Forward-Looking Statements
Some of the statements in this Form 10-Q, as well as statements made by us in periodic press releases or other public communications, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other comparable terminology. All statements other than of historical facts are forward looking statements. Forward looking statements contained in this document include those regarding market trends, NVR's financial position, business strategy, the outcome of pending litigation, projected plans and objectives of management for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of NVR to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: general economic and business conditions (on both a national and regional level); interest rate changes; access to suitable financing by NVR and NVR's customers; competition; the availability and cost of land and other raw materials used by NVR in its homebuilding operations; shortages of labor; weather related slow-downs; building moratoriums; governmental regulation; fluctuation and volatility of stock and other financial markets; mortgage financing availability; and other factors over which NVR has little or no control. NVR undertakes no obligation to update such forward-looking statements. For additional information regarding risk factors, see Part II, Item 1A of this Report.
Unless the context otherwise requires, references to "NVR", "we", "us" or "our" include NVR and its subsidiaries.
Results of Operations for the Three and Nine Months Ended September 30, 2009 and 2008
Overview
Our primary business is the construction and sale of single-family detached homes, townhomes and condominium buildings. To more fully serve our homebuilding customers, we also operate a mortgage banking and title services business. Our homebuilding reportable segments consist of the following markets:

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

During the third quarter of 2009, we opened new operations in the Orlando, FL, Raleigh, NC and Indianapolis, IN metropolitan areas. We currently have 2 active communities in the Orlando market and one active community in the Raleigh market. We expect to open 10 communities in the Indianapolis market during the fourth quarter.
We believe that we operate our business with a conservative operating strategy. We do not engage in land development and primarily construct homes on a pre-sold basis. This strategy allows us to maximize inventory turnover, which we believe enables us to minimize market risk and to operate with less capital, thereby enhancing rates of return on equity and total capital. In addition, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us

to gain valuable efficiencies and competitive advantages in our markets which management believes contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets.
Because we are not active in the land development business, our continued success is contingent upon, among other things, our ability to control an adequate supply of finished lots at current market prices, and on our developers' ability to timely deliver finished lots to meet the sales demands of our customers. We acquire finished lots from various development entities under fixed price lot purchase agreements ("purchase agreements"). These purchase agreements require deposits in the form of cash or letters of credit that may be forfeited if we fail to perform under the purchase agreement. However, we believe this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and development. As of September 30, 2009, we controlled approximately 43,700 lots with deposits in cash and letters of credit totaling approximately $162,500 and $5,500, respectively. Included in the number of controlled lots are approximately 15,700 lots for which we have recorded a contract land deposit impairment reserve of $129,600 as of September 30, 2009. See note 3 to the condensed consolidated financial statements included herein for additional information regarding contract land deposits.
Current Overview of the Business Environment The current home sales environment remains challenging, still characterized by high levels of existing and new homes available for sale driven by slowed demand and high foreclosure rates. Additionally, homebuyer confidence continues to be negatively impacted by the continuing economic recession and concerns regarding increasing unemployment as well as concerns regarding the stability of home values. The current home sales environment also continues to be adversely impacted by a restrictive mortgage lending environment that has made it more difficult for our customers to obtain mortgage financing, as well as making it difficult for them to sell their current homes. Despite these challenging market conditions, new orders, net of cancellations ("new orders"), increased 13% in the third quarter of 2009 as compared to the same period in 2008, driven we believe in part by the federal tax credit for first-time homebuyers. Although new orders increased quarter over quarter, we experienced a month to month sequential decline in new orders during the current quarter. We believe that these sequential monthly declines are due in part to the continuing uncertainty in the market and to the impending November 30, 2009 first time homebuyer federal tax credit deadline. As the quarter progressed, we were unable to guarantee delivery of homes prior to the expiration date of the federal tax credit program, which in turn limited our ability to sell to first time homebuyers seeking to qualify for the federal tax credit. Selling prices in most of our market segments continue to be negatively impacted by current market conditions. New orders for the nine months ended September 30, 2009 were flat with new orders for the same period in 2008. We continue to see improvement in the cancellation rate year over year, decreasing to 14% in the third quarter of 2009 as compared to 24% in the same period of 2008. Overall new order selling prices declined 2% in the third quarter of 2009 as compared to the third quarter of 2008 and are down 7% for the nine months ended September 30, 2009 compared to the same period in 2008.
Reflecting the challenging market conditions discussed above, consolidated revenues totaled $814,016 for the quarter ended September 30, 2009, a 13% decrease from the same period in 2008. Despite this decline in revenue quarter over quarter, net income and diluted earnings per share in the third quarter of 2009 increased approximately 97% and 89%, respectively, compared to the third quarter of 2008. Gross profit margins within our homebuilding business improved to 19.7% in the third quarter of 2009 as compared to 13.2% in the third quarter of 2008. The third quarter 2008 gross profit margin results were negatively impacted by a $42,839 land deposit impairment charge.
Based on continuing market uncertainties in both the homebuilding and mortgage markets, we expect to experience continued sales and pricing pressures over the next several quarters, and in turn, continued pressure on gross profit margins. To offset declining selling prices and customer

