Item 15. Exhibits and Financial Statement Schedules.

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Item 15. Exhibits and Financial Statement Schedules.

The following documents are filed as part of this report:

1.		Financial Statements *NVR, Inc. — Consolidated Financial Statements* Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Shareholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements

2. Exhibits


*Exhibit*
*Number*		*Description*
	3.1	Restated Articles of Incorporation of NVR, Inc. (“NVR”). Filed as Exhibit 99.1 to NVR’s Form 8-K filed May 4, 2007 and incorporated herein by reference.

	3.2	Bylaws, as amended, of NVR, Inc. Filed as Exhibit 99.2 to Form 8-K filed on May 4, 2007 and incorporated herein by reference.

	4.1	Indenture dated as of April 14, 1998 between NVR, as issuer and the Bank of New York as trustee. Filed as Exhibit 4.3 to NVR’s Current Report on Form 8-K filed April 23, 1998 and incorporated herein by reference.

	4.2	Form of Note (included in Indenture filed as Exhibit 4.1).

	4.3	Fourth Supplemental Indenture, dated June 17, 2003, between NVR and U.S. Bank Trust National Association, as successor to The Bank of New York, as trustee. Filed as Exhibit 4.1 to NVR’s Current Report on Form 8-K filed June 17, 2003 and incorporated herein by reference.

	4.4	Form of Note (included in Indenture filed as Exhibit 4.3).

	10.1*	Employment Agreement between NVR, Inc. and Dwight C. Schar dated July 1, 2005. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.

	10.2*	Employment Agreement between NVR, Inc. and Paul C. Saville dated July 1, 2005. Filed as Exhibit 10.2 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.

	10.3*		Employment Agreement between NVR, Inc. and Dennis M. Seremet dated July 1, 2005. Filed as Exhibit 10.3 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.

	10.4*		Employment Agreement between NVR, Inc. and William J. Inman dated July 1, 2005. Filed as Exhibit 10.4 to NVR’s Form 8-K filed on June 29, 2005 and incorporated herein by reference.

	10.5*		Profit Sharing Plan of NVR, Inc. and Affiliated Companies. Filed as Exhibit 4.1 to NVR’s Registration Statement on Form S-8 (No. 333-29241) filed June 13, 1997 and incorporated herein by reference.

	10.6*		Employee Stock Ownership Plan of NVR, Inc. Incorporated by reference to NVR’s Annual Report on Form 10-K/A for the year ended December 31, 1994.

	10.7*		NVR, Inc. 1998 Management Long-Term Stock Option Plan. Filed as Exhibit 4 to NVR’s Registration Statement on Form S-8 (No. 333-79951) filed June 4, 1999 and incorporated herein by reference.

	10.8*		NVR, Inc. 1998 Directors’ Long-Term Stock Option Plan. Filed as Exhibit 4 to NVR’s Registration Statement on Form S-8 (No. 333-79949) filed June 4, 1999 and incorporated herein by reference.

	10.09*		NVR, Inc. Management Long-Term Stock Option Plan. Filed as Exhibit 99.3 to NVR’s Registration Statement on Form S-8 (No. 333-04975) filed May 31, 1996 and incorporated herein by reference.

	10.10*		NVR, Inc. 2000 Broadly-Based Stock Option Plan. Filed as Exhibit 99.1 to NVR’s Registration Statement on Form S-8 (No. 333-56732) filed March 8, 2001 and incorporated herein by reference.

	10.11*		NVR, Inc. Nonqualified Deferred Compensation Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on December 16, 2005 and incorporated herein by reference.

	10.12		Credit Agreement dated as of December 7, 2005 among NVR, Inc. and the lenders party hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, U.S. Bank, National Association, as Syndication Agent, SunTrust Bank and Wachovia Bank, National Association, as Documentation Agents, AmSouth Bank, Comerica Bank, Calyon New York Branch and Mizuho Corporate Bank, Ltd., as Managing Agents, and J.P. Morgan Securities Inc., as Lead Arranger and Sole Book Runner. Filed as Exhibit 10.1 to NVR’s Form 8-K filed December 12, 2005 and incorporated herein by reference.

	10.13*		Description of the Board of Directors’ compensation arrangement. Filed as Exhibit 10.27 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2004 and incorporated herein by reference.

	10.14*		Amendment No. 1 to Employment Agreement between NVR, Inc. and Dwight C. Schar dated December 21, 2006. Filed as Exhibit 10.1 to NVR’s Form 8-K filed December 22, 2006 and incorporated herein by reference.

	10.15		Fifteenth Amendment to Loan Agreement dated as of August 24, 2006 between NVR Mortgage Finance, Inc. and U.S. Bank National Association, JPMorgan Chase Bank, Guaranty Bank, Comerica Bank, National City Bank and Washington Mutual Bank, F.A. Filed as Exhibit 10.1 to NVR’s Form 8-K filed August 24, 2006 and incorporated herein by reference.

	10.16		Commitment and Acceptance dated March 27, 2006 increasing the commitment under NVR, Inc.’s existing revolving credit agreement with JPMorgan Chase Bank, as Administrative Agent, and the Lenders that are parties thereto, dated December 7, 2005 by $45 million to an aggregate commitment of $445 million. Filed as Exhibit 10.1 to NVR’s Form 8-K filed March 30, 2006 and incorporated herein by reference.

	10.17		Commitment and Acceptance dated August 16, 2006 increasing the commitment under NVR, Inc.’s existing revolving credit agreement with JPMorgan Chase Bank, as Administrative Agent, and the Lenders that are parties thereto, dated December 7, 2005 by $155 million to an aggregate commitment of $600 million. Filed as Exhibit 10.1 to NVR’s Form 8-K filed August 17, 2006 and incorporated herein by reference.

	10.18*		Amendment No. 2 to Employment Agreement between NVR, Inc. and Dwight C. Schar dated November 6, 2007. Filed as Exhibit 10.1 to NVR’s Form 8-K filed November 7, 2007 and incorporated herein by reference.

	10.19*		The Form of Non-Qualified Stock Option Agreement under the NVR, Inc. 2000 Broadly Based Stock Option Plan. Filed as Exhibit 10.1 to NVR’s Form 8-K filed January 3, 2008 and incorporated herein by reference.

	10.20*		The Form of Non-Qualified Stock Option Agreement under the 1998 Directors’ Long-Term Stock Option Plan. Filed as Exhibit 10.34 to NVR’s Annual Report on Form 10-K for the period ended December 31, 2007 and incorporated herein by reference.

	10.21		Repurchase Agreement dated August 5, 2008 among NVR Finance and U.S. Bank National Association, as Agent, and other lenders party thereto. Filed as Exhibit 10.1 to NVR’s Form 8-K filed on August 8, 2008 and incorporated herein by reference.

	10.22*		Amendment No. 3 to Employment Agreement between NVR, Inc. and Dwight C. Schar dated November 6, 2008. Filed as Exhibit 10.1 to NVR’s Form 8-K filed November 6, 2008 and incorporated herein by reference.

	10.23*		Amendment No. 4 to Employment Agreement between NVR, Inc. and Dwight C. Schar dated January 1, 2009. Filed as Exhibit 10.24 to NVR’s Annual Report on form 10-K for the period ended December 31, 2008 and incorporated herein by reference.

	10.24*		Amendment No. 1 to Employment Agreement between NVR, Inc. and Paul C. Saville dated January 1, 2009. Filed as Exhibit 10.25 to NVR’s Annual Report on form 10-K for the period ended December 31, 2008 and incorporated herein by reference.

	10.25*		Amendment No. 1 to Employment Agreement between NVR, Inc. and William J. Inman dated January 1, 2009. Filed as Exhibit 10.26 to NVR’s Annual Report on form 10-K for the period ended December 31, 2008 and incorporated herein by reference.

	10.26*		Amendment No. 1 to Employment Agreement between NVR, Inc. and Dennis M. Seremet dated July 30, 2008. Filed as Exhibit 10.27 to NVR’s Annual Report on form 10-K for the period ended December 31, 2008 and incorporated herein by reference.

	10.27*		Amendment No. 2 to Employment Agreement between NVR, Inc. and Dennis M. Seremet dated January 1, 2009. Filed as Exhibit 10.28 to NVR’s Annual Report on form 10-K for the period ended December 31, 2008 and incorporated herein by reference.

	10.28*		Summary of 2010 Named Executive Officer annual incentive compensation plan. Filed herewith.

	10.29		First Amendment to Repurchase Agreement dated August 5, 2008 among NVR Finance and U.S. Bank National Association, as agent and a Buyer, and the other Buyers. Filed as Exhibit 10.1 to NVR’s Form 8-K filed August 7, 2009 and incorporated herein by reference.

	10.30		First Amendment to Credit Agreement dated as of December 7, 2005 among NVR, Inc. and the lenders party hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, U.S. Bank, National Association, as Syndication Agent, SunTrust Bank and Wachovia Bank, National Association, as Documentation Agents, AmSouth Bank, Comerica Bank, Calyon New York Branch and Mizuho Corporate Bank, Ltd., as Managing Agents, and J.P. Morgan Securities Inc., as Lead Arranger and Sole Book Runner. Filed as Exhibit 10.2 to NVR’s Form 8-K filed August 7, 2009 and incorporated herein by reference.


