UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 May 6, 1998 there were 11,323,796 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-Q
INDEX
- --------------------------------------------------------------------------------
Page
----
PART I FINANCIAL INFORMATION
- ------
Item 1. NVR, Inc. Consolidated Financial Statements
-------------------------------------------
Consolidated Balance Sheets at March 31, 1998
(unaudited) and December 31, 1997.......................................... 4
Consolidated Statements of Income for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 6
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 7
Notes to Consolidated Financial Statements................................. 8
NVR Homes, Inc. Consolidated Financial Statements
-------------------------------------------------
Consolidated Balance Sheets at March 31, 1998
(unaudited) and December 31, 1997.......................................... 11
Consolidated Statements of Income for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 12
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 13
Notes to Consolidated Financial Statements................................. 14
NVR Financial Services, Inc. Consolidated Financial Statements
--------------------------------------------------------------
Consolidated Balance Sheets at March 31, 1998
(unaudited) and December 31, 1997.......................................... 16
Consolidated Statements of Income for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 17
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 18
Notes to Consolidated Financial Statements................................. 19
RVN, Inc. Financial Statements
------------------------------
Balance Sheets at March 31, 1998
(unaudited) and December 31, 1997.......................................... 21
Statements of Income for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 21
Statements of Cash Flows for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 22
Notes to Financial Statements.............................................. 23
NVR, INC.
FORM 10-Q
INDEX-CONTINUED
- --------------------------------------------------------------------------------
Page
----
Fox Ridge Homes, Inc. Financial Statements
------------------------------------------
Balance Sheets at March 31, 1998
(unaudited) and December 31, 1997.......................................... 24
Statements of Income for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 25
Statements of Cash Flows for the Three
Months Ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited)................................................. 26
Notes to Financial Statements.............................................. 27
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 28
PART II OTHER INFORMATION
- -------
Item 6. Exhibits and Reports on Form 8-K........................................... 34
Exhibit Index.............................................................. 35
Signature.................................................................. 36
3
PART I
------
Item 1.
- -------
NVR, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(unaudited)
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 31,802 $ 41,684
Receivables 4,674 3,398
Inventory:
Lots and housing units, covered under
sales agreements with customers 193,562 165,132
Unsold lots and housing units 47,522 51,434
Manufacturing materials and other 4,799 7,475
-------- --------
245,883 224,041
Property, plant and equipment, net 16,820 17,241
Reorganization value in excess of amounts
allocable to identifiable assets, net 67,753 69,366
Goodwill, net 10,479 10,753
Contract land deposits 37,677 36,992
Other assets 23,585 22,424
-------- --------
438,673 425,899
-------- --------
MORTGAGE BANKING:
Cash and cash equivalents 7,476 4,041
Mortgage loans held for sale, net 167,517 115,744
Mortgage servicing rights, net 2,971 2,220
Property and equipment, net 724 637
Reorganization value in excess of amounts
allocable to identifiable assets, net 11,428 11,700
Other assets 5,204 4,380
-------- --------
195,320 138,722
-------- --------
TOTAL ASSETS $633,993 $564,621
======== ========
See notes to consolidated financial statements.
4
NVR, Inc.
Consolidated Balance Sheets
(dollars in thousands, except share data)
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
HOMEBUILDING:
Accounts payable $ 63,100 $ 67,987
Accrued expenses and other liabilities 104,967 94,931
Notes payable 5,706 5,728
Other term debt 14,022 14,017
Senior notes 120,000 120,000
-------- --------
307,795 302,663
-------- --------
MORTGAGE BANKING:
Accounts payable and other liabilities 11,790 8,925
Notes payable 158,079 108,393
-------- --------
169,869 117,318
-------- --------
Total liabilities 477,664 419,981
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,053,489 and
19,995,494 shares issued as of
March 31, 1998 and December 31, 1997,
respectively 201 200
Paid-in-capital 160,433 164,731
Retained earnings 86,837 75,977
Less treasury stock at cost- 8,535,827
and 8,900,972 shares at March 31, 1998
and December 31, 1997, respectively (91,142) (96,268)
-------- --------
Total shareholders' equity 156,329 144,640
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $633,993 $564,621
======== ========
See notes to consolidated financial statements.
5
NVR, INC.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31,1997
------------------- ------------------
Homebuilding:
Revenues $ 291,547 $ 238,987
Other income 155 509
Cost of sales (247,956) (207,469)
Selling, general and administrative (19,965) (16,094)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (1,886) (1,613)
--------- ---------
Operating income 21,895 14,320
Interest expense (4,153) (4,057)
--------- ---------
Homebuilding income 17,742 10,263
--------- ---------
MORTGAGE BANKING:
Mortgage banking fees 7,687 5,122
Interest income 1,855 1,083
Other income 222 53
General and administrative (5,583) (5,029)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets (272) (272)
Interest expense (1,491) (390)
--------- ---------
Operating income 2,418 567
--------- ---------
TOTAL SEGMENT INCOME 20,160 10,830
Income tax expense (9,300) (5,067)
--------- ---------
Net income $ 10,860 $ 5,763
========= =========
BASIC EARNINGS PER SHARE $ 0.95 $ 0.45
========= =========
DILUTED EARNINGS PER SHARE $ 0.81 $ 0.42
========= =========
See notes to consolidated financial statements.
