UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

As of April 30,August 1, 2022 there were 3,289,6663,282,665 total shares of common stock outstanding.

NVR, Inc.

(in thousands, except per share data)

NVR, Inc.

(in thousands)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements include the accounts of NVR, Inc. (“NVR”, the “Company”, "we", "us" or "our") and its subsidiaries and certain other entities in which the Company is deemed to be the primary beneficiary (see Notes 2 and 3 to the accompanying condensed consolidated financial statements).  Intercompany accounts and transactions have been eliminated in consolidation.  The statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.  In the opinion of management, all adjustments (consisting only of normal recurring accruals except as otherwise noted herein) considered necessary for a fair presentation have been included.  Operating results for the three and six months ended March 31,June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

For the three and six months ended March 31,June 30, 2022 and 2021, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying condensed consolidated financial statements.

Cash and Cash Equivalents

The beginning-of-period and end-of-period cash, restricted cash, and cash equivalent balances presented on the accompanying condensed consolidated statements of cash flows includes cash related to a consolidated joint venture which is included in homebuilding "Other assets" on the accompanying condensed consolidated balance sheets. The cash related to this consolidated joint venture as of March 31,June 30, 2022 and December 31, 2021 was $262$258 and $268, respectively, and as of March 31,June 30, 2021 and December 31, 2020 was $273 and $269, respectively.

Revenue Recognition

Homebuilding revenue is recognized on the settlement date at the contract sales price, when control is transferred to our customers. Our contract liabilities, which consist of deposits received from customers on homes not settled, were $453,178$439,119 and $417,463 as of March 31,June 30, 2022 and December 31, 2021, respectively. We expect that substantially all of the customer deposits held at December 31, 2021 will be recognized in revenue in 2022. Our contract assets consist of prepaid sales compensation and totaled approximately $26,300$24,400 and $25,200, as of March 31,June 30, 2022 and December 31, 2021, respectively. Prepaid sales compensation is included in homebuilding “Other assets” on the accompanying condensed consolidated balance sheets.

2.    Variable Interest Entities ("VIEs")

Fixed Price Finished Lot Purchase Agreements (“LPAs”)

We generally do not engage in the land development business.  Instead, we typically acquire finished building lots at market prices from various development entities under LPAs.  The LPAs require deposits that may be forfeited if we fail to perform under the LPAs.  The deposits required under the LPAs are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots.  

The deposit placed by us pursuant to the LPA is deemed to be a variable interest in the respective development entities.  Those development entities are deemed to be VIEs.  Therefore, the development entities with which we enter into LPAs, including the joint venture limited liability corporations discussed below, are evaluated for possible consolidation by us.  We have concluded that we are not the primary beneficiary of the development entities with which we enter into LPAs, and therefore, we do not consolidate any of these VIEs.

As of March 31,June 30, 2022, we controlled approximately 124,600127,700 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $529,600$541,400 and $8,800,$8,100, respectively.  Our sole legal obligation and economic loss for failure to perform under these LPAs is limited to the amount of the deposit pursuant to the liquidated damage provisions contained in the LPAs and, in very limited circumstances, specific performance obligations. For the three and six months ended March 31,June 30, 2022, we recorded a net reversal of approximately $400 and $6,300, respectively, related to previously impaired lot deposits based on current market conditions. For the three and six months ended June 30, 2021, we recorded a net reversal of approximately $5,900$7,200 and $6,200,$13,400, respectively, related to previously impaired lot deposits as market conditions have improved.deposits. Our contract land deposit asset is shown net of a $24,115$23,516 and $30,041 impairment reserve at March 31,June 30, 2022 and December 31, 2021, respectively.

In addition, we have certain properties under contract with land owners that are expected to yield approximately 18,50023,900 lots, which are not included in the number of total lots controlled.  Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits in cash totaling approximately $6,600$6,500 as of March 31,June 30, 2022, of which approximately $4,600$4,300 is refundable if certain contractual conditions are not met.  We generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the assignee if the project is determined to be feasible.

