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 June 30, 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 character)
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 July 23, 1998 there were 11,313,963 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 ___
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NVR, INC.
FORM 10-Q
INDEX
================================================================================
Page
----
PART I FINANCIAL INFORMATION
- ------
Item 1. NVR, Inc. Consolidated Financial Statements
-------------------------------------------
Consolidated Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997.......................................... 4
Consolidated Statements of Income for the
Three Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited) and the
Six Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited).................................. 6
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 (unaudited) and
June 30, 1997 (unaudited)...................................... 7
Notes to Consolidated Financial Statements..................... 8
NVR Homes, Inc. Consolidated Financial Statements
-------------------------------------------------
Consolidated Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997.......................................... 11
Consolidated Statements of Income for the
Three Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited) and the
Six Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited).................................. 12
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 (unaudited) and
June 30, 1997 (unaudited)...................................... 13
Notes to Consolidated Financial Statements..................... 14
NVR Financial Services, Inc. Consolidated Financial Statements
--------------------------------------------------------------
Consolidated Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997.......................................... 16
Consolidated Statements of Income for the
Three Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited) and the
Six Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited).................................. 17
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 (unaudited) and
June 30, 1997 (unaudited)...................................... 18
Notes to Consolidated Financial Statements..................... 19
2
NVR, INC.
FORM 10-Q
INDEX-CONTINUED
================================================================================
Page
----
RVN, Inc. Financial Statements
------------------------------
Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997.......................................... 21
Statements of Income for the
Three Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited) and the
Six Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited).................................. 21
Statements of Cash Flows for the Six
Months Ended June 30, 1998 (unaudited) and
June 30, 1997 (unaudited)...................................... 22
Notes to Financial Statements.................................. 23
Fox Ridge Homes, Inc. Financial Statements
------------------------------------------
Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997.......................................... 24
Statements of Income for the
Three Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited) and the
Six Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited).................................. 25
Statements of Cash Flows for the Six
Months Ended June 30, 1998 (unaudited) and
June 30, 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 4. Submission of Matters to a Vote of Security Holders............ 38
Item 6. Exhibits and Reports on Form 8-K............................... 39
Exhibit Index.................................................. 40
Signature...................................................... 41
3
PART I
------
ITEM 1.
- -------
NVR, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
ASSETS (unaudited)
HOMEBUILDING:
Cash and cash equivalents $ 60,644 $ 41,684
Receivables 5,965 3,398
Inventory:
Lots and housing units, covered under
sales agreements with customers 230,142 165,132
Unsold lots and housing units 38,922 51,434
Manufacturing materials and other 5,673 7,475
-------- --------
274,737 224,041
Property, plant and equipment, net 16,429 17,241
Reorganization value in excess of amounts
allocable to identifiable assets, net 66,139 69,366
Goodwill, net 10,206 10,753
Contract land deposits 38,341 36,992
Other assets 24,231 22,424
-------- --------
496,692 425,899
-------- --------
MORTGAGE BANKING:
Cash and cash equivalents 12,096 4,041
Mortgage loans held for sale, net 181,740 115,744
Mortgage servicing rights, net 3,234 2,220
Property and equipment, net 461 637
Reorganization value in excess of amounts
allocable to identifiable assets, net 11,155 11,700
Other assets 6,112 4,380
-------- --------
214,798 138,722
-------- --------
TOTAL ASSETS $711,490 $564,621
======== ========
See notes to consolidated financial statements.
4
NVR, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS'
EQUITY
HOMEBUILDING:
Accounts payable $ 76,275 $ 67,987
Accrued expenses and other
liabilities 114,707 94,931
Notes payable 5,665 5,728
Other term debt 14,036 14,017
Senior notes 153,631 120,000
-------- --------
364,314 302,663
-------- --------
MORTGAGE BANKING:
Accounts payable and other
liabilities 14,557 8,925
Notes payable 174,583 108,393
-------- --------
189,140 117,318
-------- --------
Total liabilities 553,454 419,981
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,073,423 and
19,995,494
shares issued as of June 30, 1998 and
December 31, 1997, respectively 201 200
Paid-in-capital 160,882 164,731
Retained earnings 95,589 75,977
Less treasury stock at cost 8,761,127
and 8,900,972 shares at June 30, 1998
and December 31, 1997, respectively (98,636) (96,268)
-------- --------
Total shareholders' equity 158,036 144,640
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $711,490 $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 JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1998 1997 1998 1997
-------------- ------------- ------------- ------------
HOMEBUILDING:
Revenues $ 385,738 $ 281,437 $ 677,285 $ 520,424
Other income 1,010 258 1,165 767
Cost of sales (325,846) (242,809) (573,802) (450,278)
Selling, general and administrative (29,284) (17,222) (49,249) (33,316)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill (1,887) (1,613) (3,773) (3,226)
--------- --------- --------- ---------
Operating income 29,731 20,051 51,626 34,371
Interest expense (5,486) (4,264) (9,639) (8,321)
--------- --------- --------- ---------
Homebuilding income 24,245 15,787 41,987 26,050
--------- --------- --------- ---------
MORTGAGE BANKING:
Mortgage banking fees 10,684 6,698 18,371 11,820
Interest income 2,300 1,280 4,155 2,363
Other income 122 108 344 161
General and administrative (6,681) (5,737) (12,264) (10,766)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets (272) (272) (544) (544)
Interest expense (1,634) (869) (3,125) (1,259)
--------- --------- --------- ---------
Operating income 4,519 1,208 6,937 1,775
TOTAL SEGMENT INCOME 28,764 16,995 48,924 27,825
Income tax expense (13,269) (7,952) (22,569) (13,019)
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 15,495 9,043 26,355 14,806
Extraordinary loss from extinguishment
of indebtedness ( net of a $4,220 tax
benefit for the three and six months
ended June 30, 1998) (6,743) - (6,743) -
--------- --------- --------- ---------
$ 8,752 $ 9,043 $ 19,612 $ 14,806
NET INCOME ========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Income before extraordinary loss $ 1.36 $ 0.77 $ 2.32 $ 1.21
Extraordinary loss (0.59) - (0.59) -
--------- --------- --------- ---------
Basic earnings per share $ 0.77 $ 0.77 $ 1.73 $ 1.21
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Income before extraordinary loss $ 1.15 $ 0.71 $ 1.96 $ 1.12
Extraordinary loss (0.50) - (0.50) -
--------- --------- --------- ---------
Diluted earnings per share $ 0.65 $ 0.71 $ 1.46 $ 1.12
========= ========= ========= =========
See notes to consolidated financial statements.
