Cavco Industries Inc (CVCO) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cavco Industries, Inc. fourth quarter fiscal year 2007 conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Thursday, May 3, 2007. I would now like to turn the conference over to Joe Stegmayer, President of Cavco Industries. Please go ahead, Sir.

Thank you, Susie. Welcome, everyone. I want to thank you all for joining us on today's call. Before I begin I want to remind you that this call may contain forward-looking statements about future financial results. Our actual results may differ materially as a result of a variety of factors, some of which Cavco has no control over. These factors are outlined in the news release we issued last night and in our filings with the SEC. If you did not receive the news release on our fourth quarter results, you can get a copy on our website, cavco.com.

During last quarter's conference call in January, we said that demand was soft and that there were no catalysts surfacing that would help improve demand near term. Unfortunately that statement was accurate with respect to our fourth quarter ended March 31. The rate of incoming orders from our distribution channels has been anemic. It has been a struggle to keep our factories running, but I'm glad to report that our people have done a great job of doing so. While we're not satisfied with the results for the fourth quarter, we do believe that they are above average for our industry specifically and perhaps for the overall housing industry as well. Dan will review those numbers in a minute.

The most recent data for the manufactured housing industry indicates that home shipments were down 39% for the first two months of calendar 2007 compared to 2006. In Cavco's primary markets, shipments were 45% lower than last year for that same time period. Industry shipments for 2006 set a 45 year low and the current annualized level based on the first two months of the year is below that. Financing remains the primary challenge. There has been discussion about the sub prime debacle and how reduction in this type of lending will affect manufactured housing sales.

We welcome a change from the aggressive underwriting approach that has characterized sub prime lending in recent years. It is our opinion that more reasonable and judicious lending standards will serve to bring back to our industry our customers who's budgets call for lower price point housing, but who, because of ill-conceived and [indiscernible] lending practices have been able to move into higher priced homes.

At the same time, we point out that a portion of our industry's customers are sub prime borrowers, so an overall tightening could have an effect on our buyers as well. However, we believe that the access problem in mortgage lending, such as zero down payments, interest only, negative amortization, and no documentation loans, have not been a meaningful portion of loans generated for our buyers. In fact, the lack of this type of lending for factory built homes is one of the primary reasons we have not been an effective competitor to site built housing in recent years.

So the impact of lending environment changes should have less effect on our industry near term and eventually could serve to broaden our market by bringing back many of these potential buyers. In closing, I would like to state that we are concerned about the near term outlook for our business. Consumers are cautious. Distribution pipeline inventories have risen somewhat, although certainly not to alarming levels. Finance remains the challenge.

On the positive side, the need for affordable housing still exists. Cavco has a broad product line and the production flexibility to customize for developers and consumers. The population in our markets is growing. The time may be returning when people make their housing decision based on more of a value proposition than a financing one which will benefit our industry. And the finance companies specialized in our industry in particular have been reporting higher loan application volumes recently.

The only certainty we can see is the months ahead will be quite challenging. We believe we're prepared to face the challenges. However, it has proven to be difficult to predict the extent and duration of the issues that confront us and therefore guesstimate the timing of any industry recovery. Now Dan Urness, our VP and CFO will review our financials and then we'll respond to your questions.

Thank you, Joe. As a result of the difficult market conditions that exist, net sales for the fourth quarter of fiscal year 2007 declined 34% to $33.8 million compared to last year's fourth quarter net sales of $51.2. Our wholesale shipments were lower this quarter by 31%. We shipped 746 units compared to 1,083 units during last year's fourth quarter. The average sales price per unit was approximately $43,500 versus $45,900 per unit in the same prior year quarter, a reduction of 5.2%.

As order rates and backlogs were low throughout the quarter, our production efficiencies were affected to the negative accordingly. Our gross profit for the fourth quarter of fiscal 2007 was $5.3 million or 15.7% of net sales, down from $10.2 million or 19.8% of net sales for the fourth quarter of last year. Selling, general and administrative expenses for the quarter were $3.4 million or 10.1% of net sales versus $4.1 million or 8% of net sales for the same quarter in fiscal '06. The dollar reduction in SG&A costs is mainly from reduced compensation for pay programs that are tied to earnings.

