UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 1-12378
NVR, Inc.
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(Exact name of registrant as specified in its charter)
Virginia 54-1394360
- ----------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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)
(Not Applicable)
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(Former name, former address, and former
fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
___
As of October 16, 2002 there were 7,260,084 total shares of common stock
outstanding.
NVR, Inc.
Form 10-Q
INDEX
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Page
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Part I FINANCIAL INFORMATION
- ------
Item 1. NVR, Inc. Condensed Consolidated Financial Statements
-----------------------------------------------------
Condensed Consolidated Balance Sheets at September 30, 2002
(unaudited) and December 31, 2001 .............................. 3
Condensed Consolidated Statements of Income for the
Three Months Ended September 30, 2002 (unaudited)
and September 30, 2001 (unaudited) and the
Nine Months Ended September 30, 2002 (unaudited)
and September 30, 2001 (unaudited) ............................. 5
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2002 (unaudited) and
September 30, 2001 (unaudited) ................................. 6
Notes to Condensed Consolidated Financial Statements ........... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 11
Item 4. Controls and Procedures ....................................... 14
Part II OTHER INFORMATION
- -------
Item 6. Exhibits and Reports on Form 8-K .............................. 15
Exhibit Index ................................................. 15
Signature ..................................................... 16
Sarbanes-Oxley Act Section 302 Certifications ................. 17
Sarbanes-Oxley Act Section 906 Certifications ................. 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NVR, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
September 30, 2002 December 31, 2001
------------------ -----------------
ASSETS (unaudited)
Homebuilding:
Cash and cash equivalents $ 79,688 $ 134,181
Receivables 13,068 5,745
Inventory:
Lots and housing units, covered under
sales agreements with customers 402,226 356,275
Unsold lots and housing units 28,646 37,265
Manufacturing materials and other 5,650 8,835
------------ -----------
436,522 402,375
Property, plant and equipment, net 20,419 15,397
Reorganization value in excess of amounts
allocable to identifiable assets, net 41,580 41,580
Goodwill, net 6,379 6,379
Contract land deposits 214,868 155,652
Other assets 81,424 76,556
------------ -----------
893,948 837,865
------------ -----------
Mortgage Banking:
Cash and cash equivalents 3,001 4,430
Mortgage loans held for sale, net 173,792 142,059
Mortgage servicing rights, net 5,324 1,328
Property and equipment, net 641 781
Reorganization value in excess of amounts
allocable to identifiable assets, net 7,347 7,347
Other assets 3,406 1,237
------------ -----------
193,511 157,182
------------ -----------
Total assets $ 1,087,459 $ 995,047
============ ===========
(Continued)
See notes to condensed consolidated financial statements.
3
NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(dollars in thousands, except per share data)
September 30, 2002 December 31, 2001
------------------ -----------------
(unaudited)
LIABILITIES AND SHAREHOLDERS'
EQUITY
Homebuilding:
Accounts payable $ 145,199 $ 127,658
Accrued expenses and other liabilities 88,795 114,781
Obligations under incentive plans 96,703 72,241
Customer deposits 111,806 81,924
Other term debt 5,001 5,259
Senior notes 115,000 115,000
------------ -----------
562,504 516,863
------------ -----------
Mortgage Banking:
Accounts payable and other liabilities 14,490 10,355
Notes payable 153,727 118,711
------------ -----------
168,217 129,066
------------ -----------
Total liabilities 730,721 645,929
------------ -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,602,921 and 20,614,365
shares issued as of September 30, 2002
and December 31, 2001, respectively 206 206
Additional paid-in-capital 260,761 193,757
Deferred compensation trust-371,788 and
393,955 shares of NVR, Inc. common
stock as of September 30, 2002
and December 31, 2001, respectively (23,157) (24,201)
Deferred compensation liability 23,157 24,201
Retained earnings 889,127 636,604
Less treasury stock at cost-13,513,569 and
13,139,332 shares at September 30, 2002
and December 31, 2001, respectively (793,356) (481,449)
------------ -----------
Total shareholders' equity 356,738 349,118
------------ -----------
Total liabilities and shareholders'
equity $ 1,087,459 $ 995,047
============ ===========
See notes to condensed consolidated financial statements.
