Annual Report
2013
Profile of NVr, iNc.
Corporate Profile
Headquartered in Reston, Virginia, NVR, Inc. is one of
America’s leading homebuilders. We serve homebuyers
in twenty-seven metropolitan areas in fourteen states and
Washington, D.C., including:
Mid Atlantic:
Maryland, Virginia, West Virginia,
Delaware & Washington, D.C.
North East:
Eastern Pennsylvania & New Jersey
Mid East:
New York, Ohio, Indiana,
Illinois & Western Pennsylvania
South East:
North Carolina, South Carolina,
Tennessee & Florida
Homebuilding
Our homebuilding operations sell and build homes under
four brand names:
Ryan Homes — Founded in 1948 in Pittsburgh,
Pennsylvania, to provide housing in the expanding post-war
economy, Ryan Homes has constructed more than 335,000
homes. Ryan Homes currently operates in every state listed
above. Ryan offers a variety of home-buying options to suit
a broad spectrum of consumer needs, whether single-family,
townhouse, or garden condominium.
NVHomes — Offering additional architectural details and
designer elements tailored to suit the most discriminating
of tastes, NVHomes has earned a reputation for luxury,
quality, and value. Established in 1980 in Northern Virginia,
NVHomes now operates in Virginia, Maryland, Delaware,
Pennsylvania, and North Carolina.
Fox Ridge Homes — Founded in 1961, Fox Ridge Homes
is one of the largest homebuilders in Nashville, Tennessee.
Fox Ridge focuses primarily on the first-time homebuyer and
first-time move-up markets.
Heartland Homes — Founded in 1984, Heartland
Homes is a leading builder of luxury homes in Pittsburgh,
Pennsylvania.
Building Products — This operation supports our
homebuilding business with production facilities in
Maryland, Pennsylvania, Ohio, New York, New Jersey, North
Carolina and Tennessee. Building Products supplies structural
building components, produced to exacting standards in a
controlled environment and then delivered to the job site to
reduce waste and improve efficiency.
Mortgage Banking
NVR Mortgage — The mission of our mortgage subsidiary is
to serve the needs of NVR homebuyers. With headquarters in
Reston, Virginia, NVR Mortgage offers mortgage services in
all of our markets.
NVR Settlement Services — Also headquartered in Reston,
Virginia, this subsidiary provides a complete range of settlement
and title services to support NVR’s homebuilding operations.
Common stock of NVR, Inc. trades on the New York Stock
Exchange under the symbol, NVR.
To our ShareholderS
2013 marked the third consecutive year of increasing revenues, net income and new orders for NVR. While 2013 saw
continued improvement in the housing industry, the pace of recovery slowed in the second half of the year due to an increase
in mortgage interest rates, higher home prices and buyer uncertainty. We are optimistic that housing is still in the recovery stage
of the business cycle, but we believe that the recovery will continue to be uneven. Despite these challenges, NVR remains well
positioned to capitalize on the improving housing market. In 2013, we achieved the following results:
• Homebuilding revenues were $4.1 billion (up 33% vs. 2012)
• Net income was $266.5 million (up 48% vs. 2012)
• Diluted earnings per share of $54.81 (up 56% vs. 2012)
• New orders were 11,800 (up 8% vs. 2012)
• Year-end backlog of 4,945 units, with a dollar value of $1.8 billion (up 7% vs. 2012)
Our success starts with our focus on the customer. We strive to exceed our customers’ expectations through all stages of their
home purchase, including helping to navigate their financing options, assisting with selling an existing home, building a quality
home and standing behind our product after the sale. At NVR, the customer always comes first. We’re proud that over 96% of
our customers recognize our commitment and would recommend us to family and friends. Treating our customers this way is
important and the only way we do business.
Our consistent success is also a result of our commitment to a proven business strategy emphasizing market concentration.
We strive to maximize our market share in each of our markets. The local market scale resulting from this strategy allows us to
leverage our existing employees, management staff, local market knowledge, and relationships with business partners.
An equally important component of our business model is our emphasis on liquidity and minimizing risk. Unlike our major
competitors, we avoid developing land and speculative building. Instead, we focus on our strength, which is selling and building
quality homes. We acquire finished lots at market prices from reliable local developers under fixed price purchase agreements that
require an initial capital commitment equal to a small percentage of the finished lot value. These agreements typically allow us to
purchase lots on a just-in-time basis, after we have sold homes on these lots. The liquidity generated by this strategy has resulted
in lower capital requirements, higher returns on capital, and the financial flexibility to take advantage of new opportunities as
they arise.
Our employees, subcontractors, developers, and suppliers are instrumental in our continued success and we would like to thank
them for their remarkable efforts this year. Their commitment is a key component of NVR’s industry leading performance.
After 25 years of service, Denny Seremet retired as NVR’s Chief Financial Officer in February 2013. We want to thank Denny
for his many contributions to NVR’s success and wish him a long and enjoyable retirement.
2014 will hold its own challenges, but with our proven business model, focus on customer service and a dedicated team of
employees and business partners, we are optimistic that we can continue to outperform the industry and look forward to another
successful year.
Sincerely,
Dwight C. Schar
Chairman of the Board
Paul C. Saville
President and CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2013
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____ to _______________
Commission file number 1-12378
NVR, Inc.
(Exact Name of Registrant as Specified in its Charter)
Virginia
(State or Other Jurisdiction of Incorporation or Organization)
54-1394360
(IRS Employer Identification Number)
11700 Plaza America Drive, Suite 500
Reston, Virginia
(Address of Principal Executive Offices)
20190
(Zip Code)
Registrant’s telephone number, including area code: (703) 956-4000
____________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.01 per share
Name of each exchange on which registered
New York 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 X No __
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 __ No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No__
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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. X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
One):
(Do not check if a Smaller Reporting Company)
Large accelerated filer X
Non-accelerated filer __
Accelerated filer __
Smaller Reporting Company __
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes __ No X
The aggregate market value of the voting stock held by non-affiliates of NVR, Inc. on June 30, 2013, the last business day of NVR, Inc.’s most
recently completed second fiscal quarter, was approximately $4,100,372,390.
As of February 17, 2014 there were 4,472,698 total shares of common stock outstanding.
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, 2014 are incorporated by reference into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
INDEX
Page
2
Business……................................................................................................
7
Risk Factors ………………………………………………………………..
12
Unresolved Staff Comments……………………………………………….
12
Properties……..............................................................................................
13
Legal Proceedings…….................................................................................
14
Mine Safety Disclosures…...........................................................................
Executive Officers of the Registrant…......................................................... 14
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities…………………………………. 14
Selected Financial Data……......................................................................... 17
Management's Discussion and Analysis of Financial Condition and
Results of Operations………......................................................................... 17
39
Quantitative and Qualitative Disclosure About Market Risk.......................
Financial Statements and Supplementary Data…........................................
42
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.....................................................................................
Controls and Procedures..............................................................................
Other Information........................................................................................
42
42
42
Directors, Executive Officers, and Corporate Governance..........................
Executive Compensation……......................................................................
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters………………………………………… .
Certain Relationships and Related Transactions, and Director
Independence.........................……………………………………………..
Principal Accountant Fees and Services…………………………………..
42
43
43
43
43
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits and Financial Statement Schedules…………………………......
44
1
Item 1. Business.
General
PART I
NVR, Inc. ("NVR"), a Virginia corporation, was formed in 1980 as NVHomes, Inc. Our primary
business is the construction and sale of single-family detached homes, townhomes and condominium buildings,
all of which are primarily constructed on a pre-sold basis. To more fully serve customers of our homebuilding
operations, we also operate a mortgage banking and title services business. We conduct our homebuilding
activities directly. Our mortgage banking operations are 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 consolidated subsidiaries.
We are one of the largest homebuilders in the United States. We operate in multiple locations in fourteen
states and Washington, D.C., primarily in the eastern part of the United States. During 2013, approximately 25%
and 12% of our home settlements occurred in the Washington, D.C. and Baltimore, MD metropolitan areas,
respectively, which accounted for approximately 31% and 15%, respectively, of our 2013 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
Heartland Homes. The Ryan Homes and Fox Ridge Homes products are marketed primarily to first-time and
first-time move-up buyers. Ryan Homes operates in twenty-seven metropolitan areas located in Maryland,
Virginia, Washington, D.C., West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Florida,
Ohio, New Jersey, Delaware, Indiana, Illinois and Tennessee. Fox Ridge Homes operates in the Nashville, TN
metropolitan area. The NVHomes and Heartland Homes products are marketed primarily to move-up and up-
scale buyers. NVHomes operates in Delaware and the Washington, D.C., Baltimore, MD, Philadelphia, PA and
Raleigh, NC metropolitan areas. Heartland Homes operates in the Pittsburgh, PA metropolitan area. In 2013, our
average price of a settled unit was approximately $349,100.
Historically, we generally have not engaged in land development (see discussion below on our limited
land development activities). Instead, we typically acquire finished building lots at market prices from various
development entities under fixed price purchase agreements (“purchase agreements”) that require deposits that
may be forfeited if we fail to perform under the purchase 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 believe that our lot acquisition strategy avoids 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 liquidated damage provision contained within the purchase
agreements. We do not have any financial guarantees or completion obligations and we typically do not
guarantee lot purchases on a specific performance basis under these purchase agreements. None of the creditors
of any of the development entities with which we have entered these purchase agreements have recourse to our
general credit. We generally seek to maintain control over a supply of lots believed to be suitable to meet our
five-year business plan.
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 deliver finished lots to meet the sales demands of our customers.
However, during the past several years, the impact of economic conditions on the homebuilding industry has
negatively impacted our developers’ ability to obtain acquisition and development financing and to raise equity
investments to finance land development activity. As a result of the changing environment, in certain specific
strategic circumstances we deviate from our historical lot acquisition strategy and engage in joint venture
arrangements with land developers or directly acquire raw ground already zoned for its intended use for
2
development. Once we acquire control of any raw ground, we determine whether to sell the raw parcel to a
developer and enter into a fixed price purchase agreement with the developer to purchase the finished lots, or
whether to hire a developer to develop the land on our behalf. While joint venture arrangements and direct land
development activity are not our preferred method of acquiring finished building lots, we may enter into
additional transactions in the future on a limited basis where there exists a compelling strategic or prudent
financial reason to do so. We expect, however, to continue to acquire substantially all of our finished lot
inventory using fixed price purchase agreements with forfeitable deposits.
As of December 31, 2013, we controlled approximately 58,100 lots under purchase agreements with
deposits in cash and letters of credit totaling approximately $296.6 million and $2.5 million, respectively.
Included in the number of controlled lots are approximately 9,200 lots for which we have recorded a contract land
deposit impairment reserve of approximately $59.8 million as of December 31, 2013. In addition, we had an
aggregate investment totaling approximately $92.7 million in four separate joint venture limited liability
corporations (“JVs”), expected to produce approximately 9,300 lots. Of the lots controlled by the JVs,
approximately 3,400 were not under contract with us at December 31, 2013. Further, as of December 31, 2013,
we directly owned five separate raw parcels of land, zoned for their intended use, with a current cost basis,
including development costs, of approximately $41.3 million that we intend to develop into approximately 650
finished lots for use in our homebuilding operations. Of the total finished lots expected to be developed, 125 lots
are under contract to be sold to an unrelated party under lot purchase agreements. See Notes 3, 4 and 5 to the
consolidated financial statements included herein for additional information regarding fixed price purchase
agreements, JVs and land under development, respectively.
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 in the
accompanying consolidated financial statements.
Current Business Environment
During 2013, sales trends in the first six months were stronger than the last six months of the year.
During the first half of 2013, the homebuilding market continued to experience the favorable sales and pricing
trends which began in 2012, driven by historically low mortgage interest rates and rising costs in the rental
market which contributed to higher levels of housing affordability. Sales trends in the second half of 2013 were
negatively impacted by increasing mortgage interest rates, rising home prices and buyer uncertainty. For
additional information and analysis of recent trends in our operations and financial condition, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.
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, transitional, cottage or urban exterior designs with contemporary interior designs and
amenities, generally include two to four bedrooms and range from approximately 800 to 7,300 square feet.
During 2013, the prices at which we settled homes ranged from approximately $120,000 to $2.1 million and
averaged approximately $349,100. During 2012, our average price was approximately $317,100.
3
Markets
Our four reportable homebuilding segments operate in the following geographic regions:
Mid Atlantic: Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East: New Jersey and eastern Pennsylvania
Mid East:
South East: North Carolina, South Carolina, Florida and Tennessee
New York, Ohio, western Pennsylvania, Indiana and Illinois
Backlog
Backlog totaled 4,945 units and approximately $1.8 billion at December 31, 2013 compared to backlog of
4,979 units and approximately $1.7 billion at December 31, 2012. Backlog, which represents homes sold but not
yet settled with the customer, may be impacted by customer cancellations for various reasons that are beyond our
control, such as the customer’s failure to obtain mortgage financing, inability to sell an existing home, job loss or
a variety of other reasons. In any period, a portion of the cancellations that we experience are related to new sales
that occurred during the same period, and a portion are related to sales that occurred in prior periods and therefore
appeared in the opening backlog for the current period. Expressed as the total of all cancellations during the
period as a percentage of gross sales during the period, our cancellation rate was approximately 15% in both 2013
and 2012, and 14% in 2011. During each of 2013, 2012 and 2011, approximately 6% of a quarter’s opening
backlog balance cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation
rates are indicative of the actual cancellation rate that may occur in future periods. Other than those units that are
cancelled, we expect to settle substantially all of our December 31, 2013 backlog during 2014. See “Risk
Factors” in Item 1A and “Seasonality” in Item 7 of this Form 10-K.
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” in Item 7 of this Form 10-K.
Construction
We utilize independent subcontractors under fixed price contracts to perform construction work on our
homes. We use several independent subcontractors in our various markets and we are not dependent on any
single subcontractor or on a small number of subcontractors.
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
We and our 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’ ability to deliver
finished lots to us. 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. In addition, our homebuilding operations are regulated in
certain areas by restrictive zoning and density requirements that limit the number of homes that can be built
within the boundaries of a particular area. To date, restrictive zoning laws and the imposition of moratoriums
have not had a material adverse effect on our construction activities.
4
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. Historically, we 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 the cost of land, labor and materials; changes in consumer preferences; demographic
trends; and the availability of mortgage finance programs. See “Risk Factors” in Item 1A of this Form 10-K.
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 2013, NVRM closed approximately 8,600
loans with an aggregate principal amount of approximately $2.5 billion as compared to approximately 8,000
loans with an aggregate principal amount of approximately $2.2 billion in 2012.
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 Fannie
Mae (“FNMA”) mortgage loans and an approved seller/issuer of Ginnie Mae (“GNMA”), Freddie Mac
(“FHLMC”), Department of Veterans Affairs (“VA”) and Federal Housing Administration (“FHA”) mortgage
loans.
Regulation
NVRM is an approved seller/servicer of FNMA mortgage loans and an approved seller/issuer of GNMA,
FHLMC, VA and FHA 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, including
regulations issued by the Consumer Financial Protection Bureau (the “CFPB”) with respect to specific
origination, selling and servicing practices.
Competition and Market Factors
NVRM’s main competition comes from national, regional, and local mortgage bankers, mortgage
brokers, credit unions 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.
Pipeline
NVRM’s mortgage loans in process that had not closed at December 31, 2013 and 2012 had an aggregate
principal balance of approximately $1.1 billion in each year. NVRM’s cancellation rate was approximately 35%,
36% and 29% in 2013, 2012 and 2011, respectively. We can provide no assurance that our historical loan
5
cancellation rates are indicative of the actual loan cancellation rate that may occur in future periods. See “Risk
Factors” in Item 1A in this Form 10-K.
Employees
At December 31, 2013, we employed 3,944 full-time persons. 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. All of the documents we file with the SEC may also be read and copied 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 our Corporate Governance
Guidelines (which includes our Directors’ Independence Standards), 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 Regarding Communications with the NVR, Inc. Board of Directors, the Independent
Lead Director and the Non-Management Directors as a Group. Additionally, amendments to and waivers from a
provision of the Code of Ethics that apply to our principal executive officer, principal financial officer, principal
accounting officer or persons performing similar functions will be disclosed on our website.
Forward-Looking Statements
Some of the statements in this Form 10-K, as well as statements made by us 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, as amended. 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, the outcome of
pending litigation, investigations or similar contingencies, 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 by NVR and NVR’s customers; increased regulation in
the mortgage banking industry; the ability of our mortgage banking subsidiary to sell loans it originates into the
secondary market; 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; fluctuation and volatility of stock and other financial markets; mortgage financing availability; and
other factors over which NVR has little or no control. NVR undertakes no obligation to update such forward-
looking statements except as required by law.
6
Item 1A. Risk Factors.
Our business is affected by the risks generally incident to the residential construction business,
including, but not limited to:
the availability of mortgage financing;
(cid:120)
(cid:120) 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 favorable terms;
(cid:120)
(cid:120) unexpected changes in customer preferences; and
(cid:120) changes in the national economy and in the local economies of the markets in which we have
operations.
All of these risks are discussed in detail below.
The homebuilding industry experienced a significant downturn over the past several years, which could
continue to adversely affect our business and our results of operations.
Over the past several years, the homebuilding industry experienced a significant downturn as a result
of low consumer confidence driven by an economic recession, high unemployment levels, affordability issues
and uncertainty as to the stability of home prices. As a result, we experienced reduced demand for new
homes. During 2012, we began to see signs of strengthening within the homebuilding industry with
increasing sales and stabilization of sales prices in many markets. These favorable trends continued into
2013. However, the housing market continues to face challenges from a tight mortgage lending environment,
increasing mortgage interest rates and consumer confidence issues due to sustained high levels of
unemployment. If the improvements in the homebuilding industry do not continue or the industry suffers
another downturn, our gross sales may decrease and/or we may have higher cancellation rates, which could
have a material adverse effect on our profitability, stock performance, ability to service our debt obligations
and future cash flows.
If the market value of our inventory or controlled lot position declines, our profit could decrease and we
may incur losses.
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, which is generally
accomplished by us entering fixed price purchase agreements and paying forfeitable deposits under the
purchase agreement to developers for the contractual right to acquire the lots. In the event of adverse changes
in economic or market conditions, we may cease further building activities in communities or restructure
existing purchase agreements, resulting in forfeiture of some or all of any remaining land contract deposit
paid to the developer. Either action may result in a loss which could have a material adverse effect on our
profitability, stock performance, ability to service our debt obligations and future cash flows.
If the underwriting quality of our mortgage originations is found to be deficient, our profit could decrease
and we may incur losses.
We originate several different loan products to our customers to finance the purchase of their home. We
sell all of the loans we originate into the secondary mortgage market generally within 30 days from origination.
All of the loans that we originate are underwritten to the standards and specifications of the ultimate investor.
Insofar as we underwrite our originated loans to those standards, we bear no increased concentration of credit risk
from the issuance of loans, except in certain limited instances where early payment default occurs. In the event
that a substantial number of the loans that we have originated fall into default and the investors to whom we sold
7
the loans determine that we did not underwrite the loans in accordance with their requirements, we could be
required to repurchase the loans from the investor or indemnify the investor for any losses incurred. This may
result in losses which could have a material adverse effect on our profitability, stock performance, ability to
service our debt obligations and future cash flows.
We may be subject to claims on mortgage loans sold to third parties.
Our mortgage banking operations may be responsible for losses associated with mortgage loans
originated and sold to investors in the event of errors or omissions relating to certain representations and
warranties that the loans sold meet certain requirements, including representations as to underwriting standards,
the type of collateral, the existence of primary mortgage insurance, and the validity of certain borrower
representations in connection with the loan. The resolution of claims related to alleged breaches of these
representations and warranties and repurchase claims could have a material adverse effect on our financial
condition, cash flows and results of operations and could exceed existing estimates and accruals. Because of the
uncertainties inherent in estimating these matters, there can be no assurance that any amounts reserved will be
adequate or that any potential inadequacies will not have an adverse effect on our results of operations.
Because almost all of our customers require mortgage financing, the availability of suitable mortgage
financing could impair the affordability of our homes, lower demand for our products, and limit our
ability to fully deliver our backlog.
Our business and earnings depend on the ability of our potential customers to obtain mortgages for
the purchase of our homes. In addition, many of our potential customers must sell their existing homes in
order to buy a home from us. The tightening of credit standards and the availability of suitable mortgage
financing could prevent customers from buying our homes and could prevent buyers of our customers’ homes
from obtaining mortgages they need to complete that purchase, both of which could result in our potential
customers’ inability to buy a home from us. If our potential customers or the buyers of our customers’ current
homes are not able to obtain suitable financing, the result could have a material adverse effect on our sales,
profitability, stock performance, ability to service our debt obligations and future cash flows.
If our ability to sell mortgages to investors is impaired, we may be required to fund these commitments
ourselves, or may not be able to originate loans at all.
Our mortgage banking business sells all of the loans it originates into the secondary market usually
within 30 days from the date of closing, and has up to approximately $25 million available in a repurchase
agreement to fund mortgage closings. In the event that disruptions to the secondary markets tighten or
eliminate the available liquidity within the secondary markets for mortgage loans, or the underwriting
requirements by our secondary market investors continue to become more stringent, our ability to sell future
mortgages could decline and we could be required, among other things, to fund our commitments to our
buyers with our own financial resources, which is limited, or require our home buyers to find another source
of financing. The result of such secondary market disruption could have a material adverse effect on our
sales, profitability, stock performance, ability to service our debt obligations and future cash flows.
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, ability to service our debt obligations
and future cash flows.
Our financial results also are affected by the risks generally incident to our mortgage banking
8
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 account for almost all of our mortgage banking business. The volume of our continuing
homebuilding operations therefore affects our mortgage banking business.
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, ability to service our debt obligations and future cash flows.
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 and availability of mortgage
financing, 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.
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, during 2013, approximately 25% and 12% of our home settlements occurred in the
Washington, D.C. and Baltimore, MD metropolitan areas, respectively, which accounted for approximately
31% and 15%, respectively, of our 2013 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 due to their inability to secure financing to fund
development activities or for other reasons, or our inability to purchase or finance building lots on reasonable
terms could have a material adverse effect on our sales, profitability, stock performance, ability to service our
debt obligations and future cash flows.
Volatility in the credit and capital markets may impact our ability to access necessary financing.
If we require working capital greater than that provided by our operations, we may be required to
obtain alternative financing. No assurance can be given that additional financing will be available on terms
that are favorable or acceptable. If we are required to seek financing to fund our working capital
requirements, volatility in those markets may restrict our flexibility to access financing. 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 homes then under construction, or we may be unable to
control or purchase finished building lots. 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.
