NVR INC - Quarter Report: 2009 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission File Number: 1-12378

NVR, Inc.

 

(Exact name of registrant as specified in its charter)

Virginia		54-1394360
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

(Not Applicable)(Former name, former address, and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

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

As of October 29, 2009 there were 5,937,959 total shares of common stock outstanding.

 

 

NVR, Inc.
Form 10-Q
INDEX

				Page
PART I		FINANCIAL INFORMATION
Item 1.		NVR, Inc. Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets at September 30, 2009 (unaudited) and December 31, 2008			3
		Condensed Consolidated Statements of Income (unaudited) for the Three Months Ended September 30, 2009 and September 30, 2008 and the Nine Months Ended September 30, 2009 and September 30, 2008			5
		Condensed Consolidated Statements of Cash Flows (unaudited) For the Nine Months Ended September 30, 2009 and September 30, 2008			6
		Notes to Condensed Consolidated Financial Statements			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			38
Item 4.		Controls and Procedures			38
PART II		OTHER INFORMATION
Item 1A.		Risk Factors			38
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 6.		Exhibits			44
		Signature			45
		Exhibit Index			46
EX-31.1
EX-31.2
EX-32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

		September 30, 2009				December 31, 2008
		(unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents		$	1,114,581			$	1,146,426
Marketable securities			259,406				—
Receivables			9,015				11,594
Inventory:
Lots and housing units, covered under sales agreements with customers			415,104				335,238
Unsold lots and housing units			59,370				57,639
Manufacturing materials and other			4,365				7,693
			478,839				400,570
Contract land deposits, net			32,326				29,073
Consolidated assets not owned			57,461				114,930
Property, plant and equipment, net			20,624				25,658
Reorganization value in excess of amounts allocable to identifiable assets, net			41,580				41,580
Other assets, net			231,968				242,626
			2,245,800				2,012,457
Mortgage Banking:
Cash and cash equivalents			1,090				1,217
Mortgage loans held for sale, net			110,095				72,488
Property and equipment, net			544				759
Reorganization value in excess of amounts allocable to identifiable assets, net			7,347				7,347
Other assets			9,904				8,968
			128,980				90,779
Total assets		$	2,374,780			$	2,103,236

See notes to condensed consolidated financial statements.

(Continued)

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

		September 30, 2009				December 31, 2008
		(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable		$	150,304			$	137,285
Accrued expenses and other liabilities			198,106				194,869
Liabilities related to consolidated assets not owned			52,896				109,439
Customer deposits			66,819				59,623
Other term debt			2,294				2,530
Senior notes			133,370				163,320
			603,789				667,066
Mortgage Banking:
Accounts payable and other liabilities			23,797				17,842
Notes payable			75,607				44,539
			99,404				62,381
Total liabilities			703,193				729,447
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,559,671 and 20,561,187 shares issued as of September 30, 2009 and December 31, 2008, respectively			206				206
Additional paid-in-capital			810,132				722,265
Deferred compensation trust — 265,278 and 514,470 shares of NVR, Inc. common stock as of September 30, 2009 and December 31, 2008, respectively			(40,799	)			(74,978	)
Deferred compensation liability			40,799				74,978
Retained earnings			3,762,428				3,630,887
Less treasury stock at cost — 14,632,950 and 15,028,335 shares at September 30, 2009 and December 31, 2008, respectively			(2,901,179	)			(2,979,569	)
Total shareholders’ equity			1,671,587				1,373,789
Total liabilities and shareholders’ equity		$	2,374,780			$	2,103,236

See notes to condensed consolidated financial statements.

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Homebuilding:
Revenues		$	792,510			$	928,265			$	1,953,327			$	2,739,167
Other income			2,222				4,256				6,511				14,356
Cost of sales			(636,642	)			(805,931	)			(1,593,512	)			(2,305,231	)
Selling, general and administrative			(56,662	)			(66,796	)			(171,020	)			(240,833	)
Operating income			101,428				59,794				195,306				207,459
Interest expense			(2,802	)			(3,259	)			(8,038	)			(9,730	)
Homebuilding income			98,626				56,535				187,268				197,729
Mortgage Banking:
Mortgage banking fees			21,506				10,946				44,719				43,698
Interest income			887				929				2,082				2,608
Other income			215				188				458				531
General and administrative			(7,486	)			(7,761	)			(19,719	)			(23,823	)
Interest expense			(308	)			(230	)			(921	)			(544	)
Mortgage banking income			14,814				4,072				26,619				22,470
Income before taxes			113,440				60,607				213,887				220,199
Income tax expense			(41,313	)			(24,056	)			(82,346	)			(88,850	)
Net income		$	72,127			$	36,551			$	131,541			$	131,349
Basic earnings per share		$	12.29			$	6.72			$	22.83			$	24.60
Diluted earnings per share		$	11.59			$	6.12			$	21.57			$	22.21
Basic average shares outstanding			5,866				5,438				5,762				5,340
Diluted average shares outstanding			6,223				5,968				6,098				5,915

See notes to condensed consolidated financial statements.

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

		Nine Months Ended September 30,
		2009				2008
Cash flows from operating activities:
Net income		$	131,541			$	131,349
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			7,696				10,712
Stock option compensation expense			34,848				29,716
Excess income tax benefit from exercise of stock options			(58,656	)			(37,927	)
Contract land deposit impairments (recoveries)			(5,705	)			55,248
Mortgage loans closed			(1,427,100	)			(1,496,365	)
Proceeds from sales of mortgage loans			1,420,515				1,516,144
Principal payments on mortgage loans held for sale			1,568				3,591
Gain on sale of loans			(35,000	)			(32,242	)
Net change in assets and liabilities:
(Increase) decrease in inventories			(78,269	)			77,834
Decrease in receivables			2,553				699
Decrease in contract land deposits			2,665				5,423
Increase (decrease) in accounts payable, customer deposits and accrued expenses			88,283				(54,013	)
Other, net			10,997				5,391
Net cash provided by operating activities			95,936				215,560
Cash flows from investing activities:
Purchase of marketable securities, net			(259,406	)			—
Purchase of property, plant and equipment			(1,546	)			(5,080	)
Other, net			753				1,188
Net cash used in investing activities			(260,199	)			(3,892	)
Cash flows from financing activities:
Net borrowings under notes payable, and other term debt			30,832				7,129
Repurchase of senior notes			(29,950	)			—
Excess income tax benefit from exercise of stock options			58,656				37,927
Proceeds from exercise of stock options			72,753				44,108
Net cash provided by financing activities			132,291				89,164
Net (decrease) increase in cash and cash equivalents			(31,972	)			300,832
Cash and cash equivalents, beginning of the period			1,147,643				664,209
Cash and cash equivalents, end of period		$	1,115,671			$	965,041
Supplemental disclosures of cash flow information:
Interest paid during the period		$	6,017			$	6,937
Income taxes paid, net of refunds		$	(33,584	)		$	56,029
Supplemental disclosures of non-cash activities:
Net consolidated assets not owned		$	(926	)		$	(7,086	)

See notes to condensed consolidated financial statements.

