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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

 

OR

 

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________             

 

Commission file number 1-12378

 

NVR, Inc.


(Exact name of registrant as specified in its charter)

 

Virginia


 

54-1394360


(State or other jurisdiction of incorporation or organization)

 

(IRS employer identification number)

 

7601 Lewinsville Road, Suite 300

McLean, Virginia 22102

(703) 761-2000


(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

 

(Not Applicable)


(Former name, former address, and former fiscal year if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act of 1934).

Yes x No ¨

 

As of May 7, 2003 there were 7,191,063 total shares of common stock outstanding.


Table of Contents

 

NVR, Inc.

Form 10-Q

INDEX


 

         

Page


PART I

  

FINANCIAL INFORMATION

    

Item 1.

  

NVR, Inc. Condensed Consolidated Financial Statements

    
    

Condensed Consolidated Balance Sheets at March 31, 2003 (unaudited) and December 31, 2002

  

3

    

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2003 (unaudited) and March 31, 2002 (unaudited)

  

5

    

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 (unaudited) and March 31, 2002 (unaudited)

  

6

    

Notes to Condensed Consolidated Financial Statements

  

7

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

11

Item 4.

  

Controls and Procedures

  

14

PART II

  

OTHER INFORMATION

    

Item 6.

  

Exhibits and Reports on Form 8-K

  

15

    

Exhibit Index

  

15

    

Signature

  

16

    

Sarbanes-Oxley Act Section 302 Certification

  

17

 

2


Table of Contents

 

PART I.    FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

NVR, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

    

March 31, 2003


  

December 31, 2002


ASSETS

  

(unaudited)

    

Homebuilding:

             

Cash and cash equivalents

  

$

92,393

  

$

139,796

Receivables

  

 

10,142

  

 

10,807

Inventory:

             

Lots and housing units, covered under sales agreements with customers

  

 

413,317

  

 

400,008

Unsold lots and housing units

  

 

27,477

  

 

25,558

Manufacturing materials and other

  

 

8,717

  

 

11,108

    

  

    

 

449,511

  

 

436,674

Property, plant and equipment, net

  

 

21,998

  

 

22,126

Reorganization value in excess of amounts allocable to identifiable assets, net

  

 

41,580

  

 

41,580

Goodwill, net

  

 

6,379

  

 

6,379

Contract land deposits

  

 

229,129

  

 

231,229

Other assets

  

 

114,582

  

 

110,007

    

  

    

 

965,714

  

 

998,598

    

  

Mortgage Banking:

             

Cash and cash equivalents

  

 

3,271

  

 

3,049

Mortgage loans held for sale, net

  

 

160,430

  

 

163,410

Mortgage servicing rights, net

  

 

1,276

  

 

5,611

Property and equipment, net

  

 

969

  

 

941

Reorganization value in excess of amounts allocable to identifiable assets, net

  

 

7,347

  

 

7,347

Other assets

  

 

4,244

  

 

3,332

    

  

    

 

177,537

  

 

183,690

    

  

Total assets

  

$

1,143,251

  

$

1,182,288

    

  

 

(Continued)

 

See notes to condensed consolidated financial statements.

 

3


Table of Contents

 

NVR, Inc.

Condensed Consolidated Balance Sheets (Continued)

(in thousands, except share and per share data)

 

    

March 31, 2003


    

December 31, 2002


 
    

(unaudited)

        

LIABILITIES AND SHAREHOLDERS’ EQUITY

                 

Homebuilding:

                 

Accounts payable

  

$

137,227

 

  

$

145,209

 

Accrued expenses and other liabilities

  

 

130,099

 

  

 

142,215

 

Obligations under incentive plans

  

 

44,184

 

  

 

97,803

 

Customer deposits

  

 

132,523

 

  

 

118,174

 

Other term debt

  

 

4,818

 

  

 

4,903

 

Senior notes

  

 

115,000

 

  

 

115,000

 

    


  


    

 

563,851

 

  

 

623,304

 

    


  


Mortgage Banking:

                 

Accounts payable and other liabilities

  

 

13,620

 

  

 

16,482

 

Notes payable

  

 

137,885

 

  

 

139,257

 

    


  


    

 

151,505

 

  

 

155,739

 

    


  


Total liabilities

  

 

715,356

 

  

 

779,043

 

