UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM 10-K
_____________________________________________________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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)
11700 Plaza America Drive, Suite 500
Reston, Virginia
(Address of principal executive offices)
54-1394360
(IRS Employer Identification No.)
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
Trading Symbol(s)
NVR
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 ☒ 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 ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of NVR, Inc. on June 30, 2020, the last business day of NVR, Inc.’s most
recently completed second fiscal quarter, was approximately $11,374,674,000.
As of February 8, 2021 there were 3,681,181 total shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of NVR, Inc. to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934 on or prior to April 30, 2021 are incorporated by reference into Part III of this report.
NVR, Inc.
Form 10-K
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
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
Exhibits and Financial Statement Schedules
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.
Page
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Item 1.
Business.
General
PART I
NVR, Inc., 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, Inc. and its consolidated subsidiaries.
We are one of the largest homebuilders in the United States. We operate in thirty-three metropolitan areas in fourteen states,
and Washington, D.C. During 2020, approximately 18% and 7% of our home settlements occurred in the Washington, D.C. and
Baltimore, MD metropolitan areas, respectively, which accounted for approximately 24% and 10%, respectively, of our 2020
homebuilding revenues. Our homebuilding operations include the construction and sale of single-family detached homes, townhomes
and condominium buildings under three trade names: Ryan Homes, NVHomes and Heartland Homes. Our Ryan Homes product is
marketed primarily to first-time and first-time move-up buyers. Ryan Homes operates in thirty-three 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. Our NVHomes and Heartland Homes products are marketed primarily to move-up
and luxury buyers. NVHomes operates in Delaware and the Washington, D.C., Baltimore, MD and Philadelphia, PA metropolitan
areas. Heartland Homes operates in the Pittsburgh, PA metropolitan area.
We generally do not engage in land development (see discussion below of our land development activities). Instead, we
typically acquire finished building lots from various third party land developers pursuant to fixed price finished lot purchase
agreements (“LPAs”) that require deposits that may be forfeited if we fail to perform under the LPAs. The deposits required under the
LPAs 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.
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 LPAs 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 LPAs is limited to the amount of the deposit pursuant to the liquidated damage provision contained within the LPAs. 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 LPAs. None of the creditors of any of the development entities with which we have entered these LPAs
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.
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. Our continued success is contingent upon our
ability to control an adequate supply of finished lots on which to build. As a result, 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 raw ground, we determine whether to sell
the raw parcel to a developer and enter into an LPA with the developer to purchase the finished lots or 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 LPAs with forfeitable deposits. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in Item 7 of this Form 10-K for additional discussion of lots controlled. In addition, see Notes 3, 4 and 5 in the accompanying
consolidated financial statements included herein for additional information regarding LPAs, joint ventures 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.
1
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 1,000 to 9,000 finished square feet. During 2020, the prices at which we settled homes ranged from approximately
$140,000 to $1.5 million and averaged $370,800. During 2019, our average price of homes settled was $367,100.
Markets
Our four reportable homebuilding segments operate in the following geographic regions:
Mid Atlantic:
North East:
Mid East:
South East:
Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
New Jersey and Eastern Pennsylvania
New York, Ohio, Western Pennsylvania, Indiana and Illinois
North Carolina, South Carolina, Florida and Tennessee
Backlog
Backlog, which represents homes sold but not yet settled with the customer, totaled 11,549 units and approximately $4.6 billion
at December 31, 2020 compared to 8,233 units and approximately $3.1 billion at December 31, 2019. Backlog 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 14.9%, 14.6% and 14.5% in 2020, 2019, and 2018, respectively.
Additionally, approximately 6% in both 2020 and 2019, and 5% in 2018, of a reporting quarter’s opening backlog balance cancelled
during the 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, 2020
backlog during 2021. 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 our 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 many
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.
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.
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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 for additional information regarding these risks.
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 2020, NVRM closed
approximately 16,700 loans with an aggregate principal amount of approximately $5.3 billion as compared to approximately 16,500
loans with an aggregate principal amount of approximately $5.2 billion in 2019.
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”) and Freddie Mac ("FHLMC")
mortgage loans and an approved seller/issuer of Ginnie Mae (“GNMA”), Department of Veterans Affairs (“VA”) and Federal Housing
Administration (“FHA”) mortgage loans.
Regulation
NVRM is subject to the rules and regulations of FNMA, GNMA, FHLMC, VA and FHA. 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 had an aggregate principal balance of approximately $3.4 billion as of
December 31, 2020 compared to approximately $2.2 billion as of December 31, 2019. NVRM’s cancellation rate was approximately
40%, 36% and 32% in 2020, 2019 and 2018, respectively. We can provide no assurance that our historical loan 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 for
additional information about factors that could increase our cancellation rate.
Human Capital
As of December 31, 2020, we had approximately 6,100 full time employees, of whom approximately 5,100 worked in our
homebuilding operations, and approximately 1,000 worked in our mortgage banking operations, compared to December 31, 2019,
when we had approximately 5,700 full time employees, of whom approximately 4,800 worked in our homebuilding operations, and
approximately 900 worked in our mortgage banking operations. None of our employees are covered by collective bargaining
agreements.
Our employees are our most important asset. We are committed to hiring and developing an inclusive workplace with a strong
diversity of backgrounds and perspectives. All of our employees must adhere to our code of ethics and standards of business conduct
that sets standards for appropriate behavior in the workplace. Our compensation philosophy has been consistent for over 20 years and
is designed to motivate and retain highly qualified and experienced employees.
We provide tools for the advancement of our employees by offering training and development opportunities that align with each
employee’s responsibilities and career path. We strive to promote employees from within our workforce, as we believe this provides
both long-term success and continuity to our operations and growth for our employees. Our focus is demonstrated by the tenure of our
executives and our regional and division leaders.
During the past year, despite the COVID-19 pandemic, we hired additional employees to meet the strong housing demand and
generally increased our employees’ compensation and benefits packages. To protect our employees and homebuyers during the
pandemic, we implemented safety protocols, such as social distancing on job sites, doing virtual house tours, working remotely and
3
other health and safety standards as required by federal, state and local government agencies. We believe our employees adapted and
successfully managed the business during the pandemic.
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 www.sec.gov.
Our principal internet website can be found at 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 Committee Charters, 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.
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: the economic impact of COVID-19, 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.
Item 1A. Risk Factors.
Our business is affected by the risks generally incident to the residential construction business, including, but not limited to:
•
•
•
•
actual and expected direction of interest rates, which affect the availability of mortgage financing for potential
purchasers of homes;
the availability of adequate land in desirable locations on favorable terms;
employment levels, consumer confidence and spending and unexpected changes in customer preferences; and
changes in the national economy and in the local economies of the markets in which we operate.
All of these risks are discussed in detail below.
Business and Industry Risks
An economic downturn or decline in economic conditions could adversely affect our business and our results of operations.
Demand for new homes is sensitive to economic changes driven by conditions such as employment levels, job growth,
consumer confidence, inflation and interest rates. If the housing industry suffers a downturn, our sales may decline which could have
a material adverse effect on our 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 adverse 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
4
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 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, wage growth, consumer confidence and household formation 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 and mortgage banking businesses, 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 2020, approximately 18%
and 7% of our home settlements occurred in the Washington, D.C. and Baltimore, MD metropolitan areas, respectively, which
accounted for approximately 24% and 10%, respectively, of our 2020 homebuilding revenues. Thus, we are dependent to a significant
extent on the economy and demand for housing in those areas.
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, either of which could result in
potential customers’ inability to buy a home from us. If 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 we 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 $150 million available under a repurchase agreement to fund mortgage closings. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in Item 7 of this Form
10-K for more information about the repurchase agreement. 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.
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 community or market. We must continuously seek and make acquisitions of lots for expansion into new
markets as well as for replacement and expansion within our current markets, which we generally accomplish by entering into LPAs
and paying forfeitable deposits under the LPAs to developers for the contractual right to acquire the lots. In the event of adverse
changes in economic, market or community conditions, we may cease further building activities in certain communities or restructure
existing LPAs, resulting in forfeiture of some or all of any remaining land contract deposit paid to the developer. We may also have
significant impairments of land under development. The forfeiture of land contract deposits or inventory impairments may result in a
loss that could have a material adverse effect on our profitability, stock performance, ability to service our debt obligations and future
cash flows.
5
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:
•
•
•
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.
We might not be able to 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.
Our inability to secure and control an adequate inventory of lots could adversely impact our operations.
The results of our homebuilding operations depend 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.
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 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 have engaged 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.
Product liability litigation and warranty claims may adversely impact our operations.
Construction defect and home warranty claims are common and can represent a substantial risk for the homebuilding industry.
The cost of insuring against construction defect and product liability claims, as well as the claims themselves, can be high. In addition,
insurance companies limit coverage offered to protect against these claims. Further restrictions on coverage 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 are 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, 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. These or other litigation
or legal proceedings could materially affect our ability to conduct our business in the manner that we expect or otherwise adversely
affect us should an unfavorable ruling occur.
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 the date of closing. 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
6
repurchases or early payment default occur. In the event that a substantial number of the loans that we have originated fall into default
and the investors to whom we sold 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. Any resulting losses
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 private 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 result in losses that 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 a material adverse effect on our results of operations.
The loss of key personnel could adversely impact our business.
We rely on our key personnel to effectively operate and manage our business. Specifically, our future success depends heavily
on the performance of our senior management team. Our business may be adversely affected if we are unable to retain key personnel
or attract qualified personnel to manage our business.
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. We have implemented systems and processes intended to secure our information technology systems
and prevent unauthorized access to or loss of sensitive, confidential and personal data, including through the use of encryption and
authentication technologies. Additionally, we have continued to elevate our monitoring capabilities to enhance early detection and
rapid response to potential security anomalies. We also require employees to complete training sessions regarding matters such as
cybersecurity threats and data protection on a regular basis. These security measures may not be sufficient for all possible occurrences
and may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management or other irregularities.
Further, development and maintenance of these measures are costly and require ongoing monitoring and updating as technologies
change and efforts to overcome security measures become increasingly sophisticated. Our failure to maintain the security of the data
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.
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 and our credit facility, we may be required to seek to
increase the amount available under the facility or seek alternative financing, which might not be available on terms that are favorable
or acceptable. If we are required to seek financing to fund our working capital requirements, volatility in credit or capital 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 depend 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. Additional or replacement financing might not 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.
Our current indebtedness may impact our future operations.
As of December 31, 2020 we had $1.5 billion in senior notes outstanding. Our existing indebtedness contains restrictive
covenants and any future indebtedness may also contain such 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
7
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.
Regulatory Risk
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 could 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.
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. Tighter
underwriting requirements and fee restrictions and the increasingly complex regulatory environment may negatively impact our
mortgage loan origination business in the form of lower demand, decreased revenue and increased operating costs.
We are an approved seller/servicer of FNMA and FHLMC mortgage loans and an approved seller/issuer of GNMA, 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.
Risks Related to the COVID-19 Pandemic and Other External Risks
Health epidemics, including the recent COVID-19 pandemic, have had, and could in the future have, an adverse impact
on our business and operations, and the markets, states and local communities in which we operate.
Our business and operations could be adversely affected by health epidemics, including the recent COVID-19 pandemic,
impacting the markets, states and local communities in which we operate. The COVID-19 pandemic has been declared a national
emergency. Efforts to contain the virus have led to significant disruptions to commerce, increased unemployment, lower consumer
confidence and consumer demand for goods and services. General uncertainty persists regarding the near-term and long-term impact
of the COVID-19 virus on the domestic and international economy and on public health. These developments and other consequences
of the outbreak could materially and adversely affect our operations, profitability and cash flows.
The duration, severity, and scope of the COVID-19 outbreak is highly uncertain. The COVID-19 pandemic has adversely
impacted and may continue to adversely impact our business. To date, our primary focus as we face this challenge has been to do
everything we can to ensure the safety and well-being of our employees, customers and trade partners.
State and local governments in every market in which we operate have instituted social distancing and other restrictions, which
have resulted in significant changes to the way we conduct our homebuilding and mortgage banking businesses. We are operating in
accordance with the guidelines issued by the Centers for Disease Control and Prevention, as well as state and local guidelines, in all of
our markets.
8
The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. There
is uncertainty regarding governmental actions that may occur, and the effects of economic relief efforts on the U.S. economy, either of
which could be potential disruptors to our business. Over the long term, these disruptions related to COVID-19 could lower demand
for our products, impair our ability to sell and/or build homes in our normal manner, increase our losses on contract land deposits, and
negatively impact our lending and secondary mortgage market activities.
The full extent to which the COVID-19 pandemic will affect our operations cannot be predicted at this time, including, but not
limited to, the duration and severity of the outbreak, governmental reactions and policies, the impact of such on our employees,
customers and trade partners, and the length of time required for normal economic and operating conditions to resume. There is no
assurance that we will not face shutdowns similar to those we experienced in Pennsylvania and New York in April and May of 2020,
in those or other markets in which we operate in future periods. While the spread of COVID-19 may eventually be mitigated, there is
no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the U.S. economy will recover,
either of which could seriously harm our business.
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 and our housing inventories, 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.
Our continued success is dependent on positive perceptions of us and our brands which, if eroded, could adversely affect our
business and our relationships with our customers.
We believe that one of the reasons our customers buy from us, our employees choose NVR as a place of employment, and our
vendors choose to do business with us is the reputation we have built over many years. To be successful in the future, we must
continue to preserve our reputation. Reputational value is based in large part on perceptions, and broad access to social media makes it
easy for anyone to provide public feedback that can influence perceptions of the brands under which we do business. It may be
difficult to control negative publicity, regardless of whether it is accurate. While reputations may take decades to build, negative
incidents can quickly erode trust and confidence, could damage our reputation, reduce the demand for our homes or negatively impact
the morale and performance of our employees, all of which could adversely affect our business.
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 seven locations:
Thurmont, Maryland; Burlington County, New Jersey; Farmington, New York; Kings Mountain, North Carolina; Darlington,
Pennsylvania; Portland, Tennessee; and Richmond, Virginia. These facilities range in size from approximately 40,000 square feet to
400,000 square feet and total approximately one million square feet. Each of these leases contains various options for extensions of the
lease and for the purchase of the facility. Additionally, certain facility leases have early termination options. These leases currently
expire between 2022 and 2039. In addition, we own a production facility of approximately 100,000 square feet in Dayton, Ohio. Our
plant utilization was 56% and 49% of total capacity in 2020 and 2019, respectively.
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 2027,
none of which are individually material to our business.
We anticipate that, upon expiration of existing production facility and office leases, we will be able to renew them or obtain
comparable facilities on terms acceptable to us.
Item 3.
Legal Proceedings.
We are involved in various litigation matters arising in the ordinary course of business. In the opinion of management, and
based on advice of legal counsel, these matters are 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 matters are expensed as incurred.
9
Item 4.
Mine Safety Disclosures.
Not applicable.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(dollars in thousands, except per share data)
Our shares of common stock are listed and principally traded on the New York Stock Exchange under the trading symbol
“NVR.” As of the close of business on February 8, 2021, there were 186 shareholders of record of our common stock.
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 three share repurchase authorizations outstanding during the quarter ended December 31, 2020. On November 6, 2019,
February 12, 2020 and December 14, 2020 we publicly announced the Board of Directors’ approval to repurchase our outstanding
common stock in one or more open market and/or privately negotiated transactions, up to an aggregate of $300,000 per authorization.
The repurchase authorizations do not have expiration dates. The following table provides information regarding common stock
repurchases during the quarter ended December 31, 2020:
Period
October 1 - 31, 2020
November 1 - 30, 2020
December 1 - 31, 2020 (1)
Total
Total Number
of Shares
Purchased
Average
Price Paid
per Share
—
1,210
37,525
38,735
$
$
$
$
—
3,998.84
3,988.23
3,988.56
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Approximate
Dollar Value of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
$
$
$
—
1,210
37,525
38,735
400,559
395,721
546,062
(1) 24,011 outstanding shares were repurchased under the November 6, 2019 share repurchase authorization, which fully
utilized the authorization. The remaining 13,514 outstanding shares were repurchased under the February 12, 2020 share repurchase
authorization.
The information required by this item in respect to securities authorized for issuance under equity compensation plans is
provided under Item 12 of this annual report on Form 10-K.
10
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to holders of our common stock since December 31, 2015 with the
Dow Jones US Home Construction Index and the S&P 500 Index for that same period, assuming that $100 was invested in NVR stock
and the indices on December 31, 2015.
Comparison of 5 Year Cumulative Total Return
2015
2016
2017
2018
2019
2020
NVR, Inc.
S&P 500
Dow Jones US Home Construction
$
$
$
100 $
100 $
100 $
102 $
112 $
93 $
214 $
136 $
165 $
148 $
130 $
113 $
232 $
171 $
166 $
248
203
206
For the Year Ended December 31,
11
NVR, IncS&P 500Dow Jones US Home ConstructionDec 31, 2015Dec 31, 2016Dec 31, 2017Dec 31, 2018Dec 31, 2019Dec 31, 2020$0$50$100$150$200$250$300$350
Item 6.
Selected Financial Data.
(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 are not necessarily indicative of results
of future operations. The selected financial data should be read in conjunction with, and are qualified in their entirety by, the
accompanying consolidated financial statements and related notes included herein.
