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, 2000
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.
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(Exact name of registrant as specified in its charter)
Virginia 54-1394360
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(State or other jurisdiction of (IRS employer identification
incorporation or organization) number)
7601 Lewinsville Road, Suite 300
McLean, Virginia 22102
(703) 761-2000
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
(Not Applicable)
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(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___
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As of July 21, 2000 there were 8,912,657 total shares of common stock
outstanding.
NVR, Inc.
FORM 10-Q
INDEX
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Page
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PART I FINANCIAL INFORMATION
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Item 1. NVR, Inc. Condensed Consolidated Financial Statements
-----------------------------------------------------
Condensed Consolidated Balance Sheets at June 30, 2000
(unaudited) and December 31, 1999 ......................... 3
Condensed Consolidated Statements of Income for the
Three Months Ended June 30, 2000 (unaudited)
and June 30, 1999 (unaudited) and the
Six Months Ended June 30, 2000 (unaudited)
and June 30, 1999 (unaudited).............................. 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 (unaudited) and
June 30, 1999 (unaudited).................................. 6
Notes to Condensed Consolidated Financial Statements....... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 11
PART II OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders........ 15
Item 6. Exhibits and Reports on Form 8-K........................... 16
Exhibit Index.............................................. 16
Signature.................................................. 16
2
PART I
------
Item 1.
- -------
NVR, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
June 30, 2000 December 31, 1999
------------- -----------------
ASSETS (unaudited)
Homebuilding:
Cash and cash equivalents $ 77,744 $ 77,968
Receivables 13,438 2,171
Inventory:
Lots and housing units, covered under
sales agreements with customers 331,608 276,193
Unsold lots and housing units 25,595 37,573
Manufacturing materials and other 9,178 9,689
--------- --------
366,381 323,455
Property, plant and equipment, net 13,031 13,114
Reorganization value in excess of amounts
allocable to identifiable assets, net 50,821 53,901
Goodwill, net 8,019 8,566
Contract land deposits 78,312 62,784
Other assets 52,960 49,776
--------- --------
660,706 591,735
--------- --------
Mortgage Banking:
Cash and cash equivalents 12,756 11,158
Mortgage loans held for sale, net 102,516 136,311
Mortgage servicing rights, net 2,996 3,384
Property and equipment, net 2,745 4,239
Reorganization value in excess of amounts
allocable to identifiable assets, net 8,979 9,523
Goodwill, net - 2,739
Other assets 5,236 8,192
--------- --------
135,228 175,546
--------- --------
Total assets $ 795,934 $767,281
========= ========
See notes to condensed consolidated financial statements.
(Continued)
3
NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(dollars in thousands, except per share data)
June 30, 2000 December 31, 1999
------------- -----------------
(unaudited)
LIABILITIES AND SHAREHOLDERS'
EQUITY
Homebuilding:
Accounts payable $ 117,816 $ 98,322
Accrued expenses and other liabilities 126,058 125,172
Customer deposits 65,057 50,348
Notes payable 1,984 2,128
Other term debt 5,082 5,206
Senior notes 145,000 145,000
---------- ----------
460,997 426,176
---------- ----------
Mortgage Banking:
Accounts payable and other liabilities 6,338 14,666
Notes payable 100,409 125,799
---------- ----------
106,747 140,465
---------- ----------
Total liabilities 567,744 566,641
---------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,614,365 and 20,614,855
shares issued as of June 30, 2000 and
December 31, 1999, respectively 206 204
Paid-in-capital 183,029 196,654
Retained earnings 309,342 241,564
Deferred compensation trust- 340,703 shares
of NVR, Inc. common stock (16,057) -
Deferred compensation liability 16,057 -
Less treasury stock at cost; 11,705,375
and 11,443,247 shares at June 30, 2000
and December 31, 1999, respectively (264,387) (237,782)
---------- ----------
Total shareholders' equity 228,190 200,640
---------- ----------
Total liabilities and shareholders'
equity $ 795,934 $ 767,281
========== ==========
See notes to condensed consolidated financial statements.
