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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (IRS employer
or organization) identification 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)
____________
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common stock, par value American Stock Exchange
$0.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
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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__
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[_]
As of February 22, 2001 the aggregate market value of the voting stock held by
non-affiliates of NVR, Inc. based on the closing price reported on the American
Stock Exchange for the Common Stock of NVR, Inc. on such date was approximately
$986.5 million. As of February 22, 2001 there were 8,366,862 total shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of NVR, Inc. to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934 on or prior to April 30, 2001 are incorporated by reference into Part III
of this report.
Page 1 of 123 pages
The Exhibit Index begins on page 17.
1
INDEX
PART I Page
- ------ ----
Item 1. Business......................................................................... 3
Item 2. Properties....................................................................... 6
Item 3. Legal Proceedings................................................................ 6
Item 4. Submission of Matters to a Vote of Security Holders.............................. 7
Executive Officers of the Registrant............................................. 7
PART II
- -------
Item 5. Market for Registrants' Common Equity and Related Shareholder Matters............ 7
Item 6. Selected Financial Data.......................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 8
Item 7A. Quantitative and Qualitative Disclosure About Market Risk........................ 13
Item 8. Financial Statements and Supplementary Data...................................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................. 16
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant............................... 16
Item 11. Executive Compensation........................................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management................... 16
Item 13. Certain Relationships and Related Transactions................................... 16
PART IV
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Item 14. Exhibits and Reports on Form 8-K................................................. 17
2
PART I
------
Item 1. Business
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General
NVR, Inc. ("NVR") was formed in 1980 as NVHomes, Inc. NVR operates in two
business segments: 1) the construction and marketing of homes and 2) mortgage
banking. During 2000, NVR conducted its homebuilding activities both directly
and indirectly through its wholly owned subsidiary, Fox Ridge Homes, Inc. On
December 31, 2000, NVR merged Fox Ridge Homes, Inc. into NVR. NVR now conducts
all homebuilding activity directly. NVR conducts its mortgage banking
operations primarily through another wholly owned subsidiary, NVR Mortgage
Finance, Inc. ("NVR Finance"). Unless the context otherwise requires,
references to "NVR" include its subsidiaries.
NVR is one of the largest homebuilders in the United States and in the
Washington, D.C. and Baltimore, Maryland metropolitan areas. NVR derived an
aggregate of approximately 61% and 62% of its 2000 and 1999 homebuilding
revenues, respectively, from the Washington, D.C. and Baltimore, Maryland
metropolitan areas. NVR's homebuilding operations construct and sell single-
family detached homes, townhomes and condominium buildings under three
tradenames: Ryan Homes, NVHomes and Fox Ridge Homes. The Ryan Homes product is
built in eighteen metropolitan areas located in Maryland, Virginia,
Pennsylvania, New York, North Carolina, South Carolina, Ohio, New Jersey,
Delaware and Tennessee. The Fox Ridge Homes product is built in the Nashville,
Tennessee metropolitan area. The Ryan Homes' and Fox Ridge Homes' products are
moderately priced and marketed primarily towards first-time and first time move-
up buyers. The NVHomes product is built largely in the Washington, D.C.
metropolitan area, and is marketed primarily to move-up and upscale buyers. In
2000, the average price of a unit settled by NVR was approximately $224,600.
NVR obtains land for homebuilding by acquiring control over finished
building lots through option contracts with land developers that require
forfeitable deposits. This lot acquisition strategy reduces the financial
requirements and risks associated with direct land ownership and land
development. NVR generally seeks to maintain control over an inventory of lots
believed to be suitable for the next 18 to 24 months of projected home sales
volumes in the various communities in which it operates.
In addition to building and selling homes, NVR provides a number of
mortgage-related services through its regional mortgage banking operations,
which operate in 10 states. 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.
NVR's mortgage banking business generates revenues primarily from origination
fees, gains on sales of loans, title fees, and sales of servicing rights. In
2000, NVR's mortgage banking business closed approximately 11,600 loans with an
aggregate principal amount of approximately $1.7 billion. NVR's homebuilding
customers accounted for 71% of the aggregate dollar amount of loans closed in
2000. Based on NVR's mortgage banking segment's restructuring described above,
substantially all of the mortgage banking segment's ongoing loan closings will
be for NVR's homebuilding customers. NVR's mortgage banking business sells all
of the mortgage loans it closes into the secondary markets, and also sells
substantially all of its originated mortgage servicing rights on a flow basis.
The servicing portfolio balance at December 31, 2000 was approximately $275
million in principal amounts of loans serviced.
Segment information for NVR's homebuilding and mortgage banking businesses
is included in note 2 to NVR's consolidated financial statements.
3
Homebuilding
Products
NVR offers single-family detached homes, townhomes, and condominium
buildings with many different basic home designs. These home designs have a
variety of elevations and numerous other options. Homes built by NVR combine
traditional or colonial exterior designs with contemporary interior designs and
amenities. NVR's homes range from approximately 985 to 5,400 square feet, with
two to five bedrooms, and are priced from approximately $76,000 to $1,200,000.
Markets
The following table summarizes settlements and contracts for sales of homes
for each of the last three years by region:
Contracts for Sale
Settlements (Net of Cancellations)
Year Ended December 31, Year Ended December 31,
-------------------------- -----------------------
Region 2000 1999 1998 2000 1999 1998
- ------ ------ ----- ----- ------ ----- -----
Washington/Baltimore 5,208 5,073 4,358 5,305 5,215 5,165
Other (1) 4,847 4,243 3,264 4,963 4,463 3,835
------ ----- ----- ------ ----- -----
Total 10,055 9,316 7,622 10,268 9,678 9,000
====== ===== ===== ====== ===== =====
(1) Includes Pennsylvania, New York, North Carolina, South Carolina, Ohio, New
Jersey, Tennessee, Delaware and Richmond, Virginia.
Backlog
Backlog units and dollars were 5,148 and $1.3 billion respectively, at
December 31, 2000 compared to backlog units of 4,935 and dollars of $1.1 billion
at December 31, 1999.
Construction
Independent subcontractors under fixed-price contracts perform construction
work on NVR's homes. The subcontractors' work is performed under the
supervision of NVR employees who monitor quality control. NVR uses many
independent subcontractors in its various markets and is not dependent on any
single subcontractor nor on a small number of subcontractors.
Sales and Marketing
NVR's preferred marketing method is for customers to visit a furnished
model home featuring many built-in options and a landscaped lot. The garages of
these model homes are usually converted into temporary sales centers where
alternative facades and floor plans are displayed and designs for other models
are available for review. Sales representatives are compensated predominantly
on a commission basis.
Regulation
NVR and its subcontractors must comply with various federal, state and
local zoning, building, environmental, advertising and consumer credit statutes,
rules and regulations, as well as other regulations and requirements in
connection with its construction and sales activities. All of these regulations
have increased the cost required to market NVR's products. Counties and cities
in which NVR builds homes have at times declared moratoriums on the issuance of
building permits and imposed other restrictions in the areas in which sewage
treatment facilities and other public facilities do not reach minimum standards.
To date, restrictive zoning laws and the imposition of moratoriums have not had
a material adverse effect on NVR's construction activities. However, there is
no assurance that such restrictions will not adversely affect NVR in the future.
4
Competition, Market Factors and Seasonality
The housing industry is highly competitive. NVR competes with numerous
homebuilders of varying size, ranging from local to national in scope, some of
whom have greater financial resources than NVR. NVR also faces competition from
the home resale market. NVR's homebuilding operations compete primarily on the
basis of price, location, design, quality, service and reputation. NVR's
homebuilding operations historically have been one of the market leaders in each
of the markets where NVR operates.
The housing industry is cyclical and is affected by consumer confidence
levels, prevailing economic conditions and interest rates. Other factors that
affect the housing industry and the demand for new homes include the
availability and increases in the cost of land, labor and materials, changes in
consumer preferences, demographic trends and the availability of mortgage
finance programs.
The results of NVR's homebuilding operations generally reflect the
seasonality of the housing market in the Middle Atlantic region of the United
States. NVR historically has entered into more sales contracts during the first
and second quarters.
NVR is dependent upon building material suppliers for a continuous flow of
raw materials. Whenever possible, NVR utilizes standard products available from
multiple sources. Such raw materials have been generally available in adequate
supply.
Mortgage Banking
NVR provides a number of mortgage related services to its homebuilding
customers and to other customers through its mortgage banking operations. The
mortgage banking operations of NVR also include separate companies that broker
title insurance and perform title searches in connection with mortgage loan
closings for which they receive commissions and fees.
NVR's mortgage banking business sells all of the mortgage loans it closes
to investors in the secondary markets, rather than holding them for investment.
NVR's wholly owned subsidiary, NVR Finance, is an approved seller/servicer for
FNMA, GNMA, FHLMC, VA and FHA mortgage loans. NVR's mortgage banking operations
also sell substantially all originated mortgage servicing rights on a flow
basis. The size of its servicing portfolio was approximately $275 million in
principal amount of loans being serviced at the end of 2000 compared to
approximately $220 million at December 31, 1999.
Mortgage-Backed Securities
NVR's limited purpose subsidiary ("Limited-Purpose Financing Subsidiary")
was organized to facilitate the financing of long-term mortgage loans through
the sale of bonds collateralized by mortgage-backed securities. These mortgage-
backed securities include certificates guarantying the full and timely payment
of principal and interest by FNMA, GNMA and FHLMC. There have been no bonds
issued since 1988. Only one series of bonds issued remains outstanding. The
remaining series has an early call feature that will allow NVR to retire the
bonds at NVR's option in October 2001.
Competition and Market Factors
NVR's mortgage banking operations operate through 28 offices in 10 states.
Their main competition comes from national, regional, and local mortgage
bankers, thrifts and banks in each of these markets. NVR's mortgage banking
operations compete primarily on the basis of customer service, variety of
products offered, interest rates offered, prices of ancillary services and
relative financing availability and costs.
Regulation
NVR Finance is an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and VA
mortgage loans, and is subject to all of those agencies' rules and regulations.
These rules and regulations restrict certain activities of NVR Finance. NVR
Finance is currently eligible and expects to remain eligible to
5
participate in such programs. However, any significant impairment of its
eligibility could have a material adverse impact on its operations. In addition,
NVR Finance is subject to regulation at the state and federal level with respect
to specific origination, selling and servicing practices.
Employees
At December 31, 2000, NVR employed 2,752 full-time persons, of whom 1,030
were officers and management personnel, 188 were technical and construction
personnel, 449 were sales personnel, 340 were administrative personnel and 745
were engaged in various other service and labor activities. None of NVR's
employees are subject to a collective bargaining agreement and NVR has never
experienced a work stoppage. Management believes that its employee relations
are good.
Item 2. Properties
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NVR's executive offices are located in McLean, Virginia, where NVR
currently leases office space for a nine and one-half year term expiring in
March 2005.
NVR's manufacturing facilities are located in Thurmont, Maryland;
Farmington, New York; Clover, South Carolina; Darlington, Pennsylvania; and
Portland, Tennessee. NVR has leased the Thurmont and Farmington manufacturing
facilities for a term expiring in 2014 with various options for extension of the
leases and for the purchase of the facilities. The Clover, Darlington and
Portland leases expire in 2002, 2005 and 2004, respectively, and also contain
various options for extensions of the leases and for the purchase of the
facilities.
NVR also leases office space in 72 locations in 10 states for field
offices, mortgage banking and title services branches under leases expiring at
various times through 2009. NVR anticipates that, upon expiration of existing
leases, it will be able to renew them or obtain comparable facilities on
acceptable terms.
Item 3. Legal Proceedings
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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 related
statutes arising from the alleged failure of NVR to disclose to its purchasers
that their homes were built either on or adjacent to a site formerly used as an
unlicensed landfill. The developer of the property, another homebuilder and
various engineering firms are also named as defendants in the action. The
plaintiffs are seeking various forms of relief and monetary damages of
approximately $75,000,000. The developer and the other homebuilder have settled
their claims with the homeowners. Extensive discovery is nearly complete and
the parties have filed a series of motions that will be acted upon by April 2001
and which would, if granted, resolve a number of major issues in the litigation.
The lawsuit is scheduled for trial in May 2001. NVR believes that it has valid
defenses to the plaintiffs' claims and has and will continue to vigorously
defend the case. No assurances can be given, however, regarding the risk or
range of possible loss to NVR, if any.
Except as otherwise noted, NVR is not involved in any legal proceedings
that are likely to have a material adverse effect on its financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
On October 25, 2000, NVR commenced a consent solicitation of the holders of
its 8% Senior Notes due 2005 ("Notes") to amend the underlying Indenture of the
Notes. The purpose of the proposed amendment was to provide NVR with greater
flexibility to continue to repurchase shares of its outstanding common stock as
part of its strategy of maximizing shareholder value.
