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Adams Golf Inc. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: March 7, 2012 12:00AM
Adams Golf Inc. (ADGF) filed Annual Report for the period ended 2011-12-31. Adams Golf Inc has a market cap of $76.9 million; its shares were traded at around $9.44 with a P/E ratio of 14.9 and P/S ratio of 0.9.
Highlight of Business Operations:The amount of our order backlog at any particular time is affected by a number of factors, including seasonality and scheduling of the manufacturing and shipment of products. At February 22, 2012, we had current backorders of $1,405,000, or 1.5% of total net sales for the year ended December 31, 2011, and orders to be fulfilled at a future date, not to exceed the current year, of $18,323,000, or 19.0% of total net sales for the year ended December 31, 2011. At February 22, 2011, we had current backorders of $1,528,000, or 1.8% of total net sales for the year ended December 31, 2010, and orders to be fulfilled at a future date, not to exceed the current year, of $17,929,000, or 20.8% of total net sales for the year ended December 31, 2010. The amount of our year over year backorder is slightly decreased primarily as a result of better inventory availability currently as compared to the prior year. The balance is comprised of various product lines including Idea CB3 sets, Speedline Fast 12 drivers and fairway woods, Idea a12 OS sets and hybrids and integrated sets. Future orders have increased as a result of continued overall brand strengthening along with increased demand from the retailers as we are entering the golf season. We do not anticipate that a significant level of orders will remain unfilled within the current fiscal year. In addition, we believe that the amount of our backlog is an unreliable indicator of future sales levels.
During the year ended December 31, 2011, we generated approximately 12% growth in net sales compared to the year ended December 31, 2010. This overall growth was driven by an increase in our sales volume due to our continued success in product development and overall brand growth. Our gross margin percentage improved from 43.8% in 2010 to 44.3% for the year ended December 31, 2011 and total margin dollars increased by $5.0 million. Total net income for the year ended December 31, 2011 increased by $9.5 million to $14.5 million compared to $5.0 million for the year ended December 31, 2010. Our net income for the year ended December 31, 2011 was favorably impacted by the net recovery of $6.4 million from our settlement with Zurich (“ZAIC ) before the net effect of associated legal fees of $1.3 million incurred in 2011 and the increase in the deferred tax asset recorded of $2.7 million. Thus, factoring out these one time events, net income for 2011 would have been $6.7 million which was improved as compared to the year ended December 31, 2010. While we are continually growing the business, we are also continuing to reinvesting the profits back into the business for anticipated future growth.
Net sales of our products outside the United States increased to $18.1 million, or 18.8% of total net sales for the year ended December 31, 2011, from $16.4 million, or 19.0% of total net sales, for the year ended December 31, 2010, respectively. Net sales resulting from countries outside the United States and Canada increased to 7.8% of total net sales for the year ended December 31, 2011 from 6.4% for the year ended December 31, 2010.
Cash and cash equivalents increased to $18.2 million at December 31, 2011 compared to $6.7 million at December 31, 2010. The $11.5 million increase was primarily due to increased earnings, including the net recovery of $6.4 million from the ZAIC settlement and an increase in net accounts payable and accrued expenses totaling $2.5 million. This was partially offset by an increase in current assets and other assets of $4.1 million related to the purchase of intangible assets from Yes! Golf and a receivable due from our Canadian agent resulting from receivables collected, not yet remitted.
Working capital, or our current assets less our current liabilities, increased to $48.8 million at December 31, 2011 from $35.9 million at December 31, 2010. Approximately 25% of our current assets were comprised of accounts receivable at December 31, 2011, compared to 32% at December 31, 2010. Due to industry sensitivity to consumer buying trends, seasonality and available disposable income, we have in the past extended payment terms for specific purchase transactions. Issuance of these terms (i.e., greater than 30 days or specific dating) is dependent on our relationship with the customer and the customer's payment history. Payment terms are extended to selected customers typically during off-peak times in the year in order to promote our brand name and to assure adequate product availability and to coincide with planned promotions or advertising campaigns. Although a significant amount of our sales are not affected by these terms, the extended terms do have a negative impact on our financial position and liquidity. Due to the competitiveness of the golf retail market, we believe that more customers may request payment terms and we expect to continue to selectively offer extended payment terms in the future, depending upon known industry trends and our financial condition. We generate cash flow from operations primarily by collecting outstanding trade receivables. Because we have limited cash reserves, if the collection of a significant portion of trade receivables are unexpectedly delayed, we would have a limited amount of funds available to further expand production until such time as we could collect such trade receivables. If our cash needs in the near term exceed the available cash and cash equivalents on hand and the available borrowing under our credit facility, we would be required to obtain additional financing, which may not be available at all or in the full amounts necessary, or limit expenditures to the extent of available cash on hand, all of which could adversely effect our current growth plans.
Stocks Discussed: ADGF,