    


  


Commitments and contingencies

                 

Shareholders’ equity:

                 

Common stock, $0.01 par value; 60,000,000 shares authorized; 20,597,709 and 20,602,921 shares issued as of March 31, 2003 and December 31, 2002, respectively

  

 

206

 

  

 

206

 

Additional paid-in-capital

  

 

292,202

 

  

 

262,867

 

Deferred compensation trust—453,207 and 428,698 shares as of March 31, 2003 and December 31, 2002, respectively, of NVR, Inc. common stock

  

 

(52,235

)

  

 

(35,647

)

Deferred compensation liability

  

 

52,235

 

  

 

35,647

 

Retained earnings

  

 

1,055,880

 

  

 

968,074

 

Less treasury stock at cost—13,579,115 and 13,580,531 shares at March 31, 2003 and December 31, 2002, respectively

  

 

(920,393

)

  

 

(827,902

)

    


  


Total shareholders’ equity

  

 

427,895

 

  

 

403,245

 

    


  


Total liabilities and shareholders’ equity

  

$

1,143,251

 

  

$

1,182,288

 

    


  


 

See notes to condensed consolidated financial statements.

 

4


Table of Contents

 

NVR, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

 

    

For the Three Months Ended March 31,


 
    

2003


    

2002


 

Homebuilding:

                 

Revenues

  

$

723,375

 

  

$

674,982

 

Other income

  

 

932

 

  

 

758

 

Cost of sales

  

 

(539,437

)

  

 

(513,231

)

Selling, general and administrative

  

 

(50,959

)

  

 

(47,417

)

    


  


Operating income

  

 

133,911

 

  

 

115,092

 

Interest expense

  

 

(3,336

)

  

 

(3,064

)

    


  


Homebuilding income

  

 

130,575

 

  

 

112,028

 

    


  


Mortgage Banking:

                 

Mortgage banking fees

  

 

17,756

 

  

 

14,861

 

Interest income

  

 

1,364

 

  

 

1,526

 

Other income

  

 

147

 

  

 

128

 

General and administrative

  

 

(5,468

)

  

 

(5,081

)

Interest expense

  

 

(431

)

  

 

(327

)

    


  


Mortgage banking income

  

 

13,368

 

  

 

11,107

 

    


  


Total segment income

  

 

143,943

 

  

 

123,135

 

Income tax expense

  

 

(56,137

)

  

 

(46,422

)

    


  


Net income

  

$

87,806

 

  

$

76,713

 

    


  


Basic earnings per share

  

$

12.41

 

  

$

10.37

 

    


  


Diluted earnings per share

  

$

10.10

 

  

$

8.17

 

    


  


Basic average shares outstanding

  

 

7,078

 

  

 

7,397

 

    


  


Diluted average shares outstanding

  

 

8,697

 

  

 

9,385

 

    


  


 

See notes to condensed consolidated financial statements.

 

5


Table of Contents

 

NVR, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

    

For the Three Months Ended March 31,


 
    

2003


    

2002


 

Cash flows from operating activities:

                 

Net income

  

$

87,806

 

  

$

76,713

 

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Depreciation and amortization

  

 

2,168

 

  

 

1,777

 

Mortgage loans closed

  

 

(514,897

)

  

 

(477,737

)

Proceeds from sales of mortgage loans

  

 

526,782

 

  

 

489,140

 

Gain on sales of mortgage servicing rights

  

 

(14

)

  

 

(316

)

Gain on sale of loans

  

 

(13,886

)

  

 

(10,761

)

Net change in assets and liabilities

                 

Increase in inventories

  

 

(12,837

)

  

 

(26,934

)

Decrease (increase) in contract land deposits

  

 

2,100

 

  

 

(9,895

)

Decrease (increase) in receivables

  

 

609

 

  

 

(645

)

Increase in accounts payable, customer deposits and accrued expenses

  

 

37,731

 

  

 

60,260

 

Decrease in obligations under incentive plans

  

 

(35,680

)

  

 

(17,233

)

Other, net

  

 

(5,420

)

  

 

(5,496

)

    


  


Net cash provided by operating activities

  

 

74,462

 

  

 

78,873

 

    


  


Cash flows from investing activities:

                 

Purchase of property, plant and equipment

  

 

(1,580

)

  

 

