NVR INC - Quarter Report: 2011 March (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		(I.R.S. Employer Identification No.)
incorporation or organization)

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 þ 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		Smaller reporting company o
		(Do not check if smaller reporting company)

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 April 27, 2011 there were 5,883,235 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 March 31, 2011 (unaudited) and December 31, 2010			3
Condensed Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2011 and March 31, 2010			5
Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2011 and March 31, 2010			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			33
Item 4. Controls and Procedures			33
PART II OTHER INFORMATION
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 6. Exhibits			34
Signature			35
Exhibit Index			36
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NVR, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

		March 31, 2011				December 31, 2010
		(unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents		$	1,217,670			$	1,190,731
Receivables			7,378				6,948
Inventory:
Lots and housing units, covered under sales agreements with customers			349,096				275,272
Unsold lots and housing units			60,172				70,542
Land under development			77,075				78,058
Manufacturing materials and other			5,901				7,457
			492,244				431,329
Assets related to consolidated variable interest entity			22,801				22,371
Contract land deposits, net			116,753				100,786
Property, plant and equipment, net			18,963				19,523
Reorganization value in excess of amounts allocable to identifiable assets, net			41,580				41,580
Other assets, net			232,072				243,005
			2,149,461				2,056,273
Mortgage Banking:
Cash and cash equivalents			2,555				2,661
Mortgage loans held for sale, net			105,611				177,244
Property and equipment, net			887				950
Reorganization value in excess of amounts allocable to identifiable assets, net			7,347				7,347
Other assets			9,867				15,586
			126,267				203,788
Total assets		$	2,275,728			$	2,260,061

See notes to condensed consolidated financial statements.

(Continued)

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

		March 31, 2011				December 31, 2010
		(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Homebuilding:
Accounts payable		$	115,977			$	115,578
Accrued expenses and other liabilities			172,608				237,052
Liabilities related to consolidated variable interest entity			995				500
Non-recourse debt related to consolidated variable interest entity			7,587				7,592
Customer deposits			62,894				53,705
Other term debt			1,714				1,751
			361,775				416,178
Mortgage Banking:
Accounts payable and other liabilities			20,405				13,171
Note payable			75,347				90,338
			95,752				103,509
Total liabilities			457,527				519,687
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,556,198 and 20,557,913 shares issued as of March 31, 2011 and December 31, 2010, respectively			206				206
Additional paid-in-capital			1,014,017				951,234
Deferred compensation trust — 152,964 and 158,894 shares of NVR, Inc. common stock as of March 31, 2011 and December 31, 2010, respectively			(25,582	)			(27,582	)
Deferred compensation liability			25,582				27,582
Retained earnings			4,044,246				4,029,072
Less treasury stock at cost — 14,688,939 and 14,894,357 shares at March 31, 2011 and December 31, 2010, respectively			(3,240,268	)			(3,240,138	)
Total shareholders’ equity			1,818,201				1,740,374
Total liabilities and shareholders’ equity		$	2,275,728			$	2,260,061

See notes to condensed consolidated financial statements.

NVR, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

		Three Months Ended March 31,
		2011				2010
Homebuilding:
Revenues		$	502,744			$	577,381
Other income			1,458				2,369
Cost of sales			(417,920	)			(471,069	)
Selling, general and administrative			(67,188	)			(60,741	)
Operating income			19,094				47,940
Interest expense			(222	)			(2,171	)
Homebuilding income			18,872				45,769
Mortgage Banking:
Mortgage banking fees			11,760				12,833
Interest income			1,115				756
Other income			39				166
General and administrative			(6,677	)			(6,529	)
Interest expense			(274	)			(264	)
Mortgage banking income			5,963				6,962
Income before taxes			24,835				52,731
Income tax expense			(9,661	)			(20,644	)
Net income		$	15,174			$	32,087
Basic earnings per share		$	2.61			$	5.29
Diluted earnings per share		$	2.52			$	5.01
Basic average shares outstanding			5,823				6,066
Diluted average shares outstanding			6,020				6,399

See notes to condensed consolidated financial statements.

NVR, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

		Three Months Ended March 31,
		2011				2010
Cash flows from operating activities:
Net income		$	15,174			$	32,087
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization			1,598				1,881
Excess income tax benefit from exercise of stock options			(17,811	)			(31,911	)
Equity-based compensation expense			15,580				5,678
Contract land deposit impairments (recoveries)			1,348				(1,922	)
Gain on sales of loans			(9,130	)			(9,929	)
Mortgage loans closed			(335,952	)			(398,316	)
Proceeds from sales of mortgage loans			419,895				363,555
Principal payments on mortgage loans held for sale			1,317				169
Distribution of earnings from unconsolidated joint ventures			1,120				—
Net change in assets and liabilities:
Increase in inventories			(61,423	)			(81,191	)
Increase in contract land deposits			(17,315	)			(10,524	)
Decrease in receivables			101				249
(Decrease) increase in accounts payable, accrued expenses and customer deposits			(27,036	)			23,402
Other, net			3,501				(11,391	)
Net cash used in operating activities			(9,033	)			(118,163	)
Cash flows from investing activities:
Purchase of marketable securities			—				(100,000	)
Redemption of marketable securities at maturity			—				194,535
Investments in unconsolidated joint ventures							(1,000	)
Distribution of capital from unconsolidated joint ventures			4,380				—
Purchase of property, plant and equipment			(1,012	)			(881	)
Proceeds from the sale of property, plant and equipment			170				115
Net cash provided by investing activities			3,538				92,769
Cash flows from financing activities:
Purchase of treasury stock			(63,408	)			—
Net (repayments) borrowings under notes payable and credit lines			(15,028	)			43,839
Net repayments under non-recourse debt related to consolidated variable interest entity			(5	)			—
Excess income tax benefit from equity based compensation			17,811				31,911
Exercise of stock options			92,670				41,786
Net cash provided by financing activities			32,040				117,536
Net increase in cash and cash equivalents			26,545				92,142
Cash and cash equivalents, beginning of the period			1,193,750				1,250,150
Cash and cash equivalents, end of period		$	1,220,295			$	1,342,292
Supplemental disclosures of cash flow information:
Interest paid during the period		$	513			$	587
Income taxes paid, net of refunds		$	10,635			$	8,686
Supplemental disclosures of non-cash activities:
Investment in consolidated joint venture		$	—			$	(23,776	)

