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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 (IRS employer
incorporation 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:
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Title of each class Name of each exchange on which registered
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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.[X]
As of February 24, 1999 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
$433.3 million. As of February 24, 1999 there were 10,973,227 total shares of
common stock outstanding.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No____
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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, 1999 ARE INCORPORATED BY REFERENCE INTO PART III
OF THIS REPORT.
Page 1 of 49 pages
The Exhibit Index begins on page 19.
1
INDEX
PART I PAGE
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Item 1. Business.................................................................. 3
Item 2. Properties................................................................ 6
Item 3. Legal Proceedings......................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders....................... 6
Executive Officers of the Registrant...................................... 7
PART II
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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..................................................... 9
Item 7A. Quantitative and Qualitative Disclosure About Market Risk................. 15
Item 8. Financial Statements and Supplementary Data............................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................... 18
PART III
--------
Item 10. Directors and Executive Officers of the Registrant........................ 18
Item 11. Executive Compensation.................................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 18
Item 13. Certain Relationships and Related Transactions............................ 18
PART IV
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Item 14. Exhibits and Reports on Form 8-K.......................................... 19
2
PART I
------
ITEM 1. BUSINESS
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GENERAL
NVR, Inc. ("NVR" or the "Company") was formed in 1980 as NVHomes, Inc.
("NVH"). The Company operates in two business segments: 1) the construction and
marketing of homes and 2) mortgage banking. To simplify its capital structure,
effective September 30, 1998, NVR merged each of NVR Homes, Inc., NVR's wholly
owned homebuilding subsidiary, and NVR Financial Services, Inc., NVR's wholly
owned mortgage banking holding company, into the Company. The Company now
conducts its homebuilding activities both directly and through its wholly owned
subsidiary, Fox Ridge Homes, Inc. The Company 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" or the "Company" 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, where NVR derived
an aggregate of approximately 63% and 66% of its 1998 and 1997 homebuilding
revenues, respectively. 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,
which is built in sixteen metropolitan areas located in Maryland, Virginia,
Pennsylvania, New York, North Carolina, South Carolina, Ohio, New Jersey,
Delaware and Tennessee, is moderately priced and marketed primarily towards
first-time buyers. The NVHomes product is built largely in the Washington, D.C.
metropolitan area, and is marketed primarily to move-up buyers. The Fox Ridge
Homes product, built solely in the Nashville, Tennessee metropolitan area, is
moderately priced and marketed primarily to first-time buyers. In 1998, the
average price of a unit settled by NVR was approximately $196,000.
NVR obtains land for homebuilding by acquiring control over finished
building lots through option contracts with land developers that require
forfeitable deposits, thereby reducing the financial requirements and risks
associated with direct land ownership. NVR generally seeks to maintain control
over an inventory of lots sufficient to provide for the next 18 to 24 months of
projected home sales, based upon projected 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 national mortgage banking operations,
which operate in 16 states. NVR's mortgage banking business generates revenues
primarily from origination fees, gains on marketing of loans, title fees, and
sales of servicing rights. Although NVR's mortgage banking operations provide
financing to a substantial portion of NVR's homebuilding customers, NVR's
homebuilding customers accounted for only 31% of the aggregate dollar amount of
loans closed in 1998. In 1998, NVR's mortgage banking business closed
approximately 21,000 loans with an aggregate principal amount of approximately
$2.7 billion. NVR's mortgage banking business sells all of the mortgage loans
it closes into the secondary markets. The total servicing portfolio balance at
December 31, 1998 is approximately $261 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.
HOMEBUILDING
PRODUCTS
NVR offers single-family detached homes, townhomes, and condominium
buildings with many different basic home designs which 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 985 to 5,410 square feet, with two to five bedrooms, and
are priced from approximately $80,000 to $760,000.
3
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 1998 1997 1996 1998 1997 1996
- ------ -------- -------- -------- --------- -------- --------
Washington/Baltimore 4,358 3,774 3,834 5,165 4,084 3,751
Other (1) 3,264 2,333 1,861 3,835 2,602 1,939
-------- -------- -------- --------- -------- --------
Total 7,622 6,107 5,695 9,000 6,686 5,690
======== ======== ======== ========= ======== ========
(1) Includes Pennsylvania, New York, North Carolina, South Carolina, Ohio, New
Jersey, Tennessee and Delaware.
CONSTRUCTION
Construction work on NVR's homes is performed by independent subcontractors
under fixed-price contracts. The work of subcontractors is performed under the
supervision of NVR employees who monitor quality control. NVR uses many
independent subcontractors representing the building trades in its various
markets and is dependent neither 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 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 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.
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. The Company 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. In addition, a
variety of other factors affect the housing industry and the demand for new
homes, including 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 in this region
during the first and second quarters.
4
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 which 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. The size of its servicing
portfolio is approximately $261 million in principal amount of loans being
serviced at the end of 1998. Beginning in 1997, NVR's mortgage banking
operations began to sell future originated mortgage servicing rights on a flow
basis in order to concentrate its mortgage banking operations on the primary
business of providing mortgage financing to NVR and other homebuyers.
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, including
certificates guaranteed as to the full and timely payment of principal and
interest by FNMA, and certificates guaranteed as to payment of principal and
interest by GNMA and FHLMC. The issuance of mortgage-collateralized bonds has
in the past facilitated NVR's ability, through its mortgage-banking
subsidiaries, to provide home mortgage financing to its customers. There have
been no bonds issued since 1988.
COMPETITION AND MARKET FACTORS
NVR's mortgage banking operations operate through 27 offices in 16 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, as an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and
VA mortgage loans, is subject to the rules, regulations and guidelines of, and
examinations by, those agencies, which restrict certain activities of NVR
Finance. NVR Finance is currently eligible and expects to remain eligible to
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, 1998, NVR employed 3,070 full-time persons, of whom 844
were officers and management personnel, 174 were technical and construction
personnel, 809 were sales personnel, 524 were administrative personnel and 719
were engaged in various other service and labor activities. None of the
Company's employees are subject to a collective bargaining agreement and the
Company has never experienced a work stoppage. Management believes that its
employee relations are good.
5
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.
During 1998 NVR conducted certain other administrative functions of both
its homebuilding and mortgage banking segments in two buildings in Robinson
Township, a suburb of Pittsburgh, Pennsylvania. During December 1998, NVR
exercised an option to purchase the two buildings, thereby extinguishing the
related capital lease obligation, incurring an approximate $2.3 million
extraordinary loss, net of applicable taxes ($0.17 per diluted share).
Subsequent to December 31, 1998, the Company 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's manufacturing facilities are located in Thurmont, Maryland;
Farmington, New York; Clover, South Carolina and Darlington, Pennsylvania. 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 and Darlington leases expire in 2002 and
2005, 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 16 states for field
offices, mortgage banking and title services branches and certain model homes
under leases expiring at various times through 2008. 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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NVR and its subsidiaries are involved in litigation arising from the normal
course of business. In the opinion of management, the litigation that is
currently pending will not have any material adverse effect on the financial
position or results of operations of NVR.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
NONE
6
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITIONS
---- --- ---------
Dwight C. Schar 57 Chairman of the Board, President and Chief Executive Officer of NVR
William J. Inman 51 President of NVR Mortgage Finance, Inc.
James M. Sack 48 Vice President, Secretary and General Counsel of NVR
Paul C. Saville 43 Senior Vice President Finance and Chief Financial Officer of NVR
Dennis M. Seremet 43 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 & Associates, 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. Previously, Mr. Seremet served as vice president finance of NVR
Homes, Inc., to which he was appointed on September 30, 1993.
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
1998 and 1997 as reported by the AMEX.
HIGH LOW
-------- -------
PRICES PER SHARE:
1997:
First Quarter......... 15-5/8 12-1/4
Second Quarter........ 16 12-1/4
Third Quarter......... 27-3/4 15
Fourth Quarter........ 25-7/16 20-3/4
1998:
First Quarter......... 33-3/4 22-5/16
Second Quarter........ 41-1/4 31-3/16
Third Quarter......... 46 32-3/8
Fourth Quarter........ 47-11/16 24-7/8
As of the close of business on February 24, 1999, there were 1,006
shareholders of record.
NVR has not paid any cash dividends on its shares of common stock during
the years 1998 or 1997. NVR's bank indebtedness and the indenture governing
NVR's 8% Senior Notes due 2005 contain 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.
7
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
------------------------------------------------------------------
1998 1997 1996 1995 1994 \(1)\
---------- ---------- ---------- ----------- --------------
CONSOLIDATED INCOME STATEMENT DATA:
HOMEBUILDING DATA:
Revenues $1,504,744 $1,154,022 $1,045,930 $869,119 $ 820,915
Gross profits 230,929 158,167 139,675 118,084 104,827
MORTGAGE BANKING DATA:
Mortgage banking fees (2) 42,703 25,946 24,029 26,297 25,118
Interest income 9,861 6,415 5,351 4,744 5,288
Interest expense 6,120 3,544 2,249 2,090 2,364
CONSOLIDATED DATA:
Income before discontinued
operations and extraordinary
gains/(loss) $ 66,107 $ 28,879 $ 25,781 $ 16,400 $ 9,018
Income before discontinued
operations and extraordinary
gains/(loss) per diluted share (3) $ 4.97 $ 2.18 $ 1.70 $ 1.06 $ 0.53
DECEMBER 31
------------------------------------------------------------------
1998 1997 1996 1995 1994 \(1)\
---------- ---------- ---------- --------- -------------
CONSOLIDATED BALANCE SHEET DATA:
Homebuilding inventory $ 288,638 $ 224,041 $ 171,693 $ 154,713 $ 109,538
Total assets (4) 724,359 564,621 501,165 513,598 446,942
Notes and loans payable (4) 320,337 248,138 201,592 221,295 184,414
Equity 165,719 144,640 152,010 146,180 129,522
(1) Effective September 30, 1993, NVR Savings Bank, F.S.B. ("NVRSB") is
presented on a discontinued operations basis. In March 1994, NVR completed the
sale of the assets and liabilities of NVRSB to a financial institution.