4
NVR, Inc.
Condensed Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- --------------------------------
2000 1999 2000 1999
-------------- --------------- ---------------- -------------
Homebuilding:
Revenues $ 558,506 $ 492,058 $ 1,049,087 $ 921,745
Other income 741 433 1,356 922
Cost of sales (454,982) (408,167) (854,659) (764,711)
Selling, general and administrative (38,552) (34,169) (67,961) (62,392)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill (1,814) (1,814) (3,627) (3,627)
----------- ----------- ----------- -----------
Operating income 63,899 48,341 124,196 91,937
Interest expense (3,359) (3,359) (6,701) (6,740)
----------- ----------- ----------- -----------
Homebuilding income 60,540 44,982 117,495 85,197
----------- ----------- ----------- -----------
Mortgage Banking:
Mortgage banking fees 7,622 12,465 15,219 25,987
Interest income 1,673 3,822 3,711 6,573
Other income 117 163 184 257
General and administrative (6,062) (9,192) (13,838) (18,514)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill (272) (412) (708) (772)
Interest expense (1,080) (2,345) (2,041) (4,016)
Restructuring and asset impairment
charge 200 - (5,726) -
----------- ----------- ----------- -----------
Operating income/(loss) 2,198 4,501 (3,199) 9,515
----------- ----------- ----------- -----------
Total segment income 62,738 49,483 114,296 94,712
Income tax expense (25,534) (21,220) (46,518) (40,442)
----------- ----------- ----------- -----------
Net Income $ 37,204 $ 28,263 $ 67,778 $ 54,270
=========== =========== =========== ===========
Basic Earnings per Share: $ 4.09 $ 2.66 $ 7.29 $ 5.04
=========== =========== =========== ===========
Diluted Earnings per Share: $ 3.37 $ 2.26 $ 6.09 $ 4.28
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
5
NVR, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands, except share data)
(unaudited)
Six Months Ended June 30,
---------------------------------------------
2000 1999
-------------------- --------------------
Cash flows from operating activities:
Net income $ 67,778 $ 54,270
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,917 6,753
Restructuring and asset impairment charge 5,426 -
Mortgage loans closed (937,416) (1,649,180)
Proceeds from sales of mortgage loans 974,317 1,676,426
Gain on sale of mortgage servicing rights (320) (1,473)
Gain on sale of loans (9,072) (18,912)
Net change in assets and liabilities:
Increase in inventories (42,926) (26,163)
Increase in receivables (10,596) (7,591)
Increase in contract land deposits (15,528) (6,633)
Increase in accounts payable, customer deposits and
accrued expenses 30,808 55,445
Other, net (3,687) 11,371
----------- -----------
Net cash provided by operating activities 65,701 94,313
----------- -----------
Cash flows from investing activities:
Business acquisition, net of cash acquired - (3,697)
Purchase of property, plant and equipment (2,137) (3,720)
Principal payments on mortgage-backed securities 368 1,884
Proceeds from sales of mortgage servicing rights 8,016 18,204
Other, net (254) 4,151
----------- -----------
Net cash provided by investing activities 5,993 16,822
----------- -----------
Cash flows from financing activities:
Purchase of NVR common stock for
funding of deferred compensation plan (1,606) -
Redemption of mortgage bonds - (713)
Net (repayments) borrowings under notes payable and other
term Debt (26,054) (45,357)
Purchase of treasury stock (44,730) (40,616)
Other, net 2,070 1,330
----------- -----------
Net cash used by financing activities (70,320) (85,356)
----------- -----------
Net increase in cash 1,374 25,779
Cash, beginning of the period 89,126 68,504
----------- -----------
Cash, end of period $ 90,500 $ 94,283
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 8,485 $ 10,602
=========== ===========
Income taxes paid, net of refunds $ 45,081 $ 30,829
=========== ===========
See notes to condensed consolidated financial statements.
