<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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_____
------
As of October 18, 2000, there were 8,834,179 total shares of common stock
outstanding.
<PAGE>
NVR, Inc.
FORM 10-Q
INDEX
================================================================================
<TABLE>
<CAPTION>
Page
----
Part I FINANCIAL INFORMATION
------
<S> <C> <C>
Item 1. NVR, Inc. Condensed Consolidated Financial Statements
-----------------------------------------------------
Condensed Consolidated Balance Sheets at September 30, 2000
(unaudited) and December 31, 1999................................ 3
Condensed Consolidated Statements of Income for the
Three Months Ended September 30, 2000 (unaudited)
and September 30, 1999 (unaudited) and the
Nine Months Ended September 30, 2000 (unaudited)
and September 30, 1999 (unaudited)............................... 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 (unaudited) and
September 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.............................. 12
Part II OTHER INFORMATION
-------
Item 6. Exhibits and Reports on Form 8-K................................. 17
Exhibit Index.................................................... 17
Signature........................................................ 17
</TABLE>
2
<PAGE>
PART I
------
Item 1.
-------
NVR, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
ASSETS (unaudited)
<S> <C> <C>
Homebuilding:
Cash and cash equivalents $ 107,708 $ 77,968
Receivables 9,362 2,171
Inventory:
Lots and housing units, covered under
sales agreements with customers 327,355 276,193
Unsold lots and housing units 24,989 37,573
Manufacturing materials and other 7,674 9,689
---------- ----------
360,018 323,455
Property, plant and equipment, net 12,881 13,114
Reorganization value in excess of amounts
allocable to identifiable assets, net 49,281 53,901
Goodwill, net 7,746 8,566
Contract land deposits 90,215 62,784
Other assets 54,986 49,776
---------- ----------
692,197 591,735
---------- ----------
Mortgage Banking:
Cash and cash equivalents 10,690 11,158
Mortgage loans held for sale, net 93,780 136,311
Mortgage servicing rights, net 2,457 3,384
Property and equipment, net 2,516 4,239
Reorganization value in excess of amounts
allocable to identifiable assets, net 8,707 9,523
Goodwill, net - 2,739
Other assets 3,622 8,192
---------- ----------
121,772 175,546
---------- ----------
Total assets $ 813,969 $ 767,281
========== ==========
</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, 2000 December 31, 1999
------------------ -----------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Homebuilding:
Accounts payable $ 112,176 $ 98,322
Accrued expenses and other liabilities 151,958 125,172
Customer deposits 63,826 50,348
Notes payable 1,909 2,128
Other term debt 5,021 5,206
Senior notes 115,000 145,000
------------ -----------
449,890 426,176
------------ -----------
Mortgage Banking:
Accounts payable and other liabilities 5,421 14,666
Notes payable 93,183 125,799
------------ -----------
98,604 140,465
------------ -----------
Total liabilities 548,494 566,641
------------ -----------
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 September 30, 2000 and
December 31, 1999, respectively 206 204
Paid-in-capital 184,544 196,654
Retained earnings 353,256 241,564
Deferred compensation trust- 340,703 shares
of NVR, Inc. common stock (15,915) -
Deferred compensation liability 15,915 -
Less treasury stock at cost; 11,772,580
and 11,443,247 shares at September 30, 2000
and December 31, 1999, respectively (272,531) (237,782)
------------ -----------
Total shareholders' equity 265,475 200,640
------------ -----------
Total liabilities and shareholders'
equity $ 813,969 $ 767,281
============ ===========
</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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Homebuilding:
Revenues $ 602,485 $ 523,552 $ 1,651,572 $ 1,445,297
Other income 650 466 2,006 1,388
Cost of sales (485,414) (433,380) (1,340,073) (1,198,091)
Selling, general and administrative (41,211) (35,389) (109,172) (97,781)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill (1,813) (1,813) (5,440) (5,440)
----------- ----------- ----------- -----------
Operating income 74,697 53,436 198,893 145,373
Interest expense (3,216) (3,373) (9,917) (10,113)
