-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mfa3QtWNTgAFiC6F/QJJd3cd/LfKSgHBAZkCprAXCx7EkHWE37eQmbraqn6F/hny 8itnkhcKZ0itqhlrdIgHWg== 0000928385-98-002198.txt : 19981109 0000928385-98-002198.hdr.sgml : 19981109 ACCESSION NUMBER: 0000928385-98-002198 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NVR INC CENTRAL INDEX KEY: 0000906163 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 541394360 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12378 FILM NUMBER: 98738958 BUSINESS ADDRESS: STREET 1: 7601 LEWISVILLE RD STREET 2: STE 300 CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 7037612000 MAIL ADDRESS: STREET 1: 7601 LEWINSVILLE RD CITY: MCLEAN STATE: VA ZIP: 22102 10-Q 1 FORM 10-Q 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, 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 1-12378 NVR, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 54-1394360 -------- ---------- (State or other jurisdiction of (IRS employer identification incorporation or organization) number) 7601 Lewinsville Road, Suite 300 McLean, Virginia 22102 (703) 761-2000 - -------------------------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (Not Applicable) - -------------------------------------------------------------------------------- (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 November 2, 1998 there were 10,771,124 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 ------ ------ NVR, INC. FORM 10-Q INDEX ================================================================================
Page ---- (C) PART I FINANCIAL INFORMATION Item 1. NVR, Inc. Consolidated Financial Statements ------------------------------------------- Consolidated Balance Sheets at September 30, 1998 (unaudited) and December 31, 1997............................................. 4 Consolidated Statements of Income for the Three Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited) and the Nine Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited)................................ 6 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited).................................... 7 Notes to Consolidated Financial Statements........................ 8 RVN, Inc. Financial Statements ------------------------------ Balance Sheets at September 30, 1998 (unaudited) and December 31, 1997............................................. 11 Statements of Income for the Three Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited) and the Nine Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited)................................ 11 Statements of Cash Flows for the Nine Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited).................................... 12 Notes to Financial Statements........................................................ 13 Fox Ridge Homes, Inc. Financial Statements ------------------------------------------ Balance Sheets at September 30, 1998 (unaudited) and December 31, 1997............................................. 14 Statements of Income for the Three Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited) and the Nine Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited)................................ 15 Statements of Cash Flows for the Nine Months Ended September 30, 1998 (unaudited) and September 30, 1997 (unaudited).................................... 16 Notes to Financial Statements..................................... 17
2 NVR, INC. FORM 10-Q INDEX-CONTINUED ================================================================================
Page ---- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 18 PART II OTHER INFORMATION - ------- Item 6. Exhibits and Reports on Form 8-K.................................................... 26 Exhibit Index....................................................................... 27 Signature........................................................................... 28
3 PART I ------ ITEM 1. - ------- NVR, INC. Consolidated Balance Sheets (dollars in thousands, except share data)
SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ----------------- ASSETS (unaudited) HOMEBUILDING: Cash and cash equivalents $ 94,186 $ 41,684 Receivables 7,086 3,398 Inventory: Lots and housing units, covered under sales agreements with customers 216,158 165,132 Unsold lots and housing units 41,835 51,434 Manufacturing materials and other 6,032 7,475 -------- -------- 264,025 224,041 Property, plant and equipment, net 15,840 17,241 Reorganization value in excess of amounts allocable to identifiable assets, net 64,526 69,366 Goodwill, net 9,933 10,753 Contract land deposits 38,151 36,992 Other assets 24,811 22,424 -------- -------- 518,558 425,899 -------- -------- MORTGAGE BANKING: Cash and cash equivalents 15,516 4,041 Mortgage loans held for sale, net 172,020 115,744 Mortgage servicing rights, net 2,986 2,220 Property and equipment, net 347 637 Reorganization value in excess of amounts allocable to identifiable assets, net 10,883 11,700 Other assets 6,868 4,380 -------- -------- 208,620 138,722 -------- -------- TOTAL ASSETS $727,178 $564,621 ======== ========
See notes to consolidated financial statements. 4 NVR, INC. Consolidated Balance Sheets (dollars in thousands, except share data)
SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ----------------- (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY HOMEBUILDING: Accounts payable $ 75,715 $ 67,987 Accrued expenses and other liabilities 128,503 94,931 Notes payable 5,630 5,728 Other term debt 14,049 14,017 Senior notes 153,511 120,000 --------- -------- 377,408 302,663 --------- -------- MORTGAGE BANKING: Accounts payable and other liabilities 17,614 8,925 Notes payable 162,943 108,393 --------- -------- 180,557 117,318 --------- -------- Total liabilities 557,965 419,981 --------- -------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, $0.01 par value; 60,000,000 shares authorized; 20,127,640 and 19,995,494 shares issued as of September 30, 1998 and December 31, 1997, respectively 201 200 Paid-in-capital 169,046 164,731 Retained earnings 120,342 75,977 Less treasury stock at cost 9,313,432 and 8,900,972 shares at September 30, 1998 and December 31, 1997, respectively (120,376) (96,268) --------- -------- Total shareholders' equity 169,213 144,640 --------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 727,178 $564,621 ========= ========