(2) Effective January 1, 1995, NVR adopted Statement of Financial Accounting
Standards ("SFAS") No. 122, Accounting For Mortgage Servicing Rights. SFAS No.
122, as superseded by SFAS No. 125, Accounting for the Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, requires that a mortgage
banking enterprise that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans recognize those rights as separate
assets by allocating the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without the mortgage servicing rights) based on
their relative fair value. Retroactive application of SFAS No. 122 to periods
prior to the fiscal year of adoption is prohibited, and thus, mortgage banking
fees for the years ended December 31, 1998, 1997, 1996 and 1995 are not directly
comparable to prior periods. For the years ended December 31, 1998, 1997, 1996
and 1995, application of SFAS No. 122 increased (decreased) mortgage banking
fees by $2,537, $(928), $906 and $1,717, respectively.
(3) For the years ended December 31, 1998, 1997, 1996, 1995 and 1994, income
from continuing operations per diluted share was computed based on 13,300,064,
13,244,677, 15,137,009, 15,405,263, and 17,097,172 shares, respectively, which
represents the weighted average number of shares and share equivalents
outstanding. The weighted average number of shares and share equivalents were
calculated based upon the requirements of SFAS No. 128, Earnings per Share, for
all periods presented and represent the shares and share equivalents used to
calculate diluted earnings per share before discontinued operations and
extraordinary gains/(losses).
(4) Effective in the fourth quarter of 1996, the Limited Purpose Financing
Subsidiary is presented on a net basis. Accordingly, balance sheet data for
prior periods have been reclassified to reflect this change. See note 1 to the
accompanying consolidated financial statements.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
- -------------
(dollars in thousands except per share data)
--------------------------------------------
FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-K, as well as statements made by the
Company in periodic press releases, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Certain, but not necessarily all, of such forward-looking statements can be
identified by the use of forward-looking terminology, such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereof or comparable terminology, or by discussion of
strategies, each of which involves risks and uncertainties. All statements
other than of historical facts included herein, including those regarding market
trends, the Company's financial position, business strategy, projected plans,
objectives of management for future operations and certain statements regarding
the Company's Year 2000 readiness, are forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance of the Company to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such risk factors
include, but are not limited to, general economic and business conditions (on
both a national and regional level), interest rate changes, competition, the
availability and cost of land and other raw materials used by the Company in its
homebuilding operations, shortages of labor, weather related slow downs,
building moratoria, governmental regulation, the ability of the Company to
integrate any acquired business, technological problems encountered with Year
2000 issues, certain conditions in financial markets and other factors over
which the Company has little or no control.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NVR, Inc. ("NVR" or the "Company) operates in two business segments:
homebuilding and mortgage banking. The results of these two segments are
discussed separately below. Corporate general and administrative expenses are
fully allocated to the homebuilding and mortgage banking segments in the
information presented below.
Effective September 30, 1998, NVR merged each of NVR Homes, Inc., NVR's
wholly owned homebuilding subsidiary, and NVR Financial Services, Inc., NVR's
wholly owned mortgage banking holding company, into the Company. The Company
now conducts its homebuilding activities both directly and through its wholly
owned subsidiary, Fox Ridge Homes, Inc ("Fox Ridge"). The Company conducts its
mortgage banking operations primarily through another wholly owned subsidiary,
NVR Mortgage Finance, Inc. ("NVR Finance").
HOMEBUILDING SEGMENT
Homebuilding revenues for 1998 increased 30% to $1,504,744 from $1,154,022
in 1997. The increase in revenues was primarily due to a 25% increase in the
number of homes settled from 6,107 units in 1997 to 7,622 units in 1998 and to a
5% increase in the average settlement price from $187.7 in 1997 to $196.4 in
1998. New orders for 1998 increased 35% to 9,000 units compared with 6,686
units in 1997. The increase in new orders was the result of continuing
favorable market conditions in most of the markets in which the Company operates
as compared to the prior year, and to a lesser extent, new orders generated by
Fox Ridge, acquired by the Company during the fourth quarter of 1997.
Homebuilding revenues for 1997 increased 10.3% to $1,154,022 from $1,045,930 in
1996. The increase in revenues was primarily due to a 7.2% increase in the
number of homes settled from 5,695 units in 1996 to 6,107 units in 1997 and to a
2.7% increase in the average settlement price from $182.7 in 1996 to $187.7 in
1997. New orders for 1997 increased 17.5% to 6,686 units compared with 5,690
units in 1996. The increase in new orders is attributed to a more favorable
interest rate environment in 1997 compared to the prior year, and to sales
associated with the Company's expansion markets.
9
Gross profit margins increased to 15.3% in 1998 compared to 13.7% in 1997.
The increase in gross profit margins from that experienced in 1997 was primarily
attributable to the continuing favorable market conditions, improved margins in
the Company's expansion markets and the Company's continued emphasis on
controlling construction costs. Gross profit margins increased to 13.7% in 1997
compared to 13.4% in 1996. The increase in gross profit margins from that
experienced in 1996 was primarily attributable to more favorable market
conditions in certain of the Company's markets, fewer additional weather-related
costs incurred in the construction of homes as a result of mild winter weather
conditions in NVR's principal markets in the first quarter of 1997 as compared
to the first quarter of 1996, and continued emphasis on controlling construction
costs.
SG&A expenses for 1998 increased $26,098 to $113,329 from $87,231 in 1997,
but as a percentage of revenues fell to 7.5% in 1998 from 7.6% in 1997. The
increase in SG&A dollars is due primarily to the aforementioned increase in
revenues, a net year to year increase for certain management incentive plans and
to increased costs incurred in the Company's expansion markets. SG&A expenses
for 1997 increased $16,047 to $87,231 from $71,184 in 1996, and as a percentage
of revenues increased to 7.6% in 1997 from 6.8% in 1996. The dollar increase is
partially due to increased costs that correspond to the aforementioned increase
in revenues, and costs incurred to grow the Company's expansion markets to full
operational levels. Further, the higher SG&A in 1997 as compared to 1996 is
also attributable to an increase of approximately $6,000 for non-cash
compensation costs related to the 1994 Management Equity Incentive Plan
("Plan"), a variable stock plan adopted by the Board of Directors pursuant to
the Company's 1993 Plan of Reorganization ("Reorganization Plan"), and to a non-
recurring $1,600 incentive payment earned by and paid to the Company's Board of
Directors also pursuant to the terms of the Company's Reorganization Plan.
The final one-third of the 1,095,200 total shares granted under the Plan
are eligible to vest in calendar year 1999 if certain full year earnings targets
for 1999 are met or exceeded. Pursuant to the Plan, the approximately 365,000
shares eligible for vesting in 1999 may vest at a date earlier than December 31,
1999 if the 1999 full-year earnings targets specified in the Plan are met or
exceeded prior to December 31, 1999. Plan participants must be employed by the
Company on December 31, 1999 to be eligible to receive the shares. The
compensation cost recognized in SG&A in the Company's 1999 income statement
relative to the Plan will depend on the market value of NVR common stock on the
vesting determination date. Compensation cost recognized in SG&A relative to
the Plan totaled $9,081 and $7,986 for the years end December 31, 1998 and 1997,
respectively. Compensation cost relative to the Plan is non-cash.
Backlog units and dollars were 4,573 and $958,757, respectively, at
December 31, 1998 compared to backlog units of 3,195 and dollars of $623,705 at
December 31, 1997. The increase in backlog dollars and units was primarily due
to a 31% increase in new orders for the six months ended December 31, 1998 as
compared to the six months ended December 31, 1997. Backlog units and dollars
were 3,195 and $623,705, respectively, at December 31, 1997 compared to backlog
units of 2,466 and dollars of $453,211 at December 31, 1996. The increase in
backlog dollars and units was primarily due to a 33.5% increase in new orders
for the six months ended December 31, 1997 as compared to the six months ended
December 31, 1996.
The Company believes that earnings before interest, taxes, depreciation and
amortization ("EBITDA") provides a meaningful comparison of operating
performance of the homebuilding segment because it excludes the amortization of
certain intangible assets and other non-cash items. Although the Company
believes the calculation is helpful in understanding the performance of the
homebuilding segment, EBITDA should not be considered a substitute for net
income or cash flow as indicators of the Company's financial performance or its
ability to generate liquidity.
10
CALCULATION OF HOMEBUILDING EBITDA:
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- --------
Operating income $111,927 $65,533 $62,755
Depreciation 3,490 3,588 2,863
Amortization of excess reorganization
value/goodwill 7,547 6,635 7,048
Other non-cash items 9,081 7,986 2,239
-------- ------- -------
Homebuilding EBITDA $132,045 $83,742 $74,905
======== ======= =======
% of Homebuilding revenues 8.8% 7.3% 7.2%
Homebuilding EBITDA in 1998 was 58% higher than in 1997, and as a
percentage of revenues increased from 7.3% in 1997 to 8.8% in 1998.
Homebuilding EBITDA in 1997 was 11.8% higher than in 1996, and as a percentage
of revenues increased from 7.2% in 1996 to 7.3% in 1997.
MORTGAGE BANKING SEGMENT
The mortgage banking segment generated operating income of $15,968 for the
year ended December 31, 1998 compared to operating income of $4,767 during the
year ended December 31, 1997 and operating income of $2,583 during the year
ended December 31, 1996. Mortgage loan closings were $2,717,456, $1,485,763 and
$1,243,945 during the respective years ended December 31, 1998, 1997 and 1996.
Operating income was higher in 1998 in comparison to 1997 as a result of
the increase in mortgage loan closings noted previously. Mortgage banking fees,
a summary of which is presented below, increased $16,757 when comparing 1998 and
1997 and increased $1,917 when comparing 1997 and 1996.