6
NVR, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31,1997
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,860 $ 5,763
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 3,450 3,286
Mortgage loans closed (578,334) (297,698)
Proceeds from sales of mortgage loans 526,271 282,630
Gain on sale of loans (5,701) (3,092)
Net change in assets and liabilities:
Decrease/(increase) in inventories (21,842) 966
Increase in receivables (1,249) (2,663)
Increase/(decrease) in accounts
payable and accrued expenses 9,451 (4,634)
Other, net (1,719) --
--------- ---------
Net cash used by operating activities (58,813) (15,442)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of mortgage-backed
securities 474 6,910
Purchase of property, plant
and equipment (932) (684)
Principal payments on mortgage-backed
securities 1,152 1,013
Proceeds from sales of mortgage
servicing rights 2,984 2,102
Other, net (466) (712)
--------- ---------
Net cash provided by investing
activities 3,212 8,629
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in other term debt (49) (57)
Redemption of bonds (476) (7,042)
Net borrowings (repayments) under
notes payable 49,664 19,492
Purchase of treasury stock -- (23,475)
Other, net 15 374
--------- ---------
Net cash provided/(used) by
financing activities 49,154 (10,708)
--------- ---------
Net decrease in cash (6,447) (17,521)
Cash, beginning of the period 45,725 74,780
--------- ---------
Cash, end of period $ 39,278 $ 57,259
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid during the period $ 2,122 $ 1,387
========= =========
Income taxes paid, net of refunds $ 1,752 $ 161
========= =========
See notes to consolidated financial statements.
7
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share and 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. 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 three
month period ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLES
During the quarter ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. For the
quarters ended March 31, 1998 and 1997, comprehensive income equaled net income;
therefore, a separate statement of comprehensive income is not included in the
accompanying financial statements.
The Company will also implement SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information in 1998. SFAS No. 131 establishes
standards for the way that public enterprises report information about operating
segments in annual and interim financial statements. Because SFAS No. 131 has a
disclosure-only effect on the notes to the Company's financial statements,
adoption of SFAS No. 131 has no impact on the Company's results of operations or
financial condition. In the year of adoption, the disclosure requirements of
SFAS No. 131 need not be applied to interim financial statements. The Company
will implement SFAS No. 131 in its full year 1998 financial statements.
8
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share and share data)
3. SHAREHOLDERS' EQUITY
A summary of changes in shareholders' equity is presented below:
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------ --------- -------- ----------
Balance, December 31, 1997 $200 $164,731 $75,977 $(96,268)
Net income - - 10,860 -
Option activity 1 14 - -
Tax benefit from stock based
compensation activity - 814 - -
Performance share activity - (5,126) - 5,126
---- -------- ------- --------
Balance, March 31, 1998 $201 $160,433 $86,837 $ 91,142
==== ======== ======= ========
Approximately 365,000 shares were reissued from the treasury during January
1998 in satisfaction of benefits earned and expensed in 1997 under an equity-
based employee benefit plan. The average cost basis for the shares reissued
from the treasury was $14.04 per share. In addition, 87,081 options were
exercised during the first quarter of 1998, with NVR realizing approximately $15
in aggregate equity proceeds.
4. DEBT
On January 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the issuance of up to $400 million of
the Company's debt securities. The 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 April 14, 1998, the Company completed an offering under the shelf
registration statement for $145 million of senior notes due 2005 (the "New
Notes"), resulting in aggregate net proceeds to the Company of approximately
$142.8 million after fees and expenses. The New Notes mature on June 1, 2005
and bear interest at 8%, payable semi-annually on June 1 and December 1 of each
year, commencing June 1, 1998. The New Notes are senior unsecured obligations
of the Company, ranking equally in right of payment with the Company's other
existing and future unsecured indebtedness. The New Notes are guaranteed on a
senior unsecured basis by NVR Homes, Inc. An additional $30 million in
principal is available for issuance under the New Note offering.
The Company intends to apply the net proceeds received from the offering of
the New Notes to refinance other debt. On April 21, 1998, the Company commenced
a tender offer to repurchase the $120 million in aggregate principal outstanding
under the Company's 11% Senior Notes due 2003 ("Senior Notes") (the "Tender
Offer"). The Tender Offer expires at 12:00 midnight, New York City
9
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share and share data)
time, on May 18, 1998, unless otherwise extended by the Company. The total
amount of funds required by the Company to pay the consideration in connection
with the Tender Offer, including all related costs and expenses, is estimated to
be approximately $130 million, plus accrued interest to the settlement date.
Assuming 100% of the outstanding principal amount of the Senior Notes is
tendered and accepted for payment prior to the expiration date of the Tender
Offer, the Company expects to record an extraordinary loss upon the
extinguishment of debt of approximately $8.0 million (net of related income tax
benefits of approximately $5.0 million) in the second quarter of 1998. The
Company has agreed in the supplemental indenture filed in connection with the
offer of the New Notes to call any Senior Notes not tendered on December 1, 1998
at a redemption price of 105.5% of the principal amount thereof.
In addition, the Company has irrevocably exercised its option to purchase,
effective May 1999, certain office buildings currently utilized by NVR's
mortgage banking operations, which will thereby extinguish the Company's
obligations under the capital lease pertaining to these buildings. The
effective interest rate on the capital lease debt is 13.8%. Pending the
purchase, the Company has irrevocably deposited approximately $12 million of
proceeds from the New Notes into escrow administered by a trustee, which
represents the approximate amount necessary to exercise the purchase option.
The Company expects to recognize an extraordinary loss on extinguishment of debt
related to this purchase offer of approximately $2.0 million (post-tax) upon the
settlement of the capital lease obligation.
NVR has reached a nonbinding agreement in principle with the agent bank
under its $60 million working capital credit facility, which in its current form
expires in May 2000, regarding a restructuring of the working capital credit
facility. Pursuant to the terms of such agreement in principle, (a) NVR, Inc.
would be the borrower under the credit facility instead of NVR Homes, Inc. (b)
the facility would provide for borrowings of up to $100 million (with an initial
committed amount of $60 million) on an unsecured basis, (c) NVR Homes would
guarantee the facility, (d) the facility would be scheduled to expire in May
2001, and (e) NVR would reorganize its corporate structure by merging NVR Homes,
NVR Financial Services, Inc. and NVR, Inc. NVR intends to complete the
restructuring by May 1999. In the event NVR does not complete the restructuring
by that time, the facility would expire in November 1999. As a result of the
restructuring, the parent company, NVR, Inc., would conduct its homebuilding
business directly and would conduct its mortgage banking business through its
direct wholly owned subsidiary, NVR Mortgage Finance, Inc.
