For the nine months ended September 30, 2008, consolidated revenues were $2,782,865,000, 25% lower than the $3,701,945,000 reported for the same period of 2007. Net income for the nine months ended September 30, 2008 was $131,349,000, a decrease of 51% when compared to the nine months ended September 30, 2007. Diluted earnings per share for the nine months ended September 30, 2008 was $22.21, a decrease of 47% from $42.25 per diluted share for the comparable period of 2007.
Homebuilding
New orders in the third quarter of 2008 decreased 25% to 2,002 units, when compared to 2,660 units in the third quarter of 2007. The cancellation rate in the quarter ended September 30, 2008 was 24% compared to 27% in the third quarter of 2007 and 19% in the second quarter of 2008. Settlements decreased in the third quarter of 2008 to 2,750 units, 21% less than the same period of 2007. The Company’s backlog of homes sold but not settled at the end of the 2008 quarter decreased on a unit basis by 35% to 4,583 units and 44% on a dollar basis to $1,499,830,000 when compared to the same period last year.
Homebuilding revenues for the three months ended September 30, 2008 totaled $928,265,000, 27% lower than the year earlier period. Gross profit margins decreased to 13.2% in the 2008 third quarter compared to 14.4% for the same period in 2007. Gross profit margins were impacted by land deposit impairments of approximately $43,000,000, 461 basis points of revenue, in the 2008 third quarter, and approximately $97,000,000, 760 basis points of revenue, in the year ago period. Gross profit margins excluding the land deposit impairments were 17.8% in the 2008 third quarter compared to 22.0% for the same period in 2007. Income before tax from the homebuilding segment totaled $56,535,000 in the 2008 third quarter, a decrease of 56% when compared to the third quarter of the previous year. Operating unit activity and financial performance are being negatively impacted by high levels of new and existing home inventories, affordability issues, a tight mortgage lending environment and declining homebuyer confidence.
Mortgage Banking
Mortgage closed loan production of $610,313,000 for the three months ended September 30, 2008 was 23% lower than the same period last year. Operating income for the mortgage banking operations during the third quarter of 2008 decreased 76% to $4,072,000, when compared to $16,814,000 reported for the same period of 2007. Operating income in the current quarter was negatively impacted by a $4,100,000 decrease in unrealized income from the fair value measurements required under SFAS No. 157, Fair Value Measurement, and more competitive mortgage pricing.
Some of the statements in this release made by the Company constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “may,” “will,” “should” or “anticipates” or the negative thereof or other variations thereof or comparable terminology, or by discussion of strategies, each of which involves risks and uncertainties. All statements other than those of historical facts included herein, including those regarding market trends, NVR’s financial position, business strategy, the outcome of pending litigation, projected plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of NVR to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to, general economic and business conditions (on both a national and regional level), interest rate changes, access to suitable financing by NVR and NVR’s customers, competition, the availability and cost of land and other raw materials used by NVR in its homebuilding operations, shortages of labor, weather related slow downs, building moratoria, governmental regulation, the ability of NVR to integrate any acquired business, fluctuation and volatility of stock and other financial markets, mortgage financing availability and other factors over which NVR has little or no control. The Company has no obligation to update such forward-looking statements.