(985

)

Principal payments on mortgage loans held for sale

  

 

964

 

  

 

688

 

Proceeds from sales of mortgage servicing rights, net

  

 

7,693

 

  

 

456

 

Other, net

  

 

174

 

  

 

22

 

    


  


Net cash provided by investing activities

  

 

7,251

 

  

 

181

 

    


  


Cash flows from financing activities:

                 

Purchase of NVR common stock for funding of deferred compensation plan

  

 

(17,939

)

  

 

(37,469

)

Net repayments under notes payable and other term debt

  

 

(1,457

)

  

 

(2,582

)

Payment of senior note consent fees

  

 

—  

 

  

 

(2,125

)

Purchase of treasury stock

  

 

(113,270

)

  

 

(103,339

)

Proceeds from exercise of stock options

  

 

3,772

 

  

 

5,364

 

    


  


Net cash used by financing activities

  

 

(128,894

)

  

 

(140,151

)

    


  


Net decrease in cash and cash equivalents

  

 

(47,181

)

  

 

(61,097

)

Cash and cash equivalents, beginning of the period

  

 

142,845

 

  

 

138,611

 

    


  


Cash and cash equivalents, end of period

  

$

95,664

 

  

$

77,514

 

    


  


Supplemental disclosures of cash flow information:

                 

Interest paid during the period

  

$

875

 

  

$

648

 

    


  


Income taxes paid, net of refunds

  

$

34,811

 

  

$

12,344

 

    


  


 

See notes to condensed consolidated financial statements.

 

6


Table of Contents

NVR, Inc.

 

Notes to Consolidated Financial Statements

(dollars in thousands, except per share and share data)

 

 

1.    Basis of Presentation

 

The accompanying unaudited, condensed consolidated financial statements include the accounts of NVR, Inc. (“NVR” or the “Company”) and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America, they should be read in conjunction with the financial statements and notes thereto included in the Company’s 2002 Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

 

During the first quarter of 2003, NVR adopted the requirements of Financial Accounting Standards Board Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities,” an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN No. 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. FIN No. 46 requires the primary beneficiary of a variable interest entity to consolidate the financial position and results of the variable interest entity. FIN No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The Interpretation applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN No. 46 did not have a material effect on NVR’s financial condition or results of operations for the quarter ended March 31, 2003. NVR is still evaluating the financial statement effect of variable interest entity relationships entered into prior to February 1, 2003. NVR cannot reach any definitive conclusion until it completes its evaluation.

 

For the quarters ended March 31, 2003 and 2002, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying financial statements.

 

2.    Stock-Based Compensation

 

At March 31, 2003, the Company had eight active stock-based employee compensation plans. As permitted under SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123 Accounting for Stock-Based Compensation, NVR has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangements as defined by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued

 

7


Table of Contents

NVR, Inc.

Notes to Consolidated Financial Statements

(dollars in thousands, except per share and share data)

 

 

to Employees, and related interpretations including Financial Accounting Standards Board Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB No. 25. The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

 

    

Quarter Ended March 31,


 
    

2003


    

2002


 

Net income, as reported

  

$

87,806

 

  

$

76,713

 

Add: Stock-based employee compensation expense included in reported net income, net of related tax effect

  

 

—  

 

  

 

—  

 

Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects

  

 

(5,293

)

  

 

(5,401

)

    


  


Pro forma net income

  

$

82,513

 

  

$

71,312

 

    


  


Earnings per share:

                 

Basic—as reported

  

$

12.41

 

  

$

10.37

 

    


  


Basic—pro forma

  

$

11.66

 

  

$

9.64

 

    


  


Diluted—as reported

  

$

10.10

 

  

$

8.17

 

    


  


Diluted—pro forma

  

$

9.78

 

  

$

7.87

 

    


  


 

3.    Shareholders’ Equity

 

A summary of changes in shareholders’ equity is presented below:

 

    

Common Stock


  

Additional Paid-In Capital


    

Retained Earnings


  

Treasury Stock


    

Deferred Comp. Trust


    

Deferred Comp. Liability


  

Total


 

Balance, December 31, 2002

  

$

206

  

$

262,867

 

  

$

968,074

  

$

(827,902

)

  

$

(35,647

)

  

$

35,647

  

$

403,245

 

Net income

  

 

—  

  