In January 1998, NVR Mortgage Finance, Inc., a subsidiary of NVR's wholly
owned mortgage banking subsidiary, NVR Financial Services, Inc., amended its
mortgage warehouse facility to increase the available borrowing limit to
$125,000 from $100,000. The other terms and conditions are substantially the
same as those in effect at December 31, 1997.
10
NVR HOMES, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
MARCH 31, 1998 DECEMBER 31, 1997
--------------- -----------------
ASSETS (unaudited)
Cash and cash equivalents $ 31,795 $ 41,673
Receivables 5,154 3,671
Inventory:
Lots and housing units, covered under
sales agreements with customers 193,562 165,132
Unsold lots and housing units 47,522 51,434
Manufacturing materials and other 4,799 7,475
-------- --------
245,883 224,041
Property, plant and equipment, net 9,876 10,147
Reorganization value in excess of amounts
allocable to identifiable assets, net 67,753 69,366
Goodwill, net 10,479 10,753
Contract land deposits 37,677 36,992
Other assets 20,807 19,869
-------- --------
Total assets $429,424 $416,512
======== ========
LIABILITIES AND SHAREHOLDER'S
EQUITY
Accounts payable $ 62,646 $ 67,534
Accrued expenses and other liabilities 71,389 77,453
Advances from affiliates, net 119,983 102,461
Notes payable 5,630 5,650
Other term debt 5,579 5,627
-------- --------
TOTAL LIABILITIES 265,227 258,725
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 69,509 63,099
-------- --------
Total shareholder's equity 164,197 157,787
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $429,424 $416,512
======== ========
See notes to consolidated financial statements.
11
NVR HOMES, INC.
Consolidated Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
--------------- ---------------
REVENUES:
Homebuilding revenues $291,547 $238,987
Other income 155 509
-------- --------
Total revenues 291,702 239,496
EXPENSES:
Cost of sales 247,956 207,469
Interest expense-external 427 333
Interest expense-affiliates 3,669 3,669
Selling, general and administrative 25,249 20,357
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill 1,886 1,613
-------- --------
Total expenses 279,187 233,441
Income before income tax expense 12,515 6,055
Income tax expense (6,105) (3,023)
-------- --------
NET INCOME $ 6,410 $ 3,032
======== ========
See notes to the consolidated financial statements.
12
NVR HOMES, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,410 $ 3,032
Adjustments to reconcile net income
to net cash used by
operating activities:
Depreciation and amortization 2,677 2,325
Net change in assets and liabilities:
Decrease (increase) in inventories (21,842) 966
Increase in receivables (1,483) (3,161)
Decrease in accounts payable
and accrued liabilities (11,233) (25,480)
Other, net (1,356) 63
-------- --------
Net cash used by operating activities (26,827) (22,255)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (505) (594)
Proceeds from sale of property,
plant & equipment - 1
-------- --------
Net cash used by investing
activities (505) (593)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from affiliates 17,522 4,707
Principal repayments of notes payable and
other term debt (68) (56)
-------- --------
Net cash provided by financing activities 17,454 4,651
-------- --------
Net decrease in cash (9,878) (18,197)
Cash, beginning of the period 41,673 71,471
-------- --------
Cash, end of period $ 31,795 $ 53,274
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 3,958 $ 3,955
======== ========
Taxes paid during the period
(net of refunds) $ 11,832 $ 17,023
======== ========
See notes to consolidated financial statements.
13
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. 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 three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLES
During the quarter ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. For the
quarters ended March 31, 1998 and 1997, comprehensive income equaled net income;
therefore, a separate statement of comprehensive income is not included in the
accompanying financial statements.
The Company will also implement SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information in 1998. SFAS No. 131 establishes
standards for the way that public enterprises report information about operating
segments in annual and interim financial statements. Because the Company has
only one reportable operating segment pursuant to the guidance of SFAS No. 131,
the implementation of SFAS No. 131 has no impact on the Company's financial
statements.
3. DEBT
In January 1998, Homes amended its working capital credit facility. The
amended facility resulted in a reduction of the borrowing rate from 2.0% above
the Eurodollar Rate to 1.5% above the Eurodollar Rate. The other terms and
conditions are substantially the same as those under the facility in effect at
December 31, 1997. The facility expires in May 2000.
NVR has reached a nonbinding agreement in principle with the agent bank
under the facility, regarding a restructuring of the facility. Pursuant to the
terms of such agreement in principle, (a) NVR, Inc. would be the borrower under
the facility instead of Homes, (b) the facility would provide for borrowings of
up to $100 million (with an initial committed amount of $60 million) on an
unsecured basis,
14
NVR HOMES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands)
(c) Homes would guarantee the facility, (d) the facility would be scheduled to
expire in May 2001, and (e) NVR would reorganize its corporate structure by
merging Homes, NVR Financial Services, Inc. and NVR, Inc. NVR intends to
complete the restructuring by May 1999. In the event NVR does not complete the
restructuring by that time, the facility would expire in November 1999. As a
result of the restructuring, the parent company, NVR, Inc., would conduct its
homebuilding business directly and would conduct its mortgage banking business
through its direct wholly owned subsidiary, NVR Mortgage Finance, Inc.
On April 14, 1998, NVR completed an offering under a universal shelf
registration statement for $145 million of senior notes due 2005 (the "New
Notes"). The New Notes mature on June 1, 2005 and bear interest at 8%, payable
semi-annually on June 1 and December 1 of each year, commencing June 1, 1998.
Homes has issued a full and unconditional guarantee relative to the New Notes.