2020
2019
2018
2017
2016
Year Ended December 31,
Consolidated income statement data:
Homebuilding data:
Revenues
Gross profit
Homebuilding income
Mortgage Banking data:
Mortgage banking fees
Mortgage banking income
Consolidated data:
Net income
Earnings per share:
Basic
Diluted
$ 7,328,889 $ 7,220,844 $ 7,004,304 $ 6,175,521 $ 5,709,223
$ 1,391,488 $ 1,370,982 $ 1,312,177 $ 1,185,143 $ 1,001,362
601,102
$
937,960 $
871,106 $
923,879 $
776,370 $
$
$
208,034 $
140,073 $
167,820 $
101,916 $
159,370 $
88,626 $
130,319 $
70,541 $
113,321
60,595
$
901,248 $
878,539 $
797,197 $
537,521 $
425,262
$
$
244.11 $
230.11 $
241.31 $
221.13 $
219.58 $
194.80 $
144.00 $
126.77 $
110.53
103.61
Weighted average number of shares outstanding:
Basic
Diluted
3,692
3,917
3,641
3,973
3,631
4,092
3,733
4,240
3,847
4,104
2020
2019
2018
2017
2016
December 31,
Consolidated balance sheet data:
Homebuilding inventory
Contract land deposits, net
Total assets
Senior notes
Shareholders’ equity
Cash dividends per share
413,851 $
387,628 $
$ 1,709,082 $ 1,347,288 $ 1,253,110 $ 1,246,199 $ 1,092,100
$
379,844
$ 5,777,141 $ 3,809,815 $ 3,165,933 $ 2,989,279 $ 2,643,943
596,455
$ 1,517,395 $
$ 3,103,074 $ 2,341,244 $ 1,808,562 $ 1,605,492 $ 1,304,441
—
$
597,066 $
598,301 $
370,429 $
396,177 $
597,681 $
— $
— $
— $
— $
12
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(dollars in thousands, except per share data)
Results of Operations
This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019.
Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found
in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report
on Form 10-K for the fiscal year ended December 31, 2019.
Overview
Business Environment and the Impact of COVID-19
The pandemic, caused by the novel strain of coronavirus ("COVID-19"), has had a significant impact on all facets of our
business. Our primary focus as we face this challenge is to do everything we can to ensure the safety and well-being of our employees,
customers and trade partners. Residential construction has been deemed an essential business in each of our markets since the
beginning of the pandemic, except Pennsylvania and New York, where we faced closures into May 2020. In each of our markets, we
continue to operate in accordance with the guidelines issued by the Centers for Disease Control and Prevention as well as state and
local guidelines, which has resulted in significant changes to the way we conduct business.
We experienced elevated sales cancellations and decreased new orders during March and April; however, the demand for new
homes began to strengthen in May and remained strong through December. Despite high unemployment rates attributable to the
COVID-19 pandemic, demand has increased primarily as a result of historically low mortgage interest rates coupled with low resale
inventory levels.
From March through May, there were significant disruptions in the mortgage market as investors tightened their credit
standards or exited the market, which resulted in significantly lower values for mortgage servicing rights and fewer customers able to
qualify for a mortgage. During the second half of 2020, the mortgage market stabilized as mortgage demand increased.
Although current demand for new homes is strong, there is uncertainty regarding the extent and timing of disruption to our
business that may result from COVID-19 and related governmental actions. There is also uncertainty as to the effects of the pandemic
and related economic relief efforts on the U.S. economy, unemployment, consumer confidence, demand for our homes and the
mortgage market, including lending standards and secondary mortgage markets. We are unable to predict the extent to which this will
impact our operational and financial performance, including the impact of future developments such as the duration and spread of
COVID-19, corresponding governmental actions, and the impact of such on our employees, customers and trade partners.
We expect to continue to face gross profit margin pressure which will be impacted by our ability to manage land and
construction costs as well as balancing sales pace and pricing. We also expect to face pressure on mortgage banking profit due to the
competitive pricing pressures in the mortgage market. We believe that we are well positioned to take advantage of opportunities that
may arise from future economic and homebuilding market volatility due to the strength of our balance sheet.
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 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:
North East:
Mid East:
South East:
Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
New Jersey and Eastern Pennsylvania
New York, Ohio, Western Pennsylvania, Indiana and Illinois
North Carolina, South Carolina, Florida and Tennessee
Our lot acquisition strategy is predicated upon avoiding the financial risks associated with direct land ownership and
development. We generally do not engage in land development (see discussion below of our land development activities). Instead, we
typically acquire finished lots from various third party land developers pursuant to LPAs. These LPAs 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 LPA. 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.
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
13
regional economic cycles and provides growth opportunities within these markets. Our continued success is contingent upon our
ability to control an adequate supply of finished lots on which to build.
In limited 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 raw ground, we determine whether to sell the raw parcel to a developer and enter into an LPA with the developer to
purchase the finished lots or 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 LPAs with forfeitable deposits.
As of December 31, 2020, we controlled lots as described below.
Lot Purchase Agreements ("LPAs")
We controlled approximately 103,000 lots under LPAs with third parties through deposits in cash and letters of credit totaling
approximately $438,500 and $8,100, respectively. Included in the number of controlled lots are approximately 7,700 lots for which we
have recorded a contract land deposit impairment reserve of approximately $52,200 as of December 31, 2020.
Joint Venture Limited Liability Corporations (“JVs”)
We had an aggregate investment totaling approximately $23,600 in four JVs, expected to produce approximately 5,200 lots. Of
the lots to be produced by the JVs, approximately 2,200 lots were controlled by us and approximately 3,000 lots were either under
contract with unrelated parties or currently not under contract.
Land Under Development
We directly owned three separate raw land parcels, zoned for their intended use, with a current cost basis, including
development costs, of approximately $62,800 that we intend to develop into approximately 500 finished lots. We had additional
funding commitments of approximately $5,100 under a joint development agreement related to one parcel, a portion of which we
expect will be offset by development credits of approximately $2,600.
See Notes 3, 4 and 5 to the consolidated financial statements included herein for additional information regarding LPAs, JVs
and land under development, respectively.
Raw Land Purchase Agreements
In addition to the lots we currently control as discussed above, we have certain properties under contract with land owners that
are expected to yield approximately 6,100 lots. Some of these properties may require rezoning or other approvals to achieve the
expected yield. These properties are controlled with cash deposits and letters of credit totaling approximately $1,300 and $100,
respectively, as of December 31, 2020, of which approximately $1,000 is refundable if we do not perform under the contract. We
generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the assignee if the
project is determined to be feasible.
Key Financial Results
Our consolidated revenues for the year ended December 31, 2020 totaled $7,536,923, an increase of 2% from $7,388,664 in
2019. Our net income for 2020 was $901,248, or $230.11 per diluted share, increases of 3% and 4% compared to 2019 net income and
diluted earnings per share, respectively. Our homebuilding gross profit margin percentage was 19.0% in both 2020 and 2019. New
orders, net of cancellations (“New Orders”) during 2020 were 23,082, an increase of 18% from 2019 while our average New Order
sales price increased 3% to $380.1 in 2020. Our backlog of homes sold but not yet settled with the customer as of December 31, 2020
increased on a unit basis by 40% to 11,549 units and increased on a dollar basis by 46% to $4,575,899 when compared to
December 31, 2019. Income before tax from our mortgage banking segment totaled $140,073 in 2020, an increase of 37% when
compared to $101,916 in 2019 due primarily to an increase in secondary marketing gains on sales of loans.
Homebuilding Operations
The following table summarizes the results of our consolidated homebuilding operations and certain operating activity for each
of the last three years:
14
Financial data:
Revenues
Cost of sales
Gross profit margin percentage
Selling, general and administrative expenses
Operating data:
New orders (units)
Average new order price
Settlements (units)
Average settlement price
Backlog (units)
Average backlog price
New order cancellation rate
Year Ended December 31,
2020
2019
2018
$
$
$
$
$
$
7,328,889
5,937,401
19.0 %
431,008
23,082
380.1
19,766
370.8
11,549
396.2
14.9 %
$
$
$
$
$
$
7,220,844
5,849,862
19.0 %
447,547
19,536
368.4
19,668
367.1
8,233
380.2
14.6 %
$
$
$
$
$
$
7,004,304
5,692,127
18.7 %
428,874
18,281
376.3
18,447
379.7
8,365
376.9
14.5 %
Consolidated Homebuilding
Homebuilding revenues increased 2% in 2020 compared to 2019, as a result of a 1% increase in the average settlement price
coupled with a slight increase in the number of units settled year over year. Settlements in 2020 were negatively impacted by the
COVID-19 pandemic primarily during the first and second quarters of 2020. Gross profit margin percentage in 2020 remained flat
year over year at 19.0%.
The number of New Orders and the average sales price of New Orders increased 18% and 3%, respectively, in 2020 when
compared to 2019. The increase in New Orders was favorably impacted by increased demand in the second half of 2020 due to
favorable market conditions driven by historically low mortgage interest rates coupled with low resale home inventory levels. New
Orders were higher in each of our reportable segments in both the third and fourth quarters of 2020 compared to the same periods of
2019, due to these favorable market conditions. The increase in the average sales price of New Orders was primarily attributable to
improved pricing power in each of our markets.
Selling, general and administrative ("SG&A") expenses in 2020 decreased by 4% compared to 2019, and as a percentage of
revenue decreased to 5.9% in 2020 from 6.2% in 2019. SG&A expenses were lower primarily due to an approximate $26,800
decrease in equity-based compensation expense due primarily to the stock options granted in 2014 under the 2014 Equity Incentive
Plan becoming fully vested in 2019, offset partially by an increase in personnel costs attributable to an increase of approximately
$11,200 in management incentive expense based on an increase in eligible employees and improved results.
Our backlog represents homes sold but not yet settled with our customers. Backlog units and dollars were 11,549 units and
$4,575,899, respectively, as of December 31, 2020 compared to 8,233 units and $3,130,282, respectively, as of December 31,
2019. The increases in backlog units and dollars is attributable to the increases in New Orders and the average sales price of New
Orders as discussed above, coupled with a lower backlog turnover rate year over year.
In addition to the impact of the COVID-19 pandemic, our backlog 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 Orders that occurred
during the same period, and a portion are related to New Orders that occurred in prior periods and therefore appeared in the beginning
backlog for the current period. Additionally, a substantial majority of our cancellations occur prior to starting construction on a home.
Expressed as the total of all cancellations during the period as a percentage of gross New Orders during the period, our cancellation
rate was 14.9%, 14.6% and 14.5% in 2020, 2019, and 2018, respectively. Additionally, approximately 6% in both 2020 and 2019 and
5% in 2018, of a reporting quarter’s opening backlog cancelled during the quarter. We can provide no assurance that our historical
cancellation rates are indicative of the actual cancellation rate that may occur in future years. Other than those units that are cancelled,
and subject to potential construction delays resulting from COVID-19 related restrictions, we expect to settle substantially all of our
December 31, 2020 backlog during 2021. See “Risk Factors” in Item 1A of this Form 10-K.
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, such as the
impact of government orders to cease or limit construction activities as a result of COVID-19.
15
Reportable Homebuilding Segments
Homebuilding segment profit 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 determined by corporate management. The corporate capital allocation
charge eliminates in consolidation and is based on the segment’s average net assets employed. The corporate capital allocation
charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment is providing
the desired rate of return after covering our cost of capital.
We record impairment 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 termination of an LPA with the developer, or the restructuring of an LPA resulting in the forfeiture of the deposit. We evaluate our
entire net contract land deposit portfolio for impairment each quarter. For presentation purposes below, the contract land deposit
reserve at December 31, 2020 and 2019 has been allocated to the reportable segments for the respective years to show contract land
deposits on a net basis. The net contract land deposit balances below also include approximately $8,100 and $5,500 at December 31,
2020 and 2019, 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
Gross profit margin percentage:
Mid Atlantic
North East
Mid East
South East
Segment profit:
Mid Atlantic
North East
Mid East
South East
Year Ended December 31,
2020
2019
2018
$
$
3,668,542 $
538,772
1,524,667
1,596,908
3,901,573 $
514,804
1,501,139
1,303,328
3,893,358
580,726
1,455,834
1,074,386
Year Ended December 31,
2020
2019
2018
690,058 $
102,621
282,443
327,483
734,017 $
100,520
285,091
260,804
726,655
115,169
279,050
211,870
Year Ended December 31,
2020
2019
2018
18.8 %
19.0 %
18.5 %
20.5 %
18.8 %
19.5 %
19.0 %
20.0 %
18.7 %
19.8 %
19.2 %
19.7 %
Year Ended December 31,
2020
2019
2018
$
437,849 $
50,677
168,605
205,029
478,537 $
51,728
173,374
155,144
462,178
69,789
175,134
118,296
16
Segment Operating Activity:
New orders, net of cancellations:
Mid Atlantic
North East
Mid East
South East
Total
Settlements:
Mid Atlantic
North East
Mid East
South East
Total
Backlog:
Mid Atlantic
North East
Mid East
South East
Total
Operating Data:
Year Ended December 31,
2020
2019
2018
Units
Average
Price
Units
Average
Price
Units
Average
Price
9,230 $
1,738 $
5,780 $
6,334 $
23,082 $
453.8
416.6
330.9
307.7
380.1
8,799 $
1,349 $
4,628 $
4,760 $
19,536 $
424.4
390.8
323.2
302.6
368.4
8,906 $
1,296 $
4,314 $
3,765 $
18,281 $
429.4
400.4
328.0
297.7
376.3
Year Ended December 31,
2020
2019
2018
Units
Average
Price
Units
Average
Price
Units
Average
Price
8,363 $
1,375 $
4,719 $
5,309 $
19,766 $
438.6
391.8
323.1
300.8
370.8
9,335 $
1,325 $
4,621 $
4,387 $
19,668 $
417.9
388.5
324.8
297.1
367.1
8,982 $
1,415 $
4,406 $
3,644 $
18,447 $
433.4
410.4
330.4
294.8
379.7
Year Ended December 31,
2020
2019
2018
Units
Average
Price
Units
Average
Price
Units
Average
Price
4,479 $
950 $
2,874 $
3,246 $
11,549 $
470.9
447.8
344.5
323.7
396.2
3,612 $
587 $
1,813 $
2,221 $
8,233 $
440.1
408.8
332.0
314.6
380.2
4,148 $
563 $
1,806 $
1,848 $
8,365 $
423.4
404.1
336.2
304.1
376.9
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,
2020
2019
2018
14.9 %
13.1 %
14.5 %
15.8 %
15.0 %
13.0 %
14.1 %
14.9 %
15.2 %
12.5 %
12.9 %
15.5 %
Year Ended December 31,
2020
2019
2018
177
40
138
112
467
206
33
134
97
470
234
36
119
88
477
17
Homebuilding Inventory:
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)
As of December 31,
2020
2019
704,595 $
140,461
278,510
336,902
1,460,468 $
575,216
77,965
190,700
230,640
1,074,521
As of December 31,
2020
2019
76,690 $
7,941
13,252
23,220
121,103 $
104,459
28,331
15,333
35,420
183,543
$
$
$
$
(1)
Total segment inventory differs from consolidated inventory due to 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. These consolidation adjustments are not allocated to our operating
segments.
Lots Controlled and Land Deposits:
Total lots controlled:
Mid Atlantic
North East
Mid East
South East
Total
Contract land deposits, net:
Mid Atlantic
North East
Mid East
South East
Total
Contract land deposit impairments (recoveries), net:
Mid Atlantic
North East
Mid East
South East
Total
18
As of December 31,
2020
2019
42,100
10,500
22,000
31,100
105,700
42,400
9,900
24,200
28,400
104,900
As of December 31,
2020
2019
$
$
212,742 $
32,949
49,222
100,864
395,777 $
205,433
50,348
57,053
106,523
419,357
Year Ended December 31,
2020
2019
2018
$
$
114 $
60
293
1,045
1,512 $
(141) $
1,050
175
21
1,105 $
2,743
1,033
211
1,911
5,898
Mid Atlantic
The Mid Atlantic segment had an approximate $40,700, or 9%, decrease in segment profit in 2020 compared to 2019, driven by
a decrease in segment revenues of approximately $233,000, or 6%, year over year. Segment revenues decreased due to a 10% decrease
in the number of units settled, offset partially by a 5% increase in the average settlement price year over year. The decrease in the
number of units settled was impacted by a 13% lower backlog unit balance entering 2020 compared to the backlog unit balance
entering 2019, coupled with a lower backlog turnover rate year over year. The increase in the average settlement price was primarily
attributable to a 4% higher average sales price of units in backlog entering 2020 compared to backlog entering 2019. The Mid Atlantic
segment’s gross profit margin percentage remained flat at 18.8% in both 2020 and 2019.
Segment New Orders and the average sales price of New Orders increased 5% and 7%, respectively, in 2020 compared to 2019.
New Orders increased despite a 14% decrease in the average number of active communities year over year, due to higher absorption
rates attributable to favorable market conditions in the second half of 2020, driven primarily by historically low mortgage interest rates
and low resale inventory levels. The increase in the average sales price of New Orders was primarily attributable to improved pricing
power in the segment.