6
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share and share data)
1. Basis of Presentation
The accompanying unaudited, condensed 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 1999 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, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
For the quarters and the six-month periods ended June 30, 2000 and
1999, comprehensive income equaled net income; therefore, a separate statement
of comprehensive income is not included in the accompanying financial
statements.
2. Shareholders' Equity
A summary of changes in shareholders' equity is presented below:
Deferred Deferred
Common Paid-In Retained Treasury Comp. Comp.
Stock Capital Earnings Stock Trust Liability
-------- ----------- ------------ ----------- ---------- ---------
Balance, December 31, 1999 $ 204 $ 196,654 $ 241,564 $(237,782) $ - $ -
Net income - - 67,778 - - -
Deferred compensation activity - (14,918) - 14,451 (16,057) 16,057
Purchase of common stock
for treasury - - - (44,730) - -
Option activity 2 2,068 - - - -
Tax benefit from stock-based
compensation activity - 2,899 - - - -
Performance share activity - (3,674) - 3,674 - -
--------- --------- --------- --------- ---------- ---------
Balance, June 30, 2000 $ 206 $ 183,029 $ 309,342 $(264,387) $ (16,057) $ 16,057
========= ========= ========= ========= ========== =========
Approximately 77,700 shares were reissued from the treasury during
January 2000 in satisfaction of benefits earned and expensed in 1999 under an
equity-based employee benefit plan. The basis for the shares reissued from the
treasury was $47.25 per share. In addition, approximately 182,000 options were
exercised during the first six months of 2000, with NVR realizing approximately
$2,070 in aggregate equity proceeds.
7
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share and share data)
To minimize the non-deductibility of executive compensation expense due
to the limitations of Section 162(m) of the Internal Revenue Code and still
maintain the ability to competitively compensate the Company's executive
officers, the Company established a deferred compensation plan (Deferred Comp
Plan). The specific purpose of the Deferred Comp Plan was to establish a vehicle
whereby the executive officers could defer the receipt of compensation that
otherwise would be nondeductible for tax purposes into a period where the
Company would realize a tax deduction for the amounts paid. The Deferred Comp
Plan is also available to other members of the Company's management group.
Amounts deferred into the Deferred Comp Plan are invested in NVR common stock
and are paid out in a fixed number of shares upon expiration of the deferral
period.
The Deferred Comp Plan Trust was funded during the first quarter of 2000
with 305,863 NVR shares issued from the Company's treasury stock account. The
basis for the shares reissued from the treasury was $47.25 per share. In
addition, the Deferred Comp Plan Trust purchased 34,840 NVR common shares on the
open market at an aggregate cost of $1,606. The compensation deferred was
related to benefits earned by NVR employees under the Company's 1994 Management
Equity Incentive Plan and the 1996 High Performance Plan. The aggregate 340,703
shares are treated as outstanding shares in the earnings per share calculation
for the three and six months ended June 30, 2000.
3. Segment Disclosures
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.