4
NVR, Inc.
Condensed Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- ------------------------------------
2002 2001 2002 2001
-------------- ------------- ---------------- ----------------
Homebuilding:
Revenues $ 847,044 $ 677,962 $ 2,291,936 $ 1,845,676
Other income 1,219 655 2,679 2,963
Cost of sales (645,869) (530,041) (1,744,928) (1,442,882)
Selling, general and administrative (62,474) (48,183) (167,954) (129,517)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill - (1,813) - (5,440)
----------- ----------- ----------- -----------
Operating income 139,920 98,580 381,733 270,800
Interest expense (3,433) (2,976) (9,651) (8,799)
----------- ----------- ----------- -----------
Homebuilding income 136,487 95,604 372,082 262,001
----------- ----------- ----------- -----------
Mortgage Banking:
Mortgage banking fees 17,148 13,922 48,190 36,827
Interest income 1,644 1,670 4,662 4,334
Other income 180 274 462 583
General and administrative (5,526) (6,564) (16,979) (18,705)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill - (272) - (816)
Interest expense (617) (480) (1,408) (1,267)
----------- ----------- ----------- -----------
Mortgage banking income 12,829 8,550 34,927 20,956
----------- ----------- ----------- -----------
Total segment income 149,316 104,154 407,009 282,957
Income tax expense (57,336) (41,662) (154,486) (113,183)
----------- ----------- ----------- -----------
Net Income $ 91,980 $ 62,492 $ 252,523 $ 169,774
=========== =========== =========== ===========
Basic Earnings per Share: $ 12.58 $ 8.02 $ 34.36 $ 20.99
=========== =========== =========== ===========
Diluted Earnings per Share: $ 10.14 $ 6.68 $ 27.16 $ 17.57
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
5
NVR, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
Nine Months Ended September 30,
-------------------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Net income $ 252,523 $ 169,774
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,492 10,834
Mortgage loans closed (1,605,363) (1,344,108)
Proceeds from sales of mortgage loans 1,596,903 1,329,607
Gain on sale of mortgage servicing rights (280) (98)
Gain on sale of loans (35,485) (25,851)
Net change in assets and liabilities:
Increase in inventories (34,147) (87,414)
Increase in receivables (7,288) (4,725)
Increase in contract land deposits (59,216) (45,980)
Increase in accounts payable, customer deposits
and accrued expenses 123,979 92,210
Increase in obligations under incentive plans 24,462 5,484
Other, net (3,408) (2,591)
----------- -----------
Net cash provided by operating activities 258,172 97,142
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (8,740) (4,629)
Principal payments on mortgage loans held for sale 793 399
Proceeds from sales of mortgage servicing rights, net 4,048 11,822
Other, net 255 118
----------- -----------
Net cash (used) provided by investing activities (3,644) 7,710
----------- -----------
Cash flows from financing activities:
Purchase of NVR common stock for
funding of deferred compensation plan (37,469) (3,542)
Net borrowings under notes payable and other
term debt 34,758 79,046
Payment of senior note consent fees (2,125) (4,928)
Redemption of mortgage-backed bonds -- (690)
Purchase of treasury stock (313,820) (203,911)
Proceeds from exercise of stock options 8,206 5,406
----------- -----------
Net cash used by financing activities (310,450) (128,619)
----------- -----------
Net decrease in cash (55,922) (23,767)
Cash, beginning of the period 138,611 137,708
----------- -----------
Cash, end of period $ 82,689 $ 113,941
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 6,981 $ 7,090
=========== ===========
Income taxes paid, net of refunds $ 81,848 $ 66,590
=========== ===========
See notes to condensed consolidated financial statements.