North East
The North East segment had an approximate $1,100, or 2%, decrease in segment profit in 2020 compared to 2019, despite an
increase in segment revenues of approximately $24,000, or 5%, year over year. The increase in segment revenues was attributable to a
4% increase in the number of units settled and a 1% increase in the average settlement price year over year. The increase in the
number of units settled was attributable to a 4% higher backlog unit balance entering 2020 compared to the backlog unit balance
entering 2019, coupled with a 27% increase in New Orders in the first nine months of 2020 compared to the same period in 2019.
The segment’s gross profit margin percentage decreased to 19.0% in 2020 from 19.5% in 2019 due primarily to increases in lumber
and certain other commodity prices year over year.
Segment New Orders and the average sales price of New Orders increased 29% and 7%, respectively, in 2020 compared to
2019. New Orders increased due to a 19% increase in the average number of active communities year over year and favorable market
conditions in the second half of 2020, driven primarily by historically low mortgage interest rates and low resale inventory levels. The
average sales price of New Orders was favorably impacted by the previously mentioned favorable market conditions which provided
us some pricing power, as well as to a relative market shift in New Orders to higher priced communities within certain markets in the
segment.
Mid East
The Mid East segment had an approximate $4,800, or 3%, decrease in segment profit in 2020 compared to 2019, despite an
increase in segment revenues of approximately $23,500, or 2%, year over year. Segment revenues increased primarily due to a 2%
increase in the number of units settled year over year. The increase in units settled was largely attributable to a 24% increase in
settlements in the fourth quarter of 2020 compared to the same period in 2019 as settlements in the first half of 2020 were delayed in
our Western Pennsylvania and New York markets due to the state and local governments in those markets issuing various orders that
prohibited residential construction from the end of March through April 2020 as a result of the COVID-19 pandemic. The segment’s
gross profit margin percentage decreased to 18.5% in 2020 from 19.0% in 2019 due to increases in lumber and certain other
commodity prices year over year.
Segment New Orders and the average sales price of New Orders increased 25% and 2%, respectively, in 2020 compared to
2019. New Orders increased primarily due to higher absorption rates attributable to favorable market conditions driven primarily by
historically low mortgage interest rates and low resale inventory levels.
South East
The South East segment had an approximate $49,900, or 32%, increase in segment profit in 2020 compared to 2019. The
increase in segment profit was primarily driven by an increase in segment revenues of approximately $293,600, or 23%, coupled with
improved gross profit margins year over year. The increase in revenues was attributable to a 21% increase in the number of units
settled and a 1% increase in the average settlement price year over year. The number of units settled were favorably impacted by a
20% higher backlog unit balance entering 2020 compared to the same period in 2019, coupled with a 21% increase in New Orders in
the first six months of 2020 compared to the same period in 2019. The segment’s gross profit margin percentage increased to 20.5% in
2020 from 20.0% in 2019 due to a relative shift in settlements to higher margin communities.
Segment New Orders and the average sales price of New Orders increased 33% and 2%, respectively, in 2020 compared to
2019. New Orders increased due to to a 15% increase in the average number of active communities year over year, coupled with
higher absorption rates attributable to favorable market conditions in the second half of 2020, driven primarily by historically low
mortgage interest rates and low resale inventory levels.
19
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. External corporate interest expense is primarily comprised of interest
charges on our 3.95% Senior Notes due 2022 and 3.00% Senior Notes due 2030, and is not charged to the operating segments because
the charges are included in the corporate capital allocation discussed above.
Homebuilding consolidated gross profit:
Mid Atlantic
North East
Mid East
South East
Consolidation adjustments and other
$
Homebuilding consolidated gross profit
$
$
Homebuilding consolidated profit before taxes:
Mid Atlantic
North East
Mid East
South East
Reconciling items:
Contract land deposit impairment reserve (1)
Equity-based compensation expense (2)
Corporate capital allocation (4)
Unallocated corporate overhead
Consolidation adjustments and other (3)
Corporate interest expense
Reconciling items sub-total
Homebuilding consolidated profit before taxes
$
Year Ended December 31,
2020
2019
2018
690,058 $
102,621
282,443
327,483
(11,117)
1,391,488 $
734,017 $
100,520
285,091
260,804
(9,450)
1,370,982 $
726,655
115,169
279,050
211,870
(20,567)
1,312,177
Year Ended December 31,
2020
2019
2018
437,849 $
50,677
168,605
205,029
(24,633)
(47,548)
239,233
(114,921)
63,025
(39,356)
75,800
937,960 $
478,537 $
51,728
173,374
155,144
1,644
(75,156)
224,468
(105,125)
43,486
(24,221)
65,096
923,879 $
462,178
69,789
175,134
118,296
783
(70,865)
213,903
(89,973)
15,829
(23,968)
45,709
871,106
(1) This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable
segments. See further discussion of contract land deposit impairment charges in Note 3 in the accompanying consolidated
financial statements.
(2) The decrease in equity-based compensation expense in 2020 was primarily attributable to stock options issued in 2014 under
the 2014 Equity Incentive Plan becoming fully vested in 2019. In addition, there were higher stock option forfeitures in 2020
compared to 2019.
(3) The increase in 2020 relates primarily to the significant increase in lumber prices during the second half of 2020. Our
reportable segments' results include intercompany profits of our production facilities, which were negatively impacted by the
increase in lumber costs. The increase in lumber costs related to homes not yet settled is eliminated through the consolidation
adjustment. As these homes currently in inventory are settled in subsequent quarters, our consolidated homebuilding margins
will be negatively impacted by the higher lumber costs.
(4) 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:
20
Corporate capital allocation charge:
Mid Atlantic
North East
Mid East
South East
Total corporate capital allocation charge
Year Ended December 31,
2020
2019
2018
$
$
124,426 $
22,850
40,256
51,701
239,233 $
123,130 $
19,755
37,263
44,320
224,468 $
123,855
17,893
35,803
36,352
213,903
Mortgage Banking Segment
We conduct our mortgage banking activity through NVRM, a wholly owned subsidiary. NVRM focuses almost exclusively on
serving the homebuilding segment customer base. The following table summarizes the results of our mortgage banking operations and
certain statistical data for each of the last three years:
Loan closing volume:
Total principal
Loan volume mix:
Adjustable rate mortgages
Fixed-rate mortgages
Operating profit:
Segment profit
Equity-based compensation expense
Mortgage banking income
Capture rate:
Mortgage banking fees:
Net gain on sale of loans
Title services
Servicing fees
Year Ended December 31,
2020
2019
2018
$
5,317,811
$
5,164,725
$
4,829,406
2 %
98 %
8 %
92 %
10 %
90 %
$
$
$
$
143,319
(3,246)
140,073
90 %
168,720
38,554
760
208,034
$
$
$
$
105,292
(3,376)
101,916
90 %
128,642
38,537
641
167,820
$
$
$
$
93,462
(4,836)
88,626
88 %
122,755
36,001
614
159,370
Loan closing volume in 2020 increased by approximately $153,100, or 3%, from 2019. The increase was primarily attributable
to a 1% increase in the number of loans closed year over year due primarily to the aforementioned increase in the homebuilding
segment’s number of settlements in 2020 as compared to 2019 and a 2% increase in the average loan amount in 2020 compared to
2019.
Segment profit in 2020 increased by approximately $38,000, or 36%, from 2019. The increase in segment profit was primarily
attributable to an increase in mortgage banking fees. Mortgage banking fees increased by approximately $40,200, or 24%, resulting
from the aforementioned increase in loan closing volume and an increase in secondary marketing gains on sales of loans.
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 repurchases or early payment default occur. Those underwriting standards are typically equal to or
more stringent than the underwriting standards required by FNMA, GNMA, FHLMC, 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
21
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.
We maintain a reserve for losses on mortgage loans originated that reflects our judgment of the present loss exposure from the
loans that we have originated and sold. At December 31, 2020 and 2019, we had repurchase reserves of approximately $20,500 and
$18,500, respectively.
NVRM is dependent on our homebuilding operation’s customers for business. If new orders and selling prices of the
homebuilding segment decline, NVRM’s operations will also be adversely affected. In addition, NVRM’s operating results may be
adversely affected in future periods due to tightening and volatility of the credit markets, changes in investor funding times, increased
regulation of mortgage lending practices and increased competition in the mortgage market.
Seasonality
We generally have higher New Order activity in the first half of the year and higher home settlements, revenues and net income
in the second half of the year, however, COVID-19 related restrictions negatively impacted our New Order activity in March and
April, affecting our typical seasonal New Order trend.
Effective Tax Rate
Our consolidated effective tax rate in 2020, 2019 and 2018 was 16.40%, 14.36% and 16.94%, respectively. The higher effective
tax rate in 2020 compared to 2019 was attributable primarily to the retroactive reinstatement of certain expired energy tax credits
under The Further Consolidated Appropriations Act in 2019, which resulted in the recognition of a tax benefit of approximately
$15,100 in 2019 related to homes settled in 2018 and 2019. For the year ended December 31, 2020, we recognized approximately
$10,200 in energy tax credits.
Additionally, our effective tax rates in 2020, 2019 and 2018 were favorably impacted by the recognition of an income tax
benefit related to excess tax benefits from stock option exercises of $92,234, $101,466 and $77,478, respectively. We expect
continued tax rate volatility in future years attributable to the recognition of excess tax benefits from equity plan activity and
distributions from the deferred compensation plans.
Recent Accounting Pronouncements Pending Adoption
See Note 1 to the accompanying consolidated financial statements for discussion of recently issued accounting pronouncements
applicable to us.
Liquidity and Capital Resources
Lines of Credit and Notes Payable
We had a very strong liquidity position as of December 31, 2020, with approximately $2,8 billion in cash and cash equivalents,
approximately $187,200 in unused committed capacity under our revolving credit facility and $150,000 in unused committed capacity
under our revolving mortgage repurchase facility.
Our homebuilding segment funds its operations from cash flows provided by operating activities, a short-term unsecured
working capital revolving credit facility and capital raised in the public debt and equity markets.
Senior Notes
On September 10, 2012, we completed an offering for $600,000 aggregate principal amount of 3.95% Senior Notes due 2022
(the "2022 Senior Notes"). The 2022 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 2022 Senior Notes mature on September 15, 2022 and
bear interest at 3.95%, payable semi-annually in arrears on March 15 and September 15.
On May 4, 2020, we issued $600,000 of 3.00% Senior Notes due 2030 (the "2030 Senior Notes"). The 2030 Senior Notes were
issued at a discount to yield 3.02% and have been reflected net of the unamortized discount and unamortized debt issuance costs in the
accompanying consolidated balance sheet. The offering of the 2030 Senior Notes resulted in aggregate net proceeds of approximately
$595,200, after deducting underwriting discount and offering expenses. The 2030 Senior Notes mature on May 15, 2030 and bear
interest at 3.00%, payable semi-annually in arrears on May 15 and November 15.
On September 9 and September 17, 2020, we issued an additional $250,000 and $50,000, respectively, of 3.00% 2030 Senior
Notes (the "2030 Additional Notes" and together with the 2030 Senior Notes and the 2022 Senior Notes, the "Senior Notes"). The
2030 Additional Notes were issued at a premium to yield 2.00% and have been reflected net of the unamortized premium and
unamortized debt issuance costs in the accompanying consolidated balance sheet. The offering of the 2030 Additional Notes resulted
22
in aggregate net proceeds of approximately $323,600, including the underwriting premium, less offering expenses. The 2030
Additional Notes form a single series with the 2030 Senior Notes and have substantially identical terms as the 2030 Senior Notes.
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. We were in compliance with all covenants under the Senior Notes at December 31, 2020.
Credit Agreement
On July 15, 2016, we entered into an unsecured Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger
and Sole Book Runner, and the other lenders party thereto, which provides for aggregate revolving loan commitments of $200,000
(the “Facility”). Proceeds of the borrowings under the Facility will be used for working capital and general corporate purposes. Under
the Credit Agreement, we may request increases of up to $300,000 to the Facility in the form of revolving loan commitments or term
loans to the extent that new or existing lenders agree to provide additional revolving loan or term loan commitments.
The Credit Agreement provides for a $100,000 sublimit for the issuance of letters of credit of which there was approximately
$12,800 outstanding at December 31, 2020, and a $25,000 sublimit for a swing line commitment. Borrowings under the Credit
Agreement generally bear interest for Base Rate Loans at a Base Rate equal to the highest of (i) a Federal Funds Rate plus one-half of
one percent, (ii) Bank of America’s publicly announced “prime rate,” and (iii) the Eurodollar Rate plus one percent, plus the
Applicable Rate which is based on our debt rating, or for Eurodollar Rate Loans, at the Eurodollar Rate equal to LIBOR plus the
Applicable Rate.
The Credit Agreement contains various representations and affirmative and negative covenants that are generally customary for
credit facilities of this type. Such covenants include, among others, the following financial maintenance covenants: (i) minimum
consolidated tangible net worth, (ii) minimum interest coverage ratio or minimum liquidity and (iii) a maximum leverage ratio. The
negative covenants include, among others, certain limitations on liens, investments and fundamental changes. The Credit Agreement
termination date is July 15, 2021. We were in compliance with all covenants under the Credit Agreement at December 31,
2020. There were no borrowings outstanding under the Credit Agreement as of December 31, 2020.
On February 12, 2021, we entered into The Amended and Restated Credit Agreement with Bank of America, N.A., as
Administrative Agent, BOFA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, and other lenders party thereto (the
"Amended Credit Agreement"). The Amended Credit Agreement amends and restates the Credit Agreement, discussed above, which
was scheduled to expire on July 15, 2021. The Amended Credit Agreement provides for aggregate revolving loan commitments of
$300,000 (the "New Facility") and terminates on February 12, 2026. Under the Amended Credit Agreement, we may request
increases of up to $300,000 to the New Facility in the form of revolving loan commitments or term loans to the extent that new or
existing lenders agree to provide additional revolving loan or term loan commitments. In addition, the Amended Credit Agreement
provides for a $100,000 sublimit for the issuance of letters of credit. All other terms of the Amended Credit Agreement, including
interest on borrowings and affirmative and negative covenants, are materially consistent with the Credit Agreement it replaces. The
Amended Credit Agreement is filed as Exhibit 10.48 in this Form 10-K. The above summary of the material terms of the Amended
Credit Agreement is qualified in its entirety by reference to Exhibit 10.48.
Repurchase Agreement
Our mortgage banking 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. In July 2020, NVRM entered into the Twelfth Amendment (the “Amendment”) to its Amended and Restated
Master Repurchase Agreement dated August 2, 2011 with U.S. Bank National Association (as amended by the Amendment and ten
earlier amendments, the “Repurchase Agreement”). The Repurchase Agreement provides borrowing capacity up to $150,000, subject
to certain sublimits. The purpose of the Repurchase Agreement is to finance the origination of mortgage loans by NVRM. The
Repurchase Agreement expires on July 21, 2021. Advances under the Repurchase Agreement carry a Pricing Rate based on the
LIBOR Rate plus the LIBOR Margin, as determined under the Repurchase Agreement, provided that the Pricing Rate shall not be less
than 1.75%. 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. NVRM was in compliance with all covenants
23
under the Repurchase Agreement at December 31, 2020. At December 31, 2020, there was no debt outstanding under the Repurchase
Agreement and there were no borrowing base limitations.
Common Stock 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 Plan Trust or Employee Stock Ownership Plan Trust. The repurchase
program assists us in accomplishing our primary objective, creating increases in shareholder value. See “Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Item 5 of this Form 10-K for disclosure of
amounts repurchased during the fourth quarter of 2020. For the year ended December 31, 2020, we repurchased 93,346 shares of our
common stock at an aggregate purchase price of $371,078. As of December 31, 2020, we had $546,062 available under Board
approved repurchase authorizations.
Cash Flows
For the year ended December 31, 2020, cash, restricted cash and cash equivalents increased by $1,648,978. Net cash provided
by operating activities was $925,269, due primarily to cash provided by earnings in 2020 and net proceeds of $212,636 from mortgage
loan activity. Additionally, cash was provided by an increase in customer deposits attributable to the increase in our ending backlog
year over year. Cash was primarily used to fund the increase in inventory of $362,384, attributable to an increase in units under
construction at December 31, 2020 compared to December 31, 2019.
Net cash used in investing activities in 2020 was $3,933. Cash was used for purchases of property, plant and equipment of
$16,119, offset partially by the receipt of capital distributions from our unconsolidated JVs totaling $11,625.
Net cash provided by financing activities in 2020 was $727,642, due primarily to the net proceeds received from the issuance of
the 2030 Senior Notes, as discussed above, and by $180,866 in proceeds from stock option exercises in 2020. Cash was used during
the period to repurchase shares of our common stock under our ongoing common stock repurchase program as discussed above.
For the year ended December 31, 2019, cash, restricted cash and cash equivalents increased by $428,556. Net cash provided by
operating activities was $866,535, due primarily to cash provided by earnings in 2019 and net proceeds of $91,178 from mortgage
loan activity. Cash was primarily used to fund the increase in inventory of $94,178, attributable to an increase in units under
construction at December 31, 2019 compared to December 31, 2018. Net cash used in investing activities in 2019 of $13,284 was
attributable primarily to cash used for purchases of property, plant and equipment of $22,699, offset partially by the receipt of capital
distributions from our unconsolidated JVs totaling $8,247. Net cash used in financing activities of $424,695 resulted primarily from
our repurchase of 220,965 shares of our common stock for an aggregate purchase price of $698,417 under our ongoing common stock
repurchase program as discussed above, offset partially by $274,028 in proceeds from stock option exercises.