	21		NVR, Inc. Subsidiaries. Filed herewith.

	23		Consent of KPMG LLP (Independent Registered Public Accounting Firm). Filed herewith.

	31.1		Certification of NVR’s Chief Executive Officer pursuant to Rule 13a-14(a). Filed herewith.

	31.2		Certification of NVR’s Chief Financial Officer pursuant to Rule 13a-14(a). Filed herewith.

	32		Certification of NVR’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.


*		Exhibit is a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	NVR, Inc.
	By:	/s/ Paul C. Saville
		Paul C. Saville
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Dwight C. Schar	Chairman
Dwight C. Schar		February 26, 2010

/s/ C. E. Andrews	Director
C. E. Andrews		February 26, 2010

/s/ Robert C. Butler	Director

Robert C. Butler		February 26, 2010

/s/ Timothy M. Donahue	Director

Timothy M. Donahue		February 26, 2010

/s/ Alfred E. Festa	Director

Alfred E. Festa		February 26, 2010

/s/ Manuel H. Johnson	Director

Manuel H. Johnson		February 26, 2010

/s/ William A. Moran	Director

William A. Moran		February 26, 2010

/s/ David A. Preiser	Director

David A. Preiser		February 26, 2010

/s/ W. Grady Rosier	Director

W. Grady Rosier		February 26, 2010

/s/ John M. Toups	Director
John M. Toups		February 26, 2010

/s/ Paul W. Whetsell	Director
Paul W. Whetsell		February 26, 2010

/s/ Paul C. Saville	Principal Executive Officer
Paul C. Saville		February 26, 2010

/s/ Dennis M. Seremet	Principal Financial Officer
Dennis M. Seremet		February 26, 2010


/s/ Robert W. Henley		Principal Accounting Officer
Robert W. Henley				February 26, 2010

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders NVR, Inc.:

We have audited the accompanying consolidated balance sheets of NVR, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NVR, Inc. as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NVR, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting_._

KPMG LLP

McLean, Virginia February 26, 2010

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders NVR, Inc.:

We have audited NVR, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). NVR, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, NVR, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NVR, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated February 26, 2010 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

McLean, Virginia February 26, 2010

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


	December 31,
	2009		2008
ASSETS

*Homebuilding:*
Cash and cash equivalents	$	1,248,689	$	1,146,426
Marketable securities		219,535		—
Receivables		7,995		11,594
Inventory:
Lots and housing units, covered under sales agreements with customers		337,523		335,238
Unsold lots and housing units		73,673		57,639
Manufacturing materials and other		7,522		7,693

		418,718		400,570

Contract land deposits, net		49,906		29,073
Consolidated assets not owned		70,430		114,930
Property, plant and equipment, net		20,215		25,658
Reorganization value in excess of amounts allocable to identifiable assets, net		41,580		41,580
Deferred tax assets, net		200,340		223,393
Other assets		58,319		19,233

		2,335,727		2,012,457


*Mortgage Banking:*
Cash and cash equivalents		1,461		1,217
Mortgage loans held for sale, net		40,097		72,488
Property and equipment, net		446		759
Reorganization value in excess of amounts allocable to identifiable assets, net		7,347		7,347
Other assets		10,692		8,968

		60,043		90,779


Total assets	$	2,395,770	$	2,103,236

(Continued)

See notes to consolidated financial statements.

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


	December 31,
	2009			2008
LIABILITIES AND SHAREHOLDERS’ EQUITY

*Homebuilding:*
Accounts payable	$	120,464		$	137,285
Accrued expenses and other liabilities		221,352			194,869
Liabilities related to consolidated assets not owned		65,915			109,439
Customer deposits		63,591			59,623
Other term debt		2,166			2,530
Senior notes		133,370			163,320

		606,858			667,066

*Mortgage Banking:*
Accounts payable and other liabilities		19,306			17,842
Notes payable		12,344			44,539

		31,650			62,381

Total liabilities		638,508			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 December 31, 2009 and 2008, respectively		206			206
Additional paid-in-capital		830,531			722,265
Deferred compensation trust - 265,278 and 514,470 shares of NVR, Inc. common stock as of December 31, 2009 and 2008, respectively		(40,799	)		(74,978	)
Deferred compensation liability		40,799			74,978
Retained earnings		3,823,067			3,630,887
Less treasury stock at cost — 14,609,560 and 15,028,335 shares as of December 31, 2009 and 2008, respectively		(2,896,542	)		(2,979,569	)

Total shareholders’ equity		1,757,262			1,373,789

Total liabilities and shareholders’ equity	$	2,395,770		$	2,103,236

See notes to consolidated financial statements.

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


	Year Ended			Year Ended			Year Ended
	December 31, 2009			December 31, 2008			December 31, 2007
*Homebuilding:*
Revenues	$	2,683,467		$	3,638,702		$	5,048,187
Other income		8,697			16,386			21,118
Cost of sales		(2,185,733	)		(3,181,010	)		(4,227,059	)
Selling, general and administrative		(233,152	)		(308,739	)		(343,520	)

Operating income		273,279			165,339			498,726
Interest expense		(10,196	)		(12,902	)		(13,150	)
Goodwill and intangible asset impairment		—			(11,686	)		—

Homebuilding income		263,083			140,751			485,576


*Mortgage Banking:*
Mortgage banking fees		60,381			54,337			81,155
Interest income		2,979			3,955			4,900
Other income		629			745			1,060
General and administrative		(27,474	)		(31,579	)		(32,505	)
Interest expense		(1,184	)		(754	)		(681	)

Mortgage banking income		35,331			26,704			53,929


*Income before taxes*		298,414			167,455			539,505
Income tax expense		(106,234	)		(66,563	)		(205,550	)


*Net income*	$	192,180		$	100,892		$	333,955


*Basic earnings per share*	$	33.10		$	18.76		$	61.61


*Diluted earnings per share*	$	31.26		$	17.04		$	54.14


*Basic weighted average*
*shares outstanding*		5,807			5,379			5,420


*Diluted weighted average*
*shares outstanding*		6,149			5,920			6,168

See notes to consolidated financial statements.

NVR, Inc. Consolidated Statements of Shareholders’ Equity (in thousands)


			Additional								Deferred			Deferred
	Common		Paid-in			Retained		Treasury			Compensation			Compensation
	Stock		Capital			Earnings		Stock			Trust			Liability			Total
*Balance, December 31, 2006*	$	206	$	585,438		$	3,196,040	$	(2,629,610	)	$	(80,491	)	$	80,491		$	1,152,074

Net income		—		—			333,955		—			—			—			333,955
Deferred compensation activity		—		—			—		—			5,024			(5,024	)		—
Purchase of common stock for treasury		—		—			—		(507,472	)		(169	)		169			(507,472	)
Stock-based compensation		—		14,189			—		—			—			—			14,189
Tax benefit from stock options exercised and deferred compensation distributions		—		69,046			—		—			—			—			69,046
Stock option activity		—		67,583			—		—			—			—			67,583
Treasury stock issued upon option exercise		—		(72,625	)		—		72,625			—			—			—

*Balance, December 31, 2007*		206		663,631			3,529,995		(3,064,457	)		(75,636	)		75,636			1,129,375

Net income		—		—			100,892		—			—			—			100,892
Deferred compensation activity		—		—			—		—			786			(786	)		—
Purchase of common stock for treasury		—		—			—		—			(128	)		128			—
Stock-based compensation		—		41,204			—		—			—			—			41,204
Tax benefit from stock options exercised and deferred compensation distributions		—		50,240			—		—			—			—			50,240
Stock option activity		—		52,078			—		—			—			—			52,078
Treasury stock issued upon option exercise		—		(84,888	)		—		84,888			—			—			—

*Balance, December 31, 2008*		206		722,265			3,630,887		(2,979,569	)		(74,978	)		74,978			1,373,789

Net income		—		—			192,180		—			—			—			192,180
Deferred compensation activity		—		—			—		—			34,179			(34,179	)		—
Stock-based compensation		—		46,302			—		—			—			—			46,302
Tax benefit from stock options exercised and deferred compensation distributions		—		66,448			—		—			—			—			66,448
Stock option activity		—		78,543			—		—			—			—			78,543
Treasury stock issued upon option exercise		—		(83,027	)		—		83,027			—			—			—

*Balance, December 31, 2009*	$	206	$	830,531		$	3,823,067	$	(2,896,542	)	$	(40,799	)	$	40,799		$	1,757,262

See notes to consolidated financial statements

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


	Year Ended			Year Ended			Year Ended
	December 31, 2009			December 31, 2008			December 31, 2007
*Cash flows from operating activities:*
Net income	$	192,180		$	100,892		$	333,955
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,713			13,641			17,036
Excess income tax benefit from exercise of stock options		(66,448	)		(50,240	)		(69,046	)
Stock option compensation expense		46,302			41,204			14,189
Contract land deposit (recoveries) impairments		(6,464	)		165,024			261,760
Gain on sales of loans		(46,960	)		(38,921	)		(60,128	)
Gain (loss) on sale of fixed assets		(358	)		472			1,383
Gain on extinguishment of debt		—			(251	)		—
Impairment of goodwill and intangible assets		—			11,686			—
Deferred tax expense (benefit)		21,905			(12,048	)		(43,343	)
Mortgage loans closed		(1,943,074	)		(2,046,575	)		(2,392,395	)
Proceeds from sales of mortgage loans		2,018,151			2,115,607			2,515,973
Principal payments on mortgage loans held for sale		—			4,321			7,393
Net change in assets and liabilities:
(Increase) decrease in inventories		(18,148	)		288,284			44,762
(Increase) decrease in contract land deposits		(14,848	)		29			(31,893	)
Decrease (increase) in receivables		3,682			(1,016	)		2,730
Increase (decrease) in accounts payable, accrued expenses and customer deposits		82,578			(157,111	)		(39,351	)
Other, net		(36,569	)		27,363			(4,259	)

Net cash provided by operating activities		241,642			462,361			558,766


*Cash flows from investing activities:*
Purchase of marketable securities		(858,362	)		—			—
Marketable securities maturing		638,827			—			—
Purchase of property, plant and equipment		(3,044	)		(6,899	)		(10,545	)
Proceeds from the sale of property, plant and equipment		962			1,401			1,230

Net cash used by investing activities		(221,617	)		(5,498	)		(9,315	)


*Cash flows from financing activities:*
Purchase of treasury stock		—			—			(507,472	)
Purchase of NVR common stock for deferred compensation plan		—			(128	)		(169	)
Net repayments under notes payable and credit lines		(32,559	)		(39,214	)		(70,349	)
Repurchase of Senior Notes		(29,950	)		(36,405	)		—
Excess income tax benefit from exercise of stock options		66,448			50,240			69,046
Exercise of stock options		78,543			52,078			67,583

Net cash provided (used) by financing activities		82,482			26,571			(441,361	)

Net increase in cash and cash equivalents		102,507			483,434			108,090
Cash and cash equivalents, beginning of year		1,147,643			664,209			556,119


Cash and cash equivalents, end of year	$	1,250,150		$	1,147,643		$	664,209


*Supplemental disclosures of cash flow information:*
Interest paid during the year	$	10,010		$	12,656		$	12,744

Income taxes paid during the year, net of refunds	$	(28,807	)	$	65,128		$	157,081


*Supplemental disclosures of non-cash activities:*
Change in net consolidated assets not owned	$	(976	)	$	(10,346	)	$	(15,777	)

See notes to consolidated financial statements.

