UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K/A

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from                      to                     

NVR, Inc.

 

(Exact name of registrant as specified in its charter)

Virginia		54-1394360
(State or other jurisdiction of incorporation or organization)		(IRS employer identification number)

11700 Plaza America Drive, Suite 500
Reston, Virginia 20190
(703) 956-4000 (Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

Title of each class		Name of each exchange on which registered
Common stock, par value $0.01 per share		American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as described 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 Act). Yes o No þ 

The aggregate market value of the voting stock held by non-affiliates of NVR, Inc. on June 30, 2005, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $4.5 billion.

As of February 17, 2006 there were 5,553,365 total shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of NVR, Inc. to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 on or prior to April 30, 2006 are incorporated by reference into Part III of this report.

EXPLANATORY NOTE: This Annual Report on Form 10-K/A is filed for the purpose of amending Note 2 in the Notes to the Consolidated Financial Statements for the years ended December 31, 2005, 2004 and 2003, which now includes expanded reportable segment footnote disclosure related to our homebuilding operations. This amendment has no impact on our consolidated balance sheets as of December 31, 2005 and 2004, or our consolidated statements of income and related earnings per share amounts, consolidated statements of cash flows or consolidated statements of shareholders’ equity for the years ended December 31, 2005, 2004 and 2003. Conforming changes have been made to the Business Section in Item 1, Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7, and our Controls and Procedures discussion in Item 9A of this Form 10-K/A. See Note 2 in the Notes to the Consolidated Financial Statements for further information regarding this amendment. This Form 10-K/A has not been updated for events or information subsequent to the date of the filing of the original Form 10-K, except in connection with the foregoing.

 

 

INDEX

				Page
PART I
Item 1.		Business			3
Item 1A.		Risk Factors			7
Item 1B.		Unresolved Staff Comments			10
Item 2.		Properties			10
Item 3.		Legal Proceedings			11
Item 4.		Submission of Matters to a Vote of Security Holders			11
		Executive Officers of the Registrant			11
PART II
Item 5.		Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			12
Item 6.		Selected Financial Data			13
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 7A.		Quantitative and Qualitative Disclosure About Market Risk			29
Item 8.		Financial Statements and Supplementary Data			32
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			32
Item 9A.		Controls and Procedures			32
Item 9B.		Other Information			33
PART III
Item 10.		Directors and Executive Officers of the Registrant			33
Item 11.		Executive Compensation			33
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			33
Item 13.		Certain Relationships and Related Transactions			34
Item 14.		Principal Accountant Fees and Services			34
PART IV
Item 15.		Exhibits and Financial Statement Schedules			35

PART I

Item 1.		Business.

General

     NVR, Inc. (“NVR”) was formed in 1980 as NVHomes, Inc. NVR’s 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 business. NVR conducts its homebuilding activities directly, except for Rymarc Homes, which is operated as a wholly owned subsidiary, and its mortgage banking operations which is operated primarily through a wholly owned subsidiary, NVR Mortgage Finance, Inc. (“NVRM”). Unless the context otherwise requires, references to “NVR”, “we”, “us” or “our” include NVR and its subsidiaries.

     We are one of the largest homebuilders in the United States and in the Washington, D.C. and Baltimore, MD metropolitan areas. While we operate in multiple locations in thirteen states, primarily in the eastern part of the United States, approximately 38% of our home settlements in 2005 occurred in the Washington, D.C. and Baltimore, MD metropolitan areas, which accounted for 52% of our 2005 homebuilding revenues. Our homebuilding operations include the construction and sale of single-family detached homes, townhomes and condominium buildings under four trade names: Ryan Homes, NVHomes, Fox Ridge Homes, and Rymarc Homes. The Ryan Homes, Fox Ridge Homes, and Rymarc Homes products are moderately priced and marketed primarily to first-time homeowners and first-time move-up buyers. The Ryan Homes product is currently sold in twenty-one metropolitan areas located in Maryland, Virginia, West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Ohio, New Jersey, Delaware, Michigan and Kentucky. The Fox Ridge Homes product is sold solely in the Nashville, TN metropolitan area and the Rymarc Homes product is sold solely in the Columbia, South Carolina market. The NVHomes product is marketed primarily to move-up and upscale buyers and is sold in the Washington, D.C., Baltimore, MD, Philadelphia, PA and the Maryland Eastern Shore metropolitan areas. In 2005, our average price of a unit settled was approximately $375,000.

     We do not engage in the land development business. Instead, we acquire finished building lots at market prices from various development entities under fixed price purchase agreements that require deposits that may be forfeited if we fail 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 represent a percentage, typically ranging up to 10%, of the aggregate purchase price of the finished lots.

     Our lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. We may, at our option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of our intent not to acquire the finished lots under contract. Our 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 provision contained within the purchase agreements. We do not have any financial guarantees or completion obligations and, with the exception of three specific performance contracts for 80 lots existing at December 31, 2005, we do not guarantee specific performance under these purchase agreements. We generally seek to maintain control over a supply of lots believed to be suitable to meet our sales objectives for the next 24 to 36 months.

     On a very limited basis, NVR also obtains finished lots using joint venture limited liability corporations (“LLC’s”). All LLC’s 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 LLC’s debt. NVR enters into a standard fixed price purchase agreement to purchase lots from these LLC’s. At December 31, 2005, NVR had an aggregate investment in thirteen separate LLC’s totaling approximately $15 million, which controlled approximately 1,000 lots.

     In addition to building and selling homes, we provide a number of mortgage-related services through our mortgage banking operations. Through operations in each of our homebuilding markets, NVRM originates mortgage loans almost exclusively for our homebuyers. NVRM generates revenues primarily from origination fees, gains on sales of loans and title fees. NVRM sells all of the mortgage loans it closes into the secondary markets on a servicing released basis.

     Segment information for our homebuilding and mortgage banking businesses is included in Note 2 to the consolidated financial statements.

Homebuilding

     Products

     We offer single-family detached homes, townhomes and condominium buildings with many different basic home designs. These home designs have a variety of elevations and numerous other options. Our homes combine traditional or colonial exterior designs with contemporary interior designs and amenities, generally include two to four bedrooms, and range from approximately 1,000 to 7,300 square feet. During 2005, the prices of our homes ranged from approximately $90,000 to $2,000,000.

     Markets

     Our reportable homebuilding segments operate in the following geographic regions:

Mid Atlantic:		Maryland, Virginia, West Virginia and Delaware
North East:		Eastern Pennsylvania and New Jersey
Mid East:		Kentucky, Michigan, New York, Ohio and western Pennsylvania
South East:		North Carolina, South Carolina, and Tennessee

     Further discussion of settlements, new orders and backlog activity by homebuilding reportable segment for each of the last three years can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations (see Item 7 of this report).

     Backlog

     Backlog totaled 8,310 units and approximately $3.7 billion at December 31, 2005 compared to backlog of 7,372 units and approximately $2.9 billion at December 31, 2004. Our cancellation rate was approximately 12% during 2005. Assuming that our cancellation rate in 2006 is consistent with that experienced in 2005, approximately 88% of the units in backlog at December 31, 2005 will settle in 2006. However, we can provide no assurance that our historical cancellation rate is indicative of the actual cancellation rate that may occur in 2006. See Risk Factors in Item 1A.

     Construction

     We utilize independent subcontractors under fixed price contracts to perform construction work on our homes. The subcontractors’ work is performed under the supervision of our employees who monitor quality control. We use many independent subcontractors in our various markets and we are not dependent on any single subcontractor or on a small number of subcontractors.

     Land Development

     We are not in the land development business. We purchase finished lots from various land developers under fixed price purchase agreements that require deposits that may be forfeited if we fail 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 represent a percentage, typically ranging up to 10%, of the aggregate purchase price of the finished lots. We are not dependent on any single developer or on a small number of developers.

     Sales and Marketing

     Our preferred marketing method is for customers to visit a furnished model home featuring many built-in options and a landscaped lot. The garages of these model homes are usually converted into temporary sales centers where alternative facades and floor plans are displayed and designs for other models are available for review. Sales representatives are compensated predominantly on a commission basis.

     Regulation

     NVR and its subcontractors must comply with various federal, state and local zoning, building, environmental, advertising and consumer credit statutes, rules and regulations, as well as other regulations and requirements in connection with our construction and sales activities. All of these regulations have increased the cost to produce and market our products, and in some instances, have delayed our developers’ abilities to deliver us finished lots. Counties and cities in which we build homes have at times declared moratoriums on the issuance of building permits and imposed other restrictions in the areas in which sewage treatment facilities and other public facilities do not reach minimum standards. To date, restrictive zoning laws and the imposition of moratoriums have not had a material adverse effect on our construction activities. However, in certain markets in which we operate, we believe that our growth has been hampered by the longer time periods necessary for our developers to move projects through the approval process.

     Competition and Market Factors

     The housing industry is highly competitive. We compete with numerous homebuilders of varying size, ranging from local to national in scope, some of which have greater financial resources than we do. We also face competition from the home resale market. Our homebuilding operations compete primarily on the basis of price, location, design, quality, service and reputation. We historically have been one of the market leaders in each of the markets where we build homes.

     The housing industry is cyclical and is affected by consumer confidence levels, prevailing economic conditions and interest rates. Other factors that affect the housing industry and the demand for new homes include the availability and increases in the cost of land, labor and materials; changes in consumer preferences; demographic trends and the availability of mortgage finance programs.

     We are dependent upon building material suppliers for a continuous flow of raw materials. Whenever possible, we utilize standard products available from multiple sources. In the past, such raw materials have been generally available to us in adequate supply.

Mortgage Banking

     We provide a number of mortgage related services to our homebuilding customers through our mortgage banking operations. Our mortgage banking operations also include separate subsidiaries that broker title insurance and perform title searches in connection with mortgage loan closings for which they receive commissions and fees. Because NVRM originates mortgage loans almost exclusively for our homebuilding customers, NVRM is dependent on our homebuilding segment. In 2005, NVRM closed approximately 11,300 loans with an aggregate principal amount of approximately $3.4 billion.

     NVRM sells all of the mortgage loans it closes to investors in the secondary markets on a servicing released basis, typically within 30 days from the loan closing. NVRM is an approved seller/servicer for FNMA, GNMA, FHLMC, VA and FHA mortgage loans.

     Competition and Market Factors

     NVRM’s main competition comes from national, regional, and local mortgage bankers, mortgage brokers, thrifts and banks in each of these markets. NVRM competes primarily on the basis of customer service, variety of products offered, interest rates offered, prices of ancillary services and relative financing availability and costs.

