<PAGE>
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, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-12378
NVR, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1394360
- ------------------------------- ----------------------------
(State or other jurisdiction of (IRS employer identification
incorporation or organization) number)
7601 Lewinsville Road, Suite 300
McLean, Virginia 22102
(703) 761-2000
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
(Not Applicable)
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
---
As of October 18, 1999 there were 9,364,957 total shares of common stock
outstanding.
1
<PAGE>
NVR, Inc.
FORM 10-Q
INDEX
================================================================================
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I FINANCIAL INFORMATION
- ------
Item 1. NVR, Inc. Condensed Consolidated Financial Statements
-----------------------------------------------------
Condensed Consolidated Balance Sheets at September 30,
1999 (unaudited) and December 31, 1998............................ 3
Condensed Consolidated Statements of Income for the
Three Months Ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited) and the
Nine Months Ended September 30, 1999 (unaudited)
and September 30, 1998 (unaudited)................................ 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 (unaudited) and
September 30, 1998 (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
- -------
Item 1. Legal Proceeding.................................................. 17
Item 6. Exhibits and Reports on Form 8-K.................................. 17
Exhibit Index..................................................... 17
Signature......................................................... 18
</TABLE>
2
<PAGE>
PART I
------
Item 1.
- ------
NVR, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited)
<S> <C> <C>
Homebuilding:
Cash and cash equivalents $ 60,366 $ 59,118
Receivables 9,415 1,515
Inventory:
Lots and housing units,covered under
sales agreements with customers 287,571 236,447
Unsold lots and housing units 34,384 45,478
Manufacturing materials and other 6,913 6,713
-------- --------
328,868 288,638
Property, plant and equipment, net 12,015 16,663
Reorganization value in excess of amounts
allocable to identifiable assets, net 55,441 60,062
Goodwill, net 8,839 9,659
Contract land deposits 58,621 40,699
Other assets 38,790 41,301
-------- --------
572,355 517,655
-------- --------
Mortgage Banking:
Cash and cash equivalents 11,689 9,386
Mortgage loans held for sale, net 203,886 178,695
Mortgage servicing rights, net 3,082 3,680
Property and equipment, net 3,905 934
Reorganization value in excess of amounts
allocable to identifiable assets, net 9,795 10,611
Goodwill, net 2,903 -
Other assets 7,240 3,398
-------- --------
242,500 206,704
-------- --------
Total assets $814,855 $724,359
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
(Continued)
3
<PAGE>
NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Homebuilding:
Accounts payable $ 96,495 $ 88,272
Accrued expenses and other liabilities 124,727 103,683
Customer deposits 48,941 34,639
Notes payable 3,703 4,054
Other term debt 5,271 5,434
Senior notes 145,000 145,000
--------- ---------
424,137 381,082
--------- ---------
Mortgage Banking:
Accounts payable and other liabilities 15,422 11,709
Notes payable 190,494 165,849
--------- ---------
205,916 177,558
--------- ---------
Total liabilities 630,053 558,640
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,614,855 and
20,190,971 shares issued as of September 30,
1999 and December 31, 1998, respectively 204 202
Paid-in-capital 190,863 174,173
Retained earnings 217,294 132,683
Less treasury stock at cost; 11,152,138
and 9,805,132 shares at September 30, 1999
and December 31, 1998, respectively (223,559) (141,339)
--------- ---------
Total shareholders' equity 184,802 165,719
--------- ---------
Total liabilities and shareholders'
equity $ 814,855 $ 724,359
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
NVR, Inc.
