True Temper Sports, Inc. announced its 2005 first quarter results of operations. Net sales for the first quarter increased 6.3%, to $32.1 million from the $30.2 million recorded during the first quarter of 2004. Adjusted EBITDA increased 6.7%, to $9.6 million from $9.0 million in the first quarter of 2004. Net income for the first quarter increased to $0.2 million from a net loss of $8.0 million in the first quarter of 2004. As more fully described below, the company completed an acquisition and recapitalization during the first quarter of 2004 which had an impact on the net income reported for both the first quarter of 2004 and 2005. The effect of this acquisition has been eliminated from the presentation of Adjusted EBITDA.
On January 30, 2004, TTS Holdings LLC, a company formed by Gilbert Global Equity Partners L.P., entered into a stock purchase agreement with our direct parent company, True Temper Corporation, and certain of its security holders, pursuant to which TTS Holdings LLC and certain members of our senior management agreed to purchase all of the outstanding shares of capital stock of True Temper Corporation. The transaction contemplated by the purchase agreement closed on March 15, 2004. As part of this transaction, the company was recapitalized through the establishment of a new senior credit facility and the issuance of new 8 3 / 8 % senior subordinated notes due 2011. In conjunction with this recapitalization, certain expenses related to the early extinguishment of long-term debt and other related transaction fees were recorded totaling $14.6 million, resulting in a $10.9 million after-tax reduction to the first quarter 2004 net income. In addition, as part of the required purchase accounting, the company recorded the estimated fair value of certain intangible assets. Non-cash amortization of these intangible assets during the first quarter of 2005 totaled $3.5 million, resulting in a $2.1 million after-tax reduction to the first quarter 2005 net income.
In his comments about the companys performance, Scott Hennessy, president and CEO said, “We are very pleased with our overall operating performance during the first quarter. Although it remains to be seen if the overall golf industry is in fact growing in 2005, there are several key industry dynamics and True Temper specific initiatives that are fueling our revenue growth over prior year levels. First, our exciting new products such as Dynamic Gold SL and Grafalloy ProLaunch are building momentum in the OEM and distributor markets. In particular, ProLaunch appears to be gaining broader acceptance in the driver market, as we have more than doubled our volume of this product line during the first quarter. In addition, several of our key OEM partners also have new club launches in the market this spring, primarily in the iron category. According to market surveys, although unit sales at retail are tracking relatively flat to the 2004 levels, the inventory channel appears to be in much better condition than it was during the prior year, enabling more of a demand order mode and allowing us to increase our unit volume even in a less than robust sales environment. Lastly, we have seen an improvement in our premium steel golf shaft mix that often accompanies an overall increase in new golf club launches in the iron category.”
Mr. Hennessy continued, “As encouraging as the revenue growth may be, we are equally pleased with the profitability we were able to generate on these increased sales. We knew entering 2005 that our company would face some significant inflation and commodity pressures in our raw materials and energy sources. We have worked diligently through productivity and cost control programs at every level of the organization to offset these increased expenses. In addition, our transition of composite manufacturing operations from El Cajon, California to Guangzhou, China is virtually complete and has gone even more smoothly than initially expected. These factors have combined to enable us to deliver a record Adjusted EBITDA level for the first quarter of nearly $10 million, right at our internal target of 30% of net sales. We have also continued our focus on inventory reduction during the first quarter. As a result of the increased unit sales, and careful attention to our global logistics efforts, we were able to reduce inventory by $2.5 million during the first quarter of 2005; well on our way to our overall annual reduction target of $3.0 to $5.0 million.”
Outlook
In his comments about the companys future performance, Mr. Hennessy said, “While the outlook for the overall golf industry remains cautious for 2005, there are several positive indicators for our business. New products from True Temper and our key OEM partners, and a healthier inventory channel should both contribute to revenue improvements in the second quarter and for the full year. Entering 2005 we had characterized our revenue growth expectation for the first quarter as “modest”. Given our current incoming order pattern, the momentum in the marketplace for our new products, we currently believe our 2005 second quarter sales potential is for “stronger improvement” or double digit growth over the comparatively weak second quarter of 2004. However, given the relatively flat retail environment, and the pressure on rounds played in the early part of the year, it is premature to assess whether the overall golf industry will provide any stimulus for growth during 2005. The reorder patterns experienced through the second quarter will provide more definitive guidance as to the full year potential. At this time, we are confident that full year results will exceed 2004, but the magnitude remains to be seen.”
Mr. Hennessy went on to say, “As we expected, this revenue growth is enabling us to maximize the productivity and cost savings programs that were put in place during the difficult days of 2004. Commodity pricing pressure continues, but based on our programs we remain confident in our plan to deliver gross profit and Adjusted EBITDA for the second quarter and full year near our historical targets of 40% and 30%, respectively. In addition, we are aggressively addressing our global logistics and inventory management processes to continue to reduce our inventory levels and maximize our cash flow potential in 2005. We expect the inventory reduction that began in the first quarter to continue during the second quarter, although not at the same level. Combined with improved operating performance, this should enable us to make significant progress toward our goals of increasing our free cash position and substantially reducing our overall leverage.”
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
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Cost of sales |
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19,234 |
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17,859 |
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5,988 |
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11,871 |
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