At December 31, 2020 and 2019, the homebuilding segment had restricted cash of $28,912 and $17,943, respectively.
Restricted cash in each year was attributable to customer deposits for certain home sales.
We believe that our current cash holdings, cash generated from operations, and cash available under our short-term unsecured
credit agreement, revolving mortgage repurchase facility 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 from various land
developers under LPAs that require deposits that may be forfeited if we fail to perform under the agreement. The deposits required
under the LPAs 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 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 LPAs 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 LPAs. 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 LPAs.
At December 31, 2020, we controlled approximately 105,700 lots through LPAs, JVs and land under development, with an
aggregate purchase price of approximately $10,300,000. These lots are controlled by making or committing to make deposits of
24
approximately $661,600 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 $438,500 in deposits paid and $8,100 in
letters of credit issued as of December 31, 2020, plus approximately $215,000 related to deposits to be paid subsequent to
December 31, 2020 assuming that contractual development milestones are met by the developers and we exercise our option. As of
December 31, 2020, we had recorded an impairment valuation allowance of approximately $52,200 related to certain cash deposits
currently outstanding. Additionally, as of December 31, 2020, we had funding commitments totaling $3,100 to one of our JVs and
approximately $5,100 under a joint development agreement related to our land under development, a portion of which we expect will
be offset by development credits of approximately $2,600.
In addition, we have certain properties under contract with land owners that are expected to yield approximately 6,100 lots,
which are not included in our number of total lots controlled above. Some of these properties may require rezoning or other approvals
to achieve the expected yield. These properties are controlled with cash deposits and letters of credit of approximately $1,300 and
$100, respectively, as of December 31, 2020, of which approximately $1,000 is refundable if we do not perform under the contract
and the remainder is at risk of loss. We generally expect to assign the raw land contracts to a land developer and simultaneously enter
into an LPA with the assignee if the project is determined to be feasible. 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 for 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 $40,600 of contingent obligations under such agreements
as of December 31, 2020, inclusive of the $8,100 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, NVRM enters into contractual commitments to extend credit to our homebuyers 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 an investor. 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 investors. The forward sale contracts
lock in a range of interest rates and prices 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 investors are
undesignated derivatives, and, accordingly, are marked to fair value through earnings. At December 31, 2020, we had contractual
commitments to extend credit to borrowers aggregating $617,308 and open forward delivery contracts aggregating $916,588, which
hedge both the rate lock commitments and closed loans held for sale (see Note 15 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, 2020, were as follows:
Debt (1)
Interest on debt (1)
Finance leases (2)
Operating leases (2)
Purchase obligations (3)
Uncertain tax positions (4)
Total
Payments due by year
Total
1,500,000 $
293,472
19,512
84,965
220,104
29,085
2,147,138 $
$
$
2021
2022 to 2023
2024 to 2025
2026 and Later
— $
50,700
1,744
30,111
*
*
82,555 $
600,000 $
70,722
3,503
34,418
*
*
708,643 $
— $
54,000
3,523
13,795
*
*
71,318 $
900,000
118,050
10,742
6,641
*
*
1,035,433
(1)
(2)
See Note 9 in the accompanying consolidated financial statements for additional information regarding the Senior Notes.
See Note 13 in the accompanying consolidated financial statements for additional information regarding our finance and
operating leases.
25
(3)
Amount represents expected payments of forfeitable deposits with land developers under existing LPAs assuming that
contractual development milestones are met by the developers and we exercise our option, and estimated contractual
obligations for land development agreements. We expect to make the majority of payments of the deposits with land
developers 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.
(4)
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 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 and joint venture investments, as applicable (see below). Upon settlement, the cost of the unit is expensed on a specific
identification basis. Cost of building 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 complete. Any calculated impairments are recorded immediately in
cost of sales.
Contract Land Deposits and Land Under Development
Contract Land Deposits
We purchase finished lots under LPAs 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 conduct a
loss contingency analysis 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 quantitative and qualitative
information including, as applicable, current sales absorption levels, recent sales’ profit margin, the dollar differential between the
contractual purchase price and the current market price for lots, a developer’s performance, a developer’s financial ability or
willingness to reduce lot prices to current market prices, if necessary, 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 at an acceptable margin and sales pace 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 at an acceptable margin and sales pace 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 conditions.
Although we consider the allowance for losses on contract land deposits reflected on the December 31, 2020 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.
26
Land Under Development
On a 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 JVs 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’ profit margin, 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 so, impairment
charges are required to be recorded in an amount by which the carrying amount of the assets exceeds the fair value of such 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, 2020, we had approximately $62,800 in land under development in three separate communities. In addition, at
December 31, 2020, we had an aggregate investment totaling approximately $23,600 in four separate JVs that controlled land under
development. During 2020, we recognized an impairment of approximately $1,800 related to one of our JVs. None of the
communities classified as land under development nor any of the undeveloped land held by the JVs had any indicators of impairment
at December 31, 2020. 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.
Warranty/Product Liability Accruals
We establish 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 our homebuilding business. Liability estimates are determined based on our
judgment considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and
subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and
discussions with our General Counsel and outside counsel retained to handle specific product liability cases. Although we consider the
warranty and product liability accrual reflected on the December 31, 2020 consolidated balance sheet to be adequate (see Note 14 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
We recognize equity-based compensation expense within our income statement for all share-based payment arrangements,
which include non-qualified stock options to purchase shares of NVR common stock ("Options") and restricted share units ("RSUs").
Compensation expense is based on the grant-date fair value of the Options and RSUs granted, and 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). Options and RSUs which are subject to a performance condition are treated as a separate award from the “service-only”
Options and RSUs, and compensation expense is recognized when it becomes probable that the stated performance target will be
achieved. We calculate the fair value of our Options, which are non-publicly traded, using the Black-Scholes option-pricing model.
The grant date fair value of the RSUs is the closing price of our common stock on the day immediately preceding the date of grant.
The reversal of compensation expense previously recognized for grants forfeited is recorded in the period in which the forfeiture
occurs.
As noted above, we calculate the fair value of our Options, which are non-publicly traded, 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, when recognizing equity-based compensation cost related to “performance condition” Option and RSU grants, we
are required to make a determination as to whether the performance conditions will be met prior to the completion of the actual
performance period. The performance metric is based on our return on capital performance during a specified three year period based
on the date of Option grant. While we currently believe that this performance condition will be satisfied at the target level and are
recognizing compensation expense related to such Options and RSUs accordingly, our future expected activity levels could cause us to
27
make a different determination, resulting in a change to the compensation expense to be recognized related to performance condition
Option and RSU grants that would otherwise have been recognized to date.
Although we believe that the compensation costs recognized in 2020 are representative of the cumulative ratable amortization
of the grant-date fair value of unvested Options and RSUs outstanding, changes to the estimated input values such as expected term
and expected volatility and changes to the determination of whether performance condition grants will vest, could produce widely
different expense valuations and recognition.
Mortgage Repurchase Reserve
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, on a servicing released basis, typically within 30 days from closing. All of the loans that
we originate 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, GNMA, FHLMC, VA and FHA. 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 repurchases or early payment default occur. 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 a reserve 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 reserve is calculated based on an analysis of historical
experience and exposure. Although we consider the mortgage repurchase reserve reflected on the December 31, 2020 consolidated
balance sheet to be adequate (see Note 16 to the accompanying consolidated financial statements included herein), there can be no
assurance that this reserve will prove to be adequate over time to cover losses due to unanticipated changes to the assumptions used to
estimate the mortgage repurchase reserve.
Impact of Inflation, Changing Prices and Economic Conditions
See “Risk Factors” included in Item 1A of this Form 10-K 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.
(dollars in thousands)
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.
We are exposed to interest rate risk as it relates to our fixed rate debt, primarily our Senior Notes and our variable rate credit
facility and loan repurchase facility. Changes to interest rates generally affect the fair value of fixed-rate debt instruments, but not
earnings or cash flows. For variable rate debt, interest rate changes generally will not affect the fair value of the variable debt
instruments but will affect earnings and cash flow. At December 31, 2020, there was no debt outstanding under our credit facility or
loan repurchase facility. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and
Note 9 to the accompanying consolidated financial statements included herein for further discussion of these debt instruments.
Our mortgage banking segment is exposed to interest rate risk as it relates to its lending activities, including originating
mortgage loans and providing rate lock commitments to borrowers. 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 sales contracts to sell whole loans and
mortgage-backed securities to investors. The forward sales contracts lock-in a range of interest rates and prices for the sale of loans
similar to the specific rate lock commitments. We do not engage in speculative or trading derivative activities. All of the mortgage
banking segment’s loan portfolio is held for sale and subject to forward sale commitments. See Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Note 15 to the accompanying consolidated financial statements
included herein for further discussion of these items.
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, 2020. 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.
28
2021
2022
2023
2024
2025
Thereafter
Total
Fair
Value
Maturities (000's)
Mortgage banking segment
Interest rate sensitive assets:
Mortgage loans held for sale
$ 439,718
Average interest rate
2.8 %
Other:
Forward trades of mortgage-backed
securities (a)
Forward loan commitments (a)
$
(5,216)
$ 10,757
Homebuilding segment
Interest rate sensitive assets:
Interest-bearing deposits
$ 2,278,488
Average interest rate
0.2 %
—
—
—
—
—
—
Interest rate sensitive liabilities:
Fixed rate obligations
Average interest rate
$
—
—
$ 600,000
4.0 %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 439,718
$ 449,760
2.8 %
$
(5,216)
$ 10,757
$
$
(5,216)
10,757
$ 2,278,488
$ 2,278,488
0.2 %
— $ 900,000
$ 1,500,000
$ 1,612,620
—
2.7 %
3.2 %
(a)
Represents the fair value recorded pursuant to ASC 815, Derivatives and Hedging.
29
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, 2020 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 (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control –
Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of
December 31, 2020. There have been no changes in our internal control 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 control over
financial reporting.
Our internal control over financial reporting as of December 31, 2020 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.
Item 10.
Directors, Executive Officers, and Corporate Governance.
PART III
The information required by this item will be included under the captions "Proposal No.1 - Election of Directors", "Executive
Summary" within "Compensation Discussion and Analysis", "Corporate Governance Principles and Board Matters" and ""Delinquent
Section 16(a) Reports" within "Security Ownership of Beneficial Owners and Management" in our definitive Proxy Statement for the
2021 Annual Meeting of Shareholders ("2021 Proxy Statement") and is incorporated herein by reference. Our 2021 Proxy Statement
is expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2021.
Item 11.
Executive Compensation.
The information required by this item will be included under the caption "Compensation Discussion and Analysis" in our 2021
Proxy Statement and is incorporated herein by reference. Our 2021 Proxy Statement is expected to be filed with the Securities and
Exchange Commission on or prior to April 30, 2021.
30
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information
The following table summarizes our equity compensation plans as of December 31, 2020:
Plan category
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Equity compensation plans approved by security holders (1)
611,024 $
2,229.01
Equity compensation plans not approved by security holders
Total
— $
—
611,024 $
2,229.01
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in the
first column)
281,280
—
281,280
(1)
This category includes the restricted share units (“RSUs”) authorized to be issued under the 2010 and 2018 Equity Incentive
Plans. At December 31, 2020, there were 17,598 RSUs outstanding. Of the total 281,280 shares remaining available for future
issuance under the shareholder approved plans, up to a total of 36,520 may be issued as RSUs. The weighted-average exercise
price of outstanding options under security holder approved plans was $2,295.11.
The remaining information required by this item will be included under the caption "Security Ownership of Certain Beneficial
Owners and Management" in our 2021 Proxy Statement and is incorporated herein by reference. Our 2021 Proxy Statement is
expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2021.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be included under the caption "Corporate Governance Principles and Board Matters"
in our 2021 Proxy Statement and is incorporated herein by reference. Our 2021 Proxy Statement is expected to be filed with the
Securities and Exchange Commission on or prior to April 30, 2021.
Item 14.
Principal Accountant Fees and Services.
The information required by this item will be included under the caption "Proposal No. 2 - Ratification of Appointment of
Independent Auditor"in our 2021 Proxy Statement and is incorporated herein by reference. Our 2021 Proxy Statement expected to be
filed with the Securities and Exchange Commission on or prior to April 30, 2021.
31
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
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
Exhibit Description
Restated Articles of Incorporation of NVR, Inc.
Bylaws, as amended, of NVR, Inc.
Indenture dated as of April 14, 1998 between NVR,
Inc., as issuer and the Bank of New York as trustee.
Form of Note (included in Indenture).
Fifth Supplemental Indenture dated September 10,
2012 among NVR, Inc. and U.S. Bank Trust
National Association.
Sixth Supplemental Indenture dated as of May 4,
2020 among NVR, Inc. and U.S. Bank Trust
National Association.
Seventh Supplemental Indenture dated September 9,
2020 between NVR, Inc. and U.S. Bank Trust
National Association.
Eighth Supplemental Indenture dated September 17,
2020 between NVR, Inc. and U.S. Bank Trust
National Association.
Form of Global Note.
Description of Securities of NVR, Inc.
Amended and Restated Employment Agreement
between NVR, Inc. and Paul C. Saville dated
November 4, 2015.
Amended and Restated Employment Agreement
between NVR, Inc. and Daniel D. Malzahn dated
November 4, 2015.
Amended and Restated Employment Agreement
between NVR, Inc. and Eugene J. Bredow dated
November 4, 2015.
Amendment No. 1 to Employment Agreement
between NVR, Inc. and Eugene J. Bredow dated
March 1, 2018.
Amendment No. 2 to Employment Agreement
between NVR, Inc. and Eugene J. Bredow dated
April 1, 2019.
Employment Agreement between NVR, Inc. and
Paul W. Praylo dated January 28, 2019.
Extension of Employment Agreement between
NVR, Inc. and Paul C. Saville date November 4,
2020.
32
Form
10-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10-K
10-Q
10-Q
10-Q
10-Q
10-Q
10-K
10-Q
Incorporated by Reference
File
Number
Exhibit
Number
3.1
3.1
4.3
4.5
4.1
4.1
4.1
4.2
4.2
4.5
Filing Date
2/25/2011
3/17/2016
4/23/1998
4/23/1998
9/10/2012
5/4/2020
9/9/2020
9/17/2020
9/10/2012
2/19/2020
10.1
11/6/2015
10.2
11/6/2015
10.4
11/6/2015
10.1
5/1/2018
10.2
5/1/2019
10.8
10.1
2/13/2019
11/4/2020
Exhibit
Number
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
Exhibit Description
Extension of Employment Agreement between
NVR, Inc. and Daniel D. Malzahn date November 4,
2020.
Extension of Employment Agreement between
NVR, Inc. and Paul W. Praylo date November 4,
2020.
Extension of Employment Agreement between
NVR, Inc. and Eugene J. Bredow date November 4,
2020.
Profit Sharing Plan of NVR, Inc. and Affiliated
Companies.
Employee Stock Ownership Plan of NVR, Inc.
Amended and Restated NVR, Inc. Nonqualified
Deferred Compensation Plan.
First Amendment to NVR, Inc. Nonqualified
Deferred Compensation Plan.
Description of the Board of Directors’ compensation
arrangement.
NVR, Inc. 2018 Equity Incentive Plan
The Form of Non-Qualified Stock Option
Agreement (Management time-based grants) under
the NVR, Inc. 2018 Equity Incentive Plan.
The Form of Non-Qualified Stock Option
Agreement (Director time-based grants) under the
NVR, Inc. 2018 Equity Incentive Plan.
The Form of Non-Qualified Stock Option
Agreement (Management performance-based
grants) under the NVR, Inc. 2018 Equity Incentive
Plan.
The Form of Non-Qualified Stock Option
Agreement (Director performance-based grants)
under the NVR, Inc. 2018 Equity Incentive Plan.
The Form of Restricted Share Units Agreement
(Management grants) under the NVR, Inc. 2018
Equity Incentive Plan.
The Form of Restricted Share Units Agreement
(Director grants) under the NVR, Inc. 2018 Equity
Incentive Plan.
NVR, Inc. 2014 Equity Incentive Plan.
The Form of Non-Qualified Stock Option
Agreement (Management time-based grants) under
the NVR, Inc. 2014 Equity Incentive Plan.
The Form of Non-Qualified Stock Option
Agreement (Director time-based grants) under the
NVR, Inc. 2014 Equity Incentive Plan.
The Form of Non-Qualified Stock Option
Agreement (Management performance-based
grants) under the NVR, Inc. 2014 Equity Incentive
Plan.
The Form of Non-Qualified Stock Option
Agreement (Director performance-based grants)
under the NVR, Inc. 2014 Equity Incentive Plan.
NVR, Inc. 2010 Equity Incentive Plan.
The Amended Form of Non-Qualified Stock Option
Agreement (Management grants) under the NVR,
Inc. 2010 Equity Incentive Plan.
