**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

## **Washington, D.C. 20549**

## ** **

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**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 July 3,  2005**                                                                         |
| ** **                                                                                                                    |
| **or**                                                                                                                        |
| ** **                                                                                                                    |
| **o****  ****TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                          |
| **Commission file number 333-72343**                                                                                     |

 

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**TRUE TEMPER SPORTS, INC.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                                                                                | ** ** | **3949**                                                  | ** ** | **52-2112620**                           |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                                                             |       | (Primary Standard Industrial  Classification Code Number) |       | (I.R.S. Employer  Identification Number) |
|                                                                                                                        |       |                                                      |       |                                     |
|                                                                                                                        |       | **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) |

 

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Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes ý    No o.

 

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes  o    No  ý.

 

As of August 17, 2005 the Registrant had 100 shares of CommonStock, $0.01 par value per share, outstanding.

 

 

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**TRUE TEMPER SPORTS, INC.**

 

**INDEX**

 
| PART I.  | FINANCIAL INFORMATION |                                                                                        |
|---------------|-----------------------|---------------------------------------------------------------------------------------------|
|          |                  |                                                                                        |
|          | Item 1.          | Financial Statements                                                                        |   |
|          |                  |                                                                                        |
|          |                  | Condensed Consolidated Statements of Operations (Unaudited)                                 |   |
|          |                  |                                                                                        |   |
|          |                  | Condensed  Consolidated Balance Sheets (Unaudited)                                          |   |
|          |                  |                                                                                        |   |
|          |                  | Condensed Consolidated Statements of Cash Flows (Unaudited)                                 |   |
|          |                  |                                                                                        |   |
|          |                  | Notes to Condensed Consolidated Financial Statements (Unaudited)                            |   |
|          |                  |                                                                                        |   |
|          | Item 2.          | Management’s Discussion and Analysis of Financial Condition and  Results of Operations |   |
|          |                  |                                                                                        |   |
|          | Item 3.          | Quantitative and Qualitative Disclosures About Market Risk                                  |   |
|          |                  |                                                                                        |   |
|          | Item 4.               | Controls and Procedures                                                                     |   |
|          |                  |                                                                                        |   |
| PART II. | OTHER  INFORMATION    |                                                                                        |
|          |                  |                                                                                        |   |
|          | Item 1.          | Legal  Proceedings                                                                          |   |
|          |                  |                                                                                        |   |
|          | Item 2.          | Changes in Securities and Use of Proceeds                                                   |   |
|          |                  |                                                                                        |   |
|          | Item 3.          | Defaults Upon Senior Securities                                                             |   |
|          |                  |                                                                                        |   |
|          | Item 4.          | Submission of Matters to a Vote of Security Holders                                         |   |
|          |                  |                                                                                        |   |
|          | Item 5.          | Other  Information                                                                          |   |
|          |                  |                                                                                        |   |
|          | Item 6.          | Exhibits                                                                                    |   |
|          |                  |                                                                                        |   |
| Signatures    |                  |

 

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### **PART I  FINANCIAL INFORMATION**

### ** **

**Item 1.    *Financial Statements***

 

**TRUE TEMPER SPORTS, INC.**

**(A wholly-owned subsidiary of True TemperCorporation)**

 

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                           | ** ** | **Quarterly**                                        | ** ** | **Year – To – Date**                         | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                           | ** ** | **Successor Company**                                | ** ** | **Successor Company**                                  | ** ** | ** ** | **Predecessor Company** | ** ** |
| ** **                                           | ** ** | **Period from  April 4 to  July 3,  2005** | ** ** | **Period from  March 29 to  June 27,  2004** | ** ** | **Period from  January 1 to  July 3,  2005** | ** ** | **Period from  March 15 to  June 27,  2004** | ** ** | ** ** | **Period from  January 1 to  March 14,  2004** | ** ** |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET SALES**                                        | ** ** | **$**                                                | **32,565** | ** **                                             | **$**      | **25,333** | ** ** | **$** | **64,668** | ** ** | **$** | **35,297** | ** ** | ** ** | **$** | **20,247** | ** ** |
| Cost of sales                                        |       | 19,314                                               |       | 15,123                                                 |       | 38,548 |   | 21,111 |   |   | 11,871 |   |
| **GROSS PROFIT**                                     | ** ** | **13,251**                                           | ** ** | **10,210**                                             | ** ** | **26,120** | ** ** | **14,186** | ** ** | ** ** | **8,376** | ** ** |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Selling, general and administrative  expenses        |       | 3,947                                                |       | 3,339                                                  |       | 8,135 |   | 3,903 |   |   | 3,635 |   |
| Amortization of intangible assets                    |       | 3,456                                                |       | —                                                 |       | 6,912 |   | — |   |   | — |   |
| Business development, start-up and  transition costs |       | 70                                                   |       | 99                                                     |       | 135 |   | 182 |   |   | 100 |   |
| Transaction and reorganization expenses              |       | —                                               |       | —                                                 |       | — |   | — |   |   | 5,381 |   |
| Loss on early extinguishment of long- term  debt     |       | —                                               |       | —                                                 |       | — |   | — |   |   | 9,217 |   |
| **OPERATING INCOME (LOSS)**                          | ** ** | **5,778**                                            | ** ** | **6,772**                                              | ** ** | **10,938** | ** ** | **10,101** | ** ** | ** ** | **(9,957** | **)** |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense, net of interest income             |       | 4,759                                                |       | 3,994                                                  |       | 9,526 |   | 4,679 |   |   | 2,498 |   |
| Other expenses (income), net                         |       | 21                                                   |       | 12                                                     |       | 33 |   | 14 |   |   | (2 | ) |
| **INCOME (LOSS) BEFORE INCOME TAXES**                | ** ** | **998**                                              | ** ** | **2,766**                                              | ** ** | **1,379** | ** ** | **5,408** | ** ** | ** ** | **(12,453** | **)** |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income tax expense (benefit)                         |       | 428                                                  |       | 1,053                                                  |       | 625 |   | 2,098 |   |   | (2,845 | ) |
| **NET INCOME (LOSS)**                                | ** ** | **$**                                                | **570**    | ** **                                             | **$**      | **1,713** | ** ** | **$** | **754** | ** ** | **$** | **3,310** | ** ** | ** ** | **$** | **(9,608** | **)** |

 

See accompanying notes to condensedconsolidated financial statements

 

1

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**TRUE TEMPER SPORTS, INC.**