Interest income is higher, primarily the result of a higher balance of investable funds and higher short term interest rates. The current tax provision rate for Q4 '07 is lower at 30% compared to 35% for Q4, '06. Our tax free interest income is a larger proportion of our earnings, favorably impacting our tax rate. Fiscal 2007 fourth quarter income from continuing operations was $1.8 million or $0.27 per diluted share compared to $4.2 million or $0.62 per diluted share last year.

From a balance sheet perspective, liquidity increased as our combined cash and short-term investment balance was $63.9 million on March 31, 2007 compared to $58 million on March 31st last year. Our trade receivables are down in concert with reduced sales activity. Inventories are slightly higher as a result of more homes caused by the finished goods that are awaiting final acceptance for a government contract which is near completion. Also, our raw material levels are down slightly from one year ago but have been maintained at levels that allow us enough material on hand in order to run on short backlogs and still offer a diverse product line.

Lower trade payables coincide with reduced purchasing levels. Accrued liabilities have decreased mainly in the areas of customer deposits, volume rebate accruals, and accrued payroll. And we continue to be debt free. In closing, we have worked to minimize our fixed costs in the current downturn and continue to engage in cost reduction measures to help maintain maximum profitability. At this time, Susie, we'd like to turn it over to you and take any questions.

[OPERATOR INSTRUCTIONS] Our first question coming from the line of Kathryn Thompson from Avondale Partners. Please proceed with your question.

Great, thanks. What was your capacity utilization either at quarter end or most recent in terms of days or dollars, days actually, on a percentage basis?

Well our capacity utilization, Kathryn, ran at 60% for the fourth quarter. I'm not sure when you say dollars --

I was thinking about backlogs, I was jumping to my second question which was going to be backlogs. But really, kind of where were you at quarter end in terms of capacity utilization and backlogs and have you seen any sequential improvement or change in both of those metrics?

Our backlog remains at about one week for our facilities. And as I say, the capacity utilization is about 60% which is actually down slightly from Q3. So we have not seen a build in backlog or really any change in our utilization.

Okay. Do you have any update on -- I know you made some management changes at your Texas manufacturing facility. How has that progressed with the management change and what are you seeing in terms of demand out of that state?

We are fairly pleased the way things are going there. We did increase our management group in Texas, and beefed it up a little bit, if you will. And Texas market is not as soft if you look at the numbers, as you well know, as some of the other markets in the country. It's certainly not booming, but it's been fairly stable this past year. And we do see an interest in our production of HUD product there which we've recently introduced and now it's an issue of we're wrapping up our production capacity, or production rate, and that's a function of training more people and that's what we're in the process of doing. So I think we're pleased with the progress we're making. We're not where we need to be by any means at that facility yet, but we're moving in the right direction.

How much could that facility add to overall contribution from an overall company perspective?

Well we view Texas as a long term strategy for us, and I guess I would add, too, that we don't make forecasts and we certainly don't make them on individual plant basis. But it obviously compared to our plants that have been established for years out in this market. It would take likewise years for it to have the same type of probably impact and contribution. However, the plant can be a good contributor to us, we think, into the latter half of this year and certainly in '09 and beyond. So we are in Texas as a long term proposition. Texas is the number one state for manufactured housing in the country, and although it's certainly down from its peaks, down 77% from its peaks back in the 90s, it is still an attractive state for manufactured homes. There is a lot of land availability, a lot of receptivity and understanding of the product on the part of the consumer. And so we believe that market will gradually return, but it's facing some of the same challenges as other markets. The financing and other issues. But we feel good about that geographic expansion. It puts us in another part of the country that is a good solid market for manufactured homes.

Okay, great. And then finally, just two different questions. Anything different you're seeing in terms of retail in your Arizona and California markets? And also, any progress with communities?

Well you mentioned retail, Kathryn. Could you clarify that question?

Well, really just kind of the Arizona, California, Florida markets have just been terribly soft and it appears to remain so throughout this year and a portion of '06. And since your last conference call, have you seen any type of firming, particularly in the Arizona market since you last spoke in public?

