UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QA
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-12378
NVR, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1394360
- ------------------------------- ----------------------------
(State or other jurisdiction of (IRS employer identification
incorporation or organization) number)
7601 Lewinsville Road, Suite 300
McLean, Virginia 22102
(703) 761-2000
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
(Not Applicable)
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_____
-----
As of October 21, 1997 there were 11,294,922 total shares of common stock
outstanding.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___
-----
NVR, INC.
FORM 10-QA
INDEX
================================================================================
Page
----
PART I FINANCIAL INFORMATION
- ------
Item 1. NVR, Inc. Consolidated Financial Statements
-------------------------------------------
Consolidated Balance Sheets at September 30, 1997 (unaudited)
and December 31, 1996............................................ 4
Consolidated Statements of Operations for the
Three Months Ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited) and the
Nine Months Ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited)............................... 6
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited)................................... 7
Notes to Consolidated Financial Statements....................... 8
NVR Homes, Inc. Consolidated Financial Statements
-------------------------------------------------
Consolidated Balance Sheets at September 30, 1997 (unaudited)
and December 31, 1996............................................ 10
Consolidated Statements of Operations for the
Three Months Ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited) and the
Nine Months Ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited)............................... 11
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited)................................... 12
Notes to Consolidated Financial Statements....................... 13
NVR Financial Services, Inc. Consolidated Financial Statements
--------------------------------------------------------------
Consolidated Balance Sheets at September 30, 1997 (unaudited)
and December 31, 1996............................................ 14
Consolidated Statements of Operations for the
Three Months Ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited) and the
Nine Months Ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited)............................... 15
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited)................................... 16
Notes to Consolidated Financial Statements....................... 17
2
NVR, INC.
FORM 10-QA
INDEX
================================================================================
Page
----
RVN, Inc. Financial Statements
------------------------------
Balance Sheets at September 30, 1997 (unaudited)
and December 31, 1996............................................ 18
Statements of Operations for the
Three Months Ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited) and the
Nine Months Ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited)............................... 18
Statements of Cash Flows for the Nine
Months Ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited)................................... 19
Notes to Financial Statements.................................... 20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 21
PART II OTHER INFORMATION
- -------
Item 6. Exhibits and Reports on Form 8-K................................. 31
Exhibit Index.................................................... 32
Signature........................................................ 33
3
PART I
------
ITEM 1.
- -------
NVR, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
ASSETS SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(UNAUDITED)
HOMEBUILDING:
Cash and cash equivalents $ 53,233 $ 71,533
Receivables 9,095 2,927
Inventory:
Lots and housing units, covered under
sales agreements with customers 157,460 126,456
Unsold lots and housing units 38,074 37,940
Manufacturing materials and other 5,677 7,297
-------- --------
201,211 171,693
Property, plant and equipment, net 17,240 17,916
Reorganization value in excess of amounts
allocable to identifiable assets, net 70,979 75,818
Contract land deposits 36,915 36,383
Other assets 21,555 21,008
-------- --------
410,228 397,278
-------- --------
FINANCIAL SERVICES:
Cash and cash equivalents 3,862 3,247
Mortgage loans held for sale, net 98,199 75,735
Mortgage servicing rights, net 1,892 6,309
Property and equipment, net 612 917
Reorganization value in excess of amounts
allocable to identifiable assets, net 11,972 12,788
Other assets 3,514 4,891
-------- --------
120,051 103,887
-------- --------
TOTAL ASSETS $530,279 $501,165
======== ========
See notes to consolidated financial statements.
4
NVR, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS'
EQUITY
HOMEBUILDING:
Accounts payable $ 59,473 $ 54,894
Accrued expenses and other liabilities 96,718 85,260
Notes payable 81 86
Other term debt 14,022 14,043
Senior notes 120,000 120,000
-------- --------
290,294 274,283
-------- --------
FINANCIAL SERVICES:
Accounts payable and other liabilities 8,645 7,409
Notes payable 90,336 67,463
-------- --------
98,981 74,872
-------- --------
Total liabilities 389,275 349,155
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value; 60,000,000
shares authorized; 19,970,900 and 19,881,515
shares issued as of September 30, 1997 and
December 31, 1996, respectively 200 199
Additional paid-in-capital 156,092 157,842
Retained earnings 70,910 47,098
Less treasury stock at cost- 8,475,478
and 6,307,108 shares at September 30, 1997
and December 31, 1996, respectively (86,198) (53,129)
-------- --------
Total shareholders' equity 141,004 152,010
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $530,279 $501,165
======== ========
See notes to consolidated financial statements.
5
NVR, INC.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- ---------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ---------------
HOMEBUILDING:
Revenues $ 316,874 $ 312,658 $ 837,298 $ 796,425
Other income 162 238 929 763
Cost of sales (272,308) (270,375) (722,586) (689,577)
Selling, general and administrative (23,589) (20,687) (56,905) (50,852)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets (1,613) (1,761) (4,839) (5,283)
--------- --------- --------- ---------
Operating income 19,526 20,073 53,897 51,476
Interest expense (3,936) (4,136) (12,257) (12,536)
--------- --------- --------- ---------
Homebuilding income 15,590 15,937 41,640 38,940
--------- --------- --------- ---------
FINANCIAL SERVICES:
Mortgage banking fees 6,407 6,225 18,227 19,043
Interest income 1,585 1,632 3,948 4,036
Other income 102 10 263 11
General and administrative (5,412) (6,407) (16,178) (18,337)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets (272) (272) (816) (816)
Interest expense (1,074) (772) (2,333) (1,801)
--------- --------- --------- ---------
Operating income 1,336 416 3,111 2,136
TOTAL SEGMENT INCOME 16,926 16,353 44,751 41,076
Income tax expense (7,920) (8,079) (20,939) (20,292)
--------- --------- --------- ---------
NET INCOME $ 9,006 $ 8,274 $ 23,812 $ 20,784
========= ========= ========= =========
EARNINGS PER SHARE:
Primary $0.68 $0.59 $1.80 $1.37
========= ========= ========= =========
Fully - diluted $0.66 $0.59 $1.70 $1.37
========= ========= ========= =========
See notes to consolidated financial statements.
6
NVR, INC.