**(A wholly-owned subsidiary of True TemperCorporation)**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                                                 | ** ** | **July 3,  2005** | ** **  | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                 |       |                   |        |                        |       |
| **ASSETS**                                                                                                 |       |                   |        |                        |       |
| **CURRENT ASSETS**                                                                                         |       |                   |        |                        |       |
| Cash and cash equivalents                                                                                  |       | $                      | 4,483       |                        | $          | 3,337 |   |
| Receivables, net                                                                                           |       | 19,399                 |        | 14,578                      |       |
| Inventories                                                                                                |       | 20,264                 |        | 21,910                      |       |
| Prepaid expenses and other current assets                                                                  |       | 3,742                  |        | 3,533                       |       |
| **Total current assets**                                                                                   | ** ** | **47,888**             | ** **  | **43,358**                  | ** ** |
|                                                                                                       |       |                   |        |                        |       |
| Property, plant and equipment, net                                                                         |       | 13,371                 |        | 13,407                      |       |
| Goodwill, net                                                                                              |       | 150,883                |        | 150,883                     |       |
| Intangible assets, net                                                                                     |       | 139,354                |        | 146,266                     |       |
| Other assets                                                                                               |       | 6,372                  |        | 6,911                       |       |
| **Total assets**                                                                                           | ** ** | **$**                  | **357,868** | ** **                  | **$**      | **360,825** | ** ** |
|                                                                                                       |       |                   |        |                        |       |
| **LIABILITIES &  STOCKHOLDER’S EQUITY**                                                      |       |                   |        |                        |       |
| **CURRENT LIABILITIES**                                                                                    |       |                   |        |                        |       |
| Current portion of long-term debt                                                                          |       | $                      | —      |                        | $          | 545 |   |
| Accounts payable                                                                                           |       | 5,417                  |        | 4,356                       |       |
| Accrued expenses and other current  liabilities                                                            |       | 11,417                 |        | 9,796                       |       |
| **Total current liabilities**                                                                              | ** ** | **16,834**             | ** **  | **14,697**                  | ** ** |
|                                                                                                       |       |                   |        |                        |       |
| Deferred tax liability, net                                                                                |       | 5,903                  |        | 5,403                       |       |
| Long-term debt, net of current portion                                                                     |       | 225,725                |        | 232,180                     |       |
| Other liabilities                                                                                          |       | 7,337                  |        | 7,215                       |       |
| **Total liabilities**                                                                                      | ** ** | **255,799**            | ** **  | **259,495**                 | ** ** |
|                                                                                                       |       |                   |        |                        |       |
| **STOCKHOLDER’S EQUITY**                                                                              |       |                   |        |                        |       |
| Common stock — par value $0.01 per share;  authorized 1,000 shares; issued and outstanding 100 shares |       | —                 |        | —                      |       |
| Additional paid-in capital                                                                                 |       | 111,943                |        | 111,943                     |       |
| Accumulated deficit                                                                                        |       | (9,710                 | )           | (10,464                     | )          |
| Accumulated other comprehensive loss, net  of taxes                                                        |       | (164                   | )           | (149                        | )          |
| **Total stockholder’s equity**                                                                        | ** ** | **102,069**            | ** **  | **101,330**                 | ** ** |
| **Total liabilities and stockholder’s equity**                                                        | ** ** | **$**                  | **357,868** | ** **                  | **$**      | **360,825** | ** ** |

 

See accompanying notes to condensedconsolidated financial statements

 

2

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**TRUE TEMPER SPORTS, INC.**

**(A wholly-owned subsidiary of True TemperCorporation)**

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                                     | ** ** | **Successor Company**                                  | ** ** | ** **                                             | **Predecessor  Company** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|--------------------------|------------|
| ** **                                                                                     | ** ** | **Period from  January 1 to  July 3,  2005** | ** ** | **Period from  March 15 to  June 27,  2004** | ** **               | ** ** | **Period from  January 1 to  March 14,  2004** | ** ** |
| **OPERATING ACTIVITIES**                                                                       |       |                                                   |       |                                                   |                     |       |   |   |
| Net income (loss)                                                                              |       | $                                                      | 754        |                                                   | $                        | 3,310      |   |   | $ | (9,608 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities:      |       |                                                   |       |                                                   |                     |       |   |   |
| Depreciation and amortization                                                                  |       | 1,349                                                  |       | 836                                                    |                     |       | 671 |   |
| Amortization of deferred financing costs                                                       |       | 726                                                    |       | 309                                                    |                     |       | 109 |   |
| Amortization of intangible assets                                                              |       | 6,912                                                  |       | —                                                 |                     |       | — |   |
| Transaction and reorganization expenses                                                        |       | —                                                 |       | —                                                 |                     |       | 5,381 |   |
| Loss on early extinguishment of long-term  debt                                                |       | —                                                 |       | —                                                 |                     |       | 9,217 |   |
| Deferred taxes                                                                                 |       | 500                                                    |       | 2,069                                                  |                     |       | (3,015 | ) |
| Changes in operating assets and  liabilities, net                                              |       | (696                                                   | )          | (748                                                   | )                        |       | 227 |   |
| **Net cash provided by operating activities**                                                  | ** ** | **9,545**                                              | ** ** | **5,776**                                              | ** **               | ** ** | **2,982** | ** ** |
|                                                                                           |       |                                                   |       |                                                   |                     |       |   |   |
| **INVESTING ACTIVITIES**                                                                       |       |                                                   |       |                                                   |                     |       |   |   |
| Purchase of property, plant and equipment                                                      | ** ** | (1,313                                                 | )          | (617                                                   | )                        |       | (330 | ) |
| **Net cash used in investing activities**                                                      | ** ** | **(1,313**                                             | **)**      | **(617**                                               | **)**                    | ** ** | **(330** | **)** |
|                                                                                           |       |                                                   |       |                                                   |                     |       |   |   |
| **FINANCING ACTIVITIES**                                                                       |       |                                                   |       |                                                   |                     |       |   |   |
| Proceeds from issuance of bank debt                                                            |       | —                                                 |       | 110,000                                                |                     |       | — |   |
| Proceeds from issuance of Senior  Subordinated Notes                                           |       | —                                                 |       | 125,000                                                |                     |       | — |   |
| Principal payments on bank debt                                                                |       | (7,000                                                 | )          | —                                                 |                     |       | (7,700 | ) |
| Repayment of bank debt, including accrued  interest                                            |       | —                                                 |       | (6,335                                                 | )                        |       | — |   |
| Call Senior Subordinated Notes, including  accrued interest and call premium                   |       | —                                                 |       | (109,160                                               | )                        |       | — |   |
| Payment of debt issuance costs                                                                 |       | —                                                 |       | (8,673                                                 | )                        |       | — |   |
| Distribution of net equity to selling  sharholders                                             |       | —                                                 |       | (102,518                                               | )                        |       | — |   |
| Transaction and reorganization expenses,  including cash payments for direct acquisition costs |       | —                                                 |       | (10,780                                                | )                        |       | (463 | ) |
| Other financing activity                                                                       |       | (86                                                    | )          | —                                                 |                     |       | (42 | ) |
| **Net cash used in financing activities**                                                      | ** ** | **(7,086**                                             | **)**      | **(2,466**                                             | **)**                    | ** ** | **(8,205** | **)** |
| ** **                                                                                     | ** ** | ** **                                             | ** ** | ** **                                             | ** **               | ** ** | ** ** | ** ** |
| Net increase (decrease) in cash                                                                |       | 1,146                                                  |       | 2,693                                                  |                     |       | (5,553 | ) |
| Cash at beginning of period                                                                    |       | 3,337                                                  |       | 2,836                                                  |                     |       | 8,389 |   |
| **Cash at end of period**                                                                      | ** ** | **$**                                                  | **4,483**  | ** **                                             | **$**                    | **5,529**  | ** ** | ** ** | **$** | **2,836** | ** ** |

 

See accompanying notes to condensedconsolidated financial statements

 

3

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** **

**TRUE TEMPER SPORTS, INC.**

**(A wholly-owned subsidiary of True TemperCorporation)**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**(Dollars in thousands unless otherwiseindicated)**

 

**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 andregulations of the Securities and Exchange Commission (“SEC”) for quarterlyreports on Form 10-Q and consequently do not include all the disclosuresrequired by accounting principles generally accepted in the United States ofAmerica. It is suggested that these financial statements be read in conjunctionwith the audited financial statements and the notes thereto for the year ended December 31,2004. In the opinion of management, the financial statements as of and for theperiods ended July 3, 2005 and June 27, 2004 include all adjustments,consisting of only normal recurring adjustments, which are necessary for thefair presentation of results for interim periods.