6
NVR, INC.
Consolidated Statements of Cash Flows
(dollars in thousands, except share data)
(unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------
1998 1997
---------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,612 $ 14,806
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 6,799 6,552
Pre-tax extraordinary loss-extinguishment of indebtedness 10,963 -
Mortgage loans closed (1,237,123) (646,951)
Proceeds from sales of mortgage loans 1,172,047 618,062
Gain on sale of mortgage servicing rights (244) (1,143)
Gain on sale of loans (13,380) (6,507)
Net change in assets and liabilities:
Increase in inventories (50,696) (23,054)
Increase in receivables (2,459) (4,930)
Increase in accounts payable and accrued expenses 35,141 3,646
Other, net (3,259) (1,246)
----------- -----------
Net cash used by operating activities (62,599) (40,765)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of mortgage-backed securities 474 14,419
Purchase of property, plant and equipment (1,239) (1,131)
Principal payments on mortgage-backed securities 2,981 1,896
Proceeds from sales of mortgage servicing rights 8,570 9,184
Other, net (673) 307
----------- -----------
Net cash provided by investing activities 10,113 24,675
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of mortgage bonds (1,842) (15,416)
Extinguishment of 11% Senior Notes (120,235) -
Deferred financing fees (2,233) -
Issuance of 8% Senior Notes 145,000 -
Net borrowings under notes payable 66,032 31,442
Purchases of treasury stock (7,495) (29,401)
Other, net 274 408
----------- -----------
Net cash provided (used by) financing activities 79,501 (12,967)
Net increase (decrease) in cash 27,015 (29,057)
Cash, beginning of the period 45,725 74,780
----------- -----------
Cash, end of period $ 72,740 $ 45,723
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 17,799 $ 10,113
=========== ===========
Income taxes paid, net of refunds $ 12,604 $ 9,799
=========== ===========
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 1997 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 six-month
period ended June 30, 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 three
and six month periods ended June 30, 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.
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 - - 19,612 -
Tax benefit from stock-based
compensation activity - 1,005 - -
Option activity 1 273 - -
Treasury stock purchases - - - (7,495)
Performance share activity - (5,127) - 5,127
------- -------- -------- --------
BALANCE, JUNE 30, 1998 $ 201 $160,882 $ 95,589 $(98,636)
======= ======== ======== ========
8
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
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, 107,331 options were exercised
during the first six months of 1998, with NVR realizing approximately $274 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 has and will 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 expired at 12:00 midnight, New York City time,
on May 18, 1998. An aggregate principal amount of $111,369 was retired pursuant
to the Tender Offer, which resulted in the extraordinary loss of $6,743 (net of
a $4,220 tax benefit) included in the accompanying financial statements for the
three and six months ended June 30, 1998. The amount of funds expended to
complete the Tender offer totaled $125,893, including accrued interest. 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.
In June 1998, the Company, as borrower, entered into an unsecured working
capital revolving credit facility (the "Facility") with a syndicate of financial
institutions for a three-year term expiring on May 31, 2001. This Facility
replaces the previous working capital credit facility under which NVR Homes,
Inc., NVR's homebuilding subsidiary, was the borrower. The Facility provides for
borrowings
9
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share and share data)
of up to $100 million of which $60 million is currently committed. Under terms
of the Facility, an additional $10 million uncommitted overline is available to
the Company on a limited basis. The Company intends to merge NVR, Inc., NVR
Homes, Inc. and NVR Financial Services, Inc. on or before May 31, 1999 to
simplify its corporate structure. If the merger is not complete by that time,
the Facility will expire in November 1999.
On July 10, 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
$175,000, of which $150,000 is committed, and to ease certain restrictive
covenants. 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)
JUNE 30, 1998 DECEMBER 31, 1997
-------------- -----------------
ASSETS (unaudited)
Cash and cash equivalents $ 39,929 $ 41,673
Receivables 6,476 3,671
Inventory:
Lots and housing units, covered under
sales agreements with customers 230,142 165,132
Unsold lots and housing units 38,922 51,434
Manufacturing materials and other 5,673 7,475
-------- --------
274,737 224,041
Property, plant and equipment, net 9,640 10,147
Reorganization value in excess of amounts
allocable to identifiable assets, net 66,139 69,366
Goodwill, net 10,206 10,753
Contract land deposits 38,341 36,992
Other assets 21,601 19,869
-------- --------
TOTAL ASSETS $467,069 $416,512
======== ========
LIABILITIES AND SHAREHOLDER'S
EQUITY
Accounts payable $ 75,715 $ 67,534
Accrued expenses and other liabilities 85,731 77,453
Advances from affiliates, net 126,928 102,461
Notes payable 5,592 5,650
Other term debt 5,532 5,627
-------- --------
TOTAL LIABILITIES 299,498 258,725
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 72,883 63,099
-------- --------
Total shareholder's equity 167,571 157,787
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $467,069 $416,512
======== ========
See notes to consolidated financial statements.
11
NVR HOMES, INC.