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

1. Basis of Presentation

     The accompanying unaudited, condensed consolidated financial statements include the accounts of NVR, Inc. (“NVR” or the “Company”) and its subsidiaries and certain other entities in which the Company is deemed to be the primary beneficiary (see note 2 to the accompanying financial statements). Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the financial statements and notes thereto included in the Company’s 2008 Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting only of normal recurring accruals except as otherwise noted herein) considered necessary for a fair presentation have been included. Operating results for the three and nine-month period ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. We have evaluated all subsequent events through November 3, 2009, the date the financial statements were issued.

     For the three and nine-month periods ended September 30, 2009 and 2008, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying financial statements.

2. Consolidation of Variable Interest Entities

     The primary beneficiary of a variable interest entity is required to consolidate that entity in its financial statements. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual, or other financial interests in the entity. Expected losses are the expected negative variability in the fair value of an entity’s net assets, exclusive of its variable interest, and expected residual returns are the expected positive variability in the fair value of an entity’s net assets, exclusive of its variable interests. As discussed below, NVR evaluates these provisions as it relates to its finished lot acquisition strategy.

     NVR does not engage in the land development business. Instead, the Company typically acquires finished building lots at market prices from various development entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if NVR fails to perform under the agreement. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots. As of September 30, 2009, the Company controlled approximately 43,700 lots with deposits in cash and letters of credit totaling approximately $162,500 and $5,500, respectively. See note 3 for further discussion of contract land deposits.

     NVR believes this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. NVR may, at its option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of its intent not to acquire the finished

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

lots under contract. NVR’s sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained within the purchase agreements. In other words, if NVR does not perform under a purchase agreement, NVR loses only its deposit. NVR does not have any financial or specific performance guarantees, or completion obligations, under these purchase agreements, with the exception of two specific performance contracts pursuant to which the Company is committed to purchasing approximately seventeen finished lots at an aggregate purchase price of approximately $2,200. None of the creditors of any of the development entities with which NVR enters fixed price purchase agreements have recourse to the general credit of NVR. Except as described below, NVR also does not share in an allocation of either the profit earned or loss incurred by any of these entities.

     On a limited basis, NVR makes investments in joint venture limited liability corporations (“LLCs”) for the purpose of obtaining finished lots All LLCs are structured such that NVR is a non-controlling member and is at risk only for the amount invested by the Company. The Company has additional funding commitments totaling $4,000 to one LLC should additional investment be required. NVR is not a borrower, guarantor or obligor of any of the LLCs debt. NVR enters into a standard fixed price purchase agreement to purchase lots from the LLCs. NVR recognizes its share of earnings of the LLCs as an adjustment of the cost basis of the lots at the time that the lot and related home is settled with an external customer. At September 30, 2009, NVR had an aggregate investment in eleven separate LLCs totaling approximately $26,100, which is included in “Other assets” in the condensed consolidated balance sheets. This investment was offset by a valuation reserve of approximately $4,100 as of September 30, 2009 attributable to investments in certain LLCs that the Company determined were not fully recoverable.

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

     The Company has evaluated all of its fixed price purchase agreements and LLC arrangements and has determined that it is the primary beneficiary of eighteen of those development entities with which the agreements and arrangements are held. As a result, at September 30, 2009, NVR has consolidated such development entities in the accompanying condensed consolidated balance sheet. Where NVR deemed itself to be the primary beneficiary of a development entity created after December 31, 2003 and the development entity refused to provide financial statements, NVR utilized estimation techniques to perform the consolidation. The effect of the consolidation at September 30, 2009 was the inclusion on the balance sheet of $57,461 as “Consolidated assets not owned,” with a corresponding inclusion of $52,896 as “Liabilities related to consolidated assets not owned,” after elimination of intercompany items. Inclusive in these totals were assets of approximately $23,000 and liabilities of approximately $23,000 estimated for seven development entities created after December 31, 2003 that did not provide financial statements.

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

Following is the consolidating schedule at September 30, 2009:

		NVR, Inc.				Consolidated
		and				Entities Not								Consolidated
		Subsidiaries				Owned				Eliminations				Total
ASSETS
Homebuilding:
Cash and cash equivalents		$	1,114,581			$	—			$	—			$	1,114,581
Marketable securities			259,406				—				—				259,406
Receivables			9,015				—				—				9,015
Homebuilding inventory			478,839				—				—				478,839
Property, plant and equipment, net			20,624				—				—				20,624
Reorganization value in excess of amount allocable to identifiable assets, net			41,580				—				—				41,580
Contract land deposits, net			32,912				—				(586	)			32,326
Other assets, net			235,947				—				(3,979	)			231,968
			2,192,904				—				(4,565	)			2,188,339
Mortgage banking assets:			128,980				—				—				128,980
Consolidated entities not owned:
Land under development			—				57,153				—				57,153
Other assets			—				308				—				308
			—				57,461				—				57,461
Total assets		$	2,321,884			$	57,461			$	(4,565	)		$	2,374,780
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable, accrued expenses and other liabilities		$	348,410			$	—			$	—			$	348,410
Customer deposits			66,819				—				—				66,819
Other term debt			2,294				—				—				2,294
Senior notes			133,370				—				—				133,370
			550,893				—				—				550,893
Mortgage banking liabilities:			99,404				—				—				99,404
Consolidated entities not owned:
Accounts payable, accrued expenses and other			—				12,405				4,522				16,927
Debt			—				35,969				—				35,969
Contract land deposits			—				4,586				(4,586	)			—
Advances from NVR, Inc.			—				4,501				(4,501	)			—
			—				57,461				(4,565	)			52,896
Equity			1,671,587				—				—				1,671,587
Total liabilities and shareholders’ equity		$	2,321,884			$	57,461			$	(4,565	)		$	2,374,780

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

3. Contract Land Deposits

     During the three and nine-month periods ended September 30, 2009, the Company recognized the pre-tax recovery of approximately $1,000 and $5,700, respectively, of contract land deposits previously determined to be uncollectible. During the three and nine-month periods ended September 30, 2008, the Company incurred pre-tax impairment charges on contract land deposits of approximately $42,800, and $55,200, respectively. The contract land deposit asset is shown net of a $129,600 and $147,900 impairment valuation allowance at September 30, 2009 and December 31, 2008, respectively.

