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 September 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 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 November 2, 1998 there were 10,771,124 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
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Page
----
(C)
PART I FINANCIAL INFORMATION
Item 1. NVR, Inc. Consolidated Financial Statements
-------------------------------------------
Consolidated Balance Sheets at September 30, 1998
(unaudited)
and December 31, 1997............................................. 4
Consolidated Statements of Income for the
Three Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited) and the
Nine Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited)................................ 6
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 (unaudited) and
September 30, 1997 (unaudited).................................... 7
Notes to Consolidated Financial Statements........................ 8
RVN, Inc. Financial Statements
------------------------------
Balance Sheets at September 30, 1998 (unaudited)
and December 31, 1997............................................. 11
Statements of Income for the
Three Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited) and the
Nine Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited)................................ 11
Statements of Cash Flows for the Nine
Months Ended September 30, 1998 (unaudited) and
September 30, 1997 (unaudited).................................... 12
Notes to Financial
Statements........................................................ 13
Fox Ridge Homes, Inc. Financial Statements
------------------------------------------
Balance Sheets at September 30, 1998 (unaudited)
and December 31, 1997............................................. 14
Statements of Income for the
Three Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited) and the
Nine Months Ended September 30, 1998 (unaudited)
and September 30, 1997 (unaudited)................................ 15
Statements of Cash Flows for the Nine
Months Ended September 30, 1998 (unaudited) and
September 30, 1997 (unaudited).................................... 16
Notes to Financial Statements..................................... 17
2
NVR, INC.
FORM 10-Q
INDEX-CONTINUED
================================================================================
Page
----
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 18
PART II OTHER INFORMATION
- -------
Item 6. Exhibits and Reports on Form 8-K.................................................... 26
Exhibit Index....................................................................... 27
Signature........................................................................... 28
3
PART I
------
ITEM 1.
- -------
NVR, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
ASSETS (unaudited)
HOMEBUILDING:
Cash and cash equivalents $ 94,186 $ 41,684
Receivables 7,086 3,398
Inventory:
Lots and housing units, covered under
sales agreements with customers 216,158 165,132
Unsold lots and housing units 41,835 51,434
Manufacturing materials and other 6,032 7,475
-------- --------
264,025 224,041
Property, plant and equipment, net 15,840 17,241
Reorganization value in excess of amounts
allocable to identifiable assets, net 64,526 69,366
Goodwill, net 9,933 10,753
Contract land deposits 38,151 36,992
Other assets 24,811 22,424
-------- --------
518,558 425,899
-------- --------
MORTGAGE BANKING:
Cash and cash equivalents 15,516 4,041
Mortgage loans held for sale, net 172,020 115,744
Mortgage servicing rights, net 2,986 2,220
Property and equipment, net 347 637
Reorganization value in excess of amounts
allocable to identifiable assets, net 10,883 11,700
Other assets 6,868 4,380
-------- --------
208,620 138,722
-------- --------
TOTAL ASSETS $727,178 $564,621
======== ========
See notes to consolidated financial statements.