Consolidated Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1998 1997 1998 1997
-------------- ------------- ------------- ------------
REVENUES:
Revenues $385,738 $281,437 $677,285 $520,424
Other income 460 248 615 757
-------- -------- -------- --------
Total Revenues 386,198 281,685 677,900 521,181
EXPENSES:
Cost of sales 325,846 242,809 573,802 450,278
Interest expense-external 690 462 1,117 795
Interest expense-affiliates 3,669 3,669 7,338 7,338
Selling, general and administrative 47,607 22,619 72,856 42,976
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill 1,887 1,613 3,773 3,226
-------- -------- -------- --------
Total expenses 379,699 271,172 658,886 504,613
Income before income tax expense 6,499 10,513 19,014 16,568
Income tax expense (3,125) (5,249) (9,230) (8,272)
-------- -------- -------- --------
NET INCOME $ 3,374 $ 5,264 $ 9,784 $ 8,296
======== ======== ======== ========
See notes to the consolidated financial statements.
12
NVR HOMES, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,784 $ 8,296
Adjustments to reconcile net income
to net cash used by
operating activities:
Depreciation and amortization 5,300 4,670
Net change in assets and liabilities
Increase in inventories (50,696) (23,054)
Increase in receivables (2,805) (5,647)
(Decrease) increase in accounts payable
and accrued liabilities 16,178 (7,578)
Other, net (2,816) (1,063)
-------- --------
Net cash used by operating activities (25,055) (24,376)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (1,003) (1,010)
Proceeds from sale of property,
plant & equipment - 33
-------- --------
Net cash used by investing activities (1,003) (977)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from affiliates 24,467 (4,851)
Principal repayments of term debt (95) (114)
Net borrowings under credit
lines and other notes payable (58) -
-------- --------
Net cash provided (used by)
financing activities 24,314 (4,965)
-------- --------
Net decrease in cash (1,744) (30,318)
Cash, beginning of the period 41,673 71,471
-------- --------
Cash, end of period $ 39,929 $ 41,153
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 8,157 $ 8,077
======== ========
Taxes paid during the period
(net of refunds) $ 13,267 $ 17,929
======== ========
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 and the Company's 8%
Senior Notes due 2005. 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 six-month period ended June 30, 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 three
and six month periods ended June 30, 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 June 1998, NVR, as borrower, entered into an unsecured working capital
revolving credit facility (the "Facility") with a syndicate of financial
institutions for a three-year term expiring on May 31, 2001. This Facility
replaces the previous working capital credit facility under which Homes was the
borrower. The Facility provides for borrowings of up to $100 million of which
$60 million is currently committed. Under terms of the Facility, an additional
$10 million uncommitted overline is available to NVR on a limited basis. NVR
intends to merge NVR, Inc., NVR Homes, Inc. and NVR Financial Services, Inc. on
or before May 31, 1999 to simplify its corporate structure. If the merger is
not complete by that time, the Facility will expire in November 1999.
14
NVR HOMES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands)
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)
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
MORTGAGE BANKING:
Cash and cash equivalents $ 12,096 $ 4,041
Receivables 4,504 3,308
Mortgage loans held for sale, net 181,740 115,744
Property and equipment, net 461 637
Real estate acquired through foreclosure 652 504
Mortgage servicing rights, net 3,234 2,220
Reorganization value in excess of amount
allocable to identifiable assets, net 11,155 11,700
Other assets 946 559
-------- --------
214,788 138,713
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Mortgage-backed securities, net 17,226 20,010
Funds held by trustee 1,598 245
Receivables 619 799
Other assets 215 231
-------- --------
19,658 21,285
-------- --------
TOTAL ASSETS $234,446 $159,998
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
MORTGAGE BANKING:
Accounts payable $ 11,345 $ 5,380
Accrued expenses and other liabilities 3,823 3,824
Due to affiliates 1,557 116
Notes payable 174,583 108,393
-------- --------
191,308 117,713
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Accrued expenses and other liabilities 869 681
Bonds payable, net 18,779 20,595
-------- --------
19,648 21,276
-------- --------
TOTAL LIABILITIES 210,956 138,989
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 3,108 627
-------- --------
Total shareholder's equity 23,490 21,009
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $234,446 $159,998
======== ========
See notes to consolidated financial statements.
16
NVR FINANCIAL SERVICES, INC.
Consolidated Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1998 1997 1998 1997
-------------- ------------- ------------- ------------
MORTGAGE BANKING:
Interest income $ 2,300 $1,280 $ 4,155 $ 2,363
Gain on sales of mortgage loans 7,679 3,415 13,380 6,507
Servicing fees 471 511 663 1,226
Gain on sale of servicing 244 1,143 244 1,143
Title fees 2,290 1,629 4,084 2,944
Other, net 124 107 348 157
------- ------ ------- -------
Total revenues 13,108 8,085 22,874 14,340
Interest expense-external 1,634 869 3,125 1,259
Interest expense-affiliates 291 84 387 412
General and administrative 6,603 5,621 12,109 10,493
Amortization of mortgage
servicing rights 78 116 155 273
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets 272 272 544 544
------- ------ ------- -------
Total expenses 8,878 6,962 16,320 12,981
------- ------ ------- -------
Operating income 4,230 1,123 6,554 1,359
LIMITED-PURPOSE FINANCING SUBSIDIARIES:
Interest income 370 574 779 1,170
Interest expense (366) (625) (765) (1,170)
Other, net (6) 52 (18) 4
------- ------ ------- -------
Operating income (2) 1 (4) 4
TOTAL OPERATING INCOME 4,228 1,124 6,550 1,363
Income tax expense (1,981) (618) (3,069) (752)
------- ------ ------- -------
NET INCOME $ 2,247 $ 506 $ 3,481 $ 611
======= ====== ======= =======
See notes to consolidated financial statements.
