|
Contract land deposit impairments and write-offs |
|
|
113,759 |
|
|
|
7,698 |
|
Stock option compensation expense |
|
|
41,010 |
|
|
|
2,674 |
|
Excess income tax benefit from exercise of stock options |
|
|
(82,809 |
) |
|
|
|
|
Mortgage loans closed |
|
|
(1,925,389 |
) |
|
|
(1,559,051 |
) |
Proceeds from sales of mortgage loans |
|
|
1,955,567 |
|
|
|
1,582,859 |
|
Principal payments on mortgage loans held for sale |
|
|
12,751 |
|
|
|
12,636 |
|
Gain on sale of loans |
|
|
(52,891 |
) |
|
|
(41,484 |
) |
Loss (Gain) on sale of fixed assets |
|
|
6 |
|
|
|
(278 |
) |
Net change in assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in inventories |
|
|
(217,164 |
) |
|
|
(324,228 |
) |
Decrease (increase) in receivables |
|
|
24,192 |
|
|
|
(4,885 |
) |
Increase in contract land deposits |
|
|
(29,605 |
) |
|
|
(139,556 |
) |
Increase in accounts payable, customer deposits and accrued expenses |
|
|
29,901 |
|
|
|
292,372 |
|
Decrease in obligations under incentive plans |
|
|
(20,886 |
) |
|
|
(12,436 |
) |
Other, net |
|
|
(58,378 |
) |
|
|
(11,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
252,398 |
|
|
|
287,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(16,040 |
) |
|
|
(10,072 |
) |
Business acquisition, net of cash acquired |
|
|
|
|
|
|
(7,465 |
) |
Other, net |
|
|
560 |
|
|
|
3,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(15,480 |
) |
|
|
(13,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net (repayments) borrowings under notes payable and
other term debt |
|
|
(91,938 |
) |
|
|
103,245 |
|
Purchase of treasury stock |
|
|
(183,286 |
) |
|
|
(510,532 |
) |
Excess income tax benefit from exercise of stock options |
|
|
82,809 |
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
16,576 |
|
|
|
12,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(175,839 |
) |
|
|
(395,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
61,079 |
|
|
|
(121,599 |
) |
Cash and cash equivalents, beginning of the period |
|
|
177,526 |
|
|
|
367,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
238,605 |
|
|
$ |
245,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid during the period |
|
$ |
17,352 |
|
|
$ |
6,564 |
|
|
|
|
|
|
|
|
Income taxes paid, net of refunds |
|
$ |
303,834 |
|
|
$ |
172,728 |
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash activities: |
|
|
|
|
|
|
|
|
Net assets not owned, consolidated per FIN 46R |
|
$ |
(5,067 |
) |
|
$ |
9,859 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
6
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
1. Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements include the accounts
of NVR, Inc. (NVR or the Company) and its subsidiaries and certain other entities in which the
Company is deemed to be the primary beneficiary (see note 2 to the condensed consolidated financial
statements). Intercompany accounts and transactions have been eliminated in consolidation. The
statements have been prepared in conformity with accounting principles generally accepted in the
United States of America for interim financial information and with the instructions to Form 10-Q
and Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for complete financial
statements. Because the accompanying condensed consolidated financial statements do not include
all of the information and footnotes required by accounting principles generally accepted in the
United States of America, they should be read in conjunction with the financial statements and
notes thereto included in the Companys 2005 Annual Report on Form 10-K. In the opinion of
management, all adjustments (consisting only of normal recurring accruals except as otherwise noted
herein) considered necessary for a fair presentation have been included. Operating results for the
nine-month period ended September 30, 2006 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2006.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
For the three and nine-month periods ended September 30, 2006 and 2005, comprehensive income
equaled net income; therefore, a separate statement of comprehensive income is not included in the
accompanying financial statements. Certain prior year balances have been reclassified to conform
to the current year presentation. The reclassifications have no impact on the net income or
retained earnings previously reported.
2. Consolidation of Variable Interest Entities
In December 2003, the Financial Accounting Standards Board issued Revised Interpretation No.
46 (FIN 46R), Consolidation of Variable Interest Entities, which was effective for NVR as of
March 31, 2004. FIN 46R requires the primary beneficiary of a variable interest entity to
consolidate that entity in its financial statements. The primary beneficiary of a variable
interest entity is the party that absorbs a majority of the variable interest entitys expected
losses, receives a majority of the entitys expected residual returns, or both, as a result of
ownership, contractual, or other financial interests in the entity. Expected losses are the
expected negative variability in the fair value of an entitys net assets, exclusive of its
variable interests, and expected residual returns are the expected positive variability in the fair
value of an entitys net assets, exclusive of its variable interests. As discussed below, NVR
evaluates the provisions of FIN 46R as it relates to NVRs finished lot acquisition strategy.
NVR does not engage in the land development business. Instead, the Company typically
acquires finished building lots at market prices from various development entities under fixed
price purchase agreements. The purchase agreements require deposits that may be forfeited if NVR
fails to perform under the agreement. The deposits required under the purchase agreements are in
the form of cash or letters of credit in varying amounts, and typically range up to 10% of the
aggregate purchase price of the finished lots. As of September 30, 2006, the Company controlled
approximately 98,000 lots with deposits in cash and letters of credit totaling approximately
$594,000 and $17,000, respectively.
7
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
The Company believes that this lot acquisition strategy reduces the financial requirements and
risks associated with direct land ownership and land development. NVR may, at its option, choose
for any reason
and at any time not to perform under these purchase agreements by delivering notice of its intent
not to acquire the finished lots under contract. NVRs sole legal obligation and economic loss for
failure to perform under these purchase agreements is limited to the amount of the deposit pursuant
to the liquidating damage provisions contained within the purchase agreements. In other words, if
NVR does not perform under a purchase agreement, NVR loses only its deposit. NVR does not have any
financial or specific performance guarantees, or completion obligations, under these purchase
agreements, with the exception of two specific performance contracts pursuant to which the Company
is committed to purchasing approximately seven finished lots at an aggregate purchase price of
approximately $130. None of the creditors of any of the development entities with which NVR enters
fixed price purchase agreements have recourse to the general credit of NVR. Except as described
below, NVR also does not share in an allocation of either the profit earned or loss incurred by any
of these entities with which NVR enters fixed price purchase agreements.
On a very limited basis, NVR also obtains finished lots using joint venture limited liability
corporations (LLCs). All LLCs are structured such that NVR is a non-controlling member and is
at risk only for the amount invested. NVR is not a borrower, guarantor or obligor on any of the
LLCs debt. NVR enters into a standard fixed price purchase agreement to purchase lots from the
LLCs.
At September 30, 2006, NVR had an aggregate investment in twelve separate LLCs totaling
approximately $14,000, which controlled approximately 800 lots. NVR recognizes its share of the
earnings of the LLCs as an adjustment of the cost basis of the lots at the time that the lot and
related home is settled with an external customer. During the nine months ended September 30, 2006
and 2005, NVR adjusted cost of sales by approximately $260 and $240, respectively, which
represented NVRs share of the earnings of the LLCs.
Forward contracts, such as the fixed price purchase agreements utilized by NVR to acquire
finished lot inventory, are deemed to be variable interests under FIN 46R. Therefore, the
development entities with which NVR enters fixed price purchase agreements, including the LLCs,
are examined under FIN 46R for possible consolidation by NVR of such development entities on NVRs
financial statements. NVR has developed a methodology to determine whether it, or conversely, the
owner(s) of the applicable development entity is the primary beneficiary of a development entity.
The methodology used to evaluate NVRs primary beneficiary status requires substantial management
judgment and estimation. These judgments and estimates involve assigning probabilities to various
estimated cash flow possibilities relative to the development entitys expected profits and losses
and the cash flows associated with changes in the fair value of finished lots under contract.
Although management believes that its accounting policy is designed to properly assess NVRs
primary beneficiary status relative to its involvement with the development entities from which NVR
acquires finished lots, changes to the probabilities and the cash flow possibilities used in NVRs
evaluation could produce widely different conclusions regarding whether NVR is or is not a
development entitys primary beneficiary.
The Company has evaluated all of its fixed price purchase agreements and LLC arrangements and
has determined that it is the primary beneficiary of twenty-eight of those development entities
with which the agreements and arrangements are held. As a result, at September 30, 2006, NVR has
consolidated such development entities in the accompanying condensed consolidated balance sheet.
