**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

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**FORM 10-K**

 
| **ý**                                            | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**     |
|-------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                  |                                                                                                |
| **For the fiscal year  ended December 31, 2003** |
|                                                  |                                                                                                |
| **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 its charter)

 
| **Delaware**                                                                                                                |   | **3949**                                                  |   | **52-2112620**                           |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|------------------------------------------|
| (State of 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) |
|                                                                                                                        |
|                                                                                                                             |
|                                                                                                                        |
| Securities registered pursuant  to section 12(b) of the Act: **None**                                                  |
|                                                                                                                        |
| Securities registered pursuant  to section 12(g) of the Act: **None**                                                  |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes  ý    No  o

 

Indicate by checkmark if disclosure by delinquent filers pursuant toitem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  ý

 

As of June 29, 2003 the Registrant had 100 shares of Common Stock,$0.01 par value per share, outstanding. All of the Registrant’s outstandingshares were held by True Temper Corporation, the Registrant’s parent company,as of June 29, 2003.

 

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

 

**DocumentsIncorporated by Reference:**

 

Part IVincorporates certain information by reference from the Registrant’sRegistration Statement on Form S-4, as filed with the Securities & ExchangeCommission on June 7, 1999, and declared effective on June 10, 1999.

 

 

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**TRUE TEMPER SPORTS,INC.**

 

**ANNUAL REPORT ON FORM10-K**

**For the Fiscal YearEnded December 31, 2003**

 

**INDEX**

 
| PART I         |   |                                                                                        |   |
|----------------|--------|---------------------------------------------------------------------------------------------|--------|
| Item 1         |   | Business                                                                                    |   |
| Item 2         |   | Properties                                                                                  |   |
| Item 3         |   | Legal  Proceedings                                                                          |   |
| Item 4         |   | Submission of Matters to a Vote of Security  Holders                                        |   |
| PART II        |   |                                                                                        |   |
| Item 5         |   | Market for Registrant’s Common Equity and  Related Stockholder Matters                 |   |
| Item 6         |   | Selected Financial Data                                                                     |   |
| Item 7         |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |   |
| Item 7A        |   | Quantitative and Qualitative Disclosures  About Market Risk                                 |   |
| Item 8         |   | Financial Statements and Supplementary Data                                                 |   |
| Item 9         |   | Changes in and Disagreements With  Accountants on Accounting and Financial Disclosures      |   |
| Item 9A        |   | Controls and Procedures                                                                     |   |
| PART  III      |   |                                                                                        |   |
| Item 10        |   | Directors and Executive Officers of the  Registrant                                         |   |
| Item 11        |   | Executive Compensation                                                                      |   |
| Item 12        |   | Security Ownership of Certain Beneficial  Owners and Management                             |   |
| Item 13        |   | Certain Relationships and Related  Transactions                                             |   |
| Item 14        |   | Principal Accountants Fees and Services                                                     |   |
| PART IV        |   |                                                                                        |   |
| Item 15        |   | Exhibits, Financial Statements Schedule,  and Reports on Form 8-K                           |   |
| SIGNATURES     |   |
| EXHIBIT  INDEX |   |

 

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**PARTI**

 

**Item 1****.  *Business***

 

**General**

 

We are the world’s leading designer, manufacturer and marketer of golfshafts. Since the 1930s, we have manufactured golf shafts under the widelyrecognized *True Temper* brand. In2003, over 70% of our net sales were generated through the sale of steel golfshafts. We believe that our share of the worldwide steel shaft market wasapproximately 68% in 2003 and that our share is more than three times greaterthan the share of the next largest market participant. We are a leadingsupplier of premium steel shafts to top domestic golf club original equipmentmanufacturers and distributors, including Callaway, Cleveland, Golfsmith, GolfWorks, Mizuno, Nike, PING, TaylorMade, Titleist and Wilson. From 1987 to 2003,our steel shafts were played by the winners of 57 of the PGA’s 68 majorchampionships, including 16 of the last 17 Masters champions. We are also oneof the world’s largest manufacturers of premium graphite (carbon fiber basedcomposites) golf shafts, with an estimated share of approximately 9% of thishighly fragmented market. In addition to golf shafts, through our PerformanceSports business, we also design, manufacture and market products such as steelalloy bicycle frames, composite bicycle components, such as forks andhandlebars, and graphite hockey shafts for the growing premium bicycle andhockey components markets. In 2003, we generated net sales of $116.2 millionand net income of $10.9 million.

 

Our golf shaft products include over 1,000 proprietary models (with ourcustomers’ brand name, label or trademark affixed to the shaft) and 2,000branded models (with the *True Temper*and / or *Grafalloy* brand name,label or trademark affixed to the shaft), including a full range of premium andcommercial grade steel shafts and a full line of premium graphite shafts. Wedesign, manufacture and market approximately 275 lines of steel shafts,including:

 

•                                          *Dynamic Gold,* which has been a leadingsteel shaft on the PGA Tour for nearly 25 years;

 

•                                          *Sensicore,* which is equipped with patentedvibration-damping technology that, when inserted into our steel shafts, caneliminate up to 70% of vibration at impact to combine the feel of graphite withthe consistency of steel;

 

•                                          *Dynalite Gold*, which features alight-weight, soft tip design that promotes a higher ball flight to optimizetrajectory for low-ball hitters;

 

•                                          *TX-90*, which at only 90 grams, is one ofthe lightest steel shafts available and was designed for players seekingconsistent performance using a lighter alternative to traditional steel shafts;

 

•                                          *TX Tour*, a newly introduced tour versionof *TX-90* which offers a *Superlite* steel iron shaft with playingcharacteristics targeted towards the low handicap golfer;

 

•                                          *Crossfire*, a newly introduced ultra lightalloy shaft which was developed specifically for hybrid clubs and fairwaywoods;

 

•                                          *TT Lite*, which was designed for the customclub builders and offers a standard weight and mid-flex design which allows forvarious trimming options for a truly custom fit; and

 

•                                          numerousco-branded products, including Callaway’s *Memphis10,*Nike’s *Speedstep,*Ping’s*JZ*and *ZZ Lite*and Wilson’s *FatShaft*.

 

We also design, manufacture and market approximately 75 lines ofpremium graphite shafts under the *TrueTemper*and *Grafalloy*brandnames. Our graphite shafts have a strong presence at the professional level and

 

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have been played by winners on each of the professional tours,including the PGA, LPGA, Champions and Nationwide Tours. Our most populargraphite shaft brands include:

 

•                                          *Grafalloy ProLite*, which is one of theleading ultra light driver shafts on the professional level and accounts formore than 35% of all the ultra light driver shafts played on the PGA andChampions Tours;

 

•                                          *Grafalloy Blue,*which is a newbreakthrough graphite shaft designed specifically for today’s oversized metalwoods;

 

•                                          *Grafalloy ProLaunch,*a newly introducedgraphite shaft designed with today’s high performance heads and low-spin ballsto help players achieve optimal launch conditions to reduce ball spin andmaximize distance;

 

•                                          *Grafalloy ProLogic,*which is designed foruse in irons as a graphite alternative to steel and is manufactured with tighttolerances to provide consistent feel and improved shot making; and

 

•                                          *True Temper EI-70,*which is a premiumgraphite driver shaft with a mid-flex design for a lower, piercing ball flight,and which was played by the winners of five titles on the PGA Tour in 2003.

 

We believe that we are the only golf shaft company in the world whichis capable, within its own facilities, of manufacturing both steel and graphitegolf shafts in large volumes. This unique competitive advantage allowed us todesign, develop, manufacture and sell the first commercially viablemulti-material golf shaft combining both steel and graphite into one shaft. Our*BiMatrx*and *BiMatrx Rocket*shafts utilize a patentedmulti-material technology to combine the torsional stability and consistentperformance benefits of steel with the light-weight flexible benefits ofgraphite into one shaft.

 

Through our Performance Sports business, we have utilized thecapabilities developed in our golf shaft business to pursue other brandedrecreational sports equipment markets that have similar competitive dynamicsand manufacturing requirements. We focus on the premium segment of the bicyclemarket where quality and branding are highly valued by the consumer, andproducts are often customized to suit the individual consumer’s specificrequirements. Our value-added premium bicycle component products generally havehigher margins than component parts made for bicycles sold in mass channelretail stores. In the hockey components market, we focus on the compositeshafts used in a variety of original equipment manufacturers’ one-piece andcomposite sticks.

 

**The Golf Club Shaft Industry**

 

The golf equipment industry is estimated to be a $4.6 billionindustry, with golf clubs making up the largest portion at approximately 61%,or $2.8 billion. Spending in the golf equipment industry is highlyconcentrated among avid golfers (golfers that play more than 25 rounds of golfper year) who account for approximately 58% of the total spending on golfequipment despite only accounting for approximately 23% of the golfingpopulation.

 

There are three basic components needed to manufacture a golf club: theshaft, the club head and the grip. The shaft is critical to the performance of agolf club as it controls the consistency and distance of a golf shot. Whilebranded premium shafts are critical to the performance and marketing of golfclubs, these shafts represent a relatively small portion of the overall cost ofa golf club, typically under 10% of the retail sales price.

 

The golf shaft market is comprised primarily of steel and graphiteshafts. We believe that in 2003 the three largest participants in the worldwidesteel shaft market comprised an aggregate market share of more than 80%. Webelieve that the concentration in the steel shaft market is due to the highbarriers to entry created by the technical expertise and capital investmentnecessary to participate in the market as well as the customized manufacturingprocess required for the production of premium steel shafts. The production ofgraphite shafts is

 

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less capital intensive and requires less technical expertise. Althoughrecently there has been some consolidation among graphite shaft manufacturers,the graphite shaft industry is fragmented, with the top five marketparticipants representing approximately 52% of the worldwide market in 2003. Webelieve that the relatively lower barriers to entry account for this fragmentation.

 

We believe that from 1991 to 1995, graphite shafts gained share of theoverall shaft market due to the light-weight, vibration-damping characteristicsof graphite shafts, particularly for longer-shafted, larger-headed woods. Since1995, however, the development of vibration damping materials for steel shaftssuch as our *Sensicore*insert,along with the introduction of lighter weight steel alloys in products such asour *TX-90*shaft, have resulted insteel shafts that have the vibration damping and light-weight characteristicsof graphite shafts together with the consistent performance and distancecontrol qualities of steel shafts. We believe that these design improvementscontributed to the growth of the share of steel shafts in the overall shaftmarket from approximately 52% in 1995 to approximately 64% in 2003.

 

**Business Strategy**

 

Our objective is to continue to grow net sales and cash flow bycapitalizing on our position as the leading worldwide designer, manufacturerand marketer of technologically innovative, performance-oriented golf shaftsand increasing our market share in the premium bicycle and hockey markets. Ourstrategy to achieve these objectives consists of the following elements:

 

***Continue to Innovateand Introduce New Products.***  We intend to increase our share of the steeland graphite golf shaft markets by capitalizing on the *True Temper* and *Grafalloy* brands and continuing to introduce new productsand technologies tailored to the specific needs of golfers and designed for theunique innovations in club head technology. We plan to continue to developinnovative premium steel golf shafts with performance characteristics andfeatures that support above average selling prices and gross margins.

 

***Promote the TrueTemper and Grafalloy Brands.***  We intend to maintain and build our brandname recognition, our reputation for quality and the goodwill of the *True Temper* and *Grafalloy* brands through the continuation of a marketing andcommunications program aimed at reaching golfers directly and targeting the topclub pros, club fitters, and others who we believe have the ability toinfluence consumers in their local markets. We intend to continue supportingPGA Tour players with our Tour vans, which provide technical support and shaftinstallation. We also plan to continue our marketing efforts by advertising inleading publications, through cooperative advertising with customers andthrough product demonstrations and special promotional events.

 

***Drive ContinuedInternational Sales Growth.***  Over the last two years we have experiencedsignificant growth in international sales and we believe that markets outsidethe United States will be a significant contributor to our net sales growth inthe future. To drive this growth, we will utilize our growing global network ofsales offices and distribution centers on four continents to reach ourcustomers in their local markets and provide inventory logistics to servicetheir needs. Our new distribution center in Hong Kong and graphitemanufacturing facility in China will support this global logistics strategy andenable us to expand our product offering to meet customer needs in all ourmarkets around the world.

 

***Grow Our PerformanceSports Segment.*** We believe we are poised to realize significant growth in our PerformanceSports business by capitalizing on the premium bicycle and hockey-stickmarkets’ shift away from traditional materials to lighter weight productsproduced with carbon fiber based graphite composites. In the hockey market, weare applying our composite materials knowledge developed over years in thegraphite golf shaft business to develop the light-weight, high strength hockeysticks that many of the world’s professional players have already adopted. Withan estimated 75% or more of the hockey-stick market still using wood sticks, webelieve that our hockey business will experience significant growth as amateurand recreational players follow the conversion of professional players tographite hockey sticks. Since our acquisition of AME, Inc. in 2001, wehave utilized and combined its product design concepts, technology and know howwith our engineering and manufacturing expertise to develop and introduce anexpanded line of composite bicycle components, under the *Alpha Q* brand name, that we plan to marketand sell to distributors and original equipment manufacturers in the

 

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premium component bicycle market. We believe we produce the lightestall-carbon components available, including the *AlphaQ Sub 3* bicycle fork, which is used by one of the world’s leadingtriathletes.

 

**Products**

 

We design, manufacture and market steel and graphite golf shafts, aswell as a variety of high strength, high tolerance components for the hockey,bicycle and other recreational sports markets. Our proprietary shafts, whichaccounted for approximately 38% of our net sales in 2003, are custom designed,and frequently co-branded in partnership with our customers, to accommodatespecific golf club head designs. As an example our proprietary models includeco-branded products such as Callaway’s *Memphis10*, Nike’s *Speedstep*,Ping’s *JZ* and *ZZ Lite* and Wilson’s *Fat Shaft*. Our branded products with the *True Temper* and/or *Grafalloy* names and designs are typicallysold to golf club original equipment manufacturers, distributors and variouscustom club assemblers, and are used to either assemble new clubs or to replacethe shafts in existing clubs.

 

*Steel Golf Shafts.*  We manufacture a wide range of steel golfshaft lines with unique design features and performance characteristics. Oursteel golf shafts can be divided into the following two major productcategories:

 

(1)                                  Premiumsteel shafts; and

 

(2)                                  Commercialgrade steel shafts.

 

Premium steel shafts, such as our *DynamicGold* and *TX-90* productlines, are high performance products with tighter design tolerances and qualityspecifications that sell for higher average selling prices and generate higherprofit margins than commercial grade steel shafts. Our commercial grade steelshafts are manufactured to a different specification and sell for a loweraverage selling price to original equipment manufacturers who produce and sellopening price point golf club sets to entry-level players or lower incomeconsumers who purchase their products through mass channel retail stores.

 

*Graphite Golf Shafts.*  We manufacture a wide range of graphite golfshaft lines, which are offered in a variety of weights, torques and flexes. Ourgraphite golf shafts are currently being played by over 100 touring professionalson the PGA, LPGA, Champions and Nationwide Tours. Our graphite shafts are soldunder the *Grafalloy* and *True Temper* brands. Similar to steel,graphite shafts can be placed in several categories of performance/quality andprice. Most of the graphite golf shafts that we produce and sell are higherquality and higher priced premium grade shafts that are sold to golf equipmentdistributors, and to original equipment manufacturers for their custom productofferings.

 

*Golf Shafts with Combined Materials.*  During the last several years we have beenworking to develop golf shafts that combine multiple materials such as steeland graphite into one shaft. Late in 2000 we introduced a proprietary customiron product for a customer that combines a steel shaft with a graphite tipsection to produce a shaft that provides a new feel for irons.

 

We used similar patented technology to introduce the *True Temper* branded product known as *BiMatrx* in January 2001. The *BiMatrx* shaft consists of a graphite shaftwith a steel tip section that is currently designed for use in driver andfairway wood applications.

 

*Performance Sports Products.*  We also manufacture and sell a wide varietyof high performance components for the bicycle, hockey and other recreationalsports markets. In 2003, we sold our performance sports products to a broadrange of original equipment manufacturers and distributors.

 

**Customers**

 

We maintain long-standing relationships with a highly diversifiedcustomer base. We are a leading supplier of shafts to the top domestic golfclub original equipment manufacturers and distributors, including Callaway,Cleveland, Golfsmith, Golf Works, Mizuno, Nike, Ping, TaylorMade, Titleist, andWilson. In 2003, we

 

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had in excess of 650 customers, including approximately 550 golf clubmanufacturers/retailers and approximately 90 distributors.

 

For many years we have maintained a broad and diversified customer basein the golf equipment market. In 2003, our top ten customers representedapproximately 69% of our net sales, and our top two customers collectivelyaccounted for approximately 25% of our net sales.

 

We believe that our close customer relationships and responsive servicehave been significant elements to our success and that our engineering andmanufacturing expertise provide us with a strong competitive advantage in trulypartnering with our customer base. We have developed and co-branded manyproprietary shafts with our customers, as an example we produce proprietarycustomized steel shafts for Callaway, under the *Memphis 10* brand; for Ping, under the *JZ* and *ZZLite* brands; for Nike, using the *Speedstep*brand; and for Wilson to produce the *FatShaft* line of clubs.

 

**Competition**

 

We operate in a highly competitive environment. We believe that wecompete principally on the basis of:

 

•                                          ourability to provide a broad range of high quality steel and graphite shafts atcompetitive prices;

 

•                                          ourability to deliver customized products in large quantities on a timely basisthrough distribution channels around the world;

 

•                                          theacceptance of steel and graphite shafts in general, and our shafts inparticular, by professional and amateur golfers alike; and

 

•                                          ourability to develop and produce innovative new products that provide performancefeatures which benefit golfers of all skill levels.

 

We believe that our share of the worldwide steel shaft market wasapproximately 68% in 2003 and that our share is more than three times greaterthan the share of the next largest market participant. We believe that weprimarily compete with four other steel golf shaft manufacturers: RoyalPrecision, Inc., a domestic based premium steel shaft manufacturer, FarEast Machinery Co., Ltd., located in Taiwan which produces commercial gradeproducts, Nippon Shaft Co., Ltd., a limited volume Japanese manufacturerof premium products, and Summit Sports World Wide Co., Ltd. which produceslimited volumes of commercial grade steel shafts.

 

Unlike steel, the graphite shaft manufacturing industry is highly fragmentedwith a large number of suppliers selling to only a few customers. We believethere are up to eighty graphite shaft manufacturers worldwide. A few of thesecompanies reside in North America and many are located in Far East Asia. We donot believe that there are any graphite suppliers currently with a market sharein graphite that is comparable to the market share we have in steel. We believewe are one of the five largest producers of branded premium grade graphiteshafts in the world and we estimate that our market share is approximately 9%.Our major competitors in the premium grade branded graphite shaft marketinclude Aldila, Inc., United Sports Technologies, Inc., GraphiteDesign International, and Fujikura Composites.

 

We believe that we are the only golf shaft company in the world whichis capable, within its own facilities, of manufacturing both steel and graphitegolf shafts in large volumes.

 

**Design & Development**

 

We design and develop products for both proprietary/co-branded marketapplications and for the *True Temper*/*Grafalloy* branded product names.

 

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The larger golf club manufacturers often request exclusively designedproprietary or co-branded steel and graphite golf shafts for their clubsystems, which require golf shafts, heads and grips engineered to worktogether. We are committed to serving this market by maintaining our role as aleader in innovative shaft designs for both steel and graphite materialstechnology. Shaft designs and modifications are frequently the direct result ofour combined efforts with that of our customers to develop an exclusive shaftspecifically designed for that customer’s clubs. We use a computer aided designanalysis program to evaluate a new shaft’s design with respect to weight,torque, flex point, tip and butt flexibility, swing weight and other criticalshaft design criteria.

 

In addition to our proprietary/co-branded product applications, we arevery active in designing and developing new products under the *True Temper* and *Grafalloy* brand names that meet the performance needs ofgolfers of all ages and skill levels. We develop these branded products basedupon our internal research and evaluation of consumer needs and preferences.

 

The materials typically used in production of our designs includeseveral different high strength steel alloys and advanced composite systems ofgraphite and glass fibers with thermosetting epoxy resin systems.

 

Using computer aided design, we generate a design which is then analyzedby computer for stiffness and strength properties. Our research and developmentefforts focus on technology development and new materials as an essentialprecursor to successful new product development. Our design research focuses onimprovements in shaft aesthetics since cosmetic appearance has becomeincreasingly important to customers. To supplement our design and developmentwe employ extensive testing that includes laboratory durability and stresstests, robotic testing and individual player evaluation.

 

In 2003, we opened a 14 acre test facility that enables us to betterevaluate our products. We have our own private driving range where we performqualitative player testing and quantitative mechanical testing with a Miya 5swing robot. Our facility is designed with an Accushot data system which allowsus to measure the distance and dispersion of each shot to provide an accurateassessment of product performance. We believe that we are the only shaftmanufacturer with our own driving range that is capable of this type of producttesting.

 

In addition, our pursuit of strategic vendor alliances complement ourabilities and needs, an approach which allows us to exploit technicalcapabilities beyond our own while minimizing the risk and investment requiredto enter the market with new products.

 

Research and development costs for the years ended December 31,2003, 2002 and 2001 were $1.5 million, $1.2 million and$1.6 million, respectively.

 

**Manufacturing**

 

We believe that our manufacturing expertise and production capabilitiesenable us to respond quickly to customers’ orders and provide sufficientquantities on a timely basis. We believe that our investment in capitalequipment and personnel training has enabled us to establish a reputation asone of the leading manufacturers of steel and graphite shafts.

 

*Steel Shaft Manufacturing Process.*  The process of manufacturing a steel shafthas many distinct phases. Generally, a large steel coil is unrolled and thenformed lengthwise, welded and cut into cylinders. The tubing is then treatedand fitted over a metal rod or “mandrel” that is used to determine the preciseinside diameter of the cylinder as it is drawn. The tubing is stretched, cutinto sections, and then weighed and balanced. Later, through a process that wepioneered, the sections are tapered to give each shaft model a particular flexand frequency. The shafts are cleaned, straightened, heat-treated and tempered.The shafts are straightened by machines designed and built by us. The shaftsare plated with layers of nickel to prevent corrosion and then covered with afine layer of chrome. Finally, shafts are dried, polished and inspected forcosmetic flaws before our name and logo is affixed to the shaft. It takes anaverage of 15 days to manufacture one of our *True Temper* steel shafts.

 

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*Graphite Shaft Manufacturing Process.*  There are two processes which are used tomanufacture a graphite shaft: flag-wrapping and filament-winding. Most of ourgraphite shafts are produced using the flag-wrapping technique. Theflag-wrapping method uses graphite fiber materials or “prepreg” in sheet form,which requires refrigeration until use. Each new roll of prepreg is allowed toreach room temperature before the material is cut into pennant-shaped patternscalled flags for each particular shaft design. Layer by layer, variouscombinations of prepreg flags are wrapped around mandrels specified for eachparticular shaft design. The layered materials are then encased in thin layersof clear tape for compaction and heated at high temperatures to harden thematerial. At the end of the process, the shafts are painted and stylized usinga variety of colors, patterns and designs. The filament-winding process, on theother hand, begins with a spool, rather than a sheet, of graphite fiber, whichis fed onto the reel of a machine which then wraps the fiber around a mandrelby turning the mandrel and simultaneously moving the graphite fiber from oneend of the mandrel to the other. Once the mandrel is wrapped, the process usesthe same encasing and heating techniques as the flag wrapping process.

 

*Raw Materials.*  We use several raw materials to producesteel golf shafts, including several steel alloys sourced from two or three primaryvendors, nickel crowns and plating chemicals, Sensicore inserts and varioussundry supplies, boxes and labels. Graphite shafts are produced with a varietyof graphite fiber materials in both sheet and spool form that we source fromseveral different vendors. In addition, graphite shafts are finished with awide variety of paints, inks and heat transfer labels. We believe that thereare adequate alternative suppliers of these materials, and, therefore, we donot believe that we are dependent on any one supplier.

 

In addition to the raw materials discussed above, we also use asubstantial amount of natural gas and electricity in our manufacturingprocesses. Suppliers for these types of energy sources are limited, and pricesare subject to general market and industry conditions.

 

**Marketing & Promotion**

 

Our marketing strategy is designed around new product development andtargeted advertising and promotion programs. Through our ability to anticipateand address consumer trends in the golf equipment market, as well as theperformance demands of professional golfers, we are able to successfully marketour products to golf club manufacturers while strengthening brand awareness.During the last several years, our marketing efforts through the utilization ofa wide variety of promotional channels, including mass media advertising, printand television, sponsorship of golf-related events, equipment endorsements fromoriginal equipment manufacturers and product demonstrations, have increased ouroverall exposure in the golf industry.

 

For example, we have maintained a strong presence among PGA Tourplayers, particularly since 1981, when we began sending our PGA Tour van to allmajor PGA events. The Tour van functions as a golf club custom shop on wheels,visiting over 35 professional tour events during 2003. Typically, the van islocated near the practice tee and lends technical support to the tourprofessionals while simultaneously promoting the *True Temper* and *Grafalloy*brands to representatives of original equipment manufacturers. In 2003 weintroduced a second tour van which we used to support the professional playersand promote our products at 25 events collectively on the Champions andNationwide Tours. In addition, we provide technical support to the players on theLPGA Tour as well as the European and Japanese PGA Tours.