 

The Company’s fiscal year begins on January 1 and ends on December 31of each year. During the course of the year the Company closes its books on amonthly and quarterly basis following a 4,4,5 week closing calendar. Sincethe Company uses Sunday as the last day of each period (with the exception ofDecember) the number of days in the first and fourth quarters of any given yearcan vary depending on which day of the week January 1st falls on.

 

On January 30, 2004, TTS Holdings LLC, a company formed by GilbertGlobal Equity Partners, L.P. and its affiliated funds (“Gilbert Global”),entered into a stock purchase agreement with the Company’s direct parentcompany, True Temper Corporation, pursuant to which TTS Holdings LLC andcertain of the Company’s senior management purchased all of the outstandingshares of True Temper Corporation.  Inconnection with this acquisition, and effective on March 15, 2004, theCompany repaid all of its outstanding 2002 senior credit facility, redeemed allof its 10 7/8% senior subordinated notes due 2008, andmade certain payments of the net remaining equity of the predecessor company tothe selling shareholders.  These paymentswere 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 the Company’s parent companyusing the purchase method of accounting. As the Company is a wholly owned subsidiary of True Temper Corporation,the Company has “pushed down” the effect of the purchase method of accountingto these financial statements.  Thesefinancial statements and accompanying notes present the historical cost basisresults of the Company as “predecessor company” through March 14, 2004,and the results of the Company as “successor company” from March 15, 2004through July 3, 2005, accordingly, the successor company presentation isnot comparable to the predecessor company presentation due to the differentbasis of accounting.  The financialstatements have also been separated by a vertical dashed line into predecessorcompany and successor company results where necessary.

 

**2)  Inventories**

 

| ** **      | ** ** | **July 3,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------|------------|------------------------|------------|-----------------------------|------------|
| Raw materials   |       | $                      | 4,895      |                        | $          | 4,601 |   |
| Work in process |       | 1,871                  |       | 2,182                       |       |
| Finished goods  |       | 13,498                 |       | 15,127                      |       |
| Total           |       | $                      | 20,264     |                        | $          | 21,910 |   |

 

**3)  Segment Reporting**

 

The Company operates in two reportable business segments: golf shaftsand performance sports. The Company’s reportable segments are based on the typeof product manufactured and the application of that product in the marketplace.The golf shaft segment manufactures and sells steel, composite, andmulti-material golf club shafts for use exclusively in the golf industry. Theperformance sports segment manufactures and sells high

 

4

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strength, tight tolerance tubular components for bicycle, hockey andother recreational sport markets. The Company evaluates the performance ofthese segments based on segment sales and gross profit. The Company has nointer-segment sales.

 

| ** **         | ** ** | **Quarterly**                                        | ** ** | **Year – To – Date**                         | ** ** |
|--------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **         | ** ** | **Successor Company**                                | ** ** | **Successor Company**                                  | ** ** | ** ** | **Predecessor  Company** | ** ** |
| ** **         | ** ** | **Period from  April 4 to  July 3,  2005** | ** ** | **Period from  March 29 to  June 27,  2004** | ** ** | **Period from  January 1 to  July 3,  2005** | ** ** | **Period from  March 15 to  June 27,  2004** | ** ** | ** ** | **Period from  January 1 to  March 14,  2004** | ** ** |
| Net sales:         |       |                                                 |       |                                                   |       |   |   |   |   |   |   |   |
| Golf shafts        |       | $                                                    | 30,787     |                                                   | $          | 23,981 |   | $ | 61,432 |   | $ | 33,360 |   |   | $ | 19,067 |   |
| Performance sports |       | 1,778                                                |       | 1,352                                                  |       | 3,236 |   | 1,937 |   |   | 1,180 |   |
| Total              |       | $                                                    | 32,565     |                                                   | $          | 25,333 |   | $ | 64,668 |   | $ | 35,297 |   |   | $ | 20,247 |   |
|               |       |                                                 |       |                                                   |       |   |   |   |   |   |   |   |
| Gross profit:      |       |                                                 |       |                                                   |       |   |   |   |   |   |   |   |
| Golf shafts        |       | $                                                    | 12,807     |                                                   | $          | 9,936 |   | $ | 25,385 |   | $ | 13,736 |   |   | $ | 8,080 |   |
| Performance sports |       | 444                                                  |       | 274                                                    |       | 735 |   | 450 |   |   | 296 |   |
| Total              |       | $                                                    | 13,251     |                                                   | $          | 10,210 |   | $ | 26,120 |   | $ | 14,186 |   |   | $ | 8,376 |   |

 

Following is a reconciliation of total reportable segment gross profitto total Company income (loss) before income taxes:

 

| ** **                                           | ** ** | **Quarterly**                              | ** ** | **Year – To – Date**               | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                           | ** ** | **Successor Company**                      | ** ** | **Successor Company**                        | ** ** | ** ** | **Predecessor  Company** | ** ** |
| ** **                                           | ** ** | **Period from  April 4 to  July 3,  2005** | ** ** | **Period from  March 29 to  June 27,  2004** | ** ** | **Period from  January 1 to  July 3,  2005** | ** ** | **Period from  March 15 to  June 27,  2004** | ** ** | ** ** | **Period from  January 1 to  March 14,  2004** | ** ** |
| Total reportable segment gross profit                |       | $                                          | 13,251     |                                         | $          | 10,210 |   | $ | 26,120 |   | $ | 14,186 |   |   | $ | 8,376 |   |
| Less:                                                |       |                                       |       |                                         |       |   |   |   |   |   |   |   |
| Selling, general and administrative expenses         |       | 3,947                                      |       | 3,339                                        |       | 8,135 |   | 3,903 |   |   | 3,635 |   |
| Amortization of intangible assets                    |       | 3,456                                      |       | —                                       |       | 6,912 |   | — |   |   | — |   |
| Business development, start-up and  transition costs |       | 70                                         |       | 99                                           |       | 135 |   | 182 |   |   | 100 |   |
| Transaction and reorganization expenses              |       | —                                     |       | —                                       |       | — |   | — |   |   | 5,381 |   |
| Loss on early extinguishment of long-term  debt      |       | —                                     |       | —                                       |       | — |   | — |   |   | 9,217 |   |
| Interest expense, net of interest income             |       | 4,759                                      |       | 3,994                                        |       | 9,526 |   | 4,679 |   |   | 2,498 |   |
| Other expense (income), net                          |       | 21                                         |       | 12                                           |       | 33 |   | 14 |   |   | (2 | ) |
| Total Company income (loss) before income  taxes     |       | $                                          | 998        |                                         | $          | 2,766 |   | $ | 1,379 |   | $ | 5,408 |   |   | $ | (12,453 | ) |
|                                                      |            |                                            |            |                                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

5

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**4)  Comprehensive Income**

 

Total comprehensive income and its components for the periods coveredby this report are as follows:

 

| ** **                                                                          | ** ** | **Quarterly**                                        | ** ** | **Year – To – Date**                         | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **Successor Company**                                | ** ** | **Successor Company**                                  | ** ** | ** ** | **Predecessor  Company** | ** ** |
| ** **                                                                          | ** ** | **Period from  April 4 to  July 3,  2005** | ** ** | **Period from  March 29 to  June 27,  2004** | ** ** | **Period from  January 1 to  July 3,  2005** | ** ** | **Period from  March 15 to  June 27,  2004** | ** ** | ** ** | **Period from  January 1 to  March 14,  2004** | ** ** |
| Net income (loss)                                                                   |       | $                                                    | 570        |                                                   | $          | 1,713 |   | $ | 754 |   | $ | 3,310 |   |   | $ | (9,608 | ) |
| Mark to market adjustment on foreign  currency derivative instruments, net of taxes |       | —                                               |       | (20                                                    | )          | (15 | ) | 55 |   |   | (121 | ) |
| Total comprehensive income (loss)                                                   |       | $                                                    | 570        |                                                   | $          | 1,693 |   | $ | 739 |   | $ | 3,365 |   |   | $ | (9,729 | ) |

 

**5)  Transaction and Reorganization**

 

On January 30, 2004, TTS Holdings LLC, a company formed by GilbertGlobal, entered into a stock purchase agreement with the Company’s directparent company, True Temper Corporation, pursuant to which TTS Holdings LLC andcertain of the Company’s senior management purchased all of the outstandingshares of True Temper Corporation.  Inconnection with this acquisition, and effective on March 15, 2004, theCompany repaid all of its outstanding 2002 senior credit facility, redeemed allof its 10 7/8% senior subordinated notes due 2008, andmade certain payments of the net remaining equity of the predecessor company tothe selling shareholders.  These paymentswere financed with the net proceeds of a new senior credit facility and new 8 3/8%senior subordinated notes due 2011.