See notes to consolidated financial statements. 5 NVR, INC. Consolidated Statements of Income (dollars in thousands, except per share data) (unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ----------------------------- --------------------------- 1998 1997 1998 1997 --------- --------- ---------- --------- HOMEBUILDING: Revenues $ 441,034 $ 316,874 $1,118,319 $ 837,298 Other income 672 162 1,837 929 Cost of sales (372,950) (272,308) (946,752) (722,586) Selling, general and administrative (30,839) (23,589) (80,088) (56,905) Amortization of reorganization value in excess of amounts allocable to identifiable assets and goodwill (1,886) (1,613) (5,659) (4,839) --------- --------- ---------- --------- Operating income 36,031 19,526 87,657 53,897 Interest expense (4,041) (3,936) (13,680) (12,257) --------- --------- ---------- --------- Homebuilding income 31,990 15,590 73,977 41,640 --------- --------- ---------- --------- MORTGAGE BANKING: Mortgage banking fees 11,724 6,407 30,095 18,227 Interest income 2,360 1,585 6,515 3,948 Other income 161 102 505 263 General and administrative (7,172) (5,412) (19,436) (16,178) Amortization of reorganization value in excess of amounts allocable to identifiable assets (272) (272) (816) (816) Interest expense (1,809) (1,074) (4,934) (2,333) --------- --------- ---------- --------- Operating income 4,992 1,336 11,929 3,111 TOTAL SEGMENT INCOME 36,982 16,926 85,906 44,751 Income tax expense (12,223) (7,920) (34,792) (20,939) --------- --------- ---------- --------- INCOME BEFORE EXTRAORDINARY ITEM 24,759 9,006 51,114 23,812 Extraordinary loss from extinguishment of indebtedness (net of a $4 and $4,224 tax benefit for the three and nine months ended September 30, 1998, respectively) (6) - (6,749) - --------- --------- ---------- --------- NET INCOME $ 24,753 $ 9,006 $ 44,365 $ 23,812 ========= ========= ========== ========= BASIC EARNINGS PER SHARE: Income before extraordinary loss $ 2.25 $ 0.77 $ 4.54 $ 1.98 Extraordinary loss - - (0.60) - --------- --------- ---------- --------- Basic earnings per share $ 2.25 $ 0.77 $ 3.94 $ 1.98 ========= ========= ========== ========= DILUTED EARNINGS PER SHARE: Income before extraordinary loss $ 1.87 $ 0.68 $ 3.83 $ 1.80 Extraordinary loss - - (0.51) - --------- --------- ---------- --------- Diluted earnings per share $ 1.87 $ 0.68 $ 3.32 $ 1.80 ========= ========= ========== =========
See notes to consolidated financial statements. 6 NVR, INC. Consolidated Statements of Cash Flows (dollars in thousands, except share data) (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 44,365 $ 23,812 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 10,112 9,757 Pre-tax extraordinary loss-extinguishment of indebtedness 10,973 - Mortgage loans closed (1,934,690) (1,043,068) Proceeds from sales of mortgage loans 1,880,344 1,023,509 Gain on sale of mortgage servicing rights (818) (1,143) Gain on sale of loans (21,736) (10,904) Net change in assets and liabilities: Increase in inventories (39,984) (29,518) Increase in receivables (3,281) (4,721) Increase in accounts payable and accrued expenses 51,657 16,340 Other, net 2,809 (1,390) ----------- ----------- Net cash used by operating activities (249) (17,326) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of mortgage-backed securities 9,570 15,126 Purchase of property, plant and equipment (1,667) (2,108) Principal payments on mortgage-backed securities 4,465 3,001 Proceeds from sales of mortgage servicing rights 15,204 11,829 Other, net 25 347 ----------- ----------- Net cash provided by investing activities 27,597 28,195 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Redemption of mortgage-backed bonds (11,785) (16,431) Extinguishment of 11% Senior Notes (120,365) - Deferred financing fees (2,311) - Issuance of 8% Senior Notes 145,000 - Net borrowings under notes payable 54,370 22,695 Purchases of treasury stock (29,235) (35,475) Other, net 955 657 ----------- ----------- Net cash provided (used) by financing activities 36,629 (28,554) Net increase (decrease) in cash 63,977 (17,685) Cash, beginning of the period 45,725 74,780 ----------- ----------- Cash, end of period $ 109,702 $ 57,095 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid during the period $ 15,705 $ 12,141 =========== =========== Income taxes paid, net of refunds $ 27,520 $ 19,753 =========== ===========
See notes to consolidated financial statements. 7 NVR, INC. Notes to Consolidated Financial Statements (dollars in thousands, except share data) 1. BASIS OF PRESENTATION The accompanying unaudited, 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 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. Because the accompanying condensed, consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles, they should be read in conjunction with the financial statements and notes thereto included in the Company's 1997 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, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 2. MERGER Effective September 30, 1998, NVR merged each of NVR Homes, Inc., NVR's wholly-owned homebuilding subsidiary, and NVR Financial Services, Inc., NVR's wholly-owned mortgage banking holding company, into the Company. The merger allows the Company to utilize a separate return limitation year net operating loss ("SRLY NOL") generated by the Company's previously owned savings and loan institution, NVR Savings Bank. As a result, the Company expects to realize a current tax benefit of approximately $3,300 during 1998. The planned use of the SRLY NOL, coupled with higher taxable income relative to fixed permanent differences, has reduced the Company's estimated full year effective tax rate from 46.1% to 40.5%. 3. 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 nine month periods ended September 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 SFAS No. 131 has a disclosure-only effect on the notes to the Company's financial statements, adoption of SFAS No. 131 has no impact on the Company's results of operations or financial condition. In the year of adoption, the disclosure requirements of SFAS No. 131 need not be applied to interim financial statements. The Company will implement SFAS No. 131 in its full year 1998 financial statements. 8 NVR, INC. Notes to Consolidated Financial Statements (dollars in thousands, except share data) 4. SHAREHOLDERS' EQUITY A summary of changes in shareholders' equity is presented below:
COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK ------ -------- -------- ---------- BALANCE, DECEMBER 31, 1997 $200 $164,731 $ 75,977 $ (96,268) Net income - - 44,365 - Tax benefit from stock-based compensation activity - 1,575 - - Option activity 1 954 - Treasury stock purchases - - - (29,235) Performance share activity - 1,786 - 5,127 ---- -------- -------- --------- BALANCE, SEPT. 30, 1998 $201 $169,046 $120,342 $(120,376) ==== ======== ======== =========