Where NVR deemed itself to be the primary beneficiary of a development entity created after
December 31, 2003 and the development entity refused to provide financial statements to NVR, NVR
utilized estimation techniques to perform the consolidation. The effect of the consolidation under
FIN 46R at September 30, 2006 was the inclusion on the balance sheet of $262,534 as Assets not
owned, consolidated per FIN 46R, with a corresponding inclusion of $207,579 as Liabilities related
to assets not owned, consolidated per FIN 46R, after elimination of intercompany items. Inclusive
in these totals were assets of approximately $25,000 and liabilities of approximately $20,000
estimated for five development entities created after December 31, 2003 that did not provide
financial statements.
8
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
Following is the consolidating schedule at September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NVR, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
FIN 46R |
|
|
|
|
|
|
Consolidated |
|
|
|
Subsidiaries |
|
|
Entities |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
235,771 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
235,771 |
|
Receivables |
|
|
16,762 |
|
|
|
|
|
|
|
|
|
|
|
16,762 |
|
Homebuilding inventory |
|
|
1,011,139 |
|
|
|
|
|
|
|
|
|
|
|
1,011,139 |
|
Property, plant and equipment, net |
|
|
36,985 |
|
|
|
|
|
|
|
|
|
|
|
36,985 |
|
Reorganization value in excess of amount
allocable to identifiable assets, net |
|
|
41,580 |
|
|
|
|
|
|
|
|
|
|
|
41,580 |
|
Goodwill and intangibles, net |
|
|
11,967 |
|
|
|
|
|
|
|
|
|
|
|
11,967 |
|
Contract land deposits, net |
|
|
483,457 |
|
|
|
|
|
|
|
(45,938 |
) |
|
|
437,519 |
|
Other assets |
|
|
210,184 |
|
|
|
|
|
|
|
(9,017 |
) |
|
|
201,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,047,845 |
|
|
|
|
|
|
|
(54,955 |
) |
|
|
1,992,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking assets: |
|
|
217,321 |
|
|
|
|
|
|
|
|
|
|
|
217,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 46R Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land under development |
|
|
|
|
|
|
258,801 |
|
|
|
|
|
|
|
258,801 |
|
Other assets |
|
|
|
|
|
|
3,733 |
|
|
|
|
|
|
|
3,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262,534 |
|
|
|
|
|
|
|
262,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,265,166 |
|
|
$ |
262,534 |
|
|
$ |
(54,955 |
) |
|
$ |
2,472,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses
and other liabilities |
|
$ |
582,823 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
582,823 |
|
Customer deposits |
|
|
213,379 |
|
|
|
|
|
|
|
|
|
|
|
213,379 |
|
Other term debt |
|
|
3,141 |
|
|
|
|
|
|
|
|
|
|
|
3,141 |
|
Senior notes |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999,343 |
|
|
|
|
|
|
|
|
|
|
|
999,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking liabilities: |
|
|
179,307 |
|
|
|
|
|
|
|
|
|
|
|
179,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 46R Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses
and other liabilities |
|
|
|
|
|
|
12,619 |
|
|
|
|
|
|
|
12,619 |
|
Debt |
|
|
|
|
|
|
152,318 |
|
|
|
|
|
|
|
152,318 |
|
Contract land deposits |
|
|
|
|
|
|
45,938 |
|
|
|
(45,938 |
) |
|
|
|
|
Advances from NVR, Inc. |
|
|
|
|
|
|
8,200 |
|
|
|
(8,200 |
) |
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
42,642 |
|
|
|
42,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219,075 |
|
|
|
(11,496 |
) |
|
|
207,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
1,086,516 |
|
|
|
43,459 |
|
|
|
(43,459 |
) |
|
|
1,086,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders
equity |
|
$ |
2,265,166 |
|
|
$ |
262,534 |
|
|
$ |
(54,955 |
) |
|
$ |
2,472,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
Under FIN 46R, an enterprise with an interest in a variable interest entity or potential
variable interest entity created before December 31, 2003, is not required to apply FIN 46R to that
entity if the enterprise, after making an exhaustive effort, is unable to obtain the information
necessary to perform the accounting required to consolidate the variable interest entity for which
it is determined to be the primary beneficiary. At September 30, 2006, NVR has been unable to
obtain the information necessary to perform the accounting required to consolidate seven separate
development entities created before December 31, 2003 for which NVR determined it was the primary
beneficiary. NVR has made, or has committed to make, aggregate deposits, totaling approximately
$8,200 to these seven separate development entities, with a total aggregate purchase price for the
finished lots of approximately $69,000. The aggregate deposit made or committed to being made is
NVRs maximum exposure to loss. As noted above, because NVR does not have any contractual or
ownership interests in the development entities with which it contracts to buy finished lots (other
than the limited use of the LLCs as discussed above), NVR does not have the ability to compel
these development entities to provide financial or other data to NVR. Because NVR has no ownership
rights in any of these seven development entities, the consolidation of such entities has no impact
on NVRs net income or earnings per share for the three and nine months ended September 30, 2006.
Aggregate activity with respect to the seven development entities is included in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Finished lots purchased dollars |
|
$ |
5,182 |
|
|
$ |
2,147 |
|
|
$ |
10,955 |
|
|
$ |
2,756 |
|
Finished lots purchased units |
|
|
24 |
|
|
|
25 |
|
|
|
76 |
|
|
|
39 |
|
3. Contract Land Deposits
During the three and nine month periods ended September 30, 2006, the Company incurred pre-tax
charges of approximately $80,800 and $114,000, respectively, related to the impairment of contract
land deposits due to deteriorating market conditions in the homebuilding industry. These
impairment charges were recorded in cost of sales on the accompanying condensed, consolidated
statement of income. The contract land deposit asset is shown net of a $110,000 and $31,919
impairment valuation allowance at September 30, 2006, and December 31, 2005, respectively.
4. Stock-Based Compensation
On January 1, 2006 (the Effective Date), the Company adopted Statement of Financial
Accounting Standards (SFAS) 123R, Share-Based Payment, which revised SFAS 123, Accounting
for Stock-Based Compensation. Prior to fiscal year 2006 and the adoption of SFAS 123R, NVR
followed the intrinsic value method in accounting for its stock-based employee compensation
arrangements as defined by Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock Issued to Employees.
SFAS 123R requires an entity to recognize an expense within its income statement for all
share-based payment arrangements, which includes employee stock option plans. The expense is
based on the grant-date fair value of the options granted, and is recognized ratably over the
requisite service period. NVR adopted SFAS 123R under the modified prospective method.
Under the modified prospective method, SFAS 123R applies to new awards and to awards modified,
repurchased, or cancelled after the required Effective Date, as well as to the unvested
portion of awards outstanding as of the required Effective Date. The Companys stock options
are accounted for as equity awards.
10
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
NVRs option plans provide for the granting of stock options to certain key employees of
the Company to purchase shares of common stock. The exercise price of options granted is
equal to the market value of the Companys common stock on the date of grant. Options are
granted for a ten-year
term, and vest in separate tranches over periods of 7 to 9 years, depending upon the plan from
which the shares were granted. For options granted prior to May 2005, vesting was predicated
solely on continued employment over a long-term vesting schedule (service-only options).
For options granted in May 2005 and thereafter, option vesting is contingent first on the
Company achieving an aggregate four-year diluted earnings per share target, and if that target
is met, then on continued employment over a five year period subsequent to the conclusion of
the performance period (performance condition options). At September 30, 2006, there was an
aggregate of 2,761,433 options outstanding, and an additional 261,058 options were available
for grant, under existing stock option plans.
The following table provides additional information relative to NVRs stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contract Life |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
(Years) |
|
|
Value |
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period |
|
|
3,085,019 |
|
|
$ |
265.05 |
|
|
|
5.77 |
|
|
|
|
|
Granted |
|
|
42,888 |
|
|
|
664.34 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(305,698 |
) |
|
|
54.22 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(60,776 |
) |
|
|
336.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
2,761,433 |
|
|
$ |
293.01 |
|
|
|
5.35 |
|
|
$ |
668,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
323,623 |
|
|
$ |
51.66 |
|
|
|
2.75 |
|
|
$ |
156,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To estimate the grant-date fair value of its stock options, the Company uses the
Black-Scholes option-pricing model. The Black-Scholes model estimates the per share fair value of
an option on its date of grant based on the following: the options 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 a U.S. Treasury Strip due in a number of years equal to the options expected
term. NVR has concluded that its historical exercise experience is the best estimate of future
exercise patterns to determine an options expected term. To estimate expected volatility, NVR
analyzed the historic volatility of its common stock. The estimated fair value of the options
granted under SFAS 123R during the first nine months of 2006 was calculated using the following
assumptions:
|
|
|
|
|
|
|
Nine Months |
|
|
Ended |
|
|
September 30, 2006 |
Estimated option life |
|
8.93 years |
Risk free interest rate (range) |
|
|
4.46% - 5.24 |
% |
Expected volatility (range) |
|
|
32.01% - 34.00 |
% |
Expected dividend rate |
|
|
0.00 |
% |
Weighted average grant-date fair
value per share of options granted |
|
$ |
343.38 |
|
Compensation cost for service-only option grants 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). Compensation cost for
performance condition option grants is recognized on a straight-line basis over the
requisite service period for each vesting tranche of the award as if the award was, in
substance, multiple awards (graded vesting attribution method). Of the 2,761,433 options
outstanding at September 30, 2006, 2,334,795 vest solely based on a service condition, and
426,638 vest based on a combined performance and service condition. Compensation cost is
recognized in the income statement in the same expense line as the cash compensation paid to
the respective employees. SFAS 123R also requires the Company to estimate forfeitures in
calculating the expense
related to stock-based compensation. NVR has concluded that its historical forfeiture rate is
the best measure to estimate future forfeitures of granted stock options. The impact on
compensation costs due to changes in the expected forfeiture rate will be recognized in the
period that they become known.
