### **UNITED STATES**

**SECURITIES 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, 2004** |
|                                                  |       |                                                                                                     |
| **OR**                                                |
|                                                  |       |                                                                                                     |
| **o**                                                 | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |

** **

**Commissionfile number 333-72343**

 

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**TRUE TEMPER SPORTS, INC.**

(Exact name ofregistrant as specified in its charter)

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

 

**8275Tournament Drive Suite 200**

**Memphis,Tennessee 38125**

**Telephone:(901) 746-2000**

(Address,including zip code, and telephone number,

including areacode, of registrant’s principal executive offices)

 

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Securitiesregistered pursuant to section 12(b) of the Act: **None**

 

Securitiesregistered pursuant to section 12(g) of the Act: **None**

 

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

 

Indicate by checkmark if disclosure by delinquentfilers pursuant to item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of the registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K.  ý

 

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

 

As of June 27, 2004 the Registrant had 100 sharesof Common Stock, $0.01 par value per share, outstanding. All of the Registrant’soutstanding shares were held by True Temper Corporation, the Registrant’sparent company, as of June 27, 2004.

 

**Documents Incorporated byReference:**

** **

Part IVincorporates certain information by reference from the Registrant’sRegistration Statement on Form S-4, as filed with the Securities &Exchange Commission on June 7, 1999.

 

 

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**TRUETEMPER SPORTS, INC.**

 

**ANNUALREPORT ON FORM 10-K**

**For theFiscal Year Ended December 31, 2004**

 

**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                                                                    |   |
| Item 9B       | Other  Information                                                                          |   |
|          |                                                                                        |   |
| 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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**PART I**

 

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

 

**Purchase Agreement for True Temper Corporation**

 

On January 30, 2004, TTS Holdings LLC, a newcompany formed by Gilbert Global Equity Partners, L.P. and its affiliated funds(“Gilbert Global”), entered into a stock purchase agreement with the Company’s directparent company, True Temper Corporation (“TTC”), pursuant to which TTS HoldingsLLC and certain of the Company’s senior management purchased all of theoutstanding shares of True Temper Corporation (“Gilbert Global Acquisition”). Inconnection with this acquisition, and effective on March 15, 2004, theCompany repaid all of its outstanding 2002 senior credit facility, redeemed allof its 10 7/8% senior subordinated notesdue 2008, and made certain payments of the net remaining equity of the predecessorcompany to the selling shareholders. These payments were financed with the netproceeds of a new senior credit facility and new 8 3/8% senior subordinated notes due 2011.

 

The Gilbert Global Acquisition was accounted for bythe Company’s parent company using the purchase method of accounting. As theCompany is a wholly owned subsidiary of True Temper Corporation, the Companyhas “pushed down” the effect of the purchase method of accounting to thesefinancial statements. The Company’s financial statements and accompanyingnotes, shown in Item 8 of this annual report, present the historical cost basisresults of the Company as “predecessor” through March 14, 2004, and theresults of the Company as “successor” from March 15, 2004 through December 31,2004, accordingly, certain elements of the successor company presentation arenot comparable to the predecessor company due to the different basis ofaccounting.

 

For purposes of the following discussion, contained inItem 1 and 5, regarding the Company’s results of operations and cash flow, theCompany has combined the results of the predecessor and successor companies inorder to compare the results to the prior year. Material variances caused bythe different basis of accounting have been disclosed where applicable.

 

**General**

 

We are the world’s leading designer, manufacturer andmarketer of golf shafts. Since the 1930s, we have manufactured golf shaftsunder the widely recognized *True Temper*brand. In 2004, over 70% of our revenue was generated through the sale of steelgolf shafts. We believe that our share of the worldwide steel shaft market wasapproximately 68% in 2004 and that our share is more than three times greaterthan that of the next largest market participant. We are a leading supplier ofpremium steel shafts to top domestic golf club original equipment manufacturersand distributors, including Callaway, Cleveland, Golfsmith, Golf Works, Mizuno,Nike, PING, TaylorMade, Titleist and Wilson. From 1987 to 2004, our steelshafts were played by the winners of 58 of the PGA’s 72 major championships,including 16 of the last 18 Masters champions. We are also one of the world’slargest manufacturers of premium graphite (carbon fiber based composites) golfshafts, with an estimated share of approximately 8% of this highly fragmentedmarket. In addition to golf shafts, through our Performance Sports business, wealso design, manufacture and market products such as steel and titanium alloybicycle frame components, composite bicycle components, such as forks andhandlebars, and graphite hockey sticks.

 

Our golf shaft products include over 1,000 proprietarymodels (with our customers’ brand name, label or trademark affixed to theshaft) and 2,000 branded models (with the *TrueTemper* and/or *Grafalloy*brand name, label or trademark affixed to the shaft), including a full range ofpremium and commercial grade steel shafts and a full line of premium graphiteshafts. We design, manufacture and market approximately 275 lines of steelshafts, including:

 

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

 

•                  *Dynamic Gold SL,* which delivers theplaying characteristics of Dynamic Gold with 20% less weight;

 

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

 

•                  *Dynalite Gold*, which features a light-weight,soft tip design that promotes a higher ball flight to optimize trajectory forlow-ball hitters;

 

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

 

•                  *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;

 

•                  *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 approximately75 lines of premium graphite shafts under the *TrueTemper*and *Grafalloy*brandnames. Our graphite shafts have a strong presence at the professional level andhave been played by winners on each of the professional tours, including thePGA, EPGA, LPGA, Champions and Nationwide Tours. Our most popular graphiteshaft brands include:

 

•                  *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;

 

•                  GrafalloyPrototype Comp NT, which incorporates today’s nano technology for the mostconsistent carbon fiber alignment;

 

•                  *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; and

 

•                  *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.

 

We believe that we are the only golf shaft company inthe world which is capable, within its own facilities, of manufacturing bothsteel and graphite golf shafts in large volumes. This unique competitiveadvantage allowed us to design, develop, manufacture and sell the firstcommercially viable multi-material golf shaft combining both steel and graphiteinto one shaft. Our *BiMatrx RXi*and*BiMatrx Rocket*shafts utilize apatented multi-material technology to combine the torsional stability andconsistent performance benefits of steel with the light-weight flexiblebenefits of graphite into one shaft.

 

Through our Performance Sports business, we haveutilized the capabilities developed in our golf shaft business to pursue otherbranded recreational sports equipment markets that have similar competitive dynamicsand

 

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manufacturing requirements. We focus on the premium segment of thebicycle market where innovation, quality and branding are highly valued by theconsumer, and products are often customized to suit the individual consumer’sspecific requirements. Our value-added premium bicycle component productsgenerally have higher margins than component parts made for bicycles sold inmass channel retail stores. In the hockey components market, we focus on thecomposite shafts used in a variety of original equipment manufacturers’one-piece and composite sticks.

 

**The GolfClub Shaft Industry**

 

The golf equipment industry is estimated to be a$4.6 billion industry, with golf clubs making up the largest portion atapproximately 61%, or $2.8 billion. Spending in the golf equipmentindustry is highly concentrated among avid golfers (golfers that play more than25 rounds of golf per year) who account for approximately 57% of the totalspending on golf equipment despite only accounting for approximately 23% of thegolfing population.

 

There are three basic components needed to manufacturea golf club: the shaft, the club head and the grip. The shaft is critical tothe performance of a golf club as it is critical in controlling the consistencyand distance of a golf shot. While branded premium shafts are critical to theperformance and marketing of golf clubs, these shafts represent a relativelysmall portion of the overall cost of a golf club, typically under 10% of theretail sales price.

 

The golf shaft market is comprised primarily of steeland graphite shafts. We believe that in 2004 the three largest participants inthe worldwide steel shaft market comprised an aggregate market share of morethan 80%. We believe that the concentration in the steel shaft market is due tothe high barriers to entry created by the technical expertise and capitalinvestment necessary to participate in the market as well as the customizedmanufacturing process required for the production of premium steel shafts. Theproduction of graphite shafts is less capital intensive and requires lesstechnical expertise. Although recently there has been some consolidation amonggraphite shaft manufacturers, the graphite shaft industry is fragmented, withthe top five market participants representing approximately 50% of theworldwide market in 2004. We believe that the relatively lower barriers toentry account for this fragmentation.

 

We believe that from 1991 to 1995, graphite shaftsgained share in the overall shaft market due to the light-weight, vibration-dampingcharacteristics of graphite shafts, particularly for longer-shafted, larger-headedwoods. Since 1995, however, the development of vibration damping materials forsteel shafts such as our *Sensicore*insert,along with the introduction of lighter weight steel alloys in products such asour Dynamic Gold SL and *TX-90*shafts,have resulted in steel shafts that have the vibration damping and light-weightcharacteristics of graphite shafts together with the consistent performance anddistance control qualities of steel shafts. We believe that these designimprovements contributed to the growth in share of steel shafts in the overallshaft market from approximately 50% in 1995 to approximately 65% in 2004.

 

**Products**

 

We design, manufacture and market steel and graphitegolf shafts, as well as a variety of high strength, high tolerance componentsfor the hockey, bicycle and other recreational sports markets. Our proprietaryshafts, which accounted for approximately 37% of our net sales in 2004, arecustom designed, and frequently co-branded in partnership with our customers,to accommodate specific golf club head designs. As an example our proprietarymodels include co-branded products such as Callaway’s *Memphis 10*, Nike’s *Speedstep*, Ping’s *JZ* and *ZZLite* and Wilson’s *Fat Shaft*.Our branded products with the *True Temper*and/or *Grafalloy* names anddesigns are typically sold to golf club original equipment manufacturers,distributors and various custom club assemblers, and are used to eitherassemble new clubs or to replace the 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.

 

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Premium steel shafts, such as our *Dynamic Gold, Dynamic Gold SL* and *TX-90* product lines, are highperformance products with tighter design tolerances and quality specificationsthat sell for higher average selling prices and generate higher profit marginsthan commercial grade steel shafts. Our commercial grade steel shafts aremanufactured to a different specification and sell for a lower average sellingprice to original equipment manufacturers who produce and sell opening pricepoint golf club sets, typically to entry-level players who purchase theirproducts 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 touringprofessionals on the PGA, EPGA, LPGA, Champions and Nationwide Tours. Ourgraphite shafts are sold under the *Grafalloy*and *True Temper* brands. Similarto steel, graphite shafts can be placed in several categories of performance, qualityand price. 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 CombinedMaterials.***  During thelast several years we have been working to develop golf shafts that combinemultiple materials such as steel and graphite into one shaft. Late in 2000 weintroduced a proprietary custom iron product for a customer that combines asteel shaft with a graphite tip section to produce a shaft that provides anew 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.

 

** *PerformanceSports Products.*** We also manufacture and sell a wide variety of high performancecomponents for the bicycle, hockey and other recreational sports markets. In 2004,we sold our performance sports products to a broad range of original equipmentmanufacturers and distributors.

 

**Customers**

 

We maintain long-standing relationships with a highlydiversified customer base. We are a leading supplier of shafts to the topdomestic golf club original equipment manufacturers and distributors, includingCallaway, Cleveland, Golfsmith, Golf Works, Mizuno, Nike, Ping, TaylorMade,Titleist, and Wilson. In 2004, we had in excess of 600 customers, includingapproximately 540 golf club manufacturers/retailers and approximately 80 distributors.

 

For many years we have maintained a broad anddiversified customer base in the golf equipment market. In 2004, our top tencustomers represented approximately 68% of our net sales, and our top customeraccounted for approximately 13% of our net sales.

 

We believe that our close customer relationships andresponsive service have been significant elements to our success and that ourengineering and manufacturing expertise provide us with a strong competitiveadvantage in truly partnering with our customer base. We have developed andco-branded many proprietary shafts with our customers, as an example we produceproprietary customized 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. Webelieve that we compete 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;

 

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•                  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 shaftmarket was approximately 68% in 2004 and that our share is more than threetimes greater than the share of the next largest market participant. We believethat we compete primarily 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 commercialgrade products, Nippon Shaft Co., Ltd., a Japanese manufacturer of premiumproducts, and Summit Sports World Wide Co., Ltd. which produces limitedvolumes of commercial grade steel shafts.

 

Unlike steel, the graphite shaft manufacturingindustry is highly fragmented with a large number of suppliers selling to onlya few customers. We believe there are over 50 graphite shaft manufacturersworldwide. A few of these companies reside in North America and many arelocated in Far East Asia. We do not believe that there are any graphitesuppliers currently with a market share in graphite that is comparable to themarket share we have in steel. We believe we are one of the five largestproducers of branded premium grade graphite shafts in the world and we estimatethat our market share is approximately 8%. Our major competitors in the premiumgrade branded graphite shaft market include Aldila, Inc., United SportsTechnologies, Inc., Graphite Design International, and FujikuraComposites.

 

We believe that we are the only golf shaft company inthe world which is capable, within its own facilities, of manufacturing bothsteel and graphite golf shafts in large volumes.

 

**Design & Development**

 

We design and develop products for bothproprietary/co-branded market applications and for the *True Temper*/*Grafalloy* branded product names.

 

The larger golf club manufacturers often requestexclusively designed proprietary or co-branded steel and graphite golf shaftsfor their club systems, which require golf shafts, heads and grips engineeredto work together. We are committed to serving this market by maintaining ourrole as a leader in innovative shaft designs for both steel and graphitematerials technology. Shaft designs and modifications are frequently the directresult of our combined efforts with that of our customers to develop anexclusive shaft specifically designed for that customer’s clubs. We use acomputer aided design analysis program to evaluate a new shaft’s design withrespect to weight, torque, flex point, tip and butt flexibility, swing weightand other critical shaft design criteria.

 

In addition to our proprietary/co-branded productapplications, we are very active in designing and developing new products underthe *True Temper* and *Grafalloy* brand names that meet theperformance needs of golfers of all ages and skill levels. We develop thesebranded products based upon our internal research and evaluation of consumerneeds and preferences.

 

The materials typically used in production of ourdesigns include several different high strength steel alloys and advancedcomposite systems of graphite and glass fibers with thermosetting epoxy resinsystems.

 

Using state of the art technology, we generate adesign which is then analyzed by computer for stiffness and strengthproperties. Our research and development efforts focus on technologydevelopment and new materials as an essential precursor to successful newproduct development. Our design research focuses on improvements in shaftaesthetics since cosmetic appearance has become increasingly important to customers.To supplement our design and development we employ extensive testing thatincludes laboratory durability and stress tests, robotic testing, extensiveball flight/trajectory analysis and individual player evaluation.

 

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In 2003, we opened a 14 acre test facility thatenables us to better evaluate our products. We have our own private driving rangewhere we perform qualitative player testing and quantitative mechanical testingwith a Miya 5 swing robot. Our facility is designed with an Accushot datasystem which allows us to measure the distance and dispersion of each shot toprovide an accurate assessment of product performance. Our facility alsoutilizes the newest, state of the art, Doppler radar system to track allaspects of ball flight and trajectory.  Webelieve that we are the only shaft manufacturer with our own driving range thatis capable of this type of product testing.

 

In addition, our pursuit of strategic vendor alliancescomplement our abilities and needs, an approach which allows us to exploittechnical capabilities beyond our own while minimizing the risk and investmentrequired to enter the market with new products.

 

Research and development costs for the years ended December 31,2004, 2003 and 2002 were $1.5 million, $1.5 million and $1.2 million,respectively.

 

**Manufacturing**

 

We believe that our manufacturing expertise andproduction capabilities enable us to respond quickly to customers’ orders andprovide sufficient quantities on a timely basis. We believe that our investmentin capital equipment and personnel training has helped us to establish areputation as one of the leading manufacturers of steel and graphite shafts.

 

 *SteelShaft Manufacturing Process.* The process of manufacturing a steel shaft has many distinct phases.Generally, a large steel coil is unrolled and then formed lengthwise, weldedand cut into cylinders. The tubing is then treated and fitted over a metal rodor “mandrel” that is used to determine the precise inside diameter of thecylinder as it is drawn. The tubing is stretched, cut into sections, and thenweighed and balanced. Later, through a process that we pioneered, the sectionsare tapered to give each shaft model a particular flex and frequency. The shaftsare cleaned, straightened, heat-treated and tempered. The shafts arestraightened by machines designed and built by us. The shafts are plated withlayers of nickel to prevent corrosion and then covered with a fine layer ofchrome. Finally, shafts are dried, polished and inspected for cosmetic flawsbefore our name and logo is affixed to the shaft. It takes an average of15 days to manufacture one of our *TrueTemper* steel shafts.

 

 *GraphiteShaft Manufacturing Process.* There are two processes which are used to manufacture a graphite shaft:flag-wrapping and filament-winding. Most of our graphite shafts are producedusing the flag-wrapping technique. The flag-wrapping method uses graphite fibermaterials or “prepreg” in sheet form, which requires refrigeration until use.Each new roll of prepreg is allowed to reach room temperature before thematerial is cut into pennant-shaped patterns called flags for each particularshaft design. Layer by layer, various combinations of prepreg flags are wrappedaround mandrels specified for each particular shaft design. The layeredmaterials are then encased in thin layers of clear tape for compaction andheated at high temperatures to harden the material. At the end of the process,the shafts are painted and stylized using a variety of colors, patterns anddesigns. The filament-winding process, on the other hand, begins with a spool,rather than a sheet, of graphite fiber, which is fed onto the reel of a machinewhich then wraps the fiber around a mandrel by turning the mandrel andsimultaneously moving the graphite fiber from one end of the mandrel to theother. Once the mandrel is wrapped, the process uses the same encasing andheating techniques as the flag wrapping process.

 

 *RawMaterials.*  We use several rawmaterials to produce steel golf shafts, including several steel alloys sourcedfrom three primary vendors, nickel crowns and plating chemicals, Sensicoreinserts and various sundry supplies, boxes and labels. Graphite shafts areproduced with a variety of graphite fiber materials in both sheet and spoolform that we source from several different vendors. In addition, graphiteshafts are finished with a wide variety of paints, inks and heat transferlabels. We believe that there are adequate alternative suppliers of thesematerials and, therefore, we do not believe that we are dependent on any onesupplier.

 

In addition to the raw materials discussed above, wealso use a substantial amount of natural gas and electricity in ourmanufacturing processes. Suppliers for these types of energy sources arelimited, and prices are subject to general market and industry conditions.

 

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**Marketing & Promotion**

 

Our marketing strategy is designed around new productdevelopment and targeted advertising and promotion programs. Through ourability to anticipate and address consumer trends in the golf equipment market,as well as the performance demands of professional golfers, we are able tosuccessfully market our products to golf club manufacturers while strengtheningbrand awareness. During the last several years, our marketing efforts throughthe utilization of a wide variety of promotional channels, including mass mediaadvertising, print and television, sponsorship of golf-related events,equipment endorsements from original equipment manufacturers and productdemonstrations, have increased our overall exposure in the golf industry.