Okay, thank you. We -- I can't say we really have, no. Our retail distribution people, our independent dealers, tell us that traffic remains fairly slow. They say the quality of traffic is good, that is that they tend to be interested parties at the sales centers. But they're not getting as much traffic as they had been receiving at this time last year for example. And in terms of communities, community business has certainly slowed down, but I think the outlook is still very good for the community business. Most of the communities we sell to are lifestyle communities, sometimes age restricted. But they're communities that are generally 4 and 5 star properties. And of course the Arizona, California markets are destination locations for people looking at empty nesting and in fact retiring, and seasonal living. So we think that the outlook for that business is quite good. It certainly has slowed recently. I think we mentioned the last quarter, a lot of would be buyers are having difficulty either in the timing of the sale of their home, taking longer to sell it, or they're having difficulty accepting the fact that the home might not be worth as much as they thought it was worth based on prices from 6, 12, 18 months ago. And until they overcome that denial and/or make another adjustment and sell that home, they will not buy either their second home or their retirement home out here.

Okay, great. Thank you very much.

Thank you. Our next question coming from the line of John Diffendal from BB&T Capital Markets. Please proceed with your questions.

Diffendal, that's close but not quite. A couple of things. On the park model side, maybe update on how that market looks for you. And in particular I guess the bids are in on the Mississippi awards and I'm just curious if you had any thoughts on that and maybe -- I assume you're bidding on some business out there.

Yes, John, we have bid on the park model portion of the solicitation on the part of the State of Mississippi and we also plan to bid on the second product line, the cottage units. So we will be bidding on both. We haven't heard any answer. There was some indication they would announce something yesterday, but we have not seen anything. We are certainly hopeful. We think we put in a very good bid package, very complete. It was a very complex project and we have a lot of experience building park models. So we certainly think being the leader in that industry, we certainly think we have demonstrated we know how to build that product line. So we certainly hope for this consideration, but we really have no feedback as of now.

And my memory of this was there was more than 30 bidders and some discussion that it would be only a couple of the bids accepted. Is that your understanding as well?

I think you're right as to the number of bidders. What they said in the publicly distributed solicitation was that they may, I don't think they're obligated to, but they may call the list down and in effect product a short list and then take a closer look at those bidders. And including, up to and including interviewing those people.

And help me -- I've heard at least rumors that one of the requirements might be to actually produce in the state. Is that a requirement as far as you know?

I have not heard that. I'm sure that they logically speaking think they might give some preference to people within the state. But I don't think the numbers that they're looking to try to build and the timeframe they're trying to build them and the complexity of the product, I don't think they'd be able to have them all built in the State of Mississippi.

And you all mentioned that the average price dropped a little over 5%. What was the components of that drop? Was that mix? What drove that?

Yes, largely mix. In fact, it's all mix We haven't had any -- we haven't seen any real price declines as such. So it's largely a function of mix and to a small extent sometimes it could be surcharges based on lumber prices having come down somewhat from last year.

But it's mix towards -- does that mean that a lower end house is being, is more frequently being sold by you? Or mix toward park models or whatever, that part of the business holding up better?

Yes, it's actually kind of both, but you're right. It's some of the fact that our park model business had quite a good season and so that mix was somewhat larger. And by definition they're smaller units at lower average selling prices. And then as you say, there's a mix, too, in our product line, our traditional HUD product line and modular line of some lower price point products that entered into it as well. But we're still seeing actually quite an interest in the larger HUD and modular homes, the 3 and 4 module units.

And just to follow up on Kathryn's question about California and Arizona, in your view what has to happen -- and maybe just thinking farther into the year a little bit -- what will be the driver that would maybe start to stiffen your demand in those markets? Is it cleaning out inventories? Starting to see site built inventory come down? I'm just curious what your -- you're a lot closer to those markets out there -- what has to happen first before you see demand stiffen in the western markets?

Yes, I think that certainly the stabilization of the site built and perhaps as you say some reduction of inventory. And frankly, there's probably some reduction in inventory that needs to take place within the manufactured housing channels in the State of California. I don't think, as I said, I don't think they're at alarming levels, but I do think given the slowdown in sales obviously, that some distributors have a little bit more inventory than they probably care to have including in some cases developers where they set up spec homes for sales, I mean land home transactions. And I think as the market slowed down, their turns slow down and they're left with a little bit more inventory than they like. And I think we need to see some of that be sold before they start ordering again. Still, the value propositions will be quite good in California. Even if the price, the median price of the site built homes in general come down, there's enough disparity between the manufactured housing product, the site built could still provide a good attractive proposition for consumer.

And I guess it's my understanding that a fair amount of the market is communities where you have a lot of older, older product that you can take advantage of pulling out old product, putting new in, and still have a much lower average price than on the site built side. Is that redevelopment of communities slowed down dramatically?