     Regulation

     NVRM is an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and VA mortgage loans, and is subject to all of those agencies’ rules and regulations. These rules and regulations restrict certain activities of NVRM. NVRM is currently eligible and expects to remain eligible to participate in such programs. In addition, NVRM is subject to regulation at the state and federal level with respect to specific origination, selling and servicing practices.

     Pipeline

     NVRM’s mortgage loans in process that have not closed (“Pipeline”) at December 31, 2005 and 2004, had an aggregate principal balance of $2.1 billion and $1.9 billion, respectively. Our cancellation rate was approximately 25% in 2005. Assuming that the cancellation rate in 2006 is consistent with that experienced in 2005, approximately 75% of the Pipeline at December 31, 2005 is expected to close in 2006. However, we can provide no assurance that the prior year cancellation rate is indicative of the actual cancellation rate that may occur in 2006. See Risk Factors in Item 1A.

Employees

     At December 31, 2005, we employed 5,401 full-time persons, of whom 2,151 were officers and management personnel, 345 were technical and construction personnel, 1,039 were sales personnel, 823 were administrative personnel and 1,043 were engaged in various other service and labor activities. None of our employees are subject to a collective bargaining agreement and we have never experienced a work stoppage. We believe that our employee relations are good.

Available Information

     We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). These filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

     Our principal Internet website can be found at http://www.nvrinc.com. We make available free of charge on or through our website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after such material is electronically filed, or furnished, to the SEC.

     Our website also includes a corporate governance section which contains the Company’s Corporate Governance Guidelines, Code of Ethics, Board of Directors’ Committee Charters for the Audit, Compensation, Corporate Governance, Nominating and Qualified Legal Compliance Committees, Policies and Procedures for the Consideration of Board of Director Candidates and Policies and Procedures on Securityholder Communications with the Board of Directors. Additionally, amendments to and waivers from a provision of the Code of Ethics that apply to NVR’s principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions will be disclosed on our website.

     In addition, you may request a copy of the foregoing filings (excluding exhibits), charters, guidelines and codes, and any waivers or amendments to such codes which are applicable to our executive officers, senior financial officers or directors, at no cost by writing to us at NVR, Inc., 11700 Plaza America Drive, Suite 500, Reston, VA 20190, Attention: Investor Relations Department or by telephoning us at (703) 956-4000.

Item 1A.		Risk Factors.

     Some of the statements in this Form 10-K, as well as statements made by NVR, Inc. (“NVR”) in periodic press releases or 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 comparable terminology. All statements other than of historical facts are forward looking statements. Forward looking statements contained in this document include those regarding market trends, NVR’s financial position, business strategy, projected plans and objectives of management for future operations. 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 future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: 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 moratoriums; 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.

RISK FACTORS

     Our business is affected by the risks generally incident to the residential construction business, including, but not limited to:

	•		actual and expected direction of interest rates, which affect our costs, the availability of construction financing, and long-term financing for potential purchasers of homes;
	•		the availability of adequate land in desirable locations on reasonable terms;
	•		unexpected changes in customer preferences; and
	•		changes in the national economy and in the local economies of the markets in which we have operations.

Interest rate movements, inflation and other economic factors can negatively impact our business.

     High rates of inflation generally affect the homebuilding industry adversely because of their adverse impact on interest rates. High interest rates not only increase the cost of borrowed funds to homebuilders but also have a significant effect on housing demand and on the affordability of permanent mortgage financing to prospective purchasers. We are also subject to potential volatility in the price of commodities that impact costs of materials used in our homebuilding business. Increases in prevailing interest rates could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations.

     Our financial results also are affected by the risks generally incident to our mortgage banking business, including interest rate levels, the impact of government regulation on mortgage loan originations and servicing and the need to issue forward commitments to fund and sell mortgage loans. Our homebuilding customers accounted for almost all of our mortgage banking business in 2005. The volume of our continuing homebuilding operations therefore affects our mortgage banking business.

     Our operations may also be adversely affected by other economic factors within our markets such as negative changes in employment levels, job growth, and consumer confidence, one or all of which could result in reduced demand or price depression from current levels. Such negative trends could have a material adverse effect on homebuilding operations.

     Our mortgage banking business also is affected by interest rate fluctuations. We also may experience marketing losses resulting from daily increases in interest rates to the extent we are unable to match interest rates and amounts on loans we have committed to originate with forward commitments from third parties to purchase such loans. Increases in interest rates may have a material adverse effect on our mortgage banking revenue, profitability, stock performance and ability to service our debt obligations.

     These factors and thus, the homebuilding business, have at times in the past been cyclical in nature. Any downturn in the national economy or the local economies of the markets in which we operate could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations. In particular, approximately 38% of our home settlements during 2005 occurred in the Washington, D.C. and Baltimore, MD metropolitan areas, which accounted for 52% of our 2005 homebuilding revenues. Thus, we are dependent to a significant extent on the economy and demand for housing in those areas.

Our inability to secure and control an adequate inventory of lots could adversely impact our operations.

     The results of our homebuilding operations are dependent upon our continuing ability to control an adequate number of homebuilding lots in desirable locations. There can be no assurance that an adequate supply of building lots will continue to be available to us on terms similar to those available in the past, or that we will not be required to devote a greater amount of capital to controlling building lots than we have historically. An insufficient supply of building lots in one or more of our markets, an inability of our developers to deliver finished lots in a timely fashion, or our inability to purchase or finance building lots on reasonable terms could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations.

If the market value of our inventory declines, our profit could decrease.

     Inventory risk can be substantial for homebuilders. The market value of building lots and housing inventories can fluctuate significantly as a result of changing market conditions. In addition, inventory carrying costs can be significant and can result in losses in a poorly performing project or market. We must, in the ordinary course of our business, continuously seek and make acquisitions of lots for expansion into new markets as well as for replacement and expansion within our current markets. In the event of significant changes in economic or market conditions, we may dispose of certain subdivision inventories on a bulk or other basis which may result in a loss which could have a material adverse effect on our profitability, stock performance and ability to service our debt obligations.

Our current indebtedness may impact our future operations and our ability to access necessary financing.

     Our homebuilding operations are dependent in part on the availability and cost of working capital financing, and may be adversely affected by a shortage or an increase in the cost of such financing. If we require working capital greater than that provided by our operations and our credit facility, we may be required to seek to increase the amount available under the facility or to obtain alternative financing. No assurance can be given that additional or replacement financing will be available on terms that are favorable or acceptable. If we are at any time unsuccessful in obtaining sufficient capital to fund our planned homebuilding expenditures, we may experience a substantial delay in the completion of any homes then under construction. Any delay could result in cost increases and could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

     Our existing indebtedness contains financial and other restrictive covenants and any future indebtedness may also contain covenants. These covenants include limitations on our ability, and the ability of our subsidiaries, to incur additional indebtedness, pay cash dividends and make distributions, make loans and investments, enter into transactions with affiliates, effect certain asset sales, incur certain liens, merge or consolidate with any other person, or transfer all or substantially all of our properties and assets. Substantial losses by us or other action or inaction by us or our subsidiaries could result in the violation of one or more of these covenants which could result in decreased liquidity or a default on our indebtedness, thereby having a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations.

     Our mortgage banking operations are dependent on the availability, cost and other terms of mortgage warehouse financing, and may be adversely affected by any shortage or increased cost of such financing. No assurance can be given that any additional or replacement financing will be available on terms that are favorable or acceptable. Our mortgage banking operations are also dependent upon the securitization market for mortgage-backed securities, and could be materially adversely affected by any fluctuation or downturn in such market.

Government regulations and environmental matters can negatively affect our operations.

     We are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular area. We have from time to time been subject to, and may also be subject in the future to, periodic delays in our homebuilding projects due to building moratoriums in the areas in which we operate. Changes in regulations that restrict homebuilding activities in one or more of our principal markets could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations.

     We are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. We are subject to a variety of environmental conditions that can affect our business and our homebuilding projects. The particular environmental laws that apply to any given homebuilding site vary greatly according to the location and environmental condition of the site and the present and former uses of the site and adjoining properties. Environmental laws and conditions may result in delays, cause us to incur substantial compliance and other costs, or prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas, thereby adversely affecting our sales, profitability, stock performance and ability to service our debt obligations.

     We are an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and VA mortgage loans, and are subject to all of those agencies’ rules and regulations. Any significant impairment of our eligibility to sell/service these loans could have a material adverse impact on our mortgage operations. In addition, we are subject to regulation at the state and federal level with respect to specific origination, selling and servicing practices. Adverse changes in governmental regulation may have a negative impact on our mortgage loan origination business.

We face competition in our housing and mortgage banking operations.

     The homebuilding industry is highly competitive. We compete with numerous homebuilders of varying size, ranging from local to national in scope, some of whom have greater financial resources than we do. We face competition:

	•		for suitable and desirable lots at acceptable prices;
	•		from selling incentives offered by competing builders within and across developments; and
	•		from the existing home resale market.

     Our homebuilding operations compete primarily on the basis of price, location, design, quality, service and reputation. Historically we have been one of the leading homebuilders in each of the markets where we operate.

     The mortgage banking industry is also competitive. Our main competition comes from national, regional and local mortgage bankers, thrifts, banks and mortgage brokers in each of these markets. Our mortgage banking operations compete primarily on the basis of customer service, variety of products offered, interest rates offered, prices of ancillary services and relative financing availability and costs.

     There can be no assurance that we will continue to compete successfully in our homebuilding or mortgage banking operations. An inability to effectively compete may have an adverse impact on our sales, profitability, stock performance and ability to service our debt obligations.

A shortage of building materials or labor may adversely impact our operations.

     The homebuilding business has from time to time experienced building material and labor shortages, including shortages in insulation, drywall, certain carpentry work and concrete, as well as fluctuating lumber prices and supply. In addition, high employment levels and strong construction market conditions could restrict the labor force available to our subcontractors and us in one or more of our markets. Significant increases in costs resulting from these shortages, or delays in construction of homes, could have a material adverse effect upon our sales, profitability, stock performance and ability to service our debt obligations.

Product liability litigation and warranty claims may adversely impact our operations.

     Construction defect and home warranty claims are common and can represent a substantial risk for the homebuilding industry. The cost of insuring against construction defect and product liability claims, as well as the claims themselves, can be high. In addition, insurance companies limit coverage offered to protect against these claims. Further restrictions on coverage available, or significant increases in premium costs or claims could have a material adverse effect on our financial results.

Weather-related and other events beyond our control may adversely impact our operations.

     Extreme weather or other events, such as hurricanes, tornadoes, earthquakes, forest fires, floods, terrorist attacks or war, may affect our markets, our operations and our profitability. These events may impact our physical facilities or those of our suppliers or subcontractors, causing us material increases in costs, or delays in construction of homes, which could have a material adverse effect upon our sales, profitability, stock performance and ability to service our debt obligations.