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

1.		Summary of Significant Accounting Policies

		*Principles of Consolidation*

		The accompanying consolidated financial statements include the accounts of NVR, Inc. (“NVR” or the “Company”), its wholly owned subsidiaries, certain partially owned entities, and variable interest entities of which the Company has determined that it is the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

		*Use of Estimates in the Preparation of Financial Statements*

		The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate the estimates we use to prepare the consolidated financial statements, and update those estimates as necessary. In general, our estimates are based on historical experience, on information from third party professionals, and other various assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ materially from those estimates made by management.

		*Cash and Cash Equivalents*

		Cash and cash equivalents include short-term investments with original maturities of three months or less. The homebuilding segment had restricted cash of $4,613 and $4,539 at December 31, 2009 and 2008, respectively, which relate to customer deposits for certain home sales and is recorded in “Other assets” in the accompanying balance sheets.

		*Marketable Securities*

		As of December 31, 2009 the Company held marketable securities totaling $219,535. These securities, which are debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies, are classified by the Company as held-to-maturity, are measured at amortized cost and mature within one year.

		*Homebuilding Inventory*

		The carrying value of inventory is stated at the lower of cost or market value. Cost of lots and completed and uncompleted housing units represent the accumulated actual cost of the units. Field construction supervisors’ salaries and related direct overhead expenses are included in inventory costs. Interest costs are not capitalized into inventory. Upon settlement, the cost of the unit is expensed on a specific identification basis. Cost of manufacturing materials is determined on a first-in, first-out basis.

		Sold inventory is evaluated for impairment based on the contractual selling price compared to the total estimated cost to construct. Unsold inventory is evaluated for impairment by analyzing recent comparable sales prices within the applicable community compared to the costs incurred to date plus the expected costs to complete. Any calculated impairments are recorded immediately.

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

		*Contract Land Deposits*

		The Company purchases finished lots under fixed price purchase agreements that require deposits that may be forfeited if NVR fails to perform under the contract. The deposits are in the form of cash or letters of credit in varying amounts and represent a percentage of the aggregate purchase price of the finished lots.

		NVR maintains an allowance for losses on contract land deposits that reflects the Company’s judgment of the present loss exposure in the existing contract land deposit portfolio at the end of the reporting period. To analyze contract land deposit impairments, NVR utilizes an ASC 450, Contingencies, loss contingency analysis that is conducted each quarter. In addition to considering market and economic conditions, NVR assesses contract land deposit impairments on a community-by-community basis pursuant to the purchase contract terms, analyzing, as applicable, current sales absorption levels, recent sales’ gross profit, the dollar differential between the contractual purchase price and the current market price for lots, a developer’s financial stability, a developer’s financial ability or willingness to reduce lot prices to current market prices, and the contract’s default status by either the Company or the developer along with an analysis of the expected outcome of any such default.

		NVR’s analysis is focused on whether the Company can sell houses profitably in a particular community in the current market with which the Company is faced. Because the Company does not own the finished lots on which the Company has placed a contract land deposit, if the above analysis leads to a determination that the Company can’t sell homes profitably at the current contractual lot price, the Company then determine whether it will elect to default under the contract, forfeit the deposit and terminate the contract, or whether the Company will attempt to restructure the lot purchase contract, which may require it to forfeit the deposit to obtain contract concessions from a developer. The Company also assesses whether an impairment is present due to collectibility issues resulting from a developer’s non-performance because of financial or other conditions.

		During the year ended December 31, 2009, the Company had a net pre-tax recovery of approximately $6,500 of contract land deposits previously considered to be uncollectible. During the years ended December 31, 2008 and 2007, the Company incurred pre-tax charges of approximately $165,000 and $261,800, respectively, related to the impairment of contract land deposits. These impairment charges were recorded in cost of sales on the accompanying consolidated statements of income. The contract land deposit asset on the accompanying consolidated balance sheets is shown net of an approximate $89,500 and $147,900 impairment valuation allowance at December 31, 2009 and 2008, respectively.

		*Property, Plant, and Equipment*

		Property, plant, and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is based on the estimated useful lives of the assets using the straight-line method. Amortization of capital lease assets is included in depreciation expense. Model home furniture and fixtures are generally depreciated over a two-year period, office facilities and other equipment are depreciated over a period from three to ten years, manufacturing facilities are depreciated over periods of from five to forty years and property under capital leases is depreciated in a manner consistent with the Company’s depreciation policy for owned assets, or the lease-term if shorter.

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

		*Intangible Assets*

		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 its annual assessment of impairment and management determined that there was no impairment of excess reorganization value.

		*Warranty/Product Liability Accruals*

		The Company establishes warranty and product liability reserves (“warranty reserve”) to provide for estimated future costs 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.

		*Mortgage Loans Held for Sale, Derivatives and Hedging Activities*

		NVR originates several different loan products to its customers to finance the purchase of a home through its wholly-owned mortgage subsidiary. NVR sells all of the loans it originates into the secondary market typically within 30 days from origination. All of the loans that the Company originates are underwritten to the standards and specifications of the ultimate investor. Insofar as the Company underwrites its originated loans to those standards, the Company bears no increased concentration of credit risk from the issuance of loans, except in certain limited instances where early payment default occurs. The Company employs a quality control department to ensure that its underwriting controls are effectively operating, and further assesses the underwriting function as part of its assessment of internal controls over financial reporting.

		Mortgage loans held for sale are recorded at fair value at closing in accordance with GAAP and thereafter are carried at the lower of cost or fair value until sold.

		In the normal course of business, our 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

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

		borrowers, we enter 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 December 31, 2009, there were contractual commitments to extend credit to borrowers aggregating approximately $130,100, and open forward delivery sale contracts aggregating approximately $141,800. Please refer to Note 11 herein for a description of our fair value accounting calculation.

		*Earnings per Share*

		The following weighted average shares and share equivalents are used to calculate basic and diluted EPS for the years ended December 31, 2009, 2008 and 2007:


	Year Ended		Year Ended		Year Ended
	December 31, 2009		December 31, 2008		December 31, 2007
Weighted average number of shares outstanding used to calculate basic EPS		5,806,773		5,379,409		5,420,159

Dilutive securities:
Stock options		341,996		540,876		747,636


Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS		6,148,769		5,920,285		6,167,795

		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 issued under equity benefit plans to purchase 134,405; 316,747 and 57,277 shares of common stock were outstanding during the years ended December 31, 2009, 2008 and 2007, respectively, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. In addition, 402,372 performance-based options were outstanding during the year ended December 31, 2007, and pursuant to GAAP requirements were excluded from the computation of diluted earnings per share because the performance target had not been achieved. As of December 31, 2008 the performance target was not met and all 348,490 performance-based options outstanding expired unexercisable.

		*Revenues-Homebuilding Operations*

		NVR builds single-family detached homes, townhomes and condominium buildings, which generally are constructed on a pre-sold basis for the ultimate customer. In accordance with GAAP, revenues are recognized at the time the unit is settled and title passes to the customer, adequate cash payment has been received and there is no continuing involvement. In situations where the buyer’s financing is originated by NVRM and the buyer has not made an adequate initial or continuing investment as prescribed by GAAP, the profit on such settlement is deferred until the sale of the related loan to a third-party investor has been completed.

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

		*Mortgage Banking Fees*

		Mortgage banking fees include income earned by NVR’s mortgage banking operations for originating mortgage loans, servicing mortgage loans held on an interim basis, title fees, gains and losses on the sale of mortgage loans and mortgage servicing and other activities incidental to mortgage banking. Mortgage banking fees are generally recognized after the loan has been sold to an unaffiliated, third party investor.

		*Income Taxes*

		Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

		*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 December 31, 2009 and 2008 was $134,829 and $161,937, respectively. The estimated fair value is based on a quoted market price. The carrying value was $133,370 and $163,320 at December 31, 2009 and 2008, respectively.

		*Stock-Based Compensation*

		On January 1, 2006 (the “Effective Date”), the Company adopted Statement of Financial Accounting Standards (“SFAS”) 123R, Share-Based Payment, which revised SFAS 123, Accounting for Stock-Based Compensation, as codified in Accounting Standards Codification (“ASC”) 718, Compensation — Stock Compensation. Prior to fiscal year 2006, NVR followed the intrinsic value method in accounting for its stock-based employee compensation arrangements as defined by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees ”.

		ASC 718 requires an entity to recognize an expense within its income statement for all share-based payment arrangements, which includes employee stock option plans. The expense is based on the grant-date fair value of the options granted, and is recognized ratably over the requisite service period. NVR adopted the standard under the modified prospective method, which applied to new awards and to awards modified, repurchased, or cancelled after the required Effective Date, as well as to the unvested portion of awards outstanding as of the required Effective Date. The Company’s stock option programs are accounted for as equity-classified awards. See Note 9 herein for further discussion of stock-based compensation plans.