For the Six Months Ended June 30, 2000
- --------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 1,049,087 $ 15,219 $ 1,064,306 (a)
Segment profit/(loss) 121,122 (2,491) 118,631 (b)
Segment assets 601,866 126,249 728,115 (b)
(a) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(b) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Segment profit/(loss) $ 121,122 $ (2,491) $ 118,631
Less: amortization of excess
reorganization value and goodwill (3,627) (708) (4,335)
---------- ----------- ----------
Consolidated income before income
taxes $ 117,495 $ (3,199) $ 114,296
========== =========== ==========
Segment assets $ 601,866 $ 126,249 $ 728,115
Add: Excess reorganization value
and goodwill 58,840 8,979 67,819
---------- ----------- ----------
Total consolidated assets $ 660,706 $ 135,228 $ 795,934
========== =========== ==========
8
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share and share data)
For the Three Months Ended June 30, 2000
- ----------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 558,506 $ 7,622 $ 566,128 (c)
Segment profit 62,354 2,470 64,824 (d)
(c) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(d) The following reconciles segment profit to the respective amounts for the
consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Segment profit $ 62,354 $ 2,470 $ 64,824
Less: amortization of excess
reorganization value and goodwill (1,814) (272) (2,086)
------------ -------------- -----------
Consolidated income before income
taxes $ 60,540 $ 2,198 $ 62,738
============ ============== ===========
For the Six Months Ended June 30, 1999
- --------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 921,745 $ 25,987 $ 947,732 (e)
Segment profit 88,824 10,287 99,111 (f)
Segment assets 500,372 254,292 754,664 (f)
(e) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(f) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Segment profit $ 88,824 $ 10,287 $ 99,111
Less: amortization of excess
reorganization value and goodwill (3,627) (772) (4,399)
------------ -------------- -----------
Consolidated income before income
taxes $ 85,197 $ 9,515 $ 94,712
============ ============== ===========
Segment assets $ 500,372 $ 254,292 $ 754,664
Add: Excess reorganization value
and goodwill 66,094 13,252 79,346
------------ -------------- -----------
Total consolidated assets $ 566,466 $ 267,544 $ 834,010
============ ============== ===========
For the Three Months Ended June 30, 1999
- ----------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 492,058 $ 12,465 $ 504,523 (g)
Segment profit 46,796 4,913 51,709 (h)
(g) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(h) The following reconciles segment profit to the respective amounts for the
consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Segment profit $ 46,796 $ 4,913 $ 51,709
Less: amortization of excess
reorganization value and goodwill (1,814) (412) (2,226)
------------ -------------- -----------
Consolidated income before income
taxes $ 44,982 $ 4,501 $ 49,483
============ ============== ===========
9
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share and share data)
4. Mortgage Banking Segment Restructuring Plan
During the first quarter of 2000, NVR formulated a detailed plan to align
its mortgage banking operations to exclusively serve the Company's homebuilding
customers. The plan specifically entails the closure of all of the Company's
retail operations, including all of the retail branches acquired from the
acquisition of First Republic Mortgage Corporation ("First Republic") in March
1999. This action is consistent with the Company's decision in December 1999 to
exit the wholesale mortgage origination business. After the restructuring plan
is complete, the Company's mortgage banking operations will focus solely on
serving the Company's homebuilding operations. The restructuring plan was
substantially completed by June 30, 2000. As a result of the restructuring, the
Company incurred net restructuring and asset impairment charges of $5,726, which
are included in the mortgage banking segment's operating results for the six
months ended June 30, 2000 in the accompanying statements of income. For
additional details, see the mortgage banking section of the management
discussion and analysis on page 13.
10
Item 2.
- -------
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(dollars in thousands, except per share and share data)
Forward-Looking Statements
Some of the statements in this Form 10-Q, as well as statements made by
the Company in periodic press releases and other public communications,
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, access to suitable financing 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, fluctuation and volatility of stock and other
financial markets and other factors over which the Company has little or no
control.
Results of Operations for the Three and Six Months Ended June 30, 2000 and 1999
NVR, Inc. ("NVR" or the "Company") 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 June 30, 2000 and 1999
During the second quarter of 2000, homebuilding operations generated
revenues of $558,506 compared to revenues of $492,058 in the second quarter of
1999. The change in revenues was due to a 1.9% increase in the number of homes
settled to 2,469 units in 2000 from 2,424 units in 1999, and to an 11.4%
increase in the average selling price to $225.2 in 2000 from $202.1 in 1999. The
increase in the average selling price is attributable to price increases in
certain of the Company's markets and to single family detached units
representing a larger percentage of the total units settled in the current
period as compared to the prior year period. New orders of 3,010 during the
second quarter of 2000 increased 5.4% compared with the 2,855 new orders
generated during the same 1999 period. The increase in new orders was primarily
the result of increased sales in the Company's markets outside the Washington,
D.C. metropolitan area.