Item 1B.		Unresolved Staff Comments.

None.

Item 2.		Properties.

     Our corporate offices are located in Reston, Virginia, where we currently lease approximately 61,000 square feet of office space. The current executive office lease expires in April 2015.

     We lease manufacturing facilities in the following six locations: Thurmont, Maryland; Burlington County, New Jersey; Farmington, New York; Kings Mountain, North Carolina; Darlington, Pennsylvania; and Portland, Tennessee. These facilities range in size from approximately 40,000 square feet to 400,000 square feet and combined total approximately 1,000,000 square feet of manufacturing space. All of our manufacturing facilities are leased. Each of these leases contain various options for extensions of the lease and for the purchase of the facility. The Portland lease expires in 2009. The Thurmont and Farmington leases expire in 2014, and the Kings Mountain and Burlington County leases expire in 2023 and 2024, respectively. The Darlington lease expires in 2025.

     We also lease office space in multiple locations for homebuilding divisional offices and mortgage banking and title services branches under leases expiring at various times through 2011, none of which are individually material to our business. We anticipate that, upon expiration of existing leases, we will be able to renew them or obtain comparable facilities on acceptable terms.

Item 3.		Legal Proceedings.
		(in thousands)

     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.

     In April 2005, the United States Environmental Protection Agency (the “EPA”) notified NVR that the Company was allegedly in violation of Section 308(a) of the Clean Water Act (the “Act”) at a construction site in Pennsylvania relative to storm water management during the homebuilding construction process. The notice informed NVR that the Company might be subject to administrative fines of up to $157 for the alleged violations. Subsequently, in September 2005, NVR received a request from the EPA pursuant to the Act for information about storm water discharge practices utilized in connection with other recent homebuilding projects undertaken by the Company. NVR is working with the EPA to provide the requested information and to review NVR’s compliance with the Act. 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.

Item 4.		Submission of Matters to a Vote of Security Holders.

     No matters were submitted to a vote of security holders during the quarter ended December 31, 2005.

Executive Officers of the Registrant

Name		Age				Positions
Dwight C. Schar			64			Chairman of the Board of NVR
William J. Inman			58			President of NVRM
Paul C. Saville			50			President and Chief Executive Officer of NVR
Dennis M. Seremet			50			Vice President, Chief Financial Officer and Treasurer of NVR
Robert W. Henley			39			Vice President and Controller of NVR

Dwight C. Schar has been Chairman of the Board since September 30, 1993. Mr. Schar also served as the President and Chief Executive Officer of NVR from September 30, 1993 through June 30, 2005.

William J. Inman has been President of NVRM since January 1992.

Paul C. Saville was named President and Chief Executive Officer of NVR, effective July 1, 2005. Prior to July 1, 2005, Mr. Saville had served as Senior Vice President Finance, Chief Financial Officer and Treasurer of NVR since September 30, 1993 and Executive Vice President from January 1, 2002 through June 30, 2005.

Dennis M. Seremet was named Vice President, Chief Financial Officer and Treasurer of NVR, effective July 1, 2005. Prior to July 1, 2005, Mr. Seremet had been Vice President and Controller of NVR since April 1, 1995, and was named Senior Vice President on January 1, 2005.

Robert W. Henley was named Vice President and Controller of NVR effective July 1, 2005. Prior to July 1, 2005, Mr. Henley served as Manager of SEC Reporting from 1995 through 2000. In 2000, Mr. Henley was appointed to the position of Assistant Controller.

PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

     Our shares of common stock are listed and principally traded on the American Stock Exchange (“AMEX”). The following table sets forth the high and low closing prices per share for our common stock for each fiscal quarter during the years ended December 31, 2005 and 2004:

				HIGH				LOW
Prices per Share:
2005:
First Quarter				$	808.00			$	709.00
Second Quarter				$	810.00			$	712.50
Third Quarter				$	938.00			$	799.50
Fourth Quarter				$	886.00			$	660.00
2004:
First Quarter				$	483.00			$	414.50
Second Quarter				$	492.00			$	410.00
Third Quarter				$	561.00			$	452.75
Fourth Quarter				$	769.40			$	533.80

     As of the close of business on February 10, 2006, there were 489 shareholders of record.

     We have never paid a cash dividend on our shares of common stock. In addition, we do not expect to pay a cash dividend in the foreseeable future as we continue with our objective of increasing shareholder value by using earnings to fund continued growth in our homebuilding and mortgage banking operations. We may from time to time repurchase shares of our common stock to also further that objective. Our bank indebtedness contains certain restrictive covenants, which limit our ability to pay cash dividends on our common stock. See further discussion of the covenants in the Liquidity section of Part II, Item 7 of the Form 10-K.

     We had two repurchase authorizations outstanding during the quarter ended December 31, 2005. On July 28, 2005 (the “July Authorization”) and November 3, 2005 (the “November Authorization”), we publicly announced the Board of Director’s approval for us to purchase up to an aggregate of $300 million of our common stock in one or more open market and/or privately negotiated transactions under each of the two authorizations. Neither the July Authorization nor the November Authorization has an expiration date. During the quarter ended December 31, 2005, we completed the utilization of the July Authorization. The following table provides information regarding common stock repurchases for the quarter ended December 31, 2005:

														Maximum Number (or
														Approximate Dollar
										Total Number of				Value) of Shares
										Shares Purchased as				That May Yet Be
										Part of Publicly				Purchased Under the
		Total Number of				Average Price Paid				Announced Plans or				Plans or Programs
Period		Shares Purchased				per Share				Programs				(in thousands)
October 1-31, 2005(1)			227,900			$	754.99				227,900			$	100,833
November 1-30, 2005 (1)			124,400			$	688.79				124,400			$	315,148
December 1-31, 2005 (2)			273,600			$	710.27				273,600			$	120,818

Item 6.		Selected Financial Data. (dollars in thousands, except per share amounts)

     The following tables set forth selected consolidated financial data. The selected income statement and balance sheet data have been extracted from our consolidated financial statements for each of the periods presented and is not necessarily indicative of results of future operations. The selected financial data should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and related notes included elsewhere in this report.

		Year Ended December 31,
		2005				2004				2003				2002				2001
Consolidated Income Statement Data:
Homebuilding data:
Revenues		$	5,177,743			$	4,247,503			$	3,600,917			$	3,060,671			$	2,559,744
Gross profit			1,439,713				1,091,217				889,056				725,302				557,454
Mortgage Banking data:
Mortgage banking fees			84,604				72,219				76,647				65,454				52,591
Interest income			5,014				4,249				5,198				6,184				7,025
Interest expense			1,759				1,088				1,293				1,870				1,728
Consolidated data:
Income from continuing operations		$	697,559			$	523,204			$	419,791			$	331,470			$	236,794
Income from continuing operations per diluted share(1)		$	89.61			$	66.42			$	48.39			$	36.05			$	24.86

		December 31,
		2005				2004				2003				2002				2001
Consolidated Balance Sheet Data:
Homebuilding inventory		$	793,975			$	588,540			$	523,773			$	436,674			$	402,375
Contract land deposits			549,160				384,959				284,432				231,229				155,652
Total assets			2,269,588				1,777,967				1,363,105				1,182,288				995,047
Notes and loans payable			463,141				213,803				257,859				259,160				238,970
Shareholders’ equity			677,162				834,995				494,868				403,245				349,118
Cash dividends per share			—				—				—				—				—

Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations. (dollars in thousands, except per share data)

Results of Operations for the Years Ended December 31, 2005, 2004, and 2003

Overview

     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 primarily conduct our operations in mature supply-constrained markets. Additionally, we generally grow our business through market share gains in our existing markets and by expanding into markets contiguous to our current active markets. Our homebuilding reportable segments consist of the following regions:

Mid Atlantic:		Maryland, Virginia, West Virginia and Delaware
North East:		Eastern Pennsylvania and New Jersey
Mid East:		Kentucky, Michigan, New York, Ohio and western Pennsylvania
South East:		North Carolina, South Carolina, and Tennessee

     We believe 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 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 we believe contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets.

     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 on which to build, and on our developers’ ability to timely deliver finished lots to meet the sales demands of our customers. Timely delivery of lots by our developers can be influenced by many factors, such as the developer’s execution of improvements, weather-related impacts, and the length of time necessary to obtain governmental approval of projects. We have been impacted in the past year and may be negatively impacted in the future by development delays.

     We acquire finished building lots at market prices 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 that this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and development. As of December 31, 2005, we controlled approximately 105,000 lots with deposits in cash and letters of credit totaling approximately $600,000 and $17,000, respectively. We also controlled approximately 1,000 lots through investments in joint venture limited liability corporations.

     Consolidated revenues and net income for 2005 increased 22% and 33%, respectively, from 2004. The increase in net income coupled with our continuing share repurchase program resulted in a 35% increase in diluted earnings per share in 2005 compared to 2004. The increase in consolidated revenues was primarily driven by our homebuilding business where we experienced an 8% increase in the number of homes settled and a 13% increase in the average settlement price in 2005 from 2004. In addition, the value of homes in backlog at December 31, 2005 exceeded the December 31, 2004 backlog value by 26%.

Homebuilding Operations

     The following table summarizes the results of operations and certain operating activity for each of the last three years for our consolidated homebuilding operation:

		Year Ended December 31,
		2005				2004				2003
Revenues		$	5,177,743			$	4,247,503			$	3,600,917
Cost of sales		$	3,738,030			$	3,156,286			$	2,711,861
Gross profit margin percentage			27.8	%			25.7	%			24.7	%
Selling, general and administrative expenses		$	345,525			$	260,795			$	231,966
Settlements (units)			13,787				12,749				12,050
Average settlement price		$	374.9			$	332.2			$	297.9
New orders (units)			14,653				13,231				12,583
Average new order price		$	404.6			$	364.1			$	313.9
Backlog (units)			8,310				7,372				6,890
Average backlog price		$	442.0			$	394.2			$	337.3

Consolidated Homebuilding Revenues

     Homebuilding revenues for 2005 increased 22% from 2004, primarily as a result of a 13% increase in the average settlement price and an 8% increase in the number of homes settled. Each of these increases was driven by a stronger backlog, both in value and units, at the beginning of 2005 as compared to the beginning of 2004 due to the company’s overall growth and our ability to raise prices year over year during a period of strong housing demand. We experienced increased home settlements year over year in each of our regions except Baltimore (Baltimore, MD metropolitan area and adjacent counties in Pennsylvania) where settlements declined slightly from the prior year. Settlements in the Baltimore region were negatively affected by development delays throughout the first three quarters of 2005. The Baltimore region was able to resolve several of these development delays in the fourth quarter, and settlements for this region increased 24% in the fourth quarter of 2005 as compared to the same period in 2004.