 

For example, we have maintained a strong presenceamong PGA Tour players, particularly since 1981, when we began sending our PGATour van to all major PGA events. The tour van functions as a golf club customshop on wheels, visiting over 30 professional tour events during 2004.Typically, the van is located near the practice tee and lends technical supportto the tour professionals while simultaneously promoting the *True Temper* and *Grafalloy* brands to representatives of original equipment manufacturers.In addition, we provide technical support to the players on the Champions,Nationwide and LPGA Tours as well as the European and Japanese PGA Tours.

 

Although we do not pay any professional golfer toendorse or play our shafts, we believe that the use of our products byprofessional golfers enhances our reputation for quality and performance whilealso promoting the use of our shafts. Due to our strong reputation and service,we estimate that nearly 75% of professional golfers around the world use ourproduct in competition. We clearly recognize the influence that a professionalgolfer, or very low handicap golfer, can have on consumer preferences, so wealso engage in special promotional efforts with local club and teachingprofessionals, and we contribute shafts to college athletic programs, toencourage the use of our product so they provide positive feedback on the *True Temper* and *Grafalloy* brands to their constituents.

 

Much of our advertising and promotional spending isdedicated to print and television advertising, including cooperativeadvertising with our customers. Additional advertising and promotional spendingis allocated to promotional events such as trade shows, consumer golf shows,PGA Tour activities and retail golf shop advertising displays.

 

Advertising and promotional costs for the years ended December 31,2004, 2003 and 2002 were $3.5 million, $3.1 million and $3.6 million,respectively.

 

**Distribution & Sales**

 

We primarily sell our shafts to original equipmentmanufacturers, retailers and distributors. Typically, distributors resell ourproducts to custom club assemblers, pro shops and individuals. Sales to golfclub manufacturers/retailers accounted for approximately 85% of our net golfshaft sales in 2004, and sales to distributors represented approximately 15% ofour 2004 net golf shaft sales.

 

We believe that we have one of the most experiencedand respected sales staffs in the industry. Our sales and marketing departmentincludes domestic sales managers, international sales managers, a customerservice group and a team of design professionals who provide field support toour sales representatives. We believe that our international market presence,which comprised approximately 37% of our total 2004 net sales, provides anopportunity for future growth. We market our products in Japan, Europe,Australia and Southeast Asia and maintain a distribution operation in eachregion. Financial information by geographic segment is contained in Note 12 tothe consolidated financial statements located elsewhere in this annual report.

 

**Employees**

 

As of December 31, 2004, we had 649 full-timeemployees, including 16 in sales and marketing, 40 in research, development andmanufacturing engineering, 511 in production and the balance in administrativeand support roles.

 

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The hourly employees at our steel plant in Amory,Mississippi are represented by the United Steel Workers of America. In June 2003,the United Steel Workers union at our Amory, Mississippi facility voted toaccept a new collective bargaining agreement that covers a four year periodbeginning in July 2003 and expiring on June 30, 2007. We believe thatour relationships with the union and our employees are good.

 

**Intellectual Property**

 

As of December 31, 2004, we held 40 patentsworldwide relating to various products and proprietary technologies, includingthe *Sensicore* technology, and had 14 patentapplications pending. We also hold numerous trademarks related to, among otherthings, our *True Temper, Grafalloy*and *Alpha Q* branded products. Wedo not believe that our competitive position is dependent solely on patent ortrademark protection, or that our operations are dependent on any individualpatent or trademark.

 

**Environmental, Health And SafetyMatters**

 

We are subject to federal, state and localenvironmental and workplace health and safety laws and regulations, includingrequirements governing discharges to the air and water, the handling anddisposal of solid and hazardous wastes, and the remediation of contaminationassociated with releases of hazardous substances. In December 2003, areview was conducted by independent environmental consultants and, based uponsuch report, we believe that we are currently in material compliance withenvironmental and workplace health and safety laws and regulations.Nevertheless, our manufacturing operations involve the use of hazardoussubstances and, as is the case with manufacturers in general, if a release ofhazardous substances occurs or has occurred on or from our facilities, we maybe held liable and may be required to pay the cost of remedying the condition.The amount of any such liability could be material.

 

We devote significant resources to maintainingcompliance with, and believe we are currently in material compliance with, ourenvironmental obligations. Despite such efforts, the possibility exists thatinstances of noncompliance could occur or be identified, the penalties orcorrective action costs associated with which could be material.

 

Like any manufacturer, we are subject to thepossibility that we may receive notices of potential liability, pursuant to ComprehensiveEnvironmental Response, Compensation and Liability Act (“CERCLA”), commonlyknown as Superfund, or analogous state laws, for cleanup costs associated withonsite or offsite waste recycling or disposal facilities at which waste associatedwith our operations have allegedly come to be located. Liability under CERCLAis strict, retroactive and joint and several. To our knowledge, no noticesinvolving any material liability are currently pending.

 

Wehave made, and will continue to make, capital expenditures to comply withcurrent and future environmental obligations. Because environmentalrequirements are becoming increasingly stringent, our expenditures forenvironmental compliance may increase in the future.

 

**BusinessRisks**

 

*Our substantialindebtedness could adversely affect our financial health and prevent us fromfulfilling our obligations.*

 

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

 

•             make it more difficult for us to satisfyour obligations with respect to our 8 3/8% Senior Subordinated Notes due 2011; 

 

•             increase our vulnerability to increases ininterest rates because our secured credit facility, under which ourindebtedness was $107.7 million as of December 31, 2004, is subject to avariable interest rate;

 

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•             limit our ability to fund future workingcapital, capital expenditures, research and development costs, acquisitions andother general corporate requirements;

 

•             require a substantial amount of our annualcash flow from operations for debt service, thereby reducing the availabilityof our cash flow to fund working capital, capital expenditures, research anddevelopment efforts, acquisitions and other general corporate purposes;

 

•             limit our flexibility to plan for, orreact to, changes in our business and the industry in which we operate;

 

•             place us at a competitive disadvantagecompared to our competitors that have less debt; and

 

•             limit our ability to borrow additionalfunds.

 

*Toservice our indebtedness, we will require a significant amount of cash. Ourability to generate cash depends on many factors beyond our control.*

 

We maynot be able to generate the cash we need to service our indebtedness. Our abilityto make payments on and to refinance our indebtedness, and to fund plannedcapital expenditures and research and development efforts will depend on ourability to generate cash in the future. This, to a certain extent, is subjectto general economic, financial, competitive, legislative, regulatory and otherfactors that are beyond our control. Based on our current level of operations,we believe our cash flow from operations, available cash and availableborrowings under our senior bank facilities will be adequate to meet our futureliquidity needs.

 

Wecannot assure you, however, that our business will generate sufficient cashflow from operations, or that future borrowings will be available to us underour senior bank facilities in an amount sufficient to enable us to pay ourindebtedness, or to fund our other liquidity needs. We may need to refinanceall or a portion of our indebtedness on or before maturity. We might not beable to refinance any of our indebtedness on commercially reasonable terms orat all.

 

*Our success depends on thecontinued popularity of golf and the growth of the market for golf clubs.*

 

We generate a substantial portion of our net revenuesfrom the sale of golf shafts. The demand for our golf shafts is directlyrelated to the popularity of golf, the number of golf participants and thenumber of rounds of golf being played by these participants. If golfparticipation decreases, sales of our products would be adversely affected. Inaddition, the popularity of golf organizations, such as the PGA, also affectsthe sales of our golf shafts. We depend on the exposure of our brands toincrease brand recognition and reinforce the quality of our products. Anysignificant reduction in television coverage of PGA or other golf tournaments, orany other significant decreases in either attendance at golf tournaments orviewership of golf tournaments, will reduce the visibility of our brand andcould adversely affect our sales.

 

*A reduction in discretionaryconsumer spending could reduce sales of our products.*

 

Sales of golf clubs are dependent on discretionaryconsumer spending which may be affected by general economic conditions andcould result in a decrease in consumer spending on golf equipment. In addition,our future results of operations could be affected adversely by a number ofother factors that influence discretionary consumer spending, includingconsumer concerns over international and military conflicts around the world,unseasonal weather patterns, demand for our existing and future products, newproduct introductions by our competitors, an overall decline in participationin golf activities, shifting consumer preferences between graphite and steelgolf shafts or other materials that we currently do not produce, andcompetitive pressures that otherwise result in lower than expected averageselling prices. Any one or more of these factors could result in our failure toachieve our expectations as to future sales or earnings. Because most operatingexpenses are relatively fixed in the short-term, we may be unable to adjustspending to compensate for any unexpected sales shortfall, which couldadversely affect our results of operations.

 

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*Our new product developmentefforts may not be successful.*

 

We may not be able to continue to develop competitiveproducts, develop or use technology on a timely or competitive basis orotherwise respond to emerging market trends. Because the introduction of newgolf shafts using steel, graphite or other composite and combined materials iscritical to our future success, our continued growth will depend, in largepart, on our ability to successfully develop and introduce new products in themarketplace. Should golf consumers prefer to use golf clubs made from materialsother than steel or graphite, there could be a material adverse effect on theresults of our operations. In addition, the design of new golf clubs is alsogreatly influenced by the rules and interpretations of the U.S. GolfAssociation, or USGA, and the Royal and Ancient Golf Club of St. Andrews, orSt. Andrews. Although the golf equipment standards established by the USGA andSt. Andrews generally apply to competitive events sanctioned by thoseorganizations, we believe that it is critical for our future success that ournew shafts comply with USGA and St. Andrews standards. New products that weintroduce may not receive USGA or St. Andrews approval. In addition, existingUSGA and St. Andrews standards may be changed in ways that adversely affect thesales of our current or future products.

 

*We are subject to work stoppages atour facilities, which could seriously impact the profitability of our business.*

 

If any labor disruption or work stoppages affectour employees, the results of our operation could be adversely affected. At December 31,2004, we employed approximately 649 full-time individuals. Of these,approximately 335 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.

 

*We face intense competition withother golf shaft designers and manufacturers, and our inability to competeeffectively for any reason could adversely affect our business.*

 

We operate in a highly competitive environment andcompete against a number of established golf shaft designers, manufacturers anddistributors. We also compete indirectly with manufacturers that produce shaftsinternally and face potential competition from golf club manufacturers thatcurrently purchase golf shaft components from third parties but which may have,develop or acquire the ability to manufacture shafts internally. Unlike thesteel shaft industry, the graphite shaft industry is highly fragmented. As aresult, we compete with many competitors involved in the design and manufactureof graphite shafts. While we have had long-established relationships with mostof our customers, we are not the exclusive supplier to most of them, and consistentwith the industry 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 beadversely affected if the operation of our Amory manufacturing plant wereinterrupted or shut down.*

 

We operate a majority of our manufacturing processesat our facility in Amory, Mississippi. Any natural disaster or other seriousdisruption to this facility due to fire, tornado, flood or any other causewould substantially disrupt our sales and would damage a portion of ourinventory, impairing our ability to adequately supply our customers. Inaddition, we could incur significantly higher costs and longer lead timesassociated with fulfilling our direct-to-consumer orders and distributing our productsto our customers during the time it takes for us to reopen or replace our Amoryfacility. As a result, disruption at our Amory facility would adversely affectour profitability.

 

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*Risks related to our operatingfacility in China could adversely affect our business.*

 

In 2003, we opened a graphite manufacturing facilityin southern China in order to be able to produce our graphite shafts at a lowercost. We have since transitioned a large portion of our composite manufacturingcapacity from the United States to China. As a result, we will be subject topotential political instability in China and trade conflict between the UnitedStates and China.

 

*Consolidation of our customerbase could adversely affect our business.*

 

If the industry and customer base continues toconsolidate, then it is possible a consolidation of several of our existingcustomers into one company could represent a significant portion of our annualrevenues. If this was to occur, and this customer selected an alternative shaftsupplier, it could have a material adverse effect on our results of operations.If this consolidated company were to remain our customer it could represent anincreased credit risk due to its size in relation to our total accountsreceivable.

 

*Fluctuations in the cost andavailability of raw materials could adversely affect our business.*

 

Since we are dependent upon certain suppliers forsteel, nickel, graphite prepreg and other materials, we are subject to price increasesand delays in receiving materials. Although we have several sources for most ofthe key 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.

 

*Fluctuations in the cost andavailability of energy sources to us could adversely affect our business.*

 

Our graphite shaft manufacturing operations inSouthern California and China are dependent upon a consistent and affordablesupply of electricity. If there is a prolonged shortage of electrical supply tothese facilities and/or a significant increase in the cost of electrical power,we may need to temporarily or permanently close our graphite shaft operations,which could materially adversely affect our results of operations. In addition,our steel shaft manufacturing plant located in Mississippi relies upon aconsistent and affordable supply of both natural gas and electrical power inorder to conduct normal operations. If our Mississippi facility shouldexperience a shortage in supply of either power source or a significantincrease in cost, it could have a material adverse affect on our results ofoperations.

 

*Fluctuations in the availabilityof energy sources to our customers could adversely affect our business.*

 

There are a significant number of golf equipmentassemblers that are headquartered and conduct manufacturing operations inSouthern California. In the aggregate, these companies account for asignificant share of the golf equipment market and also account for aconsiderable portion of our sales revenue. With the disruption of electricalpower to California and other Western states in recent years there is a riskthat our customers’ manufacturing operations may be adversely affected by powershortages. If this were to occur they may reduce their purchases of shafts fromus causing a significant adverse impact to our revenues and results ofoperations.

 

*Fluctuations in cost of healthinsurance could adversely affect our business.*

 

Health insurance coverage is a valuable benefit inretaining and attracting employees and has been subject to significant priceincreases by health industry providers. Since we do not plan to eliminateproviding health benefits to our employees, the rising costs could have amaterial adverse affect on the results of our operations.

 

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

 

The patents we hold relating to certain of ourproducts and technologies may not offer complete protection againstinfringement of our proprietary rights by others. As of December 31, 2004 weheld 40 patents worldwide

 

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relating to various products and proprietary technologies, includingthe *Sensicore* technology, and had14 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 theseintellectual property rights could negatively impact our ability to compete andcould adversely affect our business.

 

*We are subject to variousenvironmental, health and safety laws and regulations that govern, and imposeliability, for our activities and operations. If we do not comply with theselaws and regulations, our business could be materially and adversely affected.*

 

We are subject to federal, state, and localenvironmental and workplace health and safety laws, regulations andrequirements which, if contravened, could result in significant costs to us.Our manufacturing operations involve the use of hazardous substances and shouldthere be a release of such substances from our facilities, we may be heldliable. The penalties or corrective action costs associated with noncompliancecould be material. In addition, we may receive notices of potential liabilitypursuant to federal or state laws for cleanup costs associated with wasterecycling or disposal facilities at which wastes associated with our operationshave allegedly come to be located.

 

*Fluctuations in certain generaleconomic conditions could increase our minimum pension liability under ourdefined benefit pension plan.*

 

We maintain an employer sponsored defined benefitpension plan for the hourly employees at our Amory, Mississippi steel golfshaft plant. We are subject to Financial Accounting Standards Board guidelinesfor recognition of our minimum pension liability, and subject to ERISAregulations with regard to our cash funding of the plan. As a result, certainU.S. economic conditions involving weak equity market performance and lowgeneral interest rates can both reduce the total value of the assets of theplan as well as increase our minimum pension liability under the plan. If theseeconomic conditions are severe enough they could have a significant adverseeffect on the funding status of our plan and our overall results of operations.

 

*If we do not retain our keypersonnel and attract and retain other highly skilled employees our businesswill suffer.*

 

If we fail to retain and recruit the necessarypersonnel, our business and our ability to obtain new customers, develop newproducts and provide acceptable levels of customer service could suffer. Thesuccess of our business is heavily dependent on the leadership of our keymanagement personnel. If any of these persons were to leave our company itwould be difficult to replace them, and our business would be harmed. See “Management.”

 

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

 

We are subject to risks customarily associated withforeign 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.

 

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

 

*We are subject to productliability claims and other litigation.*

 

From time to time, we are subject to product liabilityclaims involving personal injuries allegedly relating to our products.Currently pending claims and any future claims are subject to the uncertaintiesrelated to litigation, and the ultimate outcome of any such proceedings orclaims cannot be predicted.

 

*We may not be able to identifysuitable acquisition candidates, and even if we do, we may not be able toacquire those candidates or successfully integrate their operations with ours.*

 

We continuously review acquisition prospects thatwould complement our current product offerings, increase our size andgeographic scope of operations or otherwise offer growth and operatingefficiency opportunities. Any future acquisition may not be successfullycompleted or that, if completed, any such acquisition may not be effectivelyintegrated into our business. Acquisitions may entail numerous risks and imposecosts on us, including, among others, difficulties associated with assimilatingacquired operations or products, diversion of management’s attention andadverse effects on existing business relationships with suppliers andcustomers. In addition, any future acquisitions could result in the incurrenceof debt or contingent liabilities and other intangible assets, which could havea material adverse effect on our business, financial condition or results ofoperations.

 

*Terrorist attacks, such as theattacks that occurred in New York and Washington, D.C. on September 11,2001, and other acts of violence or war, including the military action in Iraq,have and could negatively impact the U.S. and foreign economies, the financialmarkets, the industries in which we operate, our operations and ourprofitability.*

 

Terrorist attacks may negatively affect our operationsand your investment. There can be no assurance that there will not be furtherterrorist attacks worldwide. These attacks have contributed to economicinstability in the United States and elsewhere, and further acts of terrorism,violence or war could further affect the industries in which we operate, ourbusiness and our results of operations. In addition, terrorist attacks orhostilities may directly impact our physical facilities or those of oursuppliers or customers and could impact our sales, our supply chain, ourproduction capability and our ability to deliver our products and services toour customers. The consequences of any terrorist attacks or hostilities areunpredictable, and we may not be able to foresee events that could have anadverse effect on our operations or your investment.

 

**RisksAssociated with Forward Looking Statements**

 

ThePrivate Securities Litigation Act of 1995 (the “Act”) provides a safe harborfor forward-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, and otherrisks 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 Reporton Form 10-K.

 

TheCompany’s views, estimates, plans and outlook as described within this documentmay change 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 manufacturingfacilities currently occupy approximately 500,000 square feet. Our shafts aremanufactured at separate facilities, a steel shaft facility located in Amory,Mississippi and composite graphite shaft facilities located in El Cajon,California and Guangzhou, China. In addition, we have a multi-material shaftassembly facility located in Olive Branch, Mississippi. Our executive officesare located in a leased facility in Memphis, Tennessee. The following tablesets forth certain information regarding significant facilities operated by usas of December 31, 2004:

 
| **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              |       | —                      |       |
| Test Facility            |       | Robinsonville,  Mississippi |       | 1,000                | (2)        | Leased             |       | March 2008             |       |

 

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(1)          There are several leasescovering the original land as well as the building at our Amory, Mississippi facility.The leases are structured with interim renewal periods of between 5 to10 years, extending through January 2063. At the end of each of theserenewal periods, we have the option to allow a lease to automatically renew orto not renew the lease.