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 GAAP 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 2010 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-month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

     The preparation of financial statements in conformity with GAAP 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.

     For the three-month periods ended March 31, 2011 and 2010, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying financial statements.

2. Variable Interest Entities and Joint Ventures

Fixed Price Purchase Agreements

     NVR generally does not engage in the land development business. Instead, the Company typically acquires finished building lots at market prices from various development entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if NVR fails to perform under the agreement. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots.

     NVR believes this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. NVR may, at its option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of its intent not to acquire the finished lots under contract. NVR’s sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained within the purchase agreements. In other words, if NVR does not perform under a purchase agreement, NVR loses only its deposit. None of the creditors of any of the development entities with which NVR enters fixed price purchase agreements have recourse to the general credit of NVR. NVR generally does not have any specific performance obligations to purchase a certain number or any of the lots, nor does NVR guarantee completion of the development by the developer or guarantee any of the developers’ financial or other liabilities.

     NVR is not involved in the design or creation of any of the development entities from which the Company purchases lots under fixed price purchase agreements. The developer’s equity holders have the power to direct 100% of the operating activities of the development entity. NVR has no voting rights in any of the development entities. The sole purpose of the development entity’s activities is to generate positive cash

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

flow returns to its equity holders. Further, NVR does not share in any of the profit or loss generated by the project’s development. The profits and losses are passed directly to the developer’s equity holders.

     The deposit placed by NVR pursuant to the fixed price purchase agreement is deemed to be a variable interest in the respective development entities. Those development entities are deemed to be variable interest entities. Therefore, the development entities with which NVR enters fixed price purchase agreements, including the joint venture limited liability corporations, as discussed below, are evaluated for possible consolidation by NVR. An enterprise must consolidate a VIE when that enterprise has a controlling financial interest in the VIE. An enterprise is deemed to have a controlling financial interest if it has i) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE.

     NVR believes the activities that most significantly impact a development entity’s economic performance are the operating activities of the entity. Unless and until a development entity completes finished building lots through the development process to be able to sell, the process of which the development entities’ equity investors bear the full risk, the entity does not earn any revenues. The operating development activities are managed solely by the development entity’s equity investors.

     The development entities with which NVR contracts to buy finished lots typically select the respective projects, obtain the necessary zoning approvals, obtain the financing required with no support or guarantees from NVR, select who will purchase the finished lots and at what price, and manage the completion of the infrastructure improvements, all for the purpose of generating a cash flow return to the development entity’s equity holders and all independent of NVR. The Company possesses no more than limited protective legal rights through the purchase agreement in the specific finished lots that it is purchasing, and NVR possesses no participative rights in the development entities. Accordingly, NVR does not have the power to direct the activities of a developer that most significantly impact the developer’s economic performance. For this reason, NVR has concluded that it is not the primary beneficiary of the development entities with which the Company enters fixed price purchase agreements, and therefore, NVR does not consolidate any of these VIEs.

     As discussed above, NVR’s sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained within the purchase agreements and in very limited circumstances, specific performance obligations. NVR’s total risk of loss related to contract land deposits as of March 31, 2011 and December 31, 2010, is as follows:

		March 31, 2011				December 31, 2010
Contract land deposits		$	191,400			$	174,303
Loss reserve on contract land deposits			(74,647	)			(73,517	)
Contract land deposits, net			116,753				100,786
Contingent obligations in the form of letters of credit			4,461				6,610
Contingent specific performance obligations (1)			2,609				1,944
Total risk of loss		$	123,823			$	109,340

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

Joint Ventures

     On a limited basis, NVR also obtains finished lots using joint venture limited liability corporations (“JVs”). All JVs are typically structured such that NVR is a non-controlling member and is at risk only for the amount it has invested. NVR is not a borrower, guarantor or obligor on any debt of the JVs. The Company enters into a standard fixed price purchase agreement to purchase lots from these JVs, and as a result has a variable interest in these JVs.