NVR, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
| | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | |
Homebuilding: | | | | | | | | | |
| Revenues | | $ | 928,265 | | $ | 1,270,471 | | $ | 2,739,167 | | $ | 3,642,721 | |
| Other income | | | 4,256 | | | 4,209 | | | 14,356 | | | 16,425 | |
| Cost of sales | | | (805,931 | ) | | (1,087,399 | ) | | (2,305,231 | ) | | (3,002,746 | ) |
| Selling, general and administrative | | | (66,796 | ) | | (54,906 | ) | | (240,833 | ) | | (253,510 | ) |
| Operating income | | | 59,794 | | | 132,375 | | | 207,459 | | | 402,890 | |
| Interest expense | | | (3,259 | ) | | (3,375 | ) | | (9,730 | ) | | (9,995 | ) |
| Homebuilding income | | | 56,535 | | | 129,000 | | | 197,729 | | | 392,895 | |
| | | | | | | | | | | | | | |
Mortgage Banking: | | | | | | | | | | | | | |
| Mortgage banking fees | | | 10,946 | | | 21,617 | | | 43,698 | | | 59,224 | |
| Interest income | | | 929 | | | 1,078 | | | 2,608 | | | 3,415 | |
| Other income | | | 188 | | | 320 | | | 531 | | | 780 | |
| General and administrative | | | (7,761 | ) | | (6,001 | ) | | (23,823 | ) | | (24,278 | ) |
| Interest expense | | | (230 | ) | | (200 | ) | | (544 | ) | | (513 | ) |
| Mortgage banking income | | | 4,072 | | | 16,814 | | | 22,470 | | | 38,628 | |
| | | | | | | | | | | | | | |
Income before taxes | | | 60,607 | | | 145,814 | | | 220,199 | | | 431,523 | |
| | | | | | | | | | | | | | |
| Income tax expense | | | (24,056 | ) | | (54,701 | ) | | (88,850 | ) | | (164,842 | ) |
| | | | | | | | | | | | | | |
Net income | | $ | 36,551 | | $ | 91,113 | | $ | 131,349 | | $ | 266,681 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Basic earnings per share | | $ | 6.72 | | $ | 17.25 | | $ | 24.60 | | $ | 48.35 | |
| | | | | | | | | | | | | | |
Diluted earnings per share | | $ | 6.12 | | $ | 15.26 | | $ | 22.21 | | $ | 42.25 | |
| | | | | | | | | | | | | | |
Basic average shares outstanding | | | 5,438 | | | 5,283 | | | 5,340 | | | 5,516 | |
| | | | | | | | | | | | | | |
Diluted average shares outstanding | | | 5,968 | | | 5,969 | | | 5,915 | | | 6,312 | |
NVR, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
| | | September 30, 2008 | | December 31, 2007 | |
| | | (unaudited) | | | |
| | | | | | |
ASSETS | | | | | |
| | | | | | |
Homebuilding: | | | | | |
| Cash and cash equivalents | | $ | 963,313 | | $ | 660,709 | |
| Receivables | | | 10,444 | | | 10,855 | |
| Inventory: | | | | | | | |
| Lots and housing units, covered under | | | | | | | |
| sales agreements with customers | | | 536,895 | | | 573,895 | |
| Unsold lots and housing units | | | 67,570 | | | 105,838 | |
| Manufacturing materials and other | | | 6,555 | | | 9,121 | |
| | | | 611,020 | | | 688,854 | |
| | | | | | | | |
| Contract land deposits | | | 130,575 | | | 188,528 | |
| Assets not owned, consolidated | | | | | | | |
| per FIN 46R | | | 127,074 | | | 180,206 | |
| Property, plant and equipment, net | | | 26,834 | | | 32,911 | |
| Reorganization value in excess of amounts | | | | | | | |
| allocable to identifiable assets, net | | | 41,580 | | | 41,580 | |
| Goodwill and other indefinite and definite | | | | | | | |
| life intangibles, net | | | 11,707 | | | 11,782 | |
| Other assets | | | 253,785 | | | 252,461 | |
| | | | | | | | |
| | | | 2,176,332 | | | 2,067,886 | |
| | | | | | | | |
Mortgage Banking: | | | | | | | |
| Cash and cash equivalents | | | 1,728 | | | 3,500 | |
| Mortgage loans held for sale, net | | | 113,839 | | | 107,338 | |
Property and equipment, net | | | 903 | | | 881 | |
| Reorganization value in excess of amounts | | | | | | | |
| allocable to identifiable assets, net | | | 7,347 | | | 7,347 | |
| Other assets | | | 8,003 | | | 7,464 | |
| | | | | | | | |
| | | | 131,820 | | | 126,530 | |
| | | | | | | | |
Total assets | | $ | 2,308,152 | | $ | 2,194,416 | |
(Continued)
NVR, Inc.