3.    Joint Ventures

On a limited basis, we obtain finished lots using joint venture limited liability corporations (“JVs”). The JVs are typically structured such that we are a non-controlling member and are at risk only for the amount we have invested, or have committed to invest, in addition to any deposits placed under LPAs with the joint venture. We are not a borrower, guarantor or obligor on any debt of the JVs, as applicable. We enter into LPAs to purchase lots from these JVs, and as a result have a variable interest in these JVs.

At March 31,June 30, 2022, we had an aggregate investment totaling approximately $18,800$30,000 in 45 JVs that are expected to produce approximately 2,2005,400 finished lots, of which approximately 1,8505,050 lots were controlled by us and the remaining approximately 350 lots were either under contract with unrelated parties or not currently under contract. We had additional funding commitments totaling approximately $2,000 to one of the JVs at March 31,June 30, 2022.

We determined that we are not the primary beneficiary in 34 of the JVs because we and the other JV partner either share power or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately $18,800$30,000 and $20,300 at March 31,June 30, 2022 and December 31, 2021, respectively, and is reported in the homebuilding “Other assets” line item on the accompanying condensed consolidated balance sheets. None of the unconsolidated JVs had any indicators of impairment as of March 31,

We recognize income from the JVs as a reduction to the lot cost of the lots purchased from the respective JVs when the homes are settled, based on the expected total profitability and the total number of lots expected to be produced by the respective JVs.

We classify distributions received from unconsolidated JVs using the cumulative earnings approach. As a result, distributions received up to the amount of cumulative earnings recognized by us are reported as distributions of earnings and those in excess of that amount are reported as a distribution of capital. These distributions are classified within the accompanying condensed consolidated statements of cash flows as cash flows from operating activities and investing activities, respectively.

4.    Land Under Development

On a limited basis, we directly acquire raw land parcels already zoned for itstheir intended use to develop into finished lots.  Land under development includes the land acquisition costs, direct improvement costs, capitalized interest, where applicable, and real estate taxes.

As of March 31,June 30, 2022, we owned land parcels with a carrying value of $14,668$16,274 that we intend to develop into approximately 350450 finished lots. We have additional funding commitments of approximately $2,000$1,800 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $600. None of the raw parcels had any indicators of impairment as of March 31,June 30, 2022.

5.    Capitalized Interest

6.    Earnings per Share

8.    Shareholders’ Equity

We repurchased 146,05478,452 and 86,523164,975 shares of our outstanding common stock during the three and six months ended March 31, 2022 andJune 30, 2021, respectively. We settle Option exercisesissued 18,033 and vesting of restricted stock units ("RSUs") by issuing48,588 shares of treasury stock.  Approximately 13,323 and 30,555 shares were issued from the treasury account during the three and six months ended March 31, 2022 andJune 30, 2021, respectively, in settlement of Option exercises and vesting of RSUs.  Shares are relieved from the treasury account based on the weighted average cost basis of treasury shares.

8.9.    Product Warranties

We establish warranty and product liability reserves (“Warranty Reserve”) to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to our homebuilding business.  Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the estimated current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our general counsel and outside counsel retained to handle specific product liability cases.

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses and a corporate capital allocation charge.  The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed.  The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering our cost of capital.  

Assets not allocated to the operating segments are not included in either the operating segment’s corporate capital allocation charge or the CODM’s evaluation of the operating segment’s performance.  We record charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired.  For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of an LPA with the developer, or the restructuring of an LPA resulting in the forfeiture of the deposit.  Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs.  Mortgage banking operations are not charged a corporate capital allocation charge.

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense.  Our overhead functions such as accounting, treasury and human resources are centrally performed and these costs are not allocated to our operating segments.  Consolidation adjustments consist of such items necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to our operating segments.  External corporate interest expense primarily consists of interest charges on our 3.95% Senior Notes due 2022 and 3.00% Senior Notes due 2030 (the “Senior Notes”), which are not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.