MORTGAGE BANKING FEES: 1998 1997 1996
------ ------ ------
Net gain on sale of loans $31,071 $16,731 $14,401
Servicing 1,276 1,733 4,894
Title services 8,988 6,413 5,928
Gain (loss) on sale of servicing 1,368 1,069 (1,194)
------- ------- -------
$42,703 $25,946 $24,029
======= ======= =======
Mortgage banking fees in 1998 were higher in comparison to 1997, primarily
as a result of higher gain on sale of loans and higher title services revenues.
The higher gain on sale of loans and title services revenues can also be
attributed to increased mortgage loan closings. Partially offsetting the
increase in mortgage banking fees were volume-related increases in SG&A
expenses.
Mortgage banking fees in 1997 were higher in comparison to 1996, primarily
as a result of higher gain on sale of loans. The higher gain on sale of loans
can be attributed to increased loan closings and higher servicing values
realized through the sale of mortgage servicing rights. These gains were
partially offset by the lower servicing fee revenues resulting from the
reduction in the mortgage servicing portfolio. Operating income was also higher
in 1997 in comparison to 1996 as a result of the increase in mortgage loan
closings noted above and other income from a joint venture, which effectively
began operations during 1997.
Effective during the second quarter of 1997, the mortgage banking
operations sold the remaining portion of its core mortgage servicing portfolio.
The sale of the core mortgage servicing portfolio and the ongoing sale of
servicing rights on a flow basis are the result of the concentration of the
mortgage banking operations on the primary business of providing mortgage
financing and related services to NVR's homebuilding customers and other
homebuyers.
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
generate part of
11
their business from NVR's homebuilding operations and from other homebuilders
affected by seasonality, to the extent that homebuilding is affected by
seasonality, mortgage banking operations may also be affected. The existence of
mortgage banking and title services offices outside of the Middle Atlantic
region and the existence of third-party business tend to reduce the effects of
seasonality on the results of NVR's operations.
EFFECTIVE TAX RATE
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 realized a $3,300 tax benefit during 1998. The use of the SRLY NOL,
coupled with higher taxable income relative to fixed permanent differences, has
reduced the Company's 1998 effective tax rate to 40.1% from 46.4% in 1997 and
47.1% in 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 requires all derivatives to be recognized
as either assets or liabilities on the balance sheet and be measured at fair
value. Depending on the hedge designation, changes in such fair value will be
recognized in either other comprehensive income or current earnings on the
income statement. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999, and is applicable to interim periods in the initial year of
adoption. At the present time, the Company cannot determine the impact that
SFAS No. 133 will have on its financial statements upon adoption on January 1,
2000, as such impact will be determined based on loans held in inventory and
forward mortgage delivery contracts outstanding at the date of adoption.
YEAR 2000 ISSUE
The Year 2000 Issue is the risk that computer programs using two-digit date
fields will fail to properly recognize the year 2000, with the result being
business interruptions due to computer system failures by the Company's software
or hardware or that of government entities, service providers and vendors.
With the assistance of a consulting firm, the Company has completed its
assessment of exposure to Year 2000 Issues and has developed a detailed plan to
remediate areas of exposure in both its homebuilding and mortgage banking
segments, as discussed below.
The Company has substantially completed its remediation and testing efforts
on its core homebuilding systems and believes that these systems are now Year
2000 compliant. The total Year 2000 Issue costs for the homebuilding systems
were approximately $400, all of which has been expensed during 1998.
The mortgage banking segment utilizes the following four core systems to
operate its business: Loan Origination; Secondary Marketing; Servicing; and
Settlement Services. During 1997 a decision was made to replace the existing
Loan Origination system to obtain greater operating efficiencies. The existing
system is not Year 2000 compliant. The Company has purchased a new commercially
available software package for Loan Origination processing, which has been
certified to be Year 2000 compliant by the vendor. The Company has tested the
system and believes that it is Year 2000 compliant. The Company has developed a
detailed rollout plan and will start implementation in February 1999 into its
mortgage branches. The new system is expected to be deployed in each branch by
the third quarter of 1999. The total cost of this project is estimated to be
$3,700, the majority of which will be incurred and capitalized during 1999. The
Company has upgraded the existing Secondary Marketing system to the Year 2000
compliant version of the vendor's software, and based on testing conducted
during 1998, the Company believes this system to be Year 2000 compliant. The
Servicing and Settlement Services Systems are also purchased software packages,
which the vendors have indicated are both Year 2000 compliant. The Company has
completed testing on the Settlement Services System and believes that this
system is Year 2000 compliant. The Servicing System testing should be completed
by March 31, 1999. The total cost of updating and testing these systems is
estimated to be $100, the majority of which was expensed in the fourth quarter
of 1998.
12
The Company initiated formal communications with its significant suppliers
and service providers during 1998 to determine the extent to which the Company
may be vulnerable to their failure to correct their own Year 2000 Issues and
intends to continue those communications during 1999. To the extent that
responses to Year 2000 readiness are unsatisfactory, the Company will attempt to
identity alternative suppliers and service providers who have demonstrated Year
2000 readiness. As a normal course of business, the Company seeks to maintain
multiple suppliers where possible. The Company cannot be assured that it will
be successful in finding such alternative suppliers, service providers and
contractors or, if it is successful in finding such alternative suppliers,
service providers and contractors, that it will be able to do so at comparable
prices. In the event that any of the Company's significant suppliers or service
providers do not successfully and timely achieve Year 2000 compliance, and the
Company is unable to replace them at comparable prices, the Company's business
or operations could be adversely affected.
The Company is currently assessing its mechanical systems (e.g., phones,
HVAC, etc.) which employ embedded chip technology. Based on initial information
gathered, the Company does not estimate a significant expense will be incurred
to make any non-compliant systems Year 2000 compliant.
The Company presently believes that upon remediation of its business
software and hardware applications, the Year 2000 Issue will not present a
material adverse risk to the Company's future consolidated results of
operations, liquidity, and capital resources. However, if such remediation is
not completed in a timely manner or the level of timely compliance by key
suppliers or service providers is not sufficient, the Year 2000 Issue could have
a material impact on the Company's operations including, but not limited to,
delays in homebuilding and mortgage products resulting in loss of revenues,
increased operating costs, loss of customers or suppliers, or other significant
disruptions to the Company's business. In addition, widespread disruptions in
the national or international economy, including, for example, disruptions
affecting financial markets, commercial and investment banks, governmental
agencies, utility services, such as heat, lights, power and telephones, and
transportation systems could also have an adverse impact on the Company. The
likelihood and effects of such disruptions are not determinable at this time.
The Company will evaluate the necessity for contingency planning during
1999 as it implements and tests its Loan Origination System and if
communications with significant suppliers and service providers indicate that
the Company may be vulnerable to their failure to correct their own Year 2000
Issues. This evaluation will continue throughout 1999.
LIQUIDITY AND CAPITAL RESOURCES
NVR's homebuilding segment generally provides for its working capital cash
requirements using cash generated from operations and a short-term credit
facility. In September 1998, the Company, as borrower, succeeded to the
obligations of NVR Homes, Inc. under the unsecured working capital revolving
credit facility as amended and restated (the "Facility"). The Facility expires
on May 31, 2001. The Facility provides for borrowings of up to $100,000 of
which $60,000 is currently committed. Under terms of the Facility, an
additional $10,000 uncommitted overline is available to the Company on a limited
basis. Up to approximately $24,000 of the Facility is currently available for
issuance in the form of letters of credit of which $11,719 was outstanding at
December 31, 1998. There were no direct borrowings outstanding under the
Facility as of December 31, 1998.
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 a $203,000
mortgage warehouse facility, of which $178,000 is committed, to fund its
mortgage origination activities, under which $145,496 was outstanding at
December 31, 1998. 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. There was an
aggregate of $19,868 outstanding under such gestation and repurchase agreements
at December 31, 1998.
13
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 Notes"),
resulting in aggregate net proceeds to the Company 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 the Company,
ranking equally in right of payment with the Company's other existing and future
unsecured indebtedness. An additional $30,000 in principal is available for
issuance under the New Note offering. The net proceeds of the New Notes were
used to extinguish other indebtedness of the Company, 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, the Company repurchased all of the $120,000 in
aggregate principal 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.
In addition, the Company exercised its option to purchase two office
buildings currently 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 and recognized an additional extraordinary loss of
$2,275, net of a $1,424 tax benefit, ($0.17 per diluted share) in the
accompanying consolidated income statements. Subsequent to December 31, 1998,
the Company 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 $8,750 as of December 31, 1998, that were so
restricted.
As shown in NVR's consolidated statement of cash flows for the year ended
December 31, 1998, NVR's operating activities used cash of $11,651 for this
period. The cash was used primarily to increase homebuilding inventory due to a
general increase in the Company's business activity. Further, cash was also
used to fund an increase in mortgage loans held for sale which was related to an
83% increase in mortgage loan closings during 1998 compared to fiscal year
1997's loan closing volume.
Net cash provided by investing activities was $39,584 for the year ended
December 31, 1998. The primary sources of cash were principal payments on and
proceeds from the sale of mortgage-backed securities, which are primarily used
for the redemption of bonds as discussed below, and proceeds from the sale of
mortgage servicing rights.
Net cash used for financing activities was $5,154 for the year ended
December 31, 1998. In addition to the debt refinancing activities discussed
above, cash was primarily used for NVR's purchase of approximately 1.3 million
shares of its common stock for an aggregate purchase price of $50,199 during the
year ended December 31, 1998. 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. NVR had net borrowings under the mortgage banking
credit lines of $56,971 used to finance mortgage loan inventory. Cash was also
used for the redemption of collateralized bonds using cash provided by the
related mortgage backed securities as discussed above.
14
The Company believes that internally generated cash and borrowings
available under credit facilities will be sufficient to satisfy near and long
term cash requirements for working capital and debt service in both its
homebuilding and mortgage banking operations.
