UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

As of JulyApril 30, 20202021 there were 3,702,3853,636,606 total shares of common stock outstanding.

Item 1. Financial Statements

NVR, Inc.

(in thousands, except per share data)

NVR, Inc.

(in thousands)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements include the accounts of NVR, Inc. (“NVR”, the “Company”, "we", "us" or "our") and its subsidiaries and certain other entities in which the Company is deemed to be the primary beneficiary (see Notes 2 and 3 to the accompanying condensed consolidated 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 our Annual Report on Form 10-K for the year ended December 31, 2019.2020.  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 months ended June 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021.

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 and six months ended June 30,March 31, 2021 and 2020, and 2019, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying condensed consolidated financial statements.

Cash and Cash Equivalents

The beginning-of-period and end-of-period cash, restricted cash, and cash equivalent balances presented on the accompanying condensed consolidated statements of cash flows includes cash related to a consolidated joint venture which is included in homebuilding "Other assets" on the accompanying condensed consolidated balance sheets. The cash related to this consolidated joint venture as of June 30,March 31, 2021 and December 31, 2020 was $273 and $269, respectively, and as of March 31, 2020 and December 31, 2019 was $272$274 and $281, respectively, and as of June 30, 2019 and December 31, 2018 was $294 and $320, respectively.

Revenue Recognition

Homebuilding revenue is recognized on the settlement date at the contract sales price, when control is transferred to our customers. Our contract liabilities, which consist of deposits received from customers (“Handmoney”) on homes not settled, were $158,016$314,453 and $131,886$240,758 as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. We expect that substantially all of the customer deposits held at December 31, 2019 Handmoney balance2020 will be recognized in revenue in 2020.2021. Our prepaid sales compensation totaled approximately $23,300$25,600 and $14,600,$22,500, as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Prepaid sales compensation is included in homebuilding “Other assets” on the accompanying condensed consolidated balance sheets.

We generally do not engage in the land development business.  Instead, we adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), which changedtypically acquire finished building lots at market prices from various development entities under LPAs.  The LPAs require deposits that may be forfeited if we fail to perform under the impairment recognitionLPAs.  The deposits required under the LPAs are in the form of financial assets from an as incurred recognition methodologycash or letters of credit in varying amounts, and typically range up to requiring immediate recognition10% of estimated credit losses expected to occur over the remaining lifeaggregate purchase price of many financial assets. Our adoption of this standard did not have a material effect on our consolidated financial statements and related disclosures.the finished lots.  

As of June 30, 2020,March 31, 2021, we controlled approximately 98,600106,100 lots under Lot Purchase AgreementsLPAs with third parties through deposits in cash and letters of credit totaling approximately $423,600$436,000 and $6,400,$7,300, respectively.  As noted above, ourOur sole legal obligation and economic loss for failure to perform under these Lot Purchase AgreementsLPAs is limited to the amount of the deposit pursuant to the liquidated damage provisions contained in the Lot Purchase Agreements. DuringLPAs. For the three and six month periodsperiod ended June 30,March 31, 2021, we recorded a net reversal of approximately $6,200 related to previously impaired lot deposits as market conditions have improved. For the three months ended March 31, 2020, we incurredrecorded pre-tax charges of approximately $900 and $37,300, respectively,$36,400 related to the impairmentimpairments of lot deposits under Lot Purchase Agreements due primarily to deteriorating market conditions in certain of our markets related to the onset of the COVID-19 pandemic. The impairment charges were recorded in cost of sales on the accompanying condensed consolidated statements of income. Our contract land deposit is shown net of a $63,647$46,008 and $27,572$52,205 impairment reserve at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.

In addition, we have certain properties under contract with land owners that are expected to yield approximately 6,3009,000 lots, which are not included in the number of total lots controlled.  Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits in cash and letters of credit totaling approximately $1,000$7,000 and $100, respectively, as of June 30, 2020,March 31, 2021, of which approximately $600$2,000 is refundable if certain contractual conditions are not met.  We generally expect to assign the raw land contracts to a land developer and simultaneously enter into a Lot Purchase Agreementan LPA with the assignee if the project is determined to be feasible.

Our total risk of loss related to contract land deposits asis limited to the amount of June 30, 2020the deposits pursuant to the liquidated damages provision of the LPAs. As of March 31, 2021 and December 31, 20192020, our total risk of loss was as follows:

3.    Joint Ventures

On a limited basis, we obtain finished lots using joint venture limited liability corporations (“JVs”). The JVs are typically structured such that we are a non-controlling member and are at risk only for the amount we have invested, or have committed to invest, in addition to any deposits placed under Lot Purchase AgreementsLPAs with the joint venture. We are not a borrower, guarantor or obligor on any debt of the JVs, as applicable. We enter into Lot Purchase AgreementsLPAs to purchase lots from these JVs, and as a result have a variable interest in these JVs.