6
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
1. Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements
include the accounts of NVR, Inc. ("NVR" or the "Company") and its subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
The statements have been prepared in conformity with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. Because the accompanying condensed consolidated
financial statements do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America, they should be read in conjunction with the financial statements and
notes thereto included in the Company's 2001 Annual Report on Form 10-K. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
For the quarters and nine month periods ended September 30, 2002 and 2001,
comprehensive income equaled net income; therefore, a separate statement of
comprehensive income is not included in the accompanying financial statements.
2. Shareholders' Equity
A summary of changes in shareholders' equity is presented below:
Additional Deferred Deferred
Common Paid-In Retained Treasury Comp. Comp.
Stock Capital Earnings Stock Trust Liability
-------- ---------- ------------- ----------- ---------- ------------
Balance, December 31, 2001 $ 206 $ 193,757 $ 636,604 $(481,449) $ (24,201) $ 24,201
Net income - - 252,523 - - -
Deferred compensation activity - - - - 1,044 (1,044)
Purchase of NVR common stock
for treasury - - - (313,820) - -
Purchase of NVR common stock
for deferred compensation plan - - - (37,469) - -
Option activity - 8,206 - - - -
Tax benefit from stock-based
compensation activity - 98,180 - - - -
Treasury shares issued
upon option exercise - (39,382) - 39,382 - -
--------- ---------- ---------- --------- ---------- ---------
Balance, September 30, 2002 $ 206 $ 260,761 $ 889,127 $(793,356) $ (23,157) $ 23,157
========= ========== ========== ========= ========== =========
During the first nine months of 2002, 855,062 options to purchase shares of
the Company's common stock were exercised. NVR received $8,206 in aggregate
equity proceeds from the exercise of options and has recorded a tax benefit
directly to equity of $98,180. The Company settles option exercises by issuing
shares of treasury stock to option holders. Shares are relieved from the
treasury account based on the weighted-average cost basis of treasury shares
acquired.
7
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
The Company repurchased 1,058,567 shares of its common stock at an
aggregate purchase price of $313,820 during the nine months ended September 30,
2002. In addition, 170,732 shares of the Company's common stock were purchased
at an aggregate purchase price of $37,469 by the Company's Rabbi Trust, which
holds the investments for the Deferred Compensation Plan. These shares are
recorded in the Company's treasury stock account until such shares are vested
under the respective compensation plan (see footnote 4).
3. Segment Disclosures
NVR operates in two business segments: homebuilding and mortgage banking.
Corporate general and administrative expenses are fully allocated to the
homebuilding and mortgage banking segments in the information presented below.
For the Nine Months Ended September 30, 2002
- --------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 2,291,936 $ 48,190 $ 2,340,126 (a)
Segment profit 372,082 34,927 407,009 (a)
Segment assets 845,989 186,164 1,032,153 (b)
(a) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(b) The following reconciles segment assets to the respective amounts for the
consolidated enterprise:
Homebuilding Mortgage Banking Totals
-------------- ---------------- ------
Segment assets $ 845,989 $ 186,164 $ 1,032,153
Add: Excess reorganization value
and goodwill 47,959 7,347 55,306
-------------- -------------- -------------
Total consolidated assets $ 893,948 $ 193,511 $ 1,087,459
============== ============== ==============
For the Three Months Ended September 30, 2002
- ---------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 847,044 $ 17,148 $ 864,192 (c)
Segment profit 136,487 12,829 149,316 (c)
(c) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
For the Nine Months Ended September 30, 2001
- --------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 1,845,676 $ 36,827 $ 1,882,503 (d)
Segment profit 267,441 21,772 289,213 (e)
Segment assets 766,524 161,677 928,201 (e)