Well, that's right. I was just going to say my second point -- you kind of said it for me -- there's a good market in California in older communities to replace older units, even some units that were built pre-HUD codes back in the 60s and 70s. And so that market has certainly slowed down, but it's going to be a good long term market. There's a tremendous amount of replacement business that will have to be done and will be done over the next several years. And a lot of people have been in those units for a long time. They're looking at other housing alternatives. There are certainly a lot of these communities are in great locations in close proximity to major metropolitan areas, good commuting distances. And in attractive, desirable parts of the cities. So there will be a need for that working class and young professionals, for that price point housing. And I think that replacement market will continue.

Now the challenge short term is that some of that replacement business that's been done, generally the developer, the retailer, however you want to call the person who actually buys the space to control the space and buys the older unit to replace with a new unit, they have to buy that unit from a homeowner. And the prices they paid were inflated during the last several years. They inflated I should say, during the last several years, in concert with a run-up in housing in general. And now things are cooling off, the pricing to buys those units and replace them is not as high. And so again, people who are left having bought some of those at higher prices have to bleed that inventory off as well. And they might have to make some decisions. They being the distributor, the entrepreneur, to take a cut on what they expected to get for that unit. And that might take some time to overcome that and move, clear that inventory out. But once that occurs, I think there will be a continuing need and demand for that product in those communities.

And just one last question. I guess fuel prices are getting ready to move into either new or higher territory. Here in the west, they have already been high. But what effect does that have? I think your distances are sometimes a little longer out there in terms of the imbedded transportation costs in the unit. Is that an issue you see on the horizon?

We really don't expect that to be an impact, John, primarily because we've seen such a run-up in fuel prices last several years, and so if they continue to increase as you suggest, I think an increase substantially, or the increase percentage that they have increased the last couple years, we don't expect to see that. And then secondly, probably more importantly, is the fact that the transportation cost, while it does increase certainly with the fuel increases, is still a fairly small portion of the price of the home. And when you figure, too, that to build a site built home, products have to be brought in, there are certainly imbedded fuel costs and transportations costs in building a home on site. So it's not as if the manufactured housing product has a distinct or absolute disadvantage vis-à-vis building on site. The products we bring into all one location and we have some efficiencies there and then ship the unit. Admittedly, our shipping costs in total are probably higher, but not -- it's not a zero to 100% game.

Great, thanks, Joe. I've got a daughter that's getting ready to start graduate school at Arizona State, so I'll be seeing you more. Thanks.

Thank you. Our next question coming from the line of Paul Nouri from Sidoti & Co. Please proceed with your question.

Good afternoon. Historically the park model commercial business, the specialty business, has been about 20% of overall sales. Has that increased recently?

It has increased somewhat. And we expect that to be the case somewhat into this quarter although their season is slowing down now, the park model season is at an end really. But they've been doing well. I don't think the changes are huge, but certainly because the park model business has been fairly strong as opposed to HUD business this year, it has shifted somewhat.

And are there any new developments on the commercial side of the business?

Well, we continue to introduce some new products there. We view, Paul, the commercial business as a relatively small business unit for us. It's one we're testing and seeing the demand in our current market areas and how we can [indiscernible] on those demands. We don't intend to get into highly complex commercial buildings which some factory built companies do. We would be producing more of the traditional units that some of the major [indiscernible] companies use in their fleets and perhaps some basic offices and classrooms.

Something like a William Scotsman would build?

Exactly. Those types of companies. And so we're obviously building those relationships and we'll see if we can fill some needs in these market areas here.

And you have how many retail stores left? Two or three?

We have 5 retail stores in our continuing operations and two in our discontinued operations.

Okay, so you still have 2 in there. Okay. All right, thank you.

Thank you. Our next question coming from the line of Dax Vlassis from Gates Capital. Please proceed with your question.

Yeah, Joe, is there any ability to see if there is some sort of use for this $54 million of cash on the balance sheet?