15
NVR FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
MORTGAGE BANKING:
Cash and cash equivalents $ 7,476 $ 4,041
Receivables 3,870 3,308
Mortgage loans held for sale, net 167,517 115,744
Property and equipment, net 724 637
Real estate acquired through foreclosure 845 504
Mortgage servicing rights, net 2,971 2,220
Reorganization value in excess of amount
allocable to identifiable assets, net 11,428 11,700
Other assets 479 559
-------- --------
195,310 138,713
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Mortgage-backed securities, net 19,007 20,010
Funds held by trustee 1,170 245
Receivables 734 799
Other assets 204 231
-------- --------
21,115 21,285
-------- --------
TOTAL ASSETS $216,425 $159,998
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
MORTGAGE BANKING:
Accounts payable $ 9,647 $ 5,380
Accrued expenses and other liabilities 2,795 3,824
Due to affiliates 3,556 116
Notes payable 158,079 108,393
-------- --------
174,077 117,713
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Accrued expenses and other liabilities 908 681
Bonds payable, net 20,197 20,595
-------- --------
21,105 21,276
-------- --------
TOTAL LIABILITIES 195,182 138,989
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000
shares authorized; 100 shares issued
and outstanding - -
Additional paid-in capital 20,382 20,382
Retained earnings 861 627
-------- --------
Total shareholder's equity 21,243 21,009
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $216,425 $159,998
======== ========
See notes to consolidated financial statements.
16
NVR FINANCIAL SERVICES, INC.
Consolidated Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
--------------- ---------------
MORTGAGE BANKING:
Interest income $ 1,855 $ 1,083
Gain on sales of mortgage
loans 5,701 3,092
Servicing fees 192 715
Title fees 1,794 1,315
Other, net 224 50
------- -------
Total revenues 9,766 6,255
------- -------
Interest expense (1,491) (390)
Interest on advances
from affiliates (96) (328)
General and administrative (5,506) (4,872)
Amortization of mortgage
servicing rights (77) (157)
Amortization of reorganization
value in excess of amounts
allocable to identifiable
assets (272) (272)
------- -------
Total expenses (7,442) (6,019)
------- -------
Operating income 2,324 236
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Interest income 409 596
Interest expense (399) (545)
Other, net (12) (48)
------- -------
Operating income (2) 3
------- -------
TOTAL OPERATING INCOME 2,322 239
Income tax expense (1,088) (134)
------- -------
NET INCOME $ 1,234 $ 105
======= =======
See notes to consolidated financial statements.
17
NVR FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,234 $ 105
Adjustments to reconcile net income to
net cash used in
operating activities:
Accretion of net discount on
mortgage-backed securities (86) (63)
Amortization 458 537
Gain on sales of loans (5,701) (3,092)
Mortgage loans closed (578,334) (297,698)
Proceeds from sales of mortgage loans 526,271 282,630
Other, net 4,212 586
--------- ---------
Net cash used in operating activities (51,946) (16,995)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in funds held by trustee (925) (773)
Principal payments on mortgage-
backed securities 1,152 1,013
Proceeds from sales of mortgage-
backed securities 474 6,910
Purchases of office facilities and equipment (413) (25)
Proceeds from sales of mortgage
servicing rights 2,984 2,102
Other, net 459 47
--------- ---------
Net cash provided by investing activities 3,731 9,274
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable 49,686 19,492
Redemption of bonds (476) (7,042)
Return of capital/dividend to parent (1,000) (4,026)
Change in due to affiliates 3,440 10
--------- ---------
Net cash provided by financing activities 51,650 8,434
--------- ---------
Net increase in cash 3,435 713
Cash, beginning of period 4,041 3,247
--------- ---------
Cash, end of period $ 7,476 $ 3,960
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 1,560 $ 1,167
========= =========
Taxes paid during the period, net of refunds $ 481 $ (79)
========= =========
See notes to consolidated financial statements.
18
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. 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 three month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLES
During the quarter ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. For the
quarters ended March 31, 1998 and 1997, comprehensive income equaled net income;
therefore, a separate statement of comprehensive income is not included in the
accompanying financial statements.
The Company will also implement SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information in 1998. SFAS No. 131 establishes
standards for the way that public enterprises report information about operating
segments in annual and interim financial statements. Because SFAS No. 131 has a
disclosure-only effect on the notes to the Company's financial statements,
adoption of SFAS No. 131 has no impact on the Company's results of operations or
financial condition. In the year of adoption, the disclosure requirements of
SFAS No. 131 need not be applied to interim financial statements. The Company
will implement SFAS No. 131 in its full year 1998 financial statements.
19
NVR FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands)
3. SHAREHOLDER'S EQUITY
A summary of changes in shareholder's equity is presented below:
ADDITIONAL
COMMON PAID-IN RETAINED TOTAL
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------
BALANCE, DECEMBER 31, 1997 $ - $ 20,382 $ 627 $21,009
Dividend - - (1,000) (1,000)
Net income - - 1,234 1,234
------ ---------- -------- -------
BALANCE, MARCH 31, 1998 $ - $ 20,382 $ 861 $21,243
====== ========== ======== =======
4. Debt
In January 1998, NVR Mortgage Finance, Inc., a subsidiary of NVRFS, amended
its mortgage warehouse facility to increase the available borrowing limit to
$125,000 from $100,000. The other terms and conditions are substantially the
same as those in effect at December 31, 1997.
20
RVN, INC.
Balance Sheets
(dollars in thousands, except share data)
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 7 $ 11
Royalty receivable 1,910 1,880
------ ------
Total assets $1,917 $1,891
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable and accrued expenses $ 658 $ 643
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 1,194 1,183
------ ------
Total shareholder's equity 1,259 1,248
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,917 $1,891
====== ======
RVN, INC.
Statements of Income
(dollars in thousands)
(unaudited)
Three Three
Months Months
Ended Ended
March 31, March 31,
1998 1997
---------- ----------
REVENUES:
Royalty revenue $ 5,329 $ 4,548
Other income 1 3
------- -------
5,330 4,551
EXPENSES:
General and administrative (7) (14)
------- -------
Income before income tax expense 5,323 4,537
Income tax expense (1,885) (1,588)
------- -------
NET INCOME $ 3,438 $ 2,949
======= =======
See notes to financial statements
21
RVN, INC.