Consolidated Statements of Cash Flows
(dollars in thousands, except share data)
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------
1997 1996
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,812 $ 20,784
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 9,757 9,236
Interest accrued and added to bond principal - 446
Mortgage loans closed (1,043,068) (949,918)
Proceeds from sales of mortgage loans 1,023,509 960,537
(Gain) loss on sale of mortgage servicing rights (1,143) 1,104
Gain on sale of loans (10,904) (11,531)
Net change in assets and liabilities:
Increase in inventories (29,518) (8,904)
Decrease (increase) in receivables (4,721) 308
Increase in accounts payable and accrued expenses 16,340 7,745
Other, net (1,390) (3,917)
----------- ---------
Net cash provided (used) by operating activities (17,326) 25,890
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in funds held by trustee (327) 265
Proceeds from sales of mortgage-backed securities 15,126 32,722
Purchase of property, plant and equipment (2,108) (2,890)
Principal payments on mortgage-backed securities 3,001 14,002
Proceeds from sales of mortgage servicing rights 11,829 12,316
Purchases of mortgage servicing rights - (112)
Other, net 674 1,771
----------- ---------
Net cash provided by investing activities 28,195 58,074
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of bonds (16,431) (45,800)
Net borrowings under notes payable 22,695 (226)
Purchases of treasury stock (35,475) (23,179)
Other 657 3,314
----------- ---------
Net cash used by financing activities (28,554) (65,891)
Net increase (decrease) in cash (17,685) 18,073
Cash, beginning of the period 74,780 55,567
----------- ---------
Cash, end of period $ 57,095 $ 73,640
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 12,141 $ 15,996
=========== =========
Income taxes paid during the period, net of refunds $ 19,753 $ 22,362
=========== =========
See notes to consolidated financial statements.
7
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
1. BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of NVR, Inc. ("NVR" or the "Company") and its subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Because the accompanying condensed
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles, they should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the nine month
period ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLE
During the quarter ended March 31, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. Such adoption
did not have a material impact on the Company's financial condition or results
of operations.
3. SHAREHOLDERS' EQUITY
A summary of changes in shareholders' equity is presented below:
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------ --------- -------- --------
BALANCE, DECEMBER 31, 1996 $199 $157,842 $47,098 $(53,129)
Net income - - 23,812 -
Option activity 1 656 - -
Purchases of treasury stock - - - (35,475)
Performance share activity - (2,406) - 2,406
---- -------- ------- --------
BALANCE, SEPTEMBER 30, 1997 $200 $156,092 $70,910 $(86,198)
==== ======== ======= ========
During the nine months ended September 30, 1997, the Company repurchased
approximately 2.3 million shares of its common stock at an aggregate purchase
price of $35,475. Approximately 172,000 of those shares were reissued from the
treasury during February 1997 in satisfaction of an employee benefit liability
accrued at December 31, 1996. The average cost basis for the shares reissued
from the treasury was $13.97 per share. In addition, approximately 92,900
options were exercised during the first nine months of 1997, with NVR realizing
approximately $657 in aggregate equity proceeds.
8
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
4. DEBT
In June 1997, NVR Homes, Inc. amended its working capital revolving credit
facility with a syndicate of financial institutions(the "Facility") to provide
for a three year term expiring on May 31, 2000. The Facility continues to
provide for borrowings up to $60,000. The amended Facility resulted in a more
favorable borrowing rate and a reduction in certain fees. The other terms and
conditions are substantially the same as those under the facility in effect at
December 31, 1996.
In June 1997, NVR Mortgage Finance, Inc. ("NVR Finance") renewed its
mortgage warehouse facility for two years. The available borrowing limit
remained at $105,000. The other terms and conditions are substantially the same
as those in effect at December 31, 1996.
During the quarter ended March 31, 1997, NVR Finance entered into an
additional annually renewable, uncommitted gestation mortgage-backed security
repurchase agreement (the "Repo Facility"). The maximum amount available under
the Repo Facility is $45,000, bringing NVR's total available borrowings under
all such similar agreements to $145,000. Amounts outstanding under the Repo
Facility accrue interest at various rates tied to the federal funds rate,
depending on the type of collateral, and are collateralized by gestation
mortgage-backed securities. The covenants under the Repo Facility are consistent
with NVR Finance's mortgage warehouse credit facility.
5. EARNINGS PER SHARE
Primary and fully-diluted earnings per share are calculated by dividing net
income by the weighted-average number of shares of the Company's common stock
and common stock equivalents outstanding during the period. Common stock
equivalents represent the dilutive impact of the assumed exercise of certain
outstanding stock options and, in the 1996 period, warrants. Both calculations
are made using the modified treasury stock method pursuant to Accounting
Principles Board Opinion No. 15, Earnings per Share. Dilution occurs for the
three and nine month periods ended September 30, 1997 because the end of period
market price for the Company's common stock of $26.00 per share used to
calculate the number of common stock equivalents for fully diluted earnings per
share was higher than the weighted average stock prices used to calculate common
stock equivalents for primary earnings per share. Earnings per share for each of
the periods presented is calculated as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1997 1996 1997 1996
------- -------- ------- -------
Net income $ 9,006 $ 8,274 $23,812 $20,784
======= ======= ======= =======
Weighted average shares outstanding 11,682 13,643 12,051 14,696
Common stock equivalents - primary 1,531 374 1,205 442
------- ------- ------- -------
Weighted average number of shares
and share equivalents outstanding 13,213 14,017 13,256 15,138
======= ======= ======= =======
Primary earnings per share $ 0.68 $ 0.59 $ 1.80 $ 1.37
======= ======= ======= =======
Weighted average shares outstanding 11,682 13,643 12,051 14,696
Common stock equivalents - fully-diluted 1,885 374 1,931 442
------- ------- ------- -------
Weighted average number of shares and
share equivalents, assuming full dilution 13,567 14,017 13,982 15,138
======= ======= ======= =======
Fully diluted earnings per share $ 0.66 $ 0.59 $ 1.70 $ 1.37
======= ======= ======= =======
9
NVR HOMES, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -----------------
ASSETS (unaudited)
Cash and cash equivalents $ 53,219 $ 71,471
Receivables 9,208 3,247
Inventory:
Lots and housing units, covered under
sales agreements with customers 157,460 126,456
Unsold lots and housing units 38,074 37,940
Manufacturing materials and other 5,677 7,297
-------- --------
201,211 171,693
Property, plant and equipment, net 10,015 10,272
Reorganization value in excess of amounts
allocable to identifiable assets, net 70,979 75,818
Contract land deposits 36,915 36,383
Other assets 18,758 18,058
-------- --------
TOTAL ASSETS $400,305 $386,942
======== ========
LIABILITIES AND SHAREHOLDER'S
EQUITY
Accounts payable $ 58,909 $ 54,325
Accrued expenses and other liabilities 73,150 75,451
Advances from affiliates, net 105,930 107,896
Other term debt 5,686 5,859
-------- --------
TOTAL LIABILITIES 243,675 243,531
SHAREHOLDER'S EQUITY:
Common stock, $0.01 par value; 100
shares authorized; 100 shares
issued and outstanding - -
Additional paid-in capital 94,688 94,688
Retained earnings 61,942 48,723
-------- --------
Total shareholder's equity 156,630 143,411
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $400,305 $386,942
======== ========
See notes to consolidated financial statements.
10
NVR HOMES, INC.