     At March 31, 2011, the Company had an aggregate investment totaling approximately $33,000 in three JVs that are expected to produce approximately 1,000 finished lots. At March 31, 2011, NVR had additional funding commitments in the aggregate totaling $5,000 to one of the three JVs. The Company has determined that it is not the primary beneficiary of two of the JVs because NVR and the other JV partner share power. NVR has concluded that it is the primary beneficiary of the remaining JV because the Company has the controlling financial interest in the JV. The condensed balance sheets at March 31, 2011 and December 31, 2010, of the consolidated JV are as follows:

		March 31, 2011				December 31, 2010
Cash		$	70			$	358
Restricted cash			711				501
Other assets			126				126
Land under development			21,894				21,386
Total assets		$	22,801			$	22,371
Debt		$	7,587			$	7,592
Accrued expenses			455				59
Equity			14,759				14,720
Total liabilities and equity		$	22,801			$	22,371

3. Land Under Development

     On a limited basis, NVR directly acquires raw parcels of land already zoned for its intended use to develop into finished lots. Land under development includes the land acquisition costs, direct improvement costs, capitalized interest, where applicable, and real estate taxes. As of March 31, 2011, NVR directly owned three separate raw parcels of land with a carrying value of approximately $77,100 that it intends to develop into approximately 850 finished lots for use in its homebuilding operations. All of the raw parcels are located in the Washington, D.C. metropolitan area. Based on current market conditions, NVR may, on a very limited basis, directly acquire additional raw parcels to develop into finished lots. See the Overview section of Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein for additional discussion.

4. Contract Land Deposits

     As of March 31, 2011, NVR controlled approximately 51,000 lots with deposits in cash and letters of credit of $191,400 and $4,500, respectively. At December 31, 2010, NVR controlled approximately 50,400 lots with deposits in cash and letters of credit totaling approximately $174,300 and $6,600, respectively. During the three-month period ended March 31, 2011, the Company recognized a pre-tax charge of approximately $1,300 related to the impairment of contract land deposits. For the three-month period ended March 31, 2010, the Company recognized a pre-tax recovery of approximately $1,900 of contract land deposits previously determined to be uncollectible. The contract land deposit asset is shown net of an approximate $74,600 and $73,500 impairment valuation allowance at March 31, 2011 and December 31, 2010, respectively.

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

5. Earnings per Share

     The following weighted average shares and share equivalents are used to calculate basic and diluted earnings per share for the three months ended March 31, 2011 and 2010:

		Three Months Ended March 31,
		2011				2010
Weighted average number of shares outstanding used to calculate basic EPS			5,823,000				6,066,000
Dilutive Securities:
Stock options and restricted share units			197,000				333,000
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS			6,020,000				6,399,000

     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 or the vesting of the restricted share unit. The assumed amount credited to additional paid-in capital equals the tax benefit from assumed exercise of stock options or the assumed vesting of restricted share units after consideration of the intrinsic value upon assumed exercise less the actual stock-based compensation expense to be recognized in the income statement from 2006 and future periods.

     Stock options issued under equity benefit plans to purchase 442,095 and 27,076 shares of common stock were outstanding during the quarters ended March 31, 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

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 2011 and determined that there was no impairment of excess reorganization value.

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

7. 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, 2010		$	206			$	951,234			$	4,029,072			$	(3,240,138	)		$	(27,582	)		$	27,582			$	1,740,374
Net income			—				—				15,174				—				—				—				15,174
Deferred compensation activity			—				—				—				—				2,000				(2,000	)			—
Purchase of common stock for
treasury															(63,408	)											(63,408	)
Equity-based compensation			—				15,580				—				—				—				—				15,580
Tax benefit from stock options exercised and deferred compensation distributions			—				17,811				—				—				—				—				17,811
Proceeds from stock options exercised			—				92,670				—				—				—				—				92,670
Treasury stock issued upon option exercise			—				(63,278	)			—				63,278				—				—				—
Balance, March 31, 2011		$	206			$	1,014,017			$	4,044,246			$	(3,240,268	)		$	(25,582	)		$	25,582			$	1,818,201

     The Company repurchased 85,460 shares of its common stock during the three months ended March 31, 2011 at an aggregate purchase price of $63,408. 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 291,000 options to purchase shares of the Company’s common stock were exercised during the three months ended March 31, 2011.

8. 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 months ended March 31, 2011 and 2010:

		Three Months Ended March 31,
		2011				2010
Warranty reserve, beginning of period		$	69,787			$	64,417
Provision			3,732				8,221
Payments			(8,189	)			(7,556	)
Warranty reserve, end of period		$	65,330			$	65,082

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

9. 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 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 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 unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. NVR’s overhead functions, such as accounting, treasury, 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, equity-based compensation expense is not charged to the operating segments.

     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:

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

		Three Months Ended March 31,
		2011				2010
Revenues:
Homebuilding Mid Atlantic		$	312,940			$	339,469
Homebuilding North East			39,193				64,157
Homebuilding Mid East			98,152				124,989
Homebuilding South East			52,459				48,766
Mortgage Banking			11,760				12,833
Total Consolidated Revenues		$	514,504			$	590,214
Profit:
Homebuilding Mid Atlantic		$	25,876			$	37,860
Homebuilding North East			1,123				5,755
Homebuilding Mid East			1,607				10,933
Homebuilding South East			2,213				1,057
Mortgage Banking			6,741				7,428
Total Segment Profit			37,560				63,033
Contract land deposit impairment reserve (1)			(1,130	)			2,008
Equity-based compensation expense (2)			(15,580	)			(5,678	)
Corporate capital allocation (3)			15,423				14,480
Unallocated corporate overhead (4)			(16,460	)			(20,679	)
Consolidation adjustments and other (5)			5,125				1,645
Corporate interest expense (6)			(103	)			(2,078	)
Reconciling items sub-total			(12,725	)			(10,302	)
Consolidated income before taxes		$	24,835			$	52,731
		March 31,				December 31,
		2011				2010
Assets:
Homebuilding Mid Atlantic		$	461,238			$	414,090
Homebuilding North East			52,710				35,827
Homebuilding Mid East			94,987				78,246
Homebuilding South East			46,873				43,041
Mortgage Banking			118,920				196,441
Total Segment Assets			774,728				767,645
Consolidated variable interest entity			22,801				22,371
Cash and cash equivalents			1,217,670				1,190,731
Land under development			77,075				78,058
Deferred taxes			173,801				184,930
Intangible assets			48,927				48,927
Contract land deposit reserve			(74,647	)			(73,517	)
Consolidation adjustments and other			35,373				40,916
Reconciling items sub-total			1,501,000				1,492,416
Consolidated Assets		$	2,275,728			$	2,260,061

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

		Three Months Ended March 31,
		2011				2010
Homebuilding Mid Atlantic		$	10,831			$	9,795
Homebuilding North East			1,163				1,550
Homebuilding Mid East			2,204				2,076
Homebuilding South East			1,225				1,059
Total		$	15,423			$	14,480

10. 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.

     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 forward sale contracts to broker/dealers are undesignated derivatives and, accordingly, are marked to fair value through earnings. At March 31, 2011, there were contractual commitments to extend credit to borrowers aggregating $148,385 and open forward delivery contracts aggregating $236,727.

     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

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

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 123 basis points of the loan amount as of March 31, 2011, is included in the fair value measurement and is based upon contractual terms with investors and varies depending on the loan type. The Company assumes an approximate 9% fallout rate when measuring the fair value of rate lock commitments. Fallout is defined as locked loan commitments for which the Company does not close a mortgage loan and is based on historical experience.

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

     Mortgage loans held for sale are recorded at fair value when closed, and thereafter are carried at the lower of cost or fair value, net of deferred origination costs, until sold. The fair value of loans held-for-sale of $105,611 included in the accompanying condensed consolidated balance sheet has been increased by $954 from the aggregate principal balance of $104,657.

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

		Balance				Fair
		Sheet				Value
		Location				March 31, 2011
Derivative Assets:
Forward Sales Contracts and Rate Lock Commitments		NVRM - Other assets				$	964

     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:

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

						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		$	148,385			$	(621	)		$	(455	)		$	1,646			$	—			$	570
Forward sales contracts		$	236,727				—				—				—				394				394
Mortgages held for sale		$	104,657				(475	)			117				1,312				—				954
Total Fair Value Measurement, March 31, 2011							(1,096	)			(338	)			2,958				394				1,918
Less: Fair Value Measurement, December 31, 2010							(1,366	)			(6,534	)			4,004				4,904				1,008
Total Fair Value Adjustment for the period ended March 31, 2011						$	270			$	6,196			$	(1,046	)		$	(4,510	)		$	910

     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 closed loans and locked loan commitments.

11. Debt

     NVR’s mortgage banking operations, NVR Mortgage Finance, Inc. (“NVRM”), provides for its mortgage origination activities through a revolving mortgage repurchase facility (the “Repurchase Facility”). The Repurchase Facility provides for loan purchases up to $100,000, 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 $125,000. The Repurchase Agreement expires on August 2, 2011.

     At March 31, 2011, there was approximately $75,300 outstanding under the Repurchase Facility, which is included in Mortgage Banking “Note payable” in the accompanying condensed consolidated financial statements. Amounts outstanding under the Repurchase Facility are collateralized by the Company’s mortgage loans held for sale, which are included in assets in the March 31, 2011 balance sheet in the accompanying condensed consolidated financial statements. As of March 31, 2011, borrowing base limitations reduced the amount available for borrowing to approximately $99,000. The average Pricing Rate on outstanding balances at March 31, 2011 was 4.1%.

12. 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, while a number of individuals have filed consents to join and assert federal claims in the New York action, 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, New Jersey and North Carolina have been stayed pending further developments in 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 consolidated balance sheets.

     In June 2010, the Company received a Request for Information from the United States Environmental Protection Agency (the “EPA”) pursuant to Section 308 of the Clean Water Act. The request seeks information about storm water discharge practices in connection with homebuilding projects completed or underway by the Company. The Company has been cooperating with this request, has provided information to the EPA and intends to continue cooperating with the EPA’s inquiries. At this time, the Company cannot predict the outcome of this inquiry, nor can it reasonably estimate the potential costs that may be associated with its eventual resolution.

     In April 2010, NVRM received a Report of Examination (“ROE”) from the Office of the Commissioner of Banks of the State of North Carolina (the “NCCOB”) reporting certain findings that resulted from the NCCOB’s examination of selected files relating to loans originated by NVRM in North Carolina between August 1, 2006 and August 31, 2009. The ROE alleged that certain of the loan files reflected violations of North Carolina and/or U.S. lending or consumer protection laws. The ROE requested that NVRM correct or otherwise address the alleged violations and in some instances requested that NVRM undertake an examination of all of its other loans in North Carolina to determine whether similar alleged violations may have occurred, and if so, to take corrective action. NVRM responded to the ROE by letter dated June 10, 2010, contesting the findings and allegations, providing factual information to correct certain of the findings, and refuting the NCCOB’s interpretation of applicable law. On November 15, 2010, the NCCOB provided a written response to NVRM’s June 10, 2010 letter closing certain alleged violations while reasserting certain other violations. On January 12, 2011, NVRM responded to the NCCOB’s November 15, 2010 letter providing additional factual information to address the remaining findings, and refuting the NCCOB’s interpretation of applicable law. Accordingly, while the outcome of the matter is currently not determinable, the Company does not expect resolution of the matter to have a material adverse effect on the Company’s financial position, results of operations or cashflows.

