NVR INC - Quarter Report: 2009 June (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.

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

11700 Plaza America Drive, Suite 500
Reston, Virginia 20190
(703) 956-4000

area code, of registrant’s principal executive offices)

(Not Applicable)

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. (Check one):

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 July 27, 2009 there were 5,809,566 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 June 30, 2009 (unaudited) and December 31, 2008			3
		Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited) and the Six Months Ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)			5
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)			6
		Notes to Condensed Consolidated Financial Statements			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			39
Item 4.		Controls and Procedures			39
PART II		OTHER INFORMATION
Item 1A.		Risk Factors			39
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 4.		Submission of Matters to a Vote of Security Holders			44
Item 6.		Exhibits			45
		Signature			46
		Exhibit Index			47
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)

		June 30, 2009				December 31, 2008
		(unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents		$	582,157			$	1,146,426
Marketable securities			658,362				—
Receivables			9,227				11,594
Inventory:
Lots and housing units, covered under sales agreements with customers			416,270				335,238
Unsold lots and housing units			38,537				57,639
Manufacturing materials and other			5,763				7,693
			460,570				400,570
Assets not owned, consolidated per FIN 46R			65,990				114,930
Property, plant and equipment, net			21,660				25,658
Reorganization value in excess of amounts allocable to identifiable assets, net			41,580				41,580
Contract land deposits, net			31,664				29,073
Other assets			224,081				242,626
			2,095,291				2,012,457
Mortgage Banking:
Cash and cash equivalents			1,111				1,217
Mortgage loans held for sale, net			123,177				72,488
Property and equipment, net			586				759
Reorganization value in excess of amounts allocable to identifiable assets, net			7,347				7,347
Other assets			9,573				8,968
			141,794				90,779
Total assets		$	2,237,085			$	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)

		June 30, 2009				December 31, 2008
		(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable		$	142,557			$	137,285
Accrued expenses and other liabilities			163,250				194,869
Liabilities related to assets not owned, consolidated per FIN 46R			60,687				109,439
Customer deposits			70,163				59,623
Other term debt			2,388				2,530
Senior notes			135,370				163,320
			574,415				667,066
Mortgage Banking:
Accounts payable and other liabilities			17,047				17,842
Notes payable			97,021				44,539
			114,068				62,381
Total liabilities			688,483				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 June 30, 2009 and December 31, 2008, respectively			206				206
Additional paid-in-capital			784,080				722,265
Deferred compensation trust — 270,335 and 514,470 shares of NVR, Inc. common stock as of June 30, 2009 and December 31, 2008, respectively			(44,307	)			(74,978	)
Deferred compensation liability			44,307				74,978
Retained earnings			3,690,301				3,630,887
Less treasury stock at cost — 14,758,071 and 15,028,335 shares at June 30, 2009 and December 31, 2008, respectively			(2,925,985	)			(2,979,569	)
Total shareholders’ equity			1,548,602				1,373,789
Total liabilities and shareholders’ equity		$	2,237,085			$	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 June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Homebuilding:
Revenues		$	612,488			$	941,033			$	1,160,817			$	1,810,902
Other income			1,750				3,701				4,289				10,100
Cost of sales			(494,240	)			(772,369	)			(956,870	)			(1,499,300	)
Selling, general and administrative			(54,664	)			(89,871	)			(114,358	)			(174,037	)
Operating income			65,334				82,494				93,878				147,665
Interest expense			(2,462	)			(3,232	)			(5,236	)			(6,471	)
Homebuilding income			62,872				79,262				88,642				141,194
Mortgage Banking:
Mortgage banking fees			12,943				14,690				23,213				32,752
Interest income			611				869				1,195				1,679
Other income			154				184				243				343
General and administrative			(6,475	)			(8,408	)			(12,233	)			(16,062	)
Interest expense			(276	)			(180	)			(613	)			(314	)
Mortgage banking income			6,957				7,155				11,805				18,398
Income before taxes			69,829				86,417				100,447				159,592
Income tax expense			(28,403	)			(35,085	)			(41,033	)			(64,794	)
Net income		$	41,426			$	51,332			$	59,414			$	94,798
Basic earnings per share		$	7.17			$	9.58			$	10.41			$	17.92
Diluted earnings per share		$	6.79			$	8.64			$	9.85			$	16.10
Basic average shares outstanding			5,777				5,357				5,710				5,290
Diluted average shares outstanding			6,101				5,938				6,032				5,888

See notes to condensed consolidated financial statements.