 

The purchase price as stipulated in the January 30, 2004 stockpurchase agreement totaled $342.0 million, plus direct acquisition costs andcertain working capital adjustments of $18.4 million, less a purchase priceadjustment for final working capital of $0.8 million.  Following is the allocation of the totalconsideration paid:

 

| Current assets, excluding inventory                        |   |    |   | $       | 20,086  |   |
|------------------------------------------------------------|--------|---------|--------|---------|---------|--------|
| Inventory                                                  |   |    |   | 30,119  |    |
| Identifiable intangible assets:                            |   |    |   |    |    |
| Trade name                                                 |   | $       | 19,455 |    |    |   |
| Patented technology                                        |   | 11,686  |   |    |    |
| Purchased customer relationships                           |   | 121,524 |   |    |    |
| Lease contract                                             |   | 4,323   |   |    |    |
| Other                                                      |   | 262     |   |    |    |
| Total identifiable intangible assets                       |   |    |   | 157,250 |    |
| Property, plant and equipment                              |   |    |   | 14,684  |    |
| Deferred tax assets, net, existing at  acquisition date    |   |    |   | 51,866  |    |
| Deferred tax assets related to acquisition                 |   |    |   | 10,552  |    |
| Deferred financing costs                                   |   |    |   | 7,366   |    |
| Goodwill                                                   |   |    |   | 150,883 |    |
| Other assets                                               |   |    |   | 95      |    |
| Current liabilities                                        |   |    |   | (12,475 | )       |
| Deferred tax liability related to intangible  assets       |   |    |   | (59,680 | )       |
| Deferred tax liability related to fair  value of inventory |   |    |   | (4,432  | )       |
| Other liabilities                                          |   |    |   | (6,656  | )       |
| Total                                                      |   |    |   | $       | 359,658 |   |
|                                                            |        |         |        |         |         |        |  |

 

6

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This transaction was accounted for by the Company’s parent companyusing the purchase method of accounting. As the Company is a wholly owned subsidiary of True Temper Corporation,the Company has “pushed down” the effect of the purchase method of accountingto these financial statements.

 

In connection with the acquisition, the Company conducted an assessmentand valuation of all tangible and intangible assets acquired.  The results of this exercise are reflected inthe allocation table above.  Ofparticular note was (i) the establishment of intangible assets in anaggregate amount of approximately $157.3 million based on both internal Companyassessments and a study conducted by an independent firm specializing inintangible asset valuation; and (ii) the write-up of inventory byapproximately $11.7 million to reflect the estimated fair value of inventory atthe date of acquisition.  Both of theseadjustments were completed in compliance with the purchase accountingprescribed by Statement of Financial Accounting Standards No. 141, *Business Combinations*, which the Company adopted on January 1,2002.

 

The establishment of the intangible assets results in certain non-cashamortization expense beginning in 2004, as these intangible assets areamortized over their expected economic lives.

 

At the time of the transaction the predecessor company recorded certaintransaction related expenses totaling $5.4 million.  These expenses consist primarily ofinvestment banking merger and acquisition fees, legal fees and other incidentalcosts and expenses typically incurred in an acquisition of this nature.  Also, as a direct result of the earlyextinguishment of the predecessor company’s long-term debt, expenses totaling$9.2 million were incurred consisting primarily of the write-off of theremaining deferred financing costs related to the 10 7/8%senior subordinated notes due 2008 and the 2002 senior credit facility, and theearly extinguishment call premium and related interest incurred when theCompany redeemed the 10 7/8% senior subordinated notes onMarch 15, 2004.

 

The following unaudited pro forma financial information is presented asif the aforementioned transaction, and all related purchase accountingadjustments, had occurred as of January 1, 2004.  The pro forma amounts contain certainadjustments, including, (i) an adjustment to interest expense to reflectthe extinguishment of the 10 7/8% Senior SubordinatedNotes 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) theelimination of transaction and reorganization expenses and the loss on earlyextinguishment of long-term debt, which are both non-recurring, (iii) theadditional charge to operating income for the amortization of intangible assetsand (iv) the related tax effect of the adjustments described above.

 
| ** **                 | ** ** | **Period from  January 1 to  June 27,  2004** | ** ** |
|----------------------------|------------|--------------------------------------------------------------|------------|
| Net sales                  |       | $                                                            | 55,544     |   |
| Income before income taxes |       | $                                                            | (178       | ) |
| Net income                 |       | $                                                            | (204       | ) |

 

**6)  Pension and Other Postretirement Benefits**

 

The following table reflects the Company’s net periodic pension benefitexpense and cash contributions to its pension plan for the periods covered bythis report (dollars in millions):

 

| ** **                            | ** ** | **Quarterly**                                        | ** ** | **Year – To – Date**                         | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                            | ** ** | **Successor Company**                                | ** ** | **Successor Company**                                  | ** ** | ** ** | **Predecessor  Company** | ** ** |
| ** **                            | ** ** | **Period from  April 4 to  July 3,  2005** | ** ** | **Period from  March 29 to  June 27,  2004** | ** ** | **Period from  January 1 to  July 3,  2005** | ** ** | **Period from  March 15 to  June 27,  2004** | ** ** | ** ** | **Period from  January 1 to  March 14,  2004** | ** ** |
| Net periodic pension benefit expense  |       | $                                                    | 148        |                                                   | $          | 85 |   | $ | 297 |   | $ | 99 |   |   | $ | 186 |   |
| Cash contribution to the pension plan |       | $                                                    | 46         |                                                   | $          | — |   | $ | 46 |   | $ | — |   |   | $ | — |   |
|                                       |            |                                                      |            |                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

7

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** **

**Item 2.    *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations***

 

The following discussion should be read in conjunction with the moredetailed information in the Company’s 2004****AnnualFinancial Statements, including the notes thereto, appearing most recently inour 2004 Annual Report on Form 10-K, filed with the SEC on March 30,2005.

 

**Company Overview**

 

True Temper Sports, Inc. (“True Temper” or the “Company”), awholly owned subsidiary of True Temper Corporation (“TTC”), is a leadingdesigner, manufacturer and marketer of steel, composite, and multi-materialgolf club shafts for original equipment manufacturers (“OEM’s”) anddistributors in the golf equipment industry. In addition, True Temper producesand sells a variety of performance sports products that offer high strength andtight tolerance tubular components to the bicycle, hockey and otherrecreational sports markets. In calendar 2004, golf shaft sales represented 94%of total revenues, and performance sports sales represented 6%. This salessplit has remained relatively consistent during the first six months of 2005.