Statements of Cash Flows
(dollars in thousands)
(unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,438 $ 2,949
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in royalty receivables (30) (185)
Increase in accounts payable and
accrued liabilities 15 39
------- -------
Net cash provided by
operating activities 3,423 2,803
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend to parent (3,427) (2,840)
------- -------
Net cash used by
financing activities (3,427) (2,840)
------- -------
Net decrease in cash (4) (37)
Cash, beginning of period 11 62
------- -------
Cash, end of period $ 7 $ 25
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ - $ -
======= =======
Taxes paid during the period, net of refunds $ 1,842 $ 1,524
======= =======
See notes to financial statements.
22
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 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 three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
2. ADOPTION OF NEW ACCOUNTING PRINCIPLES
During the quarter ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. For the
quarters ended March 31, 1998 and 1997, comprehensive income equaled net income;
therefore, a separate statement of comprehensive income is not included in the
accompanying financial statements.
The Company will also implement SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information in 1998. SFAS No. 131 establishes
standards for the way that public enterprises report information about operating
segments in annual and interim financial statements. Because the Company has
only one reportable operating segment pursuant to the guidance of SFAS No. 131,
the implementation of SFAS No. 131 has no impact on the Company's financial
statements.
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, 1997 $ 1 $ 64 $ 1,183
Net income - - 3,438
Dividend to parent - - (3,427)
------ ---------- --------
BALANCE, MARCH 31, 1998 $ 1 $ 64 $ 1,194
====== ========== ========
23
FOX RIDGE HOMES, INC.
Balance Sheets
(dollars in thousands)
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ - $ -
Accounts receivable 32 192
Inventory, net 20,947 19,879
Investment in FRP, LP 214 179
Property and equipment, net 229 228
Goodwill, net 10,479 10,753
Other 175 122
------- -------
TOTAL ASSETS $32,076 $31,353
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable - lot acquisitions $ 900 $ 900
Notes payable - acquisition note 4,730 4,750
Accounts payable 1,324 2,281
Due to affiliate 8,965 8,012
Accrued expenses 1,043 637
Deferred taxes 281 281
------- -------
TOTAL LIABILITIES 17,243 16,861
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, $.01 par, 100,000 shares
authorized; 100 shares issued and outstanding - -
Additional paid in capital 14,250 14,250
Retained earnings 583 242
------- -------
Total shareholder's equity 14,833 14,492
------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $32,076 $31,353
======= =======
See notes to financial statements.
24
Fox Ridge Homes, Inc.
Statements of Income
(dollars in thousands)
(unaudited)
(SUCCESSOR) (PREDECESSOR)*
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
REVENUES:
Homebuilding revenues $11,458 $11,231
Other income 2 15
------- -------
Total revenues 11,460 11,246
EXPENSES:
Cost of sales 9,574 9,363
Interest expense 266 166
Selling, general and administrative 778 749
Goodwill amortization 273 -
------- -------
Total expenses 10,891 10,278
Income before income tax expense 569 968
Income tax expense (228) (51)
------- -------
NET INCOME $ 341 $ 917
======= =======
* Period is prior to the date that the Company was acquired by NVR Homes, Inc.
(see note 1)
See notes to the financial statements.
25
FOX RIDGE HOMES, INC.
Statements of Cash Flows
(dollars in thousands)
(unaudited)
(SUCCESSOR) (PREDECESSOR)*
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 341 $ 915
Adjustments to reconcile net income
to net cash used by
operating activities:
Depreciation and amortization 302 42
Equity earnings in FRP, LP (35) -
Net change in assets and liabilities:
Decrease (increase) in inventories (1,068) 203
Decrease (increase) in receivables 160 (461)
Decrease in accounts payable
and accrued liabilities (551) (880)
Other, net (53) 12
------- ------
Net cash used by operating activities (904) (169)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (29) (70)
Dividends from FRP, LP - 79
------- ------
Net cash (used) provided by investing
activities (29) 9
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends - (999)
Increase in advances from affiliates 953 -
Net borrowings (repayments) under notes payable (20) 1,898
------- ------
Net cash provided by financing activities 933 899
------- ------
Net increase (decrease) in cash - 739
Cash, beginning of the period - 660
------- ------
Cash, end of period $ - $1,399
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 172 $ 130
======= ======
Taxes paid during the period
(net of refunds) $ (142) $ 133
======= ======
* Period is prior to the date that the Company was acquired by NVR Homes, Inc.
(see note 1)
See notes to financial statements.
26
FOX RIDGE HOMES, INC.
Notes to Financial Statements
(dollars in thousands)
1. Basis of Presentation
Fox Ridge Homes, Inc. ("Fox Ridge" or the "Successor"), a wholly owned
subsidiary of NVR Homes Inc. ("Homes"), itself wholly owned by NVR, Inc.
("NVR"), was formed in 1997 to purchase substantially all of the assets and
assume certain liabilities (the "Purchase Transaction") of Fox Ridge Homes, Inc.
("FRH" or the "Predecessor"), a home builder in Nashville, Tennessee, which
occurred on October 31, 1997 (the "Purchase Date"). The accompanying unaudited
financial statements include the accounts of the Successor for the quarter
ending March 31, 1998, and include the accounts of the Predecessor for the
quarter ending March 31, 1997. As a result, the financial statements for
periods subsequent to the Purchase Date are not comparable to the financial
statements for periods prior to the Purchase Date. The statements are provided
pursuant to Fox Ridge's status as a guarantor of NVR's 11% Senior Notes due
2003. 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 three
month period ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
2. Adoption of New Accounting Principles
During the quarter ended March 31, 1998, Fox Ridge adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. For the
quarters ended March 31, 1998 and 1997, comprehensive income equaled net income;
therefore, a separate statement of comprehensive income is not included in the
accompanying financial statements.