(d) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(e) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Segment profit $ 267,441 $ 21,772 $ 289,213
Less: amortization of excess
reorganization value and goodwill (5,440) (816) (6,256)
-------------- -------------- -------------
Consolidated income before
income taxes $ 262,001 $ 20,956 $ 282,957
============== ============== =============
8
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Segment assets $ 766,524 $ 161,677 $ 928,201
Add: Excess reorganization value
and goodwill 49,773 7,618 57,391
-------------- -------------- -------------
Total consolidated assets $ 816,297 $ 169,295 $ 985,592
============== ============== =============
For the Three Months Ended September 30, 2001
- ---------------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ------
Revenues from external customers $ 677,962 $ 13,922 $ 691,884 (f)
Segment profit 97,417 8,822 106,239 (g)
(f) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(g) The following reconciles segment profit to the respective amounts for the
consolidated enterprise:
Homebuilding Mortgage Banking Totals
------------- ---------------- ------
Segment profit $ 97,417 $ 8,822 $ 106,239
Less: amortization of excess
reorganization value and goodwill (1,813) (272) (2,085)
-------------- -------------- -------------
Consolidated income before
income taxes $ 95,604 $ 8,550 $ 104,154
============== ============== =============
4. Deferred Compensation Plan
In January 2002, the Company amended the High Performance Compensation Plan
(the "HP Plan") to require executive officers to defer receipt of compensation
earned under the HP Plan for the three-year measurement period ended December
31, 2001 into the Deferred Compensation Plan until the officer's separation of
service from the Company. The effect of this amendment is estimated to produce a
$7,975 deferred tax benefit for compensation expense recognized for the HP Plan
from inception through December 31, 2001. Amounts deferred into the Deferred
Compensation Plan are invested in shares of NVR common stock, which, if vested,
will be distributed to the executive officer upon the officer's separation of
service. Shares held in the Deferred Compensation Plan for participants
terminating prior to full vesting revert back to the Company, and any related
compensation expense previously recognized will be reversed in the period of
termination.
In the first quarter of 2002, the Company contributed $37,469 to a Rabbi
Trust, which holds the investment for the Deferred Compensation Plan, to fund
the total obligations earned by the executive officers under the HP Plan for the
three-year measurement period ended December 31, 2001. The Rabbi Trust in turn
purchased 170,732 shares of NVR common stock in the open market. In accordance
with Emerging Issue Task Force Abstract 97-14, Accounting for Deferred
Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and
Invested, the shares purchased by the Rabbi Trust will be initially classified
as treasury stock in the equity section of the accompanying balance sheet. At
each vesting date, the historical basis of the vested shares will be
reclassified to the deferred compensation trust caption in the equity section of
the balance sheet. Additionally, the portion of the accrued compensation
obligation previously expensed relative to the vested shares will be
reclassified from obligations under incentive plans within the liability section
of the balance sheet to the deferred compensation liability caption in the
equity section. The deferred compensation trust and deferred compensation
liability accounts will be relieved upon distribution of the shares.
9
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
During the first nine months of 2002 and 2001, the Company recognized
compensation expense of $26,123 and $11,527, respectively, under the HP Plan for
all measurement periods.
In accordance with Financial Accounting Standards Board Statement No. 128,
Earnings per Share ("SFAS 128"), for purposes of calculating basic and diluted
earnings per share, the Company classifies the vested shares held in the Rabbi
Trust as outstanding shares, weighted to reflect the portion of the period
during which the shares were vested. Unvested shares held in the Rabbi Trust are
considered outstanding only for purposes of calculating diluted earnings per
share. The dilutive effect of such shares is computed using the treasury stock
method as defined in SFAS 128.