 

**Purchase Agreement for True Temper Corporation**

 

On January 30, 2004, TTS Holdings LLC, a company formed by GilbertGlobal Equity Partners, L.P. and its affiliated funds (“Gilbert Global”),entered into a stock purchase agreement with the Company’s direct parentcompany, True Temper Corporation, pursuant to which TTS Holdings LLC andcertain of the Company’s senior management purchased all of the outstandingshares of TTC (“Gilbert Global Acquisition”). 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 due2008, and made certain payments of the net remaining equity of the predecessorcompany to the selling shareholders. These payments were financed with the net proceeds of a new seniorcredit facility and new 8 3/8% senior subordinated notesdue 2011.

 

The Gilbert Global Acquisition was accounted for by the Company’s parentcompany using the purchase method of accounting.  As the Company is a wholly owned subsidiaryof TTC, the Company has “pushed down” the effect of the purchase method ofaccounting to its financial statements. The Company’s financial statements and accompanying notes present thehistorical cost basis results of the Company as “predecessor” through March 14,2004, and the results of the Company as “successor” from March 15, 2004through July 3, 2005, accordingly, certain elements of the successorcompany presentation are not comparable to the predecessor company presentationdue to the different basis of accounting.

 

For purposes of the following discussion regarding the Company’sresults of operations and cash flow, the Company has combined the results ofthe predecessor and successor companies in 2004 in order to compare the resultsto the results in 2005.  Materialvariances caused by the different basis of accounting have been disclosed whereapplicable.

 

8

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**Results of Operations**

 

The following tables set forth the components of net incomeas a percentage of net sales for the periods indicated:

 

| ** **                                           | ** ** | **Quarterly**                                        | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                           | ** ** | **Period from  April 4 to  July 3,  2005** | ** ** | **Period from  March 29 to  June 27,  2004** | ** ** |
| Net sales                                            |       | 100.0                                                | %          | 100.0 | % |
| Cost of sales                                        |       | 59.3                                                 |       | 59.7 |   |
| Gross profit                                         |       | 40.7                                                 |       | 40.3 |   |
| Selling, general and administrative  expenses        |       | 12.1                                                 |       | 13.2 |   |
| Amortization of intangible assets                    |       | 10.6                                                 |       | — |   |
| Business development, start-up and  transition costs |       | 0.2                                                  |       | 0.4 |   |
| Operating income                                     |       | 17.7                                                 |       | 26.7 |   |
| Interest expenses, net of interest income            |       | 14.6                                                 |       | 15.8 |   |
| Other expenses, net                                  |       | 0.1                                                  |       | — |   |
| Income before income taxes                           |       | 3.1                                                  |       | 10.9 |   |
| Income tax expense                                   |       | 1.3                                                  |       | 4.2 |   |
| Net income                                           |       | 1.8                                                  | %          | 6.8 | % |

 

| ** **                                           | ** ** | **Year – To – Date**                         | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                           | ** ** | **Successor  Company**                                 | ** ** | **Combined  Company** | ** ** | **Successor  Company** | ** ** | **Predecessor  Company** | ** ** |
| ** **                                           | ** ** | **Period from  January 1 to  July 3,  2005** | ** ** | **Period from  January 1 to  June 27,  2004** | ** ** | **Period from  March 15 to  June 27,  2004** | ** ** | **Period from  January 1 to  March 14,  2004** | ** ** |
| Net sales                                            |       | 100.0                                                  | %          | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of sales                                        |       | 59.6                                                   |       | 59.4 |   | 59.8 |   | 58.6 |   |
| Gross profit                                         |       | 40.4                                                   |       | 40.6 |   | 40.2 |   | 41.4 |   |
| Selling, general and administrative  expenses        |       | 12.6                                                   |       | 13.6 |   | 11.1 |   | 18.0 |   |
| Amortization of intangible assets                    |       | 10.7                                                   |       | — |   | — |   | — |   |
| Business development, start-up and  transition costs |       | 0.2                                                    |       | 0.5 |   | 0.5 |   | 0.5 |   |
| Transaction and reorganization expenses              |       | —                                                 |       | 9.7 |   | — |   | 26.6 |   |
| Loss on early extinguishment of debt                 |       | —                                                 |       | 16.6 |   | — |   | 45.5 |   |
| Operating income (loss)                              |       | 16.9                                                   |       | 0.3 |   | 28.6 |   | (49.2 | ) |
| Interest expense, net of interest income             |       | 14.7                                                   |       | 12.9 |   | 13.3 |   | 12.3 |   |
| Other expenses, net                                  |       | 0.1                                                    |       | — |   | — |   | — |   |
| Income (loss) before income taxes                    |       | 2.1                                                    |       | (12.7 | ) | 15.3 |   | (61.5 | ) |
| Income tax expense (benefit)                         |       | 1.0                                                    |       | (1.3 | ) | 5.9 |   | (14.1 | ) |
| Net income (loss)                                    |       | 1.2                                                    | %          | (11.3 | )% | 9.4 | % | (47.5 | )% |

 

***Second Quarter Ended July 3, 2005Compared to the Second Quarter Ended June 27, 2004***

 

***Net Sales*** forthe second quarter of 2005 increased $7.2 million, or 28.5%, to $32.6 millionfrom $25.3 million in the second quarter of 2004.

 

Golf shaft sales increased $6.8 million, or 28.4%, to $30.8 millioncompared to the $24.0 million in the second quarter of 2004.  This improvement in revenue was driven byseveral factors, including a favorable shift in the mix of steel golf shaftssold towards more premium, branded products. In addition, the Company generated greater unit sales of both steel andgraphite golf shafts.  The increased unitvolume can be attributed to several factors, including (i) increaseddemand for True Temper’s new product offerings such as the Dynamic Gold SLsteel shaft and the Grafalloy ProLaunch graphite shaft, (ii) a greaternumber of successful new club introductions from several key OEM partners,specifically in the iron category, (iii) general reductions in the overallwholesale and retail channel inventory positions as compared to prior yearlevels, and (iv) increased acceptance and usage of the Company’s graphitegolf shaft products in certain OEM partners’ custom option programs, primarilyin the Grafalloy Blue and ProLaunch family of products.

 

Performance sports sales increased $0.4 million, or 31.5%, to $1.8million in the second quarter of 2005 from $1.4 million in the second quarterof 2004.  This increase in revenue wasdriven primarily by unit volume

 

9

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improvements in both the hockey and bike categories, which is a directresult of the Company’s strategic initiative focused on diversification intonon-golf recreation markets.

 

Net sales to international customers increased $0.7million, or 8.6%, to $9.1 million in the second quarter of 2005 from $8.3 millionin the second quarter of 2004.  Thisincrease resulted primarily from the same overall golf industry drivers andTrue Temper specific issues described above.

 

***Gross Profit*** forthe second quarter of 2005 increased approximately $3.0 million, or 29.8%, to$13.3 million from $10.2 million in the second quarter of 2004. Gross profit asa percentage of net sales increased to 40.7% in the second quarter of 2005 from40.3% in the second quarter of 2004.  Theincrease in gross profit as a percentage of net sales was driven primarily by (i) improvedforeign currency exchange rates, (ii) increased selling prices andfavorable product mix in the golf shaft category, and (iii) favorableoperating improvements from productivity and cost control programs at the Company’smanufacturing facilities, including the labor cost savings realized from thetransition of graphite product manufacturing to Guangzhou, China.  These favorable factors were partially offsetby (i) an increase in the cost of raw materials and natural gas and (ii) theimpact of general inflation on the Company’s other labor and overhead costs.