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

                                         Three Months Ended             Nine Months Ended
                                            September 30,                 September 30,
                                         2009          2008           2009            2008

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

Consolidated Homebuilding - Three Months Ended September 30, 2009 and 2008 Homebuilding revenues decreased 15% for the third quarter of 2009 compared to the same period in 2008 as a result of a 12% decrease in the average settlement price and a 3% decrease in the number of units settled quarter over quarter. The decrease in the average settlement prices were primarily impacted by a 13% lower average price of homes in backlog entering the third quarter of 2009 compared to the same period in 2008. The decrease in the number of units settled is primarily attributable to our beginning backlog units being approximately 16% lower at the start of the third quarter of 2009 compared to the same period of 2008, offset by a higher backlog turnover rate period over period.
Gross profit margins in the quarter ended September 30, 2009 increased compared to the third quarter of 2008 primarily due to the aforementioned $42,839 in contract land deposit impairment charges incurred in the third quarter of 2008. In addition, gross profit margins were favorably impacted by cost control measures initiated in prior quarters and lower lumber and certain other commodity prices. Despite these favorable results in the third quarter of 2009, market conditions continue to put pressure on new order selling prices, and we expect to continue to experience gross profit margin pressure over at least the next several quarters.
The number of new orders for the third quarter of 2009 increased 13% compared to the third quarter of 2008. As discussed in the Overview section above, the increase in new orders was driven we

believe in part by the federal tax credit for first-time homebuyers. In addition, new orders were favorably impacted by a reduction in the cancellation rate to 14% in the third quarter of 2009 from 24% in the third quarter of 2008. During the current quarter, we experienced a month to month sequential decline in new orders. This we believe is a result of the continuing uncertainty in market conditions and the impending November 30, 2009 first-time homebuyer federal tax credit deadline, as we were unable to guarantee delivery of homes prior to that deadline. Due to this market uncertainty, we expect to experience continued pressure on sales and selling prices over at least the next several quarters in most of our market segments.
Selling, general and administrative ("SG&A") expenses for the third quarter of 2009 decreased by approximately $10,100 compared to the third quarter of 2008. The decrease in SG&A expenses is primarily attributable to an approximate $9,300 decrease in selling and marketing costs due primarily to a 18% reduction in the average number of active communities in the third quarter of 2009 compared to the third quarter of 2008.
Consolidated Homebuilding - Nine Months Ended September 30, 2009 and 2008 Homebuilding revenues decreased 29% for the nine months ended September 30, 2009 compared to the same period in 2008 due to a 18% decrease in the number of units settled and a 13% decrease in the average settlement price. The decrease in the number of units settled is primarily attributable to our beginning backlog units being approximately 39% lower entering 2009 compared to the backlog unit balance entering 2008, offset partially by a higher backlog turnover rate period over period. Average settlement prices were impacted primarily by a 15% lower average price of homes in the beginning backlog entering 2009 compared to the same period in 2008.
Gross profit margins for the nine month period ended September 30, 2009 improved to 18.4% compared to 15.8% for the same period of 2008 primarily due to a favorable variance in contract land deposit impairment charges period over period. For the first nine months of 2009, we recognized the recovery of approximately $5,700, or 29 basis points, of contract land deposits previously determined to be uncollectible. In the comparative period for 2008, we recognized a contract land deposit impairment charge of approximately $55,200, or 202 basis points.
New orders for the nine months ended September 30, 2009 were flat as compared to the same period in 2008, while the average sales price of new orders decreased 7% over the same respective periods. As mentioned above in the quarterly discussion, the number of new orders was favorably impacted by the federal tax credit for first-time homebuyers as well as by a decrease in the cancellation rate to 14% for the nine month period in 2009 from 22% in the comparative 2008 period. Average selling prices continue to be negatively impacted by the aforementioned challenging market conditions.
SG&A expenses for the nine-month period ended September 30, 2009 decreased approximately $69,800 compared to the same period in 2008, and as a percentage of revenue were consistent with the prior year at 8.8%. The decrease in SG&A expenses is primarily attributable to a $30,300 decrease in selling and marketing costs in 2009 compared to the same period in 2008 due to an 18% decrease in the average number of active communities year over year. In addition, personnel costs were down approximately $26,900 as a result of lower staffing levels period over period.
Backlog units and dollars were 4,081 and $1,210,447, respectively, as of September 30, 2009 compared to 4,583 and $1,499,830 as of September 30, 2008. The decrease in backlog units is primarily attributable to our beginning backlog units being approximately 39% lower entering 2009 compared to the same period in 2008. Backlog dollars were negatively impacted by the decrease in backlog units coupled with a 9% decrease in the average price of homes in ending backlog, resulting primarily from a 5% decrease in the average selling price for new orders over the six-month period ended September 30, 2009 compared to the same period in 2008.

