True Temper Sports, Inc. announced its 2005 second quarter in which net sales for the second quarter increased 28.5%, to $32.6 million from the $25.3 million recorded during 2004. Adjusted EBITDA for the second quarter increased 31.2%, to $10.2 million from $7.8 million in the second quarter of 2004. Net income for the second quarter decreased to $0.6 million from $1.7 million in 2004. The effects of acquisition have been removed from the EBITDA number, though they are reflected in the net income line.
Net sales for the first six months increased 16.4%, to $64.7 million from $55.5 million in the first six months of 2004. Adjusted EBITDA for the first six months increased 18.0%, to $19.8 million from $16.8 million in the first six months of 2004. Net income for the first six months increased to $0.8 million from a loss of $6.3 million in 2004.
In his comments about the companys performance, Scott Hennessy, president and CEO said, “We are certainly pleased with our second quarter and year-to-date sales growth. We had established aggressive goals for revenue gains during the first half of 2005 in all of our business lines, and our performance has met those goals. We continue to see strong demand in both OEM and distributor channels for our new lightweight steel golf shafts such as Dynamic Gold SL and our newest lightweight offering, the M80 , which is currently only available in the Japanese market. On the graphite golf side, our Grafalloy ProLaunch shaft delivered record unit volume during the second quarter. We have now recorded double-digit increased sales of this driver and fairway wood shaft for four consecutive quarters, as it builds further momentum in the marketplace. Adding to these results, our performance sports segment registered a very successful second quarter, with revenue improvement of 32% over the second quarter 2004. Our efforts in both the hockey and bike categories are beginning to pay off, as we continue to pursue a diversification strategy into non-golf recreational sports markets.”
Mr. Hennessy continued, “As important as our top line growth is, we are committed to delivering the best possible operating results throughout our P&L. Through the first six months of 2005 we have successfully offset the unfavorable commodity and raw material inflationary factors through cost control efforts in all areas of the company, and the benefits derived from our transition of composite manufacturing operations to Guangzhou, China. As a result, we have been able to maintain our Adjusted EBITDA margin at or above our historical 30% level. This profitability, combined with our focus on working capital and cash management, enabled us to make voluntary repayments on our outstanding bank debt of $7.0 million during the second quarter. Combined with our voluntary repayments during 2004, this now represents nearly a 10% reduction in our overall outstanding bank debt, and has resulted in a significant leverage improvement during 2005.”
Outlook
Commenting about the companys outlook for the future, Mr. Hennessy said, “The overall golf industry environment for the remainder of 2005 appears to be encouraging, with several key indicators providing positive signals. Globally 2005 is proving to be a much stronger year for iron sales overall, and specifically for several of our key golf club partners. We believe True Temper will continue to benefit from this trend during the second half of this year. In addition, we are experiencing near record unit volume demand for graphite golf shafts with the success of our Grafalloy ProLaunch branded offering, and several new graphite iron programs with OEM customers. Furthermore, our new product pipe-line remains quite healthy, and we see lower inventory levels throughout the distribution channel as compared to this time last year. We believe these factors should continue to provide revenue growth during the second half of 2005, as compared to the same period in 2004. While we do not anticipate top line growth at the same level as the robust second quarter, we are working to deliver double digit percentage improvements during both the third and fourth quarters of 2005.”
Acquisition and Recapitalization
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 second quarter of 2005 totaled $3.5 million, resulting in a $2.1 million after-tax reduction to the second quarter 2005 net income. Through the first six months of 2005, non-cash amortization of these intangible assets totaled $6.9 million, resulting in a $4.3 million after-tax reduction to the year-to-date 2005 net income. No such amortization was recorded during the first six months of 2004.
The transaction was accounted for using the purchase method of accounting. Accordingly, the financial statements included in this press release present the historical cost basis results of the company as “predecessor company” through March 14, 2004, and the results of the Company as “successor company” from March 15, 2004 through July 3, 2005. The sum of the results of the predecessor and successor companies is also included where appropriate, and labeled as “combined company.”
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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19,314 |
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15,123 |
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Selling, |
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3,947 |
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3,339 |
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Amortization |
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3,456 |
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– |
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Business |
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70 |
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99 |
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Interest |
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4,759 |
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3,994 |
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Other |
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21 |
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12 |
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