I'm sorry, Dax, you're saying is there some --

I mean, it's been a couple years and there's been no transactions and for years you've been saying things are too expensive. Are things still too expensive or are you worried about the continuing decline in the overall market and want to preserve some cash for the business? I'm just kind of wondering, you know, what sort of opportunities this further like down has created for Cavco as a potential buyer of businesses, or --

Well I think actually our primary reason in the past we've talked about is [inaudible] prices can be at times too high. We said it's more of an issue, too, of timing, and do we want to add capacity and new business to our fold at a time when market conditions are so uncertain. And in fact, I think in retrospect, I think we can be reasonably glad we did not make any significant acquisitions in the past couple of years because of the way the market has gone. It has not improved obviously by recent shipment numbers. So we do intend to still utilize it for that purpose, to expand geographically and perhaps from a product line standpoint. And to use acquisitions as a vehicle to achieve that strategy. But again, we don't have any timetable that we feel we have to invest that money. We're going to do it when we think it's prudent to do so and for that investment we think is prudent.

Right. I mean, I assume you're talking to people all the time and have people come back to the table because of the downturn thing, that the multiple that they were interested in 12 months ago are no longer -- that they'd consider something lower or that they're not in that difficult a spot where they to do anything?

Well, I don't want to get into how we talk to these folks, but I would say that those who have survived the downturn in this industry this long are generally pretty good operators. And although they might not be making any money or they might be just fighting cash flow positive figures, they're still -- probably given the fact that it's not a capital intensive business, they can probably survive and make it through. And so oftentimes the question becomes, do they want to? Do they, not necessarily do they need to, but do they want to for other reasons? And sometimes those are longtime decisions on the part of the seller. And so we have to work with them for quite sometime.

But I think we do keep in contact with a lot of folks. I think we have a good story to tell in terms of their joining forces with us, a strong decentralized company that's got good engineering and part design capabilities and purchasing power and so forth. So it's a -- I think we make an attractive candidate, but in the end you can't always force these people to sell their business unless you throw ridiculous amounts of money at them which we're not going to do.

Right. And my other question is with respect to inventories. I mean, the sales orders have been coming down and inventories have kind of maintained or actually picked up a little bit this quarter. And you said that the inventories at retail are still okay, you don't consider that a problem. But is there anything in your inventory that's moving slow? Or would you expect to liquidate some in this downturn?

Dax, we don't maintain really any finished product inventory to speak of, so we don't really run into [indiscernible] or slow moving kind of issue. Sometimes the distribution channel might have a product line and we've sold them, or other people have sold them, other industry players that might be moving slow for some reason. It could be price point, it could be design. And we certainly will encourage and try to help the retailer move that product. But on our balance sheet, we don't tend to have finished product. Dan mentioned that we do have actually a little bit higher finished product than we typically would have this quarter because of a contract that we have with the U.S. Army. But we were holding those units pending preparation of sites and so on. That's kind of unusual, so I think you'll see that come down over the next quarter and inventories will probably remain fairly flat for us.

Great. And then is there anything from an industry perspective? I mean it's kind of -- we keep seeing a decline from what we thought we were on near the bottom and it keeps getting worse. Is there something structurally changed that when maybe considering the bottom, it's maybe not the new reality, but that the numbers from a year ago that the industry did are no longer applicable?

Well, you say the industry did a year ago?

Well, no, I mean in 2001 it was like 250,000 and you know, I don't know where we are -- 110. You know, is there something that's changed that we won't get back to those 250, 190 level units that you see or that you've kind of heard that make some sort of a theory on it that makes sense to you?

Right. Certainly that's the big question. We believe that the market actually has been somewhat larger than, especially until recently, than the numbers, the shipment numbers would indicate. Because as you correctly say, in 2000, shipments were 250,000 units. And they've come steadily down from there to this 100, 110,000 range the last couple of years. Now part of that, part of that sales activities were replaced by the repossessions that the industry faced certainly in the early 2000s and even into recent years. Those repossessions now have largely worked their way through the system, but in terms of retail consumption, those manufactured home product, retail purchases, the numbers, the shipment numbers don't really reflect what was going on on the part of the consumers.

Having said that, certainly we were also battered as an industry by the attractive financing available to individuals and it's cycles of promoting, and it certainly took away a lot of our potential buyers. And we've gone from generally the mid teens in terms of a percent of single family homes sold -- manufactured homes historically -- if you go back over a long period of time, they were in generally mid teens -- 15, 16, 17% of all new single family homes sold. And in recent years, we've been 7 or 8%. So we certainly lost some of that because of the financing is what we would maintain.