5. Excess Reorganization Value and Goodwill
The Company has adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets ("SFAS 142"), which changed the
accounting for goodwill and reorganization value in excess of amounts allocable
to identifiable assets ("excess reorganization value") from an amortization
approach to an impairment-only approach. SFAS 142 requires goodwill and excess
reorganization value, which is no longer subject to amortization, to be tested
for impairment as of the beginning of the fiscal year in which SFAS 142 is
adopted. The Company completed the assessment of impairment during the first
quarter of 2002 and determined that there is no impairment of either goodwill or
excess reorganization value as of January 1, 2002. Following is the pro forma
effect of adoption of SFAS 142 on the three and nine month periods ended
September 30, 2002 and 2001:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
------------- ------------ ------------- ------------
Net income $ 91,980 $ 62,492 $ 252,523 $ 169,774
Add back:
Goodwill, net of tax - 165 - 497
Excess reorganization value - 1,812 - 5,436
------------- ------------ ------------- ------------
Adjusted net income $ 91,980 $ 64,469 $ 252,523 $ 175,707
============= ============ ============= ============
Basic earnings per share:
Net income $ 12.58 $ 8.02 $ 34.36 $ 20.99
Goodwill amortization - 0.02 - 0.06
Excess reorganization value
amortization - 0.23 - 0.67
------------- ------------ ------------- ------------
Adjusted net income $ 12.58 $ 8.27 $ 34.36 $ 21.72
============= ============ ============= ============
Diluted earnings per share:
Net income $ 10.14 $ 6.68 $ 27.16 $ 17.57
Goodwill amortization - 0.02 - 0.05
Excess reorganization value
amortization - 0.19 - 0.56
------------- ------------ ------------- ------------
Adjusted net income $ 10.14 $ 6.89 $ 27.16 $ 18.18
============= ============ ============= ============
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
Some of the statements in this Form 10-Q, as well as statements made by NVR
in periodic press releases and other public communications, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934. Certain, but
not necessarily all, of such forward-looking statements can be identified by the
use of forward-looking terminology, such as "believes," "expects," "may,"
"will," "should," or "anticipates" or the negative thereof or other variations
thereof or comparable terminology, or by discussion of strategies, each of which
involves risks and uncertainties. All statements other than of historical facts
included herein, including those regarding market trends, NVR's financial
position, business strategy, projected plans and objectives of management for
future operations, are forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results or performance of NVR to be materially different
from any future results, performance or achievements expressed or implied by the
forward-looking statements. Such risk factors include, but are not limited to,
general economic and business conditions (on both a national and regional
level), interest rate changes, access to suitable financing, competition, the
availability and cost of land and other raw materials used by NVR in its
homebuilding operations, shortages of labor, weather related slow downs,
building moratoria, governmental regulation, the ability of NVR to integrate any
acquired business, fluctuation and volatility of stock and other financial
markets and other factors over which NVR has little or no control.
Results of Operations for the Three and Nine Months Ended September 30, 2002 and
2001
NVR, Inc. ("NVR") operates in two business segments: homebuilding and
mortgage banking. Corporate general and administrative expenses are fully
allocated to the homebuilding and mortgage banking segments in the information
presented below. Unless otherwise indicated, all references to dollars in this
Item 2 are in thousands.
Homebuilding Segment
Three Months Ended September 30, 2002 and 2001
During the third quarter of 2002, homebuilding operations generated
revenues of $847,044 compared to revenues of $677,962 in the third quarter of
2001. The change in revenues was due to a 12.9% increase in the number of homes
settled to 3,097 units in 2002 from 2,742 units in 2001 and a 10.6% increase in
the average selling price to $272.6 in 2002 from $246.4 in 2001. The increase in
settlements is primarily attributable to the higher backlog levels entering the
third quarter of 2002 as compared to the same period in 2001. The increase in
the average selling price is attributable to price increases in a majority of
NVR's markets. New orders increased 34.7% to 2,502 units during the third
quarter of 2002 compared with the 1,857 new orders generated during the same
period in 2001. The quarter to quarter new order increase is primarily
attributable to the lower interest rate environment experienced in the current
quarter versus the same 2001 period. New orders in the third quarter of 2001
were also adversely impacted by the events of September 11th.
Gross profit margins in the third quarter of 2002 increased to 23.8% as
compared to 21.8% for the third quarter of 2001. The increase in gross margins
was due to favorable market conditions, which provided NVR the opportunity to
increase selling prices, and to relatively stable costs for lumber and certain
other commodities.