 

(2)          Included with the leasedspace is 14 acres of land which we use as a driving range to assess variousqualitative and quantitative tests on product performance.

 

In addition, we promote our products in internationalmarkets through sales and distribution offices in Australia, Japan and theUnited Kingdom, and we also distribute our product in Southeast Asia from ourdistribution warehouse in Hong Kong. To the extent that any such properties areleased, we expect to be able to renew such leases or to lease comparablefacilities on terms commercially acceptable to us.

 

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

 

Various claims and legal proceedings, generallyincidental to the normal course of business, are pending or threatened againstus. While we cannot predict the outcome of these matters, in the opinion ofmanagement, any liability arising from these matters will not have a materialadverse effect on our business, financial condition or results of operations.

 

**Item 4****.  *Submission of Matters to aVote of Security Holders***

 

Therewere no matters submitted to a vote of security holders during 2004.

 

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**PART II**

 

**Item 5****.  *Market for Registrant’sCommon Equity and Related Stockholder Matters***

 

Thereis no public market for the Company’s equity securities. All of the Company’scapital stock is owned by True Temper Corporation.

 

TheCompany declared and paid dividends quarterly on its shares of common stockduring fiscal 2003 and 2002 totaling $5.2 million and $27.1 million, respectfully.

 

Ourvarious debt instruments impose restrictions on the payment of dividends bymeans of covenants. The Company was in compliance with all debt covenants as ofDecember 31, 2004.

 

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

 

Setforth below are our selected historical financial data for the five fiscalyears ended December 31, 2004. The historical financial data were derivedfrom our audited financial statements and the notes thereto (except ratio ofearnings to fixed charges data), for which the December 31, 2004, 2003,and 2002 financial statements are included herein. As more fully described inNote 3 to the financial statements located elsewhere in this annual report, theCompany went through a business combination on March 15, 2004. Accordingly,the following selected financial data is presented for both the predecessor andsuccessor companies.

 
| ** **                                                    | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                          | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                    | ** ** | **Period from March 15 to December 31,** | ** ** | **Period from January 1 to March 14,** | ** ** | **Year Ended December 31,** | ** ** |
| ** **                                                    | ** ** | **2004**                                           | ** ** | **2004**                                         | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                    | ** ** | **(Dollars in thousands)**                         | ** ** |
| STATEMENT OF OPERATIONS  DATA:                                |       |                                               |       |                                             |       |   |   |   |   |   |   |   |   |
| Net sales                                                     |       | $                                                  | 78,120     |                                             | $          | 20,247 |   | $ | 116,206 |   | $ | 107,401 |   | $ | 111,083 |   | $ | 110,636 |   |
| Gross profit                                                  |       | 18,016                                             |       | 8,376                                            |       | 46,736 |   | 42,240 |   | 43,348 |   | 45,254 |   |
| Selling, general and  administrative expenses                 |       | 9,520                                              |       | 3,635                                            |       | 14,747 |   | 13,578 |   | 14,963 |   | 16,899 |   |
| Amortization of  goodwill (1)                                 |       | —                                             |       | —                                           |       | — |   | — |   | 2,695 |   | 2,701 |   |
| Amortization of  intangible assets(2)                         |       | 10,984                                             |       | —                                           |       | — |   | — |   | — |   | — |   |
| Impairment charge on  long lived assets (3)                   |       | —                                             |       | —                                           |       | — |   | — |   | — |   | 1,053 |   |
| Business development,  start-up costs and transition costs(4) |       | 738                                                |       | 100                                              |       | 869 |   | 312 |   | — |   | — |   |
| Restructuring charges                                         |       | —                                             |       | —                                           |       | — |   | — |   | — |   | 7 |   |
| Transaction and  reorganization expenses(5)                   |       | 25                                                 |       | 5,381                                            |       | — |   | — |   | — |   | — |   |
| Loss on early  extinguishment of long-term debt(5)            |       | —                                             |       | 9,217                                            |       | — |   | 777 |   | — |   | — |   |
| Operating income (loss)                                       |       | (3,251                                             | )          | (9,957                                           | )          | 31,120 |   | 27,573 |   | 25,690 |   | 24,594 |   |
| Interest expense, net  of interest income                     |       | 13,491                                             |       | 2,498                                            |       | 13,017 |   | 12,236 |   | 12,660 |   | 13,693 |   |
| Income tax (benefit)  expense (6)                             |       | (6,350                                             | )          | (2,845                                           | )          | 7,113 |   | 5,992 |   | (11,539 | ) | 5,218 |   |
| Net income (loss)                                             |       | $                                                  | (10,464    | )                                                | $          | (9,608 | ) | $ | 10,858 |   | $ | 9,252 |   | $ | 24,571 |   | $ | 5,627 |   |
| BALANCE SHEET DATA (AT  END OF PERIOD):                       |       |                                               |       |                                             |       |   |   |   |   |   |   |   |   |
| Working capital (7)                                           |       | $                                                  | 25,324     |                                             | $          | 14,551 |   | $ | 15,372 |   | $ | 14,828 |   | $ | 14,748 |   | $ | 9,881 |   |
| Total assets                                                  |       | 355,422                                            |       | 178,057                                          |       | 179,616 |   | 183,380 |   | 189,330 |   | 175,888 |   |
| Total debt (8)                                                |       | 232,725                                            |       | 106,030                                          |       | 113,730 |   | 124,730 |   | 116,522 |   | 118,448 |   |
| Total stockholder’s  equity                              |       | $                                                  | 101,330    |                                             | $          | 39,064 |   | $ | 48,793 |   | $ | 43,068 |   | $ | 61,303 |   | $ | 40,320 |   |
| OTHER FINANCIAL DATA:                                         |       |                                               |       |                                             |       |   |   |   |   |   |   |   |   |
| Cash from operating  activities                               |       | $                                                  | 6,702      |                                             | $          | 2,982 |   | $ | 21,402 |   | $ | 19,903 |   | $ | 12,162 |   | $ | 20,607 |   |
| Cash used in investing  activities                            |       | (1,182                                             | )          | (330                                             | )          | (3,460 | ) | (1,164 | ) | (2,291 | ) | (3,543 | ) |
| Cash used in financing  activities                            |       | (5,019                                             | )          | (8,205                                           | )          | (16,623 | ) | (19,846 | ) | (5,862 | ) | (19,323 | ) |
| Depreciation and  goodwill amortization(9)                    |       | 2,420                                              |       | 671                                              |       | 2,906 |   | 3,252 |   | 6,208 |   | 6,236 |   |
| Capital expenditures                                          |       | $                                                  | 1,232      |                                             | $          | 330 |   | $ | 3,460 |   | $ | 1,164 |   | $ | 2,001 |   | $ | 3,621 |   |
| Ratio of earnings to  fixed charges(10)                       |       | n/a                                                |       | n/a                                              |       | 2.3x |   | 2.2x |   | 2.0x |   | 1.8x |   |

 

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(1)          Asof January 1, 2002 the Company adopted the provisions of SFAS No. 142,*Goodwill and Other Intangible Assets.*Thisstatement requires goodwill and intangible assets acquired in a purchasebusiness combination and determined to have an indefinite useful life not beamortized, but instead tested for impairment at least annually in accordancewith the provisions of SFAS No. 142. In accordance with SFAS No. 142the Company ceased amortizing goodwill as of January 1, 2002 and testedfor impairment finding there was no impairment. Prior to the adoption of SFAS No. 142,goodwill was amortized on a straight-line basis over the expected periods to bebenefited, generally between 20 and 40 years. See Note 2(g) to thefinancial statements included elsewhere in this annual report for furtherdiscussion.

 

(2)          Asof January 1, 2002 the Company adopted the provisions of SFAS No. 141,*Business Combinations.*This statementrequires the identification and valuation of intangible assets acquired in abusiness combination. Identifiable intangible assets determined to havedefinitive lives must be amortized over those expected useful lives. Certainintangible assets with definitive lives were identified, and the amortizationexpense during the period from March 15, 2004 through December 31,2004 relates to the amortization of these intangibles. See Note 3 to thefinancial statements included elsewhere in this annual report for furtherdiscussion.

 

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

 

(4)          Reflectsvarious start-up business expenses related to the opening of the Company’scomposite manufacturing operation in southern China, and the relateddown-sizing costs incurred at the Company’s El Cajon California facility. For amore complete discussion of business development and start-up costs see Note2(j) to the financial statements included elsewhere in this annual report.

 

(5)          On January 30,2004, TTS Holdings LLC, a new company formed by Gilbert Global Equity Partners,L.P. and its affiliated funds (“Gilbert Global”), entered into a stock purchaseagreement with the Company’s direct parent company, True Temper Corporation,pursuant to which TTS Holdings LLC and certain of the Company’s seniormanagement purchased all of the outstanding shares of True Temper Corporation. Inconnection with this acquisition, and effective on March 15, 2004, the Companyrepaid all of its outstanding 2002 senior credit facility, redeemed all of its10 7/8% senior subordinated notes due 2008,and made certain payments of the net remaining equity of the predecessorcompany to the selling shareholders. These payments were financed with the netproceeds of a new senior credit facility and new 8 3/8% senior subordinated notes due 2011. As a result of thistransaction, the Company incurred certain expenses for legal, investmentbanking and other matters; and also recognized a loss on early extinguishmentof its 10 7/8% senior subordinated notesdue 2008. See Note 3 to the financial statements included elsewhere in thisannual report for further discussion.

 

(6)          The2001 income tax benefit reflects the elimination of the $17,600 valuationallowance.

 

(7)          Workingcapital includes current assets less current liabilities, excluding cash andcash equivalents.

 

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

 

(9)          Depreciationand goodwill amortization (goodwill amortization for years prior to 2002) excludesamortization of intangible assets and amortization of deferred financing cost.

 

(10)    Earningsin 2004 were insufficient to cover fixed costs.

 

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**Item 7****.  *Management’s Discussionand Analysis of Financial Condition and Results of Operations***

 

*THEFOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILEDINFORMATION IN THE AUDITED FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES,APPEARING ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.*

 

**CompanyOverview**

 

We are a wholly owned subsidiary of True TemperCorporation (“TTC”) and a leading designer, manufacturer and marketer of bothsteel and composite graphite golf shafts for original equipment manufacturersand distributors in the golf equipment industry. In addition, we produce andsell a variety of performance sports products that offer high strength andtight tolerance components produced with steel alloys and composite carbonfiber graphite materials for the bicycle, hockey and other recreational sportsmarkets. In 2004, golf shaft net sales represented 94% of total net sales, andperformance sports net sales represented 6%.

 

**Purchase Agreement for True Temper Corporation**

 

On January 30, 2004, TTS Holdings LLC, a newcompany formed by Gilbert Global Equity Partners, L.P. and its affiliated funds(“Gilbert Global”), entered into a stock purchase agreement with the Company’s directparent company, True Temper Corporation (“TTC”), pursuant to which TTS HoldingsLLC and certain of the Company’s senior management purchased all of theoutstanding shares of TTC (“Gilbert Global Acquisition”). In connection withthis acquisition, and effective on March 15, 2004, the Company repaid allof its outstanding 2002 senior credit facility, redeemed all of its 10 7/8% senior subordinated notes due 2008,and made certain payments of the net remaining equity of the predecessorcompany to the selling shareholders. These payments were financed with the netproceeds of a new senior credit facility and new 8 3/8% senior subordinated notes due 2011.

 

The Gilbert Global Acquisition was accounted for bythe Company’s parent company using the purchase method of accounting. As theCompany is a wholly owned subsidiary of True Temper Corporation, the Companyhas “pushed down” the effect of the purchase method of accounting to thesefinancial statements. The Company’s financial statements and accompanying notes,shown in Item 8 of this annual report, present the historical cost basisresults of the Company as “predecessor” through March 14, 2004, and theresults of the Company as “successor” from March 15, 2004 through December 31,2004, accordingly, certain elements of the successor company presentation arenot comparable to the predecessor company due to the different basis ofaccounting.

 

For purposes of the following discussion, contained inItem 7 and 7A, regarding the Company’s results of operations and cash flow, theCompany has combined the results of the predecessor and successor companies inorder to compare the results to the prior year. Material variances caused bythe different basis of accounting have been disclosed where applicable.

 

**Year in Review – 2004**

 

The past year was a challenging one for the golfindustry in general, and for True Temper specifically. Several factorscontributed to an overall decline in our revenue of approximately 15%. Theseissues are addressed more specifically in the following paragraphs, but the keydrivers during 2004 centered around a build up of inventory throughout thedistribution channel, and a scale back of the anticipated new product launches bygolf club manufacturers into the retail market. These factors, combined with anactive hurricane season that had a detrimental effect on golf in the keysoutheastern region, provided a significant headwind for us throughout the midto later part of the year.

 

As we saw this decline in revenue developing on thetop line, we took the necessary cost control initiatives in all areas of theCompany. Our actions enabled us to deliver profitability on the lower salesbase that was relatively close to our historical averages as a percentage ofsales, after adjusting for purchase accounting related transactions.

 

In addition, during 2004 we completed the transitionof substantially all of our composite golf and performance sports productionfrom our El Cajon, California plant to our recently opened manufacturingfacility in

 

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Guangzhou, China. The transition went according to plan, and we are nowwell positioned for growth in our composite businesses.

 

**Outlook for 2005**

 

In 2005, we plan to expand and enhance our positionwithin the golf market and grow our presence in the performance sports marketsfor hockey sticks and high end bicycle components.

 

In keeping with this plan we have recently developedand launched several new products for 2005, including:

 

•                  *Dynamic Gold SL,* a steel golf shaft withthe same playing characteristics as our original Dynamic Gold, but with a 20%reduction in weight;

 

•                  *Prototype Comp NT*, a graphite golf shaftwhich combines the new nano-technology with our Blue tip technology for a stronger,more consistent carbon fiber alignment;

 

•                  *ProLaunch Irons,* an extension of our successful driver shaft program into the graphiteiron category.

 

In addition, we continue todevelop and introduce new carbon fiber hockey and bicycle components to driverevenue growth in this segment of our business. For 2005 we have also installeda complete titanium tube production line, capable of manufacturing doublebutted titanium bicycle frame sets.

 

As noted above, we openedour China golf shaft manufacturing facility in 2004, and we believe this lowercost base will enable us to more effectively penetrate the mid-level graphiteshaft market in 2005. This is a market segment that has not been available tous in the past, and we feel that we can now profitably increase our marketsharein graphite golf by targeting customers and product lines in this segment.

 

In addition to theseinternal growth and profitability drivers, we believe that the overall industry’sinventory position is better now than during 2004, and we anticipate a highernumber of new product launches from major original equipment manufacturersduring 2005 when compared to the prior year. These industry factors should alsoprovide a vehicle for growth at True Temper during 2005.

 

Although we expect that these internal and externalfactors will favorably benefit our business, such outcomes are subject touncertainties and unforeseeable factors relating to our operations and businessenvironment, all of which are difficult to predict and many of which are beyondour control. For instance, the recent trend toward shorter lead times in ourcustomers’ ordering patterns has continued, and has reduced our ability topredict future sales. Although we believe that our expectations are reasonable,we do not know whether our expectations will prove correct. Our actual futureresults may vary materially as a result of various risks and uncertainties,including but not limited to, a reduction in discretionary consumer spending,risks relating to our international expansion, including our unfamiliarity withforeign laws and regulations and generally unfavorable political conditions inthe international markets in which we seek to expand, and a general downturn inthe economy. See Item 1 “Risks Associated with Forward Looking Statements.”

 

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**Resultsof Operations**

 

Thefollowing table sets forth the components of net income as a percentage of netsales for the periods indicated:

 
| ** **                                           | ** ** | **Predecessor Company**                                | ** ** | **Successor Company**                                    | ** ** | **Combined Company**                   | ** ** | **Predecessor Company**                | ** ** | **Predecessor Company**                | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                           | ** ** | **Period from January 1 to March 14,  2004** | ** ** | **Period from March 15 to December 31,  2004** | ** ** | **Year Ended December 31,  2004** | ** ** | **Year Ended December 31,  2003** | ** ** | **Year Ended December 31,  2002** | ** ** |
| Net sales                                            |       | 100.0                                                  | %          | 100.0                                                    | %          | 100.0                                  | %          | 100.0                                  | %          | 100.0                                  | %          |
| Cost of sales                                        |       | 58.6                                                   |       | 76.9                                                     |       | 73.2                                   |       | 59.8                                   |       | 60.7                                   |       |
| Gross profit                                         |       | 41.4                                                   |       | 23.1                                                     |       | 26.8                                   |       | 40.2                                   |       | 39.3                                   |       |
| Selling, general and  administrative expenses        |       | 18.0                                                   |       | 12.2                                                     |       | 13.4                                   |       | 12.7                                   |       | 12.6                                   |       |
| Amortization of  intangible assets                   |       | —                                                 |       | 14.1                                                     |       | 11.2                                   |       | —                                 |       | —                                 |       |
| Business development,  start-up and transition costs |       | 0.5                                                    |       | 0.9                                                      |       | 0.9                                    |       | 0.7                                    |       | 0.3                                    |       |
| Transaction and  reorganization expenses             |       | 26.6                                                   |       | —                                                   |       | 5.5                                    |       | —                                 |       | —                                 |       |
| Loss on early  extinguishment of debt                |       | 45.5                                                   |       | —                                                   |       | 9.4                                    |       | —                                 |       | 0.7                                    |       |
| Operating income (loss)                              |       | (49.2                                                  | )          | (4.2                                                     | )          | (13.4                                  | )          | 26.8                                   |       | 25.7                                   |       |
| Interest expense, net  of interest income            |       | 12.3                                                   |       | 17.3                                                     |       | 16.3                                   |       | 11.2                                   |       | 11.4                                   |       |
| Other expenses, net                                  |       | —                                                 |       | 0.1                                                      |       | 0.1                                    |       | 0.1                                    |       | 0.1                                    |       |
| Income (loss) before  income taxes                   |       | (61.5                                                  | )          | (21.5                                                    | )          | (29.8                                  | )          | 15.5                                   |       | 14.2                                   |       |
| Income tax (benefit)  expense                        |       | (14.1                                                  | )          | (8.1                                                     | )          | (9.3                                   | )          | 6.1                                    |       | 5.6                                    |       |
| Net income (loss)                                    |       | (47.5                                                  | )%         | (13.4                                                    | )%         | (20.4                                  | )%         | 9.3                                    | %          | 8.6                                    | %          |

 

**YearEnded December 31, 2004 Compared to the Year Ended December 31, 2003**

 

***Net sales*** for 2004 decreased $17.8 million,or 15.4%, to $98.4 million from $116.2 million in 2003. Net sales ofgolf shafts decreased by $17.4 million to $92.3 million in 2004 from$109.8 million in 2003. This decline in sales is driven by several factorswhich include:

 

•      An overall reduction of major new clubintroductions during 2004, as many original equipment manufacturers (“OEMs”)repositioned their launch plans for 2005 in light of the year’s marketconditions;

•      Continued declines in shipments of certainproducts into the retail market, and discounting programs intended to clear theexcess inventory of existing products through the distribution channel;

•      A temporary shift in product mix within theCompany’s premium steel shaft category, which caused a modest decline in theCompany’s average selling price; and

•      A decline in the Company’s graphite unit volumedriven by weaker retail sell-through and demand from some of the Company’smajor OEM partners.