 

Although we do not pay any professional golfer to endorse or play ourshafts, we believe that the use of our products by professional golfersenhances our reputation for quality and performance while also promoting theuse of our shafts. Due to our strong reputation and service, we estimate thatnearly 75% of professional golfers around the world use our product incompetition. We clearly recognize the influence that a professional golfer, or verylow handicap golfer, can have on consumer preferences, so we also engage inspecial promotional efforts with local club and teaching professionals, and wecontribute shafts to college athletic programs, to encourage the use of ourproduct so they provide positive feedback on the *True Temper* and *Grafalloy*brands to their constituents.

 

Much of our advertising and promotional spending is dedicated to printand television advertising, including cooperative advertising with ourcustomers. Additional advertising and promotional spending is

 

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allocated to promotional events such as trade shows, consumer golfshows, PGA Tour activities and retail golf shop advertising displays.

 

Advertising and promotional costs for the years ended December 31,2003, 2002 and 2001 were $3.1 million, $3.6 million and$5.0 million, respectively.

 

**Distribution & Sales**

 

We primarily sell our shafts to original equipment manufacturers,retailers and distributors. Typically, distributors resell our products tocustom club assemblers, pro shops and individuals. Sales to golf clubmanufacturers/retailers accounted for approximately 80% of our net golf shaftsales in 2003, and sales to distributors represented approximately 20% of our2003 net golf shaft sales.

 

We believe that we have one of the most experienced and respected salesstaffs in the industry. Our sales and marketing department includes domesticsales managers, international sales managers, a customer service group and ateam of design professionals who provide field support to our salesrepresentatives. We believe that our international market presence, whichcomprised over 31% of our total 2003 net sales, provides an opportunity forfuture growth. We market our products in Japan, Europe, Australia and SoutheastAsia and maintain a distribution operation in each region.

 

**Employees**

 

As of December 31, 2003, we had 712 full-time employees, including24 in sales and marketing, 40 in research, development and manufacturingengineering, 564 in production and the balance in administrative and supportroles. In addition, as of December 31, 2003, we had 70 individuals workingin production at our El Cajon facility through a temporary employment agency.The El Cajon plant has historically used a certain portion of temporary workersin order to more effectively match the workforce level with the requiredproduction level at various times of the year.

 

The hourly employees at our steel plant in Amory, Mississippi arerepresented by the United Steel Workers of America. In June 2003, theUnited Steel Workers union at our Amory, Mississippi facility voted to accept anew collective bargaining agreement that covers a four year period beginning inJuly 2003 and expiring on June 30, 2007. We believe that ourrelationships with the union and our employees are good.

 

**Intellectual Property**

 

As of December 31, 2003, we held 39 patents worldwide relating tovarious products and proprietary technologies, including the Sensicoretechnology, and had 18 patent applications pending. We also hold numeroustrademarks related to, among other things, our *TrueTemper, Grafalloy* and *Alpha Q*branded products. We do not believe that our competitive position is dependentsolely on patent or trademark protection, or that our operations are dependenton any individual patent or trademark.

 

**Environmental, Health And Safety Matters**

 

We are subject to federal, state and local environmental and workplacehealth and safety laws and regulations, including requirements governingdischarges to the air and water, the handling and disposal of solid andhazardous wastes, and the remediation of contamination associated with releasesof hazardous substances. In December 2003, a review was conducted byindependent environmental consultants and, based upon such report, we believethat we are currently in material compliance with environmental and workplacehealth and safety laws and regulations. Nevertheless, our manufacturingoperations involve the use of hazardous substances and, as is the case withmanufacturers in general, if a release of hazardous substances occurs or hasoccurred on or from our facilities, we may be held liable and may be requiredto pay the cost of remedying the condition. The amount of any such liabilitycould be material.

 

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We devote significant resources to maintaining compliance with, andbelieve we are currently in material compliance with, our environmentalobligations. Despite such efforts, the possibility exists that instances ofnoncompliance could occur or be identified, the penalties or corrective actioncosts associated with which could be material.

 

Like any manufacturer, we are subject to the possibility that we mayreceive notices of potential liability, pursuant to CERCLA or analogous statelaws, for cleanup costs associated with onsite or offsite waste recycling ordisposal facilities at which waste associated with our operations haveallegedly come to be located. Liability under CERCLA is strict, retroactive andjoint and several. To our knowledge, no notices involving any materialliability are currently pending.

 

We have made,and will continue to make, capital expenditures to comply with current andfuture environmental obligations. Because environmental requirements arebecoming increasingly stringent, our expenditures for environmental compliancemay increase in the future.

 

**Business Risks**

 

*Our substantial indebtedness could adverselyaffect our financial health and prevent us from fulfilling our obligations.*

 

Oursubstantial indebtedness could adversely affect the financial health of ourcompany. For example, it could:

 

•             make it moredifficult for us to satisfy our obligations with respect to our SeniorSubordinated Notes;

 

•             increase our vulnerabilityto increases in interest rates because our secured credit facility, under whichour indebtedness was $14.0 million as of December 31, 2003, is subject toa variable interest rate;

 

•             limit our ability tofund future working capital, capital expenditures, research and developmentcosts, acquisitions and other general corporate requirements;

 

•             require a substantialamount of our annual cash flow from operations for debt service, therebyreducing the availability of our cash flow to fund working capital, capitalexpenditures, research and development efforts, acquisitions and other generalcorporate purposes;

 

•             limit our flexibilityto plan for, or react to, changes in our business and the industry in which weoperate;

 

•             place us at acompetitive disadvantage compared to our competitors that have less debt; and

 

•             limit our ability toborrow additional funds.

 

*To service our indebtedness, we will requirea significant amount of cash.  Ourability to generate cash depends on many factors beyond our control.*

 

We may not beable to generate the cash we need to service our indebtedness. Our ability tomake payments on and to refinance our indebtedness, and to fund planned capitalexpenditures and research and development efforts will depend on our ability togenerate cash in the future. This, to a certain extent, is subject to generaleconomic, financial, competitive, legislative, regulatory and other factorsthat are beyond our control. Based on our current level of operations, webelieve our cash flow from operations, available cash and available borrowingsunder our senior bank facilities will be adequate to meet our future liquidityneeds.

 

We cannotassure you, however, that our business will generate sufficient cash flow fromoperations, or that future borrowings will be available to us under our seniorbank facilities in an amount sufficient to enable us to pay our indebtedness,or to fund our other liquidity needs. We may need to refinance all or a portionof our indebtedness on or before maturity. We might not be able to refinanceany of our indebtedness on commercially reasonable terms or at all.

 

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*Our success depends on the continued popularity of golf and the growthof the market for golf clubs.*

 

We generate a substantial portion of our net revenues from the sale ofgolf shafts. The demand for our golf shafts is directly related to thepopularity of golf, the number of golf participants and the number of rounds ofgolf being played by these participants. If golf participation decreases, salesof our products would be adversely affected. In addition, the popularity ofgolf organizations, such as the PGA, also affects the sales of our golf shafts.We depend on the exposure of our brands to increase brand recognition andreinforce the quality of our products. Any significant reduction in televisioncoverage of PGA or other golf tournaments, or any other significant decreasesin either attendance at golf tournaments or viewership of golf tournaments, willreduce the visibility of our brand and could adversely affect our sales.

 

*A reduction in discretionary consumer spending could reduce sales ofour products.*

 

Sales of golf clubs are dependent on discretionary consumer spendingwhich may be affected by general economic conditions and could result in adecrease in consumer spending on golf equipment. In addition, our futureresults of operations could be affected adversely by a number of other factorsthat influence discretionary consumer spending, including consumer concernsover international and military conflicts around the world, unseasonal weatherpatterns, demand for our existing and future products, new productintroductions by our competitors, an overall decline in participation in golfactivities, shifting consumer preferences between graphite and steel golfshafts or other materials that we currently do not produce, and competitivepressures that otherwise result in lower than expected average selling prices.Any one or more of these factors could result in our failure to achieve ourexpectations as to future sales or earnings. Because most operating expensesare relatively fixed in the short-term, we may be unable to adjust spending tocompensate for any unexpected sales shortfall, which could adversely affect ourresults of operations.

 

*Our new product development efforts may not be successful.*

 

We may not be able to continue to develop competitive products, developor use technology on a timely or competitive basis or otherwise respond toemerging market trends. Because the introduction of new golf shafts usingsteel, graphite or other composite and combined materials is critical to ourfuture success, our continued growth will depend, in large part, on our abilityto successfully develop and introduce new products in the marketplace. Shouldgolf consumers prefer to use golf clubs made from materials other than steel orgraphite, there could be a material adverse effect on the results of ouroperations. In addition, the design of new golf clubs is also greatlyinfluenced by the rules and interpretations of the U.S. Golf Association, orUSGA, and the Royal and Ancient Golf Club of St. Andrews, or St. Andrews.Although the golf equipment standards established by the USGA and St. Andrewsgenerally apply to competitive events sanctioned by those organizations, webelieve that it is critical for our future success that our new shafts complywith USGA and St. Andrews standards. New products that we introduce may notreceive USGA or St. Andrews approval. In addition, existing USGA and St.Andrews standards may be changed in ways that adversely affect the sales of ourcurrent or future products.

 

*We are subject to work stoppages at our facilities, which couldseriously impact the profitability of our business.*

 

If any labor disruption or work stoppages affect our employees, theresults of our operation could be adversely affected. At December 31,2003, we employed approximately 710 full-time individuals. Of these,approximately 417 hourly employees at our Amory, Mississippi facility arerepresented by the United Steel Workers of America. We recently entered into anew collective bargaining agreement with the United Steel Workers of Americawhich became effective on July 1, 2003 and will expire on June 30,2007. Nevertheless, we may be subject to work stoppages or other labordisruptions in the future. If such events were to occur, our results ofoperations may be materially adversely affected.

 

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*We face intense competition with other golf shaft designers andmanufacturers, and our inability to compete effectively for any reason couldadversely affect our business.*

 

We operate in a highly competitive environment and compete against anumber of established golf shaft designers, manufacturers and distributors. Wealso compete indirectly with manufacturers that produce shafts internally andface potential competition from golf club manufacturers that currently purchasegolf shaft components from third parties but which may have, develop or acquirethe ability to manufacture shafts internally. Unlike the steel shaft industry,the graphite shaft industry is highly fragmented. As a result, we compete withmany competitors involved in the design and manufacture of graphite shafts.While we have had long-established relationships with most of our customers, weare not the exclusive supplier to most of them, and consistent with theindustry practice, generally do not have long-term contracts with ourcustomers. Although we believe that our relationships with our customers aregood, the loss of a significant customer or a substantial decrease in sales toa significant customer could have a material adverse affect on our business andoperating results. See “Business-Competition” for a description of the bases onwhich we compete and the number of competitors in our industry. These factors,as well as demographic trends and economic conditions, could result inincreased competition and could have a material adverse effect on our resultsof operations.

 

*Our profitability would be adversely affected if the operation of ourAmory manufacturing were interrupted or shut down.*

 

We operate a majority of our manufacturing processes at our facility inAmory, Mississippi. Any natural disaster or other serious disruption to thisfacility due to fire, tornado, flood or any other cause would substantiallydisrupt our sales and would damage a portion of our inventory, impairing ourability to adequately supply our customers. In addition, we could incursignificantly higher costs and longer lead times associated with fulfilling ourdirect-to-consumer orders and distributing our products to our customers duringthe time it takes for us to reopen or replace our Amory facility. As a result,disruption at our Amory facility would adversely affect our profitability.

 

*Risks related to our operating facility in China could adversely affectour business.*

 

In 2003, we opened a graphite manufacturing facility in southern Chinathat we believe will enable us to produce our graphite shafts at a lower cost.We plan to transition some of our manufacturing capacity from the United Statesto China. This may result in cost inefficiencies and/or delay our realizationof our expected costs savings due to our need to recruit and train personnel tooperate this facility. In addition, we will be subject to potential politicalinstability in China and trade conflict between the U.S. and China.

 

*Consolidation of our customer base could adversely affect our business.*

 

If the industry and customer base continues to consolidate, then it ispossible a consolidation of several of our existing customers into one companycould represent a significant portion of our annual revenues. If this was tooccur, and this customer selected an alternative shaft supplier, it could havea material adverse effect on our results of operations. If this consolidatedcompany were to remain our customer it could represent an increased credit riskdue to its size in relation to our total accounts receivable.

 

*Fluctuations in the cost and availability of raw materials couldadversely affect our business.*

 

Since we are dependent upon certain suppliers for steel, nickel,graphite prepreg and other materials, we are subject to price increases anddelays in receiving materials. Although we have several sources for most of thekey raw materials we purchase, and we attempt to establish purchase pricecommitments for one-year periods, we are subject to price increases for rawmaterials used in the manufacture of golf shafts and to delays in receivingthese materials. As key components to the manufacture of golf shafts, asubstantial price increase to one or more of these raw materials or anyextended delay in their delivery could result in a material adverse effect onour results of operations.

 

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*Fluctuations in the cost and availability of energy sources to us couldadversely affect our business.*

 

Our graphite shaft manufacturing operation in Southern California isdependent upon a consistent and affordable supply of electricity. If there is aprolonged shortage of electrical supply to our California facility and /or asignificant increase in the cost of electrical power, we may need totemporarily or permanently close our graphite shaft operations, which couldmaterially adversely affect our results of operations. In addition, our steelshaft manufacturing plant located in Mississippi relies upon a consistent andaffordable supply of both natural gas and electrical power in order to conductnormal operations. If our Mississippi facility should experience a shortage insupply of either power source or a significant increase in cost, it could havea material adverse affect on our results of operations.

 

*Fluctuations in the availability of energy sources to our customerscould adversely affect our business.*

 

There are a significant number of golf equipment assemblers that areheadquartered and conduct manufacturing operations in Southern California. Inthe aggregate, these companies account for a significant share of the golfequipment market and also account for a considerable portion of our salesrevenue. With the disruption of electrical power to California and otherWestern states in recent years there is a risk that our customers’manufacturing operations may be adversely affected by power shortages. If thiswere to occur they may reduce their purchases of shafts from us causing asignificant adverse impact to our revenues and results of operations.

 

*Fluctuations in cost of health insurance could adversely affect ourbusiness.*

 

Health insurance coverage is a valuable benefit in retaining andattracting employees and has been subject to significant price increases byhealth industry providers. Since we do not plan to eliminate providing healthbenefits to our employees, the rising costs could have a material adverseaffect on the results of our operations.

 

*If we are unable to protect our intellectual property rights, ourbusiness and prospects may be harmed.*

 

The patents we hold relating to certain of our products andtechnologies may not offer complete protection against infringement of ourproprietary rights by others. As of December 31, 2003 we held 39 patentsworldwide relating to various products and proprietary technologies, includingthe *Sensicore* technology, and had18 patent applications pending. Patents may not be issued from the pendingpatent applications. Moreover, these patents may have limited commercial valueor may not protect our products. Additionally, the U.S. patents that we hold donot preclude competitors from developing or marketing products similar to ourproducts in international markets. We may infringe on others’ intellectualproperty rights. One or more adverse judgments with respect to these intellectualproperty rights could negatively impact our ability to compete and couldadversely affect our business.

 

*We are subject to various environmental, health and safety laws andregulations that govern, and impose liability, for our activities and operations.If we do not comply with these laws and regulations, our business could bematerially and adversely affected.*

 

We are subject to federal, state, and local environmental and workplacehealth and safety laws, regulations and requirements which, if contravened,could result in significant costs to us. Our manufacturing operations involvethe use of hazardous substances and should there be a release of suchsubstances from our facilities, we may be held liable. The penalties orcorrective action costs associated with noncompliance could be material. Inaddition, we may receive notices of potential liability pursuant to federal orstate laws for cleanup costs associated with waste recycling or disposalfacilities at which wastes associated with our operations have allegedly cometo be located.

 

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*Fluctuations in certain general economic conditions could increase ourminimum pension liability under our defined benefit pension plan.*

 

We maintain an employer sponsored defined benefit pension plan for thehourly employees at our Amory, Mississippi steel golf shaft plant. We aresubject to Financial Accounting Standards Board guidelines for recognition ofour minimum pension liability, and subject to ERISA regulations with regard toour cash funding of the plan. As a result, certain U.S. economic conditionsinvolving weak equity market performance and low general interest rates canboth reduce the total value of the assets of the plan as well as increase our minimumpension liability under the plan. If these economic conditions are severeenough they could have a significant adverse effect on the funding status ofour plan and our overall results of operations.

 

*If we do not retain our key personnel and attract and retain otherhighly skilled employees our business will suffer.*

 

If we fail to retain and recruit the necessary personnel, our businessand our ability to obtain new customers, develop new products and provideacceptable levels of customer service could suffer. The success of our businessis heavily dependent on the leadership of our key management personnel. If anyof these persons were to leave our company it would be difficult to replacethem, and our business would be harmed. See “Management.”

 

*We are subject to risks relating to our international operations.*

 

We are subject to risks customarily associated with foreign operations,including:

 

•                                          fluctuationsin currency exchange rates;

 

•                                          importand export license requirements;

 

•                                          traderestrictions;

 

•                                          changesin tariffs and taxes;

 

•                                          restrictionson the transfer of funds into or out of a country;

 

•                                          unfamiliaritywith foreign laws and regulations;

 

•                                          difficultiesin staffing and managing international operations;

 

•                                          generaleconomic and political conditions; and

 

•                                          unexpectedchanges in regulatory requirements.

 

These risks could have a material adverse effect on our business,prospects, results of operations and financial condition.

 

*We are subject to product liability claims and other litigation.*

 

From time to time, we are subject to product liability claims involvingpersonal injuries allegedly relating to our products. Currently pending claimsand any future claims are subject to the uncertainties related to litigation,and the ultimate outcome of any such proceedings or claims cannot be predicted.

 

*We may engage in future acquisitions.*

 

We continuously review acquisition prospects that would complement ourcurrent product offerings, increase our size and geographic scope of operationsor otherwise offer growth and operating efficiency

 

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opportunities. Any future acquisition may not be successfully completedor that, if completed, any such acquisition may not be effectively integratedinto our business. Acquisitions may entail numerous risks and impose costs onus, including, among others, difficulties associated with assimilating acquiredoperations or products, diversion of management’s attention and adverse effectson existing business relationships with suppliers and customers. In addition,any future acquisitions could result in the incurrence of debt or contingentliabilities and other intangible assets, which could have a material adverseeffect on our business, financial condition or results of operations.

 

*Terrorist attacks, such as the attacks that occurred in New York andWashington, D.C. on September 11, 2001, and other acts of violence or war,including the military action in Iraq, have and could negatively impact theU.S. and foreign economies, the financial markets, the industries in which weoperate, our operations and our profitability.*

 

Terrorist attacks may negatively affect our operations and yourinvestment. There can be no assurance that there will not be further terroristattacks worldwide. These attacks have contributed to economic instability inthe United States and elsewhere, and further acts of terrorism, violence or warcould further affect the industries in which we operate, our business and ourresults of operations. In addition, terrorist attacks or hostilities maydirectly impact our physical facilities or those of our suppliers or customersand could impact our sales, our supply chain, our production capability and ourability to deliver our products and services to our customers. The consequencesof any terrorist attacks or hostilities are unpredictable, and we may not beable to foresee events that could have an adverse effect on our operations oryour investment.

 

**Risks Associated with Forward LookingStatements**

 

The PrivateSecurities Litigation Act of 1995 (the “Act”) provides a safe harbor forforward-looking statements made by our Company. This document containsforward-looking statements, including but not limited to, Item 1 of Part I,Business, and Item 7 of Part II, Management’s Discussion and Analysis ofFinancial Condition and Results of Operations. All statements which addressoperating performance, events or developments that we expect, plan, believe,hope, wish, forecast, predict, intend, or anticipate will occur in the futureare forward looking statements within the meaning of the Act.

 

Theforward-looking statements are based on management’s current views andassumptions regarding future events and operating performance. However thereare many risk factors, including but not limited to, the general state of theeconomy, the Company’s ability to execute its plans, competitive factors, andother risks that could cause the actual results to differ materially from theestimates or predictions contained in our Company’s forward-looking statements.Additional information concerning the Company’s risk factors is contained fromtime to time in the Company’s public filings with the SEC; and most recently inthe Business Risk section of Item 1 of Part 1 of this Annual Report onForm 10-K.

 

The Company’sviews, estimates, plans and outlook as described within this document maychange subsequent to the release of this statement. The Company is under noobligation to modify or update any or all of the statements it has made hereindespite any subsequent changes the Company may make in its views, estimates,plans or outlook for the future.

 

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**Item 2****.  *Properties***

 

Our administrative offices and manufacturing facilities currentlyoccupy almost 500,000 square feet. Our shafts are manufactured at separatefacilities, a steel shaft facility located in Amory, Mississippi and compositegraphite shaft facilities located in El Cajon, California and Guangzhou, China.In addition, we have a multi-material shaft assembly facility located in OliveBranch, Mississippi. Our executive offices are located in a leased facility inMemphis, Tennessee. The following table sets forth certain informationregarding significant facilities operated by us as of December 31, 2003:

 
| **Facility**             |   | **Location**               |   | **Approx.  Sq. Ft.** |   | **Owned/  Leased** |   | **Lease  Expiration  Date** |
|--------------------------|--------|----------------------------|--------|----------------------|--------|--------------------|--------|-----------------------------|
| Corporate  Offices       |   | Memphis,  Tennessee        |   | 13,500               |   | Leased             |   | December 2005          |
| Steel  Shaft/Tubing Mfg. |   | Amory,  Mississippi        |   | 335,000              |   | Leased             |   | January 2063(1)        |
| Composite  Shaft Mfg.    |   | Guangzhou,  China          |   | 59,000               |   | Leased             |   | March 2008             |
| Composite  Shaft Mfg.    |   | El Cajon,  California      |   | 45,907               |   | Leased             |   | October 2008           |
| Building                 |   | Olive  Branch, Mississippi |   | 45,000               |   | Owned              |   | —                      |

 

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(1)                                  There are severalleases covering the original land as well as the building at our Amory,Mississippi facility. The leases are structured with interim renewal periods ofbetween 5 to 10 years, extending through January 2063. At the end ofeach of these renewal periods, we have the option to allow a lease to automaticallyrenew or to not renew the lease.

 

In addition, we promote our products in international markets throughsales and distribution offices in Australia, Japan and the United Kingdom, andwe also distribute our product in Southeast Asia from our distributionwarehouse in Hong Kong. To the extent that any such properties are leased, weexpect to be able to renew such leases or to lease comparable facilities onterms commercially acceptable to us.

 

**Item 3****.  *Legal Proceedings***

 

Various claims and legal proceedings, generally incidental to thenormal course of business, are pending or threatened against us. While wecannot predict the outcome of these matters, in the opinion of management, anyliability arising from these matters will not have a material adverse effect onour business, financial condition or results of operations.

 

**Item 4****.  *Submission of Matters to a Vote of Security Holders***

 

There were nomatters submitted to a vote of security holders during 2003.

 

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**PARTII**

 

**Item 5****.  *Market for Registrant’s Common Equity and RelatedStockholder Matters***

 

There is nopublic market for the Company’s equity securities. All of the Company’s capitalstock is owned by True Temper Corporation.

 

The Companydeclared and paid dividends quarterly on its shares of common stock duringfiscal 2003, 2002 and 2001 totaling $5.2 million, $27.1 million and $3.6million respectfully.

 

Our variousdebt instruments impose restrictions on the payment of dividends by means of covenants.The Company was in compliance with all debt covenants as of December 31,2003.