 

***Selling, General and Administrative Expenses***(“SG&A”) for the second quarter of 2005 increased $0.6 million, or 18.2%,to $3.9 million from $3.3 million in the second quarter of 2004.  SG&A as a percentage of net salesdecreased to 12.1% in the second quarter of 2005 from 13.2% in the secondquarter of 2004.  This decrease inSG&A as a percentage of net sales was due primarily to the increase insales between periods.  In addition theCompany’s total SG&A expense increased between periods due in part toincremental advertising and promotion of new products.

 

During the second quarter of 2005 the Company spent approximately $0.1million on its initial compliance project related to Section 404 of theSarbanes-Oxley Act of 2002 (“SOX”).  In2004 the Company spent approximately $0.1 million on SOX initial compliance,all in the fourth quarter.

 

***Amortization ofIntangible Assets*** for the second quarter of 2005 was $3.5 million.  Intangible assets were acquired in connectionwith the Gilbert Global Acquisition. Intangible assets with definitive lives are being amortized using astraight-line method over periods from 2 to 59 years.  There was no amortization of intangible assetsin the second quarter of 2004.

 

***Business Development, Start-Up and TransitionCosts*** for the second quarter of 2005 remainedrelatively flat to the second quarter of 2004 at $0.1 million.  These costs represent various start-upbusiness expenses related to the opening of the Company’s compositemanufacturing operation in Southern China, and the related down-sizing costsincurred at the Company’s El Cajon, California facility.

 

***Operating Income***forthe second quarter of 2005 decreased $1.0 million, or 14.7%, to $5.8 millionfrom $6.8 million in the second quarter of 2004.  Operating income as a percentage of net salesdecreased to 17.7% in the second quarter of 2005 from 26.7% in the secondquarter of 2004.  This decrease reflectsthe profit impact of the items described above, primarily the amortization ofintangible assets.

 

***Interest Expense, net of Interest Income***for the second quarter of 2005 increased to $4.8 million from $4.0 million inthe second quarter of 2004.  Thisincrease was driven primarily by the increase in interest rates on the variablerate bank debt, offset somewhat by a decrease in outstanding principal amountsof variable rate bank debt between periods.

 

***Income Tax Expense***in the second quarter of 2005 decreased to $0.4 million from $1.1 million inthe second quarter of 2004. The effective tax rate during these periods differsfrom a federal statutory rate of 34% due primarily to the incremental tax ratefor state and foreign income tax purposes.

 

***Net Income***forthe second quarter of 2005 decreased by $1.1 million to $0.6 million from $1.7million in the second quarter of 2004. This decrease reflects the profit impact of the items described above.

 

10

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***Six Month Period Ended July 3, 2005 Comparedto the Six Month Period Ended June 27, 2004***

 

***Net Sales*** forthe first six months of 2005 increased approximately $9.1 million, or 16.4%, to$64.7 million from $55.5 million in the first six months of 2004.

 

Golf shaft sales increased $9.0 million, or 17.2%, to $61.4 million inthe first six months of 2005 from $52.4 million in the first six months of2004.  This improvement in revenue wasdriven by several factors, including a favorable shift in the mix of steel golfshafts sold towards more premium, branded products.  In addition, the Company generated greaterunit sales of both steel and graphite golf shafts.  The increased unit volume can be attributedto several factors, including (i) increased demand for True Temper’s newproduct offerings such as the Dynamic Gold SL steel shaft and the GrafalloyProLaunch graphite shaft, (ii) a greater number of successful new clubintroductions from several key OEM partners, specifically in the iron category,(iii) general reductions in the overall wholesale and retail channelinventory positions as compared to prior year levels, and (iv) increasedacceptance and usage of the Company’s graphite golf shaft products in certainOEM partners’ custom option programs, primarily in the Grafalloy Blue andProLaunch family of products.

 

Performance sports sales increased $0.1 million, or 3.8%, to $3.2million in the first six months of 2005 from $3.1 million in the first sixmonths of 2004.

 

Net sales to international customers increased $1.8million, or 9.1%, to $21.1 million in the first six months of 2005 from $19.3million in the first six months of 2004. This increase resulted primarily from the same overall golf industrydrivers and True Temper specific issues described above.

 

***Gross Profit*** forthe first six months of 2005 increased approximately $3.6 million, or 15.8%, to$26.1 million from $22.6 million in the first six months of 2004. Gross profitas a percentage of net sales decreased to 40.4% in the first six months of 2005from 40.6% in the first six months of 2004. The decrease in gross profit as a percentage of net sales was drivenprimarily by (i) an increase in the cost of raw materials and natural gas,(ii) the impact of general inflation on the Company’s other labor andoverhead costs, and (ii) the unfavorable impact on gross profit marginsresulting from the execution of the Company’s inventory reduction plan, whichwas initiated during the first quarter of 2005 and targets a full yearreduction of $3.0 to $5.0 million in total inventory.  These unfavorable factors were partiallyoffset by (i) improved foreign currency exchange rates, (ii) increasedselling prices and favorable product mix in the golf shaft category, and (iii) favorableoperating improvements from productivity and cost control programs at theCompany’s manufacturing facilities, including the labor cost savings realizedfrom the transition of graphite product production to Guangzhou, China

 

***Selling, General and Administrative Expenses***(“SG&A”) for the first six months of 2005 increased $0.6 million, or 7.9%,to $8.1 million from $7.5 million in the first six months of 2004.  SG&A as a percentage of net salesdecreased to 12.6% in the first six months of 2005 from 13.6% in the first sixmonths of 2004.  This decrease inSG&A as a percentage of net sales was due primarily to the increase insales between periods.  In addition theCompany’s total SG&A expense increased between periods due in part toincremental advertising and promotion of new products.

 

During the first six months of 2005 the Company spent approximately$0.2 million on its initial compliance project related to Section 404 ofthe Sarbanes-Oxley Act of 2002 (“SOX”). In 2004 the Company spent approximately $0.1 million on SOX initialcompliance, all in the fourth quarter.

 

***Amortization ofIntangible Assets*** for the first six months of 2005 was $6.9million.  Intangible assets were acquiredin connection with the Gilbert Global Acquisition.  Intangible assets with definitive lives arebeing amortized using a straight-line method over periods from 2 to 59years.  There was no amortization ofintangible assets in the first six months of 2004.

 

***Business Development, Start-Up and TransitionCosts*** for the first six months of 2005 decreased$0.2 million, or 52.1%, to $0.1 million from $0.3 million in the first sixmonths of 2004.   These costs representvarious start-up business expenses related to the opening of the Company’scomposite manufacturing operation in Southern China, and the relateddown-sizing costs incurred at the Company’s El Cajon, California facility.

 

***Transaction and Reorganization Expenses***for the first six months of 2004 were $5.4 million and were incurred inconjunction with the sale and purchase agreement for TTC which closed on March 15,2004.  These transaction related expensesinclude (i) investment banking merger and acquisition fees; (ii) legalfees; and (iii)

 

11

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other incidental costs and expenses related to the sale of TTC.  No such transaction and reorganization expenseswere incurred during the first six months of 2005.

 

***Loss on the Early Extinguishment of Long-TermDebt*** for the first six months of 2004 was $9.2million.  The costs recorded as loss onthe early extinguishment of long term debt include (i) the write-off ofthe remaining deferred financing costs related to our 10 7/8% seniorsubordinated notes and our 2002 senior credit facility, and (ii) the earlyextinguishment call premium and related interest we incurred when we redeemedthe 10 7/8% senior subordinated notes on March 15, 2004.  No long term debt was extinguished during thefirst six months of 2005.

 

***Operating Income***for the first six months of 2005 increased by $10.8 million to $10.9 millionfrom $0.1 million in the first six months of 2004. Operating income as apercentage of net sales increased to 16.9% in the first six months of 2005 from0.3% in the first six months of 2004. This increase reflects the profit impactof the items described above, primarily the amortization of intangible assets.