 

During the second half of 2004, it also becameapparent that the inventory levels in the distribution channel were somewhatlarger than once thought, as the extensive channel clearing continued throughyear-end. In addition, the OEM product launch delays the Company wasexperiencing in the first half of the year became even more extended. In somecases they were repositioned as spring 2005 launches. The golf industry wasalso impacted by severe weather related events across the United States.

 

The Company believes that these unfavorable marketdynamics are not isolated to individual customers or distribution channels, assales to top OEM and golf distributors are flat to down at the majority of theCompany’s key accounts.

 

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Performance sports net sales decreased by$0.5 million to $6.0 million in 2004 from $6.5 million in 2003. Thisdecline was driven primarily by a sales reduction in our hockey category as wecontinued to develop our product line and customer base in this new market.

 

Net sales to our internationalcustomers remained relatively flat compared to 2003 at $36.5 million. Net salesto our international customers as a percentage of total net sales increased to37.1% in 2004 compared to 31.5% in 2003. This increase was driven by improvedforeign currency exchange rates in Japan, the United Kingdom and Australia, andan increase in units shipped into Southeast Asia as major OEM’s continue tolocate a portion of their golf club assembly in that region. These positivefactors were somewhat offset by a decline in the unit sales volume in theUnited Kingdom as they experienced similar market factors as described abovefor the Company’s overall golf sales.

 

***Gross Profit*** for the year decreased$20.3 million, or 43.5%, to $26.4 million in 2004 from$46.7 million in 2003. Gross profit as a percentage of net sales decreasedto 26.8% from 40.2% the prior year.

 

As a result of the application of purchase accountingto record the Gilbert Global Acquisition the Company increased the value ofinventory, to reflect its estimated fair value at the date of acquisition, by$11.7 million which was subsequently reflected in cost of sales correspondingwith the related subsequent sales activity during 2004. This inventory fairvalue adjustment and related recognition in cost of sales is a non-cash transactionand affects only the 2004 results of operations. The following two paragraphsdescribe the gross profit results of the Company excluding the impact of thispurchase accounting adjustment.

 

***Gross Profit*** for the year decreased$8.7 million, or 18.6%, to $38.1 million in 2004 from$46.7 million in 2003. Gross profit as a percentage of net sales decreasedto 38.7% from 40.2% the prior year. The Company’s gross profit margin decreasedas a result of several factors, including (i) an increase in the cost ofraw materials and natural gas, (ii) continued escalation in the cost ofemployee healthcare benefits, (iii) the unfavorable impact of certainfixed costs in the Company’s manufacturing facilities spread over a reducedunit volume, and (iv) an unfavorable product mix shift in the Company’spremium steel shaft category. These factors were somewhat offset by thefavorable impact of (i) improved foreign currency exchange rates, (ii) increasedselling prices on branded and other products, (iii) favorable operatingimprovements from productivity programs at the Company’s manufacturingfacilities, and (iv) the impact of cost control actions initiated during2004 in response to the softness on the revenue line.

 

In the second quarter of 2003 the Company paid a ratificationbonus of $0.7 million to the hourly employees represented by the UnitedSteelworkers of America related to a new four year collective bargainingagreement effective July 1, 2003. Excluding the impact of thisratification bonus, gross profit as a percentage of net sales would havedecreased to 38.7% in 2004 from 40.8% in 2003.

 

***Selling, General and Administrative (“SG&A”) Expenses***for the year decreased approximately $1.6 million, or 10.8%, to$13.2 million in 2004 from $14.7 million in 2003. As a percentage ofnet sales, selling, general and administrative expenses increased to 13.4% in2004 from 12.7% the prior year. The decrease in total SG&A spending during2004 resulted primarily from cost control actions initiated in response to thesoftness on the revenue line.

 

***Amortization of Intangible Assets*** in 2004 was $11.0million. Intangible assets were acquired in connection with the Gilbert GlobalAcquisition. Intangible assets with definitive lives are being amortized usinga straight-line method over periods from 2 to 59 years.

 

***Business Development, Start-Up Costs******and Transition Costs***remainedrelatively flat compared to 2003. In 2003 and 2004 these costs representvarious start-up business expenses related to the opening of the Company’scomposite manufacturing operation in Southern China, and the relateddown-sizing costs incurred at the Company’s El Cajon, California facility.

 

***Transaction and Reorganization Expenses***for the year were $5.4 million, and were incurred in conjunction with the saleand purchase agreement for TTC which closed on March 15, 2004. Thesetransaction related expenses include (i) investment banking merger andacquisition fees, (ii) legal fees, and (iii) other incidental costsand expenses related to the sale of TTC. No such transaction and reorganizationexpenses were incurred during 2003.

 

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***Loss on EarlyExtinguishment of Long-Term Debt*** for the year was $9.2million.  The costs recorded as loss onthe early extinguishment of long term debt include (i) the write-off ofthe remaining deferred financing costs related to the Company’s 108 7/8% senior subordinated notes and theCompany’s 2002 senior credit facility, and (ii) the early extinguishmentcall premium and related interest the Company incurred when it redeemed the 10 7/8% senior subordinated notes on March 15,2004.  No long-term debt was extinguishedduring 2003.

 

***Operating Income*** in 2004 decreased by$44.3 million, to a loss of $13.2 million compared to income of $31.1 millionin 2003.  Operating income as apercentage of net sales decreased to a loss of 13.4% in 2004 from income of 26.8%in 2003.  This decrease reflects theprofit impact of the items described above.

 

Excluding the impact of the inventory purchaseaccounting adjustment, amortization of intangible assets, transaction andreorganization expenses and the loss on early extinguishment of long-term debtin 2004 as well as the 2003 ratification bonus, operating income would havedecreased approximately $7.7 million, or 24.3%, to $24.1 million from $31.8million in 2003.  Operating income as apercentage of net sales would have decreased to 24.5% in 2004 from 27.4% in2003.

 

***Interest Expense*** for the yearincreased by $3.0 million, to $16.0 million in 2004 from$13.0 million in 2003.  Thisincrease was driven primarily by the increase in outstanding principal amountsof variable rate bank debt and fixed rate bonds, offset somewhat by a decreasein interest rates on both the variable and fixed rate debt between periods.

 

***Income Tax*** expense decreased by $16.3million, to a $9.2 million benefit in 2004 from $7.1 million expensein 2003.  This decrease was drivenprimarily by the pretax expenses recorded as a result of the transaction andreorganization on March 15, 2004. The effective tax rate during these periods differs from a federalstatutory rate of 34% due primarily to the incremental tax rate for state andforeign income tax purposes.  For theperiod from January 1, 2004 through March 14, 2004 the effective taxrate also differs due to the nondeductible nature of a portion of transactionand reorganization expenses.

 

***Net Income***in 2004 decreased by approximately $30.9million, to a loss of $20.1 million from income of $10.9 million in 2003,and reflects the impact of the changes described above.

 

Excluding the impact of the inventory purchaseaccounting adjustment, amortization of intangible assets, transaction andreorganization expenses and the loss on early extinguishment of long-term debtin 2004 as well as the 2003 ratification bonus, net income in 2004 would havedecreased by approximately $6.4 million to $4.9 million from $11.3 million in2003.

 

**YearEnded December 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 in2002.  Net sales of golf shafts increasedby $7.0 million to $109.8 million in 2003 from $102.8 million in2002.  The consolidated change in golfshaft sales was generated by the following drivers in each of our three majorproduct 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-weightsteel products have received favorable acceptance from the marketplace as theycombine the lighter weight benefits of graphite shafts with the consistentperformance of steel material.  Inaddition, we believe we have gained market share in the premium steel categoryas one of our competitors struggled to satisfy their customer delivery andquality requirements;

 

•                  In2003, we introduced a new line of graphite shafts known as *Grafalloy Blue*.  This shaft is an ultra-light graphite shaftdesigned specifically for today’s oversized drivers and incorporates a patentpending micro-mesh tip technology to deliver the optimum combination of tipstability and energy transfer for the big heads on drivers sold by many of themajor original golf equipment manufacturers. The product performed well and was used by several winners on theprofessional tours, helping to grow our graphite golf shaft sales by doubledigit rates between 2002 and 2003; and

 

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•                  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 theassembly of opening price point golf club sets that are distributed throughmass channel retail stores.  Theseproducts are sold to entry-level players or lower income consumers who we believewere particularly affected by the recent sluggish economy.

 

Performance sports net sales increased by$1.9 million to $6.5 million in 2003 from $4.6 million in 2002.  This growth was driven by the marketpenetration for both our hockey stick products and component bicycle parts inthe high end bicycle market.  Inaddition, market demand drove increased net sales for certain niche productswithin this category.

 

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.  During thelast several years, many North American original equipment manufacturers haveelected to outsource their golf club assembly to third party producers in China.  This trend continued in 2003 as our exports intoChina increased significantly to support the migration of club assembly intothe region.  In addition, net sales fromour international operations benefited from an improvement in foreign currencyexchange rates between years, and from improved unit sales volumes in theUnited Kingdom as we shared in the improved market penetration of our existingoriginal golf equipment manufacturing customers.

 

***Gross Profit*** for the year increased$4.5 million, or 10.6%, to $46.7 million in 2003 from$42.2 million in 2002.  Gross profitas a percentage of net sales increased to 40.2% from 39.3% the prior year.  The increase in gross profit margin wasgenerated 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 margin enhancement were somewhat offsetby:

 

•                  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 on June 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 and Administrative Expenses***for the year increased approximately $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 and administrative expenses increased to 12.7% in 2002 from 12.6% theprior year.  Selling, general andadministrative spending increased between years to fund additional personnelcosts for sales and marketing efforts and to record increased performance basedmanagement programs.

 

***Business Development, Start-Up Costs and Transition Costs***in 2003 were $0.9 million.  Thisamount 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

 

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Southern China, which are expensed as incurred.  These costs increased compared to the prioryear as we hired local personnel, initiated rental payments, and beganincurring costs incidental to initial training and operations.

 

***Operating Income*** in 2003 increased by$3.5 million, or 12.9%, to $31.1 million from $27.6 million in2002.  Effective January 1, 2002 weadopted Statement 145, *Rescission of FASBStatements Nos. 4 and 64, Amendment of FASB Statement No. 13, andTechnical Corrections*, and as such its loss on the earlyextinguishment of debt in 2002 was recorded as a component of operating income.  In 2002, we refinanced our existing 1998 bankcredit facility with a new loan agreement, the 2002 bank credit facility.  As a result we wrote off the remaining unamortizeddeferred financing costs associated with the 1998 bank credit facility.  We did not extinguish debt in 2003.  Excluding the effects of the unionratification bonus in 2003, the loss on early extinguishment of debt in 2002and business development and start-up costs in both 2003 and 2002, operatingincome for 2003 would have increased by $4.0 million, or 14.0% from 2002and operating income as a percentage of net sales would have increased to 28.1%from 26.7%.  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 yearincreased by $0.8 million, to $13.0 million in 2003 from$12.2 million in 2002.  The increasewas generated from a higher average outstanding balance of our term bank debtbetween periods partially offset by the lower weighted average interest rateson our variable rate debt between years. At the end of 2002, we restructured our consolidated debt for both usand our parent company, TTC, by entering a the 2002 bank credit facility loanagreement for us and using the proceeds to issue dividends to TTC, which TTCthen used to retire principal amounts on TTC’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 periodsdiffers from a federal statutory rate of 34% due primarily to the incrementaltax rate for state and foreign income tax purposes.

 

***Net Income*** for the year 2003 increasedto $10.9 million from $9.3 million in 2002, and reflects the impactof the changes described above.

 

**Liquidity &Capital Resources**

 

The following table shows cash flow activity bysource.  Discussion of cash flow activityis noted below.

 
| ** **                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Net cash provided by  operating activities |       | $        | 9,684      |     | $          | 21,945 |   |
| Net cash used in  investing activities     |       | $        | (1,512     | )        | $          | (3,460 | ) |
| Net cash used in  financing activities     |       | $        | (13,224    | )        | $          | (16,623 | ) |

 

**General**

 

At the beginning of 2003 the Company had a seniorcredit facility (the “2002 Senior Credit Facility”) which included a $15.0million non-amortizing revolving credit facility and a $25.0 million term loan.  Amounts under the revolving credit facilitywere available on a revolving basis through December 31, 2007.  The term loan required quarterly cashinterest and principal payments beginning in March 2003 and continuingthrough December 2007.

 

In addition, the Company had $99.7 million in 10 7/8% Senior Subordinated Notes Due 2008(the “108 7/8% Notes”).  The 10 7/8% Notes required cash interest payments each June 1and December 1, beginning June 1, 1999.  The 10 7/8% Notes were redeemable at the Company’s option, undercertain circumstances and at certain redemption prices, beginning December 1,2003.

 

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

 

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Also in conjunction withthe Gilbert Global Acquisition the Company issued new 8 3/8% Senior Subordinated Notes due 2011(the “8 3/8% Notes”).  The 8 3/8% Notes require cash interest payments each March 15th and September 15th commencing on September 15,2004.  The 8 3/8% Notes are redeemable at the Company’s option, undercertain circumstances and at certain redemption prices, beginning March 15,2008.

 

The Company used the proceeds from the 2004 SeniorCredit Facility and the 8 3/8% Notes to pay off the existing debt that was outstandingat closing on March 15, 2004.  Also,a portion of the proceeds were used to pay a dividend to TTC in order that TTCcould repay the outstanding balance on its senior discount notes which carrieda 13.25% PIK interest rate or a 12.25% cash interest rate.

 

Both the 2004 Senior Credit Facility and the 8 3/8% Notes contain covenants and events ofdefault, including substantial restrictions and provisions which, among otherthings, limit the Company’s ability to incur additional indebtedness, makeacquisitions and capital expenditures, sell assets, create liens or otherencumbrances, make certain payments and dividends, or merge or consolidate.  The 2004 Senior Credit Facility also requiresthe Company to maintain certain specified financial ratios and tests includingminimum interest coverage and fixed charge coverage ratios, and maximumleverage ratios.  Furthermore, the 2004Senior Credit Facility requires certain mandatory prepayments includingpayments from the net proceeds of certain asset sales and a portion of theCompany’s excess cash flow as defined within the credit agreement.

 

On September 24, 2004 the Company executed anamendment to its 2004 Senior credit Facility (the “Amendment”).  The Amendment was approved by the Company,Credit Suisse First Boston acting as administrative agent and collateral agent,and by a majority of the lenders who were party to the 2004 Senior CreditFacility on such date.  The Amendmentprovided adjustments to certain specified financial ratios and tests includedin the 2004 Senior Credit Facility.  Aspart of the Amendment, the margin adder on LIBOR based loans was increased from2.50% to between 2.75% and 3.00%, depending on financial ratios, beginning September 24,2004 and continuing through December 31, 2005.  At December 31, 2004 the Company was incompliance with all of the covenants in both the 2004 Senior Credit Facilityand the 8 3/8% Notes.

 

***Discussion of Cash Flows forYears Ended December 31, 2004 and 2003***

 

Cash provided by operating activities declined $12.3million between periods, as net income declined due to the lower net salesduring 2004.  In addition, the Companybuilt inventory to facilitate the transition of graphite golf shaft productionfrom its El Cajon, California facility to its newly established plant inGuangzhou, China, as well as in anticipation of stronger sales in futureperiods.

 

We used $1.5 million of cash to invest in property,plant and equipment in 2004, compared to the $3.5 million spent in 2003.

 

The Company used $13.2 million of net cash forfinancing activities in 2004 as compared to $16.6 million in 2003.  The 2004 activity included the proceeds fromissuing the 2004 Senior Credit Facility and the proceeds from issuing the 8 3/8% Notes. These proceeds, plus cash generated from operations during the firstquarter, and cash on hand at the beginning of 2004 were used to (i) repaythe outstanding principal and interest on the Company’s 2002 Senior CreditFacility, (ii) to redeem and repay the 108 7/8% Notes including their accrued and unpaid interest andearly redemption call premium, (iii) to pay for debt issuance costs on the2004 Senior Credit Facility and the 8 3/8% Notes, (iv) to payfor transaction and reorganization expenses, and (v) to issue a dividendto the Company’s parent company, TTC.

 

In the third quarter of 2004, the Company repaid $2.3million of principal on its 2004 Senior Credit Facility.  The $2.3 million principal repayment included$0.3 million of mandatory payments and $2.0 million of voluntary prepayments.  As a result of this voluntary prepayment, theCompany has no mandatory quarterly principal payments for the twelve monthperiod following the date of the voluntary prepayment on September 24,2004.

 

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***Discussion of Cash Flows forYears Ended December 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 was generated by a$1.6 million increase in our net income, which was partially offset by aslight increase in working capital requirements.

 

We used $3.5 million to invest in property, plantand equipment in 2003 compared to the $1.2 million we spent in 2002.  The capital expenditures in 2003 includedapproximately $800,000 in leasehold improvements and supplemental equipmentpurchases for our new composite graphite manufacturing facility in China.

 

In 2003, we repaid $11.0 million of principal onour 2002 bank credit facility.  In 2002,we repaid the remaining $16.5 million principal balance of our 1998 bankcredit facility.  Effective December 31,2002, we refinanced our 1998 bank credit facility as more fully described in Note7 to our consolidated financial statements located elsewhere in this annualreport.  Under the terms of our 2002 bankcredit facility, we are required to pay $4.5 million in scheduledprincipal payments during 2004.

 

In 2003, we declared and made four quarterly dividendsto our parent company, TTC, totaling $5.2 million.  These funds were used by our parent companyto make quarterly interest payments on its senior discount notes, and tovoluntarily repay a portion of the principal totaling $4.0 million.  In 2002, we declared and paid dividends toour parent company of $27.1 million to make quarterly interest payments onits senior discount notes and to voluntarily repay a portion of the outstandingprincipal.

 

In addition, in the first quarter of 2002, werepurchased $0.3 million of our existing notes in an open marketrepurchase program.