 

—  

 

  

 

87,806

  

 

—  

 

  

 

—  

 

  

 

—  

  

 

87,806

 

Deferred compensation activity, net

  

 

—  

  

 

—  

 

  

 

—  

  

 

—  

 

  

 

(16,588

)

  

 

16,588

  

 

—  

 

Purchase of common stock for treasury

  

 

—  

  

 

—  

 

  

 

—  

  

 

(113,270

)

  

 

—  

 

  

 

—  

  

 

(113,270

)

Option activity

  

 

—  

  

 

3,772

 

  

 

—  

  

 

—  

 

  

 

—  

 

  

 

—  

  

 

3,772

 

Tax benefit from stock-based compensation activity

  

 

—  

  

 

46,342

 

  

 

—  

  

 

—  

 

  

 

—  

 

  

 

—  

  

 

46,342

 

Treasury shares issued upon option exercise

  

 

—  

  

 

(20,779

)

  

 

—  

  

 

20,779

 

  

 

—  

 

  

 

—  

  

 

—  

 

    

  


  

  


  


  

  


Balance, March 31, 2003

  

$

206

  

$

292,202

 

  

$

1,055,880

  

$

(920,393

)

  

$

(52,235

)

  

$

52,235

  

$

427,895

 

    

  


  

  


  


  

  


 

8


Table of Contents

NVR, Inc.

 

Notes to Consolidated Financial Statements

(dollars in thousands, except per share and share data)

 

 

Approximately 345,700 options were exercised during the first quarter of 2003, with NVR receiving $3,772 in aggregate equity proceeds. The Company settles option exercises by issuing shares of treasury stock to option holders. Shares are relieved from the treasury account based on the weighted-average cost basis of treasury shares acquired.

 

The Company repurchased approximately 344,300 shares of its common stock at an aggregate purchase price of $113,270 during the three months ended March 31, 2003.

 

The Deferred Compensation Plan Trust purchased approximately 53,200 shares of NVR common stock on the open market at an aggregate cost of $17,939 during the first quarter of 2003. The compensation deferred resulted from benefits earned by NVR employees under the 2002 High Performance Plan. In addition, approximately 28,700 NVR common shares were issued from the deferred compensation plan trust that were related to deferred compensation for which the deferral period ended.

 

4.    Segment Disclosures

 

NVR operates in two business segments: homebuilding and mortgage banking. Corporate general and administrative expenses are fully allocated to the homebuilding and mortgage banking segments in the information presented below.

 

For the Three Months Ended March 31, 2003

 

    

Homebuilding


    

Mortgage Banking


  

Totals


 

Revenues from external customers

  

$

723,375

    

$

17,756

  

$

741,131

(a)

Segment profit

  

 

130,575

    

 

13,368

  

 

143,943

(a)

Segment assets

  

 

917,755

    

 

170,190

  

 

1,087,945

(b)

 

(a)   Total amounts for the reportable segments equal the respective amounts for the consolidated enterprise.

 

(b)   The following reconciles segment assets to the respective amounts for the consolidated enterprise:

 

    

Homebuilding


    

Mortgage Banking


  

Totals


Segment assets

  

$

917,755

    

$

170,190

  

$

1,087,945

Add: Excess reorganization value and goodwill

  

 

47,959

    

 

7,347

  

 

55,306

    

    

  

Total consolidated assets

  

$

965,714

    

$

177,537

  

$

1,143,251

    

    

  

 

For the Three Months Ended March 31, 2002

 

    

Homebuilding


    

Mortgage Banking


  

Totals


 

Revenues from external customers

  

$

674,982

    

$

14,861

  

$

689,843

(c)

Segment profit

  

 

112,028

    

 

11,107

  

 

123,135

(c)

Segment assets

  

 

773,975

    

 

147,316

  

 

921,291

(d)

 

(c)   Total amounts for the reportable segments equal the respective amounts for the consolidated enterprise.

 

(d)   The following reconciles segment assets to the respective amounts for the consolidated enterprise:

 

    

Homebuilding


    

Mortgage Banking


  

Totals


Segment assets

  

$

773,975

    

$

147,316

  

$

921,291

Add: Excess reorganization value and goodwill

  

 

47,959

    

 

7,347

  

 

55,306

    

    

  

Total consolidated assets

  

$

821,934

    

$

154,663

  

$

976,597

    

    

  

 

9


Table of Contents

NVR, Inc.