11
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
The effect of adopting SFAS 123R on the period ended September 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, 2006 |
|
September 30, 2006 |
Total pre-tax stock-based compensation |
|
$ |
13,855 |
|
|
$ |
41,010 |
|
Total stock-based compensation, net of tax |
|
|
9,365 |
|
|
|
27,516 |
|
Effect on basic earnings per share |
|
|
(1.64 |
) |
|
|
(4.84 |
) |
Effect on diluted earnings per share |
|
|
(1.42 |
) |
|
|
(4.09 |
) |
As of September 30, 2006, the total unrecognized compensation cost for outstanding
unvested stock option awards equals approximately $258,000, and the weighted-average period
over which the unrecognized compensation will be recorded is equal to approximately 5.3 years.
Because NVR adopted SFAS 123R using the modified prospective basis, the prior interim
periods have not been restated. The following table sets forth the effect on net income and
basic and diluted earnings per share as if the Company had applied the fair value recognition
provisions for its stock-based compensation arrangements for the three- and nine-month periods
ended September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, 2005 |
|
|
September 30, 2005 |
|
Net income, as reported |
|
$ |
189,443 |
|
|
$ |
475,022 |
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects |
|
|
1,626 |
|
|
|
1,626 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method, net of tax |
|
|
(10,078 |
) |
|
|
(22,296 |
) |
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
180,991 |
|
|
$ |
454,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basicas reported |
|
$ |
30.08 |
|
|
$ |
73.73 |
|
|
|
|
|
|
|
|
Basicpro forma |
|
$ |
28.74 |
|
|
$ |
70.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutedas reported |
|
$ |
24.33 |
|
|
$ |
59.87 |
|
|
|
|
|
|
|
|
Dilutedpro forma |
|
$ |
23.52 |
|
|
$ |
58.06 |
|
|
|
|
|
|
|
|
The Company settles option exercises by issuing shares of treasury stock to option
holders. Shares are relieved from the treasury account based on the weighted average cost of
treasury shares acquired. During the three and nine-month periods ended September 30, 2006, 21,061
and 305,698 options to purchase shares of the Companys common stock were exercised, respectively.
Information with respect to the exercised options is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
September 30, 2006 |
|
September 30, 2006 |
Aggregate exercise proceeds |
|
$ |
1,944 |
|
|
$ |
16,576 |
|
Aggregate intrinsic value on exercise dates |
|
|
8,451 |
|
|
|
208,003 |
|
The Company has elected the alternative transition method pursuant to FASB Staff Position
SFAS 123R-3 to establish the beginning balance of the additional paid-in capital pool available to
absorb any future write-offs of deferred tax benefits associated with stock-based compensation.
12
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
5. Earnings per Share
The following weighted average shares and share equivalents are used to calculate basic and
diluted earnings per share for the three and nine months ended September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Basic weighted average number of
shares outstanding |
|
|
5,725,000 |
|
|
|
6,298,000 |
|
|
|
5,682,000 |
|
|
|
6,443,000 |
|
Shares issuable upon exercise
of dilutive options |
|
|
863,000 |
|
|
|
1,489,000 |
|
|
|
1,045,000 |
|
|
|
1,491,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average number of
shares outstanding |
|
|
6,588,000 |
|
|
|
7,787,000 |
|
|
|
6,727,000 |
|
|
|
7,934,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in note 4, NVR adopted SFAS 123R on the modified prospective basis. Prior
period amounts have not been restated. Beginning in 2006 with the adoption of SFAS 123R, the
assumed proceeds used in the treasury method for calculating NVRs diluted earnings per share
includes the amount the employee must pay upon exercise, the amount of compensation cost attributed
to future services and not yet recognized, and the amount of tax benefits that would be credited to
additional paid-in capital assuming exercise of the option. Beginning in 2006, the assumed amount
credited to additional paid-in capital equals the tax benefit from assumed exercise after
consideration of the intrinsic value upon assumed exercise less the actual stock-based compensation
expense to be recognized in the income statement in 2006 and future periods. During 2005 when the
Company was still accounting for its stock-based compensation under APB 25, there was no
compensation cost attributed to future services included in the assumed proceeds calculation, and
the amount assumed to be credited to additional paid-in capital equaled the full assumed tax
benefit resulting from the intrinsic value of the options upon the assumed exercise.
Service-only options to purchase 237,146 and 120,852 shares of common stock during the three
and nine months ended September 30, 2006, respectively, and 1,750 shares of common stock during the
nine months ended September 30, 2005, were not included in the computation of diluted earnings per
share because the effect would have been anti-dilutive. There were no anti-dilutive options for
the three-month period ended September 30, 2005. In addition, the 376,350 options outstanding
under the 2005 Stock Option Plan, 9,055 options outstanding under the 1998 Directors Long-Term
Stock Option Plan, 26,555 options outstanding under the 2000 Broadly-Based Stock Option Plan, and
14,678 options outstanding under the 1998 Management Long-Term Stock Option Plan are considered
performance-based equity compensation, and accordingly, have been excluded from the computation of
diluted earnings per share because the performance target has not been achieved as of September 30,
2006, pursuant to the requirements of SFAS 128, Earnings Per Share.
6. Excess Reorganization Value, Goodwill and Other Intangibles
SFAS 142, Goodwill and Other Intangible Assets, requires goodwill and reorganization value in
excess of amounts allocable to identifiable assets (excess reorganization value) to be tested for
impairment on an annual basis subsequent to the year of adoption. The Company completed the annual
assessment of impairment during the first quarter of 2006, and as of September 30, 2006, management
believes that goodwill, indefinite life intangibles, and excess reorganization value were not
impaired.
13
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
7. Debt
The Company increased its commitment under its existing revolving credit agreement by $45,000
and by $155,000 in the first and third quarters of 2006, respectively, increasing the total
commitment to $600,000. There were no changes made to any other terms of the credit agreement.
During the third quarter of 2006, NVRs mortgage revolving warehouse credit facility
(Warehouse Credit Facility) was amended, extending the expiration date to August 23, 2007 and
decreasing the interest rate to LIBOR plus 1.00%. The Warehouse Credit Facility provides for
borrowings up to $175,000, of which the Company had $168,062 outstanding at September 30, 2006.
The other terms and conditions of the facility are materially the same as the previous Warehouse
Credit Facility.
8. Shareholders Equity
A summary of changes in shareholders equity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
Deferred |
|
|
|
|
|
|
Common |
|
|
Paid-In |
|
|
Retained |
|
|
Treasury |
|
|
Comp. |
|
|
Comp. |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Stock |
|
|
Trust |
|
|
Liability |
|
|
Total |
|
Balance, December 31, 2005 |
|
$ |
206 |
|
|
$ |
473,886 |
|
|
$ |
2,608,628 |
|
|
$ |
(2,405,558 |
) |
|
$ |
(76,303 |
) |
|
$ |
76,303 |
|
|
$ |
677,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
452,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452,245 |
|
Deferred compensation activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,787 |
) |
|
|
3,787 |
|
|
|
|
|
Purchase of common stock
for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(183,286 |
) |
|
|
|
|
|
|
|
|
|
|
(183,286 |
) |
Stock-based compensation |
|
|
|
|
|
|
41,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,010 |
|
Proceeds from exercises
of stock options |
|
|
|
|
|
|
16,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,576 |
|
Tax benefit from stock-based
compensation activity |
|
|
|
|
|
|
82,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,809 |
|
Treasury shares issued
upon option exercise |
|
|
|
|
|
|
(51,673 |
) |
|
|
|
|
|
|
51,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2006 |
|
$ |
206 |
|
|
$ |
562,608 |
|
|
$ |
3,060,873 |
|
|
$ |
(2,537,171 |
) |
|
$ |
(80,090 |
) |
|
$ |
80,090 |
|
|
$ |
1,086,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company repurchased approximately 289,000 shares of its common stock during the nine
months ended September 30, 2006.