33
Incorporated by Reference
File
Number
Exhibit
Number
10.2
Filing Date
11/4/2020
10.3
11/4/2020
10.4
11/4/2020
Form
10-Q
10-Q
10-Q
S-8
333-29241
4.1
6/13/1997
10-K/A
10-Q
10-K
10-K
S-8
8-K
8-K
8-K
8-K
8-K
8-K
S-8
10-K
8-K
10-K
8-K
S-8
10-K
333-224629
10.5
12/31/1994
11/6/2015
10.36
2/15/2017
10.15
2/13/2019
10.1
10.1
5/3/2018
5/14/2018
10.2
5/14/2018
10.3
5/14/2018
10.4
5/14/2018
10.5
5/14/2018
10.6
5/14/2018
333-195756
10.1
10.2
5/7/2014
2/14/2018
10.2
5/7/2014
10.17
2/14/2018
10.4
5/7/2014
333-166512
10.1
10.29
5/4/2010
2/13/2019
Exhibit
Number
10.30*
10.31*
10.32*
10.33*
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
Form
10-K
8-K
10-Q
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10-Q
10-Q
10-Q
Exhibit Description
The Form of Non-Qualified Stock Option
Agreement (Management performance-based
grants) under the NVR, Inc. 2010 Equity Incentive
Plan.
The Form of Non-Qualified Stock Option
Agreement (Director grants) under the NVR, Inc.
2010 Equity Incentive Plan.
The Form of Restricted Share Units Agreement
(Management grants) under the NVR, Inc. 2010
Equity Incentive Plan.
The Form of Restricted Share Units Agreement
(Director grants) under the NVR, Inc. 2010 Equity
Incentive Plan.
Amended and Restated Master Repurchase
Agreement dated as of August 2, 2011, between
NVR Mortgage Finance, Inc. and U.S. Bank
National Association.
First Amendment to Amended and Restated Master
Repurchase Agreement dated as of August 1, 2012,
between NVR Mortgage Finance, Inc. and U.S.
Bank National Association.
Second Amendment to Amended and Restated
Master Repurchase Agreement dated as of
November 13, 2012, between NVR Mortgage
Finance, Inc. and U.S. Bank National Association.
Third Amendment to Amended and Restated Master
Repurchase Agreement dated as of November 29,
2012, between NVR Mortgage Finance, Inc. and
U.S. Bank National Association.
Fourth Amendment to Amended and Restated
Master Repurchase Agreement dated as of July 31,
2013, between NVR Mortgage Finance, Inc. and
U.S. Bank National Association.
Fifth Amendment to Amended and Restated Master
Repurchase Agreement dated as of July 30, 2014,
between NVR Mortgage Finance, Inc. and U.S.
Bank National Association.
Sixth Amendment to Amended and Restated Master
Repurchase Agreement dated as of July 29, 2015,
between NVR Mortgage Finance, Inc. and U.S.
Bank National Association.
Seventh Amendment to Amended and Restated
Master Repurchase Agreement dated as of January
18, 2016, between NVR Mortgage Finance, Inc. and
U.S. Bank National Association.
Eighth Amendment to Amended and Restated
Master Repurchase Agreement dated as of July 27,
2016, between NVR Mortgage Finance, Inc. and
U.S. Bank National Association.
Ninth Amendment to Amended and Restated Master
Repurchase Agreement dated as of July 26, 2017,
between NVR Mortgage Finance, Inc. and U.S.
Bank National Association.
Tenth Amendment to Amended and Restated Master
Repurchase Agreement dated as of July 25, 2018
between NVR Mortgage Finance, Inc. and U.S.
Bank National Association.
34
Incorporated by Reference
File
Number
Exhibit
Number
10.30
Filing Date
2/13/2019
10.2
5/6/2010
10.2
7/30/2013
10.4
5/6/2010
10.1
1/21/2016
10.2
1/21/2016
10.3
1/21/2016
10.4
1/21/2016
10.5
1/21/2016
10.6
1/21/2016
10.7
1/21/2016
10.8
1/21/2016
10.2
7/28/2016
10.1
7/28/2017
10.1
7/30/2018
Incorporated by Reference
File
Number
Exhibit
Number
10.1
Filing Date
7/31/2019
10.1
8/3/2020
10.1
7/18/2016
Form
10-Q
10-Q
8-K
Exhibit
Number
10.45
10.46
10.47
10.48
10.49
21
23
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Exhibit Description
Eleventh Amendment to Amended and Restated
Master Repurchase Agreement dated as of July 24,
2019 between NVR Mortgage Finance, Inc. and
U.S. Bank National Association.
Twelfth Amendment to Amended and Restated
Master Repurchase Agreement dated as of July 8,
2020 between NVR Mortgage Finance, Inc. and
U.S. Bank National Association.
Credit Agreement dated as of July 15, 2016 among
NVR, Inc. and the lenders party hereto, Bank of
America, N.A., as Administrative Agent, Swing
Line Lender and L/C Issuer, and Merrill Lynch,
Pierce, Fenner & Smith Incorporated as Sole Lead
Arranger and Sole Book Runner.
Amended and Restated Credit Agreement dated as
of February 12, 2021 among NVR, Inc. and the
lenders party hereto, Bank of America, N.A., as
Administrative Agent and BofA Securities, Inc. as
Sole Lead Arranger and Sole Book Runner. Filed
herewith.
Summary of 2021 Executive Officer Incentive
Compensation plan. Filed herewith.
NVR, Inc. Subsidiaries. Filed herewith.
Consent of KPMG LLP (Independent Registered
Public Accounting Firm). Filed herewith.
Certification of NVR’s Chief Executive Officer
pursuant to Rule 13a-14(a). Filed herewith.
Certification of NVR’s Chief Financial Officer
pursuant to Rule 13a-14(a). Filed herewith.
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.
XBRL Instance Document - the instance document
does not appear in the Interactive Data File because
XBRL tags are embedded within the Inline XBRL
document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase
Document
XBRL Taxonomy Extension Definition Linkbase
Document
XBRL Taxonomy Extension Label Linkbase
Document
XBRL Taxonomy Extension Presentation Linkbase
Document
Cover Page Interactive Data File (formatted as
Inline XBRL and contained in Exhibit 101).
* Exhibit is a management contract or compensatory
plan or arrangement.
35
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.
SIGNATURES
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/ Sallie B. Bailey
Sallie B. Bailey
/s/ Thomas D. Eckert
Thomas D. Eckert
/s/ Alfred E. Festa
Alfred E. Festa
/s/ Manuel H. Johnson
Manuel H. Johnson
/s/ Alexandra A. Jung
Alexandra A. Jung
/s/ Mel Martinez
Mel Martinez
/s/ William A. Moran
William A. Moran
/s/ David A. Preiser
David A. Preiser
/s/ W. Grade Rosier
W. Grady Rosier
/s/ Susan Williamson Ross
Susan Williamson Ross
/s/ Paul C. Saville
Paul C. Saville
/s/ Daniel D. Malzahn
Daniel D. Malzahn
/s/ Matthew B. Kelpy
Matthew B. Kelpy
Title
Chairman
Date
February 12, 2021
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
February 12, 2021
Principal Executive Officer
February 12, 2021
Principal Financial Officer
February 12, 2021
Principal Accounting Officer
February 12, 2021
36
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
NVR, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of NVR, Inc. and subsidiaries (the Company) as of December 31,
2020 and 2019, the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-
year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31,
2020, 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 Sates) (PCAOB),
the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report
dated February 12, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of
January 1, 2019 due to the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).
Basis for Opinion
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 are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Assessment of the allowance for losses on contract land deposits
As discussed in Notes 1 and 3 to the consolidated financial statements, the Company’s allowance for losses on contract land
deposits (“lot deposit reserve”) was $52,502,000 recorded against total contract land deposit assets of $439,833,000 as of
December 31, 2020. The Company estimated the lot deposit reserve using a loss contingency analysis that assesses a combination
of quantitative and qualitative information for each individual deposit associated with a community. As the Company does not
own the lots on which they have placed a deposit, the loss contingency analysis assesses contracts on a community-by-community
basis, and records an estimated lot deposit reserve for communities which may result in forfeiture of the lot deposit. In estimating
this reserve, the Company evaluates whether it can sell houses at an acceptable profit margin and sales pace, and considers market
and economic conditions.
37
We identified the assessment of the lot deposit reserve as a critical audit matter. Such assessment involved measurement
uncertainty that required subjective auditor judgment. Specifically, the assessment encompassed the evaluation of the loss
contingency analysis, inclusive of (1) the method used to estimate the reserve assigned to a lot deposit, (2) the quantitative data
metrics, as applicable, of profit margin and sales volumes, and (3) the qualitative factors, as applicable, of developer performance
and community specific factors. In addition, it was challenging to obtain objective audit evidence, and evaluate the sufficiency of
that audit evidence.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls over (1) the development and approval of the loss contingency analysis, (2)
the determination of the quantitative data metrics and qualitative factors used in the analysis, and (3) the preparation and
measurement of the lot deposit reserve estimate. We evaluated the process to develop the quantitative and qualitative information
used to assess the lot deposit reserve rates. Specifically, we assessed the consistency of data used in the process with its source,
evaluated the reliability of data sources, and considered if all relevant data points were used in the analysis. We tested the reserve
balance by:
•
•
•
•
assessing the recoverability of a sample of individual lot deposits and comparing our results to those of the Company
analyzing the timing of changes for a sample of lot deposits for consistency with changes in quantitative or qualitative data
evaluating the consistency of the loss contingency analysis by comparing the reserve treatment of similar lot deposits and
community positions between the current and prior years
comparing prior reserve estimates to subsequent lot deposit forfeiture activity
We also evaluated the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained
related to the Company’s lot deposit reserve.
KPMG LLP
We have served as the Company's auditor since 1987.
McLean, Virginia
February 12, 2021
38
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
NVR, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited NVR, Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) 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)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of
income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related
notes (collectively, the consolidated financial statements), and our report dated February 12, 2021 expressed an unqualified opinion on
those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
KPMG LLP
McLean, Virginia
February 12, 2021
39
NVR, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
ASSETS
Homebuilding:
Cash and cash equivalents
Restricted cash
Receivables
Inventory:
Lots and housing units, covered under sales agreements with customers
Unsold lots and housing units
Land under development
Building materials and other
Contract land deposits, net
Property, plant and equipment, net
Operating lease right-of-use assets
Reorganization value in excess of amounts allocable to identifiable assets, net
Deferred tax assets, net
Other assets
Mortgage Banking:
Cash and cash equivalents
Restricted cash
Mortgage loans held for sale, net
Property and equipment, net
Operating lease right-of-use assets
Reorganization value in excess of amounts allocable to identifiable assets, net
Other assets
Total assets
See notes to consolidated financial statements.
December 31, 2020
December 31, 2019
$
2,714,720 $
1,110,892
28,912
18,299
1,484,936
123,197
62,790
38,159
17,943
18,278
1,075,420
184,352
69,196
18,320
1,709,082
1,347,288
387,628
57,786
53,110
41,580
132,980
70,419
413,851
52,260
63,825
41,580
115,731
60,413
5,214,516
3,242,061
63,547
2,334
449,760
4,544
12,439
7,347
22,654
562,625
29,412
2,276
492,125
5,828
13,345
7,347
17,421
567,754
$
5,777,141 $
3,809,815
40
NVR, Inc.
Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable
Accrued expenses and other liabilities
Customer deposits
Operating lease liabilities
Senior notes
Mortgage Banking:
Accounts payable and other liabilities
Operating lease liabilities
December 31, 2020
December 31, 2019
$
339,867 $
440,671
240,758
59,357
1,517,395
2,598,048
62,720
13,299
76,019
262,987
346,035
131,886
71,095
598,301
1,410,304
43,985
14,282
58,267
Total liabilities
2,674,067
1,468,571
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,555,330 shares issued as of
both December 31, 2020 and December 31, 2019
Additional paid-in capital
Deferred compensation trust – 106,697 and 107,295 shares of NVR, Inc. common stock as of
December 31, 2020 and December 31, 2019, respectively
Deferred compensation liability
Retained earnings
Less treasury stock at cost – 16,859,753 and 16,922,558 shares as of December 31, 2020 and
December 31, 2019, respectively
Total shareholders' equity
Total liabilities and shareholders' equity
206
206
2,214,426
2,055,407
(16,710)
16,710
(16,912)
16,912
8,811,120
7,909,872
(7,922,678)
3,103,074
$
5,777,141 $
(7,624,241)
2,341,244
3,809,815
See notes to consolidated financial statements.
41
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
Basic earnings per share
Diluted earnings per share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
$
$
$
$
Year Ended December 31,
2020
2019
2018
7,328,889 $
16,938
(5,937,401)
(431,008)
977,418
(39,458)
937,960
7,220,844 $
24,779
(5,849,862)
(447,547)
948,214
(24,335)
923,879
7,004,304
11,839
(5,692,127)
(428,874)
895,142
(24,036)
871,106
208,034
8,930
3,249
(78,726)
(1,414)
140,073
167,820
12,142
2,857
(79,858)
(1,045)
101,916
159,370
11,593
2,546
(83,838)
(1,045)
88,626
1,078,033
(176,785)
1,025,795
(147,256)
959,732
(162,535)
901,248 $
878,539 $
797,197
244.11 $
241.31 $
219.58
230.11 $
221.13 $
194.80
3,692
3,917
3,641
3,973
3,631
4,092
See notes to consolidated financial statements.
42
NVR, Inc.
Consolidated Statements of Shareholders’ Equity
(in thousands)
Balance, December 31, 2017
$
206 $ 1,644,197 $ 6,231,940 $ (6,270,851) $
(17,383) $
17,383 $ 1,605,492
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Deferred
Compensation
Trust
Deferred
Compensation
Liability
Total
Cumulative-effect adjustment from
adoption of ASU 2014-09, net of tax
Net income
Deferred compensation activity, net
Purchase of common stock for
treasury
Equity-based compensation
Proceeds from stock options exercised
Treasury stock issued upon option
exercise and restricted share vesting
—
—
—
—
—
—
—
—
—
—
—
75,701
174,110
(73,785)
2,196
797,197
—
—
—
—
—
—
—
—
(846,134)
—
—
73,785
—
—
446
—
—
—
—
—
—
2,196
797,197
(446)
—
—
—
—
—
(846,134)
75,701
174,110
—
Balance, December 31, 2018
206
1,820,223
7,031,333
(7,043,200)
(16,937)
16,937
1,808,562
Net income
Deferred compensation activity, net
Purchase of common stock for
treasury
Equity-based compensation
Proceeds from stock options exercised
Treasury stock issued upon option
exercise and restricted share vesting
—
—
—
—
—
—
—
—
—
78,532
274,028
(117,376)
878,539
—
—
—
—
—
—
—
(698,417)
—
—
117,376
—
25
—
—
—
—
—
(25)
878,539
—
—
—
—
—
(698,417)
78,532
274,028
—
Balance, December 31, 2019
206
2,055,407
7,909,872
(7,624,241)
(16,912)
16,912
2,341,244
Net income
Deferred compensation activity, net
Purchase of common stock for
treasury
Equity-based compensation
Proceeds from stock options exercised
Treasury stock issued upon option
exercise and restricted share vesting
—
—
—
—
—
—
—
—
—
50,794
180,866
(72,641)
901,248
—
—
—
—
—
—
—
(371,078)
—
—
72,641
—
202
—
—
—
—
—
901,248
(202)
—
—
—
—
—
(371,078)
50,794
180,866
—
Balance, December 31, 2020
$
206 $ 2,214,426 $ 8,811,120 $ (7,922,678) $
(16,710) $
16,710 $ 3,103,074
See notes to consolidated financial statements.
43
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
Equity-based compensation expense
Contract land deposit impairments (recoveries), net
Gain on sale of loans, net
Deferred tax (benefit) expense
Mortgage loans closed
Year Ended December 31,
2020
2019
2018
$
901,248 $
878,539 $
797,197
21,992
50,794
28,079
(168,720)
(17,565)
20,818
78,532
(680)
(128,642)
(4,070)
20,168
75,701
11,760
(122,755)
914
(5,323,932)
(5,169,422)
(4,828,615)
Mortgage loans sold and principal payments on mortgage loans held for sale
5,536,568
5,260,600
4,845,999
Distribution of earnings from unconsolidated joint ventures
1,432
3,476
4,596
Net change in assets and liabilities:
Increase in inventory
Decrease (increase) in contract land deposits
(Increase) decrease in receivables
Increase (decrease) in accounts payable and accrued expenses
Increase (decrease) in 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
Net cash used in investing activities
Cash flows from financing activities:
Purchase of treasury stock
Proceeds from the issuance of senior notes
Debt issuance costs
Principal payments on finance lease liabilities
Distributions to partner in consolidated variable interest entity
Proceeds from the exercise of stock options
Net cash provided by (used in) financing activities
Net increase in cash, restricted cash, and cash equivalents
Cash, restricted cash, and cash equivalents, beginning of the year
(362,384)
519
(1,675)
168,667
108,872
(18,626)
925,269
(435)
11,625
(16,119)
996
(3,933)
(371,078)
923,905
(5,062)
(989)
—
180,866
727,642
1,648,978
1,160,804
(94,178)
(16,994)
2,754
33,926
(6,360)
8,236
866,535
(702)
8,247
(22,699)
1,870
(13,284)
(698,417)
—
—
(306)
—
274,028
(424,695)
428,556
732,248
(6,911)
(30,863)
(1,008)
(30,713)
(11,787)
(557)
723,126
(284)
10,515
(19,665)
1,257
(8,177)
(846,134)
—
—
—
(234)
174,110
(672,258)
42,691
689,557
Cash, restricted cash, and cash equivalents, end of the year
$
2,809,782 $
1,160,804 $
732,248
Supplemental disclosures of cash flow information:
Interest paid during the year, net of interest capitalized
Income taxes paid during the year, net of refunds
$
$
36,805 $
24,453 $
163,076 $
153,915 $
24,178
181,166
See notes to consolidated financial statements.