Consolidated Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
------------------------------- -----------------------------
1997 1996 1997 1996
--------------- -------------- -------------- -------------
REVENUES:
Revenues $316,874 $312,658 $837,298 $796,425
Other income 143 234 900 748
-------- -------- -------- --------
Total Revenues 317,017 312,892 838,198 797,173
EXPENSES:
Cost of sales 272,308 270,375 722,586 689,577
Interest expense-external 292 394 1,087 1,322
Interest expense-affiliates 3,666 3,669 11,004 11,007
Selling, general and administrative 29,305 20,524 72,281 50,588
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets 1,613 1,761 4,839 5,283
-------- -------- -------- --------
Total expenses 307,184 296,723 811,797 757,777
Income before income tax expense 9,833 16,169 26,401 39,396
Income tax expense (4,910) (7,858) (13,182) (19,146)
-------- -------- -------- --------
NET INCOME $ 4,923 $ 8,311 $ 13,219 $ 20,250
======== ======== ======== ========
See notes to the consolidated financial statements.
11
NVR HOMES, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,219 $20,250
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 6,979 7,171
Net change in assets and liabilities:
Increase in inventories (29,518) (8,904)
Decrease (increase) in receivables (5,961) 374
Increase in accounts payable
and accrued liabilities 2,283 8,310
Other, net (1,328) (4,328)
-------- -------
Net cash provided (used) by
operating activities (14,326) 22,873
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (1,821) (2,522)
Proceeds from sale of property,
plant & equipment 34 124
-------- -------
Net cash used by investing activities (1,787) (2,398)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in advances from affiliates (1,966) (2,630)
Principal repayments of term debt (173) (159)
-------- -------
Net cash used by financing activities (2,139) (2,789)
-------- -------
Net increase (decrease) in cash (18,252) 17,686
Cash, beginning of the period 71,471 51,911
-------- -------
Cash, end of period $ 53,219 $69,597
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 12,018 $12,181
======== =======
Taxes paid during the period
(net of refunds) $ 18,315 $17,189
======== =======
See notes to consolidated financial statements.
12
NVR HOMES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of NVR Homes, Inc. ("Homes" or the "Company") and its subsidiaries.
Homes is a wholly owned subsidiary of NVR, Inc. ("NVR"). Homes conducts all of
NVR's homebuilding operations. The statements are provided pursuant to Homes'
status as a guarantor of NVR's 11% Senior Notes due 2003 (the "Senior Notes").
Intercompany accounts and transactions have been eliminated in consolidation.
The statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the nine month
period ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLE
During the quarter ended March 31, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. Such adoption
did not have a material impact on the Company's financial condition or results
of operations.
3. DEBT
In June 1997, the Company amended and restated its working capital
revolving credit facility (the "Facility") for a three year term expiring on May
31, 2000 under an agreement with a syndicate of financial institutions. The
Facility continues to provide for borrowings up to $60,000. The amended Facility
resulted in a more favorable borrowing rate and a reduction in certain fees. The
other terms and conditions are substantially the same as those under the
facility in effect at December 31, 1996.
13
NVR FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
(unaudited)
ASSETS
FINANCIAL SERVICES:
Cash and cash equivalents $ 3,862 $ 3,247
Receivables 2,622 3,596
Mortgage loans held for sale, net 98,199 75,735
Property and equipment, net 612 917
Real estate acquired through foreclosure 206 538
Mortgage servicing rights, net 1,892 6,309
Reorganization value in excess of amount
allocable to identifiable assets, net 11,972 12,788
Other assets 677 753
-------- --------
120,042 103,883
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Mortgage-backed securities, net 21,733 37,294
Funds held by trustee 884 557
Receivables 346 548
Other assets 224 840
-------- --------
23,187 39,239
-------- --------
TOTAL ASSETS $143,229 $143,122
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
FINANCIAL SERVICES:
Accounts payable $ 5,709 $ 3,480
Accrued expenses and other liabilities 3,205 4,286
Due to affiliates 233 1,173
Notes payable 90,336 67,463
-------- --------
99,483 76,402
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Accrued expenses and other liabilities 997 771
Bonds payable, net 22,181 38,464
-------- --------
23,178 39,235
-------- --------
TOTAL LIABILITIES 122,661 115,637
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000
shares authorized; 100 shares issued
and outstanding - -
Additional paid-in capital 20,682 28,711
Retained deficit (114) (1,226)
-------- --------
Total shareholder's equity 20,568 27,485
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $143,229 $143,122
======== ========
See notes to consolidated financial statements.
14
NVR FINANCIAL SERVICES, INC.
Consolidated Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
------------------------------ -----------------------------
1997 1996 1997 1996
-------------- -------------- -------------- -------------
FINANCIAL SERVICES:
Interest income $1,585 $ 1,632 $ 3,948 $ 4,036
Gain on sales of mortgage loans 4,397 4,412 10,904 11,531
Servicing fees 244 1,239 1,470 4,046
Gain on sale of servicing - (1,104) 1,143 (1,104)
Title fees 1,766 1,678 4,710 4,570
Other, net 102 - 259 -
------ ------- ------- -------
Total revenues 8,094 7,857 22,434 23,079
Interest expense-external 1,074 772 2,333 1,801
Interest expense-affiliates 229 232 641 456
General and administrative 5,295 6,005 15,788 16,893
Amortization of mortgage
servicing rights 117 402 390 1,444
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets 272 272 816 816
------ ------- ------- -------
Total expenses 6,987 7,683 19,968 21,410
------ ------- ------- -------
Operating income 1,107 174 2,466 1,669
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Interest income 599 2,426 1,769 6,573
Interest expense (617) (2,054) (1,787) (6,013)
Other, net 18 (362) 22 (549)
------ ------- ------- -------
Operating income - 10 4 11
TOTAL OPERATING INCOME 1,107 184 2,470 1,680
Income tax expense (606) (122) (1,358) (1,086)
------ ------- ------- -------
NET INCOME $ 501 $ 62 $ 1,112 $ 594
====== ======= ======= =======
See notes to the consolidated financial statements.
15
NVR FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,112 $ 594
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Accretion of net discount on
mortgage-backed securities (148) (1,962)
Amortization 1,510 2,533
Gain on sales of loans (10,904) (11,531)
Mortgage loans closed (1,043,068) (949,918)
Proceeds from sales of mortgage loans 1,023,509 960,537
(Gain) loss on sales of mortgage
servicing rights (1,143) 1,104
Interest accrued and added to bond principal - 446
Other, net 2,214 (44)
----------- ---------
Net cash provided by
(used in) operating activities (26,918) 1,759
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in funds held by trustee (327) 265
Principal payments on mortgage-
backed securities 3,001 14,002
Proceeds from sales of mortgage-
backed securities 15,126 32,722
Purchases of office facilities and equipment (209) (115)
Proceeds from sales of mortgage
servicing rights 11,829 12,316
Purchases of mortgage servicing rights - (112)
Other, net 640 1,647
----------- ---------
Net cash provided by investing activities 30,060 60,725
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable 22,873 (64)
Redemption of bonds (16,431) (45,800)
Return of capital/dividend to parent (8,029) (17,422)
Change in due to affiliates (940) 1,189
----------- ---------
Net cash used in financing activities (2,527) (62,097)
----------- ---------
Net increase in cash 615 387
Cash, beginning of period 3,247 3,656
----------- ---------
Cash, end of period $ 3,862 $ 4,043
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 4,458 $ 7,972
=========== =========
Taxes paid during the period, net of refunds $ 2,101 $ 1,046
=========== =========
See notes to consolidated financial statements.