Approximately 365,000 shares were reissued from the treasury during January 1998 in satisfaction of benefits earned and expensed in 1997 under an equity-based employee benefit plan. The average cost basis for the shares reissued from the treasury was $14.04 per share. In addition, 161,548 options were exercised during the first nine months of 1998, with NVR realizing approximately $955 in aggregate equity proceeds. 5. DEBT On January 20, 1998, the Company filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $400 million of the Company's debt securities. The shelf registration statement was declared effective on February 27, 1998 and provides that securities may be offered from time to time in one or more series, and in the form of senior or subordinated debt. On April 14, 1998, the Company completed an offering under the shelf registration statement for $145 million of senior notes due 2005 (the "New Notes"), resulting in aggregate net proceeds to the Company of approximately $142.8 million after fees and expenses. The New Notes mature on June 1, 2005 and bear interest at 8%, payable semi-annually on June 1 and December 1 of each year, commencing June 1, 1998. The New Notes are senior unsecured obligations of the Company, ranking equally in right of payment with the Company's other existing and future unsecured indebtedness. An additional $30 million in principal is available for issuance under the New Note offering. The Company has and will apply the net proceeds received from the offering of the New Notes to refinance other debt. On April 21, 1998, the Company commenced a tender offer ("Tender Offer") to repurchase the $120 million in aggregate principal outstanding under the Company's 11% Senior Notes due 2003 ("Senior Notes"). The Tender Offer expired at 12:00 midnight, New York City time, on May 18, 1998. An aggregate principal amount of $111,489 was retired pursuant to the Tender Offer (and to subsequent open market purchases), which resulted in the extraordinary loss of $6,749 (net of a $4,224 tax benefit) included in the accompanying financial statements for the nine months ended September 30, 1998. The amount of funds expended to complete the Tender Offer and subsequent open market purchases totaled $126,082, including accrued interest. The Company has agreed in the supplemental indenture filed in connection with the offer of the New Notes to call any Senior Notes not tendered on December 1, 1998 at a redemption price of 105.5% of the principal amount thereof, plus accrued interest. The Company has formally notified the Senior Note Trustee of the Company's intent to call the Senior Notes on December 1, 1998. 9 NVR, INC. Notes to Consolidated Financial Statements (dollars in thousands, except per share and share data) In addition, the Company has irrevocably exercised its option to purchase, effective May 1999, certain office buildings currently utilized by NVR's mortgage banking operations, which will thereby extinguish the Company's obligations under the capital lease pertaining to these buildings. The effective interest rate on the capital lease debt is 13.8%. Pending the purchase, the Company has irrevocably deposited approximately $12 million of proceeds from the New Notes into escrow administered by a trustee, which represents the approximate amount necessary to exercise the purchase option. The Company expects to recognize an extraordinary loss on extinguishment of debt related to this purchase offer of approximately $2.0 million (post-tax) upon the settlement of the capital lease obligation. In September 1998, the Company, as borrower, succeeded to the obligations of NVR Homes, Inc. under the unsecured working capital revolving credit facility as amended and restated (the "Facility"). The Facility expires on May 31, 2001. The Facility provides for borrowings of up to $100 million of which $60 million is currently committed. Under terms of the Facility, an additional $10 million uncommitted overline is available to the Company on a limited basis. On July 10, 1998, NVR Mortgage Finance, Inc., NVR's wholly owned mortgage banking subsidiary, amended its mortgage warehouse facility to increase the available borrowing limit to $175,000, of which $150,000 is committed, and to ease certain restrictive covenants. The other terms and conditions are substantially the same as those in effect at December 31, 1997. 10 RVN, INC Balance Sheets (dollars in thousands, except share data)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (unaudited) ASSETS Cash and cash equivalents $ 10 $ 11 Royalty receivable 2,707 1,880 ------ ------ TOTAL ASSETS $2,717 $1,891 ====== ====== LIABILITIES AND SHAREHOLDER'S EQUITY Accounts payable and accrued expenses $ 931 $ 643 COMMITMENTS AND CONTINGENCIES SHAREHOLDER'S EQUITY: Common stock, $1 par value; 3,000 shares authorized; 1,000 shares issued and outstanding 1 1 Additional paid-in capital 64 64 Retained earnings 1,721 1,183 ------ ------ Total shareholder's equity 1,786 1,248 ------ ------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,717 $1,891 ====== ======
RVN, INC. Statements of Income (dollars in thousands) (unaudited)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 -------------- ------------- -------------- ------------- REVENUES: Royalty revenue $ 7,971 $ 5,992 $20,378 $15,902 Other income 4 2 5 6 ------- ------- ------- ------- Total revenues 7,975 5,994 20,383 15,908 EXPENSES: General and administrative 6 8 17 28 ------- ------- ------- ------- Income before income tax 7,969 5,986 20,366 15,880 Income tax expense (2,819) (2,102) (7,204) (5,558) ------- ------- ------- ------- NET INCOME $ 5,150 $ 3,884 $13,162 $10,322 ======= ======= ======= =======
See notes to financial statements. 11 RVN, INC. Statements of Cash Flows (dollars in thousands) (unaudited)
NINE MONTHS NINE MONTHS ENDED ENDED SEPT. 30, 1998 SEPT. 30, 1997 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,162 $10,322 Adjustments to reconcile net income to net cash provided by operating activities: Increase in royalty receivables (827) (592) Increase in accounts payable and accrued liabilities 288 180 -------- ------- Net cash provided by operating activities 12,623 9,910 -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividend to parent (12,624) (9,958) -------- ------- Net cash used by financing activities (12,624) (9,958) -------- ------- Net increase (decrease) in cash (1) (48) Cash, beginning of period 11 62 -------- ------- Cash, end of period $ 10 $ 14 ======== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid during the period $ - $ - ======== ======= Taxes paid during the period, net of refunds $ 6,916 $ 5,353 ======== =======