4. Earnings per Share

     The following weighted average shares and share equivalents are used to calculate basic and diluted earnings per share for the three and nine months ended September 30, 2009 and 2008:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Basic weighted average number of shares outstanding			5,866,000				5,438,000				5,762,000				5,340,000
Shares issuable upon exercise of dilutive options			357,000				530,000				336,000				575,000
Diluted average number of shares outstanding			6,223,000				5,968,000				6,098,000				5,915,000

     The assumed proceeds used in the treasury method for calculating NVR’s diluted earnings per share includes the amount the employee must pay upon exercise, the amount of compensation cost attributed to future services and not yet recognized, and the amount of tax benefits that would be credited to additional paid-in capital assuming exercise of the option. The assumed amount credited to additional paid-in capital equals the tax benefit from assumed exercise after consideration of the intrinsic value upon assumed exercise less the actual stock-based compensation expense to be recognized in the income statement from 2006 and future periods.

     Options to purchase 45,053 and 317,322 shares of common stock during the three and nine months ended September 30, 2009, and options to purchase 319,617 shares of common stock during both the three and nine months ended September 30, 2008, were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. In addition, 377,386 performance-based options were outstanding as of September 30, 2008 that were excluded from the computation of diluted earnings per share because the performance target had not been achieved. The performance target was not met at December 31, 2008 and all of the performance-based options outstanding at that time expired unexercisable.

5. Marketable Securities

     As of September 30, 2009 the Company held marketable securities totaling $259,406. These securities, which are debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies, are classified by the Company as held-to-maturity, are measured at amortized cost and mature within one year.

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

6. Excess Reorganization Value

     Reorganization value in excess of identifiable assets (“excess reorganization value”) is an indefinite life intangible asset that was created upon NVR’s emergence from bankruptcy on September 30, 1993. Based on the allocation of the reorganization value, the portion of the reorganization value which was not attributed to specific tangible or intangible assets has been reported as excess reorganization value, which is treated similarly to goodwill. Excess reorganization value is not subject to amortization. Rather, excess reorganization value is subject to an impairment assessment on an annual basis or more frequently if changes in events or circumstances indicate that impairment may have occurred. Because excess reorganization value was based on the reorganization value of NVR’s entire enterprise upon bankruptcy emergence, the impairment assessment is conducted on an enterprise basis based on the comparison of NVR’s total equity compared to the market value of NVR’s outstanding publicly-traded common stock. The Company completed the annual assessment of impairment during the first quarter of 2009, and as of September 30, 2009, management believes that there was no impairment of excess reorganization value.

7. Uncertainty in Income Taxes

     As of January 1, 2009, the Company had approximately $53,339 (on a net basis) of unrecognized tax benefits, which would decrease income tax expense if recognized. The Company recognizes interest related to unrecognized tax benefits in the income tax expense line. As of January 1, 2009, the Company had a total of $5,150 of accrued interest for unrecognized tax benefits on its balance sheet. Based on its historical experience in dealing with various taxing authorities, the Company has found that generally it is the administrative practice of these authorities to not seek penalties from the Company for the tax positions it has taken on its returns, related to its unrecognized tax benefits. Therefore, the Company does not accrue penalties for the positions in which it has an unrecognized tax benefit. However, if such penalties were to be accrued, they would be recorded as a component of income tax expense. With few exceptions, the Company is no longer subject to income tax examinations for years prior to 2006.

8. Shareholders’ Equity

     A summary of changes in shareholders’ equity is presented below:

						Additional												Deferred				Deferred
		Common				Paid-In				Retained				Treasury				Comp.				Comp.
		Stock				Capital				Earnings				Stock				Trust				Liability				Total
Balance, December 31, 2008		$	206			$	722,265			$	3,630,887			$	(2,979,569	)		$	(74,978	)		$	74,978			$	1,373,789
Net income			—				—				131,541				—				—				—				131,541
Deferred compensation activity			—				—				—				—				34,179				(34,179	)			—
Stock-based compensation			—				34,848				—				—				—				—				34,848
Stock option activity			—				72,753				—				—				—				—				72,753
Tax benefit from stock-based compensation activity			—				58,656				—				—				—				—				58,656
Treasury shares issued upon option exercise			—				(78,390	)			—				78,390				—				—				—
Balance, September 30, 2009		$	206			$	810,132			$	3,762,428			$	(2,901,179	)		$	(40,799	)		$	40,799			$	1,671,587

     The Company did not repurchase any shares of its common stock during the nine months ended September 30, 2009. The Company settles option exercises by issuing shares of treasury stock to option holders. Shares are relieved from the treasury account based on the weighted average cost basis of treasury

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

shares acquired. Approximately 395,000 options to purchase shares of the Company’s common stock were exercised during the nine months ended September 30, 2009.

9. Product Warranties

     The Company establishes 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 NVR’s homebuilding business. Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our general counsel and outside counsel retained to handle specific product liability cases. The following table reflects the changes in the Company’s warranty reserve during the three and nine months ended September 30, 2009 and 2008:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Warranty reserve, beginning of period		$	60,858			$	69,750			$	68,084			$	70,284
Provision			11,154				9,827				18,806				26,816
Payments			(9,376	)			(11,048	)			(24,254	)			(28,571	)
Warranty reserve, end of period		$	62,636			$	68,529			$	62,636			$	68,529

10. Segment Disclosures

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

     Homebuilding Mid Atlantic — Virginia, West Virginia, Maryland, and Delaware
     Homebuilding North East — New Jersey and eastern Pennsylvania
     Homebuilding Mid East — Kentucky, New York, Ohio, western Pennsylvania and Indiana
     Homebuilding 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 eliminates in consolidation, is based on the segment’s average net assets employed, and is charged using a consistent methodology in the years presented. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital. The Company records charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a finished lot purchase agreement with the developer, or to restructure a lot purchase agreement resulting in the forfeiture of the deposit. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a capital allocation charge.