Our mortgage banking operations are dependent in part on the availability, cost and other terms of
mortgage financing facilities, 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.
9
Our current indebtedness may impact our future operations.
Our existing indebtedness contains restrictive covenants and any future indebtedness may also contain
covenants. These covenants include, or could include, restrictions on our ability to create, incur, assume or
guarantee secured debt, enter into sale and leaseback transactions and conditions related to mergers and/or the
sale of 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 current
or future indebtedness, thereby having a material adverse effect on our sales, profitability, stock performance,
ability to service our debt obligations and future cash flows.
Government regulations and environmental matters could 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. These regulations may further increase the cost to produce and
market our products. In addition, 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 or delays in receiving the necessary governmental approvals. 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, ability to service our debt obligations and future cash flows.
In addition, new housing developments are often subject to various assessments or impact fees for
schools, parks, streets, highways and other public improvements. The cost of these assessments is subject to
substantial change and can cause increases in the construction cost of our homes, which, in turn, could reduce our
profitability.
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, ability to service our debt obligations and future cash
flows.
In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21,
2010, contains numerous provisions affecting residential mortgages and mortgage lending practices. The
CFPB issued rules governing multiple issues in January 2013, including “Ability to Repay” underwriting
provisions, definition and parameters of “Qualified Mortgages” and the establishment of certain protections
from liability under “Ability to Repay” provisions for “Qualified Mortgages”. The CFPB’s rulemaking also
included limitations on certain fees and loan officer compensation requirements. These rules were effective
January 2014. The tighter underwriting requirements and fee restrictions under these standards may
negatively impact our mortgage loan origination business.
We are an approved seller/servicer of FNMA mortgage loans and an approved seller/issuer of
GNMA, FHLMC, VA and FHA 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 including the Real Estate Settlement
and Protection Act. Adverse changes in governmental regulation may have a negative impact on our
mortgage loan origination business.
10
Increased regulation of the mortgage industry could harm our future sales and earnings.
The mortgage industry remains under intense scrutiny and continues to face increasing regulation at
the federal, state and local level. Potential changes to federal laws and regulations could have the effect of
limiting the activities of FNMA and FHLMC, the entities that provide liquidity to the secondary mortgage
market, which could lead to increases in mortgage interest rates. At the same time, recent and proposed
changes to the FHA’s rules to require increased borrower credit scores, increased down payment amounts,
and limiting the amount of permitted seller concessions, lessen the number of buyers able to finance a new
home. All of these regulatory activities reduce the number of potential buyers who qualify for the financing
necessary to purchase our homes, which could harm our future sales and earnings.
We face competition in our homebuilding 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:
(cid:120)
(cid:120)
(cid:120)
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.
The mortgage banking industry is also competitive. Our main competition comes from national,
regional and local mortgage bankers, credit unions, 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.
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, ability to service our debt obligations and future cash flows.
A shortage of building materials or labor, or increases in materials or labor costs 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, 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 on our sales, profitability,
stock performance, ability to service our debt obligations and future cash flows.
We rely on subcontractors to construct our homes. The failure of our subcontractors to properly construct
our homes may be costly.
We engage subcontractors to perform the actual construction of our homes. Despite our quality
control efforts, we may discover that our subcontractors were engaging in improper construction practices.
The occurrence of such events could require us to repair the homes in accordance with our standards and as
required by law. The cost of satisfying our legal obligations in these instances may be significant, and we
may be unable to recover the cost of repair from subcontractors, suppliers and insurers.
11
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 related
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 availability, or significant increases in
premium costs or claims, could have a material adverse effect on our financial results.
We are subject to litigation proceedings that could harm our business if an unfavorable ruling were to
occur.
From time to time, we may become involved in litigation and other legal proceedings relating to claims
arising from our operations in the normal course of business. As described in, but not limited to, Part I, Item 3,
“Legal Proceedings” of this Form 10-K, we are currently subject to certain legal proceedings. Litigation is
subject to inherent uncertainties, and unfavorable rulings may occur. We cannot assure you that these or other
litigation or legal proceedings will not materially affect our ability to conduct our business in the manner that we
expect or otherwise adversely affect us should an unfavorable ruling occur.
Our failure to maintain the security of our electronic and other confidential information could expose us to
liability and materially adversely affect our financial condition and results of operations.
Privacy, security, and compliance concerns have continued to increase as technology has evolved. As
part of our normal business activities, we collect and store certain confidential information, including personal
information of homebuyers/borrowers and information about employees, vendors and suppliers. This
information is entitled to protection under a number of federal and state laws. We may share some of this
information with vendors who assist us with certain aspects of our business, particularly our mortgage and title
businesses. Our failure to maintain the security of the data which we are required to protect, including via the
penetration of our network security and the misappropriation of confidential and personal information, could
result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties,
regulatory proceedings and private litigation with potentially large costs, and also in deterioration in customers’
confidence in us and other competitive disadvantages, and thus could have a material adverse effect on our sales,
profitability, stock performance, ability to service our debt obligations and future cash flows.
Weather-related and other events beyond our control may adversely impact our operations.
Extreme weather or other events, such as significant snowfalls, 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, ability to service our debt obligations and future cash flows.
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 corporate office lease expires in April 2026.
In connection with the operation of the homebuilding segment, we lease production 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 total approximately 1 million square feet.
Each of these leases contains various options for extensions of the lease and for the purchase of the facility. The
12
Portland lease expires in 2014, the Thurmont and Farmington leases expire in 2019, the Kings Mountain lease
expires in 2022, the Burlington County lease expires in 2023 and the Darlington lease expires in 2025. In
addition, we own a production facility with approximately 100,000 square feet in Dayton, Ohio. Our current
plant utilization has increased to 35% of total capacity in 2013, compared to 31% of total capacity in 2012.
In connection with both our homebuilding and mortgage banking businesses, 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 2023, 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 terms acceptable to us.
Item 3. Legal Proceedings.
On July 18, 2007, former and current employees filed lawsuits against us in the Court of Common Pleas
in Allegheny County, Pennsylvania and Hamilton County, Ohio, in Superior Court in Durham County, North
Carolina, and in the Circuit Court in Montgomery County, Maryland, and on July 19, 2007 in the Superior Court
in New Jersey, alleging that we incorrectly classified our sales and marketing representatives as being exempt
from overtime wages. These lawsuits are similar in nature to another lawsuit filed on October 29, 2004 by
another former employee in the United States District Court for the Western District of New York captioned
Tracy v. NVR, Inc. The lawsuits filed in Ohio, Pennsylvania, Maryland, New Jersey and North Carolina have
been stayed pending further developments in the Tracy action.
The complaints described above seek injunctive relief, an award of unpaid wages, including fringe
benefits, liquidated damages equal to the overtime wages allegedly due and not paid, attorney and other fees and
interest, and where available, multiple damages. While the suits were filed as purported class actions, none of
them have been certified as such. On April 29, 2013, the Western District of New York ruled that the claims
asserted in the Tracy case were not appropriate for class action treatment and dismissed a number of individuals
who had filed consents to join that action from the case. The trial on the remaining individual plaintiff’s claims
was held in October 2013. On October 23, 2013, the jury in that trial ruled in our favor that the plaintiff was an
exempt outside salesman.
On May 29, 2013, attorneys representing the individuals dismissed from the Tracy action filed another
lawsuit on behalf of those individuals in the New York Supreme Court for Monroe County captioned Anderson v.
NVR, Inc. We removed the Anderson action to the Western District of New York on June 18, 2013. Plaintiffs
subsequently filed a motion to stay the Anderson action pending final disposition of the Tracy action, which we
opposed. We also filed a motion to sever the multitude of individuals participating in the Anderson action,
leaving each plaintiff to pursue his or her claim individually to the extent that they chose to do so.
We believe that our compensation practices in regard to sales and marketing representatives are entirely
lawful and in compliance with two letter rulings from the United States Department of Labor (“DOL”) issued in
January 2007. Courts that have considered similar claims against other homebuilders have acknowledged the
DOL’s position that sales and marketing representatives were properly classified as exempt from overtime wages
and the only court to have directly addressed the exempt status of such employees concluded that the DOL’s
position was valid. In addition, the jury verdict in the Tracy v. NVR, Inc. matter in October 2013 upheld our
classification of the position. Accordingly, we have vigorously defended and intend to continue to vigorously
defend these lawsuits. In light of the points noted above, we have not recorded any associated liabilities on the
accompanying consolidated balance sheets in conjunction with the Anderson v. NVR, Inc. case or any other legal
challenges to the exempt status of our sales and marketing representatives.
In June 2010, we received a Request for Information from the United States Environmental Protection
Agency (“EPA”) pursuant to Section 308 of the Clean Water Act. The request sought information about storm
water discharge practices in connection with homebuilding projects completed or underway by us in New York
and New Jersey. We cooperated with this request, and provided information to the EPA. We were subsequently
informed by the United States Department of Justice (“DOJ”) that the EPA forwarded the information on the
13
matter to the DOJ, and the DOJ requested that we meet with the government to discuss the status of the
case. Meetings took place in January 2012 and August 2012 with representatives from both the EPA and DOJ. It
is not yet known what next steps, if any, the DOJ will take in the matter. We intend to continue cooperating with
any future EPA and/or DOJ inquiries. At this time, we cannot predict the outcome of this inquiry, nor can we
reasonably estimate the potential costs that may be associated with its eventual resolution.
We are also involved in various other litigation arising in the ordinary course of business. In the opinion
of management, and based on advice of legal counsel, this litigation is not expected to have a material adverse
effect on our financial position, results of operations or cash flows. Legal costs incurred in connection with
outstanding litigation are expensed as incurred.
Item 4. Mine Safety Disclosures.
None.
Executive Officers of the Registrant
Name
Paul C. Saville
Daniel D. Malzahn
Robert W. Henley
Eugene J. Bredow
Age
58
44
47
44
Positions
President and Chief Executive Officer of NVR
Vice President, Chief Financial Officer and Treasurer of NVR
President of NVRM
Vice President and Controller of NVR
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.
Daniel D. Malzahn was named Vice President, Chief Financial Officer and Treasurer of NVR effective
February 20, 2013. Prior to February 20, 2013, Mr. Malzahn was Vice President of Planning and
Investor Relations of NVR since February 1, 2004. From January 2000 to January 31, 2004, Mr.
Malzahn was Manager of Business Planning of NVR.
Robert W. Henley was named President of NVRM effective October 1, 2012. Mr. Henley had been
serving as interim acting President of NVRM since June 1, 2012. Prior to June 1, 2012, Mr. Henley
served as Vice President and Controller of NVR since July 1, 2005. From May 2000 to June 30, 2005,
Mr. Henley was Assistant Controller of NVR.
Eugene J. Bredow was named Vice President and Controller of NVR effective June 1, 2012. Prior to
June 1, 2012, Mr. Bredow was the Vice President of Internal Audit and Corporate Governance of NVR
since January 2008 and Director of Internal Audit and Corporate Governance from August 2004 to
January 2008.
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 New York Stock Exchange under the
ticker symbol “NVR.” The following table sets forth the high and low prices per share for our common stock for
each fiscal quarter during the years ended December 31, 2013 and 2012:
14
Prices per Share:
2013
Fourth Quarter … . . . . . . .
Third Quarter . . . . . . ……
Second Quarter .. .. . . . . . .
First Quarter . . . . . . ……
2012
Fourth Quarter … . . . . . . .
Third Quarter . . . . . . ……
Second Quarter .. .. . . . . . .
First Quarter . . . . . . ……
HIGH
LOW
$
$
$
$
1,042.55
967.00
1,084.00
1,100.00
$
$
$
$
883.96
830.00
885.43
920.00
$
$
$
$
966.93
879.99
855.00
759.13
$
$
$
$
830.00
721.56
711.75
667.98
As of the close of business on February 17, 2014, there were 311 shareholders of record.
We have never paid a cash dividend on our shares of common stock and have no current intention to do
so in the future.
We had two repurchase authorizations outstanding during the quarter ended December 31, 2013. On July
30, 2013 and December 17, 2013, we publicly announced the Board of Directors’ approval for us to repurchase
up to an aggregate of $300 million per authorization, of our common stock in one or more open market and/or
privately negotiated transactions. The repurchase authorizations do not have expiration dates. The following
table provides information regarding common stock repurchases for the quarter ended December 31, 2013:
Period
October 1 - 31, 2013
November 1 - 30, 2013
December 1 - 31, 2013
Total
Total Number
of Shares
Purchased
11,258
72,870
42,477
126,605
Average
Price Paid
per Share
$
922.22
$
928.33
$
957.04
$
937.42
Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
$
$
$
246,425,479
178,777,829
438,125,597
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
11,258
72,870
42,477
126,605
15
STOCK PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL EQUITYHOLDER RETURN ON EQUITY
The following chart graphs our performance in the form of cumulative total return to holders of our
Common Stock since December 31, 2008 in comparison to the Dow/Home Construction Index and the Dow
Jones Industrial Index for that same period, assuming that $100 was invested in NVR stock and the indices on
December 31, 2008.
$231
$217
$225
$210
$202
$148
$156
$123
$117
$151
$140
$118
$152
$150
$115
$250
$200
$150
$100
$50
$0
Dec. 31, 2008
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2012
Dec. 31, 2013
NVR
Dow Jones Ind. Avg.
Dow/Home Construction
16
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 derived 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 accompanying consolidated financial statements and
related notes included herein.
2013
Year Ended December 31,
2011
2012
2010
2009
Consolidated Income Statement Data:
Homebuilding data:
Revenues
Gross profit
$
4,134,481
710,277
$
3,121,244
545,605
$
2,611,195
445,570
$
2,980,758
542,466
$
2,683,467
497,734
Mortgage Banking data:
Mortgage banking fees
Interest income
Interest expense
Consolidated data:
76,786
4,983
545
63,406
4,504
546
47,954
5,702
875
61,134
5,411
1,126
60,381
2,979
1,184
Income from continuing
operations
Income from continuing
operations per diluted share (1)
$
266,477
$
180,588
$
129,420
$
206,005
$
192,180
$
54.81
$
35.12
$
23.01
$
33.42
$
31.26
Consolidated Balance Sheet Data:
Homebuilding inventory
Contract land deposits, net
Total assets
Notes and loans payable (2)
Shareholders’ equity
Cash dividends per share
2013
2012
December 31,
2011
2010
2009
$
738,565
236,885
2,486,148
599,190
1,261,352
$
678,131
191,538
2,604,842
599,745
1,480,477
$
533,150
131,930
1,779,485
1,613
1,374,799
$
431,329
100,786
2,260,061
92,089
1,740,374
$
418,718
49,906
2,395,770
147,880
1,757,262
-
-
-
-
-
(1)
For the years ended December 31, 2013, 2012, 2011, 2010, and 2009, income from continuing operations per
diluted share was computed based on 4,861,702; 5,141,529; 5,623,817; 6,164,617 and 6,148,769 shares,
respectively, which represents the weighted average number of shares and share equivalents outstanding for each
year.
(2)
Balance does not include non-recourse debt related to the consolidated variable interest entity.
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, 2013, 2012 and 2011
Overview
Business
Our primary business is the construction and sale of single-family detached homes, townhomes and
condominium buildings, all of which are primarily constructed on a pre-sold basis. To fully serve customers of
17
our homebuilding operations, we also operate a mortgage banking and title services business. We primarily
conduct our operations in mature 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 four
homebuilding reportable segments consist of the following regions:
Mid Atlantic: Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East: New Jersey and eastern Pennsylvania
Mid East:
South East: North Carolina, South Carolina, Tennessee and Florida
New York, Ohio, western Pennsylvania, Indiana and Illinois
Our lot acquisition strategy is predicated upon avoiding the financial requirements and risks associated
with direct land ownership and development. Historically, we generally have not engaged in land development to
obtain finished lots for use in our homebuilding operations. Instead, we have acquired finished lots at market
prices from various third party land developers pursuant to fixed price purchase agreements. These purchase
agreements require deposits, typically ranging up to 10% of the aggregate purchase price of the finished lots, in
the form of cash or letters of credit that may be forfeited if we fail to perform under the purchase agreement. This
strategy has allowed us to maximize inventory turnover, which we believe enables us to minimize market risk and
to operate with less capital, thereby enhancing rates of return on equity and total capital.
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 deliver finished lots to meet the sales demands of our customers.
However, during the past several years, the impact of economic conditions on the homebuilding industry has
negatively impacted our developers’ ability to obtain acquisition and development financing and to raise equity
investments to finance land development activity. As a result of the changing environment, in certain specific
strategic circumstances we deviate from our historical lot acquisition strategy and engage in joint venture
arrangements with land developers or directly acquire raw ground already zoned for its intended use for
development. Once we acquire control of any raw ground, we determine whether to sell the raw parcel to a
developer and enter into a fixed price purchase agreement with the developer to purchase the finished lots, or
whether we will hire a developer to develop the land on our behalf. While joint venture arrangements and direct
land development activity are not our preferred method of acquiring finished building lots, we may enter into
additional transactions in the future on a limited basis where there exists a compelling strategic or prudent
financial reason to do so. We expect, however, to continue to acquire substantially all of our finished lot
inventory using fixed price purchase agreements with forfeitable deposits.
As of December 31, 2013, we controlled approximately 58,100 lots under purchase agreements with
deposits in cash and letters of credit totaling approximately $296,600 and $2,500, respectively. In addition, we
controlled approximately 6,000 lots through joint venture limited liability corporations with an aggregate
investment of approximately $92,700. Further, as of December 31, 2013, we had approximately $41,300 in land
under development, that once fully developed will result in approximately 650 lots for use in our homebuilding
operations. Of the total finished lots expected to be developed, 125 lots are under contract to be sold to an
unrelated party under lot purchase agreements. Included in the number of controlled lots are approximately 9,200
lots for which we have recorded a contract land deposit impairment reserve of approximately $59,800 as of
December 31, 2013. See Notes 3, 4 and 5 to the consolidated financial statements included herein for additional
information regarding fixed price purchase agreements, joint ventures and land under development, respectively.
In addition to constructing homes primarily on a pre-sold basis and utilizing what we believe is a
conservative lot acquisition strategy, 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.
Current Business Environment and Key Financial Results
During 2013, sales trends in the first six months were stronger than the last six months of the year.
18
During the first half of 2013, the homebuilding market continued to experience the favorable sales and pricing
trends which began in 2012, driven by historically low mortgage interest rates and rising costs in the rental
market which contributed to higher levels of housing affordability. Sales trends in the second half of 2013 were
negatively impacted by increasing mortgage interest rates, higher home prices and buyer uncertainty. The
housing market also continues to face challenges from tight mortgage underwriting standards. While we have
benefited from generally improved market conditions, we continue to face gross margin pressure due to
increasing land and construction costs.
Our consolidated revenues for the year ended December 31, 2013 totaled $4,211,267, an increase of 32%
from $3,184,650 in 2012. Net income for 2013 increased 48% from the prior year to $266,477. Diluted earnings
per share in 2013 was $54.81, an increase of 56% from the prior year. New Orders for 2013 increased 8% from
the prior year while our average new order sales price of $360.4 in 2013 was 10% higher than the prior year.
We believe that the continuation of the housing market recovery which began in 2012 is dependent upon
a sustained overall economic recovery, driven by continued improvement in unemployment and consumer
confidence levels. Due to the strength of our balance sheet, we believe that we are well positioned to take
advantage of opportunities that may arise from future economic and homebuilding market volatility.
Homebuilding Operations
The following table summarizes the results of our consolidated homebuilding operations and certain
operating activity for each of the last three years:
Year Ended December 31,
2012
2011
2013
Revenues
Cost of sales
Gross profit margin percentage
Selling, general and administrative expenses
Settlements (units)
Average settlement price
New orders (units)
Average new order price
Backlog (units)
Average backlog price
New order cancellation rate
Consolidated Homebuilding Revenues
$
$
$
$
$
$
4,134,481
3,424,204
17.2%
313,029
11,834
349.1
11,800
360.4
4,945
373.2
14.9%
$
$
$
3,121,244
2,575,639
17.5%
301,184
9,843
317.1
10,954
328.8
4,979
346.2
14.5%
$
$
$
2,611,195
2,165,625
17.1%
264,266
8,487
307.5
9,247
304.1
3,676
315.8
13.6%
$
$
$
$
$
$
Homebuilding revenues for 2013 increased 32% from 2012, as a result of a 20% increase in the number
of homes settled and a 10% increase in the average settlement price year over year. The increase in the number
of homes settled was primarily attributable to a 35% higher beginning backlog unit balance entering 2013 as
compared to 2012, offset partially by a lower backlog turnover rate in 2013 compared to 2012. Average
settlement prices in the current year were favorably impacted primarily by a 10% higher average price of homes
in backlog entering 2013 compared to the average price of homes in backlog entering 2012 and a 10% higher
average sales price of New Orders for the first six months of 2013 compared to 2012. The higher beginning
backlog balance and average sales prices were driven by the favorable market conditions discussed in the
Overview section above.
Homebuilding revenues for 2012 increased 20% from 2011, as a result of a 16% increase in the number
of homes settled and a 3% increase in the average settlement price year over year. The increase in the number of
homes settled was attributable to an 18% increase in New Orders during the first half of 2012 compared to the
same period in 2011, coupled with a 26% higher beginning backlog unit balance entering 2012 as compared to
19
2011. These increases were offset partially by a lower backlog turnover rate in 2012 compared to 2011. Average
settlement prices in 2012 were favorably impacted by a 7% higher average sales price of New Orders during the
first six months of 2012 as compared to the same period in 2011, offset partially by a 4% lower average price of
homes in backlog entering 2012 compared to the average price of homes in backlog entering 2011.
Consolidated Homebuilding New Orders
New Orders and the average sales price of New Orders in 2013 increased 8% and 10%, respectively,
when compared to 2012. New Orders and the average sales price were higher year over year in each of our
market segments. The increase in New Orders was driven by a 12% increase in the number of active
communities year over year, offset partially by a lower absorption rate in 2013. In addition, our December 2012
acquisition of Heartland Homes added 355 New Orders in 2013. The increase in active communities and pricing
in 2013 was attributable to the favorable market conditions through the first half of 2013 as discussed in the
Overview section above.
New Orders and the average sales price of New Orders in 2012 increased 18% and 8%, respectively,
when compared to 2011. New Orders and the average sales price were higher year over year in each of our
market segments. The increase in New Orders was driven by a 5% increase in the number of active communities
year over year and by improved absorption rates in many of our markets. The increase in New Orders as well as
in the average New Order sales price was attributable to improved market conditions in 2012.