     Homebuilding revenues for 2004 increased 18% from 2003, primarily as a result of a 12% increase in the average settlement price to $332.2 in 2004 from $297.9 in 2003 and an increase of 6% in the number of homes settled to 12,749 in 2004 from 12,050 in 2003. The increase in average settlement prices was primarily attributable to a 9% higher average price of homes in backlog entering 2004 as compared to 2003 and to a 16% increase in the average price of homes sold during the first six months of 2004 as compared to the same period in 2003. The increase in the number of homes settled was primarily attributable to an 8% higher backlog at the beginning of 2004 as compared to the beginning of 2003.

Consolidated Homebuilding New Orders

     The number of new orders for 2005 increased 11% from 2004, and the value of new orders for 2005 increased 23% to $5,928,815 from $4,817,780 in 2004. The increase in the number of new orders was primarily attributable to an overall increase in the average number of active communities to 522 in 2005 as compared to 450 in 2004. Strong new order growth was experienced in each of our regions except the Washington (Washington, D.C. metropolitan area and adjacent counties in Maryland, Virginia, and West Virginia) region, which remained relatively flat with the prior year. Sales in the Washington region were negatively impacted by lower sales absorption during the second half of the year as compared to the same period in 2004 as a result of generally weaker market conditions within the region. The 23% increase in the value of new orders was attributable to both the aforementioned increase in the number of new orders and sustained housing demand year over year, which provided us the opportunity to raise selling prices, resulting in an 11% increase in the average selling price in 2005 as compared to 2004.

     The number of new orders for 2004 increased 5% from 2003, while the value of new orders for 2004 increased 22% to $4,817,780 from $3,950,413 in 2003. The increase in the number of new orders was attributable to an overall increase in the average number of active communities to 450 in 2004 as compared to 433 in 2003. Each of our segments experienced increases year over year in new orders. The Mid Atlantic increase was affected by a 9% decrease in new orders for the Baltimore region. This decrease resulted primarily from a 7% decrease in the average number of active communities in the Baltimore region year over year, attributable primarily to development delays. The 22% increase in the value of new orders was primarily attributable to the aforementioned increase in the number of new orders and strong housing demand which provided us the opportunity to raise selling prices, resulting in a 16% increase in the average selling price in 2004 as compared to 2003.

Consolidated Homebuilding Gross Profit

     The increase in gross profit margins of 210 basis points (2.1%) in 2005 from 2004 was primarily attributable to the aforementioned increases in average settlement prices year over year. These increases were partially offset by higher land and building commodity prices in 2005 as compared to 2004. Many of the end product building supplies used in our construction operations are impacted by higher, more volatile energy and petroleum costs, including: OSB sheathing; siding material; PVC piping, paint; asphalt; shingles; cement; gypsum; steel; glass and insulation. We are actively engaged in managing these cost increases to minimize their potential margin impact. However, gross margins in future periods may be adversely impacted by these higher costs, as well as expected pricing pressures in 2006 in many of our markets.

     Gross profit margins for 2004 increased to 25.7% compared to 24.7% for 2003. The increase in profit margins was attributable to the favorable market conditions allowing us to increase sales prices in a majority of the markets leading to the aforementioned 12% increase in average settlement prices in 2004 as compared to 2003. These increases were partially offset by higher land, lumber and other commodity prices in 2004 as compared to 2003.

Consolidated Homebuilding Selling, General and Administrative (“SG&A”)

     SG&A for 2005 increased $84,630, or 32% from 2004, and as a percentage of revenues, increased to 6.7% in 2005 from 6.1% in 2004. The increase in SG&A costs was primarily attributable to increases in personnel costs and selling and marketing costs of approximately $43,400 and $26,500, respectively. Personnel costs have increased primarily as a result of increased wages and management incentive compensation due to increased staffing levels to support our growth strategy. As of December 31, 2005, SG&A staffing levels had increased approximately 23% from December 31, 2004. The increase in selling and marketing costs were attributable to an increase in advertising and selling support costs due to the aforementioned increase in the average number of active communities year over year. SG&A costs in 2006 will be negatively impacted as a result of the implementation of Statement of Financial Accounting Standards No. 123R, Share-Based Payment, (“SFAS 123R”), from which we expect to record after tax expense of approximately $36,000 for the year, based on unvested stock options outstanding at December 31, 2005 (see Recent Accounting Pronouncements section which follows within Item 7 for further discussion).

     SG&A for 2004 increased 12% from 2003, but as a percentage of revenues, decreased to 6.1% in 2004 from 6.4% in 2003. The increase in SG&A costs was primarily attributable to increased personnel costs and selling and marketing costs of approximately $11,500 and $10,400, respectively, due to our continued growth.

Consolidated Homebuilding Backlog

     Backlog units and dollars were 8,310 and $3,673,221, respectively, at December 31, 2005 compared to backlog units of 7,372 and dollars of $2,906,041 at December 31, 2004. The increase in backlog units was due primarily to a 10% increase in the number of new orders for the six-month period ended December 31, 2005 as compared to the same period ended December 31, 2004. The 26% increase in backlog dollars was attributable to the 13% increase in backlog units and a 7% increase in the average price of new orders for the six-month period ended December 31, 2005 as compared to the same period in 2004.

     Backlog units and dollars were 7,372 and $2,906,041, respectively, at December 31, 2004 compared to backlog units of 6,890 and dollars of $2,323,703 at December 31, 2003. The increase in backlog units was due primarily to a 6% increase in the number of new orders for the six-month period ended December 31, 2004 as compared to the same period ended December 31, 2003. The 25% increase in backlog dollars was attributable to the 7% increase in backlog units and a 16% increase in the average price of new orders for the six-month period ended December 31, 2004 as compared to the same period in 2003.

Reportable Segments

     Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge determined at the corporate headquarters. The corporate capital allocation charge eliminates in consolidation, is based on the segment’s average net assets employed, and is charged using a consistent methodology in the years presented. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital. We record charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a finished lot purchase agreement with the developer.

     The following tables summarize homebuilding settlements, new orders, backlog and operating activity by reportable segment for each of the last three years:

		Year Ended December 31,
		2005				2004				2003
Mid Atlantic:
Revenues		$	3,235,053			$	2,623,308			$	2,185,680
Settlements (units)			6,735				6,462				6,070
Average settlement price		$	479.9			$	405.3			$	359.6
New Orders (units)			7,327				6,696				6,396
Average new order price		$	526.9			$	459.8			$	379.1
Backlog (units)			4,974				4,382				4,148
Average backlog price		$	541.0			$	470.5			$	386.0
Gross profit margin		$	1,096,565			$	795,491			$	624,386
Gross profit margin percentage			33.90	%			30.32	%		$	28.57	%
Segment profit		$	863,210			$	623,040			$	484,482
North East:
Revenues		$	533,662			$	466,206			$	380,646
Settlements (units)			1,390				1,388				1,296
Average settlement price		$	383.9			$	335.9			$	293.7
New Orders (units)			1,459				1,360				1,365
Average new order price		$	400.1			$	351.8			$	319.4
Backlog (units)			784				715				743
Average backlog price		$	404.7			$	373.4			$	342.7
Gross profit margin		$	114,365			$	98,291			$	71,550
Gross profit margin percentage			21.43	%			21.08	%		$	18.80	%
Segment profit		$	66,944			$	64,130			$	40,257
Mid East:
Revenues		$	944,070			$	793,976			$	685,164
Settlements (units)			3,404				3,049				2,787
Average settlement price		$	275.6			$	258.1			$	243.2
New Orders (units)			3,544				3,154				2,927
Average new order price		$	274.2			$	268.6			$	250.5
Backlog (units)			1,601				1,461				1,356
Average backlog price		$	271.5			$	275.6			$	252.4
Gross profit margin		$	178,114			$	153,197			$	142,725
Gross profit margin percentage			18.87	%			19.29	%		$	20.83	%
Segment profit		$	95,190			$	87,272			$	88,274
South East:
Revenues		$	464,958			$	364,013			$	349,427
Settlements (units)			2,258				1,850				1,897
Average settlement price		$	205.9			$	196.6			$	184.1
New Orders (units)			2,323				2,021				1,895
Average new order price		$	220.6			$	204.3			$	188.3
Backlog (units)			951				814				643
Average backlog price		$	242.4			$	214.7			$	195.3
Gross profit margin		$	92,348			$	70,314			$	59,910
Gross profit margin percentage			19.86	%			19.32	%		$	17.15	%
Segment profit		$	52,199			$	36,958			$	27,356

Mid Atlantic

2005 versus 2004

     The Mid Atlantic segment had an approximate $240,000 increase in segment profit year over year. Revenues increased 23% as a result of a 4% increase in the number of units settled and an 18% increase in the average settlement price. We experienced increased home settlements year over year in each of our regions except Baltimore where settlements declined slightly from the prior year. Settlements in the Baltimore region were negatively affected by development delays throughout the first three quarters of 2005. The Baltimore region was able to resolve several of these development delays in the fourth quarter, and settlements for this region increased 24% in the fourth quarter of 2005 as compared to the same period in 2004. The segment’s gross profit margin percentage grew to 33.9% in 2005 from 30.3% in 2004. The gross profit margin increase was due to favorable market conditions generated from strong housing demand within the segment’s markets during the current year, which began to level off in the second half of 2006, particularly in the Washington, D.C. market. Segment profits were also negatively affected by an approximate $34,000 increase in selling, general and administrative costs due to a 24% increase in the number of communities open for sale during 2005 as compared to 2004 and higher wage and other costs to support our growth strategy. Backlog units and dollars were 14% and 31% higher, respectively, than the 2004 year, principally due to the comparative increases in new orders of 9% and average selling price of 15%.

2004 versus 2003

     The Mid Atlantic segment had an approximate $139,000 increase in segment profit year over year. Revenues increased 20% as a result of a 7% increase in the number of units settled and a 13% increase in average settlement prices. The segment’s gross profit margin percentage grew to 30.3% in 2004 from 28.6% in 2003. The increase in gross profit margins was attributable to the favorable market conditions mentioned above that allowed us to increase sales prices in a majority of the segment’s markets. Segment profits were negatively affected by an approximate $17,000 increase in selling, general and administrative costs due to a 5% increase in the number of communities open for sale during 2004 as compared to 2003 and higher wage and other costs to support our growth strategy.