BUSINESS ACQUISITION
On March 4, 1999, NVR Mortgage Acquisition, Inc. ("NVRMA"), a wholly owned
subsidiary of NVR Finance, purchased all of the outstanding capital stock of
First Republic Mortgage Corporation ("First Republic") for approximately $5,300
in cash. First Republic, based in Rockville, Maryland, is a leading mortgage
lender in the Baltimore and Washington Metropolitan area. NVRMA accounted for
this acquisition using the purchase method, and the operations of the acquired
business will be included in NVR's consolidated statements of income in the
first quarter of 1999 beginning on the date of the acquisition. Goodwill of
approximately $3,000 that was generated pursuant to the purchase transaction
will be amortized using the straight-line method over 5 years.
Based on the expected loan origination volume of First Republic, NVR
Finance has amended its warehouse line to increase the available borrowing limit
under the warehouse agreement to $203,000. In addition, First Republic has
entered into a separate revolving short-term borrowing facility with a lender
not party to the NVR Finance warehouse agreement comprised of a $60,000
committed line of credit that bears interest at 1.75% to 2.00% above LIBOR.
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. Though the Company faces and manages other types of
risk, such as credit and liquidity risks, the Company'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. In addition, lower interest rates tend to increase demand for
mortgage loans for home purchasers, as well as for the demand for refinancing of
existing mortgages. Higher interest rates make it more difficult for potential
borrowers to purchase residential properties and to qualify for mortgage loans
and reduce demand for refinance loans. The Company has no market rate sensitive
instruments held for trading purposes.
The Company's mortgage banking segment, which has contributed an average of
6.3% of consolidated income from continuing operations over the period 1994 to
1998, 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.
Profitability of the mortgage banking segment may be directly affected by
the levels of and fluctuations in interest rates, which affect the mortgage
banking segment's ability to earn a spread between interest received on its
mortgage loans held for sale and the costs of borrowings under the Company's
variable-rate warehouse line of credit and uncommitted repurchase and gestation
facilities. The profitability of the mortgage banking segment is likely to be
adversely affected during any period of unexpected or rapid changes in interest
rates. For example, a substantial or sustained increase in interest rates could
adversely affect the ability of the Company to originate mortgage loans and
would reduce the value of mortgage loans held for sale. A substantial decline
in interest rates could also impair the value of any capitalized mortgage
servicing rights. The Company's current risk management strategy involves
selling substantially all originated mortgage servicing rights on a flow basis.
The Company has $3.7 million of capitalized mortgage servicing rights as of
December 31, 1998, with a fair value at December 31, 1998 of $3.9 million.
In an environment of stable interest rates, the Company's gains on the sale
of mortgage loans would generally be limited to those gains resulting from the
yield differential between mortgage loan interest rates
15
and rates required by secondary market purchasers. A loss from the sale of loans
may occur if interest rates increase between the time that the Company
establishes the interest rate on a loan and the time that the loan is sold.
Fluctuating interest rates also may affect the net interest income earned by the
Company, resulting from the difference between the yield to the Company on loans
held for sale and the interest paid by the Company for funds borrowed to finance
the origination of mortgage loans. Because of the uncertainty of future loan
origination volume and the future level of interest rates, there can be no
assurance that the Company will realize gains on the sale of financial assets in
the future.
In the normal course of business, the Company 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
as discussed below.
There were mortgage loan commitments aggregating approximately $235,812
outstanding at December 31, 1998, with a fair value at December 31, 1998 of
$236,272. 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.
The Company enters into optional and mandatory forward delivery contracts
to sell mortgage-backed securities and whole loans at specific prices and dates
to broker/dealers and secondary market investors. The Company 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. The Company
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. In the event that the Company has forward delivery
contract commitments in excess of available mortgage-backed securities, the
Company 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 and whole loans to investors and broker/dealers under these
contracts. There were open forward delivery contracts to sell loans to third
party investors aggregating approximately $287,317 at December 31, 1998, with a
fair value at December 31, 1998 of $287,528.
The Company's homebuilding segment generates operating liquidity and
acquisitions of capital assets through fixed-rate and variable-rate debt. The
homebuilding segment's primary variable-rate debt is a Working Capital Credit
facility that currently provides for unsecured borrowings up to $100,000 (of
which $60,000 is committed), subject to certain borrowing base limitations. The
working capital credit facility expires May 31, 2001 and outstanding amounts
bear interest at the election of the Company, at (i) the base rate of interest
announced by the Working Capital Credit facility agent or (ii) 1.5% above the
Eurodollar Rate. The weighted average interest rates for the amounts
outstanding under the Facility was 7.2% for the year ended 1998. There were no
amounts outstanding under the Working Capital Credit facility at December 31,
1998
The following table represents contractual balances of the Company'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, 1998. The expected maturity categories takes 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 the Company sells all of the
mortgage loans it originates into the secondary markets, the Company 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.
16
Maturities (000's)
------------------
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
MORTGAGE BANKING SEGMENT
- ------------------------
INTEREST RATE SENSITIVE ASSETS:
Mortgage loans held for sale 178,695 - - - - - 178,695 179,566
Average interest rate 6.9% - - - - - 6.9%
INTEREST RATE SENSITIVE LIABILITIES:
Variable rate warehouse line of 145,496 - - - - - 145,496 145,496
credit
Average interest rate (a) 5.2% - - - - - 5.2%
Variable rate repurchase agreements 19,868 - - - - - 19,868 19,868
Average interest rate 6.5% - - - - - 6.5%
Fixed rate capital lease obligations 94 93 99 106 93 - 485 485
Average interest rate 6.4% 6.4% 6.4% 6.4% 6.4% - 6.4%
HOMEBUILDING SEGMENT
- --------------------
INTEREST RATE SENSITIVE ASSETS:
Interest-bearing deposits 39,000 - - - - - 39,000 39,000
Average interest rate 4.9% - - - - - 4.9%
INTEREST RATE SENSITIVE LIABILITIES:
Variable rate working capital line
of credit - - - - - - - -
Average interest rate - - - - - - -
Variable rate notes payable 1,957 2,011 18 - - - 3,986 3,986
Average interest rate 7.0% 7.0% 7.0% - - - 7.0%
Fixed rate obligations (b) 235 271 333 313 331 149,019 150,502 151,010
Average interest rate 8.1% 8.1% 8.1% 8.1% 8.1% 8.5% 8.2%
(a) Average interest rate is net credits received for compensating cash
balances.
(b) The $150,502 maturing after 2003 includes $145,000 of the Company's 8%
Senior Notes due June 2005.
17
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 to be
filed with the Securities and Exchange Commission on or prior to April 30, 1999.
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 to be
filed with the Securities and Exchange Commission on or prior to April 30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- ---------------------------------------------------------------
Item 12 is hereby incorporated by reference to NVR's Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to April 30, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
Item 13 is hereby incorporated by reference to NVR's Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to April 30, 1999.
18
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.
**3.7 Certificate of Incorporation of RVN, Inc.
**3.8 Bylaws of RVN, Inc.
3.9 Charter of Fox Ridge Homes, Inc. Incorporated by reference to
Exhibit 3.9 in NVR's Form S-3 filed with the Securities and
Exchange Commission on January 20, 1998.
3.10 Bylaws of Fox Ridge Homes, Inc. Incorporated by reference to
Exhibit 3.10 in NVR's Form S-3 filed with the Securities and
Exchange Commission on January 20, 1998.
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.
**10.1 Employment Agreement between NVR, Inc. and Dwight C. Schar dated
January 1, 1996.
**10.3 Executive Employment Agreement between NVR, Inc. and Paul C.
Saville dated January 1, 1995.
**10.5 Employment Agreement between NVR, Inc. and William J. Inman dated
November 13, 1995.
**10.6 Second Amended and Restated Loan Agreement dated as of June 13,
1996
19
among NVR Mortgage Finance, Inc. and Bank One, Texas, N.A., as
Agent, and the other lenders party thereto.
10.7 NVR, Inc. Equity Purchase Plan. Incorporated by reference to
Exhibit 10.10 in NVR, Inc.'s 1993 Registration Statement.
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.
10.18 Agreement among Crestar Bank, NVR Savings Bank, FSB, and NVR
Financial Services, Inc. dated November 8, 1993. Incorporated by
reference to NVR's Current Report on Form 8-K dated March 17,
1994.
**10.19 Employee Stock Ownership Plan of NVR, Inc.
**10.22 NVR, Inc. 1994 Management Equity Incentive Plan.
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.
**10.30 NVR, Inc. High Performance Compensation Plan dated as of January
1, 1996.
**10.32 Whole Loan Purchase and Sale Agreement between NVR Mortgage
Finance, Inc., as seller, and Prudential Securities Realty
Funding Corporation, as Purchaser, dated as of August 11, 1997.
**10.33 Mortgage Loan Purchase and Sale Agreement dated as of January 15,
1997 between Prudential Securities Realty Funding Corporation and
NVR Mortgage Finance, Inc.
*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
*11 Computation of Earnings per Share
*21 NVR, Inc. Subsidiaries.
*23 Consent of KPMG LLP (independent auditors).
*27 Financial Data Schedule
* Filed herewith.
