UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
ý QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 27, 2004
or
o TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-72343
TRUE TEMPER SPORTS, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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3949 |
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52-2112620 |
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(State of other jurisdiction of |
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(Primary Standard Industrial |
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(I.R.S. Employer |
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8275 Tournament Drive
Suite 200
Memphis, Tennessee 38125
Telephone: (901) 746-2000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes ý No o.
As of August 11, 2004 the Registrant had 100 shares of Common Stock, $0.01 par value per share, outstanding.
TRUE TEMPER SPORTS, INC.
INDEX
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 1. Financial Statements
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
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Quarterly |
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Year – To – Date |
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|||||||||||||
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Successor |
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Predecessor |
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Successor |
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Predecessor Company |
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Period from |
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Period from |
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Period from |
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Period from |
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Period from |
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NET SALES |
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$ |
25,333 |
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$ |
32,491 |
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$ |
35,297 |
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$ |
20,247 |
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$ |
64,092 |
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Cost of sales |
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15,123 |
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19,199 |
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21,111 |
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11,871 |
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38,952 |
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GROSS PROFIT |
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10,210 |
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13,292 |
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14,186 |
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8,376 |
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25,140 |
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Selling, general and administrative expenses |
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3,339 |
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3,605 |
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3,903 |
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3,635 |
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7,679 |
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Business development and start-up costs |
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99 |
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159 |
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182 |
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100 |
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284 |
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|||||
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Transaction and reorganization expenses |
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— |
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— |
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— |
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5,381 |
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— |
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|||||
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Loss on early extinguishment of long- term debt |
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— |
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— |
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— |
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9,217 |
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— |
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OPERATING INCOME (LOSS) |
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6,772 |
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9,528 |
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10,101 |
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(9,957 |
) |
17,177 |
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Interest expense, net of interest income |
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3,994 |
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3,323 |
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4,679 |
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2,498 |
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6,651 |
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Other expenses (income), net |
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12 |
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41 |
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14 |
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(2 |
) |
46 |
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INCOME (LOSS) BEFORE INCOME TAXES |
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2,766 |
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6,164 |
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5,408 |
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(12,453 |
) |
10,480 |
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Income taxes |
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1,053 |
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2,413 |
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2,098 |
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(2,845 |
) |
4,145 |
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NET INCOME (LOSS) |
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$ |
1,713 |
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$ |
3,751 |
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$ |
3,310 |
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$ |
(9,608 |
) |
$ |
6,335 |
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See accompanying notes to condensed consolidated financial statements
1
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
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Successor |
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Predecessor |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
5,529 |
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$ |
8,389 |
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Receivables, net |
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16,517 |
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15,612 |
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Inventories |
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20,334 |
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15,656 |
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Prepaid expenses and other current assets |
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3,414 |
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2,271 |
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Total current assets |
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45,794 |
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41,928 |
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Property, plant and equipment, net |
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14,466 |
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15,026 |
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Goodwill, net |
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256,028 |
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71,506 |
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Deferred tax assets |
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49,847 |
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47,902 |
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Other assets |
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7,442 |
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3,254 |
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Total assets |
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$ |
373,577 |
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$ |
179,616 |
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LIABILITIES & STOCKHOLDER’S EQUITY |
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CURRENT LIABILITIES |
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Current portion of long-term debt |
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$ |
1,100 |
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$ |
4,500 |
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Accounts payable |
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5,178 |
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4,992 |
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Accrued expenses and other current liabilities |
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11,054 |
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8,675 |
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Total current liabilities |
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17,332 |
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18,167 |
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Long-term debt, net of current portion |
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233,900 |
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109,230 |
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Other liabilities |
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6,265 |
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3,426 |
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Total liabilities |
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257,497 |
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130,823 |
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STOCKHOLDER’S EQUITY |
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Common stock — par value $0.01 per share; authorized 1,000 shares; issued and outstanding 100 shares |
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— |
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— |
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Additional paid-in capital |
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112,715 |
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40,326 |
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Retained earnings |
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3,310 |
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8,796 |
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Accumulated other comprehensive income (loss), net of taxes |
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55 |
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(329 |
) |
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Total stockholder’s equity |
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116,080 |
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48,793 |
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Total liabilities and stockholder’s equity |
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$ |
373,577 |
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$ |
179,616 |
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See accompanying notes to condensed consolidated financial statements
2
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
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Successor |
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Predecessor Company |
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Period from |
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Period from |
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Period from |
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OPERATING ACTIVITIES |
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Net income (loss) |
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$ |
3,310 |
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$ |
(9,608 |
) |
$ |
6,335 |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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836 |
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671 |
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1,463 |
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|||
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Amortization of deferred financing costs |
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309 |
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109 |
|
445 |
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Loss on disposal of property, plant and equipment |
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— |
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— |
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28 |
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|||
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Transaction and reorganization expenses |
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— |
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5,381 |
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— |
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|||
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Loss on early extinguishment of long-term debt |
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— |
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9,217 |
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— |
|
|||
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Deferred taxes |
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2,069 |
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(3,015 |
) |
4,073 |
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|||
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Changes in operating assets and liabilities, net |
|
(748 |
) |
|
227 |
|
(339 |
) |
|||
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Net cash provided by operating activities |
|
5,776 |
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2,982 |
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12,005 |
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INVESTING ACTIVITIES |
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Purchase of property, plant and equipment |
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(617 |
) |
|
(330 |
) |
(1,354 |
) |
|||
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Net cash used in investing activities |
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(617 |
) |
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(330 |
) |
(1,354 |
) |
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FINANCING ACTIVITIES |
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|||
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Proceeds from issuance of bank debt |
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110,000 |
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|
— |
|
— |
|
|||
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Proceeds from issuance of Senior Subordinated Notes |
|
125,000 |
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|
— |
|
— |
|
|||
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Principal payments on bank debt |
|
— |
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|
(7,700 |
) |
(2,000 |
) |
|||
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Repay bank debt, including accrued interest |
|
(6,335 |
) |
|
— |
|
— |
|
|||
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Call Senior Subordinated Notes, including accrued interest and call premium |
|
(109,160 |
) |
|
— |
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— |
|
|||
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Payment of debt issuance costs |
|
(8,673 |
) |
|
— |
|
(273 |
) |
|||
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Dividends paid |
|
(102,518 |
) |
|
— |
|
(676 |
) |
|||
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Transaction and reorganization expenses, including cash payments for direct acquisition costs |
|
(10,780 |
) |
|
(463 |
) |
— |
|
|||
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Other financing activity |
|
— |
|
|
(42 |
) |
(85 |
) |
|||
|
Net cash used in financing activities |
|
(2,466 |
) |
|
(8,205 |
) |
(3,034 |
) |
|||
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|
|
|
|
|
|
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|
|||
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Net increase (decrease) in cash |
|
2,693 |
|
|
(5,553 |
) |
7,617 |
|
|||
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Cash at beginning of period |
|
2,836 |
|
|
8,389 |
|
7,070 |
|
|||
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Cash at end of period |
|
$ |
5,529 |
|
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$ |
2,836 |
|
$ |
14,687 |
|
See accompanying notes to condensed consolidated financial statements
3
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES To CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands unless otherwise indicated)
1) Basis of Presentation
The accompanying unaudited financial statements of True Temper Sports, Inc. (“True Temper” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and consequently do not include all the disclosures required by accounting principles generally accepted in the United States of America. It is suggested that these financial statements be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2003. In the opinion of management, the financial statements include all adjustments which are necessary for the fair presentation of results for interim periods.