 

Notes to Consolidated Financial Statements

(dollars in thousands, except per share and share data)

 

 

5.    Excess Reorganization Value and Goodwill

 

Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), requires goodwill and excess reorganization value to be tested for impairment on an annual basis subsequent to the year of adoption. The Company has completed the annual assessment of impairment during the first quarter of 2003 and determined that there is no impairment of either goodwill or excess reorganization value. Additionally, there is no amortization expense recorded for goodwill or for the reorganization value in excess of amounts allocable to identifiable assets in the consolidated statements of income for the periods presented.

 

6.    Product Warranties

 

Warranty and product liability reserves are established to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to NVR’s homebuilding business. Liability estimates are determined based on management’s judgment considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our General Counsel and other outside counsel retained to handle specific product liability cases. The following table reflects the changes in the Company’s warranty reserve during the quarter ended March 31, 2003:

 

Warranty reserve, December 31, 2002

  

$

32,255

 

Provision

  

 

4,383

 

Payments

  

 

(4,834

)

    


Warranty reserve, March 31, 2003

  

$

31,804

 

    


 

10


Table of Contents

 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

Some of the statements in this Form 10-Q, as well as statements made by NVR, Inc. (“NVR”) in periodic press releases and other public communications, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or other variations thereof or comparable terminology, or by discussion of strategies, each of which involves risks and uncertainties. All statements other than of historical facts included herein, including those regarding market trends, NVR’s financial position, business strategy, projected plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of NVR to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to, general economic and business conditions (on both a national and regional level), interest rate changes, access to suitable financing, competition, the availability and cost of land and other raw materials used by NVR in its homebuilding operations, shortages of labor, weather related slow downs, 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 Three Months Ended March 31, 2003 and 2002

 

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. Unless otherwise indicated, all references to dollars in this Item 2 are in thousands, except per share and other share data.

 

Homebuilding Segment

 

Three Months Ended March 31, 2003 and 2002

 

NVR operates in the following geographic regions:

 

  Washington:   Washington, D.C. metropolitan area and West Virginia
  Baltimore:   Baltimore, MD metropolitan area
  North:   Delaware, New Jersey, New York, Ohio and Pennsylvania
  South:   North Carolina, South Carolina, Tennessee and Richmond, VA

 

 

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The following table summarizes settlements, new orders and backlog unit activity for the three months ended March 31, 2003 and 2002 by region:

 

    

Three Months Ended March 31,


    

2003


  

2002


Settlements:

             

Washington

  

 

827

  

 

876

Baltimore

  

 

364

  

 

411

North

  

 

878

  

 

835

South

  

 

437

  

 

506

    

  

Total

  

 

2,506

  

 

2,628

    

  

Average Settlement Price (in 000’s)

  

$

288.0

  

$

256.3

    

  

New Orders:

             

Washington

  

 

738

  

 

1,004

Baltimore

  

 

401

  

 

449

North

  

 

1,136

  

 

1,004

South

  

 

632

  

 

532

    

  

Total

  

 

2,907

  

 

2,989

    

  

Backlog:

             

Washington

  

 

2,145

  

 

2,197

Baltimore

  

 

980

  

 

877

North

  

 

2,453

  

 

1,924

South

  

 

1,180

  

 

921

    

  

Total

  

 

6,758

  

 

5,919

    

  

 

During the first quarter of 2003, homebuilding operations generated revenues of $723,375 compared to revenues of $674,982 in the first quarter of 2002. The increase in revenues is attributable primarily to a 12.3% increase in the average selling price to $288.0 in 2003 from $256.3 in 2002, partially offset by a 4.6% decrease in the number of units settled during 2003 as compared to 2002. The increase in average selling price is attributable to a larger percentage of settlements of single family detached homes, which, in comparison, are generally higher priced than NVR’s single family attached homes, and to price increases in certain of NVR’s markets. The reduction in units settled to 2,506 units in 2003 from 2,628 units in 2002 is due primarily to weather related delays in certain of NVR’s markets and to development delays.