** Contained in a previously filed Annual Report on Form 10-K.
_________________
REPORTS ON FORM 8-K (NONE)
20
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 15, 1999
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 15, 1999
/s/ C. Scott Bartlett, Jr. Director
- ----------------------------
C. Scott Bartlett, Jr. March 15, 1999
/s/ Manuel H Johnson Director
- ----------------------------
Manuel H. Johnson March 15, 1999
/s/ William A. Moran Director
- ----------------------------
William A. Moran March 15, 1999
/s/ Richard H. Norair, Sr. Director
- ----------------------------
Richard H. Norair, Sr. March 15, 1999
/s/ David A. Preiser Director
- ----------------------------
David A. Preiser March 15, 1999
/s/ George E. Slye Director
- ----------------------------
George E. Slye March 15, 1999
/s/ John M. Toups Director
- ----------------------------
John M. Toups March 15, 1999
Senior Vice President,
Chief Financial Officer and
/s/ Paul C. Saville Treasurer March 15, 1999
- ----------------------------
Paul C. Saville
21
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, 1998 and 1997 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, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Pittsburgh, Pennsylvania
January 27, 1999
22
NVR, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
DECEMBER 31,
------------------
1998 1997
-------- --------
ASSETS
HOMEBUILDING:
Cash and cash equivalents $ 59,118 $ 41,684
Receivables 1,515 3,398
Inventory:
Lots and housing units, covered under
sales agreements with customers 236,447 165,132
Unsold lots and housing units 45,478 51,434
Manufacturing materials and other 6,713 7,475
-------- --------
288,638 224,041
Property, plant and equipment, net 16,663 17,241
Reorganization value in excess of amounts
allocable to identifiable assets, net 60,062 69,366
Goodwill, net 9,659 10,753
Contract land deposits 40,699 36,992
Other assets 41,301 22,424
-------- --------
517,655 425,899
-------- --------
MORTGAGE BANKING:
Cash and cash equivalents 9,386 4,041
Mortgage loans held for sale, net 178,695 115,744
Mortgage servicing rights, net 3,680 2,220
Property and equipment, net 934 637
Reorganization value in excess of amounts
allocable to identifiable assets, net 10,611 11,700
Other assets 3,398 4,380
-------- --------
206,704 138,722
-------- --------
TOTAL ASSETS $724,359 $564,621
======== ========
(Continued)
See notes to consolidated financial statements.
23
NVR, INC.
Consolidated Balance Sheets (Continued)
(dollars in thousands, except share data)
DECEMBER 31,
---------------------
1998 1997
---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
HOMEBUILDING:
Accounts payable $ 88,272 $ 67,987
Accrued expenses and other liabilities 103,683 75,096
Customer deposits 34,639 19,835
Notes payable 4,054 5,728
Other term debt 5,434 14,017
Senior notes 145,000 120,000
--------- --------
381,082 302,663
--------- --------
MORTGAGE BANKING:
Accounts payable and other liabilities 11,709 8,925
Notes payable 165,849 108,393
--------- --------
177,558 117,318
--------- --------
Total liabilities 558,640 419,981
--------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,190,971 and
19,995,494 shares issued
for 1998 and 1997, respectively 202 200
Additional paid-in-capital 174,173 164,731
Retained earnings 132,683 75,977
Less treasury stock at cost - 9,805,132
and 8,900,972 shares at December 31,
1998 and 1997, respectively (141,339) (96,268)
--------- --------
Total shareholders' equity 165,719 144,640
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 724,359 $564,621
========= ========
24
NVR, INC.
Consolidated Statements of Income
(dollars in thousands, except share data)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ------------------ ------------------
HOMEBUILDING:
Revenues $ 1,504,744 $1,154,022 $1,045,930
Other income 1,874 1,232 1,312
Cost of sales (1,273,815) (995,855) (906,255)
Selling, general and administrative (113,329) (87,231) (71,184)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (7,547) (6,635) (7,048)
----------- ---------- ----------
Operating income 111,927 65,533 62,755
Interest expense (17,528) (16,410) (16,611)
----------- ---------- ----------
Homebuilding income 94,399 49,123 46,144
MORTGAGE BANKING:
Mortgage banking fees 42,703 25,946 24,029
Interest income 9,861 6,415 5,351
Other income 634 674 47
General and administrative (30,022) (23,636) (23,507)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets (1,088) (1,088) (1,088)
Interest expense (6,120) (3,544) (2,249)
----------- ---------- ----------
Operating income 15,968 4,767 2,583
TOTAL SEGMENT INCOME 110,367 53,890 48,727
Income tax expense (44,260) (25,011) (22,946)
----------- ---------- ----------
Income before extraordinary loss 66,107 28,879 25,781
Extraordinary loss-extinguishment of debt
(net of tax benefit of $5,885 for the year
ended December 31, 1998) (9,401) - -
----------- ---------- ----------
NET INCOME $ 56,706 $ 28,879 $ 25,781
=========== ========== ==========
BASIC EARNINGS PER SHARE:
Income before extraordinary loss $ 5.94 $ 2.44 $ 1.76
Extraordinary loss (0.84) - -
----------- ---------- ----------
Basic earnings per share $ 5.10 $ 2.44 $ 1.76
=========== ========== ==========
DILUTED EARNINGS PER SHARE:
Income before extraordinary loss $ 4.97 $ 2.18 $ 1.70
Extraordinary loss (0.71) - -
----------- ---------- ----------
Diluted earnings per share $ 4.26 $ 2.18 $ 1.70
=========== ========== ==========
See notes to consolidated financial statements.
25
NVR, INC.
Consolidated Statements of Shareholders' Equity
(dollars in thousands)
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------ ---------- --------- ----------
BALANCE, DECEMBER 31, 1995 $184 $144,072 $ 21,626 $ (19,702)
Net income - - 25,781 -
Purchase of common stock
for treasury - - - (35,137)
Performance share activity - 529 - 1,710
Warrant activity 15 13,146 (309) -
Option activity - 95 - -
---- -------- -------- ---------
BALANCE, DECEMBER 31, 1996 199 157,842 47,098 (53,129)
Net income - - 28,879 -
Purchase of common stock
for treasury - - - (45,545)
Performance share activity - 5,580 - 2,406
Tax benefit from stock options
exercised - 464 - -
Option activity 1 845 - -
---- -------- -------- ---------
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)
==== ======== ======== =========
See notes to consolidated financial statements.
26
NVR, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 56,706 $ 28,879 $ 25,781
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Extraordinary loss - extinguishment of debt 15,286 - -
Depreciation and amortization 13,408 13,338 15,417
Gain on sales of loans (31,071) (16,731) (14,401)
Deferred tax provision (10,927) (629) (322)
Interest accrued and added to bond principal - - 1,180
Mortgage loans closed (2,717,456) (1,485,763) (1,243,945)
Proceeds from sales of mortgage loans 2,655,949 1,450,618 1,268,254
(Gain) loss on sales of mortgage servicing rights (1,368) (1,069) 1,194
Net change in assets and liabilities:
Increase in inventories (64,597) (31,354) (16,980)
Decrease in receivables 2,601 693 5,084
Increase (decrease) in accounts payable and
accrued expenses 68,815 20,556 (611)
Other, net 1,003 6,437 (1,869)
----------- ----------- -----------
Net cash provided (used) by operating activities (11,651) (15,025) 38,782
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of mortgage-backed securities 9,569 15,126 45,835
Business acquisition, net of cash acquired - (12,533) -
Purchase of property, plant and equipment (3,964) (3,053) (4,267)
Principal payments on mortgage-backed securities 5,076 4,190 15,511
Proceeds from sales of mortgage servicing rights 27,637 14,199 23,518
Other, net 1,266 1,236 4,265
----------- ----------- -----------
Net cash provided by investing activities 39,584 19,165 84,862
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of mortgage-backed bonds (13,341) (18,019) (62,306)
Extinguishment of 11% senior notes (129,344) - -
Deferred financing fees (2,311) - -
Issuance of 8% Senior Notes 145,000 - -
Purchases of treasury stock (50,199) (45,545) (35,137)
Net borrowings (repayments) under notes payable
and credit lines 43,294 29,523 (19,935)
Other, net 1,747 846 12,947
----------- ----------- -----------
Net cash used by financing activities (5,154) (33,195) (104,431)
----------- ----------- -----------
Net increase (decrease) in cash 22,779 (29,055) 19,213
Cash, beginning of year 45,725 74,780 55,567
----------- ----------- -----------
Cash, end of year $ 68,504 $ 45,725 $ 74,780
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 24,670 $ 21,255 $ 22,160
=========== =========== ===========
Income taxes paid during the year, net of refunds $ 43,097 $ 23,018 $ 26,492
=========== =========== ===========
See notes to consolidated financial statements.
27
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.
MERGER
Effective September 30, 1998, NVR merged each of NVR Homes, Inc.,
NVR's wholly owned homebuilding subsidiary, and NVR Financial Services,
Inc., NVR's wholly owned mortgage banking holding company, into the
Company. The Company now conducts its homebuilding activities both directly
and through its wholly owned subsidiary, Fox Ridge Homes, Inc. ("Fox
Ridge"). The Company conducts its mortgage banking operations primarily
through another wholly owned subsidiary, NVR Mortgage Finance, Inc. ("NVR
Finance").
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles 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 includes 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, 1998 and 1997 was $42,030 and
$34,489, respectively. Determination of any impairment losses related to
this intangible asset is based on consideration of projected undiscounted
cash flows.
28
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
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 over ten years. Accumulated amortization was
$1,276 and $182 at December 31, 1998 and 1997, respectively. 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.
MORTGAGE-BACKED SECURITIES AND MORTGAGE-BACKED BONDS
Prior to 1996, the Company's ownership interests in mortgage-backed
securities and the related mortgage-backed bonds were presented on a gross
basis on the consolidated balance sheets and income statements.
Accordingly, the book values of the mortgage-backed securities and
mortgage-backed bonds were presented separately as assets and liabilities,
respectively, on the consolidated balance sheets, and interest income on
mortgage-backed securities and interest expense of the mortgage-backed
bonds were presented separately as income and expense, respectively, on the
consolidated income statements. 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. 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.
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, 1998,
1997 and 1996:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
Weighted average number of
shares outstanding used to
calculate Basic EPS 11,131,114 11,838,743 14,620,593
Dilutive securities:
Warrants - - 211,502
Stock Options 2,168,950 1,405,934 304,914
------------ ----------- ----------
Weighted average number of
shares and share equivalents
outstanding used to calculate
Diluted EPS 13,300,064 13,244,677 15,137,009
============ =========== ==========
29
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
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. Additionally, to a significantly lesser degree, NVR sells house
packages to builder-dealers and other homebuilders and recognizes revenue
at the time the product is delivered to the builder-dealer or homebuilder.
