e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the fiscal year ended December 31, 2005
OR
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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
Commission file number 1-12378
NVR, Inc.
(Exact name of registrant as specified in its charter)
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Virginia |
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54-1394360 |
(State or other jurisdiction of incorporation or organization)
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(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 registrants principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Common stock, par value $0.01 per share
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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 registrants 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 registrants 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.
INDEX
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PART I |
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Item 1.
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Business
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2 |
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Item 1A.
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Risk Factors
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6 |
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Item 1B.
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Unresolved Staff Comments
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9 |
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Item 2.
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Properties
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9 |
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Item 3.
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Legal Proceedings
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10 |
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Item 4.
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Submission of Matters to a Vote of Security Holders
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10 |
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Executive Officers of the Registrant
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10 |
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PART II |
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Item 5.
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Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Item 6.
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Selected Financial Data
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Item 7.
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Managements Discussion and Analysis of Financial Condition and
Results of Operations
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Item 7A.
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Quantitative and Qualitative Disclosure About Market Risk
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23 |
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Item 8.
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Financial Statements and Supplementary Data
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26 |
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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26 |
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Item 9A.
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Controls and
Procedures
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26 |
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Item 9B.
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Other
Information
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26 |
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PART III |
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Item 10.
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Directors and Executive Officers of the Registrant
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Item 11.
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Executive Compensation
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27 |
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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Item 13.
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Certain Relationships and Related
Transactions
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Item 14.
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Principal Accountant Fees and Services
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28 |
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PART IV |
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Item 15.
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Exhibits and Financial Statement Schedules
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1
PART I
Item 1. Business.
General
NVR, Inc. (NVR) was formed in 1980 as NVHomes, Inc. NVR operates in two business
segments, homebuilding and mortgage banking. 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 (LLCs). All LLCs are structured such that NVR is a non-controlling member and is
at risk only for the amount invested. NVR is not a borrower, guarantor or obligor on any of the
LLCs debt. NVR enters into a standard fixed price purchase agreement to purchase lots from these
LLCs. At December 31, 2005, NVR had an aggregate investment in thirteen separate LLCs
totaling approximately $15 million, which controlled approximately 1,000 lots.
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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
We operate in the following geographic regions:
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Washington:
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Washington, D.C. metropolitan area and adjacent counties in Maryland, Virginia and West Virginia |
Baltimore:
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Baltimore, MD metropolitan area and adjacent counties in Pennsylvania |
North:
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Delaware, Kentucky, Maryland Eastern Shore, Michigan, New Jersey, New York, Ohio and Pennsylvania |
South:
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North Carolina, South Carolina, Tennessee and Richmond, VA |
Further discussion of settlements, new orders and backlog activity by region for each of
the last three years can be found in Managements 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.
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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.
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Competition and Market Factors
NVRMs 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
NVRMs 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 SECs website at http://www.sec.gov. You may also read and
copy any document we file at the SECs 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 Companys
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
NVRs principal executive officer, principal financial officer, principal accounting officer
or persons performing similar functions will be disclosed on our
website.
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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.
Forward-Looking Statements
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,
NVRs 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:
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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; |
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the availability of adequate land in desirable locations on reasonable terms; |
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unexpected changes in customer preferences; and |
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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.
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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.
7
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:
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for suitable and desirable lots at acceptable prices; |
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from selling incentives offered by competing builders within and
across developments; and |
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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.
8
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.
9
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 NVRs 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.
10
PART II
|
|
|
Item 5. |
|
Market for Registrants 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 Directors 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 Value) of |
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
Shares That May Yet |
|
|
Total Number |
|
Average |
|
Purchased as Part of |
|
Be Purchased Under |
|
|
of Shares |
|
Price Paid |
|
Publicly Announced Plans |
|
the Plans or Programs |
Period |
|
Purchased |
|
per Share |
|
or 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 |
|
|
|
|
(1) |
|
All shares were purchased under the July Authorization. |
|
(2) |
|
20,845 shares were purchase under the July Authorization, and 252,755 shares were
purchased under the November Authorization. This fully utilized the July Authorization.
The aggregate $120,818 of our common stock that may yet be purchased relates solely to
the November Authorization which was fully utilized in January 2006. |
11
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the years ended December 31, 2005, 2004, 2003, 2002 and 2001, income from
continuing operations per diluted share was computed based on 7,784,382; 7,876,869; 8,674,363;
9,193,677 and 9,525,960 shares, respectively, which represents the weighted average number of
shares and share equivalents outstanding for each year. |
Item 7. Managements 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. We currently operate in the following regions:
|
|
|
Washington:
|
|
Washington, D.C. metropolitan area and adjacent counties in Maryland, Virginia and West Virginia |
|
Baltimore:
|
|
Baltimore, MD metropolitan area and adjacent counties in Pennsylvania |
|
North:
|
|
Delaware, Kentucky, Maryland Eastern Shore, Michigan, New Jersey, New York, Ohio and Pennsylvania |
|
South:
|
|
North Carolina, South Carolina, Tennessee and Richmond, VA |
12
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 developers 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 Segment
The following tables summarizes homebuilding settlements, new orders and backlog activity
by region for each of the last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Settlements: |
|
|
|
|
|
|
|
|
|
|
|
|
Washington |
|
|
3,663 |
|
|
|
3,523 |
|
|
|
3,414 |
|
Baltimore |
|
|
1,551 |
|
|
|
1,587 |
|
|
|
1,624 |
|
North |
|
|
5,744 |
|
|
|
5,211 |
|
|
|
4,579 |
|
South |
|
|
2,829 |
|
|
|
2,428 |
|
|
|
2,433 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
13,787 |
|
|
|
12,749 |
|
|
|
12,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average settlement price |
|
$ |
374.9 |
|
|
$ |
332.2 |
|
|
$ |
297.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders: |
|
|
|
|
|
|
|
|
|
|
|
|
Washington |
|
|
3,859 |
|
|
|
3,812 |
|
|
|
3,407 |
|
Baltimore |
|
|
1,808 |
|
|
|
1,446 |
|
|
|
1,719 |
|
North |
|
|
6,062 |
|
|
|
5,335 |
|
|
|
4,965 |
|
South |
|
|
2,924 |
|
|
|
2,638 |
|
|
|
2,492 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
14,653 |
|
|
|
13,231 |
|
|
|
12,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average new order price |
|
$ |
404.6 |
|
|
$ |
364.1 |
|
|
$ |
313.9 |
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Backlog: |
|
|
|
|
|
|
|
|
|
|
|
|
Washington |
|
|
2,749 |
|
|
|
2,553 |
|
|
|
2,227 |
|
Baltimore |
|
|
1,073 |
|
|
|
816 |
|
|
|
1,038 |
|
North |
|
|
3,067 |
|
|
|
2,749 |
|
|
|
2,581 |
|
South |
|
|
1,421 |
|
|
|
1,254 |
|
|
|
1,044 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8,310 |
|
|
|
7,372 |
|
|
|
6,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average backlog price |
|
$ |
442.0 |
|
|
$ |
394.2 |
|
|
$ |
337.3 |
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the results of operations for each of the last three
years for our homebuilding segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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 companys 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
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.
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 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.
14
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. Increases year over year in new orders
in the Washington, North and South regions were offset partially 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.
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.
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.
15
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.
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 segments 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 segments 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 NVRs
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
16
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 segments 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 registrants 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.
17
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 NVRs 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.
NVRs 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 NVRMs 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. NVRMs 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.
18
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.
19
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.
20
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 |
|
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Payments include interest payments due on the 5% Senior Notes due 2010. See Note 6 of the
Notes to Consolidated Financial Statements for additional information regarding debt and
related matters. |
|
(b) |
|
The present value of these obligations is included on the Consolidated Balance Sheets. See
Note 6 of the Notes to the Consolidated Financial Statements for additional information
regarding capital lease obligations. |
|
(c) |
|
See Note 10 of the Notes to Consolidated Financial Statements for additional information
regarding operating leases. |
|
(d)(*) |
|
Amounts represent required payments of forfeitable deposits with land developers under
existing, fixed price purchase agreements, assuming that contractual development milestones
are met by the developers. We expect to make all payments of these deposits within the next
three years but due to the nature of the contractual development milestones that must be met,
we are unable to accurately estimate the portion of the deposit obligation that will be made
within one year and that portion that will be made within one to three years. In addition to
the $214,000 to be paid pursuant to the prior discussion, as of December 31, 2005, we had
capitalized forfeitable deposits for fixed price purchase agreements with developers totaling
$599,530, and outstanding letters of credit of approximately $17,000. |
|
(e) |
|
We have entered into employment agreements with four of our executive officers. Each of the
agreements expires on January 1, 2011 and provides for payment of a minimum base salary, which
may be increased at the discretion of the Compensation Committee of NVRs Board of Directors
(the Compensation Committee), and annual incentive compensation of up to 100% of base salary
upon achievement of annual performance objectives established by the Compensation Committee.
The agreements also provide for payment of severance benefits upon termination of employment,
in amounts ranging from $0 to two times the executive officers then annual base salary,
depending on the reason for termination, plus up to $60 in outplacement assistance.
Accordingly, total payments under these agreements will vary based on length of service, any
future increases to base salaries, annual incentive payments earned, and the reason for
termination. The agreements have been reflected in the above table assuming the continued
employment of the executive officers for the full term of the respective agreements, and at
the executive officers current base salaries. The above balances do not include any
potential annual incentive compensation. The actual amounts paid could differ from that
presented. |
|
(f) |
|
Amounts represent payments due under incentive compensation plans and are included on the
Consolidated Balance Sheets, $3,730 of which is recorded in the Mortgage Banking accounts
payable and other liabilities line item. |
21
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 entitys expected losses, receives a majority of the entitys expected residual returns,
or both, as a result of ownership, contractual, or other financial interests in the entity.
Expected losses are the expected negative variability in the fair value of an entitys net assets
exclusive of its variable interests, and expected residual returns are the expected positive
variability in the fair value of an entitys net assets, exclusive of its variable interests.
Forward contracts, such as the fixed price purchase agreements utilized by us to acquire
finished lot inventory, are deemed to be variable interests under FIN 46R. Therefore, the
development entities with which we enter fixed price purchase agreements are examined under FIN 46R
for possible consolidation by us, including certain joint venture limited liability corporations
(LLCs) utilized by us to acquire finished lots on a limited basis. We have developed a
methodology to determine whether we, or, conversely, the owner(s) of the applicable development
entity, are the primary beneficiary of a development entity. The methodology used to evaluate our
primary beneficiary status requires substantial management judgment and estimates. These judgments
and estimates involve assigning probabilities to various estimated cash flow possibilities relative
to the development entitys expected profits and losses and the cash flows associated with changes
in the fair value of finished lots under contract. Although we believe that our accounting policy
is designed to properly assess our primary beneficiary status relative to our involvement with the
development entities from which we acquire finished lots, changes to the probabilities and the cash
flow possibilities used in our evaluation could produce widely different conclusions regarding
whether we are or are not a development entitys primary beneficiary, possibly resulting in
additional, or fewer, development entities being consolidated on our financial statements.
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
22
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 managements 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 segments 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.
23
Our homebuilding segment generates operating liquidity and acquires capital assets
through fixed-rate and variable-rate debt. The homebuilding segments 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 NVRs 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.
24
Maturities (000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
|
|
|
|
(a) |
|
Average interest rate is net of credits received for compensating cash balances. |
|
(b) |
|
Represents the fair value recorded pursuant to SFAS 133. |
|
(c) |
|
The $200,353 maturing in 2010 includes $200,000 for NVRs 5% Senior Notes due June 2010. |
25
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 Commissions 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.
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.
Managements 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 managements 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.
Item 9B. Other Information.
None.
26
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
27
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 NVRs
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 NVRs 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 NVRs 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). |
28
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.1*
|
|
Employment Agreement between NVR, Inc. and Dwight C. Schar dated July
1, 2005. Filed as Exhibit 10.1 to NVRs Form 8-K filed on June 29, 2005 and
incorporated herein by reference 2.1 |
|
|
|
10.2*
|
|
Employment Agreement between NVR, Inc. and Paul C. Saville dated July
1, 2005. Filed as Exhibit 10.2 to NVRs 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 NVRs 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 NVRs Form 8-K filed on June 29, 2005 and
incorporated herein by reference. |
|
|
|
10.5*
|
|
Profit Sharing Plan of NVR, Inc. and Affiliated Companies. Filed as
Exhibit 4.1 to NVRs 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 NVRs 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 NVRs 1993 Registration Statement and incorporated herein by reference. |
|
|
|
10.9*
|
|
NVR, Inc. Management Equity Incentive Plan. Filed as Exhibit 10.2 to
NVRs 1993 Registration Statement and incorporated herein by reference. |
|
|
|
10.10*
|
|
Employee Stock Ownership Plan of NVR, Inc. Incorporated by reference to NVRs
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 NVRs
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
NVRs 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
NVRs 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 NVRs 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
NVRs 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
NVRs Registration Statement on Form S-8 (No. 333-04989) filed May 31, 1996 and
incorporated herein by reference. |
29
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.17*
|
|
NVR, Inc. 2000 Broadly-Based Stock Option Plan. Filed as Exhibit 99.1 to NVRs
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 herewith. |
|
|
|
10.19*
|
|
The Form of Non-Qualified Stock Option Agreement under the 2005 Stock Option
Plan. Filed herewith. |
|
|
|
10.20*
|
|
NVR, Inc. High Performance Compensation Plan dated as of January 1, 1996. Filed
as Exhibit 10.30 to NVRs Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference. |
|
|
|
10.21*
|
|
NVR, Inc. High Performance Compensation Plan No. 2 dated as of January 1, 1999.
Filed as Exhibit 10.31 to NVRs 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
NVRs 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 NVRs 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 NVRs 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 NVRs 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 NVRs 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 NVRs 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 NVRs 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 NVRs Current Report on Form 8-K filed August 27, 2004
and incorporated herein by reference. |
30
|
|
|
Exhibit |
|
|
Number |
|
Description |
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 NVRs 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 NVRs Form 8-K filed December 12, 2005 and incorporated herein by
reference. |
|
|
|
10.33*
|
|
Description of the Board of Directors compensation arrangement. Filed as
Exhibit 10.27 to NVRs 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 herewith. |
|
|
|
21
|
|
NVR, Inc. Subsidiaries. Filed herewith. |
|
|
|
23
|
|
Consent of KPMG LLP (Independent Registered Public Accounting Firm). Filed herewith. |
|
|
|
31.1
|
|
Certification of NVRs Chief Executive Officer pursuant to Rule 13a-14(a). Filed herewith. |
|
|
|
31.2
|
|
Certification of NVRs Chief Financial Officer pursuant to Rule 13a-14(a). Filed herewith. |
|
|
|
32
|
|
Certification of NVRs 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. |
|
|
|
* |
|
Exhibit is a management contract or compensatory plan or arrangement. |
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NVR, Inc.
|
|
|
|
|
|
|
By: /s/ Paul C. Saville
|
|
|
|
|
|
|
|
|
|
Paul C. Saville |
|
|
|
|
Chief Executive Officer and President |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
/s/ Dwight C. Schar
|
|
Executive Chairman
|
|
February 23, 2006
|
|
|
|
|
|
|
|
|
|
Dwight C. Schar |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ C. Scott Bartlett, Jr.
|
|
Director
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
C. Scott Bartlett, Jr. |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert C. Butler
|
|
Director
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
Robert C. Butler |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Timothy M. Donahue
|
|
Director
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
Timothy M. Donahue |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Manuel H. Johnson
|
|
Director
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
Manuel H. Johnson |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ William A. Moran
|
|
Director
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
William A. Moran |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ David A. Preiser
|
|
Director
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
David A. Preiser |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ George E. Slye
|
|
Director
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
George E. Slye |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ John M. Toups
|
|
Director
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
John M. Toups |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Paul C. Saville
|
|
Principal Executive Officer
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
Paul C. Saville |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Dennis M. Seremet
|
|
Principal Financial Officer
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
Dennis M. Seremet |
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert W. Henley
|
|
Principal Accounting Officer
|
|
February 23, 2006 |
|
|
|
|
|
|
|
|
|
Robert W. Henley |
|
|
|
|
|
|
32
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 Companys 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
ControlIntegrated 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
managements assessment of, and the effective operation of, internal control over financial
reporting.
KPMG LLP
McLean, Virginia
February 23, 2006
33
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
NVR, Inc.:
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, included in Item 9A to the Companys 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 ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Companys 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 managements assessment and an opinion on the
effectiveness of the Companys 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 managements 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 companys 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
companys 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 companys 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, managements 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 ControlIntegrated 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
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
34
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
35
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.
36
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.
37
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 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
38
NVR, Inc.