Consolidated Homebuilding Gross Profit
Gross profit margins in 2013 decreased to 17.2% from 17.5% in 2012. Gross profit margins were
negatively impacted in 2013 by two warranty accrual charges. The first charge of approximately $15,600 was
recognized in the second quarter of 2013 related to remediation of primarily water infiltration issues in a single
completed community. The water infiltration issues were the result of a design issue with several products
developed for and built exclusively in that one community. The second charge of approximately $16,000 was
recorded in the fourth quarter of 2013 to increase the warranty accrual for a non-recurring service issue unrelated
to the second quarter service issue. Excluding these charges, gross profit margin was 17.9%, an increase of 46
basis points from the prior year.(cid:3) Gross profit margin was favorably impacted by higher settlement volume in the
current year allowing us to better leverage our operating costs, partially offset by higher construction costs,
including lumber and certain other commodity costs, year over year. We expect to continue to experience gross
profit margin pressure over the next several quarters due to cost and pricing pressures.
Gross profit margins in 2012 increased to 17.5% from 17.1% in 2011. Margins were favorably impacted
in 2012 by a $2,000 recovery of contract land deposits previously determined to be uncollectible compared to an
$11,200 contract land deposit impairment charge in 2011. In addition, increased settlement volume and higher
average settlement prices in 2012 allowed us to better leverage certain operating costs. However, this favorable
impact was offset by higher construction, lumber and certain other commodity costs year over year.
Consolidated Homebuilding Selling, General and Administrative (“SG&A”)
SG&A expenses in 2013 increased approximately $11,800, or 4%, compared to 2012, but as a percentage
of revenue decreased to 7.6% in 2013 from 9.7% in 2012. The increase in SG&A expense was attributable to
increases of approximately $20,300 in personnel costs in 2013 due to an increase in headcount year over year. In
addition, sales and marketing costs were approximately $14,400 higher in 2013 due to the increase in the number
of active communities. These cost increases were partially offset by an approximate $28,700 reduction in equity-
based compensation in 2013 compared to 2012. Equity-based compensation was favorably impacted as a result
of the restricted share units (“RSUs”) issued in 2010 becoming fully vested as of December 31, 2012 and the
reversal of approximately $7,100 in equity-based compensation expense previously recorded to SG&A expense
as we adjusted our stock option forfeiture rates based on our actual forfeiture experience. These reductions were
offset partially by equity-based compensation expense incurred in 2013 related to RSUs issued in May 2013. The
decrease in SG&A costs as a percentage of revenue was driven by the 32% increase in revenue in 2013, allowing
20
us to better leverage our overhead costs.
SG&A expenses in 2012 increased approximately $36,900, or 14%, compared to 2011, but as a
percentage of revenue decreased to 9.7% in 2012 from 10.1% in the prior year. The increase in SG&A expense
was attributable to an increase of approximately $19,700 in management incentive costs driven by improved
financial results in 2012. In addition, personnel costs and sales and marketing costs were approximately $9,400
and $6,400 higher, respectively, in 2012 due primarily to the 5% increase in the number of active communities
compared to 2011. SG&A expenses decreased as a percentage of revenue due to the 20% increase in revenues in
2012 compared to 2011.
Consolidated Homebuilding Backlog
Backlog units decreased approximately 1% to 4,945 as of December 31, 2013 compared to 4,979 as of
December 31, 2012, while backlog dollars increased approximately 7% to $1,845,600 from $1,723,914 as of
December 31, 2013 and December 31, 2012, respectively. Backlog dollars were higher primarily due to a 10%
increase in the average price of New Orders for the six-month period ended December 31, 2013 compared to the
same period in 2012.
Backlog, which represents homes sold but not yet settled with the customer, may be impacted by
customer cancellations for various reasons that are beyond our control, such as failure to obtain mortgage
financing, inability to sell an existing home, job loss, or a variety of other reasons. In any period, a portion of the
cancellations that we experience are related to new sales that occurred during the same period, and a portion are
related to sales that occurred in prior periods and therefore appeared in the opening backlog for the current
period. Expressed as the total of all cancellations during the period as a percentage of gross sales during the
period, our cancellation rate was approximately 15% in both 2013 and 2012, and 14% in 2011. During each of
2013, 2012 and 2011, approximately 6% of a reporting quarter’s opening backlog cancelled during the fiscal
quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual
cancellation rate that may occur in future periods. Other than those units that are cancelled, we expect to settle
substantially all of our December 31, 2013 backlog during 2014. See “Risk Factors” in Item 1A of this report.
The backlog turnover rate is impacted by various factors, including, but not limited to, changes in New
Order activity, internal production capacity, external subcontractor capacity and other external factors over which
we do not exercise control.
Backlog units and dollars increased approximately 35% to 4,979 and 49% to $1,723,914, respectively, as
of December 31, 2012, compared to 3,676 and $1,160,879 as of December 31, 2011. The increase in backlog
units was primarily attributable to New Orders being approximately 800 units higher for the six month period
ended December 31, 2012 compared to the same period in 2011, coupled with a slower backlog turnover rate in
2012. In addition, our December 31, 2012 acquisition of Heartland Homes added approximately 200 units and
$81,600 to the 2012 year-end backlog. The increase in backlog dollars is attributable to the increase in units and
to a 9% higher average sales price for New Orders for the six month period ended December 31, 2012.
Reportable Homebuilding Segments
Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less
the cost of homes sold, SG&A expenses, and a corporate capital allocation charge. 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 our 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 generally charged to the operating segment upon
the determination to terminate a finished lot purchase agreement with the developer or to restructure a lot
purchase agreement resulting in the forfeiture of the deposit. We evaluate our entire net contract land deposit
portfolio for impairment each quarter. For additional information regarding our contract land deposit impairment
21
analysis, see the Critical Accounting Policies section within this Management Discussion and Analysis of
Financial Condition and Results of Operations. For presentation purposes below, the contract land deposit
reserve at December 31, 2013 and 2012 has been allocated to the reportable segments to show contract land
deposits on a net basis. The net contract land deposit balances below also includes approximately $2,500 and
$3,300 at December 31, 2013 and 2012, respectively, of letters of credit issued as deposits in lieu of cash. The
following tables summarize certain homebuilding operating activity by reportable segment for each of the last
three years:
Selected Segment Financial Data:
Revenues:
Mid Atlantic
North East
Mid East
South East
Gross profit margin:
Mid Atlantic
North East
Mid East
South East
Segment profit:
Mid Atlantic
North East
Mid East
South East
Year Ended December 31,
2012
2013
2011
$
2,439,387
332,681
908,198
454,215
$
1,877,905
278,715
630,367
334,257
$
1,582,826
221,146
549,384
257,839
$
461,481
45,860
142,331
77,277
$
345,009
48,329
103,128
55,788
$
286,266
37,220
85,385
42,116
$
276,399
14,294
55,537
35,001
$
189,089
21,529
39,847
20,674
$
148,373
13,463
27,194
14,162
Gross profit margin percentage:
Mid Atlantic
North East
Mid East
South East
18.9%
13.8%
15.7%
17.0%
18.4%
17.3%
16.4%
16.7%
18.1%
16.8%
15.5%
16.3%
Segment Operating Activity:
2013
Year Ended December 31,
2012
2011
Units
6,029
1,013
3,023
1,769
11,834
Average
Price
$
$
$
$
$
404.0
328.4
300.4
256.7
349.1
Units
5,047
889
2,472
1,435
9,843
Average
Price
$
$
$
$
$
372.1
313.5
255.0
232.8
317.1
Units
4,238
728
2,335
1,186
8,487
Average
Price
$
$
$
$
$
373.4
303.6
235.1
217.1
307.5
Settlements:
Mid Atlantic
North East
Mid East
South East
Total
22
2013
Year Ended December 31,
2012
2011
New orders, net of cancellations:
Units
Mid Atlantic
North East
Mid East
South East
Total
6,056
1,075
2,903
1,766
11,800
Average
Price
$
$
$
$
$
416.7
335.5
309.5
265.9
360.4
Units
5,757
946
2,625
1,626
10,954
Average
Price
$
$
$
$
$
382.9
325.3
264.2
243.7
328.8
Backlog:
Mid Atlantic
North East
Mid East
South East
Total
2,710
495
1,032
708
4,945
$
$
$
$
$
422.7
345.5
323.0
276.5
373.2
2,683
433
1,152
711
4,979
$
$
$
$
$
394.2
330.2
297.8
253.4
346.2
Units
4,616
872
2,412
1,347
9,247
1,973
376
807
520
3,676
Average
Price
$
$
$
$
$
364.2
300.1
238.7
218.1
304.1
$
$
$
$
$
370.3
303.0
245.6
227.0
315.8
Operating Data:
New order cancellation rate:
Mid Atlantic
North East
Mid East
South East
Average active communities:
Mid Atlantic
North East
Mid East
South East
Total
Year Ended December 31,
2012
2013
2011
14.9%
15.0%
13.5%
16.8%
220
39
125
67
451
13.4%
16.8%
15.0%
16.0%
198
38
105
63
404
13.3%
13.1%
14.6%
13.0%
188
34
106
56
384
Homebuilding Inventory:
As of December 31,
2013
2012
Sold inventory:
Mid Atlantic
North East
Mid East
South East
Total (1)
Unsold lots and housing units inventory:
Mid Atlantic
North East
Mid East
South East
Total (1)
$
$
$
$
$
$
354,407
57,541
93,189
57,631
562,768
77,266
3,881
12,772
8,834
102,753
319,958
41,447
97,115
49,305
507,825
46,007
3,645
20,105
8,985
78,742
$
$
23
(1) The reconciling items between segment inventory and consolidated inventory include certain consolidation
adjustments necessary 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 our operating segments.
Year Ended December 31,
2012
2011
2013
Sold and unsold inventory impairments:
Mid Atlantic
North East
Mid East
South East
Total
Lots Controlled and Land Deposits:
Total lots controlled:
Mid Atlantic
North East
Mid East
South East
Total
Lots included in impairment reserve:
Mid Atlantic
North East
Mid East
South East
Total
Contract land deposits, net
Mid Atlantic
North East
Mid East
South East
Total
$
$
$
222
47
923
82
1,274
349
19
72
102
542
1,045
246
554
228
2,073
$
$
$
As of December 31,
2013
2012
32,646
5,388
16,420
10,166
64,620
4,393
876
2,555
1,345
9,169
30,969
4,772
15,409
7,348
58,498
5,335
549
2,515
1,771
10,170
$
$
156,570
16,174
39,907
26,693
239,344
137,192
13,553
29,094
15,037
194,876
$
$
Contract land deposit impairments (recoveries):
Year Ended December 31,
2012
2011
2013
$
$
$
(715)
803
173
119
380
464
1,588
1,075
203
3,330
6,741
818
493
311
8,363
$
$
$
Mid Atlantic
North East
Mid East
South East
Total
24
Mid Atlantic
2013 versus 2012
The Mid Atlantic segment had an approximate $87,300, or 46%, increase in segment profit in 2013
compared to 2012. The increase in segment profit was driven by the increase of approximately $561,500, or
30%, in revenues year over year due to a 20% increase in the number of units settled and a 9% increase in the
average settlement price. The increase in units settled was attributable to a 36% higher backlog unit balance
entering 2013 compared to the backlog unit balance entering 2012, offset partially by a lower backlog turnover
rate year over year. Settlements were also favorably impacted by a 14% increase in New Orders for the first six
months of 2013 compared to the same period in 2012. Average settlement prices were higher due to a 6% higher
average price of homes in backlog entering 2013 compared to the same period in 2012 and a 10% higher average
sales price for New Orders during the first six months of 2013 compared to the same period in 2012. Gross profit
margin in the current year was impacted by a charge of approximately $15,600, or 64 basis points of revenue, as
discussed above in the Consolidated Homebuilding Gross Profit section, to establish an accrual related to
remediation of primarily water infiltration issues in a single completed community. Excluding this charge, gross
profit margin increased 119 basis points to 19.6% in the current year due to increased settlement volume, which
allowed us to better leverage certain operating costs.
Segment New Orders and the average sales price increased 5% and 9%, respectively, in 2013 from 2012.
New Orders increased due to an 11% increase in the number of active communities, partially offset by a lower
absorption rate. The increase in the average sales price was attributable to a shift to higher priced communities in
certain markets and favorable market conditions through the first half of 2013, which allowed us to increase
prices in several markets within the Mid Atlantic segment.
2012 versus 2011
The Mid Atlantic segment had an approximate $40,700, or 27%, increase in segment profit in 2012
compared to 2011. The increase in segment profit was driven by the increase of approximately $295,100, or
19%, in revenues year over year due primarily to a 19% increase in the number of units settled. The increase in
units settled was attributable to a 26% increase in New Orders during the first half of 2012 compared to the same
period in 2011, coupled with a 24% higher backlog unit balance entering 2012 compared to the backlog unit
balance entering 2011. These increases were partially offset by a slower backlog turnover rate in 2012 compared
to 2011. The Mid Atlantic segment’s gross profit margin percentage increased to 18.4% in 2012 from 18.1% in
2011, primarily due to a 40 basis point decrease in contract land deposit impairment charges year over year. The
favorable impact of the increased settlement volume in 2012, which allowed us to better leverage certain
operating costs, was offset by higher construction, lumber and certain other commodity costs year over year.
Segment New Orders and the average sales price increased 25% and 5%, respectively, in 2012 compared
to 2011. New Orders and the average sales price were higher in each of our markets within the Mid Atlantic
segment. New Orders increased due to a 6% increase in the number of active communities and higher sales
absorption driven by improved market conditions in 2012.
North East
2013 versus 2012
The North East segment had an approximate $7,200, or 34%, decrease in segment profit in 2013
compared to 2012. The decrease was attributable to a charge in the fourth quarter of 2013 to increase the
warranty accrual for the non-recurring service issue discussed above in the Consolidated Homebuilding Gross
Profit section. Excluding this charge to the segment of approximately $12,700, segment profit increased
approximately $5,500, or 25% compared to 2012. Revenues in the segment increased approximately $54,000, or
19%, year over year due to a 14% increase in the number of units settled, coupled with a 5% increase in the
25
average settlement price. The increase in units settled was attributable to a 15% higher backlog unit balance
entering 2013 as compared to the backlog unit balance entering 2012, in addition to a 15% increase in New
Orders for the first six months of 2013 compared to the same period in 2012. The average settlement price
increased year over year due to a 9% higher average price of homes in backlog entering 2013 compared to the
same period in 2012, and a 1% higher average sales price for New Orders during the first six months of 2013
compared to 2012. The North East segment’s gross profit margin percentage was down 356 basis points year
over year. Excluding the warranty accrual charge discussed above of approximately $12,700, or 382 basis points
of revenue, gross profit margin for the segment was 17.6%, an increase of 27 basis points compared to 2012.
Segment New Orders and the average sales price increased approximately 14% and 3%, respectively, in
2013 from 2012. New Orders were favorably impacted by higher sales absorption levels attributable to favorable
market conditions through the first half of 2013 and a decrease in the cancellation rate year over year.
2012 versus 2011
The North East segment had an approximate $8,100, or 60%, increase in segment profit in 2012
compared to 2011. The increase in segment profit was primarily driven by an increase of approximately $57,600,
or 26%, in revenues year over year due to a 22% increase in the number of units settled and a 3% increase in the
average settlement price. The increase in units settled was attributable to a 62% higher backlog unit balance
entering 2012 compared to the backlog unit balance entering 2011, coupled with an 8% increase in New Orders
during the first half of 2012 compared to the same period in 2011. These increases were partially offset by a
slower backlog turnover rate in 2012 compared to 2011. The increase in the average settlement price in 2012 was
primarily attributable to a 9% increase in the average New Order sales price for the first six months of 2012
compared to the same period in 2011 due to a product mix shift from our attached products to our detached
products which generally sell at higher price points. This increase was partially offset by a 4% lower average
price of homes in backlog entering 2012 compared to the average price of homes in backlog entering 2011. The
North East segment’s gross profit margin percentage increased approximately 50 basis points in 2012 compared
to 2011. Segment profit and gross profit margins were favorably impacted by the previously mentioned higher
average settlement price year over year. In addition, gross profit margins were favorably impacted by the higher
settlement volumes, allowing us to better leverage certain operating costs in 2012. These favorable variances
were partially offset by higher construction, lumber and certain other commodity costs year over year.
Segment New Orders and the average sales price each increased approximately 8% in 2012 compared to
2011. New Orders were favorably impacted by the improved market conditions in 2012 and by a 12% increase in
the number of active communities in 2012 compared to 2011. This favorable impact was partially offset by an
increase in the cancellation rate in the North East segment to 16.8% in 2012 from 13.1% in the prior year. The
increase in the average sales price is attributable to a product mix shift away from our attached products to our
detached products which generally sell at higher price points.
Mid East
2013 versus 2012
The Mid East segment had an approximate $15,700, or 39%, increase in segment profit in 2013
compared to 2012. The increase in segment profit was driven by an increase in revenues of approximately
$277,800, or 44%, year over year due to a 22% increase in the number of units settled and an 18% increase in the
average settlement price. The increase in settlements was primarily attributable to a 43% higher backlog unit
balance entering 2013 compared to the same period in 2012, coupled with a 21% increase in New Orders during
the first half of 2013 compared to the same period in 2012. The higher backlog balance entering 2013 was in part
attributable to our Heartland Homes acquisition, which added approximately 200 units and $81,600 to backlog at
December 31, 2012. Average settlement prices were higher due to a 21% higher average price of homes in
backlog entering 2013 compared to 2012 resulting from a shift in mix to higher priced communities as well as to
the higher average price of homes in the backlog acquired from Heartland Homes. In addition, the average
settlement price was favorably impacted by a 17% increase in the average New Order sales price during the first
26
half of 2013 compared to the same period in 2012. Gross profit margin decreased to 15.7% in 2013 from 16.4%
in 2012, due to the lower average gross profit margin associated with the Heartland Homes backlog acquired, and
higher construction costs, including lumber and certain other commodity costs. These cost increases were
partially offset by the favorable impact of increased settlement volume which allowed us to better leverage
certain operating costs.
Segment New Orders and the average sales price for New Orders increased 11% and 17%, respectively,
during 2013 compared to 2012. New Orders increased due to 355 New Orders from Heartland Homes. The
increase in the average New Order sales price was attributable to a shift in mix to higher priced communities in
certain markets, including higher average sales prices associated with the Heartland Homes New Orders, coupled
with favorable market conditions through the first half of 2013 which allowed us to increase prices in certain
markets.
2012 versus 2011
The Mid East segment had an approximate $12,700, or 47%, increase in segment profit in 2012
compared to 2011 due primarily to an increase in revenues of approximately $81,000, or 15%, year over year.
Revenues increased due to a 6% increase in the number of units settled and a 9% increase in the average price of
settlements in 2012 compared to 2011. The increase in units settled was attributable to an 11% higher backlog
unit balance entering 2012 compared to the backlog unit balance entering 2011, coupled with a 7% increase in
New Orders during the first half of 2012 compared to the same period in 2011. These increases were partially
offset by a slower backlog turnover rate in 2012 compared to 2011. Average settlement prices were favorably
impacted by an 11% increase in the average New Order sales price for the first six months of 2012 compared to
the same period in 2011 due to a shift in mix to higher priced communities in certain markets. Gross profit
margins increased approximately 80 basis points in 2012 from 2011 primarily as a result of the increase in the
average settlement price, as well as from the increase in the number of settlements, allowing us to better leverage
certain operating costs in 2012. These favorable variances were partially offset by higher construction, lumber
and certain other commodity costs year over year.
Segment New Orders and the average sales price for New Orders increased 9% and 11%, respectively, in
2012 compared to 2011. New Orders were favorably impacted by the improved market conditions in 2012 which
contributed in part to higher sales absorption levels. The increase in the average sales price was attributable to a
shift in mix to higher priced communities in certain markets.
The increases to the Mid East segment’s 2012 backlog, sold and unsold inventory, lots controlled and
contract land deposit balances were all in part driven by the Heartland Homes acquisition on December 31, 2012.
The acquisition did not impact sales or settlement results in 2012.
South East
2013 versus 2012
The South East segment had an approximate $14,300, or 69%, increase in segment profit in 2013
compared to 2012, primarily due to an increase in revenues of approximately $120,000, or 36%, year over year.
Segment revenues were higher due to a 23% increase in the number of units settled and a 10% increase in the
average settlement price. The increase in settlements was attributable to a 37% higher backlog unit balance
entering 2013 compared to 2012 and a 29% increase in New Orders for the first six months of 2013 compared to
the same period in 2012. These increases were partially offset by a lower backlog turnover rate year over year.
The average settlement price was favorably impacted by a 12% higher average price of homes in backlog
entering 2013 compared to the same period in 2012, as well as by a 9% increase in the average sales price of
homes in the first six months of 2013 compared to the same period in 2012. The South East segment’s gross
profit margin increased 32 basis points in 2013 from 2012 primarily due to the favorable impact of increased
settlement volume, which allowed us to better leverage certain operating costs.
27
Segment New Orders and the average sales price for New Orders each increased approximately 9% in
2013 from 2012. New Orders increased due to a 7% increase in the number of active communities and higher
sales absorption levels driven by favorable market conditions through the first half of 2013. The increase in the
average sales price for New Orders was attributable to a shift in mix of New Orders to higher priced communities
in certain markets.
2012 versus 2011
The South East segment had an approximate $6,500, or 46%, increase in segment profit in 2012
compared to 2011, primarily due to an increase in revenues of approximately $76,400, or 30%, year over year.
Segment revenues were higher primarily due to a 21% increase in the number of homes settled and a 7% increase
in the average settlement price year over year. The increase in settlements was attributable to a 45% higher
backlog unit balance entering 2012 compared to 2011, coupled with a 23% increase in New Orders during the
first half of 2012 compared to the same period in 2011. These increases were partially offset by a slower backlog
turnover rate in 2012 compared to 2011. Average settlement prices were favorably impacted by a 12% increase
in the average New Order sales price for the first six months of 2012 compared to the same period in 2011
attributable to a shift in mix to higher priced markets and higher priced communities in certain markets. The
South East segment’s gross profit margins in 2012 increased approximately 40 basis points from 2011 primarily
due to the higher average settlement prices and improved operating leverage attributable to higher settlement
volume year over year. These favorable variances were partially offset by higher construction, lumber and
certain other commodity costs year over year.
Segment New Orders and the average sales price for New Orders increased approximately 21% and 12%,
respectively, in 2012 compared to 2011. New Orders were favorably impacted in 2012 by a 12% increase in the
number of active communities and by the improved market conditions in 2012 which contributed in part to higher
sales absorption levels. The increase in the average sales price for New Orders was attributable to a shift in mix
to higher priced markets and higher priced communities in certain markets.