11
Selling, general and administrative ("SG&A") expenses for the third quarter
of 2002 increased $14,291 from the third quarter of 2001, and as a percentage of
revenues, increased to 7.4% from 7.1%. The increase in SG&A dollars is primarily
attributable to an $8,000 increase in certain management incentives, increases
in personnel to facilitate continued growth, and to the aforementioned increase
in revenues.
Backlog units and dollars were 6,134 and $1,836,338, respectively, at
September 30, 2002 compared to 5,593 and $1,491,260, respectively, at September
30, 2001. The increase in backlog units is primarily attributable to the 18.0%
increase in new orders for the six month period ended September 30, 2002 as
compared to the six month period ended September 30, 2001. The increase in
backlog dollars is attributable to the aforementioned increase in backlog units
and to a 12.1% increase in the average sales price during the same comparative
six month periods.
Nine Months Ended September 30, 2002 and 2001
During the first nine months of 2002, homebuilding operations generated
revenues of $2,291,936 compared to revenues of $1,845,676 in the first nine
months of 2001. The increase in revenues was primarily due to a 12.8% increase
in the number of homes settled to 8,549 units in 2002 from 7,577 units in 2001
in addition to a 10.1% increase in the average settlement price to $267.3 in
2002 from $242.8 in 2001. The increase in the number of homes settled is
primarily attributable to a higher backlog of homes to be delivered at the
beginning of 2002 as compared to 2001. The increase in the average selling price
is attributable to a larger percentage of settlements of single family detached
homes, which, in comparison, are generally higher priced than NVR's single
family attached homes, and to favorable market conditions resulting in price
increases in a majority of NVR's markets. New orders increased by 13.7% to 9,125
units for the nine months ended September 30, 2002 compared with 8,022 units for
the nine months ended September 30, 2001. The period over period new order
increase is primarily attributable to a lower interest rate environment
experienced in the current nine month period versus the nine month period ended
September 30, 2001.
Gross profit margins for the first nine months of 2002 increased to 23.9%
compared to 21.8% for the nine months ended September 30, 2001. The increase in
gross margins was due to favorable market conditions, which provided NVR the
opportunity to increase selling prices, and to relatively stable costs for
lumber and certain other commodities.
SG&A expenses for the nine months ended September 30, 2002 increased
$38,437 compared to the same 2001 period, and as a percentage of revenues
increased to 7.3% from 7.0%. The increase in SG&A costs is primarily
attributable to a $19,000 increase in certain management incentives, increases
in personnel to facilitate continued growth, and to the aforementioned increase
in revenues.
Mortgage Banking Segment
Three and Nine Months Ended September 30, 2002 and 2001
The mortgage banking segment had operating income of $12,829 during the
quarter ended September 30, 2002 compared to operating income of $8,822 for the
three months ended September 30, 2001. Loan closings were $591,595 and $503,065
for the three months ended September 30, 2002 and September 30, 2001,
respectively, an increase of 18%. The $88,530 increase in the dollar volume of
loan closings is primarily attributable to a 9% increase in the average loan
amount and to an 8% increase in the number of loans closed.
12
The mortgage banking segment had operating income of $34,927 during the
nine months ended September 30, 2002 compared to operating income of $21,772 for
the nine months ended September 30, 2001. Loan closings were $1,605,363 and
$1,344,108 for the nine months ended September 30, 2002 and 2001, respectively,
an increase of 19%. The $261,255 increase in the dollar volume of loan closings
is primarily attributable to a 10% increase in the average loan amount and to a
9% increase in the number of loans closed.
The improvement in operating income for the three and nine month 2002
periods is primarily the result of higher mortgage banking fees due to the
increased dollar volume of loan closings, and a more favorable pricing
environment. The three and nine month periods of 2001 were also impacted by
approximately $800 and $1,700, respectively, for costs associated with the
mortgage segment's discontinued retail activities. The mortgage banking segment
continues to focus almost exclusively on serving NVR's homebuilding operations.