9. Product Warranties
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 NVRs homebuilding business. Liability estimates are determined based on
managements 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
our general counsel and outside counsel retained to handle specific product liability cases. The
following table reflects the changes in the Companys warranty reserve during the three and nine
months ended September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Warranty reserve, beginning of period |
|
$ |
65,265 |
|
|
$ |
42,470 |
|
|
$ |
60,112 |
|
|
$ |
42,319 |
|
Provision |
|
|
13,802 |
|
|
|
19,515 |
|
|
|
39,127 |
|
|
|
38,662 |
|
Payments |
|
|
(12,425 |
) |
|
|
(12,555 |
) |
|
|
(32,597 |
) |
|
|
(31,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty reserve, end of period |
|
$ |
66,642 |
|
|
$ |
49,430 |
|
|
$ |
66,642 |
|
|
$ |
49,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
10. Segment Disclosures
NVRs operations are classified in two reportable segments: homebuilding and mortgage
banking. Corporate general and administrative expenses are fully allocated to the
homebuilding and mortgage banking segments in the information presented below.
For the Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
Mortgage Banking |
|
Totals |
Revenues from external customers |
|
$ |
4,435,503 |
|
|
$ |
71,491 |
|
|
$ |
4,506,994 |
(a) |
Segment profit |
|
|
734,466 |
|
|
|
49,850 |
|
|
|
784,316 |
(b) |
Segment assets |
|
|
1,939,343 |
|
|
|
209,974 |
|
|
|
2,149,317 |
(b) |
|
|
|
(a) |
|
Total amounts for the reportable segments equal the respective amounts for the
consolidated enterprise. |
|
(b) |
|
The following reconciles segment profit and segment assets to the respective amounts for
the consolidated enterprise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Segment profit |
|
$ |
734,466 |
|
|
$ |
49,850 |
|
|
$ |
784,316 |
|
Less: Stock-based compensation expense |
|
|
(38,418 |
) |
|
|
(2,592 |
) |
|
|
(41,010 |
) |
Less: Amortization of definite life
intangibles |
|
|
(94 |
) |
|
|
|
|
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes |
|
$ |
695,954 |
|
|
$ |
47,258 |
|
|
$ |
743,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
1,939,343 |
|
|
$ |
209,974 |
|
|
$ |
2,149,317 |
|
Add: Excess reorganization value,
goodwill and intangibles, net |
|
|
53,547 |
|
|
|
7,347 |
|
|
|
60,894 |
|
Add: Assets not owned, consolidated
per FIN 46R |
|
|
262,534 |
|
|
|
|
|
|
|
262,534 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
2,255,424 |
|
|
$ |
217,321 |
|
|
$ |
2,472,745 |
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
Mortgage Banking |
|
Totals |
Revenues from external customers |
|
$ |
1,528,964 |
|
|
$ |
24,447 |
|
|
$ |
1,553,411 |
(c) |
Segment profit |
|
|
207,836 |
|
|
|
18,157 |
|
|
|
225,993 |
(d) |
|
|
|
(c) |
|
Total amounts for the reportable segments equal the respective amounts for the
consolidated enterprise. |
|
(d) |
|
The following reconciles segment profit to the respective amounts for the consolidated
enterprise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Segment profit |
|
$ |
207,836 |
|
|
$ |
18,157 |
|
|
$ |
225,993 |
|
Less: Stock-based compensation expense |
|
|
(12,989 |
) |
|
|
(866 |
) |
|
|
(13,855 |
) |
Less: Amortization of definite life
intangibles |
|
|
(31 |
) |
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes |
|
$ |
194,816 |
|
|
$ |
17,291 |
|
|
$ |
212,107 |
|
|
|
|
|
|
|
|
|
|
|
15
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
For the Nine Months Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
Mortgage Banking |
|
Totals |
Revenues from external customers |
|
$ |
3,546,965 |
|
|
$ |
57,178 |
|
|
$ |
3,604,143 |
(e) |
Segment profit |
|
|
744,319 |
|
|
|
38,452 |
|
|
|
782,771 |
(f) |
Segment assets |
|
|
1,807,315 |
|
|
|
152,484 |
|
|
|
1,959,799 |
(f) |
|
|
|
(e) |
|
Total amounts for the reportable segments equal the respective amounts for the
consolidated enterprise. |
|
(f) |
|
The following reconciles segment profit and segment assets to the respective amounts for
the consolidated enterprise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Segment profit |
|
$ |
744,319 |
|
|
$ |
38,452 |
|
|
$ |
782,771 |
|
Less: Stock-based compensation expense |
|
|
(2,482 |
) |
|
|
(192 |
) |
|
|
(2,674 |
) |
Less: Amortization of definite life
intangibles |
|
|
(94 |
) |
|
|
|
|
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes |
|
$ |
741,743 |
|
|
$ |
38,260 |
|
|
$ |
780,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
1,807,315 |
|
|
$ |
152,484 |
|
|
$ |
1,959,799 |
|
Add: Excess reorganization value,
goodwill and intangibles, net |
|
|
52,565 |
|
|
|
7,347 |
|
|
|
59,912 |
|
Add: Assets not owned, consolidated
per FIN 46R |
|
|
167,184 |
|
|
|
|
|
|
|
167,184 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
2,027,064 |
|
|
$ |
159,831 |
|
|
$ |
2,186,895 |
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
Mortgage Banking |
|
Totals |
Revenues from external customers |
|
$ |
1,350,465 |
|
|
$ |
22,557 |
|
|
$ |
1,373,022 |
(g) |
Segment profit |
|
|
294,234 |
|
|
|
16,442 |
|
|
|
310,676 |
(h) |
|
|
|
(g) |
|
Total amounts for the reportable segments equal the respective amounts for the
consolidated enterprise. |
|
(h) |
|
The following reconciles segment profit to the respective amounts for the consolidated
enterprise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Segment profit |
|
$ |
294,234 |
|
|
$ |
16,442 |
|
|
$ |
310,676 |
|
Less: Stock-based compensation expense |
|
|
(2,482 |
) |
|
|
(192 |
) |
|
|
(2,674 |
) |
Less: Amortization of definite life
intangibles |
|
|
(31 |
) |
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes |
|
$ |
291,721 |
|
|
$ |
16,250 |
|
|
$ |
307,971 |
|
|
|
|
|
|
|
|
|
|
|
11. Other Events
The staff of the Securities and Exchange Commission (the SEC Staff) recently completed
a periodic review of the Companys Annual Report on Form 10-K as of December 31, 2005 (2005
Form 10-K) and issued a letter requesting supporting information regarding the Companys
aggregation of its homebuilding operations into one reportable segment. The Company has
provided the SEC Staff detailed support for its position. The SEC Staff does not agree with
our position and has asked that we revise our segment disclosure within the 2005 Form 10-K to
disaggregate the results of our homebuilding operations. The Company continues to believe
that it has appropriately reported its homebuilding operations in one reportable segment and
is considering whether it will appeal the SEC Staffs position to the Office of the Chief
Accountant, and as a result, the issue remains unresolved. If the appeal is unsuccessful, or
if the Company elects not to file an appeal, the Company may be required to amend certain
prior filings to provide additional disaggregated segment reporting footnote disclosure.
16
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands except per share data)
12. Legal Proceedings
In 2006 and 2005, NVR received requests for information pursuant to Section 308(a) of the
Clean Water Act (the Act) from Regions 3 and 4 of the United States Environmental Protection
Agency (the EPA). The requests sought information regarding the Companys storm water
management discharge practices in North Carolina, Pennsylvania, Maryland and Virginia during
the homebuilding construction process. NVR has provided the EPA with information in response
to each of its requests. Additionally, in 2005, the EPA notified the Company of alleged storm
water management violations under the Act at a homebuilding site in Pennsylvania, and that the
Company may potentially be subject to administrative fines of up to $157 for the alleged
violations. The Company has completed its building activity at the homebuilding site alleged
to be in violation. NVR cannot predict the outcome of the EPAs review of our storm water
management practices. Further, it is not known at this time whether the EPA will seek to take
legal action or impose penalties in connection with the alleged violation at the construction
site in Pennsylvania.
