UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K/A

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

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 incorporation or organization)	(IRS employer identification number)

11700 Plaza America Drive, Suite 500
Reston, Virginia 20190
(703) 956-4000 (Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common stock, par value $0.01 per share	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ 

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 þ No o 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as described in Exchange Act Rule 12b-2).

 Large accelerated filer þ          Accelerated filer o          Non-accelerated filer o 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ 

The aggregate market value of the voting stock held by non-affiliates of NVR, Inc. on June 30, 2005, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $4.5 billion.

As of February 17, 2006 there were 5,553,365 total shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of NVR, Inc. to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 on or prior to April 30, 2006 are incorporated by reference into Part III of this report.

EXPLANATORY NOTE: This Annual Report on Form 10-K/A is filed for the purpose of amending Note 2 in the Notes to the Consolidated Financial Statements for the years ended December 31, 2005, 2004 and 2003, which now includes expanded reportable segment footnote disclosure related to our homebuilding operations. This amendment has no impact on our consolidated balance sheets as of December 31, 2005 and 2004, or our consolidated statements of income and related earnings per share amounts, consolidated statements of cash flows or consolidated statements of shareholders’ equity for the years ended December 31, 2005, 2004 and 2003. Conforming changes have been made to the Business Section in Item 1, Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7, and our Controls and Procedures discussion in Item 9A of this Form 10-K/A. See Note 2 in the Notes to the Consolidated Financial Statements for further information regarding this amendment. This Form 10-K/A has not been updated for events or information subsequent to the date of the filing of the original Form 10-K, except in connection with the foregoing.

INDEX

		Page
PART I
Item 1.	Business		3
Item 1A.	Risk Factors		7
Item 1B.	Unresolved Staff Comments		10
Item 2.	Properties		10
Item 3.	Legal Proceedings		11
Item 4.	Submission of Matters to a Vote of Security Holders		11
	Executive Officers of the Registrant		11
PART II
Item 5.	Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		12
Item 6.	Selected Financial Data		13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk		29
Item 8.	Financial Statements and Supplementary Data		32
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		32
Item 9A.	Controls and Procedures		32
Item 9B.	Other Information		33
PART III
Item 10.	Directors and Executive Officers of the Registrant		33
Item 11.	Executive Compensation		33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		33
Item 13.	Certain Relationships and Related Transactions		34
Item 14.	Principal Accountant Fees and Services		34
PART IV
Item 15.	Exhibits and Financial Statement Schedules		35

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PART I

Item 1. Business.

General

     NVR, Inc. (“NVR”) was formed in 1980 as NVHomes, Inc. NVR’s primary business is the construction and sale of single-family detached homes, townhomes and condominium buildings. To fully serve our homebuilding customers, we also operate a mortgage banking business. NVR conducts its homebuilding activities directly, except for Rymarc Homes, which is operated as a wholly owned subsidiary, and its mortgage banking operations which is operated primarily through a wholly owned subsidiary, NVR Mortgage Finance, Inc. (“NVRM”). Unless the context otherwise requires, references to “NVR”, “we”, “us” or “our” include NVR and its subsidiaries.

     We are one of the largest homebuilders in the United States and in the Washington, D.C. and Baltimore, MD metropolitan areas. While we operate in multiple locations in thirteen states, primarily in the eastern part of the United States, approximately 38% of our home settlements in 2005 occurred in the Washington, D.C. and Baltimore, MD metropolitan areas, which accounted for 52% of our 2005 homebuilding revenues. Our homebuilding operations include the construction and sale of single-family detached homes, townhomes and condominium buildings under four trade names: Ryan Homes, NVHomes, Fox Ridge Homes, and Rymarc Homes. The Ryan Homes, Fox Ridge Homes, and Rymarc Homes products are moderately priced and marketed primarily to first-time homeowners and first-time move-up buyers. The Ryan Homes product is currently sold in twenty-one metropolitan areas located in Maryland, Virginia, West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Ohio, New Jersey, Delaware, Michigan and Kentucky. The Fox Ridge Homes product is sold solely in the Nashville, TN metropolitan area and the Rymarc Homes product is sold solely in the Columbia, South Carolina market. The NVHomes product is marketed primarily to move-up and upscale buyers and is sold in the Washington, D.C., Baltimore, MD, Philadelphia, PA and the Maryland Eastern Shore metropolitan areas. In 2005, our average price of a unit settled was approximately $375,000.

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

     Our lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. We may, at our option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of our intent not to acquire the finished lots under contract. Our sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidating damage provision contained within the purchase agreements. We do not have any financial guarantees or completion obligations and, with the exception of three specific performance contracts for 80 lots existing at December 31, 2005, we do not guarantee specific performance under these purchase agreements. We generally seek to maintain control over a supply of lots believed to be suitable to meet our sales objectives for the next 24 to 36 months.

     On a very limited basis, NVR also obtains finished lots using joint venture limited liability corporations (“LLC’s”). All LLC’s are structured such that NVR is a non-controlling member and is at risk only for the amount invested. NVR is not a borrower, guarantor or obligor on any of the LLC’s debt. NVR enters into a standard fixed price purchase agreement to purchase lots from these LLC’s. At December 31, 2005, NVR had an aggregate investment in thirteen separate LLC’s totaling approximately $15 million, which controlled approximately 1,000 lots.

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     In addition to building and selling homes, we provide a number of mortgage-related services through our mortgage banking operations. Through operations in each of our homebuilding markets, NVRM originates mortgage loans almost exclusively for our homebuyers. NVRM generates revenues primarily from origination fees, gains on sales of loans and title fees. NVRM sells all of the mortgage loans it closes into the secondary markets on a servicing released basis.

     Segment information for our homebuilding and mortgage banking businesses is included in Note 2 to the consolidated financial statements.

Homebuilding

     Products

     We offer single-family detached homes, townhomes and condominium buildings with many different basic home designs. These home designs have a variety of elevations and numerous other options. Our homes combine traditional or colonial exterior designs with contemporary interior designs and amenities, generally include two to four bedrooms, and range from approximately 1,000 to 7,300 square feet. During 2005, the prices of our homes ranged from approximately $90,000 to $2,000,000.

     Markets

     Our reportable homebuilding segments operate in the following geographic regions:

Mid Atlantic:	Maryland, Virginia, West Virginia and Delaware
North East:	Eastern Pennsylvania and New Jersey
Mid East:	Kentucky, Michigan, New York, Ohio and western Pennsylvania
South East:	North Carolina, South Carolina, and Tennessee

     Further discussion of settlements, new orders and backlog activity by homebuilding reportable segment for each of the last three years can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations (see Item 7 of this report).

     Backlog

     Backlog totaled 8,310 units and approximately $3.7 billion at December 31, 2005 compared to backlog of 7,372 units and approximately $2.9 billion at December 31, 2004. Our cancellation rate was approximately 12% during 2005. Assuming that our cancellation rate in 2006 is consistent with that experienced in 2005, approximately 88% of the units in backlog at December 31, 2005 will settle in 2006. However, we can provide no assurance that our historical cancellation rate is indicative of the actual cancellation rate that may occur in 2006. See Risk Factors in Item 1A.

     Construction

     We utilize independent subcontractors under fixed price contracts to perform construction work on our homes. The subcontractors’ work is performed under the supervision of our employees who monitor quality control. We use many independent subcontractors in our various markets and we are not dependent on any single subcontractor or on a small number of subcontractors.

     Land Development

     We are not in the land development business. We purchase finished lots from various land developers under fixed price purchase agreements that require deposits that may be forfeited if we fail to perform under the agreement. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts and represent a percentage, typically ranging up to 10%, of the aggregate purchase price of the finished lots. We are not dependent on any single developer or on a small number of developers.

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     Sales and Marketing

     Our preferred marketing method is for customers to visit a furnished model home featuring many built-in options and a landscaped lot. The garages of these model homes are usually converted into temporary sales centers where alternative facades and floor plans are displayed and designs for other models are available for review. Sales representatives are compensated predominantly on a commission basis.

     Regulation

     NVR and its subcontractors must comply with various federal, state and local zoning, building, environmental, advertising and consumer credit statutes, rules and regulations, as well as other regulations and requirements in connection with our construction and sales activities. All of these regulations have increased the cost to produce and market our products, and in some instances, have delayed our developers’ abilities to deliver us finished lots. Counties and cities in which we build homes have at times declared moratoriums on the issuance of building permits and imposed other restrictions in the areas in which sewage treatment facilities and other public facilities do not reach minimum standards. To date, restrictive zoning laws and the imposition of moratoriums have not had a material adverse effect on our construction activities. However, in certain markets in which we operate, we believe that our growth has been hampered by the longer time periods necessary for our developers to move projects through the approval process.

     Competition and Market Factors

     The housing industry is highly competitive. We compete with numerous homebuilders of varying size, ranging from local to national in scope, some of which have greater financial resources than we do. We also face competition from the home resale market. Our homebuilding operations compete primarily on the basis of price, location, design, quality, service and reputation. We historically have been one of the market leaders in each of the markets where we build homes.

     The housing industry is cyclical and is affected by consumer confidence levels, prevailing economic conditions and interest rates. Other factors that affect the housing industry and the demand for new homes include the availability and increases in the cost of land, labor and materials; changes in consumer preferences; demographic trends and the availability of mortgage finance programs.

     We are dependent upon building material suppliers for a continuous flow of raw materials. Whenever possible, we utilize standard products available from multiple sources. In the past, such raw materials have been generally available to us in adequate supply.

Mortgage Banking

     We provide a number of mortgage related services to our homebuilding customers through our mortgage banking operations. Our mortgage banking operations also include separate subsidiaries that broker title insurance and perform title searches in connection with mortgage loan closings for which they receive commissions and fees. Because NVRM originates mortgage loans almost exclusively for our homebuilding customers, NVRM is dependent on our homebuilding segment. In 2005, NVRM closed approximately 11,300 loans with an aggregate principal amount of approximately $3.4 billion.

     NVRM sells all of the mortgage loans it closes to investors in the secondary markets on a servicing released basis, typically within 30 days from the loan closing. NVRM is an approved seller/servicer for FNMA, GNMA, FHLMC, VA and FHA mortgage loans.

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     Competition and Market Factors

     NVRM’s main competition comes from national, regional, and local mortgage bankers, mortgage brokers, thrifts and banks in each of these markets. NVRM competes primarily on the basis of customer service, variety of products offered, interest rates offered, prices of ancillary services and relative financing availability and costs.

     Regulation

     NVRM is an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and VA mortgage loans, and is subject to all of those agencies’ rules and regulations. These rules and regulations restrict certain activities of NVRM. NVRM is currently eligible and expects to remain eligible to participate in such programs. In addition, NVRM is subject to regulation at the state and federal level with respect to specific origination, selling and servicing practices.

     Pipeline

     NVRM’s mortgage loans in process that have not closed (“Pipeline”) at December 31, 2005 and 2004, had an aggregate principal balance of $2.1 billion and $1.9 billion, respectively. Our cancellation rate was approximately 25% in 2005. Assuming that the cancellation rate in 2006 is consistent with that experienced in 2005, approximately 75% of the Pipeline at December 31, 2005 is expected to close in 2006. However, we can provide no assurance that the prior year cancellation rate is indicative of the actual cancellation rate that may occur in 2006. See Risk Factors in Item 1A.

Employees

     At December 31, 2005, we employed 5,401 full-time persons, of whom 2,151 were officers and management personnel, 345 were technical and construction personnel, 1,039 were sales personnel, 823 were administrative personnel and 1,043 were engaged in various other service and labor activities. None of our employees are subject to a collective bargaining agreement and we have never experienced a work stoppage. We believe that our employee relations are good.

Available Information

     We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). These filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

     Our principal Internet website can be found at http://www.nvrinc.com. We make available free of charge on or through our website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after such material is electronically filed, or furnished, to the SEC.

     Our website also includes a corporate governance section which contains the Company’s Corporate Governance Guidelines, Code of Ethics, Board of Directors’ Committee Charters for the Audit, Compensation, Corporate Governance, Nominating and Qualified Legal Compliance Committees, Policies and Procedures for the Consideration of Board of Director Candidates and Policies and Procedures on Securityholder Communications with the Board of Directors. Additionally, amendments to and waivers from a provision of the Code of Ethics that apply to NVR’s principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions will be disclosed on our website.

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     In addition, you may request a copy of the foregoing filings (excluding exhibits), charters, guidelines and codes, and any waivers or amendments to such codes which are applicable to our executive officers, senior financial officers or directors, at no cost by writing to us at NVR, Inc., 11700 Plaza America Drive, Suite 500, Reston, VA 20190, Attention: Investor Relations Department or by telephoning us at (703) 956-4000.

Item 1A. Risk Factors.

Forward-Looking Statements

     Some of the statements in this Form 10-K, as well as statements made by NVR, Inc. (“NVR”) in periodic press releases or 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 comparable terminology. All statements other than of historical facts are forward looking statements. Forward looking statements contained in this document include those regarding market trends, NVR’s financial position, business strategy, projected plans and objectives of management for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of NVR to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: 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 moratoriums; 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.

RISK FACTORS

     Our business is affected by the risks generally incident to the residential construction business, including, but not limited to:

• actual and expected direction of interest rates, which affect our costs, the availability of construction financing, and long-term financing for potential purchasers of homes;

• the availability of adequate land in desirable locations on reasonable terms;

• unexpected changes in customer preferences; and

• changes in the national economy and in the local economies of the markets in which we have operations.

Interest rate movements, inflation and other economic factors can negatively impact our business.

     High rates of inflation generally affect the homebuilding industry adversely because of their adverse impact on interest rates. High interest rates not only increase the cost of borrowed funds to homebuilders but also have a significant effect on housing demand and on the affordability of permanent mortgage financing to prospective purchasers. We are also subject to potential volatility in the price of commodities that impact costs of materials used in our homebuilding business. Increases in prevailing interest rates could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations.

     Our financial results also are affected by the risks generally incident to our mortgage banking business, including interest rate levels, the impact of government regulation on mortgage loan originations and servicing and the need to issue forward commitments to fund and sell mortgage loans. Our homebuilding customers accounted for almost all of our mortgage banking business in 2005. The volume of our continuing homebuilding operations therefore affects our mortgage banking business.

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     Our operations may also be adversely affected by other economic factors within our markets such as negative changes in employment levels, job growth, and consumer confidence, one or all of which could result in reduced demand or price depression from current levels. Such negative trends could have a material adverse effect on homebuilding operations.

     Our mortgage banking business also is affected by interest rate fluctuations. We also may experience marketing losses resulting from daily increases in interest rates to the extent we are unable to match interest rates and amounts on loans we have committed to originate with forward commitments from third parties to purchase such loans. Increases in interest rates may have a material adverse effect on our mortgage banking revenue, profitability, stock performance and ability to service our debt obligations.

     These factors and thus, the homebuilding business, have at times in the past been cyclical in nature. Any downturn in the national economy or the local economies of the markets in which we operate could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations. In particular, approximately 38% of our home settlements during 2005 occurred in the Washington, D.C. and Baltimore, MD metropolitan areas, which accounted for 52% of our 2005 homebuilding revenues. Thus, we are dependent to a significant extent on the economy and demand for housing in those areas.

Our inability to secure and control an adequate inventory of lots could adversely impact our operations.

     The results of our homebuilding operations are dependent upon our continuing ability to control an adequate number of homebuilding lots in desirable locations. There can be no assurance that an adequate supply of building lots will continue to be available to us on terms similar to those available in the past, or that we will not be required to devote a greater amount of capital to controlling building lots than we have historically. An insufficient supply of building lots in one or more of our markets, an inability of our developers to deliver finished lots in a timely fashion, or our inability to purchase or finance building lots on reasonable terms could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations.

If the market value of our inventory declines, our profit could decrease.

     Inventory risk can be substantial for homebuilders. The market value of building lots and housing inventories can fluctuate significantly as a result of changing market conditions. In addition, inventory carrying costs can be significant and can result in losses in a poorly performing project or market. We must, in the ordinary course of our business, continuously seek and make acquisitions of lots for expansion into new markets as well as for replacement and expansion within our current markets. In the event of significant changes in economic or market conditions, we may dispose of certain subdivision inventories on a bulk or other basis which may result in a loss which could have a material adverse effect on our profitability, stock performance and ability to service our debt obligations.

Our current indebtedness may impact our future operations and our ability to access necessary financing.

     Our homebuilding operations are dependent in part on the availability and cost of working capital financing, and may be adversely affected by a shortage or an increase in the cost of such financing. If we require working capital greater than that provided by our operations and our credit facility, we may be required to seek to increase the amount available under the facility or to obtain alternative financing. No assurance can be given that additional or replacement financing will be available on terms that are favorable or acceptable. If we are at any time unsuccessful in obtaining sufficient capital to fund our planned homebuilding expenditures, we may experience a substantial delay in the completion of any homes then under construction. Any delay could result in cost increases and could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

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     Our existing indebtedness contains financial and other restrictive covenants and any future indebtedness may also contain covenants. These covenants include limitations on our ability, and the ability of our subsidiaries, to incur additional indebtedness, pay cash dividends and make distributions, make loans and investments, enter into transactions with affiliates, effect certain asset sales, incur certain liens, merge or consolidate with any other person, or transfer all or substantially all of our properties and assets. Substantial losses by us or other action or inaction by us or our subsidiaries could result in the violation of one or more of these covenants which could result in decreased liquidity or a default on our indebtedness, thereby having a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations.

     Our mortgage banking operations are dependent on the availability, cost and other terms of mortgage warehouse financing, and may be adversely affected by any shortage or increased cost of such financing. No assurance can be given that any additional or replacement financing will be available on terms that are favorable or acceptable. Our mortgage banking operations are also dependent upon the securitization market for mortgage-backed securities, and could be materially adversely affected by any fluctuation or downturn in such market.

Government regulations and environmental matters can negatively affect our operations.

     We are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular area. We have from time to time been subject to, and may also be subject in the future to, periodic delays in our homebuilding projects due to building moratoriums in the areas in which we operate. Changes in regulations that restrict homebuilding activities in one or more of our principal markets could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations.

     We are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. We are subject to a variety of environmental conditions that can affect our business and our homebuilding projects. The particular environmental laws that apply to any given homebuilding site vary greatly according to the location and environmental condition of the site and the present and former uses of the site and adjoining properties. Environmental laws and conditions may result in delays, cause us to incur substantial compliance and other costs, or prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas, thereby adversely affecting our sales, profitability, stock performance and ability to service our debt obligations.

     We are an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and VA mortgage loans, and are subject to all of those agencies’ rules and regulations. Any significant impairment of our eligibility to sell/service these loans could have a material adverse impact on our mortgage operations. In addition, we are subject to regulation at the state and federal level with respect to specific origination, selling and servicing practices. Adverse changes in governmental regulation may have a negative impact on our mortgage loan origination business.

We face competition in our housing and mortgage banking operations.

     The homebuilding industry is highly competitive. We compete with numerous homebuilders of varying size, ranging from local to national in scope, some of whom have greater financial resources than we do. We face competition:

• for suitable and desirable lots at acceptable prices;

• from selling incentives offered by competing builders within and across developments; and

• from the existing home resale market.

     Our homebuilding operations compete primarily on the basis of price, location, design, quality, service and reputation. Historically we have been one of the leading homebuilders in each of the markets where we operate.

     The mortgage banking industry is also competitive. Our main competition comes from national, regional and local mortgage bankers, thrifts, banks and mortgage brokers in each of these markets. Our mortgage banking operations compete primarily on the basis of customer service, variety of products offered, interest rates offered, prices of ancillary services and relative financing availability and costs.

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     There can be no assurance that we will continue to compete successfully in our homebuilding or mortgage banking operations. An inability to effectively compete may have an adverse impact on our sales, profitability, stock performance and ability to service our debt obligations.

A shortage of building materials or labor may adversely impact our operations.

     The homebuilding business has from time to time experienced building material and labor shortages, including shortages in insulation, drywall, certain carpentry work and concrete, as well as fluctuating lumber prices and supply. In addition, high employment levels and strong construction market conditions could restrict the labor force available to our subcontractors and us in one or more of our markets. Significant increases in costs resulting from these shortages, or delays in construction of homes, could have a material adverse effect upon our sales, profitability, stock performance and ability to service our debt obligations.