MORTGAGE BANKING FEES
Mortgage banking fees include income earned by NVR's mortgage banking
subsidiaries for originating and processing 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. Loan origination fees and direct
loan origination costs are deferred and the net deferred fees, or costs,
are recognized either upon the sale of the loan or as an adjustment of the
yield over the life of the loan.
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
their current fair value. Current fair value is determined through the
discounted present value of estimated future net servicing cashflows 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.
INCOME TAXES
NVR files a consolidated federal income tax return. Deferred income
taxes reflect the impact of "temporary differences" between the amount of
assets and liabilities for financial reporting purposes and such amounts as
measured by enacted tax rules and regulations.
30
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
FINANCIAL INSTRUMENTS
Except as otherwise noted in note 4 to the financial statements, NVR
believes that insignificant differences exist between the carrying value
and the fair value of its financial instruments.
ADOPTION OF NEW ACCOUNTING PRINCIPLES
During the quarter ended March 31, 1998, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners
and distributions to owners. For the years ended December 31, 1998, 1997
and 1996, comprehensive income equaled net income; therefore, a separate
statement of comprehensive income is not included in the accompanying
financial statements.
The Company also implemented SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information during 1998. SFAS No. 131
establishes standards for the way that public enterprises report
information about operating segments in annual and interim financial
statements. Because SFAS No. 131 has a disclosure-only effect on the notes
to the Company's financial statements, adoption of SFAS No. 131 has no
impact on the Company's results of operations or financial condition. (See
note 2 for the required disclosure).
STOCK-BASED COMPENSATION
As permitted under SFAS No. 123, NVR has elected to continue to follow
the guidance of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, in accounting for its stock-based employee
compensation arrangements. The pro forma financial information required by
SFAS No. 123 is included in note 9.
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 63% of its 1998 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, which is built in sixteen
metropolitan areas located in Maryland, Virginia, Pennsylvania, New York, North
Carolina, South Carolina, Ohio, New Jersey, Delaware and Tennessee, is
moderately priced and marketed primarily towards first-time buyers. The NVHomes
product is built largely in the Washington, D.C. metropolitan area, and is
marketed primarily to move-up buyers. The Fox Ridge Homes product, built solely
in the Nashville, Tennessee metropolitan area, is also moderately priced and
marketed primarily to first-time buyers.
The mortgage banking segment, which operates under NVR Finance, currently
includes a national mortgage banking operation and a limited-purpose financing
subsidiary (the "Limited-Purpose Financing
31
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
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 marketing 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. Although
NVR's mortgage banking operations provide financing to a substantial portion of
NVR's homebuilding customers, NVR's homebuilding customers accounted for only
31% of the aggregate dollar amount of loans closed in 1998.
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, 1998
- --------------------------------------
HOMEBUILDING MORTGAGE BANKING TOTALS
------------ ---------------- ----------
Revenues $1,504,744 $ 42,703 $1,547,447 (a)
Interest income 1,256 9,861 11,117 (a)
Interest expense 17,528 6,120 23,648 (a)
Depreciation and amortization 4,166 607 4,773 (b)
Segment profit 101,946 17,056 119,002 (b)
Segment assets 447,934 196,093 644,027 (b)
Expenditures for segment assets 3,007 957 3,964 (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 $ 4,166 $ 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
========== ======== =========
FOR THE YEAR ENDED DECEMBER 31, 1997
- ------------------------------------
HOMEBUILDING MORTGAGE BANKING TOTALS
------------ ---------------- ------
Revenues $1,154,022 25,946 1,179,968 (c)
Interest income 252 6,415 6,667 (c)
Interest expense 16,410 3,544 19,954 (c)
Depreciation and amortization 4,384 1,231 5,615 (d)
Segment profit 55,758 5,855 61,613 (d)
Segment assets 345,780 127,022 472,802 (d)
Expenditures for segment assets 2,708 345 3,053 (c)
Total amounts for the reportable segments equal the respective amounts for the
consolidated enterprise.
32
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
(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 $ 4,384 $ 1,231 $ 5,615
Add: amortization of excess
reorganization value and goodwill 6,635 1,088 7,723
---------- ------------- ----------
Consolidated depreciation and
amortization $ 11,019 $ 2,319 $ 13,338
========== ============= ==========
Segment profit $ 55,758 $ 5,855 $ 61,613
Less: amortization of excess
reorganization value and goodwill (6,635) (1,088) (7,723)
---------- ------------- ----------
Consolidated income before income
taxes and extraordinary loss $ 49,123 $ 4,767 $ 53,890
========== ============= ==========
Segment assets $ 345,780 $ 127,022 $ 472,802
Add: Excess reorganization value
and goodwill 80,119 11,700 91,819
---------- ------------- ----------
Total consolidated assets $ 425,899 $ 138,722 $ 564,621
========== ============= ==========
FOR THE YEAR ENDED DECEMBER 31, 1996
- ------------------------------------
HOMEBUILDING MORTGAGE BANKING TOTALS
------------ ---------------- ------
Revenues $1,045,930 $ 24,029 $ 1,069,959 (e)
Interest income 783 5,351 6,134 (e)
Interest expense 16,611 2,249 18,860 (e)
Depreciation and amortization 3,851 3,430 7,281 (f)
Segment profit 53,192 3,671 56,863 (f)
Segment assets 321,460 91,099 412,559 (f)
Expenditures for segment assets 4,019 248 4,267 (e)
(e) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(f) The following reconciles segment profit and segment assets to the respective
amounts for the consolidated enterprise:
HOMEBUILDING MORTGAGE BANKING TOTALS
------------ ---------------- ------
Segment depreciation and
amortization $ 3,851 $ 3,430 $ 7,281
Add: amortization of excess
reorganization value and goodwill 7,048 1,088 8,136
---------- -------- --------
Consolidated depreciation and
amortization $ 10,899 $ 4,518 $ 15,417
========== ======== ========
Segment profit $ 53,192 $ 3,671 $ 56,863
Less: amortization of excess
reorganization value and goodwill (7,048) (1,088) (8,136)
---------- -------- --------
Consolidated income before income
taxes and extraordinary loss $ 46,144 $ 2,583 $ 48,727
========== ======== ========
Segment assets $ 321,460 $ 91,099 $412,559
Add: Excess reorganization value
and goodwill 75,818 12,788 88,606
---------- -------- --------
Total consolidated assets $ 397,278 $103,887 $501,165
========== ======== ========
33
NVR, INC.
NOTES TO CONSOLIDATED STATEMENTS
(dollars in thousands, except per share data)
3. RELATED PARTY TRANSACTIONS
During 1998, 1997, and 1996, 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 $13,000, $8,100 and $6,600 during 1998,
1997 and 1996, respectively. NVR expects to purchase the majority of the
remaining lots under contract as of December 31, 1998 over the next 18 to 24
months for an aggregate purchase price of approximately $38,091.
During the years ended December 31, 1998, 1997 and 1996, one of the
executive officers of NVR was a partner in a law firm which billed NVR
approximately $441, $375 and $344, respectively, in fees and expenses for legal
services.
During 1996, NVR repurchased, at market prices, 2,370,839 shares of its
common stock for an aggregate purchase price of $25,401 from certain investors
who at the time of the purchases were beneficial owners of greater than five
percent (5%) of the Company's common stock. In addition, during 1996, the
Company also repurchased, at market prices, 304,735 warrants to purchase the
Company's common stock at an aggregate purchase price of $166 from certain of
the aforementioned investors.
4. LOAN SERVICING PORTFOLIO, MORTGAGE LOAN COMMITMENTS AND OFF-BALANCE SHEET
RISK
At December 31, 1998 and 1997, NVR was servicing approximately 3,170 and
2,947 mortgage loans for various investors with aggregate balances of
approximately $261,000 and $224,000, respectively.
At December 31, 1998, NVR had capitalized mortgage servicing rights of
$3,680 which related to approximately $258 million of the aggregate $261 million
in loans serviced. The mortgage servicing rights associated with the remaining
$3 million 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. At December 31, 1997, NVR had capitalized purchased mortgage servicing
rights of $2,220.
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 cashflows 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 was $3,878 and $2,471 at December 31, 1998 and 1997,
respectively. The fair value of the mortgage servicing rights not subject to
capitalization was $300 and $490 at December 31, 1998 and 1997, respectively.
Based on management's estimate of the fair value of the designated strata, the
Company established a $65 valuation reserve at December 31, 1998.
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, 1998, 1997 and 1996 was $484, $506 and
$1,627, 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.
34
NVR, INC.
NOTES TO CONSOLIDATED STATEMENTS
(dollars in thousands, except per share data)
There were mortgage loan commitments aggregating approximately $235,812 and
$129,949 outstanding at December 31, 1998 and 1997, respectively. The fair
values of mortgage loan commitments were approximately $236,272 and $130,291 at
December 31, 1998 and 1997, respectively. There were open forward delivery
contracts aggregating approximately $287,317 and $195,719 at December 31, 1998
and 1997, respectively. The fair values of open forward delivery contracts were
approximately $287,528 and $198,099 at December 31, 1998 and 1997, 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, 1998 and 1997 there were no such positions. There were no
counterparty default losses on forward contracts in 1998, 1997 or 1996. 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.
5. PROPERTY, PLANT AND EQUIPMENT, NET
DECEMBER 31,
-------------------------
1998 1997
---------- ----------
HOMEBUILDING:
Office facilities and other $ 17,996 $ 7,926
Model home furniture and fixtures 6,377 5,947
Manufacturing facilities 8,170 7,199
Property under capital leases 4,234 14,177
-------- --------
36,777 35,249
Less accumulated depreciation and amortization (20,114) (18,008)
-------- --------
$ 16,663 $ 17,241
======== ========
MORTGAGE BANKING:
Office facilities and other $ 3,854 $ 3,965
Less accumulated depreciation and amortization (2,920) (3,328)
-------- --------
$ 934 $ 637
======== ========
Included in Homebuilding property, plant and equipment are amounts for land
totaling $1,732 at December 31, 1998 and 1997.
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.