     In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include

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

unallocated corporate overhead (including all management incentive compensation), stock option compensation expense, consolidation adjustments and external corporate interest expense. NVR’s overhead functions, such as accounting, treasury, human resources, etc., are centrally performed and the costs are not allocated to the Company’s operating segments. Consolidation adjustments consist of such items necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to the Company’s operating segments. Likewise, stock option compensation expense is not charged to the operating segments. External corporate interest expense is primarily comprised of interest charges on the Company’s outstanding Senior Notes and working capital line borrowings, and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Revenues:
Homebuilding Mid Atlantic		$	491,669			$	531,451			$	1,212,785			$	1,617,708
Homebuilding North East			74,563				80,695				185,081				265,474
Homebuilding Mid East			156,281				182,324				362,373				487,253
Homebuilding South East			69,997				133,795				193,088				368,732
Mortgage Banking			21,506				10,946				44,719				43,698
Consolidated revenues		$	814,016			$	939,211			$	1,998,046			$	2,782,865

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Profit:
Homebuilding Mid Atlantic		$	71,919			$	45,668			$	150,804			$	132,395
Homebuilding North East			7,156				5,173				15,479				17,014
Homebuilding Mid East			18,225				17,622				30,970				37,093
Homebuilding South East			2,870				10,578				9,344				27,220
Mortgage Banking			15,515				4,774				28,724				24,291
Segment profit			115,685				83,815				235,321				238,013
Contract land deposit impairments (1)			6,841				(40,014	)			17,302				(24,575	)
Stock option expense (2)			(11,446	)			(11,284	)			(34,848	)			(29,716	)
Corporate capital allocation (3)			17,003				27,395				47,398				83,599
Unallocated corporate overhead (4)			(10,017	)			(5,447	)			(34,348	)			(51,601	)
Consolidation adjustments and other (5)			(1,920	)			9,260				(9,190	)			13,827
Corporate interest expense			(2,706	)			(3,118	)			(7,748	)			(9,348	)
Reconciling items sub-total			(2,245	)			(23,208	)			(21,434	)			(17,814	)
Consolidated income before tax		$	113,440			$	60,607			$	213,887			$	220,199

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

		September 30,
		2009				2008
Assets:
Homebuilding Mid Atlantic		$	471,449			$	615,586
Homebuilding North East			56,637				79,328
Homebuilding Mid East			108,451				128,853
Homebuilding South East			52,223				100,728
Mortgage Banking			121,633				124,473
Segment assets			810,393				1,048,968
Consolidated assets not owned			57,461				127,074
Cash			1,114,581				963,313
Marketable securities			259,406				—
Deferred taxes			193,460				214,456
Intangible assets (6)			48,927				60,634
Contract land deposit and LLCs reserve			(136,154	)			(145,294	)
Consolidation adjustments and other			26,706				39,001
Reconciling items sub-total			1,564,387				1,259,184
Consolidated assets		$	2,374,780			$	2,308,152

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Homebuilding Mid Atlantic		$	11,341			$	18,334			$	31,351			$	56,044
Homebuilding North East			1,727				2,346				4,988				7,795
Homebuilding Mid East			2,448				3,339				6,690				9,897
Homebuilding South East			1,487				3,376				4,369				9,863
Total		$	17,003			$	27,395			$	47,398			$	83,599

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

11. Fair Value

     Financial Instruments

     Except as otherwise noted here, NVR believes that insignificant differences exist between the carrying value and the fair value of its financial instruments. The estimated fair value of NVR’s 5% Senior Notes due 2010 as of September 30, 2009 and December 31, 2008 was $135,133 and $161,937, respectively. The estimated fair value is based on a quoted market price. The carrying value was $133,370 and $163,320 at September 30, 2009 and December 31, 2008, respectively.

     Derivative Instruments and Mortgage Loans Held for Sale

     In the normal course of business, NVR Mortgage Finance, Inc. (“NVRM”), NVR’s mortgage banking segment, enters into contractual commitments to extend credit to homebuyers with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time frames established by NVR. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to a broker/dealer. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. NVR does not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives and, accordingly, are marked to fair value through earnings. At September 30, 2009, there were contractual commitments to extend credit to borrowers aggregating approximately $239,000 and open forward delivery contracts aggregating approximately $269,000.

     GAAP assigns a fair value hierarchy to the inputs used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets and liabilities. Level 2 inputs are inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs. The fair value of the Company’s rate lock commitments to borrowers and the related input levels includes, as applicable:

	i)		the assumed gain/loss of the expected resultant loan sale (level 2);
	ii)		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 amount that the Company has discounted the price to the borrower from par for competitive reasons and the excess servicing to be received or buydown fees to be paid upon securitization of the loan. The excess servicing and buydown fees are calculated pursuant to contractual terms with investors. To calculate the effects of interest rate movements, the Company utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount. The Company sells all of its loans on a servicing released basis, and receives a servicing released premium upon sale. Thus, the value of the servicing rights, which averaged 167 basis points of the loan amount as of September 30, 2009, is included in the fair value measurement and is based upon contractual terms with investors and varies depending on the loan type. The Company assumes an approximate 17% fallout rate when measuring the fair value of rate lock

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

commitments. Fallout is defined as locked loan commitments for which the Company does not close a mortgage loan and is based on historical experience.

     The fair value of the Company’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date (level 2). The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

     Mortgage loans held for sale are recorded at fair value when closed, and thereafter are carried at the lower of cost or fair value until sale. The fair value of loans held-for-sale of $110,095 included in the accompanying condensed consolidated balance sheet exceeds its aggregate principal balance of $107,835 by $2,260.