Backlog, which represents homes sold but not yet settled with the customer, may be impacted by customer cancellations for various reasons that are beyond our control, such as failure to obtain mortgage financing, inability to sell an existing home, job loss, or a variety of other reasons. In any period, a portion of the cancellations that we experience are related to new sales that occurred during the same period, and a portion are related to sales that occurred in prior periods and therefore appeared in the opening backlog for the current period. Expressed as the total of all cancellations during the period as a percentage of gross sales during the period, our cancellation rate was approximately 14% and 22% in the first nine months of 2009 and 2008, respectively. From the first quarter of 2008 through the third quarter of 2009, approximately 9% of a reporting quarter's opening backlog cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur in 2009. See "Risk Factors" in Item 1A of this Report. Reportable Segments
Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge determined at the corporate headquarters. The corporate capital allocation charge eliminates in consolidation, is based on the segment's average net assets employed, and is charged using a consistent methodology in the periods presented. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment's results are providing the desired rate of return after covering our cost of capital. We record charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a finished lot purchase agreement with the developer or to restructure a lot purchase agreement resulting in the forfeiture of the deposit. We evaluate our entire net contract land deposit portfolio for impairment each quarter. For additional information regarding our contract land deposit impairment analysis, see the Critical Accounting Policies section within this Management Discussion and Analysis. For presentation purposes below, the contract land deposit reserve at September 30, 2009 and 2008, respectively, has been allocated to the reportable segments to show contract land deposits on a net basis. The net contract land deposit balances below also includes $5,500 and $6,600 at September 30, 2009 and 2008, respectively, of letters of credit issued as deposits in lieu of cash. The following table summarizes certain homebuilding operating activity by segment for the three and nine months ended September 30, 2009 and 2008:

                                        Three Months Ended             Nine Months Ended
                                           September 30,                 September 30,
                                        2009          2008           2009            2008
 Mid Atlantic:
 Revenues                            $ 491,669     $ 531,451     $ 1,212,785     $ 1,617,708
 Settlements (units)                     1,388         1,266           3,373           3,851
 Average settlement price            $   354.1     $   419.7     $     359.5     $     420.0
 New orders (units)                      1,199           965           3,823           3,598
 Average new order price             $   344.3     $   364.2     $     345.3     $     376.2
 Backlog (units)                                                       2,226           2,473
 Average backlog price                                           $     344.5     $     386.4
 Gross profit margin                 $ 102,145     $  90,973     $   239,469     $   274,221
 Gross profit margin percentage           20.8 %        17.1 %          19.8 %          17.0 %
 Segment profit                      $  71,919     $  45,668     $   150,804     $   132,395
 New order cancellation rate              12.9 %        26.3 %          14.3 %          23.3 %
 Inventory:
 Sold inventory                                                  $   271,361     $   339,528
 Unsold lots and housing units                                   $    27,720     $    37,709
 Unsold inventory impairments        $     294     $     216     $     1,450     $       936
 Contract land deposits, net                                     $    79,188     $   109,066
 Total lots controlled                                                23,842          30,951
 Total lots reserved                                                   6,806          10,810
 Contract land deposit impairments   $   1,237     $   1,687     $     4,543     $    20,459
 Average active communities                166           206             170             210