Fox Ridge will also implement SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information in 1998. SFAS No. 131 establishes
standards for the way that public enterprises report information about operating
segments in annual and interim financial statements. Because Fox Ridge has only
one reportable operating segment pursuant to the guidance of SFAS No. 131, the
implementation of SFAS No. 131 has no impact on Fox Ridge's financial
statements.
27
ITEM 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except per share and share data)
FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-Q, 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.
Certain, but not necessarily all, of such forward-looking statements can be
identified by the use of forward-looking terminology, such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereof or comparable terminology, or by discussion of
strategies, each of which involves risks and uncertainties. All statements
other than of historical facts included herein, including those regarding market
trends, the Company's financial position, business strategy, projected plans and
objectives of management for future operations, are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results or performance of 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,
technological problems encountered with year 2000 issues, 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 MONTHS ENDED MARCH 31, 1998 AND 1997
NVR, Inc. ("NVR" or the "Company") is a holding company that operates in
two business segments: homebuilding and mortgage banking. Holding company
general and administrative expenses are fully allocated to the homebuilding and
mortgage banking segments in the information presented below.
HOMEBUILDING SEGMENT
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
During the first quarter of 1998, homebuilding operations generated
revenues of $291,547 compared to revenues of $238,987 in the first quarter of
1997. The change in revenues was due primarily to a 17.3% increase in the
number of homes settled from 1,315 units in 1997 to 1,543 units in 1998, and to
a 4% increase in the average selling price from $181.2 in 1997 to $188.3 in
1998. The increase in settlements is a direct result of the substantially
higher backlog at the beginning of the 1998 quarter as compared to the beginning
of the same 1997 quarter. New orders of 2,262 during the first quarter of 1998
increased 56.5% compared with the 1,445 new orders generated during the same
1997 period. The increase in new orders was the result of more favorable market
conditions in most of the markets in which the Company operates as compared to
the prior year quarter, and to a lesser extent, new orders generated by Fox
Ridge Homes, Inc, acquired by the Company during the fourth quarter of 1997.
Gross profit margins in the first quarter of 1998 increased to 15.0% as
compared to 13.2% for the quarter ended March 31, 1997. The increase in gross
margins was due to continuing favorable market
28
conditions, the Company's continued focus on controlling construction costs,
unusually mild winter weather experienced in most of the Company's markets, and
improved margins in the Company's expansion markets. SG&A expenses for the first
quarter of 1998 increased $3,871 from the first quarter of 1997, and as a
percentage of revenues was consistent with the prior year quarter. The increase
in SG&A dollars is due primarily to the increase in revenues noted above.
Backlog units and dollars were 3,914 and $782,690, respectively, at March
31, 1998 compared to 2,596 and $496,993, respectively, at March 31, 1997. The
increase in backlog units and dollars is primarily attributable to a 42.6%
increase in new orders for the six month period ended March 31, 1998 compared to
the same 1997 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 HOMEBUILDING EBITDA:
THREE MONTHS ENDED MARCH 31,
------------------------------
1998 1997
-------------- --------------
Operating income $21,895 $14,320
Depreciation 936 830
Amortization of excess reorganization
value/goodwill 1,886 1,613
------- -------
Homebuilding EBITDA $24,717 $16,763
======= =======
% of Homebuilding revenues 8.5% 7.0%
======= =======
Homebuilding EBITDA in the first quarter of 1998 was $7,954 higher than in
the first quarter of 1997, and as a percentage of homebuilding revenues,
increased from 7.0% to 8.5%.
MORTGAGE BANKING SEGMENT
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The mortgage banking segment generated operating income of $2,418 for the
three months ended March 31, 1998 compared to operating income of $567 during
the same period in 1997. Loan closings were $578,334 and $297,698 during the
respective quarters ended March 31, 1998 and 1997, representing an increase of
94%.
Mortgage banking fees had a net increase of $2,565, representing a 50%
increase when comparing the respective quarters of March 31, 1998 and 1997. The
increase can be attributed to the higher gain on sale of loans resulting from
the significant increase in loan closings, which is partially offset by the
lower servicing fee income resulting from the decrease in the servicing
portfolio. A summary of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1997 1996
------- -------
Net gain on sale of loans $5,701 $3,092
Servicing 192 715
Title services 1,794 1,315
------ ------
$7,687 $5,122
====== ======
29
YEAR 2000 ISSUE
The Year 2000 Issue is the risk that computer programs using two-digit date
fields will fail to properly recognize the year 2000, with the result being
business interruptions due to computer system failures by the Company's software
or hardware or that of government entities, service providers and vendors. In
response to the Year 2000 Issue, the Company has developed a plan to assess the
Company's exposure to Year 2000 Issues, and is currently in the process of
performing its detailed review. Based on the Company's continuing assessment,
Management does not believe that the Company's exposure to Year 2000 Issues will
have a material effect on its financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
On January 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the issuance of up to $400 million of
the Company's debt securities. The 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 April 14, 1998, the Company completed an offering under the shelf
registration statement for $145 million of senior notes due 2005 (the "New
Notes"), resulting in aggregate net proceeds to the Company of approximately
$142.8 million after fees and expenses. The New Notes mature on June 1, 2005
and bear interest at 8%, payable semi-annually on June 1 and December 1 of each
year, commencing June 1, 1998. The New Notes are senior unsecured obligations
of the Company, ranking equally in right of payment with the Company's other
existing and future unsecured indebtedness. The New Notes are guaranteed on a
senior unsecured basis by NVR Homes, Inc. An additional $30 million in
principal is available for issuance under the New Note offering.