And so as we see more rational financing on the part of site builders and then perhaps a little bit better financing in our industry, a return by some of the finance companies to our industry because of better loan performance, because of better underwriting standards that have been employed the last several years, I think these will converge to help our industry improve its numbers. But certainly it hasn't happened yet and that's our reason for some caution.

What I always go back to, Dax, is that the basic equation for manufactured housing being more affordable, more efficient, being energy efficient and being actually able to be built in the green. As we talk about more and more construction, green construction, or environmentally friendly construction, manufactured housing lends itself to those things. And I think that disparity is not going to go away.

Okay, thanks a lot, Joe.

Thank you. Our next question coming from the line of Jay McCanless from FTN Midwest. Please proceed with your question.

Hey, good morning. A couple three questions. First, in listening to conference calls from other manufacturers, they noted that they had to discount some homes during the quarter to make sales. Did you all do any discounting this quarter?

No, we are not really doing that.

Okay. Do you believe you're going to have to for the upcoming quarter or for the rest of the year?

That's hard to predict, Jay. We'll have to react to market conditions. We have not seen a large spread discounting of homes. And we try to present our product, and we do present our product, I think, as a high value product for the price. And so I think even if some others discount pricing somewhat, we still think we can be very competitive price wise. And that's certainly a concern that people trying to keep plants running, keep plants open, that they'll get unrealistic about their pricing. But you know, when you look at the margins that you're talking about in some of those companies that have been reporting, and of course our reduced margins, there's not a lot to work with. So if some of those companies you're referring to start dropping pricing even further, I think it's the old issue of you increase your volume by losing more money on each unit, then hopefully the issue won't go there.

Sure. What are the plans given your current outlook for shipments? What are the plans for the new plant that we discussed in Arizona?

Well those plans have been put on hold. We have land acquired which we'll hold onto. We actually have plans that we had architects work on and we've paid for. And we have city and county approvals for that facility which took quite some time. But we finally got those through. But we slowed the process down in recent months because of industry conditions. And we'll wait right now. Because our plant is running at 60% of capacity, we don't feel compelled to build a new plant right now. Our plants are adequate to supply us with what we need to build at this point and obviously have some upside potential to get back to where they were last year. So it's still a project for us, one that we're not going to abandon, and we definitely feel we will build it, now it's just a question of timing. And we'll hold off right at the present time.

Okay. And another couple housekeeping questions. What are your outlooks for depreciation and CapEx for the year?

We're planning on maintaining our depreciation run rate at about $700,000 a year. And our maintenance CapEx at about $600,000 a year.

Okay. Great. Thanks, guys.

Thank you. Our next question coming from the line of Michael Corelli from Barry Vogel & Associates. Please proceed with your question.

Hi. The maintenance CapEx, you said $600,000. Just following up on that, is that about what you expect to spend this year?

Correct, we do.

Okay. And then just a question about the tax rate What was the actual cash taxes you paid this past fiscal year?

It's lower also. 6.4% for the quarter.

It's only 6.4% cash tax rate in the quarter?

Correct, yeah.

And how about for the year? Do you know what that was?

Well I don't have that calculated in front of me, but it's been dropping consistently, so for the year --

We can get back to you on that, Michael.

All right. Then the new year, what kind of tax rate do you think we should be looking at, both cash and book?

We're going to right now be right around 30% and if we can improve our earnings a little bit, that will go up from there. Cash, same thing, it will stay pretty low at these levels.

Now how come the cash rate is so low?

Well primarily because of our goodwill tax deduction. That stays consistent and as we factor it into our tax rate, has the effect of dropping the cash rate lower with lower earnings each quarter.

All right, so with that tax deduction and then with your tax free income, the combination of those is really lowering the rate?

Right.

Okay. All right, thank you.

Thank you. (Operator Instructions). Our next question coming from the line of Howie Flinker from Flinker & Company. Please proceed with your question.

Hi, Joe. Has the relation, I mean has your ability to deduct goodwill for taxes -- is that from the old Centex days? Is that how it arises? Because goodwill is not generally deductible.

Well in that transaction, it was and it remains that way.

So that's where it arose.

That's where it arose, from the spin off from Centex. Well it came out of Centex that way, yeah.

Okay, gotcha. Thanks.

Thank you. Mr. Stegmayer, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you, Susie. We have no further closing remarks. We appreciate your interest and look forward to talking to you next quarter if not in between and we appreciate your joining us today. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great afternoon.