----------- ----------- ----------- -----------
Homebuilding income 71,481 50,063 188,976 135,260
----------- ----------- ----------- -----------
Mortgage Banking:
Mortgage banking fees 12,950 15,423 28,169 43,975
Interest income 1,438 3,358 5,149 9,931
Other income 149 140 333 397
General and administrative (11,140) (13,527) (24,978) (34,606)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill (272) (428) (980) (1,200)
Interest expense (552) (2,078) (2,593) (6,094)
Restructuring and asset impairment
charge - - (5,726) -
----------- ----------- ----------- -----------
Operating income/(loss) 2,573 2,888 (626) 12,403
----------- ----------- ----------- -----------
Total segment income 74,054 52,951 188,350 147,663
Income tax expense (30,140) (22,610) (76,658) (63,052)
----------- ----------- ----------- -----------
Net Income $ 43,914 $ 30,341 $ 111,692 $ 84,611
=========== =========== =========== ===========
Basic Earnings per Share: $ 4.93 $ 3.06 $ 12.19 $ 8.07
=========== =========== =========== ===========
Diluted Earnings per Share: $ 3.97 $ 2.52 $ 10.03 $ 6.82
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
NVR, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 111,692 $ 84,611
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,266 10,461
Restructuring and asset impairment charge 5,726 -
Mortgage loans closed (1,338,453) (2,324,773)
Proceeds from sales of mortgage loans 1,388,708 2,373,288
Gain on sale of mortgage servicing rights (622) (2,670)
Gain on sale of loans (18,416) (27,812)
Net change in assets and liabilities:
Increase in inventories (36,563) (40,230)
Increase in receivables (6,086) (9,730)
Increase in contract land deposits (27,431) (17,922)
Increase in accounts payable, customer deposits and
accrued expenses 49,845 53,988
Other, net (3,371) 20,033
----------- -----------
Net cash provided by operating activities 135,295 119,244
----------- -----------
Cash flows from investing activities:
Business acquisition, net of cash acquired - (3,697)
Purchase of property, plant and equipment (3,186) (6,394)
Principal payments on mortgage-backed securities 504 2,225
Proceeds from sales of mortgage servicing rights 11,332 27,061
Other, net 426 4,746
----------- -----------
Net cash provided by investing activities 9,076 23,941
----------- -----------
Cash flows from financing activities:
Purchase of NVR common stock for
funding of deferred compensation plan (1,606) -
Redemption of mortgage bonds (581) (1,625)
Net repayments under notes payable and other
term debt (32,759) (51,955)
Repurchase of 8% Senior Notes due 2005 (30,000) -
Purchase of treasury stock (52,874) (87,542)
Other, net 2,721 1,488
----------- -----------
Net cash used by financing activities (115,099) (139,634)
----------- -----------
Net increase in cash 29,272 3,551
Cash, beginning of the period 89,126 68,504
----------- -----------
Cash, end of period $ 118,398 $ 72,055
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 10,305 $ 11,677
=========== ===========
Income taxes paid, net of refunds $ 70,026 $ 54,448
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
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 nine month
period ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. Certain prior period
amounts have been reclassified to conform to the current period presentation.
For the quarters and the nine-month periods ended September 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:
<TABLE>
<CAPTION>
Deferred Deferred
Common Paid-In Retained Treasury Comp. Comp.
Stock Capital Earnings Stock Trust Liability
------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 204 $ 196,654 $ 241,564 $(237,782) $ - $ -
Net income - - 111,692 - - -
Deferred compensation activity - (14,918) - 14,451 (15,915) 15,915
Purchase of common stock
for treasury - - - (52,874) - -
Option activity 2 2,719 - - - -
Tax benefit from stock-based
compensation activity - 3,763 - - - -
Performance share activity - (3,674) - 3,674 - -
------ --------- --------- --------- --------- ---------
Balance, September 30, 2000 $ 206 $ 184,544 $ 353,256 $(272,531) $ (15,915) $ 15,915
====== ========= ========= ========= ========= =========
</TABLE>
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 222,000 options were
exercised during the first nine months of 2000, with NVR realizing $2,721 in
aggregate equity proceeds.