Product liability litigation and warranty claims may adversely impact our operations.

     Construction defect and home warranty claims are common and can represent a substantial risk for the homebuilding industry. The cost of insuring against construction defect and product liability claims, as well as the claims themselves, can be high. In addition, insurance companies limit coverage offered to protect against these claims. Further restrictions on coverage available, or significant increases in premium costs or claims could have a material adverse effect on our financial results.

Weather-related and other events beyond our control may adversely impact our operations.

     Extreme weather or other events, such as hurricanes, tornadoes, earthquakes, forest fires, floods, terrorist attacks or war, may affect our markets, our operations and our profitability. These events may impact our physical facilities or those of our suppliers or subcontractors, causing us material increases in costs, or delays in construction of homes, which could have a material adverse effect upon our sales, profitability, stock performance and ability to service our debt obligations.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

     Our corporate offices are located in Reston, Virginia, where we currently lease approximately 61,000 square feet of office space. The current executive office lease expires in April 2015.

     We lease manufacturing facilities in the following six locations: Thurmont, Maryland; Burlington County, New Jersey; Farmington, New York; Kings Mountain, North Carolina; Darlington, Pennsylvania; and Portland, Tennessee. These facilities range in size from approximately 40,000 square feet to 400,000 square feet and combined total approximately 1,000,000 square feet of manufacturing space. All of our manufacturing facilities are leased. Each of these leases contain various options for extensions of the lease and for the purchase of the facility. The Portland lease expires in 2009. The Thurmont and Farmington leases expire in 2014, and the Kings Mountain and Burlington County leases expire in 2023 and 2024, respectively. The Darlington lease expires in 2025.

     We also lease office space in multiple locations for homebuilding divisional offices and mortgage banking and title services branches under leases expiring at various times through 2011, none of which are individually material to our business. We anticipate that, upon expiration of existing leases, we will be able to renew them or obtain comparable facilities on acceptable terms.

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Item 3.	Legal Proceedings.
	(in thousands)

     We are involved in various claims and litigation arising principally in the ordinary course of business. At this time, we are not involved in any legal proceedings that we believe are likely to have a material adverse effect on our financial condition or results of operations.

     In April 2005, the United States Environmental Protection Agency (the “EPA”) notified NVR that the Company was allegedly in violation of Section 308(a) of the Clean Water Act (the “Act”) at a construction site in Pennsylvania relative to storm water management during the homebuilding construction process. The notice informed NVR that the Company might be subject to administrative fines of up to $157 for the alleged violations. Subsequently, in September 2005, NVR received a request from the EPA pursuant to the Act for information about storm water discharge practices utilized in connection with other recent homebuilding projects undertaken by the Company. NVR is working with the EPA to provide the requested information and to review NVR’s compliance with the Act. It is not known at this time whether the EPA will seek to take legal action or impose penalties in connection with the alleged violation at the construction site in Pennsylvania.

Item 4. Submission of Matters to a Vote of Security Holders.

     No matters were submitted to a vote of security holders during the quarter ended December 31, 2005.

Executive Officers of the Registrant

Name	Age		Positions
Dwight C. Schar		64	Chairman of the Board of NVR
William J. Inman		58	President of NVRM
Paul C. Saville		50	President and Chief Executive Officer of NVR
Dennis M. Seremet		50	Vice President, Chief Financial Officer and Treasurer of NVR
Robert W. Henley		39	Vice President and Controller of NVR

Dwight C. Schar has been Chairman of the Board since September 30, 1993. Mr. Schar also served as the President and Chief Executive Officer of NVR from September 30, 1993 through June 30, 2005.

William J. Inman has been President of NVRM since January 1992.

Paul C. Saville was named President and Chief Executive Officer of NVR, effective July 1, 2005. Prior to July 1, 2005, Mr. Saville had served as Senior Vice President Finance, Chief Financial Officer and Treasurer of NVR since September 30, 1993 and Executive Vice President from January 1, 2002 through June 30, 2005.

Dennis M. Seremet was named Vice President, Chief Financial Officer and Treasurer of NVR, effective July 1, 2005. Prior to July 1, 2005, Mr. Seremet had been Vice President and Controller of NVR since April 1, 1995, and was named Senior Vice President on January 1, 2005.

Robert W. Henley was named Vice President and Controller of NVR effective July 1, 2005. Prior to July 1, 2005, Mr. Henley served as Manager of SEC Reporting from 1995 through 2000. In 2000, Mr. Henley was appointed to the position of Assistant Controller.

11

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

     Our shares of common stock are listed and principally traded on the American Stock Exchange (“AMEX”). The following table sets forth the high and low closing prices per share for our common stock for each fiscal quarter during the years ended December 31, 2005 and 2004:

	HIGH		LOW
Prices per Share:
2005:
First Quarter	$	808.00	$	709.00
Second Quarter	$	810.00	$	712.50
Third Quarter	$	938.00	$	799.50
Fourth Quarter	$	886.00	$	660.00
2004:
First Quarter	$	483.00	$	414.50
Second Quarter	$	492.00	$	410.00
Third Quarter	$	561.00	$	452.75
Fourth Quarter	$	769.40	$	533.80

     As of the close of business on February 10, 2006, there were 489 shareholders of record.

     We have never paid a cash dividend on our shares of common stock. In addition, we do not expect to pay a cash dividend in the foreseeable future as we continue with our objective of increasing shareholder value by using earnings to fund continued growth in our homebuilding and mortgage banking operations. We may from time to time repurchase shares of our common stock to also further that objective. Our bank indebtedness contains certain restrictive covenants, which limit our ability to pay cash dividends on our common stock. See further discussion of the covenants in the Liquidity section of Part II, Item 7 of the Form 10-K.

     We had two repurchase authorizations outstanding during the quarter ended December 31, 2005. On July 28, 2005 (the “July Authorization”) and November 3, 2005 (the “November Authorization”), we publicly announced the Board of Director’s approval for us to purchase up to an aggregate of $300 million of our common stock in one or more open market and/or privately negotiated transactions under each of the two authorizations. Neither the July Authorization nor the November Authorization has an expiration date. During the quarter ended December 31, 2005, we completed the utilization of the July Authorization. The following table provides information regarding common stock repurchases for the quarter ended December 31, 2005:

							Maximum Number (or
							Approximate Dollar
					Total Number of		Value) of Shares
					Shares Purchased as		That May Yet Be
					Part of Publicly		Purchased Under the
	Total Number of		Average Price Paid		Announced Plans or		Plans or Programs
Period	Shares Purchased		per Share		Programs		(in thousands)
October 1-31, 2005(1)		227,900	$	754.99		227,900	$	100,833
November 1-30, 2005 (1)		124,400	$	688.79		124,400	$	315,148
December 1-31, 2005 (2)		273,600	$	710.27		273,600	$	120,818

(1)	All shares were purchased under the July Authorization.
(2)	20,845 shares were purchase under the July Authorization, and 252,755 shares were purchased under the November Authorization. This fully utilized the July Authorization. The aggregate $120,818 of our common stock that may yet be purchased relates solely to the November Authorization which was fully utilized in January 2006.

12

Item 6. Selected Financial Data.
(dollars in thousands, except per share amounts)

     The following tables set forth selected consolidated financial data. The selected income statement and balance sheet data have been extracted from our consolidated financial statements for each of the periods presented and is not necessarily indicative of results of future operations. The selected financial data should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and related notes included elsewhere in this report.

	Year Ended December 31,
	2005		2004		2003		2002		2001
Consolidated Income Statement Data:
Homebuilding data:
Revenues	$	5,177,743	$	4,247,503	$	3,600,917	$	3,060,671	$	2,559,744
Gross profit		1,439,713		1,091,217		889,056		725,302		557,454
Mortgage Banking data:
Mortgage banking fees		84,604		72,219		76,647		65,454		52,591
Interest income		5,014		4,249		5,198		6,184		7,025
Interest expense		1,759		1,088		1,293		1,870		1,728
Consolidated data:
Income from continuing operations	$	697,559	$	523,204	$	419,791	$	331,470	$	236,794
Income from continuing operations per diluted share(1)	$	89.61	$	66.42	$	48.39	$	36.05	$	24.86

	December 31,
	2005		2004		2003		2002		2001
Consolidated Balance Sheet Data:
Homebuilding inventory	$	793,975	$	588,540	$	523,773	$	436,674	$	402,375
Contract land deposits		549,160		384,959		284,432		231,229		155,652
Total assets		2,269,588		1,777,967		1,363,105		1,182,288		995,047
Notes and loans payable		463,141		213,803		257,859		259,160		238,970
Shareholders’ equity		677,162		834,995		494,868		403,245		349,118
Cash dividends per share		—		—		—		—		—

(1) For the years ended December 31, 2005, 2004, 2003, 2002 and 2001, income from continuing operations per diluted share was computed based on 7,784,382; 7,876,869; 8,674,363; 9,193,677 and 9,525,960 shares, respectively, which represents the weighted average number of shares and share equivalents outstanding for each year.

13

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(dollars in thousands, except per share data)

Results of Operations for the Years Ended December 31, 2005, 2004, and 2003

Overview

     Our primary business is the construction and sale of single-family detached homes, townhomes and condominium buildings. To fully serve our homebuilding customers, we also operate a mortgage banking and title services business. We primarily conduct our operations in mature supply-constrained markets. Additionally, we generally grow our business through market share gains in our existing markets and by expanding into markets contiguous to our current active markets. Our homebuilding reportable segments consist of the following regions:

Mid Atlantic:	Maryland, Virginia, West Virginia and Delaware
North East:	Eastern Pennsylvania and New Jersey
Mid East:	Kentucky, Michigan, New York, Ohio and western Pennsylvania
South East:	North Carolina, South Carolina, and Tennessee

     We believe we operate our business with a conservative operating strategy. We do not engage in land development and primarily construct homes on a pre-sold basis. This strategy allows us to maximize inventory turnover, which enables us to minimize market risk and to operate with less capital, thereby enhancing rates of return on equity and total capital. In addition, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our markets, which we believe contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets.

     Because we are not active in the land development business, our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build, and on our developers’ ability to timely deliver finished lots to meet the sales demands of our customers. Timely delivery of lots by our developers can be influenced by many factors, such as the developer’s execution of improvements, weather-related impacts, and the length of time necessary to obtain governmental approval of projects. We have been impacted in the past year and may be negatively impacted in the future by development delays.

     We acquire finished building lots at market prices from various development entities under fixed price purchase agreements (“purchase agreements”). These purchase agreements require deposits in the form of cash or letters of credit that may be forfeited if we fail to perform under the purchase agreement. However, we believe that this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and development. As of December 31, 2005, we controlled approximately 105,000 lots with deposits in cash and letters of credit totaling approximately $600,000 and $17,000, respectively. We also controlled approximately 1,000 lots through investments in joint venture limited liability corporations.

     Consolidated revenues and net income for 2005 increased 22% and 33%, respectively, from 2004. The increase in net income coupled with our continuing share repurchase program resulted in a 35% increase in diluted earnings per share in 2005 compared to 2004. The increase in consolidated revenues was primarily driven by our homebuilding business where we experienced an 8% increase in the number of homes settled and a 13% increase in the average settlement price in 2005 from 2004. In addition, the value of homes in backlog at December 31, 2005 exceeded the December 31, 2004 backlog value by 26%.

Homebuilding Operations

     The following table summarizes the results of operations and certain operating activity for each of the last three years for our consolidated homebuilding operation:

14

	Year Ended December 31,
	2005			2004			2003
Revenues	$	5,177,743		$	4,247,503		$	3,600,917
Cost of sales	$	3,738,030		$	3,156,286		$	2,711,861
Gross profit margin percentage		27.8	%		25.7	%		24.7	%
Selling, general and administrative expenses	$	345,525		$	260,795		$	231,966
Settlements (units)		13,787			12,749			12,050
Average settlement price	$	374.9		$	332.2		$	297.9
New orders (units)		14,653			13,231			12,583
Average new order price	$	404.6		$	364.1		$	313.9
Backlog (units)		8,310			7,372			6,890
Average backlog price	$	442.0		$	394.2		$	337.3

Consolidated Homebuilding Revenues

     Homebuilding revenues for 2005 increased 22% from 2004, primarily as a result of a 13% increase in the average settlement price and an 8% increase in the number of homes settled. Each of these increases was driven by a stronger backlog, both in value and units, at the beginning of 2005 as compared to the beginning of 2004 due to the company’s overall growth and our ability to raise prices year over year during a period of strong housing demand. We experienced increased home settlements year over year in each of our regions except Baltimore (Baltimore, MD metropolitan area and adjacent counties in Pennsylvania) where settlements declined slightly from the prior year. Settlements in the Baltimore region were negatively affected by development delays throughout the first three quarters of 2005. The Baltimore region was able to resolve several of these development delays in the fourth quarter, and settlements for this region increased 24% in the fourth quarter of 2005 as compared to the same period in 2004.

     Homebuilding revenues for 2004 increased 18% from 2003, primarily as a result of a 12% increase in the average settlement price to $332.2 in 2004 from $297.9 in 2003 and an increase of 6% in the number of homes settled to 12,749 in 2004 from 12,050 in 2003. The increase in average settlement prices was primarily attributable to a 9% higher average price of homes in backlog entering 2004 as compared to 2003 and to a 16% increase in the average price of homes sold during the first six months of 2004 as compared to the same period in 2003. The increase in the number of homes settled was primarily attributable to an 8% higher backlog at the beginning of 2004 as compared to the beginning of 2003.

Consolidated Homebuilding New Orders

     The number of new orders for 2005 increased 11% from 2004, and the value of new orders for 2005 increased 23% to $5,928,815 from $4,817,780 in 2004. The increase in the number of new orders was primarily attributable to an overall increase in the average number of active communities to 522 in 2005 as compared to 450 in 2004. Strong new order growth was experienced in each of our regions except the Washington (Washington, D.C. metropolitan area and adjacent counties in Maryland, Virginia, and West Virginia) region, which remained relatively flat with the prior year. Sales in the Washington region were negatively impacted by lower sales absorption during the second half of the year as compared to the same period in 2004 as a result of generally weaker market conditions within the region. The 23% increase in the value of new orders was attributable to both the aforementioned increase in the number of new orders and sustained housing demand year over year, which provided us the opportunity to raise selling prices, resulting in an 11% increase in the average selling price in 2005 as compared to 2004.

     The number of new orders for 2004 increased 5% from 2003, while the value of new orders for 2004 increased 22% to $4,817,780 from $3,950,413 in 2003. The increase in the number of new orders was attributable to an overall increase in the average number of active communities to 450 in 2004 as compared to 433 in 2003. Each of our segments experienced increases year over year in new orders. The Mid Atlantic increase was affected by a 9% decrease in new orders for the Baltimore region. This decrease resulted primarily from a 7% decrease in the average number of active communities in the Baltimore region year over year, attributable primarily to development delays. The 22% increase in the value of new orders was primarily attributable to the aforementioned increase in the number of new orders and strong housing demand which provided us the opportunity to raise selling prices, resulting in a 16% increase in the average selling price in 2004 as compared to 2003.

15

Consolidated Homebuilding Gross Profit

     The increase in gross profit margins of 210 basis points (2.1%) in 2005 from 2004 was primarily attributable to the aforementioned increases in average settlement prices year over year. These increases were partially offset by higher land and building commodity prices in 2005 as compared to 2004. Many of the end product building supplies used in our construction operations are impacted by higher, more volatile energy and petroleum costs, including: OSB sheathing; siding material; PVC piping, paint; asphalt; shingles; cement; gypsum; steel; glass and insulation. We are actively engaged in managing these cost increases to minimize their potential margin impact. However, gross margins in future periods may be adversely impacted by these higher costs, as well as expected pricing pressures in 2006 in many of our markets.

     Gross profit margins for 2004 increased to 25.7% compared to 24.7% for 2003. The increase in profit margins was attributable to the favorable market conditions allowing us to increase sales prices in a majority of the markets leading to the aforementioned 12% increase in average settlement prices in 2004 as compared to 2003. These increases were partially offset by higher land, lumber and other commodity prices in 2004 as compared to 2003.

Consolidated Homebuilding Selling, General and Administrative (“SG&A”)

     SG&A for 2005 increased $84,630, or 32% from 2004, and as a percentage of revenues, increased to 6.7% in 2005 from 6.1% in 2004. The increase in SG&A costs was primarily attributable to increases in personnel costs and selling and marketing costs of approximately $43,400 and $26,500, respectively. Personnel costs have increased primarily as a result of increased wages and management incentive compensation due to increased staffing levels to support our growth strategy. As of December 31, 2005, SG&A staffing levels had increased approximately 23% from December 31, 2004. The increase in selling and marketing costs were attributable to an increase in advertising and selling support costs due to the aforementioned increase in the average number of active communities year over year. SG&A costs in 2006 will be negatively impacted as a result of the implementation of Statement of Financial Accounting Standards No. 123R, Share-Based Payment, (“SFAS 123R”), from which we expect to record after tax expense of approximately $36,000 for the year, based on unvested stock options outstanding at December 31, 2005 (see Recent Accounting Pronouncements section which follows within Item 7 for further discussion).

     SG&A for 2004 increased 12% from 2003, but as a percentage of revenues, decreased to 6.1% in 2004 from 6.4% in 2003. The increase in SG&A costs was primarily attributable to increased personnel costs and selling and marketing costs of approximately $11,500 and $10,400, respectively, due to our continued growth.

Consolidated Homebuilding Backlog

     Backlog units and dollars were 8,310 and $3,673,221, respectively, at December 31, 2005 compared to backlog units of 7,372 and dollars of $2,906,041 at December 31, 2004. The increase in backlog units was due primarily to a 10% increase in the number of new orders for the six-month period ended December 31, 2005 as compared to the same period ended December 31, 2004. The 26% increase in backlog dollars was attributable to the 13% increase in backlog units and a 7% increase in the average price of new orders for the six-month period ended December 31, 2005 as compared to the same period in 2004.

     Backlog units and dollars were 7,372 and $2,906,041, respectively, at December 31, 2004 compared to backlog units of 6,890 and dollars of $2,323,703 at December 31, 2003. The increase in backlog units was due primarily to a 6% increase in the number of new orders for the six-month period ended December 31, 2004 as compared to the same period ended December 31, 2003. The 25% increase in backlog dollars was attributable to the 7% increase in backlog units and a 16% increase in the average price of new orders for the six-month period ended December 31, 2004 as compared to the same period in 2003.

16

Reportable Segments

     Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge determined at the corporate headquarters. The corporate capital allocation charge eliminates in consolidation, is based on the segment’s average net assets employed, and is charged using a consistent methodology in the years presented. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital. We record charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a finished lot purchase agreement with the developer.