4
NVR, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS'
EQUITY
HOMEBUILDING:
Accounts payable $ 75,715 $ 67,987
Accrued expenses and other liabilities 128,503 94,931
Notes payable 5,630 5,728
Other term debt 14,049 14,017
Senior notes 153,511 120,000
--------- --------
377,408 302,663
--------- --------
MORTGAGE BANKING:
Accounts payable and other liabilities 17,614 8,925
Notes payable 162,943 108,393
--------- --------
180,557 117,318
--------- --------
Total liabilities 557,965 419,981
--------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,127,640 and 19,995,494
shares issued as of September 30, 1998 and
December 31, 1997, respectively 201 200
Paid-in-capital 169,046 164,731
Retained earnings 120,342 75,977
Less treasury stock at cost 9,313,432
and 8,900,972 shares at September 30, 1998
and December 31, 1997, respectively (120,376) (96,268)
--------- --------
Total shareholders' equity 169,213 144,640
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 727,178 $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 SEPT. 30, NINE MONTHS ENDED SEPT. 30,
----------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- ---------- ---------
HOMEBUILDING:
Revenues $ 441,034 $ 316,874 $1,118,319 $ 837,298
Other income 672 162 1,837 929
Cost of sales (372,950) (272,308) (946,752) (722,586)
Selling, general and administrative (30,839) (23,589) (80,088) (56,905)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill (1,886) (1,613) (5,659) (4,839)
--------- --------- ---------- ---------
Operating income 36,031 19,526 87,657 53,897
Interest expense (4,041) (3,936) (13,680) (12,257)
--------- --------- ---------- ---------
Homebuilding income 31,990 15,590 73,977 41,640
--------- --------- ---------- ---------
MORTGAGE BANKING:
Mortgage banking fees 11,724 6,407 30,095 18,227
Interest income 2,360 1,585 6,515 3,948
Other income 161 102 505 263
General and administrative (7,172) (5,412) (19,436) (16,178)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets (272) (272) (816) (816)
Interest expense (1,809) (1,074) (4,934) (2,333)
--------- --------- ---------- ---------
Operating income 4,992 1,336 11,929 3,111
TOTAL SEGMENT INCOME 36,982 16,926 85,906 44,751
Income tax expense (12,223) (7,920) (34,792) (20,939)
--------- --------- ---------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 24,759 9,006 51,114 23,812
Extraordinary loss from extinguishment
of indebtedness (net of a $4 and
$4,224 tax benefit for the three and
nine months ended September 30, 1998,
respectively) (6) - (6,749) -
--------- --------- ---------- ---------
NET INCOME $ 24,753 $ 9,006 $ 44,365 $ 23,812
========= ========= ========== =========
BASIC EARNINGS PER SHARE:
Income before extraordinary loss $ 2.25 $ 0.77 $ 4.54 $ 1.98
Extraordinary loss - - (0.60) -
--------- --------- ---------- ---------
Basic earnings per share $ 2.25 $ 0.77 $ 3.94 $ 1.98
========= ========= ========== =========
DILUTED EARNINGS PER SHARE:
Income before extraordinary loss $ 1.87 $ 0.68 $ 3.83 $ 1.80
Extraordinary loss - - (0.51) -
--------- --------- ---------- ---------
Diluted earnings per share $ 1.87 $ 0.68 $ 3.32 $ 1.80
========= ========= ========== =========
See notes to consolidated financial statements.
6
NVR, INC.
Consolidated Statements of Cash Flows
(dollars in thousands, except share data)
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,365 $ 23,812
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 10,112 9,757
Pre-tax extraordinary loss-extinguishment of indebtedness 10,973 -
Mortgage loans closed (1,934,690) (1,043,068)
Proceeds from sales of mortgage loans 1,880,344 1,023,509
Gain on sale of mortgage servicing rights (818) (1,143)
Gain on sale of loans (21,736) (10,904)
Net change in assets and liabilities:
Increase in inventories (39,984) (29,518)
Increase in receivables (3,281) (4,721)
Increase in accounts payable and accrued expenses 51,657 16,340
Other, net 2,809 (1,390)
----------- -----------
Net cash used by operating activities (249) (17,326)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of mortgage-backed securities 9,570 15,126
Purchase of property, plant and equipment (1,667) (2,108)
Principal payments on mortgage-backed securities 4,465 3,001
Proceeds from sales of mortgage servicing rights 15,204 11,829
Other, net 25 347
----------- -----------
Net cash provided by investing activities 27,597 28,195
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of mortgage-backed bonds (11,785) (16,431)
Extinguishment of 11% Senior Notes (120,365) -
Deferred financing fees (2,311) -
Issuance of 8% Senior Notes 145,000 -
Net borrowings under notes payable 54,370 22,695
Purchases of treasury stock (29,235) (35,475)
Other, net 955 657
----------- -----------
Net cash provided (used) by financing activities 36,629 (28,554)
Net increase (decrease) in cash 63,977 (17,685)
Cash, beginning of the period 45,725 74,780
----------- -----------
Cash, end of period $ 109,702 $ 57,095
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 15,705 $ 12,141
=========== ===========
Income taxes paid, net of refunds $ 27,520 $ 19,753
=========== ===========
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, consolidated 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 nine-month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
2. MERGER
Effective September 30, 1998, NVR merged each of NVR Homes, Inc.,
NVR's wholly-owned homebuilding subsidiary, and NVR Financial Services, Inc.,
NVR's wholly-owned mortgage banking holding company, into the Company. The
merger allows the Company to utilize a separate return limitation year net
operating loss ("SRLY NOL") generated by the Company's previously owned savings
and loan institution, NVR Savings Bank. As a result, the Company expects to
realize a current tax benefit of approximately $3,300 during 1998. The planned
use of the SRLY NOL, coupled with higher taxable income relative to fixed
permanent differences, has reduced the Company's estimated full year effective
tax rate from 46.1% to 40.5%.