     The Company and its subsidiaries are also involved in various other litigation arising in the ordinary course of business. In the opinion of management, and based on advice of legal counsel, this litigation is not expected to have a material adverse effect on the financial position, results of operations or cashflows of the Company. Legal costs incurred in connection with outstanding litigation are expensed as incurred.

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; increased regulation of the mortgage banking industry; competition; the availability and cost of land and other raw materials used by NVR in its homebuilding operations; shortages of labor; weather related slow-downs; building moratoriums; governmental regulation; fluctuation and volatility of stock and other financial markets; mortgage financing availability; and other factors over which NVR has little or no control. NVR undertakes no obligation to update such forward-looking statements, except as required by law. For additional information regarding risk factors, see Part II, Item 1(a) 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 Months Ended March 31, 2011 and 2010

Overview

Business

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

		Mid Atlantic:		Maryland, Virginia, West Virginia 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, Tennessee and Florida

     Our lot acquisition strategy is predicated upon avoiding the financial requirements and risks associated with direct land ownership and development. Historically, we have not engaged in land development to obtain finished lots for use in our homebuilding operations. Instead, we have acquired finished lots at market prices from various third party land developers pursuant to fixed price purchase agreements. These purchase agreements require deposits, typically ranging up to 10% of the aggregate purchase price of the finished lots, in the form of cash or letters of credit that may be forfeited if we fail to perform under the purchase agreement.

This strategy allows us to maximize inventory turnover, which enables us to minimize market risk and to operate with less capital, thereby enhancing rates of return on equity and total capital.

     Our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build, and on our developers’ ability to timely deliver finished lots to meet the sales demands of our customers. However, current economic conditions and the continued downturn of the homebuilding industry have exerted pressure on our developers’ ability to obtain acquisition and development financing or to raise equity investments to finance land development activity, potentially constraining our supply of finished lots. This pressure has necessitated that in certain specific strategic circumstances we deviate from our historical lot acquisition strategy and engage in joint venture arrangements with land developers or directly acquire raw ground already zoned for its intended use for development. Once we acquire control of any raw ground, we will determine whether to sell the raw parcel to a developer and enter into a fixed price purchase agreement with the developer to purchase the finished lots, or whether we will hire a developer to develop the land on our behalf. While joint venture arrangements and direct land development activity are not our preferred method of acquiring finished building lots, we may enter into additional transactions in the future on a limited basis where there exists a compelling strategic or prudent financial reason to do so. We expect, however, to continue to acquire substantially all of our finished lot inventory using fixed price purchase agreements with forfeitable deposits.

     As of March 31, 2011, we controlled approximately 51,000 lots with deposits in cash and letters of credit totaling approximately $191,400 and $4,500, respectively, and approximately 1,000 additional lots through joint venture limited liability corporations. Included in the number of controlled lots are approximately 10,400 lots for which we have recorded a contract land deposit impairment reserve of approximately $74,600 as of March 31, 2011. See Notes 2 and 4 to the condensed consolidated financial statements included herein for additional information regarding contract land deposits. Further, as of March 31, 2011, we had approximately $77,000 in land under development, that once fully developed will result in approximately 850 lots. See Note 3 to the condensed consolidated financial statements included herein for additional information regarding land under development.

     In addition to constructing homes primarily on a pre-sold basis and utilizing what we believe is a conservative lot acquisition strategy, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our markets, which we believe contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets.

Overview of Current Business Environment

     The home sales environment in the first quarter of 2011 was characterized by reduced demand for new homes, as nationwide new home sales in the first quarter of 2011 declined to near a 50 year low. The homebuilding market continued to be negatively impacted by a sluggish economy, high unemployment and a tight mortgage lending environment. These factors continue to weigh on homebuyer confidence and in turn, suppress housing demand. In addition to the foregoing pressures on demand, new home sales have been negatively impacted by further declines in existing home prices. As a result, we continue to face sales and pricing pressures in many of our markets. Our new orders, net of cancellations (“new orders”), for the first quarter of 2011 decreased 18% when compared to the first quarter of 2010, and our cancellation rate in the first quarter of 2011 increased to 12% from 9% in the first quarter of 2010. We believe that these quarter over quarter unfavorable variances were in part attributable to the 2010 first quarter new orders being favorably impacted by the federal homebuyer tax credit which expired in April of 2010.

     Consolidated revenues for the first quarter of 2011 totaled $514,504, a 13% decrease from the first quarter of 2010. Additionally, net income and diluted earnings per share in the current quarter decreased approximately 53% and 50%, respectively, compared to the first quarter of 2010. Gross profit margins within our homebuilding business decreased to 16.9% in the first quarter of 2011 compared to 18.4% in the first quarter of 2010.