Consolidated Statements of Shareholders Equity
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
Deferred |
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Retained |
|
|
Treasury |
|
|
Compensation |
|
|
Compensation |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Stock |
|
|
Trust |
|
|
Liability |
|
|
Total |
|
Balance, December 31, 2002 |
|
$ |
206 |
|
|
$ |
262,867 |
|
|
$ |
968,074 |
|
|
$ |
(827,902 |
) |
|
$ |
(35,647 |
) |
|
$ |
35,647 |
|
|
$ |
403,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
419,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419,791 |
|
Deferred compensation
activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,490 |
|
|
|
(29,078 |
) |
|
|
29,078 |
|
|
|
12,490 |
|
Purchase of common stock
for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(460,391 |
) |
|
|
|
|
|
|
|
|
|
|
(460,391 |
) |
Performance share activity |
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
Tax benefit from stock options
exercised and deferred
compensation distributions |
|
|
|
|
|
|
110,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,171 |
|
Stock option activity |
|
|
|
|
|
|
9,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,483 |
|
Treasury stock issued
upon option exercise |
|
|
|
|
|
|
(47,254 |
) |
|
|
|
|
|
|
47,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 |
|
|
206 |
|
|
|
335,346 |
|
|
|
1,387,865 |
|
|
|
(1,228,549 |
) |
|
|
(64,725 |
) |
|
|
64,725 |
|
|
|
494,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
523,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523,204 |
|
Deferred compensation
activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,490 |
|
|
|
(11,641 |
) |
|
|
11,641 |
|
|
|
12,490 |
|
Purchase of common stock
for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(307,603 |
) |
|
|
|
|
|
|
|
|
|
|
(307,603 |
) |
Performance share activity |
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79 |
|
Tax benefit from stock options
exercised and deferred
compensation distributions |
|
|
|
|
|
|
92,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,661 |
|
Stock option activity |
|
|
|
|
|
|
19,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,296 |
|
Treasury stock issued
upon option exercise |
|
|
|
|
|
|
(40,677 |
) |
|
|
|
|
|
|
40,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 |
|
|
206 |
|
|
|
406,705 |
|
|
|
1,911,069 |
|
|
|
(1,482,985 |
) |
|
|
(76,366 |
) |
|
|
76,366 |
|
|
|
834,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
697,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
697,559 |
|
Deferred compensation
activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
(63 |
) |
|
|
|
|
Purchase of common stock
for treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(962,609 |
) |
|
|
|
|
|
|
|
|
|
|
(962,609 |
) |
Tax benefit from stock options
exercised and deferred
compensation distributions |
|
|
|
|
|
|
94,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,460 |
|
Stock option activity |
|
|
|
|
|
|
12,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,757 |
|
Treasury stock issued
upon option exercise |
|
|
|
|
|
|
(40,036 |
) |
|
|
|
|
|
|
40,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
$ |
206 |
|
|
$ |
473,886 |
|
|
$ |
2,608,628 |
|
|
$ |
(2,405,558 |
) |
|
$ |
(76,303 |
) |
|
$ |
76,303 |
|
|
$ |
677,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
39
NVR, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2005 |
|
|
December 31, 2004 |
|
|
December 31, 2003 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
697,559 |
|
|
$ |
523,204 |
|
|
$ |
419,791 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
10,690 |
|
|
|
8,858 |
|
|
|
8,427 |
|
Loss from extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
8,503 |
|
Gain on sales of loans |
|
|
(62,279 |
) |
|
|
(52,858 |
) |
|
|
(59,095 |
) |
Gain on sale of fixed assets |
|
|
(595 |
) |
|
|
|
|
|
|
|
|
Deferred tax (benefit) expense |
|
|
(24,374 |
) |
|
|
1,249 |
|
|
|
(3,429 |
) |
Mortgage loans closed |
|
|
(2,186,723 |
) |
|
|
(1,961,867 |
) |
|
|
(1,982,900 |
) |
Proceeds from sales of mortgage loans |
|
|
2,176,475 |
|
|
|
1,962,184 |
|
|
|
2,096,782 |
|
Principal payments on mortgage loans held for sale |
|
|
17,089 |
|
|
|
12,534 |
|
|
|
8,333 |
|
Gain on sales of mortgage servicing rights |
|
|
|
|
|
|
|
|
|
|
(14 |
) |
Net change in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in inventories |
|
|
(201,622 |
) |
|
|
(64,767 |
) |
|
|
(87,099 |
) |
Increase in contract land deposits |
|
|
(195,552 |
) |
|
|
(118,680 |
) |
|
|
(53,939 |
) |
Increase in receivables |
|
|
(26,578 |
) |
|
|
(2,524 |
) |
|
|
(2,198 |
) |
Increase in accounts payable, accrued expenses
and customer deposits |
|
|
337,882 |
|
|
|
169,690 |
|
|
|
219,914 |
|
Increase in obligations under incentive plans |
|
|
2,781 |
|
|
|
2,300 |
|
|
|
590 |
|
Other, net |
|
|
(11,981 |
) |
|
|
(2,861 |
) |
|
|
(12,548 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
532,772 |
|
|
|
476,462 |
|
|
|
561,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(18,670 |
) |
|
|
(9,761 |
) |
|
|
(9,456 |
) |
Proceeds from sales of mortgage servicing rights |
|
|
|
|
|
|
25 |
|
|
|
11,850 |
|
Proceeds from the sale of property, plant and equipment |
|
|
4,038 |
|
|
|
783 |
|
|
|
610 |
|
Acquisition, net of cash acquired |
|
|
(7,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by investing activities |
|
|
(22,097 |
) |
|
|
(8,953 |
) |
|
|
3,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Extinguishment of 8% Senior Notes due 2005 |
|
|
|
|
|
|
|
|
|
|
(119,600 |
) |
Issuance of 5% Senior Notes due 2010 |
|
|
|
|
|
|
|
|
|
|
200,000 |
|
Purchase of treasury stock |
|
|
(962,609 |
) |
|
|
(307,603 |
) |
|
|
(460,391 |
) |
Purchase of NVR common stock for deferred
compensation plan |
|
|
|
|
|
|
|
|
|
|
(17,939 |
) |
Net borrowings (repayments) under notes
payable and credit lines |
|
|
249,338 |
|
|
|
(44,056 |
) |
|
|
(86,301 |
) |
Exercise of stock options |
|
|
12,757 |
|
|
|
19,296 |
|
|
|
9,483 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(700,514 |
) |
|
|
(332,363 |
) |
|
|
(474,748 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(189,839 |
) |
|
|
135,146 |
|
|
|
89,374 |
|
Cash and cash equivalents, beginning of year |
|
|
367,365 |
|
|
|
232,219 |
|
|
|
142,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
177,526 |
|
|
$ |
367,365 |
|
|
$ |
232,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid during the year |
|
$ |
13,634 |
|
|
$ |
12,490 |
|
|
$ |
13,715 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid during the year, net of refunds |
|
$ |
294,325 |
|
|
$ |
275,563 |
|
|
$ |
162,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
not owned, consolidated per FIN 46R |
|
$ |
33,666 |
|
|
$ |
25,620 |
|
|
$ |
736 |
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock-based compensation activity |
|
$ |
94,460 |
|
|
$ |
92,661 |
|
|
$ |
110,171 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
40
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of NVR,
Inc. (NVR or the Company), its wholly owned subsidiaries, certain partially owned
entities, and variable interest entities of which the Company has determined that it is
the primary beneficiary. All significant intercompany transactions have been eliminated
in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments with original
maturities of three months or less. The homebuilding and mortgage banking segments had
restricted cash of $5,135 and $1,738, respectively, at
December 31, 2005, and $2,123
and $965, respectively, at December 31, 2004, which includes certain customer deposits,
mortgagor tax escrows, insurance escrows, completion escrows and other amounts collected
at closing which relate to mortgage loans held for sale and to home sales.
Homebuilding Inventory
Inventory is stated at the lower of cost or market value. Cost of lots and
completed and uncompleted housing units represent the accumulated
actual cost thereof. Field construction supervisors salaries and related direct
overhead expenses are included in inventory costs. Interest costs are not capitalized
into inventory. Upon settlement, the cost of the units is expensed on a specific
identification basis. Cost of manufacturing materials is determined on a first-in,
first-out basis. Recoverability and impairment, if any, is primarily evaluated by
analyzing sales of comparable assets.
Contract Land Deposits
NVR purchases finished lots under fixed price purchase agreements that require
deposits that may be forfeited if NVR fails to perform under the contract. The deposits
are in the form of cash or letters of credit in varying amounts and represent a
percentage of the purchase price of the finished lots. NVR maintains an allowance for
losses on contract land deposits that it believes is sufficient to provide for losses in
the existing contract land deposit portfolio. The allowance reflects managements
judgment of the present loss exposure at the end of the reporting period, considering
market and economic conditions, sales absorption and profitability within specific
communities and terms of the various contracts.
41
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation is based on the estimated useful lives of the assets using
the straight-line method. Amortization of capital lease assets is included in depreciation
expense. Model home furniture and fixtures are generally depreciated over a two-year period,
office facilities and other equipment are depreciated over a period from three to ten years,
manufacturing facilities are depreciated over periods of from five to forty years and
property under capital leases is depreciated in a manner consistent with the Companys
depreciation policy for owned assets.
Warranty/Product Liability Accruals
Warranty and product liability accruals are established to provide for
estimated future expenses as a result of construction and product defects, product
recalls and litigation incidental to NVRs business. Liability estimates are determined
based on management 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.
Intangible Assets
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, requires goodwill, indefinite life intangibles, and reorganization
value in excess of amounts allocable to identifiable assets (excess reorganization
value), which is no longer subject to amortization, to be tested for impairment on an
annual basis. The Company completed the annual assessment of impairment and determined
that there is no impairment of either goodwill, indefinite life intangibles, or excess
reorganization value in the years ended December 31, 2005, 2004 and 2003.
Mortgage Loans Held for Sale, Derivatives and Hedging Activities
NVR originates several different loan products to its customers to finance the
purchase of a home through its wholly-owned mortgage subsidiary. Those loan products include
previously non-traditional loan
products, such as interest-only loans, adjustable interest rate loans, negative amortization
loans and loans with relatively high loan-to-value (LTV) ratios, with up to a one hundred
percent LTV. NVR sells all of the loans it originates into the secondary market typically
within 30 days from origination. All of the loans that the Company originates, including
non-traditional loan products, are underwritten to the standards and specifications of the
ultimate investor. In addition, a substantial number of these nontraditional loans are
underwritten and funded at closing directly by the ultimate investor. Insofar as the Company
underwrites its originated loans to those standards, the Company bears no increased
concentration of credit risk from the issuance of these non-traditional products. The
Company employs a quality control department to ensure that its underwriting controls are
effectively operating, and further assesses the underwriting function as part of its
assessment of internal controls over financial reporting.
Mortgage loans held for sale are closed at fair value, and thereafter are carried at the
lower of cost or market.
In the normal course of business, NVRs 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 NVR.
42
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
All mortgagors are evaluated for credit worthiness
prior to the extension of the commitment. Market risk arises if interest rates move
adversely between the time of the lock-in of rates by the borrower and the sale date of the
loan to a broker/dealer. To mitigate the effect of the interest rate risk inherent
in providing rate lock commitments to borrowers, the Company enters into optional or
mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities
to broker/dealers. The forward sale contracts lock in an interest rate and price for the
sale of loans similar to the specific rate lock commitments 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. NVR does
not engage in speculative or trading derivative activities. 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.
Earnings per Share
The following weighted average shares and share equivalents are used to calculate
basic and diluted EPS for the years ended December 31, 2005, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
Year Ended |
|
|
December 31, 2005 |
|
December 31, 2004 |
|
December 31, 2003 |
Weighted average number of
shares outstanding used to
calculate basic EPS |
|
|
6,320,852 |
|
|
|
6,472,607 |
|
|
|
7,081,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
1,463,530 |
|
|
|
1,404,262 |
|
|
|
1,592,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares and share equivalents
outstanding used to calculate
diluted EPS |
|
|
7,784,382 |
|
|
|
7,876,869 |
|
|
|
8,674,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued under equity benefit plans to purchase 4,250; 37,827; and 60,200 shares of common stock were outstanding during the years ended December 31, 2005, 2004
and 2003, respectively, but were not included in the computation of diluted earnings per
share because the effect would have been anti-dilutive. In addition, the 386,975 options
outstanding under the 2005 Stock Option Plan and 7,700 options outstanding under the 1998
Directors Long-Term Stock Option Plan are considered performance-based compensation, and
accordingly, have been excluded from the computation of diluted earnings per share
because the EPS Target, as discussed in Note 9, has not been achieved as of December 31,
2005, pursuant to the requirements of SFAS 128, Earnings Per Share.
Revenues-Homebuilding Operations
NVR builds single-family detached homes, townhomes and condominium buildings,
which generally are produced on a pre-sold basis
for the ultimate customer. Revenues are recognized at the time units are completed
and title and risk of loss passes to the customer.
Mortgage Banking Fees
Mortgage banking fees include income earned by NVRs mortgage banking
subsidiaries for originating mortgage loans, servicing mortgage loans held on an interim
basis, title fees, gains and losses on the sale of mortgage loans and mortgage servicing
and other activities incidental to mortgage banking. Mortgage banking fees are generally
recognized after the loan has been sold to an unaffiliated, third party investor.
43
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on
the deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Financial Instruments
Except as otherwise noted here, NVR believes that insignificant differences
exist between the carrying value and the fair value of its financial instruments. The
estimated fair value of NVRs 5% Senior Notes due 2010 as of December 31, 2005 and 2004
was $196,340 and $196,820, respectively. The estimated fair value is based on a quoted
market price. The carrying value was $200,000 at December 31, 2005 and 2004.
Stock-Based Compensation
At December 31, 2005, the Company had eight active stock-based employee compensation
plans. As permitted under SFAS No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure, an amendment of FASB Statement No. 123, NVR has elected to
continue to follow the intrinsic value method in accounting for its stock-based employee
compensation arrangements as defined by Accounting Principles Board Opinion (APB) No.
25, Accounting for Stock Issued to Employees, and related interpretations, including
Financial Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB No. 25. See the
Recent Accounting Pronouncements section below for a discussion of the Companys
anticipated adoption as of January 1, 2006 of the provisions of SFAS 123R.
During 2005, the Company issued 387,875 non-qualified stock options (Options)
under the 2005 Stock Option Plan (the 2005 Plan) at an average exercise price of
$743.39 per share. The 2005 Plan was approved by the Companys shareholders at the May
4, 2005 Annual Meeting and allows the Company to issue Options to employees, including
executive officers, to purchase up to 500,000 shares of the Companys common stock. The
exercise price of the Options granted was equal to the closing price of the Companys
common stock on the day immediately preceding the date of grant. Each Option was granted
for a term of ten years. No Option granted under the 2005 Plan will become exercisable
(other than in the case of a change in control as defined within the 2005 Plan) unless a
performance target based on growth in diluted earnings per share is met or exceeded (the
EPS Target). The EPS Target has been set at a level that reflects a growth rate in
diluted earnings per share of ten percent per year for four years, based on NVRs 2004
diluted earnings per share of $66.42. The aggregate EPS Target is $339.00 per share, the
measurement of which is based on the sum of the actual diluted earnings per share results
for the four annual periods ending December 31, 2005 through 2008. If the EPS Target is
satisfied, Options granted under the 2005 Plan will become exercisable as to twenty-five
percent of the underlying shares on each of December 31, 2010, 2011, 2012 and 2013,
(Vesting Tranches) respectively, or later, depending upon date of grant, based on
continued employment. In addition, during the year ended December 31, 2005, the Company
granted 7,700 non-qualified stock options (Director Options) at an average exercise
price of $907.75 per share to the Companys Directors under the
44
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
1998 Directors Long Term
Stock Option Plan (the 1998 Directors Plan). The Director Options are subject to the
aforementioned EPS Target.
Because the Options granted under the 2005 Plan and the 2005 Option grants under the
1998 Directors Plan are subject to a performance measure (the EPS Target), in accordance
with APB No. 25, these grants are considered variable awards. Compensation expense for
these variable award grants is measured based on the number of Options issued, using the
intrinsic value of the Options as of the end of the reporting period, and the cost is
recognized ratably over each Vesting Tranche separately. Based on the $702.00 per share
closing price of NVR common stock at December 31, 2005, there was no intrinsic value
related to the options granted under the 2005 Plan or the 1998 Directors Plan, and thus,
no compensation expense was recognized.