Condensed Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
------------------------------ -----------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Homebuilding:
Revenues $ 523,552 $ 441,034 $ 1,445,297 $1,118,319
Other income 466 672 1,388 1,837
Cost of sales (433,380) (372,950) (1,198,091) (946,752)
Selling, general and administrative (35,389) (30,839) (97,781) (80,088)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill (1,813) (1,886) (5,440) (5,659)
---------- ---------- ----------- ----------
Operating income 53,436 36,031 145,373 87,657
Interest expense (3,373) (4,041) (10,113) (13,680)
---------- ---------- ----------- ----------
Homebuilding income 50,063 31,990 135,260 73,977
---------- ---------- ----------- ----------
Mortgage Banking:
Mortgage banking fees 13,162 11,724 39,149 30,095
Interest income 3,358 2,360 9,931 6,515
Other income 140 161 397 505
General and administrative (11,266) (7,172) (29,780) (19,436)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill (428) (272) (1,200) (816)
Interest expense (2,078) (1,809) (6,094) (4,934)
---------- ---------- ----------- ----------
Operating income 2,888 4,992 12,403 11,929
Total segment income 52,951 36,982 147,663 85,906
Income tax expense (22,610) (12,223) (63,052) (34,792)
---------- ---------- ----------- ----------
Income Before Extraordinary Item 30,341 24,759 84,611 51,114
Extraordinary loss from extinguishment
of indebtedness (net of a $4 and $4,224 tax
benefit for the three and nine months
ended Sept. 30, 1998, respectively) - (6) - (6,749)
---------- ---------- ----------- ----------
Net Income $ 30,341 $ 24,753 $ 84,611 $ 44,365
========== ========== =========== ==========
Basic Earnings per Share:
Income before extraordinary loss $ 3.06 $ 2.25 $ 8.07 $ 4.54
Extraordinary loss - - - (0.60)
---------- ---------- ------------ ----------
Basic earnings per share $ 3.06 $ 2.25 $ 8.07 $ 3.94
========== ========== ============ ==========
Diluted Earnings per Share:
Income before extraordinary loss $ 2.52 $ 1.87 $ 6.82 $ 3.83
Extraordinary loss - - - (0.51)
---------- ---------- ------------ ----------
Diluted earnings per share $ 2.52 $ 1.87 $ 6.82 $ 3.32
========== ========== ============ ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
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NVR, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 84,611 $ 44,365
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 10,461 10,112
Pre-tax extraordinary loss-extinguishment of indebtedness - 10,973
Mortgage loans closed (2,324,773) (1,934,690)
Proceeds from sales of mortgage loans 2,373,288 1,880,344
Gain on sale of mortgage servicing rights (2,670) (818)
Gain on sale of loans (27,812) (21,736)
Net change in assets and liabilities:
Increase in inventories (40,230) (39,984)
Increase in receivables (9,730) (3,281)
Increase in accounts payable, customer deposits and
accrued expenses 53,988 51,657
Other, net 2,111 2,809
----------- -----------
Net cash provided (used) by operating activities 119,244 (249)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of mortgage-backed securities - 9,570
Business acquisition, net of cash acquired (3,697) -
Purchase of property, plant and equipment (6,394) (1,667)
Principal payments on mortgage-backed securities 2,225 4,465
Proceeds from sales of mortgage servicing rights 27,061 15,204
Other, net 4,746 25
----------- -----------
Net cash provided by investing activities 23,941 27,597
----------- -----------
Cash flows from financing activities:
Redemption of mortgage bonds (1,625) (11,785)
Extinguishment of 11% Senior Notes - (120,365)
Deferred financing fees - (2,311)
Issuance of 8% Senior Notes - 145,000
Net (repayments) borrowings under notes payable (51,955) 54,370
Purchases of treasury stock (87,542) (29,235)
Other, net 1,488 955
----------- -----------
Net cash provided (used) by financing activities (139,634) 36,629
----------- -----------
Net increase in cash 3,551 63,977
Cash, beginning of the period 68,504 45,725
----------- -----------
Cash, end of period $ 72,055 $ 109,702
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 11,677 $ 15,705
=========== ===========
Income taxes paid, net of refunds $ 54,448 $ 27,520
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
1. Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements
include the accounts of NVR, Inc. and its subsidiaries ("NVR" or the "Company").
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
unaudited 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 1998 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, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
For the quarters and nine-month periods ended September 30, 1999 and 1998,
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:
<TABLE>
<CAPTION>
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
------ -------- -------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 202 $174,173 $132,683 $(141,339)
Net income - - 84,611 -
Tax benefit from stock-based
compensation activity - 7,347 - -
Option activity 2 1,486 - -
Treasury stock purchases - - - (87,542)
Performance share activity - 7,857 - 5,322
------ -------- -------- ---------
Balance, September 30, 1999 $ 204 $190,863 $217,294 $(223,559)
====== ======== ======== =========
</TABLE>
Approximately 366,000 shares were reissued from the treasury during 1999 in
satisfaction of benefits earned and expensed in 1998 under an equity-based
employee benefit plan. The average cost basis for the shares reissued from the
treasury was $14.52 per share. In addition, 486,881 options were exercised
during the first nine months of 1999, with NVR realizing approximately $1,488 in
aggregate equity proceeds for these option exercises.