16
NVR FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the
accounts of NVR Financial Services, Inc. ("NVRFS" or the "Company") and its
subsidiaries. NVRFS is a wholly owned subsidiary of NVR, Inc. ("NVR"). NVRFS,
through its subsidiaries, conducts all of NVR's mortgage banking operations. The
statements are provided pursuant to NVRFS' status as a guarantor of NVR's 11%
Senior Notes due 2003 (the "Senior Notes"). Intercompany accounts and
transactions have been eliminated in consolidation. The statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLE
During the quarter ended March 31, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. Such adoption
did not have a material impact on the Company's financial condition or results
of operations.
3. SHAREHOLDER'S EQUITY
A summary of changes in shareholder's equity is presented below:
ADDITIONAL
COMMON PAID-IN RETAINED TOTAL
STOCK CAPITAL DEFICIT EQUITY
------- ---------- -------- --------
BALANCE, DECEMBER 31, 1996 $ - $28,711 $(1,226) $27,485
Return of capital - (8,029) - (8,029)
Net income - - 1,112 1,112
------ ------- ------- -------
BALANCE, SEPTEMBER 30, 1997 $ - $20,682 $ (114) $20,568
====== ======= ======= =======
4. DEBT
In June 1997, NVR Mortgage Finance, Inc. ("NVR Finance"), a wholly owned
subsidiary of NVRFS, renewed its mortgage warehouse facility for two years. The
available borrowing limit remained at $105,000. The other terms and conditions
are substantially the same as those in effect at December 31, 1996.
During the quarter ended March 31, 1997, NVR Finance entered into an
additional annually renewable, uncommitted gestation mortgage-backed security
repurchase agreement (the "Repo Facility"). The maximum amount available under
the Repo Facility is $45,000, bringing NVRFS's total available borrowings under
all such similar agreements to $145,000. Amounts outstanding under the Repo
Facility accrue interest at various rates tied to the federal funds rate,
depending on the type of collateral, and are collateralized by gestation
mortgage-backed securities. The covenants under the Repo Facility are consistent
with NVR Finance's mortgage warehouse credit facility.
17
RVN, INC.
Balance Sheets
(dollars in thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 14 $ 62
Royalty receivable 2,033 1,441
------ ------
TOTAL ASSETS $2,047 $1,503
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable and accrued expenses $ 710 $ 530
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, $1 par value; 3,000 shares
authorized; 1,000 shares issued and outstanding 1 1
Additional paid-in capital 64 64
Retained earnings 1,272 908
------ ------
Total shareholder's equity 1,337 973
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,047 $1,503
====== ======
RVN, INC.
Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
----------------------------- ----------------------------
1997 1996 1997 1996
--------------- ------------ --------------- -----------
REVENUES:
Royalty revenue $ 5,992 $ - $ 15,902 $ -
Other income 2 - 6 -
------- ---------- -------- ---------
Total revenues 5,994 - 15,908 -
EXPENSES:
General and administrative 8 - 28 -
------- ---------- -------- ---------
Income before income tax 5,986 - 15,880 -
Income tax expense (2,102) - (5,558) -
------- ---------- -------- ---------
NET INCOME $ 3,884 $ - $ 10,322 $ -
======= ========== ======== =========
See notes to the financial statements.
18
RVN, INC.
Statements of Cash Flows
(dollars in thousands)
(unaudited)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,322 $ -
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Increase in royalty receivables (592) -
Increase in accounts payable and
accrued liabilities 180 -
-------- ----------
Net cash provided by
operating activities 9,910 -
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend to parent (9,958) -
-------- ----------
Net cash used by
financing activities (9,958) -
-------- ----------
Net increase (decrease) in cash (48) -
Cash, beginning of period 62 -
-------- ----------
Cash, end of period $ 14 $ -
======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ - $ -
======== ==========
Taxes paid during the period, net of refunds $ 5,353 $ -
======== ==========
See notes to financial statements.
19
RVN, INC.
Notes to Financial Statements
(dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts of
RVN, Inc. ("RVN" or the "Company"). RVN is a wholly owned subsidiary of NVR,
Inc. ("NVR"). The statements are provided pursuant to RVN's status as a
guarantor of NVR's 11% Senior Notes due 2003 (the "Senior Notes"). The
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine month period ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
NVR capitalized RVN on October 1, 1996. As such, there is no financial
information to report for the quarter or year to date period ended September 30,
1996.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLE
During the quarter ended March 31, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. Such adoption
did not have a material impact on the Company's financial condition or results
of operations.
3. SHAREHOLDER'S EQUITY
A summary of changes in shareholder's equity is presented below:
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- ---------
BALANCE, DECEMBER 31, 1996 $ 1 $ 64 $ 908
Net income - - 10,322
Dividend to parent - - (9,958)
------ --------- -------
BALANCE, SEPTEMBER 30, 1997 $ 1 $ 64 $ 1,272
====== ========= =======
20
ITEM 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands)
FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-QA, as well as statements made by
the Company in periodic press releases, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance of the Company to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such risk factors
include, but are not limited to, general economic and business conditions,
interest rate changes, competition, the availability and cost of land and other
raw materials used by the Company in its homebuilding operations, shortages of
labor, weather related slow downs, building moratoria, governmental regulation,
the ability of the Company to integrate any acquired business, certain
conditions in financial markets and other factors over which the Company has
little or no control.
NVR, INC. CONSOLIDATED
- ----------------------
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996
NVR, Inc. ("NVR" or the "Company") is a holding company that operates in
two business segments: homebuilding and financial services. Holding company
general and administrative expenses are fully allocated to the homebuilding and
financial services segments in the information presented below.
HOMEBUILDING SEGMENT
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
During the third quarter of 1997, homebuilding operations generated
revenues of $316,874 compared to revenues of $312,658 in the third quarter of
1996. The change in revenues is primarily due to a 2.0% decrease in the number
of homes settled from 1,672 in 1996 to 1,639 in 1997 and to a 3.3% increase in
the average settlement price from $186.0 in 1996 to $192.1 in 1997. New orders
of 1,366 during the third quarter of 1997 increased 41.0% compared with the 969
new orders generated during the same 1996 period. The increase in new orders is
attributable to higher sales in the Company's core Baltimore and Washington
markets due to an improved interest rate environment in the current period as
compared to the prior year third quarter, as well as to sales associated with
the Company's expansion markets.