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

		Six Months Ended June 30,
		2009				2008
Cash flows from operating activities:
Net income		$	59,414			$	94,798
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Depreciation and amortization			4,977				7,463
Stock option compensation expense			23,402				18,432
Excess income tax benefit from exercise of stock options			(46,447	)			(33,184	)
Contract land deposit impairments/(recoveries)			(4,744	)			12,410
Mortgage loans closed			(849,864	)			(966,798	)
Proceeds from sales of mortgage loans			813,476				962,615
Principal payments on mortgage loans held for sale			429				2,105
Gain on sale of loans			(17,340	)			(25,175	)
Net change in assets and liabilities:
(Increase) decrease in inventories			(60,000	)			63,217
Decrease (increase) in receivables			2,530				(5,137	)
Decrease in contract land deposits			1,837				5,060
Increase (decrease) in accounts payable, customer deposits and accrued expenses			31,588				(37,857	)
Other, net			18,349				2,999
Net cash (used) provided by operating activities			(22,393	)			100,948
Cash flows from investing activities:
Purchase of marketable securities, net			(658,362	)			—
Purchase of property, plant and equipment			(625	)			(3,750	)
Other, net			618				765
Net cash used in investing activities			(658,369	)			(2,985	)
Cash flows from financing activities:
Net borrowings under notes payable and other term debt			52,340				32,619
Repurchase of senior notes			(27,950	)			—
Excess income tax benefit from exercise of stock options			46,447				33,184
Proceeds from exercise of stock options			45,550				40,164
Net cash provided by financing activities			116,387				105,967
Net (decrease) increase in cash and cash equivalents			(564,375	)			203,930
Cash and cash equivalents, beginning of the period			1,147,643				664,209
Cash and cash equivalents, end of period		$	583,268			$	868,139
Supplemental disclosures of cash flow information:
Interest paid during the period		$	5,262			$	6,214
Income taxes paid, net of refunds		$	(34,303	)		$	31,784
Supplemental disclosures of non-cash activities:
Net assets not owned, consolidated per FIN 46R		$	(188	)		$	(5,382	)

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 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 accounting principles generally accepted in the United States of America, 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 six-month period ended June 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 July 29, 2009, the date the financial statements were issued.

     For the three and six-month periods ended June 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

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

     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 June 30, 2009, the Company controlled approximately 44,300 lots with deposits in cash and letters of credit totaling approximately $165,000 and $5,400, respectively. See note 3 for further discussion.

     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. 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 very limited basis, NVR also obtains finished lots using joint venture limited liability corporations (“LLCs”). All LLCs are structured such that NVR is a non-controlling member and is at risk only for the amount invested by the Company. 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. At June 30, 2009, NVR had an aggregate investment in nine separate LLCs totaling approximately $7,200, which controlled approximately 350 lots. This investment was fully offset by a valuation reserve as of June 30, 2009.

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

     The Company has evaluated all of its fixed price purchase agreements and LLC arrangements and has determined that it is the primary beneficiary of twenty-one of those development entities with which the agreements and arrangements are held. As a result, at June 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 under FIN 46R at June 30, 2009 was the inclusion on the balance sheet of $65,990 as Assets not owned, consolidated per FIN 46R, with a corresponding inclusion of $60,687 as Liabilities related to assets not owned, consolidated per FIN 46R, after elimination of intercompany items. Inclusive in these totals were assets of approximately $30,000 and liabilities of approximately $30,000 estimated for ten 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 June 30, 2009:

		NVR, Inc.
		and				FIN 46R								Consolidated
		Subsidiaries				Entities				Eliminations				Total
ASSETS
Homebuilding:
Cash and cash equivalents		$	582,157			$	—			$	—			$	582,157
Marketable securities			658,362				—				—				658,362
Receivables			9,227				—				—				9,227
Homebuilding inventory			460,570				—				—				460,570
Property, plant and equipment, net			21,660				—				—				21,660
Reorganization value in excess of amount															—
allocable to identifiable assets, net			41,580				—				—				41,580
Contract land deposits, net			32,779				—				(1,115	)			31,664
Other assets			228,269				—				(4,188	)			224,081
			2,034,604				—				(5,303	)			2,029,301
Mortgage banking assets:			141,794				—				—				141,794
FIN 46R Entities:
Land under development			—				65,679				—				65,679
Other assets			—				311				—				311
			—				65,990				—				65,990
Total assets		$	2,176,398			$	65,990			$	(5,303	)		$	2,237,085
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable, accrued expenses and other liabilities		$	305,807			$	—			$	—			$	305,807
Customer deposits			70,163				—				—				70,163
Other term debt			2,388				—				—				2,388
Senior notes			135,370				—				—				135,370
			513,728				—				—				513,728
Mortgage banking liabilities:			114,068				—				—				114,068
FIN 46R Entities:
Accounts payable, accrued expenses and other			—				11,287				4,370				15,657
Debt			—				45,030				—				45,030
Contract land deposits			—				5,172				(5,172	)			—
Advances from NVR, Inc.			—				4,501				(4,501	)			—
			—				65,990				(5,303	)			60,687
Equity			1,548,602				—				—				1,548,602
Total liabilities and shareholders’ equity		$	2,176,398			$	65,990			$	(5,303	)		$	2,237,085

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

3. Contract Land Deposits

     The contract land deposit asset is shown net of a $132,500 and $147,900 impairment valuation allowance at June 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 six months ended June 30, 2009 and 2008:

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Basic weighted average number of shares outstanding			5,777,000				5,357,000				5,710,000				5,290,000
Shares issuable upon exercise of dilutive options			324,000				581,000				322,000				598,000
Diluted average number of shares outstanding			6,101,000				5,938,000				6,032,000				5,888,000

     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 317,363 and 337,455 shares of common stock during the three and six months ended June 30, 2009, and options to purchase 312,395 and 313,145 shares of common stock during the three and six months ended June 30, 2008, were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. In addition, 377,861 performance-based options were outstanding as of June 30, 2008 that, pursuant to the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings Per Share, 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 June 30, 2009 the Company held marketable securities totaling $658,362. These securities are classified by the Company as held-to-maturity, are measured at amortized cost and mature within one year. The following security types are included in the marketable securities balance at June 30, 2009:

		June 30, 2009
Marketable Securities:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies		$	309,018
Corporate debt securities issued under the FDIC Temporary Liquidity Guarantee Program			349,344
Total Marketable Securites		$	658,362

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

6. Excess Reorganization Value, Goodwill and Other Intangibles

     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 in conformity with the procedures specified by Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, issued by the American Institute of Certified Public Accountants, 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 pursuant to SFAS No. 142, Goodwill and Other Intangible Assets. 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 June 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 2005.

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			—				—				59,414				—				—				—				59,414
Deferred compensation activity			—				—				—				—				30,671				(30,671	)			—
Stock-based compensation			—				23,402				—				—				—				—				23,402
Stock option activity			—				45,550				—				—				—				—				45,550
Tax benefit from stock-based compensation activity			—				46,447				—				—				—				—				46,447
Treasury shares issued upon option exercise			—				(53,584	)			—				53,584				—				—				—
Balance, June 30, 2009		$	206			$	784,080			$	3,690,301			$	(2,925,985	)		$	(44,307	)		$	44,307			$	1,548,602

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

     The Company did not repurchase any shares of its common stock during the six months ended June 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 shares acquired. Approximately 270,000 options to purchase shares of the Company’s common stock were exercised during the six months ended June 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 six months ended June 30, 2009 and 2008:

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Warranty reserve, beginning of period		$	64,306			$	72,272			$	68,084			$	70,284
Provision			4,613				7,280				7,652				17,016
Payments			(8,061	)			(9,802	)			(14,878	)			(17,550	)
Warranty reserve, end of period		$	60,858			$	69,750			$	60,858			$	69,750

10. Segment Disclosures

     Consistent with the principles and objectives of SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, 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, and western Pennsylvania
		Homebuilding South East - North Carolina, South Carolina and Tennessee

     Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge. 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, as defined in SFAS No. 131, 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

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

services and general and administrative costs. Mortgage banking operations are not charged a capital allocation charge.

