Adams Golf Sees Insurance Pay-Out Save Rough Q1

Adams Golf reported that total net sales decreased to $16.8 million for the three months ended March 31, 2005 from $17.8 million for the comparable period of 2004. The decline was due primarily to slower than anticipated sales of fairway woods, particularly the Redline RPM launched in the fourth quarter of 2004 as compared to higher than anticipated sales of the Ovation fairway woods during the comparable period of 2004.

Net sales of drivers increased to $5.0 million, or 29.8% of total net sales, for the three months ended March 31, 2005 from $3.3 million, or 18.5% of total net sales, for the comparable period of 2004. A large portion of the driver net sales for the three months ended March 31, 2005 was generated by the RPM and Ovation driver product lines, introduced in the fourth quarter of 2004 and the first quarter of 2005, respectively, which was partially offset by lower sales of maturing product lines.

Net sales of irons increased to $5.7 million, or 33.8% of total net sales, from $5.6 million, or 31.7% of total net sales, for the three months ended March 31, 2005 and 2004, respectively, primarily generated from sales of the Company's Idea irons and integrated iron sets.

Net sales of fairway woods decreased to $5.2 million, or 31.2% of total net sales, from $7.6 million, or 42.4% of total net sales, for the three months ended March 31, 2005 and 2004, respectively, primarily resulting from the success of Ovation fairway woods launched in the first quarter of 2004 as compared to the launch of Redline RPM fairway woods launched in the fourth quarter of 2004.

For the three months ended March 31, 2005, four customers comprised approximately 25% of net sales while two customers individually represented greater than 5% but less than 10% of total net sales.

Net sales of the Company's products outside the U.S. increased to $2.2 million, or 13.2% of total net sales, from $2.1 million, or 11.8% of total net sales, for the three months ended March 31, 2005 and 2004, respectively.

Cost of goods sold decreased to $7.9 million, or 47.3% of total net sales, for the three months ended March 31, 2005 from $8.1 million, or 45.3% of total net sales, for the comparable period of 2004. The increase as a percentage of total net sales is partially due to lower average selling prices of certain wood product lines.

Selling and marketing expenses decreased to $4.3 million for the three months ended March 31, 2005 from $4.7 million for the comparable period in 2004. The decrease is primarily the result of decreased commissions expenses associated with a 6% decrease in revenues coupled with a reduction in marketing related costs of $0.4 million.

General and administrative expenses decreased to $1.5 million for the three months ended March 31, 2005 from $2.0 million for the comparable period in 2004. The decrease in administrative related costs is attributable to a decrease in bad debt expenses of $0.4 million, of which $0.1 of the bad debt was related to the embezzled funds during the first quarter of 2004.

Research and development expenses, primarily consisting of costs associated with development of new products, were $0.6 million and $0.5 million for the three months ended March 31, 2005 and 2004, respectively.

Other income increased to $1.0 million for the three months ended March 31, 2005 from $0.0 million for the comparable period in 2004 which is attributable to the one time receipt by the Company of a $1.0 insurance claim paid by the Company's insurance carrier in connection with the embezzlement occurrence referenced in Note 13 to the Unaudited Condensed Financial Statements.

The Company's inventory balances were approximately $13.4 million and $11.6 million at March 31, 2005 and December 31, 2004, respectively. The increase in inventory levels is primarily a result of the increased purchasing related to the newly released product lines launched in fourth quarter 2004 and first quarter 2005 in addition to improved payment terms negotiated with key vendors.

The Company's net accounts receivable balances were approximately $17.2 million and $9.3 million at March 31, 2005 and at December 31, 2004, respectively. The increase is primarily due to the seasonality of the business, as a large portion of sales are generated in the first and second quarters of the year.

The Company's prepaid balances were approximately $2.8 million and $0.2 million at March 31, 2005 and December 31, 2004, respectively. The increase in the prepaid asset is primarily associated with the Company's decision to prepay certain strategic marketing expenses.

The Company's accounts payable balances were approximately $6.5 million and $3.9 million at March 31, 2005 and December 31, 2004, respectively. The increase in accounts payable is primarily associated with the extension of payment terms with key vendors related to inventory purchases.

As a result of the above, the Company reported operating income of $3.5 million for the three months ended March 31, 2005 compared to $2.5 million for the comparable period ended March 31, 2004.