 

**Item 6****.  *Selected Financial Data***

 

Set forthbelow are our selected historical financial data for the five fiscal yearsended December 31, 2003. The historical financial data were derived fromour audited financial statements and the notes thereto (except ratio ofearnings to fixed charges data), for which the December 31, 2003, 2002,and 2001 financial statements are included herein.

 
|                                           |   | **Year Ended December 31,** |       |
|------------------------------------------------|--------|----------------------------------|------------|
|                                           |   | **2003**                         |       | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|                                           |   | **(Dollars in thousands)**       | ** ** |
| STATEMENT OF OPERATIONS DATA:                  |   |                             |       |   |   |   |   |   |   |   |   |
| Net sales                                      |   | $                                | 116,206    |   | $ | 107,401 |   | $ | 111,083 |   | $ | 110,636 |   | $ | 92,215 |   |
| Gross profit                                   |   | 46,736                           |       | 42,240 |   | 43,348 |   | 45,254 |   | 36,131 |   |
| Selling, general and administrative expenses   |   | 14,747                           |       | 13,578 |   | 14,963 |   | 16,899 |   | 15,156 |   |
| Amortization of goodwill (1)                   |   | —                           |       | — |   | 2,695 |   | 2,701 |   | 2,701 |   |
| Impairment charge on long lived assets (2)     |   | —                           |       | — |   | — |   | 1,053 |   | — |   |
| Business development and start-up costs (3)    |   | 869                              |       | 312 |   | — |   | — |   | — |   |
| Restructuring charges (4)                      |   | —                           |       | — |   | — |   | 7 |   | 622 |   |
| Loss on early extinguishment of long-term debt |   | —                           |       | 777 |   | — |   | — |   | — |   |
| Operating income                               |   | 31,120                           |       | 27,573 |   | 25,690 |   | 24,594 |   | 17,652 |   |
| Interest expense, net of interest Income       |   | 13,017                           |       | 12,236 |   | 12,660 |   | 13,693 |   | 14,341 |   |
| Income tax (benefit) expense (5)               |   | 7,113                            |       | 5,992 |   | (11,539 | ) | 5,218 |   | 2,318 |   |
| Net income                                     |   | $                                | 10,858     |   | $ | 9,252 |   | $ | 24,571 |   | $ | 5,627 |   | $ | 1,002 |   |
| BALANCE SHEET DATA (AT END OF PERIOD):         |   |                             |       |   |   |   |   |   |   |   |   |
| Working capital (6)                            |   | $                                | 15,372     |   | $ | 14,828 |   | $ | 14,748 |   | $ | 9,881 |   | $ | 11,200 |   |
| Total assets                                   |   | 179,616                          |       | 183,380 |   | 189,330 |   | 175,888 |   | 186,963 |   |
| Total debt (7)                                 |   | 113,730                          |       | 124,730 |   | 116,522 |   | 118,448 |   | 136,522 |   |
| Total stockholder’s equity                |   | $                                | 48,793     |   | $ | 43,068 |   | $ | 61,303 |   | $ | 40,320 |   | $ | 35,881 |   |
| OTHER FINANCIAL DATA:                          |   |                             |       |   |   |   |   |   |   |   |   |
| Cash from operating activities                 |   | $                                | 21,402     |   | $ | 19,903 |   | $ | 12,162 |   | $ | 20,607 |   | $ | 7,619 |   |
| Cash used in investing activities              |   | (3,460                           | )          | (1,164 | ) | (2,291 | ) | (3,543 | ) | (1,572 | ) |
| Cash used in financing activities              |   | (16,623                          | )          | (19,846 | ) | (5,862 | ) | (19,323 | ) | (1,885 | ) |
| Depreciation and amortization                  |   | 2,906                            |       | 3,252 |   | 6,208 |   | 6,236 |   | 6,205 |   |
| Capital expenditures                           |   | $                                | 3,460      |   | $ | 1,164 |   | $ | 2,001 |   | $ | 3,621 |   | $ | 1,620 |   |
| Ratio of earnings to fixed charges             |   | 2.3                              |       | 2.2 |   | 2.0 | x | 1.8 | x | 1.2 | x |

 

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(1)          Asof January 1, 2002 the Company adopted the provisions of SFASNo. 142, *Goodwill and Other Intangible Assets. *This statement requires Goodwill and intangible assetsacquired in a purchase business combination and determined to have anindefinite useful life not be amortized, but instead tested for impairment atleast annually in accordance with the provisions of SFAS No. 142.  In accordance with SFAS No. 142 the Companyceased amortizing goodwill as of January 1, 2002 and tested for impairmentfinding there was no impairment.  Priorto the adoption of SFAS No. 142, goodwill was amortized on a straight-linebasis over the expected periods to be benefited, generally between 20 and40 years. See Note 2(g) to the financial statements included elsewhere in thisannual report for further discussion.

 

(2)          Impairmentcharge on long-lived assets reflects the 2000 write-down of the roller hearthoven at the Company’s Amory, Mississippi manufacturing facility.

 

3)              Reflectstravel, consulting, legal services, personnel recruiting and other costsrelated to the China business development project.  For a more complete discussion of business development andstart-up costs see Note 2(j) to the financial statements included elsewhere inthis annual report.

 

(4)          Reflectsseverance and other costs related to the consolidation of manufacturing andadministrative facilities. Charges in 2000 and 1999 are directly related to theconsolidation of True Temper’s Olive Branch, Mississippi compositemanufacturing operations into the El Cajon, California facility.

 

(5)          The2001 income tax benefit reflects the elimination of the $17,600 valuationallowance. See footnote 9 to the financial statements included elsewhere inthis annual report for further discussion.

 

(6)          Workingcapital excludes cash and cash equivalents.

 

(7)          Totaldebt includes both the current and long-term portions of debt and capital leaseobligations.

 

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**Item 7****.  *Management’s Discussion and Analysis of FinancialCondition and Results of Operations***

 

*THE FOLLOWING DISCUSSION SHOULD BE READ INCONJUNCTION WITH THE MORE DETAILED INFORMATION IN THE AUDITED FINANCIALSTATEMENTS, INCLUDING THE RELATED NOTES, APPEARING ELSEWHERE IN THIS ANNUALREPORT ON FORM 10-K.*

 

**Company Overview**

 

We are a wholly owned subsidiary of True Temper Corporation and aleading designer, manufacturer and marketer both steel and composite graphitegolf shafts for original equipment manufacturers and distributors in the golfequipment industry. In addition, we produce and sell a variety of performancesports products that offer high strength and tight tolerance componentsproduced with steel alloys and composite carbon fiber graphite materials forthe bicycle, hockey and other recreational sports markets. In 2003, golf shaftnet sales represented 94% of total net sales, and performance sports net salesrepresented 6%.

 

**Year in Review - 2003**

 

2003 was a landmark year for us as we generated record sales andoperating income. These results were impressive in light of the recent softeconomic environment and in comparison to the results of many of ourcompetitors within the golf industry. For us, the events and milestones during2003 provided another illustration of how our focus on key business strategiesand new products yield improved operating results and opportunities for futuregrowth.

 

*Industry Overview & Golf EquipmentSales*

 

The most recent golf industry statistics provide some guidance in evaluatingthe industry overall. According to the National Golf Foundation and severalother sources, the estimated total number of golfers in the United Statesincreased between 2001 and 2002 and leveled off during 2003. Despite thisincrease, according to Golf Datatech, the number of rounds played in the UnitedStates declined 2.6% versus 2002. We believe, based on a recent National GolfFoundation survey, this decline in playing activity has been partially causedby the economic concerns of consumers during the last couple of years.

 

We believe that the decline in playing activity has been countered bysales growth rates in most golf club categories as reported by the leadingoriginal golf equipment manufacturers. According to industry data, unit salesfor drivers and fairway woods increased 4.5% in 2003, while the unit sales forirons, wedges and putters collectively increased 7.2% from 2002. Theseincreases are also consistent with the single digit sales growth rates for thesame golf club categories at the retail level.

 

In general we find that the golf industry is becoming more global innature and that certain major U.S. brands are gaining worldwide brandrecognition and consumer preference. We believe this trend has beenaccelerating in recent years and continues to drive industry consolidation. In2003, a number of the leading original golf equipment manufacturers acquiredreputable brand name competitors. We believe this consolidation will continueas the leading brands attempt to expand their line of product offerings andextend their brand presence around the world. We believe this trend is apositive indicator for us as a global market leader and as a partner with manyof these major industry participants.

 

*Company Highlights*

 

During 2003, we introduced several new products which generatedincremental sales growth in a number of our major product categories. *Grafalloy Blue* was launched in 2003 as anew breakthrough graphite shaft designed for today’s oversized metal woods.This product has been tremendously successful and players using this producthave already recorded victories on the PGA, Nationwide, Champions, and EuropeanTours. In addition our recently introduced *TX-90*brand of super light-weight steel shafts sold very well under the *True Temper* brand and

 

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as a co-branded stock product for programs with several of our toporiginal equipment manufacturer customers. The performance of these productsplus many others within our golf and performance sports segments helped us togenerate 35% of our 2003 net sales from products introduced during the last twoyears.

 

Our focus on new products was also evident in the growth of our netsales from our Performance Sports business. In 2003, our net sales from ourPerformance Sports business increased 39%, or $1.9 million to$6.5 million in 2003 from $4.6 million in 2002. This growth wasdriven by the market penetration for both our hockey stick products, andcomponent bicycle parts in the high end bicycle market, along with marketdemand for certain niche products in this segment.

 

Finally, in 2003, we celebrated the grand opening of our new compositegraphite production facility in southern China where we commenced productionoperations during the fourth quarter. We believe this production facility inChina, along with our distribution warehouse in Hong Kong, will enable us tosupport our global customer base with a logistical product supply and allow usto expand our product offering to meet customer needs in markets around theworld.

 

**Outlook for 2004**

 

In 2004, we plan to expand and enhance our position within the golfmarket and grow our presence in the performance sports markets for hockeysticks and quality composite high end bicycle components.

 

In keeping with this plan we have recently developed and launchedseveral new products for 2004, including:

 

•                                          *Grafalloy ProLaunch,* a graphite shaftdesigned with today’s high performance heads and low-spin balls to help playersachieve optimal launch conditions to reduce ball spin and maximize distance;

 

•                                          *TX Tour*, a tour version of *TX-90* which offers a *Superlite* steel iron shaft with playingcharacteristics targeted towards the low handicap golfer;

 

•                                          *Crossfire*, an ultra light alloy shaftwhich was developed specifically for hybrid clubs and fairway woods;

 

•                                          Anew series of composite bicycle handlebars for road and mountain bikes underthe Alpha*Q* brand name; and

 

•                                          Acomposite bicycle seat post co-branded with the *Alpha Q* and *ProLite*brand names.

 

Even though participation rates for rounds of golf played havesustained an overall decrease in recent years, we believe that the positiveincreases in the last three months of calendar 2003 compared to the same periodin 2002 provides some grounds for optimism that participation rates have begunto rebound. We also believe that if the economic environment improves andunemployment rates decline this should help to fuel sales growth in many of thesporting goods categories in which we participate.

 

Although we expect that these macro trends will favorably benefit ourbusiness, such outcomes are subject to uncertainties and factors relating toour operations and business environment, all of which are difficult to predictand many of which are beyond our control. For instance, a recent trend towardshorter lead times in our customers’ ordering patterns has reduced our abilityto predict future sales. Although we believe that our expectations arereasonable, we do not know whether our expectations will prove correct. Ouractual future results may vary materially as a result of various risks anduncertainties, including but not limited to, a reduction in discretionaryconsumer spending, risks relating to our international expansion, including ourunfamiliarity with foreign laws and regulations and generally unfavorablepolitical conditions in the international markets in which

 

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we seek to expand and a general downturn in the economy. See Item 1“Risks Associated with Forward Looking Statements.”

 

**Results of Operations**

 

The followingtable sets forth the components of net income as a percentage of net sales forthe periods indicated:

 
|                                         |   | **For the Years Ended  December 31,** |       |
|----------------------------------------------|--------|--------------------------------------------|------------|
|                                         |   | **2003**                                   |       | **2002** | ** ** | **2001** | ** ** |
| Net sales                                    |   | 100.0                                      | %          | 100.0 | % | 100.0 | % |
| Cost of sales                                |   | 59.8                                       |       | 60.7 |   | 61.0 |   |
| Gross profit                                 |   | 40.2                                       |       | 39.3 |   | 39.0 |   |
| Selling, general and administrative expenses |   | 12.7                                       |       | 12.6 |   | 13.5 |   |
| Amortization of goodwill                     |   | —                                     | ** ** | **—** |   | 2.4 |   |
| Business development and start-up costs      |   | 0.7                                        | ** ** | **0.3** |   | — |   |
| Loss on early extinguishment of debt         |   | —                                     |       | 0.7 |   | — |   |
| Operating income                             |   | 26.8                                       |       | 25.7 |   | 23.1 |   |
| Interest expenses, net of interest income    |   | 11.2                                       |       | 11.4 |   | 11.4 |   |
| Other expenses, net                          |   | 0.1                                        |       | 0.1 |   | 0.0 |   |
| Earnings before income taxes                 |   | 15.5                                       |       | 14.2 |   | 11.7 |   |
| Income taxes (benefit) expense               |   | 6.1                                        |       | 5.6 |   | (10.4 | ) |
| Net income                                   |   | 9.3                                        | %          | 8.6 | % | 22.1 | % |

 

**Year EndedDecember 31, 2003 Compared to the Year Ended December 31, 2002**

 

***Net sales***for 2003 increased $8.8 million, or 8.2%, to $116.2 million from$107.4 million in 2002. Net sales of golf shafts increased by$7.0 million to $109.8 million in 2003 from $102.8 million in2002. The consolidated change in golf shaft sales was generated by thefollowing drivers in each of our three major product categories:

 

•                                          Salesfor premium grade steel golf shafts increased as more original golf equipmentmanufacturers introduced light-weight steel shafts as the stock component shaftin their new product launches. The light-weight steel products have receivedfavorable acceptance from the marketplace as they combine the lighter weightbenefits of graphite shafts with the consistent performance of steel material.In addition, we believe we have gained market share in the premium steelcategory as one of our competitors struggled to satisfy their customer deliveryand quality requirements;

 

•                                          In2003, we introduced a new line of graphite shafts known as *Grafalloy Blue*. This shaft is anultra-light graphite shaft designed specifically for today’s oversized driversand incorporates a patent pending micro-mesh tip technology to deliver theoptimum combination of tip stability and energy transfer for the big heads ondrivers sold by many of the major original golf equipment manufacturers. Theproduct performed well and was used by several winners on the professional tours,helping to grow our graphite golf shaft sales by double digit rates between2002 and 2003; and

 

•                                          Therevenue gains in both the premium steel and graphite shaft categories weresomewhat offset by a decline in the sales of commercial grade steel shafts.Commercial grade steel shafts are used in the assembly of opening price pointgolf club sets that are distributed through mass channel retail stores. Theseproducts are sold to entry-level players or lower income consumers who webelieve were particularly affected by the recent sluggish economy.

 

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Performance sports net sales increased by $1.9 million to$6.5 million in 2003 from $4.6 million in 2002. This growth wasdriven by the market penetration for both our hockey stick products andcomponent bicycle parts in the high end bicycle market. In addition, marketdemand drove increased net sales for certain niche products within thiscategory.

 

Net sales to our international customers increased $6.4 million,or 21.0%, to $36.6 million in 2003 from $30.3 million in 2002. Duringthe last several years, many North American original equipment manufacturershave elected to outsource their golf club assembly to third party producers inChina. This trend continued in 2003 as our exports into China increasedsignificantly to support the migration of club assembly into the region. Inaddition, net sales from our international operations benefited from animprovement in foreign currency exchange rates between years, and from improvedunit sales volumes in the United Kingdom as we shared in the improved marketpenetration of our existing original golf equipment manufacturing customers.

 

***Gross Profit***for the year increased $4.5 million, or 10.6%, to $46.7 million in2003 from $42.2 million in 2002. Gross profit as a percentage of net salesincreased to 40.2% from 39.3% the prior year. The increase in gross profitmargin was generated by several positive factors, including:

 

•                                         Animproved sales mix towards higher margin products such as light-weight steeland *Grafalloy Blue*;

 

•                                         Thefavorable impact of foreign currency exchange rates in the United Kingdom,Japan and Australia; and

 

•              Favorableleverage on fixed manufacturing costs from increased sales volumes andproductivity improvements on maturing new products.

 

These positive contributors to marginenhancement were somewhat offset by:

 

•              Increasedcosts for natural gas;

 

•              Increasedcosts for employee healthcare benefits, and

 

•              Theimpact of a $683,000 ratification bonus paid to the hourly employeesrepresented by the United Steelworkers of America relating to a new four yearcollective bargaining agreement effective July 1, 2003 and expiring onJune 30, 2007.

 

Excluding the cost of the union ratification bonus, gross profit for2003 would have increased by $5.2 million, or 12.3%, from 2002, and grossprofit as a percentage of net sales would have increased to 40.8% from 39.3%.

 

***Selling, General andAdministrative Expenses*** for the year increasedapproximately $1.2 million, or 8.6%, to $14.7 million in 2003 from$13.6 million in 2002. As a percentage of net sales, selling, general andadministrative expenses increased to 12.7% in 2002 from 12.6% the prior year.Selling, general and administrative spending increased between years to fundadditional personnel costs for sales and marketing efforts and to recordincreased performance based management programs.

 

***Business Developmentand Start-Up Costs*** in 2003 were $0.9 million.This amount is comprised of travel, professional and legal fees, personnelrecruiting and compensation, facility rent, shipping and installation ofequipment, and other start up business costs relating to opening a compositemanufacturing operation in southern China, which are expensed as incurred.These costs increased compared to the prior year as we hired local personnel,initiated rental payments, and began incurring costs incidental to initialtraining and operations.

 

***Operating Income***in 2003 increased by $3.5 million, or 12.9%, to $31.1 million from $27.6 millionin 2002. Effective January 1, 2002 we adopted Statement 145, *Rescission of FASB Statements Nos. 4 and 64,*

 

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*Amendment of FASB Statement No. 13, andTechnical Corrections*, and as such its loss on theearly extinguishment of debt in 2002 was recorded as a component of operatingincome. In 2002, we refinanced our existing 1998 bank credit facility with anew loan agreement, the 2002 bank credit facility. As a result we wrote off theremaining unamortized deferred financing costs associated with the 1998 bankcredit facility. We did not extinguish debt in 2003. Excluding the effects ofthe union ratification bonus in 2003, the loss on early extinguishment of debtin 2002 and business development and start-up costs in both 2003 and 2002,operating income for 2003 would have increased by $4.0 million, or 14.0%from 2002 and operating income as a percentage of net sales would haveincreased to 28.1% from 26.7%. The remainder of the change in operating incomereflects the changes described above in sales, gross profit and selling,general and administrative expenses.

 

***Interest Expense***for the year increased by $0.8 million, to $13.0 million in 2003 from$12.2 million in 2002. The increase was generated from a higher averageoutstanding balance of our term bank debt between periods partially offset bythe lower weighted average interest rates on our variable rate debt betweenyears. At the end of 2002, we restructured our consolidated debt for both usand our parent company, True Temper Corporation, by entering a the 2002 bankcredit facility loan agreement for us and using the proceeds to issue dividendsto True Temper Corporation, which True Temper Corporation then used to retireprincipal amounts on True Temper Corporation’s outstanding senior discountnotes.

 

***Income Tax***expense increased by $1.1 million, to $7.1 million in 2003 from$6.0 million in 2002. 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***for the year 2003 increased to $10.9 million from $9.3 million in2002, and reflects the impact of the changes described above.

 

**Year Ended December 31, 2002 Compared tothe Year Ended December 31, 2001**

 

***Net sales***for 2002 decreased $3.7 million, or 3.3%, to $107.4 million from$111.1 million in 2001. Net sales of golf shafts decreased by$3.6 million to $102.8 million in 2002 from $106.3 million in2001. This decrease was driven primarily by reduced sales of our multi-materialgolf shaft product line, which was introduced during the first quarter of 2001.The sales generated during 2001 were magnified by the initial sales to originalgolf equipment manufacturers and distributors to fill the supply chain, as wellas the industry-wide interest generated by the nature of this new productoffering. However, in 2002 demand for the multi-material shafts declined asoriginal golf equipment manufacturers and distributors focused on lighter-weight100% graphite shafts to accommodate the heavier and bigger golf club headscoming to market. The decline in sales of multi-material golf shafts and othershafts was partially offset by the increase in our sales of premium grade steelshafts which have strengthened with the introduction of our new lighter weightsteel products and the year over year industry wide increase in unit sales forboth putters and wedges.

 

Performance sports net sales decreased slightly to $4.6 million in2002 from $4.8 million in 2001. This decrease reflects our decision toexit certain lower margin steel tubing markets and was partially offset byincreased sales of bicycle and hockey products.

 

Net sales to our international customers increased approximately$6.8 million, or 29.1%, to $30.3 million in 2002 from$23.4 million in 2001. This increase was driven primarily by increasedunit sales volume in premium grade steel shafts which have strengthened withthe introduction of new lighter weight steel products. In addition, exportsales have grown with the continued shift of golf club assembly operations toSoutheast Asia. Lastly, we recognized approximately $0.4 million in highersales from favorable changes to foreign currency exchange rates over the courseof 2002.

 

***Gross Profit***for the year decreased approximately $1.1 million, or 2.6%, to$42.2 million in 2002 from $43.4 million in 2001. Gross profit as apercentage of net sales increased to 39.3% from 39.0% the prior year. Thisslight increase in gross profit as a percentage of net sales was driven byseveral factors, including a favorable shift in the mix of sales to highermargin products, the positive impact from changes in foreign currency exchangerates

 

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between the US dollar and other currencies and decreases in the cost ofnatural gas. These favorable factors were somewhat offset by increased costsfor employee medical benefits, pension expense, inventory valuation adjustmentsand other inflation factors.

 

***Selling, General andAdministrative Expenses*** for the year decreased$1.4 million, or 9.3%, to $13.6 million in 2002 from$15.0 million in 2001. As a percentage of net sales, selling, general andadministrative decreased to 12.6% in 2002 from 13.5% the prior year. Thisdecrease was driven primarily by a $1.5 million decrease in promotionaladvertising expenses. In 2001, we incurred significant advertising andpromotional expenses to promote our new *BiMatrx*products. This promotion effort included a national television advertisingprogram. As we entered 2002, recognizing the challenging economic environment,we decided to reduce our promotional spending for the year.

 

***Business Developmentand Start-Up Costs*** in 2002 were $0.3 million.This amount is comprised of travel, consulting, legal, personnel recruiting andother start up business costs relating to opening a composite manufacturingoperation in southern China.

 

***Loss on EarlyExtinguishment of Long-Term Debt*** was$0.8 million. We elected to adopt Statement 145, *Rescission of FASB Statements Nos. 4 and 64,Amendment of FASB Statement No. 13, and Technical Corrections,*as of January 1, 2002, and as such its loss on the early extinguishment ofdebt in 2002 was recorded as a component of operating income. In the fourthquarter of 2002, we refinanced our existing bank credit facility with a newterm loan agreement. As a result we wrote off the remaining unamortizeddeferred financing costs associated with our 1998 bank credit facility. We didnot extinguish debt in 2001 or 2000.

 

***Operating Income***in 2002 increased by $1.9 million, or 7.3%, to $27.6 million from$25.7 million in 2001. Operating income as a percentage of net salesincreased to 25.7% in 2002 from 23.1% in 2001. Effective January 1, 2002,we adopted FASB No. 142, *Goodwill andOther Intangible Assets,* which requires us, among other things, todiscontinue the amortization of our goodwill. In 2001, goodwill amortizationwas $2.7 million. Excluding the effects of goodwill amortization in 2001,the loss on early extinguishment of debt and business development and start-upcosts in 2002, operating income for 2002 would have increased by$0.3 million, or 1.0% from 2001 and operating income as a percentage ofnet sales would have increased to 26.7% from 25.6%. The remainder of the changein operating income reflects the changes described above in sales, gross profitand selling, general and administrative expenses.

 

***Interest Expense***for the year decreased by approximately $0.4 million, to$12.2 million in 2002 from $12.7 million in 2001. The decrease wasgenerated from the decline in the average outstanding balance of our term bankdebt between periods and the lower weighted average interest rates on ourvariable rate debt between years.

 

***Income Tax***expense changed by $17.5 million, to a $6.0 million expense in 2002from an $11.5 million benefit in 2001. In 2001, we determined it was morelikely than not we would realize the tax benefit of its deferred tax assets andeliminated its $17.6 million valuation allowance recorded against itsdeferred tax assets. 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, and in 2001 the pre-tax income added backfor the non-deductible portion of goodwill amortization and the elimination ofthe valuation allowance on deferred tax assets.

 

***Net Income***for the year 2002 decreased to $9.3 million from $24.6 million in2001, and reflects the impact of the changes described above.

 

The following table shows cash flow activity by source.  Discussion of cash flow activity is noted inthe Liquidity and Capital Resources section below.

 
|                                      |   | **2003** |   | **2002** |   |
|-------------------------------------------|--------|----------|--------|----------|--------|
| Net cash provided by operating activities |   | $        | 21,402 |     | $      | 19,903 |   |
| Net cash used in investing activities     |   | (3,460   | )      | (1,164   | )      |
| Net cash used in financing activities     |   | (16,623  | )      | (19,846  | )      |
|                                           |        |          |        |          |        |  |  |

 

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**Liquidity & Capital Resources**

 

**General**

 

At the beginning of 2002 we had a senior bank credit facility (“1998bank credit facility”) which included a $20.0 million non-amortizingrevolving credit facility with funds available on a revolving basis throughSeptember 30, 2004, a $10.0 million term A loan due in 2004 and a$27.5 million term B loan due in 2005.

 

In the fourth quarter of 2002, we refinanced our existing 1998 bankcredit facility and obtained a new senior bank credit facility (“2002 bankcredit facility”). On December 31, 2002 we entered into the 2002 bankcredit facility which includes a $15.0 million non-amortizing revolvingcredit facility, and a $25.0 million term loan. Amounts under therevolving terms of the 2002 bank credit facility are available on a revolvingbasis through December 31, 2007. The term loan requires quarterly cash interestand principal payments which began in March 2003 and continue throughDecember 2007 as more fully outlined in note 8 to our consolidatedfinancial statements located elsewhere in this Form 10-K.

 

We used the proceeds from this loan to pay a dividend to True TemperCorporation to enable True Temper Corporation to repay a portion of theoutstanding principal on its senior discount notes which carry a 13.25%Pay-In-Kind interest rate or a 12.25% cash interest rate. In 2002, we paid TrueTemper Corporation a total dividend of $27.1 million. True TemperCorporation used the proceeds of this dividend to make the following paymentsrelated to its senior discount notes: paid $3.6 million for cash paymentfor interest, repaid $22.4 million against the accreted principal balancedue, and paid $1.1 million as an early redemption call premium.