3. Business Acquisition
On March 4, 1999, NVR Mortgage Acquisition, Inc. ("NVRMA"), a wholly owned
subsidiary of NVR Mortgage Finance, Inc. ("NVR Finance"), NVR's wholly owned
mortgage banking subsidiary, purchased all of the outstanding capital stock of
First Republic Mortgage Corporation ("First Republic") for approximately $5,300
in cash. First Republic, based in Rockville, Maryland is a leading mortgage
7
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
lender in the Baltimore and Washington Metropolitan area. NVRMA accounted for
this acquisition using the purchase method, and the operations of the acquired
business have been included in NVR's consolidated financial statements for the
first nine months of 1999 beginning on the date of the acquisition. Goodwill of
approximately $3,300 that was generated pursuant to the purchase transaction is
being amortized using the straight-line method over 5 years.
4. Debt
In September 1999, NVR Finance amended its mortgage warehouse facility to
increase the available borrowing limit to $225,000, of which $200,000 is
committed. There is $168,219 outstanding under the facility at September 30,
1999. The new facility is annually renewable, and expires in September 2000.
The other terms and conditions are substantially equivalent to those in effect
at December 31, 1998.
5. 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.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1999
- --------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
<S> <C> <C> <C>
Revenues from external customers $1,445,297 $ 39,149 $1,484,446 (a)
Segment profit 140,700 13,603 154,303 (b)
Segment assets 508,075 229,802 737,877 (b)
</TABLE>
(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:
<TABLE>
<S> <C> <C> <C>
Segment profit $ 140,700 $ 13,603 $ 154,303
Less: amortization of excess
reorganization value and goodwill (5,440) (1,200) (6,640)
---------- ---------- ----------
Consolidated income before income
taxes $ 135,260 $ 12,403 $ 147,663
========== ========== ==========
Segment assets $ 508,075 $ 229,802 $ 737,877
Add: Excess reorganization value
and goodwill 64,280 12,698 76,978
---------- ---------- ----------
Total consolidated assets $ 572,355 $ 242,500 $ 814,855
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1999
- ---------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
<S> <C> <C> <C>
Revenues from external customers $ 523,552 $ 13,162 $ 536,714 (c)
Segment profit 51,876 3,316 55,192 (d)
</TABLE>
(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:
<TABLE>
<S> <C> <C> <C>
Segment profit $ 51,876 $ 3,316 $ 55,192
Less: amortization of excess
reorganization value and goodwill (1,813) (428) (2,241)
------------ ---------- ----------
Consolidated income before income
taxes $ 50,063 $ 2,888 $ 52,951
============ ========== ==========
</TABLE>
8
<PAGE>
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1998
- ------------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
<S> <C> <C> <C>
Revenues from external customers $1,118,319 $ 30,095 $1,148,414 (e)
Segment profit 79,636 12,745 92,381 (f)
Segment assets 444,099 197,737 641,836 (f)
</TABLE>
(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:
<TABLE>
<S> <C> <C> <C>
Segment profit $ 79,636 $ 12,745 $ 92,381
Less: amortization of excess
reorganization value and goodwill (5,659) (816) (6,475)
---------- ---------- ----------
Consolidated income before income
taxes and extraordinary loss $ 73,977 $ 11,929 $ 85,906
========== ========== ==========
Segment assets $ 444,099 $ 197,737 $ 641,836
Add: Excess reorganization value
and goodwill 74,459 10,883 85,342
---------- ---------- ----------
Total consolidated assets $ 518,558 $ 208,620 $ 727,178
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1998
- -----------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
<S> <C> <C> <C>
Revenues from external customers $ 441,034 $ 11,724 $ 452,758 (g)
Segment profit 33,876 5,264 39,140 (h)
</TABLE>
(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:
<TABLE>
<S> <C> <C> <C>
Segment profit $ 33,876 $ 5,264 $ 39,140
Less: amortization of excess
reorganization value and goodwill (1,886) (272) (2,158)
---------- ---------- -----------
Consolidated income before income
taxes and extraordinary loss $ 31,990 $ 4,992 $ 36,982
========== ========== ===========
</TABLE>
6. Stock Option Plan
During the second quarter of 1999, the Company's Shareholders approved the
Board of Directors' adoption of the 1998 Management Long-Term Stock Option Plan
(the "Stock Option Plan") and the 1998 Directors' Long-Term Stock Option Plan
(the "Directors' Plan").