The Company’s fiscal year begins on January 1 and ends on December 31 of each year. During the course of the year the Company closes its books on a monthly and quarterly basis following a 4,4,5 week closing calendar. Since the Company uses Sunday as the last day of each period (with the exception of December) the number of days in the first and fourth quarters of any given year can vary depending on which day of the week January 1st falls on.
On January 30, 2004, TTS Holdings LLC, a new company formed by Gilbert Global Equity Partners, L.P. and its affiliated funds (“Gilbert Global”), entered into a stock purchase agreement with our direct parent company, True Temper Corporation, pursuant to which TTS Holdings LLC and certain of the Company’s senior management purchased all of the outstanding shares of True Temper Corporation. In connection with this acquisition, and effective on March 15, 2004, the Company repaid all of its outstanding 2002 senior credit facility, redeemed all of its 10 7/8% senior subordinated notes due 2008, and made certain dividends to True Temper Corporation. These payments were financed with the net proceeds of a new senior credit facility and new 8 3/8% senior subordinated notes due 2011.
This transaction was accounted for by our parent company using the purchase method of accounting. As the Company is a wholly owned subsidiary of True Temper Corporation, we have “pushed down” the effect of the purchase method of accounting to these financial statements. Accordingly, these financial statements and accompanying notes 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 June 27, 2004. The financial statements have also been separated by a vertical dashed line into predecessor company and successor company results.
2) Inventories
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Successor |
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Predecessor |
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Raw materials |
|
$ |
4,009 |
|
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$ |
2,287 |
|
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Work in process |
|
2,023 |
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|
2,067 |
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Finished goods |
|
14,302 |
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|
11,302 |
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Total |
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$ |
20,334 |
|
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$ |
15,656 |
|
3) Segment Reporting
The Company operates in two reportable business segments: golf shafts and performance sports. The Company’s reportable segments are based on the type of product manufactured and the application of that product in the marketplace. The golf shaft segment manufactures and sells steel, composite, and multi-material golf club shafts for use exclusively in the golf industry. The performance sports segment manufactures and sells high
4
strength, tight tolerance tubular components for bicycle, hockey and other recreational sport markets. The Company evaluates the performance of these segments based on segment sales and gross profit. The Company has no inter-segment sales.
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Quarterly |
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Year – To – Date |
|
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Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor Company |
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Period from |
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Period from |
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Period from |
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Period from |
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Period from |
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Net sales: |
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|
|
|
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|
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|
|||||
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Golf shafts |
|
$ |
23,981 |
|
|
$ |
30,636 |
|
$ |
33,360 |
|
|
$ |
19,067 |
|
$ |
60,866 |
|
|
Performance sports |
|
1,352 |
|
|
1,855 |
|
1,937 |
|
|
1,180 |
|
3,226 |
|
|||||
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Total |
|
$ |
25,333 |
|
|
$ |
32,491 |
|
$ |
35,297 |
|
|
$ |
20,247 |
|
$ |
64,092 |
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Golf shafts |
|
$ |
9,936 |
|
|
$ |
12,805 |
|
$ |
13,736 |
|
|
$ |
8,080 |
|
$ |
24,252 |
|
|
Performance sports |
|
274 |
|
|
487 |
|
450 |
|
|
296 |
|
888 |
|
|||||
|
Total |
|
$ |
10,210 |
|
|
$ |
13,292 |
|
$ |
14,186 |
|
|
$ |
8,376 |
|
$ |
25,140 |
|
Following is a reconciliation of total reportable segment gross profit to total Company income (loss) before income taxes:
|
|
|
Quarterly |
|
Year – To – Date |
|
|||||||||||||
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor Company |
|
|||||||
|
|
|
Period from |
|
|
Period from |
|
Period from |
|
|
Period from |
|
Period from |
|
|||||
|
Total reportable segment gross profit |
|
$ |
10,210 |
|
|
$ |
13,292 |
|
$ |
14,186 |
|
|
$ |
8,376 |
|
$ |
25,140 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Selling, general and administrative expenses |
|
3,339 |
|
|
3,605 |
|
3,903 |
|
|
3,635 |
|
7,679 |
|
|||||
|
Business development and start-up costs |
|
99 |
|
|
159 |
|
182 |
|
|
100 |
|
284 |
|
|||||
|
Transaction and reorganization expenses |
|
— |
|
|
— |
|
— |
|
|
5,381 |
|
— |
|
|||||
|
Loss on early extinguishment of long-term debt |
|
— |
|
|
— |
|
— |
|
|
9,217 |
|
— |
|
|||||
|
Interest expense, net of interest income |
|
3,994 |
|
|
3,323 |
|
4,679 |
|
|
2,498 |
|
6,651 |
|
|||||
|
Other expense (income), net |
|
12 |
|
|
41 |
|
14 |
|
|
(2 |
) |
46 |
|
|||||
|
Total Company income (loss) before income taxes |
|
$ |
2,766 |
|
|
$ |
6,164 |
|
$ |
5,408 |
|
|
$ |
(12,453 |
) |
$ |
10,480 |
|
5
4) Comprehensive Income
Total comprehensive income and its components for the periods covered by this report are as follows:
|
|
|
Quarterly |
|
Year – To – Date |
|
||||||||||||||
|
|
|
Successor |
|
|
Predecessor Company |
|
Successor Company |
|
|
Predecessor Company |
|
||||||||
|
|
|
Period from |
|
|
Period from |
|
Period from |
|
|
Period from |
|
Period from |
|
||||||
|
Net income (loss) |
|
$ |
1,713 |
|
|
$ |
3,751 |
|
$ |
3,310 |
|
|
$ |
(9,608 |
) |
$ |
6,335 |
|
|
|
Mark to market adjustment on foreign currency derivative instruments, net of taxes |
|
(20 |
) |
|
81 |
|
55 |
|
|
(121 |
) |
31 |
|
||||||
|
Total comprehensive income (loss) |
|
$ |
1,693 |
|
|
$ |
3,832 |
|
$ |
3,365 |
|
|
$ |
(9,729 |
) |
$ |
6,366 |
|
|
5) Transaction and Reorganization
On March 15, 2004 TTS Holdings LLC, along with certain of the Company’s senior management, acquired all of the outstanding common stock of the Company’s parent, True Temper Corporation, for $123.0 million in cash and existing common stock. In addition, the Company borrowed $110.0 million under a term loan and issued $125.0 million in senior subordinated notes due 2011. These debt instruments are further described in Note 6 below.