North East

2005 versus 2004

     The North East segment had an approximate $3,000 increase in segment profit year over year. Revenues increased 15% primarily as a result of a 14% increase in the average settlement price. The segment’s gross profit margin percentage was essentially flat at 21.4% in 2005 from 21.1% in 2004. Segment profits were also negatively affected by an approximate $5,200 increase in selling and marketing costs due to an 18% increase in the number of communities open for sale during 2005 as compared to 2004. Backlog units and dollars increased 10% and 19%, respectively. The unit increase is primarily due to a 7% increase in the number of new orders in 2005 compared to 2004, and the dollar increase is due to the unit increase and to a 14% increase in the average selling price.

2004 versus 2003

     The North East segment had an approximate $24,000 increase in segment profit year over year. Revenues increased 22% primarily as a result of a 7% increase in the number of units settled and a 14% increase in the average settlement price. The segment’s gross profit margin percentage increased to 21.1% in 2004 from 18.8% in 2003. The increase in gross profit margins was attributable to the favorable market conditions mentioned above that allowed us to increase sales prices in a majority of the segment’s markets. Segment profits also benefited from the better leveraging of our costs, as selling, general and administrative costs as a percent of revenues decreased to 4.9% in 2004 from 5.5% in 2003.

Mid East

2005 versus 2004

     The Mid East segment had an approximate $8,000 increase in segment profit year over year. Revenues increased 19% as a result of a 12% increase in the number of units settled and a 7% increase in the average settlement price. The segment’s gross profit margin percentage was essentially flat at 18.9% in 2005 from 19.3% in 2004. Segment profits were negatively affected by an approximate $13,000 increase in selling, general and administrative costs due to a 13% increase in the number of communities open for sale during 2005 as compared to 2004, and higher wages due to increased staffing levels to support our growth strategy. Backlog units and dollars increased 10% and 8%, respectively. The increases are primarily attributable to a 12% increase in the number of new orders in 2005 compared to 2004.

2004 versus 2003

     The Mid East segment had an approximate $1,000 decrease in segment profit year over year. Revenues increased 16% as a result of a 9% increase in the number of units settled and a 6% increase in the average settlement price. The segment’s gross profit margin percentage decreased to 19.3% in 2004 from 20.8% in 2003. Segment profits were also negatively affected by an approximate $9,500 increase in selling, general and administrative costs due to a 14% increase in the number of communities open for sale during 2004 as compared to 2003, and higher other general and administrative costs to support our growth strategy.

South East

2005 versus 2004

     The South East segment had an approximate $15,000 increase in segment profit year over year. Revenues increased 28% as a result of a 22% increase in the number of units settled and a 5% increase in the average settlement price. The segment’s gross profit margin percentage was 19.9% in 2005 and 19.3% in 2004. The gross profit margin increase was due to favorable market conditions that provided us the opportunity to increase prices in certain of the segment’s markets. Segment profits were negatively affected by an approximate $5,300 increase in selling, general and administrative costs due to higher wages from increased staffing levels to support our growth strategy. Backlog units and dollars were 17% and 32% higher, respectively, than the 2004 year, principally due to the comparative increases in new orders of 15% and average selling price of 8%.

2004 versus 2003

     The South East segment had an approximate $10,000 increase in segment profit year over year. Revenues increased 4% as a result of a 7% increase in the average settlement price and a 3% reduction in the number of units settled. The segment’s gross profit margin percentage increased slightly to 19.3% in 2004 and 17.2% in 2003.

Homebuilding Segment Reconciliations to Consolidated Homebuilding Operations

     In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between homebuilding segment profit and homebuilding consolidated profit before tax include unallocated corporate overhead, consolidation adjustments and external corporate interest. NVR’s overhead functions, such as accounting, treasury, human resources, land acquisition, etc., are centrally performed and the costs of which are not allocated to the Company’s operating segments. Consolidation adjustments consist of such items to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to the Company’s operating segments. External corporate interest expense is primarily comprised of interest charges on the Company’s outstanding Senior Notes and working capital line borrowings, and are not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

		Year Ended December 31,
		2005				2004				2003
Homebuilding Consolidated Gross Profit:
Homebuilding Mid Atlantic		$	1,096,565			$	795,491			$	624,386
Homebuilding North East			114,365				98,291				71,550
Homebuilding Mid East			178,114				153,197				142,725
Homebuilding South East			92,348				70,314				59,910
Consolidation adjustments and other (1)			(41,679	)			(26,076	)			(9,515	)
Consolidated homebuilding gross profit		$	1,439,713			$	1,091,217			$	889,056
Homebuilding Consolidated Profit Before Tax:
Homebuilding Mid Atlantic		$	863,210			$	623,040			$	484,482
Homebuilding North East			66,944				64,130				40,257
Homebuilding Mid East			95,190				87,272				88,274
Homebuilding South East			52,199				36,958				27,356
Reconciling items:
Contract land deposit impairments			(9,950	)			(6,000	)			(2,700	)
Corporate capital allocation (2)			149,247				110,769				92,256
Unallocated corporate overhead (3)			(105,364	)			(80,635	)			(80,274	)
Consolidation adjustments and other (1)			(11,670	)			(3,168	)			9,847
Corporate interest expense			(13,126	)			(11,223	)			(12,577	)
Loss from extinguishment of 8% Senior Notes due 2005			—				—				(8,503	)
Reconciling items sub-total			9,137				9,743				(1,951	)
Homebuilding consolidated profit before taxes		$	1,086,680			$	821,143			$	638,418

		Year Ended December 31,
		2005				2004				2003
Homebuilding Mid Atlantic		$	101,794			$	73,755			$	58,972
Homebuilding North East			15,904				11,518				10,351
Homebuilding Mid East			21,126				16,698				14,330
Homebuilding South East			10,423				8,798				8,603
Total		$	149,247			$	110,769			$	92,256

Mortgage Banking Segment

     NVR conducts its mortgage banking activity through NVR Mortgage Finance, Inc. (“NVRM”), a wholly owned subsidiary. NVRM focuses almost exclusively on serving the homebuilding segment’s customer base. Following is a table of financial and statistical data for the three years ended December 31, 2005, 2004 and 2003:

		2005				2004				2003
Loan closing volume:
Total principal		$	3,388,118			$	2,716,630			$	2,369,867
Segment income:		$	57,739			$	50,862			$	57,754
Capture rate:			87	%			84	%			83	%
Mortgage Banking Fees:
Net gain on sale of loans		$	62,279			$	52,858			$	59,095
Title services			21,072				18,353				16,341
Servicing fees			1,253				1,008				1,197
Gain on sale of servicing			—				—				14
		$	84,604			$	72,219			$	76,647

     Loan closing volume for the year ended December 31, 2005 increased 25% from 2004. The 2005 increase was primarily attributable to a 15% increase in the average loan amount, and a year over year 9% increase in the number of units closed. The increase in the average loan amount reflects the aforementioned increase in the homebuilding segment’s average selling prices. The unit increase for the year ended December 31, 2005 reflects an increase in the number of settlements by the homebuilding segment and an increase in the percentage of the number of loans closed for NVR’s homebuyers who obtain a mortgage to purchase the home (“Capture Rate”).

     Segment income for the year ended December 31, 2005 increased approximately $6,900 from 2004. The increase was primarily due to an increase in mortgage banking fees attributable to the aforementioned increase in closed loan volume. This was net of an approximate $6,000 increase in general and administrative expenses during 2005. The increase in general and administrative expenses was primarily due to an increase in salaries and other personnel costs due to a 26% increase in the total number of NVRM employees in 2005 versus 2004. The additional staffing is to position NVRM for future growth and to increase the Capture Rate.

     Traditionally, adjustable rate mortgages and brokered mortgages have been generally less profitable products than fixed rate mortgages. During 2004 and early 2005, we saw a shift to these less profitable products. However, in the second half of 2005, with the change in interest rates, the differential between fixed rate and adjustable rate mortgages narrowed, and we are now experiencing a favorable product mix shift back to fixed rate mortgages. We expect this product mix shift to continue into 2006.

     Mortgage loans held for sale increased approximately $55,000 at December 31, 2005 compared to December 31, 2004. This was primarily due to a 46% increase in the December 2005 loan closing volume compared to December 2004. Mortgage loans held for sale are typically sold to third-party investors within 30 days from date of closing.

     Loan closing volume for the year ended December 31, 2004 increased 14% from 2003. The 2004 increase is primarily attributable to a 12% increase in the average loan amount, and a year over year 2% increase in the number of units closed. The increase in the average loan amount reflects the aforementioned increase in the homebuilding segment’s average selling prices. The unit increase for the year ended December 31, 2004 reflects an increase in the number of settlements by the homebuilding segment and a slight increase in the Capture Rate.

     Segment income for the year ended December 31, 2004 decreased approximately $6,900 from 2003.

The decrease was primarily due to a product mix shift during 2004 from fixed rate mortgages to adjustable rate mortgages and brokered mortgages. The decrease was also due to higher costs incurred of approximately $3,400 related to the contractual repayment 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. The decreases due to the product mix shift and contractual repayments was partially offset by the higher 2004 loan volume. General and administrative expenses also increased by approximately $1,800 from 2003 to 2004, largely due to an 15% increase in the total number of NVRM employees in 2004 versus 2003.

Seasonality

     Overall, we do not experience material seasonal fluctuations in sales, settlements or loan closings.

Effective Tax Rate

     Our consolidated effective tax rates were 39.0%, 40.0%, and 39.7% in 2005, 2004 and 2003, respectively. The lower effective tax rate in 2005 was primarily due to the favorable tax impact of the new Internal Revenue Code Section 199 domestic manufacturing deduction established by the American Jobs Creation Act of 2004.

Recent Accounting Pronouncements

     In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (“SFAS 123R”). SFAS 123R is a revision of SFAS 123 and supersedes APB No. 25. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements. In April 2005, the Securities and Exchange Commission amended the effective date for SFAS 123R. SFAS 123R is now effective as of the beginning of the first interim or annual reporting period of a registrant’s first fiscal year beginning on or after June 15, 2005. SFAS 123R applies to all awards granted, modified, repurchased or cancelled after the effective date, and all outstanding portions of awards granted prior to the effective date which are unvested as of the effective date of the pronouncement.

     Entities may adopt the provisions of SFAS 123R using either the modified prospective or modified retrospective methods. Under the modified prospective method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for either recognition or pro forma disclosure. For periods before the required effective date, the modified retrospective application may be applied to either (a) all prior years for which SFAS 123 was effective or (b) only to prior interim periods in the year of initial adoption, on a basis consistent with the pro forma disclosures required for those periods by SFAS 123. SFAS 123R becomes effective for us beginning in the first quarter of 2006. We plan to adopt the SFAS 123R using the modified prospective method. We expect our full year after tax expense to be approximately $36,000 in 2006 related to the implementation of SFAS 123R, based on unvested stock options outstanding at December 31, 2005.