17
NVR FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,481 $ 611
Adjustments to reconcile net income to net cash
used in operating activities:
Accretion of net discount on
mortgage-backed securities (32) (70)
Amortization 748 1,015
Gain on sales of loans (13,380) (6,507)
Mortgage loans closed (1,237,123) (646,951)
Proceeds from sales of mortgage loans 1,172,047 618,062
Gain on sales of mortgage
servicing rights (244) (1,143)
Other, net 6,630 1,243
-------------- --------------
Net cash used in operating activities (67,873) (33,740)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in funds held by trustee (1,353) (347)
Principal payments on mortgage-
backed securities 2,981 1,896
Proceeds from sales of mortgage-
backed securities 474 14,419
Purchases of office facilities and equipment (213) (50)
Proceeds from sales of mortgage
servicing rights 8,570 9,184
Other, net 680 621
-------------- --------------
Net cash provided by investing activities 11,139 25,723
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 66,190 31,560
Redemption of bonds (1,842) (15,416)
Return of capital/dividend to parent (1,000) (7,029)
Change in due to affiliates 1,441 204
-------------- --------------
Net cash provided by
financing activities 64,789 9,319
-------------- --------------
Net increase in cash 8,055 1,302
Cash, beginning of period 4,041 3,247
-------------- --------------
Cash, end of period $ 12,096 $ 4,549
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 3,947 $ 2,628
============== ==============
Taxes paid during the period, net of refunds $ 2,550 $ 1,189
============== ==============
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 (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 six-month period ended June 30, 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 three
and six month periods ended June 30, 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.
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 - - 3,481 3,481
--------- ---------- ---------- -----------
BALANCE, JUNE 30, 1998 $ - $ 20,382 $ 3,108 $ 23,490
========= ========== ========== ===========
19
NVR FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands)
4. DEBT
On July 10, 1998, NVR Mortgage Finance, Inc., a subsidiary of NVRFS,
amended its mortgage warehouse facility to increase the available borrowing
limit to $175,000, of which $150,000 is committed, and to ease certain
restrictive covenants. 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)
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 14 $ 11
Royalty receivable 2,688 1,880
----------- ------------
TOTAL ASSETS $2,702 $ 1,891
=========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable and accrued expenses $ 927 $ 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 1,710 1,183
----------- ------------
Total shareholder's equity 1,775 1,248
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 2,702 $ 1,891
=========== ============
RVN, INC.
Statements of Income
(dollars in thousands)
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ---------------------------
1998 1997 1998 1997
-------------- ------------- ------------ ------------
REVENUES:
Royalty revenue $ 7,078 $ 5,362 $ 12,407 $ 9,910
Other income - 1 1 4
-------------- ------------ ------------ ------------
Total revenues 7,078 5,363 12,408 9,914
EXPENSES:
General and administrative 4 6 11 20
-------------- ------------ ------------ ------------
Income before income tax 7,074 5,357 12,397 9,894
Income tax expense (2,500) (1,868) (4,385) (3,456)
-------------- ------------ ------------ ------------
NET INCOME $ 4,574 $ 3,489 $ 8,012 $ 6,438
============== ============ ============ ============
See notes to financial statements.
21
RVN, INC.
Statements of Cash Flows
(dollars in thousands)
(unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,012 $ 6,438
Adjustments to reconcile net income to
net cash provided by
operating activities:
Increase in royalty receivables (808) (753)
Increase in accounts payable and
accrued liabilities 284 231
------- -------
Net cash provided by
operating activities 7,488 5,916
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend to parent (7,485) (5,957)
------- -------
Net cash used by
financing activities (7,485) (5,957)
------- -------
Net increase (decrease) in cash 3 (41)
Cash, beginning of period 11 62
------- -------
Cash, end of period $ 14 $ 21
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ - $ -
======= =======
Taxes paid during the period, net of refunds $ 4,033 $ 3,200
======= =======
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 "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 six-month
period ended June 30, 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 three
and six month period ended June 30, 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 - - 8,012
Dividend to parent - - (7,485)
------ ------- -------
BALANCE, JUNE 30, 1998 $ 1 $ 64 $ 1,710
====== ======= =======
23
FOX RIDGE HOMES, INC.
Balance Sheets
(dollars in thousands)
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ - $ -
Accounts receivable 38 192
Inventory, net 24,262 19,879
Investment in FRP, LP 81 179
Property and equipment, net 286 228
Goodwill, net 10,206 10,753
Other 177 122
------- -------
TOTAL ASSETS $35,050 $31,353
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable - lot acquisitions $ 900 $ 900
Notes payable - acquisition note 4,692 4,750
Accounts payable 3,183 2,281
Due to affiliate 9,220 8,012
Accrued expenses 1,485 637
Deferred taxes 281 281
------- -------
TOTAL LIABILITIES 19,761 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 1,039 242
------- -------
Total shareholder's equity 15,289 14,492
------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $35,050 $31,353
======= =======
See notes to financial statements.
24
FOX RIDGE HOMES, INC.
Statements of Income
(dollars in thousands)
(unaudited)
SUCCESSOR PREDECESSOR* SUCCESSOR PREDECESSOR*
--------- ------------ --------- ------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1998 1997 1998 1997
------------ --------------- ----------- --------------
REVENUES:
Revenues $13,912 $8,752 $25,370 $19,983
Other income 23 21 25 36
------- ------ ------- -------
Total Revenues 13,935 8,773 25,395 20,019
EXPENSES:
Cost of sales 11,718 7,461 21,292 16,824
Interest expense 278 279 544 445
Selling, general and administrative 910 821 1,688 1,570
Amortization of goodwill 274 - 547 -
------- ------ ------- -------
Total expenses 13,180 8,561 24,071 18,839
Income before income tax expense 755 212 1,324 1,180
Income tax expense (299) (12) (527) (63)
------- ------ ------- -------
NET INCOME $ 456 $ 200 $ 797 $ 1,117
======= ====== ======= =======
* Period is prior to the date that the Company was acquired by NVR Homes,
Inc. (see note 1)
See notes to financial statements.