The purchase price as stipulated in the January 30, 2004 stock purchase agreement totaled $342.0 million, plus direct acquisition costs and certain working capital adjustments of $18.4 million. The Company is in the process of evaluating the fair value of tangible and intangible assets acquired and liabilities assumed as of March 15, 2004. The following preliminary allocation of total consideration is, therefore, subject to change as the Company completes this evaluation.
|
Current assets |
|
$ |
38,542 |
|
|
Property, plant and equipment |
|
14,684 |
|
|
|
Deferred tax assets |
|
62,218 |
|
|
|
Deferred financing costs |
|
7,366 |
|
|
|
Goodwill |
|
256,028 |
|
|
|
Other assets |
|
197 |
|
|
|
Current liabilities |
|
(12,475 |
) |
|
|
Other liabilities |
|
(6,130 |
) |
|
|
Total |
|
$ |
360,430 |
|
This transaction was accounted for by the Company’s parent company using the purchase method of accounting. As the Company is a wholly owned subsidiary of True Temper Corporation, we have “pushed down” the effect of the purchase method of accounting to these financial statements.
In conjunction with the transaction and reorganization, the predecessor company recorded certain transaction related expenses totaling $5.4 million. These expenses consist primarily of investment banking merger and acquisition fees, legal fees and other incidental costs and expenses typically incurred in an acquisition of this nature.
6
In addition, as a direct result of the early extinguishment of the predecessor company’s long term debt, expenses totaling $9.2 million were incurred consisting primarily of the write-off of the remaining deferred financing costs related to the 10 7/8% senior subordinated notes due 2008 and the 2002 senior credit facility, and the early extinguishment call premium and related interest incurred when the Company redeemed the 10 7/8% senior subordinated notes on March 15, 2004.
The following unaudited pro forma financial information is presented as if the aforementioned transaction had occurred as of the beginning of each period presented. The pro forma amounts include certain adjustments, including, (i) an adjustment to interest expense to reflect the extinguishment of the 10 7/8% Senior Subordinated Notes due 2008 and the 2002 senior credit facility, and the issuance of the 8 3/8% Senior Subordinated Notes due 2011 and 2004 senior credit facility, (ii) the elimination of transaction and reorganization expenses and the loss on early extinguishment of long term debt, which are non-recurring, and (iii) the related tax effect of the adjustments described above.
|
|
|
Quarterly |
|
Year – To – Date |
|
||||||||
|
|
|
Period from |
|
Period from |
|
Period from |
|
Period from |
|
||||
|
Net sales |
|
$ |
25,333 |
|
$ |
32,491 |
|
$ |
55,544 |
|
$ |
64,092 |
|
|
Income before income taxes |
|
$ |
2,766 |
|
$ |
5,485 |
|
$ |
6,734 |
|
$ |
9,127 |
|
|
Net income |
|
$ |
1,713 |
|
$ |
3,330 |
|
$ |
4,081 |
|
$ |
5,496 |
|
6) Borrowings
(a) Long Term Debt
Long term debt at June 27, 2004 and December 31, 2003 consisted of the following:
|
|
|
Successor |
|
|
Predecessor |
|
||
|
10 7/8% Senior Subordinated Notes due 2008 |
|
$ |
— |
|
|
$ |
99,730 |
|
|
2002 senior credit facility |
|
— |
|
|
14,000 |
|
||
|
8 3/8% Senior Subordinated Notes due 2011 |
|
125,000 |
|
|
— |
|
||
|
2004 senior credit facility |
|
110,000 |
|
|
— |
|
||
|
Total debt |
|
235,000 |
|
|
113,730 |
|
||
|
Less current maturities |
|
1,100 |
|
|
4,500 |
|
||
|
Long-term debt |
|
$ |
233,900 |
|
|
$ |
109,230 |
|
The 8 3/8% Senior Subordinated Notes due 2011 (the “Notes”) provide for semi-annual interest payments, in arrears, due on March 15 and September 15. At the option of the Company, up to 35% of the Notes are redeemable prior to March 15, 2007, at 108.375%, with the net cash proceeds of one or more public equity offerings. In addition, at any time prior to March 15, 2008, the Company may also redeem all or a part of the Notes upon the occurrence of a change of control. On or after March 15, 2008 the Notes may be redeemed, at the option of the Company, in whole or in part, at a redemption price of 104.188% beginning March 15, 2008 and declining ratably thereafter to 100.0% on March 15, 2010.
7
The 2004 senior credit facility provides for interest on the term loan, at the Company’s option, at (i) the base rate of the bank acting as administrative agent plus a margin adder of 1.50%, or (ii) under a LIBOR option with a borrowing spread of LIBOR plus 2.50%. The rate at June 27, 2004 was 3.76%.
The loans under the 2004 senior credit facility are senior to the Notes, and are secured by substantially all of the Company’s assets.