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 (which includes all management incentive compensation), equity-based
compensation expense, consolidation adjustments and external corporate interest expense. Our overhead
functions, such as accounting, treasury and human resources, are centrally performed and the costs are not
allocated to our 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 our operating segments. Likewise, equity-
based compensation expense is not charged to the operating segments. External corporate interest expense is
primarily comprised of interest charges on our 3.95% Senior Notes due 2022 (the “Senior Notes”), and is not
charged to the operating segments because the charges are included in the corporate capital allocation discussed
above.
28
Homebuilding Consolidated Gross Profit:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Consolidation adjustments and other
Consolidated homebuilding gross profit
Homebuilding Consolidated Profit Before Tax:
Year Ended December 31,
2012
2011
2013
$
$
$
461,481
45,860
142,331
77,277
(16,672)
710,277
345,009
48,329
103,128
55,788
(6,649)
545,605
$
$
$
286,266
37,220
85,385
42,116
(5,417)
445,570
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Reconciling items:
Contract land deposit impairment reserve (1)
Equity-based compensation expense (2)
Corporate capital allocation (3)
Unallocated corporate overhead (4)
Consolidation adjustments and other
Corporate interest expense (5)
Reconciling items sub-total
Homebuilding consolidated profit
before taxes
$
276,399
14,294
55,537
35,001
$
189,089
21,529
39,847
20,674
$
148,373
13,463
27,194
14,162
5,313
(31,547)
116,457
(72,703)
2,362
(21,743)
(1,861)
5,333
(60,859)
91,507
(70,258)
10,858
(6,796)
(30,215)
(2,878)
(61,359)
71,226
(45,355)
20,477
(715)
(18,604)
$
379,370
$
240,924
$
184,588
(1)
(2)
This item represents changes to the contract land deposit impairment reserve, which are not allocated to the
reportable segments.
Equity-based compensation expense was lower in 2013 due to RSUs issued in 2010 under the 2010 Equity
Incentive Plan becoming fully vested effective December 31, 2012 and an approximate $7,450 pre-tax
compensation expense reversal attributable to an adjustment of our option forfeiture rates based on our
actual forfeiture experience. These reductions were partially offset by equity-based compensation expense
incurred in 2013 related to RSUs issued in May 2013 under the 2010 Equity Incentive Plan.
(3)
This item represents the elimination of the corporate capital allocation charge included in the respective
homebuilding reportable segments. The corporate capital allocation charge is based on the segment’s
monthly average asset balance and is as follows for the years presented:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Total
2013
$
Year Ended December 31,
2012
59,144
8,187
15,039
9,137
91,507
72,271
9,461
22,580
12,145
116,457
$
$
$
2011
48,697
5,763
11,074
5,692
71,226
$
$
(4)
The increase in unallocated corporate overhead in 2012 from 2011 was attributable to increased
management incentive costs year over year.
29
(5)
Corporate interest expense is attributable primarily to interest on our Senior Notes which were issued in the
third quarter of 2012.
Mortgage Banking Segment
We conduct our mortgage banking activity through 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 years ended December 31, 2013, 2012 and 2011:
Loan closing volume:
Total principal
Loan volume mix:
Adjustable rate mortgages
Fixed-rate mortgages
2013
2012
2011
$
2,538,072
$
2,206,092
$
1,868,472
6%
94%
5%
95%
9%
91%
Operating profit:
Segment profit
Equity-based compensation expense
Mortgage banking
income before tax
$
42,075
(2,749)
$
38,135
(3,982)
$
26,102
(3,114)
$
39,326
$
34,153
$
22,988
Capture rate:
81%
87%
88%
Mortgage banking fees:
Net gain on sale of loans
Title services
Servicing fees
2013 versus 2012
$
$
$
56,528
19,862
396
76,786
47,019
15,977
410
63,406
$
$
$
34,632
12,769
553
47,954
Loan closing volume for the year ended December 31, 2013 increased 15% from 2012. The increase was
primarily attributable to a 7% increase in the number of units closed and an 8% increase in the average loan
amount year over year. The increase in the number of units closed and the increase in the average loan amount
are primarily attributable to the aforementioned increase in the homebuilding segment’s number of units settled
and the increase in the average settlement prices in 2013 as compared to 2012, partially offset by a decrease in the
number of loans closed by NVRM for our homebuyers who obtain a mortgage to purchase a home (“Capture
Rate”). The Capture Rate decreased from 87% in 2012 to 81% in 2013 primarily due to a more competitive
market for mortgage loans as other lenders’ refinancing activity slowed.
Segment profit for the year ended December 31, 2013 increased approximately $3,900 from 2012. The
increase in segment profit was primarily attributable to an approximate $13,400 increase in mortgage banking
fees, partially offset by an approximate $10,000 increase in general and administrative expenses. The increase in
mortgage banking fees was primarily attributable to the aforementioned 15% increase in closed loan volume and
an increase in secondary marketing fees. The increase in general and administrative expenses is primarily
attributable to an increase in compensation costs as a result of a 43% increase in headcount compared to 2012.
30
2012 versus 2011
Loan closing volume for the year ended December 31, 2012 increased 18% from 2011. The 2012
increase was primarily attributable to a 14% increase in the number of units closed and a 3% increase in the
average loan amount year over year. The increase in the number of units closed and the increase in the average
loan amount are primarily attributable to the aforementioned increase in the homebuilding segment’s number of
units settled and the increase in the average settlement prices in 2012 as compared to 2011.
Segment profit for the year ended December 31, 2012 increased approximately $12,000 from 2011. The
increase in segment profit was primarily attributable to an approximate $15,500 increase in mortgage banking
fees, partially offset by an approximate $2,700 increase in general and administrative expenses. The increase in
mortgage banking fees was partially attributable to the aforementioned 18% increase in closed loan volume and
an increase in secondary marketing fees. The increase in general and administrative expenses was primarily
attributable to an increase in compensation costs as a result of a 33% increase in headcount compared to 2011.
The increase in compensation costs was partially offset by an approximate $3,700 decrease in the provision for
loan loss as compared to 2011.
Mortgage Banking – Other
We sell all of the loans we originate into the secondary mortgage market. Insofar as we underwrite our
originated loans to the standards and specifications of the ultimate investor, we have no further financial
obligations from the issuance of loans, except in certain limited instances where early payment default occurs.
Those underwriting standards are typically equal to or more stringent than the underwriting standards required by
FNMA, VA and FHA. Because we sell all of our loans and do not service them, there is often a substantial delay
between the time that a loan goes into default and the time that the investor requests us to reimburse them for
losses incurred because of the default. We believe that all of the loans that we originate are underwritten to the
standards and specifications of the ultimate investor to whom we sell our originated loans. We employ a quality
control department to ensure that our underwriting controls are effective, and further assess the underwriting
function as part of our assessment of internal controls over financial reporting.
NVRM maintains an allowance for losses on mortgage loans originated that reflects our judgment of the
present loss exposure from the loans that we have originated and sold. The allowance is calculated based on an
analysis of historical experience and exposure. At December 31, 2013, we had an allowance for loan losses of
approximately $8,200. Although we consider the allowance for loan losses reflected on the December 31, 2013
balance sheet to be adequate, there can be no assurance that this allowance will prove to be adequate to cover
losses on loans previously originated.
NVRM is dependent on our homebuilding segment’s customers for business. If New Orders and sales
prices of the homebuilding segment decline, NVRM’s operations will also be adversely affected. In addition, the
mortgage segment’s operating results may be adversely affected in future periods due to the continued tightening
and volatility of the credit markets, changes in investor funding times, as well as increased regulation of mortgage
lending practices. The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010,
contains numerous provisions affecting residential mortgages and mortgage lending practices. The CFPB issued
rules in January 2013, including “Ability to Repay” underwriting provisions, definition and parameters of
“Qualified Mortgages” and the establishment of certain protections from liability under “Ability to Repay”
provisions for “Qualified Mortgages”. The CFPB’s rulemaking also included limitations on certain fees and loan
officer compensation requirements. These rules were effective January 2014. Although we do not expect these
new requirements to significantly impact our mortgage business, fee restrictions may impact our ability to
provide a comprehensive package of mortgage services to our homebuyers.
Seasonality
Overall, we do not experience material seasonal fluctuations in sales, settlements or loan closings.
31
Effective Tax Rate
Our consolidated effective tax rate in 2013, 2012 and 2011 was 36.36%, 34.35% and 37.65%,
respectively. During 2012, we reduced our provision for unrecognized tax benefits by $9,154, which reduced the
2012 effective tax rate. The reduction resulted from settlements with and an audit by certain taxing authorities
during 2012 which led us to update our evaluation of the administrative practice in other states for similar
uncertain tax positions to determine whether the positions taken in those states were effectively settled. See Note
11 in the accompanying consolidated financial statements herein for further discussion of income taxes.
Recent Accounting Pronouncements Pending Adoption
There have not been any pronouncements issued but not yet implemented that we believe will have a
material impact on our financial statements.
Liquidity and Capital Resources
Lines of Credit and Notes Payable
Our homebuilding business segment funds its operations from cash flows provided by operating activities
and the public debt and equity markets. On September 5, 2012, we filed a Shelf Registration Statement (the
“Shelf”) with the SEC to register for future offer and sale an unlimited amount of debt securities, common shares,
preferred shares, depositary shares representing preferred shares and warrants. On September 10, 2012, we
issued $600,000 aggregate principal amount of 3.95% Senior Notes due 2022 under the Shelf. The Senior Notes
were issued at a discount to yield 3.97% and have been reflected net of the unamortized discount in the
accompanying consolidated balance sheet. The offering of the Senior Notes resulted in aggregate net proceeds
of approximately $593,900, after deducting offering expenses. The Senior Notes mature on September 15, 2022
and bear interest at 3.95%, payable semi-annually in arrears on March 15 and September 15, which commenced
on March 15, 2013. The Senior Notes are senior unsecured obligations and rank equally in right of payment with
any of our existing and future unsecured senior indebtedness, will rank senior in right of payment to any of our
future indebtedness that is by its terms expressly subordinated to the Senior Notes and will be effectively
subordinated to any of our existing and future secured indebtedness to the extent of the value of the collateral
securing such indebtedness. The indenture governing the Senior Notes does not contain any financial covenants,
however, it does contain, among other items, and subject to certain exceptions, covenants that restrict our ability
to create, incur, assume or guarantee secured debt, enter into sale and leaseback transactions and conditions
related to mergers and/or the sale of assets. The proceeds from the Senior Notes issuance were used for general
corporate purposes, which includes repurchases of our common shares.
Our mortgage subsidiary, NVRM, provides for its mortgage origination and other operating activities
using cash generated from operations, borrowings from its parent company, NVR, as well as a revolving
mortgage repurchase facility, which is non-recourse to NVR. On July 31, 2013, NVRM renewed and amended its
repurchase agreement with U.S. Bank National Association which provides for loan purchases up to $25,000,
subject to certain sub-limits (the “Repurchase Agreement”). The purpose of the Repurchase Agreement is to
finance the origination of mortgage loans by NVRM. The Repurchase Agreement expires on July 30, 2014.
Advances under the Repurchase Agreement carry a Pricing Rate based on the LIBOR Rate plus the
LIBOR Margin, or the Default Pricing Rate, as determined under the Repurchase Agreement, provided that the
Pricing Rate shall not be less than 3.00%. There are several restrictions on purchased loans, including that they
cannot be sold to others, they cannot be pledged to anyone other than the agent, and they cannot support any other
borrowing or repurchase agreement. The Repurchase Agreement contains various affirmative and negative
covenants. The negative covenants include among others, certain limitations on transactions involving
acquisitions, mergers, the incurrence of debt, sale of assets and creation of liens upon any of its Mortgage Notes.
Additional covenants include (i) a tangible net worth requirement, (ii) a minimum liquidity requirement, (iii) a
minimum net income requirement, and (iv) a maximum leverage ratio requirement. We were in compliance with
all covenants under the Repurchase Agreement at December 31, 2013. At December 31, 2013, there was no debt
outstanding under the Repurchase Agreement and there were no borrowing base limitations.
32
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 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. In addition, the Board
resolutions authorizing us to repurchase shares of our common stock specifically prohibit us from purchasing
shares from our officers, directors, Profit Sharing/401K Plan Trust or Employee Stock Ownership Plan Trust.
The repurchase program assists us in accomplishing our primary objective, creating increases in shareholder
value. See Part II, Item 5 of this Form 10-K for disclosure of amounts repurchased during the fourth quarter of
2013. For the year ended December 31, 2013, we repurchased 581,387 shares of our common stock at an
aggregate purchase price of $554,491. As of December 31, 2013, we had approximately $438,100 available
under two Board approved repurchase authorizations.
Cash Flows
For the year ended December 31, 2013, cash and cash equivalents decreased by $287,254. Net cash
provided by operating activities was $270,222. Cash was provided by homebuilding operations and by an
increase of $114,456 in accounts payable, accrued expenses and customer deposits in 2013 compared to 2012.
Accounts payables were higher due primarily to an increase in our inventory levels, while accrued expenses were
higher due to the aforementioned increased warranty reserves and income taxes payable attributable to our
increased earnings. Cash was used to fund the increase to homebuilding inventory of $52,861, due to increased
units under construction at the end of 2013 compared to 2012. In addition, cash was used to fund the $40,034
increase in contract land deposits year over year. Investing activities during 2013 used net cash of $34,477,
primarily as a result of investments in unconsolidated joint ventures totaling $22,850 (see Note 4 to the
accompanying consolidated financial statements included herein for additional discussion of joint ventures).
Cash was also used for the purchase of property, plant and equipment totaling $19,016 during 2013. These uses
of cash from investing activities were partially offset by capital distributions of $6,782 received from our
unconsolidated joint ventures. Net cash used in financing activities was $522,999, due primarily to our purchase
of treasury stock. During 2013, we repurchased 581,387 shares of our common stock for an aggregate purchase
price of $554,491 under our ongoing common stock repurchase program as discussed above. This use of cash
from financing activities was partially offset by $13,957 in proceeds from stock option exercises and the
realization of $20,636 in excess income tax benefits from equity-based compensation plan activity and deferred
compensation plan distributions.
For the year ended December 31, 2012, cash and cash equivalents increased by $672,713. Net cash
provided by operating activities was $264,384. Cash was provided by homebuilding operations and by an
approximate $63,400 decrease in mortgage loans held for sale. In addition, cash was provided by an increase of
$110,396 in accounts payable, accrued expenses and customer deposits in 2012 compared to 2011. Payables
were higher due primarily to an increase in our inventory levels. The increase in accrued expenses and customer
deposits were attributable to increased management incentive accruals associated with our improved financial
results and an increase in customer deposits associated with increased sales volume. Cash provided by
homebuilding operations was used to fund the increase to homebuilding inventory of $97,750, as a result of an
increase in the units under construction at the end of 2012 compared to 2011. In addition, cash was used to fund
the $53,942 increase in contract land deposits year over year. Investing activities during 2012 used net cash of
$22,611, primarily as a result of the acquisition of substantially all of the assets of Heartland Homes on
December 31, 2012 (see Note 16 to the accompanying consolidated financial statements included herein for
additional discussion of the acquisition). In addition, cash was used for the purchase of property, plant and
equipment totaling $12,365 during 2012. These uses of cash from investing activities were partially offset by
capital distributions received from our unconsolidated joint ventures. Net cash provided by financing activities
was $430,940, due primarily to the receipt of $593,866 in net proceeds from the issuance of the Senior Notes and
$73,211 in proceeds from stock option exercises. During 2012, we spent $227,281 to repurchase 285,495 shares
of our common stock. In addition, cash was used in the repayment of $21,910 of loans assumed in the acquisition
33
of Heartland Homes.
For the year ended December 31, 2011, cash and cash equivalents decreased by $712,956. Net cash
provided by operating activities was $1,463. Cash provided by homebuilding operations was used to fund the
increase to homebuilding inventory of $99,527, as a result of an increase in the units under construction at the end
of 2011 compared to 2010. In addition, cash was used to fund the $42,385 increase in contract land deposits.
The presentation of operating cash flows was reduced by $22,835, which is the amount of the excess tax benefit
realized from stock option exercises and deferred compensation plan distributions during 2011 and credited
directly to additional paid in capital. Investing activities during 2011 used net cash of $61,866, primarily as a
result of our investment in a joint venture with Morgan Stanley Real Estate Investing of $61,250. In addition,
cash was used to purchase $11,444 in property, plant and equipment during 2011. These uses of cash from
investing activities were partially offset by capital distributions received from our unconsolidated joint ventures.
Net cash used by financing activities was $652,553. During 2011, we spent approximately $689,300 to
repurchase 1,017,588 shares of our common stock under our ongoing common stock repurchase program as
discussed above. In addition, cash was used in the repayment of approximately $90,000 of the outstanding
NVRM repurchase facility due to our decision to substantially reduce the available credit capacity under the
Repurchase Agreement. These uses of cash from financing activities were offset partially by equity-based
activity which provided stock option exercise proceeds of $106,999 and the realization of $22,835 in excess
income tax benefits from equity-based compensation plan activity.
At December 31, 2013 and 2012, the homebuilding segment had restricted cash of $20,563 and $19,661,
respectively, which is included in “Other assets” on the accompanying consolidated balance sheets. The
restricted cash balances relate primarily to holding requirements for outstanding letters of credit issued under our
letter of credit agreement and customer deposits for certain home sales.
We believe that our current cash holdings, cash generated from operations and the public debt and equity
markets will be sufficient to satisfy near and long term cash requirements for working capital and debt service in
both our homebuilding and mortgage banking operations.
Off-Balance Sheet Arrangements
Lot Acquisition Strategy
We generally do not engage in land development. Instead, we typically acquire finished building lots at
market prices 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 believe that 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 liquidated damage provision contained in the purchase
agreements. We do not have any financial guarantees or completion obligations and we typically do not
guarantee lot purchases on a specific performance basis under these purchase agreements.
At December 31, 2013, we controlled approximately 64,600 lots through lot purchase agreements, joint
ventures and land under development, with an aggregate purchase price of approximately $5,800,000. These lots
are controlled by making or committing to make deposits of approximately $372,400 in the form of cash and
letters of credit. Our entire risk of loss pertaining to the aggregate purchase price contractual commitment
resulting from our non-performance under the contracts is limited to our $299,100 deposit paid, plus the
additional $73,300 referred to below. Of the $299,100 deposit total, approximately $296,600 was in cash and
approximately $2,500 was in letters of credit which had been issued as of December 31, 2013. The remaining
34
balance of approximately $73,300 relates to deposits to be paid subsequent to December 31, 2013 assuming that
contractual development milestones are met by the developers (see Contractual Obligations section below). As
of December 31, 2013, we had recorded an impairment valuation allowance of approximately $59,800 related to
certain cash deposits currently outstanding. Please refer to Note 1 in the accompanying consolidated financial
statements for a further discussion of the contract land deposits and Note 3 in the accompanying consolidated
financial statements for a description of our lot acquisition strategy in relation to our accounting related to
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 approximately $54,500 of
contingent obligations under such agreements as of December 31, 2013, inclusive of the $2,500 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 material 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. 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, 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. We do not engage in speculative or trading derivative
activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are
undesignated derivatives, and, accordingly, are marked to fair value through earnings. At December 31, 2013,
there were contractual commitments to extend credit to borrowers aggregating $243,084 and open forward
delivery contracts aggregating $430,859. Please refer to Note 14 in the accompanying consolidated financial
statements for a description of our fair value accounting.
Contractual Obligations
Our fixed, non-cancelable obligations as of December 31, 2013, were as follows:
Debt (1)
Interest on debt (1)
Capital lease (2)
Operating leases (3)
Purchase obligations (4)
Executive Officer employment
contracts (5)
Other long-term liabilities (6)
Uncertain tax positions (7)
Total
Payments due by period
Less than
1 year
$
-
23,700
117
21,998
*
2,150
42,171
*
90,136
$
1-3
years
-
$
47,400
-
30,069
*
2,150
690
*
80,309
$
3-5
years
-
$
47,400
-
22,302
*
-
-
*
69,702
$
More than
5 years
600,000
$
94,734
-
35,837
*
-
-
*
$
730,571
Total
$
600,000
213,234
117
110,206
74,999
4,300
42,861
28,467
1,074,184
$
(1)
See Note 9 in the accompanying consolidated financial statements for additional information regarding the Senior
Notes.
35
(2)
(3)
(4)
(5)
The present value of this obligation is included on the consolidated balance sheets. See Note 9 in the accompanying
consolidated financial statements for additional information regarding capital lease obligations.
See Note 13 in the accompanying consolidated financial statements for additional information regarding operating
leases.
Amount represents required payments of forfeitable deposits with land developers under existing fixed price
purchase agreements, assuming that contractual development milestones are met by the developers, and specific
performance guarantees. 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.
We have entered into employment agreements with our four executive officers. Each of the agreements expires on
January 1, 2016 and provides for payment of a minimum base salary, which may be increased at the discretion of
the Compensation Committee of our 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 $100 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.
(6)
Amounts represent payments due under incentive compensation plans and are included on the accompanying
consolidated balance sheets, approximately $1,532 of which is recorded in the Mortgage Banking “Accounts
payable and other liabilities” line item, and the remainder in the Homebuilding “Accrued expenses and other
liabilities” line item.
(7)
Due to the nature of the uncertain tax positions, we are unable to make a reasonable estimate as to the period of
settlement with the respective taxing authorities.
Critical Accounting Policies
General
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America (“GAAP”) 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.
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, with the exception of land under development. Upon settlement, the cost of the unit is expensed
on a specific identification basis. Cost of production materials is determined on a first-in, first-out basis.
Sold inventory is evaluated for impairment based on the contractual selling price compared to the total
estimated cost to construct. Unsold inventory is evaluated for impairment by analyzing recent comparable sale
prices within the applicable community compared to the costs incurred to date plus the expected costs to
36
complete. Any calculated impairments are recorded immediately.
Land Under Development and Contract Land Deposits
Land Under Development
On a very limited basis, we directly acquire raw parcels of land already zoned for its intended use to
develop into finished lots. Land under development includes the land acquisition costs, direct improvement
costs, capitalized interest, where applicable, and real estate taxes.
Land under development, including the land under development held by our unconsolidated joint
ventures and the related joint venture investments, is reviewed for potential write-downs when impairment
indicators are present. In addition to considering market and economic conditions, we assess land under
development impairments on a community-by-community basis, analyzing, as applicable, current sales
absorption levels, recent sales’ gross profit, and the dollar differential between the projected fully-developed cost
of the lots and the current market price for lots. If indicators of impairment are present for a community, we
perform an analysis to determine if the undiscounted cash flows estimated to be generated by those assets are less
than their carrying amounts, and if they are, impairment charges are required to be recorded in an amount by
which the carrying amount of the assets exceeds the fair value of the assets. Our determination of fair value is
primarily based on discounting the estimated future cash flows at a rate commensurate with the inherent risks
associated with the assets and related estimated cash flow streams.
