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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Greetings, ladies and gentlemen, and welcome to the Cavalier Homes first-quarter conference call. At this time, all parties are in a listen-only mode and there will be a question-and-answer session following the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Roberson, President and Chief Executive Officer of Cavalier Homes.
DAVID ROBERSON, PRESIDENT AND CEO, CAVALIER HOMES INC.: Thank you, Megan, and thank you, everyone, for dialing in today for the first-quarter 2005 conference call for Cavalier Homes Inc. Before I get started today, I would like to read the following statement. During the course of this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company. We caution you that such statements are only predictions and that actual events or results may differ materially from those included in or contemplated by the statements. We refer you to the documents the Company files from time to time with the SEC, specifically the Company's last-filed Form 10-K and Quarterly Reports on Form 10-Q. These documents, including the section in the 10-K entitled business risk factors and the Safe Harbor statement appearing on page 32 of the Company's most recent 10-K, describe the important factors that could cause actual results of the Company's operations to differ materially from those contained in or contemplated by our projections or forward-looking statements.
In addition, the information given in the statements made in this conference call are current and reflect our views only as of the time of the conference call on May 12, 2005, and not of any subsequent time or date. We disclaim responsibility to update any forward-looking statements or other statements or information as a result of developments occurring after this conference call.
Again, I'd like to thank you for calling in this morning, and we are pleased here in the first quarter that we were able to make a significant improvement in topline for revenue for Cavalier. Even though we had done that in the fourth quarter, there was great contribution to improvement in sales because of FEMA orders. And in the first quarter, all of that was core business to our normal retail base, and so we're very pleased to show that.
In the last conference call, we had told everyone that we were hopeful that our loss for the first quarter would be a little less than last year. We didn't quite make that. We're going to talk about that more specifically today. But we do have a lot of positive things happening internally and with the things that we're doing. And what I'd like to do first is I want to turn it over to Mike and let him go through some of the numbers and other financial information, and then I'll come back and talk about where we are and where we're going in the marketplace just a little bit. So, Mike, I'm going let you have it.
MIKE MURPHY, CFO, VP, CAVALIER HOMES INC.: Thanks, David. Welcome, everybody. My two or three general comments just for information about the results. Our quarterly reported results included a $1.7 million loss from our Fort Worth operation. Everybody might need to know; it's not evident from the numbers. 923,000 of it is a result of severance impairment cost, and that is a separate line on the income statement. The other closed operations had a net cost of about $200,000 for the quarter.
In addition, we have an opportunity in the form of a contract to sell the facility in Fort Worth that we're hopeful will close in the second quarter. During the quarter, we improved and broadened our product offering and we gained some shelf space. If there's a continuing hanging concern, it's about the predictability of the industry shipments, with the first couple of months up and then March not quite so optimistic.
So a couple of words about net sales. Net sales for the quarter were 57.2 million. They were up 13.5 million or 31% from last year. And like we said in the press release, we are encouraged with that topline growth. But keep in mind the $44 million in Q1 of '04 is our low water mark. I think David mentioned that. But it was one of those quarters we really hated it at the time it happened, but we really like the comparisons.
Compared to the fourth quarter, net sales were down by $17.8 million, and that's 24%. But that 21 million of the fourth quarter was FEMA, so that just emphasizes what David just said about the first quarter being up even without FEMA. A few words about gross margin. Margin for the quarter was down 2.8% compared to the same quarter of last year. And there are four or five items I want to mention that you need to know about that. One was about six-tenths percent was caused by the Fort Worth production slowdown -- closedown -- shutdown from inefficiencies. There was about 1% was caused by what I will refer to as direct promotional costs. That was costs of gaining the shelf space that we're talking about.
There was about $600,000 from the adoption of FASB issued interpretation 45, sometime known as FIN 45, guarantees of indebtedness of others. And it's associated with our repurchase agreements. Currently, it's accounted for us as a reduction of revenue, which is why it affected the margin percent. In past periods, it's been similar cost -- not exactly the same cost, but similar cost has been referred in SG&A. So when I get to SG&A, I will tell you there's a credit in there for about the same amount.
Some additional costs were incurred from the changeover costs in expanding our product line. There was some engineering to do and there were some new products being built, which has not always been the most efficient time of the year.
Also, early in the quarter, and I'm sure David will talk about this a little more, we had an influx of orders. I want to believe it was in mid-February, and it was just in advance of an announced price increase. And there was a good bit of orders. And I believe that when we actually booked those, we had some higher costs, which didn't help that margin.
A couple of words about SG&A. First quarter of '05 through the first quarter of '04, there was an increase of $471,000. Two or three pieces of that, higher-level promotional programs, we're trying to promote the …