See notes to financial statements. 12 RVN, INC. Notes to Financial Statements (dollars in thousands) 1. BASIS OF PRESENTATION The accompanying unaudited financial statements include the accounts of RVN, Inc. ("RVN" or the "Company"). RVN is a wholly owned subsidiary of NVR, Inc. ("NVR"). The statements are provided pursuant to RVN's status as a guarantor of NVR's 11% Senior Notes due 2003 (the "Senior Notes"). 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 nine- month period ended September 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 nine month period ended September 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. SHAREHOLDER'S EQUITY A summary of changes in shareholder's equity is presented below:
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS ---------- ------- --------- BALANCE, DECEMBER 31, 1997 $ 1 $ 64 $ 1,183 Net income - - 13,162 Dividend to parent - - (12,624) ---------- ------- --------- BALANCE, SEPTEMBER 30, 1998 $ 1 $ 64 $ 1,721 ========== ======= =========
13 FOX RIDGE HOMES, INC. Balance Sheets (dollars in thousands)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (UNAUDITED) ASSETS Cash and cash equivalents $ - $ - Accounts receivable 217 192 Inventory, net 22,652 19,879 Investment in FRP, LP 96 179 Property and equipment, net 242 228 Goodwill, net 9,933 10,753 Other 434 122 ------- ------- TOTAL ASSETS $33,574 $31,353 ======= ======= LIABILITIES AND SHAREHOLDER'S EQUITY Notes payable - lot acquisitions $ 900 $ 900 Notes payable - acquisition note 4,659 4,750 Accounts payable 3,143 2,281 Due to affiliate 5,712 8,012 Accrued expenses and other liabilities 2,086 637 Deferred taxes 281 281 ------- ------- TOTAL LIABILITIES 16,781 16,861 ------- ------- COMMITMENTS AND CONTINGENCIES SHAREHOLDER'S EQUITY: Common stock, $.01 par, 100,000 shares authorized; 100 shares issued and outstanding - - Additional paid in capital 14,250 14,250 Retained earnings 2,543 242 ------- ------- Total shareholder's equity 16,793 14,492 ------- ------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $33,574 $31,353 ======= =======
See notes to financial statements. 14 FOX RIDGE HOMES, INC. Statements of Income (dollars in thousands) (unaudited)
SUCCESSOR PREDECESSOR* SUCCESSOR PREDECESSOR* ------------ --------------- ------------ --------------- THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ --------------- ------------ --------------- REVENUES: Revenues $19,813 $14,072 $45,183 $34,055 Other income 34 20 59 56 ------- ------- ------- ------- Total Revenues 19,847 14,092 45,242 34,111 EXPENSES: Cost of sales 16,491 12,006 37,783 28,830 Interest expense 258 237 802 682 Selling, general and administrative 840 758 2,528 2,328 Amortization of goodwill 273 - 820 - ------- ------- ------- ------- Total expenses 17,862 13,001 41,933 31,840 Income before income tax expense 1,985 1,091 3,309 2,271 Income tax expense (481) (98) (1,008) (161) ------- ------- ------- ------- NET INCOME $ 1,504 $ 993 $ 2,301 $ 2,110 ======= ======= ======= =======
* Period is prior to the date that the Company was acquired by NVR, Inc. (see note 1) See notes to financial statements. 15 FOX RIDGE HOMES, INC. Statements of Cash Flows (dollars in thousands) (unaudited)
(SUCCESSOR) (PREDECESSOR)* NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,301 $ 2,110 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 925 127 Equity earnings in FRP, LP (70) (58) Net change in assets and liabilities: Increase in inventories (2,773) (2,907) Increase in receivables (25) (1,051) (Decrease) increase in accounts payable and accrued liabilities 2,311 (1,057) Other, net (312) 13 ------- ------- Net cash provided (used) by operating activities 2,357 (2,823) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant & equipment (119) (139) Dividends from FRP, LP 153 94 ------- ------- Net cash provided (used) by investing activities 34 (45) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends - (1,991) Decrease in advances from affiliates (2,300) - Net borrowings (repayments) under notes payable (91) 5,042 ------- ------- Net cash provided (used) by financing activities (2,391) 3,051 ------- ------- Net decrease in cash - (183) Cash, beginning of the period - 660 ------- ------- Cash, end of period $ - $ 843 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid during the period $ 519 $ 608 ======= ======= Taxes paid during the period (net of refunds) $ 200 $ 187 ======= =======
* Period is prior to the date that the Company was acquired by NVR, Inc. (see note 1) See notes to financial statements. 16 FOX RIDGE HOMES, INC. Notes to Financial Statements (dollars in thousands) 1. BASIS OF PRESENTATION Fox Ridge Homes, Inc. ("Fox Ridge" or the "Successor"), a wholly owned subsidiary of NVR, Inc. ("NVR"), was formed in 1997 to purchase substantially all of the assets and assume certain liabilities (the "Purchase Transaction") of Fox Ridge Homes, Inc. ("FRH" or the "Predecessor"), a home builder in Nashville, Tennessee, which occurred on October 31, 1997 (the "Purchase Date"). The accompanying unaudited financial statements include the accounts of the Successor for the three and nine months ending September 30, 1998, and include the accounts of the Predecessor for the three and nine months ending September 30, 1997. As a result, the financial statements for periods subsequent to the Purchase Date are not comparable to the financial statements for periods prior to the Purchase Date. The statements are provided pursuant to Fox Ridge's status as a guarantor of NVR's 11% Senior Notes due 2003. 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 nine-month period ended September 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, Fox Ridge 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 nine months ended September 30, 1998 and 1997, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying financial statements. Fox Ridge 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 Fox Ridge has only one reportable operating segment pursuant to the guidance of SFAS No. 131, the implementation of SFAS No. 131 has no impact on Fox Ridge's financial statements. 