Liquidity and Capital Resources

Lines of Credit and Notes Payable

     Our homebuilding segment generally provides for its working capital cash requirements using cash generated from operations and a short-term unsecured working capital revolving credit facility (the “Facility”). During 2005, we increased the available borrowings under the Facility to $400,000 from $150,000 by refinancing our previous working capital agreement. The current Facility now provides for borrowings of up to $400,000 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 NVR’s credit rating and/or debt to capital ratio or (ii) London Interbank Offering Rate (“LIBOR”) plus applicable margin as defined above. The weighted- average interest rates for the amounts outstanding under the Facility were 5.9% and 4.0% for 2005 and

2004, respectively. Up to $150,000 of the Facility is currently available for issuance in the form of letters of credit, of which $26,412 was outstanding at December 31, 2005. The Facility contains various affirmative and negative covenants. The negative covenants include among others, certain limitations on transactions involving the creation of guarantees, sale of assets, acquisitions, mergers, investments and land purchases. Additional covenants include (i) a minimum adjusted consolidated tangible net worth requirement (ii) a maximum leverage ratio requirement, and (iii) an interest coverage ratio requirement. These covenants restrict the amount in which we would be able to pay in dividends each year. We are also subject to borrowing base restrictions if our senior debt rating falls below investment grade. At December 31, 2005 we were in compliance with all covenants under the Facility and there were no borrowing base limitations reducing the amount available to us for borrowings. At December 31, 2005, we had direct borrowings outstanding under the Facility of $103,000.

     NVR’s mortgage banking segment provides for its mortgage origination and other operating activities using cash generated from operations as well as various short-term credit facilities. NVRM has available an annually renewable mortgage warehouse facility (the “Revolving Credit Agreement”) with an aggregate borrowing limit of $175,000. This limit was temporarily increased to $225,000 on December 15, 2005 to accommodate heavy year-end closing volume. The borrowing limit reverted back to $175,000 on January 15, 2006. The Revolving Credit Agreement is used to fund NVRM’s mortgage origination activities, under which $156,816 was outstanding at December 31, 2005. As of December 31, 2005, borrowing base limitations reduced the amount available to NVRM for borrowings to approximately $184,500. The Revolving Credit Agreement expires in August 2006. The interest rate under the Revolving Credit Agreement is either: (i) LIBOR plus 1.125%, or (ii) 1.125% to the extent that NVRM provides compensating balances. The weighted average interest rate for amounts outstanding under the Revolving Credit Agreement was 4.4% during 2005. NVRM’s mortgage warehouse facility limits the ability of NVRM to transfer funds to NVR in the form of dividends, loans or advances. In addition, NVRM is required to maintain a minimum net worth of $14,000. NVRM also currently has available an aggregate of $50,000 of borrowing capacity in an uncommitted gestation and repurchase agreement. Amounts outstanding under the uncommitted gestation and repurchase agreement accrue interest at various rates tied to the LIBOR rate and are collateralized by gestation mortgage-backed securities and whole loans. There were no borrowings under this uncommitted facility during 2005.

     On January 20, 1998, we filed a shelf registration statement with the Securities and Exchange Commission (“SEC”) for the issuance of up to $400,000 of debt securities (the “1998 Shelf Registration”). The 1998 Shelf Registration statement was declared effective on February 27, 1998 and provides that securities may be offered from time to time in one or more series, and in the form of senior or subordinated debt.

     On June 17, 2003, we completed an offering, at par, for $200,000 of 5% Senior Notes due 2010 (the “Notes”) under the 1998 Shelf Registration. The offering of the Notes resulted in aggregate net proceeds of approximately $199,400, after deducting offering expenses. The Notes mature on June 15, 2010 and bear interest at 5%, payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2003. The Notes are general unsecured obligations and rank equally in right of payment with all of our existing and future unsecured senior indebtedness and indebtedness under our working capital credit facility. The Notes are senior in right of payment to any future subordinated indebtedness that we may incur. We may redeem the Notes, in whole or in part, at any time upon not less than 30 nor more than 60 days notice at a redemption price equal to the greater of (a) 100% of the principal amount of the Notes to be redeemed, or (b) the discounted present value of the remaining scheduled payments of the Notes to be redeemed, plus, in each case, accrued and unpaid interest.

     On July 14, 2003, we used approximately $120,700 of the proceeds received from the sale of the Notes to redeem all of the $115,000 outstanding 8% Senior Notes due 2005 at a price of 104% of the principal amount outstanding, including the payment of accrued interest. The redemption resulted in a charge to pre-tax homebuilding income of $8,503.

     On May 27, 2004, we filed a shelf registration statement (the “2004 Shelf Registration”) with the SEC to register up to $1,000,000 for future offer and sale of debt securities, common shares, preferred shares, depositary shares representing preferred shares and warrants. The SEC declared the 2004 Shelf Registration effective on June 15, 2004. NVR expects to use the proceeds received from future offerings issued under the 2004 Shelf Registration for general corporate purposes. In addition, we have $55,000 remaining available for issuance under the 1998 Shelf Registration. This discussion of our shelf registration capacity does not constitute an offer of any securities for sale.

Equity Repurchases

     In addition to funding growth in our homebuilding and mortgage banking operations, we historically have used a substantial portion of our excess liquidity to repurchase outstanding shares of our common stock in open market and 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 10(b)-18 of the Securities and Exchange Act of 1934. The repurchase program assists us in accomplishing our primary objective, creating increases in shareholder value. See Part II, Item 5 of the Form 10-K for disclosure of amounts repurchased during the fourth quarter of 2005. For the year ended December 31, 2005, we repurchased approximately 1,269,000 shares of our common stock at an aggregate purchase price of $962,609. We repurchased approximately 162,000 shares of our common stock at an aggregate purchase price of $120,818 during January 2006, which fully utilized all available share repurchase authorizations.

Cash Flows

     As shown in the consolidated statement of cash flows for the year ended December 31, 2005, our operating activities provided cash of $532,772. Cash was provided primarily by homebuilding operations and by the realization of a tax benefit of approximately $94,000 from employee stock-based compensation activities. These tax benefits were recorded directly to equity and reduced estimated tax payments during the year. Cash was also provided by a $53,000 increase in customer deposits resulting primarily from the increase in backlog units in 2005 as compared to 2004. Cash was used primarily to fund increases in homebuilding and mortgage loan inventory of approximately $202,000 and $55,000, respectively, and to make deposits on fixed price purchase agreements with developers to acquire control of finished lots. The increase in contract land deposits of approximately $196,000 related to both payments for new, fixed price purchase agreements and to scheduled payments under existing contracts upon achievement of development milestones. We control approximately 105,000 lots at December 31, 2005, as compared to approximately 83,500 lots at December 31, 2004.

     Net cash used for investing activities was $22,097 for the year ended December 31, 2005, primarily as a result of approximately $19,000 in property and equipment purchases throughout the period. In addition, on January 1, 2005 we purchased substantially all of the assets and assumed certain liabilities of Marc Homebuilders, Inc., a homebuilder in Columbia, South Carolina for $7,600 in cash (see Note 11 to the consolidated financial statements). The acquired business operates under the Rymarc trade name.

     Net cash used for financing activities was $700,514 for the year ended December 31, 2005, primarily as a result of our ongoing common stock repurchase program, offset by a net increase of approximately $249,000 under our credit lines. We repurchased approximately 1,269,000 shares of our common stock in 2005 for an aggregate purchase price of $962,609.

     At December 31, 2005, the homebuilding and mortgage banking segments had restricted cash of $5,135 and $1,738, respectively, which includes certain customer deposits, mortgagor tax escrows, insurance escrows, completion escrows and other amounts collected at closing which relates to mortgage loans held for sale and to home sales.

     We believe that cash generated from operations and borrowings available under our credit facilities and the public debt markets will be sufficient to satisfy near and longer term cash requirements for working capital and debt service in both our homebuilding and mortgage banking operations.

Off Balance Sheet Arrangements

Lot Acquisition Strategy

     We do not engage in the land development business. Instead, we acquire finished building lots at market prices from various development entities under fixed price purchase agreements that require deposits that may be forfeited if we fail 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 represent a percentage, typically ranging up to 10%, of the aggregate purchase price of the finished lots.

     Our lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. We may, at our option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of our intent not to acquire the finished lots under contract. Our 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 provision contained within the purchase agreements. We do not have any financial guarantees or completion obligations and, with the exception of three specific performance contracts for 80 lots at an aggregate purchase price of approximately $7,100 existing at December 31, 2005, we do not guarantee specific performance under these purchase agreements.

     At December 31, 2005, we controlled approximately 105,000 lots with an aggregate purchase price of approximately $10,000,000, by making or committing to make deposits of approximately $831,000 in the form of cash and letters of credit. Our entire risk of loss pertaining to the aggregate $10,000,000 contractual commitment resulting from our non-performance under the contracts is limited to the $831,000 deposit amount. Of the $831,000 deposit total, approximately $600,000 in cash and approximately $17,000 in letters of credit have been issued as of December 31, 2005, and $214,000 will be paid subsequent to December 31, 2005, assuming that contractual development milestones are met by the developers (see Contractual Obligations section below). Please refer to Note 3 to the consolidated financial statements for a description of our lot acquisition strategy in relation to our accounting under FIN 46R, Consolidation of Variable Interest Entities.

Bonds and Letters of Credit

     We enter into bond or letter of credit arrangements with local municipalities, government agencies, or land developers to collateralize our obligations under various contracts. We had $33,325 of contingent obligations under such agreements as of December 31, 2005 (inclusive of the $17,000 of lot acquisition deposits in the form of letters of credit discussed above). We believe we will fulfill our obligations under the related contracts and do not anticipate any losses under these bonds or letters of credit.

Mortgage Commitments and Forward Sales

     In the normal course of business, our mortgage banking segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time frames established by us. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, we enter into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments classified as derivatives. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives, and, accordingly, are marked to market through earnings. At December 31, 2005, there were contractual commitments to extend credit to borrowers aggregating approximately $140,000, and open forward delivery sale contracts aggregating approximately $322,000.

Contractual Obligations

     Our fixed, non-cancelable obligations as of December 31, 2005, were as follows:

		Payments due by period
						Less than				1-3				3-5				More than
		Total				1year				years				years				5years
Debt (a)		$	504,816			$	269,816			$	20,000			$	215,000			$	—
Capital leases (b)			5,753				586				1,228				1,281				2,658
Operating leases (c)			120,230				27,589				34,928				21,737				35,976
Purchase obligations (d)			214,000				*				*				*				*
Executive officer employment contracts (e)			15,700				3,140				6,280				6,280				—
Other long-term liabilities (f)			64,285				59,315				4,970				—				—
Total		$	924,784			$	360,446			$	67,406			$	244,298			$	38,634

Critical Accounting Policies

     General

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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, our estimates are based on historical experience, on information from third party professionals, and other various assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ materially from those estimates made by management.