 North East:
 Revenues                            $  74,563     $  80,695     $   185,081     $   265,474
 Settlements (units)                       260           264             641             813
 Average settlement price            $   286.8     $   305.7     $     288.7     $     326.5
 New orders (units)                        222           205             703             725
 Average new order price             $   312.0     $   301.6     $     291.3     $     302.7
 Backlog (units)                                                         365             417
 Average backlog price                                           $     294.5     $     299.8
 Gross profit margin                 $  12,960     $  13,171     $    32,072     $    42,128
 Gross profit margin percentage           17.4 %        16.3 %          17.3 %          15.9 %
 Segment profit                      $   7,156     $   5,173     $    15,479     $    17,014
 New order cancellation rate              14.9 %        18.7 %          14.0 %          17.9 %
 Inventory:
 Sold inventory                                                  $    38,418     $    47,907
 Unsold lots and housing units                                   $     3,291     $     3,548
 Unsold inventory impairments        $      30     $      65     $       520     $       437
 Contract land deposits, net                                     $     1,182     $     7,613
 Total lots controlled                                                 3,424           5,094
 Total lots reserved                                                   1,023           1,593
 Contract land deposit impairments   $     141     $      65     $       210     $     3,404
 Average active communities                 37            37              37              40

                                          Three Months Ended           Nine Months Ended
                                             September 30,               September 30,
                                          2009          2008          2009          2008
   Mid East:
   Revenues                            $ 156,281     $ 182,324     $ 362,373     $ 487,253
   Settlements (units)                       722           756         1,668         2,012
   Average settlement price            $   215.2     $   239.6     $   215.7     $   240.8
   New orders (units)                        560           577         2,007         2,020
   Average new order price             $   224.0     $   223.5     $   216.2     $   232.1
   Backlog (units)                                                     1,070         1,121
   Average backlog price                                           $   222.2     $   229.8
   Gross profit margin                 $  30,319     $  33,712     $  65,125     $  85,239
   Gross profit margin percentage           19.4 %        18.5 %        18.0 %        17.5 %
   Segment profit                      $  18,225     $  17,622     $  30,970     $  37,092
   New order cancellation rate              15.3 %        19.2 %        14.0 %        15.8 %
   Inventory:
   Sold inventory                                                  $  71,830     $  78,299
   Unsold lots and housing units                                   $  16,654     $  16,671
   Unsold inventory impairments        $     161     $       -     $     313     $      69
   Contract land deposits, net                                     $   4,439     $  10,907
   Total lots controlled                                              10,662        13,310
   Total lots reserved                                                 3,314         5,273
   Contract land deposit impairments   $     143     $     300     $   1,965     $   2,119
   Average active communities                101           121           100           119

   South East
   Revenues                            $  69,997     $ 133,795     $ 193,088     $ 368,732
   Settlements (units)                       301           464           810         1,289
   Average settlement price            $   232.5     $   288.4     $   238.4     $   286.1
   New orders (units)                        274           255           876         1,060
   Average new order price             $   227.8     $   251.9     $   227.4     $   267.1
   Backlog (units)                                                       420           572
   Average backlog price                                           $   234.4     $   282.7
   Gross profit margin                 $  10,316     $  22,691     $  30,641     $  65,138
   Gross profit margin percentage           14.7 %        17.0 %        15.9 %        17.7 %
   Segment profit                      $   2,870     $  10,578     $   9,344     $  27,220
   New order cancellation rate              13.6 %        31.5 %        13.8 %        27.5 %
   Inventory:
   Sold inventory                                                  $  32,160     $  56,886
   Unsold lots and housing units                                   $   5,615     $   8,621
   Unsold inventory impairments        $      72     $     129     $     212     $     129
   Contract land deposits, net                                     $   1,469     $   7,735
   Total lots controlled                                               6,062         8,913
   Total lots reserved                                                 2,803         5,139
   Contract land deposit impairments   $   1,279     $     773     $   1,800     $   4,692
   Average active communities                 49            69            49            68

Mid Atlantic . . .