     In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), 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 June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Revenues:
Homebuilding Mid Atlantic		$	379,361			$	559,865			$	721,116			$	1,086,257
Homebuilding North East			57,143				98,811				110,518				184,779
Homebuilding Mid East			113,982				154,769				206,092				304,929
Homebuilding South East			62,002				127,588				123,091				234,937
Mortgage Banking			12,943				14,690				23,213				32,752
Consolidated revenues		$	625,431			$	955,723			$	1,184,030			$	1,843,654

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Profit:
Homebuilding Mid Atlantic		$	46,978			$	44,720			$	78,885			$	86,727
Homebuilding North East			5,096				5,154				8,323				11,841
Homebuilding Mid East			8,049				9,208				12,744				19,471
Homebuilding South East			3,952				7,941				6,475				16,642
Mortgage Banking			7,659				7,857				13,209				19,517
Segment profit			71,734				74,880				119,636				154,198
Contract land deposit impairments (1)			8,908				16,076				10,461				15,439
Stock option expense (2)			(11,634	)			(12,099	)			(23,402	)			(18,432	)
Corporate capital allocation (3)			15,699				28,237				30,395				56,204
Unallocated corporate overhead (4)			(9,262	)			(22,469	)			(24,331	)			(46,154	)
Consolidation adjustments and other (5)			(3,244	)			4,907				(7,270	)			4,567
Corporate interest expense			(2,372	)			(3,115	)			(5,042	)			(6,230	)
Reconciling items sub-total			(1,905	)			11,537				(19,189	)			5,394
Consolidated income before taxes		$	69,829			$	86,417			$	100,447			$	159,592

		June 30,
		2009			2008
Assets:
Homebuilding Mid Atlantic		$	450,483			$	630,542
Homebuilding North East			62,422				81,204
Homebuilding Mid East			100,873				132,504
Homebuilding South East			50,238				115,351
Mortgage Banking			134,447				147,922
Segment assets			798,463				1,107,523
Assets not owned, consolidated per Fin 46R			65,990				145,141
Cash			582,157				867,329
Marketable securities (6)			658,362				—
Deferred taxes			196,636				204,140
Intangible assets (7)			48,927				60,655
Contract land deposit reserve			(142,152	)			(114,271	)
Consolidation adjustments and other			28,702				43,338
Reconciling items sub-total			1,438,622				1,206,332
Consolidated assets		$	2,237,085			$	2,313,855

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Homebuilding Mid Atlantic		$	10,436			$	18,956			$	20,010			$	37,710
Homebuilding North East			1,710				2,666				3,261				5,449
Homebuilding Mid East			2,179				3,257				4,242				6,558
Homebuilding South East			1,374				3,358				2,882				6,487
Total		$	15,699			$	28,237			$	30,395			$	56,204

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 June 30, 2009 and December 31, 2008 was $136,388 and $161,937, respectively. The estimated fair value is based on a quoted market price. The carrying value was $135,370 and $163,320 at June 30, 2009 and December 31, 2008, respectively.

     Derivative Instruments and Mortgage Loans Held for Sale

     In the normal course of business, NVR’s mortgage banking segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time frames established by NVR. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to a broker/dealer. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. NVR does not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the

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

forward sale contracts to broker/dealers are undesignated derivatives pursuant to the requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and, accordingly, are marked to fair value through earnings. At June 30, 2009, there were contractual commitments to extend credit to borrowers aggregating approximately $166,000 and open forward delivery contracts aggregating approximately $249,000.