     The undesignated derivative instruments are included in the accompanying condensed consolidated balance sheet as follows:

		Balance				Fair
		Sheet				Value
		Location				September 30, 2009
Derivative Assets:
Rate Lock Commitments		NVRM — Other assets				$	3,469
Derivative Liabilities:
Forward Sales Contracts		NVRM — Accounts payable and other liabilities				$	1,523

     The unrealized gain or loss from the change in the fair value measurements is included in earnings as a component of mortgage banking fees in the accompanying condensed consolidated statements of income as follows:

						Assumed				Interest												Total Fair
		Notional or				Gain (Loss)				Rate				Servicing				Security				Value
		Principal				From Loan				Movement				Rights				Price				Adjustment
		Amount				Sale				Effect				Value				Change				Gain/(Loss)
Rate lock commitments		$	238,797			$	(869	)		$	1,037			$	3,301			$	—			$	3,469
Forward sales contracts		$	268,716				—				—				—				(1,523	)			(1,523	)
Mortgages held for sale		$	107,835				(437	)			887				1,810				—				2,260
Total Fair Value Measurement, September 30, 2009							(1,306	)			1,924				5,111				(1,523	)			4,206
Less: Fair Value Measurement, December 31, 2008							(1,197	)			2,021				1,825				(1,743	)			906
Total Fair Value Adjustment for the period ended September 30, 2009						$	(109	)		$	(97	)		$	3,286			$	220			$	3,300

     The fair value measurement will be impacted in the future by the change in the value of the servicing rights and the volume and product mix of the Company’s locked loan commitments.

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

12. Debt

     On August 5, 2009, NVRM renewed its Master Repurchase Agreement dated August 5, 2008 with U.S. Bank National Association, as Agent and representative of itself as a Buyer, and the other Buyers thereto (the “Master Repurchase Agreement”) pursuant to a First Amendment to Master Repurchase Agreement with U.S. Bank National Association, as Agent and representative of itself as Buyer (“Agent”), and the other Buyers thereto (together with the Master Repurchase Agreement, the “Amended Repurchase Agreement”). The purpose of the Amended Repurchase Agreement is to finance the origination of mortgage loans by NVRM. The Amended Repurchase Agreement provides for loan purchases up to $100 million, subject to certain sublimits. In addition, the Amended Repurchase Agreement provides for an accordion feature under which NVRM may request that the aggregate commitments under the Repurchase Agreement be increased to an amount up to $125 million. The Amended Repurchase Agreement expires on August 3, 2010.

     At September 30, 2009, there was $75,607 outstanding under the Amended Repurchase Agreement, which is included in liabilities in the accompanying condensed consolidated balance sheets. Amounts outstanding under the Amended Repurchase Agreement are collateralized by the Company’s mortgage loans held for sale, which are included in assets in the September 30, 2009 balance sheet in the accompanying condensed consolidated financial statements. As of September 30, 2009, there were no aggregate outstanding purchase price limitations reducing the amount available to NVRM. 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.

     On August 4, 2009, NVR, Inc., as borrower (“NVR”), entered into an amendment to its $600 million revolving credit agreement with the Lenders party thereto and Bank of America, N.A., as Administrative Agent (the “Facility”), to reduce the total available borrowings under the Facility to $300 million, to eliminate the accordion feature and to amend or eliminate certain non-financial covenants. The Facility’s termination date was unaffected by the amendment and remains December 6, 2010. At September 30, 2009, there were no borrowings under the Facility.

     On August 4, 2009 NVR repurchased $2,000 of its 5% Senior Notes due June 15, 2010 (the “Notes”) on the open market at par, reducing the Notes balance at September 30, 2009 to $133,370.

13. Commitments and Contingencies

     On July 18, 2007, former and current employees filed lawsuits against the Company in the Court of Common Pleas in Allegheny County, Pennsylvania and Hamilton County, Ohio, in Superior Court in Durham County, North Carolina, and in the Circuit Court in Montgomery County, Maryland, and on July 19, 2007 in the Superior Court in New Jersey, alleging that the Company incorrectly classified its sales and marketing representatives as being exempt from overtime wages. These lawsuits are similar in nature to another lawsuit filed on October 29, 2004 by another former employee in the United States District Court for the Western District of New York. The complaints seek injunctive relief, an award of unpaid wages, including fringe benefits, liquidated damages equal to the overtime wages allegedly due and not paid, attorney and other fees and interest, and where available, multiple damages. The suits were filed as purported class actions. However, none of the groups of employees that the lawsuits purport to represent have been certified as a class. The lawsuits filed in Ohio, Pennsylvania, Maryland and New Jersey have been stayed pending further developments in the New York action. Following a status conference on July 14, 2009, the parties have also agreed to stay the North Carolina action pending final disposition of the New York action.

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

     The Company believes that its compensation practices in regard to sales and marketing representatives are entirely lawful and in compliance with two letter rulings from the United States Department of Labor (“DOL”) issued in January 2007. The two courts to most recently consider similar claims against other homebuilders have acknowledged the DOL’s position that sales and marketing representatives were properly classified as exempt from overtime wages and the only court to have directly addressed the exempt status of such employees concluded that the DOL’s position was valid. Accordingly, the Company has vigorously defended and intends to continue to vigorously defend these lawsuits. Because the Company is unable to determine the likelihood of an unfavorable outcome of this case, or the amount of damages, if any, the Company has not recorded any associated liabilities in the accompanying condensed consolidated balance sheets.

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

14. Recent Accounting Pronouncements

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS No. 160”) [Accounting Standards Codification “ASC” 810-10-65]. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement, but deducted to arrive at income available to common shareholders. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its non controlling interests. SFAS No. 160 was effective for the Company beginning January 1, 2009. The adoption of SFAS No. 160 did not have a material impact on the Company’s financial statements.

     In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (“FSP No. 157-2”) [ASC 820-10-15], Effective Date of FASB Statement No. 157 which delayed the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008. FSP No. 157-2 became effective for the Company beginning January 1, 2009. The adoption of FSP No. 157-2 did not have a material impact on the Company’s financial statements.

     In March 2008, the FASB issued SFAS No. 161 [ASC 815-10-15], Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS No. 161 enhances the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, regarding an entity’s derivative instruments and hedging activities. SFAS No. 161 was effective for the Company beginning January 1, 2009. The Company conformed its disclosures to the requirements of SFAS No. 161.

     In April 2009, the FASB issued FASB Staff Positions No. FAS 107-1 and No. APB 28-1 (“FSP No. 107-1 and APB No. 28-1”) [ASC 825-10-65], Interim Disclosures about Fair Value of Financial Instruments, which enhances the interim disclosures required for the fair value of financial instruments and requires companies to disclose the methods and assumptions used to estimate the fair value of financial instruments.

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

FSP No. 107-1 and APB 28-1 were effective for the Company beginning April 1, 2009. The Company conformed its disclosures to the requirements of FSP No. 107-1 and APB No. 28-1.

