<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 March 31, 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 April 21, 1999 there were 10,805,365 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 ___ No ___
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NVR, Inc.
FORM 10-Q
INDEX
=================================================================
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
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ITEM 1. NVR, Inc. Condensed Consolidated Financial Statements
-----------------------------------------------------
Condensed Consolidated BalancE Sheets at March 31, 1999
(unaudited) and December 31, 1998............................ 3
Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 1999 (unaudited) and
March 31, 1998 (unaudited)................................... 5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 (unaudited) and
March 31, 1998 (unaudited)................................... 6
Notes to Condensed Consolidated
Financial Statements......................................... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 9
PART II Other information
-------
ITEM 1. Legal Proceeding.............................................. 14
ITEM 6. Exhibits and Reports on Form 8-K.............................. 14
Exhibit Index................................................. 14
Signature..................................................... 14
</TABLE>
<PAGE>
PART I
------
Item 1.
- -------
NVR, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
ASSETS (unaudited)
<S> <C> <C>
Homebuilding:
Cash and cash equivalents $ 93,694 $ 59,118
Receivables 9,380 1,515
Inventory:
Lots and housing units,
covered under sales
agreements with customers 243,467 236,447
Unsold lots and housing
units 38,296 45,478
Manufacturing materials
and other 4,303 6,713
-------- --------
286,066 288,638
Property, plant and
equipment, net 10,637 16,663
Reorganization value in excess
of amounts allocable to
identifiable assets, net 58,521 60,062
Goodwill, net 9,386 9,659
Contract land deposits 41,593 40,699
Other assets 41,731 41,301
-------- --------
551,008 517,655
-------- --------
Mortgage Banking:
Cash and cash equivalents 9,851 9,386
Mortgage loans held for sale, net 243,979 178,695
Mortgage servicing rights, net 3,588 3,680
Property and equipment,net 2,601 934
Reorganization value in excess
of amounts allocable to
identifiable assets, net 10,339 10,611
Goodwill, net 3,010 -
Other assets 3,648 3,398
-------- --------
277,016 206,704
-------- --------
Total assets $828,024 $724,359
======== ========
</TABLE>
(Continued)
See notes to consolidated financial statements.
3
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NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------- ------------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Homebuilding:
Accounts payable $ 83,272 $ 88,272
Accrued expenses and other liabilities 112,802 103,683
Customer deposits 40,262 34,639
Notes payable 3,915 4,054
Other term debt 5,387 5,434
Senior notes 145,000 145,000
--------- ---------
390,638 381,082
--------- ---------
Mortgage Banking:
Accounts payable and other liabilities 16,033 11,709
Notes payable 229,299 165,849
--------- ---------
245,332 177,558
--------- ---------
Total liabilities 635,970 558,640
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000 shares
authorized; 20,561,539 and 20,190,971
shares issued as of March 31, 1999 and
December 31, 1998, respectively 203 202
Paid-in-capital 180,191 174,173
Retained earnings 158,690 132,683
Less treasury stock at cost- 9,691,971
and 9,805,132 shares at March 31, 1999 and
December 31, 1998, respectively (147,030) (141,339)
--------- ---------
Total shareholders' equity 192,054 165,719
--------- ---------
Total liabilities and shareholders'
equity $ 828,024 $ 724,359
========= =========
</TABLE>
See notes to consolidated financial statements.
4
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NVR, Inc.