     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 on its financial statements. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s 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 entity’s net assets exclusive of its variable interests, and expected residual returns are the expected positive variability in the fair value of an entity’s 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 (“LLC’s”) 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 entity’s 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 entity’s primary beneficiary, possibly resulting in additional, or fewer, development entities being consolidated on our financial statements.

     Homebuilding Inventory

     The carrying value of inventory is stated at the lower of cost or market value. Cost of lots and completed and uncompleted housing units represent the accumulated actual cost of the units. Field construction supervisors’ salaries and related direct overhead expenses are included in inventory costs. Interest costs are not capitalized into inventory. Upon settlement, the cost of the unit 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 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 the existing contract land deposit portfolio. The allowance reflects our 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 December 31, 2005 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.

     Intangible Assets

     Reorganization value in excess of identifiable assets (“excess reorganization value”), goodwill, and indefinite life intangible assets are not subject to amortization under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). 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 2005, and as of December 31, 2005, we believe that excess reorganization value, goodwill, and other intangible assets were not impaired. This conclusion is based on management’s 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 costs as a result of construction and product defects, product recalls and litigation incidental to our business. Liability estimates are determined based on our 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 other outside counsel retained to handle specific product liability cases. Although we consider the warranty and product liability accrual reflected on the December 31, 2005 balance sheet (see Note 10 to the 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.

Impact of Inflation, Changing Prices and Economic Conditions

     See Risk Factors included in Item 1A herein.

Item 7A.		Quantitative and Qualitative Disclosure About Market Risk.

     Market risk is the risk of loss arising from adverse changes in market prices and interest rates. Our market risk arises from interest rate risk inherent in our financial instruments. Interest rate risk is the possibility that changes in interest rates will cause unfavorable changes in net income or in the value of interest rate-sensitive assets, liabilities and commitments. Lower interest rates tend to increase demand for mortgage loans for home purchasers, while higher interest rates make it more difficult for potential borrowers to purchase residential properties and to qualify for mortgage loans. We have no market rate sensitive instruments held for speculative or trading purposes.

     Our mortgage banking segment is exposed to interest rate risk as it relates to its lending activities. The mortgage banking segment originates mortgage loans, which are either sold through optional or mandatory forward delivery contracts into the secondary markets. All of the mortgage banking segment’s loan portfolio is held for sale and subject to forward sale commitments. NVRM also sells substantially all of its mortgage servicing rights on a servicing released basis.

     Our homebuilding segment generates operating liquidity and acquires capital assets through fixed-rate and variable-rate debt. The homebuilding segment’s primary debt is a variable-rate working capital revolving credit facility that currently provides for unsecured borrowings up to $400,000, 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 NVR’s credit rating and/or debt to capital ratio or (ii) LIBOR plus applicable margin as defined above. The weighted- average interest rates for the amounts outstanding under the Facility were 5.9% and 4.0% for 2005 and 2004, respectively.

     NVRM generates operating liquidity primarily through the mortgage warehouse facility, which had a borrowing limit of $225,000 at December 31, 2005. The available borrowing limit was reduced to $175,000 on January 15, 2006. The mortgage warehouse facility is used to fund its mortgage origination activities. The interest rate under the mortgage warehouse facility is either: (i) LIBOR plus 1.125%, or (ii) 1.125% to the extent that NVRM provides compensating balances. The weighted-average interest rate for amounts outstanding under the mortgage warehouse facility was 4.4% during 2005.

     The following table represents the contractual balances of our on-balance sheet financial instruments in dollars at the expected maturity dates, as well as the fair values of those on-balance sheet financial instruments, at December 31, 2005. The expected maturity categories take into consideration the actual and anticipated amortization of principal and does not take into consideration the reinvestment of cash or the refinancing of existing indebtedness. Because we sell all of the mortgage loans we originate into the secondary markets, we have made the assumption that the portfolio of mortgage loans held for sale will mature in the first year. Consequently, outstanding warehouse borrowings and repurchase facilities are also assumed to mature in the first year.

		Maturities (000's)
																														Fair
		2006				2007				2008				2009				2010				Thereafter				Total				Value
Mortgage banking segment
Interest rate sensitive assets:
Mortgage loans held for sale		$	194,157				—				—				—				—				—			$	194,157			$	194,206
Average interest rate			7.2	%			—				—				—				—				—				7.2	%
Interest rate sensitive liabilities:
Variable rate warehouse line of credit		$	156,816				—				—				—				—				—			$	156,816			$	156,816
Average interest rate (a)			5.5	%			—				—				—				—				—				5.5	%
Other:
Forward trades of mortgage-backed securities (b)		$	(331	)			—				—				—				—				—			$	(331	)		$	(331	)
Forward loan commitments (b)			57				—				—				—				—				—				57				57
Homebuilding segment
Interest rate sensitive liabilities:
Fixed rate obligations (c)		$	161			$	215			$	244			$	302			$	200,353			$	2,050			$	203,325			$	199,665
Average interest rate			5.1	%			5.1	%			5.1	%			5.1	%			5.2	%			13.2	%			5.2	%
Variable rate credit facility		$	103,000				—				—				—				—				—			$	103,000			$	103,000
Average interest rate			5.7	%			—				—				—				—				—				5.7	%

Item 8.		Financial Statements and Supplementary Data.

     The financial statements listed in Item 15 are filed as part of this report and are incorporated herein by reference.

Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

     None.

Item 9A.		Controls and Procedures.

Evaluation of Disclosure 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 the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.

     Based on that evaluation, the principal executive officer and principal financial officer concluded that the design and operation of these disclosure controls and procedures as of December 31, 2005 were effective to ensure that information required to be disclosed in our reports under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

     As described in Note 2 to the Consolidated Financial Statements, we have amended Note 2 to disaggregate our one homebuilding segment into four reportable segments. Our management, including our principal executive officer and principal financial officer, have re-evaluated our disclosure controls and procedures as of the end of the period covered by this Report to determine whether this amendment changes their prior conclusion, and have determined that it does not change their conclusion that, as of December 31, 2005, our disclosure controls and procedures were effective. The change in the way we report segment information did not result in any change to our consolidated financial position, results of operations or cash flows.

     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.

Management’s Report on Internal Control Over Financial Reporting

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

     As described in Note 2 to the consolidated financial statements, we have amended Note 2 to the consolidated financial statements included in this Report to disaggregate our one homebuilding segment into four reportable segments. As a result, management has re-evaluated its assessment regarding the effectiveness of our internal control over financial reporting. We have concluded that our prior assessment that our internal control over financial reporting was effective at December 31, 2005, is correct. This determination was based upon the fact that we believe that our internal control over financial reporting operated in a manner that provided us with a reasonable basis for our original conclusion with respect to reporting segment information. Further, the change in the way we report segment information did not result in any change to our consolidated financial position, results of operations or cash flows.

Item 9B.		Other Information.

     None.

PART III

Item 10.		Directors and Executive Officers of the Registrant.

     Item 10 is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006. Reference is also made regarding the executive officers of the registrant to “Executive Officers of the Registrant” following Item 4 of Part I of this report.

Item 11.		Executive Compensation.

     Item 11 is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006.

Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     Security ownership of certain beneficial owners and management is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006.

Equity Compensation Plan Information

     The table below sets forth information as of the end of our 2005 fiscal year for (i) all equity compensation plans approved by our shareholders and (ii) all equity compensation plans not approved by our shareholders:

Number of

securities

Number of

remaining

securities to

available for

be issued

Weighted-

future issuance

upon

average

under equity

exercise of

exercise

compensation

outstanding

price of

plans

options,

outstanding

(excluding

warrants

options,

securities

and

warrants

reflected in the

Plan category

rights

and rights

first column)

Equity compensation plans approved by security holders

1,118,280

$

339.46

175,195

Equity compensation plans not approved by security holders

1,966,739

$

222.74

36,956

Total

3,085,019

$

265.05

212,151

     Equity compensation plans approved by our shareholders include the NVR, Inc. Management Equity Incentive Plan, the NVR, Inc. Management Long-Term Stock Option Plan, the NVR, Inc. 1998 Management Long-Term Stock Option Plan, the NVR, Inc. Directors’ Long-Term Stock Option Plan, the 1998 Directors’ Long-Term Stock Option Plan, and the 2005 Stock Option Plan. Equity compensation plans that have not been approved by our shareholders include the NVR, Inc. 1994 Management Equity Incentive Plan and the NVR, Inc. 2000 Broadly-Based Stock Option Plan. See Note 9 of the Notes to Consolidated Financial Statements for a description of each of NVR’s equity compensation plans.

Item 13.		Certain Relationships and Related Transactions.

     Item 13 is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006.

Item 14.		Principal Accountant Fees and Services.

     Item 14 is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006.

PART IV

Item 15.		Exhibits and Financial Statement Schedules.

     The following documents are filed as part of this report:

1.

Financial Statements

NVR, Inc. — Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

2.

Exhibits

Exhibit
Number		Description
3.1		Restated Articles of Incorporation of NVR, Inc. (“NVR”). Filed as Exhibit 2 to Amendment No. 1 to Form 8-A filed on June 14, 2004 and incorporated herein by reference.
3.2		Bylaws, as amended, of NVR, Inc. Filed as Exhibit 3.1 to Form 8-K filed on November 3, 2005 and incorporated herein by reference.
4.1		Indenture dated as of April 14, 1998 between NVR, as issuer and the Bank of New York as trustee. Filed as Exhibit 4.3 to NVR’s Current Report on Form 8-K filed April 23, 1998 and incorporated herein by reference.
4.2		Form of Note (included in Indenture filed as Exhibit 4.1).
4.3		Fourth Supplemental Indenture, dated June 17, 2003, between NVR and U.S. Bank Trust National Association, as successor to The Bank of New York, as trustee. Filed as Exhibit 4.1 to NVR’s Current Report on Form 8-K filed June 17, 2003 and incorporated herein by reference.
4.4		Form of Note (included in Indenture filed as Exhibit 4.3).
10.1*		Employment Agreement between NVR, Inc. and Dwight C. Schar dated July 1, 2005. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.
10.2*		Employment Agreement between NVR, Inc. and Paul C. Saville dated July 1, 2005. Filed as Exhibit 10.2 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.
10.3*		Employment Agreement between NVR, Inc. and Dennis M. Seremet dated July 1, 2005. Filed as Exhibit 10.3 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.
10.4*		Employment Agreement between NVR, Inc. and William J. Inman dated July 1, 2005. Filed as Exhibit 10.4 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.