At December 31, 2013, we had approximately $41,300 in land under development in five separate
communities. In addition, at December 31, 2013, we had an aggregate investment totaling approximately
$92,700 in four separate joint ventures that controlled land under development. None of the communities
classified as land under development nor any of the undeveloped land held by the joint ventures had any
indicators of impairment at December 31, 2013. As such, we do not believe that any of the land under
development is impaired at this time. However, there can be no assurance that we will not incur impairment
charges in the future due to unanticipated adverse changes in the economy or other events adversely affecting
specific markets or the homebuilding industry.
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 reflects our judgment of the present
loss exposure in the existing contract land deposit portfolio at the end of the reporting period. To analyze
contract land deposit impairments, we utilize a loss contingency analysis that is conducted each quarter. In
addition to considering market and economic conditions, we assess contract land deposit impairments on a
community-by-community basis pursuant to the purchase contract terms, analyzing, as applicable, current sales
absorption levels, recent sales’ gross profit, the dollar differential between the contractual purchase price and the
current market price for lots, a developer’s financial stability, a developer’s financial ability or willingness to
reduce lot prices to current market prices, and the contract’s default status by either us or the developer along
with an analysis of the expected outcome of any such default.
Our analysis is focused on whether we can sell houses profitably in a particular community in the current
market with which we are faced. Because we do not own the finished lots on which we had placed a contract
land deposit, if the above analysis leads to a determination that we cannot sell homes profitably at the current
contractual lot price, we then determine whether we will elect to default under the contract, forfeit our deposit and
terminate the contract, or whether we will attempt to restructure the lot purchase contract, which may require us
to forfeit the deposit to obtain contract concessions from a developer. We also assess whether an impairment is
present due to collectability issues resulting from a developer’s non-performance because of financial or other
37
conditions.
Although we consider the allowance for losses on contract land deposits reflected on the December 31,
2013 consolidated balance sheet to be adequate (see Note 1 to the accompanying consolidated financial
statements included herein), 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.
Excess Reorganization Value
Reorganization value in excess of identifiable assets (“excess reorganization value”) is an indefinite-lived
intangible asset that was created upon our emergence from bankruptcy on September 30, 1993. Based on the
allocation of our reorganization value, the portion of our reorganization value which was not attributed to specific
tangible or intangible assets has been reported as excess reorganization value, which is treated similarly to
goodwill. Excess reorganization value is not subject to amortization. Rather, excess reorganization value is
subject to an impairment assessment on an annual basis or more frequently if changes in events or circumstances
indicate that impairment may have occurred. Because excess reorganization value was based on the
reorganization value of our entire enterprise upon bankruptcy emergence, the impairment assessment is
conducted on an enterprise basis based on the comparison of our total equity compared to the market value of our
outstanding publicly-traded common stock. We do not believe that excess reorganization value is impaired at this
time. However, changes in strategy or adverse changes in market conditions could impact this judgment and
require an impairment loss to be recognized if our book value, including excess reorganization value, exceeds the
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 evaluations by our General Counsel and outside
counsel retained to handle specific product liability cases. Although we consider the warranty and product
liability accrual reflected on the December 31, 2013 consolidated balance sheet to be adequate (see Note 13 to the
accompanying consolidated financial statements included herein), 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.
Equity-Based Compensation Expense
Compensation costs related to our equity-based compensation plans are recognized within our income
statement. The costs recognized are based on the grant-date fair value. Compensation cost for share-based
grants is recognized on a straight-line basis over the requisite service period for the entire award (from the date
of grant through the period of the last separately vesting portion of the grant).
We calculate the fair value of our non-publicly traded, employee stock options using the Black-Scholes
option-pricing model. While the Black-Scholes model is a widely accepted method to calculate the fair value
of options, its results are dependent on input variables, two of which, expected term and expected volatility, are
significantly dependent on management’s judgment. We have concluded that our historical exercise
experience is the best estimate of future exercise patterns to determine an option’s expected term. To estimate
expected volatility, we analyze the historical volatility of our common stock over a period equal to the option’s
expected term. Changes in management’s judgment of the expected term and the expected volatility could
have a material effect on the grant-date fair value calculated and expensed within the income statement. In
addition, we are required to estimate future grant forfeitures when considering the amount of stock-based
38
compensation costs to record. We have concluded that our historical forfeiture rate is the best measure to base
our estimate of future forfeitures of equity-based compensation grants. However, there can be no assurance
that our future forfeiture rate will not be materially higher or lower than our historical forfeiture rate, which
would affect the aggregate cumulative compensation expense recognized.
Mortgage Loan Loss Allowance
We originate several different loan products to our customers to finance the purchase of their home. We
sell all of the loans we originate into the secondary mortgage market generally within 30 days from origination.
All of the loans that we originate are underwritten to the standards and specifications of the ultimate investor.
Insofar as we underwrite our originated loans to those standards, we bear no increased concentration of credit risk
from the issuance of loans, except in certain limited instances where early payment default occurs. Those
underwriting standards are typically equal to or more stringent than the underwriting standards required by
FNMA, VA and FHA. We employ a quality control department to ensure that our underwriting controls are
effectively operating, and further assess the underwriting function as part of our assessment of internal controls
over financial reporting. We maintain an allowance for losses on mortgage loans originated that reflects our
judgment of the present loss exposure in the loans that we have originated and sold. The allowance is calculated
based on an analysis of historical experience and exposure. Although we consider the allowance for loan losses
reflected on the December 31, 2013 consolidated balance sheet to be adequate (see Note 15 to the accompanying
consolidated financial statements included herein), there can be no assurance that this allowance will prove to be
adequate over time to cover losses due to unanticipated changes to the assumptions used to estimate the mortgage
loan loss allowance.
Impact of Inflation, Changing Prices and Economic Conditions
See “Risk Factors” included in Item 1A herein for a description of the impact of inflation, changing
prices and economic conditions on our business and our financial results. See also the discussion of the current
business environment in the Overview section above.
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 and debt obligations. Interest rate
risk results from 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 homebuilding segment is exposed to interest rate risk as it relates to its debt obligations. In
September 2012, we issued $600,000 of Senior Notes. The Senior Notes mature on September 15, 2022 and bear
interest at 3.95%, payable semi-annually in arrears on March 15 and September 15, commencing on March 15,
2013. Changes to interest rates generally affect the fair value of fixed-rate debt instruments, but not earnings or
cash flows. We generally have no obligation to prepay the Senior Notes prior to maturity, and therefore, interest
rate fluctuations should not have a significant impact on our fixed-rate debt.
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 sold through either 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 all of its mortgages held for sale on a
servicing released basis.
NVRM has available a mortgage Repurchase Agreement, which provides for loan repurchases up to
$25,000, subject to certain sub limits. The Repurchase Agreement is used to fund NVRM’s mortgage origination
activities. Advances under the Repurchase Agreement carry a Pricing Rate based on the LIBOR Rate plus the
39
LIBOR Margin, or the Default Pricing Rate, as determined under the Repurchase Agreement, provided that the
Pricing Rate shall not be less than 3.00%. At December 31, 2013, there was no debt outstanding under the
Repurchase Agreement.
The following table represents the contractual balances of our on-balance sheet financial instruments at
the expected maturity dates, as well as the fair values of those on-balance sheet financial instruments at December
31, 2013. The table does not include the debt of our consolidated joint venture as it is non-recourse to us. The
expected maturity categories take into consideration the actual and anticipated amortization of principal and do
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, advances outstanding under the
Repurchase Agreement would also be assumed to mature in the first year.
40
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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, as amended (“Exchange Act”).
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, 2013 were effective to
provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act,
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.
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 Exchange Act. 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 (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control
– Integrated Framework (1992), our management concluded that our internal control over financial reporting
was effective as of December 31, 2013. 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.
Our internal control over financial reporting as of December 31, 2013 has been audited by KPMG LLP,
an independent registered public accounting firm, as stated in their attestation report which is included herein.
Item 9B. Other Information.
None
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
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, 2014. Reference is also made regarding our
executive officers to "Executive Officers of the Registrant" following Item 4 of Part I of this report.
42
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, 2014.
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,
2014.
Equity Compensation Plan Information
The table below sets forth information as of the end of our 2013 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 to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in the first
column)
500,955
$ 717.52
79,730
211,090
712,045
$ 636.12
$ 693.39
-
79,730
Plan category
Equity compensation plans approved
by security holders (1)
Equity compensation plans not approved
by security holders
Total
(1)
This category includes the RSUs authorized by the 2010 Equity Incentive Plan, which was approved by our
shareholders at the May 4, 2010 Annual Meeting. At December 31, 2013, there are 45,009 RSUs outstanding,
issued at a $0 exercise price. Of the total 79,730 shares remaining available for future issuance, up to 48,476 may
be issued as RSUs. The weighted-average exercise price of outstanding options under security holder approved
plans excluding outstanding RSUs was $788.36.
Equity compensation plans approved by our shareholders include the NVR, Inc. Management Long-
Term Stock Option Plan; the NVR, Inc. 1998 Management Long-Term Stock Option Plan; the 1998 Directors’
Long-Term Stock Option Plan; and the 2010 Equity Incentive Plan. The only equity compensation plan that
was not approved by our shareholders is the NVR, Inc. 2000 Broadly-Based Stock Option Plan. See Note 12 in
the accompanying consolidated financial statements for a description of each of our equity compensation plans.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
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, 2014.
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, 2014.
43
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
3.2
4.1
4.2
4.3
4.4
Restated Articles of Incorporation of NVR, Inc. Filed as Exhibit 3.1 to NVR’s Annual
Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by
reference.
Bylaws, as amended, of NVR, Inc. Filed as Exhibit 3.2 to NVR’s Annual Report on
Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.
Indenture dated as of April 14, 1998 between NVR, Inc., 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.
Form of Note (included in Indenture filed as Exhibit 4.1).
Fifth Supplemental Indenture dated September 10, 2012 among NVR, Inc. and U.S. Bank
Trust National Association. Filed as Exhibit 4.1 to NVR’s Form 8-K filed on September
10, 2012 and incorporated herein by reference.
Form of Global Note. Filed as Exhibit 4.2 to NVR’s Form 8-K filed on September 10,
2012 and incorporated herein by reference.
10.1* Employment Agreement between NVR, Inc. and Paul C. Saville dated December 21,
2010. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on December 21, 2010 and
incorporated herein by reference.
10.2* Employment Agreement between NVR, Inc. and Robert W. Henley dated December 21,
2010. Filed as Exhibit 10.4 to NVR’s Form 8-K filed on December 21, 2010 and
incorporated herein by reference.
10.3* Amendment No. 1 to the Employment Agreement between NVR, Inc. and Robert W.
Henley dated December 21, 2010. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on
May 31, 2012 and incorporated herein by reference.
10.4* Amendment No. 2 to the Employment Agreement between NVR, Inc. and Robert W.
Henley dated December 21, 2010. Filed as Exhibit 10.5 to NVR’s Form 10-K filed on
February 19, 2013 and incorporated herein by reference.
10.5* Employment Agreement between NVR, Inc. and Eugene J. Bredow dated May 31, 2012.
Filed as Exhibit 10.2 to NVR’s Form 8-K filed on May 31, 2012 and incorporated herein
by reference.
44
10.6* Amendment No. 1 to the Employment Agreement between NVR, Inc. and Eugene J.
Bredow dated May 31, 2012. Filed as Exhibit 10.7 to NVR’s Form 10-K filed on
February 19, 2013 and incorporated herein by reference.
10.7* Employment Agreement between NVR, Inc. and Daniel D. Malzahn dated February 19,
2013. Filed as Exhibit 10.8 to NVR’s Form 10-K filed on February 19, 2013 and
incorporated herein by reference.
10.8* 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.
10.9* 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.
10.10* 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.
10.11* 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.
10.12* 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.
10.13* 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.
10.14* 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.
10.15* 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.
10.16* NVR, Inc. 2010 Equity Incentive Plan. Filed as exhibit 10.1 to NVR’s Form S-8 (No. 333-
166512) filed on May 4, 2010 and incorporated herein by reference.
10.17* The Form of Non-Qualified Stock Option Agreement (Management grants) under the NVR,
Inc. 2010 Equity Incentive Plan. Filed as exhibit 10.1 to NVR’s Form 10-Q filed on July
30, 2013 and incorporated herein by reference.
10.18* The Form of Non-Qualified Stock Option Agreement (Director grants) under the NVR, Inc.
2010 Equity Incentive Plan. Filed as exhibit 10.2 to NVR’s Form 8-K filed on May 6, 2010
and incorporated herein by reference.
10.19* The Form of Restricted Share Units Agreement (Management grants) under the NVR, Inc.
2010 Equity Incentive Plan. Filed as exhibit 10.2 to NVR’s Form 10-Q filed on July 30,
2013 and incorporated herein by reference.
10.20* The Form of Restricted Share Units Agreement (Director grants) under the NVR, Inc.
2010 Equity Incentive Plan. Filed as exhibit 10.4 to NVR’s Form 8-K filed on May 6,
2010 and incorporated herein by reference.
10.21* The Form of Non-Qualified Stock Option Agreement under the NVR, Inc. 2000 Broadly
45
Based Stock Option Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed January 3, 2008
and incorporated herein by reference.
10.22* The Form of Non-Qualified Stock Option Agreement under the 1998 Directors’ Long-
Term Stock Option Plan. Filed as Exhibit 10.34 to NVR’s Annual Report on Form 10-K
for the period ended December 31, 2007 and incorporated herein by reference.
10.23* Summary of 2014 Named Executive Officer annual incentive compensation plan. Filed
21
23
herewith.
NVR, Inc. Subsidiaries. Filed herewith.
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.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
* Exhibit is a management contract or compensatory plan or arrangement.
46
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.
By: /s/ Paul C. Saville
Paul C. Saville
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Dwight C. Schar
Dwight C. Schar
/s/ C. E. Andrews
C. E. Andrews
/s/ Robert C. Butler
Robert C. Butler
/s/ Timothy M. Donahue
Timothy M. Donahue
/s/ Thomas D. Eckert
Thomas D. Eckert
/s/ Alfred E. Festa
Alfred E. Festa
/s/ Ed Grier
Ed Grier
/s/ Manuel H. Johnson
Manuel H. Johnson
/s/ Mel Martinez
Mel Martinez
/s/ William A. Moran
William A. Moran
/s/ David A. Preiser
David A. Preiser
/s/ W. Grady Rosier
W. Grady Rosier
/s/ Paul W. Whetsell
Paul W. Whetsell
Title
Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
47
Date
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
February 20, 2014
/s/ Paul C. Saville
Paul C. Saville
/s/ Daniel D. Malzahn
Daniel D. Malzahn
/s/ Eugene J. Bredow
Eugene J. Bredow
Principal Executive Officer
February 20, 2014
Principal Financial Officer
February 20, 2014
Principal Accounting Officer
February 20, 2014
48
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, 2013 and
2012, 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, 2013. 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, 2013 and 2012, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2013, 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), NVR, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 20, 2014 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
KPMG LLP
McLean, Virginia
February 20, 2014
49
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
NVR, Inc.:
We have audited NVR, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). NVR, Inc.’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, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on 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, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
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, NVR, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
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, 2013 and 2012 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, 2013, and our report dated February 20, 2014 expressed an unqualified opinion on those consolidated
financial statements.
KPMG LLP
McLean, Virginia
February 20, 2014
50
NVR, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
ASSETS
Homebuilding:
Cash and cash equivalents
Receivables
Inventory:
Lots and housing units, covered under
sales agreements with customers
Unsold lots and housing units
Land under development
Building materials and other
Assets related to consolidated variable interest entity
Contract land deposits, net
Property, plant and equipment, net
Reorganization value in excess of amounts allocable
to identifiable assets, net
Goodwill and finite-lived intangible assets, net
Deferred tax assets, net
Other assets
Mortgage Banking:
Cash and cash equivalents
Mortgage loans held for sale, net
Property and equipment, net
Reorganization value in excess of amounts allocable
to identifiable assets, net
Other assets
December 31,
2013
2012
$
844,274
9,529
$
1,139,103
9,421
568,831
117,467
41,328
10,939
738,565
7,268
236,885
32,599
41,580
6,747
162,378
145,555
2,225,380
21,311
210,641
4,699
7,347
16,770
260,768
515,498
81,932
68,336
12,365
678,131
15,626
191,538
27,016
41,580
9,219
145,618
125,018
2,382,270
13,498
188,929
2,465
7,347
10,333
222,572
Total assets
$
2,486,148
$
2,604,842
See notes to consolidated financial statements.
(Continued)
51
NVR, Inc.
Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)
December 31,
2013
2012
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable
Accrued expenses and other liabilities
Liabilities related to consolidated variable interest entity
Non-recourse debt related to consolidated variable
$
181,687
316,227
1,646
$
163,446
234,804
2,180
interest entity
Customer deposits
Senior notes
Mortgage Banking:
Accounts payable and other liabilities
Total liabilities
Commitments and contingencies
Shareholders' equity:
3,365
101,022
599,075
1,203,022
21,774
21,774
1,224,796
4,574
99,687
598,988
1,103,679
20,686
20,686
1,124,365
Common stock, $0.01 par value; 60,000,000 shares
authorized; 20,555,330 and 20,556,198 shares issued
as of December 31, 2013 and 2012, respectively
Additional paid-in-capital
Deferred compensation trust –109,256 and 152,223
shares of NVR, Inc. common stock as of
December 31, 2013 and 2012, respectively
Deferred compensation liability
Retained earnings
Less treasury stock at cost – 16,121,605 and 15,642,068
shares as of December 31, 2013 and 2012,
respectively
Total shareholders' equity
Total liabilities and shareholders' equity
206
1,212,050
206
1,169,699
(17,741)
17,741
4,605,557
(25,331)
25,331
4,339,080
(4,556,461)
1,261,352
2,486,148
$
(4,028,508)
1,480,477
2,604,842
$
See notes to consolidated financial statements.
52
NVR, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
Homebuilding:
Revenues
Other income
Cost of sales
Selling, general and administrative
Operating income
Interest expense
Homebuilding income
Mortgage Banking:
Mortgage banking fees
Interest income
Other income
General and administrative
Interest expense
Mortgage banking income
Income before taxes
Income tax expense
Net income
2013
Year Ended December 31,
2012
2011
$
4,134,481
3,962
(3,424,204)
(313,029)
401,210
(21,840)
379,370
$
3,121,244
3,486
(2,575,639)
(301,184)
247,907
(6,983)
240,924
$
2,611,195
4,301
(2,165,625)
(264,266)
185,605
(1,017)
184,588
76,786
4,983
696
(42,594)
(545)
39,326
418,696
(152,219)
63,406
4,504
564
(33,775)
(546)
34,153
275,077
(94,489)
47,954
5,702
456
(30,249)
(875)
22,988
207,576
(78,156)
$
266,477
$
180,588
$
129,420
Basic earnings per share
$
56.25
$
36.04
$
23.66
Diluted earnings per share
$
54.81
$
35.12
$
23.01
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
4,737
4,862
5,011
5,142
5,469
5,624
See notes to consolidated financial statements.
53
NVR, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Common
Stock
Additional
Paid-In-
Capital
Retained
Earnings
Deferred
Deferred
Treasury
Compensation
Compensation
Stock
Trust
Liability
Total
Balance, December 31, 2010
$
206
$
951,234
$
4,029,072
$
(3,240,138)
$
(27,582)
$
27,582
$
1,740,374
Net income
Deferred compensation
activity
Purchase of common stock
for treasury
Equity-based compensation
Tax benefit from equity benefit
plan activity
Proceeds from stock options
exercised
Treasury stock issued upon
option exercise and
restricted share vesting
-
-
-
-
-
-
-
Balance, December 31, 2011
206
Net income
Deferred compensation
activity
Purchase of common stock
for treasury
Equity-based compensation
Tax benefit from equity benefit
plan activity
Proceeds from stock options
exercised
Treasury stock issued upon
option exercise and
restricted share vesting
-
-
-
-
-
-
-
Balance, December 31, 2012
206
Net income
Deferred compensation
activity
Purchase of common stock
for treasury
Equity-based compensation
Tax benefit from equity benefit
plan activity
Proceeds from stock options
exercised
Treasury stock issued upon
option exercise and
restricted share vesting
Balance, December 31, 2013
-
-
-
-
-
-
-
-
-
-
64,473
22,835
106,999
(72,762)
1,072,779
-
-
-
64,841
14,319
73,211
(55,451)
1,169,699
-
-
-
34,296
20,636
13,957
(26,538)
129,420
-
-
-
-
-
-
-
-
(689,302)
-
-
-
72,762
-
-
129,420
2,001
(2,001)
-
-
-
-
-
-
-
-
-
-
-
(689,302)
64,473
22,835
106,999
-
4,158,492
(3,856,678)
(25,581)
25,581
1,374,799
180,588
-
-
-
-
-
-
-
-
(227,281)
-
-
-
55,451
-
250
-
-
-
-
-
-
180,588
(250)
-
-
-
-
-
-
(227,281)
64,841
14,319
73,211
-
4,339,080
(4,028,508)
(25,331)
25,331
1,480,477
266,477
-
-
-
-
-
-
-
-
(554,491)
-
-
-
26,538
-
-
266,477
7,590
(7,590)
-
-
-
-
-
-
-
-
-
-
-
(554,491)
34,296
20,636
13,957
-
$
206
$
1,212,050
$
4,605,557
$
(4,556,461)
$
(17,741)
$
17,741
$
1,261,352
See notes to consolidated financial statements
54
NVR, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Excess income tax benefit from equity-based compensation
Equity-based compensation expense
Contract land deposit (recoveries) impairments
Gain on sale of loans
Loss (gain) on sale of fixed assets
Deferred tax (benefit) expense
Mortgage loans closed
Proceeds from sales of mortgage loans
Principal payments on mortgage loans held for sale
Distribution of earnings from unconsolidated joint ventures
Net change in assets and liabilities:
Increase in inventory
Increase in contract land deposits
(Increase) decrease in receivables
Increase (decrease) in accounts payable, accrued
expenses and customer deposits
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Investments in and advances to unconsolidated joint ventures
Distribution of capital from unconsolidated joint ventures
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Acquisition, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Purchase of treasury stock
Net repayments under note payable and credit lines
Repayments on loans assumed in acquisition
Repayments under non-recourse debt related to
consolidated variable interest entity
Borrowings under non-recourse debt related to
consolidated variable interest entity
Distributions to partner in consolidated variable interest entity
Excess income tax benefit from equity-based compensation
Proceeds from issuance of Senior Notes due 2022
Debt issuance costs for Senior Notes due 2022
Proceeds from the exercise of stock options
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of the year
2013
Year Ended December 31,
2012
2011
$
266,477
$
180,588
$
129,420
13,391
(20,636)
34,296
(5,313)
(56,528)
269
(16,848)
(2,307,796)
2,335,726
2,975
5,676
(52,861)
(40,034)
(260)
114,456
(2,768)
270,222
(22,850)
6,782
(19,016)
607
-
(34,477)
(554,491)
(642)
-
8,100
(14,319)
64,841
(2,003)
(47,019)
(31)
11,843
(2,016,084)
2,122,749
2,690
4,232
(97,750)
(53,942)
(1,818)
110,396
(8,089)
264,384
(1,000)
4,692
(12,365)
319
(14,257)
(22,611)
(227,281)
(856)
(21,910)
6,672
(22,835)
64,473
11,241
(34,632)
(217)
23,732
(1,754,655)
1,716,966
4,271
2,347
(99,527)
(42,385)
465
(2,977)
(896)
1,463
(61,600)
10,653
(11,444)
525
-
(61,866)
(689,302)
(90,476)
-
(4,314)
(6,566)
(7,958)
3,105
(1,250)
20,636
-
-
13,957
(522,999)
(287,254)
1,153,507
6,157
-
14,319
598,962
(5,096)
73,211
430,940
672,713
480,794
5,349
-
22,835
-
-
106,999
(652,553)
(712,956)
1,193,750
Cash and cash equivalents, end of the year
$
866,253
$
1,153,507
$
480,794
See notes to consolidated financial statements.