3. 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 nine month periods ended September 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.
8
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
4. 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 - - 44,365 -
Tax benefit from stock-based
compensation activity - 1,575 - -
Option activity 1 954 -
Treasury stock purchases - - - (29,235)
Performance share activity - 1,786 - 5,127
---- -------- -------- ---------
BALANCE, SEPT. 30, 1998 $201 $169,046 $120,342 $(120,376)
==== ======== ======== =========
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, 161,548 options
were exercised during the first nine months of 1998, with NVR realizing
approximately $955 in aggregate equity proceeds.
5. 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. 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 ("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 expired at 12:00 midnight, New York City
time, on May 18, 1998. An aggregate principal amount of $111,489 was retired
pursuant to the Tender Offer (and to subsequent open market purchases), which
resulted in the extraordinary loss of $6,749 (net of a $4,224 tax benefit)
included in the accompanying financial statements for the nine months ended
September 30, 1998. The amount of funds expended to complete the Tender Offer
and subsequent open market purchases totaled $126,082, 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, plus accrued interest. The Company has formally notified the Senior
Note Trustee of the Company's intent to call the Senior Notes on December 1,
1998.
9
NVR, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share and share data)
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 September 1998, the Company, as borrower, succeeded to the
obligations of NVR Homes, Inc. under the unsecured working capital revolving
credit facility as amended and restated (the "Facility"). The Facility expires
on May 31, 2001. 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.
On July 10, 1998, NVR Mortgage Finance, Inc., NVR's wholly owned
mortgage banking subsidiary, 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
RVN, INC
Balance Sheets
(dollars in thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 10 $ 11
Royalty receivable 2,707 1,880
------ ------
TOTAL ASSETS $2,717 $1,891
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable and accrued expenses $ 931 $ 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 1,721 1,183
------ ------
Total shareholder's equity 1,786 1,248
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,717 $1,891
====== ======
RVN, INC.
Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
----------------------------- -----------------------------
1998 1997 1998 1997
-------------- ------------- -------------- -------------
REVENUES:
Royalty revenue $ 7,971 $ 5,992 $20,378 $15,902
Other income 4 2 5 6
------- ------- ------- -------
Total revenues 7,975 5,994 20,383 15,908
EXPENSES:
General and administrative 6 8 17 28
------- ------- ------- -------
Income before income tax 7,969 5,986 20,366 15,880
Income tax expense (2,819) (2,102) (7,204) (5,558)
------- ------- ------- -------
NET INCOME $ 5,150 $ 3,884 $13,162 $10,322
======= ======= ======= =======
See notes to financial statements.
11
RVN, INC.
Statements of Cash Flows
(dollars in thousands)
(unaudited)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPT. 30, 1998 SEPT. 30, 1997
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,162 $10,322
Adjustments to reconcile net income to
net cash provided by
operating activities:
Increase in royalty receivables (827) (592)
Increase in accounts payable and
accrued liabilities 288 180
-------- -------
Net cash provided by
operating activities 12,623 9,910
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend to parent (12,624) (9,958)
-------- -------
Net cash used by
financing activities (12,624) (9,958)
-------- -------
Net increase (decrease) in cash (1) (48)
Cash, beginning of period 11 62
-------- -------
Cash, end of period $ 10 $ 14
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ - $ -
======== =======
Taxes paid during the period, net of refunds $ 6,916 $ 5,353
======== =======
See notes to financial statements.
12
RVN, INC.