Condensed Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31,1998
------------------- -------------------
<S> <C> <C>
Homebuilding:
Revenues $ 429,687 $ 291,547
Other income 489 155
Cost of sales (356,544) (247,956)
Selling, general and administrative (28,223) (19,965)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (1,813) (1,886)
--------- ---------
Operating income 43,596 21,895
Interest expense (3,381) (4,153)
--------- ---------
Homebuilding income 40,215 17,742
--------- ---------
Mortgage Banking:
Mortgage banking fees 13,522 7,687
Interest income 2,751 1,855
Other income 94 222
General and administrative (9,322) (5,583)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (360) (272)
Interest expense (1,671) (1,491)
--------- ---------
Operating income 5,014 2,418
--------- ---------
Total segment income 45,229 20,160
Income tax expense (19,222) (9,300)
--------- ---------
Net income $ 26,007 $ 10,860
========= =========
Basic earnings per share $ 2.38 $ 0.95
========= =========
Diluted earnings per share $ 2.02 $ 0.81
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NVR, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 26,007 $ 10,860
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 3,207 3,450
Mortgage loans closed (779,406) (578,334)
Proceeds from sales of mortgage loans 788,743 526,271
Gain on sale of loans (10,922) (5,701)
Net change in assets and liabilities, net of acquisition:
Decrease (increase) in inventories 2,572 (21,842)
Increase in receivables (9,054) (1,249)
Increase in accounts payable and accrued expenses 20,426 9,451
Other, net 4,911 (1,719)
--------- ---------
Net cash provided (used) by operating activities 46,484 (58,813)
--------- ---------
Cash flows from investing activities:
Proceeds from sales of mortgage-backed securities - 474
Business acquisition, net of cash acquired (3,697) -
Purchase of property, plant and equipment (1,137) (932)
Principal payments on mortgage-backed securities 830 1,152
Proceeds from sales of mortgage servicing rights, net 11,144 2,984
Other, net 4,237 (466)
--------- ---------
Net cash provided by investing activities 11,377 3,212
--------- ---------
Cash flows from financing activities:
Decrease in other term debt (47) (49)
Redemption of bonds - (476)
Net borrowings (repayments) under notes payable (12,775) 49,664
Purchase of treasury stock (10,992) -
Other, net 994 15
--------- ---------
Net cash provided (used) by financing activities (22,820) 49,154
--------- ---------
Net increase (decrease) in cash and cash equivalents 35,041 (6,447)
Cash and cash equivalents, beginning of the period 68,504 45,725
--------- ---------
Cash and cash equivalents, end of period $ 103,545 $ 39,278
========= =========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 2,279 $ 2,122
========= =========
Income taxes paid, net of refunds $ 3,642 $ 1,752
========= =========
</TABLE>
See notes to consolidated financial statements.
6
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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 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 three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
For the quarters ended March 31, 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 - - 26,007 -
Purchase of common stock
for treasury - - - (10,992)
Option activity 1 993 - -
Tax benefit from stock-based
compensation activity - 6,168 - -
Performance share activity - (1,143) - 5,301
---- -------- -------- ---------
Balance, March 31, 1999 $203 $180,191 $158,690 $(147,030)
==== ======== ======== =========
</TABLE>
Approximately 365,000 shares were reissued from the treasury during
January 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, approximately
423,000 options were exercised during the first quarter of 1999, with NVR
realizing approximately $994 in aggregate equity proceeds.
7
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share and share data)
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 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 quarter of 1999 beginning on the date of the
acquisition. Goodwill of approximately $3,100 that was generated pursuant to
the purchase transaction will be amortized using the straight-line method over 5
years.
4. Debt
In January 1999, NVR Finance amended its mortgage warehouse facility
to increase the available borrowing limit to $203,000, of which $178,000 is
committed. The other terms and conditions are substantially the same as those
in effect at December 31, 1998.
In addition, First Republic has entered into a separate revolving
short-term borrowing facility with a lender not party to the NVR Finance
warehouse agreement comprised of a $60,000 committed line of credit that bears
interest at 1.75% to 2.00% above LIBOR.
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 Three Months Ended March 31, 1999
- -----------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- --------
<S> <C> <C> <C>
Revenues from external customers $429,687 $ 13,522 $443,209 (a)
Segment profit 42,028 5,374 47,402 (b)
Segment assets 483,101 263,667 746,768 (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>
<CAPTION>
<S> <C> <C> <C>
Segment profit $ 42,028 $ 5,374 $ 47,402
Less: amortization of excess
reorganization value and goodwill (1,813) (360) (2,173)
-------- -------- --------
Consolidated income before income
taxes $ 40,215 $ 5,014 $ 45,229
======== ======== ========
Segment assets $483,101 $263,667 $746,768
Add: Excess reorganization value
and goodwill 67,907 13,349 81,256
-------- -------- --------
Total consolidated assets $551,008 $277,016 $828,024
======== ======== ========
</TABLE>
8
<PAGE>
Item 2.
- -------
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(dollars in thousands, except per share and share data)
Forward-Looking Statements
Some of the statements in this Form 10-Q, as well as statements made
by the Company in periodic press releases, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Certain, but not necessarily all, of such forward-looking statements
can be identified by the use of forward-looking terminology, such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereof or comparable terminology, or by discussion of
strategies, each of which involves risks and uncertainties. All statements
other than of historical facts included herein, including those regarding market
trends, the Company's financial position, business strategy, projected plans,
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 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.
Results of Operations for the Three Months Ended March 31, 1999 and 1998
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 March 31, 1999 and 1998
During the first quarter of 1999, homebuilding operations generated
revenues of $429,687 compared to revenues of $291,547 in the first quarter of
1998. The change in revenues was due primarily to a 36% increase in the number
of homes settled from 1,543 units in 1998 to 2,098 units in 1999, and to an 8%
increase in the average selling price from $188.3 in 1998 to $204.2 in 1999.
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 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 2,541
during the first quarter of 1999 increased 12% compared with the 2,262 new
orders generated during the same 1998 period. The increase in new orders was
predominantly the result of increased sales in markets outside the
Washington/Baltimore area.