     Fair value is determined pursuant to SFAS No. 157, Fair Value Measurements, and Staff Accounting Bulletin 109, Written Loan Commitments Recorded at Fair Value Through Earnings, both of which the Company adopted on a prospective basis as of January 1, 2008. SFAS No. 157 assigns a fair value hierarchy to the inputs used to measure fair value under the rule. 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 168 basis points of the loan amount as of June 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 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 in accordance with SFAS No. 133 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 $123,177 included in the accompanying condensed consolidated balance sheet exceeds its aggregate principal balance of $122,980 by $197.

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

		Balance		Fair
		Sheet		Value
		Location		June 30, 2009
Derivative Assets:
Rate Lock Commitments/Forward Sales Contracts		NVRM — Other assets		$	2,146

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

     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		$	166,176			$	(625	)		$	347			$	2,343			$	—			$	2,065
Forward sales contracts		$	248,557				—				—				—				81				81
Mortgages held for sale		$	122,980				(534	)			(1,316	)			2,047				—				197
Total Fair Value Measurement, June 30, 2009							(1,159	)			(969	)			4,390				81				2,343
Less: Fair Value Measurement, December 31, 2008							(1,197	)			2,021				1,825				(1,743	)			906
Total Fair Value Adjustment for the period ended June 30, 2009						$	38			$	(2,990	)		$	2,565			$	1,824			$	1,437

     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.

12. Debt

     On August 5, 2008, NVR Mortgage Finance, Inc. (“NVRM”) entered into a Master Repurchase Agreement with U.S. Bank National Association, as Agent and representative of itself as a Buyer, and the other Buyers (the “Repurchase Agreement”). The Repurchase Agreement replaced NVRM’s warehouse credit facility which was set to expire on August 21, 2008. The purpose of the Repurchase Agreement is to finance the origination of mortgage loans by NVRM and is accounted for as a secured borrowing under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. The Repurchase Agreement provides for loan purchases up to $110,000, subject to certain sublimits. In addition, the 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 $150,000. The Repurchase Agreement expires on August 4, 2009, and we expect to be able to renew the Repurchase Agreement at current market terms prior to its expiration.

     At June 30, 2009, there was $97,021 outstanding under the Repurchase Agreement, which is included in liabilities in the accompanying condensed consolidated balance sheets. Amounts outstanding under the Repurchase Agreement are collateralized by the Company’s mortgage loans held for sale, which are included in assets in the June 30, 2009 balance sheet in the accompanying condensed consolidated financial statements. As of June 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 April 3, 2009 NVR repurchased $27,950 of its 5% Senior Notes due June 15, 2010 (the “Notes”) on the open market at par, reducing the Notes balance at June 30, 2009 to $135,370.

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

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.

     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”). 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”), 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

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

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, 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”), 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. 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”), 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”), 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”), 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 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

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

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”), 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 is effective for the period ending after September 15, 2009. The implementation of SFAS No. 168 is not expected to have a material impact on the Company’s financial statements.

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 Six Months Ended June 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 and western Pennsylvania
South East:		North Carolina, South Carolina, and Tennessee

     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 on which to build, 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 June 30, 2009, we controlled approximately 44,300 lots with deposits in cash and letters of credit totaling approximately $165,000 and $5,400, respectively. Included in the number of controlled lots are approximately 17,300 lots for which we have recorded a contract land deposit impairment reserve of $132,500 as of June 30, 2009. See note 3 to the condensed consolidated financial statements included herein for additional information regarding contract land deposits.

Overview of the Current 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 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. The challenging market conditions continue to negatively impact new orders and selling prices in each of our market segments, and in response, we continue to offer incentives to homebuyers and to reduce prices in many of our markets. Overall, new orders, net of cancellations (“new orders”), increased 2% in the second quarter of 2009 as compared to the same period in 2008, but for the six months ended June 30, 2009 were approximately 5% lower than new orders for the same period in 2008. We continue to see improvement in the cancellation rate, decreasing to 14% in the second quarter of 2009 as compared to 19% in the same period of 2008 and 15% in the first quarter of 2009. Average selling prices were down 7% in the second quarter of 2009 as compared to the second quarter of 2008 and down 9% for the six months ended June 30, 2009 compared to the same period in 2008. In our new orders for 2009, we noted an increase in the percentage of first-time homebuyers, driven we believe in part by the federal tax credit for first-time homebuyers. New orders to first-time homebuyers in future periods may be negatively impacted as we reach the November 30, 2009 settlement deadline to qualify for the federal tax credit.