		*Comprehensive Income*

		For the years ended December 31, 2009, 2008 and 2007, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying Consolidated Financial Statements.

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

		*Recent Accounting Pronouncements*

		In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 as codified in ASC 810, Consolidation. ASC 810 provides guidance on accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this guidance 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. ASC 810 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. ASC 810 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interests. ASC 810 was effective for the Company beginning January 1, 2009. Its adoption 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 as codified in ASC 820, Fair Value Measurements and Disclosures, which delayed the effective date of SFAS No. 157 (codified in ASC 820) for non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008. FSP No. 157-2 became effective for the Company beginning January 1, 2009. The adoption of FSP No. 157-2 did not have a material impact on the Company’s financial statements.

		In 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, as codified in ASC 825, 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, as codified in ASC 820, Fair Value Measurements and Disclosures. 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 ASC 820, 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, as codified in ASC 320, Investments-Debt and Equity. 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.

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


		In May 2009, the FASB issued SFAS No. 165, Subsequent Events, as codified in ASC 855, Subsequent Events, 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. ASC 855 was effective for the Company beginning April 1, 2009. The Company has complied with the requirements of ASC 855, as amended by Accounting Standards Update 2010-09.

		In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, as codified in ASC 860, Transfers and Servicing, 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. ASC 860 is effective for fiscal years beginning after November 15, 2009, and its implementation of which are 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), as codified in ASC 810 through Accounting Standards Update 2009-17. 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. The amendment to ASC 810 is effective for fiscal years beginning after November 15, 2009. The Company is evaluating the impact of the amendment and currently believes that upon adoption, the majority of development entities associated with its fixed price purchase agreements would no longer be required to be consolidated.

		In July 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which supersedes SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, as codified in ASC 105, Generally Accepted Accounting Principles (“ASC 105”), which establishes the FASB Accounting Standards Codification (the “Codification”). The Codification is the sole source of authoritative U.S. generally accepted accounting principles recognized by the FASB. All other accounting literature not included in the Codification is nonauthoritative. The Codification was effective for interim and annual periods ending after September 15, 2009.

		*Reclassification*

		The presentation of certain prior period amounts has been reclassified to conform to 2009 presentation.

2.		Segment Information, Nature of Operations, and Certain Concentrations

NVR’s homebuilding operations primarily construct and sell single-family detached homes, townhomes and condominium buildings under four trade names: Ryan Homes, NVHomes, Fox Ridge Homes, and Rymarc Homes. The Ryan Homes, Fox Ridge Homes, and Rymarc Homes products are marketed primarily to first-time homeowners and first-time move-up buyers. The Ryan Homes product is

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

sold in twenty-three metropolitan areas located in Maryland, Virginia, West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Florida, Ohio, New Jersey, Delaware, Indiana and Kentucky. The Fox Ridge Homes product is sold solely in the Nashville, TN metropolitan area. The Rymarc Homes product is sold solely in the Columbia, SC metropolitan area. The NVHomes product is sold in the Washington, D.C., Baltimore, MD, Philadelphia, PA and Maryland Eastern Shore metropolitan areas, and is marketed primarily to move-up and up-scale buyers. NVR derived approximately 48% of its 2009 homebuilding revenues in the Washington, D.C. and Baltimore, MD metropolitan areas.

NVR’s mortgage banking segment is a regional mortgage banking operation. Substantially all of the mortgage banking segment’s loan closing activity is for NVR’s homebuilding customers. NVR’s mortgage banking business generates revenues primarily from origination fees, gains on sales of loans, and title fees. A substantial portion of the Company’s mortgage operations is conducted in the Washington, D.C. and Baltimore, MD metropolitan areas.

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

Homebuilding Mid Atlantic — Virginia, West Virginia, Maryland and Delaware

Homebuilding North East — New Jersey and eastern Pennsylvania

Homebuilding Mid East — Kentucky, New York, Ohio, western Pennsylvania and Indiana

Homebuilding South East — North Carolina, South Carolina, Florida and Tennessee

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge. The corporate capital allocation charge eliminates in consolidation, is based on the segment’s average net assets employed, and is charged using a consistent methodology in the years presented. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital. The Company records charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a finished lot purchase agreement with the developer, or to restructure a lot purchase agreement resulting in the forfeiture of the deposit. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a capital allocation charge.

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

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

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:


	Year Ended December 31,
	2009		2008		2007
Revenues:
Homebuilding Mid Atlantic	$	1,661,244	$	2,161,764	$	3,099,053
Homebuilding North East		254,654		347,142		433,631
Homebuilding Mid East		505,431		659,649		860,139
Homebuilding South East		262,138		470,147		655,364
Mortgage Banking		60,381		54,337		81,155

Total Consolidated Revenues	$	2,743,848	$	3,693,039	$	5,129,342


	Year Ended December 31,
	2009			2008			2007
Profit:
Homebuilding Mid Atlantic	$	185,861		$	103,690		$	291,012
Homebuilding North East		19,572			13,182			11,176
Homebuilding Mid East		38,012			39,643			78,547
Homebuilding South East		7,384			7,904			87,701
Mortgage Banking		38,138			29,227			54,576

Total Segment Profit		288,967			193,646			523,012

Contract land deposit recovery (impairments) (1)		42,939			(41,134	)		(79,002	)
Stock compensation expense (2)		(46,302	)		(41,204	)		(14,189	)
Corporate capital allocation (3)		61,753			108,509			152,363
Unallocated corporate overhead (4)		(44,103	)		(52,696	)		(58,990	)
Consolidation adjustments and other (5)		4,970			24,437			28,846
Impairment of goodwill and intangible assets (6)		—			(11,686	)		—
Corporate interest expense		(9,810	)		(12,417	)		(12,535	)

Reconciling items sub-total		9,447			(26,191	)		16,493

Consolidated Income before Taxes	$	298,414		$	167,455		$	539,505

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


	Year Ended December 31,
	2009			2008			2007
Assets:
Homebuilding Mid Atlantic	$	448,019		$	403,439		$	699,039
Homebuilding North East		54,132			53,732			95,026
Homebuilding Mid East		94,225			82,976			117,722
Homebuilding South East		37,663			53,890			106,627
Mortgage Banking		52,696			83,432			119,183

Total Segment Assets		686,735			677,469			1,137,597

Consolidated assets not owned		70,430			114,930			180,206
Cash		1,248,689			1,146,426			660,709
Marketable securities		219,535			—			—
Deferred taxes		200,340			223,393			211,808
Intangible assets (7)		48,927			48,927			60,709
Contract land deposit and LLCs reserve		(94,940	)		(155,858	)		(133,664	)
Consolidation adjustments and other (8)		16,054			47,949			77,051

Reconciling items sub-total		1,709,035			1,425,767			1,056,819

Consolidated Assets	$	2,395,770		$	2,103,236		$	2,194,416


	Year Ended December 31,
	2009		2008		2007
Interest Income
Mortgage Banking	$	2,979	$	3,955	$	4,900

Total Segment Interest Income		2,979		3,955		4,900
Other unallocated interest income		5,407		10,909		14,855

Consolidated Interest Income	$	8,386	$	14,864	$	19,755


	Year Ended December 31,
	2009			2008			2007
Interest Expense
Homebuilding Mid Atlantic	$	41,130		$	73,441		$	106,538
Homebuilding North East		6,475			10,084			14,678
Homebuilding Mid East		8,873			12,976			17,475
Homebuilding South East		5,661			12,493			14,287
Mortgage Banking		1,184			754			681

Total Segment Interest Expense		63,323			109,748			153,659
Corporate capital allocation		(61,753	)		(108,509	)		(152,363	)
Senior note and other interest		9,810			12,417			12,535

Consolidated Interest Expense	$	11,380		$	13,656		$	13,831

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


	Year Ended December 31,
	2009		2008		2007
Depreciation and Amortization:
Homebuilding Mid Atlantic	$	4,351	$	7,005	$	9,267
Homebuilding North East		612		974		1,582
Homebuilding Mid East		1,233		1,626		2,186
Homebuilding South East		1,163		1,715		1,457
Mortgage Banking		357		395		368

Total Segment Depreciation and Amortization		7,716		11,715		14,860
Unallocated corporate		1,997		1,926		2,176

Consolidated Depreciation and Amortization	$	9,713	$	13,641	$	17,036


	Year Ended December 31,
	2009		2008		2007
Expenditures for Property and Equipment:
Homebuilding Mid Atlantic	$	1,511	$	3,142	$	5,785
Homebuilding North East		414		508		799
Homebuilding Mid East		741		1,372		1,637
Homebuilding South East		269		1,369		2,043
Mortgage Banking		87		305		96

Total Segment Expenditures for Property and Equipment		3,022		6,696		10,360
Unallocated corporate		22		203		185

Consolidated Expenditures for Property and Equipment	$	3,044	$	6,899	$	10,545


(1)		This item represents changes to the contract land deposit impairment reserve, which is not allocated to the reportable segments. During both 2009 and 2008, unallocated reserves decreased from the respective prior years as a result of charging previously reserved land impairments to the operating segments and to certain recoveries of deposits previously determined to be impaired.

(2)		The increase in stock option expense in 2009 and 2008 compared to 2007 is primarily due to the reversal of stock-based compensation costs of approximately $31,500 in 2007 related to certain stock options subject to a performance metric. During 2007, the Company determined that it was improbable that it would meet the performance metric and accordingly reversed all performance-based option expense recorded through that period.