In accordance with SFAS No. 148, the following table discloses the effect on
net income and earnings per share as if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net income, as reported |
|
$ |
697,559 |
|
|
$ |
523,204 |
|
|
$ |
419,791 |
|
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards,
net of related tax effects |
|
|
(31,893 |
) |
|
|
(23,411 |
) |
|
|
(20,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
665,666 |
|
|
$ |
499,793 |
|
|
$ |
398,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basicas reported |
|
$ |
110.36 |
|
|
$ |
80.83 |
|
|
$ |
59.28 |
|
|
|
|
|
|
|
|
|
|
|
Basicpro forma |
|
$ |
105.31 |
|
|
$ |
77.22 |
|
|
$ |
56.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutedas reported |
|
$ |
89.61 |
|
|
$ |
66.42 |
|
|
$ |
48.39 |
|
|
|
|
|
|
|
|
|
|
|
Dilutedpro forma |
|
$ |
86.67 |
|
|
$ |
64.44 |
|
|
$ |
47.06 |
|
|
|
|
|
|
|
|
|
|
|
The weighted average per share fair values of grants made in 2005, 2004 and
2003 for employee stock-based incentive plans were $370.03, $289.81 and $245.54,
respectively. The fair values of the options granted were estimated on the grant date
using the Black-Scholes option-pricing model based on the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
Estimated option life |
|
8.82 years |
|
10 years |
|
10 years |
Risk free interest rate |
|
|
3.84 |
% |
|
|
4.68 |
% |
|
|
4.61 |
% |
Expected volatility (a) |
|
|
34.15 |
% |
|
|
39.06 |
% |
|
|
40.55 |
% |
Expected dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
(a) |
|
The 2005 volatility is based on implied volatility. The 2004 and 2003
volatility is based on historical volatility. |
Comprehensive Income
For the years ended December 31, 2005, 2004 and 2003, comprehensive income equaled
net income; therefore, a separate statement of comprehensive income is not included in
the accompanying financial statements.
45
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 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 registrants 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 NVR
beginning in the first quarter of 2006. We plan to adopt SFAS 123R using the modified
prospective method. We expect our full year after tax expense in 2006 to be approximately
$36,000 related to the implementation of SFAS 123R, based on unvested stock options
outstanding at December 31, 2005.
2. Segment Information, Nature of Operations, and Certain Concentrations
NVR operates in two business segments: homebuilding and mortgage banking. The
homebuilding segment is one of the largest homebuilders in the United States and in the
Washington, D.C. and Baltimore, MD metropolitan areas, where NVR derived approximately 52% of
its 2005 homebuilding revenues. NVRs homebuilding segment primarily constructs and sells
single-family detached homes, townhomes and condominium buildings under four tradenames: 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 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. The Rymarc Homes product is sold solely in the Columbia,
SC metropolitan area. The NVHomes product is sold in the Washington, D.C., Baltimore, MD,
Philadelphia, PA and Maryland Eastern Shore metropolitan areas, and is marketed primarily to
move-up and up-scale buyers.
The mortgage banking segment is a regional mortgage banking operation. Substantially all of
the mortgage banking segments loan closing activity is for NVRs homebuilding customers. NVRs
mortgage banking business generates revenues primarily from origination fees, gains on sales of
loans, title fees, and sales of servicing rights. A substantial portion of the Companys mortgage
operations is conducted in the Washington, D.C. and Baltimore, MD metropolitan areas.
46
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Corporate general and administrative expenses are fully allocated on relative usage basis
to the homebuilding and mortgage banking segments in the information presented below.
As of and For the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Revenues |
|
$ |
5,177,743 |
|
|
$ |
84,604 |
|
|
$ |
5,262,347 |
(a) |
Interest income |
|
|
2,471 |
|
|
|
5,014 |
|
|
|
7,485 |
(a) |
Interest expense |
|
|
13,809 |
|
|
|
1,759 |
|
|
|
15,568 |
(a) |
Depreciation and amortization |
|
|
10,137 |
|
|
|
553 |
|
|
|
10,690 |
(a) |
Segment profit |
|
|
1,086,805 |
|
|
|
57,739 |
|
|
|
1,144,544 |
(b) |
Segment assets |
|
|
1,727,734 |
|
|
|
205,560 |
|
|
|
1,933,294 |
(b) |
Expenditures for segment assets |
|
|
18,222 |
|
|
|
448 |
|
|
|
18,670 |
(a) |
|
|
|
(a) |
|
Total amounts for the reportable segments equal the respective amounts for the
consolidated enterprise. |
|
(b) |
|
The following reconciles segment profit and segment assets to the respective amounts for
the consolidated enterprise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Segment profit |
|
$ |
1,086,805 |
|
|
$ |
57,739 |
|
|
$ |
1,144,544 |
|
Less: Amortization of definite life
intangibles |
|
|
(125 |
) |
|
|
|
|
|
|
(125 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated income before taxes |
|
$ |
1,086,680 |
|
|
$ |
57,739 |
|
|
$ |
1,144,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
1,727,734 |
|
|
$ |
205,560 |
|
|
$ |
1,933,294 |
|
Add: Excess reorganization value,
goodwill and intangibles, net |
|
|
53,641 |
|
|
|
7,347 |
|
|
|
60,988 |
|
Add: Assets not owned, consolidated
per FIN 46R |
|
|
275,306 |
|
|
|
|
|
|
|
275,306 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
2,056,681 |
|
|
$ |
212,907 |
|
|
$ |
2,269,588 |
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Revenues |
|
$ |
4,247,503 |
|
|
$ |
72,219 |
|
|
$ |
4,319,722 |
(c) |
Interest income |
|
|
1,151 |
|
|
|
4,249 |
|
|
|
5,400 |
(c) |
Interest expense |
|
|
11,934 |
|
|
|
1,088 |
|
|
|
13,022 |
(c) |
Depreciation and amortization |
|
|
8,391 |
|
|
|
467 |
|
|
|
8,858 |
(c) |
Segment profit |
|
|
821,143 |
|
|
|
50,862 |
|
|
|
872,005 |
(c) |
Segment assets |
|
|
1,485,085 |
|
|
|
147,652 |
|
|
|
1,632,737 |
(d) |
Expenditures for segment assets |
|
|
9,248 |
|
|
|
513 |
|
|
|
9,761 |
(c) |
|
|
|
(c) |
|
Total amounts for the reportable segments equal the respective amounts for the consolidated
enterprise. |
|
(d) |
|
The following reconciles segment assets to the respective amounts for the consolidated
enterprise: |
47
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Segment assets |
|
$ |
1,485,085 |
|
|
$ |
147,652 |
|
|
$ |
1,632,737 |
|
Add: Excess reorganization value
and goodwill |
|
|
47,959 |
|
|
|
7,347 |
|
|
|
55,306 |
|
Add: Assets not owned, consolidated
per FIN 46R |
|
|
89,924 |
|
|
|
|
|
|
|
89,924 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
1,622,968 |
|
|
$ |
154,999 |
|
|
$ |
1,777,967 |
|
|
|
|
|
|
|
|
|
|
|
As of and For the Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Revenues |
|
$ |
3,600,917 |
|
|
$ |
76,647 |
|
|
$ |
3,677,564 |
(e) |
Interest income |
|
|
746 |
|
|
|
5,198 |
|
|
|
5,944 |
(e) |
Interest expense |
|
|
13,554 |
|
|
|
1,293 |
|
|
|
14,847 |
(e) |
Depreciation and amortization |
|
|
7,940 |
|
|
|
487 |
|
|
|
8,427 |
(e) |
Segment profit |
|
|
646,921 |
|
|
|
57,754 |
|
|
|
704,675 |
(f) |
Segment assets |
|
|
1,188,450 |
|
|
|
106,542 |
|
|
|
1,294,992 |
(f) |
Expenditures for segment assets |
|
|
9,130 |
|
|
|
326 |
|
|
|
9,456 |
(e) |
|
|
|
(e) |
|
Total amounts for the reportable segments equal the respective amounts for the consolidated
enterprise. |
|
(f) |
|
The following reconciles segment profits and segment assets to the respective amounts for
the consolidated enterprise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
|
Mortgage Banking |
|
|
Totals |
|
Segment profit |
|
$ |
646,921 |
|
|
$ |
57,754 |
|
|
$ |
704,675 |
|
Less: Loss from extinguishment
of 8% Senior Notes due 2005 |
|
|
(8,503 |
) |
|
|
|
|
|
|
(8,503 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated income before income
taxes |
|
$ |
638,418 |
|
|
$ |
57,754 |
|
|
$ |
696,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
1,188,450 |
|
|
$ |
106,542 |
|
|
$ |
1,294,992 |
|
Add: Excess reorganization value
and goodwill |
|
|
47,959 |
|
|
|
7,347 |
|
|
|
55,306 |
|
Add: Assets not owned, consolidated
per FIN 46R |
|
|
12,807 |
|
|
|
|
|
|
|
12,807 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
1,249,216 |
|
|
$ |
113,889 |
|
|
$ |
1,363,105 |
|
|
|
|
|
|
|
|
|
|
|
3. Consolidation of Variable Interest Entities
In December 2003, FASB issued Revised Interpretation No. 46 (FIN 46R), Consolidation of
Variable Interest Entities, which was effective for NVR as of March 31, 2004. FIN 46R requires the
primary beneficiary of a variable interest entity to consolidate that entity on its financial
statements. The primary beneficiary of a variable interest entity is the party that absorbs a
majority of the variable interest entitys expected losses, receives a majority of the entitys
expected residual returns, or both, as a result of ownership, contractual, or other financial
interests in the entity. Expected losses are the expected negative variability in the fair
value of an entitys net assets, exclusive of its variable interests, and expected residual returns
are the expected positive variability in the fair value of an entitys net assets, exclusive of its
variable interests. As discussed below, NVR evaluates the provisions of FIN 46R as it relates to
NVRs finished lot acquisition strategy.
NVR does not engage in the land development business. Instead, the Company typically
acquires finished building lots at market prices from various development entities under fixed
price purchase agreements.
48
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The purchase agreements require deposits that may be forfeited if NVR
fails to perform under the agreement. The deposits required under the purchase agreements are in
the form of cash or letters of credit in varying amounts, and typically range up to 10% of the
aggregate purchase price of the finished lots. As of December 31, 2005, the Company controlled
approximately 105,000 lots with deposits in cash and letters of credit totaling approximately
$600,000 and $17,000, respectively. As of December 31, 2004, the Company controlled approximately
83,500 lots with deposits in cash and letters of credit totaling approximately $404,000 and
$13,000, respectively.
This lot acquisition strategy reduces the financial requirements and risks associated with
direct land ownership and land development. NVR may, at its option, choose for any reason and at
any time not to perform under these purchase agreements by delivering notice of its intent not to
acquire the finished lots under contract. NVRs sole legal obligation and economic loss for
failure to perform under these purchase agreements is limited to the amount of the deposit pursuant
to the liquidating damage provisions contained within the purchase agreements. In other words, if
NVR does not perform under a purchase agreement, NVR loses its deposit. NVR does not have any
financial or specific performance guarantees, or completion obligations, under these purchase
agreements, with the exception of three specific performance contracts pursuant to which the
company is committed to purchasing approximately 80 finished lots at an aggregate purchase price of
approximately $7,100. None of the creditors of any of the development entities with which NVR
enters fixed price purchase agreements have recourse to the general credit of NVR. Except as
described below, NVR also does not share in an
allocation of either the profit earned or loss incurred by any of these entities with which NVR
enters fixed price purchase agreements.
On a very limited basis, NVR also obtains finished lots using joint venture limited liability
corporations (LLCs). All LLCs are structured such that NVR is a non-controlling member and is
at risk only for the amount invested. NVR is not a borrower, guarantor or obligor on any of the
LLCs debt. NVR enters into a standard fixed price purchase agreement to purchase lots from these
LLCs.
At December 31, 2005, NVR had an aggregate investment in thirteen separate LLCs totaling
approximately $15,000, which controlled approximately 1,000 lots. At December 31, 2004, NVR had an
aggregate investment in eleven separate LLCs totaling approximately $12,800, which controlled
approximately 950 lots. NVR recognizes its share of the earnings of the LLCs as a reduction of
the cost basis of the lots at the time that the lot and related home is settled with an external
customer. During the years ended December 31, 2005, 2004 and 2003, NVR reduced cost of sales by
approximately $287, $369 and $389, respectively, which represented NVRs share of the earnings of
the LLCs.
Forward contracts, such as the fixed price purchase agreements utilized by NVR to acquire
finished lot inventory, are deemed to be variable interests under FIN 46R. Therefore, the
development entities with which NVR enters fixed price purchase agreements, including the LLCs,
are examined under FIN 46R for possible consolidation by NVR. NVR has developed a methodology to
determine whether it, or conversely, the owner(s) of the applicable development entity is the
primary beneficiary of a development entity. The methodology used to evaluate NVRs primary
beneficiary status requires substantial management judgment and estimation. These judgments and
estimates involve assigning probabilities to various estimated cash flow possibilities relative to
the development entitys expected profits and losses and the cash flows associated with changes in
the fair value of finished lots under contract. Although management believes that its accounting
policy is designed to properly assess NVRs primary beneficiary status relative to its involvement
with the development entities from which NVR acquires finished lots, changes to the probabilities
and the cash flow possibilities used in
NVRs evaluation could produce widely different conclusions regarding whether NVR is or is not a
development entitys primary beneficiary.
The Company has evaluated all of its fixed price purchase agreements and LLC arrangements and
has determined that it is the primary beneficiary of thirty-five of those development entities with
which the
49
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
agreements and arrangements are held. As a result, at December 31, 2005, NVR has
consolidated such development entities in the accompanying consolidated balance sheet. Where NVR
deemed itself to be the primary beneficiary of a development entity created after December 31, 2003
and the development entity refused to provide financial statements, NVR utilized estimation
techniques to perform the consolidation. The effect of the consolidation under FIN 46R at December
31, 2005 was the inclusion on the balance sheet of $275,306 as Assets not owned, consolidated per
FIN 46R with a corresponding inclusion of $215,284 as Liabilities related to assets not owned,
consolidated per FIN 46R, after elimination of intercompany items. Inclusive in these totals were
assets of approximately $39,000 and liabilities of approximately $34,000 estimated for ten
development entities created after December 31, 2003 that did not provide financial statements.
At December 31, 2004, under FIN 46R, the Company evaluated all of its fixed price purchase
agreements and LLC arrangements and determined that it was the primary beneficiary of nineteen of
those development entities with which the agreements and arrangements were held. As a result, at
December 31, 2004, NVR had consolidated such development entities in the accompanying consolidated
balance sheet. Of the nineteen development entities, three entities refused to provide financial
statements, and NVR utilized estimation techniques to perform the consolidation. The effect of the
consolidation under FIN 46R at December 31, 2004 was the inclusion on the balance sheet of $89,924
as Assets not owned, consolidated per FIN 46R with a corresponding inclusion of $63,568 as
Liabilities related to assets not owned, consolidated per FIN 46R, after elimination of
intercompany items. Inclusive in these totals were assets of approximately $16,000 and liabilities
of approximately $12,500 for three development entities created after December 31, 2003 that did
not provide financial statements.