     The following tables summarize homebuilding settlements, new orders, backlog and operating activity by reportable segment for each of the last three years:

17

	Year Ended December 31,
	2005			2004			2003
Mid Atlantic:
Revenues	$	3,235,053		$	2,623,308		$	2,185,680
Settlements (units)		6,735			6,462			6,070
Average settlement price	$	479.9		$	405.3		$	359.6
New Orders (units)		7,327			6,696			6,396
Average new order price	$	526.9		$	459.8		$	379.1
Backlog (units)		4,974			4,382			4,148
Average backlog price	$	541.0		$	470.5		$	386.0
Gross profit margin	$	1,096,565		$	795,491		$	624,386
Gross profit margin percentage		33.90	%		30.32	%	$	28.57	%
Segment profit	$	863,210		$	623,040		$	484,482
North East:
Revenues	$	533,662		$	466,206		$	380,646
Settlements (units)		1,390			1,388			1,296
Average settlement price	$	383.9		$	335.9		$	293.7
New Orders (units)		1,459			1,360			1,365
Average new order price	$	400.1		$	351.8		$	319.4
Backlog (units)		784			715			743
Average backlog price	$	404.7		$	373.4		$	342.7
Gross profit margin	$	114,365		$	98,291		$	71,550
Gross profit margin percentage		21.43	%		21.08	%	$	18.80	%
Segment profit	$	66,944		$	64,130		$	40,257
Mid East:
Revenues	$	944,070		$	793,976		$	685,164
Settlements (units)		3,404			3,049			2,787
Average settlement price	$	275.6		$	258.1		$	243.2
New Orders (units)		3,544			3,154			2,927
Average new order price	$	274.2		$	268.6		$	250.5
Backlog (units)		1,601			1,461			1,356
Average backlog price	$	271.5		$	275.6		$	252.4
Gross profit margin	$	178,114		$	153,197		$	142,725
Gross profit margin percentage		18.87	%		19.29	%	$	20.83	%
Segment profit	$	95,190		$	87,272		$	88,274
South East:
Revenues	$	464,958		$	364,013		$	349,427
Settlements (units)		2,258			1,850			1,897
Average settlement price	$	205.9		$	196.6		$	184.1
New Orders (units)		2,323			2,021			1,895
Average new order price	$	220.6		$	204.3		$	188.3
Backlog (units)		951			814			643
Average backlog price	$	242.4		$	214.7		$	195.3
Gross profit margin	$	92,348		$	70,314		$	59,910
Gross profit margin percentage		19.86	%		19.32	%	$	17.15	%
Segment profit	$	52,199		$	36,958		$	27,356

18

Mid Atlantic

2005 versus 2004

     The Mid Atlantic segment had an approximate $240,000 increase in segment profit year over year. Revenues increased 23% as a result of a 4% increase in the number of units settled and an 18% increase in the average settlement price. We experienced increased home settlements year over year in each of our regions except Baltimore where settlements declined slightly from the prior year. Settlements in the Baltimore region were negatively affected by development delays throughout the first three quarters of 2005. The Baltimore region was able to resolve several of these development delays in the fourth quarter, and settlements for this region increased 24% in the fourth quarter of 2005 as compared to the same period in 2004. The segment’s gross profit margin percentage grew to 33.9% in 2005 from 30.3% in 2004. The gross profit margin increase was due to favorable market conditions generated from strong housing demand within the segment’s markets during the current year, which began to level off in the second half of 2006, particularly in the Washington, D.C. market. Segment profits were also negatively affected by an approximate $34,000 increase in selling, general and administrative costs due to a 24% increase in the number of communities open for sale during 2005 as compared to 2004 and higher wage and other costs to support our growth strategy. Backlog units and dollars were 14% and 31% higher, respectively, than the 2004 year, principally due to the comparative increases in new orders of 9% and average selling price of 15%.

2004 versus 2003

     The Mid Atlantic segment had an approximate $139,000 increase in segment profit year over year. Revenues increased 20% as a result of a 7% increase in the number of units settled and a 13% increase in average settlement prices. The segment’s gross profit margin percentage grew to 30.3% in 2004 from 28.6% in 2003. The increase in gross profit margins was attributable to the favorable market conditions mentioned above that allowed us to increase sales prices in a majority of the segment’s markets. Segment profits were negatively affected by an approximate $17,000 increase in selling, general and administrative costs due to a 5% increase in the number of communities open for sale during 2004 as compared to 2003 and higher wage and other costs to support our growth strategy.

North East

2005 versus 2004

     The North East segment had an approximate $3,000 increase in segment profit year over year. Revenues increased 15% primarily as a result of a 14% increase in the average settlement price. The segment’s gross profit margin percentage was essentially flat at 21.4% in 2005 from 21.1% in 2004. Segment profits were also negatively affected by an approximate $5,200 increase in selling and marketing costs due to an 18% increase in the number of communities open for sale during 2005 as compared to 2004. Backlog units and dollars increased 10% and 19%, respectively. The unit increase is primarily due to a 7% increase in the number of new orders in 2005 compared to 2004, and the dollar increase is due to the unit increase and to a 14% increase in the average selling price.

2004 versus 2003

     The North East segment had an approximate $24,000 increase in segment profit year over year. Revenues increased 22% primarily as a result of a 7% increase in the number of units settled and a 14% increase in the average settlement price. The segment’s gross profit margin percentage increased to 21.1% in 2004 from 18.8% in 2003. The increase in gross profit margins was attributable to the favorable market conditions mentioned above that allowed us to increase sales prices in a majority of the segment’s markets. Segment profits also benefited from the better leveraging of our costs, as selling, general and administrative costs as a percent of revenues decreased to 4.9% in 2004 from 5.5% in 2003.

19

Mid East

2005 versus 2004

     The Mid East segment had an approximate $8,000 increase in segment profit year over year. Revenues increased 19% as a result of a 12% increase in the number of units settled and a 7% increase in the average settlement price. The segment’s gross profit margin percentage was essentially flat at 18.9% in 2005 from 19.3% in 2004. Segment profits were negatively affected by an approximate $13,000 increase in selling, general and administrative costs due to a 13% increase in the number of communities open for sale during 2005 as compared to 2004, and higher wages due to increased staffing levels to support our growth strategy. Backlog units and dollars increased 10% and 8%, respectively. The increases are primarily attributable to a 12% increase in the number of new orders in 2005 compared to 2004.

2004 versus 2003

     The Mid East segment had an approximate $1,000 decrease in segment profit year over year. Revenues increased 16% as a result of a 9% increase in the number of units settled and a 6% increase in the average settlement price. The segment’s gross profit margin percentage decreased to 19.3% in 2004 from 20.8% in 2003. Segment profits were also negatively affected by an approximate $9,500 increase in selling, general and administrative costs due to a 14% increase in the number of communities open for sale during 2004 as compared to 2003, and higher other general and administrative costs to support our growth strategy.

South East

2005 versus 2004

     The South East segment had an approximate $15,000 increase in segment profit year over year. Revenues increased 28% as a result of a 22% increase in the number of units settled and a 5% increase in the average settlement price. The segment’s gross profit margin percentage was 19.9% in 2005 and 19.3% in 2004. The gross profit margin increase was due to favorable market conditions that provided us the opportunity to increase prices in certain of the segment’s markets. Segment profits were negatively affected by an approximate $5,300 increase in selling, general and administrative costs due to higher wages from increased staffing levels to support our growth strategy. Backlog units and dollars were 17% and 32% higher, respectively, than the 2004 year, principally due to the comparative increases in new orders of 15% and average selling price of 8%.

2004 versus 2003

     The South East segment had an approximate $10,000 increase in segment profit year over year. Revenues increased 4% as a result of a 7% increase in the average settlement price and a 3% reduction in the number of units settled. The segment’s gross profit margin percentage increased slightly to 19.3% in 2004 and 17.2% in 2003.

20

Homebuilding Segment Reconciliations to Consolidated Homebuilding Operations

     In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between homebuilding segment profit and homebuilding consolidated profit before tax include unallocated corporate overhead, consolidation adjustments and external corporate interest. NVR’s overhead functions, such as accounting, treasury, human resources, land acquisition, etc., are centrally performed and the costs of which are not allocated to the Company’s operating segments. Consolidation adjustments consist of such items to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to the Company’s operating segments. External corporate interest expense is primarily comprised of interest charges on the Company’s outstanding Senior Notes and working capital line borrowings, and are not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

	Year Ended December 31,
	2005			2004			2003
Homebuilding Consolidated Gross Profit:
Homebuilding Mid Atlantic	$	1,096,565		$	795,491		$	624,386
Homebuilding North East		114,365			98,291			71,550
Homebuilding Mid East		178,114			153,197			142,725
Homebuilding South East		92,348			70,314			59,910
Consolidation adjustments and other (1)		(41,679	)		(26,076	)		(9,515	)
Consolidated homebuilding gross profit	$	1,439,713		$	1,091,217		$	889,056
Homebuilding Consolidated Profit Before Tax:
Homebuilding Mid Atlantic	$	863,210		$	623,040		$	484,482
Homebuilding North East		66,944			64,130			40,257
Homebuilding Mid East		95,190			87,272			88,274
Homebuilding South East		52,199			36,958			27,356
Reconciling items:
Contract land deposit impairments		(9,950	)		(6,000	)		(2,700	)
Corporate capital allocation (2)		149,247			110,769			92,256
Unallocated corporate overhead (3)		(105,364	)		(80,635	)		(80,274	)
Consolidation adjustments and other (1)		(11,670	)		(3,168	)		9,847
Corporate interest expense		(13,126	)		(11,223	)		(12,577	)
Loss from extinguishment of 8% Senior Notes due 2005		—			—			(8,503	)
Reconciling items sub-total		9,137			9,743			(1,951	)
Homebuilding consolidated profit before taxes	$	1,086,680		$	821,143		$	638,418

(1)

The increases are due to the increases in operating activity year to year.

(2)

This item represents the elimination of the corporate capital allocation charge included in the respective homebuilding reportable segments. The increases in the corporate capital allocation charge are due to the higher segment asset balances during the respective years due to the increases in operating activity year to year. The corporate capital allocation charge is based on the segment’s monthly average asset balance, and is as follows for the years presented:

	Year Ended December 31,
	2005		2004		2003
Homebuilding Mid Atlantic	$	101,794	$	73,755	$	58,972
Homebuilding North East		15,904		11,518		10,351
Homebuilding Mid East		21,126		16,698		14,330
Homebuilding South East		10,423		8,798		8,603
Total	$	149,247	$	110,769	$	92,256

(3) The increase in 2005 compared to 2004 is primarily due to higher corporate personnel costs as a result of increased wages and management incentive compensation due to increased staffing levels to support our growth strategy.

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Mortgage Banking Segment

     NVR conducts its mortgage banking activity through NVR Mortgage Finance, Inc. (“NVRM”), a wholly owned subsidiary. NVRM focuses almost exclusively on serving the homebuilding segment’s customer base. Following is a table of financial and statistical data for the three years ended December 31, 2005, 2004 and 2003:

	2005			2004			2003
Loan closing volume:
Total principal	$	3,388,118		$	2,716,630		$	2,369,867
Segment income:	$	57,739		$	50,862		$	57,754
Capture rate:		87	%		84	%		83	%
Mortgage Banking Fees:
Net gain on sale of loans	$	62,279		$	52,858		$	59,095
Title services		21,072			18,353			16,341
Servicing fees		1,253			1,008			1,197
Gain on sale of servicing		—			—			14
	$	84,604		$	72,219		$	76,647

     Loan closing volume for the year ended December 31, 2005 increased 25% from 2004. The 2005 increase was primarily attributable to a 15% increase in the average loan amount, and a year over year 9% increase in the number of units closed. The increase in the average loan amount reflects the aforementioned increase in the homebuilding segment’s average selling prices. The unit increase for the year ended December 31, 2005 reflects an increase in the number of settlements by the homebuilding segment and an increase in the percentage of the number of loans closed for NVR’s homebuyers who obtain a mortgage to purchase the home (“Capture Rate”).

     Segment income for the year ended December 31, 2005 increased approximately $6,900 from 2004. The increase was primarily due to an increase in mortgage banking fees attributable to the aforementioned increase in closed loan volume. This was net of an approximate $6,000 increase in general and administrative expenses during 2005. The increase in general and administrative expenses was primarily due to an increase in salaries and other personnel costs due to a 26% increase in the total number of NVRM employees in 2005 versus 2004. The additional staffing is to position NVRM for future growth and to increase the Capture Rate.

     Traditionally, adjustable rate mortgages and brokered mortgages have been generally less profitable products than fixed rate mortgages. During 2004 and early 2005, we saw a shift to these less profitable products. However, in the second half of 2005, with the change in interest rates, the differential between fixed rate and adjustable rate mortgages narrowed, and we are now experiencing a favorable product mix shift back to fixed rate mortgages. We expect this product mix shift to continue into 2006.

     Mortgage loans held for sale increased approximately $55,000 at December 31, 2005 compared to December 31, 2004. This was primarily due to a 46% increase in the December 2005 loan closing volume compared to December 2004. Mortgage loans held for sale are typically sold to third-party investors within 30 days from date of closing.

     Loan closing volume for the year ended December 31, 2004 increased 14% from 2003. The 2004 increase is primarily attributable to a 12% increase in the average loan amount, and a year over year 2% increase in the number of units closed. The increase in the average loan amount reflects the aforementioned increase in the homebuilding segment’s average selling prices. The unit increase for the year ended December 31, 2004 reflects an increase in the number of settlements by the homebuilding segment and a slight increase in the Capture Rate.

     Segment income for the year ended December 31, 2004 decreased approximately $6,900 from 2003.

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The decrease was primarily due to a product mix shift during 2004 from fixed rate mortgages to adjustable rate mortgages and brokered mortgages. The decrease was also due to higher costs incurred of approximately $3,400 related to the contractual repayment of loan sale income to investors for loans that were paid in full within a set number of days following the sale of the loan. The decreases due to the product mix shift and contractual repayments was partially offset by the higher 2004 loan volume. General and administrative expenses also increased by approximately $1,800 from 2003 to 2004, largely due to an 15% increase in the total number of NVRM employees in 2004 versus 2003.

Seasonality

     Overall, we do not experience material seasonal fluctuations in sales, settlements or loan closings.

Effective Tax Rate

     Our consolidated effective tax rates were 39.0%, 40.0%, and 39.7% in 2005, 2004 and 2003, respectively. The lower effective tax rate in 2005 was primarily due to the favorable tax impact of the new Internal Revenue Code Section 199 domestic manufacturing deduction established by the American Jobs Creation Act of 2004.

Recent Accounting Pronouncements

     In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (“SFAS 123R”). SFAS 123R is a revision of SFAS 123 and supersedes APB No. 25. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements. In April 2005, the Securities and Exchange Commission amended the effective date for SFAS 123R. SFAS 123R is now effective as of the beginning of the first interim or annual reporting period of a registrant’s first fiscal year beginning on or after June 15, 2005. SFAS 123R applies to all awards granted, modified, repurchased or cancelled after the effective date, and all outstanding portions of awards granted prior to the effective date which are unvested as of the effective date of the pronouncement.

     Entities may adopt the provisions of SFAS 123R using either the modified prospective or modified retrospective methods. Under the modified prospective method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for either recognition or pro forma disclosure. For periods before the required effective date, the modified retrospective application may be applied to either (a) all prior years for which SFAS 123 was effective or (b) only to prior interim periods in the year of initial adoption, on a basis consistent with the pro forma disclosures required for those periods by SFAS 123. SFAS 123R becomes effective for us beginning in the first quarter of 2006. We plan to adopt the SFAS 123R using the modified prospective method. We expect our full year after tax expense to be approximately $36,000 in 2006 related to the implementation of SFAS 123R, based on unvested stock options outstanding at December 31, 2005.

Liquidity and Capital Resources

Lines of Credit and Notes Payable

     Our 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”). During 2005, we increased the available borrowings under the Facility to $400,000 from $150,000 by refinancing our previous working capital agreement. The current Facility now provides for borrowings of up to $400,000 subject to certain borrowing base limitations. The Facility expires in December 2010 and outstanding amounts bear interest at either (i) the prime rate plus an Applicable Margin (as defined within the Facility) based on NVR’s credit rating and/or debt to capital ratio or (ii) London Interbank Offering Rate (“LIBOR”) plus applicable margin as defined above. The weighted- average interest rates for the amounts outstanding under the Facility were 5.9% and 4.0% for 2005 and

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2004, respectively. Up to $150,000 of the Facility is currently available for issuance in the form of letters of credit, of which $26,412 was outstanding at December 31, 2005. The Facility contains various affirmative and negative covenants. The negative covenants include among others, certain limitations on transactions involving the creation of guarantees, sale of assets, acquisitions, mergers, investments and land purchases. Additional covenants include (i) a minimum adjusted consolidated tangible net worth requirement (ii) a maximum leverage ratio requirement, and (iii) an interest coverage ratio requirement. These covenants restrict the amount in which we would be able to pay in dividends each year. We are also subject to borrowing base restrictions if our senior debt rating falls below investment grade. At December 31, 2005 we were in compliance with all covenants under the Facility and there were no borrowing base limitations reducing the amount available to us for borrowings. At December 31, 2005, we had direct borrowings outstanding under the Facility of $103,000.

     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. NVRM has available an annually renewable mortgage warehouse facility (the “Revolving Credit Agreement”) with an aggregate borrowing limit of $175,000. This limit was temporarily increased to $225,000 on December 15, 2005 to accommodate heavy year-end closing volume. The borrowing limit reverted back to $175,000 on January 15, 2006. The Revolving Credit Agreement is used to fund NVRM’s mortgage origination activities, under which $156,816 was outstanding at December 31, 2005. As of December 31, 2005, borrowing base limitations reduced the amount available to NVRM for borrowings to approximately $184,500. The Revolving Credit Agreement expires in August 2006. The interest rate under the Revolving Credit Agreement is either: (i) LIBOR plus 1.125%, or (ii) 1.125% to the extent that NVRM provides compensating balances. The weighted average interest rate for amounts outstanding under the Revolving Credit Agreement was 4.4% during 2005. NVRM’s mortgage warehouse facility limits the ability of NVRM to transfer funds to NVR in the form of dividends, loans or advances. In addition, NVRM is required to maintain a minimum net worth of $14,000. NVRM also currently has available an aggregate of $50,000 of borrowing capacity in an uncommitted gestation and repurchase agreement. Amounts outstanding under the uncommitted gestation and repurchase agreement accrue interest at various rates tied to the LIBOR rate and are collateralized by gestation mortgage-backed securities and whole loans. There were no borrowings under this uncommitted facility during 2005.

     On January 20, 1998, we filed a shelf registration statement with the Securities and Exchange Commission (“SEC”) for the issuance of up to $400,000 of debt securities (the “1998 Shelf Registration”). The 1998 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 June 17, 2003, we completed an offering, at par, for $200,000 of 5% Senior Notes due 2010 (the “Notes”) under the 1998 Shelf Registration. The offering of the Notes resulted in aggregate net proceeds of approximately $199,400, after deducting offering expenses. The Notes mature on June 15, 2010 and bear interest at 5%, payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2003. The Notes are general unsecured obligations and rank equally in right of payment with all of our existing and future unsecured senior indebtedness and indebtedness under our working capital credit facility. The Notes are senior in right of payment to any future subordinated indebtedness that we may incur. We may redeem the Notes, in whole or in part, at any time upon not less than 30 nor more than 60 days notice at a redemption price equal to the greater of (a) 100% of the principal amount of the Notes to be redeemed, or (b) the discounted present value of the remaining scheduled payments of the Notes to be redeemed, plus, in each case, accrued and unpaid interest.

     On July 14, 2003, we used approximately $120,700 of the proceeds received from the sale of the Notes to redeem all of the $115,000 outstanding 8% Senior Notes due 2005 at a price of 104% of the principal amount outstanding, including the payment of accrued interest. The redemption resulted in a charge to pre-tax homebuilding income of $8,503.

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     On May 27, 2004, we filed a shelf registration statement (the “2004 Shelf Registration”) with the SEC to register up to $1,000,000 for future offer and sale of debt securities, common shares, preferred shares, depositary shares representing preferred shares and warrants. The SEC declared the 2004 Shelf Registration effective on June 15, 2004. NVR expects to use the proceeds received from future offerings issued under the 2004 Shelf Registration for general corporate purposes. In addition, we have $55,000 remaining available for issuance under the 1998 Shelf Registration. This discussion of our shelf registration capacity does not constitute an offer of any securities for sale.

Equity Repurchases

     In addition to funding growth in our homebuilding and mortgage banking operations, we historically have used a substantial portion of our excess liquidity to repurchase outstanding shares of our common stock in open market and privately negotiated transactions. This ongoing repurchase activity is conducted pursuant to publicly announced Board authorizations, and is typically executed in accordance with the safe-harbor provisions of Rule 10(b)-18 of the Securities and Exchange Act of 1934. The repurchase program assists us in accomplishing our primary objective, creating increases in shareholder value. See Part II, Item 5 of the Form 10-K for disclosure of amounts repurchased during the fourth quarter of 2005. For the year ended December 31, 2005, we repurchased approximately 1,269,000 shares of our common stock at an aggregate purchase price of $962,609. We repurchased approximately 162,000 shares of our common stock at an aggregate purchase price of $120,818 during January 2006, which fully utilized all available share repurchase authorizations.