17
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands) |
Forward-Looking Statements
Some of the statements in this Form 10-Q, as well as statements made by NVR in periodic press
releases and other public communications, constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Certain, but not
necessarily all, of such forward-looking statements can be identified by the use of
forward-looking terminology, such as believes, expects, may, will, should, or
anticipates or the negative thereof or other variations thereof or comparable terminology, or by
discussion of strategies, each of which involves risks and uncertainties. All statements other
than those of historical facts included herein, including those regarding market trends, NVRs
financial position, business strategy, projected plans and objectives of management for future
operations, are forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual results or performance of
NVR to be materially different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Such risks, uncertainties and other factors include,
but are not limited to, general economic and business conditions (on both a national and regional
level), interest rate changes, access to suitable financing, competition, the availability and
cost of land and other raw materials used by NVR in its homebuilding operations, shortages of
labor, weather related slow downs, building moratoria, governmental regulation, the ability of NVR
to integrate any acquired business, fluctuation and volatility of stock and other financial
markets and other factors over which NVR has little or no control. NVR has no obligation to
update such forward-looking statements. For additional information regarding risk factors, see
Part II, Item 1(a) of this Report.
Unless the context otherwise requires, references to NVR, we, us or our include NVR
and its subsidiaries.
Results of Operations for the Three and Nine Months Ended September 30, 2006 and 2005
Overview
Our Business
Our primary business is the construction and sale of single-family detached homes,
townhomes and condominium buildings. To fully serve our homebuilding customers, we also operate
a mortgage banking and title services business. We operate in the following markets:
|
|
|
|
|
|
|
Washington:
|
|
Washington, D.C. metropolitan area and adjacent counties in Maryland, Virginia, and West Virginia |
|
|
|
|
|
|
|
Baltimore:
|
|
Baltimore, MD metropolitan area and adjacent counties in Pennsylvania |
|
|
|
|
|
|
|
North:
|
|
Delaware, Kentucky, Maryland Eastern Shore, Michigan, New Jersey, New York, Ohio and Pennsylvania |
|
|
|
|
|
|
|
South:
|
|
North Carolina, South Carolina, Tennessee and Richmond, VA |
We believe that we operate our business with a conservative operating strategy. We do not
engage in land development and primarily construct homes on a pre-sold basis. This strategy
allows us to maximize inventory turnover, which we believe enables us to minimize market risk
and to operate with less capital, thereby enhancing rates of return on equity and total capital.
In addition, we focus on obtaining and maintaining a leading market position in each market we
serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our
markets which management believes contributes to
minimizing the adverse effects of regional economic cycles and provides growth opportunities
within these markets.
18
Because we are not active in the land development business, our continued success is
contingent upon our ability to control an adequate supply of finished lots at current market
prices on which to build, and on our developers ability to timely deliver finished lots to meet
the sales demands of our customers. We acquire finished lots from various development entities
under fixed price purchase agreements (purchase agreements). These purchase agreements
require deposits in the form of cash or letters of credit that may be forfeited if we fail to
perform under the purchase agreement. However, we believe this lot acquisition strategy reduces
the financial requirements and risks associated with direct land ownership and development. As
of September 30, 2006, we controlled approximately 98,000 lots with deposits in cash and letters
of credit totaling approximately $594,000 and $17,000, respectively.
Current Overview
The current home sales environment is characterized by an increase in the number of
existing and new homes available for sale, higher mortgage interest rates (which are beginning
to moderate to year ago levels), and declining homebuyer confidence.
As a result of these market conditions, new orders for the third quarter of 2006 declined by 18%
from the third quarter of 2005, with significant declines occurring in our Baltimore, North and
Washington markets, which declined 38%, 24% and 18%, respectively. Year to date new orders for
2006 have declined 8% from the same period in 2005. In addition to lower sales, the current
market conditions are exerting downward pressure on selling prices, and in response, we have
increased incentives to homebuyers and reduced prices in many of our markets. These selling
price pressures resulted in our overall average selling price declining 9% in the third quarter
of 2006 compared to the year ago quarter, negatively impacting gross profit margins in the
current period. We expect that these reduced selling prices will further negatively impact
gross profit margins in future periods. Additionally, our new order cancellation rate
increased to 27% in the current quarter from 15% during the same period in 2005 and 13% in the
second quarter of 2006. Increased cancellations led to a higher unsold inventory balance at
September 30, 2006 of approximately $89,800, as compared to approximately $53,300 at September
30, 2005 and $60,400 at December 31, 2005.
The Company is actively involved in implementing other strategic steps to address the
currently challenging homebuilding market. In certain communities, we are seeking concessions
from our developers to reduce lot purchase prices to current market values and/or to defer
scheduled lot purchases. In communities where we are unsuccessful in negotiating necessary
concessions, we may exit the community and forfeit our deposit. During the quarter ended
September 30, 2006, we recorded a contract land deposit impairment charge of approximately
$80,800, and for the year to date period we recorded contract land deposit impairment charges
of approximately $114,000. For the nine-month 2005 period, our contract land deposit
impairments totaled $7,700. See note 3 to the condensed consolidated financial statements
included herein for additional information regarding contract land deposits.
During the quarter we adjusted staffing levels to size our organization to meet the
current expected level of sales activity, and we consolidated certain of our homebuilding profit
centers. We plan to continue to assess our staffing levels and organizational structure as
conditions warrant.
Current Financial Results
For the quarter ended September 30, 2006, consolidated revenues increased 13% from the same
period in 2005 due to higher settlement volume and a higher average settlement price per unit.
However, net income and diluted earnings per share in the current quarter decreased 32% and 19%,
respectively, as compared to the third quarter of 2005. For the nine months ended September 30,
2006, consolidated revenues increased 25% from the same period in 2005. Net income decreased
5% over the same
comparative periods, while diluted earnings per share increased 12% period over period as a
result of our continuing share repurchase program.
19
We implemented Statement of Financial Accounting Standards (SFAS) 123R in the first
quarter of 2006, which resulted in a consolidated pre-tax charge of $41,010 for the nine months
ended September 30, 2006. See note 4 to the condensed consolidated financial statements for
additional information regarding stock based compensation.
Homebuilding Segment
The following table summarizes homebuilding settlements, new orders and backlog unit
activity by region for the three and nine months ended September 30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Settlements (units): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington |
|
|
869 |
|
|
|
964 |
|
|
|
2,688 |
|
|
|
2,570 |
|
Baltimore |
|
|
463 |
|
|
|
388 |
|
|
|
1,494 |
|
|
|
1,046 |
|
North |
|
|
1,692 |
|
|
|
1,491 |
|
|
|
4,631 |
|
|
|
3,889 |
|
South |
|
|
830 |
|
|
|
733 |
|
|
|
2,324 |
|
|
|
2,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,854 |
|
|
|
3,576 |
|
|
|
11,137 |
|
|
|
9,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average settlement price |
|
$ |
396.3 |
|
|
$ |
377.5 |
|
|
$ |
397.7 |
|
|
$ |
368.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders (units): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington |
|
|
510 |
|
|
|
622 |
|
|
|
2,296 |
|
|
|
2,881 |
|
Baltimore |
|
|
267 |
|
|
|
431 |
|
|
|
1,185 |
|
|
|
1,461 |
|
North |
|
|
937 |
|
|
|
1,225 |
|
|
|
4,307 |
|
|
|
4,480 |
|
South |
|
|
664 |
|
|
|
619 |
|
|
|
2,427 |
|
|
|
2,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,378 |
|
|
|
2,897 |
|
|
|
10,215 |
|
|
|
11,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average new order price |
|
$ |
362.5 |
|
|
$ |
399.3 |
|
|
$ |
380.6 |
|
|
$ |
403.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog (units): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington |
|
|
|
|
|
|
|
|
|
|
2,357 |
|
|
|
2,864 |
|
Baltimore |
|
|
|
|
|
|
|
|
|
|
764 |
|
|
|
1,231 |
|
North |
|
|
|
|
|
|
|
|
|
|
2,743 |
|
|
|
3,340 |
|
South |
|
|
|
|
|
|
|
|
|
|
1,524 |
|
|
|
1,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
7,388 |
|
|
|
8,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average backlog price |
|
|
|
|
|
|
|
|
|
$ |
424.0 |
|
|
$ |
431.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the results of operations for the homebuilding segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Revenues |
|
$ |
1,528,964 |
|
|
$ |
1,350,465 |
|
|
$ |
4,435,503 |
|
|
$ |
3,546,965 |
|
Cost of sales |
|
$ |
1,238,671 |
|
|
$ |
970,437 |
|
|
$ |
3,403,893 |
|
|
$ |
2,557,268 |
|
Gross profit margin percentage |
|
|
19.0 |
% |
|
|
28.1 |
% |
|
|
23.3 |
% |
|
|
27.9 |
% |
Selling, general and administrative |
|
$ |
95,574 |
|
|
$ |
86,626 |
|
|
$ |
329,131 |
|
|
$ |
243,276 |
|
20
Three Months Ended September 30, 2006 and 2005
Homebuilding revenues increased 13% for the third quarter of 2006 from the same period in 2005
as a result of an 8% increase in the number of units settled and a 5% increase in the average
settlement price. The increase in units settled is attributable to a higher backlog turnover rate
quarter over quarter.