25
FOX RIDGE HOMES, INC.
Statements of Cash Flows
(dollars in thousands)
(unaudited)
(SUCCESSOR) (PREDECESSOR)*
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 797 $ 1,117
Adjustments to reconcile net income
to net cash used by
operating activities:
Depreciation and amortization 605 62
Equity earnings in FRP, LP (35) (49)
Net change in assets and liabilities:
Increase in inventories (4,383) (3,649)
Decrease (increase) in receivables 154 (1,032)
(Decrease) increase in accounts payable
and accrued liabilities 1,750 (1,075)
Other, net (55) 4
------- -------
Net cash used by operating activities (1,167) (4,622)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (116) (82)
Dividends from FRP, LP 133 95
------- -------
Net cash provided by investing
activities 17 13
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends - (1,793)
Increase in advances from affiliates 1,208 -
Net borrowings (repayments) under notes payable (58) 6,252
------- -------
Net cash provided by financing activities 1,150 4,459
------- -------
Net decrease in cash - (150)
Cash, beginning of the period - 660
------- -------
Cash, end of period $ - $ 510
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 356 $ 212
======= =======
Taxes paid during the period
(net of refunds) $ (45) $ 78
======= =======
* 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 three and six
months ending June 30, 1998, and include the accounts of the Predecessor for the
three and six months ending June 30, 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 six-month
period ended June 30, 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 three
and six months ended June 30, 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 amounts)
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 AND SIX MONTHS ENDED JUNE 30, 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 JUNE 30, 1998 AND 1997
During the second quarter of 1998, homebuilding operations generated
revenues of $385,738 compared to revenues of $281,437 in the second quarter of
1997. The change in revenues is primarily due to a 34% increase in the number
of homes settled from 1,494 in 1997 to 1,995 in 1998 and to a 3% increase in the
average settlement price from $187.0 in 1997 to $192.2 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 2,533 during the second quarter of 1998 were 24% higher
than the 2,041 new orders generated during the prior 1997 period. The increase
in new orders was the result of continuing 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 second quarter of 1998 increased to 15.5%
compared to 13.7% for the second quarter of 1997. The increase in gross margins
was due to the continuing favorable market
28
conditions, the Company's continued focus on controlling construction costs and
improved margins in the Company's expansion markets.
SG&A expenses for the second quarter of 1998 increased $12,062 as compared
to the same 1997 period, and as a percentage of revenues increased from 6.1% to
7.6%. The increase is due primarily to a net period to period increase of
approximately $8,400 for certain management incentive plans, of which
approximately $4,300 is a non-cash charge related to a variable stock plan
adopted by the Board of Directors pursuant to the Company's 1993 Plan of
Reorganization. A portion of the increase is also due to the aforementioned
increase in revenues, and to increased costs incurred in the Company's expansion
markets.
Backlog units and dollars were 4,452 and $910,568, respectively, at June
30, 1998 compared to 3,143 and $601,276, respectively, at June 30, 1997. The
increase in backlog units and dollars is primarily due to the 38% increase in
new orders for the six months ended June 30, 1998, compared to the six months
ended June 30, 1997.
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 JUNE 30,
----------------------------
1998 1997
------------- -------------
Operating income $29,731 $20,051
Depreciation 890 861
Amortization of excess reorganization
Value and goodwill 1,887 1,613
Other non-cash expenses 4,300 -
------- -------
HOMEBUILDING EBITDA $36,808 $22,525
======= =======
% OF HOMEBUILDING REVENUES 9.5% 8.0%
Homebuilding EBITDA in the second quarter of 1998 was $14,283 or 63% higher
than in the second quarter of 1997, and as a percentage of revenue increased
from 8.0% to 9.4%.
MORTGAGE BANKING SEGMENT
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
The mortgage banking segment generated operating income of $4,519 for the
three months ended June 30, 1998 compared to operating income of $1,208 during
the same period in 1997. Loan closings were $658,789 and $349,253 during the
respective quarters ended June 30, 1998 and 1997, representing an increase of
89%.
Mortgage banking fees had a net increase of $3,986, representing a 60%
increase when comparing the respective quarters of June 30, 1998 and 1997. This
increase can be attributed to the higher gain on sale of loans resulting from
the higher volume of loan closings, partially offset by the lower gain on sale
of mortgage servicing rights. The 1997 period was favorably impacted by a one-
time gain from the sale of the Company's core mortgage servicing portfolio. A
summary of mortgage banking fees is noted below:
29
MORTGAGE BANKING FEES: 1998 1997
------- ------
Net gain on sale of loans $ 7,679 $3,415
Servicing 471 511
Title services 2,290 1,629
Gain on sale of servicing rights 244 1,143
------- ------
$10,684 $6,698
======= ======
HOMEBUILDING SEGMENT
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
During the first six months of 1998, homebuilding operations generated
revenues of $677,285 compared to revenues of $520,424 in the first six months of
1997. The increase in revenues was primarily due to a 26% increase in the
number of homes settled from 2,809 in 1997 to 3,538 in 1998, and to a 3%
increase in the average settlement price from $184.3 in 1997 to $190.5 in 1998.
New orders increased by 38% to 4,795 for the six months ended June 30, 1998
compared with 3,486 for the six months ended June 30, 1997. The increase in new
orders was the result of continuing favorable market conditions in most of the
markets in which the Company operates as compared to the prior year period, 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 for the first six months of 1998 increased to 15.3%
compared to 13.5% for the six months ended June 30, 1997. The increase in gross
margins was due to the 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 during the first quarter of 1998,
and improved margins in the Company's expansion markets.