Notes to Financial Statements
(dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts
of RVN, Inc. ("RVN" or the "Company"). RVN is a wholly owned subsidiary of NVR,
Inc. ("NVR"). The statements are provided pursuant to RVN's status as a
guarantor of NVR's 11% Senior Notes due 2003 (the "Senior Notes"). The
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the nine-
month period ended September 30, 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 nine month period ended September 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 - - 13,162
Dividend to parent - - (12,624)
---------- ------- ---------
BALANCE, SEPTEMBER 30, 1998 $ 1 $ 64 $ 1,721
========== ======= =========
13
FOX RIDGE HOMES, INC.
Balance Sheets
(dollars in thousands)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ - $ -
Accounts receivable 217 192
Inventory, net 22,652 19,879
Investment in FRP, LP 96 179
Property and equipment, net 242 228
Goodwill, net 9,933 10,753
Other 434 122
------- -------
TOTAL ASSETS $33,574 $31,353
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable - lot acquisitions $ 900 $ 900
Notes payable - acquisition note 4,659 4,750
Accounts payable 3,143 2,281
Due to affiliate 5,712 8,012
Accrued expenses and other liabilities 2,086 637
Deferred taxes 281 281
------- -------
TOTAL LIABILITIES 16,781 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 2,543 242
------- -------
Total shareholder's equity 16,793 14,492
------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $33,574 $31,353
======= =======
See notes to financial statements.
14
FOX RIDGE HOMES, INC.
Statements of Income
(dollars in thousands)
(unaudited)
SUCCESSOR PREDECESSOR* SUCCESSOR PREDECESSOR*
------------ --------------- ------------ ---------------
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ --------------- ------------ ---------------
REVENUES:
Revenues $19,813 $14,072 $45,183 $34,055
Other income 34 20 59 56
------- ------- ------- -------
Total Revenues 19,847 14,092 45,242 34,111
EXPENSES:
Cost of sales 16,491 12,006 37,783 28,830
Interest expense 258 237 802 682
Selling, general and administrative 840 758 2,528 2,328
Amortization of goodwill 273 - 820 -
------- ------- ------- -------
Total expenses 17,862 13,001 41,933 31,840
Income before income tax expense 1,985 1,091 3,309 2,271
Income tax expense (481) (98) (1,008) (161)
------- ------- ------- -------
NET INCOME $ 1,504 $ 993 $ 2,301 $ 2,110
======= ======= ======= =======
* Period is prior to the date that the Company was acquired by NVR, Inc. (see
note 1)
See notes to financial statements.
15
FOX RIDGE HOMES, INC.
Statements of Cash Flows
(dollars in thousands)
(unaudited)
(SUCCESSOR) (PREDECESSOR)*
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,301 $ 2,110
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 925 127
Equity earnings in FRP, LP (70) (58)
Net change in assets and liabilities:
Increase in inventories (2,773) (2,907)
Increase in receivables (25) (1,051)
(Decrease) increase in accounts payable
and accrued liabilities 2,311 (1,057)
Other, net (312) 13
------- -------
Net cash provided (used) by operating activities 2,357 (2,823)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (119) (139)
Dividends from FRP, LP 153 94
------- -------
Net cash provided (used) by investing
activities 34 (45)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends - (1,991)
Decrease in advances from affiliates (2,300) -
Net borrowings (repayments) under notes payable (91) 5,042
------- -------
Net cash provided (used) by financing activities (2,391) 3,051
------- -------
Net decrease in cash - (183)
Cash, beginning of the period - 660
------- -------
Cash, end of period $ - $ 843
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 519 $ 608
======= =======
Taxes paid during the period
(net of refunds) $ 200 $ 187
======= =======
* Period is prior to the date that the Company was acquired by NVR, Inc.
(see note 1)
See notes to financial statements.
16
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, 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 nine months ending September 30, 1998, and include
the accounts of the Predecessor for the three and nine months ending September
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 nine-month period ended September
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 nine months ended September 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.