 

Thefollowing table reflects the Company’s contractual cash obligations forlong-term debt and capital and operating leases as of December 31, 2004.

 
| ** **                | ** ** | **Total** | ** ** | **2005** | ** ** | **2006  through  2007** | ** ** | **2008  through  2009** | ** ** | **Thereafter** | ** ** |
|---------------------------|------------|-----------|------------|----------|------------|-------------------------|------------|-------------------------|------------|----------------|------------|
| Long-Term Debt(1)         |       | $         | 232.7      |     | $          | 0.5                     |       | $                       | 2.2        |           | $          | 2.2 |   | $ | 227.8 |   |
| Operating Leases          |       | 3.0       |       | 1.1      |       | 1.4                     |       | 0.5                     |       | —         |       |
| Purchase Commitments  (2) |       | $         | 0.3        |     | $          | 0.3                     |       | —                  |       | —         |       | — |   |
| Total(3)                  |       | $         | 236.0      |     | $          | 1.9                     |       | $                       | 3.6        |           | $          | 2.7 |   | $ | 227.8 |   |

 

----

(1)                                  Ourlong-term debt agreements contain customary change of control provisions thatcould, under certain circumstances, cause accelerated debt repayment.

 

(2)                                  Amountrepresents the purchase commitments of natural gas and nickel used in themanufacture of steel golf shafts at our Amory, Mississippi facility.

 

(3)                                  Thistable does not include our future obligations related to the funding of ourpension benefits.

 

In addition to the debt service obligations forprincipal and interest payments, our liquidity needs largely relate to workingcapital requirements and capital expenditures for machinery and equipment.  We intend to fund our current and long termworking capital, capital expenditure and debt service requirements through cashflow generated from operations.  However,since there can be no assurance of future performance, as of December 31,2004 we have the $20.0 million revolving credit facility available forfuture cash requirements.  The maximumamount we may use of the $20.0 million revolving credit facility is limited bythe financial covenants contained within the 2004 Senior Credit Facility.  See Note 7 to our consolidated financialstatements located elsewhere in this annual report for further discussion ofthe 2004 Senior Credit Facility issued on March 15, 2004.

 

27

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In addition to the contractual cash obligations notedin the table above, we also have a management services agreement with theprinciple common stock holder in our parent company, which requires the paymentof an annual advisory fee of $0.5 million.

 

Depending on the size, any future acquisitions, jointventures, capital expenditures or similar transactions may require significantcapital resources in excess of cash provided from operations, and potentiallyin excess of cash available under the revolving credit facility.  There can be no assurance that we will beable to obtain the necessary capital under acceptable terms, from creditors or othersources that will be sufficient to execute any such business investment orcapital expenditure.

 

**Seasonality**

 

In general, the component supplier sales to golfequipment companies and distributors are seasonal, and tend to precede the warmweather golf season.  However, there areexceptions, especially for those suppliers that sell to the high volume openingprice point golf club manufacturers who sell their product through mass channelretail stores and generate strong volumes during the holiday 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 hashad a material impact on our historical results of operations, as we experienceinflation trends that are consistent with the national averages and probablysimilar to other domestic manufacturers.

 

Nonetheless, as noted in our earlier disclosureregarding the changes in gross profit, we have experienced an increase in thecost of natural gas used for our steel plant operations in Amory,Mississippi.  Based upon current marketprices and purchases of natural gas contracts for 2005, we expect natural gascosts to be flat to up slightly in 2005.

 

In addition, during 2004, we recognized an increase ininsurance premiums for our employee health benefits coverage.  The health insurance premiums for one of ourplans, covering a majority of our employees, increased consistent with theoverall national average or healthcare coverage.  We expect that our increases in healthbenefit costs will again equal the national average in 2005.

 

**Critical Accounting Policies andEstimates**

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of America (“GAAP”)requires the appropriate application of certain accounting policies, many ofwhich require our management to make estimates and assumptions about futureevents and their impact on amounts reported in the financial statements andaccompanying notes.  Since future eventsand their impact cannot be determined with absolute certainty, the actualresults will inevitably differ from our management’s estimates.  Such differences may be material to thefinancial statements.

 

We believe that our application of accountingpolicies, and the estimates inherently required therein, are reasonable underthe circumstances.  These accountingpolicies and estimates are constantly reevaluated, and adjustments are madewhen 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 innote 2 to our consolidated financial statements located elsewhere in this annualreport.  We have identified certaincritical accounting policies which are described below.

 

***    RevenueRecognition.***  Wederive substantially all of our revenue from the sales of golf shafts andperformance sports products.  Revenue isrecognized when all of the following conditions exist: (i) persuasiveevidence of an

 

28

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arrangement exists, (ii) delivery has occurred, (iii) therevenue amount is determinable and (iv) collection is reasonably assured.  Liabilities are established for estimatedreturns, allowances, and discounts at the time revenue is recognized.

 

***    Impairmentof Long-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 our goodwill for impairment on anannual basis.  We periodically evaluatesour long-lived assets, including goodwill, for indicators that would suggestthat the carrying amount of the assets may not be recoverable.  The judgments regarding the existence of suchindicators are based on factors such as operating performance, marketconditions, and legal factors.  Thevaluation of our long-lived assets, including goodwill requires us to use ourjudgment in evaluating these indicators.

 

In accordance with SFAS No. 144, long-livedassets, such as property, plant, and equipment, and purchased intangiblessubject to amortization, are reviewed for impairment whenever events or changesin circumstances indicate that the carrying amount of an asset may not berecoverable.  Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto estimated undiscounted future cash flows expected to be generated by theasset.  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 bedisposed of would be separately presented in the balance sheet and reported atthe lower of the carrying amount or fair value less costs to sell, and are nolonger 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 toamortization are tested annually for impairment, and are tested for impairment morefrequently if events and circumstances indicate that the asset might beimpaired.  An impairment loss isrecognized to the extent that the carrying amount exceeds the asset’s fairvalue.

 

***    Valuationfor Deferred Income Taxes.***  Our financial statements include an estimateof income taxes assessed in each legal jurisdiction in which we operate.  These income taxes include both a currentpayable amount, as well as a deferred portion which results from a variety oftemporary book versus tax treatment differences.  These differences result in deferred taxassets and liabilities, which are included in our balance sheet.  Once established, any deferred tax asset mustbe evaluated to determine the likelihood that we will generate sufficientfuture taxable income to utilize the full amount.  When facts and circumstances warrant, we establish,increase or reduce valuation allowances associated with deferred tax assets inorder to reflect which assets meet the more likely than not realizability test.

 

**Impact of Recently Issued AccountingStandards**

 

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 145considers extinguishment of debt a risk management strategy by the reportingentity and the FASB does not believe it should be considered extraordinaryunder the criteria in APB Opinion No. 30, *Reportingthe Results of Operations Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions* (APB 30), unless the debt extinguishment meets theunusual in nature and infrequency of occurrence criteria in APB 30. Statement145 is effective for fiscal years beginning after May 15, 2002 with earlyadoption encouraged.  We elected to adoptStatement 145 as of January 1, 2002, and as such our loss on the earlyextinguishment of debt in 2002 was recorded as a component of operating income.  We did not extinguish debt in 2001.

 

In December 2003, the FASB issued FASBInterpretation No. 46 (revised December 2003), *Consolidation of Variable Interest Entities*,which addresses how a business enterprise should evaluate whether it has acontrolling financial interest in an entity through means other than votingrights and accordingly should consolidate the entity.  FIN 46R replaces FASB Interpretation No. 46,*Consolidation of Variable Interest Entities*,which was issued in January 2003.  TheCompany will be required to apply FIN 46R to variable interests in VIEs createdafter December 31, 2003.  Forvariable interests in VIEs created before January 1, 2004, theInterpretation will be applied beginning on January 1,

 

29

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2005. The adoption of FIN 46R is not expected to have a material effecton our consolidated financial condition or results of operations taken as awhole.

 

In May 2003, the FASB Issued Statement No. 150,*Accounting for Certain Financial Instrumentswith Characteristics of Both Liabilities and Equity* (“Statement 150”).  Statement 150 requires issuers to classify asliabilities (or assets in some circumstances) financial instruments within thescope of the statement that embody 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 after June 15,2003.  The impact of adopting Statement150 did not have a material impact to our consolidated financial condition orresults of operations taken as a whole.

 

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

 

**RisksAssociated with Forward-Looking Statements**

 

ThePrivate Securities Litigation Act of 1995 (the “Act”) provides a safe harborfor forward-looking statements made by our Company.  This document contains forward-lookingstatements, including but not limited to, Item 1 of Part I, Business, andItem 7 of Part II, Management’s Discussion and Analysis of Financial Conditionand Results of Operations.  Allstatements which address operating performance, events or developments that weexpect, plan, believe, hope, wish, forecast, predict, intend, or anticipatewill occur in the future are forward looking statements within the meaning ofthe Act.

 

Theforward-looking statements are based on management’s current views andassumptions regarding future events and operating performance.  However there are many risk factors,including but not limited to, the general state of the economy, the Company’sability to execute its plans, competitive factors, and other risks that couldcause the actual results to differ materially from the estimates or predictionscontained in our Company’s forward-looking statements.  Additional information concerning the Company’srisk factors is contained from time to time in the Company’s public filingswith the SEC; and most recently in the Business Risk section of Item 1 of Part 1of this Annual Report on Form 10-K.

 

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

 

30

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**Item 7A****.  *Quantitative andQualitative Disclosures about Market Risk***

 

**InterestRate Sensitivity**

 

Thetable below provides information about our debt obligations as of December 31,2004 that are sensitive to changes in interest rates.  The table presents cash flows and relatedweighted average interest rates by expected maturity dates (dollars inmillions).

 
| ** **                                       | ** ** | **Expected Maturity Date** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|----------------------------|------------|------------|------------|------------|------------|
| **LONG TERM DEBT**                               | ** ** | **2005**                   | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Fixed Rate 8 3/8% Senior Subordinated Notes |       | $                          | —     |       | $          | —     |       | $ | — |   | $ | — |   | $ | — |   | $ | 125.0 |   | $ | 125.0 |   |
| Average Interest Rate                            |       |                       |       |       |       |       |       |   |   |   |   | 8.38 | % | 8.38 | % |
| Variable Rate Senior  Credit Facility            |       | $                          | 0.5        |       | $          | 1.1        |       | $ | 1.1 |   | $ | 1.1 |   | $ | 1.1 |   | $ | 102.8 |   | $ | 107.7 |   |
| Average Interest Rate  (a)                       |       |                       |       |       |       |       |       |   |   |   |   |   |   | 5.43 | % |

 

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(a)          Variablerate long-term debt is comprised of term loans under the 2004 Senior CreditFacility, which provides for interest at our option, at (1) the base rateof the bank acting as administrative agent plus a margin adder of 2.00%, or (2) undera LIBOR option with a borrowing spread of LIBOR plus 2.50% to 3.00%, dependingon certain financial ratios.

 

**ExchangeRate Sensitivity**

 

We use forward foreign exchange contracts (“Instruments”or “Derivative Instruments”) in our management of foreign currency exchangerate exposures.  Instruments used ashedges must be effective at reducing the risks associated with the underlyingexposure and must be designated as a hedge at the inception of the contract.  Accordingly, changes in the market value ofthe Instruments must have a high degree of inverse correlation with changes inthe market value or cash flows of the underlying hedged item.

 

We use Derivative Instruments to hedge severalcomponents of its revenue and cash collection stream, including, (i) anticipatedforeign currency sales, (ii) accounts receivable denominated in foreigncurrencies, and (iii) cash balances maintained in foreign currencies.

 

The changes in the market value of DerivativeInstruments hedging anticipated foreign currency sales are recognized in theconsolidated balance sheets as a component of accumulated other comprehensiveincome in stockholder’s equity.  To theextent an instrument is no longer effective as a hedge due to a change in theunderlying exposure, gains and losses are recognized currently in theconsolidated statements of operations as a component of cost of sales.

 

The changes in the market value of Derivative Instrumentshedging accounts receivable or cash denominated in foreign currency arerecognized as a component of operating income during the period of the change,as they are marked to market on a monthly basis.

 

Assuming a hypothetical 10% adverse change in allforeign currencies, with the resulting functional currency gains and lossestranslated into U.S. dollars at the spot rate, the loss in fair value ofexchange contracts held on December 31, 2004, would be $0.6 million.  Those losses would be offset, in part, bygains on the underlying receivables and cash being hedged.  See note 2(h) to our consolidatedfinancial statements located elsewhere in this annual report for furtherdiscussion of foreign currencies.

 

**Commodity Risk**

 

Wehave some exposure to risks associated with fluctuations in prices forcommodities such as nickel and natural gas which are used to manufacture ourproducts.  Nickel is used in the platingof steel golf shafts, and natural gas is used as an energy source primarily inour steel manufacturing operations.  Insome cases we will purchase contracts to lock in prices for both nickel andnatural gas to be delivered anywhere from one to twenty-four months from thedate the contract is consummated.  As of December 31,2004 we held either under contract or have purchased approximately 10% of ourexpected 2005 usage of natural gas, and none of our expected 2005 usage ofnickel.

 

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**Item 8****.  *Financial Statements andSupplementary Data***

 

**Reportof Independent Registered Public Accounting Firm**

** **

The Board of DirectorsTrue Temper Sports, Inc.

 

We have audited the accompanying consolidated balancesheets of True Temper Sports, Inc. (the Company) as of December 31,2004 and the related consolidated statement of operations, stockholder’s equityand comprehensive income, and cash flows for the period from March 15,2004 to December 31, 2004.  We havealso audited the consolidated balance sheet of the predecessor of the Company(the Predecessor) as of December 31, 2003 and the related consolidatedstatements of operations, stockholder’s equity and comprehensive income for theperiod from January 1, 2004 to March 14, 2004 and for the years endedDecember 31, 2003 and 2002.  Inconnection with our audit of the consolidated financial statements, we alsoaudited the accompanying financial statement schedule.  These consolidated financial statements andthe financial statement schedule are the responsibility of the Company’smanagement.  Our responsibility is to expressan opinion on these consolidated financial statements and the financialstatement schedule based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of True Temper Sports, Inc. as of December 31, 2004 and theresults of their operations and their cash flows for the period from March 15,2004 to December 31, 2004 and the financial position of the Predecessor asof December 31, 2003 and the results of their operations and their cashflows for the period from January 1, 2004 to March 14, 2004 and forthe years ended December 31, 2003 and 2002, in conformity with U.S. generallyaccepted accounting principles.  Also, inour opinion, the related financial statement schedule, when considered inrelation to the consolidated financial statements taken as a whole, presentsfairly, in all material respects, the information set forth therein.

 

As discussed inNote 1 to the consolidated financial statements, the Company’s consolidatedfinancial statements reflect the effect of the purchase method of accounting, whichis a different basis of accounting than the Predecessor’s consolidatedfinancial statements, which are reflected on a historical cost basis.  Therefore, the Company’s consolidatedfinancial statements are not comparable to the Predecessor’s consolidatedfinancial statements.

 

/s/ KPMG LLP

 
| Memphis, Tennessee  |
|---------------------|
| March 23, 2005 |

 

32

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**TRUETEMPER SPORTS, INC.**

**(Awholly-owned subsidiary of True Temper Corporation)**

 

**CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Dollarsin thousands)**

 
| ** **                                                 | ** ** | **Successor Company**                              | ** **  | **Predecessor Company**                          | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------|-------------|--------------------------------------------------|------------|
| ** **                                                 | ** ** | **Period from March 15 To December 31,** | ** **  | **Period from January 1 To March 14,** | ** ** | **For the Year Ended December 31,** | ** ** |
| ** **                                                 | ** ** | **2004**                                           | ** **  | **2004**                                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| **NET  SALES**                                             | ** ** | **$**                                              | **78,120**  | ** **                                       | **$**      | **20,247** | ** ** | **$** | **116,206** | ** ** | **$** | **107,401** | ** ** |
| Cost of sales                                              |       | 60,104                                             |        | 11,871                                           |       | 69,470 |   | 65,161 |   |
| **GROSS  PROFIT**                                          | ** ** | **18,016**                                         | ** **  | **8,376**                                        | ** ** | **46,736** | ** ** | **42,240** | ** ** |
|                                                       |       |                                               |        |                                             |       |   |   |   |   |
| Selling, general and  administrative expenses              |       | 9,520                                              |        | 3,635                                            |       | 14,747 |   | 13,578 |   |
| Amortization of  intangible assets                         |       | 10,984                                             |        | —                                           |       | — |   | — |   |
| Business development,  start-up costs and transition costs |       | 738                                                |        | 100                                              |       | 869 |   | 312 |   |
| Transaction and  reorganization expense                    |       | 25                                                 |        | 5,381                                            |       | — |   | — |   |
| Loss on early  extinguishment of long-term debt            |       | —                                             |        | 9,217                                            |       | — |   | 777 |   |
| **OPERATING  INCOME (LOSS)**                               | ** ** | **(3,251**                                         | **)**       | **(9,957**                                       | **)**      | **31,120** | ** ** | **27,573** | ** ** |
|                                                       |       |                                               |        |                                             |       |   |   |   |   |
| Interest expense, net  of interest income                  |       | 13,491                                             |        | 2,498                                            |       | 13,017 |   | 12,236 |   |
| Other expenses, net                                        |       | 72                                                 |        | (2                                               | )          | 132 |   | 93 |   |
| **INCOME  (LOSS) BEFORE INCOME TAXES**                     | ** ** | **(16,814**                                        | **)**       | **(12,453**                                      | **)**      | **17,971** | ** ** | **15,244** | ** ** |
|                                                       |       |                                               |        |                                             |       |   |   |   |   |
| Income tax (benefit)  expense                              |       | (6,350                                             | )           | (2,845                                           | )          | 7,113 |   | 5,992 |   |
| **NET  INCOME (LOSS)**                                     | ** ** | **$**                                              | **(10,464** | **)**                                            | **$**      | **(9,608** | **)** | **$** | **10,858** | ** ** | **$** | **9,252** | ** ** |

 

See accompanyingnotes to consolidated financial statements.