The 2004 senior credit facility and the Notes contain provisions which, among other things, limit the Company’s ability to (i) incur additional indebtedness, (ii) make acquisitions and capital expenditures, (iii) sell assets, (iv) create liens or other encumbrances, (v) make certain payments and dividends, or (vi) merge or consolidate. In addition, both the senior credit facility and the Notes contain customary change of control provisions that could, under certain circumstances, cause accelerated debt repayment. The 2004 senior credit facility also requires the Company to maintain certain specified financial ratios and tests including minimum interest coverage and fixed charge coverage ratios, and maximum leverage ratios. At June 27, 2004 the Company was in compliance with all of the covenants in both the 2004 senior credit facility and the Notes.
The terms of the extinguished debt were substantially similar to the 2004 senior credit facility and Notes.
At June 27, 2004, future minimum principal payments on long term debt were as follows:
|
2004 |
|
825 |
|
|
|
2005 |
|
1,100 |
|
|
|
2006 |
|
1,100 |
|
|
|
2007 |
|
1,100 |
|
|
|
2008 |
|
1,100 |
|
|
|
Thereafter |
|
229,775 |
|
|
|
Total |
|
$ |
235,000 |
|
(b) Line of Credit
The Company may borrow, through March 15, 2009, up to $20,000 under a revolving credit agreement included in the 2004 senior credit facility. Borrowings under the agreement are subject to the same provisions described in the long term debt section of this note. The Company had no outstanding borrowings under this line of credit as of June 27, 2004.
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the more detailed information in our 2003 Annual Financial Statements, including the notes thereto, appearing most recently in our 2003 Annual Report on Form 10-K, filed with the SEC on March 12, 2004 and also disclosed in our Form S-4 Registration Statement filed with the SEC on April 13, 2004.
Company Overview
True Temper Sports, Inc. (“True Temper” or the “Company”), a wholly owned subsidiary of True Temper Corporation (“TTC”), is a leading designer, manufacturer and marketer of steel, composite, and multi-material golf club shafts for original equipment manufacturers (“OEM’s”) and distributors in the golf equipment industry. In addition, True Temper produces and sells a variety of performance sports products that offer high strength and tight tolerance tubular components to the bicycle, hockey and other recreational sports markets. In calendar 2003, golf shaft sales represented 94% of total revenues, and performance sports sales represented 6%. This sales split has remained relatively consistent during the first six months of 2004.
Purchase Agreement for True Temper Corporation
On January 30, 2004, TTS Holdings LLC, a new company formed by Gilbert Global Equity Partners, L.P. and its affiliated funds (“Gilbert Global”), entered into a stock purchase agreement with our direct parent company, True Temper Corporation, pursuant to which TTS Holdings LLC and certain of the Company’s senior management purchased all of the outstanding shares of True Temper Corporation. In connection with this acquisition, and effective on March 15, 2004, the Company repaid all of its outstanding 2002 senior credit facility, redeemed all of its 10 7/8% senior subordinated notes due 2008, and made certain dividends to True Temper Corporation. These payments were financed with the net proceeds of a new senior credit facility and new 8 3/8% senior subordinated notes due 2011.
This transaction was accounted for by our parent company using the purchase method of accounting. As the Company is a wholly owned subsidiary of True Temper Corporation, we have “pushed down” the effect of the purchase method of accounting to these financial statements. Accordingly, our financial statements and accompanying notes present the historical cost basis results of the Company as “predecessor” through March 14, 2004, and the results of the Company as “successor” from March 15, 2004 through June 27, 2004.
For purposes of the following discussion regarding the Company’s results of operations and cash flow, the Company has combined the results of the predecessor and successor companies in order to compare the quarterly and year to date results to the prior year. Material variances caused by the different basis of accounting have been disclosed where applicable.
9
Results of Operations
The following tables set forth the components of net income as a percentage of net sales for the periods indicated:
|
|
|
Quarterly |
|
||
|
|
|
Successor |
|
Predecessor |
|
|
|
|
Period from |
|
Period from |
|
|
Net sales |
|
100.0 |
% |
100.0 |
% |
|
Cost of sales |
|
59.7 |
|
59.1 |
|
|
Gross profit |
|
40.3 |
|
40.9 |
|
|
Selling, general and administrative expenses |
|
13.2 |
|
11.1 |
|
|
Business development and start-up costs |
|
0.4 |
|
0.5 |
|
|
|
|
|
|
|
|
|
Operating income |
|
26.7 |
|
29.3 |
|
|
Interest expenses, net of interest income |
|
15.8 |
|
10.2 |
|
|
Other expenses, net |
|
— |
|
0.1 |
|
|
Earnings before income taxes |
|
10.9 |
|
19.0 |
|
|
Income taxes |
|
4.2 |
|
7.4 |
|
|
Net income |
|
6.8 |
% |
11.5 |
% |
|
|
|
Year – To – Date |
|
||||||
|
|
|
Predecessor |
|
Successor |
|
Combined |
|
Predecessor |
|
|
|
|
Period from |
|
Period from |
|
Period from |
|
Period from |
|
|
Net sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
Cost of sales |
|
58.6 |
|
59.8 |
|
59.4 |
|
60.8 |
|
|
Gross profit |
|
41.4 |
|
40.2 |
|
40.6 |
|
39.2 |
|
|
Selling, general and administrative expenses |
|
18.0 |
|
11.1 |
|
13.6 |
|
12.0 |
|
|
Business development and start-up costs |
|
0.5 |
|
0.5 |
|
0.5 |
|
0.4 |
|
|
Transaction and reorganization expenses |
|
26.6 |
|
— |
|
9.7 |
|
— |
|
|
Loss on early extinguishment of debt |
|
45.5 |
|
— |
|
16.6 |
|
— |
|
|
Operating income (loss) |
|
(49.2 |
) |
28.6 |
|
0.3 |
|
26.8 |
|
|
Interest expense, net of interest income |
|
12.3 |
|
13.3 |
|
12.9 |
|
10.4 |
|
|
Other expenses, net |
|
— |
|
— |
|
— |
|
0.1 |
|
|
Income (loss) before income taxes |
|
(61.5 |
) |
15.3 |
|
(12.7 |
) |
16.4 |
|
|
Income taxes |
|
(14.1 |
) |
5.9 |
|
(1.3 |
) |
6.5 |
|
|
Net income (loss) |
|
(47.5 |
)% |
9.4 |
% |
(11.3 |
)% |
9.9 |
% |
Second Quarter Ended June 27, 2004 Compared to the Second Quarter Ended June 29, 2003
Net Sales for the second quarter of 2004 decreased $7.2 million, or 22.0%, to $25.3 million from $32.5 million in the second quarter of 2003.