50
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Following is the consolidating schedule at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NVR, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
FIN 46R |
|
|
|
|
|
|
Consolidated |
|
|
|
Subsidiaries |
|
|
Entities |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
170,090 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
170,090 |
|
Receivables |
|
|
40,562 |
|
|
|
|
|
|
|
|
|
|
|
40,562 |
|
Homebuilding inventory |
|
|
793,975 |
|
|
|
|
|
|
|
|
|
|
|
793,975 |
|
Property, plant and equipment, net |
|
|
31,096 |
|
|
|
|
|
|
|
|
|
|
|
31,096 |
|
Reorganization value in excess of amount
allocable to identifiable assets, net |
|
|
41,580 |
|
|
|
|
|
|
|
|
|
|
|
41,580 |
|
Goodwill and intangibles, net |
|
|
12,061 |
|
|
|
|
|
|
|
|
|
|
|
12,061 |
|
Contract land deposits |
|
|
599,530 |
|
|
|
|
|
|
|
(50,370 |
) |
|
|
549,160 |
|
Other assets |
|
|
152,503 |
|
|
|
|
|
|
|
(9,652 |
) |
|
|
142,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,841,397 |
|
|
|
|
|
|
|
(60,022 |
) |
|
|
1,781,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking assets: |
|
|
212,907 |
|
|
|
|
|
|
|
|
|
|
|
212,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 46R Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land under development |
|
|
|
|
|
|
260,676 |
|
|
|
|
|
|
|
260,676 |
|
Other assets |
|
|
|
|
|
|
14,630 |
|
|
|
|
|
|
|
14,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,306 |
|
|
|
|
|
|
|
275,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,054,304 |
|
|
$ |
275,306 |
|
|
$ |
(60,022 |
) |
|
$ |
2,269,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses
and other liabilities |
|
$ |
631,262 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
631,262 |
|
Customer deposits |
|
|
256,837 |
|
|
|
|
|
|
|
|
|
|
|
256,837 |
|
Other term debt |
|
|
3,325 |
|
|
|
|
|
|
|
|
|
|
|
3,325 |
|
Senior notes |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
Notes Payable |
|
|
103,000 |
|
|
|
|
|
|
|
|
|
|
|
103,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,194,424 |
|
|
|
|
|
|
|
|
|
|
|
1,194,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking liabilities: |
|
|
182,718 |
|
|
|
|
|
|
|
|
|
|
|
182,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 46R Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses
and other liabilities |
|
|
|
|
|
|
7,880 |
|
|
|
(53 |
) |
|
|
7,827 |
|
Debt |
|
|
|
|
|
|
153,337 |
|
|
|
|
|
|
|
153,337 |
|
Contract land deposits |
|
|
|
|
|
|
50,370 |
|
|
|
(50,370 |
) |
|
|
|
|
Advances from NVR, Inc. |
|
|
|
|
|
|
8,891 |
|
|
|
(8,891 |
) |
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
54,120 |
|
|
|
54,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,478 |
|
|
|
(5,194 |
) |
|
|
215,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
677,162 |
|
|
|
54,828 |
|
|
|
(54,828 |
) |
|
|
677,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders
equity |
|
$ |
2,054,304 |
|
|
$ |
275,306 |
|
|
$ |
(60,022 |
) |
|
$ |
2,269,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Following is the consolidating schedule at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NVR, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
FIN 46R |
|
|
|
|
|
|
Consolidated |
|
|
|
Subsidiaries |
|
|
Entities |
|
|
Eliminations |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
362,458 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
362,458 |
|
Receivables |
|
|
14,020 |
|
|
|
|
|
|
|
|
|
|
|
14,020 |
|
Homebuilding inventory |
|
|
588,540 |
|
|
|
|
|
|
|
|
|
|
|
588,540 |
|
Property, plant and equipment, net |
|
|
25,330 |
|
|
|
|
|
|
|
|
|
|
|
25,330 |
|
Reorganization value in excess of amount
allocable to identifiable assets, net |
|
|
41,580 |
|
|
|
|
|
|
|
|
|
|
|
41,580 |
|
Goodwill, net |
|
|
6,379 |
|
|
|
|
|
|
|
|
|
|
|
6,379 |
|
Contract land deposits |
|
|
403,848 |
|
|
|
|
|
|
|
(18,889 |
) |
|
|
384,959 |
|
Other assets |
|
|
117,245 |
|
|
|
|
|
|
|
(7,467 |
) |
|
|
109,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,559,400 |
|
|
|
|
|
|
|
(26,356 |
) |
|
|
1,533,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking assets: |
|
|
154,999 |
|
|
|
|
|
|
|
|
|
|
|
154,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 46R Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land under development |
|
|
|
|
|
|
85,380 |
|
|
|
|
|
|
|
85,380 |
|
Other assets |
|
|
|
|
|
|
4,544 |
|
|
|
|
|
|
|
4,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,924 |
|
|
|
|
|
|
|
89,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,714,399 |
|
|
$ |
89,924 |
|
|
$ |
(26,356 |
) |
|
$ |
1,777,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses
and other liabilities |
|
$ |
449,817 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
449,817 |
|
Customer deposits |
|
|
203,835 |
|
|
|
|
|
|
|
|
|
|
|
203,835 |
|
Other term debt |
|
|
4,077 |
|
|
|
|
|
|
|
|
|
|
|
4,077 |
|
Senior notes |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
857,729 |
|
|
|
|
|
|
|
|
|
|
|
857,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking liabilities: |
|
|
21,675 |
|
|
|
|
|
|
|
|
|
|
|
21,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIN 46R Entities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses
and other liabilities |
|
|
|
|
|
|
1,960 |
|
|
|
(131 |
) |
|
|
1,829 |
|
Debt |
|
|
|
|
|
|
45,022 |
|
|
|
|
|
|
|
45,022 |
|
Contract land deposits |
|
|
|
|
|
|
18,889 |
|
|
|
(18,889 |
) |
|
|
|
|
Advances from NVR, Inc. |
|
|
|
|
|
|
6,795 |
|
|
|
(6,795 |
) |
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
16,717 |
|
|
|
16,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,666 |
|
|
|
(9,098 |
) |
|
|
63,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
834,995 |
|
|
|
17,258 |
|
|
|
(17,258 |
) |
|
|
834,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders
equity |
|
$ |
1,714,399 |
|
|
$ |
89,924 |
|
|
$ |
(26,356 |
) |
|
$ |
1,777,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Under FIN 46R, an enterprise with an interest in a variable interest entity or potential
variable interest entity created before December 31, 2003, is not required to apply FIN 46R to that
entity if the enterprise, after making an exhaustive effort, is unable to obtain the information
necessary to perform the accounting required to consolidate the variable interest entity for which
it is determined to be the primary beneficiary. At December 31, 2005 NVR has been unable to obtain
the information necessary to perform the accounting required to consolidate thirteen separate
development entities created before December 31, 2003 for which NVR determined it was the primary
beneficiary. NVR has made, or has committed to make, aggregate deposits, totaling $15,462 to these
thirteen separate development entities, with a total aggregate purchase price for the finished lots
of approximately $121,000. The aggregate deposit made or committed to being made is NVRs maximum
exposure to loss. As noted above, because NVR does not have any contractual or ownership interests
in the development entities with which it contracts to buy finished lots (other than the limited
use of the LLCs as discussed above), NVR does not have the ability to compel these development
entities to provide financial or other data. Because NVR has no ownership rights in any of these
thirteen development entities, the consolidation of such entities has no impact on NVRs net income
or earnings per share for the years ended December 31, 2005, 2004 and 2003. Aggregate activity
with respect to the thirteen development entities is included in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2005 |
|
2004 |
|
2003 |
Finished lots purchased dollars |
|
$ |
25,727 |
|
|
$ |
18,014 |
|
|
$ |
7,225 |
|
Finished lots purchased units |
|
|
299 |
|
|
|
224 |
|
|
|
107 |
|
4. Related Party Transactions
During 2005, 2004, and 2003, NVR purchased, at market prices, developed lots from Elm
Street Development, a company that is controlled by a member of the NVR Board of Directors
(the Board). These transactions were approved by a majority of the independent members of
the Board. Purchases from Elm Street Development totaled approximately $29,000, $8,200 and
$15,000 during 2005, 2004 and 2003, respectively. NVR expects to purchase the majority of the
remaining lots under contract at December 31, 2005 over the next 36 months for an aggregate
purchase price of approximately $104,000.
During 2005, NVR entered into various marketing and promotional arrangements with certain
entities controlled by or affiliated with the Washington Redskins National Football League
franchise (the Redskins). NVRs Chairman is a minority owner of the Redskins. These
arrangements were approved by a majority of the independent members of the Board. In total,
NVR incurred or committed to incur $960 under these marketing and promotional arrangements.
In 2003, NVR entered into a forward lot purchase agreement with Comstock Blooms Mill II,
LLC, an entity controlled 100% by an entity in which the Companys Chairmans son-in-law was a
principal at the time of the transaction. This purchase agreement was approved by a majority
of the independent members of the Board. Under this agreement, NVR purchased, at market
prices, finished lots with an aggregate purchase price of approximately $4,000 and $2,000
during 2004 and 2003, respectively. No additional lots remain to be purchased under this
agreement.
NVR periodically leases, at market rates, an airplane owned by the Companys
Chairman for Company travel when the use of the airplane lends itself to business travel
efficiencies. NVRs independent members of the Board annually review these expenditures.
During 2005, NVR paid approximately $323 for use of the airplane.
53
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
5. Property, Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Homebuilding: |
|
|
|
|
|
|
|
|
Office facilities and other |
|
|
11,416 |
|
|
$ |
7,719 |
|
Model home furniture and fixtures |
|
|
23,385 |
|
|
|
17,150 |
|
Manufacturing facilities |
|
|
21,944 |
|
|
|
18,628 |
|
Property under capital leases |
|
|
4,005 |
|
|
|
7,631 |
|
|
|
|
|
|
|
|
|
|
|
60,750 |
|
|
|
51,128 |
|
Less: accumulated depreciation |
|
|
(29,654 |
) |
|
|
(25,798 |
) |
|
|
|
|
|
|
|
|
|
$ |
31,096 |
|
|
$ |
25,330 |
|
|
|
|
|
|
|
|
Mortgage Banking: |
|
|
|
|
|
|
|
|
Office facilities and other |
|
$ |
3,382 |
|
|
$ |
3,126 |
|
Less: accumulated depreciation |
|
|
(2,379 |
) |
|
|
(2,130 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,003 |
|
|
$ |
996 |
|
|
|
|
|
|
|
|
Certain property, plant and equipment listed above is collateral for certain debt of
NVR as more fully described in Note 6.
6. Debt
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Homebuilding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital revolving credit (a) |
|
$ |
103,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other term debt: |
|
|
|
|
|
|
|
|
Capital lease obligations due
in monthly installments through 2016 (b) |
|
$ |
3,325 |
|
|
$ |
4,077 |
|
|
|
|
|
|
|
|
Senior notes (c) |
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage warehouse revolving credit (d) |
|
$ |
156,816 |
|
|
$ |
9,726 |
|
Mortgage repurchase facility (e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
156,816 |
|
|
$ |
9,726 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Company, as borrower, has available an unsecured working capital revolving credit
facility (the Facility). During 2005, the Company increased the available borrowings under
the Facility to $400,000 from $150,000 by refinancing the Companys previous working capital
agreement. The current Facility now provides for borrowings of up to $400,000 subject to
certain borrowing base limitations. The Facility is generally available to fund working
capital needs of NVRs homebuilding segment. Up to $150,000 of the Facility is currently
available for issuance in the form of letters of credit, of which $26,412 and $21,794 were
outstanding at December 31, 2005 and 2004, respectively. 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 NVRs credit rating and/or debt to capital
ratio or (ii) the London Interbank Offering Rate (LIBOR) plus applicable margin as defined
above. The weighted-average interest rate for the amounts outstanding under the Facility was
5.9% during 2005. The weighted-average interest rate for amounts outstanding under the
previous working capital agreement was 4% during 2004. At December 31, 2005, there were no
borrowing base limitations reducing the amount
available to the Company for borrowings. |
54
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
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 the Company would be able to pay in dividends each
year. The Company is also subject to borrowing base restrictions if the Companys senior debt
rating falls below investment grade. At December 31, 2005 NVR was in compliance with all
covenants under the Facility.
(b) The capital lease obligations have fixed interest rates ranging from 5.1% to 13.0% and are
collateralized by land, buildings and equipment with a net book value of approximately $1,655
and $4,322 at December 31, 2005 and 2004, respectively.
The following schedule provides future minimum lease payments under all capital leases
together with the present value as of December 31, 2005:
|
|
|
|
|
Years ending December 31, |
|
|
2006 |
|
$ |
586 |
|
2007 |
|
|
614 |
|
2008 |
|
|
614 |
|
2009 |
|
|
637 |
|
2010 |
|
|
644 |
|
Thereafter |
|
|
2,658 |
|
|
|
|
|
|
|
|
5,753 |
|
Amount representing interest |
|
|
(2,428 |
) |
|
|
|
|
|
|
$ |
3,325 |
|
|
|
|
|
|
|
|
(c) On January 20, 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission for the issuance of up to $400,000 of the Companys 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. As of December
31, 2005, NVR had $55,000 available for issuance under the 1998 Shelf Registration. |
On June 17, 2003, NVR 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 NVRs existing and future unsecured senior
indebtedness and indebtedness under NVRs existing credit facility. The Notes are senior in
right of payment to any future subordinated indebtedness that NVR may incur. The Company 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, NVR 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.
55
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The indenture governing the Notes has, among other items, limitations on the incurrence
of
secured debt, restrictions on sale and leaseback transactions, and conditions related to
mergers and/or the sale of assets.
On May 27, 2004, NVR filed a shelf registration statement 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 2004 Shelf Registration).
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. As of December 31, 2005, no amounts have been issued under the
2004 Shelf Registration. This discussion of the 2004 Shelf Registration does not constitute
an offer of any securities for sale.
(d) The mortgage warehouse facility (Mortgage Warehouse Revolving Credit) of NVR Mortgage
Finance, Inc. (NVRM) currently has a borrowing limit of $225,000 at December 31, 2005. This
limit was temporarily increased from $175,000 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 its mortgage origination activities. The
interest rate under the Mortgage Warehouse 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 rates for amounts outstanding under the Mortgage Warehouse Revolving
Credit facility were 4.4% and 1.9% during 2005 and 2004, respectively. The average interest
rate for amounts outstanding at December 31, 2005 was 5.5%. Mortgage loans and gestation
mortgage-backed securities collateralize the Mortgage Warehouse Revolving Credit borrowings.
The Mortgage Warehouse Revolving Credit facility is annually renewable and currently expires
in August 2006.
The Mortgage Warehouse Revolving Credit agreement includes, among other items,
covenants restricting NVRM from incurring additional borrowings and making intercompany dividends and tax
payments. In addition, NVRM is required to maintain a minimum net worth of $14,000. As of
December 31, 2005, borrowing base limitations reduced the amount available to NVRM for
borrowings to approximately $184,500. The Company was in compliance with all covenants under the Mortgage Warehouse Revolving Credit agreement at December 31, 2005.
(e) NVRM currently has available an aggregate of $50,000 of borrowing capacity in an
uncommitted gestation and repurchase agreement. Amounts outstanding thereunder accrue
interest at various rates tied to the LIBOR rate and are collateralized by gestation
mortgage-backed securities and whole loans. The uncommitted facility generally requires NVRM
to, among other items, maintain a minimum net worth and limit its level of liabilities in
relation to its net worth. There were no borrowings under the uncommitted facility during
2005 and 2004.
* * * * *
Maturities with respect to all notes payable, revolving and repurchase credit facilities,
other term debt, and the Notes as of December 31, 2005 are as follows:
|
|
|
|
|
Years ending December 31, |
|
|
2006 |
|
$ |
259,977 |
|
2007 |
|
|
214 |
|
2008 |
|
|
245 |
|
2009 |
|
|
302 |
|
2010 |
|
|
200,353 |
|
Thereafter |
|
|
2,050 |
|
|
|
|
|
Total |
|
$ |
463,141 |
|
|
|
|
|
56
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The $259,977 maturing in 2006 includes $156,816 of borrowings under the Mortgage
Warehouse Revolving Credit facility and $103,000 of the borrowings under the working capital
credit facility. The
$200,353 maturing during 2010 includes $200,000 of Senior Notes maturing in June 2010.
7. Common Stock
There were 5,628,158; 6,574,078 and 6,727,341 common shares outstanding at December 31,
2005, 2004 and 2003, respectively. As of December 31, 2005, NVR had reacquired a total of
approximately 19,490,000 shares of NVR common stock at an aggregate cost of approximately
$2,625,300 since December 31, 1993. The Company repurchased 1,269,050; 674,694 and 1,103,968
shares at an aggregate purchase price of approximately $962,609, $307,600 and $460,400 during
2005, 2004 and 2003, respectively.
There have been approximately 4,515,000 common shares reissued from the treasury in
satisfaction of employee benefit obligations and stock option exercises. Beginning in 1999,
the Company issues shares from the treasury for all stock option exercises. The Company
issued 318,199; 464,520 and 757,221 such shares during 2005, 2004 and 2003, respectively.
8. Income Taxes
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2005 |
|
|
December 31, 2004 |
|
|
December 31, 2003 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
386,712 |
|
|
$ |
288,069 |
|
|
$ |
230,477 |
|
State |
|
|
81,288 |
|
|
|
61,503 |
|
|
|
49,333 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(17,669 |
) |
|
|
(632 |
) |
|
|
(2,849 |
) |
State |
|
|
(3,471 |
) |
|
|
(139 |
) |
|
|
(580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
446,860 |
|
|
$ |
348,801 |
|
|
$ |
276,381 |
|
|
|
|
|
|
|
|
|
|
|
In addition to amounts applicable to income before taxes, the following income tax
benefits were recorded in shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2005 |
|
|
December 31, 2004 |
|
|
December 31, 2003 |
|
Income tax benefits arising from
compensation expense for tax
purposes in excess of amounts
recognized for financial
statement purposes |
|
$ |
94,460 |
|
|
$ |
92,661 |
|
|
$ |
110,171 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes on NVRs consolidated balance sheets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Other accrued expenses |
|
$ |
52,384 |
|
|
$ |
36,369 |
|
Deferred compensation |
|
|
30,916 |
|
|
|
30,973 |
|
Uniform capitalization |
|
|
12,377 |
|
|
|
6,896 |
|
Other |
|
|
5,665 |
|
|
|
3,069 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
101,342 |
|
|
|
77,307 |
|
Less: deferred tax liabilities |
|
|
3,322 |
|
|
|
3,661 |
|
|
|
|
|
|
|
|
Net deferred tax position |
|
$ |
98,020 |
|
|
$ |
73,646 |
|
|
|
|
|
|
|
|
57
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Deferred tax assets arise principally as a result of various accruals required for
financial reporting purposes and deferred compensation, which are not currently deductible for
tax return purposes.
