Cavco Industries Inc. reported a 189% increase in sales for its third quarter, ended Dec. 31, buoyed by a major acquisition.
Net sales for the third quarter of fiscal 2012 totaled $114.6 million compared with $39.6 million the year prior. As previously reported, Fleetwood Homes Inc., a subsidiary owned 50% by Cavco and 50% by Third Avenue Value Fund, completed the acquisition of substantially all of the assets and assumption of certain liabilities of Palm Harbor Homes Inc. during the quarter ended June 30, 2011.
Palm Harbor had been in the business of manufacturing and marketing factory-built housing and providing related consumer financing and insurance products. The aggregate gross purchase price, exclusive of transaction costs, specified liabilities assumed and post-closing adjustments, was $83.9 million. The results of the Palm Harbor operations have been included in Cavco’s financial statements since acquisition.
Net income for the fiscal 2012 third quarter was nearly $3 million compared to $290,000 reported in the same quarter one year ago. Net income attributable to Cavco stockholders for the fiscal 2012 third quarter was $1.7 million compared to $24,000 reported in the same quarter one year ago. Net income per share based on basic and diluted weighted average shares outstanding was 24 cents, versus basic and diluted net income of four-tenths of one cent per share last year.
For the first nine months of fiscal 2012, sales increased 158% to $343.5 million from $133 million for the comparable prior year period. Net income for the first nine months of fiscal 2012 was $26.8 million compared to $2.3 million for the prior year period. Included in net income for the nine months was a gain on bargain purchase of $22 million resulting from the Palm Harbor transaction, calculated in accordance with the accounting standards for business combinations.
Cavco Industries Inc. announced that the U.S. Bankruptcy Court last week approved a subsidiary of Cavco as the successful bidder for the assets of Palm Harbor Homes Inc. at an auction conducted under Section 363 of the United States Bankruptcy Code.
Palm Harbor is a manufacturer and marketer of factory-built housing and recreational park trailers and a provider of related consumer financing and insurance products.
A newly formed subsidiary of Fleetwood Homes will purchase substantially all of Palm Harbor’s assets comprising its manufactured and modular housing construction and retail businesses and all of the outstanding stock of its insurance and finance subsidiaries, and to assume certain liabilities of Palm Harbor. Cavco and Third Avenue Value Fund (TAVFX) each owns 50% of Fleetwood Homes. Third Avenue Management, the investment adviser to Third Avenue Value Fund, is a New York-based company with expertise in value and distressed investing.
As previously reported, Palm Harbor and certain of its subsidiaries filed for Chapter 11 bankruptcy protection on Nov. 29, 2010. Shortly thereafter, Fleetwood Homes provided a $50 million debtor-in-possession credit facility to Palm Harbor. On March 1, Cavco’s subsidiary was selected as the successful bidder in the court auction with a winning bid of $83.9 million, subject to certain post-closing adjustments and customary conditions to closing.
At the close of the asset purchase transaction, the then-outstanding balance of the credit facility, including accrued interest, will be credited to the purchase price, thus reducing the amount of cash consideration to be transferred at the close of the transactions contemplated by the purchase agreement. The transaction, expected to close on April 1, will be funded by Fleetwood Homes’ cash on hand along with equal equity contributions from Cavco and Third Avenue.
The successful bid included manufactured housing factories, retail locations, equipment, accounts receivable, inventory, intellectual property, and certain warranty and other liabilities. Palm Harbor’s insurance and finance subsidiaries, including Standard Casualty Company, Standard Insurance Agency, CountryPlace Acceptance Corp., and CountryPlace Mortgage, Ltd. were not parties to the Palm Harbor bankruptcy filing, but the shares of these companies are included in the assets to be acquired by Fleetwood Homes’ subsidiary.
Joseph Stegmayer, chairman, president and CEO of Cavco Industries, commented “As a fellow builder with Palm Harbor, we at Cavco and our partners at Third Avenue are thrilled to soon move past the remaining sale procedures, and turn our collective attention toward integrating the Palm Harbor operations. During the entire purchase process, we were and continue to be compelled by our belief in the long-term value of the Palm Harbor brand names and passion of the Palm Harbor people that represent it. We also believe that this combination will make our organization stronger and more capable in the national housing industry.”
“This transaction is consistent with our strategic plans to grow our business while our industry right-sizes in general under currently depressed market conditions. Our intention is to help Palm Harbor continue its heritage of providing quality home building and retailing, financing, insurance products and outstanding customer service,” Stegmayer concluded.
Larry Keener, chairman and CEO of Palm Harbor Homes, commented, “We are pleased and excited that Cavco, through their subsidiary Fleetwood Homes, was the successful bidder for the Palm Harbor assets. Cavco is a financially strong and extremely well managed company. The combination of the Cavco, Fleetwood, Palm Harbor, and Nationwide modular brands and operations creates a powerful nationwide spectrum of products and services. All of us at Palm Harbor look forward to this new opportunity.”