     Reflecting the challenging market conditions discussed above, consolidated revenues totaled $625,431 for the quarter ended June 30, 2009, a 35% decrease from the same period in 2008. Additionally, net income and diluted earnings per share in the second quarter of 2009 decreased approximately 19% and 21%, respectively, compared to the second quarter of 2008. Gross profit margins within our homebuilding business improved to 19.3% in the second quarter of 2009 as compared to 17.9% in the second quarter of 2008. The improvement in gross profit margins quarter over quarter is primarily driven by the recovery of approximately $4,500, or 73 basis points of revenue, of contract land deposits previously determined to be uncollectible. In the second quarter of 2008, we had recorded a contract land deposit charge of approximately $5,800, or 62 basis points of revenues.

     Based on continuing market uncertainties in both the homebuilding and mortgage markets, we expect to experience continued pricing pressures and in turn, continued pressure on gross profit margins in future periods. 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. As noted above, during the quarter ended June 30, 2009, we recognized a net recovery of approximately $4,500 of contract land deposits previously determined to be uncollectible. In the quarter ended June 30, 2008, we incurred contract land deposit impairment charges of approximately $5,800. 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 June 30, 2009, our cash and cash equivalents and marketable securities balances totaled approximately $1,241,000.

Homebuilding Operations

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Revenues		$	612,488			$	941,033			$	1,160,817			$	1,810,902
Cost of Sales		$	494,240			$	772,369			$	956,870			$	1,499,300
Gross profit margin percentage			19.3	%			17.9	%			17.6	%			17.2	%
Selling, general and administrative		$	54,664			$	89,871			$	114,358			$	174,037
Settlements (units)			2,048				2,750				3,821				5,215
Average settlement price		$	298.6			$	341.7			$	303.3			$	346.9
New orders (units)			2,728				2,670				5,154				5,401
Average new order price		$	294.8			$	316.4			$	288.7			$	318.2
Backlog (units)											4,497				5,331
Average backlog price										$	296.2			$	341.5

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

     Homebuilding revenues decreased 35% for the second quarter of 2009 from the same period in 2008 as a result of a 26% decrease in the number of units settled and a 13% decrease in the average settlement price quarter over quarter. The decrease in the number of units settled is primarily attributable to our beginning backlog units being approximately 29% lower entering the second quarter of 2009 as compared to the same period of 2008. Average settlement prices were impacted primarily by a 16% lower average price of homes in our beginning backlog balance entering the second quarter of 2009 compared to the same period in 2008.

     Gross profit margins in the second quarter of 2009 increased as compared to the second quarter of 2008 primarily due to the recovery of approximately $4,500, or 73 basis points, of contract land deposits previously determined to be uncollectible. In the second quarter of 2008, we had recorded a $5,800, or 62 basis points, contract land deposit impairment charge. We expect continued gross profit margin pressure over at least the next several quarters.

     The number of new orders for the second quarter of 2009 increased by 2% compared to the second quarter of 2008. The average selling price for new orders during the second quarter of 2009 decreased 7% compared to the same period in 2008. New orders increased despite a decrease in the average number of active communities to 356 in the second quarter of 2009 compared to 435 in the second quarter of 2008. The increase in new orders was driven by several factors including increased sales to first-time homebuyers as a result of the federal tax credit, favorable mortgage interest rates during the current quarter and a decrease in the cancellation rate to 14% in the second quarter of 2009 from 19% in the same period of 2008. New orders in future periods may be negatively impacted as we reach the November 30, 2009 settlement deadline to qualify for the federal tax credit. The average selling price for new orders continues to be impacted by the aforementioned challenging market conditions which continued to put downward pressure on selling prices.