Cash Flows

     As shown in the consolidated statement of cash flows for the year ended December 31, 2005, our operating activities provided cash of $532,772. Cash was provided primarily by homebuilding operations and by the realization of a tax benefit of approximately $94,000 from employee stock-based compensation activities. These tax benefits were recorded directly to equity and reduced estimated tax payments during the year. Cash was also provided by a $53,000 increase in customer deposits resulting primarily from the increase in backlog units in 2005 as compared to 2004. Cash was used primarily to fund increases in homebuilding and mortgage loan inventory of approximately $202,000 and $55,000, respectively, and to make deposits on fixed price purchase agreements with developers to acquire control of finished lots. The increase in contract land deposits of approximately $196,000 related to both payments for new, fixed price purchase agreements and to scheduled payments under existing contracts upon achievement of development milestones. We control approximately 105,000 lots at December 31, 2005, as compared to approximately 83,500 lots at December 31, 2004.

     Net cash used for investing activities was $22,097 for the year ended December 31, 2005, primarily as a result of approximately $19,000 in property and equipment purchases throughout the period. In addition, on January 1, 2005 we purchased substantially all of the assets and assumed certain liabilities of Marc Homebuilders, Inc., a homebuilder in Columbia, South Carolina for $7,600 in cash (see Note 11 to the consolidated financial statements). The acquired business operates under the Rymarc trade name.

     Net cash used for financing activities was $700,514 for the year ended December 31, 2005, primarily as a result of our ongoing common stock repurchase program, offset by a net increase of approximately $249,000 under our credit lines. We repurchased approximately 1,269,000 shares of our common stock in 2005 for an aggregate purchase price of $962,609.

     At December 31, 2005, the homebuilding and mortgage banking segments had restricted cash of $5,135 and $1,738, respectively, which includes certain customer deposits, mortgagor tax escrows, insurance escrows, completion escrows and other amounts collected at closing which relates to mortgage loans held for sale and to home sales.

     We believe that cash generated from operations and borrowings available under our credit facilities and the public debt markets will be sufficient to satisfy near and longer term cash requirements for working capital and debt service in both our homebuilding and mortgage banking operations.

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Off Balance Sheet Arrangements

Lot Acquisition Strategy

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

     Our lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. We may, at our option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of our intent not to acquire the finished lots under contract. Our sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidating damage provision contained within the purchase agreements. We do not have any financial guarantees or completion obligations and, with the exception of three specific performance contracts for 80 lots at an aggregate purchase price of approximately $7,100 existing at December 31, 2005, we do not guarantee specific performance under these purchase agreements.

     At December 31, 2005, we controlled approximately 105,000 lots with an aggregate purchase price of approximately $10,000,000, by making or committing to make deposits of approximately $831,000 in the form of cash and letters of credit. Our entire risk of loss pertaining to the aggregate $10,000,000 contractual commitment resulting from our non-performance under the contracts is limited to the $831,000 deposit amount. Of the $831,000 deposit total, approximately $600,000 in cash and approximately $17,000 in letters of credit have been issued as of December 31, 2005, and $214,000 will be paid subsequent to December 31, 2005, assuming that contractual development milestones are met by the developers (see Contractual Obligations section below). Please refer to Note 3 to the consolidated financial statements for a description of our lot acquisition strategy in relation to our accounting under FIN 46R, Consolidation of Variable Interest Entities.

Bonds and Letters of Credit

     We enter into bond or letter of credit arrangements with local municipalities, government agencies, or land developers to collateralize our obligations under various contracts. We had $33,325 of contingent obligations under such agreements as of December 31, 2005 (inclusive of the $17,000 of lot acquisition deposits in the form of letters of credit discussed above). We believe we will fulfill our obligations under the related contracts and do not anticipate any losses under these bonds or letters of credit.

Mortgage Commitments and Forward Sales

     In the normal course of business, our mortgage banking segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time frames established by us. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, we enter into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments classified as derivatives. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives, and, accordingly, are marked to market through earnings. At December 31, 2005, there were contractual commitments to extend credit to borrowers aggregating approximately $140,000, and open forward delivery sale contracts aggregating approximately $322,000.

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Contractual Obligations

     Our fixed, non-cancelable obligations as of December 31, 2005, were as follows:

	Payments due by period
			Less than		1-3		3-5		More than
	Total		1year		years		years		5years
Debt (a)	$	504,816	$	269,816	$	20,000	$	215,000	$	—
Capital leases (b)		5,753		586		1,228		1,281		2,658
Operating leases (c)		120,230		27,589		34,928		21,737		35,976
Purchase obligations (d)		214,000		*		*		*		*
Executive officer employment contracts (e)		15,700		3,140		6,280		6,280		—
Other long-term liabilities (f)		64,285		59,315		4,970		—		—
Total	$	924,784	$	360,446	$	67,406	$	244,298	$	38,634

(a)	Payments include interest payments due on the 5% Senior Notes due 2010. See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding debt and related matters.
(b)	The present value of these obligations is included on the Consolidated Balance Sheets. See Note 6 of the Notes to the Consolidated Financial Statements for additional information regarding capital lease obligations.
(c)	See Note 10 of the Notes to Consolidated Financial Statements for additional information regarding operating leases.
(d)(*)	Amounts represent required payments of forfeitable deposits with land developers under existing, fixed price purchase agreements, assuming that contractual development milestones are met by the developers. We expect to make all payments of these deposits within the next three years but due to the nature of the contractual development milestones that must be met, we are unable to accurately estimate the portion of the deposit obligation that will be made within one year and that portion that will be made within one to three years. In addition to the $214,000 to be paid pursuant to the prior discussion, as of December 31, 2005, we had capitalized forfeitable deposits for fixed price purchase agreements with developers totaling $599,530, and outstanding letters of credit of approximately $17,000.
(e)	We have entered into employment agreements with four of our executive officers. Each of the agreements expires on January 1, 2011 and provides for payment of a minimum base salary, which may be increased at the discretion of the Compensation Committee of NVR’s Board of Directors (the “Compensation Committee”), and annual incentive compensation of up to 100% of base salary upon achievement of annual performance objectives established by the Compensation Committee. The agreements also provide for payment of severance benefits upon termination of employment, in amounts ranging from $0 to two times the executive officer’s then annual base salary, depending on the reason for termination, plus up to $60 in outplacement assistance. Accordingly, total payments under these agreements will vary based on length of service, any future increases to base salaries, annual incentive payments earned, and the reason for termination. The agreements have been reflected in the above table assuming the continued employment of the executive officers for the full term of the respective agreements, and at the executive officers’ current base salaries. The above balances do not include any potential annual incentive compensation. The actual amounts paid could differ from that presented.
(f)	Amounts represent payments due under incentive compensation plans and are included on the Consolidated Balance Sheets, $3,730 of which is recorded in the Mortgage Banking accounts payable and other liabilities line item.

Critical Accounting Policies

     General

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate the estimates we use to prepare the consolidated financial statements, and update those estimates as necessary. In general, our estimates are based on historical experience, on information from third party professionals, and other various assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ materially from those estimates made by management.

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     Variable Interest Entities

     Revised Financial Interpretation No. 46 (“FIN 46R”), Consolidation of Variable Interest Entities, which was effective for us as of March 31, 2004, requires the primary beneficiary of a variable interest entity to consolidate that entity on its financial statements. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual, or other financial interests in the entity. Expected losses are the expected negative variability in the fair value of an entity’s net assets exclusive of its variable interests, and expected residual returns are the expected positive variability in the fair value of an entity’s net assets, exclusive of its variable interests.

     Forward contracts, such as the fixed price purchase agreements utilized by us to acquire finished lot inventory, are deemed to be variable interests under FIN 46R. Therefore, the development entities with which we enter fixed price purchase agreements are examined under FIN 46R for possible consolidation by us, including certain joint venture limited liability corporations (“LLC’s”) utilized by us to acquire finished lots on a limited basis. We have developed a methodology to determine whether we, or, conversely, the owner(s) of the applicable development entity, are the primary beneficiary of a development entity. The methodology used to evaluate our primary beneficiary status requires substantial management judgment and estimates. These judgments and estimates involve assigning probabilities to various estimated cash flow possibilities relative to the development entity’s expected profits and losses and the cash flows associated with changes in the fair value of finished lots under contract. Although we believe that our accounting policy is designed to properly assess our primary beneficiary status relative to our involvement with the development entities from which we acquire finished lots, changes to the probabilities and the cash flow possibilities used in our evaluation could produce widely different conclusions regarding whether we are or are not a development entity’s primary beneficiary, possibly resulting in additional, or fewer, development entities being consolidated on our financial statements.

     Homebuilding Inventory

     The carrying value of inventory is stated at the lower of cost or market value. Cost of lots and completed and uncompleted housing units represent the accumulated actual cost of the units. Field construction supervisors’ salaries and related direct overhead expenses are included in inventory costs. Interest costs are not capitalized into inventory. Upon settlement, the cost of the unit is expensed on a specific identification basis. Cost of manufacturing materials is determined on a first-in, first-out basis. Recoverability and impairment, if any, is primarily evaluated by analyzing sales of comparable assets. We believe that our accounting policy is designed to properly assess the carrying value of homebuilding inventory.

     Contract Land Deposits

     We purchase finished lots under fixed price purchase agreements that require deposits that may be forfeited if we fail to perform under the contract. The deposits are in the form of cash or letters of credit in varying amounts and represent a percentage of the aggregate purchase price of the finished lots. We maintain an allowance for losses on contract land deposits that we believe is sufficient to provide for losses in the existing contract land deposit portfolio. The allowance reflects our judgment of the present loss exposure at the end of the reporting period, considering market and economic conditions, sales absorption and profitability within specific communities and terms of the various contracts. Although we consider the allowance for losses on contract land deposits reflected on the December 31, 2005 balance sheet to be adequate, there can be no assurance that this allowance will prove to be adequate over time to cover losses due to unanticipated adverse changes in the economy or other events adversely affecting specific markets or the homebuilding industry.

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     Intangible Assets

     Reorganization value in excess of identifiable assets (“excess reorganization value”), goodwill, and indefinite life intangible assets are not subject to amortization under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Rather, excess reorganization value, goodwill, and other intangible assets are subject to at least an annual assessment for impairment by applying a fair-value based test. We continually evaluate whether events and circumstances have occurred that indicate that the remaining value of excess reorganization value, goodwill, and other intangible assets may not be recoverable. We completed the annual assessment of impairment during the first quarter of 2005, and as of December 31, 2005, we believe that excess reorganization value, goodwill, and other intangible assets were not impaired. This conclusion is based on management’s judgment, considering such factors as our history of operating success, our well-recognized brand names, and the significant positions held in the markets in which we operate. However, changes in strategy or adverse changes in market conditions could impact this judgment and require an impairment loss to be recognized for the amount that the carrying value of excess reorganization value, goodwill, and/or other intangible assets exceeds their fair value.

     Warranty/Product Liability Accruals

     Warranty and product liability accruals are established to provide for estimated future costs as a result of construction and product defects, product recalls and litigation incidental to our business. Liability estimates are determined based on our judgment considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our General Counsel and other outside counsel retained to handle specific product liability cases. Although we consider the warranty and product liability accrual reflected on the December 31, 2005 balance sheet (see Note 10 to the consolidated financial statements) to be adequate, there can be no assurance that this accrual will prove to be adequate over time to cover losses due to increased costs for material and labor, the inability or refusal of manufacturers or subcontractors to financially participate in corrective action, unanticipated adverse legal settlements, or other unanticipated changes to the assumptions used to estimate the warranty and product liability accrual.

Impact of Inflation, Changing Prices and Economic Conditions

     See Risk Factors included in Item 1A herein.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

     Market risk is the risk of loss arising from adverse changes in market prices and interest rates. Our market risk arises from interest rate risk inherent in our financial instruments. Interest rate risk is the possibility that changes in interest rates will cause unfavorable changes in net income or in the value of interest rate-sensitive assets, liabilities and commitments. Lower interest rates tend to increase demand for mortgage loans for home purchasers, while higher interest rates make it more difficult for potential borrowers to purchase residential properties and to qualify for mortgage loans. We have no market rate sensitive instruments held for speculative or trading purposes.

     Our mortgage banking segment is exposed to interest rate risk as it relates to its lending activities. The mortgage banking segment originates mortgage loans, which are either sold through optional or mandatory forward delivery contracts into the secondary markets. All of the mortgage banking segment’s loan portfolio is held for sale and subject to forward sale commitments. NVRM also sells substantially all of its mortgage servicing rights on a servicing released basis.

     Our homebuilding segment generates operating liquidity and acquires capital assets through fixed-rate and variable-rate debt. The homebuilding segment’s primary debt is a variable-rate working capital revolving credit facility that currently provides for unsecured borrowings up to $400,000, subject to certain borrowing base limitations. The Facility expires in December 2010 and outstanding amounts bear interest at either (i) the prime rate plus an Applicable Margin (as defined within the Facility) based on NVR’s credit rating and/or debt to capital ratio or (ii) LIBOR plus applicable margin as defined above. The weighted- average interest rates for the amounts outstanding under the Facility were 5.9% and 4.0% for 2005 and 2004, respectively.

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     NVRM generates operating liquidity primarily through the mortgage warehouse facility, which had a borrowing limit of $225,000 at December 31, 2005. The available borrowing limit was reduced to $175,000 on January 15, 2006. The mortgage warehouse facility is used to fund its mortgage origination activities. The interest rate under the mortgage warehouse facility is either: (i) LIBOR plus 1.125%, or (ii) 1.125% to the extent that NVRM provides compensating balances. The weighted-average interest rate for amounts outstanding under the mortgage warehouse facility was 4.4% during 2005.

     The following table represents the contractual balances of our on-balance sheet financial instruments in dollars at the expected maturity dates, as well as the fair values of those on-balance sheet financial instruments, at December 31, 2005. The expected maturity categories take into consideration the actual and anticipated amortization of principal and does not take into consideration the reinvestment of cash or the refinancing of existing indebtedness. Because we sell all of the mortgage loans we originate into the secondary markets, we have made the assumption that the portfolio of mortgage loans held for sale will mature in the first year. Consequently, outstanding warehouse borrowings and repurchase facilities are also assumed to mature in the first year.

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	Maturities (000's)
																						Fair
	2006			2007			2008			2009			2010			Thereafter			Total			Value
Mortgage banking segment
Interest rate sensitive assets:
Mortgage loans held for sale	$	194,157			—			—			—			—			—		$	194,157		$	194,206
Average interest rate		7.2	%		—			—			—			—			—			7.2	%
Interest rate sensitive liabilities:
Variable rate warehouse line of credit	$	156,816			—			—			—			—			—		$	156,816		$	156,816
Average interest rate (a)		5.5	%		—			—			—			—			—			5.5	%
Other:
Forward trades of mortgage-backed securities (b)	$	(331	)		—			—			—			—			—		$	(331	)	$	(331	)
Forward loan commitments (b)		57			—			—			—			—			—			57			57
Homebuilding segment
Interest rate sensitive liabilities:
Fixed rate obligations (c)	$	161		$	215		$	244		$	302		$	200,353		$	2,050		$	203,325		$	199,665
Average interest rate		5.1	%		5.1	%		5.1	%		5.1	%		5.2	%		13.2	%		5.2	%
Variable rate credit facility	$	103,000			—			—			—			—			—		$	103,000		$	103,000
Average interest rate		5.7	%		—			—			—			—			—			5.7	%

(a)	Average interest rate is net of credits received for compensating cash balances.
(b)	Represents the fair value recorded pursuant to SFAS 133.
(c)	The $200,353 maturing in 2010 includes $200,000 for NVR’s 5% Senior Notes due June 2010.

31

Item 8. Financial Statements and Supplementary Data.

     The financial statements listed in Item 15 are filed as part of this report and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

     None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

     As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.

     Based on that evaluation, the principal executive officer and principal financial officer concluded that the design and operation of these disclosure controls and procedures as of December 31, 2005 were effective to ensure that information required to be disclosed in our reports under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

     As described in Note 2 to the Consolidated Financial Statements, we have amended Note 2 to disaggregate our one homebuilding segment into four reportable segments. Our management, including our principal executive officer and principal financial officer, have re-evaluated our disclosure controls and procedures as of the end of the period covered by this Report to determine whether this amendment changes their prior conclusion, and have determined that it does not change their conclusion that, as of December 31, 2005, our disclosure controls and procedures were effective. The change in the way we report segment information did not result in any change to our consolidated financial position, results of operations or cash flows.

     There have been no changes in our internal controls over financial reporting identified in connection with the evaluation referred to above that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

32

     As described in Note 2 to the consolidated financial statements, we have amended Note 2 to the consolidated financial statements included in this Report to disaggregate our one homebuilding segment into four reportable segments. As a result, management has re-evaluated its assessment regarding the effectiveness of our internal control over financial reporting. We have concluded that our prior assessment that our internal control over financial reporting was effective at December 31, 2005, is correct. This determination was based upon the fact that we believe that our internal control over financial reporting operated in a manner that provided us with a reasonable basis for our original conclusion with respect to reporting segment information. Further, the change in the way we report segment information did not result in any change to our consolidated financial position, results of operations or cash flows.

Item 9B. Other Information.

     None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

     Item 10 is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006. Reference is also made regarding the executive officers of the registrant to “Executive Officers of the Registrant” following Item 4 of Part I of this report.

Item 11. Executive Compensation.

     Item 11 is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     Security ownership of certain beneficial owners and management is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006.

33

Equity Compensation Plan Information

     The table below sets forth information as of the end of our 2005 fiscal year for (i) all equity compensation plans approved by our shareholders and (ii) all equity compensation plans not approved by our shareholders:

					Number of
					securities
	Number of				remaining
	securities to				available for
	be issued		Weighted-		future issuance
	upon		average		under equity
	exercise of		exercise		compensation
	outstanding		price of		plans
	options,		outstanding		(excluding
	warrants		options,		securities
	and		warrants		reflected in the
Plan category	rights		and rights		first column)
Equity compensation plans approved by security holders		1,118,280	$	339.46		175,195
Equity compensation plans not approved by security holders		1,966,739	$	222.74		36,956
Total		3,085,019	$	265.05		212,151

     Equity compensation plans approved by our shareholders include the NVR, Inc. Management Equity Incentive Plan, the NVR, Inc. Management Long-Term Stock Option Plan, the NVR, Inc. 1998 Management Long-Term Stock Option Plan, the NVR, Inc. Directors’ Long-Term Stock Option Plan, the 1998 Directors’ Long-Term Stock Option Plan, and the 2005 Stock Option Plan. Equity compensation plans that have not been approved by our shareholders include the NVR, Inc. 1994 Management Equity Incentive Plan and the NVR, Inc. 2000 Broadly-Based Stock Option Plan. See Note 9 of the Notes to Consolidated Financial Statements for a description of each of NVR’s equity compensation plans.

Item 13. Certain Relationships and Related Transactions.

     Item 13 is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006.

Item 14. Principal Accountant Fees and Services.

     Item 14 is hereby incorporated by reference to our Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2006.

34

PART IV

Item 15. Exhibits and Financial Statement Schedules.

     The following documents are filed as part of this report:

1. Financial Statements

NVR, Inc. — Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

2. Exhibits

Exhibit
Number	Description
3.1	Restated Articles of Incorporation of NVR, Inc. (“NVR”). Filed as Exhibit 2 to Amendment No. 1 to Form 8-A filed on June 14, 2004 and incorporated herein by reference.
3.2	Bylaws, as amended, of NVR, Inc. Filed as Exhibit 3.1 to Form 8-K filed on November 3, 2005 and incorporated herein by reference.
4.1	Indenture dated as of April 14, 1998 between NVR, as issuer and the Bank of New York as trustee. Filed as Exhibit 4.3 to NVR’s Current Report on Form 8-K filed April 23, 1998 and incorporated herein by reference.
4.2	Form of Note (included in Indenture filed as Exhibit 4.1).
4.3	Fourth Supplemental Indenture, dated June 17, 2003, between NVR and U.S. Bank Trust National Association, as successor to The Bank of New York, as trustee. Filed as Exhibit 4.1 to NVR’s Current Report on Form 8-K filed June 17, 2003 and incorporated herein by reference.
4.4	Form of Note (included in Indenture filed as Exhibit 4.3).
10.1*	Employment Agreement between NVR, Inc. and Dwight C. Schar dated July 1, 2005. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.
10.2*	Employment Agreement between NVR, Inc. and Paul C. Saville dated July 1, 2005. Filed as Exhibit 10.2 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.
10.3*	Employment Agreement between NVR, Inc. and Dennis M. Seremet dated July 1, 2005. Filed as Exhibit 10.3 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.
10.4*	Employment Agreement between NVR, Inc. and William J. Inman dated July 1, 2005. Filed as Exhibit 10.4 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.