44
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares 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. and its subsidiaries (“NVR”, the
“Company”, "we", "us", or "our") 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, 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.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments with maturities at acquisition of three months or less.
Restricted Cash
Homebuilding restricted cash was attributable to customer deposits for certain home sales. Mortgage banking restricted cash
includes amounts collected from customers for loans in process and closed mortgage loans held for sale.
At December 31, 2020 and 2019, $269 and $281, respectively, of cash related to a consolidated variable interest entity is
included in homebuilding “Other assets” on the accompanying consolidated balance sheet.
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 and joint venture investments, as applicable (see below). Upon settlement, the cost of the unit is expensed on a specific
identification basis. Cost of building materials is determined on a first-in, first-out basis.
Sold inventory is evaluated for impairment based on the contractual sales 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
We purchase finished lots under fixed price lot purchase agreements (“LPAs”) 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 conduct a
loss contingency analysis 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 quantitative and qualitative
information including, as applicable, current sales absorption levels, recent sales’ profit margin, the dollar differential between the
contractual purchase price and the current market price for lots, a developer’s performance, a developer’s financial ability or
willingness to reduce lot prices to current market prices, if necessary, 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 at an acceptable margin and sales pace in a particular community in the
current market with which we are faced. Because we do not own the finished lots on which we have placed a contract land deposit, if
the above analysis leads to a determination that we cannot sell homes at an acceptable margin and sales pace at the current contractual
lot price, we then determine whether we will elect to default under the contract, forfeit the deposit and terminate the contract, or
whether we will attempt to restructure the LPA, which may require us to forfeit the deposit to obtain contract concessions from a
developer. We also assess whether impairment is present due to collectibility issues resulting from a developer’s non-performance
because of financial or other conditions.
45
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
For the year ended December 31, 2020 we incurred a net pre-tax charge of approximately $25,600 related to the impairment of
contract land deposits. For the year ended December 31, 2019, we incurred a net pre-tax recovery of approximately $700 of contract
land deposits previously determined to be unrecoverable. For the year ended December 31, 2018, we incurred a net pre-tax charge of
approximately $5,100 related to the impairment of contract land deposits.The contract land deposit assets on the accompanying
consolidated balance sheets are shown net of the allowance for losses of $52,205 and $27,572 at December 31, 2020 and 2019,
respectively.
Land Under Development
On a 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’ profit margin, 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 so,
impairment charges are required to be recorded in an amount by which the carrying amount of the assets exceeds the fair value of such
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. See Notes 4 and 5 for further discussion of joint
venture investments and land under development, respectively.
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. Model home furniture and fixtures are generally depreciated over a
2-year period, office facilities and other equipment are depreciated over a period of 3 to 10 years and production facilities are
depreciated over periods of 5 to 40 years.
Leases
We determine if an arrangement is a lease, or contains a lease, at the inception of the arrangement. Once determined that an
arrangement is a lease, we then determine if the lease is an operating lease or a finance lease. Both operating and finance leases result
in us recording a right-of-use ("ROU") asset and lease liability on our balance sheet. The ROU assets and lease liabilities are
recognized based on the present value of lease payments over the lease term, discounted using our incremental borrowing rate at the
commencement date of the lease. We estimate our incremental borrowing rate based on available published borrowing rates
commensurate with our debt rating and the leases term, adjusted to infer collateralization. Specific lease terms may include options to
extend or terminate the lease when we believe it is reasonably certain that we will exercise that option.
We recognize operating lease expense on a straight-line basis over the lease term. We have elected to use the portfolio approach
for certain equipment leases which have similar lease terms and payment schedules. Additionally, for certain equipment we account
for the lease and non-lease components as a single lease component. Our sublease income is de minimis. We have certain leases,
primarily the leases of model homes, which have initial lease terms of twelve months or less ("Short-term leases"). As is allowed
under GAAP, we have elected to exclude Short-term leases from the recognition requirements and they are not included in our
recognized ROU assets and lease liabilities. Operating leases are reported in "Operating lease right-of-use assets" and "Operating lease
liabilities" and finance leases are recorded in homebuilding "Property, plant and equipment, net" and "Accrued expenses and other
liabilities" on the accompanying consolidated balance sheets. See Note 13 herein for further information.
Warranty/Product Liability Reserves
We establish warranty and product liability reserves ("Warranty Reserve") to provide for estimated future expenses as a result
of construction and product defects, product recalls and litigation incidental to our homebuilding business. Liability estimates are
determined based on management’s judgment considering such factors as historical experience, the likely current cost of corrective
action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts
such as engineers, and discussions with our general counsel and outside counsel retained to handle specific product liability cases.
Mortgage Repurchase Reserve, Mortgage Loans Held for Sale and Derivatives and Hedging Activities
We originate several different loan products to our customers to finance the purchase of a home through our wholly-owned
mortgage subsidiary, NVR Mortgage Finance, Inc. (“NVRM”). NVRM sells all of the loans it originates into the secondary market on
46
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
a servicing released basis, typically within 30 days from closing. All of the loans that NVRM 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 Fannie Mae (“FNMA”), Ginnie Mae (“GNMA”), Freddie Mac ("FHLMC"), the Department of
Veterans Affairs (“VA”) and the Federal Housing Administration (“FHA”). Insofar as NVRM underwrites its originated loans to those
standards, NVRM bears no increased concentration of credit risk from the issuance of loans, except in certain limited instances where
repurchases or early payment default occur. NVRM 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. NVRM maintains a reserve for losses on mortgage loans originated that reflects our judgment of the present loss exposure
in the loans that NVRM has originated and sold. The reserve is calculated based on an analysis of historical experience and exposure
(see Note 16 herein for further information).
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.
In the normal course of business, 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 NVRM. All borrowers 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 an
investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, NVRM enters into
optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to investors. The forward
sale contracts lock-in a range of interest rates and prices for the sale of loans similar to the specific rate lock commitments. NVRM
does not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the forward sale
contracts to investors are undesignated derivatives, and, accordingly, are marked to fair value through earnings. At December 31,
2020, there were contractual commitments to extend credit to borrowers aggregating $617,308, and open forward delivery sale
contracts aggregating $916,588, which hedge both the rate lock loan commitments and closed loans held for sale (see Note 15 herein
for a description of the Company’s fair value accounting).
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, 2020, 2019 and 2018:
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,
2020
2019
2018
3,692
3,641
3,631
225
332
461
3,917
3,973
4,092
The assumed proceeds used in the treasury method for calculating our diluted earnings per share includes the amount the
employee must pay upon exercise and the amount of compensation cost attributed to future services not yet recognized.
The following stock options issued under equity incentive plans were outstanding during the years ended December 31, 2020,
2019 and 2018, but were not included in the computation of diluted earnings per share because the effect would have been anti-
dilutive.
Anti-dilutive securities
Year Ended December 31,
2020
2019
2018
31
319
370
47
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
Revenues – Homebuilding Operations
We build single-family detached homes, townhomes and condominium buildings, which generally are constructed on a pre-sold
basis. Revenue is recognized on the settlement date at the contract sales price, when control is transferred to our customers. Our
contract liabilities, consisting of deposits received from customers (“Handmoney”) on homes not settled, were $240,758 and $131,886
as of December 31, 2020 and 2019, respectively. Substantially all Handmoney is recognized in revenue within twelve months of
being received from customers. Our contract assets, consisting of prepaid sales compensation, totaled approximately $22,500 and
$14,600, as of December 31, 2020 and 2019, respectively. These amounts are included in homebuilding “Other assets” on the
accompanying consolidated balance sheets.
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.
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. See Note 11 herein for
discussion of the impact on the Company's deferred tax asset resulting from the enactment of the Tax Cuts and Jobs Act in December
2017.
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 our belief that its filing position is supportable, the benefit of that tax position is not recognized in the
statements of income. We recognize interest related to unrecognized tax benefits as a component of income tax expense. Based on our
historical experience in dealing with various taxing authorities, we have found that it is the administrative practice of the taxing
authorities to not seek penalties from us for the tax positions we have taken on our returns related to our unrecognized tax benefits.
Therefore, we do not accrue penalties for the positions in which we have an unrecognized tax benefit. We recognize 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, we believe that the carrying value approximates the fair value of our financial instruments
(see Note 15 herein for further information).
Equity-Based Compensation
We recognize equity-based compensation expense within the income statement for all share-based payment arrangements,
which includes non-qualified stock options to purchase shares of NVR common stock ("Options") and restricted share units ("RSUs").
Compensation expense is based on grant-date fair value and 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). Options and RSUs which
are subject to a performance condition are treated as a separate award from the “service-only” Options and RSUs, and compensation
expense is recognized when it becomes probable that the stated performance target will be achieved. We calculate the fair value of our
Options, which are non-publicly traded, using the Black-Scholes option-pricing model. The grant date fair value of the RSUs is the
closing price of our common stock on the day immediately preceding the date of grant. The reversal of compensation expense
previously recognized for grants forfeited is recorded in the period in which the forfeiture occurs. Our equity-based compensation
plans are accounted for as equity-classified awards (see Note 12 herein for further discussion of equity-based compensation plans).
Comprehensive Income
For the years ended December 31, 2020, 2019 and 2018, comprehensive income equaled net income; therefore, a separate
statement of comprehensive income is not included in the accompanying consolidated financial statements.
48
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Effective January 1, 2020, we adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses
(Topic 326), which changed the impairment recognition of financial assets from an as incurred recognition methodology to requiring
immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. Our adoption of
this standard did not have a material effect on our consolidated financial statements and related disclosures.
Effective January 1, 2020, we adopted ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment. Under the standard, an impairment charge to goodwill is recorded in the amount that the carrying amount of a
reporting unit's goodwill exceeds its fair value, not to exceed the amount of goodwill allocated to that reporting unit. Our adoption of
this standard had no impact on our consolidated financial statements and related disclosures.
2.
Segment Information, Nature of Operations, and Certain Concentrations
Our homebuilding operations primarily construct and sell single-family detached homes, townhomes and condominium
buildings under three trade names: Ryan Homes, NVHomes and Heartland Homes. The Ryan Homes product is marketed primarily to
first-time and first-time move-up buyers. Ryan Homes operates in thirty-three 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. The NVHomes and Heartland Homes products are marketed primarily to move-up and luxury buyers.
NVHomes operates in Delaware and the Washington, D.C., Baltimore, MD and Philadelphia, PA metropolitan areas. Heartland
Homes operates in the Pittsburgh, PA metropolitan area. We derived approximately 24% and 10% of our 2020 homebuilding revenues
from the Washington, D.C. and Baltimore, MD metropolitan areas, respectively.
Our mortgage banking segment is a regional mortgage banking operation. Substantially all of our loan closing activity is for our
homebuilding customers. Our mortgage banking business generates revenues primarily from origination fees, gains on sales of loans,
and title fees. A substantial portion of our 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 our 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:
Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East:
New Jersey and Eastern Pennsylvania
Mid East:
New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East:
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 is
eliminated in consolidation and is based on the segment’s average net assets employed. 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 our cost of capital.
Assets not allocated to the operating segments are not included in either the operating segment's corporate capital allocation
charge or the CODM's evaluation of the operating segment's performance. We record 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 termination of an LPA with the developer, or the restructuring of an LPA
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 corporate
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. 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 necessary to convert the reportable segments’ results, which are
49
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
predominately maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not
allocated to our operating segments. External corporate interest expense primarily consists of interest charges on our 3.95% Senior
Notes due 2022 and 3.00% Senior Notes due 2030 (the “Senior Notes”), which are not charged to the operating segments because the
charges are included in the corporate capital allocation discussed above.
The following tables present certain segment financial data, with reconciliations to the amounts reported for the consolidated
company, where applicable:
Revenues:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Consolidated revenues
Profit before taxes:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total segment profit
Reconciling items:
Contract land deposit reserve adjustment (1)
Equity-based compensation expense (2)
Corporate capital allocation (4)
Unallocated corporate overhead
Consolidation adjustments and other (3)
Corporate interest expense
Reconciling items sub-total
Consolidated profit before taxes
Year Ended December 31,
2020
2019
2018
$
3,668,542 $
3,901,573 $
3,893,358
538,772
1,524,667
1,596,908
208,034
514,804
1,501,139
1,303,328
167,820
580,726
1,455,834
1,074,386
159,370
$
7,536,923 $
7,388,664 $
7,163,674
Year Ended December 31,
2020
2019
2018
$
437,849 $
478,537 $
462,178
50,677
168,605
205,029
143,319
1,005,479
51,728
173,374
155,144
105,292
964,075
(24,633)
(50,794)
1,644
(78,532)
239,233
224,468
(114,921)
(105,125)
63,025
(39,356)
72,554
43,486
(24,221)
61,720
69,789
175,134
118,296
93,462
918,859
783
(75,701)
213,903
(89,973)
15,829
(23,968)
40,873
$
1,078,033 $
1,025,795 $
959,732
(1)
(2)
(3)
This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable
segments. See further discussion of contract land deposit impairment charges in Note 3.
The decrease in equity-based compensation expense in 2020 was primarily attributable to stock options issued in 2014
under the 2014 Equity Incentive Plan becoming fully vested in 2019. In addition, there were higher stock option
forfeitures in 2020 compared to 2019.
The increase in 2020 relates primarily to the significant increase in lumber prices during the second half of 2020. Our
reportable segments' results include intercompany profits of our production facilities, which were negatively impacted
by the increase in lumber costs. The increase in lumber costs related to homes not yet settled is eliminated through the
consolidation adjustment. As these homes currently in inventory are settled in subsequent quarters, our consolidated
homebuilding margins will be negatively impacted by the higher lumber costs.
50
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(4)
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:
Corporate capital allocation charge:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Total corporate capital allocation charge
Year Ended December 31,
2020
2019
2018
$
$
124,426 $
22,850
40,256
51,701
239,233 $
123,130 $
19,755
37,263
44,320
224,468 $
123,855
17,893
35,803
36,352
213,903
Assets:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total segment assets
Reconciling items:
Cash and cash equivalents
Deferred taxes
Intangible assets and goodwill
Operating lease right-of-use assets
Finance lease right-of-use assets
Contract land deposit reserve
Consolidation adjustments and other
Reconciling items sub-total
Consolidated assets
As of December 31,
2020
2019
$
1,140,910 $
202,591
377,448
494,295
555,278
2,770,522
1,024,996
166,860
293,773
400,979
560,407
2,447,015
2,714,720
132,980
49,678
53,110
15,772
(52,205)
92,564
3,006,619
5,777,141 $
1,110,892
115,731
49,834
63,825
7,052
(27,572)
43,038
1,362,800
3,809,815
$
Interest income:
Mortgage Banking
Total segment interest income
Other unallocated interest income
Consolidated interest income
Year Ended December 31,
2020
2019
2018
$
$
8,930 $
8,930
8,549
17,479 $
12,142 $
12,142
20,635
32,777 $
11,593
11,593
8,588
20,181
51
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
Interest expense:
Homebuilding Mid Atlantic
Homebuilding North East
Homebuilding Mid East
Homebuilding South East
Mortgage Banking
Total segment interest expense
Corporate capital allocation (4)
Senior Notes and other interest
Consolidated interest expense
Year Ended December 31,
2020
2019
2018
$
$
124,486 $
22,859
40,261
51,729
1,414
240,749
(239,233)
39,356
40,872 $
123,178 $
19,804
37,266
44,334
1,045
225,627
(224,468)
24,221
25,380 $
123,908
17,897
35,804
36,362
1,045
215,016
(213,903)
23,968
25,081
Year Ended December 31,
2020
2019
2018
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
$
$
$
6,806 $
1,800
4,969
3,636
1,534
18,745
3,247
21,992 $
7,069 $
1,411
4,348
3,086
1,581
17,495
3,323
20,818 $
7,753
1,600
3,481
2,523
1,489
16,846
3,322
20,168
Year Ended December 31,
2020
2019
2018
5,712 $
1,083
5,041
3,818
265
15,919
200
9,218 $
2,000
5,221
3,944
899
21,282
1,417
6,657
1,074
4,302
2,732
1,677
16,442
3,223
19,665
Consolidated expenditures for property and equipment
$
16,119 $
22,699 $
3.
Variable Interest Entities
Lot Purchase Agreements
We generally do not engage in land development. Instead, we typically acquire finished building lots from various third party
land developers under LPAs. The LPAs require deposits that may be forfeited if we fail to perform under the LPAs. The deposits
required under the LPAs 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.
We believe this lot acquisition strategy reduces the financial 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 LPAs 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 LPAs is limited
to the amount of the deposit pursuant to the liquidated damage provisions contained within the LPAs. None of the creditors of any of
the development entities with which we enter LPAs have recourse to our general credit. We generally do not have any specific
52
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
performance obligations to purchase a certain number or any of the lots, nor do we guarantee completion of the development by the
developer or guarantee any of the developers’ financial or other liabilities.