     Selling, general and administrative (“SG&A”) expenses for the second quarter of 2009 decreased by approximately $35,200, and as a percentage of revenue decreased to 8.9% from 9.6% in the second quarter of

2008. The decrease in SG&A expenses is primarily attributable to an approximate $16,200 decrease in personnel costs as a result of the decrease in headcount period over period. In addition, selling and marketing costs were lower by approximately $11,100 due primarily to the previously mentioned 18% reduction in the average number of active communities in the second quarter of 2009 compared to the second quarter of 2008.

Consolidated Homebuilding — Six Months Ended June 30, 2009 and 2008

     Homebuilding revenues decreased 36% for the six months ended June 30, 2009 compared to the same period in 2008 due to a 27% 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 as compared to the backlog unit balance entering 2008. Average settlement prices were negatively 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 in the first six months of 2009 remained relatively flat compared to gross profit margins for the first six months of 2008 despite a favorable variance in contract land deposit impairment charges period over period. For the first six months of 2009, we recognized the recovery of approximately $4,700, or 41 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 $12,400, or 69 basis points. We expect gross profit margins to continue to be negatively impacted by the aforementioned challenging market conditions and resulting downward pressure on selling prices for at least the next several quarters.

     New orders for the six months ended June 30, 2009 decreased by 5% compared to the same period in 2008 and the average sales price of new orders decreased 9% over the same respective periods. New order units and prices have been negatively impacted by the aforementioned challenging market conditions. In addition, new order units have been negatively impacted by a 19% reduction in the average number of active communities period over period to 357 in 2009 from 439 in 2008. As previously discussed in the second quarter discussion of new orders, we believe that the federal tax credit for first-time homebuyers has had a favorable impact on new orders during the current year. In addition, new orders have been favorably impacted by a decrease in the cancellation rate in the first six months of 2009 to 14% from 20% during the same period of 2008.

     SG&A expenses for the six-month period ended June 30, 2009 decreased approximately $59,700 compared to the same period in 2008. The decrease in SG&A expenses is primarily attributable to a $31,400 decrease in personnel costs as a result of the decrease in headcount period over period. In addition, selling and marketing costs decreased approximately $21,000 in 2009 as compared to 2008 due to the previously mentioned 19% decrease in the average number of active communities year over year.