Management believes that the Company will have sufficient available carry-backs and
future taxable income to make it more likely than not that the net deferred tax assets will be
realized. Federal taxable income was approximately $877,753 and $605,987 for the years ended
December 31, 2005 and 2004.
A reconciliation of income tax expense in the accompanying statements of income to the
amount computed by applying the statutory Federal income tax rate of 35% to income before
taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2005 |
|
|
December 31, 2004 |
|
|
December 31, 2003 |
|
Income taxes computed at the
Federal statutory rate |
|
$ |
400,547 |
|
|
$ |
305,202 |
|
|
$ |
243,661 |
|
State income taxes, net of Federal
income tax benefit |
|
|
53,501 |
|
|
|
42,521 |
|
|
|
31,690 |
|
Other, net |
|
|
(7,188 |
) |
|
|
1,078 |
|
|
|
1,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
446,860 |
|
|
$ |
348,801 |
|
|
$ |
276,381 |
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate in 2005, 2004 and 2003 was 39.0%, 40.0% and 39.7%,
respectively. The lower effective tax rate in 2005 is 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.
9. Profit Sharing and Incentive Plans
Profit Sharing PlansNVR has a trustee-administered, profit sharing retirement plan (the
Profit Sharing Plan) and an Employee Stock Ownership Plan (ESOP) covering substantially
all employees. The Profit Sharing Plan and the ESOP provide for annual discretionary
contributions in amounts as determined by the NVR Board of Directors (the Board). The
combined plan contribution for the years ended December 31, 2005, 2004 and 2003 was $15,370,
$12,488 and $10,787, respectively. The ESOP purchased approximately 18,000 and 26,000 shares
of NVR common stock in the open market for the 2005 and 2004 plan year contributions,
respectively, using cash contributions provided by the Company. As of December 31, 2005, all
shares held by the ESOP have been allocated to participants accounts other than the 2005 plan
year contribution, which had been committed to be released to participants accounts, and was
fully allocated to participants in February 2006.
High Performance Compensation PlansDuring 2004 and 2003, NVR recognized $4,227 and
$8,948, respectively, of compensation costs related to the High Performance Plan (the HP
Plan), a long-term cash compensation program for executive officers and other key personnel.
The High Performance Plan was fully vested in 2004 and therefore, NVR did not recognize
compensation costs related to the High Performance Plan during 2005.
Management Stock-Based Incentive PlansManagement long-term incentive plans provide
several types of equity incentives to NVRs executives and managers. The equity incentives
take the form of stock options and performance share awards as described below. Stock options
issued under the management long-term incentive plans are issued with an exercise price equal
to the market value of the underlying shares on the date of grant.
Under the Management Incentive Plan approved by the shareholders in 1994, participants
received options to purchase a total of 1,117,949 NVR shares (the 1993 NVR Share Options).
58
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The 1993 NVR Share Options issued under the Management Incentive Plan were fully vested as of
December 31, 1996, and expire 10 years after the dates upon which they were granted.
Under the 1994 Management Incentive Plan (the 1994 Incentive Plan), executive officers
and other employees of the Company were eligible to receive stock options (the 1994 NVR Share
Options)
and performance shares (the 1994 Performance Shares). There were 48,195 1994 NVR Share
Options and 1,124,929 1994 Performance Shares authorized for grant under the 1994 Incentive
Plan. The 1994 NVR Share Options expire 10 years after the dates upon which they were
granted, and were fully vested as of December 31, 1999. All 1,124,929 1994 Performance Shares
had been granted to employees and were vested as of December 31, 1999.
During 1996, the Companys shareholders approved the Board of Directors adoption of the
Management Long-Term Stock Option Plan (the 1996 Option Plan). There are 2,000,000
non-qualified stock options (Options) authorized under the Management Long Term Stock Option
Plan. The Options expire 10 years after the dates upon which they were granted, and vest
annually in one-third increments beginning on December 31, 2000, or later depending on the
date of grant, with vesting contingent upon continued employment.
During 1999, the Companys shareholders approved the Board of Directors adoption of the
1998 Management Long-Term Stock Option Plan (the 1998 Option Plan). There are 1,000,000
non-qualified stock options (Options) authorized under the 1998 Option Plan. The Options
expire 10 years after the dates upon which they were granted, and vest annually in one-third
increments beginning on December 31, 2003, or later depending on the date of grant, with
vesting contingent upon continued employment.
During 2000, the Board approved the 2000 Broadly-Based Stock Option Plan (The 2000
Plan). The 2000 Plan was not approved by the Companys shareholders. There are 2,000,000
non-qualified stock options (Options) authorized under the 2000 Plan. Grants under the 2000
Plan are available to both employees and members of the Board. The distribution of Options to
key employees and members of the board, in aggregate, are limited to 50% or less of the total
options authorized under the 2000 Plan. Options granted under the 2000 Plan will expire 10
years from the date of grant, and generally vest annually in 25% increments beginning on
December 31, 2006, or later depending on the date of grant, with vesting contingent upon
continued employment.
During 2005, the Companys shareholders approved the Board of Directors adoption of the
2005 Stock Option Plan (The 2005 Plan). There are 500,000 non-qualified stock options
(Options) authorized under the 2005 Plan. All Options under the Plan will be granted at the
fair market value underlying the Shares at the date of grant and are subject to two vesting
conditions. The first vesting condition requires that the Company satisfy a performance
target based on growth in earnings per share (EPS Target) as of December 31, 2008. The EPS
Target has been set at a level that reflects a growth rate in diluted earnings per share of
ten percent per year for four years, based on NVRs 2004 diluted earnings per share of $66.42.
The aggregate EPS Target is $339.00 per share, the measurement of which is based on the sum
of the actual diluted earnings per share results for the four annual periods ending December
31, 2005 through 2008. All Options granted will be cancelled if the EPS Target is not met.
Secondly, Options will vest in 25% annual increments beginning December 31, 2010, or later,
depending on the date of grant and based on continued employment.
59
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Stock option activity for the management option plans for the years presented is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Options |
|
Prices |
|
Options |
|
Prices |
|
Options |
|
Prices |
1993 NVR Share Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the
beginning of the year |
|
|
7,003 |
|
|
$ |
8.00 |
|
|
|
7,903 |
|
|
$ |
7.69 |
|
|
|
21,153 |
|
|
$ |
7.60 |
|
Granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Canceled |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Exercised |
|
|
(500 |
) |
|
$ |
5.29 |
|
|
|
(900 |
) |
|
$ |
5.29 |
|
|
|
(13,250 |
) |
|
$ |
7.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
6,503 |
|
|
$ |
8.21 |
|
|
|
7,003 |
|
|
$ |
8.00 |
|
|
|
7,903 |
|
|
$ |
7.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
6,503 |
|
|
$ |
8.21 |
|
|
|
7,003 |
|
|
$ |
8.00 |
|
|
|
7,903 |
|
|
$ |
7.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 NVR Share Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the
beginning of the year |
|
|
3,695 |
|
|
$ |
16.07 |
|
|
|
5,695 |
|
|
$ |
15.34 |
|
|
|
7,362 |
|
|
$ |
15.04 |
|
Granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Canceled |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Exercised |
|
|
|
|
|
$ |
|
|
|
|
(2,000 |
) |
|
$ |
14.00 |
|
|
|
(1,667 |
) |
|
$ |
14.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
3,695 |
|
|
$ |
16.07 |
|
|
|
3,695 |
|
|
$ |
16.07 |
|
|
|
5,695 |
|
|
$ |
15.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
3,695 |
|
|
$ |
16.07 |
|
|
|
3,695 |
|
|
$ |
16.07 |
|
|
|
5,695 |
|
|
$ |
15.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996 Option Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the
beginning of the year |
|
|
196,020 |
|
|
$ |
161.52 |
|
|
|
401,420 |
|
|
$ |
93.83 |
|
|
|
1,074,076 |
|
|
$ |
27.24 |
|
Granted |
|
|
1,375 |
|
|
$ |
784.16 |
|
|
|
1,625 |
|
|
$ |
698.46 |
|
|
|
37,644 |
|
|
$ |
500.00 |
|
Canceled |
|
|
|
|
|
$ |
|
|
|
|
(3,017 |
) |
|
$ |
119.56 |
|
|
|
|
|
|
$ |
|
|
Exercised |
|
|
(70,952 |
) |
|
$ |
65.09 |
|
|
|
(204,008 |
) |
|
$ |
33.23 |
|
|
|
(710,300 |
) |
|
$ |
14.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
126,443 |
|
|
$ |
222.40 |
|
|
|
196,020 |
|
|
$ |
161.52 |
|
|
|
401,420 |
|
|
$ |
93.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
85,132 |
|
|
$ |
82.09 |
|
|
|
122,435 |
|
|
$ |
56.20 |
|
|
|
294,111 |
|
|
$ |
30.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Option Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the
beginning of the year |
|
|
755,332 |
|
|
$ |
77.44 |
|
|
|
981,024 |
|
|
$ |
55.31 |
|
|
|
994,000 |
|
|
$ |
49.62 |
|
Granted |
|
|
2,500 |
|
|
$ |
720.06 |
|
|
|
28,002 |
|
|
$ |
607.25 |
|
|
|
13,856 |
|
|
$ |
451.03 |
|
Canceled |
|
|
(12,801 |
) |
|
$ |
60.90 |
|
|
|
(14,332 |
) |
|
$ |
49.60 |
|
|
|
(26,203 |
) |
|
$ |
49.27 |
|
Exercised |
|
|
(226,622 |
) |
|
$ |
49.83 |
|
|
|
(239,362 |
) |
|
$ |
50.36 |
|
|
|
(629 |
) |
|
$ |
44.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
518,409 |
|
|
$ |
93.02 |
|
|
|
755,332 |
|
|
$ |
77.44 |
|
|
|
981,024 |
|
|
$ |
55.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
475,551 |
|
|
$ |
48.87 |
|
|
|
401,154 |
|
|
$ |
49.21 |
|
|
|
326,668 |
|
|
$ |
49.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the
beginning of the year |
|
|
1,989,269 |
|
|
$ |
219.11 |
|
|
|
1,921,475 |
|
|
$ |
200.90 |
|
|
|
1,891,100 |
|
|
$ |
194.01 |
|
Granted |
|
|
15,475 |
|
|
$ |
766.12 |
|
|
|
139,219 |
|
|
$ |
469.61 |
|
|
|
79,700 |
|
|
$ |
356.41 |
|
Canceled |
|
|
(41,700 |
) |
|
$ |
232.98 |
|
|
|
(71,425 |
) |
|
$ |
217.59 |
|
|
|
(49,325 |
) |
|
$ |
187.84 |
|
Exercised |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
1,963,044 |
|
|
$ |
223.13 |
|
|
|
1,989,269 |
|
|
$ |
219.11 |
|
|
|
1,921,475 |
|
|
$ |
200.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Option Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the
beginning of the year |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
387,875 |
|
|
$ |
743.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(900 |
) |
|
$ |
737.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
386,975 |
|
|
$ |
743.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
Average |
|
Remaining |
|
|
|
|
|
|
Exercise |
|
Contractual |
Range of Exercise Prices |
|
Number |
|
Price |
|
Life in Years |
1993 NVR Share Options |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
$8.21 |
|
|
6,503 |
|
|
$ |
8.21 |
|
|
|
0.9 |
|
1994 NVR Share Options |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
$14.00 - $25.00 |
|
|
3,695 |
|
|
$ |
16.07 |
|
|
|
1.5 |
|
1996 Option Plan |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
$10.63 |
|
|
8,200 |
|
|
$ |
10.63 |
|
|
|
0.4 |
|
$21.00 - $25.00 |
|
|
21,305 |
|
|
$ |
21.25 |
|
|
|
1.9 |
|
$38.00 - $44.38 |
|
|
5,675 |
|
|
$ |
39.55 |
|
|
|
3.7 |
|
$72.00 |
|
|
10,668 |
|
|
$ |
72.00 |
|
|
|
4.7 |
|
$92.15 - $114.25 |
|
|
20,184 |
|
|
$ |
105.26 |
|
|
|
5.0 |
|
$146.00 - $180.00 |
|
|
17,100 |
|
|
$ |
155.71 |
|
|
|
5.4 |
|
$278.00 - $315.50 |
|
|
2,667 |
|
|
$ |
287.38 |
|
|
|
6.5 |
|
$500.00 |
|
|
37,644 |
|
|
$ |
500.00 |
|
|
|
7.8 |
|
$671.00 - $760.25 |
|
|
1,625 |
|
|
$ |
698.46 |
|
|
|
8.9 |
|
$769.40 - $810.00 |
|
|
1,375 |
|
|
$ |
784.16 |
|
|
|
9.2 |
|
Exercisable at December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
$10.63 |
|
|
8,200 |
|
|
$ |
10.63 |
|
|
|
0.4 |
|
$21.00 - $25.00 |
|
|
21,305 |
|
|
$ |
21.25 |
|
|
|
1.9 |
|
$38.00 - $44.38 |
|
|
5,675 |
|
|
$ |
39.55 |
|
|
|
3.7 |
|
$72.00 |
|
|
10,668 |
|
|
$ |
72.00 |
|
|
|
4.7 |
|
$92.15 - $114.25 |
|
|
20,184 |
|
|
$ |
105.26 |
|
|
|
5.0 |
|
$146.00 - $180.00 |
|
|
16,433 |
|
|
$ |
156.11 |
|
|
|
5.4 |
|
$278.00 - $315.50 |
|
|
2,667 |
|
|
$ |
287.38 |
|
|
|
6.5 |
|
1998 Option Plan |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
$44.38 - $62.13 |
|
|
459,485 |
|
|
$ |
47.86 |
|
|
|
3.4 |
|
$72.00 - $91.25 |
|
|
16,066 |
|
|
$ |
77.93 |
|
|
|
4.8 |
|
$500.00 - $551.00 |
|
|
26,357 |
|
|
$ |
527.09 |
|
|
|
8.3 |
|
$663.50 - $720.06 |
|
|
16,501 |
|
|
$ |
672.07 |
|
|
|
8.9 |
|
Exercisable at December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
$44.38 - $62.13 |
|
|
459,485 |
|
|
$ |
47.86 |
|
|
|
3.4 |
|
$72.00 - $91.25 |
|
|
16,066 |
|
|
$ |
77.93 |
|
|
|
4.8 |
|
2000 Option Plan * |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
$158.30 - $202.05 |
|
|
1,669,150 |
|
|
$ |
188.81 |
|
|
|
5.3 |
|
$269.35 - $296.50 |
|
|
23,000 |
|
|
$ |
281.90 |
|
|
|
6.6 |
|
$313.12 - $369.75 |
|
|
115,000 |
|
|
$ |
338.28 |
|
|
|
7.0 |
|
$409.00 - $449.90 |
|
|
22,200 |
|
|
$ |
433.47 |
|
|
|
8.0 |
|
$451.00 - $484.20 |
|
|
107,769 |
|
|
$ |
460.97 |
|
|
|
8.3 |
|
$504.00 - $550.00 |
|
|
4,750 |
|
|
$ |
526.86 |
|
|
|
8.7 |
|
$625.00 - $748.50 |
|
|
8,500 |
|
|
$ |
690.44 |
|
|
|
9.0 |
|
$759.00 - $810.00 |
|
|
12,675 |
|
|
$ |
772.75 |
|
|
|
9.2 |
|
2005 Option Plan * |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
$680.25 - $737.00 |
|
|
361,205 |
|
|
$ |
736.19 |
|
|
|
9.4 |
|
$773.00 - $938.00 |
|
|
25,770 |
|
|
$ |
844.38 |
|
|
|
9.6 |
|
|
|
|
*None of the options outstanding under the 2000 and 2005 Option Plans are exercisable at
December 31, 2005. |
61
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Director Incentive Plans
During 1996, the Companys shareholders approved the Board of Directors adoption of the
Directors Long Term Stock Option Plan (the 1996 Directors Plan). Under this plan, there
were 192,000 options to purchase shares of common stock authorized and granted to the
Companys outside directors. There are no additional options available for grant under this
plan. The option exercise price for the options granted was $10.25 per share, which was equal
to the fair market value of the Companys Shares on the date of grant. The Options were
granted for a 10-year period and were fully vested as of December 31, 2001. The weighted
average remaining contractual life is 0.4 years.