Exhibit
Number		Description
10.5*		Profit Sharing Plan of NVR, Inc. and Affiliated Companies. Filed as Exhibit 4.1 to NVR’s Registration Statement on Form S-8 (No. 333-29241) filed June 13, 1997 and incorporated herein by reference.
10.6		Loan Agreement dated as of September 7, 1999 among NVR Mortgage Finance, Inc. (“NVR Finance”) and US Bank National Association, as Agent, and the other lenders party thereto. Filed as Exhibit 10.6 to NVR’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
10.7*		NVR, Inc. Equity Purchase Plan. Filed as Exhibit 10.10 to the 1993 Registration Statement and incorporated herein by reference.
10.8*		NVR, Inc. Directors Long-Term Incentive Plan. Filed as Exhibit 10.11 to NVR’s 1993 Registration Statement and incorporated herein by reference.
10.9*		NVR, Inc. Management Equity Incentive Plan. Filed as Exhibit 10.2 to NVR’s 1993 Registration Statement and incorporated herein by reference.
10.10*		Employee Stock Ownership Plan of NVR, Inc. Incorporated by reference to NVR’s Annual Report on Form 10-K/A for the year ended December 31, 1994.
10.11*		NVR, Inc. 1994 Management Equity Incentive Plan. Filed as Exhibit to NVR’s Annual Report filed on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference.
10.12*		NVR, Inc. 1998 Management Long-Term Stock Option Plan. Filed as Exhibit 4 to NVR’s Registration Statement on Form S-8 (No. 333-79951) filed June 4, 1999 and incorporated herein by reference.
10.13*		NVR, Inc. 1998 Directors’ Long-Term Stock Option Plan. Filed as Exhibit 4 to NVR’s Registration Statement on Form S-8 (No. 333-79949) filed June 4, 1999 and incorporated herein by reference.
10.14*		The Form of Non-Qualified Stock Option Agreement under the 1998 Directors’ Long-Term Stock Option Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on August 3, 2005 and incorporated herein by reference.
10.15*		NVR, Inc. Management Long-Term Stock Option Plan. Filed as Exhibit 99.3 to NVR’s Registration Statement on Form S-8 (No. 333-04975) filed May 31, 1996 and incorporated herein by reference.
10.16*		NVR, Inc. Directors’ Long-Term Stock Option Plan. Filed as Exhibit 99.3 to NVR’s Registration Statement on Form S-8 (No. 333-04989) filed May 31, 1996 and incorporated herein by reference.
10.17*		NVR, Inc. 2000 Broadly-Based Stock Option Plan. Filed as Exhibit 99.1 to NVR’s Registration Statement on Form S-8 (No. 333-56732) filed March 8, 2001 and incorporated herein by reference.
10.18*		The NVR, Inc. 2005 Stock Option Plan. Filed as Exhibit 10.18 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
10.19*		The Form of Non-Qualified Stock Option Agreement under the 2005 Stock Option Plan. Filed as Exhibit 10.19 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
10.20*		NVR, Inc. High Performance Compensation Plan dated as of January 1, 1996. Filed as Exhibit 10.30 to NVR’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.

Exhibit
Number		Description
10.21*		NVR, Inc. High Performance Compensation Plan No. 2 dated as of January 1, 1999. Filed as Exhibit 10.31 to NVR’s Annual Report filed on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
10.22*		NVR, Inc. Nonqualified Deferred Compensation Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on December 16, 2005 and incorporated herein by reference.
10.23		Mortgage Loan Purchase and Sale Agreement between Greenwich Capital Financial Products, Inc. and NVR Finance, dated as of July 22, 1998. Filed as Exhibit 10.34 to NVR’s Annual Report filed on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.
10.24		Second Amendment to Loan Agreement and Second Amendment to Pledge and Security Agreement dated September 1, 2000 between NVR Finance and U.S. Bank National Association, as agent, and other Lenders party thereto. Filed as Exhibit 10.36 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference.
10.25		Agreement to increase commitments under the NVR Mortgage Finance Warehouse Facility by and among NVR Finance, Comerica Bank, National City Bank of Kentucky, and U.S. Bank National Association dated as of September 28, 2001. Filed as Exhibit 10.22 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference.
10.26		Eighth Amendment to Loan Agreement dated as of August 15, 2002 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Bank One, NA, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.26 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2002 and incorporated herein by reference.
10.27		Ninth Amendment to Loan Agreement dated as of April 16, 2003 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Bank One, NA, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.28 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2003 and incorporated herein by reference.
10.28		Tenth Amendment to Loan Agreement dated as of August 28, 2003 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Bank One, NA, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.29 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2003 and incorporated herein by reference.
10.29		Eleventh Amendment to Loan Agreement dated as of August 26, 2004 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.1 to NVR’s Current Report on Form 8-K filed August 27, 2004 and incorporated herein by reference.
10.30		Thirteenth Amendment to Loan Agreement dated as of August 25, 2005 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.1 to NVR’s Form 8-K filed August 25, 2005 and incorporated herein by reference.
10.31		Credit Agreement dated as of December 7, 2005 among NVR, Inc. and the lenders party hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, U.S. Bank, National Association, as Syndication Agent, SunTrust Bank and Wachovia Bank, National Association, as Documentation Agents, AmSouth Bank, Comerica Bank, Calyon New York Branch and Mizuho Corporate Bank, Ltd., as Managing Agents, and J.P. Morgan Securities Inc., as Lead Arranger and Sole Book Runner. Filed as Exhibit 10.1 to NVR’s Form 8-K filed December 12, 2005 and incorporated herein by reference.

Exhibit
Number		Description
10.33*		Description of the Board of Directors’ compensation arrangement. Filed as Exhibit 10.27 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2004 and incorporated herein by reference.
10.34*		Summary of 2006 annual incentive plan. Filed as Exhibit 10.34 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
21		NVR, Inc. Subsidiaries. Filed as Exhibit 21 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
23		Consent of KPMG LLP (Independent Registered Public Accounting Firm). Filed herewith.
31.1		Certification of NVR’s Chief Executive Officer pursuant to Rule 13a-14(a). Filed herewith.
31.2		Certification of NVR’s Chief Financial Officer pursuant to Rule 13a-14(a). Filed herewith.
32		Certification of NVR’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

SIGNATURES

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

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
NVR, Inc.:

We have audited the accompanying consolidated balance sheets of NVR, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NVR, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of NVR, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP

McLean, Virginia
February 23, 2006

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
NVR, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, included in Item 9A to the Company’s 2005 Form 10-K, that NVR, Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, management’s assessment that NVR, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, NVR, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NVR, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated February 23, 2006 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

McLean, Virginia
February 23, 2006

NVR, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)

		December 31,
		2005				2004
ASSETS
Homebuilding:
Cash and cash equivalents		$	170,090			$	362,458
Receivables			40,562				14,020
Inventory:
Lots and housing units, covered under sales agreements with customers			723,657				538,770
Unsold lots and housing units			60,419				40,052
Manufacturing materials and other			9,899				9,718
			793,975				588,540
Assets not owned, consolidated per FIN 46R			275,306				89,924
Property, plant and equipment, net			31,096				25,330
Reorganization value in excess of amounts allocable to identifiable assets, net			41,580				41,580
Goodwill and indefinite life intangibles, net			11,686				6,379
Definite life intangibles, net			375				—
Contract land deposits			549,160				384,959
Deferred tax assets, net			97,511				73,191
Other assets			45,340				36,587
			2,056,681				1,622,968
Mortgage Banking:
Cash and cash equivalents			7,436				4,907
Mortgage loans held for sale, net			193,932				138,595
Property and equipment, net			1,003				996
Reorganization value in excess of amounts allocable to identifiable assets, net			7,347				7,347
Other assets			3,189				3,154
			212,907				154,999
Total assets		$	2,269,588			$	1,777,967

(Continued)

See notes to consolidated financial statements.

NVR, Inc.
Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)

		December 31,
		2005				2004
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable		$	262,086			$	215,002
Accrued expenses and other liabilities			308,621				177,041
Liabilities related to assets not owned, consolidated per FIN 46R			215,284				63,568
Obligations under incentive plans			60,555				57,774
Customer deposits			256,837				203,835
Other term debt			3,325				4,077
Senior notes			200,000				200,000
Notes payable			103,000				—
			1,409,708				921,297
Mortgage Banking:
Accounts payable and other liabilities			25,902				11,949
Notes payable			156,816				9,726
			182,718				21,675
Total liabilities			1,592,426				942,972
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,592,640 and 20,597,709 shares issued for 2005 and 2004, respectively			206				206
Additional paid-in-capital			473,886				406,705
Deferred compensation trust - 547,697 and 549,029 shares of NVR, Inc. common stock for 2005 and 2004, respectively			(76,303	)			(76,366	)
Deferred compensation liability			76,303				76,366
Retained earnings			2,608,628				1,911,069
Less treasury stock at cost — 14,964,482 and 14,023,631 shares for 2005 and 2004, respectively			(2,405,558	)			(1,482,985	)
Total shareholders’ equity			677,162				834,995
Total liabilities and shareholders’ equity		$	2,269,588			$	1,777,967

See notes to consolidated financial statements.

NVR, Inc.
Consolidated Statements of Income
(in thousands, except per share data)

		Year Ended				Year Ended				Year Ended
		December 31, 2005				December 31, 2004				December 31, 2003
Homebuilding:
Revenues		$	5,177,743			$	4,247,503			$	3,600,917
Other income			6,301				2,655				3,385
Cost of sales			(3,738,030	)			(3,156,286	)			(2,711,861	)
Selling, general and administrative			(345,525	)			(260,795	)			(231,966	)
Operating income			1,100,489				833,077				660,475
Loss from extinguishment of 8% Senior Notes due 2005			—				—				(8,503	)
Interest expense			(13,809	)			(11,934	)			(13,554	)
Homebuilding income			1,086,680				821,143				638,418
Mortgage Banking:
Mortgage banking fees			84,604				72,219				76,647
Interest income			5,014				4,249				5,198
Other income			1,435				1,075				1,025
General and administrative			(31,555	)			(25,593	)			(23,823	)
Interest expense			(1,759	)			(1,088	)			(1,293	)
Mortgage banking income			57,739				50,862				57,754
Income before taxes			1,144,419				872,005				696,172
Income tax expense			(446,860	)			(348,801	)			(276,381	)
Net income		$	697,559			$	523,204			$	419,791
Basic earnings per share		$	110.36			$	80.83			$	59.28
Diluted earnings per share		$	89.61			$	66.42			$	48.39
Basic average shares outstanding			6,321				6,473				7,082
Diluted average shares outstanding			7,784				7,877				8,674