Under the Stock Option Plan, awards of non-qualified stock options
("Options") to purchase 1,000,000 Shares of the Company's common stock
("Shares") may be granted to executive officers and other key management
personnel. Each Option will be granted for a period of ten (10) years from the
date of grant. As of September 30, 1999, 927,000 Options have been granted under
the Stock Option Plan. The exercise price was equal to the fair market value of
the Company's Shares on the date of grant. The Options granted will vest as to
thirty-three and one-third percent (33- 1/3%) of the underlying Shares on each
of December 31, 2003, 2004, and 2005, with vesting based upon continued
employment.
9
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
Also as of September 30, 1999, 87,500 Options authorized under the
Directors' Plan were granted to the Company's outside directors at an exercise
price equal to the fair market value of the Company's Shares on the date of
grant, leaving 62,500 options available for future grants. The Options were
granted for a ten (10) year period beginning from the date of grant, and vest as
to twenty-five percent (25%) of the underlying Shares on each of December 31,
2002, 2003, 2004 and 2005.
10
<PAGE>
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 and other public comments and 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, objectives of management for future
operations and certain statements regarding the Company's Year 2000 readiness,
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 regional and national 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.
Results of Operations for the Three and Nine Months Ended September 30, 1999 and
1998
NVR, Inc. and its subsidiaries ("NVR" or the "Company") operate 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, 1999 and 1998
During the third quarter of 1999, homebuilding operations generated
revenues of $523,552 compared to revenues of $441,034 in the third quarter of
1998. The change in revenues is primarily due to a 16.0% increase in the number
of homes settled to 2,516 in 1999 from 2,169 in 1998 and to a 2.4% increase in
the average settlement price to $207.4 in 1999 from $202.5 in 1998. The increase
in settlements is a direct result of the substantially higher backlog at the
beginning of the 1999 quarter as compared to the beginning of the same 1998
quarter. 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 of 1,866 during the
third quarter of 1999 were 2.5% higher than the 1,821 new orders generated
during the prior 1998 period. The increase in new orders was the result of
increased sales in certain of the Company's core markets outside the
Baltimore/Washington area.
Gross profit margins in the third quarter of 1999 increased to 17.2%
compared to 15.4% for the third quarter of 1998. The increase in gross profit
margins was due to favorable market conditions that existed in the first half of
1999, which provided the Company the opportunity to increase selling prices in
11
<PAGE>
certain of its markets during that time, and to the Company's continued emphasis
on controlling construction costs. In addition, the Company increased the sales
and settlement pace per community, which resulted in a better leverage of fixed
costs.
Selling, general and administrative ("SG&A") expenses for the third quarter
of 1999 increased $4,550 from the third quarter of 1998, but as a percentage of
revenues, decreased to 6.8% in 1999 from 7.0% in the third quarter of 1998.
Approximately $2,100 of the increase in SG&A expenses is due to a net quarter to
quarter increase attributable to management incentive plans. The increase in
SG&A dollars is also attributable to the aforementioned increase in revenues.
Backlog units and dollars were 4,797 and $1,082,116, respectively, at
September 30, 1999 compared to 4,104 and $843,463, respectively, at September
30, 1998. The increase in backlog units and dollars is due to the 8.4% increase
in new orders for the six months ended September 30, 1999, compared to the same
1998 period, and to a slower backlog turn. The dollar increase is also due to a
9.7% increase in the average selling price comparing the same six-month periods.
The average selling price increase resulted from the aforementioned increase in
selling prices in certain of the Company's markets, and to single family
detached units representing a larger percentage of the total units sold in the
current period as compared to the prior year period.
The Company believes that earnings before interest, taxes, depreciation and
amortization ("EBITDA") provides a meaningful comparison of operating
performance of the homebuilding segment because it excludes the amortization of
certain intangible assets and the recognition of certain significant non-cash
expenses. 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:
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Operating income $ 53,436 $ 36,031
Depreciation 875 874
Amortization of excess reorganization
value and goodwill 1,813 1,886
Other non-cash expenses 4,560 2,613
---------- ----------
Homebuilding EBITDA $ 60,684 $ 41,404
========== ==========
% of Homebuilding revenues 11.6% 9.4%
</TABLE>
Homebuilding EBITDA in the third quarter of 1999 was $19,280 or 46.6%
higher than in the third quarter of 1998, and as a percentage of revenue
increased to 11.6% from 9.4%.