Gross profit margins in the first quarter of 1999 increased to 17.0%
as compared to 15.0% for the quarter ended March 31, 1998. The increase in
gross margins was due to continuing favorable market
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conditions which provided the Company the opportunity to increase selling prices
in certain of its markets. In addition, these favorable market conditions have
enabled the Company to increase the sales pace per community which allows the
Company to better leverage its fixed costs.
Selling, general and administrative ("SG&A") expenses for the first
quarter of 1999 increased $8,258 from the first quarter of 1998, but as a
percentage of revenues, decreased from 6.8% in 1998 to 6.6% in the first quarter
of 1999. A substantial portion of the increase in SG&A dollars is due to a net
quarter to quarter increase of approximately $4,200 for a non-cash charge
related to the 1994 Management 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 (see below for a description of the Plan). The
increase in SG&A dollars is also attributable to the aforementioned increase in
revenues. Excluding the $4,200 non-cash charge related to the Plan, SG&A
expenses as a percentage of revenues decreased to 5.6% in the first quarter of
1999. This percentage decrease is primarily attributable to the improved
operating efficiencies resulting from continuing favorable market conditions as
explained above and the overall larger revenue base.
The Company's executive officers and certain other key management
personnel participate in the Plan. Under the Plan document, the final one-third
of the 1,095,200 total shares granted under the Plan are eligible to vest in
calendar year 1999 if certain full year earnings targets for 1999 are met or
exceeded. Pursuant to the Plan, the approximately 365,000 shares eligible for
vesting in 1999 may vest at a date earlier than December 31, 1999 if the 1999
full-year earnings targets specified in the Plan are met or exceeded prior to
December 31, 1999. The compensation cost recognized in the Company's results of
operations for 1999 relative to the Plan will depend on the market value of NVR
common stock on the vesting determination date. Compensation cost recognized in
the first quarter of 1999 is based on the closing price of NVR common Stock as
reported by the American Stock Exchange on March 31, 1999.
Backlog units and dollars were 5,016 and $1,060,724, respectively, at
March 31, 1999 compared to 3,914 and $782,690, respectively, at March 31, 1998.
The increase in backlog units and dollars is primarily attributable to a 19%
increase in new orders for the six month period ended March 31, 1999 compared to
the same 1998 period.
The Company believes that earnings before interest, taxes, depreciation and
amortization ("EBITDA") provides a meaningful comparison of operating
performance of the homebuilding segment because it excludes the amortization of
certain intangible assets. Although the Company believes the calculation is
helpful in understanding the performance of the homebuilding segment, EBITDA
should not be considered a substitute for net income or cash flow as indicators
of the Company's financial performance or its ability to generate liquidity.
<TABLE>
<CAPTION>
Calculation of Homebuilding EBITDA:
Three Months Ended March 31,
-----------------------------
1999 1998
---------- ---------
<S> <C> <C>
Operating income $43,596 $21,895
Depreciation 746 936
Amortization of excess reorganization
value/goodwill 1,813 1,886
Other non-cash items 4,158 -
------- -------
Homebuilding EBITDA $50,313 $24,717
======= =======
% of Homebuilding revenues 11.7% 8.5%
======= =======
</TABLE>
Homebuilding EBITDA in the first quarter of 1999 was $25,596 higher
than in the first quarter of 1998, and as a percentage of homebuilding revenues,
increased from 8.5% to 11.7%.
10
<PAGE>
Mortgage Banking Segment
Three Months Ended March 31, 1999 and 1998
The mortgage banking segment generated operating income of $5,014 for the
three months ended March 31, 1999 compared to operating income of $2,418 during
the same period in 1998. Loan closings were $779,406 and $578,334 during the
respective quarters ended March 31, 1999 and 1998, representing an increase of
35%.
Mortgage banking fees had a net increase of $5,835, representing a 76%
increase when comparing the respective quarters of March 31, 1999 and 1998. The
increase can be attributed to the higher gain on sale of loans resulting from
the significant increase in loan closings, which is partially attributable to
the additional loan closings from the acquisition of First Republic Mortgage
Corporation ("First Republic") as discussed below. A summary of mortgage
banking fees is noted below:
<TABLE>
<CAPTION>
Mortgage Banking Fees: 1999 1998
------- -------
<S> <C> <C>
Net gain on sale of loans $10,922 $5,701
Servicing 234 192
Title services 2,366 1,794
------- ------
$13,522 $7,687
======= ======
</TABLE>
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. 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.