On November 10, 2000, the Company amended the consent solicitation dated
October 25, 2000 to extend
6
the consent period from November 13, 2000 to November 16, 2000. In addition, the
amended consent solicitation increased the cash payment to be made for tendered
consents to the Note holders from 1% to 4% of the principal amount of the Notes
held. The consent solicitation expired without the Company receiving the
requisite number of consents to approve the amendment to the Indenture.
Executive Officers of the Registrant
Name Age Positions
---- --- ---------
Dwight C. Schar 59 Chairman of the Board, President and Chief Executive Officer of NVR
William J. Inman 53 President of NVR Mortgage Finance, Inc.
James M. Sack 50 Vice President, Secretary and General Counsel of NVR
Paul C. Saville 45 Senior Vice President Finance, Chief Financial Officer and Treasurer
of NVR
Dennis M. Seremet 45 Vice President and Controller of NVR
Dwight C. Schar has been chairman of the board, president and chief
executive officer of NVR since September 30, 1993.
William J. Inman has been president of NVR Mortgage Finance, Inc. since
January 1992.
James M. Sack has been vice president, secretary and general counsel of NVR
since September 30, 1993. Mr. Sack is currently principal of the law firm
Sack & Harris, P.C. in McLean, Virginia.
Paul C. Saville has been senior vice president finance, chief financial
officer and treasurer of NVR since September 30, 1993.
Dennis M. Seremet has been vice president and controller of NVR since April
1, 1995.
PART II
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Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
- ------- ----------------------------------------------------------------------
NVR's shares of common stock are listed and principally traded on the
American Stock Exchange ("AMEX"). The following table sets forth for the
periods indicated the high and low closing sales prices per share for the years
2000 and 1999 as reported by the AMEX.
HIGH LOW
------ ----
Prices per Share:
1999:
First Quarter........ 47.00 41.00
Second Quarter....... 52.19 41.94
Third Quarter........ 57.19 50.50
Fourth Quarter....... 50.81 38.00
2000:
First Quarter........ 54.56 42.50
Second Quarter....... 63.25 52.75
Third Quarter........ 81.00 57.38
Fourth Quarter....... 124.60 76.00
As of the close of business on February 22, 2001, there were 796
shareholders of record.
NVR has not paid any cash dividends on its shares of common stock during
the years 2000 or 1999. NVR's bank indebtedness and the indenture governing
NVR's 8% Senior Notes due 2005 contain
7
restrictions on the ability of NVR to pay dividends on its common stock. See
note 6 to the financial statements for a detailed description of the Senior Note
restrictions.
Item 6. Selected Financial Data (dollars in thousands, except per share amounts)
- ------- -----------------------
The following tables set forth selected consolidated financial information
for NVR. The selected income statement and balance sheet data have been
extracted from NVR's consolidated financial statements for each of the periods
presented. The selected financial data should be read in conjunction with, and
is qualified in its entirety by, the consolidated financial statements and
related notes included elsewhere in this report.
Year Ended December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Consolidated Income Statement Data:
Homebuilding data:
Revenues $2,267,810 $1,942,660 $1,504,744 $1,154,022 $1,045,930
Gross profit 433,751 331,933 230,929 158,167 139,675
Mortgage Banking data:
Mortgage banking fees 38,757 48,122 42,703 25,946 24,029
Interest income 6,541 13,556 9,861 6,415 5,351
Interest expense 3,016 7,504 6,120 3,544 2,249
Consolidated data:
Income before extraordinary
loss $ 158,246 $ 108,881 $ 66,107 $ 28,879 $ 25,781
Income before extraordinary
loss per diluted share (1) $ 14.98 $9.01 $4.97 $2.18 $1.70
December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
Homebuilding inventory $ 334,681 $ 323,455 $ 288,638 $ 224,041 $ 171,693
Total assets 841,260 767,281 724,359 564,621 501,165
Notes and loans payable 173,655 278,133 320,337 248,138 201,592
Equity 247,480 200,640 165,719 144,640 152,010
Cash dividends per share - - - - -
(1) For the years ended December 31, 2000, 1999, 1998, 1997 and 1996, income
from continuing operations per diluted share was computed based on 10,564,215,
12,088,388, 13,300,064, 13,244,677 and 15,137,009 shares, respectively, which
represents the weighted average number of shares and share equivalents
outstanding at each relevant date.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
(dollars in thousands except per share data)
--------------------------------------------
A Cautionary Note Regarding Forward-Looking Statements
Some of the statements in this Form 10-K, as well as statements made by NVR
in periodic press releases or 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 comparable terminology. All statements other than of
historical facts are forward looking statements. Forward looking statements
contained in this document include those regarding market trends, NVR's
financial position, business strategy, projected plans and objectives of
management for future operations. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results or performance of NVR to be materially different from future results,
performance or achievements expressed or implied by the forward-looking
statements. Such risk factors include, but are not limited to the following:
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 NVR in its
homebuilding operations; shortages of labor; weather related slow downs;
8
building moratoria; governmental regulation; the ability of NVR to integrate any
acquired business; fluctuation and volatility of stock and other financial
markets; and other factors over which NVR has little or no control.
Results of Operations for the Years Ended December 31, 2000, 1999 and 1998
NVR, Inc. ("NVR") operates in two business segments: homebuilding and
mortgage banking. Corporate general and administrative expenses are fully
allocated to the homebuilding and mortgage banking segments in the information
presented below.
Homebuilding Segment
Homebuilding revenues for 2000 increased 17% to $2,267,810 compared to
revenues of $1,942,660 in 1999. The increase in revenues was primarily due to
an 8% increase in the number of homes settled to 10,055 in 2000 from 9,316 in
1999, and to an 8% increase in the average settlement price to $224.6 in 2000
from $207.7 in 1999. The increase in settlements is a direct result of the
substantially higher backlog at the beginning of the 2000 period as compared to
the beginning of the same 1999 period. The increase in the average settlement
price is attributable to price increases in certain of the Company's markets and
to a larger number of settlements of higher-priced single family detached homes.
New orders for 2000 increased by 6% to 10,268 units compared with 9,678 units
for 1999. The increase in new orders was predominantly the result of increased
sales in markets outside the Baltimore/Washington area.
Homebuilding revenues for 1999 increased 29% to $1,942,660 compared to
revenues of $1,504,744 in 1998. The increase in revenues was primarily due to a
22% increase in the number of homes settled to 9,316 in 1999 from 7,622 in 1998,
and to a 6% increase in the average settlement price to $207.7 in 1999 from
$196.4 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 NVR's markets. New
orders for 1999 increased by 8% to 9,678 units compared with 9,000 units for
1998. The increase in new orders was predominantly the result of increased
sales in markets outside the Baltimore/Washington area.
Gross profit margins for 2000 increased to 19% compared to 17% for 1999.
The increase in gross profit margins was due to continuing favorable market
conditions, which provided NVR 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 NVR's ongoing focus of controlling construction costs.
Gross profit margins for 1999 increased to 17% compared to 15% for 1998. The
increase in gross profit margins was due to favorable market conditions that
existed in the first half of 1999, which provided NVR the opportunity to
increase selling prices in certain of its markets during that time, and to NVR's
continued emphasis on controlling construction costs. In addition, the Company
has increased the sales and settlement pace per community, which resulted in a
better leverage of fixed costs.
SG&A expenses for 2000 increased $12,446 as compared to 1999, but as a
percentage of revenues remained the same at 7%. The percentage decrease is
primarily attributable to improved operating efficiencies resulting from the
continued favorable market conditions as explained above and the overall larger
revenue base. The increase in SG&A dollars is also primarily attributable to
the aforementioned increase in revenues. SG&A expenses for 1999 increased
$27,433 as compared to 1998, but as a percentage of revenues decreased to 7% in
1999 from 8% in 1998. Approximately $15,000 of the increase in SG&A expenses is
due to a net period to period increase for compensation cost 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 5,148 and $1,318,277, respectively, at
December 31, 2000 compared to backlog units of 4,935 and dollars of $1,137,332
at December 31, 1999. The increase in backlog dollars and units was primarily
due to a 9% increase in new orders for the six-month period ended December 31,
2000 compared to the same 1999 period. The dollar increase is also due to an 8%
increase in the average selling price comparing the same six-month periods.
Backlog units and dollars were 4,935 and $1,137,332,
9
respectively, at December 31, 1999 compared to backlog units of 4,573 and
dollars of $958,757 at December 31, 1998. The increase in backlog dollars and
units was primarily due to a 2% increase in new orders for the six-month period
ended December 31, 1999 compared to the same 1998 period, and to a slower
backlog turn. The dollar increase is also due to an 8% increase in the average
selling price comparing the same six-month period.
Mortgage Banking Segment
The mortgage banking segment had operating income, excluding the amortization
of excess reorganization value and goodwill, of $3,853 for the year ended
December 31, 2000 compared to operating income of $14,752 during 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 Mortgage Corporation ("First Republic") in March 1999. This
action was consistent with the Company's decision in December 1999 to exit the
wholesale mortgage origination business. 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:
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 2000, approximately $863 in severance and lease costs were applied
against the restructuring reserve. In addition, during the third quarter the
Company reversed approximately $200 in restructuring reserves, primarily for
unused severance costs. Approximately $930 of the restructuring accrual
established at March 31, 2000, remains at December 31, 2000, and primarily
relates to accrued lease costs.
Excluding the restructuring and impairment charges (net of reversals)
incurred during 2000, operating income was $9,579, a decrease of 35% from the
$14,752 of operating income generated in 1999. This was primarily due to a 40%
reduction in loan closings to $1,749,720 for 2000 compared to $2,911,865 in loan
closings for 1999.
Excluding the results of First Republic, the mortgage banking segment
generated operating income of $16,045 for the year ended December 31, 1999
compared to operating income of $17,056 during the same period in 1998. Total
loan closings were $2,911,865 and $2,717,456 during the respective periods of
1999 and 1998. Approximately $450,178 of the increased loan closing production
was the result of loans originated by First Republic. Excluding the origination
activity of First Republic, loan origination activity for 1999 decreased 9%
compared to 1998.
Mortgage banking fees in 1999 were $48,122 compared to $42,703 in 1998,
representing an increase of $5,419, or 13%, from the overall 7% increase in
loan closing volume. An increase in builder related and other retail loan
origination activity offset the sharp reduction in wholesale refinance activity
experienced by the Company during the second half 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 offset by higher general and administrative
expenses primarily due to ongoing incremental overhead of First Republic and, to
a lesser extent, costs incurred for the implementation of the Company's new loan
origination system. In response to declining market conditions, the Company
commenced a plan to close four of its mortgage origination branches and to exit
the wholesale origination business. As a result of the plan, the Company
accrued approximately $650 in office closure expenses during the fourth quarter
of 1999.
10
Seasonality
The results of NVR's homebuilding operations generally reflect the
seasonality of the housing market in the Middle Atlantic region of the United
States. NVR historically has entered into more sales contracts in this region
during the first and second quarters. Because NVR's mortgage banking operations
have changed their strategic focus to exclusively serve the company's
homebuilding customers, to the extent that homebuilding is affected by
seasonality, mortgage banking operations may also be affected.
Effective Tax Rate
The merger of NVR Homes, Inc. and NVR Financial Services, Inc. into NVR,
Inc., on September 30, 1998 allowed NVR to utilize a separate return limitation
year net operating loss ("SRLY NOL") generated by NVR's previously owned savings
and loan institution, NVR Savings Bank. As a result, NVR realized a $3,300 tax
benefit during 1998. The use of the SRLY NOL, coupled with higher taxable income
relative to fixed permanent differences, reduced NVR's 1998 effective tax rate
to 40.1%. The 2000 and 1999 effective tax rates of 40.7% and 41.2%,
respectively, remained low as compared to the pre-SRLY NOL 1998 effective tax
rate due to higher taxable income relative to NVR's permanent differences,
primarily the amortization of reorganization value in excess of amounts
allocable to identifiable assets and non-deductible compensation.
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. The Company does not expect that adoption of
SFAS No. 133 on January 1, 2001 will have a material adverse affect on its
results of operations or financial condition.
11
Liquidity and Capital Resources
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 expires on May 31, 2003,
and bears interest at the election of NVR at i) the base rate of interest
announced by the Facility agent, or ii) 1.35% above the Eurodollar rate. The
Facility provides for borrowings of up to $60,000, subject to certain borrowing
base limitations. Up to approximately $24,000 of the Facility is currently
available for issuance in the form of letters of credit of which $15,779 was
outstanding at December 31, 2000. There were no direct borrowings outstanding
under the Facility as of December 31, 2000. At December 31, 2000, there were no
borrowing base limitations reducing the amount available to NVR for borrowings.