 

In addition, as of December 31, 2003, we had $99.7 million in107/8% Senior Subordinated Notes Due 2008 (the “existing notes”)outstanding. The existing notes require cash interest payments each June 1and December 1. The cash interest payments began on June 1, 1999. Theexisting notes are redeemable at our option, under certain circumstances and atcertain redemption prices, beginning on December 1, 2003.

 

Both the 2002 bank credit facility and the existing notes containcovenants and events of default, including substantial restrictions andprovisions which, among other things, limit our ability to incur additionalindebtedness, make acquisitions and capital expenditures, sell assets, createliens or other encumbrances, make certain payments and dividends, or merge orconsolidate. The 2002 bank credit facility also requires us to maintain certainspecified financial ratios and tests, including minimum EBITDA levels, minimum interestcoverage and fixed charge coverage ratios and maximum leverage ratios. AtDecember 31, 2003 we were in compliance with all of the covenants in boththe 2002 bank credit facility and the existing notes. Furthermore, the 2002bank credit facility requires certain mandatory prepayments including paymentsfrom the net proceeds of certain asset sales and a portion of our excess cashflow.

 

In connection with the Acquisition and Related Transactions asdescribed below under “Subsequent Events,” we plan to redeem the outstandingexisting notes, repay the outstanding principal balance on our 2002 bank creditfacility, repay the outstanding principal balance on the True TemperCorporation senior discount notes, pay any call or redemption premiums on theseinstruments, and pay for any accrued interest expenses through the date onwhich these debt obligations are redeemed and paid in full. The repayment ofthese debt obligations will occur on the date when the Acquisition and RelatedTransactions close and will be funded with the proceeds of the issuance of newnotes and borrowings under new senior credit facilities.  See footnote 8 “Borrowings” to the financialstatements.

 

*Discussion of Cash Flows for Years EndedDecember 31, 2003 and 2002*

 

Cash provided by operating activities increased by $1.5 million to$21.4 million in 2003 from $19.9 million in 2002. This growth wasgenerated by a $1.6 million increase in our net income, which waspartially offset by a slight increase in working capital requirements.

 

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We used $3.5 million to invest in property, plant and equipment in2003 compared to the $1.2 million we spent in 2002. The capitalexpenditures in 2003 included approximately $800,000 in leasehold improvementsand supplemental equipment purchases for our new composite graphitemanufacturing facility in China.

 

In 2003, we repaid $11.0 million of principal on our 2002 bankcredit facility. In 2002, we repaid the remaining $16.5 million principalbalance of our 1998 bank credit facility. Effective December 31, 2002, werefinanced our 1998 bank credit facility as more fully described in note 8 toour consolidated financial statements located elsewhere in this annual report.Under the terms of our 2002 bank credit facility, we are required to pay$4.5 million in scheduled principal payments during 2004.

 

In 2003, we declared and made four quarterly dividends to our parentcompany, True Temper Corporation, totaling $5.2 million. These funds wereused by our parent company to make quarterly interest payments on its seniordiscount notes, and to voluntarily repay a portion of the principal totaling$4.0 million. In 2002, we declared and paid dividends to our parentcompany of $27.1 million to make quarterly interest payments on its seniordiscount notes and to voluntarily repay a portion of the outstanding principal.

 

In addition, in the first quarter of 2002, we repurchased$0.3 million of our existing notes in an open market repurchase program.

 

*Discussion of Cash Flows for Year EndedDecember 31, 2001*

 

Cash provided by operating activities decreased to $12.2 millionin 2001 from $20.6 million the prior year. This decline was driven by a$7.5 million increase in cash required for working capital needs, mostlyresulting from a $3.5 million increase in the year end trade accountsreceivable balance between 2000 and 2001, plus a $5.7 million decrease inaccounts payable and other liabilities between 2000 and 2001.

 

We used $2.3 million in 2001 for investing activities, of which$2.0 million was used for the purchase of property plant and equipment and$0.3 million was used to purchase the production assets and intellectualproperty rights from Advanced Materials Engineering (“AME”). AME is a designerand manufacturer of composite carbon bicycle forks for use in high-end roadbicycles under the *Alpha Q* brandname.

 

In 2001, werepaid $1.9 million of the principal on our 1998 bank credit facility.

 

The followingtable reflects the Company’s contractual cash obligations for long-term debtand capital and operating leases as of December 31, 2003.

 
|                     |   | **Total** |   | **2004** |   | **2005  through  2006** |   | **2007  through  2008** |   | **Thereafter** |   |
|--------------------------|--------|-----------|--------|----------|--------|-------------------------|--------|-------------------------|--------|----------------|--------|
| Long-Term Debt(1)        |   | $         | 113.7  |     | $      | 4.5                     |   | $                       | 9.5    |           | $      | 99.7 |   | $ | — |   |
| Operating Leases         |   | 3.8       |   | 1.0      |   | 1.7                     |   | 1.1                     |   | —         |   |
| Purchase Commitments (2) |   | $         | 0.7    |     | $      | 0.7                     |   | —                  |   | —         |   | — |   |
| Total(3)                 |   | $         | 118.2  |     | $      | 6.2                     |   | $                       | 11.2   |           | $      | 100.8 |   | $ | — |   |

 

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(1)                                  Our long-term debtagreements contain customary change of control provisions that could, undercertain circumstances, cause accelerated debt repayment.

 

(2)                                  Amount represents thepurchase commitments of natural gas and nickel used in the manufacture of steelgolf shafts at our Amory, Mississippi facility.

 

(3)                                  This table does notinclude our future obligations related to our funding of our pension benefits.

 

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In addition to the debt service obligations for principal and interestpayments, our liquidity needs largely relate to working capital requirementsand capital expenditures for machinery and equipment. We intend to fund ourcurrent and long term working capital, capital expenditure and debt servicerequirements through cash flow generated from operations. However, since therecan be no assurance of future performance, as of December 31, 2003 we havethe $15.0 million revolving credit facility available for future cashrequirements. The maximum amount we may use of the $15.0 million revolvingcredit facility is limited by the financial covenants contained within the 2002bank credit facility. See note 8 to our consolidated financial statementslocated elsewhere in this annual report for further discussion of the 2002 bankcredit facility issued on December 31, 2002.

 

In addition to the contractual cash obligations noted in the tableabove, we also have a management services agreement with the principle commonstock holder in our parent company, which requires the payment of an annualadvisory fee 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 thatwe will be able to obtain the necessary capital under acceptable terms, fromcreditors or other sources that will be sufficient to execute any such businessinvestment or capital expenditure.

 

*Subsequent Events-Purchase Agreement for TrueTemper Corporation*

 

On January 30, 2004, TTS Holdings LLC, a new company formed byGilbert Global, entered into a stock purchase agreement with our direct parentcompany, True Temper Corporation, and certain of its securityholders, pursuantto which TTS Holdings LLC and certain members of our senior management agreedto purchase all of the outstanding shares of capital stock of True TemperCorporation. In connection with this acquisition of True Temper Corporation, weintend to repay our 2002 bank credit facility and redeem our existing notes.The acquisition, the repayment of our 2002 bank credit facility and theredemption of our existing notes will be financed with the net proceeds of newSenior Subordinated Notes, initial borrowings under our new senior creditfacilities and an equity contribution by Gilbert Global and members of oursenior management to TTS Holdings LLC.

 

If the Acquisition and Related Transactions are consummated, we expectthat:

 

•                                          ournew senior credit facilities will include (i) a $20.0 millionrevolving credit capacity with similar features to the $15.0 millionrevolving credit facility under our 2002 bank credit facility and (ii) a$110.0 million term loan facility with similar features to the$25.0 million term loan facility under our 2002 bank credit facility; and

 

•                                          the$125.0 million of new senior subordinated notes to be issued will havesimilar features to our existing notes.

 

The proceeds from the offering of the new notes and borrowings underthe new senior credit facilities will be used to redeem the outstandingexisting notes, including accrued and unpaid interest and redemption premium.We expect that a portion of the remaining proceeds will be used to paytransaction fees and expenses and to purchase a portion of the shares ofpreferred and/or common stock held by existing owners of True TemperCorporation.

 

If the acquisition of True Temper Corporation is completed and wecreate a new debt structure similar to that described above, we plan to use ourexisting cash and cash provided from future operations, if any, as allowedwithin the covenants of our new debt obligations to:

 

•                                          Repaythe principal on any term bank debt; and/or

 

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•                                          Tomake additional investments in the business for growth, which may include,among other things, capital expenditures, business acquisitions, and/orexpenditures for business development and expansion in China.

 

Subsequent to the closing of the Acquisition and Related Transactionswe expect that we will pay a management fee to the new principle common stockholderas compensation for management services that the new owner provides. We expectthat the terms and condition of this agreement will be similar to our currentmanagement services agreement.

 

**Seasonality**

 

In general, the component supplier sales to golf equipment companiesand distributors are seasonal, and tend to precede the warm weather golfseason. However, there are exceptions, especially for those suppliers that sellto the high volume opening price point golf club manufacturers who sell their productthrough mass channel retail stores and generate strong volumes during theholiday gift-giving season. Our business does experience some seasonalfluctuations, based on a five year average, approximately 55% of our netsales are generated in the first half of the year, and the remaining 45% of ournet sales are generated in the second half.

 

**Inflation**

 

As a general rule we do not believe inflation has had a material impacton our historical results of operations, as we experience inflation trends thatare consistent with the national averages and probably similar to otherdomestic manufacturers.

 

Nonetheless, as noted in our earlier disclosure regarding the changesin gross profit between 2002 and 2003, we experienced an increase in the costof natural gas we use for our steel plant operations in Amory, Mississippi in2003, when the average cost of natural gas delivered to our Amory plantincreased by 34% compared to the average price we paid for delivered gas in2002. Based upon current market prices and purchases of natural gas contractsfor 2003, we expect natural gas costs to increase again during 2004.

 

In addition, during 2003, we recognized an increase in insurancepremiums for our employee health benefits coverage. The health insurancepremiums for one of our plans, covering a majority of our employees, increasedconsistent with the overall national average or healthcare coverage. We expectthat our increases in health benefit costs will again equal the nationalaverage in 2004.

 

**Deferred Tax Assets**

 

In conjunction with the leveraged recapitalization and the issuance ofour existing notes in 1998, we recognized an increase in our deferred taxassets, since the recapitalization was treated as a taxable businesscombination for federal and state income tax purposes. This resulted in astep-up in our tax basis. This step-up in tax basis provided approximately$185.6 million in future tax deductions and a reduction of approximately$52.9 million in future tax payments over the 15 year periodbeginning with 1998, net of a valuation reserve of approximately$17.6 million that was established in 1998 when the recapitalizationoccurred. We elected to make a Section 338(h)(10) election under theInternal Revenue Code resulting in an anticipated annualized cash tax benefitof approximately $4.7 million, if fully utilized.

 

In the fourth quarter of 2001, after considering the our historicalfinancial performance for the preceding three years, and other availableevidence, we determined that it was more likely than not that we would realizethe tax benefit of all of our deferred tax assets. As a result, our valuationallowance on our deferred tax assets was eliminated with the change in thevaluation allowance recorded as a deferred tax benefit.

 

See note 9 to our consolidated financial statements, included elsewherein this Form 10-K, for a more complete discussion of our deferred tax asset.

 

29

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**Critical Accounting Policies and Estimates**

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America (“GAAP”) requiresthe appropriate application of certain accounting policies, many of whichrequire our management to make estimates and assumptions about future eventsand their impact on amounts reported in the financial statements andaccompanying notes. Since future events and their impact cannot be determinedwith absolute certainty, the actual results will inevitably differ from ourmanagement’s estimates. Such differences may be material to the financialstatements.

 

We believe that our application of accounting policies, and theestimates inherently required therein, are reasonable under the circumstances.These accounting policies and estimates are constantly reevaluated, andadjustments are made when facts and circumstances dictate a change.Historically, we have found our application of accounting policies to beappropriate, and actual results have not differed materially from thosedetermined using necessary estimates.

 

Our accounting policies are more fully described in note 2 to ourconsolidated financial statements located elsewhere in this annual report. Wehave identified certain critical accounting policies which are described below.

 

***Revenue Recognition.***  We derive substantially all of our revenuefrom the sales of golf shafts and performance sports products. Revenue isrecognized when all of the following conditions exist: (i) persuasiveevidence of an arrangement exists, (ii) delivery has occurred,(iii) the revenue amount is determinable and (iv) collection isreasonably assured. Liabilities are established for estimated returns,allowances, and discounts at the time revenue is recognized.

 

***Impairment ofLong-Lived Assets, Including Goodwill.***  We account for long-lived assets inaccordance with the provisions of Statement No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* (Statement 144) and evaluates our goodwill forimpairment under Statement No. 142, *Goodwilland Other Intangible Assets* (Statement 142). We evaluate ourgoodwill for impairment on an annual basis. We periodically evaluates ourlong-lived assets, including goodwill, for indicators that would suggest thatthe carrying amount of the assets may not be recoverable. The judgmentsregarding the existence of such indicators are based on factors such asoperating performance, market conditions, and legal factors. The valuation ofour long-lived assets, including goodwill requires us to use our judgment inevaluating these indicators.

 

In accordance with SFAS No. 144, long-lived assets, such asproperty, plant, and equipment, and purchased intangibles subject toamortization, are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to estimated undiscounted futurecash flows expected to be generated by the asset. If the carrying amount of anasset exceeds its estimated future cash flows, an impairment charge isrecognized by the amount by which the carrying amount of the asset exceeds thefair value of the asset. Assets to be disposed of would be separately presentedin the balance sheet and reported at the lower of the carrying amount or fairvalue less costs to sell, and are no longer depreciated. The assets andliabilities of a disposed group classified as held for sale would be presentedseparately in the appropriate asset and liability sections of the balancesheet.

 

Goodwill and intangible assets not subject to amortization are testedannually for impairment, and are tested for impairment more frequently ifevents and circumstances indicate that the asset might be impaired. Animpairment loss is recognized to the extent that the carrying amount exceedsthe asset’s fair value.

 

***Valuation forDeferred Income Taxes.***  Our financial statements include an estimate of income taxesassessed in each legal jurisdiction in which we operate. These income taxesinclude both a current payable amount, as well as a deferred portion whichresults from a variety of temporary book versus tax treatment differences.These differences result in deferred tax assets and liabilities, which are includedin our balance sheet. Once established,

 

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any deferred tax asset must be evaluated to determine the likelihoodthat we will generate sufficient future taxable income to utilize the fullamount. When facts and circumstances warrant, we establish, increase or reducevaluation allowances associated with deferred tax assets in order to reflectwhich assets meet the more likely than not realizability test.

 

**Impact of Recently Issued AccountingStandards**

 

In June 2001, FASB issued SFAS No. 143, *Accounting for Asset Retirement Obligations.*SFAS No. 143 requires us to record the fair value of an asset retirementobligation as a liability in the period in which we incur a legal obligationassociated with the retirement of tangible long-lived assets that result fromthe acquisition, construction, development, and/or normal use of the assets. Wealso record a corresponding asset that is depreciated over the life of theasset. Subsequent to the initial measurement of the asset retirementobligation, the obligation will be adjusted at the end of each period toreflect the passage of time and changes in the estimated future cash flowsunderlying the obligation. We are required to adopt SFAS No. 143 onJanuary 1, 2003. The adoption of SFAS No. 143 did not have a materialeffect on our financial statements.

 

In April 2002, the FASB issued Statement No. 145, *Rescission of FASB Statements Nos. 4 and 64,Amendment of FASB Statement No. 13, and Technical Corrections,*which will affect income statement classification of gains and losses fromextinguishment of debt. Statement 145 considers extinguishment of debt a riskmanagement strategy by the reporting entity and the FASB does not believe itshould be considered extraordinary under the criteria in APB OpinionNo. 30, *Reporting the Results of OperationsCReportingthe Effects of Disposal of a Segment of a Business, and Extraordinary, Unusualand Infrequently Occurring Events and Transactions* (APB 30), unlessthe debt extinguishment meets the unusual in nature and infrequency ofoccurrence criteria in APB 30. Statement 145 is effective for fiscal yearsbeginning after May 15, 2002 with early adoption encouraged. We elected toadopt Statement 145 as of January 1, 2002, and as such our loss on theearly extinguishment of debt in 2002 was recorded as a component of operatingincome. We did not extinguish debt in 2001.

 

In July 2002, the FASB issued SFAS No. 146, *Accounting for Costs Associated with Exit or DisposalActivities*. SFAS No. 146 requires all companies to recognizecosts associated with exit or disposal activities when they are incurred ratherthan at the date of a commitment to an exit or disposal plan. SFAS No. 146is to be applied prospectively to exit or disposal activities afterDecember 31, 2002.  The adoption ofSFAS No. 146 did not have a material effect on our financial statements.

 

In November 2002, the FASB issued Interpretation No. 45, *Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Indirect Guarantees of Indebtedness to Others*,*an interpretation of FASB StatementsNo. 5, 57 and 107 and a rescission of FASB Interpretation No. 34*.This Interpretation elaborates on the disclosures to be made by a guarantor inits interim and annual financial statements about its obligations underguarantees issued. This Interpretation also clarifies that a guarantor isrequired to recognize, at inception of a guarantee, a liability for the fairvalue of the obligation undertaken. The initial recognition and measurementprovisions of the Interpretation are applicable to guarantees issued ormodified after December 31, 2002 and did not have a material effect on ourfinancial statements. The disclosure requirements were effective for financialstatements of interim and annual periods ending after December 15, 2002.

 

In December 2002, the FASB issued SFAS No. 148, *Accounting for Stock-Based CompensationCTransitionand Disclosure, an amendment of FASB Statement No. 123*. ThisStatement amends FASB Statement No. 123, *Accountingfor Stock-Based Compensation,* to provide alternative methods oftransition for a voluntary change to the fair value method of accounting forstock-based employee compensation. In addition, this Statement amends thedisclosure requirements of Statement No. 123 to require prominentdisclosures in both annual and interim financial statements. We currently donot have a stock option plan consequently Statement No. 148 does notapply.

 

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In December 2003, the FASB issued FASB Interpretation No. 46(revised December 2003), *Consolidationof Variable Interest Entities*, which addresses how a businessenterprise should evaluate whether it has a controlling financial interest inan entity through means other than voting rights and accordingly shouldconsolidate the entity. FIN 46R replaces FASB Interpretation No. 46, *Consolidation of Variable Interest Entities*,which was issued in January 2003. The Company will be required to applyFIN 46R to variable interests in VIEs created after December 31, 2003. Forvariable interests in VIEs created before January 1, 2004, theInterpretation will be applied beginning on January 1, 2005. The adoptionof FIN 46R is not expected to have a material effect on our consolidatedfinancial condition or results of operations taken as a whole.

 

In April 2003, the FASB issued Statement No. 149, *Amendment of Statement No. 133, Accounting forDerivative Instruments and Hedging Activities* (“Statement 149”).Statement 149 amends and clarifies financial accounting and reporting forderivative instruments, including certain derivative instruments embedded inother contracts (collectively referred to as derivatives) and for hedgingactivities under FASB Statement No. 133, *Accountingfor Derivative Instruments and Hedging Activities*. Statement 149 iseffective for contracts entered into or modified after June 30, 2003. Theimpact of adopting Statement 149 did not have a material impact to ourconsolidated financial condition or results of operations taken as a whole.

 

In May 2003, the FASB Issued Statement No. 150, *Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity* (“Statement 150”).Statement 150 requires issuers to classify as liabilities (or assets in somecircumstances) financial instruments within the scope of the statement thatembody obligations for the issuer. Statement 150 is effective for financialinstruments entered into or modified after May 31, 2003, and otherwise iseffective at the beginning of the first interim period beginning afterJune 15, 2003. The impact of adopting Statement 150 did not have amaterial impact to our consolidated financial condition or results ofoperations taken as a whole.

 

**Risks Associated with Forward LookingStatements**

 

The PrivateSecurities Litigation Act of 1995 (the “Act”) provides a safe harbor for forward-lookingstatements made by our Company. This document contains forward-lookingstatements, including but not limited to, Item 1 of Part I, Business, and Item7 of Part II, Management’s Discussion and Analysis of Financial Condition andResults of Operations. All statements which address operating performance,events or developments that we expect, plan, believe, hope, wish, forecast,predict, intend, or anticipate will occur in the future are forward lookingstatements within the meaning of the Act.

 

Theforward-looking statements are based on management’s current views andassumptions regarding future events and operating performance. However thereare many risk factors, including but not limited to, the general state of theeconomy, the Company’s ability to execute its plans, competitive factors, andother risks that could cause the actual results to differ materially from theestimates or predictions contained in our Company’s forward-looking statements.Additional information concerning the Company’s risk factors is contained fromtime to time in the Company’s public filings with the SEC; and most recently inthe Business Risk section of Item 1 of Part 1 of this Annual Report onForm 10-K.

 

The Company’sviews, estimates, plans and outlook as described within this annual report maychange subsequent to the release of this statement. The Company is under noobligation to modify or update any or all of the statements it has made hereindespite any subsequent changes the Company may make in its views, estimates,plans or outlook for the future.

 

32

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**Item 7A****.  *Quantitative and Qualitative Disclosures about MarketRisk***

 

**Interest Rate Sensitivity**

 

The tablebelow provides information about our debt obligations as of December 31,2003 that are sensitive to changes in interest rates. The table presents cashflows and related weighted average interest rates by expected maturity dates(dollars in millions).

 
|                                         |   | **Expected Maturity Date** |   | **There-  after** |   | **Total** |   | **Fair  Value** |   |
|----------------------------------------------|--------|----------------------------|--------|-------------------|--------|-----------|--------|-----------------|--------|
| **LONG TERM DEBT**                           |   | **2004**                   |   | **2005**          |   | **2006**  |   | **2007**        |   | **2008** |   |   |   |   |
|                                         |   |                       |   |              |   |      |   |            |   |   |   |   |   |   |   |   |   |
| Fixed Rate 10.875% Senior Subordinated Notes |   | $                          | — |              | $      | —    |   | $               | — |   | $ | — |   | $ | 99.7 |   | $ | — |   | $ | 99.7 |   | $ | 106.1 |   |
| Average Interest Rate                        |   |                       |   |              |   |      |   |            |   | 10.88 | % |   |   | 10.88 | % |   |   |
| Variable Rate Senior Credit Facility         |   | $                          | 4.5    |              | $      | 5.0       |   | $               | 4.5    |   | $ | — |   | $ | — |   | $ | — |   | $ | 14.0 |   | $ | 14.0 |   |
| Average Interest Rate (a)                    |   |                       |   |              |   |      |   |            |   |   |   |   |   |   |   |   |   |

 

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(a)          Variablerate long-term debt is comprised of term loans under the senior creditfacility. The senior credit facility provides for interest at our option, at(1) the base rate of the bank acting as administrative agent plus a marginadder of 2.25%, or (2) under a LIBOR option with a borrowing spread of LIBORplus 3.50%.

 

**Exchange Rate Sensitivity**

 

We use forward foreign exchange contracts (“Instruments” or “DerivativeInstruments”) in our management of foreign currency exchange rate exposures.Instruments used as hedges must be effective at reducing the risks associatedwith the underlying exposure and must be designated as a hedge at the inceptionof the contract. Accordingly, changes in the market value of the Instrumentsmust have a high degree of inverse correlation with changes in the market valueor cash flows of the underlying hedged item.

 

We use Derivative Instruments to hedge several components of itsrevenue and cash collection stream, including, (i) anticipated foreigncurrency sales, (ii) accounts receivable denominated in foreigncurrencies, and (iii) cash balances maintained in foreign currencies.

 

The changes in the market value of Derivative Instruments hedginganticipated foreign currency sales are recognized in the consolidated balancesheets as a component of accumulated other comprehensive income instockholder’s equity. To the extent an instrument is no longer effective as ahedge due to a change in the underlying exposure, gains and losses arerecognized currently in the consolidated statements of operations as acomponent of cost of sales.

 

The changes in the market value of Derivative Instruments hedging accountsreceivable or cash denominated in foreign currency are recognized as acomponent of operating income during the period of the change, as they aremarked to market on a monthly basis.

 

Assuming a hypothetical 10% adverse change in all foreign currencies,with the resulting functional currency gains and losses translated into U.S.dollars at the spot rate, the loss in fair value of exchange contracts held onDecember 31, 2003, would be $1.0 million. Those losses would beoffset, in part, by gains on the underlying receivables and cash being hedged.See note 2(h) to our consolidated financial statements located elsewherein this annual report for further discussion of foreign currencies.

 

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***Commodity Risk***

 

We have someexposure to risks associated with fluctuations in prices for commodities suchas nickel and natural gas which are used to manufacture our products. Nickel isused in the plating of steel golf shafts, and natural gas is used as an energysource primarily in our steel manufacturing operations. In some cases we willpurchase contracts to lock in prices for both nickel and natural gas to bedelivered anywhere from one to twenty-four months from the date the contract isconsummated. As of December 31, 2003 we held either under contract or havepurchased approximately 40% of our expected 2004 usage of natural gas, andapproximately 0% of our expected 2004 usage of nickel.