Gross profit margins in the third quarter of 1997 increased to 14.1%
compared to 13.5% for the same 1996 quarter. The increase in gross profit
margins from the prior year quarter was primarily due to more favorable market
conditions in certain of the Company's markets as compared to the prior year
quarter, and continued emphasis on controlling construction costs.
SG&A expenses for the third quarter of 1997 increased both in dollars and
as a percentage of revenues compared to the prior year 1996 quarter. A portion
of the increase was due to a non-recurring $1,600 incentive payment earned by
the Company's Board of Directors pursuant to the terms of the Company's Plan of
Reorganization that became effective on September 30, 1993. Additionally, the
increase is also partially attributable to a net quarter to quarter increase in
costs associated with certain management incentive plans, as well as to costs
incurred to grow the Company's expansion markets to full operational levels.
21
Backlog units and dollars were 2,870 and $553,409, respectively, at
September 30, 1997 compared to 2,398 and $436,487, respectively, at September
30, 1996. The increase in backlog units and dollars is primarily attributable to
a 23% increase in new orders for the six month period ended September 30, 1997
compared to the same 1996 period.
The Company believes that earnings before interest, taxes, depreciation and
amortization ("EBITDA") provides a meaningful comparison of operating
performance of the homebuilding segment because it excludes the amortization of
certain intangible assets. Although the Company believes the calculation is
helpful in understanding the performance of the homebuilding segment, EBITDA
should not be considered a substitute for net income or cash flow as indicators
of the Company's financial performance or its ability to generate liquidity.
CALCULATION OF EBITDA:
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------
1997 1996
---------------- ----------------
Operating income $19,526 $20,073
Depreciation 840 701
Amortization of excess reorganization
value 1,613 1,761
Other non cash expense 2,000 -
------- -------
HOMEBUILDING EBITDA $23,979 $22,535
======= =======
% OF HOMEBUILDING REVENUES 7.6% 7.2%
Homebuilding EBITDA in the third quarter of 1997 was $1,444 or 6.4% higher
than in the third quarter of 1996, and as a percentage of revenues increased to
7.6% from 7.2%.
FINANCIAL SERVICES SEGMENT
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The financial services segment generated operating income of $1,336 for the
three months ended September 30, 1997 compared to operating income of $416
during the same period in 1996. Loan closings were $396,117 and $338,895 during
the respective quarters ended September 30, 1997 and 1996, representing an
increase of 17% in 1997. This result was achieved despite continued price
competition in the mortgage banking market.
Mortgage banking fees had a net increase of $182, representing a 3%
increase when comparing the respective quarters of September 30, 1997 and 1996.
Mortgage banking fees have been impacted by the lower servicing fee income
resulting from the decrease in the servicing portfolio. This has been offset by
the lower loss on the sale of servicing rights during the 1997 period. A summary
of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1997 1996
------ --------
Net gain on sale of loans $4,397 $ 4,412
Servicing 244 1,239
Title services 1,766 1,678
Loss on sale of servicing rights - (1,104)
------ -------
$6,407 $ 6,225
====== =======
Effective during the second quarter of 1997, the mortgage banking
operations sold the remaining portion of its core mortgage servicing portfolio.
The sale of the core mortgage servicing portfolio and the ongoing sale of
servicing rights on a flow basis are the result of the concentration of the
mortgage banking
22
operations on the primary business of providing mortgage finance and related
services to NVR and other homebuyers. The total servicing portfolio at September
30, 1997 was $180,327 compared with $583,964 at September 30, 1996.
HOMEBUILDING SEGMENT
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
During the first nine months of 1997, homebuilding operations generated
revenues of $837,298 compared to revenues of $796,425 in the first nine months
of 1996. The increase in revenues was primarily due to a 2.6% increase in the
number of homes settled from 4,335 in 1996 to 4,448 in 1997, and to a 2.4%
increase in the average settlement price from $182.8 in 1996 to $187.1 in 1997.
New orders increased by 13.8% to 4,852 during the first nine months of 1997
compared with 4,262 during the first nine months of 1996. The increase in new
orders is attributable to higher sales in the Company's core Baltimore and
Washington markets due to an improved interest rate environment in the current
period as compared to the prior nine month period, as well as to sales
associated with the Company's expansion markets.
Gross profit margins increased to 13.7% in the first nine months of 1997
compared to 13.4% in the first nine months of 1996. The increase in gross profit
margins from the prior year was primarily attributable to more favorable market
conditions in certain of the Company's markets, fewer additional weather-related
costs incurred in the construction of homes as a result of mild winter weather
conditions in NVR's principal markets in the first quarter of 1997 as compared
to the first quarter of 1996 and continued emphasis on controlling construction
costs.
SG&A expenses for the nine month period ending September 30, 1997 increased
both in dollars as well as a percentage of revenues compared to the prior year
1996 period. A portion of the increase was due to a non-recurring $1,600
incentive payment earned by the Company's Board of Directors pursuant to the
terms of the Company's Plan of Reorganization that became effective on September
30, 1993. Additionally, the increase is also attributable to a net period to
period increase in costs associated with certain management incentive plans,
increased costs that correspond to the aforementioned increase in revenues, and
costs incurred to grow the Company's expansion markets to full operational
levels.
The Company's executive officers and certain other key management personnel
participate in the 1994 Management Incentive Plan (the "Plan"), a variable stock
award plan adopted by the Board of Directors pursuant to the Company's 1993 Plan
of Reorganization. Approximately one-third of the 1,089,200 total shares granted
under the Plan are eligible to vest on December 31, 1997 if certain full year
earnings targets are met or exceeded. Because the Plan qualifies as a variable
plan pursuant to APB Opinion No. 25, Accounting for Stock Issued to Employees,
the current year expense, if earned, will be based on the closing price of NVR
common stock as quoted on the American Stock Exchange on December 31, 1997.
There are approximately 200,000 more shares eligible for vesting in the current
year under the Plan than were available under a similar plan expensed in 1996.
Because of the increased number of shares available for vesting under the Plan,
and based upon the significant appreciation in the market price of NVR's common
stock during the third quarter of 1997, the additional non-cash expense, if
fully earned, associated with this Plan in the fourth quarter of 1997 could be
significantly greater than the amounts expensed under the similar plan in the
fourth quarter of 1996. As of September 30, 1997 the Company has accrued
approximately $3,000 associated with the Plan.