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 quarter of 1999
beginning on the date of the acquisition. Goodwill of approximately $3,100 that
was generated pursuant to the purchase transaction will be 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
11
<PAGE>
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 and testing
efforts on its core homebuilding systems and believes that these systems are now
Year 2000 compliant. The total Year 2000 Issue costs for the homebuilding
systems were approximately $400, all of which was expensed during 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 is 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 and started implementation in February 1999 into its
mortgage branches. The new system is expected to be deployed in each branch by
the end of the third quarter of 1999. The total cost of this project is
estimated to be $3,700, of which the Company has expended $2,300 to date. The
Company has upgraded the existing Secondary Marketing system to the Year 2000
compliant version of the vendor's software, and based on testing conducted
during 1998, the Company believes this system to be Year 2000 compliant. The
Servicing and Settlement Services Systems are also purchased software packages
which the vendors have indicated are both Year 2000 compliant. The Company has
completed testing on the Settlement Services and Servicing Systems and believes
that these systems are Year 2000 compliant. The total cost of updating and
testing these systems was approximately $125, the majority of which was expensed
in the fourth quarter of 1998.
The Company initiated formal communications with its significant
suppliers and service providers during 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.
The Company is currently assessing its mechanical systems (e.g., phones,
HVAC, etc.) which employ embedded chip technology. Based on its continuing
assessment, 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
material 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
12
<PAGE>
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 evaluate the necessity for contingency planning
during 1999 as it implements and tests its Loan Origination System and 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 throughout 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, 2001. The Facility provides for borrowings of up to
$100,000 of which $60,000 is currently committed. Under terms of the Facility,
an additional $10,000 uncommitted overline is available to the Company on a
limited basis. Up to approximately $24,000 of the Facility is currently
available for issuance in the form of letters of credit of which $12,862 was
outstanding at March 31, 1999. There were no direct borrowings outstanding
under the Facility as of March 31, 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 mortgage warehouse facilities with an aggregate available borrowing
limit of $263,000, of which $238,000 is committed, to fund its mortgage
origination activities. There was $212,520 outstanding under these facilities at
March 31, 1999. NVR Finance also currently has available an aggregate of
$150,000 of borrowing capacity in various uncommitted gestation and repurchase
agreements. There was an aggregate of $16,330 outstanding under such gestation
and repurchase agreements at March 31, 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 three months ended March 31, 1999, the Company repurchased
approximately 252,000 shares of its common stock at an aggregate purchase price
of $10,992. 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.
13
<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 the claims to be
without merit and intends to vigorously defend the case. Accordingly, the
income statement for the three months ended March 31, 1999, included in the
accompanying financial statements to this Quarterly Report on Form 10-Q does not
include a loss contingency related to this lawsuit.
Item 6. Exhibits and Reports on Form 8-K
- -------
a. 11. Computation of Earnings per Share.
b. Financial Data Schedule
c. The Company did not file any reports on Form 8-K during
the quarter ended March 31, 1999.
Exhibit Index
Exhibit
Number Description Page
- ------ ----------- ----
11 Computation of Earnings per Share 15
27 Financial Data Schedule 16
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.
April 29, 1999 NVR, Inc.
By: /s/ Paul C. Saville
-----------------------
Paul C. Saville
Senior Vice President Finance and
Chief Financial Officer
14
<PAGE>
Exhibit 11
NVR, Inc.
Computation of Earnings Per Share
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---------- ------------
<S> <C> <C>
1. Net income $26,007 $10,860
======= =======
2. Average number of shares outstanding 10,945 11,453
3. Shares issuable upon exercise of
dilutive options outstanding during
period, based on average market price 1,930 2,034
------- -------
4. Average number of shares and share
equivalents outstanding (2 + 3) 12,875 13,487
======= =======
5. Basic earnings per share $ 2.38 $ 0.95
======= =======
6. Diluted earnings per share $ 2.02 $ 0.81
======= =======
</TABLE>
15
<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 THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 103,545
<SECURITIES> 0
<RECEIVABLES> 9,386
<ALLOWANCES> 0
<INVENTORY> 286,066
<CURRENT-ASSETS> 0
<PP&E> 13,238
<DEPRECIATION> 0
<TOTAL-ASSETS> 828,024
<CURRENT-LIABILITIES> 0
<BONDS> 145,000
0
0
<COMMON> 180,394
<OTHER-SE> 11,660
<TOTAL-LIABILITY-AND-EQUITY> 828,024
<SALES> 429,687
<TOTAL-REVENUES> 446,543
<CGS> 356,544
<TOTAL-COSTS> 394,089
<OTHER-EXPENSES> 2,173<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,052
<INCOME-PRETAX> 45,229
<INCOME-TAX> 19,222
<INCOME-CONTINUING> 26,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,007
<EPS-PRIMARY> 2.38
<EPS-DILUTED> 2.02
<FN>
<F1>ITEM REPRESENTS THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE AND
GOOD WILL.
</FN>
</TABLE>