35

Exhibit
Number	Description
10.5*	Profit Sharing Plan of NVR, Inc. and Affiliated Companies. Filed as Exhibit 4.1 to NVR’s Registration Statement on Form S-8 (No. 333-29241) filed June 13, 1997 and incorporated herein by reference.
10.6	Loan Agreement dated as of September 7, 1999 among NVR Mortgage Finance, Inc. (“NVR Finance”) and US Bank National Association, as Agent, and the other lenders party thereto. Filed as Exhibit 10.6 to NVR’s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
10.7*	NVR, Inc. Equity Purchase Plan. Filed as Exhibit 10.10 to the 1993 Registration Statement and incorporated herein by reference.
10.8*	NVR, Inc. Directors Long-Term Incentive Plan. Filed as Exhibit 10.11 to NVR’s 1993 Registration Statement and incorporated herein by reference.
10.9*	NVR, Inc. Management Equity Incentive Plan. Filed as Exhibit 10.2 to NVR’s 1993 Registration Statement and incorporated herein by reference.
10.10*	Employee Stock Ownership Plan of NVR, Inc. Incorporated by reference to NVR’s Annual Report on Form 10-K/A for the year ended December 31, 1994.
10.11*	NVR, Inc. 1994 Management Equity Incentive Plan. Filed as Exhibit to NVR’s Annual Report filed on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference.
10.12*	NVR, Inc. 1998 Management Long-Term Stock Option Plan. Filed as Exhibit 4 to NVR’s Registration Statement on Form S-8 (No. 333-79951) filed June 4, 1999 and incorporated herein by reference.
10.13*	NVR, Inc. 1998 Directors’ Long-Term Stock Option Plan. Filed as Exhibit 4 to NVR’s Registration Statement on Form S-8 (No. 333-79949) filed June 4, 1999 and incorporated herein by reference.
10.14*	The Form of Non-Qualified Stock Option Agreement under the 1998 Directors’ Long-Term Stock Option Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on August 3, 2005 and incorporated herein by reference.
10.15*	NVR, Inc. Management Long-Term Stock Option Plan. Filed as Exhibit 99.3 to NVR’s Registration Statement on Form S-8 (No. 333-04975) filed May 31, 1996 and incorporated herein by reference.
10.16*	NVR, Inc. Directors’ Long-Term Stock Option Plan. Filed as Exhibit 99.3 to NVR’s Registration Statement on Form S-8 (No. 333-04989) filed May 31, 1996 and incorporated herein by reference.
10.17*	NVR, Inc. 2000 Broadly-Based Stock Option Plan. Filed as Exhibit 99.1 to NVR’s Registration Statement on Form S-8 (No. 333-56732) filed March 8, 2001 and incorporated herein by reference.
10.18*	The NVR, Inc. 2005 Stock Option Plan. Filed as Exhibit 10.18 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
10.19*	The Form of Non-Qualified Stock Option Agreement under the 2005 Stock Option Plan. Filed as Exhibit 10.19 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
10.20*	NVR, Inc. High Performance Compensation Plan dated as of January 1, 1996. Filed as Exhibit 10.30 to NVR’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.

36

Exhibit
Number	Description
10.21*	NVR, Inc. High Performance Compensation Plan No. 2 dated as of January 1, 1999. Filed as Exhibit 10.31 to NVR’s Annual Report filed on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
10.22*	NVR, Inc. Nonqualified Deferred Compensation Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on December 16, 2005 and incorporated herein by reference.
10.23	Mortgage Loan Purchase and Sale Agreement between Greenwich Capital Financial Products, Inc. and NVR Finance, dated as of July 22, 1998. Filed as Exhibit 10.34 to NVR’s Annual Report filed on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.
10.24	Second Amendment to Loan Agreement and Second Amendment to Pledge and Security Agreement dated September 1, 2000 between NVR Finance and U.S. Bank National Association, as agent, and other Lenders party thereto. Filed as Exhibit 10.36 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference.
10.25	Agreement to increase commitments under the NVR Mortgage Finance Warehouse Facility by and among NVR Finance, Comerica Bank, National City Bank of Kentucky, and U.S. Bank National Association dated as of September 28, 2001. Filed as Exhibit 10.22 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference.
10.26	Eighth Amendment to Loan Agreement dated as of August 15, 2002 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Bank One, NA, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.26 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2002 and incorporated herein by reference.
10.27	Ninth Amendment to Loan Agreement dated as of April 16, 2003 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Bank One, NA, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.28 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2003 and incorporated herein by reference.
10.28	Tenth Amendment to Loan Agreement dated as of August 28, 2003 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Bank One, NA, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.29 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2003 and incorporated herein by reference.
10.29	Eleventh Amendment to Loan Agreement dated as of August 26, 2004 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.1 to NVR’s Current Report on Form 8-K filed August 27, 2004 and incorporated herein by reference.
10.30	Thirteenth Amendment to Loan Agreement dated as of August 25, 2005 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, Guaranty Bank, Comerica Bank, National City Bank of Kentucky and JPMorgan Chase Bank. Filed as Exhibit 10.1 to NVR’s Form 8-K filed August 25, 2005 and incorporated herein by reference.
10.31	Credit Agreement dated as of December 7, 2005 among NVR, Inc. and the lenders party hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, U.S. Bank, National Association, as Syndication Agent, SunTrust Bank and Wachovia Bank, National Association, as Documentation Agents, AmSouth Bank, Comerica Bank, Calyon New York Branch and Mizuho Corporate Bank, Ltd., as Managing Agents, and J.P. Morgan Securities Inc., as Lead Arranger and Sole Book Runner. Filed as Exhibit 10.1 to NVR’s Form 8-K filed December 12, 2005 and incorporated herein by reference.

37

Exhibit
Number	Description
10.33*	Description of the Board of Directors’ compensation arrangement. Filed as Exhibit 10.27 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2004 and incorporated herein by reference.
10.34*	Summary of 2006 annual incentive plan. Filed as Exhibit 10.34 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
21	NVR, Inc. Subsidiaries. Filed as Exhibit 21 to NVR’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
23	Consent of KPMG LLP (Independent Registered Public Accounting Firm). Filed herewith.
31.1	Certification of NVR’s Chief Executive Officer pursuant to Rule 13a-14(a). Filed herewith.
31.2	Certification of NVR’s Chief Financial Officer pursuant to Rule 13a-14(a). Filed herewith.
32	Certification of NVR’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

* Exhibit is a management contract or compensatory plan or arrangement.

38

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

	NVR, Inc.
January 5, 2007	By:	/s/ Dennis M. Seremet
		Dennis M. Seremet
		Principal Financial Officer

39

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
NVR, Inc.:

We have audited the accompanying consolidated balance sheets of NVR, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NVR, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of NVR, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP

McLean, Virginia
February 23, 2006

40

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
NVR, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, included in Item 9A to the Company’s 2005 Form 10-K, that NVR, Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that NVR, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, NVR, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

41

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NVR, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated February 23, 2006 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

McLean, Virginia
February 23, 2006

42

NVR, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)

	December 31,
	2005		2004
ASSETS
Homebuilding:
Cash and cash equivalents	$	170,090	$	362,458
Receivables		40,562		14,020
Inventory:
Lots and housing units, covered under sales agreements with customers		723,657		538,770
Unsold lots and housing units		60,419		40,052
Manufacturing materials and other		9,899		9,718
		793,975		588,540
Assets not owned, consolidated per FIN 46R		275,306		89,924
Property, plant and equipment, net		31,096		25,330
Reorganization value in excess of amounts allocable to identifiable assets, net		41,580		41,580
Goodwill and indefinite life intangibles, net		11,686		6,379
Definite life intangibles, net		375		—
Contract land deposits		549,160		384,959
Deferred tax assets, net		97,511		73,191
Other assets		45,340		36,587
		2,056,681		1,622,968
Mortgage Banking:
Cash and cash equivalents		7,436		4,907
Mortgage loans held for sale, net		193,932		138,595
Property and equipment, net		1,003		996
Reorganization value in excess of amounts allocable to identifiable assets, net		7,347		7,347
Other assets		3,189		3,154
		212,907		154,999
Total assets	$	2,269,588	$	1,777,967

(Continued)

See notes to consolidated financial statements.

43

NVR, Inc.
Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)

	December 31,
	2005			2004
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable	$	262,086		$	215,002
Accrued expenses and other liabilities		308,621			177,041
Liabilities related to assets not owned, consolidated per FIN 46R		215,284			63,568
Obligations under incentive plans		60,555			57,774
Customer deposits		256,837			203,835
Other term debt		3,325			4,077
Senior notes		200,000			200,000
Notes payable		103,000			—
		1,409,708			921,297
Mortgage Banking:
Accounts payable and other liabilities		25,902			11,949
Notes payable		156,816			9,726
		182,718			21,675
Total liabilities		1,592,426			942,972
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,592,640 and 20,597,709 shares issued for 2005 and 2004, respectively		206			206
Additional paid-in-capital		473,886			406,705
Deferred compensation trust - 547,697 and 549,029 shares of NVR, Inc. common stock for 2005 and 2004, respectively		(76,303	)		(76,366	)
Deferred compensation liability		76,303			76,366
Retained earnings		2,608,628			1,911,069
Less treasury stock at cost — 14,964,482 and 14,023,631 shares for 2005 and 2004, respectively		(2,405,558	)		(1,482,985	)
Total shareholders’ equity		677,162			834,995
Total liabilities and shareholders’ equity	$	2,269,588		$	1,777,967

See notes to consolidated financial statements.

44

NVR, Inc.
Consolidated Statements of Income
(in thousands, except per share data)

	Year Ended			Year Ended			Year Ended
	December 31, 2005			December 31, 2004			December 31, 2003
Homebuilding:
Revenues	$	5,177,743		$	4,247,503		$	3,600,917
Other income		6,301			2,655			3,385
Cost of sales		(3,738,030	)		(3,156,286	)		(2,711,861	)
Selling, general and administrative		(345,525	)		(260,795	)		(231,966	)
Operating income		1,100,489			833,077			660,475
Loss from extinguishment of 8% Senior Notes due 2005		—			—			(8,503	)
Interest expense		(13,809	)		(11,934	)		(13,554	)
Homebuilding income		1,086,680			821,143			638,418
Mortgage Banking:
Mortgage banking fees		84,604			72,219			76,647
Interest income		5,014			4,249			5,198
Other income		1,435			1,075			1,025
General and administrative		(31,555	)		(25,593	)		(23,823	)
Interest expense		(1,759	)		(1,088	)		(1,293	)
Mortgage banking income		57,739			50,862			57,754
Income before taxes		1,144,419			872,005			696,172
Income tax expense		(446,860	)		(348,801	)		(276,381	)
Net income	$	697,559		$	523,204		$	419,791
Basic earnings per share	$	110.36		$	80.83		$	59.28
Diluted earnings per share	$	89.61		$	66.42		$	48.39
Basic average shares outstanding		6,321			6,473			7,082
Diluted average shares outstanding		7,784			7,877			8,674

See notes to consolidated financial statements.

45

NVR, Inc.
Consolidated Statements of Shareholders’ Equity
(in thousands)

			Additional								Deferred			Deferred
	Common		Paid-in			Retained		Treasury			Compensation			Compensation
	Stock		Capital			Earnings		Stock			Trust			Liability			Total
Balance, December 31, 2002	$	206	$	262,867		$	968,074	$	(827,902	)	$	(35,647	)	$	35,647		$	403,245
Net income		—		—			419,791		—			—			—			419,791
Deferred compensation activity		—		—			—		12,490			(29,078	)		29,078			12,490
Purchase of common stock for treasury		—		—			—		(460,391	)		—			—			(460,391	)
Performance share activity		—		79			—		—			—			—			79
Tax benefit from stock options exercised and deferred compensation distributions		—		110,171			—		—			—			—			110,171
Stock option activity		—		9,483			—		—			—			—			9,483
Treasury stock issued upon option exercise		—		(47,254	)		—		47,254			—			—			—
Balance, December 31, 2003		206		335,346			1,387,865		(1,228,549	)		(64,725	)		64,725			494,868
Net income		—		—			523,204		—			—			—			523,204
Deferred compensation activity		—		—			—		12,490			(11,641	)		11,641			12,490
Purchase of common stock for treasury		—		—			—		(307,603	)		—			—			(307,603	)
Performance share activity		—		79			—		—			—			—			79
Tax benefit from stock options exercised and deferred compensation distributions		—		92,661			—		—			—			—			92,661
Stock option activity		—		19,296			—		—			—			—			19,296
Treasury stock issued upon option exercise		—		(40,677	)		—		40,677			—			—			—
Balance, December 31, 2004		206		406,705			1,911,069		(1,482,985	)		(76,366	)		76,366			834,995
Net income		—		—			697,559		—			—			—			697,559
Deferred compensation activity		—		—			—		—			63			(63	)		—
Purchase of common stock for treasury		—		—			—		(962,609	)		—			—			(962,609	)
Tax benefit from stock options exercised and deferred compensation distributions		—		94,460			—		—			—			—			94,460
Stock option activity		—		12,757			—		—			—			—			12,757
Treasury stock issued upon option exercise		—		(40,036	)		—		40,036			—			—			—
Balance, December 31, 2005	$	206	$	473,886		$	2,608,628	$	(2,405,558	)	$	(76,303	)	$	76,303		$	677,162

See notes to consolidated financial statements

46

NVR, Inc.
Consolidated Statements of Cash Flows
(in thousands)

	Year Ended			Year Ended			Year Ended
	December 31, 2005			December 31, 2004			December 31, 2003
Cash flows from operating activities:
Net income	$	697,559		$	523,204		$	419,791
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,690			8,858			8,427
Loss from extinguishment of debt		—			—			8,503
Gain on sales of loans		(62,279	)		(52,858	)		(59,095	)
Gain on sale of fixed assets		(595	)		—			—
Deferred tax (benefit) expense		(24,374	)		1,249			(3,429	)
Mortgage loans closed		(2,186,723	)		(1,961,867	)		(1,982,900	)
Proceeds from sales of mortgage loans		2,176,475			1,962,184			2,096,782
Principal payments on mortgage loans held for sale		17,089			12,534			8,333
Gain on sales of mortgage servicing rights		—			—			(14	)
Net change in assets and liabilities:
Increase in inventories		(201,622	)		(64,767	)		(87,099	)
Increase in contract land deposits		(195,552	)		(118,680	)		(53,939	)
Increase in receivables		(26,578	)		(2,524	)		(2,198	)
Increase in accounts payable, accrued expenses and customer deposits		337,882			169,690			219,914
Increase in obligations under incentive plans		2,781			2,300			590
Other, net		(11,981	)		(2,861	)		(12,548	)
Net cash provided by operating activities		532,772			476,462			561,118
Cash flows from investing activities:
Purchase of property, plant and equipment		(18,670	)		(9,761	)		(9,456	)
Proceeds from sales of mortgage servicing rights		—			25			11,850
Proceeds from the sale of property, plant and equipment		4,038			783			610
Acquisition, net of cash acquired		(7,465	)		—			—
Net cash (used) provided by investing activities		(22,097	)		(8,953	)		3,004
Cash flows from financing activities:
Extinguishment of 8% Senior Notes due 2005		—			—			(119,600	)
Issuance of 5% Senior Notes due 2010		—			—			200,000
Purchase of treasury stock		(962,609	)		(307,603	)		(460,391	)
Purchase of NVR common stock for deferred compensation plan		—			—			(17,939	)
Net borrowings (repayments) under notes payable and credit lines		249,338			(44,056	)		(86,301	)
Exercise of stock options		12,757			19,296			9,483
Net cash used by financing activities		(700,514	)		(332,363	)		(474,748	)
Net (decrease) increase in cash and cash equivalents		(189,839	)		135,146			89,374
Cash and cash equivalents, beginning of year		367,365			232,219			142,845
Cash and cash equivalents, end of year	$	177,526		$	367,365		$	232,219
Supplemental disclosures of cash flow information:
Interest paid during the year	$	13,634		$	12,490		$	13,715
Income taxes paid during the year, net of refunds	$	294,325		$	275,563		$	162,848
Supplemental disclosures of non-cash activities:
Net assets not owned, consolidated per FIN 46R	$	33,666		$	25,620		$	736
Tax benefit from stock-based compensation activity	$	94,460		$	92,661		$	110,171

See notes to consolidated financial statements.

47

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

1. Summary of Significant Accounting Policies

      Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of NVR, Inc. (“NVR” or the “Company”), its wholly owned subsidiaries, certain partially owned entities, and variable interest entities of which the Company has determined that it is the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

      Use of Estimates in the Preparation of Financial Statements

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

      Cash and Cash Equivalents

     Cash and cash equivalents include short-term investments with original maturities of three months or less. The homebuilding and mortgage banking segments had restricted cash of $5,135 and $1,738, respectively, at December 31, 2005, and $2,123 and $965, respectively, at December 31, 2004, which includes certain customer deposits, mortgagor tax escrows, insurance escrows, completion escrows and other amounts collected at closing which relate to mortgage loans held for sale and to home sales.

      Homebuilding Inventory

     Inventory is stated at the lower of cost or market value. Cost of lots and completed and uncompleted housing units represent the accumulated actual cost thereof. Field construction supervisors’ salaries and related direct overhead expenses are included in inventory costs. Interest costs are not capitalized into inventory. Upon settlement, the cost of the units is expensed on a specific identification basis. Cost of manufacturing materials is determined on a first-in, first-out basis. Recoverability and impairment, if any, is primarily evaluated by analyzing sales of comparable assets.

      Contract Land Deposits

     NVR purchases finished lots under fixed price purchase agreements that require deposits that may be forfeited if NVR fails to perform under the contract. The deposits are in the form of cash or letters of credit in varying amounts and represent a percentage of the purchase price of the finished lots. NVR maintains an allowance for losses on contract land deposits that it believes is sufficient to provide for losses in the existing contract land deposit portfolio. The allowance reflects management’s judgment of the present loss exposure at the end of the reporting period, considering market and economic conditions, sales absorption and profitability within specific communities and terms of the various contracts.

48

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

      Property, Plant, and Equipment

     Property, plant, and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is based on the estimated useful lives of the assets using the straight-line method. Amortization of capital lease assets is included in depreciation expense. Model home furniture and fixtures are generally depreciated over a two-year period, office facilities and other equipment are depreciated over a period from three to ten years, manufacturing facilities are depreciated over periods of from five to forty years and property under capital leases is depreciated in a manner consistent with the Company’s depreciation policy for owned assets.

      Warranty/Product Liability Accruals

     Warranty and product liability accruals are established to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to NVR’s business. Liability estimates are determined based on management judgment considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our General Counsel and other outside counsel retained to handle specific product liability cases.

      Intangible Assets

     Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, requires goodwill, indefinite life intangibles, and reorganization value in excess of amounts allocable to identifiable assets (“excess reorganization value”), which is no longer subject to amortization, to be tested for impairment on an annual basis. The Company completed the annual assessment of impairment and determined that there is no impairment of either goodwill, indefinite life intangibles, or excess reorganization value in the years ended December 31, 2005, 2004 and 2003.