7
<PAGE>
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 nine months ended September 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 Nine Months Ended September 30, 2000
--------------------------------------------
<TABLE>
<CAPTION>
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
<S> <C> <C> <C>
Revenues from external customers $ 1,651,572 $ 28,169 $ 1,679,741 (a)
Segment profit 194,416 354 194,770 (b)
Segment assets 635,170 113,065 748,235 (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
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Segment profit $ 194,416 $ 354 $ 194,770
Less: Amortization of excess
reorganization value and goodwill (5,440) (980) (6,420)
-------------- ------------ -----------
Consolidated income (loss) before
income taxes $ 188,976 $ (626) $ 188,350
============== ============ ===========
Segment assets $ 635,170 $ 113,065 $ 748,235
Add: Excess reorganization value
and goodwill 57,027 8,707 65,734
-------------- ------------ -----------
Total consolidated assets $ 692,197 $ 121,772 $ 813,969
============== ============ ===========
</TABLE>
8
<PAGE>
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share and share data)
For the Three Months Ended September 30, 2000
---------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 602,485 $ 12,950 $ 615,435 (c)
Segment profit 73,294 2,845 76,139 (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 $ 73,294 $ 2,845 $ 76,139
Less: Amortization of excess
reorganization value and goodwill (1,813) (272) (2,085)
----------- --------- ---------
Consolidated income before income
taxes $ 71,481 $ 2,573 $ 74,054
=========== ========= =========
For the Nine Months Ended September 30, 1999
--------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 1,445,297 $ 43,975 $1,489,272 (e)
Segment profit 140,700 13,603 154,303 (f)
Segment assets 508,075 229,802 737,877 (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 $ 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
=========== ========= ==========
For the Three Months Ended September 30, 1999
---------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 523,552 $ 15,423 $ 538,975 (g)
Segment profit 51,876 3,316 55,192 (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 $ 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
=========== ========= ==========
9
<PAGE>
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 entailed 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. The Company's mortgage
banking operation is now solely focused 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 nine months ended September 30, 2000 in the
accompanying statements of income. For additional details, see the mortgage
banking section of the Management Discussion and Analysis beginning on page 12.
5. Debt
In September 2000, NVR amended its mortgage warehouse facility to
decrease the available borrowing limit to $100,000. The reduction in the
available borrowing limit is consistent with the Company's restructuring plans
discussed in note 4 above. The other terms and conditions are substantially
equivalent to those in effect at December 31, 1999. There is $84,870 outstanding
under the facility at September 30, 2000.
During the three months ended September 30, 2000, NVR purchased, in the
open market, an aggregate of $30,000 in principal amount of its 8% Senior Notes
due 2005 ("Senior Notes"). The Senior Notes were repurchased at par, with no
material gain or loss resulting from the transaction. There is an aggregate of
$115,000 of Senior Notes outstanding at September 30, 2000.
6. Subsequent Events
Subsequent to September 30, 2000, NVR reached agreement with a
shareholder to purchase approximately 780,000 shares of its common stock
effective January 2, 2001 for an aggregate purchase price of approximately
$65,000. The shareholder is not affiliated with NVR or its subsidiaries.
On October 25, 2000, NVR commenced a consent solicitation of the
holders of its Senior Notes to amend the underlying Trust Indenture
("Indenture") of the Senior Notes. The proposed amendment would modify the
covenant in the Indenture limiting certain "Restricted Payments" to allow the
Company to make, in addition to all other permitted Restricted Payments,
additional Restricted Payments of up to $70,000 in the aggregate for the purpose
of repurchasing the Company's outstanding capital stock (from persons other than
officers and directors of the Company) in one or more privately negotiated
and/or open market transactions at any time or from time to time on or before
July 31, 2001; provided that any such additional Restricted Payments not made on
or before July 31, 2001, may not be made at any subsequent time.
10
<PAGE>
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share and share data)
For each consent received and accepted, the Company has offered to pay a
Senior Note holder cash equal to 1% of the principal amount of Senior Notes
held. The cash payment made for each consent received and accepted will be
capitalized and amortized to interest expense over the remaining term of the
Senior Notes. The consent period ends at 5:00 p.m., New York City time, on
November 13, 2000, unless extended. The Company has the right at any time to
terminate the consent solicitation, amend the terms of the solicitation, or not
to extend the deadline of the solicitation period beyond the expiration date.