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 has available an annually
renewable mortgage warehouse facility with an aggregate borrowing limit of
$100,000 to fund its mortgage origination activities, under which $53,190 was
outstanding at December 31, 2000. The Mortgage Warehouse Revolving Credit
agreement expires August 31, 2001. The interest rate under the Mortgage
Warehouse Revolving Credit agreement is either: (i) the London Interbank
Offering Rate ("Libor") plus 1.25%, or (ii) 1.25% to the extent that NVR Finance
provides compensating balances and depending on the type of collateral. The
weighted average interest rate for amounts outstanding under the Mortgage
Warehouse Revolving Credit line was 3.3% during 2000. NVR Finance from time to
time enters into various gestation and repurchase agreements. NVR Finance
currently has available an aggregate of $150,000 of borrowing capacity in such
uncommitted facilities. Amounts outstanding thereunder accrue interest at
various rates tied to the Libor rate and are collateralized by gestation
mortgage-backed securities and whole loans. The weighted average interest rate
for amounts outstanding under these uncommitted facilities was 6.7% during 2000.
There were no amounts outstanding under such gestation and repurchase agreements
at December 31, 2000.
On January 20, 1998, NVR filed a shelf registration statement with the
Securities and Exchange Commission for the issuance of up to $400,000 of NVR's
debt securities. The shelf registration statement was declared effective on
February 27, 1998 and provides that securities may be offered from time to time
in one or more series, and in the form of senior or subordinated debt. As of
December 31, 2000, an aggregate principal balance of $255,000 was available for
issuance under the shelf registration statement.
On April 14, 1998, NVR completed an offering under the shelf registration
statement for $145,000 of senior notes due 2005 (the "New Notes"), resulting in
aggregate net proceeds to NVR of approximately $142,800 after fees and expenses.
The New Notes mature on June 1, 2005 and bear interest at 8%, payable semi-
annually on June 1 and December 1 of each year, commencing June 1, 1998. The New
Notes are senior unsecured obligations of NVR, ranking equally in right of
payment with NVR's other existing and future unsecured indebtedness. The net
proceeds of the New Notes were used to extinguish other indebtedness of NVR, as
described below.
Through a tender offer commenced on April 21, 1998 and completed on May 18,
1998, various open market purchases throughout 1998 and a contractual call
exercised on December 1, 1998, NVR repurchased all of the $120,000 in aggregate
principal then outstanding under the Company's 11% Senior Notes due 2003
("Senior Notes"). The Senior Notes were retired upon purchase. The amount of
funds expended to complete the Senior Note repurchase totaled $129,345,
excluding accrued interest, and resulted in the recognition of an extraordinary
loss of $7,126, net of a $4,461 tax benefit, ($0.54 per diluted share) in the
accompanying 1998 consolidated income statements.
During 2000, NVR purchased, in the open market, an aggregate of $30,000 in
principal amount of New Senior Notes. The New Senior Notes were purchased at
par, with no material gain or loss resulting from the transaction. There is an
aggregate of $115,000 of New Senior Notes outstanding at December 31, 2000.
During December 1998, NVR exercised its option to purchase two office
buildings currently utilized by NVR for certain administrative functions of both
its homebuilding and mortgage banking segments,
12
thereby extinguishing NVR's obligations under the capital lease pertaining to
these buildings. NVR expended funds of $12,295, excluding accrued interest, to
extinguish the capital lease obligation and recognized an extraordinary loss of
$2,275, net of a $1,424 tax benefit, ($0.17 per diluted share) in the
accompanying 1998 consolidated income statements. During 1999, NVR sold both
buildings to an unrelated third party and leased back one of the buildings under
an operating lease for a five-year term expiring in 2004. There was no resultant
material gain or loss on the sale transaction.
NVR Finance's mortgage warehouse facility limits the ability of NVR Finance
to transfer funds to NVR in the form of dividends, loans or advances. NVR
Finance had net assets of $8,000 as of December 31, 2000, that were so
restricted.
As shown in NVR's consolidated statement of cash flows for the year ended
December 31, 2000, NVR's operating activities provided cash of $193,706 for this
period. The cash was provided primarily by homebuilding operations and by the
excess of loan sale proceeds over cash expended to close mortgage loans with
customers.
Net cash provided by investing activities was $12,133 for the year ended
December 31, 2000. The primary source of cash was the proceeds from the sale of
mortgage servicing rights.
Net cash used for financing activities was $157,257 for the year ended
December 31, 2000. Cash was primarily used for NVR's purchase of approximately
945,000 shares of its common stock for an aggregate purchase price of $53,677,
the extinguishment of $30,000 of the Company's New Senior Notes, and net
repayments under the mortgage banking credit lines of approximately $72,000.
On October 3, 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. At December 31, 2000, the forward
purchase contract obligation is presented separately outside of equity in the
accompanying balance sheet as temporary equity.
On January 2, 2001, NVR settled the transaction with the Shareholder by
taking physical delivery of the shares for the agreed upon purchase price paid
in cash. Of the approximately 780,000 shares settled, approximately 86,000
shares were used for the Company's employer contribution to the Employee Stock
Ownership Plan for plan year 2000 and approximately 30,000 shares were used for
the Deferred Compensation Plan (see note 9). The remaining shares were retained
in treasury.
On February 27, 2001, NVR successfully completed a solicitation of consents
from holders of its New Notes to amend the Indenture governing the New Notes.
The amendment to the Indenture provides for NVR to repurchase up to an aggregate
$85 million of its Capital Stock in one or more open market and/or privately
negotiated transactions through March 31, 2002. NVR will make a payment equal to
4.5% of the principal amount of the New Notes to each holder of the New Notes
who provided a consent. NVR 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 NVR's debt agreements
NVR believes that internally generated cash and borrowings available under
credit facilities will be sufficient to satisfy near and longer term cash
requirements for working capital and debt service in both its homebuilding and
mortgage banking operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
- -------- ----------------------------------------------------------
Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. NVR's market risk arises from interest rate risk
inherent in its financial instruments. Interest rate risk is the possibility
that changes in interest rates will cause unfavorable changes in net income or
in the value of interest rate-sensitive assets, liabilities and commitments.
Lower interest rates tend to increase demand for mortgage loans for home
purchasers, while higher interest rates make it more difficult for potential
borrowers to purchase residential properties and to qualify for mortgage loans.
NVR has no market rate sensitive instruments held for speculative or trading
purposes.
13
NVR's mortgage banking segment is exposed to interest rate risk as it
relates to its lending activities. The mortgage banking segment originates
mortgage loans, which are generally sold through optional and mandatory forward
delivery contracts into the secondary markets. Substantially all of the mortgage
banking segment's loan portfolio is held for sale and subject to forward sale
commitments. NVR also sells substantially all the mortgage servicing rights in
bulk sales at predetermined prices which significantly reduces the market risk
associated with these interest sensitive assets.
In the normal course of business, NVR also enters into contractual
commitments involving financial instruments with off-balance sheet risk. These
financial instruments include commitments to extend mortgage loans to customers
and forward contracts to sell mortgage-backed securities to broker/dealers.
These instruments involve, to varying degrees, elements of market rate risk in
excess of the amounts recognized in the balance sheet. NVR enters into
contractual commitments to extend credit to buyers of single-family homes with
fixed expiration dates. The commitments become effective when the borrowers
"lock-in" a specified interest rate within time frames established by NVR. All
mortgagors are evaluated for credit worthiness prior to the extension of the
commitment. Market risk arises if interest rates move adversely between the time
of the "lock-in" of rates by the borrower and the sale date to a broker/dealer.
This market risk is managed by entering into forward contracts (optional and
mandatory) to deliver mortgage-backed securities and whole loans at specific
prices and dates to broker/dealers and secondary market investors. NVR has
established policies governing which broker/dealers can be used to conduct these
activities. Market risk with respect to forward contracts arises from changes in
the value of contractual positions due to fluctuations in interest rates. NVR
limits its exposure to market risk by monitoring differences between the total
of commitments to customers and loans held for sale and forward contracts with
investors and broker/dealers.
There were mortgage loan commitments aggregating approximately $106,969
outstanding at December 31, 2000, with a fair value at December 31, 2000 of
$107,457 and open forward delivery contracts to sell loans to third party
investors aggregating approximately $135,306 at December 31, 2000, with a fair
value at December 31, 2000 of $134,386.
NVR's homebuilding segment generates operating liquidity and acquires
capital assets through fixed-rate and variable-rate debt. The homebuilding
segment's primary variable-rate debt is a working capital revolving credit
facility that currently provides for unsecured borrowings up to $60,000, subject
to certain borrowing base limitations. The working capital credit facility
expires May 31, 2003 and outstanding amounts bear interest at the election of
NVR, at (i) the base rate of interest announced by the working capital credit
facility agent or (ii) 1.35% above the Eurodollar Rate. The weighted average
interest rates for the amounts outstanding under the Facility was 8% for 2000.
There were no amounts outstanding under the working capital revolving credit
facility at December 31, 2000.
The following table represents contractual balances of NVR's on balance
sheet financial instruments in dollars at the expected maturity dates, as well
as the fair values of those on balance sheet financial instruments, at December
31, 2000. The expected maturity categories take into consideration historical
and anticipated prepayment speeds, as well as actual amortization of principal
and does not take into consideration the reinvestment of cash or the refinancing
of existing indebtedness. Because NVR sells all of the mortgage loans it
originates into the secondary markets, NVR has made the assumption that the
portfolio of mortgage loans held for sale will mature in the first year.
Consequently, outstanding warehouse borrowings and repurchase facilities are
also assumed to mature in the first year.
14
Maturities (000's)
------------------
Fair
2001 2002 2003 2004 2005 Thereafter Total Value
------- ---- ---- ---- ------- ---------- ------- -------
Mortgage banking segment
- ------------------------
Interest rate sensitive assets:
Mortgage loans held for sale 120,999 - - - - - 120,999 122,441
Average interest rate 7.9% - - - - - 7.9%
Interest rate sensitive liabilities:
Variable rate warehouse line of credit 53,190 - - - - - 53,190 53,190
Average interest rate (a) 3.3% - - - - - 3.3%
Variable rate repurchase agreements - - - - - - - -
Average interest rate - - - - - - -
Fixed rate capital lease obligations 99 106 93 - - - 298 298
Average interest rate 6.4% 6.4% 6.4% - - - 6.4%
Homebuilding segment
- --------------------
Interest rate sensitive assets:
Interest-bearing deposits 85,000 - - - - - 85,000 85,000
Average interest rate 6.3% - - - - - 6.3%
Interest rate sensitive liabilities:
Variable rate working capital line of credit - - - - - - - -
Average interest rate - - - - - - -
Fixed rate obligations (b) 470 303 331 385 115,333 3,345 120,167 116,717
Average interest rate 8.2% 8.2% 8.2% 8.2% 8.3% 13.1% 8.3%
(a) Average interest rate is net of credits received for compensating cash
balances.
(b) The $115,333 maturing during 2005 includes $115,000 of the Company's 8%
Senior Notes due June 2005.
15
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
The financial statements required by this Item are included in the
financial statements and schedules included herein under Item 14 and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
Item 10 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2001. Reference is also made regarding the executive officers of the
registrant to "Executive Officers of the Registrant" following Item 4 of Part I
of this report.
Item 11. Executive Compensation.
- -------- -----------------------
Item 11 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
Item 12 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2001.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
Item 13 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2001.
16
PART IV
-------
Item 14. Exhibits and Reports on Form 8-K.
- -------- ---------------------------------
Financial Statements
NVR, Inc. - Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Description of Exhibits
Exhibit
Number Description
------ ----------------
2.1 Debtors' Second Amended Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code (as modified to July 21,
1993). Incorporated by reference to Exhibit 2.1 in NVR, Inc.'s
1993 Registration Statement on Form S-1 (No. 33-63190) (the
"1993 Registration Statement").
3.1 Restated Articles of Incorporation of NVR, Inc. Incorporated by
reference to Exhibit 3.7 in NVR, Inc.'s 1993 Registration
Statement.
3.2 Bylaws of NVR, Inc. Incorporated by reference to Exhibit 3.8 in
NVR, Inc.'s 1993 Registration Statement.
4.1 Form of Trust Indenture between NVR, Inc., as issuer and the
Bank of New York as trustee. Incorporated by reference to
Exhibit 4.3 in NVR, Inc.'s Current Report on Form 8-K filed
April 23, 1998.