 

33

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**TRUETEMPER SPORTS, INC.**

**(Awholly-owned subsidiary of True Temper Corporation)**

 

**CONSOLIDATED BALANCE SHEETS**

**(Dollarsin thousands)**

 
| ** **                                                                                                  | ** ** | **Successor Company**      | ** **  | **Predecessor Company**    | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------------------------|-------------|----------------------------|------------|
| ** **                                                                                                  | ** ** | **December 31, 2004** | ** **  | **December 31, 2003** | ** ** |
| **ASSETS**                                                                                                  |       |                       |        |                       |       |
| **CURRENT  ASSETS**                                                                                         |       |                       |        |                       |       |
| Cash and cash  equivalents                                                                                  |       | $                          | 3,337       |                       | $          | 8,389 |   |
| Receivables, net                                                                                            |       | 14,578                     |        | 15,612                     |       |
| Inventories                                                                                                 |       | 21,910                     |        | 15,656                     |       |
| Deferred financing  costs                                                                                   |       | 1,449                      |        | 651                        |       |
| Prepaid expenses and  other current assets                                                                  |       | 2,084                      |        | 1,620                      |       |
| **Total  current assets**                                                                                   | ** ** | **43,358**                 | ** **  | **41,928**                 | ** ** |
|                                                                                                        |       |                       |        |                       |       |
| Property, plant and  equipment, net                                                                         |       | 13,407                     |        | 15,026                     |       |
| Goodwill, net                                                                                               |       | 150,883                    |        | 71,506                     |       |
| Intangible assets, net                                                                                      |       | 146,266                    |        | —                     |       |
| Deferred tax assets,  net                                                                                   |       | —                     |        | 47,902                     |       |
| Deferred financing  costs, net                                                                              |       | 6,504                      |        | 2,348                      |       |
| Other assets                                                                                                |       | 407                        |        | 906                        |       |
| **Total  assets**                                                                                           | ** ** | **$**                      | **360,825** | ** **                 | **$**      | **179,616** | ** ** |
|                                                                                                        |       |                       |        |                       |       |
| **LIABILITIES & STOCKHOLDER’S EQUITY**                                                        |       |                       |        |                       |       |
| **CURRENT  LIABILITIES**                                                                                    |       |                       |        |                       |       |
| Current portion of  long-term debt                                                                          |       | $                          | 545         |                       | $          | 4,500 |   |
| Accounts payable                                                                                            |       | 4,356                      |        | 4,992                      |       |
| Accrued expenses and  other current liabilities                                                             |       | 9,796                      |        | 8,675                      |       |
| **Total  current liabilities**                                                                              | ** ** | **14,697**                 | ** **  | **18,167**                 | ** ** |
|                                                                                                        |       |                       |        |                       |       |
| Deferred tax liability,  net                                                                                |       | 5,403                      |        | —                     |       |
| Long-term debt, net of  current portion                                                                     |       | 232,180                    |        | 109,230                    |       |
| Other liabilities                                                                                           |       | 7,215                      |        | 3,426                      |       |
| **Total  liabilities**                                                                                      | ** ** | **259,495**                | ** **  | **130,823**                | ** ** |
|                                                                                                        |       |                       |        |                       |       |
| **STOCKHOLDER’S  EQUITY**                                                                              |       |                       |        |                       |       |
| Common stock — par  value $0.01 per share; authorized 1,000 shares; issued and outstanding 100  shares |       | —                     |        | —                     |       |
| Additional paid-in  capital                                                                                 |       | 111,943                    |        | 40,326                     |       |
| Retained earnings  (accumulated deficit)                                                                    |       | (10,464                    | )           | 8,796                      |       |
| Accumulated other  comprehensive loss, net of taxes                                                         |       | (149                       | )           | (329                       | )          |
| **Total  stockholder’s equity**                                                                        | ** ** | **101,330**                | ** **  | **48,793**                 | ** ** |
| **Total  liabilities and stockholder’s equity**                                                        | ** ** | **$**                      | **360,825** | ** **                 | **$**      | **179,616** | ** ** |

 

See accompanyingnotes to consolidated financial statements.

 

34

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**TRUETEMPER SPORTS, INC.**

***PredecessorCompany***

**(Awholly-owned subsidiary of True Temper Corporation)**

 

**CONSOLID****ATEDSTATEMENTS OF**

**STOCKHOLDER’SEQUITY AND COMPREHENSIVE INCOME**

**(Dollars in thousands)**

 
| ** **                                                                     | ** ** | ** **       | ** ** | ** **    | ** ** | **Additional Paid In Capital** | ** ** | **Retained Earnings/ (Accumulated  Deficit)** | ** ** | **Accumulated Other Comprehensive  Loss** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------|------------|---------------|------------|--------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                                                                     | ** ** | **Common Stock** | ** ** | ** **    | ** ** | ** **                     | ** ** | ** **                                    |
| ** **                                                                     | ** ** | **Shares**       | ** ** | **Par Value** | ** ** | ** **                     | ** ** | ** **                                    | **Total**  | ** **                                |
| **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 |   |
|                                                                           |       |             |       |          |       |                           |       |                                          |       |                                      |       |       |       |
| Net loss for the period  from January 1, 2004 through March 14, 2004 |       | —           |       | —        |       | —                         |       | (9,608                                        | )          | —                                    |       | (9,608     | )          |
| Mark to market  adjustment on derivative instruments, net of taxes             |       | —           |       | —        |       | —                         |       | —                                        |       | (121                                      | )          | (121       | )          |
| Comprehensive loss, net  of taxes                                              |       |             |       |          |       |                           |       |                                          |       |                                      |       | (9,729     | )          |
| **Balance  at March 14, 2004**                                            |       | 100              |       | $             | —     |                           | $          | 40,326                                        |       | $                                         | (812       | )          | $          | (450 | ) | $ | 39,064 |   |

 

See accompanyingnotes to consolidated financial statements.

 

35

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| ** **                                                                                | ** ** | ** **       | ** ** | ** **    | ** ** | **Additional Paid In Capital** | ** ** | **Accumulated Deficit** | ** ** | **Accumulated Other Comprehensive  Loss** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------|------------|---------------|------------|--------------------------------|------------|-------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                                                                                | ** ** | **Common Stock** | ** ** | ** **    | ** ** | ** **                     | ** ** | ** **              |
| ** **                                                                                | ** ** | **Shares**       | ** ** | **Par Value** | ** ** | ** **                     | ** ** | ** **              | **Total**  | ** **                                |
| **Initial  capitalization and acquisition of Predecessor Company at March 15, 2004** |       | —           |       | $             | —     |                           | $          | 112,715                 |       | $                                         | —     |       | $          | — |   | $ | 112,715 |   |
| Subsequent adjustment  to initial capitalization for final working capital amount         |       | —           |       | —        |       | (772                           | )          | —                  |       | —                                    |       | (772       | )          |
| Net loss for the period  from March 15, 2004 through December 31, 2004          |       | —           |       | —        |       | —                         |       | (10,464                 | )          | —                                    |       | (10,464    | )          |
| Minimum pension  liability, net of taxes                                                  |       | —           |       | —        |       | —                         |       | —                  |       | (164                                      | )          | (164       | )          |
| Mark to market  adjustment on derivative instruments, net of taxes                        |       | —           |       | —        |       | —                         |       | —                  |       | 15                                        |       | 15         |       |
| Comprehensive loss, net  of taxes                                                         |       |             |       |          |       |                           |       |                    |       |                                      |       | (10,613    | )          |
| **Balance  at December 31, 2004**                                                    |       | 100              |       | $             | —     |                           | $          | 111,943                 |       | $                                         | (10,464    | )          | $          | (149 | ) | $ | 101,330 |   |

 

See accompanyingnotes to consolidated financial statements.

 

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**TRUETEMPER SPORTS, INC.**

**(Awholly-owned subsidiary of True Temper Corporation)**

 

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Dollarsin thousands)**

 
| ** **                                                                                     | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                          | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                     | ** ** | **Period from March 15 To December 31,** | ** ** | **Period from January 1 To March 14,** | ** ** | **For the Year Ended December 31,** | ** ** |
| ** **                                                                                     | ** ** | **2004**                                           | ** ** | **2004**                                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| **OPERATING  ACTIVITIES**                                                                      |       |                                               |       |                                             |       |   |   |   |   |
| Net income (loss)                                                                              |       | $                                                  | (10,464    | )                                                | $          | (9,608 | ) | $ | 10,858 |   | $ | 9,252 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities:      |       |                                               |       |                                             |       |   |   |   |   |
| Depreciation and  amortization                                                                 |       | 2,420                                              |       | 671                                              |       | 2,906 |   | 3,252 |   |
| Amortization of  deferred financing costs                                                      |       | 1,034                                              |       | 109                                              |       | 632 |   | 697 |   |
| Amortization of  intangible assets                                                             |       | 10,984                                             |       | —                                           |       | — |   | — |   |
| Inventory fair value  adjustment recorded in cost of sales                                     |       | 11,663                                             |       | —                                           |       | — |   | — |   |
| Loss on disposal of  property, plant and equipment                                             |       | 40                                                 |       | —                                           |       | 89 |   | 80 |   |
| Transaction and  reorganization expenses                                                       |       | 25                                                 |       | 5,381                                            |       | — |   | — |   |
| Loss on early  extinguishment of long-term debt                                                |       | —                                             |       | 9,217                                            |       | — |   | 777 |   |
| Deferred taxes                                                                                 |       | (6,432                                             | )          | (2,898                                           | )          | 6,883 |   | 5,770 |   |
| Changes in assets and  liabilities, net of acquisitions:                                       |       |                                               |       |                                             |       |   |   |   |   |
| Receivables, net                                                                               |       | (255                                               | )          | 1,273                                            |       | (529 | ) | (1,624 | ) |
| Inventories                                                                                    |       | (3,454                                             | )          | (2,800                                           | )          | (601 | ) | (1,614 | ) |
| Prepaid expenses and  other assets                                                             |       | (463                                               | )          | (68                                              | )          | (422 | ) | (115 | ) |
| Accounts payable                                                                               |       | (2,015                                             | )          | 1,379                                            |       | (1,007 | ) | 1,609 |   |
| Accrued interest                                                                               |       | 3,761                                              |       | 1,993                                            |       | 222 |   | (25 | ) |
| Other liabilities                                                                              |       | (142                                               | )          | (1,667                                           | )          | 2,371 |   | 1,844 |   |
| **Net  cash provided by operating activities**                                                 | ** ** | **6,702**                                          | ** ** | **2,982**                                        | ** ** | **21,402** | ** ** | **19,903** | ** ** |
| ** **                                                                                     | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **INVESTING  ACTIVITIES**                                                                      |       |                                               |       |                                             |       |   |   |   |   |
| Purchase of property,  plant and equipment                                                     |       | (1,232                                             | )          | (330                                             | )          | (3,460 | ) | (1,164 | ) |
| Proceeds from the sales  of property, plant and equipment                                      |       | 50                                                 |       | —                                           |       | — |   | — |   |
| **Net  cash used in investing activities**                                                     | ** ** | **(1,182**                                         | **)**      | **(330**                                         | **)**      | **(3,460** | **)** | **(1,164** | **)** |
| ** **                                                                                     | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **FINANCING  ACTIVITIES**                                                                      |       |                                               |       |                                             |       |   |   |   |   |
| Proceeds from issuance  of bank debt                                                           |       | 110,000                                            |       | —                                           |       | — |   | 25,000 |   |
| Proceeds from issuance  of Senior Subordinated Notes                                           |       | 125,000                                            |       | —                                           |       | — |   | — |   |
| Principal payments on  bank debt                                                               |       | (2,275                                             | )          | (7,700                                           | )          | (11,000 | ) | (16,504 | ) |
| Repurchase of Senior  Subordinated Notes                                                       |       | —                                             |       | —                                           |       | — |   | (270 | ) |
| Premium paid to  repurchase Senior Subordinated Notes                                          |       | —                                             |       | —                                           |       | — |   | (12 | ) |
| Principal payments on  capital leases                                                          |       | —                                             |       | —                                           |       | — |   | (18 | ) |
| Repay bank debt,  including accrued interest                                                   |       | (6,335                                             | )          | —                                           |       | — |   | — |   |
| Call senior  subordinated notes, including accrued interest and call premiums                  |       | (109,160                                           | )          | —                                           |       | — |   | — |   |
| Payment of debt  issuance costs                                                                |       | (8,678                                             | )          | —                                           |       | (278 | ) | (844 | ) |
| Dividends paid                                                                                 |       | —                                             |       | —                                           |       | (5,207 | ) | (27,084 | ) |
| Distribution of net  equity to selling shareholders                                            |       | (102,518                                           | )          | —                                           |       | — |   | — |   |
| Transaction and  reorganization expenses, including cash payments for direct acquisition costs |       | (10,805                                            | )          | (463                                             | )          | — |   | — |   |
| Other financing  activity                                                                      |       | (248                                               | )          | (42                                              | )          | (138 | ) | (114 | ) |
| **Net  cash used in financing activities**                                                     | ** ** | **(5,019**                                         | **)**      | **(8,205**                                       | **)**      | **(16,623** | **)** | **(19,846** | **)** |
| Net increase (decrease)  in cash                                                               |       | 501                                                |       | (5,553                                           | )          | 1,319 |   | (1,107 | ) |
| Cash at beginning of  period                                                                   |       | 2,836                                              |       | 8,389                                            |       | 7,070 |   | 8,177 |   |
| **Cash at  end of year**                                                                       | ** ** | **$**                                              | **3,337**  | ** **                                       | **$**      | **2,836** | ** ** | **$** | **8,389** | ** ** | **$** | **7,070** | ** ** |

 

See accompanyingnotes to consolidated financial statements.

 

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**TRUETEMPER SPORTS, INC.**

**(Awholly-owned subsidiary of True Temper Corporation)**

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Dollarsin thousands unless otherwise indicated)**

 

**(1)  DESCRIPTION OF BUSINESS**

 

True Temper Sports, Inc. (“True Temper” or the “Company”)is primarily engaged in the design, manufacture and sale of steel and compositegolf shafts as well as a variety of other high strength, tight tolerancetubular components for the bicycle, automotive and recreational sports markets.  True Temper’s manufacturing plants andrelated 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 togolf club manufacturers and distributors primarily located in the UnitedStates, Europe, Japan, Australia and Southeast Asia.  True Temper operates as a wholly-ownedoperating subsidiary of True Temper Corporation.

 

The consolidated financial statements include thefinancial statements of True Temper and its majority owned subsidiaries.  All significant intercompany balances andtransactions have been eliminated in consolidation.

 

On January 30, 2004, TTS Holdings LLC, a newcompany formed by Gilbert Global Equity Partners, L.P. and its affiliated funds(“Gilbert Global”), entered into a stock purchase agreement with the Company’sdirect parent company, True Temper Corporation, pursuant to which TTS HoldingsLLC and certain of the Company’s senior management purchased all of theoutstanding shares of True Temper Corporation. In connection with this acquisition, and effective on March 15,2004, the Company repaid all of its outstanding 2002 senior credit facility,redeemed all of its 10 7/8% senior subordinated notesdue 2008, and made certain payments of the net remaining equity of the predecessorcompany to the selling shareholders. These payments were financed with the net proceeds of a new seniorcredit facility and new 8 3/8% senior subordinated notesdue 2011.

 

This transaction was accounted for by the Company’sparent company using the purchase method of accounting.  As the Company is a wholly owned subsidiaryof True Temper Corporation, the Company has “pushed down” the effect of thepurchase method of accounting to these financial statements.  These financial statements and accompanyingnotes present the historical cost basis results of the Company as “predecessorcompany” through March 14, 2004, and the results of the Company as “successorcompany” from March 15, 2004 through December 31, 2004, accordingly,the successor company presentation is not comparable to the predecessor companypresentation due to the different basis of accounting.  The financial statements have also beenseparated by a vertical dashed line into predecessor company and successorcompany results.

 

**(2)  SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

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

 

Revenue is generally recognized when persuasiveevidence of an arrangement exists, delivery has occurred, the revenue amount isdeterminable and 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 financialstatements requires management of the Company to make a number of estimates andassumptions relating to the reported amount of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe period.  Significant items subject tosuch estimates and assumptions include the carrying amount of property, plantand equipment; valuation allowances for receivables, inventories and deferredincome tax assets;

 

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environmental liabilities; valuation of derivativeinstruments; and assets and obligations related to employee benefits.  Actual results could differ from thoseestimates.

 

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

 

Trade receivables are net of allowance for doubtfulaccounts of $915 and $832 as of December 31, 2004 and 2003, respectively.

 

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

 

Inventories are stated at the lower of cost or market.  Cost is determined using the first-in, first-outmethod.

 

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

 

Costs associated with the issuance of debt aredeferred and amortized as a component of interest expense over the life of therelated debt, using a method that approximates the interest method.

 

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

 

Property, plant and equipment is stated on ahistorical cost basis, net of accumulated depreciation.  Depreciation is provided over the estimateduseful life of each asset using the straight-line method.  Leasehold improvements are amortized over theshorter of the useful life or the applicable lease term including optionperiods when appropriate.  In general theestimated useful lives for both predecessor and successor companies are asfollows:

 
| **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)****                                 Goodwilland Intangible Assets**

 

Goodwill represents the excess of costs over fairvalue of assets of businesses acquired.  TheCompany adopted the provisions of SFAS No. 142, *Goodwill and Other Intangible Assets,* as of January 1,2002.  Goodwill and intangible assetsacquired in a purchase business combination and determined to have anindefinite useful life are not amortized, but instead tested for impairment atleast annually in accordance with the provisions of SFAS No. 142.  SFAS No. 142 also requires thatintangible assets with estimable useful lives be amortized over theirrespective estimated useful lives to their estimated residual values, andreviewed for impairment in accordance with SFAS No. 144, *Accounting for Impairment or Disposal of Long-LivedAssets*.

 

In connection with SFAS No. 142’s transitionalgoodwill impairment evaluation, the Company performed an assessment of whetherthere was an indication that goodwill is impaired as of the date of adoption.  To accomplish this, the Company was requiredto identify its reporting units and determine the carrying value of eachreporting unit by assigning the assets and liabilities, including the existinggoodwill and intangible assets, to those reporting units as of January 1,2002.  The Company was required todetermine the fair value of each reporting unit and compare it to the carryingamount of the reporting unit within six months of January 1, 2002.  To the extent the carrying amount of areporting unit exceeded the fair value of the reporting unit, the Company wouldbe required to perform the second step of the transitional impairment test, asthis is an indication that

 

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the reporting unit goodwill may be impaired.  The Company was not required to perform thesecond step for any reporting unit, as the fair value of each reporting unitexceeded its carrying amount.  TheCompany’s policy is to test its reporting amount of goodwill for potentialimpairment on an annual basis in the Company’s fiscal fourth quarter or soonerif a goodwill impairment indicator is identified.  No goodwill impairment was identified duringthe Company’s 2004 testing.

 

Prior to the adoption of SFAS No. 142, goodwillwas amortized on a straight-line basis over the expected periods to bebenefited, generally between 20 and 40 years, and assessed for recoverabilityby determining whether the amortization of the goodwill balance over itsremaining life could be recovered through undiscounted future operating cashflows of the acquired operation.

 

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

 

The Company uses forward foreign exchange contracts (“Instruments”or “Derivative Instruments”) in its management of foreign currency exchangerate exposures.  Instruments used ashedges must be effective at reducing the risks associated with the underlyingexposure and must be designated as a hedge at the inception of the contract.  Accordingly, changes in the market value ofthe Instruments must have a high degree of inverse correlation with changes inthe market value or cash flows of the underlying hedged item.