We are not involved in the design or creation of the development entities from which we purchase lots under LPAs. The
developer’s equity holders have the power to direct 100% of the operating activities of the development entity. We have 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 for the equity holders. Further, we do 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 us pursuant to the LPA 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 we enter into
LPAs, including the joint venture limited liability corporations, discussed below, are evaluated for possible consolidation by us. 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 VIE 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.
We believe 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 entity’s 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 we contract to buy finished lots typically select the respective projects, obtain the
necessary zoning approvals, obtain the financing required with no support or guarantees from us, 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 us. We possess no more than limited protective legal rights
through the LPA in the specific finished lots that we are purchasing, and we possess no participative rights in the development entities.
Accordingly, we do not have the power to direct the activities of a developer that most significantly impact the developer’s economic
performance. For this reason, we concluded that we are not the primary beneficiary of the development entities with which we enter
into LPAs, and therefore we do not consolidate any of these VIEs.
As of December 31, 2020, we controlled approximately 103,000 lots under LPAs with third parties through deposits in cash and
letters of credit totaling approximately $438,500 and $8,100, respectively. As noted above, our sole legal obligation and economic loss
for failure to perform under these LPAs is limited to the amount of the deposit pursuant to the liquidated damage provisions contained
in the LPAs and, in very limited circumstances, specific performance obligations. During 2020, we incurred net pre-tax charges of
approximately $25,600 related to the impairment of deposits under LPAs ("lot deposits") due primarily to deteriorating market
conditions in the first quarter of 2020 in certain of our markets related to the COVID-19 pandemic. Impairment charges, net of
impairment reversals are recorded in cost of sales on the accompanying consolidated statements of income. Our contract land deposit
asset is shown net of a $52,205 and $27,572 impairment reserve at December 31, 2020 and December 31, 2019, respectively.
In addition, we have certain properties under contract with land owners that are expected to yield approximately 6,100 lots,
which are not included in the number of total lots controlled. Some of these properties may require rezoning or other approvals to
achieve the expected yield. These properties are controlled with deposits in cash and letters of credit totaling approximately $1,300
and $100, respectively, as of December 31, 2020, of which approximately $1,000 is refundable if we do not perform under the
contract. We generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the
assignee if the project is determined to be feasible.
Our total risk of loss related to contract land deposits as of December 31, 2020 and 2019 was as follows:
Contract land deposits
Loss reserve on contract land deposits
Contract land deposits, net
Contingent obligations in the form of letters of credit
Total risk of loss
December 31,
2020
439,833 $
(52,205)
387,628
8,249
395,877 $
2019
441,423
(27,572)
413,851
5,606
419,457
$
$
53
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
4.
Joint Ventures
On a limited basis, we obtain finished lots using joint venture limited liability corporations (“JVs”). The JVs are typically
structured such that we are a non-controlling member and at risk only for the amount we have invested, or committed to invest, in
addition to any deposits placed under LPAs with the joint venture. We are not a borrower, guarantor or obligor on any debt of the JVs,
as applicable. We enter into a standard LPA to purchase lots from these JVs, and as a result have a variable interest in these JVs.
At December 31, 2020, we had an aggregate investment totaling approximately $23,600 in four JVs that are expected to
produce approximately 5,200 finished lots, of which approximately 2,200 lots were controlled by us and the remaining approximately
3,000 lots were either under contract with unrelated parties or not currently under contract. We had additional funding commitments
totaling approximately $3,100 in one of the JVs at December 31, 2020. During the fourth quarter of 2020, one of the JVs sold a
portion of its owned land. As a result of the sale, we received a distribution from the JV of approximately $13,100 and recognized a
net gain on the sale of approximately $5,000.
We determined that we are not the primary beneficiary in three of the JVs because we 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 $23,600 and $26,700 at December 31, 2020 and December 31, 2019, respectively, and is reported in the “Other assets”
line item on the accompanying consolidated balance sheets. For the remaining JV, we concluded that we are the primary beneficiary
because we have the controlling financial interest in the JV. As of December 31, 2019, all activities under the consolidated JV had
been completed. As of December 31, 2020, we had no remaining investment in the JV and the JV had remaining balances of $269 in
cash and $244 in accrued expenses, which are included in homebuilding "Other assets" and "Accrued expenses and other liabilities,"
respectively, in the accompanying consolidated balance sheets.
At December 31, 2019, we had an aggregate investment totaling approximately $26,700 in five JVs that were expected to
produce approximately 6,300 finished lots, of which approximately 2,950 lots were controlled by us and the remaining approximately
3,350 lots were either under contract with unrelated parties or not currently under contract. In addition, at December 31, 2019, we had
additional funding commitments in the aggregate totaling $4,300 to two of the JVs.
5.
Land Under Development
As of December 31, 2020, we directly owned three separate raw parcels of land with a carrying value of $62,790 that we intend
to develop into approximately 500 finished lots primarily for use in our homebuilding operations. We also have additional funding
commitments of approximately $5,100 under a joint development agreement related to one parcel, a portion of which we expect will
be offset by development credits of approximately $2,600. None of the raw parcels had any indicators of impairment as of
December 31, 2020.
As of December 31, 2019, we directly owned five separate raw parcels of land with a carrying value of $69,196, which were
expected to produce approximately 650 finished lots.
6.
Capitalized Interest
We capitalize interest costs to land under development during the active development of finished lots. In addition, we capitalize
interest costs to our joint venture investments while the investments are considered qualified assets pursuant to ASC 835-20, Interest.
Capitalized interest is transferred to inventory as the development of finished lots is completed, then charged to cost of sales upon our
settlement of homes and the respective lots. Interest incurred in excess of the interest capitalizable based on the level of qualified
assets is expensed in the period incurred.
Our interest costs incurred, capitalized, expensed and charged to cost of sales during the years ended December 31, 2020, 2019
and 2018 was as follows:
Interest capitalized, beginning of year
Interest incurred
Interest charged to interest expense
Interest charged to cost of sales
Interest capitalized, end of year
December 31,
2020
2019
2018
$
$
3,499 $
41,327
(40,872)
(2,929)
1,025 $
4,154 $
26,463
(25,380)
(1,738)
3,499 $
5,583
26,277
(25,081)
(2,625)
4,154
54
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
7.
Related Party Transactions
During the year ended December 31, 2020, we entered into LPAs to purchase finished building lots for a total purchase price of
approximately $138,100 with Elm Street Development, Inc. (“Elm Street”), which is controlled by one of our directors, William
Moran. The independent members of our Board of Directors approved these transactions. During 2020, 2019 and 2018, we purchased
developed lots at market prices from Elm Street for approximately $60,200, $44,600 and $36,100, respectively.
We also continue to control a parcel of raw land expected to yield approximately 1,900 finished lots through a JV entered into
with Elm Street during 2009. We did not make any investments in the JV in 2020, 2019 or 2018.
8.
Property, Plant and Equipment (“PP&E”)
Homebuilding:
Office facilities and other
Model home furniture and fixtures
Production facilities
Finance lease right-of-use assets
Gross Homebuilding PP&E
Less: accumulated depreciation
Net Homebuilding PP&E
Mortgage Banking:
Office facilities and other
Less: accumulated depreciation
Net Mortgage Banking PP&E
December 31,
2020
2019
39,647 $
32,686
77,420
15,772
165,525
(107,739)
57,786 $
39,218
31,352
71,295
7,051
148,916
(96,656)
52,260
14,716 $
(10,172)
4,544 $
14,617
(8,789)
5,828
$
$
$
$
9.
Debt
As of December 31, 2020, we had the following debt instruments outstanding:
3.95% Senior Notes due 2022 ("2022 Senior Notes")
On September 10, 2012, we issued $600,000 of the 2022 Senior Notes. The 2022 Senior Notes were issued at a discount to
yield 3.97% and have been reflected net of the unamortized discount and unamortized debt issuance costs in the accompanying
consolidated balance sheets. The offering of the 2022 Senior Notes resulted in aggregate net proceeds of approximately $593,900,
after deducting underwriting discounts and other offering expenses. The 2022 Senior Notes mature on September 15, 2022 and bear
interest at 3.95%, payable semi-annually in arrears on March 15 and September 15. As of December 31, 2020 and 2019, the
unamortized discount was $207 and $322, respectively, and unamortized debt issuance costs were $868 and $1,377, respectively.
3.00% Senior Notes due 2030 ("2030 Senior Notes")
On May 4, 2020, we issued $600,000 of the 2030 Senior Notes. The 2030 Senior Notes were issued at a discount to yield 3.02%
and have been reflected net of the unamortized discount and unamortized debt issuance costs in the accompanying consolidated
balance sheet. The offering of the 2030 Senior Notes resulted in aggregate net proceeds of approximately $595,200, after deducting
underwriting discount and offering expenses. The 2030 Senior Notes mature on May 15, 2030 and bear interest at 3.00%, payable
semi-annually in arrears on May 15 and November 15. As of December 31, 2020 the amortized discount was $1,075 and unamortized
debt issuance costs were $3,387 as of December 31, 2020.
On September 9 and September 17, 2020, we issued an additional $250,000 and $50,000, respectively, of the 2030 Senior
Notes (the "2030 Additional Notes" and together with the 2030 Senior Notes and the 2022 Senior Notes, the "Senior Notes"). The
2030 Additional Notes were issued at a premium to yield 2.00% and have been reflected net of the unamortized premium and
unamortized debt issuance costs in the accompanying consolidated balance sheet. The offering of the 2030 Additional Notes resulted
in aggregate net proceeds of approximately $323,600, including the underwriting premium, less offering expenses. As of December
31, 2020, the 2030 Additional Notes unamortized premium was $24,324 and unamortized debt issuance costs were $1,392.
55
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
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 has, 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. We were in compliance with all covenants under the
Senior Notes at December 31, 2020.
Credit Agreement
On July 15, 2016, we entered into an unsecured Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger
and Sole Book Runner, and the other lenders party thereto, which provides for aggregate revolving loan commitments of $200,000
(the “Facility”). Proceeds of the borrowings under the Facility will be used for working capital and general corporate purposes. Under
the Credit Agreement, we may request increases of up to $300,000 to the Facility in the form of revolving loan commitments or term
loans to the extent that new or existing lenders agree to provide additional revolving loan or term loan commitments. The Credit
Agreement provides for a $100,000 sublimit for the issuance of letters of credit of which approximately $12,800 was outstanding at
December 31, 2020, and a $25,000 sublimit for a swing line commitment. Borrowings under the Credit Agreement generally bear
interest for Base Rate Loans at a Base Rate equal to the highest of (i) a Federal Funds Rate plus one-half of one percent, (ii) Bank of
America’s publicly announced “prime rate,” and (iii) the Eurodollar Rate plus one percent, plus the Applicable Rate which is based on
our debt rating, or for Eurodollar Rate Loans, at the Eurodollar Rate equal to LIBOR plus the Applicable Rate.
The Credit Agreement contains various representations and affirmative and negative covenants that are generally customary for
credit facilities of this type. Such covenants include, among others, the following financial maintenance covenants: (i) minimum
consolidated tangible net worth; (ii) minimum interest coverage ratio or minimum liquidity and (iii) a maximum leverage ratio. The
negative covenants include, among others, certain limitations on liens, investments and fundamental changes. The Credit Agreement
termination date is July 15, 2021. We were in compliance with all covenants under the Credit Agreement at December 31,
2020. There was no debt outstanding under the Facility at December 31, 2020.
On February 12, 2021, we entered into The Amended and Restated Credit Agreement with Bank of America, N.A., as
Administrative Agent, BOFA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, and other lenders party thereto (the
"Amended Credit Agreement"). The Amended Credit Agreement amends and restates the Credit Agreement, discussed above, which
was scheduled to expire on July 15, 2021. The Amended Credit Agreement provides for aggregate revolving loan commitments of
$300,000 (the "New Facility") and terminates on February 12, 2026. Under the Amended Credit Agreement, we may request
increases of up to $300,000 to the New Facility in the form of revolving loan commitments or term loans to the extent that new or
existing lenders agree to provide additional revolving loan or term loan commitments. In addition, the Amended Credit Agreement
provides for a $100,000 sublimit for the issuance of letters of credit. All other terms of the Amended Credit Agreement, including
interest on borrowings and affirmative and negative covenants, are materially consistent with the Credit Agreement it replaces. The
Amended Credit Agreement is filed as Exhibit 10.48 in this Form 10-K. The above summary of the material terms of the Amended
Credit Agreement is qualified in its entirety by reference to Exhibit 10.48.
Repurchase Agreement
In July 2020, NVRM entered into the Twelfth Amendment (the “Amendment”) to its Amended and Restated Master
Repurchase Agreement dated August 2, 2011 with U.S. Bank National Association (as amended by the Amendment and ten earlier
amendments, 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 $150,000, subject to certain sub limits.
Advances under the Repurchase Agreement carry a Pricing Rate based on the LIBOR Rate plus the LIBOR Margin, as
determined under the Repurchase Agreement, provided that the Pricing Rate shall not be less than 1.75%. The Pricing Rate at
December 31, 2020 was 1.94%. 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. Amounts
outstanding under the Repurchase Agreement are collateralized by our mortgage loans held for sale. At December 31, 2020, there
were no borrowing base limitations reducing the amount available under the Repurchase Agreement. As of both December 31, 2020
and 2019, there was no debt outstanding under the Repurchase Agreement. The Repurchase Agreement expires on July 15, 2021.
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
56
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
requirement, (iii) a minimum net income requirement, and (iv) a maximum leverage ratio requirement. NVRM was in compliance
with all covenants under the Repurchase Agreement at December 31, 2020.
10.
Common Stock
There were approximately 3,696 and 3,633 common shares outstanding at December 31, 2020 and 2019, respectively. We made
the following share repurchases during the years indicated:
Aggregate purchase price
Number of shares repurchased
Year Ended December 31,
2019
698,417 $
221
2020
371,078 $
96
$
2018
846,134
301
We issue shares from the treasury account for all equity plan activity. We issued 159, 276 and 188 such shares during 2020,
2019 and 2018, respectively.
11.
Income Taxes
The provision for income taxes consists of the following:
Current:
Federal
State
Deferred:
Federal
State
Income tax expense
Year Ended December 31,
2020
2019
2018
$
$
151,532 $
42,769
115,610 $
34,586
126,358
37,038
(13,289)
(4,227)
176,785 $
(2,195)
(745)
147,256 $
138
(999)
162,535
Deferred income taxes on our consolidated balance sheets were comprised of the following:
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 asset
December 31,
2020
2019
$
$
67,520 $
4,608
41,839
13,118
11,705
8,639
147,429
7,184
140,245 $
52,726
4,635
42,043
10,530
12,355
8,289
130,578
7,902
122,676
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 we will have sufficient 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 approximately $768,700 for the year ended December 31, 2020, and
was $640,243 for the year ended December 31, 2019.
57
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
A reconciliation of income taxes computed at the federal statutory rate (21%) to income tax expense is as follows:
Income taxes computed at the federal statutory rate
State income taxes, net of federal income tax benefit (1)
$
Excess tax benefits from equity-based compensation
Remeasurement of net deferred tax assets due to
enactment of Tax Cut and Jobs Act
Other, net (2)
Income tax expense
Year Ended December 31,
2020
226,387 $
47,469
2019
215,417 $
45,770
2018
201,544
42,944
(92,234)
(101,466)
(77,478)
—
(4,837)
176,785 $
—
(12,465)
147,256 $
(497)
(3,978)
162,535
$
(1) Excludes state excess tax benefits from equity-based compensation included in the line below.
(2) Primarily attributable to tax benefits from certain energy credits for the years ended December 31, 2020 and 2019.
Our effective tax rate in 2020, 2019 and 2018 was 16.40%, 14.36% and 16.94%, respectively.
We file a consolidated U.S. federal income tax return, as well as state and local tax returns in all jurisdictions where we
maintain operations. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to
2017.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
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
Year Ended December 31,
2020
2019
$
$
39,356 $
3,155
(5,694)
—
36,817 $
43,418
2,941
(7,003)
—
39,356
If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (net of the federal tax
benefit) is $29,085 as of December 31, 2020.
We recognize interest related to unrecognized tax benefits as a component of income tax expense. For the years ended
December 31, 2020, 2019, and 2018, we recognized a net decrease in accrued interest on unrecognized tax benefits in the amount of
$420, $1,467 and $1,384, respectively. As of December 31, 2020 and 2019, we had a total of $15,304 and $15,724, respectively, of
accrued interest on unrecognized tax benefits which are included in “Accrued expenses and other liabilities” on the accompanying
consolidated balance sheets.
We believe that within the next 12 months, it is reasonably possible that the unrecognized tax benefits as of December 31, 2020
will be reduced by approximately $7,700 due to statute expiration and effectively settled positions in various state jurisdictions.
12.