4.2 Form of Note (included in Indenture filed as Exhibit 4.1).
4.4 Form of Supplemental Trust Indenture between NVR, Inc., as
issuer, NVR Homes, Inc., as guarantor, and The Bank of New York,
as trustee. Incorporated by reference to Exhibit 4.3 in NVR,
Inc.'s Current Report on Form 8-K filed April 23, 1998.
*4.5 Second Supplemental Indenture between NVR, Inc. and the Bank of
New York, as trustee dated February 27, 2001.
10.1 Employment Agreement between NVR, Inc. and Dwight C. Schar dated
January 1, 1996. Incorporated by reference to Exhibit 10.1 in
NVR Inc.'s 10-K for the year ended December 31, 1995.
*10.3 Executive Employment Agreement between NVR, Inc. and Paul C.
Saville dated January 1, 2001.
10.5 Employment Agreement between NVR, Inc. and William J. Inman
dated November 13, 1995. Incorporated by reference to Exhibit
10.5 in NVR Inc.'s 10-K for the year ended December 31, 1995.
10.6 Loan Agreement dated as of September 7, 1999 among NVR Mortgage
Finance, Inc. and US Bank National Association., as Agent, and
the other lenders party thereto. Incorporated by reference to
Exhibit 10.6 in NVR, Inc.'s 10-K for the year ended December 31,
1999.
10.7 NVR, Inc. Equity Purchase Plan. Incorporated by reference to
Exhibit 10.10 in NVR, Inc.'s 1993 Registration Statement.
17
10.8 NVR, Inc. Directors Long-Term Incentive Plan. Incorporated by
reference to Exhibit 10.11 in NVR, Inc.'s 1993 Registration
Statement.
10.9 NVR, Inc. Management Equity Incentive Plan. Incorporated by
reference to Exhibit 10.2 in NVR, Inc.'s 1993 Registration
Statement.
10.19 Employee Stock Ownership Plan of NVR, Inc. Incorporated by reference
to NVR, Inc.'s 10-KA for the year ended December 31, 1994.
10.22 NVR, Inc. 1994 Management Equity Incentive Plan. Incorporated by
reference to NVR, Inc.'s 10-K for the year ended December 31, 1994.
10.23 NVR, Inc. 1998 Management Long-Term Stock Option Plan. Incorporated
by reference to Exhibit 4 of NVR, Inc.'s Form S-8 Registration
Statement filed June 4, 1999.
10.24 NVR, Inc. 1998 Directors' Long-Term Stock Option Plan. Incorporated
by reference to Exhibit 4 of NVR, Inc.'s Form S-8 Registration
Statement filed June 4, 1999.
10.26 NVR, Inc. Management Long-Term Stock Option Plan. Incorporated by
reference to Exhibit 99.3 of NVR, Inc.'s Form S-8 Registration
Statement filed May 31, 1996.
10.27 NVR, Inc. Directors' Long-Term Stock Option Plan. Incorporated by
reference to Exhibit 99.3 of NVR, Inc.'s Form S-8 Registration
Statement filed May 31, 1996.
10.29 Third Amended and Restated Credit Agreement dated as of September
30, 1998 among NVR, Inc. as borrower and Certain Banks and
BankBoston, as Agent for itself and Certain Banks. Incorporated by
reference to Exhibit 10.29 in NVR, Inc.'s 10-K for the year ended
December 31, 1998
10.30 NVR, Inc. High Performance Compensation Plan dated as of January 1,
1996. Incorporated by reference to Exhibit 10.30 in NVR, Inc.'s 10-
K for the year ended December 31, 1996.
10.31 NVR, Inc. High Performance Compensation Plan No. 2 dated as of
January 1, 1999. Incorporated by reference to Exhibit 10.31 in NVR,
Inc.'s 10-K for the year ended December 31, 1998.
10.34 Mortgage Loan Purchase and Sale Agreement between Greenwich Capital
Financial Products, Inc. and NVR Mortgage Finance, Inc., dated as
of July 22, 1998. Incorporated by reference to Exhibit 10.34 in
NVR, Inc.'s 10-K for the year ended December 31, 1998.
*10.35 Master Repurchase Agreement between Bear Stearns Mortgage Capital
Corporation and NVR Mortgage Finance, Inc. dated January 9, 2001.
*10.36 Second Amendment to Loan Agreement and Second Amendment to Pledge
and Security Agreement dated September 1, 2000 between NVR Mortgage
Finance, Inc. and U.S. Bank National Association, as agent, and
other Lenders party thereto.
*10.37 Amendment No. 4 to Third Amended and restated Credit Agreement
dated as of September 30, 1998 by and among NVR, inc., as borrower,
Fleet National Bank, successor by merger to Bank Boston, NA, and
Certain Banks.
*11 Computation of Earnings per Share
*21 NVR, Inc. Subsidiaries.
*23 Consent of KPMG LLP (independent auditors).
* Filed herewith.
_________________
18
Reports on Form 8-K
1) Form 8-K filed October 26, 2000 announcing the solicitation of consents
from holders of NVR's 8% Senior Notes (The "Notes") due 2005 to amend the
indenture governing the Notes.
2) Form 8-K filed November 14, 2000 announcing NVR's extension of the
expiration date for its consent solicitation relating to the Notes, and
announcing an increase to the consent payment to $40 in cash for each
$1,000 principal amount of Notes for which a consent has been accepted.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NVR, Inc.
By: /s/ Dwight C. Schar
-------------------
Dwight C. Schar
Chairman of the Board of Directors,
President and Chief Executive Officer
Dated: March 7, 2001
-------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board
of Directors, President and
/s/ Dwight C. Schar Chief Executive Officer
- ----------------------------
Dwight C. Schar (Principal Executive Officer) March 7, 2001
/s/ C. Scott Bartlett, Jr. Director
- ----------------------------
C. Scott Bartlett, Jr. March 7, 2001
/s/ Manuel H Johnson Director
- ----------------------------
Manuel H. Johnson March 7, 2001
/s/ William A. Moran Director
- ----------------------------
William A. Moran March 7, 2001
/s/ David A. Preiser Director
- ----------------------------
David A. Preiser March 7, 2001
/s/ George E. Slye Director
- ----------------------------
George E. Slye March 7, 2001
/s/ John M. Toups Director
- ----------------------------
John M. Toups March 7, 2001
Senior Vice President,
Chief Financial Officer and
/s/ Paul C. Saville Treasurer March 7, 2001
- ----------------------------
Paul C. Saville
20
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
NVR, Inc.:
We have audited the accompanying consolidated balance sheets of NVR, Inc. and
subsidiaries as of December 31, 2000 and 1999 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NVR, Inc. and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
McLean, Virginia
January 30, 2001
21
NVR, Inc.
Consolidated Balance Sheets
(dollars in thousands, except share data)
December 31,
------------------
2000 1999
-------- --------
ASSETS
Homebuilding:
Cash and cash equivalents $130,079 $ 77,968
Receivables 6,670 2,171
Inventory:
Lots and housing units, covered under
sales agreements with customers 294,094 276,193
Unsold lots and housing units 32,600 37,573
Manufacturing materials and other 7,987 9,689
-------- --------
334,681 323,455
Property, plant and equipment, net 13,514 13,114
Reorganization value in excess of amounts
allocable to identifiable assets, net 47,741 53,901
Goodwill, net 7,472 8,566
Contract land deposits 96,119 62,784
Deferred tax assets 43,844 36,819
Other assets 17,366 12,957
-------- --------
697,486 591,735
-------- --------
Mortgage Banking:
Cash and cash equivalents 7,629 11,158
Mortgage loans held for sale, net 120,999 136,311
Mortgage servicing rights, net 1,479 3,384
Property and equipment, net 2,351 4,239
Reorganization value in excess of amounts
allocable to identifiable assets, net 8,435 9,523
Goodwill, net - 2,739
Other assets 2,881 8,192
-------- --------
143,774 175,546
-------- --------
Total assets $841,260 $767,281
======== ========
(Continued)
See notes to consolidated financial statements.
22
NVR, Inc.
Consolidated Balance Sheets (Continued)
(dollars in thousands, except share data)
December 31,
---------------------
2000 1999
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable $ 108,064 $ 98,322
Accrued expenses and other liabilities 173,787 125,172
Customer deposits 63,486 50,348
Notes payable 210 2,128
Other term debt 4,957 5,206
Senior notes 115,000 145,000
--------- ---------
465,504 426,176
--------- ---------
Mortgage Banking:
Accounts payable and other liabilities 9,760 14,666
Notes payable 53,488 125,799
--------- ---------
63,248 140,465
--------- ---------
Total liabilities 528,752 566,641
--------- ---------
Forward purchase contract obligation 65,028 -
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
for 2000 and 1999, respectively 206 206
Additional paid-in-capital 115,136 196,652
Deferred compensation trust- 337,703 shares
of NVR, Inc. common stock (15,915) -
Deferred compensation liability 15,915 -
Retained earnings 399,810 241,564
Less treasury stock at cost - 11,755,671
and 11,443,247 shares at December 31,
2000 and 1999, respectively (267,672) (237,782)
--------- ---------
Total shareholders' equity 247,480 200,640
--------- ---------
Total liabilities and shareholders'
equity $ 841,260 $ 767,281
========= =========
(Continued)
See notes to consolidated financial statements.
23
NVR, Inc.
Consolidated Statements of Income
(dollars in thousands, except share data)
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------ ------------------ ------------------
Homebuilding:
Revenues $ 2,267,810 $ 1,942,660 $ 1,504,744
Other income 3,578 1,712 1,874
Cost of sales (1,834,059) (1,610,727) (1,273,815)
Selling, general and administrative (153,208) (140,762) (113,329)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (7,254) (7,254) (7,547)
----------- ----------- -----------
Operating income 276,867 185,629 111,927
Interest expense (12,614) (13,533) (17,528)
----------- ----------- -----------
Homebuilding income 264,253 172,096 94,399
----------- ----------- -----------
Mortgage Banking:
Mortgage banking fees 38,757 48,122 42,703
Interest income 6,541 13,556 9,861
Other income 534 598 634
General and administrative (33,237) (40,020) (30,022)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (1,252) (1,636) (1,088)
Interest expense (3,016) (7,504) (6,120)
Restructuring and asset
impairment charge (5,726) - -
----------- ----------- -----------
Operating income 2,601 13,116 15,968
----------- ----------- -----------
Total segment income 266,854 185,212 110,367
Income tax expense (108,608) (76,331) (44,260)
----------- ----------- -----------
Income before extraordinary loss 158,246 108,881 66,107
Extraordinary loss-extinguishment of debt
(net of tax benefit of $5,885) - - (9,401)
----------- ----------- -----------
Net income $ 158,246 $ 108,881 $ 56,706
=========== =========== ===========
Basic earnings per share:
Income before extraordinary loss $ 17.42 $ 10.69 $ 5.94
Extraordinary loss - - (0.84)
----------- ----------- -----------
Basic earnings per share $ 17.42 $ 10.69 $ 5.10
=========== =========== ===========
Diluted earnings per share:
Income before extraordinary loss $ 14.98 $ 9.01 $ 4.97
Extraordinary loss - - (0.71)
----------- ----------- -----------
Diluted earnings per share $ 14.98 $ 9.01 $ 4.26
=========== =========== ===========
See notes to consolidated financial statements.
24
NVR, Inc.