 

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**Item 8****.  *Financial Statements and Supplementary Data***

 

**INDEPENDENT AUDITORS’ REPORT**

 

The Board ofDirectors

True TemperSports, Inc.

 

We haveaudited the accompanying balance sheets of True Temper Sports, Inc. as ofDecember 31, 2003 and 2002 and the related statements of operations,changes in stockholder’s equity and comprehensive income, and cash flows foreach of the years in the three-year period ended December 31, 2003. Inconnection with our audit of the financial statements, we also audited theaccompanying financial statement schedule. These financial statements and thefinancial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements and the financial statement schedule based on our audits.

 

We conductedour audits in accordance with auditing standards generally accepted in theUnited States of America. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

In ouropinion, the financial statements referred to above present fairly, in all materialrespects, the financial position of True Temper Sports, Inc. as ofDecember 31, 2003 and 2002 and the results of its operations and its cashflows for each of the years in the three-year period ended December 31,2003, in conformity with accounting principles generally accepted in the UnitedStates of America. Also in our opinion, the related financial statementschedule, when considered in relation to the basic financial statements takenas a whole, presents fairly, in all material respects, the information setforth therein.

 

As discussedin the note 2(g), in 2002 the Company changed its method of accounting forgoodwill and other intangible assets.

 

KPMG LLP

 

Memphis,Tennessee

February 9,2004

 

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**TRUE TEMPER SPORTS,INC.**

**(A wholly-ownedsubsidiary of True Temper Corporation)**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Dollars inthousands)**

 
|                                           |   | **For the Years Ended  December 31,** |        |
|------------------------------------------------|--------|--------------------------------------------|-------------|
|                                           |   | **2003**                                   |        | **2002** |   | **2001** |   |
| **NET SALES**                                  |   | **$**                                      | **116,206** | ** ** | **$** | **107,401** | ** ** | **$** | **111,083** | ** ** |
| Cost of sales                                  |   | 69,470                                     |        | 65,161 |   | 67,735 |   |
| **GROSS PROFIT**                               |   | **46,736**                                 | ** **  | **42,240** | ** ** | **43,348** | ** ** |
|                                           |   |                                       |        |   |   |   |   |
| Selling, general and administrative expenses   |   | 14,747                                     |        | 13,578 |   | 14,963 |   |
| Amortization of goodwill                       |   | —                                     |        | — |   | 2,695 |   |
| Business development and start-up costs        |   | 869                                        |        | 312 |   | — |   |
| Loss on early extinguishment of long-term debt |   | —                                     |        | 777 |   | — |   |
| **OPERATING INCOME**                           |   | **31,120**                                 | ** **  | **27,573** | ** ** | **25,690** | ** ** |
|                                           |   |                                       |        |   |   |   |   |
| Interest expense, net of interest income       |   | 13,017                                     |        | 12,236 |   | 12,660 |   |
| Other expenses, net                            |   | 132                                        |        | 93 |   | (2 | ) |
| **INCOME BEFORE INCOME  TAXES**                |   | **17,971**                                 | ** **  | **15,244** | ** ** | **13,032** | ** ** |
|                                           |   |                                       |        |   |   |   |   |
| Income taxes                                   |   | 7,113                                      |        | 5,992 |   | (11,539 | ) |
| **NET INCOME**                                 |   | **$**                                      | **10,858**  | ** ** | **$** | **9,252** | ** ** | **$** | **24,571** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

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**TRUE TEMPER SPORTS,INC.**

**(A wholly-ownedsubsidiary of True Temper Corporation)**

 

**CONSOLIDATED BALANCE SHEETS**

**(Dollars inthousands)**

 
|                                                                                                       |   | **December 31,** |        |
|------------------------------------------------------------------------------------------------------------|--------|-----------------------|-------------|
|                                                                                                       |   | **2003**              |        | **2002** |   |
| **ASSETS**                                                                                                 |   |                  |        |   |   |
| **CURRENT ASSETS**                                                                                         |   |                  |        |   |   |
| Cash and cash equivalents                                                                                  |   | $                     | 8,389       |   | $ | 7,070 |   |
| Receivables, net                                                                                           |   | 15,612                |        | 15,083 |   |
| Inventories                                                                                                |   | 15,656                |        | 15,055 |   |
| Deferred financing costs                                                                                   |   | 651                   |        | 566 |   |
| Prepaid expenses and other current assets                                                                  |   | 1,620                 |        | 1,198 |   |
| **Total current  assets**                                                                                  |   | **41,928**            | ** **  | **38,972** | ** ** |
|                                                                                                       |   |                  |        |   |   |
| Property, plant and equipment, net                                                                         |   | 15,026                |        | 14,561 |   |
| Goodwill, net                                                                                              |   | 71,506                |        | 71,506 |   |
| Deferred tax assets                                                                                        |   | 47,902                |        | 54,832 |   |
| Deferred financing costs, net                                                                              |   | 2,348                 |        | 2,787 |   |
| Other assets                                                                                               |   | 906                   |        | 722 |   |
| **Total assets**                                                                                           |   | **$**                 | **179,616** | ** ** | **$** | **183,380** | ** ** |
|                                                                                                       |   |                  |        |   |   |
| **LIABILITIES &  STOCKHOLDER’S EQUITY**                                                           |   |                  |        |   |   |
| **CURRENT LIABILITIES**                                                                                    |   |                  |        |   |   |
| Current portion of long-term debt                                                                          |   | $                     | 4,500       |   | $ | 4,000 |   |
| Accounts payable                                                                                           |   | 4,992                 |        | 5,999 |   |
| Accrued expenses and other current liabilities                                                             |   | 8,675                 |        | 7,075 |   |
| **Total current  liabilities**                                                                             |   | **18,167**            | ** **  | **17,074** | ** ** |
|                                                                                                       |   |                  |        |   |   |
| Long-term debt, net of current portion                                                                     |   | 109,230               |        | 120,730 |   |
| Other liabilities                                                                                          |   | 3,426                 |        | 2,508 |   |
| **Total liabilities**                                                                                      |   | **130,823**           | ** **  | **140,312** | ** ** |
|                                                                                                       |   |                  |        |   |   |
| **STOCKHOLDER’S  EQUITY**                                                                             |   |                  |        |   |   |
| Common stock — par value $0.01 per share; authorized 1,000 shares;  issued and outstanding 100 shares |   | —                |        | — |   |
| Additional paid-in capital                                                                                 |   | 40,326                |        | 40,326 |   |
| Retained earnings                                                                                          |   | 8,796                 |        | 3,145 |   |
| Accumulated other comprehensive loss, net of taxes                                                         |   | (329                  | )           | (403 | ) |
| **Total stockholder’s  equity**                                                                       |   | **48,793**            | ** **  | **43,068** | ** ** |
| **Total liabilities  and stockholder’s equity**                                                       |   | **$**                 | **179,616** | ** ** | **$** | **183,380** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

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**TRUE TEMPER SPORTS,INC.**

**(A wholly-ownedsubsidiary of True Temper Corporation)**

 

**CONSOLIDATED STATEMENTS OF****STOCKHOLDER’S EQUITY AND COMPREHENSIVE INCOME**

**(Dollars in thousands)**

 
|                                                              |   | **Common Stock** |       | **Additional  Paid In  Capital** |       | **Retained  Earnings/  (Accumulated   Deficit)** |       | **Accumulated  Other  Comprehensive  Loss** |       | **Total** |   |
|-------------------------------------------------------------------|--------|------------------|------------|----------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------|------------|-----------|--------|
|                                                              |   | **Shares**       | ** ** | **Par Value**                    | ** ** |                                             | ** ** | ** **                                  | ** ** |
| **Balance at December 31, 2000**                             |   | 100              |       | $                                | —     |                                             | $          | 40,326                                      |       | $         | (6     | ) | $ | — |   | $ | 40,320 |   |
|                                                              |   |             |       |                             |       |                                             |       |                                        |       |      |   |   |   |
| Net income                                                        |   | —           |       | —                           |       | —                                           |       | 24,571                                      |       | —    |   | 24,571 |   |
| Dividends declared to parent company                              |   | —           |       | —                           |       | —                                           |       | (3,588                                      | )          | —    |   | (3,588 | ) |
| **Balance at  December 31, 2001**                            |   | 100              |       | $                                | —     |                                             | $          | 40,326                                      |       | $         | 20,977 |   | $ | — |   | $ | 61,303 |   |
|                                                              |   |             |       |                             |       |                                             |       |                                        |       |      |   |   |   |
| Net income                                                        |   | —           |       | —                           |       | —                                           |       | 9,252                                       |       | —    |   | 9,252 |   |
| Minimum pension liability, net of taxes                           |   | —           |       | —                           |       | —                                           |       | —                                      |       | (403      | )      | (403 | ) |
| Comprehensive income, net of   taxes                         |   |             |       |                             |       |                                             |       |                                        |       |      |   | 8,849 |   |
| Dividends declared to parent company                              |   | —           |       | —                           |       | —                                           |       | (27,084                                     | )          | —    |   | (27,084 | ) |
| **Balance at December 31, 2002**                             |   | 100              |       | $                                | —     |                                             | $          | 40,326                                      |       | $         | 3,145  |   | $ | (403 | ) | $ | 43,068 |   |
|                                                              |   |             |       |                             |       |                                             |       |                                        |       |      |   |   |   |
| Net income                                                        |   | —           |       | —                           |       | —                                           |       | 10,858                                      |       | —    |   | 10,858 |   |
| Minimum pension liability, net of taxes                           |   | —           |       | —                           |       | —                                           |       | —                                      |       | (118      | )      | (118 | ) |
| Mark to market adjustment on derivative instruments, net of taxes |   | —           |       | —                           |       | —                                           |       | —                                      |       | 192       |   | 192 |   |
| Comprehensive income, net of taxes                                |   |             |       |                             |       |                                             |       |                                        |       |      |   | 10,932 |   |
| Dividends declared to parent company                              |   | —           |       | —                           |       | —                                           |       | (5,207                                      | )          | —    |   | (5,207 | ) |
| **Balance at December 31, 2003**                             |   | 100              |       | $                                | —     |                                             | $          | 40,326                                      |       | $         | 8,796  |   | $ | (329 | ) | $ | 48,793 |   |

 

See accompanying notes to consolidated financial statements.

 

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**TRUE TEMPER SPORTS,INC.**

**(A wholly-ownedsubsidiary of True Temper Corporation)**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Dollars inthousands)**

 
|                                                                               |   | **For the Years Ended  December 31,** |       |
|------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                               |   | **2003**                                   |       | **2002** |   | **2001** |   |
| **OPERATING  ACTIVITIES**                                                          |   |                                       |       |   |   |   |   |
| Net income                                                                         |   | $                                          | 10,858     |   | $ | 9,252 |   | $ | 24,571 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |                                       |       |   |   |   |   |
| Depreciation and amortization                                                      |   | 2,906                                      |       | 3,252 |   | 6,208 |   |
| Amortization of deferred financing costs                                           |   | 632                                        |       | 697 |   | 652 |   |
| Loss on disposal of property, plant and  equipment                            |   | 89                                         |       | 80 |   | — |   |
| Loss on early extinguishment of long-term debt                                     |   | —                                     |       | 777 |   | — |   |
| Deferred taxes                                                                     |   | 6,883                                      |       | 5,770 |   | (11,770 | ) |
| Changes in assets and liabilities, net of acquisitions:                            |   |                                       |       |   |   |   |   |
| Receivables, net                                                                   |   | (529                                       | )          | (1,624 | ) | (3,511 | ) |
| Inventories                                                                        |   | (601                                       | )          | (1,614 | ) | 967 |   |
| Prepaid expenses and other assets                                                  |   | (422                                       | )          | (115 | ) | 660 |   |
| Accounts payable                                                                   |   | (1,007                                     | )          | 1,609 |   | (3,102 | ) |
| Accrued interest                                                                   |   | 222                                        |       | (25 | ) | 48 |   |
| Other liabilities                                                                  |   | 2,371                                      |       | 1,844 |   | (2,561 | ) |
| **Net cash provided  by operating activities**                                     |   | **21,402**                                 | ** ** | **19,903** | ** ** | **12,162** | ** ** |
|                                                                               |   |                                       |       |   |   |   |   |
| **INVESTING  ACTIVITIES**                                                          |   |                                       |       |   |   |   |   |
| Purchase of property, plant and equipment                                          |   | (3,460                                     | )          | (1,164 | ) | (2,001 | ) |
| Proceeds from the sales of property, plant and  equipment                     |   | —                                     |       | — |   | 37 |   |
| Purchase of AME                                                                    |   | —                                     |       | — |   | (327 | ) |
| **Net cash used in  investing activities**                                         |   | **(3,460**                                 | **)**      | **(1,164** | **)** | **(2,291** | **)** |
|                                                                               |   |                                       |       |   |   |   |   |
| **FINANCING ACTIVITIES**                                                           |   |                                       |       |   |   |   |   |
| Proceeds from issuance of bank debt                                                |   | —                                     |       | 25,000 |   | — |   |
| Principal payments on bank debt                                                    |   | (11,000                                    | )          | (16,504 | ) | (1,901 | ) |
| Repurchase of Senior Subordinated Notes                                            |   | —                                     |       | (270 | ) | — |   |
| Premium paid to repurchase Senior Subordinated Notes                               |   | —                                     |       | (12 | ) | — |   |
| Principal payments on capital leases                                               |   | —                                     |       | (18 | ) | (25 | ) |
| Payment of debt issuance costs                                                     |   | (278                                       | )          | (844 | ) | (202 | ) |
| Dividends paid                                                                     |   | (5,207                                     | )          | (27,084 | ) | (3,588 | ) |
| Other financing activity                                                           |   | (138                                       | )          | (114 | ) | (146 | ) |
| **Net cash used in  financing activities**                                         |   | **(16,623**                                | **)**      | **(19,846** | **)** | **(5,862** | **)** |
|                                                                               |   |                                       | ** ** |   | ** ** |   | ** ** |
| Net increase (decrease) in cash                                                    |   | 1,319                                      |       | (1,107 | ) | 4,009 |   |
| Cash at beginning of year                                                          |   | 7,070                                      |       | 8,177 |   | 4,168 |   |
| **Cash at end of year**                                                            |   | **$**                                      | **8,389**  | ** ** | **$** | **7,070** | ** ** | **$** | **8,177** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

39

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**TRUE TEMPER SPORTS,INC.**

**(A wholly-ownedsubsidiary of True Temper Corporation)**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Dollars in thousandsunless otherwise indicated)**

 

**(1) DESCRIPTION OF BUSINESS**

 

True Temper Sports, Inc. (“True Temper” or the “Company”) is primarilyengaged in the design, manufacture and sale of steel and composite golf shaftsas well as a variety of other high strength, tight tolerance tubular componentsfor the bicycle, automotive and recreational sports markets. True Temper’smanufacturing plants and related facilities are located in Memphis, Tennessee,Amory and Olive Branch, Mississippi, El Cajon, California and Guangzhou, China.The majority of True Temper’s sales are to golf club manufacturers anddistributors primarily located in the United States, Europe, Japan, Australiaand Southeast Asia. True Temper operates as a wholly-owned operating subsidiaryof True Temper Corporation.

 

The consolidated financial statements include the financial statementsof True Temper and its majority owned subsidiaries. All significantintercompany balances and transactions have been eliminated in consolidation.

 

**(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**(a)****                                  RevenueRecognition**

 

Revenue is generally recognized when persuasive evidence of anarrangement exists, delivery has occurred, the revenue amount is determinableand collection is reasonably assured. Valuation allowances are established forestimated returns, allowances and discounts at the time revenue is recognized.

 

**(b)****                                  Useof Estimates**

 

The preparation of the consolidated financial statements requiresmanagement of the Company to make a number of estimates and assumptionsrelating to the reported amount of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the consolidated financialstatements and the reported amounts of revenues and expenses during the period.Significant items subject to such estimates and assumptions include the carryingamount of property, plant and equipment; valuation allowances for receivables,inventories and deferred income tax assets; environmental liabilities;valuation of derivative instruments; and assets and obligations related toemployee benefits. Actual results could differ from those estimates.

 

**(c)****                                  TradeAccounts Receivable**

 

Trade receivables are net of allowance for doubtful accounts of $832and $653 as of December 31, 2003 and 2002, respectively.

 

**(d)****                                  Inventories**

 

Inventories are stated at the lower of cost or market. Cost isdetermined using the first-in, first-out method.

 

40

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**(e)****                                  DeferredFinancing Costs**

 

Costs associated with the issuance of debt are deferred and amortizedas a component of interest expense over the life of the related debt, using amethod that approximates the interest method.

 

**(f)****                                    Property,Plant and Equipment**

 

Property, plant and equipment is stated on a historical cost basis, netof accumulated depreciation. Depreciation is provided over the estimated usefullife of each asset using the straight-line method. Leasehold improvements areamortized over the shorter of the useful life or the applicable lease term. Ingeneral the estimated useful lives are as follows:

 
| **Asset Category**                                            |   | **Life**    |   |
|---------------------------------------------------------------|--------|-------------|--------|
| Buildings                                                     |   | 15-40 years |   |
| Furniture  and office equipment                               |   | 10-15 years |   |
| Machinery  and equipment                                      |   | 8-15 years  |   |
| Computers  and related equipment                              |   | 2-4 years   |   |
| Leasehold  improvements                                       |   | 6-15 years  |   |
| Assets held  for use — not currently used for production |   | 8 years     |   |

 

**(g)****                                 Goodwill**

 

Goodwill represents the excess of costs over fair value of assets ofbusinesses acquired. The Company adopted the provisions of SFAS No. 142, *Goodwill and Other Intangible Assets,* asof January 1, 2002. Goodwill and intangible assets acquired in a purchasebusiness combination and determined to have an indefinite useful life are notamortized, but instead tested for impairment at least annually in accordancewith the provisions of SFAS No. 142. SFAS No. 142 also requires that intangibleassets with estimable useful lives be amortized over their respective estimateduseful lives to their estimated residual values, and reviewed for impairment inaccordance with SFAS No. 144, *Accounting forImpairment or Disposal of Long-Lived Assets*.

 

In connection with SFAS No. 142’s transitional goodwill impairmentevaluation, the Company performed an assessment of whether there was anindication that goodwill is impaired as of the date of adoption. To accomplishthis, the Company was required to identify its reporting units and determinethe carrying value of each reporting unit by assigning the assets andliabilities, including the existing goodwill and intangible assets, to thosereporting units as of January 1, 2002. The Company was required to determinethe fair value of each reporting unit and compare it to the carrying amount ofthe reporting unit within six months of January 1, 2002. To the extent thecarrying amount of a reporting unit exceeded the fair value of the reportingunit, the Company would be required to perform the second step of thetransitional impairment test, as this is an indication that the reporting unitgoodwill may be impaired. The Company was not required to perform the secondstep for any reporting unit, as the fair value of each reporting unit exceededits carrying amount. The Company’s policy is to test its reporting amount ofgoodwill for potential impairment on an annual basis in the Company’s fiscalfourth quarter or sooner if a goodwill impairment indicator is identified. No goodwillimpairment was identified during the Company’s 2003 testing.

 

Prior to the adoption of SFAS No. 142, goodwill was amortized on astraight-line basis over the expected periods to be benefited, generallybetween 20 and 40 years, and assessed for recoverability by determining whetherthe amortization of the goodwill balance over its remaining life could berecovered through undiscounted future operating cash flows of the acquiredoperation.

 

41

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**(h)****                                 DerivativeInstruments and Foreign Currencies**

 

The Company uses forward foreign exchange contracts (“Instruments” or“Derivative Instruments”) in its management of foreign currency exchange rateexposures. Instruments used as hedges must be effective at reducing the risksassociated with the underlying exposure and must be designated as a hedge atthe inception of the contract. Accordingly, changes in the market value of theInstruments must have a high degree of inverse correlation with changes in themarket value or cash flows of the underlying hedged item.

 

The Company uses Derivative Instruments to hedge several components ofits revenue and cash collection stream, including, (i) anticipated foreigncurrency sales, (ii) accounts receivable denominated in foreign currencies, and(iii) cash balances maintained in foreign currencies.

 

The changes in the market value of Derivative Instruments hedginganticipated foreign currency sales are recognized in the consolidated balancesheets as a component of accumulated other comprehensive income (loss) inconsolidated stockholder’s equity. To the extent an instrument is no longereffective as a hedge due to a change in the underlying exposure, gains andlosses are recognized currently in the consolidated statements of operations asa component of cost of sales.

 

The changes in the market value of Derivative Instruments hedgingaccounts receivable or cash denominated in foreign currency are recognized as acomponent of operating income during the period of the change, as they aremarked to market on a monthly basis.

 

True Temper recorded a gain in operations on foreign currency in theyears ended December 31, 2003 and 2002 of $215 and $37, respectively.

 

The following table summarizes the contractual notional amounts of TrueTemper’s forward exchange contracts as of December 31, 2003 and 2002:

 
|              |   | **2003** |   | **2002** |   |
|-------------------|--------|----------|--------|----------|--------|
| Pound Sterling    |   | $        | 2,937  |     | $      | 2,631 |   |
| Yen               |   | 5,951    |   | 4,177    |   |
| Australian dollar |   | 908      |   | 658      |   |
| Total             |   | $        | 9,796  |     | $      | 7,466 |   |

 

**(i)****                                    Impairmentof Long-Lived Assets**

 

SFAS No. 144 provides a single accounting model for long-lived assetsto be disposed of. SFAS No. 144 also changes the criteria for classifyingan asset as held for sale; and broadens the scope of businesses to be disposedof that qualify for reporting as discontinued operations and changes the timingof recognizing losses on such operations. The Company adopted SFAS No. 144on January 1, 2002. The adoption of SFAS No. 144 did not affect theCompany’s consolidated financial statements.

 

In accordance with SFAS No. 144, long-lived assets, such as property,plant, and equipment, and purchased intangibles subject to amortization, arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. Recoverability ofassets to be held and used is measured by a comparison of the carrying amountof an asset to estimated undiscounted future cash flows expected to begenerated by the asset. If the carrying amount of an asset exceeds itsestimated future cash flows, an impairment charge is recognized by the amountby which the carrying amount of the asset exceeds the fair value of the asset.Assets to be disposed of would be separately presented in the balance sheet andreported at the lower of the carrying amount or fair value less costs to

 

42

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sell, and are no longer depreciated. The assets and liabilities of adisposed group classified as held for sale would be presented separately in theappropriate asset and liability sections of the balance sheet.

 

Prior to the adoption of SFAS No. 144, the Company accounted forlong-lived assets in accordance with SFAS No. 121, *Accounting for Impairment of Long-Lived Assets and for Long-LivedAssets to be Disposed Of*.

 

**(j)****                                    Businessdevelopment and start-up costs**

 

Costs associated with business development and start-up are comprised,primarily, of costs related to opening a composite manufacturing operation inGuangzhou, China. These costs include travel, consulting, legal and otherprofessional services, personnel recruiting and compensation, facility rent andother start-up business costs The costs are expensed as incurred and separatelyidentified on the statement of operations as a component of operating income.

 

**(k)****                                Advertisingand Promotional Costs**

 

Advertising and promotional costs are accounted for in accordance withStatement of Position 93-7 “Reporting on Advertising Costs”, which requiresthat the cost of producing advertisements be expensed at the time of the firstshowing of the advertisement or as incurred. True Temper’s policy is to expensecosts associated with the production of advertising at the time of firstshowing of the advertisement. Advertising and promotional costs primarilyconsist of trade show costs, media spots including print, radio and television,advertising production and agency fees, sponsorships, and product andpromotional samples. Advertising and promotional expense for 2003, 2002 and2001 were $3,106, $3,555 and $5,007, respectively. Certain of the Company’scustomers participate in a cooperative advertising program where the Companyagrees to reimburse these customers for a portion of their advertising coststhat feature the Company’s product. Cooperative advertising costs are shown asa reduction of sales.

 

**(l)****                                    Researchand Development Costs**

 

Costs associated with the development of new products and changes toexisting products are expensed as incurred and are included in selling,general, and administrative expenses. Research and development costs for the2003, 2002 and 2001 were $1,501, $1,194 and $1,587, respectively.

 

**(m)****                              Post-RetirementBenefits**

 

True Temper’s hourly union employees at its Amory, Mississippi plantare covered by a non-contributory defined benefit plan. The defined benefitplan is funded in conformity with funding requirements of applicable governmentregulations. Benefits are based on a negotiated, fixed amount multiplied by theemployee’s length of service. In addition to the defined benefit plan, thesesame employees receive certain post-retirement medical, dental and lifeinsurance benefits.

 

True Temper’s salaried employees are covered by a non-contributorydefined contribution plan. Company contributions to this plan are based on theemployee’s age and are calculated as a percentage of compensation. This plan isfunded on a current basis. In addition to the non-contributory definedcontribution plan, certain post-retirement medical, dental and life insurancebenefits are provided to those salaried employees who were employed by theCompany prior to January 1, 2000.

 

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All employees of True Temper are eligible to participate in a companysponsored 401(k) plan. The Company’s contribution to this plan is calculated asa percentage of the employee’s compensation and the employee’s contribution.All Company contributions to this plan are paid in cash.