At June 30, 2020,March 31, 2021, we had an aggregate investment totaling approximately $28,400$25,900 in 4 JVs that are expected to produce approximately 6,1505,050 finished lots, of which approximately 2,8002,100 lots were controlled by us and the remaining approximately 3,3502,950 lots were either under contract with unrelated parties or not currently under contract. In addition, weWe had additional funding commitments totaling approximately $4,200$3,100 to 1one of the JVs at June 30, 2020.March 31, 2021. We have determined that we are not the primary beneficiary of 3 of the JVs because we either share power with the other JV partner or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately $28,400$25,900 and $26,700$23,600 at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, and is reported in the “Other assets” line item on the accompanying condensed consolidated balance sheets. None of the unconsolidated JVs had any indicators of impairment as of June 30, 2020. For the

We recognize income from the JVs as a reduction to the lot cost of the lots purchased from the respective JVs when the homes are settled, based on the expected total profitability and the total number of lots expected to be produced by the respective JVs.

We classify distributions received from unconsolidated JVs using the cumulative earnings approach. As a result, distributions received up to the amount of cumulative earnings recognized by us are reported as distributions of earnings and those in excess of that amount are reported as a distribution of capital. These distributions are classified within the accompanying condensed consolidated statements of cash flows as cash flows from operating activities and investing activities, respectively.

4.    Land Under Development

On a limited basis, we directly acquire raw land parcels already zoned for theirits 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 June 30, 2020,March 31, 2021, we directly owned a total of 53 separate raw land parcels with a carrying value of $69,323$63,153 that are expected to produce approximately 600500 finished lots. In April 2021, we sold one of the land parcels to a developer for approximately $45,750, which approximated our carrying value of the property as of the sale date. In conjunction with the sale, we entered into an LPA with the developer for the option to purchase the finished lots expected to be developed from the parcel. We also hadhave additional funding commitments of approximately $5,200$5,100 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $2,900.$2,800. None of the raw parcels had any indicators of impairment as of June 30, 2020.March 31, 2021.

5.    Capitalized Interest

6.    Earnings per Share

The following weighted average shares and share equivalents were used to calculate basic and diluted earnings per share ("EPS") for the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:

The following non-qualified stock options ("Options") issued under equity incentive plans were outstanding during the three and six months ended June 30,March 31, 2021 and 2020, and 2019, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.

7.    Shareholders’ Equity

A summary of changes in shareholders’ equity for the three months ended June 30, 2020March 31, 2021 is presented below:

We repurchased approximately 3087 and 11258 shares of our common stock during the three and six months ended June 30, 2019,March 31, 2021 and 2020, respectively. We settle Option exercises and vesting of RSUs by issuing shares of treasury stock.  Approximately 8231 and 17799 shares were issued from the treasury account during the three and six months ended June 30, 2019,March 31, 2021 and 2020, respectively, in settlement of Option exercises and vesting of RSUs.  Shares are relieved from the treasury account based on the weighted average cost basis of treasury shares.

8.    Product Warranties

We establish warranty and product liability reserves (“Warranty Reserve”) to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to our homebuilding business.  Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the estimated 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 our Warranty Reserve during the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:

9.    Segment Disclosures

We disclose 4 homebuilding reportable segments that aggregate geographically our homebuilding operating segments, and our mortgage banking operations presented as 1 reportable segment.  The homebuilding reportable segments are comprised of operating divisions in the following geographic areas:

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses and a corporate capital allocation charge.  The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed.  The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering our cost of capital.  

Assets not allocated to the operating segments are not included in either the operating segment’s corporate capital allocation charge or the CODM’s evaluation of the operating segment’s performance.  We record charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired.  For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of a Lot Purchase Agreementan LPA with the developer, or the restructuring of a Lot Purchase Agreementan LPA resulting in the forfeiture of the deposit.  Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs.  Mortgage banking operations are not charged a corporate capital allocation charge.

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense.  OverheadOur overhead functions such as accounting, treasury and human resources are centrally performed and these costs are not allocated to our 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 our operating segments.  Our externalExternal corporate interest expense primarily consists of interest charges on our 3.95% Senior Notes due 2022 and 3.00% Senior Notes due 2030 and is(the “Senior Notes”), which are not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.