Consolidated Statements of Shareholders' Equity
(dollars in thousands)
Additional Deferred Deferred
Common Paid-in Retained Treasury Compensation Compensation
Stock Capital Earnings Stock Trust Liabilitiy
------ ----------- -------- ---------- ------------- ------------
Balance, December 31, 1997 $200 $164,731 $ 75,977 $ (96,268) $ - $ -
Net income - - 56,706 - - -
Purchase of common stock
for treasury - - - (50,199) - -
Performance share activity - 3,953 - 5,128 - -
Tax benefit from stock options
exercised - 3,744 - - - -
Option activity 2 1,745 - - - -
------ -------- -------- --------- ------------ ------------
Balance, December 31, 1998 202 174,173 132,683 (141,339) - -
Net income - - 108,881 - - -
Purchase of common stock
for treasury - - - (101,765) - -
Performance share activity - 13,412 - 5,322 - -
Tax benefit from stock options
exercised - 7,542 - - - -
Option activity 4 1,525 - - - -
------ -------- -------- --------- ------------ ------------
Balance, December 31, 1999 206 196,652 241,564 (237,782) - -
Net income - - 158,246 - - -
Deferred compensation
activity - (14,918) - 14,451 (15,915) 15,915
Purchase of common stock
for treasury - - - (53,677) - -
Performance share activity - (3,595) - 3,674 - -
Tax benefit from stock options
exercised - 4,628 - - - -
Option activity - 3,059 - - - -
Treasury stock issued
upon option exercise - (5,662) - 5,662 - -
Forward purchase contract
obligation - (65,028) - - - -
------ -------- -------- --------- ------------ ------------
Balance, December 31, 2000 $206 $115,136 $399,810 $(267,672) $(15,915) $15,915
====== ======== ======== ========= ============ ============
See notes to consolidated financial statements
25
NVR, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------ ------------------ ------------------
Cash flows from operating activities:
Net income $ 158,246 $ 108,881 $ 56,706
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Extraordinary loss - extinguishment of debt - - 15,286
Depreciation and amortization 13,840 14,727 13,408
Restructuring and asset impairment charge 5,726 - -
Gain on sales of loans (25,512) (33,807) (31,071)
Deferred tax provision (6,983) (11,911) (10,927)
Mortgage loans closed (1,749,720) (2,911,865) (2,717,456)
Proceeds from sales of mortgage loans 1,776,595 3,027,057 2,655,949
Gain on sales of mortgage servicing rights (756) (2,962) (1,368)
Net change in assets and liabilities, net of acquisitions:
Increase in inventories (11,226) (34,817) (64,597)
Increase in contract land deposits (33,335) (22,085) (3,707)
(Increase) decrease in receivables (2,638) (2,517) 2,601
Increase in accounts payable and
accrued expenses 71,495 57,450 68,815
Other, net (2,026) 27,202 4,710
----------- ----------- -----------
Net cash provided (used) by operating activities 193,706 215,353 (11,651)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sales of mortgage-backed securities - - 9,569
Business acquisition, net of cash acquired - (3,697) -
Purchase of property, plant and equipment (5,027) (9,070) (3,964)
Principal payments on mortgage-backed securities 826 1,765 5,076
Proceeds from sales of mortgage servicing rights 15,762 31,647 27,637
Other, net 572 5,450 1,266
----------- ----------- -----------
Net cash provided by investing activities 12,133 26,095 39,584
----------- ----------- -----------
Cash flows from financing activities:
Redemption of mortgage-backed bonds (817) (2,300) (13,341)
Extinguishment of 11% senior notes - - (129,344)
Deferred financing fees - - (2,311)
Issuance of 8% senior notes - - 145,000
Extinguishment of 8% senior notes (30,000) - -
Purchases of treasury stock (53,677) (101,765) (50,199)
Purchase of NVR common stock for deferred comp plan (1,606) - -
Net borrowings (repayments) under notes payable
and credit lines (74,217) (118,290) 43,294
Other, net 3,060 1,529 1,747
----------- ----------- -----------
Net cash used by financing activities (157,257 ) (220,826) (5,154)
----------- ----------- -----------
Net increase in cash 48,582 20,622 22,779
Cash, beginning of year 89,126 68,504 45,725
----------- ----------- -----------
Cash, end of year $ 137,708 $ 89,126 $ 68,504
=========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the year $ 15,858 $ 21,115 $ 24,670
=========== =========== ===========
Income taxes paid during the year, net of refunds $ 102,694 $ 78,493 $ 43,097
=========== =========== ===========
See notes to consolidated financial statements.
26
NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of NVR, Inc. ("NVR" or the "Company"), its wholly owned
subsidiaries and certain partially owned entities. All significant
intercompany transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
Homebuilding Inventory
Inventory is stated at the lower of cost or market value. Cost of
lots and completed and uncompleted housing units represent the accumulated
actual cost thereof. Field construction supervisors' salaries and related
direct overhead expenses are included in inventory costs. Interest costs
are not capitalized into inventory. Upon settlement, the cost of the units
is expensed on a specific identification basis. Cost of manufacturing
materials is determined on a first-in, first-out basis.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable
assets is being amortized on a straight-line basis over 15 years.
Accumulated amortization as of December 31, 2000 and 1999 was $56,526 and
$49,278, respectively. Determination of any impairment losses related to
this intangible asset is based on consideration of projected undiscounted
cash flows.
Goodwill
The excess of amounts paid for business acquisitions over the net fair
value of the assets acquired and the liabilities assumed is amortized using
the straight line method ranging from five to ten years. Accumulated
amortization was $3,464 and $2,918 at December 31, 2000 and 1999,
respectively. During 2000, as part of the mortgage banking segment's
restructuring plan, NVR wrote off $2,575 of goodwill remaining from the
acquisition in March 1999 of First Republic Mortgage Corporation ("First
Republic") (See note 12). Determination of any impairment losses related
to this intangible asset is based on consideration of projected
undiscounted cash flows.
Mortgage Loans Held for Sale
Mortgage loans held for sale, forward trade commitments and
origination commitments are valued at the lower of cost or market on a net
aggregate basis.
27
NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)
Mortgage-Backed Securities and Mortgage-Backed Bonds
The Company's consolidated balance sheets for all periods presented
reflect its ownership interests in mortgage-backed securities net of the
related mortgage-backed bonds as a component of other assets of the
mortgage banking segment, and the consolidated statements of income for all
periods presented reflect earnings from such interests net of the related
interest expense as a component of other income of the mortgage banking
segment. All of such interests are at, or are nearing, the end of their
economic useful lives, and as such, NVR does not anticipate that such
assets will generate significant amounts of income or cash flow in the
future. See note 11 for additional information.
Earnings per Share
The following weighted average shares and share equivalents are used
to calculate basic and diluted EPS for the years ended December 31, 2000,
1999 and 1998:
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
Weighted average number of
shares outstanding used to
calculate basic EPS 9,084,041 10,189,878 11,131,114
Dilutive securities:
Stock options and forward
purchase contract obligation 1,480,174 1,898,510 2,168,950
----------------- ----------------- -----------------
Weighted average number of
shares and share equivalents
outstanding used to calculate
diluted EPS 10,564,215 12,088,388 13,300,064
================= ================= =================
Subsequent to December 31, 2000, NVR settled a forward purchase
contract obligation in NVR common stock through a physical settlement of
the shares. See note 7.
Revenues-Homebuilding Operations
NVR builds light-frame, low-rise residences which generally are
produced on a pre-sold basis for the ultimate customer. Revenues are
recognized at the time units are completed and title passes to the
customer.
Mortgage Banking Fees
Mortgage banking fees include income earned by NVR's mortgage banking
subsidiaries for originating mortgage loans, servicing mortgage loans held
in the servicing portfolio, title fees, gains and losses on the sale of
mortgage loans and mortgage servicing and other activities incidental to
mortgage banking.
28
NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)
Mortgage Servicing Rights
Mortgage servicing rights are recorded by allocating the total cost of
acquiring mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair
values.
NVR measures the impairment of the mortgage servicing rights based on
the lower of cost or fair value. Current fair value is determined through
the discounted present value of estimated future net servicing cash flows
using a risk-based discount rate and assumptions based upon market
estimates for future servicing revenues and expenses (including prepayment
expectations, servicing costs, default rates, and interest earnings on
escrows). For the purposes of evaluating and measuring impairment of the
mortgage servicing rights, they are stratified using the predominant risk
characteristic of the underlying mortgage loans. NVR has determined that
the predominant risk characteristic of the underlying mortgage loans is
interest rate. Impairment, and subsequent changes in measurement of
impairment, of any individual stratum is recognized through a valuation
allowance for that stratum. The mortgage servicing rights are amortized to
general and administrative expense in proportion to, and over the period
of, the estimated net servicing income.
Depreciation
Depreciation is based on the estimated useful lives of the assets
using the straight-line method. Amortization of capital lease assets is
included in depreciation expense. Model home furniture and fixtures are
generally depreciated over a two year period, office facilities and other
equipment are depreciated over a period from three to ten years,
manufacturing facilities are depreciated over a period of from five to
forty years and property under capital lease is depreciated in a manner
consistent with the Company's depreciation policy for owned assets.
Income Taxes
NVR files a consolidated federal income tax return. Deferred income
taxes reflect the impact of "temporary differences" between the amounts of
assets and liabilities for financial reporting purposes and such amounts as
measured by enacted tax rules and regulations.
Financial Instruments
Except as otherwise noted here and note 4 to the financial statements,
NVR believes that insignificant differences exist between the carrying
value and the fair value of its financial instruments. The estimated fair
value of NVR's 8% Senior Notes due 2005 as of December 31, 2000 and 1999
was $111,550 and $136,663, respectively. The estimated fair values are
based on quoted market prices. The carrying value was $115,000 and
$145,000 at December 31, 2000 and 1999, respectively.
Stock-Based Compensation
As permitted under SFAS No. 123, NVR has elected to continue to follow
the guidance of Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and related interpretations
including FASB Interpretation No. 44, Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB Opinion No. 25, in
accounting for its stock-based employee compensation arrangements. The pro
forma financial information required by SFAS No. 123 is included in note 9.
29
NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)
2. Segment Information, Nature of Operations, and Certain Concentrations
NVR operates in two business segments: homebuilding and mortgage banking.
The homebuilding segment is one of the largest homebuilders in the United States
and in the Washington, D.C. and Baltimore, Maryland metropolitan areas, where
NVR derived approximately 61% of its 2000 homebuilding revenues. NVR's
homebuilding segment primarily constructs and sells single-family detached
homes, townhomes and condominium buildings under three tradenames: Ryan Homes,
NVHomes and Fox Ridge Homes. The Ryan Homes product is built in eighteen
metropolitan areas located in Maryland, Virginia, Pennsylvania, New York, North
Carolina, South Carolina, Ohio, New Jersey, Delaware and Tennessee. The Fox
Ridge Homes product is built solely in the Nashville, Tennessee metropolitan
area. The Ryan Homes' and Fox Ridge Homes' products are moderately priced and
marketed primarily towards first-time and first time move-up buyers. The
NVHomes product is built largely in the Washington, D.C. metropolitan area, and
is marketed primarily to move-up buyers.
The mortgage banking segment, which operates under NVR Finance, currently
includes a regional mortgage banking operation and a limited-purpose financing
subsidiary (the "Limited-Purpose Financing Subsidiary") which was formed to
facilitate the financing of long-term mortgage loans through the sale of non-
recourse bonds collateralized by mortgage-backed securities. NVR's mortgage
banking business generates revenues primarily from origination fees, gains on
sales of loans, title fees, and sales of servicing rights. A substantial
portion of the Company's mortgage operations is conducted in the Washington, D.C
and Baltimore, MD metropolitan areas. NVR's homebuilding customers accounted
for 71% of the aggregate dollar amount of loans closed in 2000. Based on NVR's
business restructuring, substantially all of the mortgage banking segment's
ongoing loan closing activity will be for NVR's homebuilding customers (See note
12).
Corporate general and administrative expenses are fully allocated to the
homebuilding and mortgage banking segments in the information presented below.