      Mortgage Loans Held for Sale, Derivatives and Hedging Activities

     NVR originates several different loan products to its customers to finance the purchase of a home through its wholly-owned mortgage subsidiary. Those loan products include previously non-traditional loan products, such as interest-only loans, adjustable interest rate loans, negative amortization loans and loans with relatively high loan-to-value (“LTV”) ratios, with up to a one hundred percent LTV. NVR sells all of the loans it originates into the secondary market typically within 30 days from origination. All of the loans that the Company originates, including non-traditional loan products, are underwritten to the standards and specifications of the ultimate investor. In addition, a substantial number of these nontraditional loans are underwritten and funded at closing directly by the ultimate investor. Insofar as the Company underwrites its originated loans to those standards, the Company bears no increased concentration of credit risk from the issuance of these non-traditional products. The Company employs a quality control department to ensure that its underwriting controls are effectively operating, and further assesses the underwriting function as part of its assessment of internal controls over financial reporting.

     Mortgage loans held for sale are closed at fair value, and thereafter are carried at the lower of cost or market.

     In the normal course of business, NVR’s mortgage banking segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time

49

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

frames established by NVR. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to a broker/dealer. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments classified as derivatives. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives and, accordingly, are marked to market through earnings. NVR does not engage in speculative or trading derivative activities. At December 31, 2005, there were contractual commitments to extend credit to borrowers aggregating approximately $140,000, and open forward delivery sale contracts aggregating approximately $322,000.

      Earnings per Share

     The following weighted average shares and share equivalents are used to calculate basic and diluted EPS for the years ended December 31, 2005, 2004 and 2003:

	Year Ended		Year Ended		Year Ended
	December 31, 2005		December 31, 2004		December 31, 2003
Weighted average number of shares outstanding used to calculate basic EPS		6,320,852		6,472,607		7,081,527
Dilutive securities:
Stock options		1,463,530		1,404,262		1,592,836
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS		7,784,382		7,876,869		8,674,363

     Options issued under equity benefit plans to purchase 4,250; 37,827; and 60,200 shares of common stock were outstanding during the years ended December 31, 2005, 2004 and 2003, respectively, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. In addition, the 386,975 options outstanding under the 2005 Stock Option Plan and 7,700 options outstanding under the 1998 Directors’ Long-Term Stock Option Plan are considered performance-based compensation, and accordingly, have been excluded from the computation of diluted earnings per share because the EPS Target, as discussed in Note 9, has not been achieved as of December 31, 2005, pursuant to the requirements of SFAS 128, Earnings Per Share.

      Revenues-Homebuilding Operations

     NVR builds single-family detached homes, townhomes and condominium buildings, which generally are produced on a pre-sold basis for the ultimate customer. Revenues are recognized at the time units are completed and title and risk of loss passes to the customer.

      Mortgage Banking Fees

     Mortgage banking fees include income earned by NVR’s mortgage banking subsidiaries for originating mortgage loans, servicing mortgage loans held on an interim basis, title fees, gains and losses on the sale of mortgage loans and mortgage servicing and other activities incidental to mortgage banking. Mortgage banking fees are generally recognized after the loan has been sold to an unaffiliated, third party investor.

50

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

      Income Taxes

     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

      Financial Instruments

     Except as otherwise noted here, NVR believes that insignificant differences exist between the carrying value and the fair value of its financial instruments. The estimated fair value of NVR’s 5% Senior Notes due 2010 as of December 31, 2005 and 2004 was $196,340 and $196,820, respectively. The estimated fair value is based on a quoted market price. The carrying value was $200,000 at December 31, 2005 and 2004.

      Stock-Based Compensation

     At December 31, 2005, the Company had eight active stock-based employee compensation plans. As permitted under SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123, NVR has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangements as defined by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations, including Financial Accounting Standards Board Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB No. 25. See the Recent Accounting Pronouncements section below for a discussion of the Company’s anticipated adoption as of January 1, 2006 of the provisions of SFAS 123R.

     During 2005, the Company issued 387,875 non-qualified stock options (“Options”) under the 2005 Stock Option Plan (the “2005 Plan”) at an average exercise price of $743.39 per share. The 2005 Plan was approved by the Company’s shareholders at the May 4, 2005 Annual Meeting and allows the Company to issue Options to employees, including executive officers, to purchase up to 500,000 shares of the Company’s common stock. The exercise price of the Options granted was equal to the closing price of the Company’s common stock on the day immediately preceding the date of grant. Each Option was granted for a term of ten years. No Option granted under the 2005 Plan will become exercisable (other than in the case of a change in control as defined within the 2005 Plan) unless a performance target based on growth in diluted earnings per share is met or exceeded (the “EPS Target”). The EPS Target has been set at a level that reflects a growth rate in diluted earnings per share of ten percent per year for four years, based on NVR’s 2004 diluted earnings per share of $66.42. The aggregate EPS Target is $339.00 per share, the measurement of which is based on the sum of the actual diluted earnings per share results for the four annual periods ending December 31, 2005 through 2008. If the EPS Target is satisfied, Options granted under the 2005 Plan will become exercisable as to twenty-five percent of the underlying shares on each of December 31, 2010, 2011, 2012 and 2013, (“Vesting Tranches”) respectively, or later, depending upon date of grant, based on continued employment. In addition, during the year ended December 31, 2005, the Company granted 7,700 non-qualified stock options (“Director Options”) at an average exercise price of $907.75 per share to the Company’s Directors under the 1998 Directors’ Long Term Stock Option Plan (the “1998 Directors’ Plan”). The Director Options are subject to the aforementioned EPS Target.

51

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     Because the Options granted under the 2005 Plan and the 2005 Option grants under the 1998 Directors’ Plan are subject to a performance measure (the EPS Target), in accordance with APB No. 25, these grants are considered variable awards. Compensation expense for these variable award grants is measured based on the number of Options issued, using the intrinsic value of the Options as of the end of the reporting period, and the cost is recognized ratably over each Vesting Tranche separately. Based on the $702.00 per share closing price of NVR common stock at December 31, 2005, there was no intrinsic value related to the options granted under the 2005 Plan or the 1998 Directors’ Plan, and thus, no compensation expense was recognized.

     In accordance with SFAS No. 148, the following table discloses the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.

	Year Ended December 31,
	2005			2004			2003
Net income, as reported	$	697,559		$	523,204		$	419,791
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(31,893	)		(23,411	)		(20,976	)
Pro forma net income	$	665,666		$	499,793		$	398,815
Earnings per share:
Basic—as reported	$	110.36		$	80.83		$	59.28
Basic—pro forma	$	105.31		$	77.22		$	56.32
Diluted—as reported	$	89.61		$	66.42		$	48.39
Diluted—pro forma	$	86.67		$	64.44		$	47.06

     The weighted average per share fair values of grants made in 2005, 2004 and 2003 for employee stock-based incentive plans were $370.03, $289.81 and $245.54, respectively. The fair values of the options granted were estimated on the grant date using the Black-Scholes option-pricing model based on the following weighted average assumptions:

	2005			2004			2003
Estimated option life	8.82 years			10 years			10 years
Risk free interest rate		3.84	%		4.68	%		4.61	%
Expected volatility (a)		34.15	%		39.06	%		40.55	%
Expected dividend yield		0.00	%		0.00	%		0.00	%

(a) The 2005 volatility is based on implied volatility. The 2004 and 2003 volatility is based on historical volatility.

      Comprehensive Income

     For the years ended December 31, 2005, 2004 and 2003, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying financial statements.

52

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

      Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), Share-Based Payment, (“SFAS 123R”). SFAS 123R is a revision of SFAS 123 and supersedes APB No. 25. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements. In April 2005, the Securities and Exchange Commission amended the effective date for SFAS 123R. SFAS 123R is now effective as of the beginning of the first interim or annual reporting period of a registrant’s first fiscal year beginning on or after June 15, 2005. SFAS 123R applies to all awards granted, modified, repurchased or cancelled after the effective date, and all outstanding portions of awards granted prior to the effective date which are unvested as of the effective date of the pronouncement.

     Entities may adopt the provisions of SFAS 123R using either the modified prospective or modified retrospective methods. Under the modified prospective method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for either recognition or pro forma disclosure. For periods before the required effective date, the modified retrospective application may be applied to either (a) all prior years for which SFAS 123 was effective or (b) only to prior interim periods in the year of initial adoption, on a basis consistent with the pro forma disclosures required for those periods by SFAS 123. SFAS 123R becomes effective for NVR beginning in the first quarter of 2006. We plan to adopt SFAS 123R using the modified prospective method. We expect our full year after tax expense in 2006 to be approximately $36,000 related to the implementation of SFAS 123R, based on unvested stock options outstanding at December 31, 2005.

2. Segment Information, Nature of Operations, and Certain Concentrations

     Subsequent to the issuance of the Company’s consolidated financial statements for the year ended December 31, 2005, management determined that the notes to the consolidated financial statements for the years ended December 31, 2005, 2004 and 2003 should be amended to provide expanded disclosure of reportable segments pursuant to SFAS 131, Disclosures of Reportable Segments of an Enterprise and Related Information. The Company had historically aggregated its homebuilding operating activity into a single reportable segment. This amendment disaggregates the homebuilding single reportable segment presentation into four homebuilding reportable segments. This amendment has no impact on our consolidated balance sheets as of December 31, 2005 and 2004, or our consolidated statements of income and related earnings per share amounts, consolidated statements of cash flows or consolidated statements of shareholders’ equity for the years ended December 31, 2005, 2004 and 2003.

     NVR is one of the largest homebuilders in the United States and in the Washington, D.C. and Baltimore, MD metropolitan areas, where NVR derived approximately 52% of its 2005 homebuilding revenues. NVR’s homebuilding operations primarily construct and sell single-family detached homes, townhomes and condominium buildings under four tradenames: Ryan Homes, NVHomes, Fox Ridge Homes, and Rymarc Homes. The Ryan Homes, Fox Ridge Homes, and Rymarc Homes products are moderately priced and marketed primarily to first-time homeowners and first-time move-up buyers. The Ryan Homes product is sold in twenty-one metropolitan areas located in Maryland, Virginia, West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Ohio, New Jersey, Delaware, Michigan and Kentucky. The Fox Ridge Homes product is sold solely in the Nashville, TN metropolitan area. The Rymarc Homes product is sold solely in the Columbia, SC metropolitan area. The NVHomes product is sold in the Washington, D.C., Baltimore, MD, Philadelphia, PA and Maryland Eastern Shore metropolitan areas, and is marketed primarily to move-up and up-scale buyers.

53

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     NVR’s mortgage banking segment is a regional mortgage banking operation. Substantially all of the mortgage banking segment’s loan closing activity is for NVR’s homebuilding customers. NVR’s mortgage banking business generates revenues primarily from origination fees, gains on sales of loans, title fees, and sales of servicing rights. A substantial portion of the Company’s mortgage operations is conducted in the Washington, D.C. and Baltimore, MD metropolitan areas.

     Consistent with the principles and objectives of SFAS 131, the Company’s following footnote disclosure includes four homebuilding reportable segments that aggregate geographically the Company’s homebuilding operating segments, and the mortgage banking operations presented as a single reportable segment. The homebuilding reportable segments are comprised of operating divisions in the following geographic areas:

Homebuilding Mid Atlantic — Virginia, West Virginia, Maryland, and Delaware
Homebuilding North East — Eastern Pennsylvania and New Jersey
Homebuilding Mid East — Kentucky, Michigan, New York, Ohio and western Pennsylvania
Homebuilding South East — North Carolina, South Carolina and Tennessee

     Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge determined at the corporate headquarters. The corporate capital allocation charge eliminates in consolidation, is based on the segment’s average net assets employed, and is charged using a consistent methodology in the years presented. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital. We record charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a finished lot purchase agreement with the developer. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a capital allocation charge.

     In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between homebuilding segment profit and homebuilding consolidated profit before tax include unallocated corporate overhead, consolidation adjustments and external corporate interest. NVR’s overhead functions, such as accounting, treasury, human resources, land acquisition, etc., are centrally performed and the costs of which are not allocated to the Company’s operating segments. Consolidation adjustments consist of such items to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to the Company’s operating segments. External corporate interest expense is primarily comprised of interest charges on the Company’s outstanding Senior Notes and working capital line borrowings, and are not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

     Following are tables presenting revenues, interest income, interest expense, depreciation and amortization, segment profit and segment assets for each reportable segment, with reconciliations to the amounts reported for the consolidated enterprise, where applicable:

54

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

	Year Ended December 31,
	2005		2004		2003
Revenues:
Homebuilding Mid Atlantic	$	3,235,053	$	2,623,308	$	2,185,680
Homebuilding North East		533,662		466,206		380,646
Homebuilding Mid East		944,070		793,976		685,164
Homebuilding South East		464,958		364,013		349,427
Mortgage Banking		84,604		72,219		76,647
Total Consolidated Revenues	$	5,262,347	$	4,319,722	$	3,677,564

	Year Ended December 31,
	2005			2004			2003
Profit:
Homebuilding Mid Atlantic	$	863,210		$	623,040		$	484,482
Homebuilding North East		66,944			64,130			40,257
Homebuilding Mid East		95,190			87,272			88,274
Homebuilding South East		52,199			36,958			27,356
Mortgage Banking		57,739			50,862			57,754
Total Segment Profit		1,135,282			862,262			698,123
Contract land deposit impairments		(9,950	)		(6,000	)		(2,700	)
Corporate capital allocation		149,247			110,769			92,256
Unallocated corporate overhead		(105,364	)		(80,635	)		(80,274	)
Consolidation adjustments and other		(11,670	)		(3,168	)		9,847
Corporate interest expense		(13,126	)		(11,223	)		(12,577	)
Loss from extinguishment of 8% Senior Notes due 2005		—			—			(8,503	)
Reconciling items sub-total		9,137			9,743			(1,951	)
Consolidated Income before Taxes	$	1,144,419		$	872,005		$	696,172

	Year Ended December 31,
	2005		2004		2003
Assets:
Homebuilding Mid Atlantic	$	1,045,229	$	720,554	$	569,991
Homebuilding North East		148,563		107,707		96,956
Homebuilding Mid East		147,249		129,783		124,901
Homebuilding South East		90,820		69,974		54,378
Mortgage Banking		205,560		147,652		106,542
Total Segment Assets		1,637,421		1,175,670		952,768
Assets not owned, consolidated per Fin 46R		275,306		89,924		12,807
Cash		170,029		362,433		228,566
Deferred taxes		97,511		73,191		73,985
Intangible assets		60,988		55,306		55,306
Consolidation adjustments and other		28,333		21,443		39,673
Reconciling items sub-total		632,167		602,297		410,337
Consolidated Assets	$	2,269,588	$	1,777,967	$	1,363,105

	Year Ended December 31,
	2005		2004		2003
Interest Income
Mortgage Banking	$	5,014	$	4,249	$	5,198
Total Segment Interest Income		5,014		4,249		5,198
Other unallocated interest income		2,471		1,151		746
Consolidated Interest Income	$	7,485	$	5,400	$	5,944

55

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

	Year Ended December 31,
	2005			2004			2003
Interest Expense
Homebuilding Mid Atlantic	$	102,256		$	74,293		$	59,477
Homebuilding North East		15,925			11,518			10,420
Homebuilding Mid East		21,312			16,865			14,692
Homebuilding South East		10,437			8,804			8,644
Mortgage Banking		1,759			1,088			1,293
Total Segment Interest Expense		151,689			112,568			94,526
Corporate capital allocation		(149,247	)		(110,769	)		(92,256	)
Senior note and other interest		13,126			11,223			12,577
Consolidated Interest Expense	$	15,568		$	13,022		$	14,847

	Year Ended December 31,
	2005		2004		2003
Depreciation and Amortization:
Homebuilding Mid Atlantic	$	4,795	$	4,051	$	3,170
Homebuilding North East		700		729		693
Homebuilding Mid East		2,117		1,832		1,405
Homebuilding South East		999		876		864
Mortgage Banking		553		467		487
Total Segment Depreciation and Amortization		9,164		7,955		6,619
Unallocated corporate		1,526		903		1,808
Consolidated Depreciation and Amortization	$	10,690	$	8,858	$	8,427

	Year Ended December 31,
	2005		2004		2003
Expenditures for Property and Equipment:
Homebuilding Mid Atlantic	$	10,938	$	4,768	$	4,173
Homebuilding North East		1,719		836		1,209
Homebuilding Mid East		2,065		2,412		2,154
Homebuilding South East		808		1,144		903
Mortgage Banking		448		513		326
Total Segment Expenditures for Property and Equipment		15,978		9,673		8,765
Unallocated corporate		2,692		88		691
Consolidated Expenditures for Property and Equipment	$	18,670	$	9,761	$	9,456

3. Consolidation of Variable Interest Entities

     In December 2003, FASB issued Revised Interpretation No. 46 (“FIN 46R”), Consolidation of Variable Interest Entities, which was effective for NVR as of March 31, 2004. FIN 46R requires the primary beneficiary of a variable interest entity to consolidate that entity on its financial statements. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual, or other financial interests in the entity. Expected losses are the expected negative variability in the fair value of an entity’s net assets, exclusive of its variable interests, and expected residual returns are the expected positive variability in the fair value of an entity’s net assets, exclusive of its variable interests. As discussed below, NVR evaluates the provisions of FIN 46R as it relates to NVR’s finished lot acquisition strategy.

56

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     NVR does not engage in the land development business. Instead, the Company typically acquires finished building lots at market prices from various development entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if NVR fails to perform under the agreement. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots. As of December 31, 2005, the Company controlled approximately 105,000 lots with deposits in cash and letters of credit totaling approximately $600,000 and $17,000, respectively. As of December 31, 2004, the Company controlled approximately 83,500 lots with deposits in cash and letters of credit totaling approximately $404,000 and $13,000, respectively.

     This lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. NVR may, at its option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of its intent not to acquire the finished lots under contract. NVR’s sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidating damage provisions contained within the purchase agreements. In other words, if NVR does not perform under a purchase agreement, NVR loses its deposit. NVR does not have any financial or specific performance guarantees, or completion obligations, under these purchase agreements, with the exception of three specific performance contracts pursuant to which the company is committed to purchasing approximately 80 finished lots at an aggregate purchase price of approximately $7,100. None of the creditors of any of the development entities with which NVR enters fixed price purchase agreements have recourse to the general credit of NVR. Except as described below, NVR also does not share in an allocation of either the profit earned or loss incurred by any of these entities with which NVR enters fixed price purchase agreements.

     On a very limited basis, NVR also obtains finished lots using joint venture limited liability corporations (“LLC’s”). All LLC’s are structured such that NVR is a non-controlling member and is at risk only for the amount invested. NVR is not a borrower, guarantor or obligor on any of the LLC’s debt. NVR enters into a standard fixed price purchase agreement to purchase lots from these LLC’s.

     At December 31, 2005, NVR had an aggregate investment in thirteen separate LLC’s totaling approximately $15,000, which controlled approximately 1,000 lots. At December 31, 2004, NVR had an aggregate investment in eleven separate LLC’s totaling approximately $12,800, which controlled approximately 950 lots. NVR recognizes its share of the earnings of the LLC’s as a reduction of the cost basis of the lots at the time that the lot and related home is settled with an external customer. During the years ended December 31, 2005, 2004 and 2003, NVR reduced cost of sales by approximately $287, $369 and $389, respectively, which represented NVR’s share of the earnings of the LLC’s.

     Forward contracts, such as the fixed price purchase agreements utilized by NVR to acquire finished lot inventory, are deemed to be “variable interests” under FIN 46R. Therefore, the development entities with which NVR enters fixed price purchase agreements, including the LLC’s, are examined under FIN 46R for possible consolidation by NVR. NVR has developed a methodology to determine whether it, or conversely, the owner(s) of the applicable development entity is the primary beneficiary of a development entity. The methodology used to evaluate NVR’s primary beneficiary status requires substantial management judgment and estimation. These judgments and estimates involve assigning probabilities to various estimated cash flow possibilities relative to the development entity’s expected profits and losses and the cash flows associated with changes in the fair value of finished lots under contract. Although management believes that its accounting policy is designed to properly assess NVR’s primary beneficiary status relative to its involvement with the development entities from which NVR acquires finished lots, changes to the probabilities and the cash flow possibilities used in NVR’s evaluation could produce widely different conclusions regarding whether NVR is or is not a development entity’s primary beneficiary.