Golf shaft sales decreased $6.7 million, or 21.7%, to $24.0 million compared to the $30.6 million in the second quarter of 2003. This decrease was caused by a number of factors. While retail golf equipment sales appear to be somewhat stable in units, there are indications that shipments of certain products into the retail market have declined, and discounting appears to be occurring in order to clear the current inventory levels of existing products through the distribution channel. 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
10
2005. These market factors contributed to a decline in our overall steel shaft unit volume during the second quarter of 2004. In addition, we experienced, what we believe to be, a temporary shift in product mix within our premium steel shaft category which caused a slight decrease in our average unit selling price. Finally, while our Grafalloy Blue and Grafalloy ProLaunch graphite shafts continue to sell well, our overall graphite unit sales have declined as some of our major OEM partners experienced weaker demand in the wood category of the retail market.
Performance sports sales decreased $0.5 million, or 27.1%, to $1.3 million in the second quarter of 2004 from $1.8 million in the second quarter of 2003. This decline was driven mainly by a shift in the timing of customer ordering patterns for hockey sticks, offset somewhat by a continued increase in sales of our growing bike component segment.
Net sales to international customers decreased $0.7 million, or 7.3%, to $8.3 million in the second quarter of 2004 from $9.0 million in the second quarter of 2003. This decrease was driven primarily by a decline in the unit sales volume in the United Kingdom as they experience similar market factors as described above for our overall golf sales, offset somewhat by improved foreign currency exchange rates in the United Kingdom, Japan and Australia.
Gross Profit for the second quarter of 2004 decreased $3.1 million, or 23.2%, to $10.2 million from $13.3 million in the second quarter of 2003. Gross profit as a percentage of net sales decreased to 40.3% in the second quarter of 2004 from 40.9% in the second quarter of 2003. Our gross profit margin decreased as a result of several factors, including (i) an increase in the cost of raw materials for both steel and graphite golf shafts, (ii) continued escalation in the cost of employee healthcare benefits, and (iii) the unfavorable impact of certain fixed costs in our manufacturing facilities spread over a reduced unit volume. These factors were somewhat offset by the favorable impact of (i) improved foreign currency exchange rates, (ii) increased selling prices on branded and other products, (iii) favorable operating improvements from productivity programs at our manufacturing facilities, and (iv) the impact of cost control actions initiated during the quarter in response to the softness on the revenue line.
In the second quarter of 2003 we paid a ratification bonus to the hourly employees represented by the United Steelworkers of America related to a new four year collective bargaining agreement effective July 1, 2003. Excluding the impact of this ratification bonus, gross profit as a percentage of net sales would have decreased to 40.3% in the second quarter of 2004 from 43.0% in the second quarter of 2003.
Selling, General and Administrative Expenses (“SG&A”) for the second quarter of 2004 decreased $0.3 million, or 7.4%, to $3.3 million from $3.6 million in the second quarter of 2003. The decrease in total SG&A spending during the second quarter resulted primarily from cost control actions initiated earlier in 2004 in response to the softness on the revenue line.
Business Development and Start-Up Costs for the second quarter of 2004 decreased slightly from $0.2 million in the second quarter of 2003. In 2003 and 2004 these costs represent various start-up business expenses related to the opening of our composite manufacturing operation in southern China.
Operating Income for the second quarter of 2004 decreased $2.8 million, or 28.9%, to $6.8 million from $9.5 million in the second quarter of 2003. Operating income as a percentage of net sales decreased to 26.7% in the second quarter of 2004 from 29.3% in the second quarter of 2003. This decrease reflects the profit impact of the items described above.
Excluding the impact of the 2003 ratification bonus, operating income would have decreased $3.4 million, or 33.7%, to $6.8 million from $10.2 million in the second quarter of 2003. Operating income as a percentage of net sales would have decreased to 26.7% in the second quarter of 2004 from 31.4% in the second quarter of 2003.
Interest Expense for the second quarter of 2004 increased to $4.0 million from $3.3 million in the second quarter of 2003. This increase was driven primarily by the increase in outstanding principal amounts of variable
11
rate bank debt and fixed rate bonds, offset somewhat by a decrease in interest rates on both the variable and fixed rate debt between periods.
Income Taxes in the second quarter of 2004 decreased to $1.1 million from $2.4 million in the second quarter of 2003. The effective tax rate during these periods differs from a federal statutory rate of 34% due primarily to the incremental tax rate for state and foreign income tax purposes.
Net Income for the second quarter of 2004 decreased by approximately $2.0 million to $1.7 million from $3.8 million in the second quarter of 2003. This decrease reflects the profit impact of the items described above.
Excluding the impact of the 2003 ratification bonus, net income would have decreased by $2.5 million to $1.7 million from $4.2 million in the second quarter of 2003.
Six Month Period Ended June 27, 2004 Compared to the Six Month Period Ended June 29, 2003
Net Sales for the first six months of 2004 decreased $8.5 million, or 13.3%, to $55.5 million from $64.1 million in the first six months of 2003.
Golf shaft sales decreased $8.4 million, or 13.9%, to $52.4 million in the first six months of 2004 from $60.9 million in the first six months of 2003. This decrease was caused by a number of factors. While retail golf equipment sales appear to be somewhat stable in units, there are indications that shipments of certain products into the retail market have declined, and discounting appears to be occurring in order to clear the current inventory levels of existing products through the distribution channel. 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. These market factors contributed to a decline in our overall steel shaft unit volume during the first six months of 2004. In addition, we experienced, what we believe to be, a temporary shift in product mix within our premium steel shaft category which caused a slight decrease in our average unit selling price. Finally, while our Grafalloy Blue and Grafalloy ProLaunch graphite shafts continue to sell well, our overall graphite unit sales have declined as some of our major OEM partners experienced weaker demand in the wood category of the retail market.
Performance sports sales decreased $0.1 million, or 3.4%, to $3.1 million in the first six months of 2004 from $3.2 million in the first six months of 2003. This decline was driven mainly by a shift in the timing of customer ordering patterns for hockey sticks, offset somewhat by a continued increase in sales of our growing bike component product line.
Net sales to international customers increased $1.1 million, or 5.7%, to $19.3 million in the first six months of 2004 from $18.3 million in the first six months of 2003. This increase was driven primarily by improved foreign currency exchange rates in the United Kingdom, Japan and Australia but was offset slightly by a decline in the unit sales volume in the United Kingdom as they experience similar market factors as described above for our overall golf sales.