Gross profit margins in the second quarter of 2000 increased to 18.5% as
compared to 17.0% for the second quarter of 1999. The increase in gross margins
was due to continuing favorable market conditions, which provided the Company
the opportunity to increase selling prices in certain of its markets, and to the
Company's ongoing focus on controlling construction costs.
11
Selling, general and administrative ("SG&A") expenses for the second
quarter of 2000 increased $4,383 from the second quarter of 1999, and as a
percentage of revenues, were flat with the second quarter of 1999. The increase
in SG&A dollars is primarily attributable to the aforementioned increase in
revenues.
Backlog units and dollars were 5,849 and $1,404,219, respectively, at
June 30, 2000 compared to 5,447 and $1,190,412, respectively, at June 30, 1999.
The increase in backlog units and dollars is primarily attributable to a 4.1%
increase in new orders for the six month period ended June 30, 2000 compared to
the same 1999 period. The increase in backlog dollars is also due to a 9.3%
increase in the average selling price over the same six month period.
The Company believes that earnings before interest, taxes, depreciation
and amortization, excluding non-cash equity based compensation ("EBITDA"),
provides a meaningful comparison of operating performance of the homebuilding
segment. Although the Company believes the calculation is helpful in
understanding the performance of the homebuilding segment, EBITDA should not be
considered a substitute for net income or cash flow as indicators of the
Company's financial performance or its ability to generate liquidity.
Calculation of Homebuilding EBITDA:
Three Months Ended June 30,
--------------------------------
2000 1999
---------- -----------
Operating income $ 63,899 $ 48,341
Depreciation 1,005 858
Amortization of excess reorganization
value/goodwill 1,814 1,814
Non-cash compensation - 4,395
---------- -----------
Homebuilding EBITDA $ 66,718 $ 55,408
========== ===========
% of Homebuilding revenues 11.9% 11.3%
========== ===========
Homebuilding EBITDA in the second quarter of 2000 was $11,310 higher than
in the second quarter of 1999, and as a percentage of homebuilding revenues,
increased to 11.9% from 11.3%.
Mortgage Banking Segment
Three Months Ended June 30, 2000 and 1999
The mortgage banking segment generated operating income, excluding the
amortization of excess reorganization value and goodwill, of $2,470 for the
three months ended June 30, 2000 compared to operating income of $4,913 during
the same period in 1999. The reduction was primarily due to a 46.2% reduction in
loan closings to $467,818 from $869,774 for the three months ended June 30, 2000
and 1999, respectively, and to costs associated with winding up the business of
First Republic Mortgage Corporation ("First Republic"). The reduction in loan
closings is the direct result of the Company's decision made in the first
quarter of 2000 to exit the retail and wholesale loan origination business to
focus exclusively on originating mortgages for NVR's homebuilding customers.
(See the mortgage banking segments six month discussion within this management's
discussion and analysis for further details). Also, during the quarter ended
June 30, 2000, a reversal of $200 of the restructuring accrual established in
the prior quarter was more than fully offset by the establishment of a $500 loss
provision for certain loans originated and sold by First Republic prior to NVR's
acquisition of First Republic in March 1999. All of First Republic's retail
branches acquired in the March 1999 acquisition were closed as a result of the
first quarter 2000 restructuring activities.
12
Homebuilding Segment
Six Months Ended June 30, 2000 and 1999
During the first six months of 2000, homebuilding operations generated
revenues of $1,049,087 compared to revenues of $921,745 in the first six months
of 1999. The increase in revenues was primarily due to a 4.0% increase in the
number of homes settled to 4,705 in 2000 from 4,522 in 1999, and to a 9.3%
increase in the average settlement price to $222.0 in 2000 from $203.1 in 1999.