Equity-Based Compensation, Profit Sharing and Deferred Compensation Plans
Equity-Based Compensation Plans
Our equity-based compensation plans provide for the granting of Options and RSUs to key management employees, including
executive officers and members of our Board of Directors ("Directors"). The exercise price of Options granted is equal to the closing
price of our common stock on the New York Stock Exchange (the “NYSE”) on the day prior to the date of grant. Options are granted
for a 10-year term and typically vest in separate tranches over periods of 3 to 6 years. RSUs generally vest in separate tranches over
periods of 2 to 6 years. Grants are generally divided such that vesting for 50% of the grant is contingent solely on continued
employment or service as a Director, while vesting for the remaining 50% of the grant is contingent upon both continued employment
or service as a Director and the achievement of a performance metric based on our return on capital performance relative to a peer
group during a 3-year period specified on the date of grant.
58
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
The following table provides a summary of each of our equity-based compensation plans with grants outstanding at
December 31, 2020. Each of the following plans was approved by our shareholders:
Equity-Based Compensation Plans
2010 Equity Incentive Plan (1)
2014 Equity Incentive Plan (2)
2018 Equity Incentive Plan (3)
Shares
Authorized
Options/RSUs
Outstanding
Shares
Available to
Issue
700
950
275
88
404
120
—
126
155
(1) The 2010 Equity Incentive Plan (the “2010 Plan”) authorizes us to issue Options and RSUs. There were 74 Options and 14
RSUs outstanding as of December 31, 2020. Shares can no longer be granted from this plan.
(2) The 2014 Equity Incentive Plan (the “2014 Plan”) authorizes us to issue Options only.
(3) The 2018 Equity Incentive Plan (the "2018 Plan") authorizes us to issue Options and RSUs. Of the 275 aggregate shares
authorized to issue, all may be granted in the form of Options and up to 40 may be granted in the form of RSUs. There
were 116 Options and 4 RSUs outstanding as of December 31, 2020. Of the 155 shares available to issue, 36 may be
granted in the form of RSUs.
During 2020, we issued 43 Options and 4 RSUs under the following equity-based compensation plans:
2010 Plan
2014 Plan
2018 Plan
Options Granted
Options (4)
Performance-based Options (5)
Total Options Granted
RSUs Granted
RSUs (6)
Performance-based RSUs (7)
Total RSUs Granted
4
4
8
—
—
—
17
17
34
—
—
—
1
—
1
2
2
4
(4) Options granted vest over four years in 25% increments beginning on either December 31, 2022 or December 31, 2023,
based on the date of grant. Vesting for the Options is contingent solely upon continued employment or continued service as
a Director.
(5) Options granted vest over four years in 25% increments beginning on either December 31, 2022 or December 31, 2023,
based on the date of grant. Vesting for the performance-based Options is contingent upon both continued employment or
continued service as a Director and our return on capital performance during the three year periods beginning 2020 or
2021, based on the grant's vesting period.
(6) RSUs granted predominately vest over three years in 33% increments beginning on December 31, 2025. Vesting for the
RSUs is contingent solely upon continued employment.
(7) RSUs granted predominately vest over three years in 33% increments beginning on December 31, 2025. Vesting for the
RSUs is contingent upon continued employment and our return on capital performance during the three year period
beginning 2020.
59
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
The following table provides additional information relative to our equity-based compensation plans for the year ended
December 31, 2020:
Shares
Weighted Avg.
Per Share
Exercise Price
Weighted Avg. Remaining
Contract Life (years)
Aggregate
Intrinsic Value
Stock Options
Outstanding at December 31, 2019
Granted
Exercised
Forfeited
Outstanding at December 31, 2020
Exercisable at December 31, 2020
RSUs
Outstanding at December 31, 2019
Granted
Vested
Forfeited
Outstanding at December 31, 2020
Vested, but not issued at December 31, 2020
749 $
2,030.42
43
(159)
(40)
3,126.53
1,136.44
2,830.82
593 $
2,295.11
303 $
1,696.32
15
4
—
(1)
18
—
6.1 $
1,059,114
4.6 $
722,610
$
$
71,797
—
To estimate the grant-date fair value of our Options, we use the Black-Scholes option-pricing model (the “Pricing Model”). The
Pricing 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, we use U.S. Treasury STRIPS which mature at approximately the same
time as the option’s expected holding term. For expected volatility, we have concluded that our historical volatility over the option’s
expected holding term provides the most reasonable basis for this estimate.
The fair value of the Options granted during 2020, 2019 and 2018 was estimated on the grant date using the Pricing Model,
based on the following assumptions:
Estimated option life (years)
Risk free interest rate (range)
Expected volatility (range)
Expected dividend rate
2020
5.36
2019
5.55
2018
5.06
0.22%-1.94%
1.51%-2.73%
2.19%-3.13%
18.78%-32.48% 19.17%-22.01% 16.57%-20.05%
— %
— %
— %
Weighted average grant-date fair value per share of options granted $
737.19
$
661.01
$
687.81
The weighted average grant date fair value per share of $2,584.37 for the RSUs was the closing price of our common stock on
the day immediately preceding the date of grant.
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 Options and RSUs which are subject to a performance condition are treated as a separate award from the “service-
only” Options and RSUs, and compensation cost is recognized when it becomes probable that the stated performance target will be
achieved. We currently believe that it is probable that the stated performance condition will be satisfied at the target level for all of our
Options and RSUs granted. Compensation cost is recognized within the income statement in the same expense line as the cash
compensation paid to the respective employees.
60
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
We recognize forfeitures of equity-based awards as a reduction to compensation costs in the period in which they occur. In
2020, 2019 and 2018, we recognized $50,794, $78,532, and $75,701 in equity-based compensation costs, respectively, and
approximately $10,500, $16,800, and $17,200 in tax benefit related to equity-based compensation costs, respectively.
As of December 31, 2020, the total unrecognized compensation cost for all outstanding Options and RSUs equaled
approximately $169,500. The unrecognized compensation cost will be recognized over each grant’s applicable vesting period with the
latest vesting date being December 31, 2027. The weighted-average period over which the unrecognized compensation cost will be
recorded is equal to approximately 2.2 years.
We settle Option exercises and vesting of RSUs by issuing shares of treasury stock. Shares are relieved from the treasury
account based on the weighted average cost of treasury shares acquired. During the years ended December 31, 2020, 2019 and 2018,
we issued 159, 276 and 188 shares, respectively, 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
Aggregate intrinsic value on exercise dates
Profit Sharing Plans
Year Ended December 31,
2020
180,866 $
432,772 $
2019
274,028 $
593,162 $
2018
174,110
355,318
$
$
We have 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 our Directors. The combined plan contribution for the years ended December 31, 2020,
2019 and 2018 was approximately $22,500, $20,300 and $19,500, respectively. We purchased approximately 5 shares of our common
stock in the open market for each of the 2020 and 2019 plan year contributions to the ESOP. As of December 31, 2020, all shares held
by the ESOP had been allocated to participants’ accounts. The 2020 plan year contribution was funded and fully allocated to
participants in February 2021.
Deferred Compensation Plans
We have 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 we would realize a tax deduction for the amounts paid, and ii) to enable certain
employees who are subject to our stock holding requirements to acquire shares of our 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 our 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 107 shares of NVR common stock as of both December 31, 2020 and 2019. Shares held by the
Deferred Comp Plans are treated as outstanding shares in our earnings per share calculation for each of the years ended December 31,
2020, 2019 and 2018.
13.
Leases
We have operating leases for our corporate and division offices, production facilities, model homes, and certain office and
production equipment. Additionally, we have entered into finance leases for one of our production facilities and certain plant
equipment. Our leases have remaining lease terms of up to 19.7 years, some of which include options to extend the leases for up to 10
years, and some of which include options to terminate the lease. See Note 1 herein for additional information regarding leases.
61
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
The components of lease expense were as follows:
Lease expense
Operating lease expense
Finance lease expense:
Amortization of ROU assets
Interest on lease liabilities
Short-term lease expense
Total lease expense
Year Ended
December 31, 2020
Year Ended
December 31, 2019
$
31,704
$
30,991
1,313
281
24,361
$
57,659
$
382
76
26,843
58,292
For the year ended December 31, 2018, total rent expense incurred under operating leases was approximately $52,900.
Other information related to leases was as follows:
Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
ROU assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Weighted-average remaining lease term (in years):
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
Year Ended
December 31, 2020
Year Ended
December 31, 2019
$
$
$
$
$
27,953
281
989
10,159
10,034
$
$
$
$
$
4.7
12.5
3.4 %
2.8 %
25,272
76
306
17,078
7,434
5.1
6.7
3.6 %
2.8 %
62
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
We are committed under multiple non-cancelable operating leases involving office space, model homes, production facilities,
automobiles and equipment. Future lease payments under these operating leases as of December 31, 2020 are as follows:
Year Ending December 31,
Operating Leases
Finance Leases
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less:
Imputed interest
Short-term lease payments
Total lease liability
$
30,111 $
19,500
14,918
8,825
4,970
6,641
84,965
5,544
6,765
$
72,656 $
1,744
1,749
1,754
1,759
1,764
10,742
19,512
3,339
—
16,173
14.
Commitments and Contingent Liabilities
Litigation
We are involved in various 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.
Contract Land Deposits
We generally do not engage in land development. Instead, we typically acquire finished building lots from various third party
land developers under LPAs. The LPAs require deposits that may be forfeited if we fail to perform under the agreement. The deposits
required under the LPAs 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. At December 31, 2020, assuming that contractual development milestones are met and we exercise
our option,we expect to place additional forfeitable deposits with land developers under existing LPAs of approximately $215,000.
Additionally, as of December 31, 2020, we had funding commitments totaling approximately $5,100 under a joint development
agreement related to our land under development, a portion of which we expect will be offset by development credits of approximately
$2,600.
Bonds and Letters of Credit
During the ordinary course of operating the homebuilding and mortgage banking businesses, we are required to 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 $40,600 of contingent obligations under such agreements, including approximately
$12,800 for letters of credit issued under the Credit Agreement as of December 31, 2020. We believe we will fulfill our obligations
under the related contracts and does not anticipate any material losses under these bonds or letters of credit.
Warranty Reserve
The following table reflects the changes in our warranty reserve (see Note 1 herein for further discussion of warranty/product
liability reserves):
Warranty reserve, beginning of year
Provision
Payments
Warranty reserve, end of year
Year Ended December 31,
2020
108,053 $
75,288
(63,703)
119,638 $
2019
103,700 $
69,065
(64,712)
108,053 $
2018
94,513
62,553
(53,366)
103,700
$
$
63
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
15.
Fair Value
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.
Financial Instruments
The following table presents the estimated fair values and carrying values of our Senior Notes as of December 31, 2020 and
December 31, 2019. The estimated fair value is based on recent market prices of similar transactions, which is classified as Level 2
within the fair value hierarchy.
Estimated Fair Values:
3.95% Senior Notes due 2022
3.00% Senior Notes due 2030
Total
Carrying Values:
3.95% Senior Notes due 2022
3.00% Senior Notes due 2030
Total
December 31, 2020
December 31, 2019
$
$
$
$
630,000
$
626,520
982,620
—
1,612,620
$
626,520
598,925
$
598,301
918,470
—
1,517,395
$
598,301
Except as otherwise noted below, we believe that insignificant differences exist between the carrying value and the fair value of
our 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, 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 NVRM. All borrowers 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 an
investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, NVRM enters into
optional or mandatory delivery forward sales contracts to sell whole loans and mortgage-backed securities to investors. The forward
sales contracts lock-in a range of interest rates and prices for the sale of loans similar to the specific rate lock commitments. NVRM
does not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the forward sale
contracts to investors are undesignated derivatives and, accordingly, are marked to fair value through earnings. At December 31, 2020,
there were contractual commitments to extend credit to borrowers aggregating $617,308 and open forward delivery contracts
aggregating $916,588, which hedge both the rate lock loan commitments and closed loans held for sale.
The fair value of our rate lock commitments to borrowers and the related input levels includes, as applicable:
i)
ii)
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
iii)
the value of the servicing rights associated with the loan (Level 2).
The assumed gain/loss considers 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, NVRM 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. NVRM 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 is included in the fair value
measurement and is based upon contractual terms with investors and varies depending on the loan type. NVRM assumes a fallout rate
when measuring the fair value of rate lock commitments. Fallout is defined as locked loan commitments for which NVRM does not
close a mortgage loan and is based on historical experience.
The fair value of NVRM’s forward sales contracts to investors 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.
64
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
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. As of December 31, 2020, the fair value of
loans held for sale of $449,760 included on the accompanying consolidated balance sheet were increased by $10,042 from the
aggregate principal balance of $439,718. As of December 31, 2019, the fair value of loans held for sale of $492,125 were increased
by $7,019 from the aggregate principal balance of $485,106.
The fair value measurement of NVRM's undesignated derivative instruments was as follows:
Rate lock commitments:
Gross assets
Gross liabilities
Net rate lock commitments
Forward sales contracts:
Gross assets
Gross liabilities
Net forward sales contracts
As of December 31,
2020
2019
$
$
$
$
10,844 $
87
10,757 $
1 $
5,217
(5,216) $
8,132
497
7,635
377
920
(543)
As of December 31, 2020 and 2019, the net rate lock commitments are reported in mortgage banking "Other assets" and the net
forward sales contracts are reported in mortgage banking "Accrued expenses and other liabilities" on the accompanying consolidated
balance sheets.
The fair value measurement as of December 31, 2020 was as follows:
Notional or
Principal
Amount
Assumed
Gain/(Loss)
From Loan
Sale
Interest
Rate
Movement
Effect
Servicing
Rights
Value
Security
Price
Change
Total Fair
Value
Measurement
Gain/(Loss)
617,308 $
3,227 $
3,263 $
4,267 $
— $
10,757
Rate lock commitments
Forward sales contracts
Mortgages held for sale
$
$
$
916,588
439,718
—
3,359
—
2,817
—
3,866
Total fair value measurement
$
6,586 $
6,080 $
8,133 $
(5,216) $
(5,216)
(5,216)
—
10,042
15,583
The total fair value measurement as of December 31, 2019 was $14,111. NVRM recorded a fair value adjustment to income of
$1,472 for the year ended December 31, 2020, a fair value adjustment to expense of $198 for the year ended December 31, 2019, and
a fair value adjustment to income of $8,485 for the year ended December 31, 2018. 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 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 NVRM’s closed loans and locked loan
commitments.
16.
Mortgage Repurchase Reserve
During the years ended December 31, 2020, 2019 and 2018, we recognized pre-tax charges for loan losses related to mortgage
loans sold of approximately $3,200, $4,200 and $3,200, respectively. Included in the Mortgage Banking segment’s “Accounts payable
and other liabilities” line item on the accompanying consolidated balance sheets is a mortgage repurchase reserve equal to
approximately $20,500 and $18,500 at December 31, 2020 and 2019, respectively.
65
NVR, Inc.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
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, 2020 and 2019.
Homebuilding data:
Revenues
Gross profit
Mortgage Banking data:
Mortgage banking fees
Loans closed
Consolidated data:
Net income
Diluted earnings per share
Operating data:
New orders (units)
Settlements (units)
Backlog (units)
Homebuilding data:
Revenues
Gross profit
Mortgage Banking data:
Mortgage banking fees
Loans closed
Consolidated data:
Net income
Diluted earnings per share
Operating data:
New orders (units)
Settlements (units)
Backlog (units)
Year Ended December 31, 2020
4th
Quarter
3rd
Quarter
2nd
Quarter
1st
Quarter
$ 2,263,673 $ 1,920,751 $ 1,588,758 $ 1,555,707
$
441,552 $
384,707 $
304,265 $
260,964
$
80,342 $
69,261 $
31,610 $
26,821
$ 1,659,219 $ 1,382,060 $ 1,144,428 $ 1,132,104
$
$
305,004 $
256,466 $
164,075 $
175,703
76.93 $
65.11 $
42.50 $
44.96
5,485
6,060
11,549
6,681
5,180
12,124
5,901
4,296
10,623
5,015
4,230
9,018
Year Ended December 31, 2019
4th
Quarter
3rd
Quarter
2nd
Quarter
1st
Quarter
$ 1,946,859 $ 1,873,331 $ 1,757,448 $ 1,643,206
$
379,467 $
355,055 $
332,060 $
304,400
$
43,336 $
37,933 $
42,746 $
43,805
$ 1,418,742 $ 1,373,946 $ 1,231,039 $ 1,140,999
$
$
256,137 $
223,787 $
210,209 $
188,406
64.41 $
56.11 $
53.09 $
47.64
4,392
5,331
8,233
4,766
5,124
9,172
5,239
4,720
9,530
5,139
4,493
9,011
66
I, Paul C. Saville, certify that:
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of NVR, Inc.;
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;
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;
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.
b.
c.
d.
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;
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;
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
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.
b.
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
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 12, 2021
By:
/s/ Paul C. Saville
Paul C. Saville
President and Chief Executive Officer
Exhibit 31.2
I, Daniel D. Malzahn, certify that:
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of NVR, Inc.;
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;
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;
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.
b.
c.
d.
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;
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;
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
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.
b.
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
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 12, 2021
By:
/s/ Daniel D. Malzahn
Daniel D. Malzahn
Senior 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, 2020 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 12, 2021
By:
/s/ Paul C. Saville
Paul C. Saville
President and Chief Executive Officer
By:
/s/ Daniel D. Malzahn
Daniel D. Malzahn
Senior Vice President, Chief Financial Officer and
Treasurer