17 ITEM 2. - ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in thousands, except per share amounts) 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 (on both a national and regional level), interest rate changes, competition, the availability and cost of land and other raw materials used by the Company in its homebuilding operations, shortages of labor, weather related slow downs, building moratoria, governmental regulation, the ability of the Company to integrate any acquired business, technological problems encountered with year 2000 issues, certain conditions in financial markets and other factors over which the Company has little or no control. NVR, INC. CONSOLIDATED - ---------------------- Effective September 30, 1998, NVR, Inc. ("NVR" or the "Company") merged each of NVR Homes, Inc., NVR's wholly-owned homebuilding subsidiary, and NVR Financial Services, Inc., NVR's wholly-owned mortgage banking holding company, into the Company. RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 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. HOMEBUILDING SEGMENT THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 During the third quarter of 1998, homebuilding operations generated revenues of $441,034 compared to revenues of $316,874 in the third quarter of 1997. The change in revenues is primarily due to a 32.3% increase in the number of homes settled from 1,639 in 1997 to 2,169 in 1998 and to a 5.4% increase in the average settlement price from $192.1 in 1997 to $202.5 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 1,821 during the third quarter of 1998 were 33.3% higher than the 1,366 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 third quarter of 1998 increased to 15.4% compared to 14.1% for the third quarter of 1997. The increase in gross margins was due to the continuing favorable market 18 conditions, improved margins in the Company's expansion markets and the Company's continued emphasis on controlling construction costs. SG&A expenses for the third quarter of 1998 increased $7,250 as compared to the same 1997 period, and as a percentage of revenues decreased from 7.4% to 7.0%. The increase is due primarily to the aforementioned increase in revenues. A portion of the increase is also due to a net period to period increase of approximately $2,900 for certain management incentive plans. Backlog units and dollars were 4,104 and $843,463, respectively, at September 30, 1998 compared to 2,870 and $553,409, respectively, at September 30, 1997. The increase in backlog units and dollars is primarily due to the 28% increase in new orders for the six months ended September 30, 1998, compared to the six months ended September 30, 1997. The Company believes that earnings before interest, taxes, depreciation and amortization ("EBITDA") provides a meaningful comparison of operating performance of the homebuilding segment because it excludes the amortization of certain intangible assets. Although the Company believes the calculation is helpful in understanding the performance of the homebuilding segment, EBITDA should not be considered a substitute for net income or cash flow as indicators of the Company's financial performance or its ability to generate liquidity.
CALCULATION OF EBITDA: THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1998 1997 -------------------------------- Operating income $36,031 $19,526 Depreciation 874 840 Amortization of excess reorganization value and goodwill 1,886 1,613 Other non-cash expenses 2,613 2,000 ------- ------- HOMEBUILDING EBITDA $41,404 $23,979 ======= ======= % OF HOMEBUILDING REVENUES 9.4% 7.6%
Homebuilding EBITDA in the third quarter of 1998 was $17,425 or 72.7% higher than in the third quarter of 1997, and as a percentage of revenue increased from 7.6% to 9.4%. MORTGAGE BANKING SEGMENT THREE MONTHS ENDED SEPTEMBER 1998 AND 1997 The mortgage banking segment generated operating income of $4,992 for the three months ended September 30, 1998 compared to operating income of $1,336 during the same period in 1997. Loan closings were $697,567 and $396,117 during the respective quarters ended September 30, 1998 and 1997 representing an increase of 76%. Mortgage banking fees had a net increase of $5,317 representing an 83% increase when comparing the respective quarters of September 30, 1998 and 1997. This increase can be attributed to the higher gain on sale of loans and title services fees resulting from the higher volume of loan closings and the gain on sale of mortgage servicing rights. A summary of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1998 1997 ------ ------ Net gain on sale of loans $8,356 $4,397 Servicing 349 244 Title services 2,445 1,766 Gain on sale of servicing rights 574 - ------ ------ $11,724 $6,407 ======= ======
19 HOMEBUILDING SEGMENT NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 During the first nine months of 1998, homebuilding operations generated revenues of $1,118,319 compared to revenues of $837,298 in the first nine months of 1997. The increase in revenues was primarily due to a 28.3% increase in the number of homes settled from 4,448 in 1997 to 5,707 in 1998, and to a 4.3% increase in the average settlement price from $187.1 in 1997 to $195.1 in 1998. New orders increased by 36.4% to 6,616 for the nine months ended September 30, 1998 compared with 4,852 for the nine months ended September 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 nine months of 1998 increased to 15.3% compared to 13.7% for the nine months ended September 30, 1997. The increase in gross margins was due to the continuing favorable market conditions, improved margins in the Company's expansion markets and the Company's continued emphasis on controlling construction costs. SG&A expenses for 1998 increased $23,183 as compared to the same 1997 period, and as a percentage of revenues increased from 6.8% to 7.2%. The increase is due primarily to a net period to period increase of approximately $12,100 for certain management incentive plans, of which approximately $6,900 of the total cost is a non-cash charge related to a variable stock plan adopted by the Board of Directors (the "Board") pursuant to the Company's 1993 Plan of Reorganization. A portion of the increase is also due to the aforementioned increase in revenues, and to increased costs incurred in the Company's expansion markets. The Company's executive officers and certain other key management personnel participate in the 1994 Management Incentive Plan (the "Plan"), a variable stock award plan adopted by the Board pursuant to the Company's 1993 Plan of Reorganization. Under the original Plan document, approximately one- third of the 1,095,200 total shares granted under the Plan are eligible to vest on December 31, 1998 if certain full year earnings targets are met or exceeded. During the third quarter, the Board amended the Plan to fix the vesting rights for shares eligible for vesting in 1998 at a date earlier than December 31, 1998 if the full-year earnings targets specified in the Plan are met or exceeded prior to December 31, 1998. Plan participants must be employed by the Company on December 31, 1998 to be eligible to receive the shares. The shares eligible for vesting in 1998 were determined to have vested. The vesting determination fixes the full-year compensation cost at $24.875/share. Through September 30, 1998, the Company recognized $6,913 in compensation cost related to the Plan, and expects to recognize an additional $2,304 of compensation cost in the fourth quarter of 1998. Through September 30, 1997, the Company had recognized $3,000 of Plan compensation cost, and recognized $5,105 in the fourth quarter of 1997.