Mortgage Banking Segment
Three Months Ended September 30, 1999 and 1998
Excluding the results of First Republic Mortgage Corporation ("First
Republic"), which was acquired by the Company in March 1999 (see below for
additional information regarding the acquisition), the mortgage banking segment
generated operating income of $3,539 on loan closings of $561,863 for the three
months ended September 30, 1999 compared to operating income of $5,264 on loan
closings of $697,567 during the same period in 1998. Including First Republic,
operating income and loan closings for the three months ended September 30, 1999
totaled $3,316 and $675,593, respectively.
Despite the overall net quarter to quarter decrease in loan originations of
approximately 3%, mortgage banking fees had a net quarter to quarter increase of
$1,438, or 12% due primarily to a shift in production from wholesale
originations to builder related and other retail loans. In addition, due to
12
<PAGE>
increased price competition, the Company also realized lower margins on the sale
of loans. The increased mortgage banking fees were more than offset by
increased general and administrative costs due to the ongoing incremental
overhead costs of First Republic.
During the third quarter of 1999, the Company continued to experience a
substantial reduction in refinance activity, which particularly affects its
wholesale and retail branch operations. Based on the current interest rate
environment, the Company expects to experience continued reductions in refinance
activity. In response to these market conditions, the Company commenced a
reduction in the operating capacity of its non-builder mortgage banking
operations.
Homebuilding Segment
Nine Months Ended September 30, 1999 and 1998
During the first nine months of 1999, homebuilding operations generated
revenues of $1,445,297 compared to revenues of $1,118,319 in the first nine
months of 1998. The increase in revenues was primarily due to a 23.3% increase
in the number of homes settled to 7,038 in 1999 from 5,707 in 1998, and to a
4.9% increase in the average settlement price to $204.6 in 1999 from $195.1 in
1998. The increase in settlements is a direct result of the substantially higher
backlog at the beginning of the 1999 period as compared to the beginning of the
same 1998 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
9.8% to 7,262 for the nine months ended September 30, 1999 compared with 6,616
for the nine months ended September 30, 1998. The increase in new orders was
predominantly the result of increased sales in markets outside the
Baltimore/Washington area.
Gross profit margins for the first nine months of 1999 increased to 17.1%
compared to 15.3% for the nine months ended September 1998. The increase in
gross profit margins was due to favorable market conditions that existed in the
first half of 1999, which provided the Company the opportunity to increase
selling prices in certain of its markets during that time, and to the Company's
continued emphasis on controlling construction costs. In addition, the Company
increased the sales and settlement pace per community, which resulted in a
better leverage of fixed costs.
SG&A expenses for 1999 increased $17,693 as compared to the same 1998
period, but as a percentage of revenues decreased to 6.8% from 7.2%.
Approximately $8,100 of the increase in SG&A expenses is due to a net period to
period increase attributable to management incentive plans. The increase in
SG&A dollars is also attributable to the aforementioned increase in revenues.
During the nine months ended September 30, 1999 and 1998, the Company
incurred $13,114 and $6,913, respectively, for non-cash charges related to the
1994 Management Equity Incentive Plan (the "Plan"), a variable stock plan
adopted by the Board of Directors (the "Board") pursuant to the Company's 1993
Plan of Reorganization. The Company expects to recognize a total non-cash
expense of approximately $17,500 relative to the Plan for full year 1999. The
Company recognized $9,081 for non-cash Plan expenses for full year 1998.
13
<PAGE>
Calculation of Homebuilding EBITDA:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Operating income $ 145,373 $ 87,657
Depreciation 2,479 2,700
Amortization of excess reorganization
value and goodwill 5,440 5,659
Other non-cash expenses 13,114 6,913
---------- ----------
Homebuilding EBITDA $ 166,406 $ 102,929
========== ==========
% of Homebuilding revenues 11.5% 9.2%
</TABLE>
Homebuilding EBITDA for the first nine months of 1999 was $63,477 or 61.7%
higher than the first nine months of 1998, and as a percentage of revenues
increased to 11.5% from 9.2%.