23
CALCULATION OF HOMEBUILDING EBITDA:
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1997 1996
---------------- ---------------
Operating income $53,897 $51,476
Depreciation 2,531 2,104
Amortization of excess reorganization
value 4,839 5,283
Other non-cash expense 3,000 -
------- -------
HOMEBUILDING EBITDA $64,267 $58,863
======= =======
% OF HOMEBUILDING REVENUES 7.7% 7.4%
Homebuilding EBITDA for the first nine months of 1997 was $5,404 or 9.2%
higher than the first nine months of 1996, and as a percentage of revenues
increased to 7.7% from 7.4%.
FINANCIAL SERVICES SEGMENT
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The financial services segment generated operating income of $3,111 for the
nine months ended September 30, 1997 compared to operating income of $2,136
during the same period in 1996. Loan closings were $1,043,068 and $949,918
during the respective nine month periods in 1997 and 1996, representing an
increase of 10%.
Mortgage banking fees had a net decrease of $816, representing a 4%
decrease when comparing the respective nine month periods of 1997 and 1996. This
decrease can be primarily attributed to the lower servicing fee income resulting
from the decrease in the servicing portfolio, partially offset by the higher
gain on sale of servicing rights and the lower gain on sale of loans resulting
from continued price competition in the mortgage banking market. A summary of
mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1997 1996
------- --------
Net gain on sale of loans $10,904 $11,531
Servicing 1,470 4,046
Title services 4,710 4,570
Gain/(loss) on sale of servicing rights 1,143 (1,104)
------- -------
$18,227 $19,043
======= =======
Effective during the second quarter of 1997, the mortgage banking
operations sold the remaining portion of its core mortgage servicing portfolio.
The sale of the core mortgage servicing portfolio and the ongoing sale of
servicing rights on a flow basis are the result of the concentration of the
mortgage banking operations on the primary business of providing mortgage
finance and related services to NVR and other homebuyers.
PENDING ADOPTION OF NEW ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share. SFAS No. 128 supersedes APB Opinion No. 15, Earnings per Share
("Opinion No. 15"), and requires the calculation and dual presentation of Basic
and Diluted earnings per share ("EPS"), replacing the measures of Primary and
Fully-diluted EPS as reported under Opinion No. 15. SFAS No. 128 is effective
for financial statements
24
issued for periods ending after December 15, 1997; earlier application is not
permitted. Accordingly, EPS for the periods presented on the accompanying
statements of income are calculated under the guidance of Opinion No. 15.
Under SFAS No. 128, EPS data would have been as follows:
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
----------------------------- ----------------------------
1997 1996 1997 1996
-------------- ------------- ------------- -------------
BASIC EPS $0.77 $0.61 $1.98 $1.41
DILUTED EPS $0.68 $0.58 $1.80 $1.36
In June 1997, the FASB also issued SFAS No. 130, Reporting Comprehensive
Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and
Related information. Both statements are effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Based on the nature of the Company's operations,
Management does not expect that, upon adoption of SFAS No. 130, future reported
comprehensive income will differ materially from future reported net income.
SFAS No. 131 establishes standards for the way that public enterprises report
information about operating segments in annual and interim financial statements.
Adoption of SFAS No. 131 will have no impact on the Company's results of
operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
NVR's homebuilding segment generally provides for its working capital cash
requirements using cash generated from operations and a short-term credit
facility. The homebuilding segment has available a $60,000 Working Capital
Revolving Credit facility (the "facility") to fund its working capital needs,
under which there were no amounts outstanding at September 30, 1997.
NVR's financial services segment provides for its mortgage origination and
other operating activities using cash generated from operations as well as
various short-term credit facilities. NVR Mortgage Finance, Inc. ("NVR Finance")
has available a $105,000 mortgage warehouse facility to fund its mortgage
origination activities, under which $80,262 was outstanding at September 30,
1997.
During March 1997, NVR Finance entered into an annually renewable,
uncommitted gestation mortgage-backed security repurchase agreement (the "Repo
Facility"). The maximum amount available under the Repo Facility is $45,000,
bringing NVR's total available borrowings under all such similar agreements to
$145,000. Amounts outstanding under the Repo Facility accrue interest at various
rates tied to the federal funds rate, depending on the type of collateral, and
are collateralized by gestation mortgage-backed securities. The covenants under
the Repo Facility are consistent with NVR Finance's mortgage warehouse credit
facility. There was $10,074 outstanding under all existing repurchase agreements
at September 30, 1997.
The Company believes that internally generated cash and borrowings
available under credit facilities will be sufficient to satisfy near and long
term cash requirements for working capital in both its homebuilding and mortgage
banking operations.
25
OTHER ELEMENTS IMPACTING LIQUIDITY
Subsequent to September 30, 1997, NVR Fox Ridge, Inc., a wholly owned
subsidiary of NVR Homes, Inc., itself wholly owned by NVR, purchased
substantially all of the assets and assumed certain liabilities of Fox Ridge
Homes, Inc. ("FRH"), a leading builder in Nashville, Tennessee. NVR Fox Ridge,
Inc. was renamed Fox Ridge Homes, Inc. ("Fox Ridge") in November, 1997. To
consummate the purchase on October 31, 1997, Fox Ridge assumed approximately
$15,160 of FRH's liabilities, paid FRH $14,250 in cash at settlement on October
31, 1997, and issued a note payable for the remaining $4,750 purchase price. The
note bears interest at 200 basis points above the federal funds target rate, and
will be paid in three annual installments on October 31, 1998, 1999 and 2000,
including accrued interest.
During the nine months ended September 30, 1997, the Company repurchased
approximately 2.3 million shares of its common stock at an aggregate purchase
price of $35,475 . The Company may, from time to time, repurchase additional
shares of its common stock, pursuant to repurchase authorizations by the Board
of Directors and subject to the restrictions contained within the Company's debt
agreements.
NVR HOMES, INC. CONSOLIDATED
- ----------------------------
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996
NVR Homes, Inc. ("Homes" or the "Company") is a wholly owned subsidiary of
NVR, Inc. ("NVR"). Homes conducts all of NVR's homebuilding operations.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
During the third quarter of 1997, Homes generated revenues of $316,874
compared to revenues of $312,658 in the third quarter of 1996. The change in
revenues is primarily due to a 2.0% decrease in the number of homes settled from
1,672 in 1996 to 1,639 in 1997 and to a 3.3% increase in the average settlement
price from $186.0 in 1996 to $192.1 in 1997. New orders of 1,366 during the
third quarter of 1997 increased 41.0% compared with the 969 new orders generated
during the same 1996 period. The increase in new orders is attributable to
higher sales in the Company's core Baltimore and Washington markets due to an
improved interest rate environment in the current period as compared to the
prior year third quarter, as well as to sales associated with the Company's
expansion markets.
Gross profit margins in the third quarter of 1997 increased to 14.1%
compared to 13.5% for the same 1996 quarter. The increase in gross profit
margins from the prior year quarter was primarily due to more favorable market
conditions in certain of the Company's markets as compared to the prior year
quarter, and continued emphasis on controlling construction costs.