 

Gross profit margins in the first quarter of 2003 increased to 25.4% as compared to 24.0% for the quarter ended March 31, 2002. This increase is attributable to continuing favorable market conditions, including tighter lot supplies in certain markets and low interest rates, which provided NVR the opportunity to increase selling prices as discussed above. In addition, costs for lumber and certain other commodities were relatively stable quarter over quarter.

 

Selling, general and administrative (“SG&A”) expenses for the first quarter of 2003 increased $3,542 from the first quarter of 2002, but as a percentage of revenues, were flat with the first quarter of 2002.

 

Backlog units and dollars were 6,758 and $2,111,187, respectively, at March 31, 2003 compared to 5,919 and $1,699,214, respectively, at March 31, 2002. The increase in backlog dollars is attributable to a 14.2% increase in backlog units and to a 7.0% increase in the average selling price for the six-month period ended March 31, 2003 as compared to the same period in 2002. The backlog unit increase is primarily attributable to a 14.4% higher beginning backlog balance for the first quarter of 2003 as compared to 2002. New orders for the quarter ended March 31, 2003 compared to the same 2002 period were down 2.7% primarily as a result of decreases in the Washington and Baltimore regions. These

 

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decreases resulted primarily from declines in the number of active communities of 12% and 7% in the Washington and Baltimore regions, respectively, in the first quarter of 2003 as compared to the first quarter of 2002. These declines in active communities are primarily attributable to development delays.

 

Mortgage Banking Segment

 

Three Months Ended March 31, 2003 and 2002

 

NVR conducts its mortgage banking activity through NVR Mortgage Finance, Inc. (“NVRM”), a wholly owned subsidiary. NVRM focuses almost exclusively on serving the homebuilding segment’s customer base. Following is a table of financial and statistical data for the three months ended March 31, 2003 and 2002:

 

    

2003


  

2002


Loan closing volume:

             

Total principal

  

$

514,897

  

$

477,737

    

  

Operating income:

  

$

13,368

  

$

11,107

    

  

Mortgage Banking Fees:

             

Net gain on sale of loans

  

$

13,886

  

$

10,761

Title services

  

 

3,502

  

 

3,430

Servicing

  

 

354

  

 

354

Gain on sale of servicing

  

 

14

  

 

316

    

  

    

$

17,756

  

$

14,861

    

  

 

Loan closing volume for the three months ended March 31, 2003 increased 8% over the same period for 2002. The 2003 increase is attributable to a 12% increase in the average loan amount due to the homebuilding segment’s higher average selling prices, offset by a 4% reduction in the number of units closed reflecting the period over period reduction in builder settlements as noted above.

 

Operating income for the three months ended March 31, 2003 increased approximately $2,300 over 2002. The increase is primarily due to an increase in mortgage banking fees attributable to the aforementioned 8% increase in closed loan volume, increased secondary marketing gains, and higher revenues per loan. Secondary marketing gains for the three months ended March 31, 2003 increased approximately $800 over 2002 due to a more favorable pricing environment. Average revenues per loan (including origination fees, ancillary fees and discount points) for 2003 increased by approximately 21% due to the continuing favorable market environment.

 

Recent Accounting Pronouncements

 

In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities,” an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN No. 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This Interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. FIN No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The Interpretation applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. NVR is still evaluating the financial statement effect of variable interest entity relationships entered into prior to February 1, 2003. NVR cannot reach any definitive conclusion until it completes its evaluation.

 

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Liquidity and Capital Resources

 

NVR has $255,000 available for issuance under a shelf registration statement filed with the Securities and Exchange Commission on January 20, 1998. The shelf registration statement, as declared effective on February 27, 1998, provides that securities may be offered from time to time in one or more series and in the form of senior or subordinated debt.

 

NVR’s homebuilding segment generally provides for its working capital cash requirements using cash generated from operations and a short-term unsecured working capital revolving credit facility (the “Facility”). The Facility expires on May 31, 2004. The Facility provides for borrowings of up to $135,000, subject to certain borrowing base limitations. Up to $40,000 of the Facility is currently available for issuance in the form of letters of credit of which $20,009 was outstanding at March 31, 2003. There were no direct borrowings outstanding under the Facility as of March 31, 2003. At March 31, 2003, 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 through short-term credit facilities. NVR’s mortgage banking segment has available a mortgage warehouse facility with an aggregate available borrowing limit of $175,000 to fund its mortgage origination activities. There was $127,590 outstanding under this facility at March 31, 2003. NVR’s mortgage banking segment also currently has available an aggregate of $50,000 of borrowing capacity in an uncommitted gestation and repurchase agreement. There was an aggregate of $10,295 outstanding under the gestation and repurchase agreement at March 31, 2003.