 

The Company uses Derivative Instruments to hedgeseveral components of its revenue and cash collection stream, including, (i) anticipatedforeign currency sales, (ii) accounts receivable denominated in foreigncurrencies, and (iii) cash balances maintained in foreign currencies.

 

The changes in the market value of DerivativeInstruments hedging anticipated foreign currency sales are recognized in theconsolidated balance sheets as a component of accumulated other comprehensiveincome (loss) in consolidated 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 Instrumentshedging accounts receivable or cash denominated in foreign currency arerecognized as a component of operating income during the period of the change,as they are marked to market on a monthly basis.

 

True Temper recorded a gain in operations on foreigncurrency in the years ended December 31, 2004 and 2003 of $39 and $215,respectively.

 

The following table summarizes the contractualnotional amounts of True Temper’s forward exchange contracts as of December 31,2004 and 2003:

 
| ** **        | ** ** | **Successor Company  2004** | ** ** | **Predecessor Company  2003** | ** ** |
|-------------------|------------|-----------------------------|------------|-------------------------------|------------|
| Pound Sterling    |       | $                           | 3,405      |                          | $          | 2,937 |   |
| Yen               |       | 1,761                       |       | 5,951                         |       |
| Australian dollar |       | 940                         |       | 908                           |       |
| Total             |       | $                           | 6,106      |                          | $          | 9,796 |   |

 

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

 

SFAS No. 144 provides a single accounting modelfor long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset asheld for sale; and broadens the scope of businesses to be disposed of thatqualify for reporting as discontinued operations and changes the timing ofrecognizing losses on such operations.

 

40

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In accordance with SFAS No. 144, long-livedassets, such as property, plant, and equipment, and purchased intangiblessubject to amortization, are reviewed for impairment whenever events or changesin circumstances indicate that the carrying amount of an asset may not berecoverable.  Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto estimated undiscounted future cash flows expected to be generated by theasset.  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 bedisposed of would be separately presented in the balance sheet and reported atthe lower of the carrying amount or fair value less costs to sell, and are nolonger 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.

 

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

 

Costs associated with business development, start-up andtransition costs are comprised, primarily, of costs related to opening acomposite manufacturing operation in Guangzhou, China and the relateddown-sizing costs incurred at the Company’s El Cajon, California facility.  These costs include travel, consulting, legaland other professional services, personnel recruiting and compensation,facility rent and other start-up and related shutdown costs.  The costs are expensed as incurred andseparately identified on the statement of operations as a component ofoperating income.

 

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

 

Advertising and promotional costs are accounted for inaccordance with Statement of Position 93-7 “Reporting on AdvertisingCosts”, which requires that the cost of producing advertisements be expensed atthe time of the first showing of the advertisement or as incurred.  True Temper’s policy is to expense costsassociated with the production of advertising at the time of first showing ofthe advertisement.  Advertising andpromotional costs primarily consist of trade show costs, media spots includingprint, radio and television, advertising production and agency fees,sponsorships, and product and promotional samples.  Advertising and promotional expense was$1,155 for the period January 1, 2004 through March 14, 2004, $2,314for the period March 15, 2004 to December 31, 2004, and $3,106 and $3,555for the years ended December 31, 2003 and 2002, respectively.  Certain of the Company’s customersparticipate in a cooperative advertising program where the Company agrees toreimburse these customers for a portion of their advertising costs that featurethe Company’s product.  Cooperativeadvertising costs are shown as a reduction of sales.

 

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

 

Costs associated with the development of new productsand changes to existing products are expensed as incurred and are included inselling, general, and administrative expenses. Research and development costs were $328 for the period January 1,2004 through March 14, 2004, $1,180 for the period March 15, 2004 to December 31,2004, and $1,501 and $1,194 for the years ended December 31, 2003 and2002, respectively.

 

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

 

True Temper’s hourly union employees at its Amory,Mississippi plant are covered by a non-contributory defined benefit plan.  The defined benefit plan is funded inconformity with funding requirements of applicable government regulations.  Benefits are based on a negotiated, fixedamount multiplied by the employee’s length of service.  In addition to the defined benefit plan,these same employees receive certain post-retirement medical, dental and lifeinsurance benefits.

 

41

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True Temper’s salaried employees are covered by a non-contributorydefined contribution plan.  Companycontributions to this plan are based on the employee’s age and are calculatedas a percentage of compensation.  Thisplan is funded on a current basis.  Inaddition to the non-contributory defined contribution plan, certain post-retirementmedical, dental and life insurance benefits are provided to those salariedemployees who were employed by the Company prior to January 1, 2000.

 

All employees of True Temper are eligible toparticipate in a company sponsored 401(k) plan. The Company’s contribution to this plan is calculated as a percentage ofthe employee’s compensation and the employee’s contribution.  All Company contributions to this plan arepaid in cash.

 

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

 

Income taxes are accounted for under the asset andliability method.  Deferred tax assetsand liabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and operating loss and taxcredit carryforwards.  Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled.  Theeffect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date.

 

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

 

The fair value of financial instruments represents theamount at which the instrument could be exchanged in a current transactionbetween willing parties, other than a forced sale or liquidation.  Significant differences can arise between thefair value and carrying amount of financial instruments that are recognized athistorical cost amounts.

 

The following methods and assumptions were used byTrue Temper in estimating fair value disclosures for financial instruments:

 

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

 

*Long-Term Debt*— Thecarrying values of the Company’s variable rate debt approximates fair value.  The estimated fair value of the Company’sfixed rate debt is based upon interest rates available for the issuance of debtwith similar terms and remaining maturities. As of December 31, 2004, the Company’s Senior Subordinated Noteshad an estimated fair value of $116.3 million.

 

*Foreign Currency Contracts*—The fair value of forward exchange contracts is estimated using pricesestablished by financial institutions for comparable instruments which was approximately$0.1 million at December 31, 2004.

 

The fair value estimates presented herein are based oninformation available to management as of December 31, 2004.  Although management is not aware of anyfactors that would significantly affect the estimated fair value amounts, suchamounts have not been comprehensively revalued for purposes of these financialstatements since that date and current estimates of fair value may differsignificantly from the amounts presented herein.

 

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

 

In December 2003, the FASB issued FASBInterpretation No. 46 (revised December 2003), *Consolidation of Variable Interest Entities*,which addresses how a business enterprise should evaluate whether it has acontrolling financial interest in an entity through means other than voting

 

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rights and accordingly should consolidate the entity.  FIN 46R replaces FASB Interpretation No. 46,*Consolidation of Variable Interest Entities*,which was issued in January 2003.  TheCompany will be required to apply FIN 46R to variable interests in VIEs createdafter December 31, 2003.  Forvariable interests in VIEs created before January 1, 2004, theInterpretation will be applied beginning on January 1, 2005.  The adoption of FIN 46R did not have amaterial effect on the Company’s consolidated financial condition or results ofoperations taken as a whole.

 

In April 2003, the FASB issued Statement No. 149,*Amendment of Statement No. 133,Accounting for Derivative Instruments and Hedging Activities* (“Statement149”).  Statement 149 amends andclarifies financial accounting and reporting for derivative instruments,including certain derivative instruments embedded in other contracts(collectively referred to as derivatives) and for hedging activities under FASBStatement No. 133, *Accounting forDerivative Instruments and Hedging Activities*.  Statement 149 is effective for contractsentered into or modified after June 30, 2003.  The impact of adopting Statement 149 did nothave a material impact to the Company’s consolidated financial condition orresults of operations taken as a whole.

 

In May 2003, the FASB Issued Statement No. 150,*Accounting for Certain Financial Instrumentswith Characteristics of Both Liabilities and Equity* (“Statement 150”).  Statement 150 requires issuers to classify asliabilities (or assets in some circumstances) financial instruments within thescope of the statement that embody 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 after June 15,2003.  The impact of adopting Statement150 did not have a material impact to the Company’s consolidated financialcondition or results of operations taken as a whole.

 

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

 

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

 

Cash payments for income taxes and interest are asfollows:

 
| ** **   | ** ** | **Successor Company**                              | ** ** | **Predecessor Company**                           | ** ** |
|--------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **   | ** ** | **Period from March 15 to December 31,** | ** ** | **Period from January 1 to  March 14,** | ** ** | **For the Year Ended December 31,** | ** ** |
| ** **   | ** ** | **2004**                                           | ** ** | **2004**                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
| Income taxes |       | $                                                  | 89         |                                              | $          | 174 |   | $ | 162 |   | $ | 120 |   |
| Interest     |       | $                                                  | 8,789      |                                              | $          | 348 |   | $ | 12,265 |   | $ | 11,728 |   |

 

 

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**(r)****                                  AccumulatedOther Comprehensive Loss**

 

The accumulated balances for each classificationwithin accumulated other comprehensive income are as follows: 

 
| ** **             | ** ** | **Derivative Instruments Mark to  Market Adjustment** | ** ** | **Minimum Pension Liability Adjustments** | ** ** | **Accumulated Other Comprehensive  Loss** | ** ** | ** ** | ** ** |
|------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|------------|------------|
| Predecessor Company:   | ** ** | ** **                                            | ** ** | ** **                                | ** ** | ** **                                | ** ** | ** ** | ** ** |
| December 31, 2002 |       | $                                                     | —     |                                      | $          | (403                                      | )          | $          | (403       | ) |   |   |   |
| Current year change    |       | 192                                                   |       | (118                                      | )          | 74                                        |       |       |       |
| December 31, 2003 |       | $                                                     | 192        |                                      | $          | (521                                      | )          | $          | (329       | ) |   |   |   |
| Current period change  |       | (121                                                  | )          | —                                    |       | (121                                      | )          |       |       |   |
| March 14, 2004    |       | $                                                     | 71         |                                      | $          | (521                                      | )          | $          | (450       | ) |   |   |   |
| Successor Company:     |       |                                                  |       |                                      |       |                                      |       |       |       |
| Current period change  |       | (56                                                   | )          | 357                                       |       | 301                                       |       |       |       |   |
| December 31, 2004 |       | $                                                     | 15         |                                      | $          | (164                                      | )          | $          | (149       | ) |   |   |   |

 

**(3)  ACQUISITIONS**

 

On January 30, 2004, TTS Holdings LLC, a newcompany formed by Gilbert Global Equity Partners, L.P. and its affiliated funds(“Gilbert Global”), entered into a stock purchase agreement with the Company’sdirect parent company, True Temper Corporation, pursuant to which TTS HoldingsLLC and certain of the Company’s senior management purchased all of theoutstanding shares of True Temper Corporation. In connection with this acquisition, and effective on March 15,2004, the Company repaid all of its outstanding 2002 senior credit facility,redeemed all of its 10 7/8% senior subordinated notesdue 2008, and made certain payments of the net remaining equity of the predecessorcompany to the selling shareholders. These payments were financed with the net proceeds of a new senior creditfacility and new 8 3/8% senior subordinated notesdue 2011.  These debt instruments arefurther described in Note 7 below.

 

The purchase price as stipulated in the January 30,2004 stock purchase agreement totaled $342.0 million, plus direct acquisitioncosts and certain working capital adjustments of $18.4 million, less a purchaseprice adjustment for final working capital of $0.8 million.  Following is the allocation of the totalconsideration paid:

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

 

 

44

----

 

This transaction was accounted for by the Company’sparent company using the purchase method of accounting.  As the Company is a wholly owned subsidiaryof True Temper Corporation, the Company has “pushed down” the effect of thepurchase method of accounting to these financial statements.

 

In connection with the acquisition, the Companyconducted an assessment and valuation of all tangible and intangible assetsacquired.  The results of this exerciseare reflected in the allocation table above. Of particular note was (i) the establishment of intangible assetsin an aggregate amount of approximately $157.3 million based on both internalCompany assessments and a thorough study conducted by an independent firmspecializing in intangible asset valuation; and (ii) the write-up ofinventory by approximately $11.7 million to reflect the estimated fair value ofinventory at the date of acquisition. Both of these adjustments were completed in compliance with the purchaseaccounting prescribed by Statement of Financial Accounting Standards No. 141,*Business Combinations*, which the Companyadopted on January 1, 2002.

 

The establishment of the intangible assets results incertain non-cash amortization expense beginning in 2004, as these intangibleassets are amortized over their expected economic lives.  The write-up of inventory to its estimatedfair value results in a non-cash charge to cost of sales in 2004 totaling $11.7million.

 

In addition, at the time of the transaction thepredecessor company recorded certain transaction related expenses totaling $5.4million.  These expenses consistprimarily of investment banking merger and acquisition fees, legal fees andother incidental costs and expenses typically incurred in an acquisition ofthis nature.

 

Also, as a direct result of the early extinguishmentof the predecessor company’s long term debt, expenses totaling $9.2 millionwere incurred consisting primarily of the write-off of the remaining deferredfinancing costs related to the 10 7/8% senior subordinated notes due 2008 and the 2002 seniorcredit facility, and the early extinguishment call premium and related interestincurred when the Company redeemed the 10 7/8% senior subordinated notes on March 15, 2004.

 

The following unaudited pro forma financial informationis presented as if the aforementioned transaction, and all related purchaseaccounting adjustments, had occurred as of the beginning of each periodpresented.  The pro forma amounts containcertain adjustments, including, (i) an adjustment to interest expense toreflect the extinguishment of the 10 7/8% Senior Subordinated Notesdue 2008 and the 2002 senior credit facility, and the issuance of the 8 3/8% Senior Subordinated Notes due 2011 and 2004 seniorcredit facility, (ii) the elimination of transaction and reorganizationexpenses, the loss on early extinguishment of long term debt, and the non-cashcost of sales charge related to the fair value of inventory write-up, which areall non-recurring, (iii) the additional charge to operating income for theamortization of intangible assets and (iv) the related tax effect of theadjustments described above.

 
| ** **                        | ** ** | ** ** | ** ** | **For the years ended  December 31,** | ** ** |
|-----------------------------------|------------|------------|------------|--------------------------------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **2004**                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net sales                         |       | $          | 98,367     |                                       | $          | 116,206 |   | $ | 107,401 |   |
| Income (loss) before income taxes |       | $          | (6,633     | )                                          | $          | 363 |   | $ | (3,145 | ) |
| Net income (loss)                 |       | $          | (4,203     | )                                          | $          | (59 | ) | $ | (2,150 | ) |
|                                   |            |            |            |                                            |            |  |  |  |  |  |  |  |  |  |

 

***Intangible Asset Carrying Value***

 

As described above, the Company established certainintangible assets as a result of the application of purchase accounting to theacquisition on March 15, 2004.  Thefollowing table sets forth the gross value and accumulated amortization forthese intangible assets at December 31, 2004.

 
| ** **                       | ** ** | ** ** | ** ** | **Gross Value** | ** ** | **Weighted Average Amortization  Period** | ** ** | **Accumulated Amortization** | ** ** |
|----------------------------------|------------|------------|------------|-----------------|------------|-------------------------------------------|------------|------------------------------|------------|
| Trade name                       |       | $          | 19,455     |            |       | —                                    |       | $                            | —     |   |
| Patented technology              |       | 11,686     |       | 8.0 yrs         |       | 1,158                                     |       |
| Purchased customer relationships |       | 121,524    |       | 10.0 yrs        |       | 9,664                                     |       |
| Lease contract                   |       | 4,323      |       | 59.0 yrs        |       | 58                                        |       |
| Other                            |       | 262        |       | 2.0 yrs         |       | 104                                       |       |
| Total                            |       | $          | 157,250    |            |       |                                      |       | $                            | 10,984     |   |

 

45

----

 

The following table sets forth the estimated aggregateamortization expense for these intangible assets at December 31, 2004.

 
| ** ** | ** ** | **Estimated Aggregate  Amortization Expense** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------|------------|-----------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| 2005       |       | $                                             | 13,817     |       |       |       |       |       |       |   |   |   |   |
| 2006       |       | 13,713                                        |       |       |       |       |       |       |       |
| 2007       |       | 13,686                                        |       |       |       |       |       |       |       |
| 2008       |       | 13,686                                        |       |       |       |       |       |       |       |
| 2009       |       | 13,686                                        |       |       |       |       |       |       |       |
|            |            |                                               |            |            |            |            |            |            |            |  |  |  |  |

 

**(4)  INVENTORIES**

 

Inventories, as of December 31 of the yearindicated, consist of the following:

 
| ** **      | ** ** | **Successor  Company  2004** | ** ** | **Predecessor  Company  2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------|------------|------------------------------|------------|--------------------------------|------------|------------|------------|------------|------------|
| Raw materials   |       | $                            | 4,601      |                           | $          | 2,287      |       |       |       |   |   |   |   |
| Work in process |       | 2,182                        |       | 2,067                          |       |       |       |       |       |
| Finished goods  |       | 15,127                       |       | 11,302                         |       |       |       |       |       |
| Total           |       | $                            | 21,910     |                           | $          | 15,656     |       |       |       |   |   |   |   |

** **

**(5)  PROPERTY, PLANT ANDEQUIPMENT**

 

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

 
| ** **                                                   | ** ** | **Successor  Company  2004** | ** ** | **Predecessor  Company  2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|------------|------------|------------|------------|
| Land improvements                                            |       | $                            | 372        |                           | $          | 342        |       |       |       |   |   |   |   |
| Buildings                                                    |       | 7,329                        |       | 7,123                          |       |       |       |       |       |
| Furniture and office  equipment                              |       | 870                          |       | 815                            |       |       |       |       |       |
| Machinery and equipment                                      |       | 44,757                       |       | 43,167                         |       |       |       |       |       |
| Computer equipment and  capitalized software                 |       | 2,762                        |       | 2,439                          |       |       |       |       |       |
| Leasehold improvements                                       |       | 2,498                        |       | 2,233                          |       |       |       |       |       |
| Assets held for use —  not currently used in production |       | 1,265                        |       | 1,265                          |       |       |       |       |       |
| Construction in  progress                                    |       | 306                          |       | 1,505                          |       |       |       |       |       |
|                                                         |       | 60,159                       |       | 58,889                         |       |       |       |       |       |
| Less accumulated  depreciation                               |       | 46,752                       |       | 43,863                         |       |       |       |       |       |
| Net property, plant and  equipment                           |       | $                            | 13,407     |                           | $          | 15,026     |       |       |       |   |   |   |   |

 

Depreciation expense was $671 for the period January 1,2004 through March 14, 2004, $2,420 for the period March 15, 2004 to December 31,2004, and $2,906 and $3,252 for the years ended December 31, 2003 and2002, respectively.