For the Year Ended December 31, 2000
- --------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
Revenues $2,267,810 $ 38,757 $2,306,567 (a)
Interest income 2,233 6,541 8,774 (a)
Interest expense 12,614 3,016 15,630 (a)
Depreciation and amortization 4,693 641 5,334 (b)
Segment profit 271,507 3,853 275,360 (b)
Segment assets 642,273 135,339 777,612 (b)
Expenditures for segment assets 4,824 203 5,027 (a)
(a) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(b) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------- ----------------- ---------
Segment depreciation and
amortization $ 4,693 $ 641 $ 5,334
Add: amortization of excess
reorganization value and goodwill 7,254 1,252 8,506
-------- ---------------- --------
Consolidated depreciation and
amortization $ 11,947 $ 1,893 $ 13,840
======== ================ ========
Segment profit $271,507 $ 3,853 $275,360
Less: amortization of excess
reorganization value and goodwill (7,254) (1,252) (8,506)
-------- ---------------- --------
Consolidated income before income
taxes $264,253 $ 2,601 $266,854
======== ================ ========
30
NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
Segment assets $ 642,273 $ 135,339 $ 777,612
Add: Excess reorganization value
and goodwill 55,213 8,435 63,648
---------- --------------- ----------
Total consolidated assets $ 697,486 $ 143,774 $ 841,260
========== =============== ==========
For the Year Ended December 31, 1999
- ------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
Revenues $1,942,660 $ 48,122 $1,990,782 (c)
Interest income 141 13,556 13,697 (c)
Interest expense 13,533 7,504 21,037 (c)
Depreciation and amortization 3,775 2,062 5,837 (d)
Segment profit 179,350 14,752 194,102 (d)
Segment assets 529,268 163,284 692,552 (d)
Expenditures for segment assets 6,465 2,605 9,070 (c)
(c) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(d) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------- ----------------- -----------
Segment depreciation and
amortization $ 3,775 $ 2,062 $ 5,837
Add: amortization of excess
reorganization value and goodwill 7,254 1,636 8,890
---------- -------------- ----------
Consolidated depreciation and
amortization $ 11,029 $ 3,698 $ 14,727
========== ============== ==========
Segment profit $ 179,350 $ 14,752 $ 194,102
Less: amortization of excess
reorganization value and goodwill (7,254) (1,636) (8,890)
---------- -------------- ----------
Consolidated income before income
taxes and extraordinary loss $ 172,096 $ 13,116 $ 185,212
========== ============== ==========
Segment assets $ 529,268 $ 163,284 $ 692,552
Add: Excess reorganization value
and goodwill 62,467 12,262 74,729
---------- -------------- ----------
Total consolidated assets $ 591,735 $ 175,546 $ 767,281
========== ============== ==========
For the Year Ended December 31, 1998
- ------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
Revenues $1,504,744 $ 42,703 $1,547,447 (e)
Interest income 1,256 9,861 11,117 (e)
Interest expense 17,528 6,120 23,648 (e)
Depreciation and amortization 4,166 607 4,773 (f)
Segment profit 101,946 17,056 119,002 (f)
Segment assets 447,934 196,093 644,027 (f)
Expenditures for segment assets 3,007 957 3,964 (e)
(e) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
31
NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)
(f) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------- ----------------- ---------
Segment depreciation and
amortization $ 4,166 $ 607 $ 4,773
Add: amortization of excess
reorganization value and goodwill 7,547 1,088 8,635
-------- -------------- --------
Consolidated depreciation and
amortization $ 11,713 $ 1,695 $ 13,408
======== ============== ========
Segment profit $101,946 $ 17,056 $119,002
Less: amortization of excess
reorganization value and goodwill (7,547) (1,088) (8,635)
-------- -------------- --------
Consolidated income before income
taxes and extraordinary loss $ 94,399 $ 15,968 $110,367
======== ============== ========
Segment assets $447,934 $ 196,093 $644,027
Add: Excess reorganization value
and goodwill 69,721 10,611 80,332
-------- -------------- --------
Total consolidated assets $517,655 $ 206,704 $724,359
======== ============== ========
3. Related Party Transactions
During 2000, 1999, and 1998, NVR purchased, at market prices, developed
lots from a company that is controlled by a member of the board of directors.
Those purchases totaled approximately $25,000, $19,000 and $13,000 during 2000,
1999 and 1998, respectively. NVR expects to purchase the majority of the
remaining lots under contract as of December 31, 2000 over the next 18 to 24
months for an aggregate purchase price of approximately $29,000.
During the years ended December 31, 2000, 1999 and 1998, one of the
executive officers of NVR was a partner in a law firm, which billed NVR
approximately $560, $471 and $441, respectively, in fees and expenses for legal
services.
4. Loan Servicing Portfolio, Mortgage Loan Commitments and Off-Balance Sheet
Risk
At December 31, 2000 and 1999, NVR was servicing approximately 3,000 and
2,700 mortgage loans for various investors with aggregate balances of
approximately $275,000 and $222,000, respectively.
At December 31, 2000, NVR had net capitalized mortgage servicing rights of
$1,479 which related to approximately $142,000 of the aggregate $275,000 in
loans serviced. The mortgage servicing rights associated with the remaining
$133,000 in loans serviced are not subject to capitalization because the loans
were originated and sold prior to NVR's adoption of SFAS No. 122 on January 1,
1995.
NVR assesses the fair value of the capitalized mortgage servicing rights by
stratifying the underlying loans by interest rate. The fair value of the
mortgage servicing rights is then determined through the present value of
estimated future net servicing cash flows using a risk based discount rate, and
assumptions based upon market estimates for future servicing revenues and
expenses (including prepayment expectations, servicing costs, default rates, and
interest earnings on escrows). The fair value of the capitalized mortgage
servicing rights approximated its book value at December 31, 2000 and 1999,
respectively.
NVR amortizes the capitalized mortgage servicing rights in proportion to,
and over the period of, the estimated net servicing income. The amortization
for the periods ending December 31, 2000, 1999 and 1998
32
NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)
was $260, $306 and $484, respectively.
In the normal course of business, NVR enters into contractual commitments
involving financial instruments with off-balance sheet risk. These financial
instruments include commitments to extend mortgage loans to customers and
forward contracts to sell mortgage-backed securities to broker/dealers. These
instruments involve, to varying degrees, elements of credit and market rate risk
in excess of the amounts recognized in the balance sheet.
NVR's exposure to credit loss, in the event of non-performance by the
customers, is represented by the contractual amount of the commitment for the
mortgage loans. NVR Finance uses the same credit policies in making commitments
as it does for on-balance sheet mortgage loans.
There were mortgage loan commitments aggregating approximately $106,969 and
$120,716 outstanding at December 31, 2000 and 1999, respectively. The fair
values of mortgage loan commitments were approximately $107,457 and $120,914 at
December 31, 2000 and 1999, respectively. There were open forward delivery
contracts aggregating approximately $135,306 and $198,131 at December 31, 2000
and 1999, respectively. The fair values of open forward delivery contracts were
approximately $134,386 and $198,181 at December 31, 2000 and 1999, respectively.
NVR enters into contractual commitments to extend credit to buyers of
single-family homes with fixed expiration dates. The commitments become
effective when the borrowers "lock-in" a specified interest rate within time
frames established by NVR. All mortgagors are evaluated for credit worthiness
prior to the extension of the commitment. Market risk arises if interest rates
move adversely between the time of the "lock-in" of rates by the borrower and
the sale date to a broker/dealer. This market risk is managed by entering into
forward contracts as discussed below.
Since certain of the commitments are expected to expire without a loan
closing, the total contractual amounts do not necessarily represent future cash
requirements. Collateral for loans granted is obtained by a first mortgage
security interest in real estate whose appraised values exceed the contractual
amount of the commitment.
NVR enters into optional and mandatory forward delivery contracts to sell
mortgage-backed securities at specific prices and dates to broker/dealers. NVR
has established policies governing which broker/dealers can be used to conduct
these activities. Credit risk associated with forward contracts is limited to
the replacement cost of those forward contracts in a gain position, and at
December 31, 2000 and 1999 there were no such positions. There were no
counterparty default losses on forward contracts in 2000, 1999 or 1998. Market
risk with respect to forward contracts arises from changes in the value of
contractual positions due to fluctuations in interest rates. NVR limits its
exposure to market risk by monitoring differences between the total of
commitments to customers and loans held for sale and forward contracts with
broker/dealers. In the event NVR has forward delivery contract commitments in
excess of available mortgage-backed securities, NVR completes the transaction by
either paying or receiving a fee to/from the broker/dealer equal to the
increase/decrease in the market value of the forward contract. NVR has no
market risk associated with optional delivery contracts because NVR has the
right but not the obligation to deliver mortgage backed securities to
broker/dealers under these contracts.
33
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
5. Property, Plant and Equipment, net
December 31,
-------------------------
2000 1999
------- --------
Homebuilding:
Office facilities and other $ 6,496 $ 5,992
Model home furniture and fixtures 9,776 8,583
Manufacturing facilities 11,336 10,330
Property under capital leases 4,234 4,234
-------- --------
31,842 29,139
Less: accumulated depreciation and amortization (18,328) (16,025)
-------- --------
$ 13,514 $ 13,114
======== ========
Mortgage Banking:
Office facilities and other $ 5,372 $ 8,640
Less: accumulated depreciation and amortization (3,021) (4,401)
-------- --------
$ 2,351 $ 4,239
======== ========
Certain property, plant and equipment listed above are collateral for
various debt of NVR and certain of its subsidiaries as more fully described in
note 6.
6. Debt
December 31,
------------------------
2000 1999
-------- --------
Homebuilding:
Notes payable:
Working capital revolving credit (a) $ - $ -
Other 210 2,128
-------- --------
$ 210 $ 2,128
======== ========
Other term debt:
Capital lease and financing obligations
due in monthly installments
through 2014 (b) $ 4,957 $ 5,206
======== ========
Senior notes (c) $115,000 $145,000
======== ========
Mortgage Banking:
Mortgage warehouse revolving credit (d) $ 53,190 $107,588
Mortgage repurchase facility (e) 17,363
Capital lease and financing
obligations due in monthly
installments through 2004 (b) 298 848
-------- --------
$ 53,488 $125,799
======== ========
(a) The Company, as borrower, has available an unsecured working capital
revolving credit facility (the "Facility") that currently provides for unsecured
borrowings up to $60,000, subject to certain borrowing base limitations. The
Facility is generally available to fund working capital needs of NVR's
homebuilding segment. Up to approximately $24,000 of the Facility is currently
available for issuance in the form of letters of credit of which $15,779 and
$12,542 were issued at December 31, 2000 and 1999, respectively. The Facility
expires May 31, 2003 and outstanding amounts bear interest at the election of
the Company, at (i) the base rate of interest announced by the Facility agent or
(ii) 1.35% above the Eurodollar Rate. The weighted average interest rates for
the amounts outstanding under the Facility were 8.0% and 6.5% for 2000 and 1999,
respectively. At December 31, 2000, there were no borrowing base limitations
reducing the amount available to the Company for borrowings.
34
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The Facility contains numerous operating and financial covenants, including
required levels of net worth, fixed charge coverage ratios, and several other
covenants related to the construction operations of NVR. In addition, the
Facility contains restrictions on the ability of NVR to, among other things,
incur debt and make investments. Also, the Facility prohibits NVR from paying
dividends to shareholders.
(b) The capital lease and financing obligations have either fixed or variable
interest rates ranging from 3.0% to 13.0% and are collateralized by land,
buildings and equipment with a net book value of approximately $5,900 and $6,700
at December 31, 2000 and 1999, respectively.
During December 1998, the Company exercised its option to purchase two
office buildings previously utilized by NVR for certain administrative functions
of both its homebuilding and mortgage banking segments, thereby extinguishing
the Company's obligations under the capital lease pertaining to these buildings.
The Company expended funds of $12,295, excluding accrued interest, to extinguish
the capital lease obligation, which resulted in an extraordinary loss of $2,275,
net of a $1,424 tax benefit, ($0.17 per diluted share), in the accompanying
consolidated income statements. During 1999, the Company sold both buildings to
an unrelated third party and leased back one of the buildings for a five-year
term expiring in 2004. There was no resultant material gain or loss on the sale
transaction.
The following schedule provides future minimum lease payments under all
financing and capital leases together with the present value as of December 31,
2000:
Years ending December 31,
---------------------------------------
2001 $ 968
2002 968
2003 949
2004 853
2005 716
Thereafter 5,780
-------
10,234
Amount representing interest 4,979
-------
$ 5,255
=======
(c) On January 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the issuance of up to $400,000 of the
Company's debt securities. The shelf registration statement was declared
effective on February 27, 1998 and provides that securities may be offered from
time to time in one or more series, and in the form of senior or subordinated
debt.
On April 14, 1998, the Company completed an offering under the shelf
registration statement for $145,000 of senior notes due 2005 (the "New Senior
Notes"), resulting in aggregate net proceeds to the Company of approximately
$142,800 after fees and expenses. The New Senior Notes mature on June 1, 2005
and bear interest at 8%, payable semi-annually on June 1 and December 1 of each
year, commencing June 1, 1998. The New Senior Notes are senior unsecured
obligations of the Company, ranking equally in right of payment with the
Company's other existing and future unsecured indebtedness. The New Senior Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after June 1, 2003 at redemption prices ranging from 104% of par in 2003 to
par beginning in 2005.
The indenture governing the New Senior Notes has, among other items,
limitations on asset sales by NVR and requires that NVR, on a consolidated
basis, maintain a net worth of at least $80,000. In addition, the indenture
limits dividends, certain investments and NVR's ability to incur additional debt
if NVR is in default under the indenture or if NVR does not meet certain fixed
charge coverage ratios.
35
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Through a tender offer commenced on April 21, 1998 and completed May 18,
1998, various open market purchases throughout 1998 and a contractual call
exercised on December 1, 1998, the Company repurchased all of the $120,000 in
aggregate principal then outstanding under the Company's 11% Senior Notes due
2003 ("Senior Notes"). The Senior Notes were retired upon purchase. The amount
of funds expended to complete the Senior Note Repurchase totaled $129,345,
excluding accrued interest, and resulted in the recognition of an extraordinary
loss of $7,126, net of a $4,461 tax benefit, ($0.54 per diluted share), in the
accompanying consolidated income statements.