The Company intends to apply the net proceeds received from the offering of
the New Notes to refinance other debt. On April 21, 1998, the Company commenced
a tender offer to repurchase the $120 million in aggregate principal outstanding
under the Company's 11% Senior Notes due 2003 ("Senior Notes") (the "Tender
Offer"). The Tender Offer expires at 12:00 midnight, New York City time, on May
18, 1998, unless otherwise extended by the Company. The total amount of funds
required by the Company to pay the consideration in connection with the Tender
Offer, including all related costs and expenses, is estimated to be
approximately $130 million, plus accrued interest to the settlement date.
Assuming 100% of the outstanding principal amount of the Senior Notes is
tendered and accepted for payment prior to the expiration date of the Tender
Offer, the Company expects to record an extraordinary loss upon the
extinguishment of debt of approximately $8.0 million (net of related income tax
benefits of approximately $5.0 million) in the second quarter of 1998. The
Company has agreed in the supplemental indenture filed in connection with the
offer of the New Notes to call any Senior Notes not tendered on December 1, 1998
at a redemption price of 105.5% of the principal amount thereof.
In addition, the Company has irrevocably exercised its option to purchase,
effective May 1999, certain office buildings currently utilized by NVR's
mortgage banking operations, which will thereby extinguish the Company's
obligations under the capital lease pertaining to these buildings. The
effective interest rate on the capital lease debt is 13.8%. Pending the
purchase, the Company has irrevocably deposited approximately $12 million of the
proceeds from the New Notes into an escrow account administered by a trustee,
which represents the approximate amount necessary to exercise the purchase
option. The Company expects to recognize an extraordinary loss on
extinguishment of debt related to this purchase offer of approximately $2.0
million (post-tax) upon the settlement of the capital lease obligation.
30
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
credit facility to fund its working capital needs, under which no amounts were
outstanding at March 31, 1998. The working capital credit facility expires in
May 2000. NVR has reached a nonbinding agreement in principle with the agent
bank under the working capital credit facility, regarding a restructuring of the
working capital credit facility. Pursuant to the terms of such agreement in
principle, (a) NVR, Inc. would be the borrower under the credit facility instead
of NVR Homes, Inc. (b) the facility would provide for borrowings of up to $100
million (with an initial committed amount of $60 million) on an unsecured basis,
(c) NVR Homes would guarantee the facility, (d) the facility would be scheduled
to expire in May 2001, and (e) NVR would reorganize its corporate structure by
merging NVR Homes, NVR Financial Services, Inc. and NVR, Inc. NVR intends to
complete the restructuring by May 1999. In the event NVR does not complete the
restructuring by that time, the facility would expire in November 1999. As a
result of the restructuring, the parent company, NVR, Inc., would conduct its
homebuilding business directly and would conduct its mortgage banking business
through its direct wholly owned subsidiary, NVR Mortgage Finance, Inc. There can
be no assurance that the restructuring of the facility or the corporate
reorganization will be consummated as described, or at all.
NVR's mortgage banking segment provides for its mortgage origination and
other operating activities using cash generated from operations as well as
various short-term credit facilities. In January 1998, NVR Mortgage Finance,
Inc., a subsidiary of NVR's wholly owned mortgage banking subsidiary, NVR
Financial Services, Inc., amended its mortgage warehouse facility to increase
the available borrowing limit to $125,000 from $100,000. The other terms and
conditions are substantially the same as those in effect at December 31, 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.
NVR HOMES, INC. CONSOLIDATED
- ----------------------------
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NVR Homes, Inc. ("Homes" or the "Company") is a wholly owned subsidiary of
NVR, Inc. ("NVR"). Homes conducts all of NVR's homebuilding operations.
During the first quarter of 1998, homebuilding operations generated
revenues of $291,547 compared to revenues of $238,987 in the first quarter of
1997. The change in revenues was due primarily to a 17.3% increase in the
number of homes settled from 1,315 units in 1997 to 1,543 units in 1998, and to
a 4% increase in the average selling price from $181.2 in 1997 to $188.3 in
1998. The increase in settlements is a direct result of the substantially
higher backlog at the beginning of the 1998 quarter as compared to the beginning
of the same 1997 quarter. New orders of 2,262 during the first quarter of 1998
increased 56.5% compared with the 1,445 new orders generated during the same
1997 period. The increase in new orders was the result of more favorable market
conditions in most of the markets in which the Company operates as compared to
the prior year quarter and to a lesser extent, new orders generated by Fox Ridge
Homes, Inc, acquired by the Company during the fourth quarter of 1997.
Gross profit margins in the first quarter of 1998 increased to 15.0% as
compared to 13.2% for the quarter ended March 31, 1997. The increase in gross
margins was due to continuing favorable market conditions, the Company's
continued focus on controlling construction costs, unusually mild winter weather
experienced in most of the Company's markets and improved margins in the
Company's expansion markets.
31
SG&A expenses for the first quarter of 1998 increased $4,892 from the first
quarter of 1997, and as a percentage of revenues increased to 8.7% from 8.5%.
The increase in SG&A dollars is due primarily to the increase in revenues noted
above, and to increased royalty fees paid to RVN, Inc., a subsidiary of NVR.
Backlog units and dollars were 3,914 and $782,690, respectively, at March
31, 1998 compared to 2,596 and $496,993, respectively, at March 31, 1997. The
increase in backlog units and dollars is primarily attributable to a 42.6%
increase in new orders for the six month period ended March 31, 1998 compared to
the same 1997 period.