17
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 (on both a national and regional level), 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
- ----------------------
Effective September 30, 1998, NVR, Inc. ("NVR" or the "Company")
merged each of NVR Homes, Inc., NVR's wholly-owned homebuilding subsidiary, and
NVR Financial Services, Inc., NVR's wholly-owned mortgage banking holding
company, into the Company.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997
NVR operates in two business segments: homebuilding and mortgage
banking. Corporate general and administrative expenses are fully allocated to
the homebuilding and mortgage banking segments in the information presented
below.
HOMEBUILDING SEGMENT
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
During the third quarter of 1998, homebuilding operations generated
revenues of $441,034 compared to revenues of $316,874 in the third quarter of
1997. The change in revenues is primarily due to a 32.3% increase in the number
of homes settled from 1,639 in 1997 to 2,169 in 1998 and to a 5.4% increase in
the average settlement price from $192.1 in 1997 to $202.5 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 1,821 during the third quarter of 1998 were 33.3%
higher than the 1,366 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 third quarter of 1998 increased to 15.4%
compared to 14.1% for the third quarter of 1997. The increase in gross margins
was due to the continuing favorable market
18
conditions, improved margins in the Company's expansion markets and the
Company's continued emphasis on controlling construction costs.
SG&A expenses for the third quarter of 1998 increased $7,250 as
compared to the same 1997 period, and as a percentage of revenues decreased from
7.4% to 7.0%. The increase is due primarily to the aforementioned increase in
revenues. A portion of the increase is also due to a net period to period
increase of approximately $2,900 for certain management incentive plans.
Backlog units and dollars were 4,104 and $843,463, respectively, at
September 30, 1998 compared to 2,870 and $553,409, respectively, at September
30, 1997. The increase in backlog units and dollars is primarily due to the 28%
increase in new orders for the six months ended September 30, 1998, compared to
the six months ended September 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 SEPTEMBER 30,
--------------------------------
1998 1997
--------------------------------
Operating income $36,031 $19,526
Depreciation 874 840
Amortization of excess reorganization
value and goodwill 1,886 1,613
Other non-cash expenses 2,613 2,000
------- -------
HOMEBUILDING EBITDA $41,404 $23,979
======= =======
% OF HOMEBUILDING REVENUES 9.4% 7.6%
Homebuilding EBITDA in the third quarter of 1998 was $17,425 or 72.7%
higher than in the third quarter of 1997, and as a percentage of revenue
increased from 7.6% to 9.4%.
MORTGAGE BANKING SEGMENT
THREE MONTHS ENDED SEPTEMBER 1998 AND 1997
The mortgage banking segment generated operating income of $4,992 for
the three months ended September 30, 1998 compared to operating income of $1,336
during the same period in 1997. Loan closings were $697,567 and $396,117 during
the respective quarters ended September 30, 1998 and 1997 representing an
increase of 76%.
Mortgage banking fees had a net increase of $5,317 representing an 83%
increase when comparing the respective quarters of September 30, 1998 and 1997.
This increase can be attributed to the higher gain on sale of loans and title
services fees resulting from the higher volume of loan closings and the gain on
sale of mortgage servicing rights. A summary of mortgage banking fees is noted
below:
MORTGAGE BANKING FEES: 1998 1997
------ ------
Net gain on sale of loans $8,356 $4,397
Servicing 349 244
Title services 2,445 1,766
Gain on sale of servicing rights 574 -
------ ------
$11,724 $6,407
======= ======
19
HOMEBUILDING SEGMENT
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
During the first nine months of 1998, homebuilding operations
generated revenues of $1,118,319 compared to revenues of $837,298 in the first
nine months of 1997. The increase in revenues was primarily due to a 28.3%
increase in the number of homes settled from 4,448 in 1997 to 5,707 in 1998, and
to a 4.3% increase in the average settlement price from $187.1 in 1997 to $195.1
in 1998. New orders increased by 36.4% to 6,616 for the nine months ended
September 30, 1998 compared with 4,852 for the nine months ended September 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 nine months of 1998 increased to
15.3% compared to 13.7% for the nine months ended September 30, 1997. The
increase in gross margins was due to the continuing favorable market conditions,
improved margins in the Company's expansion markets and the Company's continued
emphasis on controlling construction costs.