During 2000, NVR purchased, in the open market, an aggregate of $30,000 in
principal amount of New Senior Notes. The New Senior Notes were purchased at
par, with no material gain or loss resulting from the transaction. There is an
aggregate of $115,000 of New Senior Notes outstanding at December, 2000.
(d) The mortgage warehouse facility ("Mortgage Warehouse Revolving Credit") of
NVR Finance has a borrowing limit at December 31, 2000 of $100,000. The interest
rate under the Mortgage Warehouse Revolving Credit agreement is either: (i) the
London Interbank Offering Rate ("Libor") plus 1.25%, or (ii) 1.25% to the extent
that NVR Finance provides compensating balances and depending on the type of
collateral. The weighted average interest rates for amounts outstanding under
the Mortgage Warehouse Revolving Credit line were 3.3% and 5.8% during 2000 and
1999, respectively. Primarily mortgage loans and gestation mortgage-backed
securities collateralize the Mortgage Warehouse Revolving Credit agreement. The
Mortgage Warehouse Revolving Credit Agreement is an annually renewable facility
and currently expires August 31, 2001.
The Mortgage Warehouse Revolving Credit agreement includes, among other
items, restrictions on NVR Finance incurring additional borrowings and making
intercompany dividends and tax payments. In addition, NVR Finance is required
to maintain a minimum net worth.
(e) NVR Finance from time to time enters into various gestation and repurchase
agreements. NVR Finance currently has available an aggregate of $150,000 of
borrowing capacity in such uncommitted facilities. Amounts outstanding
thereunder accrue interest at various rates tied to the Libor rate and are
collateralized by gestation mortgage-backed securities and whole loans. The
uncommitted facilities generally require NVR Finance to, among other items,
maintain a minimum net worth and limit its level of liabilities in relation to
its net worth. The weighted average interest rates for amounts outstanding under
these uncommitted facilities were 6.7% and 5.5% during 2000 and 1999,
respectively. The average amount outstanding under these uncommitted facilities
was $33,117 and $41,152 during 2000 and 1999 respectively.
* * * * *
Maturities with respect to the other notes payable, other term debt, and
the New Senior Notes as of December 31, 2000 are as follows:
Years ending December 31,
--------------------------------
2001 $ 569
2002 409
2003 424
2004 385
2005 115,333
Thereafter 3,345
The $115,333 maturing during 2005 includes $115,000 of New Senior Notes
which mature in June 2005.
NVR Finance's mortgage warehouse facility limits the ability of NVR Finance
to transfer funds to NVR in the form of dividends, loans or advances. NVR
Finance had net assets of $8,000 as of December 31,
36
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
2000 that were so restricted.
At December 31, 2000, the homebuilding and mortgage banking segments had
restricted cash of $1,130 and $7,295, respectively, which includes certain
customer deposits, mortgagor tax, insurance, completion escrows and other
collected at closing which relates to mortgage loans held for sale and to home
sales.
7. Common Stock and Forward Purchase Contract Obligation
There were 8,858,694 and 9,171,608 common shares outstanding at December
31, 2000 and 1999, respectively. As of December 31, 2000, NVR had reacquired a
total of 13,492,664 shares of NVR common shares at an aggregate cost of $306,496
since December 31, 1993. Approximately 1,726,000 common shares have been
reissued from the treasury in satisfaction of employee benefit liabilities and
stock option exercises. Beginning in 1999, the Company issues shares from the
treasury for all stock option exercises. During 2000, 249,244 such shares were
issued. The average cost basis for the aggregate number of shares reissued from
the treasury (including those transferred to the Deferred Compensation Plan -see
note 9) was $22.21 per share.
On October 3, 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. At December 31, 2000, the forward
purchase contract obligation is presented separately outside of equity in the
accompanying balance sheet as temporary equity.
On January 2, 2001, NVR settled the transaction with the Shareholder by
taking physical delivery of the shares for the agreed upon purchase price paid
in cash. Of the approximately 780,000 shares settled, approximately 86,000
shares were used for the Company's employer contribution to the Employee Stock
Ownership Plan for plan year 2000 and approximately 30,000 shares were used for
the Deferred Compensation Plan (see note 9). The remaining shares were retained
in treasury.
8. Income Taxes
The provision for income taxes consists of the following:
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------ ------------------ ------------------
Current:
Federal $101,267 $72,664 $ 47,632
State 14,324 15,578 7,555
Deferred:
Federal (6,560) (8,374) (10,031)
State (423) (3,537) (896)
-------- ------- --------
$108,608 $76,331 $ 44,260
======== ======= ========
In addition to amounts applicable to income before taxes, the following
income tax benefits were recorded in shareholders' equity:
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
Income tax benefits arising from
compensation expense for tax
purposes in excess of amounts
recognized for financial
statement purposes $4,628 $7,542 $3,744
================= ================= =================
37
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Deferred income taxes on NVR's consolidated balance sheets are comprised of
the following:
December 31,
-----------------------
2000 1999
------- -------
Total deferred tax assets $50,203 $43,267
Less: deferred tax liabilities 5,302 5,349
------- -------
$44,901 $37,918
======= =======
Deferred tax assets arise principally as a result of various accruals
required for financial reporting purposes and deferred compensation, which are
not currently deductible for tax return purposes. Deferred tax liabilities arose
at September 30,1993 upon the Company's implementation of "fresh start"
accounting.
Management believes the Company will have sufficient available carry-backs
and future taxable income to make it more likely than not that the net deferred
tax asset will be realized. Taxable income was $276,770 and $184,161 for the
years ended December 31, 2000 and 1999.
A reconciliation of income tax expense in the accompanying statements of
income to the amount computed by applying the statutory Federal income tax rate
to income of 35% before income taxes and extraordinary losses is as follows:
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- ------------------
Income taxes computed at the
Federal statutory rate $ 93,399 $64,824 $38,628
State income taxes, net of Federal
income tax benefit 9,036 7,827 4,328
Non-deductible amortization 2,345 2,729 2,639
Utilization of net operating loss
carryforward - - (3,300)
Other, net 3,828 951 1,965
-------- ------- -------
$108,608 $76,331 $44,260
======== ======= =======
The merger of NVR Homes, Inc. and NVR Financial Services, Inc. into the
Company on September 30, 1998 allowed the Company to utilize a separate return
limitation year net operating loss ("SRLY NOL") generated by the Company's
previously owned savings and loan institution, NVR Savings Bank. As a result,
the Company recognized a $3,300 tax benefit during 1998. The SRLY NOL has been
fully utilized and there remains no unused carryforward.
38
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
9. Profit Sharing and Incentive Plans
Profit Sharing Plans--NVR has a trustee-administered, profit sharing
retirement plan (the "Profit Sharing Plan") and an Employee Stock Ownership Plan
("ESOP") covering substantially all employees. The Profit Sharing Plan and the
ESOP provide for annual discretionary contributions in amounts as determined by
the NVR Board of Directors (the "Board"). The combined plan expense for the
years ended December 31, 2000, 1999 and 1998 was $8,320, $7,712 and $6,436,
respectively. During 2000 and 1999, the ESOP purchased in the open market 11,000
and 105,440 shares respectively of NVR common stock using cash contributions
provided by NVR. Subsequent to December 31, 2000, the ESOP purchased
approximately 86,000 shares to fund the Board approved 2000 employer
contribution. As of December 31, 2000, all shares held by the ESOP have been
committed to be released to participant accounts.
Management Incentive Plans--Management long-term incentive plans provide
several types of equity incentives to NVR's executives and managers. The equity
incentives take the form of stock options and performance share awards as
described below. Stock options issued under the management long-term incentive
plans are issued with an exercise price equal to the market value of the
underlying shares on the date of grant.
Under the Management Incentive Plan adopted by the Board in 1993,
participants received options to purchase a total of 1,117,949 NVR shares (the
"1993 NVR Share Options"). The 1993 NVR Share Options issued under the
Management Incentive Plan were fully vested as of December 31, 1996, and
generally expire 10 years after the dates upon which they were granted.
Under the 1994 Management Incentive Plan (the "1994 Incentive Plan"),
executive officers and other employees of the Company were eligible to receive
stock options (the "1994 NVR Share Options") and performance shares (the "1994
Performance Shares"). There were 48,195 1994 NVR Share Options and 1,124,929
1994 Performance Shares authorized for grant under the 1994 Incentive Plan. The
1994 NVR Share Options generally expire 10 years after the dates upon which they
were granted, and were fully vested as of December 31, 1999. All 1,124,929 1994
Performance Shares have been granted to employees under the 1994 Incentive Plan,
and all 1994 Performance Shares were vested as of December 31, 1999. For the
years ended December 31, 2000, 1999 and 1998, compensation expense recognized
for the 1994 Performance Shares totaled $0, $18,670 and $9,081, respectively.
During 1996, the Company's Shareholders approved the Board of Directors'
adoption of the Management Long-Term Stock Option Plan (the "1996 Option Plan").
There are 2,000,000 non-qualified stock options ("Options") authorized under the
Management Long Term Stock Option Plan. The Options generally expire 10 years
after the dates upon which they were granted, and vest in one-third increments
on each of December 31, 2000, 2001 and 2002, with vesting based upon continued
employment.
During 1999, the Company's Shareholders approved the Board of Directors'
adoption of the 1998 Management Long-Term Stock Option Plan (the "1998 Option
Plan"). There are 1,000,000 non-qualified stock options ("Options") authorized
under the 1998 Option Plan. The Options generally expire 10 years after the
dates upon which they were granted, and vest in one-third increments on each of
December 31, 2003, 2004 and 2005, with vesting based upon continued employment.
39
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
During 2000, the Board approved the 2000 Broadly-based Stock Option Plan
(The "2000 Plan"). There are 2,000,000 non-qualified stock options ("Options")
authorized under the 2000 Plan. Grants under the 2000 Plan will be available to
both employees and members of the Board. There have been no grants issued under
the 2000 Plan as of December 31, 2000. Options granted under the 2000 Plan will
generally expire 10 years from the date of grant, and will vest in one-third
increments on each of December 31, 2006, 2007 and 2008.
40
NVR, Inc
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
2000 1999 1998
-------------------- ------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1993 NVR Share Options Options Prices Options Prices Options Prices
- ---------------------- ------- ------- ------- ------ ------- ------
Options outstanding at the
beginning of the year 359,771 $ 7.60 830,971 $ 7.60 958,952 $ 7.60
Granted - $ - - $ - - $ -
Canceled - $ - - $ - - $ -
Exercised (140,675) $ 8.01 (471,200) $ 7.62 (127,981) $ 7.62
--------- ---------- ----------
Outstanding at end of year 219,096 $ 7.71 359,771 $ 7.60 830,971 $ 7.60
========= ========== ==========
Exercisable at end of year 219,096 $ 7.71 359,771 $ 7.60 830,971 $ 7.60
========= ========== ==========
1994 NVR Share Options
- ----------------------
Options outstanding at the
beginning of the year 35,032 $ 20.86 43,363 $19.54 35,000 $14.00
Granted - $ - - $ - 13,195 $32.20
Canceled - $ - - $ - - $ -
Exercised (18,636) $ 21.30 (8,331) $14.00 (4,832) $14.00
--------- ---------- ----------
Outstanding at end of year 16,396 $ 20.35 35,032 $20.86 43,363 $19.54
========= ========== ==========
Exercisable at end of year 16,396 $ 20.35 29,569 $19.02 22,898 $17.50
========= ========== ==========
1996 Option Plan
- ----------------
Options outstanding at the
beginning of the year 1,891,905 $ 14.70 1,753,405 $11.42 1,770,000 $11.30
Granted 85,000 $ 56.84 200,500 $42.65 13,405 $25.00
Canceled (111,067) $ 26.31 (62,000) $12.48 (30,000) $10.63
Exercised (18,433) $ 25.50 - $ - - $ -
--------- ---------- ----------
Outstanding at end of year 1,847,405 $ 15.83 1,891,905 $14.70 1,753,405 $11.42
========= ========== ==========
Exercisable at end of year 615,802 $ 15.83 - $ - - $ -
========= ========== ==========
1998 Option Plan
- ----------------
Options outstanding at the
beginning of the year 927,000 $ 47.63 - $ - - $ -
Granted 104,500 $ 66.18 927,000 $47.63 - $ -
Canceled (31,500) $ 47.63 - $ - - $ -
Exercised - $ - - $ - - $ -
--------- ---------- ----------
Outstanding at end of year 1,000,000 $ 49.57 927,000 $47.63 - $ -
========= ========== ==========
Exercisable at end of year - $ - - $ - - $ -
========= ========== ==========
Weighted
Weighted Average
Average Remaining
Exercise Contractual
Range of Exercise Prices Number Price Life in Years
- ------------------------ ------ -------- -------------
1993 NVR Share Options
- ---------------------
Outstanding at December 31, 2000:
$5.06 - $6.41 14,200 $ 5.35 4.1
$7.62 - $9.11 204,896 $ 7.87 2.9
Exercisable at December 31, 2000
$5.06 - $6.41 14,200 $ 5.35
$7.62 - $9.11 204,896 $ 7.87
1994 NVR Share Options
- ----------------------
Outstanding at December 31, 2000:
$14.00 - $14.00 9,833 $14.00 6.2
$25.00 - $34.50 6,563 $29.88 7.6
Exercisable at December 31, 2000:
$14.00 - $14.00 9,833 $14.00
$25.00 - $34.50 6,563 $29.88
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Weighted
Weighted Average
Average Remaining
Exercise Contractual
Range of Exercise Prices Number Price Life in Years
- ------------------------ ------ ----- -------------
1996 Option Plan
- ----------------
Outstanding at December 31, 2000:
$ 9.13 - $10.63 1,478,000 $10.59 5.4
$14.00 - $21.00 135,000 $17.84 6.8
$22.63 - $25.00 13,405 $23.59 6.9
$38.00 - $52.75 180,500 $44.10 8.6
$62.13 - $81.75 40,500 $71.87 9.7
Exercisable at December 31, 2000:
$ 9.13 - $10.63 492,667 $10.59
$14.00 - $21.00 45,000 $17.84
$22.63 - $25.00 4,468 $23.59
$38.00 - $52.75 60,167 $44.10
$62.13 - $81.75 13,500 $71.87
*1998 Option Plan
- -----------------
Outstanding at December 31, 2000:
$43.50 - $62.13 945,000 $47.89 8.4
$72.00 - $81.75 55,000 $78.30 8.4
*None of the options outstanding under the 1998 Option Plan are exercisable at
December 31, 2000.