(3)		This item represents the elimination of the corporate capital allocation charge included in the respective homebuilding reportable segments. The decrease in the corporate capital allocation charge from 2007 to 2008, and 2008 to 2009 is due to decreases in segment asset balances in each of the respective years, due to a decline in operating activity year over year. The corporate capital allocation charge is based on the segment’s monthly average asset balance, and is as follows for the years presented:


	Year Ended December 31,
	2009		2008		2007
Homebuilding Mid Atlantic	$	40,765	$	73,042	$	106,032
Homebuilding North East		6,473		10,081		14,669
Homebuilding Mid East		8,863		12,902		17,381
Homebuilding South East		5,652		12,484		14,281

Total	$	61,753	$	108,509	$	152,363

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


(4)		The decreases in unallocated corporate overhead year over year are primarily driven by a reduction in personnel and other overhead costs as part of our focus to size our organization to meet current activity levels.

(5)		The decrease in consolidation adjustments and other in 2009 from 2008 is primarily attributable to changes in the corporate consolidation entries based on production volumes year over year, as well as to a decrease in interest income earned related to lower interest rates in 2009 as compared to 2008.

(6)		The 2008 impairment charge relates to the write-off of goodwill and indefinite life intangible assets related to the Company’s 2005 acquisition of Rymarc Homes and the goodwill related to the 1997 acquisition of Fox Ridge Homes.

(7)		The decrease in intangible assets relates to the impairment charge discussed in (6) above.

(8)		The decrease in 2009 from 2008 is primarily attributable to changes in the corporate consolidation entries based on production volumes year over year. The decrease in 2008 from 2007 is primarily attributable to the inclusion of a bulk purchase of finished lots made during 2007, of which approximately $29,200 had not yet been allocated to the reportable segments. At December 31, 2008, all but approximately $5,700 of this purchase was allocated to the reportable segments.

3. Consolidation of Variable Interest Entities and Limited Liability Corporations

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

NVR does not engage in the land development business. Instead, the Company typically acquires finished building lots at market prices from various development entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if NVR fails to perform under the agreement. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots. As of December 31, 2009, the Company controlled approximately 46,300 lots with deposits in cash and letters of credit totaling approximately $140,700 and $4,900, respectively. Included in the number of controlled lots are approximately 10,800 lots for which the Company has recorded a contract land deposit impairment reserve of approximately $89,500 as of December 31, 2009. As of December 31, 2008, the Company controlled approximately 45,000 lots with deposits in cash and letters of credit totaling approximately $178,000 and $5,000, respectively. As of December 31, 2008, the Company had recorded a contract land deposit impairment reserve of approximately $147,900 for approximately 17,000 of these 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 liquidating 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, Inc. Notes to Consolidated Financial Statements (dollars in thousands, except per share data)

NVR. Except as described below, NVR also does not share in an allocation of either the profit earned or loss incurred by any of these entities.

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

At December 31, 2009, NVR had an aggregate investment totaling approximately $25,000 in ten separate LLCs. As of December 31, 2009, eight of these LLCs were non-performing and as a result NVR had recorded an impairment reserve equal to the Company’s total investment of approximately $3,000 in these LLCs. NVR does not expect to obtain any lots from these eight LLCs in future periods. In the two performing LLCs, the Company’s aggregate investment totaled $22,000 and the Company controlled approximately 760 lots through these LLCs. The Company’s investment in LLCs is recorded in “Other assets” in the consolidated financial statements. At December 31, 2009, NVR had additional funding commitments totaling $4 million to one of these two performing LLCs. Also included in “Other assets” in the consolidated financial statements is an acquisition and development loan note receivable that the Company purchased for approximately $20,000 on which the Company is in the process of foreclosing on the underlying real estate.

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

The Company has evaluated all of its fixed price purchase agreements and LLC arrangements and has determined that it is the primary beneficiary of twenty-one of those development entities with which the agreements and arrangements are held. As a result, at December 31, 2009, NVR has consolidated such development entities in the accompanying consolidated balance sheet. Where NVR deemed itself to be the primary beneficiary of a development entity created after December 31, 2003 and the development entity refused to provide financial statements, NVR utilized estimation techniques to perform the consolidation. The effect of the consolidation at December 31, 2009 was the inclusion on the balance sheet of $70,430 as “Consolidated assets not owned,” with a corresponding inclusion of $65,915 as “Liabilities related to consolidated assets not owned,” after elimination of intercompany items. Inclusive in these totals were assets and liabilities of approximately $40,900 for twelve development entities created after December 31, 2003 that did not provide financial statements.

At December 31, 2008, the Company evaluated all of its fixed price purchase agreements and LLC arrangements and determined that it was the primary beneficiary of twenty-five of those development entities with which the agreements and arrangements were held. As a result, at December

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

31, 2008, NVR had consolidated such development entities in the accompanying condensed consolidated balance sheet. The effect of the consolidation at December 31, 2008 was the inclusion on the balance sheet of $114,930 as “Consolidated assets not owned,” with a corresponding inclusion of $109,439 as “Liabilities related to consolidated assets not owned,” after elimination of intercompany items. Inclusive in these totals were assets and liabilities of approximately $42,000 for eleven development entities created after December 31, 2003 that did not provide financial statements.

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

Following is the consolidating schedule at December 31, 2009:


	NVR, Inc.		Consolidated
	and		Entities Not					Consolidated
	Subsidiaries		Owned		Eliminations			Total
ASSETS
*Homebuilding:*
Cash and cash equivalents	$	1,248,689	$	—	$	—		$	1,248,689
Marketable securities		219,535		—		—			219,535
Receivables		7,995		—		—			7,995
Homebuilding inventory		418,718		—		—			418,718
Property, plant and equipment, net		20,215		—		—			20,215
Reorganization value in excess of amount allocable to identifiable assets, net		41,580		—		—			41,580
Contract land deposits, net		51,184		—		(1,278	)		49,906
Other assets		261,896		—		(3,237	)		258,659

		2,269,812		—		(4,515	)		2,265,297


*Mortgage banking assets:*		60,043		—		—			60,043

*Consolidated entities not owned:*
Land under development		—		70,198		—			70,198
Other assets		—		232		—			232

		—		70,430		—			70,430

*Total assets*	$	2,329,855	$	70,430	$	(4,515	)	$	2,395,770


LIABILITIES AND SHAREHOLDERS’ EQUITY
*Homebuilding:*
Accounts payable, accrued expenses and other liabilities	$	341,816	$	—	$	—		$	341,816
Customer deposits		63,591		—		—			63,591
Other term debt		2,166		—		—			2,166
Senior notes		133,370		—		—			133,370

		540,943		—		—			540,943


*Mortgage banking liabilities:*		31,650		—		—			31,650

*Consolidated entities not owned:*
Accounts payable, accrued expenses and other liabilities		—		9,438		4,474			13,912
Debt		—		52,003		—			52,003
Contract land deposits		—		5,188		(5,188	)		—
Advances from NVR, Inc.		—		3,801		(3,801	)		—

		—		70,430		(4,515	)		65,915

*Equity*		1,757,262		—		—			1,757,262


*Total liabilities and shareholders’ equity*	$	2,329,855	$	70,430	$	(4,515	)	$	2,395,770

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

Following is the consolidating schedule at December 31, 2008:


	NVR, Inc.		Consolidated
	and		Entities Not					Consolidated
	Subsidiaries		Owned		Eliminations			Total
ASSETS
*Homebuilding:*
Cash and cash equivalents	$	1,146,426	$	—	$	—		$	1,146,426
Receivables		11,594		—		—			11,594
Homebuilding inventory		400,570		—		—			400,570
Property, plant and equipment, net		25,658		—		—			25,658
Reorganization value in excess of amount allocable to identifiable assets, net		41,580		—		—			41,580
Contract land deposits, net		29,872		—		(799	)		29,073
Other assets		247,318		—		(4,692	)		242,626

		1,903,018		—		(5,491	)		1,897,527


*Mortgage banking assets:*		90,779		—		—			90,779

*Consolidated entities not owned:*
Land under development		—		114,178		—			114,178
Other assets		—		752		—			752

		—		114,930		—			114,930


*Total assets*	$	1,993,797	$	114,930	$	(5,491	)	$	2,103,236


LIABILITIES AND SHAREHOLDERS’ EQUITY
*Homebuilding:*
Accounts payable, accrued expenses and other liabilities	$	332,154	$	—	$	—		$	332,154
Customer deposits		59,623		—		—			59,623
Other term debt		2,530		—		—			2,530
Senior notes		163,320		—		—			163,320

		557,627		—		—			557,627


*Mortgage banking liabilities:*		62,381		—		—			62,381

*Consolidated entities not owned:*
Accounts payable, accrued expenses and other liabilities		—		16,826		12,446			29,272
Debt		—		80,167		—			80,167
Contract land deposits		—		13,436		(13,436	)		—
Advances from NVR, Inc.		—		4,501		(4,501	)		—

		—		114,930		(5,491	)		109,439


*Equity*		1,373,789		—		—			1,373,789

*Total liabilities and shareholders’ equity*	$	1,993,797	$	114,930	$	(5,491	)	$	2,103,236

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

4. Related Party Transactions

During 2009, NVR entered into new lot option purchase agreements to purchase finished building lots for a total purchase price of approximately $70,600 with Elm Street Development (“Elm Street”), a company that is controlled by William Moran, a member of the NVR Board of Directors (the “Board”). These transactions were approved by a majority of the independent members of the Board. During 2009, 2008, and 2007, NVR purchased, at market prices, developed lots from Elm Street totaling approximately $46,700, $38,000, and $37,000, respectively. During 2009, NVR forfeited approximately $2,500 of deposits to restructure four lot option purchase agreements to obtain reduced purchase prices for finished lots under the agreements. These deposit forfeitures are included in the total contract land deposit write-offs discussed previously in Note 1 herein. NVR expects to purchase the majority of the remaining lots under contract at December 31, 2009 over the next four years for an aggregate purchase price of approximately $89,800. NVR and Elm Street also entered into a joint venture arrangement in 2009 to acquire control of a parcel of raw ground that is estimated to yield at least 600 finished lots. NVR invested $8,000 in the joint venture, and has no obligation to contribute any further capital into the entity (see further discussion of joint ventures in Note 3 herein).