SG&A expenses for 1998 increased $23,183 as compared to the same 1997
period, and as a percentage of revenues increased from 6.8% to 7.2%. The
increase is due primarily to a net period to period increase of approximately
$12,100 for certain management incentive plans, of which approximately $6,900 of
the total cost is a non-cash charge related to a variable stock plan adopted by
the Board of Directors (the "Board") 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 pursuant to the Company's 1993
Plan of Reorganization. Under the original Plan document, 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.
During the third quarter, the Board amended the Plan to fix the vesting rights
for shares eligible for vesting in 1998 at a date earlier than December 31, 1998
if the full-year earnings targets specified in the Plan are met or exceeded
prior to December 31, 1998. Plan participants must be employed by the Company
on December 31, 1998 to be eligible to receive the shares.
The shares eligible for vesting in 1998 were determined to have
vested. The vesting determination fixes the full-year compensation cost at
$24.875/share. Through September 30, 1998, the Company recognized $6,913 in
compensation cost related to the Plan, and expects to recognize an additional
$2,304 of compensation cost in the fourth quarter of 1998. Through September
30, 1997, the Company had recognized $3,000 of Plan compensation cost, and
recognized $5,105 in the fourth quarter of 1997.
CALCULATION OF HOMEBUILDING EBITDA:
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
--------------------------------
Operating income $ 87,657 $53,897
Depreciation 2,700 2,531
Amortization of excess reorganization
Value and goodwill 5,659 4,839
Other non-cash expenses 6,913 3,000
-------- -------
HOMEBUILDING EBITDA $102,929 $64,267
======== =======
% OF HOMEBUILDING REVENUES 9.2% 7.7%
20
Homebuilding EBITDA for the first nine months of 1998 was $38,662 or
60.2% higher than the first nine months of 1997, and as a percentage of revenues
increased from 7.7% to 9.2%.
MORTGAGE BANKING SEGMENT
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The mortgage banking segment generated operating income of $11,929 for
the nine months ended September 30, 1998 compared to operating income of $3,111
during the same period in 1997. Loan closings were $1,934,690 and $1,043,068
during the respective nine month periods in 1998 and 1997 representing an
increase of 85%.
Mortgage banking fees had a net increase of $11,868 representing a 65%
increase when comparing the respective nine-month periods 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 servicing rights. A summary of mortgage banking fees is noted
below:
MORTGAGE BANKING FEES: 1998 1997
------- -------
Net gain on sale of loans $21,736 $10,904
Servicing 1,012 1,470
Title services 6,529 4,710
Gain on sale of servicing rights 818 1,143
------- -------
$30,095 $18,227
======= =======
EFFECTIVE TAX RATE
The merger of NVR Homes, Inc and NVR Financial Services, Inc. into the
Company on September 30, 1998 allows the Company to utilize a separate return
limitation year net operating loss ("SRLY NOL") generated by the Company's
previously owned savings and loan institution, NVR Savings Bank. As a result,
the Company's expects to realize an approximate $3,300 current tax benefit
during 1998. The planned use of the SRLY NOL, coupled with higher taxable
income relative to fixed permanent differences, has reduced the Company's
estimated full year effective tax rate from 46.1% to 40.5%.
PENDING ADOPTION OF ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to
be recognized as either assets or liabilities on the balance sheet and be
measured at fair value. Depending on the hedge designation, changes in such
fair value will be recognized in either other comprehensive income or current
earnings. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999, and is applicable to interim periods in the initial year of adoption. At
the present time, the Company cannot determine the impact that SFAS No. 133 will
have on its financial statements upon adoption on January 1, 2000, as such
impact will be determined based on loans held in inventory and forward mortgage
delivery contracts outstanding at the date of adoption.
21
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.
With the assistance of a consulting firm, the Company has completed
its assessment of exposure to Year 2000 Issues and has developed a detailed plan
to remediate areas of exposure in both its homebuilding and mortgage banking
segments, as discussed below.
The Company has substantially completed its remediation efforts on its
core homebuilding systems and is currently in the process of testing these
systems. The Company expects this testing to be completed by December 31, 1998.
The total Year 2000 Issue costs for the homebuilding systems are estimated to be
approximately $400, the majority of which has already been expensed during the
first nine months of 1998.