     We expect to continue to experience pressure on sales and selling prices over at least the next several quarters in all of our markets, as significant economic uncertainties remain. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010, contains numerous provisions affecting residential mortgages and mortgage lending practices. Because these provisions are to be implemented through future rulemaking, the ultimate impact of such provisions on lending institutions, including our mortgage banking subsidiary, will depend on how the implementing rules are written. Despite these uncertainties, we believe that we are well positioned to take advantage of opportunities that may arise due to the strength of our balance sheet and liquidity.

Homebuilding Operations

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

		Three Months Ended
		March 31,
		2011				2010
Revenues		$	502,744			$	577,381
Cost of sales		$	417,920			$	471,069
Gross profit margin percentage			16.9	%			18.4	%
Selling, general and administrative		$	67,188			$	60,741
Settlements (units)			1,634				1,919
Average settlement price		$	307.6			$	300.8
New orders (units)			2,403				2,940
Average new order price		$	295.8			$	286.7
Backlog (units)			3,685				4,552
Average backlog price		$	316.6			$	294.8
New order cancellation rate			12	%			9	%

Consolidated Homebuilding — Three Months Ended March 31, 2011 and 2010

     Homebuilding revenues decreased 13% for the first quarter of 2011 from the same period in 2010 as a result of a 15% decrease in the number of units settled, offset partially by a 2% increase 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 17% lower entering the first quarter of 2011 as compared to the same period in 2010, offset partially by a higher backlog turnover rate quarter over quarter. Average settlement prices were impacted primarily by an 8% higher average price of homes in our beginning backlog entering the first quarter of 2011 compared to the same period in 2010.

     Gross profit margins in the quarter ended March 31, 2011 decreased 154 basis points compared to the first quarter of 2010 due primarily to the reduction in settlement volume quarter over quarter, and its impact on our ability to leverage certain operating costs. In addition, gross profit margins were negatively impacted by a contract land deposit charge of $1,348, or 27 basis points, in the first quarter of 2011, compared to the recovery of approximately $1,922, or 33 basis points, in the first quarter of 2010, of contract land deposits previously determined to be uncollectible. We expect to continue to experience gross profit margin pressure over at least the next several quarters due to significant market uncertainties as discussed in the Overview section above.

     As discussed in the Overview section above, the number of new orders for the first quarter of 2011 decreased 18% when compared to the first quarter of 2010. The average selling price for new orders during the first quarter of 2011 increased 3% compared to the same period in 2010. New orders were lower quarter over quarter in each of our market segments, as mortgage lending requirements remain tight and homebuyer confidence continues to be negatively impacted by current economic conditions. In addition, new orders in the

current quarter were also negatively impacted by increased competition from existing homes, the prices of which continue to decline. We believe that the decrease in new orders quarter over quarter was also partially attributable to the federal homebuyer tax credit, which expired on April 30, 2010 and drove new orders in the prior year first quarter. In addition, new orders in the current quarter were negatively impacted by an increase in the cancellation rate to 12% from 9% in the prior year quarter. We expect to see continued pressure on new orders over the next several quarters until the economy begins to exhibit consistent stability and job growth.

     Selling, general and administrative (“SG&A”) expenses in the first quarter of 2011 increased approximately $6,500 compared to the first quarter of 2010 and increased as a percentage of revenue to 13.4% from 10.5% quarter over quarter. The increase in SG&A was attributable to an approximate $9,300 increase in stock-based compensation expense in the first quarter of 2011 as compared to the same period in 2010, due to the grant of non-qualified stock options and restricted share units under the 2010 Equity Incentive Plan in the second quarter of 2010. This increase was partially offset by a decrease of approximately $3,000 in management incentive costs recorded quarter over quarter.

     Backlog units and dollars were 3,685 and $1,166,721, respectively, as of March 31, 2011 compared to 4,552 and $1,342,000, respectively, as of March 31, 2010. The decrease in backlog units is primarily attributable to our beginning backlog units being approximately 17% lower entering 2011 compared to the same period in 2010, coupled with the new order shortfall and settlement activity during the first quarter of 2011. Backlog dollars were negatively impacted by the decrease in backlog units.

     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 12% and 9% in the first quarters of 2011 and 2010, respectively. During the most recent four quarters, approximately 6% of a reporting quarter’s opening backlog cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur in 2011.

Reportable Segments

     Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, SG&A expenses, and a corporate capital allocation charge 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 generally charged to the operating segment upon the determination to terminate a finished lot purchase agreement with the developer or to restructure a lot purchase agreement resulting in the forfeiture of the deposit. We evaluate our entire net contract land deposit portfolio for impairment each quarter. For additional information regarding our contract land deposit impairment analysis, see the Critical Accounting Policies section within this Management Discussion and Analysis. For presentation purposes below, the contract land deposit reserve at March 31, 2011 and 2010 has been allocated to the respective year’s reportable segments to show contract land deposits on a net basis. The net contract land deposit balances below also include $4,500 and $6,200 at March 31, 2011 and 2010, 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 months ended March 31, 2011 and 2010:

Selected Segment Financial Data:

		Three Months Ended
		March 31,
		2011				2010
Revenues:
Mid Atlantic		$	312,940			$	339,469
North East			39,193				64,157
Mid East			98,152				124,989
South East			52,459				48,766
Total		$	502,744			$	577,381
Gross profit margin:
Mid Atlantic		$	57,635			$	67,141
North East			6,349				11,460
Mid East			14,447				22,278
South East			8,432				7,687
Total		$	86,863			$	108,566
Segment profit:
Mid Atlantic		$	25,876			$	37,860
North East			1,123				5,755
Mid East			1,607				10,933
South East			2,213				1,057
Total		$	30,819			$	55,605
Gross profit margin percentage:
Mid Atlantic			18.4	%			19.8	%
North East			16.2	%			17.9	%
Mid East			14.7	%			17.8	%
South East			16.1	%			15.8	%

Segment Operating Activity:

		Three Months Ended March 31,
		2011				2010				2011				2010
		Units								Average Price
Settlements:
Mid Atlantic			836				935			$	374.3			$	363.0
North East			128				220			$	306.2			$	291.6
Mid East			431				565			$	227.7			$	221.1
South East			239				199			$	219.1			$	244.9
Total			1,634				1,919			$	307.6			$	300.8

		Three Months Ended March 31,
		2011				2010				2011				2010
		Units								Average Price
New orders, net of cancellations:
Mid Atlantic			1,145				1,391			$	357.2			$	350.8
North East			252				260			$	295.0			$	305.8
Mid East			691				879			$	231.5			$	207.8
South East			315				410			$	214.8			$	226.4
Total			2,403				2,940			$	295.8			$	286.7
Backlog:
Mid Atlantic			1,904				2,319			$	382.3			$	352.4
North East			356				365			$	304.7			$	311.8
Mid East			990				1,274			$	235.6			$	214.6
South East			435				594			$	223.0			$	231.6
Total			3,685				4,552			$	316.6			$	294.8

		Three Months Ended
		March 31,
		2011				2010
New order cancellation rate:
Mid Atlantic			13.1	%			8.0	%
North East			8.4	%			13.9	%
Mid East			12.3	%			9.6	%
South East			12.5	%			8.7	%
Average active communities:
Mid Atlantic			182				160
North East			33				35
Mid East			108				108
South East			56				55
Total			379				358

Segment Homebuilding Inventory:

		As of March 31,
		2011				2010
Sold inventory:
Mid Atlantic		$	225,772			$	286,693
North East			33,933				37,812
Mid East			55,974				71,714
South East			28,332				35,157
Total		$	344,011			$	431,376

		As of March 31,
		2011				2010
Unsold lots and housing units inventory:
Mid Atlantic		$	37,578			$	36,755
North East			3,616				4,989
Mid East			10,604				13,576
South East			6,282				5,471
Total		$	58,080			$	60,791

		Three Months Ended
		March 31,
		2011				2010
Unsold inventory impairments:
Mid Atlantic		$	381			$	38
North East			67				270
Mid East			150				66
South East			129				14
Total		$	727			$	388

Segment Lots Controlled and Contract Land Deposits:

		As of March 31,
		2011				2010
Total lots controlled:
Mid Atlantic			30,409				27,571
North East			4,098				3,870
Mid East			11,196				10,236
South East			7,177				6,424
Total			52,880				48,101
Lots included in impairment reserve:
Mid Atlantic			6,251				6,631
North East			593				743
Mid East			1,806				1,997
South East			1,767				1,478
Total			10,417				10,849

		As of March 31,
		2011				2010
Contract land deposits, net:
Mid Atlantic		$	92,310			$	49,181
North East			11,138				2,369
Mid East			12,564				5,063
South East			5,202				3,718
Total		$	121,214			$	60,331

		Three Months Ended March 31,
		2011				2010
Contract land deposit impairments:
Mid Atlantic		$	227			$	—
North East			7				—
Mid East			(17	)			86
South East			—				—
Total		$	217			$	86

Mid Atlantic

Three Months Ended March 31, 2011 and 2010

     The Mid Atlantic segment had an approximate $12,000 decrease in segment profit from the first quarter of 2010. The decrease in segment profit was driven by the decrease of approximately $26,500, or 8%, in revenues quarter over quarter due primarily to an 11% decrease in the number of units settled, offset partially by a 3% increase in the average settlement price. The decrease in units settled was attributable to the 14% lower backlog unit balance entering the first quarter of 2011 as compared to backlog unit balance entering the first quarter of 2010. The Mid Atlantic segment’s gross profit margin percentage decreased to 18.4% in 2011 from 19.8% in 2010, due primarily to the reduced settlement volume quarter over quarter, and its impact on our ability to leverage certain operating costs.

     Segment new orders decreased by 18% and the average selling price increased by 2% during the first quarter of 2011 from the same period in 2010. New orders were lower quarter over quarter for the reasons previously discussed in the Consolidated Homebuilding section. In addition, new orders in the current quarter were negatively impacted by an increase in the cancellation rate to 13% from 8% in the prior year quarter.

North East

Three Months Ended March 31, 2011 and 2010

     The North East segment had an approximate $4,600 decrease in segment profit from the first quarter of 2010. The decrease in segment profit was primarily driven by a decrease of approximately $25,000, or 39%, in revenues quarter over quarter primarily due to a 42% decrease in the number of units settled. The decrease in units settled was attributable to the 29% lower backlog unit balance entering the first quarter of 2011 as compared to the backlog unit balance entering the first quarter of 2010, coupled with a lower backlog turnover rate quarter over quarter. The North East segment’s gross profit margin percentage decreased to 16.2% in 2011 from 17.9% in 2010, due primarily to the reduced settlement volume quarter over quarter, and its impact on our ability to leverage certain operating costs.