 

***Interest Expense, net of Interest Income***for the first six months of 2005 increased by $2.3 million to $9.5 million from$7.2 million in the first six months of 2004. This increase was driven primarily by the increase in outstandingprincipal amounts of variable rate bank debt and fixed rate bonds associatedwith the Gilbert Global Acquistion, offset somewhat by a decrease in theinterest rate on the Company’s fixed rate debt between periods.

 

***Income Tax Expense (Benefit)***for the first six months of 2005 increased to an income tax expense of $0.6million compared to an income tax benefit of $0.7 million in the first sixmonths of 2004. The effective tax rate during these periods differs from afederal statutory rate of 34% due primarily to the incremental tax rate forstate and foreign income tax purposes. For the period from January 1, 2004 through March 14, 2004 theeffective tax rate also differs due to the nondeductible nature of a portion oftransaction and reorganization expenses.

 

***Net income*** forthe first six months of 2005 increased by $7.1 million to $0.8 million from a$6.3 million loss in the first six months of 2004.  This increase reflects the profit impact fromthe items described above.

 

**Liquidity and Capital Resources**

 

  ***General***

 

As part of the Gilbert Global Acquisition the Company entered into anew senior credit facility (the “2004 Senior Credit Facility”) which includes a$20.0 million non-amortizing revolving credit facility and a $110.0 millionTerm B loan (as amended from time to time). The term loan requires cash interest payments and quarterly principalpayments beginning June 30, 2004 and continuing through March 15,2011.

 

Also in conjunction with the Gilbert Global Acquisition the Companyissued new 8 3/8% Senior Subordinated Notes due 2011 (the“8 3/8% Notes”). The 8 3/8% Notes require cash interest paymentseach 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 andat certain redemption prices, beginning March 15, 2008.

 

The Company used the proceeds from the 2004 Senior Credit Facility andthe 8 3/8% Notes to pay off the existing debt that wasoutstanding at closing on March 15, 2004, and to make a distribution ofthe net remaining equity to the selling shareholders.

 

Both the 2004 Senior Credit Facility and the 8 3/8%Notes contain covenants and events of default, including substantialrestrictions and provisions which, among other things, limit the Company’sability to incur additional indebtedness, make acquisitions and capitalexpenditures, sell assets, create liens or other encumbrances, make certainpayments and dividends, or merge or consolidate. The 2004 Senior CreditFacility also requires the Company to maintain certain specified financialratios and tests including minimum interest coverage and fixed charge coverageratios, and maximum leverage ratios. Furthermore, the 2004 Senior CreditFacility requires certain mandatory prepayments including payments from the netproceeds of certain asset sales and a portion of the Company’s excess cash flowas defined within the credit agreement.

 

On September 24, 2004 the Company executed an amendment to its2004 Senior Credit Facility (the “Amendment”). The Amendment provided adjustments to certain specified financial ratiosand tests included in the 2004 Senior Credit Facility.  As part of the Amendment, the margin adder onLIBOR based loans was

 

12

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increased from 2.50% to between 2.75% and 3.00%, depending on financialratios, beginning September 24, 2004 and continuing through December 31,2005.  At July 3, 2005 the Companywas in compliance with all of the covenants in both the 2004 Senior CreditFacility and the 8 3/8% Notes.

 

***Six Months Ended July 3, 2005 Comparedto the Six Months Ended June 27, 2004***

 

Net cash provided by operating activities increased $0.8 millionbetween periods, as net income increased during 2005.  In addition, the Company decreased totalinventory by approximately $1.6 million during the first six months of 2005.

 

The Company used $1.3 million of cash to invest in property, plant andequipment in the first six months of 2005, compared to the $0.9 million spentin the first six months of 2004.

 

The Company used $7.1 million of net cash for financing activities inthe first six months of 2005 as compared to $10.7 million in the first sixmonths 2004.  The 2005 activity includesthe voluntary prepayment of $7.0 million in principal on the 2004 Senior CreditFacility.

 

The 2004 activity includes the result of the Gilbert Global Acquisitionas noted above.  On March 15, 2004,the proceeds from issuing the 2004 Senior Credit Facility and the proceeds fromissuing the 8 3/8% Notes, plus cash generated fromoperations during the first quarter, and cash on hand at the beginning of thatquarter were used to (i) repay the outstanding principal and interest onthe Company’s 2002 senior credit facility, (ii) redeem and repay the 10 7/8%Notes including accrued and unpaid interest and early redemption call premium, (iii) payfor debt issuance costs on the 2004 senior credit facility and the 8 3/8%Notes, (iv) pay for transaction and reorganization expenses, and (v) makea distribution of the net remaining equity to the selling shareholders.

 

***Existing Contractual Cash Obligations***

 

The following table reflects the Company’s contractual cash obligationsfor long-term debt and operating leases as of July 3, 2005 (dollars inmillions):

 

| ** **              | ** ** | **Total** | ** ** | **2005** | ** ** | **2006  through  2007** | ** ** | **2008  through  2009** | ** ** | **Thereafter** | ** ** |
|-------------------------|------------|-----------|------------|----------|------------|-------------------------|------------|-------------------------|------------|----------------|------------|
| Long-Term Debt(1)       |       | $         | 225.7      |     | $          | —                  |       | $                       | 1.5        |           | $          | 2.1 |   | $ | 222.1 |   |
| Operating Leases        |       | 2.4       |       | 0.5      |       | 1.4                     |       | 0.5                     |       | —         |       |
| Purchase Commitments(2) |       | 0.5       |       | 0.2      |       | 0.3                     |       | —                  |       | —         |       |
| Total(3)                |       | $         | 228.6      |     | $          | 0.7                     |       | $                       | 3.2        |           | $          | 2.6 |   | $ | 222.1 |   |

 

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(1)          The Company’s long-term debt agreementscontain customary change of control provisions that could, under certaincircumstances, cause accelerated debt repayment.

 

(2)          Amount represents the purchase commitments fornatural gas used in the manufacture of steel golf shafts at our Amory,Mississippi facility.

 

(3)          This table does not include future obligationsrelated to funding pension benefits.

 

13

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***Future Cash Generation and Use***

 

Currently the Company’s intention is to use existing cash and cashprovided from future operations, if any, as allowed within the covenants of the2004 Senior Credit Facility and the 8 3/8% Notes, to:

 

•                  Repay theprincipal on the 2004 Senior Credit Facility; and / or

 

•                  To makeadditional investments in the business, which may include, among other things,capital expenditures, business acquisitions, and/or expenditures for businessdevelopment and expansion in China.

 

In addition to the debt service obligations for principal and interestpayments, the Company’s liquidity needs largely relate to working capitalrequirements and capital expenditures for machinery and equipment.  The Company intends to fund its current andlong term working capital, capital expenditure and debt service requirementsthrough cash flow generated from operations. However, since there can be no assurance of future performance, as of July 3,2005 the Company has the $20.0 million revolving credit facility available forfuture cash requirements.  The maximumamount the Company may use of the $20.0 million revolving credit facility islimited by the financial covenants contained within the 2004 Senior CreditFacility.

 

In addition to the Company’s cash obligations for interest andprincipal payments related to its debt obligations, the Company also has amanagement services agreement with an affiliate of the principle common stockholder in its parent company, which requires the payment of an annual advisoryfee of $0.5 million.

 

Depending on the size, any future acquisitions, joint ventures, capitalexpenditures or similar transactions may require significant capital resourcesin excess of cash provided from operations, and potentially in excess of cashavailable under the revolving credit facility. There can be no assurance that the Company will be able to obtain thenecessary capital, under acceptable terms, from creditors or other sources thatwill be sufficient to execute any such business investment or capitalexpenditure.