The increase in settlements is a direct result of the substantially higher
backlog at the beginning of the 2000 period as compared to the beginning of the
same 1999 period. The increase in the average settlement price is attributable
to single family detached units representing a larger percentage of the total
units settled in the current period as compared to the prior year period, and to
price increases in certain of the Company's markets. New orders increased by
4.1% to 5,619 for the six months ended June 30, 2000 compared with 5,396 for the
six months ended June 30, 1999. The increase in new orders was primarily the
result of increased sales in the Baltimore/Washington area.
Gross profit margins for the first six months of 2000 increased to 18.5%
compared to 17.0% for the six months ended June 30, 1999. The increase in gross
profit margins was due to continuing favorable market conditions, which provided
the Company the opportunity to increase selling prices in certain of its
markets, and to the Company's continued focus on controlling construction costs.
SG&A expenses for 2000 increased $5,569 compared to the same 1999 period,
but as a percentage of revenues decreased to 6.5% from 6.8%. The increase in
SG&A dollars and the percentage decrease is primarily attributable to the
overall larger revenue base.
Calculation of Homebuilding EBITDA:
Six Months Ended June 30,
------------------------------
2000 1999
----------- ----------
Operating income $ 124,196 $ 91,937
Depreciation 2,025 1,604
Amortization of excess reorganization
value and goodwill 3,627 3,627
Non-cash compensation - 8,553
----------- -----------
Homebuilding EBITDA $ 129,848 $ 105,721
=========== ===========
% of Homebuilding revenues 12.4% 11.5%
=========== ===========
Homebuilding EBITDA for the first six months of 2000 was $24,127 higher
than the first six months of 1999, and as a percentage of revenues increased to
12.4% from 11.5%.
Mortgage Banking Segment
Six Months Ended June 30, 2000 and 1999
The mortgage banking segment incurred an operating loss, excluding the
amortization of excess reorganization value and goodwill, of $2,491 for the six
months ended June 30, 2000 compared to operating income of $10,287 during the
same period in 1999. During the first quarter of 2000, NVR formulated a detailed
plan to align its mortgage banking operations to exclusively serve the Company's
homebuilding customers. The plan specifically entailed the closure of all of the
Company's retail operations, including all of the retail branches acquired from
the acquisition of First Republic. This action was consistent with the Company's
decision in December 1999 to exit the wholesale mortgage origination business.
After the restructuring plan is complete, the Company's mortgage banking
operations will focus solely on serving the Company's homebuilding operations.
The restructuring plan was substantially completed during the second quarter of
2000.
13
As a result of the restructuring, the Company recorded a restructuring
and asset impairment charge of $5,926 in the first quarter of 2000. A detail of
the costs comprising the total charge incurred in the first quarter is as
follows:
Write off of First Republic goodwill $2,575
Noncancelable office and equipment leases 1,480
Asset impairments 1,362
Severance 509
------
Total $5,926
======
During the second quarter of 2000, approximately $444 in severance and
lease costs were applied against the restructuring reserve. In addition, the
Company reversed approximately $200 in restructuring reserves, primarily for
unused severance costs. Approximately $1,300 of the restructuring accrual
established at March 31, 2000, remains at June 30, 2000, and primarily relates
to accrued lease costs.
Excluding the restructuring and impairment charges (net reversals)
incurred in the first six months of 2000, operating income was $3,235, a
decrease of 69% from the $10,287 of operating income generated in the first six
months of 1999. This was primarily due to a 43% reduction in loan closings to
$937,416 for the first six months of 2000 compared to $1,649,180 in loan
closings for the first six months of 1999, costs associated with winding up the
business of First Republic, and to competitive pricing pressures.
The Company expects that the post-restructuring operating activities of
the mortgage banking segment will generate operating income in the final two
quarters of 2000, but those operating profits will most likely be less than the
comparable results from 1999.
Recent Accounting Pronouncements
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 on
the income statement. During June 1999, the FASB issued SFAS No. 137, and in
June 2000, the FASB issued SFAS No. 138, both of which provide additional
guidance and amendments to SFAS No. 133. SFAS No. 133, as amended, is now
effective for fiscal years beginning after June 15, 2000, 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, 2001, as such impact will be determined
based on loans held in inventory and forward mortgage delivery contracts
outstanding at the date of adoption.