During 1999, the Companys shareholders approved the Board of Directors adoption of the
1998 Directors Long Term Stock Option Plan (the 1998 Directors Plan). There were 150,000
options to purchase shares of common stock authorized for grant to the Companys outside
directors under the 1998 Directors Plan. A total of 87,500 options were granted at an
exercise price of $49.06, and 34,000 options were granted at $369.75. All options were granted
at an exercise price equal to the fair market value of the Companys Shares on the date of
grant. The Options were granted for a 10-year period and vest annually in twenty-five percent
(25%) increments beginning on either December 31, 2002 or December 31, 2006, as determined by
the date of grant. The weighted average remaining contractual life in years for the options
granted at $49.06 and $369.75 is 3.4 and 6.3, respectively. In addition, during the third
quarter of 2005, the Company granted 7,700 non-qualified stock options (Director Options) at
an average exercise price of $907.75 per share to the Companys Directors under the 1998
Directors Plan. The weighted average remaining contractual life in years for these options is
9.6 years. These Options are subject to the aforementioned EPS Target. If the EPS Target is
satisfied, the 7,700 Options granted under the 1998 Directors Plan will become exercisable as
to twenty-five percent of the underlying shares on each of December 31, 2010, 2011, 2012 and
2013, respectively, based on continued service by the director.
The members of Board of Directors also participate in the 2000 Broadly-Based Stock Option
Plan, as described previously herein.
Stock option activity for the director option plans for the years presented is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Options |
|
Prices |
|
Options |
|
Prices |
|
Options |
|
Prices |
1996 Directors Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the
beginning of the year |
|
|
16,000 |
|
|
$ |
10.25 |
|
|
|
28,000 |
|
|
$ |
10.25 |
|
|
|
50,000 |
|
|
$ |
10.25 |
|
Granted |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Canceled |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Exercised |
|
|
(4,500 |
) |
|
$ |
10.25 |
|
|
|
(12,000 |
) |
|
$ |
10.25 |
|
|
|
(22,000 |
) |
|
$ |
10.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
11,500 |
|
|
$ |
10.25 |
|
|
|
16,000 |
|
|
$ |
10.25 |
|
|
|
28,000 |
|
|
$ |
10.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
11,500 |
|
|
$ |
10.25 |
|
|
|
16,000 |
|
|
$ |
10.25 |
|
|
|
28,000 |
|
|
$ |
10.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Directors Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the
beginning of the year |
|
|
93,375 |
|
|
$ |
165.83 |
|
|
|
99,625 |
|
|
$ |
158.51 |
|
|
|
109,000 |
|
|
$ |
149.09 |
|
Granted |
|
|
7,700 |
|
|
$ |
907.75 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Canceled |
|
|
(17,000 |
) |
|
$ |
369.75 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Exercised |
|
|
(15,625 |
) |
|
$ |
49.06 |
|
|
|
(6,250 |
) |
|
$ |
49.06 |
|
|
|
(9,375 |
) |
|
$ |
49.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
68,450 |
|
|
$ |
225.30 |
|
|
|
93,375 |
|
|
$ |
165.83 |
|
|
|
99,625 |
|
|
$ |
158.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
43,750 |
|
|
$ |
49.06 |
|
|
|
40,625 |
|
|
$ |
49.06 |
|
|
|
28,125 |
|
|
$ |
49.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
To minimize the non-deductibility of executive compensation expense due to the
limitations of Section 162(m) of the Internal Revenue Code and still maintain the ability to
competitively compensate the Companys executive officers, the Company established a deferred
compensation plan (Deferred Comp Plan). The specific purpose of the Deferred Comp Plan was
to establish a vehicle whereby the executive officers could defer the receipt of compensation
that otherwise would be nondeductible for tax purposes by the Company into a period where the
Company would realize a tax deduction for the amounts paid. The Deferred Comp Plan is also
available to other members of the Companys management group. Amounts deferred into the
Deferred Comp Plan are invested in NVR common stock, held in a rabbi trust account, and are
paid out in a fixed number of shares upon expiration of the deferral period.
The rabbi trust account held 547,697 and 549,029 shares of NVR common stock as of
December 31, 2005 and 2004, respectively. During 2005, 1,332 shares of NVR common stock were
issued from the rabbi trust related to deferred compensation for which the deferral period
ended. There were no shares of NVR common stock contributed to the rabbi trust in 2005.
Shares held by the Deferred Comp Plan are treated as outstanding shares in the Companys
earnings per share calculation for each of the years ended December 31, 2005, 2004 and 2003.
10. Commitments and Contingent Liabilities
NVR is committed under multiple non-cancelable operating leases involving office
space, model homes, manufacturing facilities, automobiles and equipment. Future minimum
lease payments under these operating leases as of December 31, 2005 are as follows:
|
|
|
|
|
Years ended December 31, |
|
2006 |
|
$ |
27,589 |
|
2007 |
|
|
19,133 |
|
2008 |
|
|
15,795 |
|
2009 |
|
|
12,935 |
|
2010 |
|
|
8,802 |
|
Thereafter |
|
|
35,976 |
|
|
|
|
|
|
|
$ |
120,230 |
|
|
|
|
|
Total rent expense incurred under operating leases was approximately $39,033,
$30,223 and $25,790 for the years ended December 31, 2005, 2004 and 2003, respectively.
NVR is not in the land development business. The Company purchases finished lots
under fixed price purchase agreements, which require deposits, which may be forfeited if
the Company fails to perform under the contract. The deposits are in the form of cash or
letters of credit in varying amounts and represent a percentage, typically ranging up to
10%, of the aggregate purchase price of the finished lots. This lot acquisition strategy
reduces the financial requirements and risks associated with direct land ownership and land
development. The Company generally seeks to maintain control over a supply of lots
believed to be suitable to meet its sales objectives for the next 24 to 36 months.
At December 31, 2005, assuming that contractual development milestones are met, NVR is
committed to placing additional forfeitable deposits with land developers under existing
lot option contracts of approximately $214,000. In addition, at December 31, 2005, the
Company was committed to purchasing approximately 80 finished lots at an aggregate purchase
price of $7,100 under three specific performance contracts.
During the ordinary course of operating the mortgage banking and homebuilding
businesses, NVR is required to enter into bond or letter of credit arrangements with local
municipalities, government agencies, or land developers to collateralize its obligations
under various contracts.
63
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
NVR had approximately $33,325 (including $26,412 for letters of credit as described in Note 6(a)
herein) of contingent obligations under such agreements as of December 31, 2005. NVR
believes it will fulfill its obligations under the related contracts and does not anticipate
any losses under these bonds or letters of credit.
The Company establishes warranty and product liability reserves to provide for estimated
future expenses as a result of construction and product defects, product recalls and litigation
incidental to NVRs homebuilding business. Liability estimates are determined based on
managements judgment considering such factors as historical experience, the likely current cost of
corrective action, manufacturers and subcontractors participation in sharing the cost of
corrective action, consultations with third party experts such as engineers, and discussions with
our General Counsel and other outside counsel retained to handle specific product liability cases.
The following table reflects the changes in the Companys warranty reserve for the years ended
December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
Warranty reserve, beginning of year |
|
$ |
42,319 |
|
|
$ |
35,324 |
|
Provision |
|
|
62,598 |
|
|
|
38,178 |
|
Payments |
|
|
(44,805 |
) |
|
|
(31,183 |
) |
|
|
|
|
|
|
|
Warranty reserve, end of year |
|
$ |
60,112 |
|
|
$ |
42,319 |
|
|
|
|
|
|
|
|
NVR and its subsidiaries are also involved in litigation arising from the normal
course of business. In the opinion of management, and based on advice of legal counsel,
this litigation is not expected to have any material adverse effect on the financial
position or results of operations of NVR.
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 NVRs 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.
11. Acquisition
During January 2005, NVR acquired substantially all of the assets of Marc Homebuilders,
Inc. (Marc), a homebuilder in Columbia, South Carolina for $7,600 in cash. Marc settled
approximately 230 homes during 2004 under the Rymarc trade name, generating approximately
$27,000 in revenue. The
Company has recorded in the consolidated balance sheet certain indefinite and definite life
intangible assets in an amount equal to the excess of the purchase price over the fair value
of the net assets acquired. As of December 31, 2005, certain post-closing performance
benchmarks were met and an additional payment of $1,500 is due to Marc and was recorded as an
increase to goodwill at December 31, 2005.
12. Quarterly Results (unaudited)
The following table sets forth unaudited selected financial data and operating
information on a quarterly basis for the years ended December 31, 2005 and 2004.
64
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 |
|
|
1st |
|
2nd |
|
3rd |
|
4th |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Revenues-homebuilding
operations |
|
$ |
939,252 |
|
|
$ |
1,257,248 |
|
|
$ |
1,350,465 |
|
|
$ |
1,630,778 |
|
Gross profit homebuilding
operations |
|
$ |
259,705 |
|
|
$ |
349,964 |
|
|
$ |
380,028 |
|
|
$ |
450,016 |
|
Mortgage banking fees |
|
$ |
14,180 |
|
|
$ |
20,441 |
|
|
$ |
22,557 |
|
|
$ |
27,426 |
|
Net income |
|
$ |
117,930 |
|
|
$ |
167,649 |
|
|
$ |
189,443 |
|
|
$ |
222,537 |
|
Diluted earnings per share |
|
$ |
14.38 |
|
|
$ |
21.42 |
|
|
$ |
24.33 |
|
|
$ |
30.29 |
|
Contracts for sale, net
of cancellations (units) |
|
|
3,312 |
|
|
|
4,829 |
|
|
|
2,897 |
|
|
|
3,615 |
|
Settlements (units) |
|
|
2,615 |
|
|
|
3,416 |
|
|
|
3,576 |
|
|
|
4,180 |
|
Backlog, end of period (units) |
|
|
8,141 |
|
|
|
9,554 |
|
|
|
8,875 |
|
|
|
8,310 |
|
Loans closed |
|
$ |
614,492 |
|
|
$ |
857,821 |
|
|
$ |
867,864 |
|
|
$ |
1,047,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004 |
|
|
1st |
|
2nd |
|
3rd |
|
4th |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
Revenues-homebuilding
operations |
|
$ |
860,685 |
|
|
$ |
984,833 |
|
|
$ |
1,146,271 |
|
|
$ |
1,255,714 |
|
Gross profit homebuilding
operations |
|
$ |
217,674 |
|
|
$ |
248,855 |
|
|
$ |
298,076 |
|
|
$ |
326,612 |
|
Mortgage banking fees |
|
$ |
16,108 |
|
|
$ |
16,543 |
|
|
$ |
20,248 |
|
|
$ |
19,320 |
|
Net income |
|
$ |
100,617 |
|
|
$ |
115,970 |
|
|
$ |
147,679 |
|
|
$ |
158,938 |
|
Diluted earnings per share |
|
$ |
12.58 |
|
|
$ |
14.82 |
|
|
$ |
19.04 |
|
|
$ |
20.13 |
|
Contracts for sale, net
of cancellations (units) |
|
|
3,318 |
|
|
|
4,001 |
|
|
|
2,718 |
|
|
|
3,194 |
|
Settlements (units) |
|
|
2,709 |
|
|
|
3,010 |
|
|
|
3,433 |
|
|
|
3,597 |
|
Backlog, end of period (units) |
|
|
7,499 |
|
|
|
8,490 |
|
|
|
7,775 |
|
|
|
7,372 |
|
Loans closed |
|
$ |
523,339 |
|
|
$ |
628,598 |
|
|
$ |
739,834 |
|
|
$ |
824,859 |
|
65
exv10w18
EXHIBIT 10.18
NVR, INC.
2005 STOCK OPTION PLAN
This 2005 Stock Option Plan (the Plan) is intended and is being adopted to provide an
incentive to certain employees of NVR, Inc. (the Corporation) and any corporation controlling,
controlled by or under common control with the Corporation (the Affiliates) (a) to encourage them
to remain in the employ or service of the Corporation and its Affiliates, (b) to promote the
continued profitability and growth of the Corporation and (c) to enable and assist managers to
acquire and hold shares of voting common stock of the Corporation (Shares) in accordance with
Corporation guidelines for ownership of Shares by managers. Options granted under the Plan are not
intended to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended
(the Code).
2. |
|
Shares Subject to the Plan. |
The aggregate number of Shares which may be covered by stock options (Options) granted
pursuant to the Plan is 500,000 Shares, subject to adjustment under Section 12. Shares covered by
Options that expire unexercised shall again be available for grant under the Plan.
Options may be granted under the Plan to such employees of the Corporation or any
Affiliate as the Corporations Compensation Committee (the Committee) of the Board of Directors
(the Board) shall determine and designate from time to time prior to expiration or termination of
the Plan; provided, that: (i) no individual may receive an Option for greater than 50,000 Shares
under the Plan and (ii) no more than 125,000 Shares may be covered by Options granted under the
Plan to Senior Management. Senior Management are the specific individuals who currently hold the
title of the Corporations Chairman of the Board, Chief Executive Officer and President; Executive
Vice President, Treasurer and Chief Financial Officer; Senior Vice President and Controller; or
President of NVR Mortgage Finance, Inc. Employees who receive Option grants under the Plan are
referred to as Participants. An individual may hold more than one Option, subject to such
restrictions as are provided herein. Both the individual limit on Options granted under the Plan
and the limit on the total number of Options granted to Senior Management are subject to adjustment
under Section 12.
This Plan will be administered by the Committee in accordance with the following
provisions:
(a) Except as may be otherwise determined by the Committee, the following procedures
will be followed with respect to the granting of all Options under this Plan:
(i) All Options will be granted in writing and on a form of Grant approved for
that purpose by the Committee. The date on which the Committee approves the grant of
an Option shall be considered the date on which such Option is granted. The Committee
may delegate, from time to
time, authority to the Chief Executive Officer and the
Senior Vice President of Human Resources,
jointly, to approve option grants to Participants other than Senior Management.
(ii) The Corporation and the optionee will enter into an Option Agreement which
will incorporate the terms of the Grant and such other provisions as may be included
pursuant to Section 15 of this Plan.
(b) The interpretation and construction by the Committee of any of the provisions of
this Plan or of any Option granted under this Plan, together with the actions of the
Committee in the granting of Options as provided in this Plan, will be final and conclusive
unless otherwise specifically provided in writing by the Board.
5. |
|
Effective Date and Term of the Plan. |
(a) The Plan shall become effective as of the date of the Plans approval by the
Corporations stockholders (the Effective Date), which is evidenced by a majority of the
votes cast in favor of adopting the Plan at a duly held meeting of the stockholders of the
Corporation at which a quorum representing a majority of all outstanding stock is present,
either in person or by proxy, and voting on the matter, or by written consent in accordance
with applicable state law and the Certificate of Incorporation and Bylaws of the Corporation.
(b) The Plan shall terminate on the date ten years after the Effective Date, unless
earlier terminated by the Board. In addition, the Plan shall terminate as of December 31,
2008 if the Corporation does not meet the EPS Target (as defined in Section 8(f)). A
termination of the Plan by the Board shall not impair any rights or obligations under any
Option theretofore granted to a Participant under this Plan.
The purchase price for Shares covered by each Option under the Plan (the Option Price)
shall be equal to the Fair Market Value of such Shares on the date of grant. For purposes of this
section, Fair Market Value means the value of each Share subject to the Plan determined as
follows: If on the date of grant of the Option or other determination date the Shares are listed on
an established national or regional stock exchange, are admitted to quotation on the National
Association of Securities Dealers Automated Quotation System, or otherwise are publicly traded on
an established securities market, the Fair Market Value of the Shares shall be the closing price of
the Shares on such exchange or in such market (the New York Stock Exchange if there is more than
one such exchange or market) on the trading day immediately preceding the date of grant or other
determination date (or, if there is no such reported closing price, the Fair Market Value shall be
the mean between the highest bid and lowest asked prices or between the high and low sale prices on
such trading day), or, if no sale of the Shares is reported for such trading day, on the next
preceding day on which any sale shall have been reported. If the Shares are not listed on such an
exchange, quoted on such system or traded on such a market, Fair Market Value shall be determined
by the Committee in good faith.
Each Option shall be granted for a period of ten (10) years, or such lesser period as the
Committee determines at the time of grant, from the date of grant.