CALCULATION OF HOMEBUILDING EBITDA: NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1998 1997 -------------------------------- Operating income $ 87,657 $53,897 Depreciation 2,700 2,531 Amortization of excess reorganization Value and goodwill 5,659 4,839 Other non-cash expenses 6,913 3,000 -------- ------- HOMEBUILDING EBITDA $102,929 $64,267 ======== ======= % OF HOMEBUILDING REVENUES 9.2% 7.7%
20 Homebuilding EBITDA for the first nine months of 1998 was $38,662 or 60.2% higher than the first nine months of 1997, and as a percentage of revenues increased from 7.7% to 9.2%. MORTGAGE BANKING SEGMENT NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 The mortgage banking segment generated operating income of $11,929 for the nine months ended September 30, 1998 compared to operating income of $3,111 during the same period in 1997. Loan closings were $1,934,690 and $1,043,068 during the respective nine month periods in 1998 and 1997 representing an increase of 85%. Mortgage banking fees had a net increase of $11,868 representing a 65% increase when comparing the respective nine-month periods of 1998 and 1997. This increase can be attributed to the higher gain on sale of loans resulting from the higher volume of loan closings, partially offset by the lower servicing fee income resulting from the decrease in the servicing portfolio and the lower gain on sale of servicing rights. A summary of mortgage banking fees is noted below:
MORTGAGE BANKING FEES: 1998 1997 ------- ------- Net gain on sale of loans $21,736 $10,904 Servicing 1,012 1,470 Title services 6,529 4,710 Gain on sale of servicing rights 818 1,143 ------- ------- $30,095 $18,227 ======= =======
EFFECTIVE TAX RATE The merger of NVR Homes, Inc and NVR Financial Services, Inc. into the Company on September 30, 1998 allows the Company to utilize a separate return limitation year net operating loss ("SRLY NOL") generated by the Company's previously owned savings and loan institution, NVR Savings Bank. As a result, the Company's expects to realize an approximate $3,300 current tax benefit during 1998. The planned use of the SRLY NOL, coupled with higher taxable income relative to fixed permanent differences, has reduced the Company's estimated full year effective tax rate from 46.1% to 40.5%. PENDING ADOPTION OF ACCOUNTING PRINCIPLE The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be recognized as either assets or liabilities on the balance sheet and be measured at fair value. Depending on the hedge designation, changes in such fair value will be recognized in either other comprehensive income or current earnings. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, and is applicable to interim periods in the initial year of adoption. At the present time, the Company cannot determine the impact that SFAS No. 133 will have on its financial statements upon adoption on January 1, 2000, as such impact will be determined based on loans held in inventory and forward mortgage delivery contracts outstanding at the date of adoption. 21 YEAR 2000 ISSUE The Year 2000 Issue is the risk that computer programs using two-digit date fields will fail to properly recognize the year 2000, with the result being business interruptions due to computer system failures by the Company's software or hardware or that of government entities, service providers and vendors. With the assistance of a consulting firm, the Company has completed its assessment of exposure to Year 2000 Issues and has developed a detailed plan to remediate areas of exposure in both its homebuilding and mortgage banking segments, as discussed below. The Company has substantially completed its remediation efforts on its core homebuilding systems and is currently in the process of testing these systems. The Company expects this testing to be completed by December 31, 1998. The total Year 2000 Issue costs for the homebuilding systems are estimated to be approximately $400, the majority of which has already been expensed during the first nine months of 1998. The mortgage banking segment utilizes the following four core systems to operate its business: Loan Origination; Secondary Marketing; Servicing; and Settlement Services. During 1997 a decision was made to replace the existing loan origination system to obtain greater operating efficiencies. The existing system was not Year 2000 compliant. The Company has purchased a new commercially available software package for Loan Origination processing, which has been certified to be Year 2000 compliant by the vendor. The Company has tested the system and believes that it is Year 2000 compliant. The Company has developed a detailed rollout plan for implementation into its mortgage branches. The new system is expected to be deployed in each branch by June 1999. The total cost of this project is estimated to be $3,700, the majority of which will be incurred and capitalized during 1999. The Company has upgraded the existing Secondary Marketing system to the Year 2000 compliant version of the vendor's software. The Servicing and Settlement Services Systems are also purchased software packages, which the vendors have indicated are both Year 2000 compliant. All three systems will be user tested, with testing completed by December 31, 1998. The total cost of updating and testing these systems is estimated to be $100, the majority of which will be expensed in the fourth quarter of 1998. The Company has initiated formal communications with its significant suppliers and service providers to determine the extent to which the Company may be vulnerable to their failure to correct their own Year 2000 Issues. To the extent that responses to Year 2000 readiness are unsatisfactory, the Company will attempt to identity alternative suppliers and service providers who have demonstrated Year 2000 readiness. As a normal course of business, the Company seeks to maintain multiple suppliers where possible. The Company cannot be assured that it will be successful in finding such alternative suppliers, service providers and contractors. In the event that any of the Company's significant suppliers or service providers do not successfully and timely achieve Year 2000 compliance, and the Company is unable to replace them, the Company's business or operations