Liquidity and Capital Resources
The Company has $225,000 available for issuance under a shelf
registration statement filed with the Securities and Exchange Commission on
January 20, 1998. 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.
NVR's homebuilding segment generally provides for its working capital
cash requirements using cash generated from operations and a short-term
unsecured working capital revolving credit facility (the "Facility"). The
Facility expires on May 31, 2003. The Facility provides for borrowings
14
of up to $100,000 of which $60,000 is currently committed. Up to approximately
$24,000 of the Facility is currently available for issuance in the form of
letters of credit, of which $16,143 was outstanding at June 30, 2000. There were
no direct borrowings outstanding under the Facility as of June 30, 2000.
NVR's mortgage banking segment provides for its mortgage origination and
other operating activities using cash generated from operations as well as a
short-term credit facility. NVR Finance has available an annually renewable
mortgage warehouse facility with an aggregate available borrowing limit of
$200,000 to fund its mortgage origination activities. There was $92,528
outstanding under this facility at June 30, 2000. NVR Finance also currently has
available an aggregate of $120,000 of borrowing capacity in various uncommitted
gestation and repurchase agreements. There was an aggregate of $7,531
outstanding under such gestation and repurchase agreements at June 30, 2000.
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, 2000, the Company repurchased
approximately 828,000 shares of its common stock at an aggregate purchase price
of $44,730. 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.
Part II
-------
Item 4. Submission of Matters to a Vote of Security Holders
- -------
NVR held its Annual Meeting of Shareholders on May 3, 2000. 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:
C. Scott Barlett, Jr. 8,958,185 356,912
William A. Moran 8,897,052 418,046
Richard H Norair, Sr. 8,953,691 361,406
Votes Votes Not
For Against Abstentions Voted
----------- --------- ------------ -------
2. Ratification of appointment of KPMG
LLP as independent auditors
for NVR 9,256,464 19,224 39,409 206,696
15
Item 6. Exhibits and Reports on Form 8-K
- -------
a. 11. Computation of Earnings per Share.
b. 27. Financial Data Schedule
c. The Company did not file any reports on Form 8-K during the
quarter ended June 30, 2000.
Exhibit Index
Exhibit
Number Description Page
- ------ ------------------------------------------ ----
11 Computation of Earnings per Share 17
27 Financial Data Schedule 18
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 26, 2000 NVR, Inc.
By: /s/ Paul C. Saville
----------------------
Paul C. Saville
Senior Vice President Finance and
Chief Financial Officer
16
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,
------------------------------ -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
1. Net income $ 37,204 $ 28,263 $ 67,778 $ 54,270
============= ============= ============= =============
2. Average number of shares
outstanding 9,098 10,606 9,295 10,774
3. Shares issuable upon exercise
of dilutive options, based on
average market price 1,946 1,921 1,843 1,892
------------- ------------- ------------- -------------
4. Average number of shares
and share equivalents outstanding
(2 + 3) 11,044 12,527 11,138 12,666
============= ============= ============= =============
5. Basic earnings per share (1/2) $ 4.09 $ 2.66 $ 7.29 $ 5.04
============= ============= ============= =============
6. Diluted earnings per share (1/4) $ 3.37 $ 2.26 $ 6.09 $ 4.28
============= ============= ============= =============
17
5
1,000
6-MOS
DEC-31-2000
JAN-01-2000
JUN-30-2000
90,500
0
13,438
0
366,381
0
15,776
0
795,934
0
145,000
0
0
183,235
44,955
795,934
1,049,087
1,069,557
854,659
942,184
4,335
0
8,742
114,296
46,518
67,778
0
0
0
67,778
7.29
6.09
ITEM REPRESENTS THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE AND
GOOD WILL.