55
(Continued)
NVR, Inc.
Consolidated Statements of Cash Flows (Continued)
(in thousands)
2013
Year Ended December 31,
2012
2011
Supplemental disclosures of cash flow information:
Interest paid during the year, net of interest capitalized
$
24,876
$
1,041
$
2,000
Income taxes paid during the year, net of refunds
$
113,224
$
59,604
$
49,763
Supplemental disclosures of non-cash activities:
Increase in assets in connection with acquisition
Increase in liabilities in connection with acquisition
$
-
$
-
$
$
55,759
41,502
$
-
$
-
See notes to consolidated financial statements.
56
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”) and its subsidiaries and certain other entities in which the Company is deemed to be
the primary beneficiary (see Notes 3 and 4 herein for additional information). 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 (“GAAP”) requires management 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. Management continually evaluates the estimates used to prepare the
consolidated financial statements and updates those estimates as necessary. In general, the Company’s
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.
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to
conform to 2013 presentation.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments with original maturities of three months
or less. At December 31, 2013 and 2012, $668 and $906, respectively, of cash related to a consolidated
variable interest entity is included in “Assets related to consolidated variable interest entity” on the
accompanying consolidated balance sheet.
The homebuilding segment had restricted cash of $20,563 and $19,661 at December 31, 2013 and
2012, respectively. Restricted cash in both 2013 and 2012 was attributable to holding requirements
related to outstanding letters of credit issued under the Company’s letter of credit agreement as discussed
further in Note 13 herein. In addition, restricted cash relates to customer deposits for certain home sales.
Restricted cash is recorded in “Other assets” in the homebuilding section of the accompanying
consolidated balance sheets.
The mortgage banking segment had restricted cash of $2,860 and $2,089 at December 31, 2013
and 2012, respectively, which included amounts collected from customers for loans in process and closed
mortgage loans held for sale. The mortgage banking segment’s restricted cash is recorded in “Other
assets” in the mortgage banking section of the accompanying consolidated balance sheets.
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
57
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
construction supervisors' salaries and related direct overhead expenses are included in inventory costs.
Interest costs are not capitalized into inventory, with the exception of land under development, as
applicable (see below). Upon settlement, the cost of the unit is expensed on a specific identification basis.
Cost of production materials is determined on a first-in, first-out basis.
Sold inventory is evaluated for impairment based on the contractual selling price compared to the
total estimated cost to construct. Unsold inventory is evaluated for impairment by analyzing recent
comparable sales prices within the applicable community compared to the costs incurred to date plus the
expected costs to complete. Any calculated impairments are recorded immediately.
Contract Land Deposits
The Company 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 aggregate purchase price of the
finished lots.
NVR maintains an allowance for losses on contract land deposits that reflects the Company’s
judgment of the present loss exposure in the existing contract land deposit portfolio at the end of the
reporting period. To analyze contract land deposit impairments, NVR utilizes an Accounting Standards
Codification (“ASC”) 450, Contingencies, loss contingency analysis that is conducted each quarter. In
addition to considering market and economic conditions, NVR assesses contract land deposit impairments
on a community-by-community basis pursuant to the purchase contract terms, analyzing, as applicable,
current sales absorption levels, recent sales’ gross profit, the dollar differential between the contractual
purchase price and the current market price for lots, a developer’s financial stability, a developer’s
financial ability or willingness to reduce lot prices to current market prices, and the contract’s default
status by either the Company or the developer along with an analysis of the expected outcome of any such
default.
NVR’s analysis is focused on whether the Company can sell houses profitably in a particular
community in the current market with which the Company is faced. Because the Company does not own
the finished lots on which the Company has placed a contract land deposit, if the above analysis leads to a
determination that the Company can’t sell homes profitably at the current contractual lot price, the
Company then determines whether it will elect to default under the contract, forfeit the deposit and
terminate the contract, or whether the Company will attempt to restructure the lot purchase contract,
which may require it to forfeit the deposit to obtain contract concessions from a developer. The Company
also assesses whether impairment is present due to collectability issues resulting from a developer’s non-
performance because of financial or other conditions.
For the years ended December 31, 2013 and 2012, the Company recognized pre-tax recoveries of
approximately $5,300 and $2,000, respectively, of contract land deposits previously determined to be
uncollectible. For the year ended December 31, 2011, the Company incurred pre-tax charges of
approximately $11,200 related to the impairment of contract land deposits. These impairment recoveries
and charges were recorded in cost of sales on the accompanying consolidated statements of income. The
contract land deposit asset on the accompanying consolidated balance sheets is shown net of an
approximate $59,800 and $65,000 impairment valuation allowance at December 31, 2013, and 2012,
respectively.
58
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Land Under Development
On a very limited basis, NVR directly acquires raw parcels of land already zoned for its intended
use to develop into finished lots. Land under development includes the land acquisition costs, direct
improvement costs, capitalized interest, where applicable, and real estate taxes.
Land under development, including the land under development held by the Company’s
unconsolidated joint ventures and the related joint venture investments, is reviewed for potential write-
downs when impairment indicators are present. In addition to considering market and economic
conditions, the Company assesses land under development impairments on a community-by-community
basis, analyzing, as applicable, current sales absorption levels, recent sales’ gross profit, and the dollar
differential between the projected fully-developed cost of the lots and the current market price for lots. If
indicators of impairment are present for a community, NVR performs an analysis to determine if the
undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts,
and if so, impairment charges are required to be recorded if the fair value of such assets is less than their
carrying amounts. For those assets deemed to be impaired, the impairment to be recognized is measured
as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The
Company’s determination of fair value is primarily based on discounting the estimated future cash flows
at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow
streams. NVR does not believe that any of the land under development is impaired at this time.
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, production 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, or the lease-term if shorter.
Intangible Assets
Reorganization value in excess of identifiable assets (“excess reorganization value”) is an
indefinite-lived intangible asset that was created upon NVR’s emergence from bankruptcy on September
30, 1993. Based on the allocation of the reorganization value, the portion of the reorganization value
which was not attributed to specific tangible or intangible assets has been reported as excess
reorganization value, which is treated similarly to goodwill. Excess reorganization value is not subject to
amortization. Rather, excess reorganization value is subject to an impairment assessment on an annual
basis or more frequently if changes in events or circumstances indicate that impairment may have
occurred. Because excess reorganization value was based on the reorganization value of NVR’s entire
enterprise upon bankruptcy emergence, the impairment assessment is conducted on an enterprise basis
based on the comparison of NVR’s total shareholders’ equity compared to the market value of NVR’s
outstanding publicly-traded common stock. The Company completed its annual assessment of
impairment and management determined that there was no impairment of excess reorganization value.
On December 31, 2012, the Company acquired substantially all of the assets of Heartland Homes,
Inc. The acquisition resulted in the Company recording finite-lived intangible assets and goodwill in the
amounts of $8,778 and $441, respectively. The Company completed its annual assessment for
59
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
impairment of goodwill and management determined that there was no impairment. As of December 31,
2013, the goodwill value was $441. As of December 31, 2013, finite-lived intangible assets attributable
to the Heartland Homes, Inc. acquisition totaled $6,306. The remaining finite-lived intangible assets will
be amortized on a straight-line basis over a weighted average life of 5 years. See Note 16 herein for
additional information regarding the acquisition.
Warranty/Product Liability Accruals
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 the Company’s General Counsel and outside counsel retained to
handle specific product liability cases.
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. NVR sells all of the loans it originates into the secondary
market on a servicing released basis, typically within 30 days from origination. All of the loans that the
Company originates are underwritten to the standards and specifications of the ultimate investor. Those
underwriting standards are typically equal to or more stringent than the underwriting standards required
by FNMA, VA and FHA. Insofar as the Company underwrites its originated loans to those standards, the
Company bears no increased concentration of credit risk from the issuance of loans, except in certain
limited instances where early payment default occurs. 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. The Company
maintains an allowance for losses on mortgage loans originated that reflects NVR’s judgment of the
present loss exposure in the loans that it has originated and sold. The allowance is calculated based on an
analysis of historical experience and exposure (see Note 15 herein for further information).
Mortgage loans held for sale are recorded at fair value at closing and thereafter are carried at the
lower of cost or fair value, net of deferred origination costs, until sold.
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 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. NVR does not engage in speculative or trading derivative activities.
Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are
undesignated derivatives, and, accordingly, are marked to fair value through earnings. At December 31,
2013, there were contractual commitments to extend credit to borrowers aggregating $243,084, and open
forward delivery sale contracts aggregating $430,859. See Note 14 herein for a description of the
60
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Company’s fair value accounting calculation.
Earnings per Share
The following weighted average shares and share equivalents were used to calculate basic and
diluted earnings per share for the years ended December 31, 2013, 2012 and 2011:
Weighted average number of shares
outstanding used to calculate basic EPS
Dilutive securities:
Stock options and restricted share units
Weighted average number of shares and
share equivalents outstanding used to
calculate diluted EPS
Year Ended December 31,
2013
2012
2011
4,737,124
5,011,058
5,469,159
124,578
130,471
154,658
4,861,702
5,141,529
5,623,817
The assumed proceeds used in the treasury method for calculating NVR’s diluted earnings per
share includes the amount the employee must pay upon exercise, the amount of compensation cost
attributed to future services not yet recognized and the amount of tax benefits that would be credited or
charged to additional paid-in-capital assuming exercise of the stock option or vesting of the restricted
share unit. The assumed amount credited to additional paid-in-capital equals the tax benefit from
assumed exercise of stock options or the assumed vesting of restricted share units after consideration of
the intrinsic value upon assumed exercise or vesting less the actual stock-based compensation expense to
be recognized in the income statement.
Stock options and restricted share units issued under equity benefit plans to purchase 156,712;
194,416 and 467,367 shares of common stock were outstanding during the years ended December 31,
2013, 2012 and 2011, respectively, but were not included in the computation of diluted earnings per share
because the effect would have been anti-dilutive.
Revenues – Homebuilding Operations
NVR builds single-family detached homes, townhomes and condominium buildings, which
generally are constructed on a pre-sold basis for the ultimate customer. Revenues are recognized at the
time the unit is settled and title passes to the customer, adequate cash payment has been received and there
is no continuing involvement. In situations where the buyer’s financing is originated by NVR Mortgage
Finance, Inc. (“NVRM”), a wholly-owned subsidiary of NVR, and the buyer has not made an adequate
initial or continuing investment as prescribed by GAAP, the profit on such settlement is deferred until the
sale of the related loan to a third-party investor has been completed.
Mortgage Banking Fees
Mortgage banking fees include income earned by NVRM 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.
61
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.
ASC 740-10, Income Taxes, provides that a tax benefit from an uncertain tax position may be
recognized when it is more-likely-than-not (defined as a likelihood of more than 50%) that the position
will be sustained upon examination, including resolution of any related appeals or litigation processes,
based on the technical merits. If a tax position does not meet the more-likely-than-not recognition
threshold, despite the Company’s belief that its filing position is supportable, the benefit of that tax
position is not recognized in the statements of income. The Company recognizes interest related to
unrecognized tax benefits as a component of income tax expense. Based on its historical experience in
dealing with various taxing authorities, the Company has found that it is the administrative practice of the
taxing authorities to not seek penalties from the Company for the tax positions it has taken on its returns,
related to its unrecognized tax benefits. Therefore, the Company does not accrue penalties for the
positions in which it has an unrecognized tax benefit. However, if such penalties were to be accrued, they
would be recorded as a component of income tax expense. The Company recognizes unrecognized tax
benefits in the period that the uncertainty is eliminated by either affirmative agreement of the uncertain
tax position by the applicable taxing authority, by expiration of the applicable statute of limitation, or by
determination in accordance with certain states’ administrative practices that the uncertain tax position has
been effectively settled (see Note 11 herein for further information).
Financial Instruments
Except as otherwise noted herein, NVR believes that insignificant differences exist between the
carrying value and the fair value of its financial instruments (see Note 14 herein for further information).
Stock-Based Compensation
The company accounts for its stock-based compensation in accordance with ASC 718,
Compensation – Stock Compensation. ASC 718 requires an entity to recognize an expense within its
income statement for all share-based payment arrangements, which includes employee stock option and
restricted share unit plans. The expense is based on the grant-date fair value of the stock options and
restricted share units granted, and is recognized ratably over the requisite service period. The Company
calculates the fair value of its non-publicly traded, employee stock options using the Black-Scholes
option-pricing model. The grant date fair value of the restricted share units is the closing price of the
Company’s common stock on the day immediately preceding the date of grant. The Company’s equity-
based compensation programs are accounted for as equity-classified awards. See Note 12 herein for
further discussion of stock-based compensation plans.
Comprehensive Income
For the years ended December 31, 2013, 2012 and 2011, comprehensive income equaled net
income; therefore, a separate statement of comprehensive income is not included in the accompanying
62
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
consolidated financial statements.
Recent Accounting Pronouncements
There have not been any pronouncements issued and implemented during 2013 that had a
material impact on the Company’s consolidated financial statements.
2.
Segment Information, Nature of Operations, and Certain Concentrations
NVR's homebuilding operations primarily construct and sell single-family detached homes,
townhomes and condominium buildings under four trade names: Ryan Homes, NVHomes, Fox Ridge
Homes and Heartland Homes. The Ryan Homes and Fox Ridge Homes products are marketed primarily
to first-time and first-time move-up buyers. Ryan Homes operates in twenty-seven metropolitan areas
located in Maryland, Virginia, Washington, D.C., West Virginia, Pennsylvania, New York, North
Carolina, South Carolina, Florida, Ohio, New Jersey, Delaware, Indiana, Illinois and Tennessee. Fox
Ridge Homes operates in the Nashville, TN metropolitan area. The NVHomes and Heartland Homes
products are marketed primarily to move-up and up-scale buyers. NVHomes operates in Delaware and the
Washington, D.C., Baltimore, MD, Philadelphia, PA and Raleigh, NC metropolitan areas. Heartland
Homes operates in the Pittsburgh, PA metropolitan area. NVR derived approximately 31% and 15% of its
2013 homebuilding revenues from the Washington, D.C. and Baltimore, MD metropolitan areas,
respectively.
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,
and title fees. A substantial portion of the Company’s mortgage operations is conducted in the
Washington, D.C. and Baltimore, MD metropolitan areas.
The following 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:
Mid Atlantic (cid:16) Virginia, West Virginia, Maryland, Delaware and Washington, D.C.
North East (cid:16) New Jersey and eastern Pennsylvania
Mid East (cid:16) New York, Ohio, western Pennsylvania, Indiana and Illinois
South East (cid:16) North Carolina, South Carolina, Florida 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. 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 (“CODM”) to determine whether the operating segment’s results are providing the
desired rate of return after covering the Company’s cost of capital. In addition, certain assets including
goodwill and intangible assets, and consolidation adjustments as discussed further below, are not
allocated to the operating segments as those assets are not included in the operating segment’s corporate
capital allocation charge, nor in the CODM’s evaluation of the operating segment’s performance. The
63
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Company records charges on contract land deposits when it is determined 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, or to restructure a lot purchase agreement resulting in the forfeiture of the deposit.
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 segment profit and consolidated profit before tax include
unallocated corporate overhead (including all management incentive compensation), equity-based
compensation expense, consolidation adjustments and external corporate interest expense. NVR’s
overhead functions, such as accounting, treasury and human resources are centrally performed and the
costs are not allocated to the Company’s operating segments. Consolidation adjustments consist of such
items necessary 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. Likewise, equity-based compensation expense is not
charged to the operating segments. External corporate interest expense is primarily comprised of interest
charges on the Company’s 3.95% Senior Notes due 2022 (the “Senior Notes”) and is not charged to the
operating segments because the charges are included in the corporate capital allocation discussed above.
Following are tables presenting segment revenues, profit, assets, interest income, interest expense,
depreciation and amortization and expenditures for property and equipment, with reconciliations to the
amounts reported for the consolidated enterprise, where applicable:
Year Ended December 31,
2012
2013
2011
Revenues:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total consolidated revenues
$
$
$
2,439,387
332,681
908,198
454,215
76,786
4,211,267
1,877,905
278,715
630,367
334,257
63,406
3,184,650
$
$
1,582,826
221,146
549,384
257,839
47,954
2,659,149
$
64
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Year Ended December 31,
2012
2011
2013
$
$
$
Profit:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total segment profit
Contract land deposit reserve adjustment (1)
Equity-based compensation expense (2)
Corporate capital allocation (3)
Unallocated corporate overhead (4)
Consolidation adjustments and other
Corporate interest expense (5)
Reconciling items sub-total
Consolidated income before taxes
Assets:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total segment assets
Consolidated variable interest entity
Cash and cash equivalents
Deferred taxes
Intangible assets and goodwill
Contract land deposit reserve
Consolidation adjustments and other
Reconciling items sub-total
Consolidated assets
Interest Income:
Mortgage Banking
Total segment interest income
Other unallocated interest income
Consolidated interest income
276,399
14,294
55,537
35,001
42,075
423,306
5,313
(34,296)
116,457
(72,703)
2,362
(21,743)
(4,610)
418,696
189,089
21,529
39,847
20,674
38,135
309,274
5,333
(64,841)
91,507
(70,258)
10,858
(6,796)
(34,197)
275,077
148,373
13,463
27,194
14,162
26,102
229,294
(2,878)
(64,473)
71,226
(45,355)
20,477
(715)
(21,718)
207,576
$
$
$
As of December 31,
2012
2013
$
$
797,642
84,958
172,167
106,389
253,421
1,414,577
7,268
844,274
162,378
55,674
(59,761)
61,738
1,071,571
2,486,148
726,335
64,568
166,859
85,521
215,225
1,258,508
15,626
1,139,103
145,618
58,146
(65,039)
52,880
1,346,334
2,604,842
$
$
Year Ended December 31,
2012
2013
2011
$
$
$
4,983
4,983
2,319
7,302
4,504
4,504
1,388
5,892
$
$
5,702
5,702
3,202
8,904
$
65
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Year Ended December 31,
2012
2013
2011
$
$
$
Interest Expense:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total segment interest expense
Corporate capital allocation
Senior notes and other interest
Consolidated interest expense
Depreciation and Amortization:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total segment depreciation and amortization
Unallocated corporate
Consolidated depreciation and amortization
Expenditures for Property and Equipment:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total segment expenditures for
property and equipment
Unallocated corporate
Consolidated expenditures for
property and equipment
72,351
9,466
22,587
12,151
545
117,100
(116,457)
21,742
22,385
4,784
853
1,911
1,008
669
9,225
4,166
13,391
59,310
8,196
15,043
9,145
546
92,240
(91,507)
6,796
7,529
3,886
631
1,473
808
397
7,195
905
8,100
$
$
$
$
$
$
48,971
5,776
11,080
5,701
875
72,403
(71,226)
715
1,892
3,353
409
1,398
729
295
6,184
488
6,672
$
$
$
$
7,947
1,454
3,282
2,662
2,933
$
3,595
1,703
1,886
1,260
1,169
$
3,784
424
5,611
369
1,049
18,278
738
9,613
2,752
11,237
207
$
19,016
$
12,365
$
11,444
(1)
(2)
(3)
This item represents changes to the contract land deposit impairment reserve, which are not
allocated to the reportable segments.
Equity-based compensation expense is lower in 2013 due to RSUs issued in 2010 under the 2010
Equity Incentive Plan becoming fully vested effective December 31, 2012 and an approximate
$7,900 pre-tax compensation expense reversal attributable to an adjustment of the option forfeiture
rates based on the Company’s actual forfeiture experience. These reductions were partially offset
by equity-based compensation expense incurred in 2013 related to RSUs issued in May 2013
under the 2010 Equity Incentive Plan.
This item represents the elimination of the corporate capital allocation charge included in the
respective homebuilding reportable segments. The corporate capital allocation charge is based on
the segment’s monthly average asset balance, and was as follows for the years presented:
66
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Total
2013
$
Year Ended December 31,
2012
59,144
8,187
15,039
9,137
91,507
72,271
9,461
22,580
12,145
116,457
$
$
$
2011
48,697
5,763
11,074
5,692
71,226
$
$
(4)
(5)
The increase in unallocated corporate overhead in 2012 from 2011 was attributable to increased
management incentive costs year over year.
Corporate interest expense is attributable primarily to interest on the Senior Notes which were
issued in the third quarter of 2012.
3.
Variable Interest Entities
Fixed Price Purchase Agreements
NVR generally 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.
NVR believes 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 liquidated damage
provisions contained within the purchase agreements. In other words, if NVR does not perform under a
purchase agreement, NVR loses only its deposit. 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.
NVR generally does not have any specific performance obligations to purchase a certain number or any of
the lots, nor does NVR guarantee completion of the development by the developer or guarantee any of the
developers’ financial or other liabilities.