Gross Profit for the first six months of 2004 decreased $2.6 million, or 10.3%, to $22.6 million from $25.1 million in the first six months of 2003. Gross profit as a percentage of net sales increased to 40.6% in the first six months of 2004 from 39.2% in the first six months of 2003. Our gross profit margin increased as a result of several factors, including (i) improved foreign currency exchange rates, (ii) increased selling prices on branded and other products, (iii) favorable operating improvements from productivity programs at our manufacturing facilities, and (iv) the impact of cost control actions initiated during the first six months of 2004 in response to the softness on the revenue line. These factors were somewhat offset by the unfavorable impact of (i) an increase in the cost of raw materials for both steel and graphite golf shafts, (ii) continued escalation in the cost of employee healthcare benefits, and (iii) the unfavorable impact of certain fixed costs in our manufacturing facilities spread over a reduced unit volume.
In the second quarter of 2003 we paid a ratification bonus to the hourly employees represented by the United Steelworkers of America related to a new four year collective bargaining agreement effective July 1, 2003.
12
Excluding the impact of this ratification bonus, gross profit as a percentage of net sales would have increased to 40.6% in the first six months of 2004 from 40.3% in the first six months of 2003.
Selling, General and Administrative Expenses (“SG&A”) for the first six months of 2004 decreased $0.1 million, or 1.8%, to $7.5 million from $7.7 million in the first six months of 2003. The decrease in total SG&A spending during the first six months of 2004 resulted primarily from cost control actions initiated in response to the softness on the revenue line.
Business Development and Start-Up Costs for the first six months of 2004 totaled $0.3 million and remained flat to the first six months of 2003. In 2003 and 2004 these costs represent various start-up business expenses related to the opening of our composite manufacturing operation in southern China.
Transaction and Reorganization Expenses for the first six months of 2004 were $5.4 million and were incurred in conjunction with the sale and purchase agreement for TTC which closed on March 15, 2004. These transaction related expenses include (i) investment banking merger and acquisition fees; (ii) legal fees; and (iii) other incidental costs and expenses related to the sale of TTC. No such transaction and reorganization expenses were incurred during the first six months of 2003.
Loss on the Early Extinguishment of Long-Term Debt for the first six months of 2004 was $9.2 million. The costs recorded as loss on the early extinguishment of long term debt include (i) the write-off of the remaining deferred financing costs related to our 10 7/8% senior subordinated notes and our 2002 senior credit facility, and (ii) the early extinguishment call premium and related interest we incurred when we redeemed the 10 7/8% senior subordinated notes on March 15, 2004. No long term debt was extinguished during the first six months of 2003.
Operating Income for the first six months of 2004 decreased by $17.0 million, or 99.2%, to $0.1 million from $17.2 million in the first six months of 2003. Operating income as a percentage of net sales decreased to 0.3% in the first six months of 2004 from 26.8% in the first six months of 2003. This decrease reflects the profit impact of the items described above.
Excluding the impact of transaction and reorganization expenses and the loss on early extinguishment of long-term debt in 2004 as well as the 2003 ratification bonus, operating income would have decreased approximately $3.1 million, or 17.5%, to $14.7 million from $17.9 million in the first six months of 2003. Operating income as a percentage of net sales would have decreased to 26.5% in the first six months of 2004 from 27.9% in the first six months of 2003.
Interest Expense for the first six months of 2004 increased by $0.5 million to $7.2 million from $6.7 million in the first six months of 2003. This increase was driven primarily by the increase in outstanding principal amounts of variable rate bank debt and fixed rate bonds, offset somewhat by a decrease in interest rates on both the variable and fixed rate debt between periods.
Income Taxes for the first six months of 2004 decreased to an income tax benefit of $0.7 million compared to an income tax expense of $4.1 million in the first six months of 2003. This decrease was driven primarily by the pretax expenses recorded as a result of the transaction and reorganization on March 15, 2004. The effective tax rate during these periods differs from a federal statutory rate of 34% due primarily to the incremental tax rate for state and foreign income tax purposes. For the period from January 1, 2004 through March 14, 2004 the effective tax rate also differs due to the nondeductible nature of a portion of transaction and reorganization expenses.
Excluding the impact of transaction and reorganization expenses and the loss on early extinguishment of long-term debt in 2004 as well as the 2003 ratification bonus, the financial results of the company in the first six months of 2004 would have generated an income tax expense of $3.0 million compared to $4.4 million in the first six months 2003.
13
Net income for the first six months of 2004 decreased by $12.6 million to a $6.3 million loss from $6.3 million in income in the first six months of 2003. This decrease reflects the profit impact from the items described above.
Excluding the impact of transaction and reorganization expenses and the loss on early extinguishment of long-term debt in 2004 as well as the 2003 ratification bonus, net income in the first six months of 2004 would have decreased by $2.2 million to $4.6 million from $6.8 million in the first six months of 2003.
Liquidity and Capital Resources
General
At the beginning of 2003 the Company had a senior credit facility (the “2002 senior credit facility”) which included a $15.0 million non-amortizing revolving credit facility and a $25.0 million term loan. Amounts under the revolving credit facility were available on a revolving basis through December 31, 2007. The term loan required quarterly cash interest and principal payments beginning in March 2003 and continuing through December 2007.
In addition, the Company had $99.7 million in 10 7/8% Senior Subordinated Notes Due 2008 (the “10 7/8% Notes”). The 10 7/8% Notes required cash interest payments each June 1 and December 1, beginning June 1, 1999. The 10 7/8% Notes were redeemable at the Company’s option, under certain circumstances and at certain redemption prices, beginning December 1, 2003.
On March 15, 2004, TTC, True Temper’s parent company, was purchased by TTS Holdings LLC, an affiliate of Gilbert Global Equity Partners, L. P. As part of the transaction the Company entered into a new senior credit facility (the “2004 senior credit facility”) which includes a $20.0 million non-amortizing revolving credit facility and a $110.0 million Term B loan. The term loan requires cash interest payments and quarterly principal payments beginning June 30, 2004 and continuing through March 15, 2011.