     In April 2009, the FASB issued FASB Staff Position No. FAS 157-4 (“FSP No. 157-4”) [ASC 820-10-65], Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP No. 157-4 clarifies the methodology to be used to determine fair value when there is no active market or where the price inputs being used represent distressed sales. FSP No. 157-4 also reaffirms the objective of fair value measurement as stated in SFAS No. 157, which is to reflect how much an asset would be sold for in an orderly transaction. FSP No. 157-4 was effective for the Company beginning April 1, 2009. The adoption of FSP No. 157-4 did not have a material impact on the Company’s financial statements.

     In April 2009, the FASB issued FASB Staff Positions No. FAS 115-2 and No. FAS 124-2, (“FSP No. 115-2 and FSP No. 124-2”) [ASC 320-10-65], Recognition and Presentation of Other-Than-Temporary Impairment of Certain Investments in Debt and Equity Securities. FSP No. 115-2 and FSP No. 124-2 changes the existing other-than-temporary impairment model for debt securities and expands and increases the frequency of disclosures for other-than-temporary impairments for debt and equity securities. It was effective for the Company beginning April 1, 2009. The adoption of FSP No. 115-2 and FSP No. 124-2 did not have a material impact on the Company’s financial statements.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”) [ASC 855-10-05], which establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 was effective for the Company beginning April 1, 2009. The Company has conformed its disclosures to the requirements of SFAS No. 165.

     In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets (“SFAS No. 166”), which changes the conditions for reporting a transfer of a portion of a financial asset as a sale and requires additional year-end and interim disclosures. SFAS No. 166 is effective for fiscal years beginning after November 15, 2009. The implementation of SFAS No. 166 is not expected to have a material impact on the Company’s financial statements.

     In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”). This statement amends FASB Interpretation 46R related to the consolidation of variable interest entities (“VIEs”) and revises the approach to determining the primary beneficiary of a VIE to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a VIE. SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the potential impact of SFAS No. 167 on its consolidated financial statements and results of operations.

     In July 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, (“SFAS No. 168”) [ASC 105-10-05], which supersedes SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 168 establishes the FASB Accounting Standards Codification, which will become the source of authoritative U.S. generally accepted accounting principles recognized by the FASB. SFAS No. 168 was effective for interim and annual periods ending after September 15, 2009.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands)

Forward-Looking Statements

     Some of the statements in this Form 10-Q, 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. 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, projected plans and objectives of management for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of NVR to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: general economic and business conditions (on both a national and regional level); interest rate changes; access to suitable financing by NVR and NVR’s customers; 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. For additional information regarding risk factors, see Part II, Item 1A of this Report.

     Unless the context otherwise requires, references to “NVR”, “we”, “us” or “our” include NVR and its subsidiaries.

Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008

Overview

     Our primary business is the construction and sale of single-family detached homes, townhomes and condominium buildings. To more fully serve our homebuilding customers, we also operate a mortgage banking and title services business. Our homebuilding reportable segments consist of the following markets:

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

During the third quarter of 2009, we opened new operations in the Orlando, FL, Raleigh, NC and Indianapolis, IN metropolitan areas. We currently have 2 active communities in the Orlando market and one active community in the Raleigh market. We expect to open 10 communities in the Indianapolis market during the fourth quarter.

     We believe that we operate our business with a conservative operating strategy. We do not engage in land development and primarily construct homes on a pre-sold basis. This strategy allows us to maximize inventory turnover, which 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, 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 management believes contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets.

     Because we are not active in the land development business, our continued success is contingent upon, among other things, our ability to control an adequate supply of finished lots at current market prices, and on our developers’ ability to timely deliver finished lots to meet the sales demands of our customers. We acquire finished lots from various development entities under fixed price lot purchase agreements (“purchase agreements”). These purchase agreements require deposits in the form of cash or letters of credit that may be forfeited if we fail to perform under the purchase agreement. However, we believe this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and development. As of September 30, 2009, we controlled approximately 43,700 lots with deposits in cash and letters of credit totaling approximately $162,500 and $5,500, respectively. Included in the number of controlled lots are approximately 15,700 lots for which we have recorded a contract land deposit impairment reserve of $129,600 as of September 30, 2009. See note 3 to the condensed consolidated financial statements included herein for additional information regarding contract land deposits.

Current Overview of the Business Environment

     The current home sales environment remains challenging, still characterized by high levels of existing and new homes available for sale driven by slowed demand and high foreclosure rates. Additionally, homebuyer confidence continues to be negatively impacted by the continuing economic recession and concerns regarding increasing unemployment as well as concerns regarding the stability of home values. The current home sales environment also continues to be adversely impacted by a restrictive mortgage lending environment that has made it more difficult for our customers to obtain mortgage financing, as well as making it difficult for them to sell their current homes. Despite these challenging market conditions, new orders, net of cancellations (“new orders”), increased 13% in the third quarter of 2009 as compared to the same period in 2008, driven we believe in part by the federal tax credit for first-time homebuyers. Although new orders increased quarter over quarter, we experienced a month to month sequential decline in new orders during the current quarter. We believe that these sequential monthly declines are due in part to the continuing uncertainty in the market and to the impending November 30, 2009 first time homebuyer federal tax credit deadline. As the quarter progressed, we were unable to guarantee delivery of homes prior to the expiration date of the federal tax credit program, which in turn limited our ability to sell to first time homebuyers seeking to qualify for the federal tax credit. Selling prices in most of our market segments continue to be negatively impacted by current market conditions. New orders for the nine months ended September 30, 2009 were flat with new orders for the same period in 2008. We continue to see improvement in the cancellation rate year over year, decreasing to 14% in the third quarter of 2009 as compared to 24% in the same period of 2008. Overall new order selling prices declined 2% in the third quarter of 2009 as compared to the third quarter of 2008 and are down 7% for the nine months ended September 30, 2009 compared to the same period in 2008.

     Reflecting the challenging market conditions discussed above, consolidated revenues totaled $814,016 for the quarter ended September 30, 2009, a 13% decrease from the same period in 2008. Despite this decline in revenue quarter over quarter, net income and diluted earnings per share in the third quarter of 2009 increased approximately 97% and 89%, respectively, compared to the third quarter of 2008. Gross profit margins within our homebuilding business improved to 19.7% in the third quarter of 2009 as compared to 13.2% in the third quarter of 2008. The third quarter 2008 gross profit margin results were negatively impacted by a $42,839 land deposit impairment charge.