35
NVR, INC.
NOTES TO CONSOLIDATED STATEMENTS
(dollars in thousands, except per share data)
6. DEBT
DECEMBER 31,
-----------------------------------
1998 1997
----------- -----------
HOMEBUILDING:
Notes payable:
Working capital revolving credit (a) $ - $ -
Other (b) 4,054 5,728
---------- -----------
$ 4,054 $ 5,728
========== ===========
Other term debt:
Capital lease and financing obligations
due in monthly installments
through 2014 (c) $ 5,434 $ 14,017
========== ===========
Senior notes (d) $ 145,000 $ 120,000
========== ===========
MORTGAGE BANKING:
Mortgage warehouse revolving credit (e) $ 145,496 $ 77,765
Mortgage repurchase facility (f) 19,868 30,628
Capital lease and financing
obligations due in monthly
installments through 2004 (c) 485 -
---------- -----------
$165,849 $ 108,393
========== ===========
(a) In September 1998, the Company, as borrower, succeeded to the obligations
of NVR Homes, Inc. under the unsecured working capital revolving credit facility
as amended and restated (the "Facility"). This Facility currently provides for
unsecured borrowings up to $100,000 (of which $60,000 is committed), subject to
certain borrowing base limitations, and 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 $11,719 and $6,059 were issued at December 31, 1998 and 1997,
respectively. The Facility expires May 31, 2001 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) 1.5% above the Eurodollar Rate. The
weighted average interest rates for the amounts outstanding under the Facility
were 7.2% and 8.1% for 1998 and 1997, respectively.
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) Other notes payable as of December 31, 1998 is principally comprised of a
$3,086 note payable issued in connection with the acquisition of Fox Ridge in
1997. The weighted average interest rate was 7.5% during 1998 and 1997.
(c) 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 $4,719 and $11,602 at December
31, 1998 and 1997, 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
36
NVR, INC.
NOTES TO CONSOLIDATED STATEMENTS
(dollars in thousands, except per share data)
accompanying consolidated income statements. Subsequent to December 31, 1998,
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,
1998:
YEARS ENDING DECEMBER 31:
---------------------------------------
1999 $ 978
2000 968
2001 968
2002 968
2003 959
Thereafter 7,349
-------
12,190
Amount representing interest 6,271
-------
$ 5,919
=======
(d) 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. An additional $30,000 in principal is available for
issuance under the New Senior Note offering.
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.
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 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.
(e) The mortgage warehouse facility ("Mortgage Warehouse Revolving Credit") of
NVR Finance has a borrowing limit at December 31, 1998 of $175,000 of which
$150,000 is committed. The interest rate under the Mortgage Warehouse Revolving
Credit agreement is either: (i) the London Interbank Offering Rate ("Libor")
plus either 1.35% or 1.5% depending on the type of collateral, or (ii) 1.375% or
1.5% 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 5.2% and
5.4% during 1998 and 1997, respectively. Primarily mortgage loans and gestation
mortgage-backed
37
NVR, INC.
NOTES TO CONSOLIDATED STATEMENTS
(dollars in thousands, except per share data)
securities collateralize the Mortgage Warehouse Revolving Credit agreement. The
Mortgage Warehouse Revolving Credit Agreement is an annually renewable facility
and currently expires in July 1999.
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.
(f) 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 federal funds 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 6.5% and 6.8% during 1998 and 1997,
respectively.
* * * * *
Maturities with respect to the other notes payable, other term debt, and
the New Senior Notes as of December 31, 1998 are as follows:
YEARS ENDING DECEMBER 31:
-----------------------------------
1999 $ 2,286
2000 2,375
2001 450
2002 419
2003 424
Thereafter 149,019
The $149,019 maturing after 2003 includes $145,000 in 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 $8,750 as of December 31, 1998 that were so
restricted.
At December 31, 1998, the homebuilding and mortgage banking segments had
restricted cash of $317 and $8,877, respectively, which includes certain
customer deposits, mortgagor tax, insurance, completion escrows and other
amounts collected at closing which relates to mortgage loans held for sale and
to home sales.
7. COMMON STOCK
There were 10,385,839 and 11,094,522 common shares outstanding at December
31, 1998 and 1997, respectively. As of December 31, 1998, NVR had reacquired a
total of 10,516,578 shares of NVR common shares at an aggregate cost of $150,581
since December 31, 1993. Approximately 711,000 common shares have been reissued
from the treasury in satisfaction of employee benefit liabilities. The average
cost basis for the aggregate number of shares reissued from the treasury was
$12.99 per share. In addition, approximately 225,000 stock options were
exercised during 1998 with NVR realizing $1,747 in equity proceeds.
On September 30, 1993, NVR issued warrants to purchase 2,162,828 shares of
common stock at an exercise price of $8.80 per share with an expiration date of
September 30, 1996. During 1996, 1,495,515 warrants were exercised for a like
number of common shares, with NVR realizing $13,161 in aggregate equity
proceeds. In addition, during 1996 NVR repurchased 561,135 warrants, at market
prices, for an aggregate
38
NVR, INC.
NOTES TO CONSOLIDATED STATEMENTS
(dollars in thousands, except per share data)
purchase price of $309. NVR retired the repurchased warrants with a charge to
retained earnings equal to the purchase price. A total of 106,178 warrants
expired unexercised.
8. INCOME TAXES
The provision for income taxes consists of the following:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ------------------ ------------------
CURRENT:
Federal $ 47,632 $22,539 $19,070
State 7,555 3,101 4,198
DEFERRED:
Federal (10,031) (1,030) (539)
State (896) 401 217
-------- ------- -------
$ 44,260 $25,011 $22,946
======== ======= =======
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, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
Income tax benefits arising from
compensation expense for tax
purposes in excess of amounts
recognized for financial
statement purposes $ 3,744 $ 464 $ -
========== ========== ==========
Deferred income taxes on NVR's consolidated balance sheets are comprised of
the following:
DECEMBER 31,
--------------------------
1998 1997
----------- ----------
Total deferred tax assets $ 33,365 $ 23,561
Less: valuation allowance - 2,852
----------- ---------
33,365 20,709
Less: deferred tax liabilities 8,035 9,158
----------- ---------
$ 25,330 $ 11,551
=========== =========
Deferred tax assets arise principally as a result of various accruals
required for financial reporting purposes which are not currently deductible for
tax return purposes. Deferred tax liabilities arise principally as a result of
depreciation and accounting for certain sales on the installment method for tax
return purposes.
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 $110,313 and $62,417 for the
years ended December 31, 1998 and 1997.
Tax benefits realized in subsequent periods related to unrecognized
deferred tax assets as of September 30, 1993 will be recorded as a reduction of
reorganization value in excess of amounts allocable to identifiable assets. For
the years ended December 31, 1998, 1997 and 1996, $2,852, $0 and $7,000,
respectively, of such benefits were realized. Unrecognized deferred tax assets
which arose as of September 30, 1993 amounted to $0 and $2,852 as of December
31, 1998 and 1997, respectively.
39
NVR, INC.
NOTES TO CONSOLIDATED STATEMENTS
(dollars in thousands, except per share data)
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 before income taxes, discontinued operations and extraordinary gains
is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------ ----------------- -----------------
Income taxes computed at the
Federal statutory rate $ 38,628 $ 18,862 $ 17,054
State income taxes, net of Federal
income tax benefit 4,328 2,276 2,870
Non-deductible amortization 2,639 2,639 2,848
Non-deductible expense 1,856 1,093 -
Utilization of net operating loss
carry forward (3,300) - -
Other, net 109 141 174
-------------- -------------- -------------
$ 44,260 $ 25,011 $ 22,946
============== ============== =============
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 expires in
2002.
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 contributions in amounts as determined by the NVR Board
of Directors (the "Board"). The combined plan expense for the years ended
December 31, 1998, 1997 and 1996 was $6,436, $3,081 and $4,627, respectively.
During 1998 and 1997, the ESOP purchased in the open market 111,902 and 110,569
shares respectively of NVR common stock using cash contributions provided by
NVR. As of December 31, 1998, all shares held by the ESOP have been allocated 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.
40
NVR, INC.
NOTES TO CONSOLIDATED STATEMENTS
(dollars in thousands, except per share data)
1998 1997 1996
------------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
MANAGEMENT INCENTIVE PLAN Options Prices Options Prices Options Prices
- ---------------------------- ------- ------ ------- ------ ------- ------
Options outstanding at the
beginning of the year 953,952 $ 7.60 1,076,424 $ 7.60 1,085,450 $ 7.59
Granted - - - - 6,503 8.21
Canceled - - (5,000) 7.62 (800) 7.62
Exercised (127,981) 7.62 (117,472) 7.64 (14,729) 7.16
--------- ------- --------- ------ --------- ---------
Outstanding at end of year 825,971 $ 7.60 953,952 $ 7.60 1,076,424 $ 7.60
========= ======= ========= ====== ========= =========
Exercisable at end of year 825,971 $ 7.60 953,952 $7.60 1,076,424 $ 7.60
========= ======= ========= ====== ========= =========
Exercise prices for Management Incentive Plan options outstanding at
December 31, 1998 range from $5.06 to $9.11 per share, and their weighted
average remaining contractual life equals 4.75 years. Approximately 95% of the
options exercisable at December 31, 1998 had an exercise price of $7.62 per
share.
Under the 1994 Management Incentive Plan (the "1994 Incentive Plan"),
executive officers and other key employees of the Company are eligible to
receive stock options (the "1994 NVR Share Options") and performance shares (the
"1994 Performance Shares"). There are 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 vest in one-third increments on each of December
31, 1997, 1998 and 1999, with vesting based upon continued employment.