Year to date, this focus has resulted in the mortgage segment capturing an
increased percentage of the loans and title work associated with the
homebuilding segment's growing customer base. As noted above, the homebuilding
segment's settlements increased to 8,549 in the first nine months of 2002 from
7,577 in the first nine months of 2001.
Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections," that, among other things, rescinded SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt." With the rescission of
SFAS No. 4, the early extinguishment of debt generally will no longer be
classified as an extraordinary item for financial statement presentation
purposes. The provision is effective for fiscal years beginning after May 15,
2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which replaces Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The new standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
The statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002.
Liquidity and Capital Resources
NVR has $255,000 of securities available for issuance under a shelf
registration statement filed with the Securities and Exchange Commission on
January 20, 1998. The shelf registration statement, as declared effective on
February 27, 1998, provides that securities may be offered from time to time in
one or more series and in the form of senior or subordinated debt.
NVR's homebuilding segment generally provides for its working capital cash
requirements using cash generated from operations and a short-term unsecured
working capital revolving credit facility (the "Facility"). The Facility expires
on May 31, 2004. During the third quarter of 2002, the aggregate commitment
under the Facility was increased to $135,000, subject to certain borrowing base
limitations. The other terms and conditions of the facility remain materially
consistent with those in effect prior to the amendment. Up to approximately
$40,000 of the Facility is currently available for issuance in the form of
letters of credit of which $24,935 was outstanding at September 30, 2002. There
were no direct borrowings outstanding under the Facility as of September 30,
2002. At September 30, 2002, there were no borrowing base limitations reducing
the amount available to NVR for borrowings.
13
NVR's mortgage banking segment provides for its mortgage origination and
other operating activities using cash generated from operations as well as a
short-term secured credit facility. NVR's mortgage banking segment has available
an annually renewable mortgage warehouse facility with an aggregate available
borrowing limit of $150,000 to fund its mortgage origination activities. During
the third quarter of 2002, the warehouse facility was amended, extending the
expiration date to August 29, 2003. There was $144,638 outstanding under this
facility at September 30, 2002. NVR's mortgage banking segment also currently
has available an aggregate of $75,000 of borrowing capacity in various
uncommitted gestation and repurchase agreements. There was an aggregate of
$8,978 outstanding under such gestation and repurchase agreements at September
30, 2002.
On March 14, 2002, NVR successfully completed a solicitation of consents
from holders of its 8% Senior Notes due 2005 ("Notes") to amend the Indenture
governing the Notes. The amendment to the Indenture allows NVR to repurchase up
to an aggregate $100 million of its capital stock, in addition to that otherwise
provided under NVR's Indenture, in one or more open market and/or privately
negotiated transactions through June 1, 2003. On March 19, 2002, NVR paid to
each holder of the Notes who provided a consent, an amount equal to 2.0% of the
principal amount of such holder's Notes. The aggregate fee paid of $2,125 was
deferred and will be amortized as an adjustment to interest expense over the
remaining term of the Notes. As of September 30, 2002, NVR had fully utilized
the $100 million for its intended purpose.
During the nine months ended September 30, 2002, NVR repurchased 1,058,567
shares of its common stock at an aggregate purchase price of $313,820. The
current year stock purchases have completed the $300 million share repurchase
authorization granted by NVR's Board of Directors earlier in 2002. NVR may, from
time to time, repurchase additional shares of its common stock pursuant to
repurchase authorizations by the Board of Directors and subject to the
restrictions contained within NVR's debt agreements.
In addition to the aforementioned share repurchases, NVR's Rabbi Trust,
which holds the investments for the Deferred Compensation Plan, purchased
170,732 shares of NVR's common stock at an aggregate purchase price of $37,469.
The Rabbi Trust shares are recorded in NVR's treasury stock account until such
shares are vested under the respective compensation plan (see footnote 4 of the
condensed consolidated financial statements.