Gross profit margins in the third quarter of 2006 declined as compared to the third quarter of
2005 as a result of an increase in contract land deposit impairment charges of approximately
$78,000. These land deposit impairments negatively impacted gross profit margins by 529 basis
points for the quarter. In addition, gross profit margins were negatively impacted by the downward
pressure on selling prices experienced during 2006, resulting from higher selling incentives required to generate
sales, and higher lot and certain commodity costs, excluding lumber. We expect continued gross
profit margin pressure over at least the next several quarters due to the current market
conditions.
New orders for the third quarter of 2006 decreased 18% from the same period in 2005. New
orders in the Baltimore, North and Washington markets declined 38%, 24% and 18%, respectively. The
new order reduction was primarily a result of an increasingly competitive sales environment driven
by affordability issues partially resulting from higher mortgage interest rates quarter over
quarter, and higher levels of new and existing home inventory for sale as discussed in the Overview
section above. Net new orders were also unfavorably impacted by an increase in our cancellation
rate for the current quarter to 27% from 15% in the third quarter of 2005. The increase in the
cancellation rate was driven by higher cancellations in our largest markets, Washington and
Baltimore. Cancellation rates in the Washington market were 39% in the current quarter compared to
19% in the third quarter of 2005 and 21% in the second quarter of 2006. In the Baltimore market
the cancellation rate was 24% in the current quarter as compared to 11% and 14% in the third
quarter of 2005 and the second quarter of 2006, respectively. The average sales price of new
orders decreased 9% from the third quarter of 2005. The decline is a result of a 25% decline in
average new order price in Washington, and to a lesser extent, to a shift in new orders into lower
priced markets from our higher priced Washington and Baltimore markets.
Selling, general and administrative (SG&A) expenses for the third quarter increased by
approximately $8,900, but as a percentage of revenue remained consistent with the prior year at approximately
6.3%. The increase in SG&A expenses is primarily attributable to an increase in marketing costs
and the recording of compensation costs associated with the implementation of SFAS 123R in 2006,
offset partially by lower management incentive compensation costs. Marketing costs increased
approximately $4,900 due primarily to an 18% increase in the average number of active communities
to 609 in the third quarter of 2006, from 518 for the same period in 2005. During the third quarter
of 2006, we recognized approximately $12,500 in SG&A compensation costs related to outstanding
stock options compared to approximately $2,400 in the third quarter of 2005 (see note 4 to the condensed consolidated financial statements included herein for
additional discussion). Management incentive compensation costs were $7,200 lower in the current
quarter.
Nine Months Ended September 30, 2006 and 2005
Homebuilding revenues increased 25% for the nine months ended September 30, 2006 from the
prior year due to a 16% increase in the number of units settled and an 8% increase in the average
settlement price. The increase in the number of units settled is attributable to a 13% higher
number of homes in backlog entering 2006 as compared to the same period in 2005. Additionally, we
have experienced a higher backlog turnover rate year over year. The increase in the average
settlement price is primarily attributable to a 12% higher average price of homes in the beginning
backlog period over period.
Gross profit margins in the first nine months of 2006 declined as compared to the first nine
months of 2005 as a result of an increase in contract land deposit impairments of approximately
$106,000 period over period. These land deposit impairments reduced gross profit margins by 256
basis points for the year to date period ended September 30, 2006. In addition, gross profit
margins were negatively impacted by the downward pressure on selling prices experienced during
2006, resulting from higher selling incentives
required to generate sales, and higher lot and certain commodity costs, excluding lumber. As
previously discussed, we expect gross profit margins to continue to be negatively impacted by the
current market conditions.
21
New orders for the nine months ended September 30, 2006 decreased by 8% from the same period
in 2005. New orders in Washington and Baltimore declined 20% and 19%, respectively, primarily as a
result of an increasingly competitive sales environment driven by affordability issues partially
resulting from higher mortgage interest rates year over year, and higher levels of new and existing
home inventory for sale as discussed in the Overview. Net new orders were also unfavorably
impacted by an increase in our cancellation rate to 18% in the first nine months of 2006 from 11%
in the same period 2005. The average sales price of new orders decreased 6% as a result of a shift
in new orders into lower priced markets in our North and South markets, and an 11% decline in
average new order price in Washington.
SG&A expenses for the nine-month period ended September 30, 2006 increased approximately
$85,900 as compared to the same period in 2005, and as a percentage of revenue increased to 7.4%
from 6.9% for the respective periods. The increase in SG&A expenses is attributable to an increase
in marketing costs of approximately $26,200 attributable to a 20% increase in the average number of
active communities year over year and an approximate $12,900 increase in personnel costs due to
higher average staffing levels year over year. We have reduced approximately 10% of our employee
base in the first nine months of 2006, which will result in cost savings in the fourth quarter and
future periods. Additionally, as a result of the implementation of SFAS 123R in 2006, we
recognized approximately $37,000 in SG&A compensation costs related to outstanding stock options
compared to approximately $2,400 for the nine months ended September 30, 2005 (see note 4 to the condensed consolidated financial statements for additional discussion).
Backlog units and dollars were 7,388 and $3,132,419, respectively, as of September 30, 2006
compared to 8,875 and $3,831,608 as of September 30, 2005. The decrease in backlog units is
attributable to the aforementioned decrease in new orders coupled with an improved backlog turnover
rate year over year. Backlog dollars are 18% lower primarily as a result of the 17% decrease in
backlog units.
Mortgage Banking Segment
Three and Nine Months Ended September 30, 2006 and 2005
We conduct our mortgage banking activity through NVR Mortgage Finance, Inc. (NVRM), a wholly
owned subsidiary. NVRM focuses exclusively on serving the homebuilding segments customer base.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Loan closing volume: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal |
|
$ |
986,677 |
|
|
$ |
867,864 |
|
|
$ |
2,846,920 |
|
|
$ |
2,340,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capture Rate: |
|
|
86 |
% |
|
|
85 |
% |
|
|
86 |
% |
|
|
87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Volume Mix: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable rate mortgages |
|
|
38 |
% |
|
|
44 |
% |
|
|
38 |
% |
|
|
49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate mortgages |
|
|
62 |
% |
|
|
56 |
% |
|
|
62 |
% |
|
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income: |
|
$ |
17,291 |
|
|
$ |
16,442 |
|
|
$ |
47,258 |
|
|
$ |
38,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on sale of loans |
|
$ |
18,090 |
|
|
$ |
16,866 |
|
|
$ |
52,891 |
|
|
$ |
41,484 |
|
Title services |
|
|
6,084 |
|
|
|
5,441 |
|
|
|
17,796 |
|
|
|
14,890 |
|
Servicing |
|
|
273 |
|
|
|
250 |
|
|
|
804 |
|
|
|
804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,447 |
|
|
$ |
22,557 |
|
|
$ |
71,491 |
|
|
$ |
57,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Loan closing volume for the three months ended September 30, 2006 increased 14% over the same
period for 2005. The 2006 increase is primarily attributable to an 8% increase in the number of
units closed and a 5% increase in the average loan amount. Loan closing volume for the nine months
ended September 30, 2006 increased 22% over the same period in 2005. This increase is primarily
attributable to a 14% increase in the number of units closed, and a period over period 7% increase
in the average loan amount. The unit increases for the three and nine months ended September 30,
2006 reflect increases in the number of homes that we settled in the 2006 respective periods, as
noted above. The increases in the average loan amount for the three and nine-month periods reflect
the aforementioned increase in the homebuilding segments average settlement prices.
Segment income for the three months ended September 30, 2006 increased approximately $850 from
the same period for 2005. The increase is primarily due to a net increase in mortgage banking fees
attributable to the aforementioned increase in closed loan volume and to a shift in the product mix
towards fixed rate mortgages, which are generally more profitable than adjustable rate mortgages,
offset partially by an increase in general and administrative expenses of approximately $1,100
period over period. The increase in general and administrative expenses is due primarily to $866
in stock-based compensation expense from the adoption of SFAS 123R in 2006.
Segment income for the nine months ended September 30, 2006 increased approximately $8,806
from the same period for 2005. The increase is primarily due to a net increase in mortgage banking
fees attributable to the aforementioned closed loan volume increase and the product mix shift
towards fixed rate mortgages. The increase in mortgage banking fees was partially offset by an
approximate $2,000 increase in contractual repayments of loan sale income to investors for loans
that were paid in full within a set number of days following the sale of the loan. General and
administrative costs increased approximately $5,600 during the nine months ended September 30, 2006
compared to the same period for 2005. The increase in general and administrative expenses is due
to higher salary and other personnel costs and to $2,592 in stock-based compensation expense in
2006.