5. Property, Plant and Equipment, net


	December 31,
	2009			2008
*Homebuilding:*
Office facilities and other	$	13,324		$	13,908
Model home furniture and fixtures		18,354			24,003
Manufacturing facilities		28,581			27,957
Property under capital leases		3,976			3,976

		64,235			69,844
Less: accumulated depreciation		(44,020	)		(44,186	)

	$	20,215		$	25,658

*Mortgage Banking:*
Office facilities and other	$	3,586		$	3,817
Less: accumulated depreciation		(3,140	)		(3,058	)

	$	446		$	759

Certain property, plant and equipment listed above is collateral for certain debt of NVR as more fully described in Note 6 herein.

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

6. Debt


	December 31,
	2009		2008
*Homebuilding:*
Working capital revolving credit (a)	$	—	$	—

Other term debt:
Capital lease obligations due in monthly installments through 2016 (b)	$	2,166	$	2,530

Senior notes (c)	$	133,370	$	163,320

*Mortgage Banking:*
Master repurchase agreement (d)	$	12,344	$	44,539


(a)		The Company, as borrower, has available an unsecured working capital revolving credit facility (the “Facility”). On August 4, 2009, NVR, as borrower, entered into an amendment to its $600,000 revolving credit agreement with the Lenders party thereto and the Bank of America, N.A., as Administrative Agent, (the “Amended Facility”) to reduce the total available borrowings under the Amended Facility to $300,000, to eliminate the accordion feature to increase the total commitments available and to amend or eliminate certain non-financial covenants. The Facility is generally available to fund working capital needs of NVR’s homebuilding segment. Up to $150,000 of the Facility is currently available for issuance in the form of letters of credit, of which $13,218 and $13,421 were outstanding at December 31, 2009 and 2008, respectively. The Facility expires in December 2010, and outstanding amounts bear interest at either (i) the prime rate or (ii) the London Interbank Offering Rate (“LIBOR”) plus Applicable Margin as defined within the Facility. There were no borrowings under the Facility during 2009 and 2008. At December 31, 2009, there were no borrowing base limitations reducing the amount available to the Company for borrowings.

The Facility contains various affirmative and negative covenants. The negative covenants include among others, certain limitations on transactions involving the creation of guarantees, sale of assets, acquisitions, mergers, investments and unsold inventory levels. Additional covenants include (i) a minimum adjusted consolidated tangible net worth requirement, (ii) a maximum leverage ratio requirement, and (iii) an interest coverage ratio requirement. These covenants restrict the amount in which the Company would be able to pay in dividends each year. The Company is also subject to borrowing base restrictions if the Company’s senior debt rating falls below investment grade. At December 31, 2009 NVR was in compliance with all covenants under the Facility and maintained an investment grade rating on its senior debt.


(b)		The capital lease obligations have fixed interest rates ranging from 13.1% to 14.1% and are collateralized by land, buildings and equipment with a net book value of approximately $866 and $1,052 at December 31, 2009 and 2008, respectively.

The following schedule provides future minimum lease payments under all capital leases together with the present value as of December 31, 2009:

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


Year ending December 31,
2010	$	408
2011		645
2012		644
2013		644
2014		669
Thereafter		56

		3,066
Amount representing interest		(900	)

	$	2,166


(c)		On June 17, 2003, NVR completed an offering, at par, for $200,000 of 5% Senior Notes due 2010 (the “Notes”) under a shelf registration statement filed in 1998 with the Securities and Exchange Commission (the “SEC”). The Notes mature on June 15, 2010 and bear interest at 5%, payable semi-annually in arrears on June 15 and December 15. The Notes are general unsecured obligations and rank equally in right of payment with all of NVR’s existing and future unsecured senior indebtedness and indebtedness under NVR’s existing credit facility. The Notes are senior in right of payment to any future subordinated indebtedness that NVR may incur. The Company may redeem the Notes, in whole or in part, at any time upon not less than 30 nor more than 60 days notice at a redemption price equal to the greater of (a) 100% of the principal amount of the Notes to be redeemed, or (b) the discounted present value of the remaining scheduled payments of the Notes to be redeemed, plus, in each case, accrued and unpaid interest. The indenture governing the Notes contains certain covenants which, among other items, restricts the Company’s ability to (i) create, incur, assume or guarantee any secured debt, (ii) enter into sale and leaseback transactions, and (iii) merge with or into other companies or sell all or substantially all of the Company’s assets. At December 31, 2009 NVR was in compliance with all covenants under the Notes. In December 2008, the Company repurchased $36,680 of the Notes on the open market at 99.25% of par, resulting in a pre-tax gain of approximately $251. In April 2009 and August 2009, the Company repurchased $27,950 and $2,000 of the Notes, respectively, on the open market at par, reducing the Notes balance at December 31, 2009 to $133,370.


		On September 8, 2008, the Company filed a shelf registration statement (the “2008 Shelf Registration”) with the SEC to register for future offer and sale, an unlimited amount of debt securities, common shares, preferred shares, depositary shares representing preferred shares and warrants. This discussion of the 2008 Shelf Registration does not constitute an offer of any securities for sale.


(d)		On August 5, 2009, NVRM renewed and amended its Master Repurchase Agreement dated August 5, 2008 with U.S. Bank National Association, as Agent and representative of itself as a Buyer, and the other Buyers thereto (the “Master Repurchase Agreement”) pursuant to a First Amendment to Master Repurchase Agreement with U.S. Bank National Association, as Agent and representative of itself as Buyer (“Agent”), and the other Buyers thereto (together with the Master Repurchase Agreement, the “Amended Repurchase Agreement”). The purpose of the Amended Repurchase Agreement is to finance the origination of mortgage loans by NVRM. The Amended Repurchase Agreement provides for loan purchases up to $100,000, subject to certain sublimits. In addition, the Amended Repurchase Agreement provides for an accordion feature under which NVRM may request that the aggregate commitments under the Repurchase Agreement be increased to an amount up to $125,000. The Amended Repurchase Agreement expires on August 3, 2010.

Advances under the Amended Repurchase Agreement carry a Pricing Rate based on the Libor Rate plus the Libor Margin, or at NVRM’s option, the Balance Funded Rate, as these terms are defined in the Amended Repurchase Agreement. The average Pricing Rate on outstanding balances at December 31,

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

2009 was 4.1%. The average Pricing Rate for amounts outstanding under the previous Repurchase Agreement at December 31, 2008 was 1.9%.

At December 31, 2009, there was $12,344 outstanding under the Amended Repurchase Agreement, which is included in Mortgage Banking “Notes payable” in the accompanying consolidated financial sheets. Amounts outstanding under the Amended Repurchase Agreement are collateralized by the Company’s mortgage loans held for sale, which are included in assets in the December 31, 2009 balance sheet in the accompanying consolidated financial statements. As of December 31, 2009, borrowing base limitations reduced the amount available for borrowing to approximately $38,900. There are several restrictions on purchased loans, including that they cannot be sold to others, they cannot be pledged to anyone other than the agent, and they cannot support any other borrowing or repurchase agreement.

The Amended Repurchase Agreement contains various affirmative and negative covenants. The negative covenants include among others, certain limitations on transactions involving acquisitions, mergers, the incurrence of debt, sale of assets and creation of liens upon any of its Mortgage Notes. Additional covenants include (i) a tangible net worth requirement, (ii) a minimum liquidity requirement, (iii) a minimum tangible net worth ratio, (iv) a minimum net income requirement, and (v) a maximum leverage ratio requirement. The Company was in compliance with all covenants under the Amended Repurchase Agreement at December 31, 2009.

Maturities with respect to the Company’s debt as of December 31, 2009 are as follows:


Year ending December 31,
2010	$	145,830
2011		402
2012		456
2013		520
2014		616
Thereafter		56

Total	$	147,880

The $145,830 maturing in 2010 includes $133,370 of Senior Notes maturing in June 2010 and $12,344 of borrowings under the Amended Repurchase Agreement.

7. Common Stock

There were 5,950,111 and 5,532,852 common shares outstanding at December 31, 2009 and 2008, respectively. As of December 31, 2009, NVR had reacquired a total of approximately 20,756,000 shares of NVR common stock at an aggregate cost of approximately $3,420,000 since December 31, 1993. The Company did not repurchase any shares during 2009 or 2008.

Since 1999, the Company has issued shares from the treasury for all stock option exercises. There have been approximately 6,147,000 common shares reissued from the treasury in satisfaction of stock option exercises and other employee benefit obligations. The Company issued 418,775; 426,751 and 404,815 such shares during 2009, 2008 and 2007, respectively.

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

8. Income Taxes

The provision for income taxes consists of the following:


	Year Ended		Year Ended			Year Ended
	December 31, 2009		December 31, 2008			December 31, 2007
*Current:*
Federal	$	69,911	$	63,614		$	189,907
State		8,556		9,785			36,231
*Deferred:*
Federal		23,474		(5,702	)		(17,356	)
State		4,293		(1,134	)		(3,232	)

	$	106,234	$	66,563		$	205,550

In addition to amounts applicable to income before taxes, the following income tax benefits were recorded in shareholders’ equity:


	Year Ended		Year Ended		Year Ended
	December 31, 2009		December 31, 2008		December 31, 2007
Income tax benefits arising from compensation expense for tax purposes in excess of amounts recognized for financial statement purposes	$	66,448	$	50,240	$	69,046

Deferred income taxes on NVR’s consolidated balance sheets are comprised of the following:


	December 31,
	2009		2008
Deferred tax assets:
Other accrued expenses and contract land deposit reserve	$	104,907	$	130,338
Deferred compensation		16,897		30,334
Stock option expense		43,149		32,809
Uniform capitalization		5,477		4,171
Unrecognized tax benefit		25,671		26,754
Other		10,480		8,366

Total deferred tax assets		206,581		232,772
Less: deferred tax liabilities		531		4,810

Net deferred tax position	$	206,050	$	227,962

Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes, stock option expense and deferred compensation, which are not currently deductible for tax return purposes.