1998 1997 1996
------------------- --------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1994 INCENTIVE PLAN Options Prices Options Prices Options Prices
- ------------------- ------- ------ -------- ------- ------- --------
Options outstanding at the
beginning of the year 35,000 $14.00 - $ - - $ -
Granted 13,195 32.20 35,000 14.00 - -
Canceled - - - - - -
Exercised (4,832) 14.00 - - - -
------ ------ ------ ------ ------- --------
Outstanding at end of year 43,363 $19.54 35,000 $14.00 - $ -
====== ====== ======= ====== ======= ========
Exercisable at end of year 22,898 $17.50 11,667 $14.00 - $ -
====== ====== ======= ====== ======= ========
Exercise prices for 1994 Incentive Plan options outstanding at December 31,
1998 range from $14.00 to $34.50 per share, and their weighted average remaining
contractual life equals 8.6 years. Approximately 70% of the options outstanding
at December 31, 1998 had an exercise price of $14.00 per share.
A total of 1,095,200 1994 Performance Shares have been granted to employees
as of December 31, 1998 and two-thirds of the 1994 Performance Shares have
vested. An additional one-third of the total 1994 Performance Shares authorized
may vest on December 31, 1999 if certain earnings targets are met or exceeded.
All 1994 Performance Shares that do not vest are forfeited back to NVR on
December 31, 2000. For the years ended December 31, 1998, 1997 and 1996,
compensation expense recognized for the 1994 Performance Shares totaled $9,081,
$7,986 and $2,239, respectively.
During 1996, the Company's Shareholders approved the Board of Directors'
adoption of the Management Long-Term Stock Option Plan (the "Management Long
Term Stock 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.
41
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1998 1997 1996
-------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
MANAGEMENT LONG-TERM Exercise Exercise Exercise
STOCK OPTION PLAN Options Prices Options Prices Options Prices
- ----------------- --------- -------- --------- -------- --------- --------
Options outstanding at the
beginning of the year 1,770,000 $11.30 1,554,000 $10.58 - $ -
Granted 13,405 25.00 216,000 16.51 1,554,000 10.58
Canceled (30,000) 10.63 - - - -
Exercised - - - - - -
--------- ------ --------- ------ --------- --------
Outstanding at end of year 1,753,405 $11.42 1,770,000 $11.30 1,554,000 $10.58
========= ====== ========= ====== ========= ========
Exercisable at end of year - $ - - $ - - $ -
========= ====== ========= ====== ========= ========
Exercise prices for Management Long-Term Incentive Plan options outstanding
at December 31, 1998 range from $9.13 to $25.00 per share, and their weighted
average remaining contractual life equals 8.5 years. Approximately 87% of the
options outstanding at December 31, 1998 had an exercise price of $10.63 per
share.
The weighted average fair values of grants made in 1998, 1997 and 1996 for
management incentive plans were $18.65, $10.13 and $6.14, 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:
1998 1997 1996
--------- --------- ---------
Estimated option life 10 years 10 years 10 years
Risk free interest rate 5.52% 6.79% 7.10%
Expected volatility 45.14% 35.16% 28.9%
Expected dividend yield 0.0% 0.0% 0.0%
Directors' Incentive Plans -- The NVR Directors' Long Term Incentive Plan
provides for each eligible director to be granted options ("Directors' 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, leaving 182,000 options
available for future grants as of December 31, 1998. The option exercise price
for all options granted on September 30, 1993 was $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 68,250 Directors' Options exercised during 1998,
leaving 113,750 Directors' Options outstanding and exercisable at December 31,
1998. Pursuant to the Plan, each outside director also received a one-time cash
payment of $200 during 1997 for the achievement of certain goals under a five-
year measurement period beginning September 30, 1993.
In addition, there were 192,000 NVR share options authorized and granted in
1996 to the Company's outside directors under the Directors' Long Term Stock
Option Plan (the "Directors' Long Term 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. The weighted average grant-date fair
value of the options granted during 1996 was $5.98 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 7.1% (based on the U.S. Treasury Strip quote on the date
of grant, iii) the expected volatility equaled 28.9%, and iv) the estimated
dividend yield was 0%. There were 24,000 Directors'
42
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Long Term Plan Options exercised during 1998, pursuant to a separation of
service due to death clause within the Directors' Long Term Plan, leaving
168,000 options outstanding but unexercisable at December 31, 1998.
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, unaudited pro forma net
income and earnings per share would have been $55,352 ($4.16 per diluted
share), $27,637 ($2.09 per diluted share), and $24,849 ($1.64 per diluted share)
for the years ended December 31, 1998, 1997 and 1996, respectively, if the
Company had accounted for its stock based employee compensation arrangements
using the fair value method. The 1998, 1997 and 1996 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.
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, 1998 are as follows:
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 $ 4,533
2000 2,990
2001 2,031
2002 1,537
2003 1,110
Thereafter 3,065
-------
$15,266
=======
Total rent expense incurred under operating leases was approximately
$4,060, $3,425 and $3,180 for the years ended December 31, 1998, 1997 and 1996,
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
$18,259 of contingent obligations under such agreements as of December 31, 1998.
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.
43
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.
The MBS and the reserve amounts, which constitute the collateral for the
Bonds of a series, are held by a trustee for the benefit of the bondholders. 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.
During 1998, NVR sold, at a premium, MBS totaling $9,080, the proceeds of
which were used to redeem in full the related outstanding Bonds which totaled
$8,855. The sales of the MBS resulted in a pre-tax gain of $608, which was
substantially offset by a pre-tax loss on the related Bonds of $315.
During 1997, NVR sold, at a premium, MBS totaling $15,126, the proceeds of
which were used to redeem in full the related outstanding Bonds which totaled
$14,074. The sales of the MBS resulted in a pre-tax gain of $590, which was
partially offset by a pre-tax loss on the related Bonds of $552.
During 1996, NVR sold, at a premium, MBS totaling $45,835, the proceeds of
which were used to redeem in full the related outstanding Bonds which totaled
$44,518. The sales of the MBS resulted in a pre-tax gain of $2,077, which was
partially offset by a pre-tax loss on the related Bonds of $1,586.
The following comprise the assets and liabilities of the Limited Purpose
Financing Subsidiary:
DECEMBER 31,
-----------------
1998 1997
------- --------
ASSETS:
Mortgage-backed securities, net $7,438 $20,010
Funds held by trustee 74 245
Other assets 584 1,030
------ -------
TOTAL ASSETS 8,096 21,285
------ -------
LIABILITIES:
Accrued expenses and other liabilities 405 681
Mortgage-backed bonds 7,902 21,243
Unamortized discounts (221) (648)
------ -------
TOTAL LIABILITIES 8,086 21,276
------ -------
Mortgage-backed securities, net of mortgage-
backed bonds, and related assets and liabilities $ 10 $ 9
====== =======
The weighted average portfolio yield on the MBS was 9.0% and 9.1% at
December 31, 1998 and
44
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1997, 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. ACQUISITION
NVR Fox Ridge, Inc., a wholly owned subsidiary of NVR, was formed during
1997 to purchase substantially all of the assets and assume certain liabilities
of Fox Ridge Homes, Inc. ("FRH"), a leading homebuilder in Nashville, Tennessee.
NVR Fox Ridge, Inc. was renamed Fox Ridge Homes, Inc. ("Fox Ridge") in November
1997. To consummate the purchase on October 31, 1997, Fox Ridge assumed
approximately $15,160 of FRH's liabilities, paid FRH $14,250 in cash at
settlement on October 31, 1997, and issued a note payable for the remaining
$4,750 purchase price. The note bears interest at 200 basis points above the
federal funds target rate, and will be paid in three annual installments,
including accrued interest. The first annual installment was paid on October
31, 1998; the remaining annual installments will be paid on each of October 31,
1999 and 2000.
Fox Ridge accounted for this acquisition using the purchase method, and the
operations of the acquired business have been included in NVR's consolidated
statements of income since its acquisition. Goodwill that was generated
pursuant to the purchase transaction is being amortized using the straight-line
method over 10 years.
The following unaudited pro forma summary of combined operations was
prepared to illustrate the estimated effects of the 1997 acquisition of FRH as
if such acquisition had occurred on the first day of the respective periods
presented.
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996
---- ----
Homebuilding revenues $1,192,684 $1,100,821
Net income 29,343 28,209
Diluted earnings per share 2.22 1.86
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, 1998
and 1997.
YEAR ENDED DECEMBER 31, 1998
---------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- --------- --------
Revenues-homebuilding
operations $291,547 $385,738 $441,034 $386,425
Gross profit - homebuilding
operations $ 43,591 $ 59,892 $ 68,084 $ 59,362
Mortgage banking fees $ 7,687 $ 10,684 $ 11,724 $ 12,608
Income before discontinued
operations and extraordinary gain $ 10,860 $ 15,495 $ 24,759 $ 14,993
Diluted earnings per share before
discontinued operations and
extraordinary gain $ 0.81 $ 1.15 $ 1.87 $ 1.16
Contracts for sale, net
of cancellations (units) 2,262 2,533 1,821 2,384
Settlements (units) 1,543 1,995 2,169 1,915
Backlog, end of period (units) 3,914 4,452 4,104 4,573
Loans closed $578,334 $658,789 $697,567 $782,766
45
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1997
---------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues-homebuilding
operations $238,987 $281,437 $316,874 $316,724
Gross profit - homebuilding
operations $ 31,518 $ 38,628 $ 44,566 $ 43,455
Mortgage banking fees $ 5,122 $ 6,698 $ 6,407 $ 7,719
Income before discontinued
operations and extraordinary gain $ 5,763 $ 9,043 $ 9,006 $ 5,067
Diluted earnings per share before
discontinued operations and
extraordinary gain $ 0.42 $ 0.71 $ 0.68 $ 0.39
Contracts for sale, net
of cancellations (units) 1,445 2,041 1,366 1,834
Settlements (units) 1,315 1,494 1,639 1,659
Backlog, end of period (units)(1) 2,596 3,143 2,870 3,195
Loans closed $297,698 $349,253 $396,117 $442,695
(1) NVR acquired Fox Ridge Homes, Inc. on October 31, 1997. The acquisition of
Fox Ridge increased the Company's backlog by 150 units on the date of the
acquisition.
46