NVRM is dependent on our homebuilding segments customers for business. As sales and selling
prices of the homebuilding segment decline, NVRMs operations will also be adversely affected.
Liquidity and Capital Resources
We fund our operations with cash flows provided by our operating activities, a short-term
credit facility and the public debt and equity markets. For the nine months ended September 30,
2006, our operating activities provided cash of $252,398. Operating cash was primarily provided
by our homebuilding operations and was used to fund the increase in homebuilding inventory of
approximately $217,000 as a result of an increase in units under construction at September 30,
2006 compared to December 31, 2005. The presentation of operating cash flows was also reduced
by $82,809, which is the amount of the excess tax benefit realized from the exercise of stock
options during the period and credited directly to additional paid in capital. As required by
SFAS 123R, which we adopted effective January 1, 2006, excess tax benefits credited directly to
additional-paid-in capital resulting from stock-based compensation must be presented as an
operating cash outflow and a financing cash inflow.
Net cash used for investing activities was $15,480 for the period ended September 30, 2006,
due primarily to property and equipment purchases throughout the period.
Net cash used for financing activities was $175,839 for the period ended September 30,
2006. During the nine months ended September 30, 2006, we repurchased approximately 289,000
shares of our common stock at an aggregate purchase price of $183,286 under our ongoing common
stock repurchase program, discussed below. We also reduced net borrowings under the working
capital and mortgage warehouse facilities by approximately $92,000. Cash was provided by the
realization of $82,809 in excess income tax benefits from the exercise of stock options, which
pursuant to SFAS 123R, must be reported as a financing cash inflow.
23
In addition to our homebuilding operating activities, we also utilize a short-term
unsecured working capital revolving credit facility (the Facility) to provide for working
capital cash requirements. We amended the Facility to increase the commitment by $45,000 and $155,000 in the first and
third quarters of 2006, respectively, increasing the aggregate commitment to $600,000 at
September 30, 2006, subject to certain borrowing base limitations. The Facility expires in
December 2010 and outstanding amounts bear interest at either (i) the prime rate plus an
applicable margin (as defined within the Facility) based on our credit rating and/or debt to
capital ratio or (ii) the London Interbank Offering Rate (LIBOR) plus the applicable margin.
Up to $150,000 of the Facility is currently available for issuance in the form of letters of
credit, of which $25,069 was outstanding at September 30, 2006. There were no direct borrowings
outstanding under the Facility as of September 30, 2006. At September 30, 2006, there were no
borrowing base limitations reducing the amount available to us for borrowings.
Our mortgage banking segment provides for its mortgage origination and other operating
activities using cash generated from operations as well as a short-term credit facility. The
mortgage banking segment utilizes an annually renewable mortgage warehouse facility with an
aggregate available borrowing limit of $175,000 to fund its mortgage origination activities. The
interest rate under the Revolving Credit Agreement is either: (i) LIBOR plus 1.00%, or (ii) 1.125%
to the extent that NVRM provides compensating balances. No other material terms of the credit
facility were amended from the previous agreement. There was $168,062 outstanding under this
facility at September 30, 2006. At September 30, 2006, there were no borrowing base limitations
under the facility.
In addition to funding growth in our homebuilding and mortgage operations, we
historically have used a substantial portion of our excess liquidity to repurchase outstanding
shares of our common stock in the open market and in privately negotiated transactions. This
ongoing repurchase activity is conducted pursuant to publicly announced Board authorizations,
and is typically executed in accordance with the safe harbor provisions of Rule 10b-18 under
the Securities Exchange Act of 1934. We believe the repurchase program assists us in
accomplishing our primary objective of increasing shareholder value. See Part II, Item 2 of
this Form 10-Q for disclosure of amounts repurchased during the third quarter of 2006. We
expect to continue to repurchase shares of our common stock from time to time subject to
market conditions and available excess liquidity.
In 2004, we filed a shelf registration statement (Shelf) with the Securities and Exchange
Commission (SEC) to register up to $1,000,000 for the future offer and sale of debt
securities, common shares, preferred shares, depositary shares representing preferred shares and
warrants. The SEC declared the Shelf effective on June 15, 2004. The proceeds received from
any future offerings issued under the Shelf are expected to be used for general corporate
purposes. In addition, we have $55,000 available for issuance under a prior shelf registration
statement filed with the SEC on January 20, 1998. The prior shelf registration statement, which
was declared effective on February 27, 1998, provides that securities may be offered from time
to time in one or more series and in the form of senior or subordinated debt. This discussion
of our shelf registration capacity does not constitute an offer of any securities for sale.
We believe that internally generated cash and borrowings available under credit facilities and
the public debt and equity markets will be sufficient to satisfy near and long term cash
requirements for working capital in both our homebuilding and mortgage banking operations.
Critical Accounting Policies
General
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America 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. We continually evaluate the estimates we use to
prepare the consolidated financial statements, and update those
estimates as necessary. In general, managements estimates are based on historical experience,
on information from third party professionals, and other various assumptions that management
believes to be reasonable under the facts and circumstances. Actual results could differ
materially from those estimates made by management.
24
Variable Interest Entities
Revised Financial Interpretation No. 46 (FIN 46R), Consolidation of Variable Interest
Entities, which was effective for us as of March 31, 2004, requires the primary beneficiary of a
variable interest entity to consolidate that entity in its financial statements. The primary
beneficiary of a variable interest entity is the party that absorbs a majority of the variable
interest entitys expected losses, receives a majority of the entitys expected residual
returns, or both, as a result of ownership, contractual, or other financial interests in the
entity. Expected losses are the expected negative variability in the fair value of an entitys
net assets exclusive of its variable interests, and expected residual returns are the expected
positive variability in the fair value of an entitys net assets, exclusive of its variable
interests.
Forward contracts, such as the fixed price purchase agreements utilized by us to acquire
finished lot inventory, are deemed to be variable interests under FIN 46R. Therefore, the
development entities with which we enter fixed price purchase agreements are examined under FIN 46R
for possible consolidation by us, including certain joint venture limited liability corporations
(LLCs) utilized by us to acquire finished lots on a limited basis. We have developed a
methodology to determine whether we, or, conversely, the owner(s) of the applicable development
entity, are the primary beneficiary of a development entity. The methodology used to evaluate our
primary beneficiary status requires substantial management judgment and estimates. These judgments
and estimates involve assigning probabilities to various estimated cash flow possibilities relative
to the development entitys expected profits and losses and the cash flows associated with changes
in the fair value of finished lots under contract. Although we believe that our accounting policy
is designed to properly assess our primary beneficiary status relative to our involvement with the
development entities from which we acquire finished lots, changes to the probabilities and the cash
flow possibilities used in our evaluation could produce widely different conclusions regarding
whether we are or are not a development entitys primary beneficiary, possibly resulting in
additional, or fewer, development entities being consolidated on our financial statements. See
note 2 to the condensed consolidated financial statements contained herein for further information.
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 thereof. Field
construction supervisors salaries and related direct overhead expenses are included in inventory
costs. Interest costs are not capitalized into inventory. Upon settlement, the cost of the units
is expensed on a specific identification basis. Cost of manufacturing materials is determined on a
first-in, first-out basis. Recoverability and impairment, if any, is primarily evaluated by
analyzing sales of comparable assets. We believe that our accounting policy is designed to
properly assess the carrying value of our homebuilding inventory.
Contract Land Deposits
We purchase finished lots under fixed price purchase agreements that require deposits that may
be forfeited if we fail 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. We maintain an allowance for losses on contract land deposits that we believe
is sufficient to provide for losses in our existing contract land deposit portfolio. The allowance
reflects managements judgment of the present loss exposure at the end of the reporting period,
considering market and economic conditions, sales absorption and profitability within specific
communities and terms of the various contracts. Although we consider the allowance for losses on
contract land deposits reflected on the September 30, 2006 balance sheet to be adequate, there can
be no assurance that this allowance will prove to be adequate over time to cover losses due
to unanticipated adverse changes in the economy or other events adversely affecting specific
markets or the homebuilding industry. See note 3 to the condensed consolidated financial
statements included herein for additional information.
25
Intangible Assets
Reorganization value in excess of identifiable assets (excess reorganization value),
goodwill and indefinite life intangible assets are not subject to amortization upon the adoption of
SFAS 142, Goodwill and Other Intangible Assets. Rather, excess reorganization value, goodwill and
other intangible assets are subject to at least an annual assessment for impairment by applying a
fair-value based test. We continually evaluate whether events and circumstances have occurred that
indicate that the remaining value of excess reorganization value, goodwill and other intangible
assets may not be recoverable. We completed the annual assessment of impairment during the first
quarter of 2006, and as of September 30, 2006, we believe that excess reorganization value,
goodwill and other intangible assets were not impaired. This conclusion is based on our judgment,
considering such factors as our history of operating success, our well recognized brand names and
the significant positions held in the markets in which we operate. However, changes in strategy or
adverse changes in market conditions could impact this judgment and require an impairment loss to
be recognized for the amount that the carrying value of excess reorganization value, goodwill
and/or other intangible assets exceeds their fair value.