SG&A expenses for 1998 increased $15,933 as compared to the same 1997
period, and as a percentage of revenues increased from 6.4% to 7.3%. The
increase is due primarily to a net period to period increase of approximately
$8,400 for certain management incentive plans, of which approximately $4,300 is
a non-cash charge related to a variable stock plan adopted by the Board of
Directors pursuant to the Company's 1993 Plan of Reorganization. A portion of
the increase is also due to the aforementioned increase in revenues, and to
increased costs incurred in the Company's expansion markets.
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 1,095,200 total shares
granted under the Plan are eligible to vest on December 31, 1998 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, 1998. Because of the significant
appreciation in the market price of NVR's common stock during the first-half of
1998, the non-cash expense, if fully earned, associated with this Plan in the
second half of 1998 could be significantly greater than the amounts expensed
under the plan in the second half of 1997. As of June 30, 1998 the Company has
accrued approximately $4,300 associated with the Plan.
30
CALCULATION OF HOMEBUILDING EBITDA:
SIX MONTHS ENDED JUNE 30,
--------------------------
1998 1997
------------ ------------
Operating income $51,626 $34,371
Depreciation 1,826 1,691
Amortization of excess reorganization
Value and goodwill 3,773 3,226
Other non-cash expenses 4,300 -
------- -------
HOMEBUILDING EBITDA $61,525 $39,288
======= =======
% OF HOMEBUILDING REVENUES 9.1% 7.5%
Homebuilding EBITDA for the first six months of 1998 was $22,237 or 57%
higher than the first six months of 1997, and as a percentage of revenues
increased from 7.5% to 9.1%.
MORTGAGE BANKING SEGMENT
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The mortgage banking segment generated operating income of $6,937 for the
six months ended June 30, 1998 compared to operating income of $1,775 during the
same period in 1997. Loan closings were $1,237,123 and $646,951 during the
respective first halves of 1998 and 1997, representing an increase of 91%.
Mortgage banking fees had a net increase of $6,551, representing a 55%
increase when comparing the respective first halves of 1998 and 1997. This
increase can be attributed to the higher gain on sale of loans resulting from
the higher volume of loan closings, partially offset by the lower servicing fee
income resulting from the decrease in the servicing portfolio and the lower gain
on sale of mortgage servicing rights. The 1997 period was favorably impacted by
a one-time gain from the sale of the Company's core mortgage servicing
portfolio. A summary of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1998 1997
------- -------
Net gain on sale of loans $13,380 $ 6,507
Servicing 663 1,226
Title services 4,084 2,944
Gain on sale of servicing rights 244 1,143
------- -------
$18,371 $11,820
======= =======
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 completed its initial review to
assess the Company's exposure to Year 2000 Issues, and has developed a detailed
plan to remediate areas of exposure. Implementation of the remediation plan has
commenced, and the Company expects that remediation will be completed prior to
January 1, 2000. 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.
31
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 has and will 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 expired at 12:00 midnight, New York City
time, on May 18, 1998. An aggregate principal amount of $111,369 was retired
pursuant to the Tender Offer, which resulted in the extraordinary loss of $6,743
(net of a $4,220 tax benefit) included in the accompanying financial statements
for the three and six months ended June 30, 1998. The amount of funds expended
to complete the Tender Offer totaled $125,893, including accrued interest. 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's homebuilding segment generally provides for its working capital cash
requirements using cash generated from operations and a short-term credit
facility. In June 1998, the Company, as borrower, entered into an unsecured
working capital revolving credit facility (the "Facility") with a syndicate of
financial institutions for a three-year term expiring on May 31, 2001. This
Facility replaces the previous working capital credit facility under which NVR
Homes, Inc., NVR's homebuilding subsidiary, was the borrower. The Facility
provides for borrowings of up to $100 million of which $60 million is currently
committed. Under terms of the Facility, an additional $10 million uncommitted
overline is available to the Company on a limited basis. The Company intends to
merge NVR, Inc., NVR Homes, Inc. and NVR Financial Services, Inc. on or before
May 31, 1999 to simplify its corporate structure. If the merger is not complete
by that time, the Facility will expire in November 1999.
32
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. On July 10, 1998, NVR Mortgage Finance,
Inc., a subsidiary of NVR Financial Services, Inc., amended its mortgage
warehouse facility to increase the available borrowing limit to $175,000, of
which $150,000 is committed, and to ease certain restrictive covenants. 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.
OTHER ELEMENTS IMPACTING LIQUIDITY
During the six months ended June 30, 1998, the Company repurchased
approximately 225,000 shares of its common stock at an aggregate purchase price
of $7,495. 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 SIX MONTHS ENDED JUNE 30, 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.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
During the second quarter of 1998, Homes generated revenues of $385,738
compared to revenues of $281,437 in the second quarter of 1997. The change in
revenues is primarily due to a 34% increase in the number of homes settled from
1,494 in 1997 to 1,995 in 1998 and to a 3% increase in the average settlement
price from $187.0 in 1997 to $192.2 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
2,533 during the second quarter of 1998 were 24% higher than the 2,041 new
orders generated during the prior 1997 period. The increase in new orders was
the result of continuing 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 second quarter of 1998 increased to 15.5%
compared to 13.7% for the second quarter of 1997. The increase in gross margins
was due to the continuing favorable market conditions, the Company's continued
focus on controlling construction costs and improved margins in the Company's
expansion markets.
SG&A expenses for the second quarter of 1998 increased $24,988 as compared
to the same 1997 period, and as a percentage of revenues increased from 8.0% to
12.3%. The increase in SG&A dollars is due primarily to the increase in
revenues noted above, a net period to period increase in costs associated with
certain management incentive plans, higher corporate general and administrative
expenses and increased costs associated with the Company's expansion markets.