Consolidated Balance Sheets (continued)
(in thousands, except share and per share data)
| | | September 30, 2008 | | December 31, 2007 | |
| | | (unaudited) | | | |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | |
| | | | | | |
Homebuilding: | | | | | |
| Accounts payable | | $ | 181,403 | | $ | 219,048 | |
| Accrued expenses and other liabilities | | | 235,564 | | | 251,475 | |
| Liabilities related to assets not owned, | | | | | | | |
| consolidated per FIN 46R | | | 118,323 | | | 164,369 | |
| Customer deposits | | | 93,117 | | | 125,315 | |
| Other term debt | | | 2,630 | | | 2,820 | |
| Senior notes | | | 200,000 | | | 200,000 | |
| | | | 831,037 | | | 963,027 | |
| Mortgage Banking: | | | | | | | |
| Accounts payable and other liabilities | | | 13,858 | | | 18,551 | |
| Notes payable | | | 90,782 | | | 83,463 | |
| | | | 104,640 | | | 102,014 | |
| | | | | | | | |
| Total liabilities | | | 935,677 | | | 1,065,041 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | |
| | | | | | | | |
| Shareholders’ equity: | | | | | | | |
| Common stock, $0.01 par value; 60,000,000 | | | | | | | |
| shares authorized; 20,561,187 and 20,592,640 | | | | | | | |
| shares issued for September 30, 2008 and | | | | | | | |
| December 31, 2007, respectively | | | 206 | | | 206 | |
| Additional paid-in capital | | | 706,560 | | | 663,631 | |
| Deferred compensation trust - 515,950 and | | | | | | | |
| 516,085 shares of NVR, Inc. common stock for | | | | | | | |
| September 30, 2008 and December 31, 2007, | | | | | | | |
| respectively | | | (75,495 | ) | | (75,636 | ) |
| Deferred compensation liability | | | 75,495 | | | 75,636 | |
| Retained earnings | | | 3,661,344 | | | 3,529,995 | |
| Less treasury stock at cost - 15,108,940 and | | | | | | | |
| 15,455,086 shares for September 30, 2008 and | | | | | | | |
| December 31, 2007, respectively | | | (2,995,635 | ) | | (3,064,457 | ) |
| Total shareholders’ equity | | | 1,372,475 | | | 1,129,375 | |
| Total liabilities and shareholders’ equity | | $ | 2,308,152 | | $ | 2,194,416 | |
NVR, Inc.
Operating Activity
(unaudited)
(dollars in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | |
Homebuilding data: | | | | | | | | | |
| New orders (units): | | | | | | | | | |
| Mid Atlantic (1) | | | 965 | | | 1,061 | | | 3,598 | | | 4,785 | |
| North East (2) | | | 205 | | | 260 | | | 725 | | | 1,022 | |
| Mid East (3) | | | 577 | | | 667 | | | 2,020 | | | 2,620 | |
| South East (4) | | | 255 | | | 672 | | | 1,060 | | | 1,895 | |
| Total | | | 2,002 | | | 2,660 | | | 7,403 | | | 10,322 | |
| | | | | | | | | | | | | | |
| Average new order price | | $ | 302.9 | | $ | 330.1 | | $ | 314.1 | | $ | 358.4 | |
| | | | | | | | | | | | | | |
| Settlements (units): | | | | | | | | | | | | | |
| Mid Atlantic (1) | | | 1,266 | | | 1,656 | | | 3,851 | | | 4,728 | |
| North East (2) | | | 264 | | | 345 | | | 813 | | | 918 | |
| Mid East (3) | | | 756 | | | 936 | | | 2,012 | | | 2,347 | |
| South East (4) | | | 464 | | | 539 | | | 1,289 | | | 1,646 | |
| Total | | | 2,750 | | | 3,476 | | | 7,965 | | | 9,639 | |
| | | | | | | | | | | | | | |
| Average settlement price | | $ | 337.1 | | $ | 365.1 | | $ | 343.5 | | $ | 377.5 | |
| | | | | | | | | | | | | | |
| Backlog (units): | | | | | | | | | | | | | |
| Mid Atlantic (1) | | | | | | | | | 2,473 | | | 3,722 | |
| North East (2) | | | | | | | | | 417 | | | 644 | |
| Mid East (3) | | | | | | | | | 1,121 | | | 1,547 | |
| South East (4) | | | | | | | | | 572 | | | 1,158 | |
| Total | | | | | | | | | 4,583 | | | 7,071 | |
| | | | | | | | | | | | | | |
| Average backlog price | | | | | | | | $ | 327.3 | | $ | 381.2 | |
| | | | | | | | | | | | | | |
| Community count (average) | | | 426 | | | 506 | | | 437 | | | 517 | |
| Lots controlled at end of period | | | | | | | | | 58,300 | | | 79,700 | |
| | | | | | | | | | | | | | |
Mortgage banking data: | | | | | | | | | | | | | |
| Loan closings | | $ | 610,313 | | $ | 793,749 | | $ | 1,727,718 | | $ | 2,358,218 | |
| Capture rate | | | 86 | % | | 84 | % | | 84 | % | | 85 | % |
| | | | | | | | | | | | | | |
Common stock information: | | | | | | | | | | | | | |
| Shares outstanding at end of period | | | | | | | | | 5,452,247 | | | 5,135,600 | |
| Number of shares repurchased | | | - | | | 479,088 | | | - | | | 784,788 | |
| Aggregate cost of shares repurchased | | | - | | $ | 297,859 | | | - | | $ | 507,472 | |
| (1) | Virginia, West Virginia, Maryland, and Delaware |
| (2) | Eastern Pennsylvania and New Jersey |
| (3) | Western Pennsylvania, Kentucky, New York and Ohio |
| (4) | North Carolina, South Carolina and Tennessee |