NVR is not involved in the design or creation of any of the development entities from which the
Company purchases lots under fixed price purchase agreements. The developer’s equity holders have the
power to direct 100% of the operating activities of the development entity. NVR has no voting rights in
any of the development entities. The sole purpose of the development entity’s activities is to generate
positive cash flow returns to the equity holders. Further, NVR does not share in any of the profit or loss
generated by the project’s development. The profits and losses are passed directly to the developer’s
equity holders.
The deposit placed by NVR pursuant to the fixed price purchase agreement is deemed to be a
variable interest in the respective development entities. Those development entities are deemed to be
variable interest entities (“VIE”). Therefore, the development entities with which NVR enters fixed price
purchase agreements, including the joint venture limited liability corporations, as discussed below, are
67
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
evaluated for possible consolidation by NVR. An enterprise must consolidate a VIE when that enterprise
has a controlling financial interest in the VIE. An enterprise is deemed to have a controlling financial
interest if it has i) the power to direct the activities of a variable interest entity that most significantly
impact the entity’s economic performance, and ii) the obligation to absorb losses of the VIE that could be
significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE.
NVR believes the activities that most significantly impact a development entity’s economic
performance are the operating activities of the entity. Unless and until a development entity completes
finished building lots through the development process to be able to sell, the process of which the
development entities’ equity investors bear the full risk, the entity does not earn any revenues. The
operating development activities are managed solely by the development entity’s equity investors.
The development entities with which NVR contracts to buy finished lots typically select the
respective projects, obtain the necessary zoning approvals, obtain the financing required with no support
or guarantees from NVR, select who will purchase the finished lots and at what price, and manage the
completion of the infrastructure improvements, all for the purpose of generating a cash flow return to the
development entity’s equity holders and all independent of NVR. The Company possesses no more than
limited protective legal rights through the purchase agreement in the specific finished lots that it is
purchasing, and NVR possesses no participative rights in the development entities. Accordingly, NVR
does not have the power to direct the activities of a developer that most significantly impact the
developer’s economic performance. For this reason, NVR has concluded that it is not the primary
beneficiary of the development entities with which the Company enters fixed price purchase agreements,
and therefore, NVR does not consolidate any of these VIEs.
As of December 31, 2013, NVR controlled approximately 58,100 lots through fixed price
purchase agreements with deposits in cash and letters of credit totaling $296,646 and $2,459, respectively.
As noted above, 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 liquidated damage provisions
contained within the purchase agreements and in very limited circumstances, specific performance
obligations. NVR’s total risk of loss related to contract land deposits as of December 31, 2013 and 2012
was as follows:
Contract land deposits
Loss reserve on contract land deposits
Contract land deposits, net
December 31,
2013
2012
$
296,646
(59,761)
236,885
$
256,577
(65,039)
191,538
Contingent obligations in the form of letters of credit
Contingent specific performance obligations (1)
Total risk of loss
2,459
1,707
241,051
3,338
7,047
201,923
$
$
(1) At December 31, 2013 and 2012, the Company was committed to purchase 13 and 71 finished
lots under specific performance obligations, respectively.
68
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
4.
Joint Ventures
On a limited basis, NVR also obtains finished lots using joint venture limited liability
corporations (“JVs”). The Company’s JVs are typically structured such that NVR is a non-controlling
member and is at risk only for the amount the Company has invested, in addition to any deposits placed
under fixed price purchase agreements with the joint venture. NVR is not a borrower, guarantor or
obligor on any debt of the JVs, as applicable. The Company enters into a standard fixed price purchase
agreement to purchase lots from these JVs, and as a result has a variable interest in these JVs.
At December 31, 2013, the Company had an aggregate investment totaling approximately
$92,700 in four JVs that are expected to produce approximately 9,300 finished lots, of which
approximately 3,400 were not under contract with NVR. In addition, NVR had additional funding
commitments in the aggregate totaling $11,850 to two of the JVs at December 31, 2013. NVR invested
an additional $11,000 during the first quarter of 2013 in the Company’s existing JV with Morgan Stanley
Real Estate Investing and invested $11,850 during the fourth quarter of 2013 in a newly formed JV with
an unrelated party. The newly formed JV is expected to produce approximately 1,300 lots with
approximately 50% of those lots being sold to the Company. The Company has determined that it is not
the primary beneficiary of three of the JVs because NVR and the other JV partner either share power or
the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated
JVs was approximately $90,500 and $74,000 at December 31, 2013 and 2012, respectively, and is
reported in the “Other assets” line item on the accompanying consolidated balance sheets. For the
remaining JV, NVR has concluded that it is the primary beneficiary because the Company has the
controlling financial interest in the JV. The condensed balance sheets at December 31, 2013 and 2012 of
the consolidated JV were as follows:
December 31,
2013
2012
Cash
Restricted cash
Other assets
Land under development
Total assets
Debt
Accrued expenses
Equity
$
$
668
248
542
5,810
7,268
906
505
833
13,382
15,626
$
$
$
3,365
862
3,041
$
4,574
935
10,117
Total liabilities and equity
$
7,268
$
15,626
At December 31, 2012, the Company had an aggregate investment totaling approximately
$82,900 in four JVs that were expected to produce approximately 7,400 finished lots, of which
approximately 2,800 were not under contract with NVR. In addition, at December 31, 2012, NVR had
additional funding commitments in the aggregate totaling $5,000 to one of the JVs.
Distributions received from joint ventures are considered operating cash flows within the
accompanying statements of cash flows to the extent of NVR’s cumulative share of joint venture income.
Any distributions received in excess of that amount are considered a return of capital, and are classified as
cash flows from investing activities.
69
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
5.
Land Under Development
As of December 31, 2013, NVR directly owned five separate raw parcels of land with a carrying
value of $41,328 that it intends to develop into approximately 650 finished lots primarily for use in its
homebuilding operations. Of the total finished lots, 125 lots are under contract to be sold to an unrelated
party under lot purchase agreements. The Company sold 15 lots to an unrelated party in 2013 at an
aggregate purchase price of approximately $2,600. The Company capitalizes interest costs to land under
development during the active development of finished lots. See Note 6 for further discussion of
capitalized interest. None of the raw parcels had any indicators of impairment as of December 31, 2013.
Based on current market conditions, NVR may, on a limited basis, directly acquire additional raw parcels
to develop into finished lots. As of December 31, 2012, NVR directly owned three separate raw parcels
of land with a carrying value of $68,336 and expected to produce approximately 700 finished lots.
6.
Capitalized Interest
The Company capitalizes interest costs to land under development during the active development
of finished lots. In addition, the Company capitalizes interest costs to its joint venture investments while
the investments are considered qualified assets pursuant to ASC 835-20, Interest. Capitalized interest is
transferred to sold or unsold inventory as the development of finished lots is completed, then charged to
cost of sales upon the Company’s settlement of homes and the respective lots. Interest incurred during
the period in excess of the interest capitalizable based on the level of qualified assets is expensed in the
period incurred. NVR’s interest costs incurred, capitalized, expensed and charged to cost of sales during
the years ended December 31, 2013 and 2012 was as follows:
December 31,
2013
2012
Interest capitalized, beginning of
period
Interest incurred
Interest charged to interest expense
Interest charged to cost of sales
Interest capitalized, end of period
$
893
25,048
(22,385)
(262)
3,294
-
$
8,422
(7,529)
-
$
893
$
There was no interest capitalized or charged to cost of sales for the year ended December 31, 2011.
7.
Related Party Transactions
During the year ended December 31, 2013, NVR entered into fixed price purchase agreements to
purchase finished building lots for a total purchase price of approximately $41,300 with Elm Street
Development, Inc. (“Elm Street”), which is controlled by one of the Company’s directors, Mr. Moran.
The independent members of the Company’s Board of Directors approved these transactions. During
2013, 2012 and 2011, NVR purchased developed lots at market prices from Elm Street for approximately
$38,400, $54,600 and $36,100, respectively. The Company also continues to control a parcel of raw land
expected to yield approximately 2,400 finished lots through a joint venture entered into with Elm Street
during 2009. NVR did not make any additional capital contributions to that joint venture in 2013 or
2012. Further, during 2013, 2012 and 2011, the Company paid Elm Street $143 per year to manage the
development of a property that the Company purchased from Elm Street in 2010.
70
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
8.
Property, Plant and Equipment, net
December 31,
2013
2012
Homebuilding:
Office facilities and other
Model home furniture and fixtures
Production facilities
Property under capital leases
Less: accumulated depreciation
Mortgage Banking:
Office facilities and other
Less: accumulated depreciation
$
$
19,547
22,432
39,396
3,976
85,351
(52,752)
32,599
18,040
18,330
35,983
3,976
76,329
(49,313)
27,016
$
$
$
$
8,118
(3,419)
4,699
$
$
5,856
(3,391)
2,465
Certain property, plant and equipment listed above is collateral for certain debt of NVR is more
fully described in Note 9 herein.
9.
Debt
Homebuilding:
Other term debt:
Capital lease obligations due in monthly
installments through 2014 (a)
Senior notes (b)
Mortgage Banking:
Master repurchase agreement (c)
December 31,
2013
2012
$
$
115
599,075
$
$
757
598,988
$
-
$
-
(a)
(b)
The capital lease obligation has a fixed interest rate of 13.0% and is collateralized by buildings
and equipment with a net book value of approximately $47 and $309 at December 31, 2013 and
2012, respectively. The capital lease terminates in March 2014. Future lease payments in 2014
total $117, $2 of which represents interest.
On September 10, 2012, NVR completed an offering for $600,000 of Senior Notes under a shelf
registration statement filed on September 5, 2012 with the Securities and Exchange Commission
(the “SEC”). The Senior Notes were issued at a discount to yield 3.97% and have been reflected
net of the unamortized discount in the accompanying consolidated balance sheet. The offering of
the Senior Notes resulted in aggregate net proceeds of approximately $593,900, after deducting
underwriting discounts and other offering expenses. The Senior Notes mature on September 15,
2022 and bear interest at 3.95%, payable semi-annually in arrears on March 15 and September 15,
commencing on March 15, 2013. The Senior Notes are senior unsecured obligations and rank
71
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
equally in right of payment with any of NVR’s existing and future unsecured senior indebtedness,
will rank senior in right of payment to any of NVR’s future indebtedness that is by its terms
expressly subordinated to the Senior Notes and will be effectively subordinated to any of NVR’s
existing and future secured indebtedness to the extent of the value of the collateral securing such
indebtedness. The indenture governing the Senior Notes has, among other items, and subject to
certain exceptions, covenants that restrict the Company’s ability to create, incur, assume or
guarantee secured debt, enter into sale and leaseback transactions and conditions related to
mergers and/or the sale of assets.
(c)
On July 31, 2013, NVRM renewed and amended its revolving mortgage repurchase agreement
with U.S. Bank National Association (the “Repurchase Agreement”). The purpose of the
Repurchase Agreement is to finance the origination of mortgage loans by NVRM. The
Repurchase Agreement provides for loan purchases up to $25,000, subject to certain sub limits.
The Repurchase Agreement expires on July 30, 2014.
Advances under the Repurchase Agreement carry a Pricing Rate based on the LIBOR Rate plus
the LIBOR Margin, or the Default Pricing Rate, as determined under the Repurchase Agreement,
provided that the Pricing Rate shall not be less than 3.00%. There are several restrictions on
purchased loans, including that they cannot be sold to others, they cannot be pledged to anyone
other than the agent, and they cannot support any other borrowing or repurchase agreement. As
of December 31, 2013 and 2012, there was no debt outstanding under the Repurchase Agreement.
There were no borrowing base limitations at December 31, 2013.
The Repurchase Agreement contains various affirmative and negative covenants. The negative
covenants include, among others, certain limitations on transactions involving acquisitions,
mergers, the incurrence of debt, sale of assets and creation of liens upon any of its Mortgage
Notes. Additional covenants include (i) a tangible net worth requirement, (ii) a minimum
liquidity requirement, (iii) a minimum net income requirement, and (iv) a maximum leverage
ratio requirement. The Company was in compliance with all covenants under the Repurchase
Agreement at December 31, 2013.
* * * * *
Maturities with respect to the Company’s debt as of December 31, 2013 are as follows:
Year Ending December 31,
2014
2015
2016
2017
2018
Thereafter
Total
$
115
-
-
-
-
600,000
600,115
$
72
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
10.
Common Stock
There were 4,433,725 and 4,914,130 common shares outstanding at December 31, 2013 and
2012, respectively. As of December 31, 2013, NVR had reacquired a total of approximately 23,300,000
shares of NVR common stock at an aggregate cost of approximately $5,308,000 since December 31,
1993. The Company made the following share repurchases during the years indicated:
Number of Shares
581,387
285,495
1,017,588
Aggregate
Purchase Price
554,491
227,281
689,302
$
$
$
2013
2012
2011
Since 1999, the Company has issued shares from the treasury for all stock option exercises.
There have been approximately 7,164,000 common shares reissued from the treasury in satisfaction of
stock option exercises and other employee benefit obligations. The Company issued 101,850; 221,992
and 333,380 such shares during 2013, 2012 and 2011, respectively.
11.
Income Taxes
The provision for income taxes consists of the following:
Current:
Federal
State
Deferred:
Federal
State
Year Ended December 31,
2013
2012
2011
$
137,675
30,352
$
76,599
3,066
$
45,112
8,004
(13,402)
(2,406)
152,219
$
13,086
1,738
94,489
$
21,492
3,548
78,156
$
In addition to amounts applicable to income before taxes, the following income tax benefits were
recorded in shareholders’ equity:
Income tax benefits arising from
compensation expense for tax
purposes in excess of amounts
recognized for financial
statement purposes
Year Ended December 31,
2013
2012
2011
$
20,636
$
14,319
$
22,835
73
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Deferred income taxes on NVR's consolidated balance sheets were comprised of the following:
December 31,
2013
2012
Deferred tax assets:
Other accrued expenses and
contract land deposit reserve
Deferred compensation
Equity-based compensation expense
Inventory
Unrecognized tax benefit
Other
Total deferred tax assets
Less: deferred tax liabilities
Net deferred tax position
$
$
90,372
8,049
35,298
11,099
23,784
4,200
172,802
4,290
168,512
77,475
10,923
26,151
10,914
22,295
5,606
153,364
1,702
151,662
$
$
Deferred tax assets arise principally as a result of various accruals required for financial reporting
purposes and equity-based compensation expense, 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 is estimated to be $362,387 for the year ended December 31, 2013, and was $187,064 for
the year ended December 31, 2012.
A reconciliation of income tax expense in the accompanying consolidated statements of income to
the amount computed by applying the statutory federal income tax rate of 35% to income before taxes is
as follows:
Income taxes computed at the
federal statutory rate
State income taxes, net of federal
income tax benefit
Other, net
Year Ended December 31,
2013
2012
2011
$
146,544
$
96,277
$
72,652
18,210
(12,535)
152,219
$
3,226
(5,014)
94,489
7,974
(2,470)
78,156
$
$
The Company’s effective tax rate in 2013, 2012 and 2011 was 36.36%, 34.35% and 37.65%,
respectively. During 2012, the Company reduced its provision for unrecognized tax benefits by $9,154,
which reduced the 2012 effective tax rate. The reduction resulted from settlements with and an audit by
certain taxing authorities during 2012 which led the Company to update its evaluation of the
administrative practice in other states for similar uncertain tax positions to determine whether the
positions taken in those states were effectively settled.
The Company files a consolidated U.S. federal income tax return, as well as state and local tax
returns in all jurisdictions where the Company maintains operations. With few exceptions, the Company
74
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
is no longer subject to income tax examinations by tax authorities for years prior to 2010.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Year Ended December 31,
Balance at beginning of year
Additions based on tax positions related to the current year
Reductions for tax positions of prior years
Settlements
Balance at end of year
2013
$
2012
$
40,244
5,618
(2,066)
-
43,796
45,049
4,185
(8,928)
(62)
40,244
$
$
If recognized, the total amount of unrecognized tax benefits that would affect the effective tax
rate (net of the federal tax benefit) is $28,467.
The Company recognizes interest related to unrecognized tax benefits as a component of income
tax expense. For the year ended December 31, 2013, the Company accrued interest on unrecognized tax
benefits in the amount of $625. For the year ended December 31, 2012, the Company recognized a net
reversal of accrued interest on unrecognized tax benefits in the amount of $4,116. For the year ended
2011, the Company accrued interest on unrecognized tax benefits in the amount of $2,076. As of
December 31, 2013 and 2012, the Company had a total of $21,281 and $20,658, respectively, of accrued
interest on unrecognized tax benefits which are included in “Accrued expenses and other liabilities” on
the accompanying consolidated balance sheets. Based on its historical experience in dealing with various
taxing authorities, the Company has found that it is the administrative practice of these authorities to not
seek penalties from the Company for the tax positions it has taken on its returns, related to its
unrecognized tax benefits. Therefore, the Company does not accrue penalties for the positions in which it
has an unrecognized tax benefit. However, if such penalties were to be accrued, they would be recorded
as a component of income tax expense.
The Company believes that within the next 12 months, it is reasonably possible that the
unrecognized tax benefits as of December 31, 2013 will be reduced by approximately $6,527 due to
statute expiration and effectively settled positions in various state jurisdictions. The Company is currently
under audit by the states of New York and Pennsylvania.
12.
Equity-Based Compensation, Profit Sharing and Deferred Compensation Plans
Equity-Based Compensation Plans
NVR’s equity-based compensation plans provide for the granting of non-qualified stock options
to purchase shares of NVR common stock (“Options”) and restricted share units (“RSUs”) to key
management employees, including executive officers and Board members, of the Company. The exercise
price of Options granted is equal to the closing price of the Company’s common stock on the New York
Stock Exchange on the day prior to the date of grant, and RSUs are issued at a $0 exercise price. Options
are granted for a ten-year term and typically vest in separate tranches over periods of 3 to 6 years,
depending upon the plan from which the shares were granted, based solely on continued employment or
continued service as a Director. RSUs generally vest in separate tranches over periods of 2 to 3 years,
based solely on continued employment or continued service as a Director. At December 31, 2013, there
75
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
was an aggregate of 667,036 options and 45,009 RSUs outstanding, and there were an additional 79,730
available shares to be granted under existing equity-based compensation plans. Of the available shares to
be granted, up to 48,476 shares may be granted in the form of RSUs.
The following is a summary description of each of the Company’s equity-based compensation
plans for any plan with grants outstanding at December 31, 2013:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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 were 2,000,000 Options authorized under the 1996 Option Plan. All
Options were granted at an exercise price equal to the closing price of the
Company’s common stock on the New York Stock Exchange on the day prior to the
date of grant. The outstanding Options expire 10 years after the dates upon which
they were granted, and were fully vested as of December 31, 2012. There are no
grants remaining available to issue under the 1996 Option Plan.
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 were 1,000,000 Options authorized under the 1998 Option Plan. All
Options were granted at an exercise price equal to the closing price of the
Company’s common stock on the New York Stock Exchange on the day prior to the
date of grant. The Options expire 10 years after the dates upon which they were
granted, and are fully vested as of December 31, 2013. There are no grants
remaining available to issue under the 1998 Option Plan.
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. All
Options were granted at an exercise price equal to the closing price of the
Company’s common stock on the New York Stock Exchange on the day prior to the
date of grant. The outstanding Options were granted for a 10-year period and were
fully vested as of December 31, 2012. There are no grants remaining available to
issue under the 1998 Directors’ Plan.
During 2000, the Board approved the 2000 Broadly-Based Stock Option Plan (the
“2000 Plan”). The Company did not seek approval from its shareholders for the
2000 Plan. There were 2,000,000 Options authorized under the 2000 Plan. All
Options were granted at an exercise price equal to the closing price of the
Company’s common stock on the New York Stock Exchange on the day prior to the
date of grant. Grants under the 2000 Plan were available to both employees and
members of the Board. Options granted under the 2000 Plan expire 10 years from
the date of grant, and generally vest annually in 25% increments based on the date of
grant. There are no grants remaining available to issue under the 2000 Plan.
During 2010, the Company’s shareholders approved the Board of Directors’
adoption of the 2010 Equity Incentive Plan (the “2010 Equity Plan”). The 2010
Equity Plan authorizes the Company to issue Options and RSUs to key management
76
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
employees, including executive officers and Board members, to acquire up to an
aggregate of 700,000 shares of the Company’s common stock. Of the 700,000
aggregate shares available to issue, up to 240,000 may be granted in the form of
RSUs. All Options are granted at an exercise price equal to the closing price of the
Company’s common stock on the New York Stock Exchange on the day prior to the
date of grant, and all RSUs are granted at a $0 exercise price. The Options are
granted for a 10-year period. The RSUs initially granted under the 2010 Equity Plan
vested annually in 50% increments beginning December 31, 2011, and the Options
initially granted vest as to 50% of the underlying shares in annual increments
beginning on December 31, 2013. At December 31, 2013, there were 79,730 shares
available to be granted under the 2010 Equity Plan, of which 48,476 may be granted
as RSUs.
During 2013, the Company issued 121,724 Options and 35,491 RSUs under the 2010 Equity Plan.
The exercise price of each Option granted was equal to the closing price of the Company’s common stock
on the day immediately preceding the date of grant, and each RSU was granted at a $0 exercise price.
Each Option was granted for a term of ten (10) years from the date of grant. Substantially all of the RSUs
granted during 2013 under the 2010 Equity Plan will become 100% vested on December 31, 2015.
Substantially all of the Options granted in 2013 will vest annually in 25% increments beginning on
December 31, 2015. All Options and RSUs granted are subject to the grantee’s continued employment or
continued service as a Director, as applicable.
The following table provides additional information relative to NVR’s equity-based compensation
plans for the year ended December 31, 2013:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contract Life
(Years)
Aggregate
Intrinsic
Value
$
$
$
679.70
997.46
515.98
726.49
740.18
638.41
6.8
5.5
$
$
190,660
106,507
$
$
46,180
5,012
Stock Options
Outstanding at beginning of period
Granted
Exercised
Forfeited
Outstanding at end of period
Exercisable at end of period
RSUs (1)
Outstanding at beginning of period
Granted
Exercised
Outstanding at end of period
Vested at end of period
Shares
639,078
121,724
(28,749)
(65,017)
667,036
274,786
82,619
35,491
(73,101)
45,009
4,885
(1) RSU grants were issued at a $0 exercise price.