could be adversely affected. The Company is currently assessing its mechanical systems (e.g., phones, HVAC, etc.) which employ embedded chip technology. Based on initial information gathered, the Company does not estimate a significant expense will be incurred to make any non-compliant systems Year 2000 compliant. The Company presently believes that upon remediation of its business software and hardware applications, the Year 2000 Issue will not present a materially adverse risk to the Company's future consolidated results of operations, liquidity, and capital resources. However, if such remediation is not completed in a timely manner or the level of timely compliance by key suppliers or service providers is not sufficient, the Year 2000 Issue could have a material impact on the Company's operations including, but not limited to, delays in homebuilding and mortgage products resulting in loss of revenues, increased operating costs, loss of customers or suppliers, or other significant disruptions to the Company's business. 22 The Company expects to begin contingency planning activities on any system that remains non-compliant as of December 31, 1998, if any, by early 1999 and expects this planning to continue throughout 1999. LIQUIDITY AND CAPITAL RESOURCES On January 20, 1998, the Company filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $400 million of the Company's debt securities. The shelf registration statement was declared effective on February 27, 1998 and provides that securities may be offered from time to time in one or more series, and in the form of senior or subordinated debt. On April 14, 1998, the Company completed an offering under the shelf registration statement for $145 million of senior notes due 2005 (the "New Notes"), resulting in aggregate net proceeds to the Company of approximately $142.8 million after fees and expenses. The New Notes mature on June 1, 2005 and bear interest at 8%, payable semi-annually on June 1 and December 1 of each year, commencing June 1, 1998. The New Notes are senior unsecured obligations of the Company, ranking equally in right of payment with the Company's other existing and future unsecured indebtedness. An additional $30 million in principal is available for issuance under the New Note offering. The Company has and will apply the net proceeds received from the offering of the New Notes to refinance other debt. On April 21, 1998, the Company commenced a tender offer ("Tender Offer") to repurchase the $120 million in aggregate principal outstanding under the Company's 11% Senior Notes due 2003 ("Senior Notes"). The Tender Offer expired at 12:00 midnight, New York City time, on May 18, 1998. An aggregate principal amount of $111,489 was retired pursuant to the Tender Offer (and to subsequent open market purchases), which resulted in the extraordinary loss of $6,749 (net of a $4,224 tax benefit) included in the accompanying financial statements for the nine months ended September 30, 1998. The amount of funds expended to complete the Tender Offer and subsequent open market purchases totaled $126,082, including accrued interest. The Company has agreed in the supplemental indenture filed in connection with the offer of the New Notes to call any Senior Notes not tendered on December 1, 1998 at a redemption price of 105.5% of the principal amount thereof, plus accrued interest. The Company has formally notified the Senior Note Trustee of the Company's intent to call the Senior Notes on December 1, 1998. In addition, the Company has irrevocably exercised its option to purchase, effective May 1999, certain office buildings currently utilized by NVR's mortgage banking operations, which will thereby extinguish the Company's obligations under the capital lease pertaining to these buildings. The effective interest rate on the capital lease debt is 13.8%. Pending the purchase, the Company has irrevocably deposited approximately $12 million of proceeds from the New Notes into escrow administered by a trustee, which represents the approximate amount necessary to exercise the purchase option. The Company expects to recognize an extraordinary loss on extinguishment of debt related to this purchase offer of approximately $2.0 million (post-tax) upon the settlement of the capital lease obligation. NVR's homebuilding segment generally provides for its working capital cash requirements using cash generated from operations and a short-term credit facility. In September 1998, the Company, as borrower, succeeded to the obligations of NVR Homes, Inc. under the unsecured working capital revolving credit facility as amended and restated (the "Facility"). The Facility expires on May 31, 2001. The Facility provides for borrowings of up to $100 million of which $60 million is currently committed. Under terms of the Facility, an additional $10 million uncommitted overline is available to the Company on a limited basis. NVR's mortgage banking segment provides for its mortgage origination and other operating activities using cash generated from operations as well as various short-term credit facilities. On July 10, 1998, NVR Mortgage Finance, Inc., a subsidiary of NVR, Inc., amended its mortgage warehouse facility 23 to increase the available borrowing limit to $175,000, of which $150,000 is committed, and to ease certain restrictive covenants. The other terms and conditions are substantially the same as those in effect at December 31, 1997. The Company believes that internally generated cash and borrowings available under credit facilities will be sufficient to satisfy near and long term cash requirements for working capital in both its homebuilding and mortgage banking operations. OTHER ELEMENTS IMPACTING LIQUIDITY During the nine months ended September 30, 1998, the Company repurchased approximately 778,000 shares of its common stock at an aggregate purchase price of $29,235. The Company may, from time to time, repurchase additional shares of its common stock, pursuant to repurchase authorizations by the Board of Directors and subject to the restrictions contained within the Company's debt agreements. RVN, INC. - --------- RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Under a royalty agreement entered into on October 1, 1996 with NVR, Inc. ("NVR"), RVN's