     Backlog units and dollars were 4,497 and $1,332,056, respectively, as of June 30, 2009 compared to 5,331 and $1,820,482 as of June 30, 2008. The decrease in backlog units is primarily attributable to our beginning backlog units being approximately 39% lower at the beginning of 2009 as compared to the beginning of 2008, offset partially by the net new order and settlement activity for the first six months of 2009 as compared to the same period in 2008. Backlog dollars were negatively impacted by the decrease in backlog units coupled with a 13% decrease in the average price of homes in ending backlog, resulting primarily from a 9% decrease in the average selling price for new orders over the six-month period ended June 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 20% in the first six months of 2009 and 2008, respectively, and 15% in the first quarter of 2009. During 2008, approximately 10% 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, as defined in Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information, 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. Due to the current homebuilding industry downturn, we are evaluating 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 June 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 $5,445 and $7,701 at June 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 six months ended June 30, 2009 and 2008:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Mid Atlantic:
Revenues		$	379,361			$	559,865			$	721,116			$	1,086,257
Settlements (units)			1,057				1,344				1,985				2,585
Average settlement price		$	358.9			$	416.4			$	363.3			$	420.1
New orders (units)			1,421				1,341				2,624				2,633
Average new order price		$	353.5			$	378.2			$	345.8			$	380.7
Backlog (units)											2,415				2,774
Average backlog price										$	350.1			$	409.4
Gross profit margin		$	76,378			$	93,117			$	137,324			$	183,248
Gross profit margin percentage			20.1	%			16.6	%			19.0	%			16.9	%
Segment profit		$	46,978			$	44,720			$	78,885			$	86,727
New order cancellation rate			14.4	%			19.1	%			14.9	%			22.1	%
Inventory:
Sold Inventory										$	271,581			$	338,652
Unsold lots and housing units										$	24,020			$	40,621
Unsold Inventory Impairments		$	728			$	553			$	1,097			$	720
Contract land deposits, net										$	22,013			$	131,626
Total lots controlled											23,813				32,133
Total lots reserved											9,846				9,121
Contract land deposit impairments		$	2,241			$	12,742			$	3,306			$	18,773
Average active communities			172				209				172				213
North East:
Revenues		$	57,143			$	98,811			$	110,518			$	184,779
Settlements (units)			197				304				381				549
Average settlement price		$	290.1			$	325.0			$	290.1			$	336.6
New orders (units)			246				240				481				520
Average new order price		$	278.4			$	298.1			$	281.8			$	303.1
Backlog (units)											403				476
Average backlog price										$	279.9			$	302.3
Gross profit margin		$	10,673			$	13,727			$	19,112			$	28,958
Gross profit margin percentage			18.7	%			13.9	%			17.3	%			15.7	%
Segment profit		$	5,096			$	5,154			$	8,323			$	11,841
New order cancellation rate			13.1	%			18.4	%			13.5	%			17.6	%
Inventory:
Sold Inventory										$	43,252			$	46,220
Unsold lots and housing units										$	1,812			$	6,371
Unsold Inventory Impairments		$	509			$	118			$	550			$	372
Contract land deposits, net										$	5,400			$	9,773
Total lots controlled											3,238				5,427
Total lots reserved											1,143				1,574
Contract land deposit impairments		$	60			$	3,169			$	69			$	3,339
Average active communities			38				41				37				41

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Mid East:
Revenues		$	113,982			$	154,769			$	206,092			$	304,929
Settlements (units)			533				639				946				1,256
Average settlement price		$	212.1			$	240.3			$	216.0			$	241.5
New orders (units)			746				726				1,447				1,443
Average new order price		$	215.7			$	231.1			$	213.2			$	235.5
Backlog (units)											1,232				1,300
Average backlog price										$	217.3			$	238.3
Gross profit margin		$	19,528			$	25,760			$	34,806			$	51,527
Gross profit margin percentage			17.1	%			16.6	%			16.9	%			16.9	%
Segment profit		$	8,049			$	9,208			$	12,744			$	19,471
New order cancellation rate			12.2	%			13.4	%			13.6	%			14.4	%
Inventory:
Sold Inventory										$	69,375			$	82,372
Unsold lots and housing units										$	7,672			$	13,292
Unsold Inventory Impairments		$	152			$	69			$	152			$	69
Contract land deposits, net										$	4,996			$	15,242
Total lots controlled											11,284				13,694
Total lots reserved											3,105				4,605
Contract land deposit impairments		$	1,609			$	1,871			$	1,822			$	1,819
Average active communities			98				118				99				118
South East:
Revenues		$	62,002			$	127,588			$	123,091			$	234,937
Settlements (units)			261				463				509				825
Average settlement price		$	237.6			$	275.6			$	241.8			$	284.8
New orders (units)			315				363				602				805
Average new order price		$	230.3			$	270.5			$	227.2			$	271.9
Backlog (units)											447				781
Average backlog price										$	237.2			$	296.2
Gross profit margin		$	10,862			$	21,388			$	20,325			$	42,447
Gross profit margin percentage			17.5	%			16.8	%			16.5	%			18.1	%
Segment profit		$	3,952			$	7,941			$	6,475			$	16,642
New order cancellation rate			13.7	%			27.7	%			13.9	%			26.2	%
Inventory:
Sold Inventory										$	28,889			$	68,707
Unsold lots and housing units										$	5,159			$	7,442
Unsold Inventory Impairments		$	140			$	—			$	140			$	—
Contract land deposits, net										$	370			$	16,537
Total lots controlled											5,977				9,200
Total lots reserved											3,255				2,324
Contract land deposit impairments		$	504			$	4,114			$	520			$	3,919
Average active communities			48				67				49				68