57

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     The Company has evaluated all of its fixed price purchase agreements and LLC arrangements and has determined that it is the primary beneficiary of thirty-five of those development entities with which the agreements and arrangements are held. As a result, at December 31, 2005, NVR has consolidated such development entities in the accompanying consolidated balance sheet. Where NVR deemed itself to be the primary beneficiary of a development entity created after December 31, 2003 and the development entity refused to provide financial statements, NVR utilized estimation techniques to perform the consolidation. The effect of the consolidation under FIN 46R at December 31, 2005 was the inclusion on the balance sheet of $275,306 as Assets not owned, consolidated per FIN 46R with a corresponding inclusion of $215,284 as Liabilities related to assets not owned, consolidated per FIN 46R, after elimination of intercompany items. Inclusive in these totals were assets of approximately $39,000 and liabilities of approximately $34,000 estimated for ten development entities created after December 31, 2003 that did not provide financial statements.

     At December 31, 2004, under FIN 46R, the Company evaluated all of its fixed price purchase agreements and LLC arrangements and determined that it was the primary beneficiary of nineteen of those development entities with which the agreements and arrangements were held. As a result, at December 31, 2004, NVR had consolidated such development entities in the accompanying consolidated balance sheet. Of the nineteen development entities, three entities refused to provide financial statements, and NVR utilized estimation techniques to perform the consolidation. The effect of the consolidation under FIN 46R at December 31, 2004 was the inclusion on the balance sheet of $89,924 as Assets not owned, consolidated per FIN 46R with a corresponding inclusion of $63,568 as Liabilities related to assets not owned, consolidated per FIN 46R, after elimination of intercompany items. Inclusive in these totals were assets of approximately $16,000 and liabilities of approximately $12,500 for three development entities created after December 31, 2003 that did not provide financial statements.

58

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     Following is the consolidating schedule at December 31, 2005:

	NVR, Inc.
	and		FIN 46R					Consolidated
	Subsidiaries		Entities		Eliminations			Total
ASSETS
Homebuilding:
Cash and cash equivalents	$	170,090	$	—	$	—		$	170,090
Receivables		40,562		—		—			40,562
Homebuilding inventory		793,975		—		—			793,975
Property, plant and equipment, net		31,096		—		—			31,096
Reorganization value in excess of amount allocable to identifiable assets, net		41,580		—		—			41,580
Goodwill and intangibles, net		12,061		—		—			12,061
Contract land deposits		599,530		—		(50,370	)		549,160
Other assets		152,503		—		(9,652	)		142,851
		1,841,397		—		(60,022	)		1,781,375
Mortgage banking assets:		212,907		—		—			212,907
FIN 46R ENTITIES:
Land under development		—		260,676		—			260,676
Other assets		—		14,630		—			14,630
		—		275,306		—			275,306
Total Assets	$	2,054,304	$	275,306	$	(60,022	)	$	2,269,588
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable, accrued expenses and other liabilities	$	631,262	$	—	$	—		$	631,262
Customer deposits		256,837		—		—			256,837
Other term debt		3,325		—		—			3,325
Senior notes		200,000		—		—			200,000
Notes Payable		103,000		—		—			103,000
		1,194,424		—		—			1,194,424
Mortgage banking liabilities:		182,718		—		—			182,718
FIN 46R ENTITIES:
Accounts payable, accrued expenses and other liabilities		—		7,880		(53	)		7,827
Debt		—		153,337		—			153,337
Contract land deposits		—		50,370		(50,370	)		—
Advances from NVR, Inc.		—		8,891		(8,891	)		—
Minority interest		—		—		54,120			54,120
		—		220,478		(5,194	)		215,284
Equity		677,162		54,828		(54,828	)		677,162
Total liabilities and shareholders’ equity	$	2,054,304	$	275,306	$	(60,022	)	$	2,269,588

59

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     Following is the consolidating schedule at December 31, 2004:

	NVR, Inc.
	and		FIN 46R					Consolidated
	Subsidiaries		Entities		Eliminations			Total
ASSETS
Homebuilding:
Cash and cash equivalents	$	362,458	$	—	$	—		$	362,458
Receivables		14,020		—		—			14,020
Homebuilding inventory		588,540		—		—			588,540
Property, plant and equipment, net		25,330		—		—			25,330
Reorganization value in excess of amount allocable to identifiable assets, net		41,580		—		—			41,580
Goodwill, net		6,379		—		—			6,379
Contract land deposits		403,848		—		(18,889	)		384,959
Other assets		117,245		—		(7,467	)		109,778
		1,559,400		—		(26,356	)		1,533,044
Mortgage banking assets:		154,999		—		—			154,999
FIN 46R Entities:
Land under development		—		85,380		—			85,380
Other assets		—		4,544		—			4,544
		—		89,924		—			89,924
Total assets	$	1,714,399	$	89,924	$	(26,356	)	$	1,777,967
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable, accrued expenses and other liabilities	$	449,817	$	—	$	—		$	449,817
Customer deposits		203,835		—		—			203,835
Other term debt		4,077		—		—			4,077
Senior notes		200,000		—		—			200,000
		857,729		—		—			857,729
Mortgage banking liabilities:		21,675		—		—			21,675
FIN 46R Entities:
Accounts payable, accrued expenses and other liabilities		—		1,960		(131	)		1,829
Debt		—		45,022		—			45,022
Contract land deposits		—		18,889		(18,889	)		—
Advances from NVR, Inc.		—		6,795		(6,795	)		—
Minority interest		—		—		16,717			16,717
		—		72,666		(9,098	)		63,568
Equity		834,995		17,258		(17,258	)		834,995
Total liabilities and shareholders’ equity	$	1,714,399	$	89,924	$	(26,356	)	$	1,777,967

60

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     Under FIN 46R, an enterprise with an interest in a variable interest entity or potential variable interest entity created before December 31, 2003, is not required to apply FIN 46R to that entity if the enterprise, after making an “exhaustive effort”, is unable to obtain the information necessary to perform the accounting required to consolidate the variable interest entity for which it is determined to be the primary beneficiary. At December 31, 2005 NVR has been unable to obtain the information necessary to perform the accounting required to consolidate thirteen separate development entities created before December 31, 2003 for which NVR determined it was the primary beneficiary. NVR has made, or has committed to make, aggregate deposits, totaling $15,462 to these thirteen separate development entities, with a total aggregate purchase price for the finished lots of approximately $121,000. The aggregate deposit made or committed to being made is NVR’s maximum exposure to loss. As noted above, because NVR does not have any contractual or ownership interests in the development entities with which it contracts to buy finished lots (other than the limited use of the LLC’s as discussed above), NVR does not have the ability to compel these development entities to provide financial or other data. Because NVR has no ownership rights in any of these thirteen development entities, the consolidation of such entities has no impact on NVR’s net income or earnings per share for the years ended December 31, 2005, 2004 and 2003. Aggregate activity with respect to the thirteen development entities is included in the following table:

	December 31,
	2005		2004		2003
Finished lots purchased — dollars	$	25,727	$	18,014	$	7,225
Finished lots purchased — units		299		224		107

4. Related Party Transactions

     During 2005, 2004, and 2003, NVR purchased, at market prices, developed lots from Elm Street Development, a company that is controlled by a member of the NVR Board of Directors (the “Board”). These transactions were approved by a majority of the independent members of the Board. Purchases from Elm Street Development totaled approximately $29,000, $8,200 and $15,000 during 2005, 2004 and 2003, respectively. NVR expects to purchase the majority of the remaining lots under contract at December 31, 2005 over the next 36 months for an aggregate purchase price of approximately $104,000.

     During 2005, NVR entered into various marketing and promotional arrangements with certain entities controlled by or affiliated with the Washington Redskins National Football League franchise (the “Redskins”). NVR’s Chairman is a minority owner of the Redskins. These arrangements were approved by a majority of the independent members of the Board. In total, NVR incurred or committed to incur $960 under these marketing and promotional arrangements.

     In 2003, NVR entered into a forward lot purchase agreement with Comstock Blooms Mill II, LLC, an entity controlled 100% by an entity in which the Company’s Chairman’s son-in-law was a principal at the time of the transaction. This purchase agreement was approved by a majority of the independent members of the Board. Under this agreement, NVR purchased, at market prices, finished lots with an aggregate purchase price of approximately $4,000 and $2,000 during 2004 and 2003, respectively. No additional lots remain to be purchased under this agreement.

     NVR periodically leases, at market rates, an airplane owned by the Company’s Chairman for Company travel when the use of the airplane lends itself to business travel efficiencies. NVR’s independent members of the Board annually review these expenditures. During 2005, NVR paid approximately $323 for use of the airplane.

61

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

5. Property, Plant and Equipment, net

	December 31,
	2005			2004
Homebuilding:
Office facilities and other	$	11,416		$	7,719
Model home furniture and fixtures		23,385			17,150
Manufacturing facilities		21,944			18,628
Property under capital leases		4,005			7,631
		60,750			51,128
Less: accumulated depreciation		(29,654	)		(25,798	)
	$	31,096		$	25,330
Mortgage Banking:
Office facilities and other	$	3,382		$	3,126
Less: accumulated depreciation		(2,379	)		(2,130	)
	$	1,003		$	996

     Certain property, plant and equipment listed above is collateral for certain debt of NVR as more fully described in Note 6.

6. Debt

	December 31,
	2005		2004
Homebuilding:
Working capital revolving credit (a)	$	103,000	$	—
Other term debt:
Capital lease obligations due in monthly installments through 2016 (b)	$	3,325	$	4,077
Senior notes (c)	$	200,000	$	200,000
Mortgage Banking:
Mortgage warehouse revolving credit (d)	$	156,816	$	9,726
Mortgage repurchase facility (e)		—		—
	$	156,816	$	9,726

(a) The Company, as borrower, has available an unsecured working capital revolving credit facility (the “Facility”). During 2005, the Company increased the available borrowings under the Facility to $400,000 from $150,000 by refinancing the Company’s previous working capital agreement. The current Facility now provides for borrowings of up to $400,000 subject to certain borrowing base limitations. The Facility is generally available to fund working capital needs of NVR’s homebuilding segment. Up to $150,000 of the Facility is currently available for issuance in the form of letters of credit, of which $26,412 and $21,794 were outstanding at December 31, 2005 and 2004, respectively. The Facility expires in December 2010 and outstanding amounts bear interest at either (i) the prime rate plus an Applicable Margin (as defined within the Facility) based on NVR’s credit rating and/or debt to capital ratio or (ii) the London Interbank Offering Rate (“LIBOR”) plus applicable margin as defined above. The weighted-average interest rate for the amounts outstanding under the Facility was 5.9% during 2005. The weighted-average interest rate for amounts outstanding under the previous working capital agreement was 4% during 2004. At December 31, 2005, there were no borrowing base limitations reducing the amount available to the Company for borrowings.

62

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     The Facility contains various affirmative and negative covenants. The negative covenants include among others, certain limitations on transactions involving the creation of guarantees, sale of assets, acquisitions, mergers, investments and land purchases. Additional covenants include (i) a minimum adjusted consolidated tangible net worth requirement, (ii) a maximum leverage ratio requirement, and (iii) an interest coverage ratio requirement. These covenants restrict the amount in which the Company would be able to pay in dividends each year. The Company is also subject to borrowing base restrictions if the Company’s senior debt rating falls below investment grade. At December 31, 2005 NVR was in compliance with all covenants under the Facility.

(b) The capital lease obligations have fixed interest rates ranging from 5.1% to 13.0% and are collateralized by land, buildings and equipment with a net book value of approximately $1,655 and $4,322 at December 31, 2005 and 2004, respectively.

     The following schedule provides future minimum lease payments under all capital leases together with the present value as of December 31, 2005:

Years ending December 31,
2006	$	586
2007		614
2008		614
2009		637
2010		644
Thereafter		2,658
		5,753
Amount representing interest		(2,428	)
	$	3,325

(c) On January 20, 1998, the Company filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to $400,000 of the Company’s debt securities (the “1998 Shelf Registration”). The 1998 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. As of December 31, 2005, NVR had $55,000 available for issuance under the 1998 Shelf Registration.

     On June 17, 2003, NVR completed an offering, at par, for $200,000 of 5% Senior Notes due 2010 (the “Notes”) under the 1998 Shelf Registration. The offering of the Notes resulted in aggregate net proceeds of approximately $199,400, after deducting offering expenses. The Notes mature on June 15, 2010 and bear interest at 5%, payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2003. The Notes are general unsecured obligations and rank equally in right of payment with all of NVR’s existing and future unsecured senior indebtedness and indebtedness under NVR’s existing credit facility. The Notes are senior in right of payment to any future subordinated indebtedness that NVR may incur. The Company may redeem the Notes, in whole or in part, at any time upon not less than 30 nor more than 60 days notice at a redemption price equal to the greater of (a) 100% of the principal amount of the Notes to be redeemed, or (b) the discounted present value of the remaining scheduled payments of the Notes to be redeemed, plus, in each case, accrued and unpaid interest.

     On July 14, 2003, NVR used approximately $120,700 of the proceeds received from the sale of the Notes to redeem all of the $115,000 outstanding 8% Senior Notes due 2005 at a price of 104% of the principal amount outstanding, including the payment of accrued interest. The redemption resulted in a charge to pre-tax homebuilding income of $8,503.

63

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     The indenture governing the Notes has, among other items, limitations on the incurrence of secured debt, restrictions on sale and leaseback transactions, and conditions related to mergers and/or the sale of assets.

     On May 27, 2004, NVR filed a shelf registration statement with the SEC to register up to $1,000,000 for future offer and sale of debt securities, common shares, preferred shares, depositary shares representing preferred shares and warrants (the “2004 Shelf Registration”). The SEC declared the 2004 Shelf Registration effective on June 15, 2004. NVR expects to use the proceeds received from future offerings issued under the 2004 Shelf Registration for general corporate purposes. As of December 31, 2005, no amounts have been issued under the 2004 Shelf Registration. This discussion of the 2004 Shelf Registration does not constitute an offer of any securities for sale.

(d) The mortgage warehouse facility (“Mortgage Warehouse Revolving Credit”) of NVR Mortgage Finance, Inc. (“NVRM”) currently has a borrowing limit of $225,000 at December 31, 2005. This limit was temporarily increased from $175,000 on December 15, 2005 to accommodate heavy year-end closing volume. The borrowing limit reverted back to $175,000 on January 15, 2006. The Revolving Credit Agreement is used to fund its mortgage origination activities. The interest rate under the Mortgage Warehouse Revolving Credit agreement is either: (i) LIBOR plus 1.125%, or (ii) 1.125% to the extent that NVRM provides compensating balances. The weighted-average interest rates for amounts outstanding under the Mortgage Warehouse Revolving Credit facility were 4.4% and 1.9% during 2005 and 2004, respectively. The average interest rate for amounts outstanding at December 31, 2005 was 5.5%. Mortgage loans and gestation mortgage-backed securities collateralize the Mortgage Warehouse Revolving Credit borrowings. The Mortgage Warehouse Revolving Credit facility is annually renewable and currently expires in August 2006.

     The Mortgage Warehouse Revolving Credit agreement includes, among other items, covenants restricting NVRM from incurring additional borrowings and making intercompany dividends and tax payments. In addition, NVRM is required to maintain a minimum net worth of $14,000. As of December 31, 2005, borrowing base limitations reduced the amount available to NVRM for borrowings to approximately $184,500. The Company was in compliance with all covenants under the Mortgage Warehouse Revolving Credit agreement at December 31, 2005.

(e) NVRM currently has available an aggregate of $50,000 of borrowing capacity in an uncommitted gestation and repurchase agreement. Amounts outstanding thereunder accrue interest at various rates tied to the LIBOR rate and are collateralized by gestation mortgage-backed securities and whole loans. The uncommitted facility generally requires NVRM to, among other items, maintain a minimum net worth and limit its level of liabilities in relation to its net worth. There were no borrowings under the uncommitted facility during 2005 and 2004.

* * * * *

     Maturities with respect to all notes payable, revolving and repurchase credit facilities, other term debt, and the Notes as of December 31, 2005 are as follows:

Years ending December 31,
2006	$	259,977
2007		214
2008		245
2009		302
2010		200,353
Thereafter		2,050
Total	$	463,141

64

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     The $259,977 maturing in 2006 includes $156,816 of borrowings under the Mortgage Warehouse Revolving Credit facility and $103,000 of the borrowings under the working capital credit facility. The $200,353 maturing during 2010 includes $200,000 of Senior Notes maturing in June 2010.

7. Common Stock

     There were 5,628,158; 6,574,078 and 6,727,341 common shares outstanding at December 31, 2005, 2004 and 2003, respectively. As of December 31, 2005, NVR had reacquired a total of approximately 19,490,000 shares of NVR common stock at an aggregate cost of approximately $2,625,300 since December 31, 1993. The Company repurchased 1,269,050; 674,694 and 1,103,968 shares at an aggregate purchase price of approximately $962,609, $307,600 and $460,400 during 2005, 2004 and 2003, respectively.

     There have been approximately 4,515,000 common shares reissued from the treasury in satisfaction of employee benefit obligations and stock option exercises. Beginning in 1999, the Company issues shares from the treasury for all stock option exercises. The Company issued 318,199; 464,520 and 757,221 such shares during 2005, 2004 and 2003, respectively.

8. Income Taxes

     The provision for income taxes consists of the following:

	Year Ended			Year Ended			Year Ended
	December 31, 2005			December 31, 2004			December 31, 2003
Current:
Federal	$	386,712		$	288,069		$	230,477
State		81,288			61,503			49,333
Deferred:
Federal		(17,669	)		(632	)		(2,849	)
State		(3,471	)		(139	)		(580	)
	$	446,860		$	348,801		$	276,381

     In addition to amounts applicable to income before taxes, the following income tax benefits were recorded in shareholders’ equity:

	Year Ended		Year Ended		Year Ended
	December 31, 2005		December 31, 2004		December 31, 2003
Income tax benefits arising from compensation expense for tax purposes in excess of amounts recognized for financial statement purposes	$	94,460	$	92,661	$	110,171

     Deferred income taxes on NVR’s consolidated balance sheets are comprised of the following:

	December 31,
	2005		2004
Deferred tax assets:
Other accrued expenses	$	52,384	$	36,369
Deferred compensation		30,916		30,973
Uniform capitalization		12,377		6,896
Other		5,665		3,069
Total deferred tax assets		101,342		77,307
Less: deferred tax liabilities		3,322		3,661
Net deferred tax position	$	98,020	$	73,646

65

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes and deferred compensation, which are not currently deductible for tax return purposes.

     Management believes that the Company will have sufficient available carry-backs and future taxable income to make it more likely than not that the net deferred tax assets will be realized. Federal taxable income was approximately $877,753 and $605,987 for the years ended December 31, 2005 and 2004.

     A reconciliation of income tax expense in the accompanying statements of income to the amount computed by applying the statutory Federal income tax rate of 35% to income before taxes is as follows:

	Year Ended			Year Ended		Year Ended
	December 31, 2005			December 31, 2004		December 31, 2003
Income taxes computed at the Federal statutory rate	$	400,547		$	305,202	$	243,661
State income taxes, net of Federal income tax benefit		53,501			42,521		31,690
Other, net		(7,188	)		1,078		1,030
	$	446,860		$	348,801	$	276,381

     The Company’s effective tax rate in 2005, 2004 and 2003 was 39.0%, 40.0% and 39.7%, respectively. The lower effective tax rate in 2005 is primarily due to the favorable tax impact of the new Internal Revenue Code Section 199 domestic manufacturing deduction established by the American Jobs Creation Act of 2004.

9. Profit Sharing and Incentive Plans

     Profit Sharing Plans—NVR has a trustee-administered, profit sharing retirement plan (the “Profit Sharing Plan”) and an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees. The Profit Sharing Plan and the ESOP provide for annual discretionary contributions in amounts as determined by the NVR Board of Directors (the “Board”). The combined plan contribution for the years ended December 31, 2005, 2004 and 2003 was $15,370, $12,488 and $10,787, respectively. The ESOP purchased approximately 18,000 and 26,000 shares of NVR common stock in the open market for the 2005 and 2004 plan year contributions, respectively, using cash contributions provided by the Company. As of December 31, 2005, all shares held by the ESOP have been allocated to participants’ accounts other than the 2005 plan year contribution, which had been committed to be released to participants’ accounts, and was fully allocated to participants in February 2006.