SG&A expenses for the third quarter of 1997 increased $8,781 as compared to
the same 1996 period, and as a percentage of revenues increased to 9.2% in the
1997 quarter from 6.6% in the 1996 quarter. The increase is partially
attributable to a net quarter to quarter increase in costs associated with
certain management incentive plans, as well as to costs incurred to grow the
Company's expansion markets to full operational levels. Further, beginning on
October 1, 1996, Homes incurs royalty expenses for use of the Ryan Homes and
NVHomes tradenames based on a percentage of settlement revenues. The tradenames
are owned by RVN, Inc., a subsidiary of NVR. During the quarter ended September
30, 1997, Homes incurred royalty expenses totaling $5,992.
Backlog units and dollars were 2,870 and $553,409, respectively, at
September 30, 1997 compared to 2,398 and $436,487, respectively, at September
30, 1996. The increase in backlog units and dollars is primarily attributable to
a 23% increase in new orders for the six month period ended September 30, 1997
compared to the same 1996 period.
26
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
During the first nine months of 1997, Homes generated revenues of $837,298
compared to revenues of $796,425 in the first nine months of 1996. The increase
in revenues was primarily due to a 2.6% increase in the number of homes settled
from 4,335 in 1996 to 4,448 in 1997, and to a 2.4% increase in the average
settlement price from $182.8 in 1996 to $187.1 in 1997. New orders increased by
13.8% to 4,852 during the first nine months of 1997 compared with 4,262 during
the first nine months of 1996. The increase in new orders is attributable to
higher sales in the Company's core Baltimore and Washington markets due to an
improved interest rate environment in the current period as compared to the
prior nine month period, as well as to sales associated with the Company's
expansion markets.
Gross profit margins increased to 13.7% in the first nine months of 1997
compared to 13.4% in the first nine months of 1996. The increase in gross profit
margins from the prior year was primarily attributable to more favorable market
conditions in certain of the Company's markets, fewer additional weather-related
costs incurred in the construction of homes as a result of mild winter weather
conditions in Homes' principal markets in the first quarter of 1997 as compared
to the first quarter of 1996 and continued emphasis on controlling construction
costs.
SG&A expenses for the period ended September 30, 1997 increased $21,693 as
compared to the same 1996 period, and as a percentage of revenues increased to
8.6% in the 1997 period from 6.4% in the 1996 period. The increase is partially
attributable to a net period to period increase in costs associated with certain
management incentive plans, increased costs that correspond to the
aforementioned increase in revenues, and costs incurred to grow the Company's
expansion markets to full operational levels. The increase is also due to
royalty expenses incurred for use of the Ryan Homes and NVHomes tradenames as
explained above. During the nine months ended September 30, 1997, Homes incurred
royalty expenses totaling $15,902.
PENDING ADOPTION OF NEW ACCOUNTING PRINCIPLES
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
information. Both statements are effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Based on the nature of the Company's operations,
Management does not expect that, upon adoption of SFAS No. 130, future reported
comprehensive income will differ materially from future reported net income.
SFAS No. 131 establishes standards for the way that public enterprises report
information about operating segments in annual and interim financial statements.
Adoption of SFAS No. 131 will have no impact on the Company's results of
operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Homes generally provides for its working capital cash requirements using
cash generated from operations and a short-term credit facility. The Company has
available a $60,000 Working Capital Revolving Credit agreement to fund its
working capital needs, under which no amounts were outstanding at September 30,
1997. The Company believes that internally generated cash and borrowings
available
27
under credit facilities will be sufficient to satisfy near and long term cash
requirements for working capital in its homebuilding operations.
OTHER ELEMENTS IMPACTING LIQUIDITY
Subsequent to September 30, 1997, NVR Fox Ridge, Inc., a wholly owned
subsidiary of NVR Homes, Inc., itself wholly owned by NVR, purchased
substantially all of the assets and assumed certain liabilities of Fox Ridge
Homes, Inc. ("FRH"), a leading builder in Nashville, Tennessee. NVR Fox Ridge,
Inc. was renamed Fox Ridge Homes, Inc. ("Fox Ridge") in November, 1997. To
consummate the purchase on October 31, 1997, Fox Ridge assumed approximately
$15,160 of FRH's liabilities, paid FRH $14,250 in cash at settlement on October
31, 1997, and issued a note payable for the remaining $4,750 purchase price. The
note bears interest at 200 basis points above the federal funds target rate, and
will be paid in three annual installments on October 31, 1998, 1999 and 2000,
including accrued interest.
NVR FINANCIAL SERVICES, INC. CONSOLIDATED
- -----------------------------------------
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NVR Financial Services, Inc. ("NVRFS" or the "Company") is a wholly owned
subsidiary of NVR, Inc. ("NVR"). NVRFS, through its subsidiaries, conducts all
of NVR's mortgage banking operations.
NVRFS generated operating income of $1,107 for the three months ended
September 30, 1997 compared to operating income of $184 during the same period
in 1996. Loan closings were $396,117 and $338,895 during the respective quarters
ended September 30, 1997 and 1996, representing an increase of 17% in 1997. This
result was achieved despite continued price competition in the mortgage banking
market.
Mortgage banking fees had a net increase of $182, representing a 3%
increase when comparing the respective quarters of September 30, 1997 and 1996.
Mortgage banking fees have been impacted by the lower servicing fee income
resulting from the decrease in the servicing portfolio. This has been offset by
the lower loss on the sale of servicing rights during the 1997 period. A summary
of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1997 1996
------ --------
Net gain on sale of loans $4,397 $ 4,412
Servicing 244 1,239
Title services 1,766 1,678
Loss on sale of servicing rights - (1,104)
------ -------
$6,407 $ 6,225
====== =======
General and administrative expenses in the current period decreased $710 as
compared to the prior period quarter. The decrease was attributable to the
reduction in the servicing portfolio in the third quarter of 1996, resulting in
lower servicing administrative expenses in the current period, and to
improvement in the efficiency of the mortgage banking operations. Further,
expenses related to the amortization of mortgage servicing rights decreased $285
as compared to the prior period also due to the servicing portfolio reduction.
Effective during the second quarter of 1997, NVRFS sold the remaining
portion of its core mortgage servicing portfolio. The sale of the core mortgage
servicing portfolio and the ongoing sale of servicing rights on a flow basis are
the result of the concentration of the mortgage banking operations on the
primary business of providing mortgage finance and related services to NVR and
other homebuyers.
28
The total servicing portfolio at September 30, 1997 was $180,327 compared with
$583,964 at September 30, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NVRFS generated operating income of $2,470 for the nine months ended
September 30, 1997 compared to operating income of $1,680 during the same period
in 1996. Loan closings were $1,043,068 and $949,918 during the respective nine
month periods in 1997 and 1996, representing an increase of 10%.
