True Temper Sports, Inc. reported net sales for the second quarter decreased to $25.3 million from $32.5 million during the second quarter of 2003. Net income for the second quarter decreased to $1.7 million from $3.8 million in the second quarter of last year. Adjusted EBITDA for the second quarter decreased to $7.8 million in 2004 from $11.2 million in 2003.
Net sales on a year-to-date basis through June decreased to $55.5 million from $64.1 million during the same period in 2003. Net income decreased to a loss of $6.3 million in 2004 from income of $6.3 million during the first six months of 2003. Excluding the impact of certain one time acquisition related expenses which resulted in an after-tax charge of $10.9 million, described more fully below, net income would have been $4.6 million in the first six months of 2004 compared to $6.3 million during the same period in 2003. Adjusted EBITDA for the first six months decreased to $16.8 million in 2004 from $19.9 million in 2003.
On January 30, 2004, TTS Holdings LLC, a new 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 net income. The transaction was accounted for using the purchase method of accounting.
In his comments about the Company's performance, Scott Hennessy, President and CEO said, “We certainly were not satisfied with our revenue performance during the second quarter, as our total sales were less than last year's results for the comparable period. This performance was driven by several factors; and we worked hard throughout the quarter to position ourselves for the future and to offset unfavorable market forces. While retail golf equipment sales appear to be somewhat stable in units, there are indications that shipments of certain products into the retail market on a global basis have declined, and that many products are being sold at a discount in order to clear the existing inventory through the distribution channel and maintain retail sales momentum. We believe this decline of shipments into retail is indicative of an overall shortage of major new club introductions during the first half of 2004, as many of the new iron and wood introductions that would normally occur during the spring golf season have been scheduled for late 2004 and early 2005. In addition, we have seen a temporary shift in the product mix of our premium steel shafts which caused a slight decrease in our average unit selling price, and we have experienced a decline in our overall graphite shaft unit sales as some of our major OEM partners experienced weaker demand in the wood category at retail.”
Mr. Hennessy continued, “As we saw our incoming order rates and sales levels begin to weaken, we began taking the necessary cost control actions to mitigate the impact on our income, cash flow and overall profitability. While sales are down $8.5 million on a year-to-date basis, we have worked to limit the Adjusted EBITDA decline to $3.1 million, and have held our year-to-date Adjusted EBITDA margins very strong and stable at over 30%. We have implemented major cost reduction and containment plans across all locations to reduce both the variable and fixed cost elements of our business, and improve cash flow.”
In his comments about the Company's future performance, Mr. Hennessy said, “Although we face a strong head-wind on the revenue line, there are some indications that the 2004 versus 2003 comparative results will be stronger in the second half of the year. Several of our significant OEM partners who normally launch new products in the spring have scheduled these major introductions for late 2004 and early 2005, and we are in the final stages of qualifying our shafts as the stock offering in many of these new product introductions. In addition, we are seeing an increase in the number of major OEM's who are asking us to quote on stock graphite business.”
Mr. Hennessy went on to say, “While these factors point towards an improving top line, it is unclear at this point if they are enough to offset the general lack of momentum in the industry. As such, we will continue to take all necessary cost actions during this time of softness in the golf market. We will also continue to aggressively employ our core business plan of new product innovation, OEM partnering, and diversification through performance sports.”
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
Quarterly
Successor Predecessor
Company Company
Period from Period from
March 29 to March 31 to
June 27, June 29,
2004 2003
NET SALES $25,333 $32,491
Cost of sales 15,123 19,199
GROSS PROFIT 10,210 13,292
Selling, general and administrative expenses 3,339 3,605
Business development and start-up costs 99 159
OPERATING INCOME 6,772 9,528
Interest expense, net of interest income 3,994 3,323
Other expenses, net 12 41
INCOME BEFORE INCOME TAXES 2,766 6,164
Income taxes 1,053 2,413
NET INCOME $1,713 $3,751
Year - To - Date
Predecessor Successor Combined Predecessor
Company Company Company Company
Period from Period from Period from Period from
January 1 to March 15 to January 1 to January 1 to
March 14, June 27, June 27, June 29,
2004 2004 2004 2003
NET SALES $20,247 $35,297 $55,544 $64,092
Cost of sales 11,871 21,111 32,982 38,952
GROSS PROFIT 8,376 14,186 22,562 25,140
Selling, general and
administrative expenses 3,635 3,903 7,538 7,679
Business development and
start-up costs 100 182 282 284
Transaction and
reorganization expenses 5,381 - 5,381 -
Loss on early
extinguishment of
long-term debt 9,217 - 9,217 -
OPERATING INCOME
(LOSS) (9,957) 10,101 144 17,177
Interest expense, net
of interest income 2,498 4,679 7,177 6,651
Other expenses (income),
net (2) 14 12 46
INCOME (LOSS) BEFORE
INCOME TAXES (12,453) 5,408 (7,045) 10,480
Income taxes (2,845) 2,098 (747) 4,145
NET INCOME (LOSS) $(9,608) $3,310 $(6,298) $6,335
