True Temper Sports, Inc. recorded a 12.3% increase in thrid quarter net sales to $24.1 million from $21.5 million for the same period in 2006. Adjusted EBITDA (defined below) for the third quarter decreased to $1.6 million from $4.3 million in the third quarter of 2006. Despite the sales increase, True Temper reported a net loss of $22.8 million for the quarter, widening from a loss of $4.1 million last year as the company recorded a non-cash charge to income taxes during the quarter of $13.0 million. The charge related to establishing a valuation allowance for the company's deferred tax assets, which is accounting treatment required by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes .
Net sales for the first nine months of 2007 have increased 3.5%, to $86.8 million from $83.8 million in the first nine months of 2006. Adjusted EBITDA for the first nine months declined to $16.6 million from $20.6 million in the first nine months of 2006. The net loss for the 2007 year-to-date period was $28.1 million, widened from a loss of $6.1 million last year.
In his comments about the companys performance, Scott Hennessy, president and CEO said, “The sales momentum we began to see earlier in 2007 has certainly extended into the third quarter, and we are now delivering the double digit revenue improvement we had been expecting for the second half of the year. Importantly, our revenue gains in golf shafts for the third quarter were driven not only by the continued strength of our premium steel True Temper and Royal Precision brands, but also by significant gains in our graphite golf shaft business as some of our key OEM partners bring new club introductions to market using our branded and proprietary graphite shaft offerings. Adding to this overall sales improvement, our performance sports segment delivered another quarter of record revenue, up over 70% from the third quarter of 2006, as we continue to execute on this key diversification strategy into hockey, cycling and other recreational markets. Our performance sports business actually accounted for almost 15% of our overall revenue during the third quarter, as we continue to gain share in these new markets and expand our customer base.”
Mr. Hennessy continued, “In contrast to our revenue growth, as anticipated our profitability was under significant pressure during the third quarter from the cost drivers that have compressed margins throughout 2007; nickel price increases, medical inflation, and efficiency levels in our Mississippi steel facility, all of which continued to negatively impact our business. While we are very optimistic about the future, both in the near and long term, the third quarter saw the most significant hit to our bottom line from all three of these key issues. The result was an overall gross profit percentage that was completely unacceptable to True Temper, and one that we certainly believe will not be repeated in the future. We have plans in place for each of these areas to significantly improve the trends, and we are very optimistic about the fourth quarter of 2007 and longer term into 2008. On another positive note, our principal owner demonstrated their continued support of our long term potential through an additional equity injection of $5.0 million on September 14, 2007, which enabled us to continue to make investments for business improvement and strategic expansion, while allowing us full assurance of compliance with all of our credit agreements.”
Outlook
Commenting about the companys outlook for the future, Mr. Hennessy said, “Our view of future sales growth for True Temper continues to build on the optimism we felt at the conclusion of the second quarter. We have continued to see stability in our core steel golf shaft product category, and have experienced renewed momentum for our graphite golf shafts through strategic partnership with key OEMs. In addition, we anticipate future growth in our performance sports business as we introduce new products and solidify both existing and developing partnerships with OEMs in the hockey, cycling and other non-golf markets. The combination of these factors makes us very upbeat about the Companys revenue opportunities going forward. We anticipate continued double digit sales improvement during the fourth quarter of this year, and as we look forward into 2008 our initial expectations are for continued growth on the top line.”
Mr. Hennessy continued, “At the end of the second quarter our outlook for bottom line profitability was a concern, as we anticipated the continued cost pressures from nickel, medical and operational efficiencies to have a significant impact on our third quarter results. Looking forward into the fourth quarter we are now much more optimistic about operational improvements and moderating costs, and feel that the Company has clearly turned the corner from a profitability perspective. First, the nickel market has stabilized and we have also instituted a global price increase with our customers to compensate for the dramatic inflation in this raw material. In addition, in August we entered into a new four year agreement with our union workforce in Mississippi that includes a much more affordable medical plan. Also, while it will take several quarters to fully achieve the operational efficiencies we are targeting in our steel operations, we are seeing some initial benefits from our productivity programs begin to read through to the bottom line during this current fourth quarter. All of this, combined with the added benefit of improved unit volume, makes us very confident in delivering significant improvement in Adjusted EBITDA during the fourth quarter, with a goal of doubling the Adjusted EBITDA from the same quarter in 2006. As we look forward into 2008 we believe that we can begin to return True Temper to its historical gross profit and Adjusted EBITDA levels through efficiency improvements in our US facilities and a continued expansion of our manufacturing presence in mainland China.”