Mortgage banking fees had a net decrease of $816, representing a 4%
decrease when comparing the respective nine month periods of 1997 and 1996.
This decrease can be primarily attributed to the lower servicing fee income
resulting from the decrease in the servicing portfolio, partially offset by the
higher gain on sale of servicing rights and the lower gain on sale of loans
resulting from continued price competition in the mortgage banking market. A
summary of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1997 1996
------- --------
Net gain on sale of loans $10,904 $11,531
Servicing 1,470 4,046
Title services 4,710 4,570
Gain/(loss) on sale of servicing rights 1,143 (1,104)
------- -------
$18,227 $19,043
======= =======
The decrease in mortgage banking fees was partially offset by a current
period reduction in expenses related to the amortization of mortgage servicing
rights of $1,054 as compared to the prior period due to the reduction in the
size of the Company's servicing portfolio as described below. Further, general
and administrative expenses in the current period decreased $1,105 as compared
to the prior period quarter. The decrease was attributable to the reduction in
the servicing portfolio in the third quarter of 1996, resulting in lower
servicing administrative expenses in the current period, and to improvement in
the efficiency of the mortgage banking operations.
Effective during the second quarter of 1997, the mortgage banking
operations sold the remaining portion of its core mortgage servicing portfolio.
The sale of the core mortgage servicing portfolio and the ongoing sale of
servicing rights on a flow basis are the result of the concentration of the
mortgage banking operations on the primary business of providing mortgage
finance and related services to NVR and other homebuyers.
PENDING ADOPTION OF NEW ACCOUNTING PRINCIPLES
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
information. Both statements are effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Based on the nature of the Company's operations,
Management does not expect that, upon adoption of SFAS No. 130, future reported
comprehensive income will differ materially from future reported net income.
SFAS No. 131 establishes standards for the way that public enterprises report
information about operating segments in annual and interim financial statements.
Adoption of SFAS No. 131 will have no impact on the Company's results of
operations or financial condition.
29
LIQUIDITY AND CAPITAL RESOURCES
NVRFS provides for its mortgage origination and other operating activities
using cash generated from operations as well as various short-term credit
facilities. NVR Mortgage Finance, Inc. ("NVR Finance") has available a $105,000
mortgage warehouse facility to fund its mortgage origination activities, under
which $80,262 was outstanding at September 30, 1997.
During March 1997, NVR Finance entered into an annually renewable,
uncommitted gestation mortgage-backed security repurchase agreement (the "Repo
Facility"). The maximum amount available under the Repo Facility is $45,000,
bringing NVRFS's total available borrowings under all such similar agreements to
$145,000. Amounts outstanding under the Repo Facility accrue interest at various
rates tied to the federal funds rate, depending on the type of collateral, and
are collateralized by gestation mortgage-backed securities. The covenants under
the Repo Facility are consistent with NVR Finance's mortgage warehouse credit
facility. There was $10,074 outstanding under all existing repurchase agreements
at September 30, 1997.
The Company believes that internally generated cash and borrowings
available under credit facilities will be sufficient to satisfy near and long
term cash requirements for working capital in its mortgage banking operations.
RVN, INC.
- ---------
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
On October 1, 1996, NVR, Inc. ("NVR") capitalized RVN, Inc. ("RVN"), a
Delaware holding company, with $65 in cash and the Ryan Homes and NVHomes
tradenames (the "Tradenames"). Under a royalty agreement entered into on October
1, 1996 with NVR Homes, Inc. ("Homes"), NVR's homebuilding subsidiary, RVN earns
royalty fees based on a percentage of settlement revenue for allowing Homes to
use the Tradenames to market homes. RVN earns 100% of its revenue from Homes.
RVN earned royalty revenues of $5,992 and $15,902 during the quarter ended
September 30, 1997 and the nine months ended September 30, 1997, respectively,
and has no significant other income or general and administrative expenses.
PENDING ADOPTION OF NEW ACCOUNTING PRINCIPLES
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
information. Both statements are effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. Based on the nature of the Company's operations,
Management does not expect that, upon adoption of SFAS No. 130, future reported
comprehensive income will differ materially from future reported net income.
SFAS No. 131 establishes standards for the way that public enterprises report
information about operating segments in annual and interim financial statements.
Adoption of SFAS No. 131 will have no impact on the Company's results of
operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
RVN provides for its working capital cash requirements using cash generated
solely from operations. As shown in RVN's statement of cash flows for the period
ended September 30, 1997, cash generated from operations is primarily
distributed to NVR. Insofar as Homes' ability to make royalty payments is not
impaired, the Company believes that internally generated cash will be sufficient
to satisfy its near and long term cash requirements.
30
PART II
-------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
A. 11. Computation of Earnings per Share.
B. 27. Financial Data Schedule.
C. The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1997.
31
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- --------------------------------- ----
11 Computation of Earnings per Share 34
27 Financial Data Schedule 35
32
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 24, 1998 NVR, Inc.
By: /s/ Paul C. Saville
-------------------
Paul C. Saville
Senior Vice President Finance and
Chief Financial Officer
33
EXHIBIT 11
NVR, INC.
Computation of Earnings Per Share
(amounts in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1997 1996 1997 1996
-------- -------- -------- --------
1. Net income $ 9,006 $ 8,274 $ 23,812 $ 20,784
======== ======== ======== ========
2. Weighted average number of shares
outstanding 11,682 13,643 12,051 14,696
3. Shares issuable upon exercise
of dilutive options, warrants and
subscriptions outstanding during
period, based on average market
price 1,531 374 1,205 442
-------- -------- -------- --------
4. Shares issuable upon exercise
of dilutive options, warrants and
subscriptions outstanding during
period, based on higher of average
or end of period market price 1,885 374 1,931 442
-------- -------- -------- --------
5. Weighted average number of shares
and share equivalents outstanding
(2 + 3) 13,213 14,017 13,256 15,138
======== ======== ======== ========
6. Weighted average number of shares
outstanding assuming full dilution
(2 + 4) 13,567 14,017 13,982 15,138
======== ======== ======== ========
7. Earnings per share and
share equivalents (1/5) $ 0.68 $ 0.59 $ 1.80 $ 1.37
======== ======== ======== ========
8. Earnings per share, assuming
full dilution (1/6) $ 0.66 $ 0.59 $ 1.70 $ 1.37
======== ======== ======== ========
34
5
0000906163
NVR, INC.
1,000
U.S. DOLLARS
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
1
57,095
0
9,095
0
201,211
0
17,852
0
530,279
0
120,000
0
0
156,292
(15,288)
530,279
837,298
860,665
722,586
795,669
5,655
0
14,590
44,751
20,939
23,812
0
0
0
23,812
1.80
1.70
ITEM REPRESENTS THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE.