11
<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 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 Nine Months Ended September 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 September 30, 2000 and 1999
During the third quarter of 2000, homebuilding operations generated
revenues of $602,485 compared to revenues of $523,552 in the third quarter of
1999. The change in revenues was due to a 6.3% increase in the number of homes
settled to 2,674 units in 2000 from 2,516 units in 1999, and to an 8.2% increase
in the average selling price to $224.5 in 2000 from $207.4 in 1999. The increase
in the average selling price is attributable to price increases in certain of
the Company's markets and to a larger number of settlements in the current
period of higher-priced single family detached homes. New orders of 2,180 during
the third quarter of 2000 increased 16.8% compared with the 1,866 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 third quarter of 2000 increased to 19.4% as
compared to 17.2% for the third 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, a decrease
in the cost of lumber and certain other material costs and to the Company's
ongoing focus on controlling construction costs. Selling, general and
administrative ("SG&A") expenses for the third quarter of 2000 increased $5,822
from the third quarter of 1999, and as a percentage of revenues, were flat with
the third quarter of 1999.
12
<PAGE>
Backlog units and dollars were 5,355 and $1,328,585, respectively, at
September 30, 2000 compared to 4,797 and $1,082,116, respectively, at September
30, 1999. The increase in backlog units and dollars is primarily attributable to
a 9.9% increase in new orders for the six month period ended September 30, 2000
compared to the same 1999 period. The increase in backlog dollars is also due to
a 6.7% 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:
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
2000 1999
------------- ---------------
<S> <C> <C>
Operating income $ 74,697 $ 53,436
Depreciation 1,083 875
Amortization of excess reorganization
value/goodwill 1,813 1,813
Non-cash compensation - 4,560
----------- -----------
Homebuilding EBITDA $ 77,593 $ 60,684
=========== ===========
% of Homebuilding revenues 12.9% 11.6%
=========== ===========
</TABLE>
Homebuilding EBITDA in the third quarter of 2000 was $16,909 higher
than in the third quarter of 1999, and as a percentage of homebuilding revenues,
increased to 12.9% from 11.6%.
Mortgage Banking Segment
Three Months Ended September 30, 2000 and 1999
The mortgage banking segment generated operating income, excluding the
amortization of excess reorganization value and goodwill, of $2,845 for the
three months ended September 30, 2000 compared to operating income of $3,316
during the same period in 1999. The reduction was primarily due to a 40%
reduction in loan closings to $401,037 from $675,593 for the three months ended
September 30, 2000 and 1999, respectively, and to costs associated with winding
down 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 segment's nine-month discussion within this
Management's Discussion and Analysis for further details).
Homebuilding Segment
Nine Months Ended September 30, 2000 and 1999
During the first nine months of 2000, homebuilding operations generated
revenues of $1,651,572 compared to revenues of $1,445,297 in the first nine
months of 1999. The increase in revenues was primarily due to a 4.8% increase in
the number of homes settled to 7,379 in 2000 from 7,038 in 1999,
13
<PAGE>
and to an 8.9% increase in the average settlement price to $222.9 in 2000 from
$204.6 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 same 1999 period. The increase in the average settlement price is
attributable to price increases in certain of the Company's markets and to a
larger number of settlements in the current period of higher-priced single
family detached homes. New orders increased by 7.4% to 7,799 for the nine months
ended September 30, 2000 compared with 7,262 for the nine months ended September
30, 1999. The majority of the Company's markets had a period to period increase
in the number of new orders.
Gross profit margins for the first nine months of 2000 increased to
18.9% compared to 17.1% for the nine months ended September 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, a decrease in the cost of lumber and certain
other material costs and to the Company's continued focus on controlling
construction costs.
SG&A expenses for 2000 increased $11,391 compared to the same 1999
period, but as a percentage of revenues decreased to 6.6% 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:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Operating income $ 198,893 $ 145,373
Depreciation 3,108 2,479
Amortization of excess reorganization
value and goodwill 5,440 5,440
Non-cash compensation - 13,114
------------- -------------
Homebuilding EBITDA $ 207,441 $ 166,406
============= =============
% of Homebuilding revenues 12.6% 11.5%
============= =============
</TABLE>
Homebuilding EBITDA for the first nine months of 2000 was $41,035
higher than the first nine months of 1999, and as a percentage of revenues
increased to 12.6% from 11.5%.