     Based on continuing market uncertainties in both the homebuilding and mortgage markets, we expect to experience continued sales and pricing pressures over the next several quarters, and in turn, continued pressure on gross profit margins. To offset declining selling prices and customer

affordability issues, we continue to work aggressively with our subcontractors and suppliers to reduce material and labor costs incurred in the construction process. We continue to work with our developers in certain of our communities to reduce lot prices to current market values and/or to defer scheduled lot purchases to coincide with a slower sales pace. In communities where we are unsuccessful in negotiating necessary adjustments to the contracts to meet current market conditions, we may exit the community and forfeit our deposit. During the quarter ended September 30, 2009, we recognized a net recovery of approximately $1,000 of contract land deposits previously determined to be uncollectible. In the quarter ended September 30, 2008, we incurred contract land deposit impairment charges of approximately $42,800. In addition to these cost reduction measures, we also continue to assess and adjust our staffing levels and organizational structure as market conditions warrant. Finally, we continue to strengthen our balance sheet and liquidity. As of September 30, 2009, our cash and cash equivalents and marketable securities balances totaled approximately $1,375,000.

Homebuilding Operations

     The following table summarizes the results of operations and other data for the consolidated homebuilding operations:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues		$	792,510			$	928,265			$	1,953,327			$	2,739,167
Cost of Sales		$	636,642			$	805,931			$	1,593,512			$	2,305,231
Gross profit margin percentage			19.7	%			13.2	%			18.4	%			15.8	%
Selling, general and administrative		$	56,662			$	66,796			$	171,020			$	240,833
Settlements (units)			2,671				2,750				6,492				7,965
Average settlement price		$	296.3			$	337.1			$	300.4			$	343.5
New orders (units)			2,255				2,002				7,409				7,403
Average new order price		$	297.1			$	302.9			$	291.3			$	314.1
Backlog (units)											4,081				4,583
Average backlog price										$	296.6			$	327.3

Consolidated Homebuilding — Three Months Ended September 30, 2009 and 2008

     Homebuilding revenues decreased 15% for the third quarter of 2009 compared to the same period in 2008 as a result of a 12% decrease in the average settlement price and a 3% decrease in the number of units settled quarter over quarter. The decrease in the average settlement prices were primarily impacted by a 13% lower average price of homes in backlog entering the third quarter of 2009 compared to the same period in 2008. The decrease in the number of units settled is primarily attributable to our beginning backlog units being approximately 16% lower at the start of the third quarter of 2009 compared to the same period of 2008, offset by a higher backlog turnover rate period over period.

     Gross profit margins in the quarter ended September 30, 2009 increased compared to the third quarter of 2008 primarily due to the aforementioned $42,839 in contract land deposit impairment charges incurred in the third quarter of 2008. In addition, gross profit margins were favorably impacted by cost control measures initiated in prior quarters and lower lumber and certain other commodity prices. Despite these favorable results in the third quarter of 2009, market conditions continue to put pressure on new order selling prices, and we expect to continue to experience gross profit margin pressure over at least the next several quarters.

     The number of new orders for the third quarter of 2009 increased 13% compared to the third quarter of 2008. As discussed in the Overview section above, the increase in new orders was driven we

believe in part by the federal tax credit for first-time homebuyers. In addition, new orders were favorably impacted by a reduction in the cancellation rate to 14% in the third quarter of 2009 from 24% in the third quarter of 2008. During the current quarter, we experienced a month to month sequential decline in new orders. This we believe is a result of the continuing uncertainty in market conditions and the impending November 30, 2009 first-time homebuyer federal tax credit deadline, as we were unable to guarantee delivery of homes prior to that deadline. Due to this market uncertainty, we expect to experience continued pressure on sales and selling prices over at least the next several quarters in most of our market segments.

     Selling, general and administrative (“SG&A”) expenses for the third quarter of 2009 decreased by approximately $10,100 compared to the third quarter of 2008. The decrease in SG&A expenses is primarily attributable to an approximate $9,300 decrease in selling and marketing costs due primarily to a 18% reduction in the average number of active communities in the third quarter of 2009 compared to the third quarter of 2008.

Consolidated Homebuilding — Nine Months Ended September 30, 2009 and 2008

     Homebuilding revenues decreased 29% for the nine months ended September 30, 2009 compared to the same period in 2008 due to a 18% decrease in the number of units settled and a 13% decrease in the average settlement price. The decrease in the number of units settled is primarily attributable to our beginning backlog units being approximately 39% lower entering 2009 compared to the backlog unit balance entering 2008, offset partially by a higher backlog turnover rate period over period. Average settlement prices were impacted primarily by a 15% lower average price of homes in the beginning backlog entering 2009 compared to the same period in 2008.

     Gross profit margins for the nine month period ended September 30, 2009 improved to 18.4% compared to 15.8% for the same period of 2008 primarily due to a favorable variance in contract land deposit impairment charges period over period. For the first nine months of 2009, we recognized the recovery of approximately $5,700, or 29 basis points, of contract land deposits previously determined to be uncollectible. In the comparative period for 2008, we recognized a contract land deposit impairment charge of approximately $55,200, or 202 basis points.

     New orders for the nine months ended September 30, 2009 were flat as compared to the same period in 2008, while the average sales price of new orders decreased 7% over the same respective periods. As mentioned above in the quarterly discussion, the number of new orders was favorably impacted by the federal tax credit for first-time homebuyers as well as by a decrease in the cancellation rate to 14% for the nine month period in 2009 from 22% in the comparative 2008 period. Average selling prices continue to be negatively impacted by the aforementioned challenging market conditions.

     SG&A expenses for the nine-month period ended September 30, 2009 decreased approximately $69,800 compared to the same period in 2008, and as a percentage of revenue were consistent with the prior year at 8.8%. The decrease in SG&A expenses is primarily attributable to a $30,300 decrease in selling and marketing costs in 2009 compared to the same period in 2008 due to an 18% decrease in the average number of active communities year over year. In addition, personnel costs were down approximately $26,900 as a result of lower staffing levels period over period.

     Backlog units and dollars were 4,081 and $1,210,447, respectively, as of September 30, 2009 compared to 4,583 and $1,499,830 as of September 30, 2008. The decrease in backlog units is primarily attributable to our beginning backlog units being approximately 39% lower entering 2009 compared to the same period in 2008. Backlog dollars were negatively impacted by the decrease in backlog units coupled with a 9% decrease in the average price of homes in ending backlog, resulting primarily from a 5% decrease in the average selling price for new orders over the six-month period ended September 30, 2009 compared to the same period in 2008.