Management believes that the Company will have sufficient available carry-backs and future taxable income to make it more likely than not that the net deferred tax assets will be realized. Federal taxable income is estimated to be $56,341 for the year ended December 31, 2009, and was $63,175 for the year ended December 31, 2008.

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

A reconciliation of income tax expense in the accompanying Consolidated Statements of Income to the amount computed by applying the statutory Federal income tax rate of 35% to income before taxes is as follows:


	Year Ended			Year Ended		Year Ended
	December 31, 2009			December 31, 2008		December 31, 2007
Income taxes computed at the Federal statutory rate	$	104,445		$	58,609	$	188,827
State income taxes, net of Federal income tax benefit		7,467			6,004		23,086
Other, net		(5,678	)		1,950		(6,363	)

	$	106,234		$	66,563	$	205,550

The Company’s effective tax rate in 2009, 2008 and 2007 was 35.60%, 39.75% and 38.1%, respectively. The lower effective tax rate in 2009 was due to the expiration of certain tax reserves previously established, the amendment of certain prior year federal and state income tax returns that the Company believes will result in tax refunds, and recent IRS guidance allowing the Company to take a larger benefit under Internal Revenue Code Section 199, domestic manufacturing deduction. In addition, due to Mr. Schar relinquishing his Executive Officer role with the Company in 2009, a tax benefit was generated related to compensation expense recorded for certain outstanding option grants held by Mr. Schar that were previously considered to be a permanent non-deductible tax difference. The higher effective tax rate in 2008 was primarily due to the reduction in tax exempt interest income and lower pre-tax income in 2008 compared to 2007.

The Company files a consolidated U.S. federal income tax return, as well as state and local tax returns in all jurisdictions where the Company maintains operations. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2006.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	Year Ended			Year Ended
	December 31, 2009			December 31, 2008
Balance at beginning of year	$	53,339		$	55,662
Additions for tax positions for prior years		72			—
Additions based on tax positions related to the current year		2,769			3,469
Reductions for tax positions of prior years		(7,511	)		(3,940	)
Settlements		—			(1,852	)

Balance at end of year	$	48,669		$	53,339

If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (on a net basis) is $31,636.

The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2009, 2008 and 2007 the Company accrued interest on unrecognized tax benefits in the amounts of $932, $5,150 and $4,452, respectively. For the years ended December 31, 2009 and 2008, the Company had a total of $22,149 and $21,217, respectively, of accrued interest on unrecognized tax benefits in its balance sheet. Based on its historical experience in dealing

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

with various taxing authorities, the Company has found that 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.

The Company believes that within the next 12 months, it is reasonably possible that the unrecognized tax benefits will be reduced by approximately $5,300 due to statute expiration in various state jurisdictions. The Company is currently under audit by the states of New York, Pennsylvania and Ohio.

9. Stock Option, Profit Sharing and Deferred Compensation Plans

Stock Option Plans

NVR’s stock option plans provide for the granting of non-qualified stock options to purchase shares of NVR common stock (“Options”) to certain key employees and Board members of the Company. The exercise price of Options granted is equal to the market value of the Company’s common stock on the date of grant. Options are granted for a ten-year term, and typically vest in separate tranches over periods of 3 to 9 years, depending upon the plan from which the shares were granted. For Options granted prior to May 2005 and after November 2007, vesting is predicated solely on continued employment over a long-term vesting schedule (“service-only” Options). For Options granted between May 2005 and October 2007 under all plans, option vesting was contingent first on the Company achieving an aggregate four-year diluted earnings per share target (see discussion of the EPS Target below), and if that target was met, then on continued employment over a period subsequent to the conclusion of the performance period (“performance condition” Options). As of December 31, 2008 the EPS Target was not met and all 348,490 performance condition Options outstanding expired unexercisable. At December 31, 2009, there was an aggregate of 999,142 options outstanding, and an additional 134,022 options available to grant, under existing stock option plans.

The following is a summary description of each of the Company’s stock option plans for any plan with options outstanding at December 31, 2009:

	•		During 1996, the Company’s shareholders approved the Board of Directors’ adoption of the Management Long-Term Stock Option Plan (the “1996 Option Plan”). There are 2,000,000 Options authorized under the Management Long Term Stock Option Plan. All Options were granted at an exercise price equal to the fair market value of the Company’s Shares on the date of grant. The Options expire 10 years after the dates upon which they were granted, and vest annually in one-third increments beginning on December 31, 2000, or later depending on the date of grant.

	•		During 1999, the Company’s shareholders approved the Board of Directors’ adoption of the 1998 Management Long-Term Stock Option Plan (the “1998 Option Plan”). There are 1,000,000 Options authorized under the 1998 Option Plan. All Options were granted at an exercise price equal to the fair market value of the Company’s Shares on the date of grant. The Options expire 10 years after the dates upon which they were granted. Options granted under the 1998 Option Plan prior to 2003 vest annually in one-third increments beginning on December 31, 2003, or later depending on the date of grant, with vesting contingent upon continued employment. Options granted after 2002 generally vest in 25% increments beginning on December 31, 2006, or later depending on the date of grant.

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

	•		During 1999, the Company’s shareholders approved the Board of Directors’ adoption of the 1998 Directors’ Long Term Stock Option Plan (the “1998 Directors’ Plan”). There were 150,000 Options to purchase shares of common stock authorized for grant to the Company’s outside directors under the 1998 Directors’ Plan. All Options are granted at an exercise price equal to the fair market value of the Company’s Shares on the date of grant. The Options were granted for a 10-year period and generally vest annually in twenty-five percent (25%) increments beginning on either December 31, 2002, December 31, 2006, or later as determined by the date of grant.

	•		During 2000, the Board approved the 2000 Broadly-Based Stock Option Plan (the “2000 Plan”). The Company did not seek approval from its shareholders for the 2000 Plan. There are 2,000,000 Options authorized under the 2000 Plan. All Options are granted at an exercise price equal to the fair market value of the Company’s Shares on the date of grant. Grants under the 2000 Plan are available to both employees and members of the Board. The distribution of Options to key employees and members of the board, in aggregate, are limited to 50% or less of the total options authorized under the 2000 Plan. Options granted under the 2000 Plan expire 10 years from the date of grant, and generally vest annually in 25% increments beginning on December 31, 2006, or later depending on the date of grant.

During 2009, the Company issued non-qualified stock options (“Management Options”) to purchase 23,287 shares of its common stock under the 2000 Plan. The exercise price of each Management Option granted was equal to the closing price of the Company’s common stock on the day immediately preceding the date of grant. Each Management Option was granted for a term of ten (10) years from the date of grant. Of these Management Options, 20,813 will vest in three equal annual installments beginning December 31, 2011 and 2,474 will vest in four equal annual installments beginning December 31, 2012. All Management Options granted are subject to the grantee’s continued employment.

During 2008, the Company issued Management Options to purchase 274,435 shares of its common stock under the 2000 Plan. The exercise price of each Management Option granted was equal to the closing price of the Company’s common stock on the day immediately preceding the date of grant. Each Management Option was granted for a term of ten (10) years from the date of grant. The majority of these Management Options will vest fully on December 31, 2010, subject to the grantee’s continued employment. The Company also issued non-qualified stock options to purchase 15,949 shares of its common stock (“Director Options”) under the 1998 Directors’ Plan during the year ended December 31, 2008. The exercise price of each Director Option granted was equal to the closing price of the Company’s common stock on the day immediately preceding the date of grant. Each Director Option was granted for a term of ten (10) years from the date of grant. These Director Options will vest in three equal annual installments beginning December 31, 2010, subject to the director’s continued Board service.

The following table provides additional information relative to NVR’s stock option plans for the year ended December 31, 2009:

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


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contract Life		Intrinsic
	Options			Price		(Years)		Value
Stock Options
Outstanding at beginning of period		1,417,024		$	296.41
Granted		23,287			516.65
Exercised		(418,775	)		189.02
Forfeited		(19,627	)		489.18
Expired		(2,767	)		544.26

Outstanding at end of period		999,142		$	342.08		3.8	$	368,314

Exercisable at end of period		668,132		$	259.80		2.0	$	301,267

To estimate the grant-date fair value of its stock options, the Company uses the Black-Scholes option-pricing model. The Black-Scholes model estimates the per share fair value of an option on its date of grant based on the following: the option’s exercise price; the price of the underlying stock on the date of grant; the estimated dividend yield; a “risk-free” interest rate; the estimated option term; and the expected volatility. For the “risk-free” interest rate, the Company uses a U.S. Treasury Strip due in a number of years equal to the option’s expected term. NVR has concluded that its historical exercise experience is the best estimate of future exercise patterns to determine an option’s expected term. To estimate expected volatility, NVR analyzed the historic volatility of its common stock. The fair value of the options granted were estimated on the grant date using the Black-Scholes option-pricing model based on the following assumptions:


	2009			2008			2007
Estimated option life	4.70 years			3.95 years			8.87 years
Risk free interest rate (range)		1.78% — 3.65	%		1.00% — 4.19	%		4.41% — 5.09	%
Expected volatility (range)		31.83% — 41.72	%		31.57% — 38.75	%		36.17% — 38.87	%
Expected dividend rate		0.00	%		0.00	%		0.00	%
Weighted average grant-date fair value per share of options granted	$	187.10		$	156.85		$	351.10

Compensation cost for option grants is recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant). Compensation cost is recognized within the income statement in the same expense line as the cash compensation paid to the respective employees. The Company is required to estimate forfeitures in calculating the expense related to stock-based compensation. NVR has concluded that its historical forfeiture rate is the best measure to estimate future forfeitures of granted stock options. The impact on compensation costs due to changes in the expected forfeiture rate will be recognized in the period that they become known. In 2009, 2008, and 2007, the Company recognized $46,302, $41,204 and $14,189 in compensation costs related to stock options, respectively, and approximately $18,000, $12,600 and $2,700 tax benefit related to stock option compensation costs, respectively. The increase in compensation expense in 2009 and 2008 as compared to 2007 is attributable to the reversal in 2007 of approximately $31,500 in pre-tax stock-based compensation recognized in 2007 and prior periods related to performance condition options. In 2007, it was determined that the EPS target for performance condition options would not be met and all expense previously recognized to the determination date related to the performance condition options was reversed. As of December 31, 2008, all performance options outstanding expired unexercisable.