Mortgage Banking Segment
Nine Months Ended September 30, 2000 and 1999
The mortgage banking segment had operating income, excluding the
amortization of excess reorganization value and goodwill, of $354 for the nine
months ended September 30, 2000 compared to operating income of $13,603 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. The Company's mortgage banking operation is now solely
focused on serving the Company's homebuilding operations. The restructuring plan
was substantially completed during the second quarter of 2000.
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:
14
<PAGE>
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 nine months ended September 30, 2000, approximately $695 in
severance and lease costs was applied against the restructuring reserve. In
addition, the Company reversed approximately $200 in restructuring reserves,
primarily for unused severance costs. Approximately $1,100 of the restructuring
accrual established at March 31, 2000, remains at September 30, 2000, and
primarily relates to accrued lease costs.
Excluding the restructuring and impairment charges (net of reversals)
incurred in the first nine months of 2000, operating income was $6,080, a
decrease of 55.3% from the $13,603 of operating income generated in the first
nine months of 1999. This was primarily due to a 42.4% reduction in loan
closings to $1,338,453 for the first nine months of 2000 compared to $2,324,773
in loan closings for the first nine months of 1999, other costs associated with
winding down the business of First Republic, and to competitive pricing
pressures.
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. Such impact will be solely
determined based on loan commitments and forward mortgage delivery
contracts for the Company's mortgage banking segment.
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 currently provides for borrowings
of up to $60,000. Up to $24,000 of the Facility is currently available for
issuance in the form of letters of credit, of which $17,570 was outstanding at
September 30, 2000. There were no direct borrowings outstanding under the
Facility as of September 30, 2000.
15
<PAGE>
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
$100,000 to fund its mortgage origination activities. There was $84,870
outstanding under this facility at September 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 $7,991 outstanding under such gestation and repurchase agreements at
September 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 three months ended September 30, 2000, NVR purchased, in the
open market, an aggregate of $30,000 in principal amount of its 8% Senior Notes
due 2005 ("Senior Notes"). The Senior Notes were repurchased at par, with no
material gain or loss resulting from the transaction. There is an aggregate of
$115,000 of Senior Notes outstanding at September 30, 2000.
During the nine months ended September 30, 2000, the Company
repurchased approximately 935,000 shares of its common stock at an aggregate
purchase price of $52,874. 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.
On October 25, 2000, NVR commenced a consent solicitation of the holders
of its Senior Notes to amend the underlying Trust Indenture ("Indenture") of the
Senior Notes. The proposed amendment would modify the covenant in the Indenture
limiting certain "Restricted Payments" to allow the Company to make, in
addition to all other permitted Restricted Payments, additional Restricted
Payments of up to $70,000 in the aggregate for the purpose of repurchasing the
Company's outstanding capital stock (from persons other than officers and
directors of the Company) in one or more privately negotiated and/or
open market transactions at any time or from time to time on or before July 31,
2001; provided that any such additional Restricted Payments not made on or
before July 31, 2001, may not be made at any subsequent time.
For each consent received and accepted, the Company has offered to pay
a Senior Note holder cash equal to 1% of the principal amount of Senior Notes
held. The cash payment made for each consent received and accepted will be
capitalized and amortized to interest expense over the remaining term of the
Senior Notes. The consent period ends at 5:00 p.m., New York City time, on
November 13, 2000, unless extended. The Company has the right at any time to
terminate the consent solicitation, amend the terms of the solicitation, or not
to extend the deadline of the solicitation period beyond the expiration date.
Subsequent to September 30, 2000, NVR reached agreement with a
shareholder to purchase approximately 780,000 shares of its common stock
effective January 2, 2001 for an aggregate purchase price of approximately
$65,000. The shareholder is not affiliated with NVR or its subsidiaries.
16
<PAGE>
Part II
-------
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, 2000.
Exhibit Index
Exhibit
Number Description Page
------ --------------------------------------- ----
11 Computation of Earnings per Share 18
27 Financial Data Schedule 19
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.
October 25, 2000 NVR, Inc.
By: /s/ Paul C. Saville
----------------------
Paul C. Saville
Senior Vice President Finance and
Chief Financial Officer
17