 

**(n)****                                 IncomeTaxes**

 

Income taxes are accounted for under the asset and liability method.Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective taxbases and operating loss and tax credit carryforwards. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in income in the period that includes theenactment date.

 

In the fourth quarter of 2001, after considering the Company’shistorical financial performance for the preceding three years, and otheravailable evidence, Company management determined that it was more likely thannot the Company would realize the tax benefit of all of its deferred taxassets. As a result the Company’s valuation allowance on its deferred taxassets was eliminated with the change in the valuation allowance recorded as adeferred tax benefit. See note 9, Income Taxes, for further explanation.

 

**(o)****                                  FairValue of Financial Instruments**

 

The fair value of financial instruments represents the amount at whichthe instrument could be exchanged in a current transaction between willingparties, other than a forced sale or liquidation. Significant differences canarise between the fair value and carrying amount of financial instruments thatare recognized at historical cost amounts.

 

The following methods and assumptions were used by True Temper inestimating fair value disclosures for financial instruments:

 

*Cash, Trade Receivables and Payables*—The amounts reported in the balance sheets approximate fair value.

 

*Long-Term Debt*— Thecarrying values of the Company’s variable rate debt approximates fair value.The estimated fair value of the Company’s fixed rate debt is based uponinterest rates available for the issuance of debt with similar terms andremaining maturities. As of December 31, 2003, the Company’s Senior SubordinatedNotes had an estimated fair value of $105.8 million.

 

*Foreign Currency Contracts*—The fair value of forward exchange contracts is estimated using pricesestablished by financial institutions for comparable instruments which was lessthan $100 thousand at December 31, 2003.

 

The fair value estimates presented herein are based on informationavailable to management as of December 31, 2003. Although management isnot aware of any factors that would significantly affect the estimated fairvalue amounts, such amounts have not been comprehensively revalued for purposesof these financial statements since that date and current estimates of fairvalue may differ significantly from the amounts presented herein.

 

44

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**(p)****                                  RecentAccounting Pronouncements**

 

In December 2003, the FASB issued FASB Interpretation No. 46(revised December 2003), *Consolidationof Variable Interest Entities*, which addresses how a businessenterprise should evaluate whether it has a controlling financial interest inan entity through means other than voting rights and accordingly shouldconsolidate the entity. FIN 46R replaces FASB Interpretation No. 46, *Consolidation of Variable Interest Entities*,which was issued in January 2003. The Company will be required to applyFIN 46R to variable interests in VIEs created after December 31, 2003. Forvariable interests in VIEs created before January 1, 2004, theInterpretation will be applied beginning on January 1, 2005. The adoptionof FIN 46R is not expected to have a material effect on the Company’sconsolidated financial condition or results of operations taken as a whole.

 

In April 2003, the FASB issued Statement No. 149, *Amendment of Statement No. 133, Accounting forDerivative Instruments and Hedging Activities* (“Statement 149”).Statement 149 amends and clarifies financial accounting and reporting forderivative instruments, including certain derivative instruments embedded inother contracts (collectively referred to as derivatives) and for hedgingactivities under FASB Statement No. 133, *Accountingfor Derivative Instruments and Hedging Activities*. Statement 149 iseffective for contracts entered into or modified after June 30, 2003. Theimpact of adopting Statement 149 did not have a material impact to theCompany’s consolidated financial condition or results of operations taken as awhole.

 

In May 2003, the FASB Issued Statement No. 150, *Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity* (“Statement 150”).Statement 150 requires issuers to classify as liabilities (or assets in somecircumstances) financial instruments within the scope of the statement thatembody obligations for the issuer. Statement 150 is effective for financialinstruments entered into or modified after May 31, 2003, and otherwise iseffective at the beginning of the first interim period beginning afterJune 15, 2003. The impact of adopting Statement 150 did not have amaterial impact to the Company’s consolidated financial condition or results ofoperations taken as a whole.

 

**(q)****                                  SupplementalDisclosures of Cash Flow Information**

 

Cash payments for income taxes and interest for the years endedDecember 31, 2003, 2002 and 2001, are as follows:

 
|         |   | **2003** |   | **2002** |   | **2001** |   |
|--------------|--------|----------|--------|----------|--------|----------|--------|
| Income taxes |   | $        | 162    |     | $      | 120      |   | $ | 280 |   |
| Interest     |   | $        | 12,265 |     | $      | 11,728   |   | $ | 11,960 |   |

 

**(r)****                                  AccumulatedOther Comprehensive Income**

 

The accumulated balances for each classification within accumulatedother comprehensive income are as follows:

 

 
|                   |   | **Derivative  Instruments  Mark to Market  Adjustment** |   | **Minimum  Pension  Liability  Adjustments** |   | **Accumulated  Other  Comprehensive  Income (loss)** |   |
|------------------------|--------|---------------------------------------------------------|--------|----------------------------------------------|--------|------------------------------------------------------|--------|
| December 31, 2002 |   | $                                                       | — |                                         | $      | (403                                                 | )      | $ | (403 | ) |
| Current year change    |   | 192                                                     |   | (118                                         | )      | 74                                                   |   |
| December 31, 2003 |   | $                                                       | 192    |                                         | $      | (521                                                 | )      | $ | (329 | ) |

 

45

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**(3) ACQUISITIONS**

 

In the third quarter of 2001, True Temper acquired substantially allthe capital assets and intellectual property rights from Advanced MaterialsEngineering (“AME”) for $327 resulting in the recording of goodwill of $88. Thetransition of these assets to the El Cajon facility was completed byDecember 31, 2001.

 

**(4) GOODWILL**

 

Amortization expense related to goodwill was $2,695 for the year endedDecember 31, 2001. The following table reconciles previously reported netincome as if the provisions of SFAS No. 142 were in effect in 2001:

 
|                         |   | **2001**        |   |
|------------------------------|--------|-----------------|--------|
|                         |   | **As Reported** |   | **Goodwill  Amortization  Adjustment** | ** ** | **As Adjusted** | ** ** |
| Income before income taxes   |   | $               | 13,032 |   | $ | 2,695 |   | $ | 15,727 |   |
| Income tax expense (benefit) |   | (11,539         | )      | 89 |   | (11,450 | ) |
| Net Income                   |   | $               | 24,571 |   | $ | 2,606 |   | $ | 27,177 |   |

 

**(5) INVENTORIES**

 

Inventories, as of December 31 of the year indicated, consist ofthe following:

 
|            |   | **2003** |   | **2002** |   |
|-----------------|--------|----------|--------|----------|--------|
| Raw materials   |   | $        | 2,287  |     | $      | 1,751 |   |
| Work in process |   | 2,067    |   | 2,445    |   |
| Finished goods  |   | 11,302   |   | 10,859   |   |
| Total           |   | $        | 15,656 |     | $      | 15,055 |   |

 

**(6) PROPERTY, PLANT AND EQUIPMENT**

 

Major classes of property, plant and equipment, as of December 31of the year indicated, are summarized as follows:

 
|                                                               |   | **2003** |   | **2002** |   |
|--------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Land improvements                                                  |   | $        | 342    |     | $      | 342 |   |
| Buildings                                                          |   | 7,123    |   | 7,008    |   |
| Furniture and office equipment                                     |   | 815      |   | 804      |   |
| Machinery and equipment                                            |   | 43,167   |   | 41,979   |   |
| Computer equipment and capitalized   software                 |   | 2,439    |   | 2,390    |   |
| Leasehold improvements                                             |   | 2,233    |   | 1,695    |   |
| Assets held for use — not currently   used in production |   | 1,265    |   | 1,251    |   |
| Construction in progress                                           |   | 1,505    |   | 436      |   |
|                                                               |   | 58,889   |   | 55,905   |   |
| Less accumulated depreciation                                      |   | 43,863   |   | 41,344   |   |
| Net property, plant and equipment                                  |   | $        | 15,026 |     | $      | 14,561 |   |

 

Depreciation expense for the years ended December 31, 2003, 2002and 2001, was $2,906, $3,252, and $3,513, respectively.

 

46

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**(7) OTHER CURRENT LIABILITIES**

 

Other current liabilities, as of December 31 of the yearindicated, consist of the following:

 
|                                                            |   | **2003** |   | **2002** |   |
|-----------------------------------------------------------------|--------|----------|--------|----------|--------|
| Accrued compensation, benefits and   related payroll taxes |   | 5,257    |   | 4,537    |   |
| Accrued interest                                                |   | 1,161    |   | 939      |   |
| Other                                                           |   | 2,257    |   | 1,599    |   |
| Total                                                           |   | $        | 8,675  |     | $      | 7,075 |   |
|                                                                 |        |          |        |          |        |  |  |

 

**(8) BORROWINGS**

 

**(a)****                                  Long-TermDebt**

 

Long-term debt at December 31, 2003 and 2002 consisted of thefollowing:

 
|                                       |   | **2003** |    | **2002** |   |
|--------------------------------------------|--------|----------|---------|----------|--------|
| 10.875% Senior Subordinated Notes due 2008 |   | $        | 99,730  |     | $      | 99,730 |   |
| Senior credit facility                     |   | 14,000   |    | 25,000   |   |
| Total debt                                 |   | 113,730  |    | 124,730  |   |
| Less current maturities                    |   | 4,500    |    | 4,000    |   |
| Long-term debt                             |   | $        | 109,230 |     | $      | 120,730 |   |

 

The 10.875% Senior Subordinated Notes due 2008 (the “Notes”) providefor semi-annual interest payments, in arrears. At the option of the Company, upto 35% of the Notes are redeemable prior to December 1, 2001, at 110.875%,with the net cash proceeds of one or more public equity offerings. FromDecember 1, 2001 to November 30, 2003 the Notes may be redeemed, atthe option of the Company, in whole or in part, at a premium, upon theoccurrence of a change of control. Subsequent to November 30, 2003 theNotes may be redeemed, at the option of the Company, in whole or in part, at aredemption price of 105.438% beginning December 1, 2003 and decliningratably thereafter to 100.0% on December 1, 2006.

 

In 2002 the Company bought back approximately $0.3 million of theoutstanding Notes in an open market non-redemptive repurchase program. Inconjunction with the buy backs the Company wrote off a ratable portion ofdeferred financing costs and the premium on the repurchase of Notes as a losson early extinguishment of debt in the amount of $20. As of December 31,2003 the outstanding principal amount of Notes was $99.7 million.

 

In the fourth quarter of 2002 the Company made a scheduled principalpayment of $0.6 million and a voluntary repayment of $12.4 million to eliminatethe outstanding principal balance of both the term A and term B loans. TheCompany wrote off $757 of deferred financing costs which related to that debtagreement, and recorded the charge as a loss on early extinguishment of debt.

 

On December 31, 2002 the Company refinanced its then existingsenior credit facility with a new senior credit facility that includes a $15.0million non- amortizing credit facility and a $25.0 million term loan dueDecember 31, 2007. Amounts under the new revolving credit facility areavailable on a revolving basis through December 31, 2007. The Company usedmost of the proceeds from the new term loans to distribute $23.5 million as adividend to its parent company, True Temper Corporation (“TTC”), on December 31,2002. TTC used these funds to prepay a portion of its high interest debt.

 

During 2003, the Company repaid $11.0 million of its senior creditfacility, including $7.0 million of voluntary prepayments.

 

47

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The new senior credit facility provides for interest on the term loan,at the Company’s option, at (i) the base rate of the bank acting asadministrative agent plus a margin adder of 2.25%, or (ii) under a LIBOR optionwith a borrowing spread of LIBOR plus 3.50%. The rate at December 31, 2003was 4.65%.

 

The loans under the new senior credit facility are senior to the Notes,and are secured by substantially all of the Company’s assets.

 

The new senior credit facility and the Notes contain provisions which,among other things, limit the Company’s ability to (i) incur additionalindebtedness, (ii) make acquisitions and capital expenditures, (iii) sellassets, (iv) create liens or other encumbrances, (v) make certain payments anddividends, or (vi) merge or consolidate. In addition, both the senior creditfacility and the Notes contain customary change of control provisions thatcould, under certain circumstances, cause accelerated debt repayment. The newsenior credit facility also requires the Company to maintain certain specifiedfinancial ratios and tests including, (i) minimum EBITDA levels, (ii) minimuminterest coverage and fixed charge coverage ratios, and (iii) maximum leverageratios. At December 31, 2003 the Company was in compliance with all of thecovenants in both the new senior credit facility and the Notes.

 

The terms of the extinguished debt were substantially similar to thenew senior credit facility.

 

At December 31, 2003, future minimum principal payments onlong-term debt were as follows:

 
| 2004       |   | 4,500  |    |
|------------|--------|--------|---------|
| 2005       |   | 5,000  |    |
| 2006       |   | 4,500  |    |
| 2007       |   | — |    |
| 2008       |   | 99,730 |    |
| Thereafter |   | — |    |
| Total      |   | $      | 113,730 |   |
|            |        |        |         |  |

 

**(b)****                                  Lineof Credit**

 

The Company may borrow, through December 31, 2007, up to $15,000under a revolving credit agreement included in the new senior credit facility.Borrowings under the agreement are subject to the same provisions described inthe long-term debt section of this footnote. The Company has nooutstanding borrowings under this line of credit at December 31, 2003.

 

**(9) INCOME TAXES**

 

Total income taxes for the years ended December 31, 2003 and 2002were allocated as follows:

 
|                                                 |   | **2003** |   | **2002** |   |
|------------------------------------------------------|--------|----------|--------|----------|--------|
| Income from continuing operations                    |   | $        | 7,113  |     | $      | 5,992 |   |
| Stockholders’ equity:                           |   |     |   |     |   |
| Additional minimum pension expense                   |   | (72      | )      | (247     | )      |
| Mark to market adjustment on derivative  instruments |   | 118      |   | —   |   |
| Total income taxes                                   |   | $        | 7,159  |     | $      | 5,745 |   |

 

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The income tax expense (benefit) attributable to income for continuingoperations, for the years ended December 31, 2003, 2002 and 2001, is asfollows:

 
|                          |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Current:                      |   |     |   |     |   |     |   |
| Federal                       |   | $        | — |     | $      | —   |   | $ | — |   |
| State                         |   | 40       |   | 40       |   | 40       |   |
| Foreign                       |   | 190      |   | 182      |   | 191      |   |
| Total current                 |   | 230      |   | 222      |   | 231      |   |
| Deferred:                     |   |     |   |     |   |     |   |
| Federal                       |   | 5,795    |   | 4,858    |   | 4,945    |   |
| State                         |   | 1,088    |   | 912      |   | 929      |   |
| Change in valuation allowance |   | —   |   | —   |   | (17,644  | )      |
| Total deferred                |   | 6,883    |   | 5,770    |   | (11,770  | )      |
| Total                         |   | $        | 7,113  |     | $      | 5,992    |   | $ | (11,539 | ) |

 

The actual income tax expense attributable to income for continuingoperations differs from the amounts computed by applying the U.S. federal taxrate of 34% to the pretax earnings as a result of the following:

 
|                                      |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Computed “expected” tax expense |   | $        | 6,110  |     | $      | 5,183    |   | $ | 4,431 |   |
| State tax, net of federal benefit         |   | 744      |   | 628      |   | 640      |   |
| Amortization of goodwill                  |   | —   |   | —   |   | 838      |   |
| Foreign taxes                             |   | 190      |   | 182      |   | 191      |   |
| Change in valuation allowance             |   | —   |   | —   |   | (17,644  | )      |
| Other                                     |   | 69       |   | (1       | )      | 5        |   |
| Actual income tax expense (benefit)       |   | $        | 7,113  |     | $      | 5,992    |   | $ | (11,539 | ) |

 

On June 29, 1998, Black & Decker Corporation, along withits True Temper Sports Division, and True Temper Sports LLC (an affiliate ofCornerstone Equity Investors, LLC), entered into an agreement pursuant to whichTrue Temper Sports LLC acquired, effective September 30, 1998, an 89%equity interest in TTC (collectively referred to as the “Recapitalization”).True Temper Sports, Inc. was formed as the operating subsidiary of True TemperCorporation. The Recapitalization of TTC was accounted for as a leveragedrecapitalization, such that the Company’s assets and liabilities remain attheir historical bases for financial reporting purposes, however, for incometax purposes, the transaction is treated as a taxable business combination,which creates a “step-up” in its tax basis financial statements.

 

For federal and state income tax purposes, the Recapitalization is ataxable business combination and is a qualified stock purchase. The buyer andthe seller elected jointly to treat the Recapitalization as an assetacquisition under section 338(h)(10) of the Internal Revenue Code of 1986,as amended. An allocation of the purchase price to the tax basis of assets andliabilities based on their respective estimated fair values atSeptember 30, 1998 was made for income tax purposes. In connection withthe Recapitalization, the Company recorded a deferred tax asset ofapproximately $52,895, net of a valuation allowance of $17,644, atSeptember 30, 1998 related to future tax deductions of the net excess ofthe tax bases of the assets and liabilities over the financial statementcarrying amounts with a corresponding credit to additional paid-in capital.

 

In assessing the realizability of deferred tax assets, Companymanagement considers whether it is more likely than not that a portion or allof its deferred tax assets will be realized. The Company evaluates a variety ofavailable evidence in determining the amount of the deferred tax assets to berealized including the Company’s earnings history, the number of years theCompany’s operating losses can be carried forward and projections of futuretaxable income. Based on the available evidence described above, including theCompany’s historical financial performance since the Recapitalization, theCompany determined in 2001 that it was more likely than not the Company willrealize the tax benefit of all of its deferred tax assets. As a result thevaluation allowance was eliminated with the change in the valuation allowancerecorded as a deferred tax benefit in 2001.

 

49

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The Company’s ability to realize some or all of the benefit from thedeferred tax asset is dependent upon the Company generating taxable book incomein the future. Although there can be no assurance of future events, managementmust periodically reevaluate its forecast of the Company’s future operatingresults. In the event management determines that sufficient future taxableincome may not be generated to fully realize the deferred tax asset, theCompany would record a valuation allowance by a charge to income tax expense inthe period of such determination.

 

The components of deferred tax assets and liabilities atDecember 31, 2003 and 2002 are as follows:

 
|                                                |   | **2003** |   | **2002** |   |
|-----------------------------------------------------|--------|----------|--------|----------|--------|
| Deferred tax assets:                                |   |     |   |     |   |
| Acquisition costs                                   |   | $        | — |     | $      | 240 |   |
| Goodwill                                            |   | 45,461   |   | 50,275   |   |
| Accrued liabilities                                 |   | 1,670    |   | 1,127    |   |
| Asset impairment                                    |   | 704      |   | 704      |   |
| Net operating loss carryforwards                    |   | 889      |   | 3,021    |   |
| Facility start-up costs                             |   | 444      |   | —   |   |
| Pension liability                                   |   | 319      |   | 247      |   |
| Uniform capitalization                              |   | 161      |   | 161      |   |
| Other                                               |   | —   |   | 39       |   |
| Gross deferred tax assets                           |   | 49,648   |   | 55,814   |   |
| Deferred tax liabilities:                           |   |     |   |     |   |
| Property, plant and equipment                       |   | (1,614   | )      | (982     | )      |
| Mark to market adjustment on derivative instruments |   | (118     | )      | —   |   |
| Other                                               |   | (14      | )      | —   |   |
| Net deferred tax asset                              |   | $        | 47,902 |     | $      | 54,832 |   |

 

At December 31, 2003, the Company had net operating losscarryforwards for federal and state income tax purposes of approximately $2,400which expire between 2019 and 2023 and $150 alternative minimum tax creditcarry forward which is carried forward indefinitely.

 

**(10) EMPLOYEE BENEFIT PLANS**

 

True Temper Sports, Inc. has a qualified pension plan and apost-retirement benefit plan for the hourly union employees at its Amory,Mississippi plant. The following tables provide a reconciliation of the changesin the plans’ benefit obligation and fair value of assets for the years endedDecember 31, 2003 and 2002, and a statement of the plans’ funded status asof December 31 for each year:

 

The following table sets forth the qualified pension plan as ofDecember 31:

 
|                                           |   | **2003** |   | **2002** |   |
|------------------------------------------------|--------|----------|--------|----------|--------|
| Reconciliation of benefit obligation:          |   |     |   |     |   |
| Benefit obligation at beginning of year        |   | $        | 12,383 |     | $      | 10,515 |   |
| Service cost                                   |   | 460      |   | 337      |   |
| Interest cost                                  |   | 832      |   | 765      |   |
| Plan amendments                                |   | 1,422    |   | —   |   |
| Actuarial losses                               |   | 966      |   | 937      |   |
| Benefit payments                               |   | (376     | )      | (171     | )      |
| Benefit obligation at end of year              |   | $        | 15,687 |     | $      | 12,383 |   |
|                                           |   |     |   |     |   |
| Reconciliation of fair value of plan assets:   |   |     |   |     |   |
| Fair value of plan assets at beginning of year |   | $        | 11,628 |     | $      | 13,075 |   |
| Actual return on plan assets                   |   | 1,893    |   | (1,276   | )      |
| Benefit payments                               |   | (376     | )      | (171     | )      |
| Fair value of plan assets at end of year       |   | $        | 13,145 |     | $      | 11,628 |   |
|                                           |   |     |   |     |   |
| Funded status:                                 |   |     |   |     |   |
| Funded status at December 31              |   | $        | (2,542 | )        | $      | (754 | ) |
| Unrecognized prior service costs               |   | 1,422    |   | —   |   |
| Unrecognized net actuarial loss                |   | 1,067    |   | 1,029    |   |
| Net amount recognized                          |   | $        | (53    | )        | $      | 275 |   |

 

50

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The following table provides the amounts recognized in the statement offinancial position as of December 31:

 
|                                 |   | **2003** |   | **2002** |   |
|--------------------------------------|--------|----------|--------|----------|--------|
| Prepaid benefit cost                 |   | $        | — |     | $      | 275 |   |
| Accrued benefit liability            |   | (2,315   | )      | (656     | )      |
| Intangible asset                     |   | 1,422    |   | —   |   |
| Accumulated other comprehensive loss |   | 840      |   | 656      |   |
| Net amount recognized                |   | $        | (53    | )        | $      | 275 |   |

 

The following table provides the components of net periodic expense(income) for the defined benefit pension plans for the years endedDecember 31:

 
|                                            |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Service cost of benefits earned during the year |   | $        | 460    |     | $      | 337      |   | $ | 348 |   |
| Interest cost on projected benefit obligation   |   | 832      |   | 765      |   | 694      |   |
| Expected return on plan assets                  |   | (964     | )      | (1,099   | )      | (1,123   | )      |
| Recognized net gains                            |   | —   |   | (94      | )      | (288     | )      |
| Net periodic pension income                     |   | $        | 328    |     | $      | (91      | )      | $ | (369 | ) |
|                                            |   |     |   |     |   |     |   |
| Weighted average assumptions:                   |   |     |   |     |   |     |   |
| Discount rate:                                  |   |     |   |     |   |     |   |
| Benefit obligation                              |   | 6.25     | %      | 6.75     | %      | 7.25     | %      |
| Expected return on plan assets                  |   | 8.50     | %      | 8.50     | %      | 8.50     | %      |
| Rate of compensation increase                   |   | 3.00     | %      | 3.00     | %      | 5.00     | %      |

 

The following table provides information related to the Company’spension plan in which accumulated benefit obligations exceeded the fair valueof plan assets as of the applicable year end:

 
|                           |   | **2003** |   | **2002** |   |
|--------------------------------|--------|----------|--------|----------|--------|
| Projected benefit obligation   |   | $        | 15,687 |     | $      | 12,383 |   |
| Accumulated benefit obligation |   | 15,460   |   | 12,285   |   |
| Fair value of assets           |   | 13,145   |   | 11,628   |   |
|                                |        |          |        |          |        |  |  |

 

Assets of the defined benefit plan for hourly union employees consistprimarily of investments in equity securities, debt securities, and cashequivalents. The weighted-average asset allocations at December 31, 2003and 2002, by asset category, are as follows:

 
|              |   | **2003** |   | **2002** |   | **Target** |   |
|-------------------|--------|----------|--------|----------|--------|------------|--------|
| Equity securities |   | 52.0     | %      | 39.8     | %      | 50-70      | %      |
| Debt securities   |   | 47.9     | %      | 50.2     | %      | 30-50      | %      |
| Cash and other    |   | 0.1      | %      | 10.0     | %      | 0          | %      |
| Total             |   | 100.0    | %      | 100.0    | %      | 100.0      | %      |

 

In addition to the defined benefit pension plan for hourly employees,the Company also maintains a defined contribution plan which coverssubstantially all employees. Expenses for defined contribution plans amountedto $779, $748 and $720 in 2003, 2002 and 2001, respectively.

 

The Company also participates in certain unfunded health care plansthat provide post-retirement medical, dental, and life insurance to hourlyunion employees at its Amory, Mississippi plant and to salaried employees hiredprior to January 1, 2000. The post-retirement plans are contributory, andinclude certain cost-sharing features, such as deductibles and co-payments.