Also in conjunction with the transaction the Company issued new 8 3/8% Senior Subordinated Notes due 2011 (the “8 3/8% Notes”). The 8 3/8% Notes require cash interest payments each March 15th and September 15th commencing on September 15, 2004. The 8 3/8% Notes are redeemable at the Company’s option, under certain circumstances and at certain redemption prices, beginning March 15, 2008.
The Company used the proceeds from the 2004 senior credit facility and the 8 3/8% Notes to pay off the existing debt that was outstanding at closing on March 15, 2004. Also, a portion of the proceeds were used to pay a dividend to TTC in order that TTC could repay the outstanding balance on its senior discount notes which carried a 13.25% PIK interest rate or a 12.25% cash interest rate.
Both the 2004 senior credit facility and the 8 3/8% Notes contain covenants and events of default, including substantial restrictions and provisions which, among other things, limit our ability to incur additional indebtedness, make acquisitions and capital expenditures, sell assets, create liens or other encumbrances, make certain payments and dividends, or merge or consolidate. The 2004 senior credit facility also requires the Company to maintain certain specified financial ratios and tests including minimum interest coverage and fixed charge coverage ratios, and maximum leverage ratios. At June 27, 2004 the Company was in compliance with all of the covenants in both the 2004 senior credit facility and the 8 3/8% Notes. Furthermore, the 2004 senior credit facility requires certain mandatory prepayments including payments from the net proceeds of certain asset sales and a portion of our excess cash flow as defined within the credit agreement.
Six Months Ended June 27, 2004 Compared to the Six Months Ended June 29, 2003
Net cash provided by operating activities declined $3.2 million between periods, as net income declined due to the lower net sales during 2004. In addition, the Company built inventory to facilitate the transition of graphite golf shaft production from its El Cajon, California facility to its newly established plant in Guangzhou, China, as well as in anticipation of an increase in retail activity.
14
We used $0.9 million of cash to invest in property, plant and equipment in the first six months of 2004, compared to the $1.4 million spent in the first six months of 2003.
The Company used $10.7 million of net cash for financing activities in the first six months of 2004 as compared to $3.0 million in 2003. The 2004 activity included the proceeds from issuing the 2004 senior credit facility and the proceeds from issuing the 8 3/8% Notes. These proceeds, plus cash generated from operations during the first quarter, and cash on hand at the beginning of 2004 were used to (i) repay the outstanding principal and interest on the Company’s 2002 senior credit facility, (ii) to redeem and repay the 10 7/8% Notes including their accrued and unpaid interest and early redemption call premium, (iii) to pay for debt issuance costs on the 2004 senior credit facility and the 8 3/8% Notes, (iv) to pay for transaction and reorganization expenses, and (v) to issue a dividend to our parent company, TTC.
Existing Contractual Cash Obligations
The following table reflects the Company’s contractual cash obligations for long-term debt and capital and operating leases as of June 27, 2004 (dollars in millions):
|
|
|
Total |
|
2004 |
|
2005 |
|
2007 |
|
Thereafter |
|
|||||
|
Long-Term Debt(1) |
|
$ |
235.0 |
|
$ |
0.8 |
|
$ |
2.2 |
|
$ |
2.2 |
|
$ |
229.8 |
|
|
Operating Leases |
|
3.3 |
|
0.5 |
|
1.7 |
|
1.1 |
|
— |
|
|||||
|
Purchase Commitments (2) |
|
0.1 |
|
0.1 |
|
— |
|
— |
|
— |
|
|||||
|
Total(3) |
|
$ |
238.4 |
|
$ |
1.4 |
|
$ |
3.9 |
|
$ |
3.3 |
|
$ |
229.8 |
|
(1) Our long-term debt agreements contain customary change of control provisions that could, under certain circumstances, cause accelerated debt repayment.
(2) Amount represents the purchase commitments for natural gas used in the manufacture of steel golf shafts at our Amory, Mississippi facility.
(3) This table does not include our future obligations related to our funding of our pension benefits.
Future Cash Generation and Use
Currently our intention is to use existing cash and cash provided from future operations, if any, as allowed within the covenants of our 2004 senior credit facility and our 8 3/8% Notes, to:
• Repay the principal on our 2004 senior credit facility; and / or
• To make additional investments in the business for growth, which may include, among other things, capital expenditures, business acquisitions, and/or expenditures for business development and expansion in China.
In addition to the debt service obligations for principal and interest payments, the Company’s liquidity needs largely relate to working capital requirements and capital expenditures for machinery and equipment. The Company intends to fund our current and long term working capital, capital expenditure and debt service requirements through cash flow generated from operations. However, since there can be no assurance of future performance, as of June 27, 2004 the Company has the $20.0 million revolving credit facility available for future cash requirements. The maximum amount the Company may use of the $20.0 million revolving credit facility is limited by the financial covenants contained within the 2004 senior credit facility.
15
In addition to the Company’s cash obligations for interest and principal payments related to its debt obligations, the Company also has a management services agreement with an affiliate of the principle common stock holder in its parent company, which requires the payment of an annual advisory fee of $0.5 million.
Depending on the size, any future acquisitions, joint ventures, capital expenditures or similar transactions may require significant capital resources in excess of cash provided from operations, and potentially in excess of cash available under the revolving credit facility. There can be no assurance that the Company will be able to obtain the necessary capital, under acceptable terms, from creditors or other sources that will be sufficient to execute any such business investment or capital expenditure.
Impact of Recently Issued Accounting Standards
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. This Interpretation replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies will be used to measure the assets, liabilities and non-controlling interest of the VIE. The application of this Interpretation did not have a material effect on the Company’s financial statements.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise was effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of this Statement.
Forward-Looking Statements
The Private Securities Litigation Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by our Company. This document contains forward-looking statements, including but not limited to Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. All statements which address future operating or financial performance, events or developments that we expect, plan, believe, hope, wish, forecast, predict, intend, or anticipate will occur in the future, and other similar meanings or phrases, are forward-looking statements within the meaning of the Act.
The forward-looking statements are based on management’s current views and assumptions regarding future events and operating performance. However, there are many risk factors, including but not limited to, the Company’s substantial leverage, the Company’s ability to service its debt, the general state of the economy, the Company’s ability to execute its plans, fluctuations in the price and availability of energy, fluctuations in the price and availability of raw materials, potentially significant increases to employee health and welfare costs, competitive factors, and other risks that could cause the actual results to differ materially from the estimates or predictions contained in our Company’s forward-looking statements. Additional information concerning the Company’s risk factors is contained from time to time in the Company’s public filings with the SEC; and most recently in the Business Risks section of Item 1 to Part 1 of our 2003 Annual Report on Form 10-K filed with the
16
SEC on March 12, 2004 and also disclosed in our Form S-4 Registration Statement filed with the SEC on April 13, 2004.