 

**Impact of Recently Issued Accounting Standards**

 

In December 2004, the FASB issued Statement No. 123 (revised December 2004),*Share-Based Payment*(“Statement 123(R)”).  Statement 123(R) replaces FASB Statement 123,*Accounting for Stock-Based Compensation*,and supersedes APB Opinion No. 25, *Accounting for Stock Issuedto Employees*.  Statement123(R) will require compensation costs related to share-based paymenttransactions to be recognized in the financial statements.  With limited exceptions, the amount ofcompensation cost will be measured based on the grant-date fair value of theequity or the liability instruments issued. In addition, liability awards will be remeasured each reportingperiod.  Compensation cost will berecognized over the period that an employee provides service in exchange forthe award.  Statement 123(R) is effectiveas of the beginning of the first annual reporting period that begins after June 15,2005.  The Company does not believe theadoption of Statement 123(R) will have a material impact on its consolidatedfinancial condition or results of operations taken as a whole.

 

In November 2004, the FASB issued SFAS No. 151, “InventoryCosts.”  SFAS No. 151 indicates that“abnormal” amounts of idle facility expense, freight, handling costs, andwasted materials should be recognized as current-period charges (when actualproduction defect rates vary significantly from expected rates) and requiresthe allocation of fixed production overheads to inventory based on the “normalcapacity”, as defined, of the production facilities.  SFAS No. 151 is effective for inventorycosts incurred during fiscal years beginning after June 15, 2005.  The Company has not yet determined theimpact, if any, of adopting SFAS No. 151.

 

**Forward-Looking Statements**

 

The Private Securities Litigation Reform Act of 1995 (the “Act”)provides a safe harbor for forward-looking statements made by the Company. Thisdocument contains forward-looking statements, including but not limited toItem 2 “Management’s Discussion and Analysis of Financial Condition andResults of Operations”. All statements which address future operating orfinancial performance, events or developments that the Company expects, plans,believes, hopes, wishes, forecasts, predicts, intends, or anticipates willoccur in the future, and other similar meanings or phrases, are forward-lookingstatements within the meaning of the Act.

 

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The forward-looking statements are based on management’s current viewsand assumptions regarding future events and operating performance. However,there are many risk factors, including but not limited to, the Company’ssubstantial leverage, the Company’s ability to service its debt, the generalstate of the economy, the Company’s ability to execute its plans, fluctuationsin the price and availability of energy, fluctuations in the price andavailability of raw materials, potentially significant increases to employeehealth and welfare costs, competitive factors, and other risks that could causethe actual results to differ materially from the estimates or predictionscontained in the Company’s forward-looking statements. Additional informationconcerning the Company’s risk factors is contained from time to time in theCompany’s public filings with the SEC; and most recently in the Business Risks section ofItem 1 to Part 1 of the Company’s 2004 Annual Report on Form 10-Kfiled with the SEC on March 30, 2005.

 

The Company’s views, estimates, plans and outlook as described withinthis document may change subsequent to the release of this statement.  The Company is under no obligation to modifyor update any or all of the statements it has made herein despite anysubsequent changes the Company may make in its views, estimates, plans oroutlook for the future.

 

**Item 3.    *Quantitative and Qualitative Disclosures About Market Risk***

 

**Interest Rate Sensitivity**

 

The table below provides information about the Company’s debtobligations as of July 3, 2005 that are sensitive to changes in interestrates. The table presents cash flows and related weighted average interestrates by expected maturity dates (dollars in millions).

 
| ** **                                   | ** ** | **Expected Maturity Date** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|------------|------------|
| ** **                                   | ** ** | **2005**                   | ** ** | **2006**   | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **There- after** | ** ** | **Total** | ** ** |
| LONG TERM DEBT                               |       |                       |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Fixed Rate 8 3/8%  Senior Subordinated Notes |       | $                          | —     |       | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 125.0 |   | $ | 125.0 |   |
| Average Interest Rate                        |       |                       |       |       |       |   |   |   |   |   |   | 8.375 | % | 8.375 | % |
| Variable Rate Senior Credit Facility         |       | $                          | —     |       | $          | 0.5 |   | $ | 1.0 |   | $ | 1.0 |   | $ | 1.0 |   | $ | 97.2 |   | $ | 100.7 |   |
| Average Interest Rate (a)                    |       |                       |       |       |       |   |   |   |   |   |   | 5.994 | % | 5.994 | % |

 

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(a)            Variable rate long-term debt is comprised ofterm loans under the 2004 Senior Credit Facility, which provides for interestat the Company’s option, at (1) the base rate of the bank acting asadministrative agent plus a margin adder of 2.00%, or (2) under a LIBORoption with a borrowing spread of LIBOR plus 2.50% to 3.00%, depending oncertain financial ratios.

 

The Company’s operating results are affected by changes in interestrates primarily as a result of borrowings under the 2004 Senior CreditFacility. If interest rates increased by 25 basis points, interest expensewould have increased by approximately $0.1 million for the quarterly periodended July 3, 2005, based on balances outstanding during the quarterlyperiod then ended.

 

Information concerning the Company’s market risks related to foreignexchange rates and commodities is contained in the “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” section of theCompany’s 2004 Annual Report on Form 10-K, as filed with the SEC on March 30,2005. This information has been omitted from this report as there have been nomaterial changes to the Company’s risks related to foreign exchange rates andcommodities as of July 3, 2005.

 

**Item 4.    *Controls and Procedures***

 

**Evaluation of Disclosure Controls and Procedures**

 

Evaluations required by Rule 13a-15 of the Securities Exchange Actof 1934 of the effectiveness of the Company’s disclosure controls andprocedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934) as of the end of the period covered by this Report havebeen carried out under the supervision and with the participation of theCompany’s management, including its Chief Executive Officer and Chief FinancialOfficer. Based upon such evaluations, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures were effective. There have been no changes in the Company’s internalcontrols over financial reporting during the period covered by this Report thatwere identified in connection with the evaluation referred to above that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal controls over financial reporting.

 

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**PART II.  OTHER INFORMATION**

 

**Item 1.    *Legal Proceedings***

 

Various claims and legal proceedingsgenerally incidental to the normal course of business are pending or threatenedagainst us. While we cannot predict the outcome of these matters, in theopinion of management, any liability arising from these matters will not have amaterial adverse effect on our business, financial condition or results ofoperations.

 

**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 securityholders during the quarter ended July 3. 2005.

 

**Item 5.    *Other Information***

 

—Not Applicable—

 

**Item 6.    *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).*                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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).*                                                                                            |

 

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| 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).*                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.7   |   | First  Amendment, dated as of September 24, 2004, to the 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 10.1 to True Temper  Sports, Inc.’s report on Form 8-K, as filed with the Securities and  Exchange Commission on September 30, 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**                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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*              Incorporated byreference

**           Filed herewith

 

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**SIGNATURES**

 

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 theundersigned, thereunto duly authorized, in the City of Memphis, State ofTennessee, on August 17, 2005.

 
|   | True Temper Sports, Inc. |
|--------|-------------------------------|
|   |                          |
|   |                          |
|   | By:                           | /s/    SCOTT  C. HENNESSY |   |
|   |                          |
|   | Name:                         | Scott C. Hennessy |
|   | Title:                        | President and Chief Executive Officer |
|   |                          |   |
|   | By:                           | /s/    JASON  A. JENNE |   |
|   |                          |   |
|   | Name:                         | Jason A. Jenne |
|   | Title:                        | Vice President, Chief Financial Officer  and Treasurer |
|        |                               |  |  |  |

 

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