Management 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 in both its homebuilding and mortgage banking
operations.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this quarterly report, an
evaluation was performed under the supervision and with the participation of
NVR's management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of NVR's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the design and operation of these disclosure controls and procedures were
effective. There have been no significant changes in NVR's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
14
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Computation of Earnings per Share.
(b) Reports on Form 8-K
NVR filed a form 8-K on September 24, 2002, disclosing that its
working capital revolving credit facility increased from a
committed amount of $85 million to a committed amount of $135
million. Amendments No. 6 and No. 7 to the Third Amended and
Restated Credit Agreement were filed as exhibits to the Form 8-K.
NVR filed a form 8-K on August 7, 2002, providing separate sworn
statements by the Principal Executive Officer and the Principal
Financial Officer pursuant to the Securities and Exchange
Commission Order No. 4-460.
Exhibit Index
Exhibit
Number Description Page
- ------ ------------------------------ ------
11 Computation of Earnings per Share 20
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
October 22, 2002 NVR, Inc.
By: /s/ Paul C. Saville
-----------------------------------------
Paul C. Saville
Executive Vice President, Chief Financial
Officer and Treasurer
16
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
I, Dwight C. Schar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NVR, Inc. ("NVR");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of NVR as of, and for, the periods presented in this quarterly
report;
4. NVR's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for NVR and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to NVR, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of NVR's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. NVR's other certifying officer and I have disclosed, based on our most
recent evaluation, to NVR's auditors and the audit committee of NVR's board
of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect NVR's ability to record,
process, summarize and report financial data and have identified for
NVR's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in NVR's internal controls; and
6. NVR's other certifying officer and I have indicated in this quarterly
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: October 22, 2002
By: /s/ Dwight C. Schar
-------------------------------------
Dwight C. Schar
Chairman and Chief Executive Officer
17
I, Paul C. Saville, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NVR, Inc. ("NVR");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of NVR as of, and for, the periods presented in this quarterly
report;
4. NVR's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for NVR and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to NVR, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of NVR's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. NVR's other certifying officer and I have disclosed, based on our most
recent evaluation, to NVR's auditors and the audit committee of NVR's board
of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect NVR's ability to record,
process, summarize and report financial data and have identified for
NVR's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in NVR's internal controls; and
6. NVR's other certifying officer and I have indicated in this quarterly
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: October 22, 2002
By: /s/ Paul C. Saville
--------------------------------------
Paul C. Saville
Executive Vice President, Chief Financial
Officer and Treasurer
18
SARBANES-OXLEY ACT SECTION 906 CERTIFICATIONS
In connection with this quarterly report on Form 10-Q of NVR, Inc. for the
period ended September 30, 2002, I, Dwight C. Schar, Chairman and Chief
Executive Officer of NVR, Inc., hereby certify pursuant to 18 U.S.C. (S) 1350,
as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that:
1. this Form 10-Q for the period ended September 30, 2002 fully complies
with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. the information contained in this Form 10-Q for the period ended
September 30, 2002 fairly presents, in all material respects, the
financial condition and results of operations of NVR, Inc.
Date: October 22, 2002
By: /s/ Dwight C. Schar
---------------------------------------
Dwight C. Schar
Chairman and Chief Executive Officer
In connection with this quarterly report on Form 10-Q of NVR, Inc. for the
period ended September 30, 2002, I, Paul C. Saville, Executive Vice President,
Chief Financial Officer and Treasurer of NVR, Inc., hereby certify pursuant to
18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of
2002, that:
1. this Form 10-Q for the period ended September 30, 2002 fully complies
with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. the information contained in this Form 10-Q for the period ended
September 30, 2002 fairly presents, in all material respects, the
financial condition and results of operations of NVR, Inc.
Date: October 22, 2002
By: /s/ Paul C. Saville
-----------------------------------------
Paul C. Saville
Executive Vice President, Chief Financial
Officer and Treasurer
19