In addition, royalty fees paid to RVN, Inc., a subsidiary of NVR, increased
approximately $2.0 million in the current year quarter as compared to the prior
year quarter.
Backlog units and dollars were 4,452 and $910,568, respectively, at June
30, 1998 compared to 3,143 and $601,276, respectively, at June 30, 1997. The
increase in backlog units and dollars is
33
primarily due to the 38% increase in new orders for the six months ended June
30, 1998, compared to the six months ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
During the first six months of 1998, Homes generated revenues of $677,285
compared to revenues of $520,424 in the first six months of 1997. The increase
in revenues was primarily due to a 26% increase in the number of homes settled
from 2,809 in 1997 to 3,538 in 1998, and to a 3% increase in the average
settlement price from $184.3 in 1997 to $190.5 in 1998. New orders increased by
38% to 4,795 for the six months ended June 30, 1998 compared with 3,486 for the
six months ended June 30, 1997. The increase in new orders was the result of
continuing favorable market conditions in most of the markets in which the
Company operates as compared to the prior year period, 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 for the first six months of 1998 increased to 15.3%
compared to 13.5% for the six months ended June 30, 1997. The increase in gross
margins was due to the 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 during the first quarter of 1998,
and improved margins in the Company's expansion markets.
SG&A expenses for 1998 increased $29,880 as compared to the same 1997
period, and as a percentage of revenues increased from 8.3% to 10.8%. The
increase in SG&A dollars is due primarily to the increase in revenues noted
above, a net period to period increase in costs associated with certain
management incentive plans, higher corporate general and administrative expenses
and increased costs associated with the Company's expansion markets. In
addition, royalty fees paid to RVN, Inc., a subsidiary of NVR, increased
approximately $2.5 million in the current year period as compared to the prior
year 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 available to
NVR. In June 1998, NVR, as borrower, entered into an unsecured working capital
revolving credit facility (the "Facility") with a syndicate of financial
institutions for a three-year term expiring on May 31, 2001. This Facility
replaces the previous working capital credit facility under which Homes was the
borrower. The Facility provides for borrowings of up to $100 million of which
$60 million is currently committed. Under terms of the Facility, an additional
$10 million uncommitted overline is available to NVR on a limited basis. NVR
intends to merge NVR, Inc., NVR Homes, Inc. and NVR Financial Services, Inc. on
or before May 31, 1999 to simplify its corporate structure. If the merger is
not complete by that time, the Facility will expire in November 1999. Homes
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 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NVR Financial Services, Inc. ("NVRFS" or the "Company") is a wholly owned
subsidiary of NVR, Inc. ("NVR"). NVRFS, though its subsidiaries, conducts all
of NVR's mortgage banking operations.
34
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
NVRFS generated operating income of $4,228 for the three months ended June
30, 1998 compared to operating income of $1,124 during the same period in 1997.
Loan closings were $658,789 and $349,253 during the respective quarters ended
June 30, 1998 and 1997, representing an increase of 89%.
Mortgage banking fees had a net increase of $3,986, representing a 60%
increase when comparing the respective quarters of June 30, 1998 and 1997. This
increase can be attributed to the higher gain on sale of loans resulting from
the higher volume of loan closings, partially offset by the lower gain on sale
of mortgage servicing rights. The 1997 period was favorably impacted by a one-
time gain from the sale of the Company's core mortgage servicing portfolio.
Increases in the current period for both interest expense and general and
administrative costs are also attributable to the higher loan closing volume
experienced in the current quarter as compared to the prior year quarter.
A summary of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1998 1997
------- ------
Net gain on sale of loans $ 7,679 $3,415
Servicing 471 511
Title services 2,290 1,629
Gain on sale of servicing rights 244 1,143
------- ------
$10,684 $6,698
======= ======
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NVRFS generated operating income of $6,550 for the six months ended June
30, 1998 compared to operating income of $1,363 during the same period in 1997.
Loan closings were $1,237,123 and $646,951 during the respective first halves of
1998 and 1997, representing an increase of 91%.
Mortgage banking fees had a net increase of $6,551 representing a 55%
increase when comparing the respective first halves of 1998 and 1997. This
increase can be attributed to the higher gain on sale of loans resulting from
the higher volume of loan closings, partially offset by the lower servicing fee
income resulting from the decrease in the servicing portfolio and the lower gain
on sale of mortgage servicing rights. The 1997 period was favorably impacted by
a one-time gain from the sale of the Company's core mortgage servicing
portfolio. Increases in the current period for both interest expense and
general and administrative costs are also attributable to the higher loan
closing volume experienced in the current quarter as compared to the prior year
quarter.
A summary of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1998 1997
------- -------
Net gain on sale of loans $13,380 $ 6,507
Servicing 663 1,226
Title services 4,084 2,944
Gain on sale of servicing rights 244 1,143
------- -------
$18,371 $11,820
======= =======
35
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. On July 10, 1998, NVR Mortgage Finance, Inc., a subsidiary of
NVRFS, amended its mortgage warehouse facility to increase the available
borrowing limit to $175,000, of which $150,000 is committed, and to ease certain
restrictive covenants. 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 AND SIX MONTHS ENDED JUNE 30, 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 three and six month
periods as compared to the prior year three and six months periods resulted 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 June 30, 1998, 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.
FOX RIDGE HOMES, INC.
- ---------------------
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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
analysis below of the results of operations is a comparison of the Predecessor's
results for the three and six months ended June 30, 1997 and the Successor's
results for the three and six months ended June 30, 1998.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Income before income tax expense increased $543 to $755 in the second
quarter of 1998 from $212 in the second quarter of 1997. The increase is a
direct result of a higher number of settlements in the current quarter as
compared to the prior year quarter, coupled with improved gross margins, and
offset by goodwill amortization which resulted from the Purchase Transaction.