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 credit facility to fund its working
capital needs, under which no amounts were outstanding at March 31, 1998. The
facility currently expires in May 2000. NVR has reached a nonbinding agreement
in principle with the agent bank under the working capital credit facility,
regarding a restructuring of the facility. Pursuant to the terms of such
agreement in principle, (a) NVR, Inc. would be the borrower under the credit
facility instead of NVR Homes, Inc. (b) the facility would provide for
borrowings of up to $100 million (with an initial committed amount of $60
million) on an unsecured basis, (c) NVR Homes would guarantee the facility, (d)
the facility would be scheduled to expire in May 2001, and (e) NVR would
reorganize its corporate structure by merging NVR Homes, NVR Financial Services,
Inc. and NVR, Inc. NVR intends to complete the restructuring by May 1999. In
the event NVR does not complete the restructuring by that time, the facility
would expire in November 1999. As a result of the restructuring, the parent
company, NVR, Inc., would conduct its homebuilding business directly and would
conduct its mortgage banking business through its direct wholly owned
subsidiary, NVR Mortgage Finance, Inc. There can be no assurance that the
restructuring of the facility or the corporate reorganization will be
consummated as described, or at all.
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 homebuilding operations.
NVR FINANCIAL SERVICES, INC. CONSOLIDATED
- -----------------------------------------
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
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 $2,322 for the three months ended
March 31, 1998 compared to operating income of $239 during the same period in
1997. Loan closings were $578,334 and $297,698 during the respective quarters
ended March 31, 1998 and 1997, representing an increase of 94%.
Mortgage banking fees had a net increase of $2,565, representing a 50%
increase when comparing the respective quarters of March 31, 1998 and 1997. The
increase can be attributed to the higher gain on sale of loans resulting from
the significant increase in loan closings, which is partially offset by the
lower servicing fee income resulting from the decrease in the servicing
portfolio. A summary of mortgage banking fees is noted below:
32
MORTGAGE BANKING FEES: 1997 1996
------- -------
Net gain on sale of loans $5,701 $3,092
Servicing 192 715
Title services 1,794 1,315
------ ------
$7,687 $5,122
====== ======
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. In January 1998, NVR Mortgage Finance, Inc., a subsidiary of NVRFS,
amended its mortgage warehouse facility to increase the available borrowing
limit to $125,000 from $100,000. The other terms and conditions are
substantially the same as those in effect at December 31, 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 MONTHS ENDED MARCH 31, 1998 AND 1997
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 Ryan Homes and
NVHomes tradenames to market homes. RVN earns 100% of its revenue from Homes.
The increase in royalty revenues in the current period as compared to the prior
period quarter results from higher revenues earned by Homes. RVN has no
significant other income or general and administrative expenses.
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 March 31, 1998, cash generated from operations is primarily
distributed to NVR. Insofar as Homes' ability to make royalty payments is not
impaired, RVN believes that internally generated cash will be sufficient to
satisfy its near and long term cash requirements.
FOX RIDGE HOMES, INC.
- ---------------------
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Fox Ridge Homes, Inc. ("Fox Ridge" or the "Successor"), a wholly owned
subsidiary of NVR Homes Inc. ("Homes"), itself wholly owned by NVR, Inc.
("NVR"), was formed during 1997 to purchase substantially all of the assets and
assume certain liabilities (the "Purchase Transaction") of Fox Ridge Homes, Inc.
("FRH" or the "Predecessor"), a home builder in Nashville, Tennessee. The below
analysis of the results of operations is a comparison of the Predecessor's
results for the three month's ended March 31, 1997 and the Successor's results
for the three month's ended March 31, 1998.
Income before income tax expense decreased $399 to $569 in the first
quarter of 1998 from $968 in the first quarter of 1997. The decrease is due to
goodwill amortization and increased interest costs incurred in the current year
quarter, both of which resulted from the Purchase Transaction. Gross margins
33
and SG&A dollars are essentially flat on settlements of 79 and 81 units for the
three months ended March 31, 1998 and 1997, respectively.
Backlog units and dollars were 219 and $32,504, respectively, at March 31,
1998 compared to 145 and $20,786, respectively, at March 31, 1997. The increase
in backlog units and dollars is primarily attributable to a 53.4% increase in
new orders for the six month period ended March 31, 1998 compared to the same
1997 period.
LIQUIDITY AND CAPITAL RESOURCES
Fox Ridge generally provides for its working capital cash requirements
using cash generated from operations and advances from Homes. Insofar as Homes'
ability to make advances is not impaired, Fox Ridge believes that internally
generated cash and borrowings available from Homes will be sufficient to satisfy
near and long term cash requirements.
PART II
-------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
a. 11. Computation of Earnings per Share.
b. The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1998.
34
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
11 Computation of Earnings per Share 37
27 Financial Data Schedule 38
35
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.
May 12, 1998 NVR, Inc.
By: /s/ Paul C. Saville
----------------------
Paul C. Saville
Senior Vice President Finance and
Chief Financial Officer
36
EXHIBIT 11
NVR, INC.
Computation of Earnings Per Share
(amounts in thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------- -------
1. Net income $10,860 $ 5,763
======= =======
2. Average number of shares outstanding 11,453 12,688
3. Shares issuable upon exercise of
dilutive options, warrants and
subscriptions outstanding during
period, based on average market price 2,034 971
------- -------
4. Average number of shares and share
equivalents outstanding (2 + 3) 13,487 13,659
======= =======
5. Basic earnings per share $ 0.95 $ 0.45
======= =======
6. Diluted earnings per share $ 0.81 $ 0.42
======= =======
5
0000906163
NVR, INC.
1,000
U.S. DOLLARS
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
1
39,278
0
4,674
0
245,883
0
17,544
0
633,993
0
120,000
0
0
160,634
(4,305)
633,993
291,547
301,466
247,956
273,504
2,158
0
5,644
20,160
9,300
10,860
0
0
0
10,860
0.95
0.81
Item represents the non-cash amortization of excess reorganization value and
goodwill.
5
0000906163
NVR, INC.
1,000
U.S. DOLLARS
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
1
57,259
0
5,902
0
170,727
0
18,472
0
498,833
0
120,000
0
0
156,009
(21,337)
498,833
238,987
245,754
207,469
228,592
1,885
0
4,447
10,830
5,067
5,763
0
0
0
5,763
0.45
0.43
Item represents the non-cash amortization of excess reorganization value.