The mortgage banking segment utilizes the following four core systems
to operate its business: Loan Origination; Secondary Marketing; Servicing; and
Settlement Services. During 1997 a decision was made to replace the existing
loan origination system to obtain greater operating efficiencies. The existing
system was not Year 2000 compliant. The Company has purchased a new
commercially available software package for Loan Origination processing, which
has been certified to be Year 2000 compliant by the vendor. The Company has
tested the system and believes that it is Year 2000 compliant. The Company has
developed a detailed rollout plan for implementation into its mortgage branches.
The new system is expected to be deployed in each branch by June 1999. The
total cost of this project is estimated to be $3,700, the majority of which will
be incurred and capitalized during 1999. The Company has upgraded the existing
Secondary Marketing system to the Year 2000 compliant version of the vendor's
software. The Servicing and Settlement Services Systems are also purchased
software packages, which the vendors have indicated are both Year 2000
compliant. All three systems will be user tested, with testing completed by
December 31, 1998. The total cost of updating and testing these systems is
estimated to be $100, the majority of which will be expensed in the fourth
quarter of 1998.
The Company has initiated formal communications with its significant
suppliers and service providers to determine the extent to which the Company may
be vulnerable to their failure to correct their own Year 2000 Issues. To the
extent that responses to Year 2000 readiness are unsatisfactory, the Company
will attempt to identity alternative suppliers and service providers who have
demonstrated Year 2000 readiness. As a normal course of business, the Company
seeks to maintain multiple suppliers where possible. The Company cannot be
assured that it will be successful in finding such alternative suppliers,
service providers and contractors. In the event that any of the Company's
significant suppliers or service providers do not successfully and timely
achieve Year 2000 compliance, and the Company is unable to replace them, the
Company's business or operations could be adversely affected.
The Company is currently assessing its mechanical systems (e.g.,
phones, HVAC, etc.) which employ embedded chip technology. Based on initial
information gathered, the Company does not estimate a significant expense will
be incurred to make any non-compliant systems Year 2000 compliant.
The Company presently believes that upon remediation of its business
software and hardware applications, the Year 2000 Issue will not present a
materially adverse risk to the Company's future consolidated results of
operations, liquidity, and capital resources. However, if such remediation is
not completed in a timely manner or the level of timely compliance by key
suppliers or service providers is not sufficient, the Year 2000 Issue could have
a material impact on the Company's operations including, but not limited to,
delays in homebuilding and mortgage products resulting in loss of revenues,
increased operating costs, loss of customers or suppliers, or other significant
disruptions to the Company's business.
22
The Company expects to begin contingency planning activities on any
system that remains non-compliant as of December 31, 1998, if any, by early 1999
and expects this planning to continue throughout 1999.
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. 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 ("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 expired at 12:00 midnight, New York City
time, on May 18, 1998. An aggregate principal amount of $111,489 was retired
pursuant to the Tender Offer (and to subsequent open market purchases), which
resulted in the extraordinary loss of $6,749 (net of a $4,224 tax benefit)
included in the accompanying financial statements for the nine months ended
September 30, 1998. The amount of funds expended to complete the Tender Offer
and subsequent open market purchases totaled $126,082, 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, plus accrued interest. The Company has formally notified the Senior
Note Trustee of the Company's intent to call the Senior Notes on December 1,
1998.
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 September 1998, the Company, as borrower, succeeded to the
obligations of NVR Homes, Inc. under the unsecured working capital revolving
credit facility as amended and restated (the "Facility"). The Facility expires
on May 31, 2001. 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.
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, Inc., amended its mortgage warehouse facility
23
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 nine months ended September 30, 1998, the Company
repurchased approximately 778,000 shares of its common stock at an aggregate
purchase price of $29,235. 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.
RVN, INC.
- ---------
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997
Under a royalty agreement entered into on October 1, 1996 with NVR,
Inc. ("NVR"), RVN's parent company, RVN, Inc. ("RVN") earns royalty fees based
on a percentage of settlement revenue for allowing NVR to use the Ryan Homes and
NVHomes tradenames to market homes. RVN earns 100% of its revenue from NVR.