     Segment new orders and the average selling price decreased approximately 3% and 4%, respectively, during the first quarter of 2011 from the same period in 2010. New orders were lower quarter over quarter for the reasons previously discussed in the Consolidated Homebuilding section. In addition, the decrease in the

number of units sold was attributable to the 6% decrease in the average number of active communities quarter over quarter.

Mid East

Three Months Ended March 31, 2011 and 2010

     The Mid East segment had an approximate $9,300 decrease in segment profit from the first quarter of 2010. The decrease in segment profit was primarily driven by a decrease in revenue of approximately $26,800, or 21%, due to a 24% decrease in the number of units settled in the first quarter of 2011 as compared to the same period in 2010. The decrease in settlements was primarily attributable to a 24%, or 230 unit, lower beginning backlog entering the first quarter of 2011 compared to the same period in 2010. Gross profit margins decreased to 14.7% in the first quarter of 2011 from 17.8% in the same period of 2010, due primarily to the reduced settlement volume quarter over quarter, and its impact on our ability to leverage certain operating costs.

     Segment new orders decreased 21% during the first quarter of 2011 as compared to the same period in 2010, while the average selling price for new orders increased 11% quarter over quarter. New orders were lower quarter over quarter for the reasons previously discussed in the Consolidated Homebuilding section. In addition, new orders in the current quarter were negatively impacted by an increase in the cancellation rate to 12% from 10% in the prior year quarter. The increase in the average selling price is attributable to a product shift to larger, higher priced homes in certain markets within the Mid East segment.

South East

Three Months Ended March 31, 2011 and 2010

     The South East segment had an approximate $1,200 increase in segment profit from the first quarter of 2010. Revenues increased approximately $3,700, or 8%, due to a 20% increase in the number of homes settled, offset partially by an 11% decrease in the average settlement price. The increase in settlements was attributable to an increased backlog turnover rate quarter over quarter. The decrease in the average settlement price was primarily attributable to the average price of homes in backlog entering 2011 being 7% lower that the average price of homes in backlog entering 2010. The South East segment’s gross profit margin percentage increased slightly quarter over quarter, due to the increased settlement volume.

     Segment new orders decreased approximately 23% during the first quarter of 2011 from the same period in 2010. New orders were lower quarter over quarter for the reasons previously discussed in the Consolidated Homebuilding section. In addition, new orders in the current quarter were negatively impacted by an increase in the cancellation rate to 13% from 9% in the prior year quarter.

Homebuilding Segment Reconciliations to Consolidated Homebuilding Operations

     In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between homebuilding segment profit and homebuilding consolidated profit before tax include unallocated corporate overhead (which includes all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. Our overhead functions, such as accounting, treasury, human resources, etc., are centrally performed and the costs are not allocated to our operating segments. Consolidation adjustments consist of such items to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to our operating segments. Likewise, equity-based compensation expense is not charged to the operating segments.

		Three Months Ended March 31,
		2011				2010
Homebuilding Consolidated Gross Profit:
Homebuilding Mid Atlantic		$	57,635			$	67,141
Homebuilding North East			6,349				11,460
Homebuilding Mid East			14,447				22,278
Homebuilding South East			8,432				7,687
Consolidation adjustments and other			(2,039	)			(2,254	)
Consolidated homebuilding gross profit		$	84,824			$	106,312

		Three Months Ended March 31,
		2011				2010
Homebuilding Consolidated Profit Before Tax:
Homebuilding Mid Atlantic		$	25,876			$	37,860
Homebuilding North East			1,123				5,755
Homebuilding Mid East			1,607				10,933
Homebuilding South East			2,213				1,057
Reconciling items:
Contract land deposit impairment reserve (1)			(1,130	)			2,008
Equity-based compensation expense (2)			(14,802	)			(5,212	)
Corporate capital allocation (3)			15,423				14,480
Unallocated corporate overhead (4)			(16,460	)			(20,679	)
Consolidation adjustments and other (5)			5,125				1,645
Corporate interest expense (6)			(103	)			(2,078	)
Reconciling items sub-total			(11,947	)			(9,836	)
Homebuilding consolidated profit before taxes		$	18,872			$	45,769

		Three Months Ended March 31,
		2011				2010
Homebuilding Mid Atlantic		$	10,831			$	9,795
Homebuilding North East			1,163				1,550
Homebuilding Mid East			2,204				2,076
Homebuilding South East			1,225				1,059
Total		$	15,423			$	14,480

Mortgage Banking Segment

Three Months Ended March 31, 2011 and 2010

     We conduct our mortgage banking activity through NVR Mortgage Finance, Inc. (“NVRM”), a wholly owned subsidiary. NVRM focuses almost exclusively on serving the homebuilding segment’s customer base. Following is a table of financial and statistical data for the periods ended March 31, 2011 and 2010:

		Three Months Ended March 31,
		2011				2010
Loan closing volume:
Total principal		$	353,571			$	418,042
Operating Profit:
Segment Profit		$	6,741			$	7,428
Stock option expense			(778	)			(466	)
Mortgage banking income before tax		$	5,963			$	6,962
Capture rate:			87	%			90	%
Mortgage Banking Fees:
Net gain on sale of loans		$	9,130			$	9,929
Title services			2,458				2,681
Servicing fees			172				223
		$	11,760			$	12,833