Fox Ridge settled 89 units during the second quarter of 1998 compared with 62
units settled in the second quarter of 1997.
36
New orders increased by 34% from 82 units in the quarter ended June 30, 1997 to
110 units in the quarter ended June 30, 1998. SG&A dollars have increased
slightly due to the higher sales volume.
Backlog units and dollars were 240 and $35,951, respectively, at June 30,
1998 compared to 165 and $22,735, respectively, at June 30, 1997. The increase
in backlog units and dollars is primarily attributable to a 42% increase in new
orders for the six month period ended June 30, 1998 compared to the same 1997
period.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Income before income tax expense increased $144 to $1,324 for the first six
months of 1998 from $1,180 for the first six months of 1997. The increase is a
direct result of a higher number of settlements in the current year period as
compared to the prior year period, offset by goodwill amortization, which
resulted from the Purchase Transaction. In addition, SG&A dollars have
increased slightly due to the higher sales volume. Fox Ridge settled 168 units
during the first six months of 1998 compared with 143 units settled in the first
six months of 1997. New orders increased by 42% from 192 units in the six
months ended June 30, 1997 to 273 units in the six months ended June 30, 1998.
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.
37
PART II
-------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
NVR held its Annual Meeting of Shareholders on May 5, 1998. Two
matters were voted upon at the Annual Meeting:
VOTES WITHHELD AUTHORITY
MATTER FOR TO VOTE
----------------------------------------- ------------ -------------------
1. Election of three directors to serve
three year terms:
Manuel H. Johnson 10,518,641 12,970
David A. Preiser 10,520,319 11,292
John M. Toups 10,517,090 14,521
VOTES VOTES NOT
FOR AGAINST ABSTENTIONS VOTED
------------ --------- ------------- -------
2. Ratification of appointment of KPMG
Peat Marwick LLP as independent auditors
for NVR 10,468,428 16,517 46,666 983,951
38
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
a. 11. Computation of Earnings per Share.
b. 27. Financial Data Schedules.
c. The Company filed the following reports on Form 8-K during the
quarter ended June 30, 1998:
1. April 6, 1998: Under Item #5, Other Events, the Company
-------------
filed a press release disclosing the number of homes both
sold and settled during the quarter ending March 31,
1998.
2. April 14, 1998: Under Item #5, Other Events, the Company
--------------
disclosed the agreement to sell $145,000,000 aggregate
principal amount of its 8% Senior Notes ("Notes") due
2005. The Form 8-K included the following exhibits: (a)
Underwriting Agreement dated April 8, 1998, between the
Company and Salomon Smith Barney, Credit Suisse First
Boston and Friedman, Billings, Ramsey & Co., Inc.; (b)
Form T-1 (Statement of Eligibility of Trustee); and (c)
the Final Prospectus Supplement, dated April 8, 1998 as
filed with the Securities and Exchange Commission
pursuant to Rule 424(b) (5) under the Securities Act of
1933, as amended, including the related prospectus dated
April 6, 1998.
3. April 23, 1998: Under Item #5, Other Events, the Company
--------------
disclosed the sale of $145,000,000 aggregate principal
amount of its 8% Senior Notes ("Notes") due 2005. The
Form 8-K included the following exhibits: (a) Indenture,
dated as of April 14, 1998, between the Company, the
Guarantor and the Trustee; (b) First Supplemental
Indenture between the Company, the Guarantor and the
Trustee; (c) Form of Note; and (d) Opinion of Hogan &
Hartson, L.L.P. regarding the validity of the Notes.
39
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- --------------------------------- ----
11 Computation of Earnings per Share 42
27 Financial Data Schedule 43
40
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.
July 29, 1998 NVR, Inc.
By: /s/ Paul C. Saville
--------------------
Paul C. Saville
Senior Vice President Finance,
Chief Financial Officer, and
Treasurer
41
EXHIBIT 11
NVR, INC.
Computation of Earnings Per Share
(amounts in thousands, except per share amounts)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
1. Net income $ 8,752 $ 9,043 $ 19,612 $ 14,806
============ ============ ============ ============
2. Average number of shares
outstanding 11,356 11,796 11,376 12,239
3. Shares issuable upon exercise
of dilutive options, warrants and
subscriptions outstanding during
period, based on average market
price 2,065 933 2,055 949
------------ ------------ ------------ ------------
4. Average number of shares
and share equivalents outstanding
(2 + 3) 13,421 12,729 13,431 13,188
============ ============ ============ ============
5. Basic earnings per share (1/2) $ 0.77 $ 0.77 $ 1.73 $ 1.21
============ ============ ============ ============
6. Diluted earnings per share (1/4) $ 0.65 $ 0.71 $ 1.46 $ 1.12
============ ============ ============ ============
5
0000906163
NVR,INC.
1,000
U.S. DOLLARS
6-MOS
DEC-31-1998
JAN-01-1998
JUN-30-1998
1
72,740
0
5,965
0
274,737
0
16,890
0
711,490
0
153,631
0
0
161,083
(3,047)
711,490
677,285
701,320
573,802
635,315
4,317
0
12,764
48,924
22,569
26,355
0
6,743
0
19,612
1.73
1.46
Item represents the non-cash amortization of excess reorganization value.
5
0000906163
NVR,INC.
1,000
U.S. DOLLARS
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
1
41,174
0
8,470
0
194,747
0
17,897
0
522,685
0
120,000
0
0
156,043
(18,220)
522,685
520,424
535,535
450,278
44,082
3,770
0
9,580
27,825
13,019
14,806
0
0
0
14,806
1.21
1.12
Item represents the non-cash amortization of excess reorganization value.