Mortgage Banking Segment
Nine Months Ended September 30, 1999 and 1998
Excluding the results of First Republic, the mortgage banking segment
generated operating income of $14,210 on loan closings of $1,977,428 for the
nine months ended September 30, 1999 compared to operating income of $12,745 on
loan closings of $1,934,690 during the same period in 1998. Including First
Republic, operating income and loan closings during the nine months ended
September 30, 1999 totaled $13,603 and $2,324,773, respectively.
Mortgage banking fees had a net overall period to period increase of
$9,054, or 30%, resulting from the overall 20% increase in loan closing volume.
A 58% increase in builder-related and other retail loan originations more than
offset the sharp reduction in wholesale refinance activity experienced by the
Company during the third quarter of 1999. This shift in product mix had a
favorable impact on mortgage banking fees. However, due to increased price
competition, the Company realized lower margins on the sale of loans. The
increased revenues were almost completely offset by higher general and
administrative costs due primarily to the ongoing incremental overhead costs of
First Republic, and to a lesser extent, increased costs incurred for the
implementation of the Company's new loan origination system (see Year 2000 Issue
below).
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") 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, which amended SFAS No. 133. SFAS No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. At the
present time, the Company cannot determine the impact that SFAS No. 133, as
amended, 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.
14
<PAGE>
Business Acquisition
On March 4, 1999, NVR Mortgage Acquisition, Inc. ("NVRMA"), a wholly owned
subsidiary of NVR Mortgage Finance, Inc. ("NVR Finance"), NVR's wholly owned
mortgage banking subsidiary, purchased all of the outstanding capital stock of
First Republic for approximately $5,300 in cash. First Republic, based in
Rockville, Maryland, is a leading mortgage lender in the Baltimore and
Washington Metropolitan area. NVRMA accounted for this acquisition using the
purchase method, and the operations of the acquired business have been included
in NVR's consolidated financial statements for the first nine months of 1999
beginning on the date of the acquisition. Goodwill of approximately $3,300 that
was generated pursuant to the purchase transaction is being amortized using the
straight-line method over 5 years.
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, vendors and other
third parties.
With the assistance of a consulting firm, the Company completed an
assessment of its exposure to Year 2000 Issues and developed a detailed plan to
remediate areas of exposure in both its homebuilding and mortgage banking
segments, as discussed below.
As of September 30, 1999, the Company has substantially completed its
remediation and testing efforts on all of its core Homebuilding, Loan
Origination, Secondary Marketing, Servicing, Settlement Services and non-
Information Technology (e.g., phones, HVAC, etc.) systems and believes that
these systems are now Year 2000 compliant. The remediation efforts included the
installation of a vendor-certified, Year 2000 complaint, commercially available
software package for Loan Origination processing into each of the Company's
mortgage branches. This installation was completed during the third quarter of
1999. The total Year 2000 Issue cost for the Company's remediation and testing
efforts was approximately $4,600.
The Company initiated formal communications with its significant suppliers
and service providers beginning in 1998 to determine the extent to which the
Company may be vulnerable to their failure to correct their own Year 2000 Issues
and is continuing those communications during 1999. 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 or, if it is successful in finding such alternative suppliers,
service providers and contractors, that it will be able to do so at comparable
prices. 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 at comparable prices, the Company's business
or operations could be adversely affected. To date, none of the Company's
significant suppliers or service providers has asserted that they will not be
Year 2000 compliant by December 31, 1999.
The Company presently believes that, based on its current state of Year
2000 readiness relative to its internal systems and on the communications
received to date from the Company's significant suppliers and service providers,
the Year 2000 Issue should not present a material adverse risk to the Company's
future consolidated results of operations, liquidity, and capital resources.
However, if the Company's internal computer systems experience unanticipated
15
<PAGE>
malfunctions, or if 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. In addition, widespread disruptions in the national or
international economy, including, for example, disruptions affecting financial
markets, commercial and investment banks, governmental agencies, utility
services, such as heat, lights, power and telephones, and transportation systems
could also have an adverse impact on the Company. The likelihood and effects of
such disruptions are not determinable at this time.
The Company will continue to evaluate the necessity for contingency
planning if communications with significant suppliers and service providers
indicate that the Company may be vulnerable to their failure to correct their
own Year 2000 Issues. This evaluation will continue for the remainder of 1999.
