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Adams Golf Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 11, 2010 05:16PM
Adams Golf Inc. (ADGF) filed Quarterly Report for the period ended 2010-03-31.
Highlight of Business Operations:
At March 31, 2010, we had $4.9 million in orders on backorder and $13.2 million in orders to be fulfilled at future dates not to exceed the current year. Comparatively, we had $1.0 million in backorders and $4.3 million in open orders with future dates at March 31, 2009. We believe this increase in backlog and future orders is primarily a result of more forward looking planning by select retailers as well as delays in product availability from various vendors. We expect the product availability delays to be resolved during the second quarter.
Cost of goods sold decreased to $12.3 million, or 55.0% of total net sales, for the three months ended March 31, 2010 from $14.5 million, or 61.6% of total net sales, for the comparable period of 2009. The decrease as a percentage of total net sales was primarily due to changes in our product mix and a decrease in component pricing and inbound freight costs.
General and administrative expenses increased to $2.1 million for the three months ended March 31, 2010 from $1.8 million for the comparable period in 2009. The increase was primarily the result of an increase in compensation expense and bad debt expense.
Cash and cash equivalents decreased to $6.9 million at March 31, 2010 compared to $12.6 million at December 31, 2009. During the period, the primary changes in cash flow used in operations were a decrease in inventory of $2.4 million, an increase in accounts receivable of $10.2 million and a payment of $5.0 million in liabilities resulting from the settlement of the shareholder lawsuit to cover the layer of exposure on our directors' and officers' corporate liability insurance that our former insurance carrier will not cover at this time. See the Legal Proceedings section of this Form 10-Q for further details.
We have a $15.0 million revolving credit agreement with Wells Fargo, NA (as successor to Wachovia Bank, NA), which was entered into in November 2007 and expires in November 2012. The agreement is collateralized by all of our assets and requires us, among other things, to maintain certain financial performance levels relative to the fixed charge coverage ratio. This agreement was amended in June 2009 so that the ratio is only calculated when we have less than $5.0 million in availability on the facility, and it was further amended in December 2009 to provide that our debt covenant ratio is only calculated if we have less than $2.0 million in availability on the facility between March and June of each year. Interest on outstanding balances accrues at a rate of LIBOR plus 2.50% and is payable monthly. As of March 31, 2010 and May 10, 2010, we had no outstanding borrowings on our credit facility and we were in compliance with the terms of our agreement.
On October 29, 2009, we reached a settlement in principle regarding the consolidated securities class action filed in June 1999 in the United States District Court of the District of Delaware. The complaints alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, in connection with our initial public offering ("IPO") and sought rescissory or compensatory damages in an unspecified amount. In particular, the complaints alleged that our prospectus, which became effective July 9, 1998, was materially false and misleading. The court preliminarily approved the settlement, but remains subject to a final court approval, shareholder class approval, and appeal. The proposed settlement provides for a total payment to the class of $16.5 million in cash and a payment of the first $1.25 million, after attorneys fees and costs, actually received (if any) by us in connection with our litigation against our former insurance broker Thilman & Filipini, LLC (“T&F”) and our former insurance carrier, Zurich American Insurance Company ("Zurich"). Of the $16.5 million cash settlement amount, $5 million was to be paid by us, which we accrued as a liability during the quarter ended September 30, 2009 and was paid to the settlement fund in March 2010. If approved, the settlement will lead to a dismissal with prejudice of all claims against all defendants in the litigation. As part of the settlement, the underwriters for the IPO have agreed to release us from any indemnification obligation. Although defendants continue to deny plaintiffs' allegations, we believe it is in the best interests of its stockholders to proceed with this settlement.
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