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

As of December 31, 2009, the total unrecognized compensation cost for outstanding unvested stock option awards equals approximately $28,600, net of estimated forfeitures, and the weighted-average period over which the unrecognized compensation will be recorded is equal to approximately 1.4 years.

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 of treasury shares acquired. During the years ended December 31, 2009, 2008 and 2007, options to purchase shares of the Company’s common stock of 418,775; 426,751 and 404,815 were exercised. Information with respect to the exercised options is as follows:


	2009		2008		2007
Aggregate exercise proceeds	$	79,157	$	70,978	$	67,583
Aggregate intrinsic value on exercise dates	$	135,652	$	175,190	$	218,255

The Company has elected the alternative transition method to establish the beginning balance of the additional paid-in capital pool available to absorb any future write-offs of deferred tax benefits associated with stock-based compensation.

Profit Sharing Plans

NVR has a trustee-administered, profit sharing retirement plan (the “Profit Sharing Plan”) and an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees. The Profit Sharing Plan and the ESOP provide for annual discretionary contributions in amounts as determined by the NVR Board of Directors. The combined plan contribution for the years ended December 31, 2009, 2008 and 2007 was $6,447, $6,856 and $8,799, respectively. The ESOP purchased approximately 9,400 and 17,700 shares of NVR common stock in the open market for the 2009 and 2008 plan year contributions, respectively, using cash contributions provided by the Company. As of December 31, 2009, all shares held by the ESOP had been allocated to participants’ accounts. The 2009 plan year contribution was funded and fully allocated to participants in February 2010.

Deferred Compensation Plans

The Company has two deferred compensation plans (“Deferred Comp Plans”). The specific purpose of the Deferred Comp Plans is to i) establish a vehicle whereby named executive officers may defer the receipt of salary and bonus that otherwise would be nondeductible for Company tax purposes into a period where the Company would realize a tax deduction for the amounts paid, and ii) to enable certain of our employees who are subject to the Company’s stock holding requirements to acquire shares of our common stock on a pre-tax basis in order to more quickly meet, and maintain compliance with those stock holding requirements. Amounts deferred into the Deferred Comp Plans are invested in NVR common stock, held in a rabbi trust account, and are paid out in a fixed number of shares upon expiration of the deferral period.

The rabbi trust account held 265,278 and 514,470 shares of NVR common stock as of December 31, 2009 and 2008, respectively. During 2009, 249,192 shares of NVR common stock were issued from the rabbi trust related to deferred compensation for which the deferral period ended. There were no shares of NVR common stock contributed to the rabbi trust in 2009. Shares held by the Deferred Comp Plan are treated as outstanding shares in the Company’s earnings per share calculation for each of the years ended December 31, 2009, 2008 and 2007.

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

10. Commitments and Contingent Liabilities

NVR is committed under multiple non-cancelable operating leases involving office space, model homes, manufacturing facilities, automobiles and equipment. Future minimum lease payments under these operating leases as of December 31, 2009 are as follows:


Year ended December 31,
2010	$	19,678
2011		13,004
2012		9,738
2013		7,310
2014		5,917
Thereafter		14,904

		70,551
Sublease income		(435	)

	$	70,116

Total rent expense incurred under operating leases was approximately $34,024, $45,841 and $51,091 for the years ended December 31, 2009, 2008 and 2007, respectively.

NVR does not develop land. The Company typically purchases finished lots under fixed price purchase agreements, which require deposits, which may be forfeited if the Company fails to perform under the contract. The deposits are in the form of cash or letters of credit in varying amounts and represent a percentage, typically ranging up to 10%, of the aggregate purchase price of the finished lots. This lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. The Company generally seeks to maintain control over a supply of lots believed to be suitable to meet its five-year business plan. At December 31, 2009, assuming that contractual development milestones are met, NVR is committed to placing additional forfeitable deposits with land developers under existing lot option contracts of approximately $21,500. The Company also has five specific performance contracts pursuant to which the Company is committed to purchasing approximately twenty-nine finished lots at an aggregate purchase price of approximately $3,500.

During the ordinary course of operating the mortgage banking and homebuilding businesses, NVR is required to enter into bond or letter of credit arrangements with local municipalities, government agencies, or land developers to collateralize its obligations under various contracts. NVR had approximately $36,900 of contingent obligations under such agreements (including $13,218 for letters of credit as described in Note 6(a) herein) as of December 31, 2009. NVR believes it will fulfill its obligations under the related contracts and does not anticipate any material losses under these bonds or letters of credit.

The following table reflects the changes in the Company’s warranty reserve for the following (see Note 1 herein for further discussion of warranty/product liability reserves):


	Year Ended			Year Ended			Year Ended
	December 31, 2009			December 31, 2008			December 31, 2007
Warranty reserve, beginning of year	$	68,084		$	70,284		$	70,175
Provision		35,688			40,468			47,041
Payments		(39,355	)		(42,668	)		(46,932	)

Warranty reserve, end of year	$	64,417		$	68,084		$	70,284

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

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.

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.

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. Legal costs incurred in connection with outstanding litigation are expensed as incurred.

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 December 31, 2009 and 2008 was $134,829 and $161,937, respectively. The estimated fair value is based on a quoted market price. The carrying value was $133,370 and $163,320 at December 31, 2009 and 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

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

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 December 31, 2009, there were contractual commitments to extend credit to borrowers aggregating $130,061 and open forward delivery contracts aggregating $141,757.

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

	i)		the assumed gain/loss of the expected resultant loan sale (level 2);

	ii)		the effects of interest rate movements between the date of the rate lock and the balance sheet date (level 2); and

	iii)		the value of the servicing rights associated with the loan (level 2).

The assumed gain/loss considers the amount that the Company has discounted the price to the borrower from par for competitive reasons and the excess servicing to be received or buydown fees to be paid upon securitization of the loan. The excess servicing and buydown fees are calculated pursuant to contractual terms with investors. To calculate the effects of interest rate movements, the Company utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount. The Company sells all of its loans on a servicing released basis, and receives a servicing released premium upon sale. Thus, the value of the servicing rights, which averaged 148 basis points of the loan amount as of December 31, 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 when closed, and thereafter are carried at the lower of cost or fair value until sold. The fair value of loans held-for-sale of $40,097 included in the accompanying consolidated balance sheet has been reduced by $395 from the aggregate principal balance of $40,492.

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

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


	Balance	Fair
	Sheet	Value
	Location	December 31, 2009
Derivative Assets:
Forward Sales Contracts	NVRM — Other assets	$	2,445


Derivative Liabilities:
Rate Lock Commitments	NVRM — Accounts payable and other liabilities	$	707

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 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	$	130,061	$	(563	)	$	(1,756	)	$	1,612	$	—		$	(707	)
Forward sales contracts	$	141,757		—			—			—		2,445			2,445
Mortgages held for sale	$	40,492		(225	)		(745	)		575		—			(395	)


Total Fair Value Measurement, December 31, 2009				(788	)		(2,501	)		2,187		2,445			1,343

Less: Fair Value Measurement, December 31, 2008				(1,197	)		2,021			1,825		(1,743	)		906


Total Fair Value Adjustment for the period ended December 31, 2009			$	409		$	(4,522	)	$	362	$	4,188		$	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 closed loans and locked loan commitments.

12. Quarterly Results (unaudited)

The following table sets forth unaudited selected financial data and operating information on a quarterly basis for the years ended December 31, 2009 and 2008.

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


	Year Ended December 31, 2009
	4th		3rd		2nd		1st
	Quarter		Quarter		Quarter		Quarter
Revenues-homebuilding operations	$	730,140	$	792,510	$	612,488	$	548,329
Gross profit — homebuilding operations	$	137,919	$	155,868	$	118,248	$	85,699
Mortgage banking fees	$	15,662	$	21,506	$	12,943	$	10,270
Net income	$	60,639	$	72,127	$	41,426	$	17,988
Diluted earnings per share	$	9.61	$	11.59	$	6.79	$	3.02
Contracts for sale, net of cancellations (units)		2,000		2,255		2,728		2,426
Settlements (units)		2,550		2,671		2,048		1,773
Backlog, end of period (units)		3,531		4,081		4,497		3,817
Loans closed	$	542,147	$	603,317	$	487,618	$	427,294


	Year Ended December 31, 2008
	4th			3rd		2nd		1st
	Quarter			Quarter		Quarter		Quarter
Revenues-homebuilding operations	$	899,535		$	928,265	$	941,033	$	869,869
Gross profit — homebuilding operations	$	23,756		$	122,334	$	168,664	$	142,938
Mortgage banking fees	$	10,639		$	10,946	$	14,690	$	18,062
Net (loss) income	$	(30,457	)	$	36,551	$	51,332	$	43,466
Diluted (loss) earnings per share	$	(5.54	)	$	6.12	$	8.64	$	7.42
Contracts for sale, net of cancellations (units)		1,357			2,002		2,670		2,731
Settlements (units)		2,776			2,750		2,750		2,465
Backlog, end of period (units)		3,164			4,583		5,331		5,411
Loans closed	$	623,623		$	610,313	$	593,867	$	523,538

Previous: Item 14. Principal Accountant Fees and Services.