The Company’s views, estimates, plans and outlook as described within this document may change subsequent to the release of this statement. The Company is under no obligation to modify or update any or all of the statements it has made herein despite any subsequent changes the Company may make in its views, estimates, plans or outlook for the future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
The table below provides information about the Company’s debt obligations as of June 27, 2004 that are sensitive to changes in interest rates. The table presents cash flows and related weighted average interest rates by expected maturity dates (dollars in millions).
|
|
|
Expected Maturity Date |
|
Total |
|
Fair |
|
|||||||||||||||||||
|
|
|
|
|
There- |
|
|
|
|||||||||||||||||||
|
|
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
after |
|
|
|
|||||||||||
|
LONG TERM DEBT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Fixed Rate 8 3/8% Senior Subordinated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Notes |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
125.0 |
|
$ |
125.0 |
|
$ |
125.0 |
|
|
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
8.375 |
% |
8.375 |
% |
|
|
|||||||||
|
Variable Rate Senior Credit Facility |
|
$ |
0.8 |
|
$ |
1.1 |
|
$ |
1.1 |
|
$ |
1.1 |
|
$ |
1.1 |
|
$ |
104.8 |
|
$ |
110.0 |
|
$ |
110.0 |
|
|
|
Average Interest Rate (a) |
|
|
|
|
|
|
|
|
|
|
|
3.759 |
% |
3.759 |
% |
|
|
|||||||||
(a) Variable rate long-term debt is comprised of term loans under the 2004 senior credit facility. The 2004 senior credit facility provides for interest at the Company’s option, at (1) the base rate of the bank acting as administrative agent plus a margin adder of 1.50%, or (2) under a LIBOR option with a borrowing spread of LIBOR plus 2.50%.
Information concerning the Company’s market risks related to foreign exchange rates and commodities is contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2003 Annual Report on Form 10-K, as filed with the SEC on March 12, 2004.
This information has been omitted from this report as there have been no material changes to the Company’s risks related to foreign exchange rates and commodities as of June 27, 2004.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Evaluations required by Rule 13a-15 of the Securities Exchange Act of 1934 of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Report have been carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer. Based upon such evaluations, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There have been no changes in the Company’s internal controls over financial reporting during the period covered by this Report that were identified in connection with the evaluation referred to above that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
17
Item 1. Legal Proceedings
Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened against us. While we cannot predict the outcome of these matters, in the opinion of management, any liability arising from these matters will not have a material adverse effect on our business, financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds
—Not applicable—
Item 3. Defaults Upon Senior Securities
—None—
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter ended June 27, 2004.
Item 5. Other Information
—Not Applicable—
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
|
1.1 |
|
Purchase Agreement, dated as of March 3, 2004, among True Temper Sports, Inc., Credit Suisse First Boston LLC and Goldman, Sachs & Co. (filed as Exhibit 1.1 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
4.1 |
|
Indenture, dated as of March 15, 2004, among True Temper Sports, Inc., the Guarantors identified therein, and The Bank of New York (filed as Exhibit 4.1 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
4.2 |
|
Form of Senior Subordinated Note due 2011 (filed as Exhibit 4.2 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
4.3 |
|
Registration Rights Agreement, dated as of March 15, 2004, among True Temper Sports, Inc., El Cajon Equipment Corporation, True Temper Sports-PRC Holdings, Inc., Credit Suisse First Boston LLC and Goldman, Sachs & Co (filed as Exhibit 4.3 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
10.1 |
|
Management Services Agreement, dated as of March 15, 2004, between GGEP Management, L.L.C., GGEP Management (Bermuda) Ltd., and True Temper Sports, Inc. (filed as Exhibit 10.1 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
18
|
10.2 |
|
Shareholders Agreement, dated as of March 15, 2004, by and among True Temper Corporation, TTS Holdings LLC and the Other Investors identified therein (filed as Exhibit 10.2 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
10.3 |
|
True Temper Corporation 2004 Equity Incentive Plan, dated as of March 15, 2004 (filed as Exhibit 10.3 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
10.4 |
|
Credit Agreement, dated as of March 15, 2004, by and among True Temper Corporation, True Temper Sports, Inc, the Lenders identified therein, Credit Suisse First Boston, Antares Capital Corporation, Goldman Sachs Credit Partners L.P. and Merrill Lynch Capital (filed as Exhibit 10.4 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
10.5 |
|
Tax Sharing and Administrative Services Agreement, dated as of March 15, 2004, by and among True Temper Corporation, True Temper Sports, Inc., El Cajon Equipment Corporation and True Temper Sports-PRC Holdings, Inc. (filed as Exhibit 10.5 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
10.6 |
|
Employment Agreement, dated as of January 30, 2004, by and between True Temper Sports, Inc. and Scott C. Hennessy (filed as Exhibit 10.6 to True Temper Sports, Inc.’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on April 13, 2004).* |
|
|
|
|
|
31.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** |
|
|
|
|
|
31.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** |
|
|
|
|
|
31.3 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed as Exhibit 31.1 to True Temper Sports, Inc.’s 2003 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 12, 2004).* |
|
|
|
|
|
31.4 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed as Exhibit 31.2 to True Temper Sports, Inc.’s 2003 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 12, 2004).* |
|
|
|
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
|
|
|
|
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
b. Reports on Form 8-K
No reports or Form 8-K were filed during the quarter ended June 27, 2004.
* Incorporated by reference
** Filed herewith
19
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on August 11, 2004.
|
|
True Temper Sports, Inc. |
|||
|
|
|
|||
|
|
|
|||
|
|
By: |
/s/SCOTT C. HENNESSY |
|
|
|
|
|
|
|
|
|
|
Name: Scott C. Hennessy |
|||
|
|
Title: |
President and Chief Executive Officer |
||
|
|
|
|
||
|
|
|
|
||
|
|
By: |
/s/FRED H. GEYER |
|
|
|
|
|
|||
|
|
Name: Fred H. Geyer |
|||
|
|
Title: |
Senior Vice President, |
||
|
|
|
Chief Financial Officer and Treasurer |
||
20