77
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
To estimate the grant-date fair value of its stock options, the Company uses the Black-Scholes
option-pricing model. The Black-Scholes model estimates the per share fair value of an option on its date
of grant based on the following factors: the option’s exercise price; the price of the underlying stock on
the date of grant; the estimated dividend yield; a “risk-free” interest rate; the estimated option term; and
the expected volatility. For the “risk-free” interest rate, the Company uses a U.S. Treasury Strip due in a
number of years equal to the option’s expected term. NVR has concluded that its historical exercise
experience is the best estimate of future exercise patterns to determine an option’s expected term. To
estimate expected volatility, NVR analyzed the historic volatility of its common stock over a period equal
to the option’s expected term. The fair value of the Options granted during 2013, 2012 and 2011 were
estimated on the grant date using the Black-Scholes option-pricing model based on the following
assumptions:
Estimated option life
Risk free interest rate (range)
Expected volatility (range)
Expected dividend rate
Weighted average grant-date fair
value per share of options granted
2013
5.20 years
0.42% - 2.10%
17.98%-32.72%
0.00%
2012
4.95 years
0.35% - 1.84%
2011
4.79 years
0.44% - 2.86%
17.71% - 34.43% 31.29% - 37.43%
0.00%
0.00%
$
268.13
$
221.45
$
230.38
In accordance with ASC Topic 718, Compensation-Stock Compensation, the fair value of the
RSUs is measured as if they were vested and issued on the grant date. Additionally, under ASC 718,
service-only restrictions on vesting of RSUs are not reflected in the fair value calculation at the grant date.
As a result, the fair value of the RSUs was the closing price of the Company’s common stock on the day
immediately preceding the date of grant. The weighted average fair value of the RSUs granted in the
current year was $997.66 per share.
Compensation cost for Options and RSUs is recognized on a straight-line basis over the requisite
service period for the entire award (from the date of grant through the period of the last separately vesting
portion of the grant). For the recognition of equity-based compensation, the RSUs are treated as a
separate award from the Options. Compensation cost is recognized within the income statement in the
same expense line as the cash compensation paid to the respective employees. ASC 718 also requires the
Company to estimate forfeitures in calculating the expense related to equity-based compensation and
requires that the compensation costs of equity-based awards be recognized net of estimated forfeitures.
The impact on compensation costs due to changes in the expected forfeiture rate will be recognized in the
period that they become known. In 2013, 2012 and 2011, the Company recognized $34,296, $64,841 and
$64,473 in equity-based compensation costs, respectively, and approximately $12,100, $23,900 and
$23,600 in tax benefit related to equity-based compensation costs, respectively. In 2013, the Company
reversed approximately $7,900 in equity-based compensation expense previously recorded to adjust stock
option forfeiture rates based on actual forfeiture experience. The reversal was made to the accounts
originally charged as follows; approximately $7,100 and $300 from homebuilding general and
administrative and cost of sales expense, respectively, and approximately $500 from NVRM general and
administrative expense.
As of December 31, 2013, the total unrecognized compensation cost for all outstanding Options
and RSUs equaled approximately $82,200, net of estimated forfeitures. The unrecognized compensation
78
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
cost will be recognized over each grant’s applicable vesting period with the latest vesting date being
December 31, 2018. The weighted-average period over which the unrecognized compensation will be
recorded is equal to approximately 2.0 years.
The Company settles Option exercises and vesting of RSUs by issuing shares of treasury stock to
Option holders. Shares are relieved from the treasury account based on the weighted average cost of
treasury shares acquired. During the years ended December 31, 2013, 2012 and 2011, 101,850; 221,992
and 333,380 shares, respectively, were issued from the treasury account for Option exercises and vesting
of RSUs. Information with respect to the vested RSUs and exercised Options is as follows:
Aggregate exercise proceeds (1)
Aggregate intrinsic value on exercise dates
2013
$
$
14,834
84,908
2012
$
$
73,211
101,334
2011
$
$
108,322
142,381
(1)
Aggregate exercise proceeds include the Option exercise price received in cash or the fair market
value of NVR stock surrendered by the optionee in lieu of cash.
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 combined plan contribution for the years ended December 31,
2013, 2012 and 2011 was $12,012, $9,575 and $6,616, respectively. The ESOP purchased
approximately 10,200 and 9,200 shares of NVR common stock in the open market for the 2013 and
2012 plan year contributions, respectively, using cash contributions provided by the Company. As
of December 31, 2013, all shares held by the ESOP had been allocated to participants’ accounts.
The 2013 plan year contribution was funded and fully allocated to participants in February 2014.
Deferred Compensation Plans
The Company has two deferred compensation plans (“Deferred Comp Plans”). The specific
purpose of the Deferred Comp Plans is to i) establish a vehicle whereby named executive officers
may defer the receipt of salary and bonus that otherwise would be nondeductible for Company tax
purposes into a period where the Company would realize a tax deduction for the amounts paid, and
ii) to enable certain employees who are subject to the Company’s stock holding requirements to
acquire shares of the Company’s common stock on a pre-tax basis in order to more quickly meet,
and maintain compliance with those stock holding requirements. Amounts deferred into the
Deferred Comp Plans 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 109,256 and 152,223 shares of NVR common stock as of
December 31, 2013 and 2012, respectively. During 2013, 42,967 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 2013 or 2012.
Shares held by the Deferred Comp Plans are treated as outstanding shares in the Company’s earnings
per share calculation for each of the years ended December 31, 2013, 2012 and 2011.
79
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
13.
Commitments and Contingent Liabilities
NVR is committed under multiple non-cancelable operating leases involving office space,
model homes, production facilities, automobiles and equipment. Future minimum lease payments
under these operating leases as of December 31, 2013 are as follows:
Year Ending December 31,
$
2014
2015
2016
2017
2018
Thereafter
Sublease income
$
21,998
16,265
13,804
12,281
10,021
35,837
110,206
(352)
109,854
Total rent expense incurred under operating leases was $39,608, $33,399 and $33,607 for the
years ended December 31, 2013, 2012 and 2011, respectively.
The Company generally 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 the Company 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. The Company believes 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 five-year business plan. At December 31, 2013, assuming
that contractual development milestones are met, the Company is committed to placing additional
forfeitable deposits with land developers under existing lot option contracts of $73,292. The
Company also has two specific performance contracts pursuant to which the Company is committed
to purchase 13 finished lots at an aggregate purchase price of approximately $1,710.
During the ordinary course of operating the homebuilding and mortgage banking businesses,
the Company 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. The
Company had approximately $54,500 of contingent obligations under such agreements, including
$8,354 for letters of credit issued under an uncommitted, collateralized letter of credit facility as of
December 31, 2013. The Company believes it will fulfill its obligations under the related contracts
and does not anticipate any material losses under these bonds or letters of credit.
80
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The following table reflects the changes in the Company’s warranty reserve (see Note 1
herein for further discussion of warranty/product liability reserves):
Year Ended December 31,
Warranty reserve, beginning of year
Provision
Payments
Warranty reserve, end of year
2013
$
2012
$
2011
$
62,742
82,860
(44,095)
101,507
64,008
41,138
(42,404)
62,742
$
$
$
69,787
37,040
(42,819)
64,008
The warranty reserve provision for 2013 includes two warranty accrual charges totaling
approximately $31,600. The first charge of approximately $15,600 was made in the second quarter of
2013 related to remediation of primarily water infiltration issues in a single completed community. The
water infiltration issues were the result of a design issue with several products developed for and built
exclusively in that one community. The second charge of approximately $16,000 was recorded in the
fourth quarter of 2013 to increase the warranty accrual for a non-recurring service issue unrelated to the
second quarter service issue.
On July 18, 2007, former and current employees filed lawsuits against the Company in the Court
of Common Pleas in Allegheny County, Pennsylvania and Hamilton County, Ohio, in Superior Court in
Durham County, North Carolina, and in the Circuit Court in Montgomery County, Maryland, and on July
19, 2007 in the Superior Court in New Jersey, alleging that the Company incorrectly classified its sales
and marketing representatives as being exempt from overtime wages. These lawsuits are similar in nature
to another lawsuit filed on October 29, 2004 by another former employee in the United States District
Court for the Western District of New York captioned Tracy v. NVR, Inc. The lawsuits filed in Ohio,
Pennsylvania, Maryland, New Jersey and North Carolina have been stayed pending further developments
in the Tracy action.
The complaints described above seek injunctive relief, an award of unpaid wages, including
fringe benefits, liquidated damages equal to the overtime wages allegedly due and not paid, attorney and
other fees and interest, and where available, multiple damages. While the suits were filed as purported
class actions, none of them have been certified as such. On April 29, 2013, the Western District of New
York ruled that the claims asserted in the Tracy case were not appropriate for class action treatment and
dismissed a number of individuals who had filed consents to join that action from the case. The trial on
the remaining individual plaintiff’s claims was held in October 2013. On October 23, 2013, the jury in
that trial ruled in the Company’s favor that the plaintiff was an exempt outside salesman.
On May 29, 2013, attorneys representing the individuals dismissed from the Tracy action filed
another lawsuit on behalf of those individuals in the New York Supreme Court for Monroe County
captioned Anderson v. NVR, Inc. The Company removed the Anderson action to the Western District of
New York on June 18, 2013. Plaintiffs subsequently filed a motion to stay the Anderson action pending
final disposition of the Tracy action, which the Company opposed. The Company also filed a motion to
sever the multitude of individuals participating in the Anderson action, leaving each plaintiff to pursue his
or her claim individually to the extent that they chose to do so.
The Company believes that its compensation practices in regard to sales and marketing
representatives are entirely lawful and in compliance with two letter rulings from the United States
Department of Labor (“DOL”) issued in January 2007. Courts that have considered similar claims against
81
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
other homebuilders have acknowledged the DOL’s position that sales and marketing representatives were
properly classified as exempt from overtime wages and the only court to have directly addressed the
exempt status of such employees concluded that the DOL’s position was valid. In addition, the jury
verdict in the Tracy v. NVR, Inc. matter in October 2013 upheld the Company’s classification of the
position. Accordingly, the Company has vigorously defended and intends to continue to vigorously
defend these lawsuits. In light of the points noted above, the Company has not recorded any associated
liabilities on the accompanying consolidated balance sheets in conjunction with the Anderson v. NVR,
Inc. case or any other legal challenges to the exempt status of the Company’s sales and marketing
representatives.
In June 2010, the Company received a Request for Information from the United States
Environmental Protection Agency (“EPA”) pursuant to Section 308 of the Clean Water Act. The request
sought information about storm water discharge practices in connection with homebuilding projects
completed or underway by the Company in New York and New Jersey. The Company cooperated with
this request, and provided information to the EPA. The Company was subsequently informed by the
United States Department of Justice (“DOJ”) that the EPA forwarded the information on the matter to the
DOJ, and the DOJ requested that the Company meet with the government to discuss the status of the
case. Meetings took place in January 2012 and August 2012 with representatives from both the EPA and
DOJ. It is as yet unclear what next steps the DOJ will take in the matter. The Company intends to
continue cooperating with any future EPA and/or DOJ inquiries. At this time, the Company cannot
predict the outcome of this inquiry, nor can it reasonably estimate the potential costs that may be
associated with its eventual resolution.
The Company and its subsidiaries are also involved in various other litigation arising in the
ordinary course of business. In the opinion of management, and based on advice of legal counsel, this
litigation is not expected to have a material adverse effect on the financial position, results of operations
or cash flows of the Company. Legal costs incurred in connection with outstanding litigation are
expensed as incurred.
14.
Fair Value
Financial Instruments
The estimated fair value of NVR’s Senior Notes as of December 31, 2013 was $575,200. The
estimated fair value is based on recent market prices of similar transactions, which is classified as Level 2
within the fair value hierarchy. The carrying value was $599,075 at December 31, 2013. Except as
otherwise noted below, NVR believes that insignificant differences exist between the carrying value and
the fair value of its financial instruments, which consists primarily of cash equivalents, due to their short
term nature.
Derivative Instruments and Mortgage Loans Held for Sale
In the normal course of business, NVR’s mortgage banking segment, NVRM, 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 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
82
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
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. NVR does not engage in speculative or trading derivative activities.
Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are
undesignated derivatives and, accordingly, are marked to fair value through earnings. At December 31,
2013, there were contractual commitments to extend credit to borrowers aggregating $243,084 and open
forward delivery contracts aggregating $430,859.
GAAP assigns a fair value hierarchy to the inputs used to measure fair value. Level 1 inputs are
quoted prices in active markets for identical assets and liabilities. Level 2 inputs are inputs other than
quoted market prices that are observable for the asset or liability, either directly or indirectly. Level 3
inputs are unobservable inputs. The fair value of the Company’s rate lock commitments to borrowers and
the related input levels includes, as applicable:
i)
ii)
iii)
the assumed gain/loss of the expected resultant loan sale (level 2);
the effects of interest rate movements between the date of the rate lock and the balance
sheet date (level 2); and
the value of the servicing rights associated with the loan (level 2).
The assumed gain/loss considers the amount, if any, that the Company has discounted the price to
the borrower from par for competitive reasons and the excess servicing to be received or buydown fees to
be paid upon securitization of the loan. The excess servicing and buydown fees are calculated pursuant to
contractual terms with investors. To calculate the effects of interest rate movements, the Company
utilizes applicable published mortgage-backed security prices, and multiplies the price movement
between the rate lock date and the balance sheet date by the notional loan commitment amount. The
Company sells all of its loans on a servicing released basis, and receives a servicing released premium
upon sale. Thus, the value of the servicing rights, which averaged 83 basis points of the loan amount as
of December 31, 2013, is included in the fair value measurement and is based upon contractual terms with
investors and varies depending on the loan type. The Company assumes an approximate 9% fallout rate
when measuring the fair value of rate lock commitments. Fallout is defined as locked loan commitments
for which the Company does not close a mortgage loan and is based on historical experience.
The fair value of the Company’s forward sales contracts to broker/dealers solely considers the
market price movement of the same type of security between the trade date and the balance sheet date
(level 2). The market price changes are multiplied by the notional amount of the forward sales contracts
to measure the fair value.
Mortgage loans held for sale are recorded at fair value when closed, and thereafter are carried at
the lower of cost or fair value, net of deferred origination costs, until sold. Fair value is measured using
level 2 inputs. The fair value of loans held for sale of $210,641 included on the accompanying
consolidated balance sheet has been decreased by $2,936 from the aggregate principal balance of
$213,577.
83
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The undesignated derivative instruments are included on the accompanying consolidated balance
sheet, as of December 31, 2013, as follows:
Derivative Assets:
Forward sales contracts
Derivative Liabilities:
Rate lock commitments
Balance Sheet Location
Fair Value
NVRM - Other assets
$
6,153
NVRM - Accounts payable and
other liabilities
$
2,697
The fair value measurement as of December 31, 2013 was as follows:
Notional or
Principal
Amount
$
$
$
243,084
430,859
213,577
Assumed
Gain/(Loss)
From Loan
Sale
(1,603)
-
(1,000)
$
Interest
Rate
Movement
Effect
$
(2,908)
-
(3,732)
Servicing
Rights
Value
$
1,814
-
1,796
Security
Price
Change
$
-
6,153
-
Total Fair
Value
Measurement
Gain/(Loss)
$
(2,697)
6,153
(2,936)
Rate lock commitments
Forward sales contracts
Mortgages held for sale
Total Fair Value Measurement
$
(2,603)
$
(6,640)
$
3,610
$
6,153
$
520
For the year ended December 31, 2013, NVRM recorded a fair value adjustment to income of
$3,021. For the years ended December 31, 2012 and 2011, NVRM recorded fair value adjustments to
expense of $2,431 and $1,080, respectively. Unrealized gains/losses from the change in the fair value
measurements are included in earnings as a component of mortgage banking fees in the accompanying
condensed consolidated statements of income. The fair value measurement will be impacted in the future
by the change in the value of the servicing rights, interest rate movements, security price fluctuations, and
the volume and product mix of the Company’s closed loans and locked loan commitments.
15. Mortgage Loan Loss Allowance
During the years ended December 31, 2013, 2012 and 2011, the Company recognized pre-tax
charges for loan losses related to mortgage loans sold of approximately $2,300, $1,300 and $5,100,
respectively. Included in the Mortgage Banking segment’s “Accounts payable and other liabilities” line
item on the accompanying consolidated balance sheets is a mortgage loan loss allowance equal to
approximately $8,200 and $6,550 at December 31, 2013 and 2012, respectively. During 2012, the
Company entered into a settlement agreement with one of the Company’s correspondent lenders to pay
$7,250 to settle all pending and future repayment and settlement requests for all loans sold to that
correspondent lender. The settlement payment reduced the mortgage loan loss allowance in 2012.
84
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
16.
Acquisition
On December 31, 2012, the Company completed the acquisition of substantially all of the
assets and the assumption of certain liabilities of Heartland Homes, Inc. (“Heartland”), which
operates predominantly in the Pittsburgh, PA market, for $17,000 in cash, of which $2,000 was
deferred and to be paid one half on each December 31, 2013 and 2014, subject to offsets. The
Company has not paid and does not expect to pay the $2,000 deferred amount. The Company
acquired tangible assets of approximately $47,000, consisting primarily of inventory and assumed
liabilities of approximately $39,500 of which approximately $21,900 consisted of construction loans
which were repaid at closing. The acquisition did not impact the Company’s sales or settlements in
2012. The purchase price allocation resulted in identifiable finite-lived intangible assets of $8,778
and goodwill of $441, which is equal to the excess of the purchase price over the fair value of the net
assets acquired. As of December 31, 2013, net finite-lived intangible assets totaled $6,306.
17.
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, 2013 and 2012.
Revenues-homebuilding
operations
Gross profit – homebuilding
operations
Mortgage banking fees
Net income
Diluted earnings per share
Contracts for sale, net
of cancellations (units)
Settlements (units)
Backlog, end of period (units)
Loans closed
Year Ended December 31, 2013
4th
Quarter
3rd
Quarter
2nd
Quarter
1st
Quarter
$
1,223,808
$
1,167,595
$
992,210
$
750,868
$
$
$
$
222,393
18,344
97,811
21.15
2,631
3,342
4,945
721,926
$
$
$
$
$
203,179
21,372
82,935
17.67
2,381
3,342
5,656
695,930
$
$
$
$
$
157,922
17,682
50,690
10.11
3,278
2,878
6,617
646,450
$
$
$
$
$
126,783
19,388
35,041
6.84
3,510
2,272
6,217
473,766
$
85
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Revenues-homebuilding
operations
Gross profit – homebuilding
operations
Mortgage banking fees
Net income
Diluted earnings per share
Contracts for sale, net
of cancellations (units)
Settlements (units)
Backlog, end of period (units)
Loans closed
Year Ended December 31, 2012
4th
Quarter
3rd
Quarter
2nd
Quarter
1st
Quarter
$
925,363
$
854,396
$
755,290
$
586,195
$
$
$
$
168,967
18,375
60,627
11.98
2,625
2,788
4,979
642,171
$
$
$
$
$
151,960
16,241
53,000
10.33
2,558
2,656
4,950
594,867
$
$
$
$
$
130,312
14,493
46,838
8.97
2,614
2,475
5,048
548,871
$
$
$
$
$
94,366
14,297
20,123
3.90
3,157
1,924
4,909
420,184
$
86
EXHIBIT 31.1
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
I, Paul C. Saville, certify that:
1. I have reviewed this Annual Report on Form 10-K of NVR, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 20, 2014
By: /s/ Paul C. Saville
Paul C. Saville
President and Chief Executive Officer
EXHIBIT 31.2
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
I, Daniel D. Malzahn, certify that:
1.
I have reviewed this Annual Report on Form 10-K of NVR, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 20, 2014
By: /s/ Daniel D. Malzahn
Daniel D. Malzahn
Vice President, Chief Financial Officer and Treasurer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32
In connection with the Annual Report on Form 10-K of NVR, Inc. for the period ended December 31, 2013 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned
officers of NVR, Inc., hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of NVR, Inc.
Date: February 20, 2014
By: /s/ Paul C. Saville
Paul C. Saville
President and Chief Executive Officer
By: /s/ Daniel D. Malzahn
Daniel D. Malzahn
Vice President, Chief Financial Officer and Treasurer
Directors and Officers
General Information
Board of direcTorS
Dwight C. Schar 5
Chairman of the Board, NVR, Inc.
C.E. Andrews 1,4,6
Chief Executive Officer, MorganFranklin Consulting, Inc.
Robert C. Butler1,4,6
Corporate Director
Timothy M. Donahue 3,5
Corporate Director
Thomas D. Eckert 2,*
Chairman, Capital Automotive Real Estate Services, Inc.
Alfred E. Festa 1,3,4
Chairman & Chief Executive Officer W.R. Grace & Co.
Ed Grier 1,4
Dean of the School of Business
Virginia Commonwealth University
Manuel H. Johnson 1,4,5
Co-Chairman & Senior Partner
Johnson Smick International, Inc.
Mel Martinez 3
Chairman of the Southeast and Latin America
JPMorgan Chase & Co.
William A. Moran 5
Chairman, Elm Street Development, Inc.
David A. Preiser 2,3
Co-President and Senior Managing Director
Houlihan Lokey
W. Grady Rosier 2,6
President & Chief Executive Officer
McLane Company, Inc.
Paul W. Whetsell 2,6
President & Chief Executive Officer
Loews Hotels Holding Corp.
Committees:
1. Audit
2. Compensation
3. Nominating
4. Qualified Legal Compliance
5. Executive
6. Corporate Governance
*Independent Lead Director
execuTiVe officerS
Paul C. Saville
President & Chief Executive Officer
Daniel D. Malzahn
Vice President, Chief Financial
Officer & Treasurer
Robert W. Henley
President, NVR Mortgage
Eugene J. Bredow
Vice President & Controller
STock exchaNge iNformaTioN
Listed on the New York Stock Exchange
Symbol: NVR
TraNSfer ageNT & regiSTrar
Computershare Trust Company, N.A.
C/O Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
1-877-373-6374
www.computershare.com/investor
aNNual meeTiNg
The Annual Meeting of NVR, Inc. will be held on
May 6, 2014, at 11:30 a.m. at the NVR Corporate
Headquarters,
Plaza America Tower 1
11700 Plaza America Drive, Suite 500
Reston, VA 20190.
Shareholders should contact the NVR Investor Relations
Department at the preceding address to obtain directions
to attend the Annual Meeting in person.
Shareholder iNquirieS
Communications concerning transfer requirements, lost
certificates, dividends or change of address should be
addressed to Computershare at the address listed above.
geNeral couNSel
The Sack Law Firm, P.C.
McLean, VA
audiTorS
KPMG LLP
McLean, VA
PreSS releaSeS, Sec filiNgS,
& corPoraTe goVerNaNce documeNTS
Recent press releases, SEC filings, and corporate governance
documents are available on NVR’s website (www.nvrinc.com)
or they may be obtained in print at no charge by contacting
the NVR Investor Relations Department at:
NVR, Inc.
11700 Plaza America Drive, Suite 500
Reston, VA 20190
NVR, INc. 11700 Plaza ameRIca DRIVe SuIte 500 ReStoN, Va 20190