The increase in royalty revenues in the current three and nine month periods as
compared to the prior year three and nine months periods resulted from higher
revenues earned by NVR. 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 September 30, 1998, cash generated from operations is primarily
distributed to NVR. Insofar as NVR's 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 AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997
Fox Ridge Homes, Inc. ("Fox Ridge" or the "Successor"), a wholly owned
subsidiary of 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 financial results for the three and nine
months ended September 30, 1997 and the Successor's financial results for the
three and nine months ended September 30, 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Income before income tax expense increased $894 to $1,985 in the third
quarter of 1998 from $1,091 in the third 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
24
goodwill amortization which resulted from the Purchase Transaction. Fox Ridge
settled 131 units during the third quarter of 1998 compared with 101 units
settled in the third quarter of 1997. New orders increased by 25.3% from 87
units in the quarter ended September 30, 1997 to 109 units in the quarter ended
September 30, 1998. SG&A dollars have increased slightly due to the higher
revenues.
Backlog units and dollars were 218 and $33,137, respectively, at
September 30, 1998 compared to 150 and $21,169, respectively, at September 30,
1997. The increase in backlog units and dollars is primarily attributable to a
29.6% increase in new orders for the six month period ended September 30, 1998
compared to the same 1997 period.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Income before income tax expense increased $1,038 to $3,309 for the
first nine months of 1998 from $2,271 for the first nine 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, coupled with improved gross
margins, offset by goodwill amortization, which resulted from the Purchase
Transaction. In addition, SG&A dollars have increased slightly due to the
higher revenues. Fox Ridge settled 299 units during the first nine months of
1998 compared with 244 units settled in the first nine months of 1997. New
orders increased by 36.9% from 279 units in the nine months ended September 30,
1997 to 382 units in the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Fox Ridge generally provides for its working capital cash requirements
using cash generated from operations and advances from NVR. Insofar as NVR's
ability to make advances is not impaired, Fox Ridge believes that internally
generated cash and borrowings available from NVR will be sufficient to satisfy
near and long term cash requirements.
25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
a. 11. Computation of Earnings per Share.
b. 27. Financial Data Schedules
c. The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1998.
26
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
- --------- --------------------------------- ----
11 Computation of Earnings per Share 29
27 Financial Data Schedule 30
27
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.
November 6, 1998 NVR, Inc.
By: /s/ Paul C. Saville
-------------------
Paul C. Saville
Senior Vice President Finance,
Chief Financial Officer, and
Treasurer
28
EXHIBIT 11
NVR, INC.
Computation of Earnings Per Share
(amounts in thousands, except per share amounts)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
1. Net income $24,753 $ 9,006 $44,365 $23,812
======= ======= ======= =======
2. Average number of shares
outstanding 10,994 11,682 11,248 12,051
3. Shares issuable upon exercise
of dilutive options, warrants and
subscriptions outstanding during
period, based on average market
price 2,269 1,531 2,111 1,212
------- ------- ------- -------
4. Average number of shares
and share equivalents outstanding
(2 + 3) 13,263 13,213 13,359 13,263
======= ======= ======= =======
5. Basic earnings per share (1/2) $ 2.25 $ 0.77 $ 3.94 $ 1.98
======= ======= ======= =======
6. Diluted earnings per share (1/4) $ 1.87 $ 0.68 $ 3.32 $ 1.80
======= ======= ======= =======
29
5
1,000
9-MOS
DEC-31-1998
JAN-01-1998
SEP-30-1998
109,702
0
7,086
0
264,025
0
16,187
0
727,178
0
153,511
0
0
169,247
(34)
727,178
1,118,319
1,157,271
946,752
1,026,840
5,659
0
13,680
85,906
34,792
51,114
0
(6,749)
0
44,365
3.94
3.32
ITEM REPRESENTS THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE AND
GOOD WILL.
5
1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
57,095
0
9,095
0
201,211
0
17,852
0
530,279
0
120,000
0
0
156,292
(15,288)
530,279
837,298
860,665
722,586
795,669
5,655
0
14,590
44,751
20,939
23,812
0
0
0
23,812
1.98
1.80
ITEM REPRESENTS THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE.