 

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The following table sets forth the benefit obligation of the unfundedpost-retirement health plans as of December 31:

 
|                                    |   | **2003** |   | **2002** |   |
|-----------------------------------------|--------|----------|--------|----------|--------|
| Reconciliation of benefit obligation:   |   |     |   |     |   |
| Benefit obligation at beginning of year |   | $        | 3,314  |     | $      | 2,693 |   |
| Service cost                            |   | 85       |   | 69       |   |
| Interest cost                           |   | 217      |   | 191      |   |
| Participant contributions               |   | 99       |   | 65       |   |
| Plan amendments                         |   | 28       |   | —   |   |
| Actuarial loss                          |   | 164      |   | 407      |   |
| Benefits paid                           |   | (392     | )      | (111     | )      |
| Benefit obligation at end of year       |   | 3,515    |   | 3,314    |   |
| Unrecognized prior service cost         |   | 228      |   | 294      |   |
| Unrecognized net actuarial loss         |   | (1,208   | )      | (1,098   | )      |
| Accrued benefit costs                   |   | $        | 2,535  |     | $      | 2,510 |   |

 

The following table provides the components of net periodic expense forthe unfunded post retirement health plans for the years ended December 31:

 
|                                |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Service cost                        |   | $        | 85     |     | $      | 69       |   | $ | 63 |   |
| Interest cost                       |   | 217      |   | 191      |   | 173      |   |
| Amortization of prior service costs |   | (37      | )      | (38      | )      | (38      | )      |
| Recognized net losses               |   | 54       |   | 35       |   | 27       |   |
| Net periodic cost                   |   | $        | 319    |     | $      | 257      |   | $ | 225 |   |
| Discount Rate:                      |   |     |   |     |   |     |   |
| Benefit obligation                  |   | 6.25     | %      | 6.75     | %      | 7.25     | %      |

 

The healthcare cost trend rate used to determine the post-retirementbenefit obligation was 11.0% for 2003. This rate decreases gradually to anultimate rate of 5.0% in 2014, and remains at that level thereafter. While thetrend rate can be a significant factor in determining the amounts reported, forthe year ended December 31, 2003 a one-percentage-point increase ordecrease in the trend rate will have only minimal impact due to the claimscosts being close to the employer imposed cap.

 

**(11) COMMITMENTS AND CONTINGENCIES**

 

**(a)****                                  LeaseObligation**

 

The Company is obligated under various non-cancelable leases for officefacilities and equipment. These leases generally provide for renewal optionsand, in the case of facilities leases, for periodic rate increases based uponeconomic factors. All non-cancelable leases with an initial term greater thanone year have been categorized as either capital or operating leases inconformity with FASB Statement No. 13, *Accountingfor Leases*.

 

Future minimum payments under non-cancelable operating leases withinitial terms of one year or more as of December 31, 2003 are as follows:

 
|                         |   | **Operating  Leases** |   |
|------------------------------|--------|-----------------------|--------|
| 2004                         |   | $                     | 1,046  |   |
| 2005                         |   | 1,023                 |   |
| 2006                         |   | 708                   |   |
| 2007                         |   | 680                   |   |
| 2008                         |   | 448                   |   |
| Total minimum lease payments |   | $                     | 3,905  |   |

 

Rental expense on operating leases, excluding sublease rent received,was $1,002, $870, and $948 for 2003, 2002 and 2001, respectively.

 

52

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**(b)****                                  ProductWarranties**

 

The Company generally warrants its products against certainmanufacturing and other defects. These product warranties are provided forspecific periods of time and/or usage of the product depending on the nature ofthe product, the geographic location of its sale and other factors. As ofDecember 31, 2003 and 2002, the Company has accrued $176 and $137,respectively, for estimated product warranty claims. The accrued productwarranty costs are based primarily on historical experience of actual warrantyclaims as well as current information on product costs. Warranty claims expensefor each of the years 2003, 2002, and 2001 were $812, $540, and $441,respectively.

 

The following table provides the changes in the Company’s productwarranties:

 
| January 1, 2003                                         |   | $    | 137    |   |
|--------------------------------------------------------------|--------|------|--------|--------|
| Liabilities accrued for warranties issued  during the period |   | 812  |   |
| Warranty claims paid during the period                       |   | (773 | )      |
| December 31, 2003                                       |   | $    | 176    |   |

 

**(c)****                                  LegalProceedings**

 

The Company has certain contingent liabilities resulting from litigationand claims incident to the ordinary course of business. Management believesthat the probable resolution of such contingencies will not materially affectthe consolidated financial position or results of operations of the Company.

 

**(12) RELATED PARTY TRANSACTIONS**

 

In 1998, True Temper entered into a management services agreement withCornerstone Equity Investors, LLC (“Cornerstone”). Cornerstone is a relatedparty through its indirect management and ownership interest in True TemperCorporation.

 

In accordance with this agreement, Cornerstone has agreed to provide:

 

(1)                                  generalmanagement services;

 

(2)                                  assistancewith the identification, negotiation and analysis of acquisitions anddispositions;

 

(3)                                  assistancewith the negotiation and analysis of financial alternatives; and

 

(4)                                  otherservices agreed upon by True Temper and Cornerstone.

 

In exchange for such services, Cornerstone or its nominee receives:

 

(1)                                  anannual advisory fee of $0.5 million payable quarterly, plus reasonableout-of-pocket expenses;

 

(2)                                  a transaction fee inan amount equal to 1.0% of the aggregate transaction value in connection withthe consummation of any material acquisition, divestiture, financing orrefinancing by True Temper or any of its subsidiaries.

 

The management services agreement has an initial term of five years,subject to automatic one-year extensions unless the Company or Cornerstoneprovides written notice of termination. The annual

 

53

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advisory fee of $0.5 million is an obligation of the Company and isalso contractually subordinated to the Notes and the Bank Credit facilities.

 

In addition to reimbursing Cornerstone for reasonable out-of-pocketexpenses, the Company paid Cornerstone $0.5 million for each of the years2003, 2002 and 2001, in accordance with the agreement.

 

**(13) SEGMENT AND OTHER RELATED DISCLOSURES**

 

**(a)****                                  SegmentReporting**

 

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 and composite golf shaftsfor use exclusively in the golf industry. The performance sports segmentmanufactures and sells high strength, tight tolerance tubular components forbicycle, hockey and other recreational sports markets. The accounting policiesfor these segments are the same as those described in the summary ofsignificant accounting policies. The Company evaluates the performance of thesesegments based on segment sales and gross profit. The Company has nointer-segment sales. General corporate assets, that are not allocated down tosegments, include: cash, non-trade receivables, deferred tax assets, deferredfinancing costs and goodwill created during the acquisition of the Company byBlack & Decker.

 
|                  |   | **As of and for the Years Ended  December 31,** |    |
|-----------------------|--------|------------------------------------------------------|---------|
|                  |   | **2003**                                             |    | **2002** |   | **2001** |   |
| Net sales:            |   |                                                 |    |   |   |   |   |
| Golf shafts           |   | $                                                    | 109,754 |   | $ | 102,764 |   | $ | 106,313 |   |
| Performance sports    |   | 6,452                                                |    | 4,637 |   | 4,770 |   |
| Total                 |   | $                                                    | 116,206 |   | $ | 107,401 |   | $ | 111,083 |   |
| Gross profit:         |   |                                                 |    |   |   |   |   |
| Golf shafts           |   | $                                                    | 45,118  |   | $ | 40,996 |   | $ | 41,726 |   |
| Performance sports    |   | 1,618                                                |    | 1,244 |   | 1,622 |   |
| Total                 |   | $                                                    | 46,736  |   | $ | 42,240 |   | $ | 43,348 |   |
|                  |   |                                                 |    |   |   |   |   |
| Depreciation Expense: |   |                                                 |    |   |   |   |   |
| Golf shafts           |   | $                                                    | 2,486   |   | $ | 2,802 |   | $ | 3,158 |   |
| Performance sports    |   | 420                                                  |    | 450 |   | 355 |   |
| Total                 |   | $                                                    | 2,906   |   | $ | 3,252 |   | $ | 3,513 |   |
|                  |   |                                                 |    |   |   |   |   |
| Capital Expenditures: |   |                                                 |    |   |   |   |   |
| Golf shafts           |   | $                                                    | 3,112   |   | $ | 700 |   | $ | 1,464 |   |
| Performance sports    |   | 348                                                  |    | 464 |   | 537 |   |
| Total                 |   | $                                                    | 3,460   |   | $ | 1,164 |   | $ | 2,001 |   |
|                  |   |                                                 |    |   |   |   |   |
| Total assets:         |   |                                                 |    |   |   |   |   |
| Jointly used assets   |   | $                                                    | 1,333   |   | $ | 1,596 |   | $ | 1,586 |   |
| Golf shafts           |   | 41,087                                               |    | 39,759 |   | 45,599 |   |
| Performance sports    |   | 2,997                                                |    | 3,057 |   | 2,767 |   |
| Total                 |   | $                                                    | 45,417  |   | $ | 44,412 |   | $ | 49,952 |   |

 

Revenues from two customers of True Temper’s golf shafts segmentrepresent approximately $16,000 or 13.7%, and $13,500 or 11.6%, respectively,of the Company’s 2003 revenues. Revenues from two customers of True Temper’sgolf shafts segment represent approximately $14,000 or 12.8%, and $11,000 or10.1%, respectively, of the Company’s 2002 revenues. Revenues from one customerof True Temper’s golf shafts segment represent approximately $12,000 or 10.4%of the Company’s 2001 revenues.

 

54

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Following are reconciliations of total reportable segment assets tototal Company assets, and total reportable segment gross profit to totalCompany income before income taxes:

 
|                           |   | **As of December 31,** |    |
|--------------------------------|--------|-----------------------------|---------|
|                           |   | **2003**                    |    | **2002** |   |
| Total assets:                  |   |                        |    |   |   |
| Total from reportable segments |   | $                           | 45,417  |   | $ | 44,412 |   |
| General corporate              |   | 134,199                     |    | 138,968 |   |
| Total                          |   | $                           | 179,616 |   | $ | 183,380 |   |

 
|                                                |   | **For the Years Ended  December 31,** |   |
|-----------------------------------------------------|--------|--------------------------------------------|--------|
|                                                |   | **2003**                                   |   | **2002** |   | **2001** |   |
| Total reportable segment gross profit               |   | $                                          | 46,736 |   | $ | 42,240 |   | $ | 43,348 |   |
| Less:                                               |   |                                       |   |   |   |   |   |
| Selling, general and administrative   expenses |   | 14,747                                     |   | 13,578 |   | 14,963 |   |
| Amortization of goodwill                            |   | —                                     |   | — |   | 2,695 |   |
| Business development and start-up costs             |   | 869                                        |   | 312 |   | — |   |
| Loss on early extinguishment of long-term debt      |   | —                                     |   | 777 |   | — |   |
| Interest expense                                    |   | 13,017                                     |   | 12,236 |   | 12,660 |   |
| Other expense (income), net                         |   | 132                                        |   | 93 |   | (2 | ) |
| Total Company income before income taxes            |   | $                                          | 17,971 |   | $ | 15,244 |   | $ | 13,032 |   |

 

**(b)****                                  Salesby Geographic Region**

 

The geographic distribution of the Company’s net sales, by location ofcustomer, is summarized as follows:

 
|          |   | **For the Years Ended  December 31,** |    |
|---------------|--------|--------------------------------------------|---------|
|          |   | **2003**                                   |    | **2002** |   | **2001** |   |
| U.S.          |   | $                                          | 79,652  |   | $ | 77,137 |   | $ | 87,647 |   |
| International |   | 36,554                                     |    | 30,264 |   | 23,436 |   |
| Total         |   | $                                          | 116,206 |   | $ | 107,401 |   | $ | 111,083 |   |

 

No individual country or geographic area outside the U.S. accounts for10% or more of total sales. Assets by location are not disclosed, as assetslocated outside the U.S. are immaterial.

 

**(14) SELECTED QUARTERLY FINANCIAL DATA(UNAUDITED)**

 

The following is a summary of unaudited quarterly results of operationsfor the years ended December 31, 2003 and 2002.

 
|         |   | **First  Quarter** |   | **Second  Quarter** |   | **Third  Quarter** |   | **Fourth  Quarter** |   |
|--------------|--------|--------------------|--------|---------------------|--------|--------------------|--------|---------------------|--------|
| **2003**     |   |               |   |                |   |               |   |                |   |
| Net sales    |   | $                  | 31,601 |                | $      | 32,491             |   | $                   | 24,667 |   | $ | 27,447 |   |
| Gross profit |   | 11,848             |   | 13,292              |   | 10,847             |   | 10,749              |   |
| Net income   |   | 2,584              |   | 3,751               |   | 2,299              |   | 2,224               |   |
|         |   |               |   |                |   |               |   |                |   |
| **2002**     |   |               |   |                |   |               |   |                |   |
| Net sales    |   | $                  | 29,362 |                | $      | 29,892             |   | $                   | 22,010 |   | $ | 26,137 |   |
| Gross profit |   | 10,598             |   | 12,985              |   | 8,705              |   | 9,952               |   |
| Net income   |   | 2,376              |   | 3,741               |   | 1,453              |   | 1,682               |   |

 

55

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**(15) SUBSEQUENT EVENT**

 

On January 30, 2004 Cornerstone Equity Investors, LLC signed anagreement to sell its investment in True Temper Corporation. Management expectsthe transaction to close within 90 days from the date of the agreement and issubject to regulatory approval and other customary closing conditions.

 

56

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**Item 9****.  *Changes In and Disagreements with Accountants onAccounting and Financial Disclosures***

 

None

 

**Item 9A****.  *Controls and Procedures***

 

**Evaluation ofDisclosure Controls and Procedures**

 

The Companycarried out an evaluation, under the supervision and with the participation ofthe Company’s management, including the Company’s Chief Executive Officer alongwith the Company’s Chief Financial Officer, of the effectiveness of the designand operation of the Company’s disclosure controls and procedures pursuant toExchange Act Rule 13a-14 under the Securities Exchange Act of 1934, as amended(the “Exchange Act”).  Based upon thatevaluation, the Company’s Chief Executive Officer along with the Company’sChief Financial Officer concluded that as of February 10, 2004 theCompany’s disclosure controls and procedures (1) were effective in alerting them, in a timely manner, to materialinformation relating to the Company required to be included in the Company’speriodic SEC filings and (2) were adequate to ensure that information requiredto be disclosed by the Company in the reports filed or submitted by the Companyunder the Exchange Act is recorded, processed and summarized and reportedwithin the time periods specified in the SEC’s rules and forms.

 

**Changes in Internal Controls**

There have been no significant changes in the Company’s internalcontrols or in other factors which could significantly affect internal controlssubsequent to the date the Company carried out its evaluation.

 

57

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**PART III**

 

**Item 10****.  *Directors and Executive Officers of the Registrant***

 

The directorsand executive officers of True Temper as of December 31, 2003 are asfollows:

 
| **Name**             |   | **Age** |   | **Position**                                                  |
|----------------------|--------|---------|--------|---------------------------------------------------------------|
| Scott C.  Hennessy   |   | 45      |   | Chief  Executive Officer, President and Director              |
| Fred H.  Geyer       |   | 43      |   | Senior Vice  President, Chief Financial Officer and Treasurer |
| Adrian H.  McCall    |   | 45      |   | Senior Vice  President of Global Distribution and Sales       |
| Richard C.  Andersen |   | 40      |   | Vice  President and General Manager of Performance Sports     |
| Stephen M.  Brown    |   | 38      |   | Vice  President of Human Resources                            |
| Graeme  Horwood      |   | 59      |   | Vice  President Engineering, Research and Development         |
| Jason A.  Jenne      |   | 34      |   | Vice  President Finance                                       |
| Gene Pierce          |   | 37      |   | Vice  President of Manufacturing                              |
| Mark Rossi           |   | 47      |   | Director                                                      |
| Robert A.  Knox      |   | 52      |   | Director                                                      |
| Raymond A.  DeVita   |   | 67      |   | Director                                                      |
| Patrick N.W.  Turner |   | 44      |   | Director                                                      |

 

**Scott C. Hennessy**has been our President since 1996, and our Chief Executive Officer and Directorsince October 1998. Mr. Hennessy joined us in 1994 as VicePresident-Sales and Marketing. From 1980 to 1994, Mr. Hennessy heldvarious management positions at Black & Decker in sales, marketing andproduct development. Mr. Hennessy sits on the Board of Governors of theNational Golf Foundation. Mr. Hennessy graduated magna cum laude with aB.S. from the University of Delaware.

 

**Fred H. Geyer** hasbeen our Senior Vice President since August 2002 and our Chief FinancialOfficer since February 1998. From 1985 to 1998, Mr. Geyer heldvarious positions at Emerson Electric Company, including Vice President-Financein the Air Moving Motor Division. Prior to that, Mr. Geyer worked atArthur Andersen LLP as a Senior Auditor. Mr. Geyer is a Certified PublicAccountant and is a member of the American Institute of Certified PublicAccountants. Mr. Geyer graduated magna cum laude with a B.S. in Accountingfrom the University of Missouri at St. Louis.

 

**Adrian H. McCall** hasbeen our Senior Vice President of Global Distribution and Sales sinceAugust 2002. From March 1999 to July 2002, Mr. Mc Callserved as our Vice President of International Sales and Marketing sinceMarch 1999. From September 1995 to March 1999, Mr. McCallserved as our Director of International Sales and Marketing. From May 1992to September 1995, Mr. McCall served as Director of InternationalOperations of The Upper Deck Company, a manufacturer and distributor ofbaseball cards. Mr. McCall graduated cum laude with a B.S. from theUniversity of Hartford.

 

**Richard C. Andersen**joined us as Vice President in September 2003. His current role is VicePresident and General Manager of Performance Sports. Previously,Mr. Andersen was Senior Vice President for Global Retail Sales at AltecLancing. Mr. Andersen has extensive international marketing and salesexperience with consumer branded companies such as Delta Faucet and Maytag.Mr. Andersen received a B.A. from the University of Iowa.

 

**Stephen R. Brown** hasbeen our Vice President of Human Resources since August 2002. FromJanuary 1998 to July 2002, Mr. Brown has served as our Directorof Human Resources. From September 1996 to December 1997,Mr. Brown served as our Manager-Human Resources. Prior to that, since1992, Mr. Brown served in various Human Resource management positions withEmerson Electric Company. Mr. Brown received a B.A. from the University ofSouth Carolina.

 

**Graeme Horwood** hasbeen our Vice President of Engineering, Research and Development sinceJune 2001. From April 2000 to May 2001, Mr. Horwood servedas our Senior Manager Technical Services. From 1986 to 2000, Mr. Horwoodheld various management positions at Apollo Sports Technologies.Mr. Horwood is a

 

58

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Chartered Engineer as well as a member of the Institute of MechanicalEngineers both in the United Kingdom. Mr. Horwood graduated first classhonors with a B.S. from Coventry University.

 

**Jason Jenne** has beenour Vice President of Finance since August 2003. From 1998 toAugust 2002, Mr. Jenne served as our Corporate Controller. FromSeptember 2002 to August 2003, Mr. Jenne served as our Directorof Corporate Finance. From 1993 to 1998, Mr. Jenne served in variousFinance and Accounting positions at Emerson Electric Company. Mr. Jennegraduated magna cum laude with a B.S. from Southern Illinois University.

 

**GenePierce** has been our Vice President of Manufacturingsince June 2001. From January 1999 to June 2001, Mr. Pierceserved as the Director of Steel Operations and Plant Manager of our steelfacility. From May 1997 to January 1999, Mr. Pierce served asBusiness Operations Manager at Metalloy Corporation. Mr. Pierce receivedboth a B.S. and M.B.A. from Mississippi State University.

 

**Mark Rossi** became adirector of True Temper in October 1998. Mr. Rossi has served as SeniorManaging Director of Cornerstone Equity Investors L.L.C. sinceDecember 1996. From 1983 to 1996, Mr. Rossi was affiliated with thegeneral partners of various private equity funds managed by Prudential. Mr.Rossi is also a director of Maxwell Technologies, Inc., Novatel Wireless, Inc.and several private companies. Mr. Rossi received a B.A. from Saint VincentCollege and an M.B.A. from Northwestern University.

 

**Robert A. Knox**became a director of True Temper in October 1998. Mr. Knox has served asSenior Managing Director of Cornerstone Equity Investors, L.L.C. sinceDecember 1996. From 1983 to 1996, Mr. Knox was affiliated with the generalpartners of various private equity funds managed by Prudential. Mr. Knox isalso a director of Health Management Associates, Lechters, Inc. and severalprivate companies. Mr. Knox received a B.A. and an M.B.A. from BostonUniversity.

 

**Raymond A. DeVita**became a director of True Temper in October 1998. Mr. DeVita served asPresident of True Temper from 1994 to 1996 and Executive Vice President ofBlack & Decker from 1989 to 1996. Mr. DeVita retired in 1996. Prior to1989, Mr. DeVita was Executive Vice President of Emhart. Mr. DeVita is also adirector of Black & Decker Health Care Management Corp. Mr. DeVita receiveda B.S. and M.S. from Tufts University.

 

**Patrick N.W. Turner**becamea director of True Temper in April 2000 in connection with the refinancingof True Temper Corporation Notes. Mr. Turner is co-managing partner ofCanterbury Mezzanine Capital I and II where he has been since July 1996.Mr. Turner was a director at Barclays Mezzanine Group a part of Barclays Bank PLCfrom 1989 to 1995. Currently, Mr. Turner is a director of one other privatecompany. Mr. Turner received an M.A. from Oxford University in England and anM.B.A. from New York University.

 

59

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**Item 11****.  *Executive Compensation***

 

The followingtable sets forth information concerning the annual and long-term compensationfor services in all capacities to True Temper for 2003, 2002 and 2001 of thosepersons who served as (1) the Chief Executive Officer during 2003 and (2) theother four most highly compensated executive officers of True Temper for 2003(the “Named Executive Officers”):

 

**Summary CompensationTable**

 
|                                |   |     |   | **Annual Compensation** |    |              |   |
|-------------------------------------|--------|----------|--------|-------------------------|---------|-------------------|--------|
| **Name and Principal Position**     |   | **Year** |   | **Salary**              |    | **Bonus  Earned** |   | **Other Annual  Compensation(1)** |   | **All Other  Compensation(2)** |   |
| Scott C. Hennessy                   |   | 2003     |   | $                       | 359,167 |              | $      | 550,000 |   | $ | 28,191 |   | $ | 9,933 |   |
| Chief Executive Officer,            |   | 2002     |   | $                       | 321,950 |              | $      | 375,000 |   | $ | 27,125 |   | $ | 10,000 |   |
| President and Director              |   | 2001     |   | $                       | 297,917 |              | $      | 225,000 |   | $ | 27,762 |   | $ | 8,500 |   |
|                                |   |     |   |                    |    |              |   |   |   |   |   |
| Fred H. Geyer                       |   | 2003     |   | $                       | 185,417 |              | $      | 200,000 |   | $ | 17,699 |   | $ | 10,000 |   |
| Senior Vice President, Chief        |   | 2002     |   | $                       | 161,583 |              | $      | 150,000 |   | $ | 9,263 |   | $ | 9,609 |   |
| Financial Officer and Treasurer     |   | 2001     |   | $                       | 151,167 |              | $      | 75,000 |   | $ | 167 |   | $ | 8,500 |   |
|                                |   |     |   |                    |    |              |   |   |   |   |   |
| Russell S. Minick (3)               |   | 2003     |   | $                       | 194,167 |              | $      | 150,000 |   | $ | 28,732 |   | $ | 10,000 |   |
| Senior Vice President of Sales      |   | 2002     |   | 77,705                  |    | 110,000           |   | 73,358 | (4) | — |   |
| and Marketing                       |   | 2001     |   | —                  |    | —            |   | — |   | — |   |
|                                |   |     |   |                    |    |              |   |   |   |   |   |
| Adrian H. McCall                    |   | 2003     |   | $                       | 166,255 |              | $      | 160,000 |   | $ | 17,765 |   | $ | 10,000 |   |
| Senior Vice President of            |   | 2002     |   | $                       | 148,917 |              | $      | 110,000 |   | $ | 9,243 |   | $ | 9,478 |   |
| International Sales and Marketing   |   | 2001     |   | $                       | 140,583 |              | $      | 50,000 |   | $ | 2,989 |   | $ | 8,500 |   |
|                                |   |     |   |                    |    |              |   |   |   |   |   |
| Gene Pierce                         |   | 2003     |   | $                       | 150,505 |              | $      | 90,000 |   | $ | 28,259 | (4) | $ | 10,032 |   |
| Vice President of Operations        |   | 2002     |   | $                       | 143,333 |              | $      | 70,000 |   | $ | 1,999 |   | $ | 9,167 |   |
|                                |   | 2001     |   | $                       | 132,250 |              | $      | 40,000 |   | $ | 899 |   | $ | 8,500 |   |
| Graeme Horwood                      |   | 2003     |   | $                       | 127,079 |              | $      | 60,000 |   | $ | 23,609 |   | $ | 13,650 |   |
| Vice President of Engineering & |   | 2002     |   | $                       | 120,917 |              | $      | 55,000 |   | $ | 23,569 |   | $ | 10,336 |   |
| Research and Development            |   | 2001     |   | $                       | 110,500 |              | $      | 25,000 |   | $ | 20,789 |   | $ | 8,176 |   |

 

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| (1)    | Includes certain life insurance benefits; and where applicable,  country club dues, car allowance and accrued vacation payout.                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                  |
| (2)    | Includes company contributions under our 401(k) plan.                                                                                                                 |
|   |                                                                                                                                                                  |
| (3)    | Mr. Minick left the Company in the fourth quarter of 2003.  The compensation shown for 2003 reflects  Mr. Minick’s earnings through December 31, 2003. |
|   |                                                                                                                                                                  |
| (4)    | Amount includes moving and relocation benefits.                                                                                                                       |

 

**Pension Plan**

 

True Temper Sports, Inc. sponsors a tax qualified defined benefitpension plan. Only the hourly employees at the Amory, Mississippi manufacturingplant, who are part of the collective bargaining unit of the United SteelWorkers, are eligible to participate in the plan. Benefits are calculated basedprimarily on years of service, among other factors. As of December 31,2003 none of True Temper Corporation’s named executive officers were eligibleto participate in the plan.

