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 June 30, 1998
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 333-44515-02
NVR Homes, Inc.
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(Exact name of registrant as specified in its charter)
Virginia 25-1709930
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(State or other jurisdiction of (IRS employer identification
incorporation or organization) 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)
(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
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As of August 13, 1998 there were 100 total shares of common stock outstanding.
APPLICABLE ONLY TO ISSUERS 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 Sections 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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NVR HOMES, INC.
FORM 10-Q
INDEX
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Page
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PART I FINANCIAL INFORMATION
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Item 1. Consolidated Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997...................................... 3
Consolidated Statements of Income for the
Three Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited) and the
Six Months Ended June 30, 1998 (unaudited)
and June 30, 1997 (unaudited).............................. 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 (unaudited) and
June 30, 1997 (unaudited).................................. 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8
PART II OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K........................... 10
Exhibit Index.............................................. 11
Signature.................................................. 12
PART I
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ITEM 1.
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NVR HOMES, INC.
Consolidated Balance Sheets
(dollars in thousands, except share data)
JUNE 30, 1998 DECEMBER 31, 1997
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ASSETS (unaudited)
Cash and cash equivalents $ 39,929 $ 41,673
Receivables 6,476 3,671
Inventory:
Lots and housing units, covered under
sales agreements with customers 230,142 165,132
Unsold lots and housing units 38,922 51,434
Manufacturing materials and other 5,673 7,475
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274,737 224,041
Property, plant and equipment, net 9,640 10,147
Reorganization value in excess of amounts
allocable to identifiable assets, net 66,139 69,366
Goodwill, net 10,206 10,753
Contract land deposits 38,341 36,992
Other assets 21,601 19,869
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Total assets $467,069 $416,512
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable $ 75,715 $ 67,534
Accrued expenses and other liabilities 85,731 77,453
Advances from affiliates, net 126,928 102,461
Notes payable 5,592 5,650
Other term debt 5,532 5,627
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Total liabilities 299,498 258,725
SHAREHOLDER'S EQUITY:
Common stock, $0.01 par value; 100
shares authorized; 100 shares
issued and outstanding - -
Additional paid-in capital 94,688 94,688
Retained earnings 72,883 63,099
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Total shareholder's equity 167,571 157,787
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $467,069 $416,512
======== ========
See notes to consolidated financial statements.
3
NVR HOMES, INC.
Consolidated Statements of Income
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
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1998 1997 1998 1997
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REVENUES:
Revenues $385,738 $281,437 $677,285 $520,424
Other income 460 248 615 757
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Total Revenues 386,198 281,685 677,900 521,181
EXPENSES:
Cost of sales 325,846 242,809 573,802 450,278
Interest expense-external 690 462 1,117 795
Interest expense-affiliates 3,669 3,669 7,338 7,338
Selling, general and administrative 47,607 22,619 72,856 42,976
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets and goodwill 1,887 1,613 3,773 3,226
-------- -------- -------- --------
Total expenses 379,699 271,172 658,886 504,613
Income before income tax expense 6,499 10,513 19,014 16,568
Income tax expense (3,125) (5,249) (9,230) (8,272)
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NET INCOME $ 3,374 $ 5,264 $ 9,784 $ 8,296
======== ======== ======== ========
See notes to the consolidated financial statements.
4
NVR HOMES, INC.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,784 $ 8,296
Adjustments to reconcile net income
to net cash used by
operating activities:
Depreciation and amortization 5,300 4,670
Net change in assets and liabilities
Increase in inventories (50,696) (23,054)
Increase in receivables (2,805) (5,647)
(Decrease) increase in accounts payable
and accrued liabilities 16,178 (7,578)
Other, net (2,816) (1,063)
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Net cash used by operating activities (25,055) (24,376)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (1,003) (1,010)
Proceeds from sale of property,
plant & equipment - 33
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Net cash used by investing activities (1,003) (977)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from affiliates 24,467 (4,851)
Principal repayments of term debt (95) (114)
Net borrowings under credit
lines and other notes payable (58) -
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Net cash provided (used by)
financing activities 24,314 (4,965)
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Net decrease in cash (1,744) (30,318)
Cash, beginning of the period 41,673 71,471
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Cash, end of period $ 39,929 $ 41,153
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 8,157 $ 8,077
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Taxes paid during the period
(net of refunds) $ 13,267 $ 17,929
======== ========
See notes to consolidated financial statements.
5
NVR HOMES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include
the accounts of NVR Homes, Inc. ("Homes" or the "Company") and its subsidiaries.
Homes is a wholly owned subsidiary of NVR, Inc. ("NVR"). Homes conducts all of
NVR's homebuilding operations. The statements are provided pursuant to Homes'
status as a guarantor of NVR's 11% Senior Notes due 2003 and the Company's 8%
Senior Notes due 2005. Intercompany accounts and transactions have been
eliminated in consolidation. The statements have been prepared in accordance
with generally accepted accounting principles 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 generally accepted
accounting principles for complete financial statements. 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 six-month period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
2. 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 three
and six month periods ended June 30, 1998 and 1997, comprehensive income equaled
net income; therefore, a separate statement of comprehensive income is not
included in the accompanying financial statements.
The Company will also implement SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information in 1998. SFAS No. 131 establishes
standards for the way that public enterprises report information about operating
segments in annual and interim financial statements. Because the Company has
only one reportable operating segment pursuant to the guidance of SFAS No. 131,
the implementation of SFAS No. 131 has no impact on the Company's financial
statements.