     High Performance Compensation Plans—During 2004 and 2003, NVR recognized $4,227 and $8,948, respectively, of compensation costs related to the High Performance Plan (the “HP Plan”), a long-term cash compensation program for executive officers and other key personnel. The High Performance Plan was fully vested in 2004 and therefore, NVR did not recognize compensation costs related to the High Performance Plan during 2005.

     Management Stock-Based Incentive Plans—Management long-term incentive plans provide several types of equity incentives to NVR’s executives and managers. The equity incentives take the form of stock options and performance share awards as described below. Stock options issued under the management long-term incentive plans are issued with an exercise price equal to the market value of the underlying shares on the date of grant.

66

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     Under the Management Incentive Plan approved by the shareholders in 1994, participants received options to purchase a total of 1,117,949 NVR shares (the “1993 NVR Share Options”). The 1993 NVR Share Options issued under the Management Incentive Plan were fully vested as of December 31, 1996, and expire 10 years after the dates upon which they were granted.

     Under the 1994 Management Incentive Plan (the “1994 Incentive Plan”), executive officers and other employees of the Company were eligible to receive stock options (the “1994 NVR Share Options”) and performance shares (the “1994 Performance Shares”). There were 48,195 1994 NVR Share Options and 1,124,929 1994 Performance Shares authorized for grant under the 1994 Incentive Plan. The 1994 NVR Share Options expire 10 years after the dates upon which they were granted, and were fully vested as of December 31, 1999. All 1,124,929 1994 Performance Shares had been granted to employees and were vested as of December 31, 1999.

     During 1996, the Company’s shareholders approved the Board of Directors’ adoption of the Management Long-Term Stock Option Plan (the “1996 Option Plan”). There are 2,000,000 non-qualified stock options (“Options”) authorized under the Management Long Term Stock Option Plan. The Options expire 10 years after the dates upon which they were granted, and vest annually in one-third increments beginning on December 31, 2000, or later depending on the date of grant, with vesting contingent upon continued employment.

     During 1999, the Company’s shareholders approved the Board of Directors’ adoption of the 1998 Management Long-Term Stock Option Plan (the “1998 Option Plan”). There are 1,000,000 non-qualified stock options (“Options”) authorized under the 1998 Option Plan. The Options expire 10 years after the dates upon which they were granted, and vest annually in one-third increments beginning on December 31, 2003, or later depending on the date of grant, with vesting contingent upon continued employment.

     During 2000, the Board approved the 2000 Broadly-Based Stock Option Plan (The “2000 Plan”). The 2000 Plan was not approved by the Company’s shareholders. There are 2,000,000 non-qualified stock options (“Options”) authorized under the 2000 Plan. Grants under the 2000 Plan are available to both employees and members of the Board. The distribution of Options to key employees and members of the board, in aggregate, are limited to 50% or less of the total options authorized under the 2000 Plan. Options granted under the 2000 Plan will expire 10 years from the date of grant, and generally vest annually in 25% increments beginning on December 31, 2006, or later depending on the date of grant, with vesting contingent upon continued employment.

     During 2005, the Company’s shareholders approved the Board of Directors’ adoption of the 2005 Stock Option Plan (The “2005 Plan”). There are 500,000 non-qualified stock options (“Options”) authorized under the 2005 Plan. All Options under the Plan will be granted at the fair market value underlying the Shares at the date of grant and are subject to two vesting conditions. The first vesting condition requires that the Company satisfy a performance target based on growth in earnings per share (“EPS Target”) as of December 31, 2008. The EPS Target has been set at a level that reflects a growth rate in diluted earnings per share of ten percent per year for four years, based on NVR’s 2004 diluted earnings per share of $66.42. The aggregate EPS Target is $339.00 per share, the measurement of which is based on the sum of the actual diluted earnings per share results for the four annual periods ending December 31, 2005 through 2008. All Options granted will be cancelled if the EPS Target is not met. Secondly, Options will vest in 25% annual increments beginning December 31, 2010, or later, depending on the date of grant and based on continued employment.

67

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     Stock option activity for the management option plans for the years presented is as follows:

	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Prices		Options			Prices		Options			Prices
1993 NVR Share Options
Options outstanding at the beginning of the year		7,003		$	8.00		7,903		$	7.69		21,153		$	7.60
Granted		—		$	—		—		$	—		—		$	—
Canceled		—		$	—		—		$	—		—		$	—
Exercised		(500	)	$	5.29		(900	)	$	5.29		(13,250	)	$	7.55
Outstanding at end of year		6,503		$	8.21		7,003		$	8.00		7,903		$	7.69
Exercisable at end of year		6,503		$	8.21		7,003		$	8.00		7,903		$	7.69
1994 NVR Share Options
Options outstanding at the beginning of the year		3,695		$	16.07		5,695		$	15.34		7,362		$	15.04
Granted		—		$	—		—		$	—		—		$	—
Canceled		—		$	—		—		$	—		—		$	—
Exercised		—		$	—		(2,000	)	$	14.00		(1,667	)	$	14.00
Outstanding at end of year		3,695		$	16.07		3,695		$	16.07		5,695		$	15.34
Exercisable at end of year		3,695		$	16.07		3,695		$	16.07		5,695		$	15.34
1996 Option Plan
Options outstanding at the beginning of the year		196,020		$	161.52		401,420		$	93.83		1,074,076		$	27.24
Granted		1,375		$	784.16		1,625		$	698.46		37,644		$	500.00
Canceled		—		$	—		(3,017	)	$	119.56		—		$	—
Exercised		(70,952	)	$	65.09		(204,008	)	$	33.23		(710,300	)	$	14.66
Outstanding at end of year		126,443		$	222.40		196,020		$	161.52		401,420		$	93.83
Exercisable at end of year		85,132		$	82.09		122,435		$	56.20		294,111		$	30.85
1998 Option Plan
Options outstanding at the beginning of the year		755,332		$	77.44		981,024		$	55.31		994,000		$	49.62
Granted		2,500		$	720.06		28,002		$	607.25		13,856		$	451.03
Canceled		(12,801	)	$	60.90		(14,332	)	$	49.60		(26,203	)	$	49.27
Exercised		(226,622	)	$	49.83		(239,362	)	$	50.36		(629	)	$	44.91
Outstanding at end of year		518,409		$	93.02		755,332		$	77.44		981,024		$	55.31
Exercisable at end of year		475,551		$	48.87		401,154		$	49.21		326,668		$	49.65
2000 Option Plan
Options outstanding at the beginning of the year		1,989,269		$	219.11		1,921,475		$	200.90		1,891,100		$	194.01
Granted		15,475		$	766.12		139,219		$	469.61		79,700		$	356.41
Canceled		(41,700	)	$	232.98		(71,425	)	$	217.59		(49,325	)	$	187.84
Exercised		—		$	—		—		$	—		—		$	—
Outstanding at end of year		1,963,044		$	223.13		1,989,269		$	219.11		1,921,475		$	200.90
Exercisable at end of year		—		$	—		—		$	—		—		$	—
2005 Option Plan
Options outstanding at the beginning of the year		—		$	—		—			—		—			—
Granted		387,875		$	743.38		—			—		—			—
Canceled		(900	)	$	737.00		—			—		—			—
Exercised		—		$	—		—			—		—			—
Outstanding at end of year		386,975		$	743.39		—			—		—			—
Exercisable at end of year		—		$	—		—			—		—			—

68

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

					Weighted
			Weighted		Average
			Average		Remaining
			Exercise		Contractual
Range of Exercise Prices	Number		Price		Life in Years
1993 NVR Share Options
Outstanding and exercisable at December 31, 2005:
$8.21		6,503	$	8.21		0.9
1994 NVR Share Options
Outstanding and exercisable at December 31, 2005:
$14.00 - $25.00		3,695	$	16.07		1.5
1996 Option Plan
Outstanding at December 31, 2005:
$10.63		8,200	$	10.63		0.4
$21.00 - $25.00		21,305	$	21.25		1.9
$38.00 - $44.38		5,675	$	39.55		3.7
$72.00		10,668	$	72.00		4.7
$92.15 - $114.25		20,184	$	105.26		5.0
$146.00 - $180.00		17,100	$	155.71		5.4
$278.00 - $315.50		2,667	$	287.38		6.5
$500.00		37,644	$	500.00		7.8
$671.00 - $760.25		1,625	$	698.46		8.9
$769.40 - $810.00		1,375	$	784.16		9.2
Exercisable at December 31, 2005:
$10.63		8,200	$	10.63		0.4
$21.00 - $25.00		21,305	$	21.25		1.9
$38.00 - $44.38		5,675	$	39.55		3.7
$72.00		10,668	$	72.00		4.7
$92.15 - $114.25		20,184	$	105.26		5.0
$146.00 - $180.00		16,433	$	156.11		5.4
$278.00 - $315.50		2,667	$	287.38		6.5
1998 Option Plan
Outstanding at December 31, 2005:
$44.38 - $62.13		459,485	$	47.86		3.4
$72.00 - $91.25		16,066	$	77.93		4.8
$500.00 - $551.00		26,357	$	527.09		8.3
$663.50 - $720.06		16,501	$	672.07		8.9
Exercisable at December 31, 2005:
$44.38 - $62.13		459,485	$	47.86		3.4
$72.00 - $91.25		16,066	$	77.93		4.8
2000 Option Plan *
Outstanding at December 31, 2005:
$158.30 - $202.05		1,669,150	$	188.81		5.3
$269.35 - $296.50		23,000	$	281.90		6.6
$313.12 - $369.75		115,000	$	338.28		7.0
$409.00 - $449.90		22,200	$	433.47		8.0
$451.00 - $484.20		107,769	$	460.97		8.3
$504.00 - $550.00		4,750	$	526.86		8.7
$625.00 - $748.50		8,500	$	690.44		9.0
$759.00 - $810.00		12,675	$	772.75		9.2
2005 Option Plan *
Outstanding at December 31, 2005:
$680.25 - $737.00		361,205	$	736.19		9.4
$773.00 - $938.00		25,770	$	844.38		9.6

* None of the options outstanding under the 2000 and 2005 Option Plans are exercisable at December 31, 2005.

69

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

Director Incentive Plans

     During 1996, the Company’s shareholders approved the Board of Directors’ adoption of the Directors’ Long Term Stock Option Plan (the “1996 Directors’ Plan”). Under this plan, there were 192,000 options to purchase shares of common stock authorized and granted to the Company’s outside directors. There are no additional options available for grant under this plan. The option exercise price for the options granted was $10.25 per share, which was equal to the fair market value of the Company’s Shares on the date of grant. The Options were granted for a 10-year period and were fully vested as of December 31, 2001. The weighted average remaining contractual life is 0.4 years.

     During 1999, the Company’s shareholders approved the Board of Directors’ adoption of the 1998 Directors’ Long Term Stock Option Plan (the “1998 Directors’ Plan”). There were 150,000 options to purchase shares of common stock authorized for grant to the Company’s outside directors under the 1998 Directors’ Plan. A total of 87,500 options were granted at an exercise price of $49.06, and 34,000 options were granted at $369.75. All options were granted at an exercise price equal to the fair market value of the Company’s Shares on the date of grant. The Options were granted for a 10-year period and vest annually in twenty-five percent (25%) increments beginning on either December 31, 2002 or December 31, 2006, as determined by the date of grant. The weighted average remaining contractual life in years for the options granted at $49.06 and $369.75 is 3.4 and 6.3, respectively. In addition, during the third quarter of 2005, the Company granted 7,700 non-qualified stock options (“Director Options”) at an average exercise price of $907.75 per share to the Company’s Directors under the 1998 Directors’ Plan. The weighted average remaining contractual life in years for these options is 9.6 years. These Options are subject to the aforementioned EPS Target. If the EPS Target is satisfied, the 7,700 Options granted under the 1998 Directors’ Plan will become exercisable as to twenty-five percent of the underlying shares on each of December 31, 2010, 2011, 2012 and 2013, respectively, based on continued service by the director.

     The members of Board of Directors also participate in the 2000 Broadly-Based Stock Option Plan, as described previously herein.

     Stock option activity for the director option plans for the years presented is as follows:

	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Prices		Options			Prices		Options			Prices
1996 Directors’ Plan
Options outstanding at the beginning of the year		16,000		$	10.25		28,000		$	10.25		50,000		$	10.25
Granted		—		$	—		—		$	—		—		$	—
Canceled		—		$	—		—		$	—		—		$	—
Exercised		(4,500	)	$	10.25		(12,000	)	$	10.25		(22,000	)	$	10.25
Outstanding at end of year		11,500		$	10.25		16,000		$	10.25		28,000		$	10.25
Exercisable at end of year		11,500		$	10.25		16,000		$	10.25		28,000		$	10.25
1998 Directors’ Plan
Options outstanding at the beginning of the year		93,375		$	165.83		99,625		$	158.51		109,000		$	149.09
Granted		7,700		$	907.75		—		$	—		—		$	—
Canceled		(17,000	)	$	369.75		—		$	—		—		$	—
Exercised		(15,625	)	$	49.06		(6,250	)	$	49.06		(9,375	)	$	49.06
Outstanding at end of year		68,450		$	225.30		93,375		$	165.83		99,625		$	158.51
Exercisable at end of year		43,750		$	49.06		40,625		$	49.06		28,125		$	49.06

70

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     To minimize the non-deductibility of executive compensation expense due to the limitations of Section 162(m) of the Internal Revenue Code and still maintain the ability to competitively compensate the Company’s executive officers, the Company established a deferred compensation plan (“Deferred Comp Plan”). The specific purpose of the Deferred Comp Plan was to establish a vehicle whereby the executive officers could defer the receipt of compensation that otherwise would be nondeductible for tax purposes by the Company into a period where the Company would realize a tax deduction for the amounts paid. The Deferred Comp Plan is also available to other members of the Company’s management group. Amounts deferred into the Deferred Comp Plan are invested in NVR common stock, held in a rabbi trust account, and are paid out in a fixed number of shares upon expiration of the deferral period.

     The rabbi trust account held 547,697 and 549,029 shares of NVR common stock as of December 31, 2005 and 2004, respectively. During 2005, 1,332 shares of NVR common stock were issued from the rabbi trust related to deferred compensation for which the deferral period ended. There were no shares of NVR common stock contributed to the rabbi trust in 2005. Shares held by the Deferred Comp Plan are treated as outstanding shares in the Company’s earnings per share calculation for each of the years ended December 31, 2005, 2004 and 2003.

10. Commitments and Contingent Liabilities

     NVR is committed under multiple non-cancelable operating leases involving office space, model homes, manufacturing facilities, automobiles and equipment. Future minimum lease payments under these operating leases as of December 31, 2005 are as follows:

Years ended December 31,
2006	$	27,589
2007		19,133
2008		15,795
2009		12,935
2010		8,802
Thereafter		35,976
	$	120,230

     Total rent expense incurred under operating leases was approximately $39,033, $30,223 and $25,790 for the years ended December 31, 2005, 2004 and 2003, respectively.

     NVR is not in the land development business. The Company purchases finished lots under fixed price purchase agreements, which require deposits, which may be forfeited if the Company fails to perform under the contract. The deposits are in the form of cash or letters of credit in varying amounts and represent a percentage, typically ranging up to 10%, of the aggregate purchase price of the finished lots. This lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. The Company generally seeks to maintain control over a supply of lots believed to be suitable to meet its sales objectives for the next 24 to 36 months. At December 31, 2005, assuming that contractual development milestones are met, NVR is committed to placing additional forfeitable deposits with land developers under existing lot option contracts of approximately $214,000. In addition, at December 31, 2005, the Company was committed to purchasing approximately 80 finished lots at an aggregate purchase price of $7,100 under three specific performance contracts.

71

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

     During the ordinary course of operating the mortgage banking and homebuilding businesses, NVR is required to enter into bond or letter of credit arrangements with local municipalities, government agencies, or land developers to collateralize its obligations under various contracts. NVR had approximately $33,325 (including $26,412 for letters of credit as described in Note 6(a) herein) of contingent obligations under such agreements as of December 31, 2005. NVR believes it will fulfill its obligations under the related contracts and does not anticipate any losses under these bonds or letters of credit.

     The Company establishes warranty and product liability reserves to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to NVR’s homebuilding business. Liability estimates are determined based on management’s judgment considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our General Counsel and other outside counsel retained to handle specific product liability cases. The following table reflects the changes in the Company’s warranty reserve for the years ended December 31, 2005 and 2004:

	2005			2004
Warranty reserve, beginning of year	$	42,319		$	35,324
Provision		62,598			38,178
Payments		(44,805	)		(31,183	)
Warranty reserve, end of year	$	60,112		$	42,319

     NVR and its subsidiaries are also involved in litigation arising from the normal course of business. In the opinion of management, and based on advice of legal counsel, this litigation is not expected to have any material adverse effect on the financial position or results of operations of NVR.

     In April 2005, the United States Environmental Protection Agency (the “EPA”) notified NVR that the Company was allegedly in violation of Section 308(a) of the Clean Water Act (the “Act”) at a construction site in Pennsylvania relative to storm water management during the homebuilding construction process. The notice informed NVR that the Company might be subject to administrative fines of up to $157 for the alleged violations. Subsequently, in September 2005, NVR received a request from the EPA pursuant to the Act for information about storm water discharge practices utilized in connection with other recent homebuilding projects undertaken by the Company. NVR is working with the EPA to provide the requested information and to review NVR’s compliance with the Act. It is not known at this time whether the EPA will seek to take legal action or impose penalties in connection with the alleged violation at the construction site in Pennsylvania.

11. Acquisition

     During January 2005, NVR acquired substantially all of the assets of Marc Homebuilders, Inc. (“Marc”), a homebuilder in Columbia, South Carolina for $7,600 in cash. Marc settled approximately 230 homes during 2004 under the Rymarc trade name, generating approximately $27,000 in revenue. The Company has recorded in the consolidated balance sheet certain indefinite and definite life intangible assets in an amount equal to the excess of the purchase price over the fair value of the net assets acquired. As of December 31, 2005, certain post-closing performance benchmarks were met and an additional payment of $1,500 is due to Marc and was recorded as an increase to goodwill at December 31, 2005.

12. Quarterly Results (unaudited)

     The following table sets forth unaudited selected financial data and operating information on a quarterly basis for the years ended December 31, 2005 and 2004.

72

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

	Year Ended December 31, 2005
	1st		2nd		3rd		4th
	Quarter		Quarter		Quarter		Quarter
Revenues-homebuilding operations	$	939,252	$	1,257,248	$	1,350,465	$	1,630,778
Gross profit — homebuilding operations	$	259,705	$	349,964	$	380,028	$	450,016
Mortgage banking fees	$	14,180	$	20,441	$	22,557	$	27,426
Net income	$	117,930	$	167,649	$	189,443	$	222,537
Diluted earnings per share	$	14.38	$	21.42	$	24.33	$	30.29
Contracts for sale, net of cancellations (units)		3,312		4,829		2,897		3,615
Settlements (units)		2,615		3,416		3,576		4,180
Backlog, end of period (units)		8,141		9,554		8,875		8,310
Loans closed	$	614,492	$	857,821	$	867,864	$	1,047,941

	Year Ended December 31, 2004
	1st		2nd		3rd		4th
	Quarter		Quarter		Quarter		Quarter
Revenues-homebuilding operations	$	860,685	$	984,833	$	1,146,271	$	1,255,714
Gross profit — homebuilding operations	$	217,674	$	248,855	$	298,076	$	326,612
Mortgage banking fees	$	16,108	$	16,543	$	20,248	$	19,320
Net income	$	100,617	$	115,970	$	147,679	$	158,938
Diluted earnings per share	$	12.58	$	14.82	$	19.04	$	20.13
Contracts for sale, net of cancellations (units)		3,318		4,001		2,718		3,194
Settlements (units)		2,709		3,010		3,433		3,597
Backlog, end of period (units)		7,499		8,490		7,775		7,372
Loans closed	$	523,339	$	628,598	$	739,834	$	824,859

73