The weighted average fair values of grants made in 2000, 1999 and 1998 for
management incentive plans were $39.76, $29.41 and $18.65, respectively. The
fair values of the options granted were estimated on the grant date using the
Black-Scholes option-pricing model based on the following weighted average
assumptions:
2000 1999 1998
------------ ------------ ------------
Estimated option life 10 years 10 years 10 years
Risk free interest rate 6.12% 5.94% 5.52%
Expected volatility 40.77% 40.19% 45.14%
Expected dividend yield 0.00% 0.00% 0.00%
Director Incentive Plans--The NVR Directors' Long Term Incentive Plan
("1993 Directors' Plan") provides for each eligible director to be granted
options to purchase 22,750 shares of common stock with a maximum number of
shares issuable under the plan of 364,000. There were 182,000 Directors' Options
granted to eligible directors on September 30, 1993 at a grant price of $16.60
per share, which exceeded the fair value of the underlying shares on the date of
grant. The options became exercisable six months after the date of grant and
expire in September 2003.
There were 192,000 options to purchase shares of common stock authorized
and granted in 1996 to the Company's outside directors under the Directors' Long
Term Stock Option Plan (the "1996 Directors' Plan"). There are no additional
options available for grant under this plan. The option exercise price for the
options granted was $10.25 per share, which was equal to the fair market value
of the Company's Shares on the date of grant. The Options were granted for a 10-
year period beginning from the date of grant, and vest in one-third increments
on each of December 31, 1999, 2000, and 2001. There were 24,000 previously
unvested 1996 Directors' Options exercised during 1998, pursuant to a separation
of service due to death clause within the 1996 Directors' Plan.
42
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
There were 150,000 options to purchase shares of common stock authorized
for grant in 1999 to the Company's outside directors under the 1998 Directors'
Long Term Stock Option Plan (the "1998 Directors' Plan"). A total of 87,500
options were granted at an exercise price of $49.06, which was equal to the fair
market value of the Company's Shares on the date of grant. The Options were
granted for a 10 year period beginning from the date of grant, and vest in
twenty-five percent (25%) increments on each of December 31, 2002, 2003, 2004
and 2005.
2000 1999 1998
------------------ ----------------- ---------------
Exercise Exercise Exercise
1993 Directors' Plan Options Price Options Price Options Price
- -------------------- ------- ------ ------- ------ ------- ------
Options outstanding at the
beginning of the year 101,000 $16.60 113,750 $16.60 182,000 $16.60
Granted - $ - - $ - - $ -
Canceled - $ - - $ - - $ -
Exercised (55,500) $16.60 (12,750) $16.60 (68,250) $16.60
------- ------- -------
Outstanding at end of year 45,500 $16.60 101,000 $16.60 113,750 $16.60
======= ======= =======
Exercisable at end of year 45,500 $16.60 101,000 $16.60 113,750 $16.60
======= ======= =======
1996 Directors' Plan
- --------------------
Options outstanding at the
beginning of the year 168,000 $10.25 168,000 $10.25 192,000 $10.25
Granted - $ - - $ - - $ -
Canceled - $ - - $ - - $ -
Exercised (16,000) $10.25 - $ - (24,000) $10.25
------- ------- -------
Outstanding at end of year 152,000 $10.25 168,000 $10.25 168,000 $10.25
======= ======= =======
Exercisable at end of year 96,000 $10.25 56,000 $10.25 - $ -
======= ======= =======
1998 Directors' Plan
- --------------------
Options outstanding at the
beginning of the year 87,500 $49.06 - $ - - $ -
Granted - $ - 87,500 $49.06 - $ -
Canceled 9,375 $49.06 - $ - - $ -
Exercised - $ - - $ - - $ -
------- ------- -------
Outstanding at end of year 78,125 $49.06 87,500 $49.06 - $ -
======= ======= =======
Exercisable at end of year - $ - - $ - - $ -
======= ======= =======
The weighted average fair value of grants made during 1999 under director
incentive plans was $30.48 per share. The fair value was calculated using the
Black-Scholes option pricing model, under the following assumptions: i) the
estimated option life was equal to ten years, ii) the risk free interest rate
was 5.77%, iii) the expected volatility equaled 40.19%, and iv) the estimated
dividend yield was 0%.
************
SFAS No. 123 requires companies who continue to apply Opinion 25 to account
for their stock-based employee compensation arrangements to provide pro forma
net income and earnings per share as if the fair value based method had been
used to account for compensation cost. Accordingly, pro forma net income and
earnings per share would have been $152,503 ($14.44 per diluted share), $104,122
($8.61 per diluted share) and $55,352 ($4.16 per diluted share) for the years
ended December 31, 2000, 1999 and 1998, respectively, if the Company had
accounted for its stock based employee compensation arrangements using the fair
value method. The 2000, 1999 and 1998 effects of applying SFAS No. 123 for
providing pro forma disclosures are not likely to be representative of the
effects on reported net income and earnings per share for future years because
the number of option grants and the fair value assigned to future grants could
differ.
43
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per 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. During the 2000 third
quarter, 3,000 shares were distributed from the Deferred Comp Plan. There are
337,703 shares held by the Deferred Comp Plan at December 31, 2000. These
shares are treated as outstanding shares in the earnings per share calculation
for the year ended December 31, 2000. Subsequent to December 31, 2000, the
Deferred Comp Plan was funded with an additional 30,000 shares of stock. See
note 7.
10. Commitments and Contingent Liabilities
NVR is committed under several non-cancelable operating leases involving
office space, manufacturing facilities and equipment. Future minimum lease
payments under these operating leases as of December 31, 2000 are as follows:
Years ended December 31,
--------------------------------------
2001 $12,358
2002 7,648
2003 5,315
2004 3,792
2005 2,219
Thereafter 3,922
-------
$35,254
=======
Total rent expense incurred under operating leases was approximately
$12,000, $10,800, and $7,787 for the years ended December 31, 2000, 1999 and
1998, respectively.
During the ordinary course of operating the mortgage banking and
homebuilding businesses, NVR is required to enter into bond or letter of credit
arrangements with local municipalities, government agencies, or land developers
to collateralize its obligations under various contracts. NVR had approximately
$25,020 of contingent obligations under such agreements as of December 31, 2000.
NVR believes it will fulfill its obligations under the related contracts and
does not anticipate any losses under these bonds or letters of credit.
NVR and its subsidiaries are also involved in litigation arising from the
normal course of business. In the opinion of management, and based on advice of
legal counsel, this litigation will not have any material adverse effect on the
financial position or results of operations of NVR.
44
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
11. Mortgage-Backed Securities, net of Mortgage-Backed Bonds, and Related
Assets and Liabilities
Mortgage-backed securities ("MBS") serve as collateral for the related
mortgage-backed bonds ("Bonds") sold to third parties. The MBS cannot be sold
except upon specified call dates of the Bonds. The calling of the Bonds at
those dates is solely at the option of the Company. Principal and interest
payments on the MBS are used to make the quarterly payments on the Bonds. In
addition, prepayments of the underlying MBS are passed through as repayments of
the Bonds so that the Bonds may be fully paid prior to their stated maturities.
The Bonds are not guaranteed by NVR or any of its subsidiaries, other than the
issuing Limited-Purpose Financing Subsidiary.
A trustee for the benefit of the bondholders holds the MBS and the reserve
amounts, which constitute the collateral for the Bonds of a series. The
specific collateral pledged to secure a particular series is not available as
collateral for any other series. In addition, the Company may, under certain
circumstances, redeem certain series of Bonds. In such certain circumstances,
the Bonds are redeemed at par and any market appreciation or depreciation
accrues to the Company.
The following comprise the assets and liabilities of the Limited Purpose
Financing Subsidiary:
December 31,
------------------
2000 1999
-------- --------
Assets:
Mortgage-backed securities, net $ 4,632 $ 5,110
Funds held by trustee 23 83
Other assets 212 257
-------- --------
Total assets 4,867 5,450
-------- --------
Liabilities:
Accrued expenses and other liabilities 164 211
Mortgage-backed bonds, net unamortized discounts 4,693 5,229
-------- --------
Total liabilities 4,857 5,440
-------- --------
Mortgage-backed securities, net of mortgage-
backed bonds, and related assets and liabilities $ 10 $ 10
======== ========
The weighted average portfolio yield on the MBS was approximately 9.0% at
each of December 31, 2000 and 1999, respectively. The Bonds mature on October
1, 2016 and bear interest at 9.0%. However, NVR has the contractual right to
call the Bonds in 2001.
12. 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") acquired
in March 1999. 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:
45
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
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 2000, approximately $863 in severance and lease costs was applied
against the restructuring reserve. In addition, during the third quarter the
Company reversed approximately $200 in restructuring reserves, primarily for
unused severance costs. Approximately $930 of the restructuring accrual
established at March 31, 2000, remains at December 31, 2000, and primarily
relates to accrued lease costs.
13. Quarterly Results [unaudited]
The following table sets forth unaudited selected financial data and
operating information on a quarterly basis for the years ended December 31, 2000
and 1999. Diluted earnings per share presented for the quarters ended March 31,
June 30, and September 30, 2000 have been increased by $0.18, $0.25 and $0.33
respectively from the amounts previously reported to reflect the full
realization of potential tax benefits from the hypothetical exercise of
outstanding stock options under the treasury stock method.
Year Ended December 31, 2000
--------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues-homebuilding
operations $490,581 $558,506 $602,485 $616,238
Gross profit - homebuilding
operations $ 90,904 $103,524 $117,071 $122,252
Mortgage banking fees $ 7,597 $ 7,622 $ 12,950 $ 10,588
Net income $ 30,574 $ 37,204 $ 43,914 $ 46,554
Diluted earnings per share $ 2.90 $ 3.62 $ 4.30 $ 4.51
Contracts for sale, net
of cancellations (units) 2,609 3,010 2,180 2,469
Settlements (units) 2,236 2,469 2,674 2,676
Backlog, end of period (units) 5,308 5,849 5,355 5,148
Loans closed $469,598 $467,818 $401,037 $411,267
Year Ended December 31, 1999
--------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues-homebuilding
operations $429,687 $492,058 $523,552 $497,363
Gross profit - homebuilding
operations $ 73,143 $ 83,891 $ 90,172 $ 84,727
Mortgage banking fees $ 13,522 $ 12,465 $ 13,162 $ 8,973
Income before extraordinary loss $ 26,007 $ 28,263 $ 30,341 $ 24,270
Diluted earnings per share $ 2.02 $ 2.26 $ 2.52 $ 2.18
Contracts for sale, net
of cancellations (units) 2,541 2,855 1,866 2,416
Settlements (units) 2,098 2,424 2,516 2,278
Backlog, end of period (units) 5,016 5,447 4,797 4,935
Loans closed $779,406 $869,774 $675,593 $587,092
46