8. |
|
Exercise of the Options. |
(a) Subject to Section 13 below, Options granted under the Plan shall become
exercisable according to the following schedule:
|
1. |
|
No Option shall become exercisable unless the
Corporation meets the EPS Target (as defined in Section 8(f) below). If
the EPS Target has not been met as of December 31, 2008, all Options
granted under the Plan shall immediately terminate. |
|
|
2. |
|
If the EPS Target is met, Options shall become
exercisable at a rate of 25% per year on December 31 of each year,
commencing in the fifth year after the date of grant. For the avoidance
of doubt and by way of example, this means that an Option granted on July
1, 2005 would become exercisable with regard to 25% of the shares on each
of December 31, 2010, December 31, 2011, December 31, 2012 and December
31, 2013, assuming the EPS Target is satisfied as of December 31, 2008 and
that the Option otherwise remains outstanding. A Participant must be an
employee of the Corporation or an Affiliate as of the end of the business
day on a December 31st vesting date in order to be entitled to
additional vesting. For the avoidance of doubt and by way of example, if
additional vesting occurs on December 31, 2010, the Options additionally
vested on that date could not be exercised until the first business day of
2011, at which time the Participant would not necessarily have to be an
employee of the Corporation or Affiliate, subject to paragraphs (b)
through (e) below. |
(b) An Option shall terminate immediately and may no longer be exercised if the optionee
ceases to be an employee of the Corporation or any of its Affiliates as a result of a
termination for Cause. A termination shall be for Cause in the event the Participant
ceases to be an employee of the Corporation, or any of its Affiliates, if the termination is
a result of (i) conviction of a felony or other crime involving moral turpitude; (ii) gross
misconduct in connection with the performance of such Participants duties including a breach
of such Participants fiduciary duty of loyalty; (iii) a willful violation of any criminal
law involving a felony, including federal or state securities laws; or (iv) a material breach
(following notice and an opportunity to cure) of any covenant by the Participant contained in
any agreement between the Participant and the Corporation or any of its Affiliates.
(c) In the event of a termination of employment resulting from the optionees
involuntary termination without Cause, death, disability or retirement at normal retirement
age (age 65) that occurs after the EPS Target has been met, the Option shall become
exercisable at the date of termination for an additional pro rata portion (based on the
number of full months of the current year that have elapsed prior to the termination, but no
more than three months in the case of an involuntary termination without Cause or
retirement at normal retirement age) of the previously nonexercisable portion of the Option
which would have been eligible to be exercised at the end of the year in which such
termination occurs and the optionee (or his personal representative) may at any time within a
period of three months (one year in the case of termination due to death or disability) after
such termination exercise such Option, but only to the extent that the Option was exercisable
on the date of employment termination (including any pro rata increase in exercisability for
the year of termination). Such Option will terminate at the end of such three-month (one year
in the case of termination due to death or disability) period. Notwithstanding the foregoing,
an Option may not be exercised after the expiration date of the Option.
(d) In the event of a voluntary termination of employment, an optionee may at any time
within a period of three months after such termination exercise any outstanding Option, but
only to the extent that the Option was exercisable on the date of employment termination.
Such Option will terminate at the end of such three-month period. Notwithstanding the
foregoing, an Option may not be exercised after the expiration date of the Option.
(e) An Option may be exercised to the extent that Shares have become exercisable and
vested under the Option, in whole or in part, from time to time, and at any time prior to
expiration or termination of
the Option, by making full payment of the Option Price to the Corporation in any one or more
of the following ways:
(i) in immediately available funds acceptable to the Committee;
(ii) by the assignment and delivery to the Corporation or the Affiliate which
employs the optionee (or any other Affiliate designated by the Corporation) of Shares
which are not subject to restriction, are owned by the optionee free and clear of all
liens and encumbrances and have a fair market value (as determined by the closing
price on the national securities exchange on which the Shares are listed on the day
preceding the day of exercise or by any other method acceptable to the Committee in
its absolute discretion) equal to the applicable Option Price less any portion thereof
paid in immediately available funds provided, however, that the Shares
surrendered in payment must have been held by the optionee for more than six months at
the time of surrender;
(iii) if so authorized in the Option agreement, a Corporation-sponsored
broker-assisted cashless exercise (but only if the Participant is not a member of
Senior Management); and/or
(iv) any other legal method of payment acceptable to the Compensation Committee.
(v) Tax withholding must be paid in immediately available funds to the
Corporation at the time of exercise. Shares are not accepted for payment for tax
withholding.
(f) EPS Target means $339.00. The Corporation will be deemed to have met the EPS
Target if the Corporations cumulative earnings per share is at least $339.00 per share (as
adjusted by the Board in its reasonable discretion for reorganizations, recapitalizations,
splits, reverse splits, combinations of Shares, mergers, consolidations, sales of assets or
other similar events occurring after the Effective Date) for the years 2005, 2006, 2007 and
2008. For the avoidance of doubt, cumulative earnings per share means the sum of the
earnings per share for each year (determined in accordance with the generally accepted
accounting principles for U.S. companies as then in effect for each such year, with no
retroactive adjustments for rules becoming effective in future years), and shall be
determined as of December 31, 2008.
9. |
|
Nontransferability of Options. |
An Option granted under this Plan may not be transferred except by will or the laws of
descent and distribution and may be exercised during the optionees lifetime only by the optionee
(or in the case of disability, his personal representative), and shall not be pledged or
hypothecated (by operation of law or otherwise) or subject to execution, attachment or similar
processes.
10. |
|
Rights as a Holder of Shares. |
An optionee or a transferee of an Option shall have no rights as a stockholder with
respect to any Shares covered by his Option until the date on which payment is made by him, and
accepted by the Corporation, for such Shares. No adjustment shall be made for distributions for
which the record date is prior to the date such payment is made and accepted.
(a) The Corporation shall not be required to sell or issue any Shares under any
Option if the sale or issuance of such shares would constitute a violation by the optionee,
any other individual exercising an Option, or the Corporation of any provision of any law or
regulation of any governmental authority, including without limitation any federal or state
securities laws or regulations. If at any time the Corporation shall determine, in its
discretion, that the listing, registration or qualification of any shares subject to an
Option upon any securities exchange or under any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issuance or purchase of shares
hereunder, no Shares may be issued or sold to the optionee or any other individual exercising
an Option pursuant to such Option unless such listing, registration, qualification, consent
or approval shall have been effected or obtained free of any conditions not acceptable to the
Corporation, and any delay caused thereby shall in no way affect the date of termination of
the Option. Specifically, in connection with the Securities Act, upon the exercise of any
Option, unless a registration statement under such Act is in effect with respect to the
Shares covered by such Option, the Corporation shall not be required to sell or issue such
shares unless the Board has received evidence satisfactory to it that the optionee or any
other individual exercising an Option may acquire such shares pursuant to an exemption from
registration under the Securities Act. Any determination in this connection by the Board
shall be final, binding, and conclusive. The Corporation may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Securities Act. The
Corporation shall not be obligated to take any affirmative action in order to cause the
exercise of an Option to comply with any law or regulation of any governmental authority. As
to any jurisdiction that expressly imposes the requirement that an Option shall not be
exercisable until the Shares covered by such Option are registered or are exempt from
registration, the exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration
or the availability of such an exemption.
(b) During any time when the Corporation has a class of equity security registered under
Section 12 of the Securities Exchange Act of 1934 (the Exchange Act), it is the intent of
the Corporation that the exercise of Options granted hereunder will qualify for the exemption
provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan
or action by the Board does not comply with the requirements of Rule 16b-3, it shall be
deemed inoperative to the extent permitted by law and deemed advisable by the Board, and
shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or
replaced, the Board may exercise its discretion to modify this Plan in any respect necessary
to satisfy the requirements of, or to take advantage of any features of, the revised
exemption or its replacement.
12. |
|
Adjustments upon Changes in Shares. |
(a) In the event that a distribution shall be declared upon the Shares payable in
Shares, the number of Shares then subject to any Option and the number of Shares available
for issuance pursuant to this Plan but not yet covered by an Option shall be adjusted by
adding to each such number the number of Shares which would have been distributable thereon
if such number of Shares had been outstanding on the date fixed for determining the
shareholders entitled to receive such distribution.
(b) In the event that the outstanding Shares shall be changed into or exchanged for a
different number or kind of Shares or shares of stock or other securities of the Corporation
or of another entity, whether through reorganization, recapitalization, split, reverse split,
combination of Shares, merger, consolidation, sale of assets or otherwise, then there shall
be substituted for each Share subject to any Option and for each Share available for issuance
pursuant to the Plan but not yet covered by an Option the number and kind of Shares or shares
of stock or other securities into which each outstanding Share shall be so changed or for
which each such Share shall be exchanged. The individual limit on Option grants and the
limit on the total number of Option grants to Senior Management in Section 3 shall also be
adjusted to reflect such change in Shares.
(c) In the case of any such substitution or adjustment as provided for in this Section
12, the Option Price in each Option Agreement for each Share covered thereby prior to such
substitution or adjustment will be the Option Price for all Shares, shares of stock or other
securities which shall have been substituted for such Share or to which such Share shall have
been adjusted pursuant to this Paragraph.
(d) The Board may also make adjustments to outstanding Options in the event of any
payment of a dividend to stockholders other than a normal cash dividend. In determining
adjustments to be made under this Section 12, the Board may take into account such factors as
it deems appropriate, including (i) the restrictions of applicable law, (ii) the potential
tax consequences of an adjustment and (iii) the possibility that some Participants might
receive an adjustment and a distribution or other unintended benefit, and in light of such
factors or circumstances may make adjustments that are not uniform or proportionate among
outstanding Options or make other equitable adjustments. Any such adjustments to outstanding
Options will be effected in a manner that precludes the enlargement of rights and benefits
under such Options.
(e) Adjustments pursuant to this Section 12, if any, and any determinations or
interpretations, including any determination of whether a dividend is other than a normal
cash dividend, made by the Board shall be final, binding and conclusive. No adjustment or
substitution provided for in this Section 12 shall require the Corporation in any Option
Agreement to sell a fractional Share, and the total substitution or adjustment with respect
to each Option Agreement shall be limited to whole Shares (rounding to the nearest whole
number).
13. |
|
Change of Control; Sale of Assets/Stock. |
Upon the dissolution or liquidation of the Corporation or upon a Change of Control, all
Options shall fully vest and be exercisable without regard to whether or not the EPS Target has
been met. In the event of any such Change of Control or dissolution or liquidation (a
Transaction), each individual holding an Option shall have the right, immediately prior to the
occurrence of such Transaction, to exercise such Option in whole or in part, whether or not such
Option was otherwise exercisable at the time such Transaction occurs and without regard to any
installment limitation on exercise imposed pursuant to Section 8 above but subject to Section 15
below. The Committee shall send written notice of an event that will result in such an exercise
period to all individuals who hold Options not later than the time at which the Corporation gives
notice thereof to its stockholders.
For purposes of the Plan, Change of Control means:
(i) a merger, consolidation, reorganization or other business combination of the
Corporation with one or more other entities in which the Corporation is not the surviving
entity;
(ii) a sale of substantially all of the assets of the Corporation to another entity; or
(iii) any transaction (including, without limitation, a merger or reorganization in
which the Corporation is the surviving entity) which results in any person or entity (or
persons or entities acting as a group or otherwise in concert) owning 20 percent or more of
the common stock of the Corporation.
Notwithstanding (iii) above, a Change of Control shall not occur if any director,
officer or employee owns 20 percent or more of the Shares, or acquires the right to purchase
Shares which if such right were exercised would result in the ownership of 20 percent or more
of the Shares, as a result of:
(a) the exercise of options or the grant or vesting of equity-based awards under
any incentive plan of the Corporation;
(b) the purchase of Shares directly by the director, officer or employee of the Corporation;
or
(c) the implementation of a Share repurchase program by the Corporation.
Proceeds from the sale of Shares pursuant to Options granted under this Plan shall
constitute general funds of the Corporation or Affiliate, as the case may be.
The Grants to be issued under this Plan will incorporate the provisions of this Plan by
reference. The Options granted under this Plan may be subjected to or include additional
restrictions upon the exercise thereof and/or such other provisions, if any, as the Committee
and/or the Board may deem advisable and cause to be specified in the Grant, or the Option Agreement
entered into pursuant thereto.
The Participant also shall provide immediately available funds to the Corporation or
Affiliate in an amount sufficient to pay the amount of any withholding taxes required with respect
to the exercise of the Option at the time such withholding is required. Shares are not accepted
for payment of Participant tax withholding. The Corporation or an Affiliate, as the case may be,
shall have the right to deduct from payments of any kind otherwise due to a Participant any minimum
required Federal, state, or local taxes of any kind required by law to be withheld upon the
issuance of any Shares upon the exercise of an Option.
(a) The Corporation may from time to time amend this Plan, except that, without
shareholder approval, no amendment shall change the aggregate number of Shares subject to
this Plan, extend the term of this Plan, or change the EPS Target other than as provided in
Section 8(f). In addition, any such amendment shall be submitted for shareholder approval to
the extent required by applicable law, rules or regulations. An amendment to this Plan or to
any outstanding Option shall not, without the consent of a Participant, reduce or impair any
rights or obligations under any Option theretofore granted to such Participant under this
Plan.
(b) The Option Price of any existing Option may not be decreased, except in accordance
with Section 12, without Shareholder approval.
(c) The exercisability of any existing Option may not be accelerated, other than by
reason of Section 8(c) or Section 13, without Shareholder approval.
18. |
|
Suspension or Termination of Plan. |
The Board may from time to time suspend or at any time terminate this Plan. This Plan
shall terminate on the tenth anniversary of the Effective Date, unless earlier terminated by the
Board. No Option may be granted during any such suspension or after termination. The termination
of this Plan shall not, without the consent of the Participant, reduce or impair any rights or
obligations under any Option theretofore granted to such Participant under this Plan.
The members of the Committee shall be indemnified by the Corporation to the maximum
extent permitted by applicable state law and the Corporations articles of incorporation or bylaws.
20. |
|
Disclaimer of Employment Rights. |
Neither this Plan nor any Option granted hereunder will create any employment right in
any person.
The validity, interpretation and effect of the Plan, and the rights of all persons
hereunder, shall be governed by and determined in accordance with the laws of Virginia, other than
the choice of law rules thereof.
|
|
|
|
|
|
NVR, INC.
|
|
|
By: |
/s/ James M. Sack
|
|
|
|
|
|
|
Its: Vice President, Secretary and General Counsel |
|
|
exv10w19
EXHIBIT 10.19
NVR, INC.
2005 STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of ___, between NVR, INC., a Virginia corporation
(hereinafter NVR), and ___an employee of NVR and/or of an NVR subsidiary (the
Optionee).
Recitals:
WHEREAS, NVR has adopted the NVR, INC. 2005 Stock Option Plan (the Plan) providing for the
grant under certain circumstances of options (the Options) exercisable for the purchase of shares
of NVR Common Stock (the Shares);
WHEREAS, NVR, under the terms and conditions set forth below, has offered and committed to
grant an Option under the Plan to the Optionee in connection with the employment of the Optionee in
the capacity set forth below; and
WHEREAS, in consideration of the grant of the Option and other benefits, the Optionee is
willing to accept the Option provided for in this Agreement and is willing to abide by the
obligations imposed on him or her under this Agreement and the other responsibilities of his or her
position
Provisions:
NOW, THEREFORE, in consideration of the mutual benefits hereinafter provided, and each
intending to be legally bound, NVR and the Optionee hereby agree as follows:
1. Acknowledgments of Optionee. The Option granted under this Agreement is intended to
provide to the Optionee an opportunity to purchase Shares. The Optionee is employed by NVR in the
position of ___. The Optionee acknowledges that such position, the Option granted
under this Agreement and the other benefits of his or her employment in that capacity are being
conferred upon the Optionee only because of and on the condition of the willingness of the Optionee
to commit his or her best efforts and loyalty to NVR in the performance of the duties of that
position.
2. Effect of the Plan. The Option to be granted under this Agreement will be subject to all
of the terms and conditions of the Plan, which are incorporated by reference and made part of this
Agreement. The Optionee will abide by, and the Option granted to the Optionee will be subject to,
all of the provisions of the Plan and of this Agreement, together with all rules and determinations
from time to time issued by the Committee established to administer the Plan and by the Board of
Directors of NVR (hereinafter Board) pursuant to the Plan.
3. Grants. The Optionee is hereby granted an option to purchase ___Shares, with an
Option Price of $___per Share.
4. Exercise; Conditions to Exercise.
(a) Period of Exercise. Subject to Section 4(f) below, the Option may be exercised in whole
or in part with respect to vested grants at any time after vesting. No Option may be exercised
after ten years from the date of grant. The Option may be exercised only with respect to whole
Shares.
(b) Vesting of Option. If the EPS Target is met in accordance with Section 4(f)(i) below,
then on each of December 31, 2011, December 31, 2012, December 31, 2013 and December 31, 2014,
twenty-five percent (25%) of
the Options shall be exercisable in respect of the number of Shares initially subject to the
Option. Subject to Section 4(f), the foregoing installments, to the extent not exercised, shall
accumulate and be exercisable, in whole or in part, at any time and from time to time, after
becoming exercisable and prior to the termination of the Option. For the avoidance of doubt and by
way of example, if additional vesting occurs on December 31, 2010, the Options additionally vested
on that date could not be exercised until the first business day of 2011, at which time the
Optionee would not necessarily have to be an employee of NVR or an NVR subsidiary to exercise the
Options, subject to the earlier termination of the Option pursuant to Paragraphs 4(a) and 5 of this
Agreement. In the event of a termination of the Optionees employment resulting from the
Optionees involuntary termination without Cause (as defined in Section 5), death, disability or
retirement at normal retirement age (age 65) after the EPS Target is met, the Option shall become
exercisable at the date of termination for a pro rata portion (based on the number of full months
of the current year that has expired prior to the termination, but no more than three months in the
case of an involuntary termination without Cause or retirement at normal retirement age) of the
previously nonexercisable portion of the Option which would have been eligible to be exercised at
the end of the year in which such termination occurs.