     Backlog, which represents homes sold but not yet settled with the customer, may be impacted by customer cancellations for various reasons that are beyond our control, such as failure to obtain mortgage financing, inability to sell an existing home, job loss, or a variety of other reasons. In any period, a portion of the cancellations that we experience are related to new sales that occurred during the same period, and a portion are related to sales that occurred in prior periods and therefore appeared in the opening backlog for the current period. Expressed as the total of all cancellations during the period as a percentage of gross sales during the period, our cancellation rate was approximately 14% and 22% in the first nine months of 2009 and 2008, respectively. From the first quarter of 2008 through the third quarter of 2009, approximately 9% of a reporting quarter’s opening backlog cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur in 2009. See “Risk Factors” in Item 1A of this Report.

Reportable Segments

     Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge determined at the corporate headquarters. The corporate capital allocation charge eliminates in consolidation, is based on the segment’s average net assets employed, and is charged using a consistent methodology in the periods presented. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment’s results are providing the desired rate of return after covering our cost of capital. We record charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a finished lot purchase agreement with the developer or to restructure a lot purchase agreement resulting in the forfeiture of the deposit. We evaluate our entire net contract land deposit portfolio for impairment each quarter. For additional information regarding our contract land deposit impairment analysis, see the Critical Accounting Policies section within this Management Discussion and Analysis. For presentation purposes below, the contract land deposit reserve at September 30, 2009 and 2008, respectively, has been allocated to the reportable segments to show contract land deposits on a net basis. The net contract land deposit balances below also includes $5,500 and $6,600 at September 30, 2009 and 2008, respectively, of letters of credit issued as deposits in lieu of cash. The following table summarizes certain homebuilding operating activity by segment for the three and nine months ended September 30, 2009 and 2008:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Mid Atlantic:
Revenues		$	491,669			$	531,451			$	1,212,785			$	1,617,708
Settlements (units)			1,388				1,266				3,373				3,851
Average settlement price		$	354.1			$	419.7			$	359.5			$	420.0
New orders (units)			1,199				965				3,823				3,598
Average new order price		$	344.3			$	364.2			$	345.3			$	376.2
Backlog (units)											2,226				2,473
Average backlog price										$	344.5			$	386.4
Gross profit margin		$	102,145			$	90,973			$	239,469			$	274,221
Gross profit margin percentage			20.8	%			17.1	%			19.8	%			17.0	%
Segment profit		$	71,919			$	45,668			$	150,804			$	132,395
New order cancellation rate			12.9	%			26.3	%			14.3	%			23.3	%
Inventory:
Sold inventory										$	271,361			$	339,528
Unsold lots and housing units										$	27,720			$	37,709
Unsold inventory impairments		$	294			$	216			$	1,450			$	936
Contract land deposits, net										$	79,188			$	109,066
Total lots controlled											23,842				30,951
Total lots reserved											6,806				10,810
Contract land deposit impairments		$	1,237			$	1,687			$	4,543			$	20,459
Average active communities			166				206				170				210
North East:
Revenues		$	74,563			$	80,695			$	185,081			$	265,474
Settlements (units)			260				264				641				813
Average settlement price		$	286.8			$	305.7			$	288.7			$	326.5
New orders (units)			222				205				703				725
Average new order price		$	312.0			$	301.6			$	291.3			$	302.7
Backlog (units)											365				417
Average backlog price										$	294.5			$	299.8
Gross profit margin		$	12,960			$	13,171			$	32,072			$	42,128
Gross profit margin percentage			17.4	%			16.3	%			17.3	%			15.9	%
Segment profit		$	7,156			$	5,173			$	15,479			$	17,014
New order cancellation rate			14.9	%			18.7	%			14.0	%			17.9	%
Inventory:
Sold inventory										$	38,418			$	47,907
Unsold lots and housing units										$	3,291			$	3,548
Unsold inventory impairments		$	30			$	65			$	520			$	437
Contract land deposits, net										$	1,182			$	7,613
Total lots controlled											3,424				5,094
Total lots reserved											1,023				1,593
Contract land deposit impairments		$	141			$	65			$	210			$	3,404
Average active communities			37				37				37				40

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Mid East:
Revenues		$	156,281			$	182,324			$	362,373			$	487,253
Settlements (units)			722				756				1,668				2,012
Average settlement price		$	215.2			$	239.6			$	215.7			$	240.8
New orders (units)			560				577				2,007				2,020
Average new order price		$	224.0			$	223.5			$	216.2			$	232.1
Backlog (units)											1,070				1,121
Average backlog price										$	222.2			$	229.8
Gross profit margin		$	30,319			$	33,712			$	65,125			$	85,239
Gross profit margin percentage			19.4	%			18.5	%			18.0	%			17.5	%
Segment profit		$	18,225			$	17,622			$	30,970			$	37,092
New order cancellation rate			15.3	%			19.2	%			14.0	%			15.8	%
Inventory:
Sold inventory										$	71,830			$	78,299
Unsold lots and housing units										$	16,654			$	16,671
Unsold inventory impairments		$	161			$	—			$	313			$	69
Contract land deposits, net										$	4,439			$	10,907
Total lots controlled											10,662				13,310
Total lots reserved											3,314				5,273
Contract land deposit impairments		$	143			$	300			$	1,965			$	2,119
Average active communities			101				121				100				119
South East
Revenues		$	69,997			$	133,795			$	193,088			$	368,732
Settlements (units)			301				464				810				1,289
Average settlement price		$	232.5			$	288.4			$	238.4			$	286.1
New orders (units)			274				255				876				1,060
Average new order price		$	227.8			$	251.9			$	227.4			$	267.1
Backlog (units)											420				572
Average backlog price										$	234.4			$	282.7
Gross profit margin		$	10,316			$	22,691			$	30,641			$	65,138
Gross profit margin percentage			14.7	%			17.0	%			15.9	%			17.7	%
Segment profit		$	2,870			$	10,578			$	9,344			$	27,220
New order cancellation rate			13.6	%			31.5	%			13.8	%			27.5	%
Inventory:
Sold inventory										$	32,160			$	56,886
Unsold lots and housing units										$	5,615			$	8,621
Unsold inventory impairments		$	72			$	129			$	212			$	129
Contract land deposits, net										$	1,469			$	7,735
Total lots controlled											6,062				8,913
Total lots reserved											2,803				5,139
Contract land deposit impairments		$	1,279			$	773			$	1,800			$	4,692
Average active communities			49				69				49				68