Cavco Expands Upon Q1 Financial Report
Management of Cavco Industries Inc., a Phoenix-based builder of manufactured homes and park models, said it is pleased with the growth potential that it gained when it purchased the assets of bankrupt Palm Harbor Homes Inc. in June for $83.9 million.
In a conference call to investors today (Aug. 9), Joseph H. Stegmayer, chairman, president and CEO, said the five operating facilities it bought are in good condition, the 49 retail stores it now owns are “exemplary” and the mortgage finance business and insurance operation it acquired “have sound track records and good internal controls.”
The purchase will allow Cavco to offer an enhanced product line, serve a broader geographic area, realize new financial streams from its finance operations and enjoy economies of scale through a larger organization, Stegmayer said.
On Monday (Aug. 8), Cavco reported net sales for the first quarter ending June 30 totaled $98,981,000, up 108% from $47,505,000 for the first quarter of fiscal year 2011
Net income for the fiscal 2012 first quarter was $17,459,000, compared to $850,000 reported in the same quarter one year ago. Included in net income for the quarter was a gain on bargain purchase of $18,780,000 resulting from the acquisition of Palm Harbor, as calculated in accordance with FASB Accounting Standards Codification 805, Business Combinations, according to the company.
Cavco acquired the Palm Harbor assets at below fair market value, creating what Chief Financial Officer and Treasurer Dan Urness today called in accounting terms “negative goodwill” reported as a purchase gain.
Without this allocation, the company would have reported an $800,000 loss for the quarter, he said.
Included in the purchased assets from Palm Harbor Homes were the five operating factory-built home production facilities, idled factories in nine locations, 49 operating retail locations, one office building, real estate, all related equipment, accounts receivable, customer deposits, inventory, certain trademarks and trade names, intellectual property and specified contracts and leases.
All outstanding shares of CountryPlace Acceptance Corp., Standard Insurance Agency, Inc. and their wholly owned finance and insurance subsidiaries were also part of the purchase.
Fleetwood Homes Inc., a subsidiary owned 50% by Cavco and 50% by Third Avenue Value Fund (TAVFX), completed the acquisition of substantially all of the assets and assumption of certain liabilities of Palm Harbor Homes.
Cavco sold 1,851 homes in the first quarter, up 41% from a year ago. The company had a $20 million backlog as of June 30, which represents about two weeks of production.
Six of the nine idled factories it acquired from Palm Harbor are listed for sale.
Asked about the current retail finance environment, Stegmayer said he sees no signs of an easing up by lenders. Borrowers with good credit scores can get a mortgage but it takes a while, he said.
“The challenge that continues to haunt all home sales is one of appraisals,” he said. Sometimes it’s difficult to get timely appraisals in certain markets, like rural markets where comps are unavailable, and it takes a protracted period of time to complete, he indicated.
He said the market in Texas is better than in Arizona and California.
“By and large most of the country is facing the same issues economically so it impacts our business across the board,” he said.