parent company, RVN, Inc. ("RVN") earns royalty fees based on a percentage of settlement revenue for allowing NVR to use the Ryan Homes and NVHomes tradenames to market homes. RVN earns 100% of its revenue from NVR. The increase in royalty revenues in the current three and nine month periods as compared to the prior year three and nine months periods resulted from higher revenues earned by NVR. RVN has no significant other income or general and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES RVN provides for its working capital cash requirements using cash generated solely from operations. As shown in RVN's statement of cash flows for the period ended September 30, 1998, cash generated from operations is primarily distributed to NVR. Insofar as NVR's ability to make royalty payments is not impaired, RVN believes that internally generated cash will be sufficient to satisfy its near and long term cash requirements. FOX RIDGE HOMES, INC. - --------------------- RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Fox Ridge Homes, Inc. ("Fox Ridge" or the "Successor"), a wholly owned subsidiary of NVR, Inc. ("NVR"), was formed during 1997 to purchase substantially all of the assets and assume certain liabilities (the "Purchase Transaction") of Fox Ridge Homes, Inc. ("FRH" or the "Predecessor"), a home builder in Nashville, Tennessee. The analysis below of the results of operations is a comparison of the Predecessor's financial results for the three and nine months ended September 30, 1997 and the Successor's financial results for the three and nine months ended September 30, 1998. THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Income before income tax expense increased $894 to $1,985 in the third quarter of 1998 from $1,091 in the third quarter of 1997. The increase is a direct result of a higher number of settlements in the current quarter as compared to the prior year quarter, coupled with improved gross margins, and offset by 24 goodwill amortization which resulted from the Purchase Transaction. Fox Ridge settled 131 units during the third quarter of 1998 compared with 101 units settled in the third quarter of 1997. New orders increased by 25.3% from 87 units in the quarter ended September 30, 1997 to 109 units in the quarter ended September 30, 1998. SG&A dollars have increased slightly due to the higher revenues. Backlog units and dollars were 218 and $33,137, respectively, at September 30, 1998 compared to 150 and $21,169, respectively, at September 30, 1997. The increase in backlog units and dollars is primarily attributable to a 29.6% increase in new orders for the six month period ended September 30, 1998 compared to the same 1997 period. NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Income before income tax expense increased $1,038 to $3,309 for the first nine months of 1998 from $2,271 for the first nine months of 1997. The increase is a direct result of a higher number of settlements in the current year period as compared to the prior year period, coupled with improved gross margins, offset by goodwill amortization, which resulted from the Purchase Transaction. In addition, SG&A dollars have increased slightly due to the higher revenues. Fox Ridge settled 299 units during the first nine months of 1998 compared with 244 units settled in the first nine months of 1997. New orders increased by 36.9% from 279 units in the nine months ended September 30, 1997 to 382 units in the nine months ended September 30, 1998. LIQUIDITY AND CAPITAL RESOURCES Fox Ridge generally provides for its working capital cash requirements using cash generated from operations and advances from NVR. Insofar as NVR's ability to make advances is not impaired, Fox Ridge believes that internally generated cash and borrowings available from NVR will be sufficient to satisfy near and long term cash requirements. 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- a. 11. Computation of Earnings per Share. b. 27. Financial Data Schedules c. The Company did not file any reports on Form 8-K during the quarter ended September 30, 1998. 26 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE - --------- --------------------------------- ---- 11 Computation of Earnings per Share 29 27 Financial Data Schedule 30
27 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. November 6, 1998 NVR, Inc. By: /s/ Paul C. Saville ------------------- Paul C. Saville Senior Vice President Finance, Chief Financial Officer, and Treasurer 28 EX-11 2 EXHIBIT 11 EXHIBIT 11 NVR, INC. Computation of Earnings Per Share (amounts in thousands, except per share amounts)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, --------------------------- --------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- --------- 1. Net income $24,753 $ 9,006 $44,365 $23,812 ======= ======= ======= ======= 2. Average number of shares outstanding 10,994 11,682 11,248 12,051 3. Shares issuable upon exercise of dilutive options, warrants and subscriptions outstanding during period, based on average market price 2,269 1,531 2,111 1,212 ------- ------- ------- ------- 4. Average number of shares and share equivalents outstanding (2 + 3) 13,263 13,213 13,359 13,263 ======= ======= ======= ======= 5. Basic earnings per share (1/2) $ 2.25 $ 0.77 $ 3.94 $ 1.98 ======= ======= ======= ======= 6. Diluted earnings per share (1/4) $ 1.87 $ 0.68 $ 3.32 $ 1.80 ======= ======= ======= =======
29 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NVR INC.'S CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 109,702 0 7,086 0 264,025 0 16,187 0 727,178 0 153,511 0 0 169,247 (34) 727,178 1,118,319 1,157,271 946,752 1,026,840 5,659 0 13,680 85,906 34,792 51,114 0 (6,749) 0 44,365 3.94 3.32 ITEM REPRESENTS THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE AND GOOD WILL.
EX-27.1 4 AMENDMENT FDS FROM 9/30/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NVR INC.'S CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 57,095 0 9,095 0 201,211 0 17,852 0 530,279 0 120,000 0 0 156,292 (15,288) 530,279 837,298 860,665 722,586 795,669 5,655 0 14,590 44,751 20,939 23,812 0 0 0 23,812 1.98 1.80 ITEM REPRESENTS THE NON-CASH AMORTIZATION OF EXCESS REORGANIZATION VALUE.
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