Liquidity and Capital Resources
The Company has $255,000 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, 2002. The Facility provides for borrowings 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 $13,454 was outstanding at September 30, 1999. There were no
direct borrowings outstanding under the Facility as of September 30, 1999.
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. NVR Finance and its subsidiaries have
available an annually renewable mortgage warehouse facility with an aggregate
available borrowing limit of $225,000, of which $200,000 is committed, to fund
its mortgage origination activities. There was $168,219 outstanding under this
facility at September 30, 1999. The current facility expires in September 2000.
NVR Finance also currently has available an aggregate of $75,000 of borrowing
capacity in an uncommitted gestation and repurchase agreement. There was an
aggregate of $21,205 outstanding under the gestation and repurchase agreement at
September 30, 1999.
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, 1999, the Company repurchased
approximately 1,724,000 shares of its common stock at an aggregate purchase
price of $87,542. 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.
16
<PAGE>
Part II
-------
Item 1. Legal Proceeding
- ------
During April 1999, NVR was served with a lawsuit filed in the United States
District Court in Baltimore by a group of homeowners who purchased homes in a
community in Howard County, Maryland. The suit alleges violation of certain
Federal environmental laws, as well as State consumer protection and nuisance
statutes relating to the alleged failure of NVR to disclose to its purchasers
that their homes were built on a site formerly used as an unlicensed landfill.
The developer of the property and another homebuilder are also named as
defendants in the action. The plaintiffs are seeking injunctive relief and
damages of approximately $75,000,000. The Company believes that it has valid
defenses to the plaintiffs' claims and intends to vigorously defend the case.
Accordingly, the income statements for the three and nine month periods ended
September 30, 1999, included in the accompanying financial statements to this
Quarterly Report on Form 10-Q, do not include a loss contingency related to this
lawsuit. No assurances can be given, however, regarding the risk or range of
possible loss to the Company, if any.
Item 6. Exhibits and Reports on Form 8-K
- ------
a. 11. Computation of Earnings per Share.
b. 27. Financial Data Schedule
c. The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1999.
Exhibit Index
Exhibit
Number Description Page
- ------ --------------------------------- ----
11 Computation of Earnings per Share 19
27 Financial Data Schedule 20
17
<PAGE>
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 2, 1999 NVR, Inc.
By: /s/ Paul C. Saville
-------------------
Paul C. Saville
Senior Vice President Finance,
Chief Financial Officer, and Treasurer
18
<PAGE>
Exhibit 11
NVR, Inc.
Computation of Earnings Per Share
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
1. Net income $ 30,341 $ 24,753 $ 84,611 $ 44,365
========== =========== ========== ==========
2. Average number of shares
outstanding 9,900 10,994 10,480 11,248
3. Shares issuable upon exercise
of dilutive options, warrants and
subscriptions outstanding during
period, based on average market
price 2,118 2,269 1,922 2,111
---------- ----------- ---------- ----------
4. Average number of shares
and share equivalents outstanding
(2 + 3) 12,018 13,263 12,402 13,359
========== =========== ========== ==========
5. Basic earnings per share (1/2) $ 3.06 $ 2.25 $ 8.07 $ 3.94
========== =========== ========== ==========
6. Diluted earnings per share (1/4) $ 2.52 $ 1.87 $ 6.82 $ 3.32
========== =========== ========== ==========
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NVR, INC.'S
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN FORM 10-Q FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 72,055
<SECURITIES> 0
<RECEIVABLES> 9,415
<ALLOWANCES> 0
<INVENTORY> 328,868
<CURRENT-ASSETS> 0
<PP&E> 15,920
<DEPRECIATION> 0
<TOTAL-ASSETS> 814,855
<CURRENT-LIABILITIES> 0
<BONDS> 145,000
0
0
<COMMON> 191,067
<OTHER-SE> (6,265)
<TOTAL-LIABILITY-AND-EQUITY> 814,855
<SALES> 1,445,297
<TOTAL-REVENUES> 1,496,162
<CGS> 1,198,091
<TOTAL-COSTS> 1,325,652
<OTHER-EXPENSES> 6,640<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,207
<INCOME-PRETAX> 147,663
<INCOME-TAX> 63,052
<INCOME-CONTINUING> 84,611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,611
<EPS-BASIC> 8.07
<EPS-DILUTED> 6.82
<FN>
<F1>ITEM REPRESENTS THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE AND
GOODWILL.
</FN>
</TABLE>