3. DEBT
In June 1998, NVR, as borrower, entered into an unsecured working capital
revolving credit facility (the "Facility") with a syndicate of financial
institutions for a three-year term expiring on May 31, 2001. This Facility
replaces the previous working capital credit facility under which Homes was the
borrower. The Facility provides for borrowings of up to $100 million of which
$60 million is currently committed. Under terms of the Facility, an additional
$10 million uncommitted overline is available to NVR on a limited basis. NVR
intends to merge NVR, Inc., NVR Homes, Inc. and NVR Financial Services, Inc. on
or before May 31, 1999 to simplify its corporate structure. If the merger is
not complete by that time, the Facility will expire in November 1999.
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NVR HOMES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands)
On April 14, 1998, NVR completed an offering under a universal shelf
registration statement for $145 million of senior notes due 2005 (the "New
Notes"). 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.
Homes has issued a full and unconditional guarantee relative to the New Notes.
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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except per share and share data)
NVR Homes, Inc. ("Homes" or the "Company") is a wholly owned subsidiary of
NVR, Inc. ("NVR"). Homes conducts all of NVR's homebuilding operations.
FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-Q, 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 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 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, 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.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
During the second quarter of 1998, Homes generated revenues of $385,738
compared to revenues of $281,437 in the second quarter of 1997. The change in
revenues is primarily due to a 34% increase in the number of homes settled from
1,494 in 1997 to 1,995 in 1998 and to a 3% increase in the average settlement
price from $187.0 in 1997 to $192.2 in 1998. The increase in settlements is a
direct result of the substantially higher backlog at the beginning of the 1998
quarter as compared to the beginning of the same 1997 quarter. New orders of
2,533 during the second quarter of 1998 were 24% higher than the 2,041 new
orders generated during the prior 1997 period. 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 quarter, and to a
lesser extent, new orders generated by Fox Ridge Homes, Inc., acquired by the
Company during the fourth quarter of 1997.
Gross profit margins in the second quarter of 1998 increased to 15.5%
compared to 13.7% for the second quarter of 1997. The increase in gross margins
was due to the continuing favorable market conditions, the Company's continued
focus on controlling construction costs and improved margins in the Company's
expansion markets.
SG&A expenses for the second quarter of 1998 increased $24,988 as compared
to the same 1997 period, and as a percentage of revenues increased from 8.0% to
12.3%. The increase in SG&A dollars is due primarily to the increase in revenues
noted above, a net period to period increase in costs associated
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with certain management incentive plans, higher corporate general and
administrative expenses and increased costs associated with the Company's
expansion markets. In addition, royalty fees paid to RVN, Inc., a subsidiary of
NVR, increased approximately $2.0 million in the current year quarter as
compared to the prior year quarter.
Backlog units and dollars were 4,452 and $910,568, respectively, at June
30, 1998 compared to 3,143 and $601,276, respectively, at June 30, 1997. The
increase in backlog units and dollars is primarily due to the 38% increase in
new orders for the six months ended June 30, 1998, compared to the six months
ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
During the first six months of 1998, Homes generated revenues of $677,285
compared to revenues of $520,424 in the first six months of 1997. The increase
in revenues was primarily due to a 26% increase in the number of homes settled
from 2,809 in 1997 to 3,538 in 1998, and to a 3% increase in the average
settlement price from $184.3 in 1997 to $190.5 in 1998. New orders increased by
38% to 4,795 for the six months ended June 30, 1998 compared with 3,486 for the
six months ended June 30, 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 period, and to a lesser extent,
new orders generated by Fox Ridge Homes, Inc, acquired by the Company during the
fourth quarter of 1997.
Gross profit margins for the first six months of 1998 increased to 15.3%
compared to 13.5% for the six months ended June 30, 1997. The increase in gross
margins was due to the continuing favorable market conditions, the Company's
continued focus on controlling construction costs, unusually mild winter weather
experienced in most of the Company's markets during the first quarter of 1998,
and improved margins in the Company's expansion markets.
SG&A expenses for 1998 increased $29,880 as compared to the same 1997
period, and as a percentage of revenues increased from 8.3% to 10.8%. The
increase in SG&A dollars is due primarily to the increase in revenues noted
above, a net period to period increase in costs associated with certain
management incentive plans, higher corporate general and administrative expenses
and increased costs associated with the Company's expansion markets. In
addition, royalty fees paid to RVN, Inc., a subsidiary of NVR, increased
approximately $2.5 million in the current year period as compared to the prior
year period.
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. In
response to the Year 2000 Issue, the Company has completed its initial review to
assess the Company's exposure to Year 2000 Issues, and has developed a detailed
plan to remediate areas of exposure. Implementation of the remediation plan has
commenced, and the Company expects that remediation will be completed prior to
January 1, 2000. Based on the Company's continuing assessment, Management does
not believe that the Company's exposure to Year 2000 Issues will have a material
effect on its financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Homes generally provides for its working capital cash requirements using
cash generated from operations and a short-term credit facility available to
NVR. In June 1998, NVR, as borrower, entered
9
into an unsecured working capital revolving credit facility (the "Facility")
with a syndicate of financial institutions for a three-year term expiring on May
31, 2001. This Facility replaces the previous working capital credit facility
under which Homes was the borrower. The Facility provides for borrowings of up
to $100 million of which $60 million is currently committed. Under terms of the
Facility, an additional $10 million uncommitted overline is available to NVR on
a limited basis. NVR intends to merge NVR, Inc., NVR Homes, Inc. and NVR
Financial Services, Inc. on or before May 31, 1999 to simplify its corporate
structure. If the merger is not complete by that time, the Facility will expire
in November 1999. Homes 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 its homebuilding operations.
PART II
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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A. The Company did not file any reports on Form 8-K during the
quarter ended June 30, 1998.
B. Financial Data Schedule
10
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
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27 Financial Data Schedule 13
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 13, 1998 NVR Homes, Inc.
By: /s/ Paul C. Saville
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Paul C. Saville
Senior Vice President Finance and
Chief Financial Officer
12