 

60

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**Stock Option Plan**

 

The Board of Directors has adopted a stock option plan which providesfor the grant to certain key employees and/or directors of True Temper of stockoptions in True Temper Corporation that are non-qualified options for federalincome tax purposes. The stock option plan is administered by the CompensationCommittee of the Board of Directors. The Compensation Committee has broadpowers under the stock option plan, including exclusive authority to determine:

 

(1)          whowill receive awards;

 

(2)          thetype, size and terms of awards;

 

(3)          thetime when awards will be granted; and

 

(4)          vestingcriteria, if any, of the awards.

 

**Option/SAR Grants inLast Fiscal Year**

 

The followingtable sets forth all True Temper Corporation common stock options granted toNamed Executives Officers during 2003.

 
| **Name**          |   | **Number of  Securities  Underling  Options  Granted** |   | **% of  Total  Granted to  Employees  In Fiscal  Year** |   | **Exercise  Or Base  Price  ($ / sh)** |    | **Expiration  Date** |                | **Potential  Realized Value of  Assumed Annual  Rates of Stock Price  Appreciation  For Option Term** |   |
|-------------------|--------|--------------------------------------------------------|--------|---------------------------------------------------------|--------|----------------------------------------|---------|----------------------|---------------------|-------------------------------------------------------------------------------------------------------|--------|
|              |   |                                                   |   |                                                    | **5%** |                                   | **10%** |                 |
| Scott C. Hennessy |   | 20,000                                                 |   | 17.4                                                    | %      | $                                      | 3.77    |                 | August 1, 2013 |                                                                                                  | $      | 47,418 |   | $ | 120,168 |   |
| Fred H. Geyer     |   | 15,000                                                 |   | 13.0                                                    | %      | $                                      | 3.77    |                 | August 1, 2013 |                                                                                                  | 35,564 |   | 90,126 |   |
| Russell S. Minick |   | —                                                 |   | —                                                  |   | —                                 |    | —               |                | —                                                                                                |   | — |   |
| Adrian H. McCall  |   | 15,000                                                 |   | 13.0                                                    | %      | $                                      | 3.77    |                 | August 1, 2013 |                                                                                                  | 35,564 |   | 90,126 |   |
| Gene Pierce       |   | —                                                 |   | —                                                  |   | —                                 |    | —               |                | —                                                                                                |   | — |   |
| Graeme Horwood    |   | —                                                 |   | —                                                  |   | —                                 |    | —               |                | —                                                                                                |   | — |   |
|                   |        |                                                        |        |                                                         |        |                                        |         |                      |                     |                                                                                                       |        |  |  |  |  |  |

 

**Compensation ofDirectors**

 

True Temper will reimburse directors for any out-of-pocket expensesincurred by them in connection with services provided in such capacity. Inaddition, we may compensate directors for services provided in such capacity.

 

**CompensationCommittee Report on Executive Compensation**

 

As members of the Compensation Committee it is our duty to monitor theperformance and compensation of executive officers and other key employees, andto make appropriate recommendations and reports to the Board of Directorsconcerning matters of executive compensation.

 

The Company maintains a compensation program designed to motivate,retain and attract management, with incentives linked to financial performanceand enhanced shareholder value. The fundamental philosophy is to relate theamount of compensation for an executive directly to his or her contribution tothe Company’s success in achieving superior performance objectives.

 

The Company’s executive compensation program consists of threecomponents: 1) base salary; 2) potential for annual incentive compensationbased on Company performance; and, 3) the opportunity to earn long-termstock-based incentives which are intended to encourage achievement of superiorlong-term results and to align executive officer interests with those of theshareholders. The base salary element is developed based on the performance ofthe individual executives with reference to industry, peer group and nationalsurveys, with the objective of having the Company’s executive officers receivea level of base salary similar to the average base salary of individuals atsimilarly sized companies, performing comparable duties.

 

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The annual incentive compensation element is based on the Company’sattainment of certain levels of profitability. The long-term stock-basedelement is developed by reference to competitive practices and trends of othercompanies which use stock options as a component of executive compensation.Long-term stock-based incentives are to incentivize executive officers toincrease shareholder value. Accordingly, the Committee has taken into accountthe amount and value of options held by each of the executive officers whenconsidering new grants to assure that deserving executives have an equityparticipation in the Company. In determining the stock option grants for fiscal2001, the Committee considered the current stock holdings of each individual,their responsibilities and historical and anticipated future contributions toTrue Temper’s performance.

 

Because of the scope of his responsibilities as Chief Executive Officerand President, and given the equity stake he has in the Company, theCompensation Committee separately considers the compensation of Mr. Hennessy.His salary, like that of the other officers, is determined by reference topublished compensation surveys, and his salary level is in line with suchpublished salary levels for comparable positions of responsibility. TheCommittee believes a portion of the total annual compensation of Mr. Hennessyshould be directly tied to the Company’s performance. Accordingly, Mr. Hennessyalso earns a cash bonus based on the True Temper’s operating performance duringthe current fiscal year.

 

The Compensation Committee is of the opinion that the compensationlevels for the Named Executive Officers are reasonable when compared to similarpositions of responsibility and scope in similar industries and that anappropriate amount of total compensation is based on the performance of theCompany, and therefore provides sufficient incentive for these individuals toattain improved results in the future.

 

COMPENSATION COMMITTEE

 

Raymond A. DeVita

Scott C. Hennessy

Robert A. Knox

 

**Item 12****.  *Security Ownership of Certain Beneficial Owners andManagement***

 

All of the outstanding shares of our capital stock are owned by TrueTemper Corporation. The following table sets forth information with respect tothe beneficial ownership of True Temper Corporation’s capital stock as of  March 12, 2004 by:

 

(1)          allstockholders of True Temper Corporation that own more than 5% of any class ofsuch voting securities,

 

(2)          eachdirector and named executive officer, and

 

(3)          alldirectors and executive officers as a group.

 

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| **Name of Beneficial Owner(1)**                                                                  |   | **Number of  Preferred  Shares** |   | **Numberof  Common  Shares** |   | **Percentage of  Outstanding  Preferred  Stock** |   | **Percentage  of  Outstanding  Common  Stock** |   | **Percentage of  Voting  Capital  Stock** |   |
|--------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|-------------------------------------------|--------|
| True Temper Sports LLC(2)                                                                        |   | 20,895,797.5                     |   | 8,192,163                    |   | 100.0                                            | %      | 80.4                                           | %      | 80.4                                      | %      |
| c/o  Cornerstone Equity Investors, L.L.C.  717 Fifth Avenue Suite 1100  New York, New York 10022 |   |                             |   |                         |   |                                             |   |                                           |   |                                      |   |
| Scott C. Hennessy                                                                                |   | —                           |   | 983,201                      |   | —                                           |   | 9.6                                            | %      | 9.6                                       | %      |
| Russell S. Minick                                                                                |   | —                           |   | 52,083                       |   | —                                           |   |                                           | *      |                                      | *      |
| Fred H. Geyer                                                                                    |   | —                           |   | 136,211                      |   | —                                           |   | 1.3                                            | %      | 1.3                                       | %      |
| Adrian H. McCall                                                                                 |   | —                           |   | 88,467                       |   | —                                           |   |                                           | *      |                                      | *      |
| Gene Pierce                                                                                      |   | —                           |   | 32,813                       |   | —                                           |   |                                           | *      |                                      | *      |
| Graeme Horwood                                                                                   |   | —                           |   | 13,021                       |   | —                                           |   |                                           | *      |                                      | *      |
| Raymond A. DeVita                                                                                |   | —                           |   | 11,500                       |   | —                                           |   |                                           | *      |                                      | *      |
| All directors and executive officers as a group (11 persons)(3)                                  |   | —                           |   | 1,429,854                    |   | —                                           |   | 14.0                                           | %      | 14.0                                      | %      |

 

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*  Less than 1%.

 
| (1)    | Except as otherwise indicated, the address for all persons shown on  this table is c/o True Temper Sports, Inc., 8275 Tournament Drive, Suite 200,  Memphis, TN 38125.                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                         |
| (2)    | Membership interests in True Temper Sports, LLC are held by  Cornerstone Equity Investors IV, L.P. (73.9%), GS Private Equity Partners,  L.P. (17.2%), GS Private Equity Partners Offshore, L.P. (8.3%) and other  investors (0.6%).                         |
|   |                                                                                                                                                                                                                                                         |
| (3)    | Includes issuance of management incentive shares. Excludes stock held  by True Temper Sports LLC, an affiliate of Cornerstone Equity Investors IV,  LP, for which the individual directors who are affiliates of Cornerstone  disclaim beneficial ownership. |

 

Upon theconsummation of the contemplated sale of True Temper Corporation, 218,228unvested stock options will be vested.

 

**Item 13****.  *Certain Relationships and Related Transactions***

 

**RecapitalizationAgreement**

 

In accordancewith the terms of the recapitalization agreement, Black & Decker hasindemnified True Temper Sports, LLC, the equity investor, against any and alldamages resulting from any misrepresentation or breach of warranty of Black& Decker or of True Temper Corporation contained in the recapitalizationagreement, a claim which is typically made the earlier of 18 months followingthe closing date or the date on which audited financial statements for the 1999calendar year are delivered. The indemnification obligations of Black &Decker under the recapitalization agreement are generally subject to a $5.0million basket amount and limited to an aggregate payment of no more than 25%of the adjusted purchase price received by Black & Decker pursuant to therecapitalization. Black & Decker will indemnify True Temper for 50% of allenvironmental liability up to an aggregate amount of $10.0 million and 80% ofany environmental liability in excess of $10.0 million.

 

In addition,Black & Decker has agreed for a period of five years after the closing datenot to compete with True Temper in the business of the company as conducted asof the closing date.

 

63

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As provided inthe recapitalization agreement, True Temper Sports, Inc. may pay contingentamounts to Black & Decker. The amount of such payments, if any, will beequal to 25% of the EBIT contribution derived from True Temper Sports, Inc.’ssales to Thiokol. These sales will be in accordance with the Thiokol contractwhich is defined in the recapitalization agreement. Such payments will be madeannually during the initial term of the Thiokol contract based on the EBITcontribution derived in each such year. The Company has made no payments or recorded any current obligation tomake such a payment in accordance with the recapitalization agreement.

 

**StockholdersAgreement**

 

Upon theconsummation of the recapitalization, True Temper Corporation and all of itsstockholders, including True Temper Sports, LLC and Black & Decker, enteredinto a stockholders agreement. The stockholders agreement:

 

(1)          requiresthat each of the parties vote all of their voting securities of True TemperCorporation and take all other necessary or desirable actions to cause the sizeof the board of directors of True Temper Corporation to be established at thenumber of members determined by True Temper Sports, LLC and to cause designeesof True Temper Sports, LLC representing a majority of the board of directors tobe elected to the board of directors of True Temper Corporation;

 

(2)          grantsTrue Temper Corporation and True Temper Sports, LLC a right of first refusal onany proposed transfer of shares of capital stock of True Temper Corporationheld by Black & Decker and any of the other stockholders;

 

(3)          grantstag-along rights on certain transfers of shares of capital stock of True TemperCorporation;

 

(4)          requiresthe stockholders to consent to a sale of True Temper Corporation to anindependent third party if such sale is approved by certain holders of the thenoutstanding shares of the company’s voting common stock; and

 

(5)          exceptin certain instances, prohibits Black & Decker from transferring any sharesof capital stock of True Temper Corporation for certain periods following theconsummation of the recapitalization. Certain of the foregoing provisions ofthe stockholders agreement will terminate upon the consummation of an initialpublic offering, a qualified public offering or an approved sale.

 

**Equity RegistrationRights Agreement**

 

Upon theconsummation of the recapitalization, True Temper Corporation and all of itsstockholders, including True Temper Sports, LLC and Black & Decker, enteredinto the equity registration rights agreement. Under the equity registrationrights agreement, the holders of a majority of the True Temper Corporationregistrable securities and/or its affiliates have the right to require TrueTemper Corporation to register any or all of their shares of common stock ofTrue Temper Corporation under the Securities Act at the company’s expense. Inaddition, all holders of registrable securities are entitled to request theinclusion of any shares of common stock of True Temper Corporation subject tothe equity registration rights agreement in any registration statement filed byTrue Temper Corporation at its expense whenever the company proposes toregister any of its common stock under the Securities Act. In connection withall such registrations, True Temper Corporation has agreed to indemnify allholders of registrable securities against those liabilities described in thestockholders agreement, including liabilities under the Securities Act.

 

**Management ServicesAgreement**

 

In connectionwith the recapitalization, True Temper entered into a management servicesagreement with Cornerstone. In accordance with this agreement, Cornerstone hasagreed to provide:

 

(1)          general managementservices;

 

(2)          assistance with theidentification, negotiation and analysis of acquisitions and dispositions;

 

64

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(3)          assistance with thenegotiation and analysis of financial alternatives; and

 

(4)          other services agreedupon by True Temper and Cornerstone.

 

In exchangefor such services, Cornerstone or its nominee receives:

 

(1)          an annual advisory feeof $0.5 million payable quarterly, plus reasonable out-of-pocket expenses;

 

(2)          atransaction fee in an amount equal to 1.0% of the aggregate transaction valuein connection with the consummation of any material acquisition, divestiture,financing or refinancing by True Temper or any of its subsidiaries; and

 

(3)          aone-time transaction fee of $3.0 million upon the consummation of therecapitalization.

 

The managementservices agreement has an initial term of five years, subject to automaticone-year extensions unless we or Cornerstone provide written notice oftermination. The annual advisory fee of $0.5 million is an obligation of oursand is also contractually subordinated to the Notes and the senior creditfacilities.

 

**Item 14****.  *Principal Accountants Fees and Services***

 

The following table represents aggregate fees billed to the Company forfiscal years ended December 31 by KPMG LLP, the Company’s principalaccounting firm.

 

 
|                   |   | **Fiscal Years Ended** |    |
|------------------------|--------|------------------------|---------|
|                   |   | **2003**               |    | **2002** |   |
| Audit fees             |   | $                      | 112,000 |   | $ | 113,498 |   |
| Audit-related fees (1) |   | 8,300                  |    | 9,100 |   |
| Tax Fees (2)           |   | 40,274                 |    | 39,617 |   |
| All other fees (3)     |   | 2,947                  |    | 15,790 |   |
| Total fees (4)         |   | $                      | 163,521 |   | $ | 178,005 |   |

 

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(1)          Primarilybenefit plans audit services

(2)          Primarilytax returns, advice and planning

(3)          Primarilyadvisory services relating to compliance with reporting requirements

(4)          Allfees have been approved by the Audit Committee

 

The Audit Committee has considered whether performance of servicesother than audit services is compatible with maintaining the independence ofKPMG LLP.

 

**Auditor FeesPre-approval Policy**

 

In 2003, the Audit Committee adopted a policy concerning approval ofaudit and non-audit services to be provided by the independent auditor to theCompany.  The policy requires that allservices KPMG LLP, the Company’s independent auditor, may provide to theCompany, including audit services and permitted audit-related and non-auditservices, excluding certain designated tax services, must be approved by theAudit Committee.  The Committee approvedall audit and non-audit services provided by KPMG during fiscal 2003.

 

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**PART IV**

 

**Item 15****.  *Exhibits, Financial Statements Schedule, and Reportson Form 8-K***

 

**(a)****          Documentsfiled as part of this report:**

 

1.               *FinancialStatements.*  The followingfinancial statements of True Temper Sports, Inc. have been included in part II,item 8 of this report on Form 10-K.

 
| Independent Auditors’ Report                                                                                  |   |
|--------------------------------------------------------------------------------------------------------------------|--------|
| Statements of Operations for the three  years ended December 31, 2003                                         |   |
| Balance Sheets at December 31, 2003 and 2002                                                                  |   |
| Statements of Stockholder’s Equity and Comprehensive Income for the  three years ended December 31, 2003 |   |
| Statements of Cash Flows for the three  years ended December 31, 2003                                         |   |
| Notes to Financial Statements                                                                                      |   |

 

2.               *FinancialStatement Schedule.*

 

**SCHEDULE II— VALUATION AND QUALIFYING ACCOUNTS**

 
|                                  |   |                                     |       | **Additions**                       |       |                            |       |               |       |
|---------------------------------------|--------|------------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|--------------------|------------|
|                                  |   | **Balance at  Beginning  of Period**     |       | **Charged to  Costs and  Expenses** | ** ** | **Charged to  Other  Accounts** | ** ** | **Deductions (1)** |       | **Balance at  Ended  of Period** | ** ** |
|                                  |   | **Dollars in thousands  (debit)/credit** |       |                                |       |                            |       |
| **ALLOWANCE FOR  DOUBTFUL ACCOUNTS**  |   |                                     | ** ** |                                | ** ** |                            | ** ** |               | ** ** |   | ** ** |
| **Year Ended December 31, 2001** |   | **1,433**                                | ** ** | **87**                              | ** ** | **—**                      | ** ** | **(981**           | **)**      | **539** | ** ** |
| **Year Ended December 31, 2002** |   | **539**                                  | ** ** | **220**                             | ** ** | **—**                      | ** ** | **(106**           | **)**      | **653** | ** ** |
| **Year Ended December 31, 2003** |   | **653**                                  | ** ** | **256**                             | ** ** | **—**                      | ** ** | **(77**            | **)**      | **832** | ** ** |

 

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(1)          Deductionsrepresent uncollectible accounts charged against the allowance for doubtful.

 

All otherschedules are omitted because they are not applicable or the requiredinformation is shown in the financial statements or notes thereto.

 

3.               Exhibits.

 

See the Index to Exhibits.

 

**(b)****          Reportson Form 8-K.**

 

No reports on Form 8-K were filed during the quarter endedDecember 31, 2003.

 

66

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**SIGNATURES**

 

Pursuant tothe requirements of section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
| Dated:  March 12, 2004 |                     |                                                           |
|-----------------------------|--------------------------|----------------------------------------------------------------|
|                        |                     |                                                           |
|                        |                     |                                                           |
|                        | True Temper Sports, Inc. |
|                        |                     |                                                           |
|                        | By:                      | /s/   SCOTT C. HENNESSY                              |   |
|                        | Name:                    | Scott C. Hennessy                                              |
|                        | Title:                   | President and  Chief Executive Officer                         |
|                        |                     |                                                           |
|                        | By:                      | /s/    FRED H. GEYER                            |   |
|                        | Name:                    | Fred H. Geyer                                                  |
|                        | Title:                   | Senior Vice President,  Chief Financial Officer  and Treasurer |
|                             |                          |                                                                |  |  |  |

 

Pursuant tothe requirements of section 13 or 15(d) of the Securities Exchange Act of1934, this report has been signed below by the following persons on behalf ofthe registrant and in the capacities indicated, on March 12, 2004.

 

 
|   | By:    | /s/   ROBERT A. KNOX   |   |
|--------|--------|----------------------------------|--------|
|   | Name:  | Robert A. Knox                   |
|   | Title: | Director                         |
|   |   |                             |
|   |   |                             |
|   | By:    | /s/    MARK ROSSI |   |
|   | Name:  | Mark Rossi                       |
|   | Title: | Director                         |
|   |   |                             |
|   |   |                             |
|   | By:    | /s/  PATRICK N.W. TURNER    |   |
|   | Name:  | Patrick N.W. Turner              |
|   | Title: | Director                         |
|   |   |                             |
|   |   |                             |
|   | By:    | /s/  RAYMOND A. DEVITA      |   |
|   | Name:  | Raymond A. DeVita                |
|   | Title: | Director                         |
|        |        |                                  |        |  |  |  |

 

67

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**INDEX TO EXHIBI****TS**

 
| **Exhibit** |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1         |   | Reorganization,  Recapitalization and Stock Purchase Agreement dated as of June 29, 1998  by and between The Black & Decker Corporation, True Temper Sports, Inc.  and TTSI LLC (“Recapitalization Agreement”) (filed as exhibit 2.1 to the  Company’s Registration Statement on Form S-4 (No. 333-72343), as filed with  the Securities and Exchange Commission (the “SEC”) on February 12, 1999  (the “Form S-4”).* |
| 2.2         |   | Amendment  No. 1 to Recapitalization Agreement dated August 1, 1998 (filed as  exhibit 2.2 to Form S-4).*                                                                                                                                                                                                                                                                                                                                                         |
| 2.3         |   | Amendment  No. 2 to Recapitalization Agreement dated September 30, 1998 (filed as  exhibit 2.3 to Form S-4).*                                                                                                                                                                                                                                                                                                                                                     |
| 2.4         |   | Assignment  and Assumption Agreement by and between True Temper Corporation (“TTC”) and  the Company dated September 30, 1998 (filed as exhibit 2.4 to Form  S-4).*                                                                                                                                                                                                                                                                                     |
| 3.1         |   | Amended and  Restated Certificate of Incorporation of the Company, dated  September 29, 1988 (filed as Exhibit 3.1 to Form S-4).*                                                                                                                                                                                                                                                                                                                                 |
| 3.2         |   | By-laws of  the Company (filed as Exhibit 3.2 to Form S-4).*                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1         |   | Indenture  dated November 23, 1998 between the Company United States Trust of New  York (filed as Exhibit 4.1 to Form S-4).*                                                                                                                                                                                                                                                                                                                                      |
| 4.2         |   | Purchase  Agreement dated November 18, 1998 between the Company and Donaldson,  Lufkin and Jenrette (filed as Exhibit4.2 to Form S-4).*                                                                                                                                                                                                                                                                                                                           |
| 4.3         |   | Registration  Rights Agreement dated as of November 23, 1998 between the Company and  Donaldson, Lufkin and Jenrette (filed as Exhibit 4.3 to Form S-4).*                                                                                                                                                                                                                                                                                                         |
| 10.1        |   | Management  Services Agreement dated as of September 30, 1998 between the Company  and Cornerstone Equity Investors, LLC (“Management Services Agreement”)  (filed as Exhibit 10.1 to Form S-4).*                                                                                                                                                                                                                                                       |
| 10.2        |   | Amendment to  Management Services Agreement dated November 23, 1998 (filed as Exhibit  10.2 to Form S-4).*                                                                                                                                                                                                                                                                                                                                                        |
| 10.3        |   | Credit  Agreement dated as of September 30, 1998 among the Company, various  financial institutions, DLJ Capital Funding, Inc. and The First National Bank  of Chicago (filed as Exhibit 10.3 to Form S-4).*                                                                                                                                                                                                                                                      |
| 10.4        |   | Securities  Purchase Agreement dated as of September 30, 1998 among TTC and the  Purchase Party thereto (filed as Exhibit 10.4 to Form S-4).*                                                                                                                                                                                                                                                                                                                     |
| 10.5        |   | Amendment  No. 1 to Credit Agreement dated June 11, 1999 (filed as Exhibit 10.5 to  the Company’s 1999 Annual Report on Form 10-K, as filed with the SEC on March 30,  2000).*                                                                                                                                                                                                                                                                          |
| 10.6        |   | True Temper  Corporation 1998 Stock Option Plan (filed as Exhibit 10.6 to the Company’s  1999 Annual Report on Form 10-K, as filed with the SEC on March 30,  2000).*                                                                                                                                                                                                                                                                                        |
| 10.7        |   | Shareholder’s  Agreement dated as of September 30, 1998 (filed as Exhibit 10.7 to the  Company’s 1999 Annual Report on Form 10-K, as filed with the SEC on  March 30, 2000).*                                                                                                                                                                                                                                                                      |
| 10.8        |   | Amended and  Restated Management Services Agreement dated March 27, 2000 (filed as  Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarterly  period ended April 2, 2000, as filed with the SEC on May 16, 2000).*                                                                                                                                                                                                                 |
| 10.9        |   | Amendment  No. 2 to Credit Agreement dated November 17, 2000 (filed as Exhibit 10.9  to the Company’s Annual Report on Form 10-K, as filed with the SEC on  March 28, 2001).*                                                                                                                                                                                                                                                                           |
| 10.10       |   | Amendment  No. 3 to Credit Agreement dated December 4, 2001. (filed as Exhibit  10.10 to the Company’s Annual Report on Form 10-K, as filed with the SEC on  April 1, 2002).*                                                                                                                                                                                                                                                                           |
| 10.11       |   | Credit  Agreement dated as of December 31, 2002 among the Company, Antares  Capital Corporation and the Other Financial Institutions Party Hereto.*                                                                                                                                                                                                                                                                                                               |
| 12.1        |   | Computation  of Ratio of Earnings To Fixed Charges.**                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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 by reference

** Filed herewith

 

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