(c) Who May Exercise. During the Optionees lifetime, the Option rights may be exercised only
by him or her.
(d) Manner of Exercise. Option rights may be exercised by the delivery of written notice from
the Optionee to the Committee or the Committees designee specifying the number of Shares then
being exercised.
(e) Payment of Exercise Price. To exercise the Option, the Optionee must make full payment of
the Option Price to NVR in any one or more of the following ways:
(i) in immediately available funds;
(ii) by the assignment and delivery to NVR of Shares owned by the Optionee (or his
estate) provided however, that such Shares have not been acquired pursuant to the
exercise of an option within the last six months (unless the options were exercised
following the death of the Optionee), are free and clear of all liens and encumbrances
and have a fair market value (as determined by the closing price on the national
securities exchange on which the Shares are listed on the day preceding the day of
exercise or by any other method acceptable to the Committee in its absolute
discretion) equal to the applicable Option Price less than any portion thereof paid in
cash; or
(iii) by delivery (on a form prescribed by NVR) of an irrevocable direction to a
licensed securities broker acceptable to NVR to sell Shares and to deliver all or part
of the sale proceeds to NVR in payment of the aggregate Option Price (but only if the
Optionee is not a member of Senior Management).
The Optionee also must reimburse NVR for the amount of all applicable withholding
taxes at the rate required to be paid by NVR in immediately available funds at the
time of exercise.
(f) Restrictions on Exercise.
(i) Performance Goal. Except as provided in Section 7 below, the Option shall not
become exercisable unless NVR meets the EPS Target. NVR will be deemed to have met
the EPS Target if NVRs cumulative earnings per share is at least $339.00 per share
(as adjusted by the Board in its reasonable discretion for reorganizations,
recapitalizations, splits, reverse splits, combinations of shares, mergers,
consolidations, sales of assets or other similar events occurring after May 4, 2005)
for the years 2005, 2006, 2007 and 2008. For the avoidance of doubt, cumulative
earnings per share means the sum of the earnings per share for each year (determined
in accordance with the generally accepted accounting principles for U.S. companies as
then in effect for each such year, with no retroactive adjustments for rules becoming
effective in future years), and shall be determined as of December 31, 2008.
(ii) Regulatory Matters. The Option may not be exercised if such exercise would
constitute a violation of any applicable Federal or state statute or regulation or if any required
approval of a governmental authority having jurisdiction shall not have been secured.
NVR agrees to use reasonable diligence to obtain all such requisite approvals or
consents.
5. Termination of Option.
(a) If the EPS Target has not been met as of December 31, 2008, the Option shall immediately
terminate.
(b) If the Optionee ceases to be an employee of NVR and its affiliates, other than as a result
of a termination for Cause (as defined in the following paragraph), the unexercised Option shall
terminate, except that within three (3) months after termination of employment (one year in the
case of termination due to death or disability) the Optionee or his personal representative and/or
the person or persons to whom the Optionees Option rights may pass by will or by the applicable
laws of descent and distribution, as the case may be, may exercise the Option to the extent to
which he or she was entitled to exercise the Option on the date of termination of employment.
(c) A termination shall be for Cause in the event the Optionee ceases to be an employee of
NVR and its affiliates attributable to a termination of employment as a result of (i) conviction of
a felony, or other crime involving moral turpitude; (ii) gross misconduct in connection with the
performance of such Optionees duties (which shall include a breach of such Optionees fiduciary
duty of loyalty); (iii) a willful violation of any criminal law involving a felony, including
federal or state securities laws; or (iv) material breaches (following notice and an opportunity to
cure) of any covenants by the Optionee contained in any agreement between Optionee and NVR or its
affiliates. In the event of a for Cause termination of employment, the unexercised Option shall
terminate immediately.
(d) In no event may the Option be exercised by the Optionee if he or she has violated any
provision of this Agreement.
6. Adjustment Upon Changes in Shares. In the event of a change in NVRs capital structure,
the adjustments provided for in Paragraph 12 of the Plan shall be made to the Option Price and the
number of Shares subject to the Option hereunder.
7. Change of Control; Sale of Assets/Stock. Upon the dissolution or liquidation of NVR or
upon a Change of Control, the Option shall be fully vested and be exercisable without regard to
whether or not the EPS Target has been met. In the event of any such Change of Control or
dissolution or liquidation (a Transaction), the Optionee shall have the right, (i) immediately
prior to the occurrence of such Transaction and (ii) during such period occurring prior to such
Transaction as the Committee in its sole discretion shall designate, to exercise the Option in
whole or in part, whether or not such Option was otherwise exercisable at the time such
Transaction occurs and without regard to any installment limitation on exercise imposed pursuant
to Section 4 above, but subject to Section 4(f)(ii).
For purposes of the Plan, Change of Control means:
(i) a merger, consolidation, reorganization or other business combination of NVR with
one or more other entities in which NVR is not the surviving entity;
(ii) a sale of substantially all of the assets of NVR to another entity; or
(iii) any transaction (including, without limitation, a merger or reorganization in
which NVR is the surviving entity) which results in any person or entity (or persons
or entities acting as a group or otherwise in concert) owning twenty percent or more
of the common stock of NVR.
Notwithstanding (iii) above, a Change of Control shall not occur if any director, officer or
employee owns 20 percent or more of the Shares, or acquires the right to purchase Shares which if
such right were exercised would result in the ownership of 20 percent or more of the Shares, as a
result of:
(a) the exercise of options or the grant or vesting of equity-based awards under any incentive
plan of NVR;
(b) the purchase of Shares directly by the director, officer or employee of NVR; or
(c) the implementation of a Share repurchase program by NVR.
8. Noncompetition, Non-Solicitation and Confidentiality.
(a) In consideration of the promises set forth in this Agreement, the Optionee agrees:
(i) to maintain the confidentiality of any and all information concerning NVR and its
affiliates, whether with respect to its business, operations, finances, employees or
otherwise during the period of his or her employment and for three (3) years after the
termination of such employment;
(ii) that, during employment, he or she will not compete with NVR or with any of its
affiliates, directly or indirectly in any phase of the residential homebuilding
business or mortgage financing business or settlement services business at any
location and during the twenty-four (24) month period following termination, he or she
will not compete with NVR or with any of its affiliates, directly or indirectly in any
phase of the residential homebuilding business or mortgage financing business or
settlement services business at any location within any Standard Metropolitan
Statistical Area (as determined by the Census Bureau, Department of Commerce, United
States Government) in which Optionee has had managerial responsibility for any office
or affiliate of NVR at any time within the two-year period prior to the Optionees
termination of employment;
(iii) that he or she will not hire or solicit for hiring, directly or indirectly, any
person now or hereafter employed by, or providing services as a subcontractor to, NVR
or any affiliate of NVR for twenty-four (24) months after termination of the
Optionees employment;
(iv) that he or she will not utilize the services of or attempt to acquire real
property, goods or services from any developer or subcontractor now or hereafter
utilized by NVR or any affiliate of NVR for twenty-four (24) months after termination
of employment; and
(v) not to make or retain copies of any documents, forms, blueprints, designs,
policies, memoranda or other written information developed by NVR or any affiliate of
NVR now or hereafter produced and/or circulated by NVR and further agrees not to copy,
transfer or otherwise retain any electronic data (including information stored on a
hard drive or disk), software (including proprietary software), computer data bases or
other non-print information produced, designed, owned, copyrighted or utilized by NVR.
(b) The Optionee acknowledges that the restrictions set forth in this Section 8 and elsewhere
in this Agreement are reasonable and necessary to protect the business and interests of NVR and its
affiliates and that it would be impossible to measure in money the damages that could or would
accrue to NVR and its affiliates in the event that the Optionee fails to honor his or her
obligations under this Section 8. Therefore, in addition to any other remedies NVR or its
affiliates may have, it shall have the right to have the Optionees obligations hereunder
specifically performed by order of any court having jurisdiction, without the necessity of proving
actual damage.
(c) If the Optionee violates the restrictions set forth in this Section 8, the Optionee shall
forfeit the Options granted pursuant to this Agreement, and shall also repay to NVR the gain (i.e.,
the difference at exercise between the aggregate fair market value of the purchased shares and the
aggregate Option Price) recognized by the
Optionee pursuant to the Options during the period
beginning eighteen (18) months prior to the first violation by the Optionee of this Section 8 and
ending on the date that the Company notifies the Optionee that the Optionee has forfeited the
Options pursuant to this Section 8.
(d) In the event that there is a Change of Control, as defined in Section 7 of the Agreement,
and the Participant is terminated without Cause, or the Participant voluntarily terminates with
Good Reason, with Good Reason defined as (i) the Participants management responsibilities are
diminished, or (ii) the Participant was an Executive Officer of NVR as defined by the Securities
Exchange Act of 1933 and is not an Executive Officer of the
surviving corporation or (iii) the Participant suffers any reduction of base compensation or
any reduction in incentive opportunities, the non-competition provisions of Paragraph 8 become
void. The confidentiality provisions remain in full force and effect.
9. Nonassignability. The options may not be transferred in any manner otherwise than by will
or the laws of descent and distribution.
10. Rights as a Holder of Shares. An Optionee or a transferee of an Option shall have no
rights as a Shareholder with respect to any Shares covered by his or her Option until the date
on which payment is made by him or her, and accepted by the Company, for such Shares. No
adjustment shall be made for distributions for which the record date is prior to the date such
payment is made and accepted.
11. Employment. Nothing herein contained shall be construed to entitle the Optionee to
continued employment with NVR and its affiliates.
12. Notices. All notices to NVR must be in writing, addressed and delivered or mailed to:
NVR, Inc., Plaza America Tower I, 11700 Plaza America Drive, Suite 500, Reston, VA 20190, Attn:
Assistant Treasurer and all notices to the Optionee must be in writing addressed and delivered or
mailed to him or her at the address shown on the records of NVR.
13. Governing Law. This Agreement and all determinations made and actions taken pursuant
thereto, shall be governed under the laws of the Commonwealth of Virginia, other than with regard
to the choice of law provisions thereof.
14. Severability. If any part of this Agreement shall be determined to be invalid or
unenforceable, such part shall be ineffective only to the extent of such invalidity or
unenforceability, without affecting the remaining portions hereof.
15. Amendment, Suspension or Termination of Plan. The Company may from time to time amend,
suspend or, at any time, terminate the Plan or modify this option agreement. An amendment,
suspension or termination of the Plan shall not without the consent of the Optionee, reduce or
impair any rights or obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the date first above written.
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NVR, INC. |
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By: |
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Dwight C. Schar |
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Its: Chairman |
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WITNESS (as to Optionee)
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OPTIONEE |
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exv10w34
EXHIBIT 10.34
NVR, Inc.
Summary of the 2006 Annual Incentive Compensation Plan
The following is a description of NVR, Inc.s (NVR) 2006 annual incentive compensation plan
(the Bonus Plan). The Bonus Plan is not set forth in a formal written document, and therefore
NVR is providing this description of the plan pursuant to Item 601(b)(10)(iii) of Regulation S-K.
Virtually all of NVRs management employees participate in the Bonus Plan, including all NVRs
executive officers. Under the Bonus Plan, each executive officer has a maximum potential payout
limited to 100% of his base salary. The annual incentive award is based on actual financial
results compared to the business plan approved by NVRs Board of Directors. At the beginning of
each year, financial targets that are tied to NVRs annual business plan are established by NVRs
Compensation Committee. The financial target for corporate executives is based on NVR, Inc.s
consolidated pre-tax profit (before consolidated annual incentive and stock-based compensation
expense but after all other charges). The financial targets used for the mortgage banking
operation are pre-tax profit (before annual incentive expense and certain corporate cost
allocations) and return on invested capital. The financial targets used for the homebuilding
operation are profit before tax and annual incentive expense, but after a charge for the cost of
capital, and return on assets.
An executive officer begins to earn the incentive award once the financial targets are at
least 70% attained. The full amount of the incentive award is earned ratably from 70% up to 100%
of the financial target attainment. The executive officers can earn no more than 100% of their
base salary as an incentive award, which is earned once 100% of the financial targets are attained.
Thus, attainment of greater than 100% of the financial target has no impact on the amount of the
incentive award earned.
exv21
EXHIBIT 21
NVR, Inc. Subsidiaries
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State of |
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Incorporation or |
Name of Subsidiary |
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Organization |
NVR Mortgage Finance, Inc.
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Virginia |
NVR Settlement Services, Inc.
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Pennsylvania |
RVN, Inc.
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Delaware |
NVR Services, Inc.
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Delaware |
NVR Funding II, Inc.
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Delaware |
NVR Funding III, Inc.
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Delaware |
exv23
EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
NVR, Inc.:
We consent to incorporation by reference in the registration statement (No. 33-69754) on Form
S-8 (for the NVR, Inc. Directors Long-Term Incentive Plan), the registration statement (No.
33-69756) on Form S-8 (for the NVR, Inc. Management Equity Incentive Plan), the registration
statement (No. 33-69758) on Form S-8 (for the NVR, Inc. Equity Purchase Plan), the
registration statement (No. 33-87478) on Form S-8 (for the NVR, Inc. 1994 Management Equity
Incentive Plan), the registration statement (No. 333-04975) on Form S-8 (for the NVR, Inc.
Management Long-Term Stock Option Plan), the registration statement (No. 333-29241) on Form
S-8 (for the Profit Sharing Plan of NVR, Inc. and Affiliated Companies), the registration
statement (No. 333-04989) on Form S-8 (for the NVR, Inc. Directors Long-Term Stock Option
Plan), the registration statement (No. 33-69436) on Form S-3, the registration statement (No.
333-44515) on Form S-3 (for a universal shelf registration for senior or subordinated debt in
an amount up to $400 million), the amended registration statement (No. 333-44515) on Form
S-3A (for a universal shelf registration for senior or subordinated debt in an amount up to
$400 million), the registration statement (No. 333-79949) on Form S-8 (for the NVR, Inc. 1998
Directors Long-Term Stock Option Plan), the registration statement (No. 333-79951) on Form
S-8 (for the NVR, Inc. 1998 Management Stock Option Plan), the registration statement (No.
333-56732) on Form S-8 (for the NVR, Inc. 2000 Broadly-Based Stock Option Plan), the
registration statement (No. 333-82756) on Form S-8 (for the Profit Sharing Plan of NVR, Inc.
and Affiliated Companies), the registration statement (No. 333-115936) on Form S-3 (for a
universal shelf registration for senior or subordinated debt, common shares, preferred shares,
depositary shares representing preferred shares and warrants in an amount up to $1 billion),
the registration statement (No. 333-125135) on Form S-8 (for the NVR, Inc. 2005 Stock Option
Plan) of our reports dated February 23, 2006 with respect to 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, managements assessment of the effectiveness of
internal control over financial reporting as of December 31, 2005 and the effectiveness of
internal control over financial reporting as of December 31, 2005, which reports appear in the
December 31, 2005 annual report on Form 10-K of NVR, Inc.
KPMG LLP
McLean, Virginia
February 23, 2006
exv31w1
EXHIBIT 31.1
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
I, Paul C. Saville, certify that:
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I have reviewed this report on Form 10-K of NVR, Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
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b) |
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Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
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Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
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Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
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All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and report
financial information; and |
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Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
Date: February 23, 2006
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By: |
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/s/ Paul C. Saville |
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Paul C. Saville
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Chief Executive Officer and President |
exv31w2
EXHIBIT 31.2
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
I, Dennis M. Seremet, certify that:
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I have reviewed this report on Form 10-K of NVR, Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
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b) |
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Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
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Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
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Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
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All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and report
financial information; and |
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b) |
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Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
Date: February 23, 2006
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By: |
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/s/ Dennis M. Seremet |
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Dennis M. Seremet
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Vice President, Chief Financial Officer and Treasurer |
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exv32
EXHIBIT 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of NVR, Inc. for the period ended December 31,
2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), each
of the undersigned officers of NVR, Inc., hereby certifies pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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2. |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of NVR, Inc. |
Date: February 23, 2006
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By:
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/s/ Paul C. Saville |
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Paul C. Saville |
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Chief Executive Officer and President |
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By:
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/s/ Dennis M. Seremet |
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Dennis M. Seremet |
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Vice President, Chief Financial Officer and Treasurer |