Warranty/Product Liability Accruals
Warranty and product liability accruals are established to provide for estimated future
expenses as a result of construction and product defects, product recalls and litigation incidental
to our business. Liability estimates are determined based on managements 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 our general counsel and outside counsel
retained to handle specific product liability cases. Although we consider the warranty and product
liability accrual reflected on the September 30, 2006 balance sheet (see note 9 to the condensed
consolidated financial statements) to be adequate, there can be no assurance that this accrual will
prove to be adequate over time to cover losses due to increased costs for material and labor, the
inability or refusal of manufacturers or subcontractors to financially participate in corrective
action, unanticipated adverse legal settlements, or other unanticipated changes to the assumptions
used to estimate the warranty and product liability accrual.
Stock Option Expense
Beginning in 2006 with our adoption of SFAS 123R, we are required to recognize within our
income statement compensation costs related to our stock based compensation plans. The costs
recognized are based on the grant-date fair value. Compensation cost for service-only option
grants 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). Compensation cost for performance condition option grants is recognized on a
straight-line basis over the requisite service period for each separately vesting portion of the
award as if the award was, in substance, multiple awards (graded vesting attribution method).
We calculate the fair value of our, employee stock options using the Black-Scholes
option-pricing model. While the Black-Scholes model is a widely accepted method to calculate the
fair value of options, its results are dependent on input variables, two of which, expected term
and expected volatility, are significantly dependent on managements judgment. We have concluded
that our historical exercise experience is the best estimate of future exercise patterns to
determine an options expected term. To estimate expected volatility, we analyze the historic
volatility of our common stock. Changes in managements judgment of the expected term and the
expected volatility could have a material effect on the grant-date fair value calculated and
expensed within the income statement. In addition, we are required to estimate future option
forfeitures when considering the amount of stock-based compensation costs to record. We have
concluded that our historical
26
forfeiture rate is the best measure to estimate future forfeitures of granted stock options.
However, there can be no assurance that our future forfeiture rate will not be materially higher or
lower than our historical forfeiture rate, which would affect the aggregate cumulative compensation
expense recognized. Further, although we believe that the compensation cost recognized during the
quarter and period ended September 30, 2006 is representative of the ratable amortization of the
grant-date fair value of unvested options outstanding and expected to be exercised, changes to the
estimated input values such as expected term and expected volatility could produce widely different
fair values. See note 4 to the condensed consolidated financial statements included herein for
additional information on our adoption of SFAS 123R.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosure About Market Risk |
There have been no material changes in our market risks during the nine months ended
September 30, 2006. For additional information regarding market risk, see our Annual Report on
Form 10-K for the year ended December 31, 2005.
|
|
|
Item 4. |
|
Controls and Procedures |
As of the end of the period covered by this report, an evaluation was performed under
the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design
and operation of these disclosure controls and procedures were effective. There have been no
changes in our internal controls over financial reporting identified in connection with the
evaluation referred to above that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
|
|
|
PART II. |
|
OTHER INFORMATION |
|
|
|
Item 1. |
|
Legal Proceedings |
We are involved in various claims and litigation arising principally in the ordinary
course of business. At this time, we are not involved in any legal proceedings that we
believe are likely to have a material adverse effect on our financial condition or results of
operations. See note 12 to the condensed consolidated financial statements for a discussion
of notification received from the United States Environmental Protection Agency regarding
alleged violations of Section 308(a) of the Clean Water Act.
There has been no material change in our risk factors as previously disclosed in our Form
10-K for the fiscal year ended December 31, 2005 in response to Item 1A. to Part 1 of such Form
10-K.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds
(Dollars in thousands, except per share data) |
We had one repurchase authorization outstanding during the quarter ended September 30,
2006. On June 23, 2006 (June Authorization), we publicly announced the board of directors
approval for us to repurchase up to an aggregate of $300,000 of our common stock in one or more
open market and/or privately negotiated transactions. The June Authorization did not have an
expiration date. We repurchased the following shares of our common stock during the third
quarter of 2006:
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number |
|
|
|
|
|
|
|
|
(or Approximate |
|
|
|
|
|
|
|
|
Dollar Value) of |
|
|
|
|
Average |
|
Total Number of Shares |
|
Shares that May |
|
|
Total Number |
|
Price |
|
Purchased as Part of |
|
Yet Be Purchased |
|
|
of Shares |
|
Paid per |
|
Publicly Announced |
|
Under the Plans or |
Period |
|
Purchased |
|
Share |
|
Plans or Programs |
|
Programs |
|
July 1 31, 2006 |
|
|
|
|
|
|
|
$300,000 |
August 1 31, 2006 |
|
58,200 |
|
$489.58 |
|
58,200 |
|
$271,506 |
September 1 30, 2006 |
|
68,885 |
|
$493.24 |
|
68,885 |
|
$237,530 |
Total |
|
127,085 |
|
$491.56 |
|
127,085 |
|
$237,530 |
(a) Exhibits:
|
10.1 |
|
Fifteenth Amendment to Loan Agreement dated as of August 24, 2006
between NVR Mortgage Finance, Inc. and U.S. Bank National Association, JPMorgan
Chase Bank, Guaranty Bank, Comerica Bank, National City Bank and Washington
Mutual Bank, F.A. Filed as Exhibit 10.1 to NVRs Form 8-K filed August 24, 2006
and incorporated herein by reference. |
|
|
10.2 |
|
Commitment and Acceptance dated August 16, 2006. Filed as
Exhibit 10.1 to NVRs Current Report on Form 8-K filed August 17, 2006 and
incorporated herein by reference. |
|
|
31.1 |
|
Certification of NVRs Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification of NVRs Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32 |
|
Certification of NVRs Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
28
SIGNATURE
Pursuant to the requirements 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.
|
|
|
|
|
|
|
October 24, 2006 |
|
NVR, Inc. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Dennis M. Seremet |
|
|
|
|
|
|
|
|
|
|
|
Dennis M. Seremet |
|
|
|
|
Vice President, Chief Financial Officer and Treasurer |
|
|
29
Exhibit Index
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Description |
|
Page |
10.1
|
|
Fifteenth Amendment to Loan Agreement dated as of August 24,
2006 between NVR Mortgage Finance, Inc. and U.S. Bank National
Association, JPMorgan Chase Bank, Guaranty Bank, Comerica Bank,
National City Bank and Washington Mutual Bank, F.A. Filed as
Exhibit 10.1 to NVRs Form 8-K filed August 24, 2006 and
incorporated herein by reference. |
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Commitment and Acceptance dated August 16, 2006. Filed as
Exhibit 10.1 to NVRs Current Report on Form 8-K filed August
17, 2006 and incorporated herein by reference. |
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of NVRs Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31 |
|
|
|
|
|
|
|
|
31.2
|
|
Certification of NVRs Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32 |
|
|
|
|
|
|
|
|
32
|
|
Certification of NVRs Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
33 |
|
30
exv31w1
Exhibit 31.1
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
I, Paul C. Saville, certify that:
1. |
|
I have reviewed this report on Form 10-Q of NVR, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
Date: October 24, 2006
|
|
By:
|
|
/s/ Paul C. Saville
|
|
|
|
|
|
|
|
|
|
|
|
Paul C. Saville |
|
|
|
|
President and Chief Executive Officer |
|
|
31
exv31w2
Exhibit 31.2
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
I, Dennis M. Seremet, certify that:
1. |
|
I have reviewed this report on Form 10-Q of NVR, Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
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b) |
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Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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; |
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c) |
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Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
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d) |
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Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
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a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
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b) |
|
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
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Date: October 24, 2006
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By:
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/s/ Dennis M. Seremet
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Dennis M. Seremet |
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Vice President, Chief Financial Officer and Treasurer |
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32
exv32
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of NVR, Inc. for the period ended September
30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report),
each of the undersigned officers of NVR, Inc., hereby certifies pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
1. |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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2. |
|
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of NVR, Inc. |
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Date: October 24, 2006
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By:
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/s/ Paul C. Saville
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Paul C. Saville |
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President and Chief Executive Officer |
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By:
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/s/ Dennis M. Seremet |
|
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|
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|
|
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|
|
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Dennis M. Seremet |
|
|
|
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Vice President, Chief Financial Officer and Treasurer |
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33