 

In November 2002, the Board of Directors approved the repurchase of up to an aggregate of $150,000 of NVR’s common stock in one or more open market and/or privately negotiated transactions. NVR had fully utilized the $150,000 stock repurchase authorization as of March 31, 2003. In February 2003, the Board of Directors approved the repurchase of up to an aggregate of $150,000 of NVR’s common stock in one or more open market and/or privately negotiated transactions. Through May 9, 2003, NVR had repurchased shares of its common stock at an aggregate purchase price of approximately $14,000 pursuant to the February 2003 repurchase authorization. In aggregate, the Company repurchased approximately 344,300 shares of its common stock at a purchase price of $113,270 during the three months ended March 31, 2003. The Company may, from time to time, repurchase additional shares of its common stock, pursuant to repurchase authorizations by the Board of Directors and subject to the restrictions contained within the Company’s debt agreements.

 

Management believes that internally generated cash and borrowings available under credit facilities will be sufficient to satisfy short and long term cash requirements for working capital in both its homebuilding and mortgage banking operations.

 

Item 4.    Controls and Procedures

 

Within the 90-day period prior to the filing of this quarterly report, an evaluation was performed under the supervision and with the participation of NVR’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of NVR’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. There have been no significant changes in NVR’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

 

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Part II.    OTHER INFORMATION

 

Item 6.    Exhibits and Reports on Form 8-K

 

  (a)       Exhibits:

 

  11.   Computation of Earnings per Share.

 

  99.1   Certification of NVR’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

  99.2   Certification of NVR’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

  (b)   Reports on Form 8-K

 

The Company did not file any reports on Form 8-K during the quarter ended March 31, 2003.

 

Exhibit Index

 

Exhibit

Number


  

Description


  

Page


11

  

Computation of Earnings per Share

  

19

99.1

  

Certification of NVR’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

20

99.2

  

Certification of NVR’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

21

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

May 15, 2003

     

NVR, Inc.

       

By:

 

/s/    Paul C. Saville


               

Paul C. Saville

Executive Vice President, Chief Financial

Officer and Treasurer

 

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SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS

 

I, Dwight C. Schar, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q of NVR, Inc. (“NVR”);

 

2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of NVR as of, and for, the periods presented in this quarterly report;

 

4.   NVR’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for NVR and have:

 

  a)   designed such disclosure controls and procedures to ensure that material information relating to NVR, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

  b)   evaluated the effectiveness of NVR’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

  c)   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.   NVR’s other certifying officer and I have disclosed, based on our most recent evaluation, to NVR’s auditors and the audit committee of NVR’s board of directors (or persons performing the equivalent function):

 

  a)   all significant deficiencies in the design or operation of internal controls which could adversely affect NVR’s ability to record, process, summarize and report financial data and have identified for NVR’s auditors any material weaknesses in internal controls; and

 

  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in NVR’s internal controls; and

 

6.   NVR’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: May 15, 2003

 

By: /s/ Dwight C. Schar                    

Dwight C. Schar

Chairman and Chief Executive Officer

 

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I, Paul C. Saville, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q of NVR, Inc. (“NVR”);

 

2.   Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.   Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of NVR as of, and for, the periods presented in this quarterly report;

 

4.   NVR’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for NVR and have:

 

  a)   designed such disclosure controls and procedures to ensure that material information relating to NVR, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

  b)   evaluated the effectiveness of NVR’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

  c)   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.   NVR’s other certifying officer and I have disclosed, based on our most recent evaluation, to NVR’s auditors and the audit committee of NVR’s board of directors (or persons performing the equivalent function):

 

  a)   all significant deficiencies in the design or operation of internal controls which could adversely affect NVR’s ability to record, process, summarize and report financial data and have identified for NVR’s auditors any material weaknesses in internal controls; and

 

  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in NVR’s internal controls; and

 

6.   NVR’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: May 15, 2003

 

By: /s/ Paul C. Saville                

Paul C. Saville

Executive Vice President, Chief Financial Officer and Treasurer

 

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