 

**(6)  OTHER CURRENT LIABILITIES**

 

Other current liabilities, as of December 31 ofthe year indicated, consist of the following:

 

 
| ** **                                                | ** ** | **Successor  Company  2004** | ** ** | **Predecessor  Company  2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|------------|------------|------------|------------|
| Accrued compensation,  benefits and related payroll taxes |       | 4,051                        |       | 5,257                          |       |       |       |       |       |
| Accrued interest                                          |       | 3,769                        |       | 1,161                          |       |       |       |       |       |
| Other                                                     |       | 1,976                        |       | 2,257                          |       |       |       |       |       |
| Total                                                     |       | $                            | 9,796      |                           | $          | 8,675      |       |       |       |   |   |   |   |
|                                                           |            |                              |            |                                |            |            |            |            |            |  |  |  |  |

 

46

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**(7)  BORROWINGS**

 

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

 

Long-term debt at December 31, 2004 and 2003consisted of the following:

 
| ** **                                      | ** ** | **Successor  Company  2004** | ** ** | **Predecessor  Company  2003** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|------------|------------|------------|------------|
| 10 7/8% Senior Subordinated Notes due 2008 |       | $                            | —     |                           | $          | 99,730     |       |       |       |   |   |   |   |
| 2002 senior credit  facility                    |       | —                       |       | 14,000                         |       |       |       |       |       |
| 8 3/8% Senior Subordinated Notes due 2011  |       | 125,000                      |       | —                         |       |       |       |       |       |
| 2004 senior credit  facility                    |       | 107,725                      |       | —                         |       |       |       |       |       |
| Total debt                                      |       | 232,725                      |       | 113,730                        |       |       |       |       |       |
| Less current maturities                         |       | 545                          |       | 4,500                          |       |       |       |       |       |
| Long-term debt                                  |       | $                            | 232,180    |                           | $          | 109,230    |       |       |       |   |   |   |   |

 

The 8 3/8% Senior Subordinated Notesdue 2011 (the “Notes”) provide for semi-annual interest payments, in arrears,due on March 15 and September 15. At the option of the Company, up to 35% of the Notes are redeemableprior to March 15, 2007, at 108.375%, with the net cash proceeds of one ormore public equity offerings.  Inaddition, at any time prior to March 15, 2008, the Company may also redeemall or a part of the Notes upon the occurrence of a change of control.  On or after March 15, 2008 the Notes maybe redeemed, at the option of the Company, in whole or in part, at a redemptionprice of 104.188% beginning March 15, 2008 and declining ratablythereafter to 100.000% on March 15, 2010.

 

The 2004 senior credit facility has a maturity date ofMarch 15, 2011, and provides for interest on the term loan, at the Company’soption, at (i) the base rate of the bank acting as administrative agentplus a margin adder of 2.00%, or (ii) under a LIBOR option with aborrowing spread of LIBOR plus 2.50% to 3.00%, depending on financialratios.  The Company’s weighted averagerate at December 31, 2004 was 5.43%.

 

The loans under the 2004 senior credit facility aresenior to the Notes, and are secured by substantially all of the Company’sassets.

 

The 2004 senior credit facility and the Notes containprovisions which, among other things, limit the Company’s ability to (i) incuradditional indebtedness, (ii) make acquisitions and capital expenditures, (iii) sellassets, (iv) create liens or other encumbrances, (v) make certainpayments and dividends, or (vi) merge or consolidate.  In addition, both the senior credit facilityand the Notes contain customary change of control provisions that could, undercertain circumstances, cause accelerated debt repayment.  The 2004 senior credit facility also requiresthe Company to maintain certain specified financial ratios and tests includingminimum interest coverage and fixed charge coverage ratios, and maximumleverage ratios.

 

On September 24, 2004 the Company executed anamendment to its 2004 senior credit facility (the “Amendment”).  The Amendment was approved by the Company,Credit Suisse First Boston acting as administrative agent and collateral agent,and by a majority of the lenders who were party to the 2004 senior creditfacility on such date.  The Amendment providedadjustments to certain specified financial ratios and tests included in the2004 senior credit facility.  As part ofthe Amendment, the margin adder on LIBOR based loans was increased from 2.50%to between 2.75% and 3.00%, depending on financial ratios, beginning September 24,2004 and continuing through December 31, 2005.   At December 31, 2004 the Company was incompliance with all of the covenants in both the 2004 senior credit facilityand the Notes.

 

47

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At December 31, 2004, future minimum principalpayments on long-term debt were as follows:

 
| 2005       |   | 545     |    |
|------------|--------|---------|---------|
| 2006       |   | 1,091   |    |
| 2007       |   | 1,091   |    |
| 2008       |   | 1,091   |    |
| 2009       |   | 1,091   |    |
| Thereafter |   | 227,816 |    |
| Total      |   | $       | 232,725 |   |
|            |        |         |         |  |

 

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

 

The Company may borrow, through March 15, 2009,up to $20.0 million under a revolving credit agreement included in the 2004senior credit facility.  Borrowings underthe agreement are subject to the same provisions described in the long termdebt section of this Note.  The Companyhad no outstanding borrowings under this line of credit as of December 31,2004.

 

**(8)  INCOME TAXES**

 

Total income taxes for the periods indicated wereallocated as follows:

 
| ** **                                           | ** ** | ** **                                                | ** ** | ** **                                              | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | ** **                                                | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **Successor Company**                                     | ** ** | **Predecessor Company**                                 | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **Period from March 15 to  December 31,  2004** | ** ** | **Period from January 1 to  March 14,  2004** | ** ** | **For the year ended  December 31,  2003** | ** ** | ** ** | ** ** |
| Income from continuing  operations                   |       | $                                                         | (6,350     | )                                                       | $          | (2,845 | ) | $ | 7,113 |   |   |   |   |
| Stockholders’ equity:                           |       |                                                      |       |                                                    |       |   |   |   |   |
| Additional minimum  pension expense                  |       | 100                                                       |       | —                                                  |       | (72 | ) |   |   |
| Mark to market  adjustment on derivative instruments |       | (9                                                        | )          | (74                                                     | )          | 118 |   |   |   |
| Total income taxes                                   |       | $                                                         | (6,259     | )                                                       | $          | (2,919 | ) | $ | 7,159 |   |   |   |   |

 

The income tax expense (benefit) attributable toincome for continuing operations, for the periods indicated, is as follows:

 
| ** **     | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                           | ** ** |
|----------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **     | ** ** | **Period from March 15 to  December 31,** | ** ** | **Period from January 1 to  March 14,** | ** ** | **For the year ended  December 31,** | ** ** |
|           | ** ** | **2004**                                            | ** ** | **2004**                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
| Current:       | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal        |       | $                                                   | —     |                                              | $          | — |   | $ | — |   | $ | — |   |
| State          |       | 30                                                  |       | 10                                                |       | 40 |   | 40 |   |
| Foreign        |       | 52                                                  |       | 43                                                |       | 190 |   | 182 |   |
| Total current  |       | 82                                                  |       | 53                                                |       | 230 |   | 222 |   |
| Deferred:      |       |                                                |       |                                              |       |   |   |   |   |
| Federal        |       | (5,425                                              | )          | (2,439                                            | )          | 5,795 |   | 4,858 |   |
| State          |       | (1,007                                              | )          | (459                                              | )          | 1,088 |   | 912 |   |
| Total deferred |       | (6,432                                              | )          | (2,898                                            | )          | 6,883 |   | 5,770 |   |
| Total          |       | $                                                   | (6,350     | )                                                 | $          | (2,845 | ) | $ | 7,113 |   | $ | 5,992 |   |

 

48

----

 

The actual income tax expense attributable to incomefor continuing operations differs from the amounts computed by applying theU.S. federal tax rate of 34% to the pretax earnings as a result of thefollowing:

 
| ** **                                 | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                           | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                 | ** ** | **Period from March 15 to  December 31,** | ** ** | **Period from January 1 to  March 14,** | ** ** | **For the year ended  December 31,** | ** ** |
| ** **                                 | ** ** | **2004**                                            | ** ** | **2004**                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
| Computed “expected” tax  expense |       | $                                                   | (5,717     | )                                                 | $          | (4,235 | ) | $ | 6,110 |   | $ | 5,183 |   |
| State tax, net of  federal benefit         |       | (645                                                | )          | (296                                              | )          | 744 |   | 628 |   |
| Foreign taxes                              |       | 52                                                  |       | 43                                                |       | 190 |   | 182 |   |
| Transaction Expenses                       |       | —                                              |       | 1,643                                             |       | — |   | — |   |
| Other                                      |       | (40                                                 | )          | —                                            |       | 69 |   | (1 | ) |
| Actual income tax  expense (benefit)       |       | $                                                   | (6,350     | )                                                 | $          | (2,845 | ) | $ | 7,113 |   | $ | 5,992 |   |

 

The components of deferred tax assets and liabilitiesfor the years ended December 31 2004 and 2003 are as follows:

 
| ** **                                           | ** ** | ** ** | ** ** | **Successor  Company** | ** ** | **Predecessor  Company** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------|------------|------------------------|------------|--------------------------|------------|------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **2004**               | ** ** | **2003**                 | ** ** | ** ** | ** ** |
| Deferred tax assets:                                 |       |       |       |                   |       |                     |       |       |       |   |   |   |   |
| Goodwill                                             |       |       |       | $                      | 40,646     |                     | $          | 45,461     |       |   |   |
| Accrued liabilities                                  |       |       |       | 1,440                  |       | 1,670                    |       |       |       |
| Asset impairment                                     |       |       |       | 704                    |       | 704                      |       |       |       |
| Net operating loss  carryforwards                    |       |       |       | 7,129                  |       | 889                      |       |       |       |
| Facility start-up costs                              |       |       |       | 343                    |       | 444                      |       |       |       |
| Pension liability                                    |       |       |       | 695                    |       | 319                      |       |       |       |
| Post retirement benefit  obligation                  |       |       |       |                   |       | 1,318                    |       |       | —     |   |   |   |   |
| Uniform capitalization                               |       |       |       | 140                    |       | 161                      |       |       |       |
| Other                                                |       |       |       | 64                     |       | —                   |       |       |       |
| Gross deferred tax  assets                           |       |       |       | 52,479                 |       | 49,648                   |       |       |       |
| Deferred tax  liabilities:                           |       |       |       |                   |       |                     |       |       |       |
| Identifiable intangible  assets                      |       |       |       |                   | $          | (55,511                  | )          | $          | —     |   |   |   |   |
| Property, plant and  equipment                       |       |       |       | (2,275                 | )          | (1,614                   | )          |       |       |
| Mark to market  adjustment on derivative instruments |       | —     |       | (118                   | )          |                     |       |
| Other                                                |       |       |       | (96                    | )     | (14                      | )          |       |       |
| Net deferred tax asset                               |       |       |       |                   | $          | (5,406                   | )          | $          | 47,902     |   |   |   |   |
|                                                      |            |            |            |                        |            |                          |            |            |            |  |  |  |  |  |  |

 

At December 31, 2004, the Company had netoperating loss carryforwards for federal and state income tax purposes ofapproximately $18,700 which expire between 2020 and 2024 and $150 alternativeminimum tax credit carry forward which is carried forward indefinitely.

 

**(9) EMPLOYEE BENEFIT PLANS**

 

True Temper Sports, Inc. has a qualified pensionplan and a post-retirement benefit plan for the hourly union employees at itsAmory, Mississippi plant. The following tables provide a reconciliation of thechanges in the plans’ benefit obligation, fair value of assets and a statementof the plans’ funded status for the periods January 1, 2004 through March 14,2004, March 15, 2004 to December 31, 2004, and for the year ended December 31,2003:

 

 

 

 

The following table sets forth the qualified pensionplan for the periods January 1, 2004 through March 14, 2004, March 15,2004 to December 31, 2004, and for the year ended December 31, 2003:

 

49

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| ** **                                      | ** ** | **Successor Company**                                     | ** ** | **Predecessor Company**                                 | ** ** | ** **                  | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                      | ** ** | **Period from March 15 to  December 31,  2004** | ** ** | **Period from January 1 to  March 14,  2004** | ** ** | **December 31,  2003** | ** ** | ** ** | ** ** |
| Reconciliation of  benefit obligation:          |       |                                                      |       |                                                    |       |                        |       |   |   |   |   |   |   |
| Benefit obligation at  beginning of year        |       | $                                                         | 16,547     |                                                    | $          | 15,687                      |       | $ | 12,383 |   |   |   |   |
| Service cost                                    |       | 406                                                       |       | 180                                                     |       | 460                         |       |   |   |
| Interest cost                                   |       | 764                                                       |       | 203                                                     |       | 832                         |       |   |   |
| Plan amendments                                 |       | —                                                    |       | —                                                  |       | 1,422                       |       |   |   |
| Actuarial losses                                |       | (91                                                       | )          | 543                                                     |       | 966                         |       |   |   |
| Benefit payments                                |       | (253                                                      | )          | (66                                                     | )          | (376                        | )          |   |   |
| Benefit obligation at  end of year              |       | $                                                         | 17,373     |                                                    | $          | 16,547                      |       | $ | 15,687 |   |   |   |   |
|                                            |       |                                                      |       |                                                    |       |                        |       |   |   |
| Reconciliation of fair  value of plan assets:   |       |                                                      |       |                                                    |       |                        |       |   |   |
| Fair value of plan  assets at beginning of year |       | $                                                         | 13,374     |                                                    | $          | 13,145                      |       | $ | 11,628 |   |   |   |   |
| Actual return on plan  assets                   |       | 266                                                       |       | 295                                                     |       | 1,893                       |       |   |   |
| Benefit payments                                |       | (253                                                      | )          | (66                                                     | )          | (376                        | )          |   |   |
| Fair value of plan  assets at end of year       |       | $                                                         | 13,387     |                                                    | $          | 13,374                      |       | $ | 13,145 |   |   |   |   |
|                                            |       |                                                      |       |                                                    |       |                        |       |   |   |
| Funded status:                                  |       |                                                      |       |                                                    |       |                        |       |   |   |
| Funded status at December 31               |       | $                                                         | (3,986     | )                                                       | $          | (3,173                      | )          | $ | (2,542 | ) |   |   |   |
| Unrecognized prior  service costs               |       | —                                                    |       | —                                                  |       | 1,422                       |       |   |   |
| Unrecognized net  actuarial loss                |       | 505                                                       |       | —                                                  |       | 1,067                       |       |   |   |
| Net amount recognized                           |       | $                                                         | (3,481     | )                                                       | $          | (3,173                      | )          | $ | (53 | ) |   |   |   |

 

The following table provides the amounts recognized inthe statement of financial position for the periods January 1, 2004through March 14, 2004, March 15, 2004 to December 31, 2004, andfor the year ended December 31, 2003:

 
| ** **                            | ** ** | **Successor Company**                                     | ** ** | **Predecessor Company**                                 | ** ** | ** **                  | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **Period from March 15 to  December 31,  2004** | ** ** | **Period from January 1 to  March 14,  2004** | ** ** | **December 31,  2003** | ** ** | ** ** | ** ** |
| Prepaid benefit cost                  |       | $                                                         | —     |                                                    | $          | —                      |       | $ | — |   |   |   |   |
| Accrued benefit  liability            |       | (3,746                                                    | )          | (2,923                                                  | )          | (2,315                      | )          |   |   |
| Intangible asset                      |       | —                                                    |       | —                                                  |       | 1,422                       |       |   |   |
| Accumulated other  comprehensive loss |       | 265                                                       |       | (250                                                    | )          | 840                         |       |   |   |
| Net amount recognized                 |       | $                                                         | (3,481     | )                                                       | $          | (3,173                      | )          | $ | (53 | ) |   |   |   |

 

The following table provides the components of netperiodic expense (income) for the defined benefit pension plans for the periodsJanuary 1, 2004 through March 14, 2004, March 15, 2004 to December 31,2004, and for the year ended December 31, 2003:

 

50

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| ** **                                       | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                           | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                       | ** ** | **Period from March 15 to  December 31,** | ** ** | **Period from January 1 to  March 14,** | ** ** | **For the year ended  December 31,** | ** ** |
| ** **                                       | ** ** | **2004**                                            | ** ** | **2004**                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
| Service cost of  benefits earned during the year |       | $                                                   | 406        |                                              | $          | 180 |   | $ | 460 |   | $ | 337 |   |
| Interest cost on  projected benefit obligation   |       | 764                                                 |       | 203                                               |       | 832 |   | 765 |   |
| Expected return on plan  assets                  |       | (862                                                | )          | (227                                              | )          | (964 | ) | (1,099 | ) |
| Amortization of prior  service cost              |       | —                                              |       | 30                                                |       | — |   | — |   |
| Recognized net gains                             |       | —                                              |       | —                                            |       | — |   | (94 | ) |
| Net periodic pension  income                     |       | $                                                   | 308        |                                              | $          | 186 |   | $ | 328 |   | $ | (91 | ) |
| Purchase accounting  recognition                 |       | —                                              |       | 2,987                                             |       | — |   | — |   |
| Net periodic pension  income                     |       | $                                                   | 308        |                                              | $          | 3,173 |   | $ | 328 |   | $ | (91 | ) |
|                                             |       |                                                |       |                                              |       |   |   |   |   |
| Weighted average  assumptions:                   |       |                                                |       |                                              |       |   |   |   |   |
| Discount rate:                                   |       |                                                |       |                                              |       |   |   |   |   |
| Benefit obligation                               |       | 6.00                                                | %          | 6.25                                              | %          | 6.25 | % | 6.75 | % |
| Expected return on plan  assets                  |       | 8.50                                                | %          | 8.50                                              | %          | 8.50 | % | 8.50 | % |
| Rate of compensation  increase                   |       | 3.00                                                | %          | 3.00                                              | %          | 3.00 | % | 3.00 | % |

 

 

The following table provides information related tothe Company’s pension plan in which accumulated benefit obligations exceededthe fair value of plan assets as of the applicable year end:

 
| ** **                      | ** ** | **Successor Company**                                     | ** ** | **Predecessor Company**                                 | ** ** | ** **                  | ** ** |
|---------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **Period from March 15 to  December 31,  2004** | ** ** | **Period from January 1 to  March 14,  2004** | ** ** | **December 31,  2003** | ** ** | ** ** | ** ** |
| Projected benefit  obligation   |       | $                                                         | 17,373     |                                                    | $          | 16,547                      |       | $ | 15,687 |   |   |   |   |
| Accumulated benefit  obligation |       | —                                                    |       | —                                                  |       | 15,460                      |       |   |   |
| Fair value of assets            |       | 13,387                                                    |       | 13,374                                                  |       | 13,145                      |       |   |   |
|                                 |            |                                                           |            |                                                         |            |                             |            |  |  |  |  |  |  |

 

Assets of the defined benefit plan for hourly unionemployees consist primarily of investments in equity securities, debtsecurities, and cash equivalents. The weighted-average asset allocations forthe periods January 1, 2004 through March 14, 2004, March 15,2004 to December 31, 2004, and for the year ended December 31, 2003,by asset category, are as follows:

 
| ** **        | ** ** | **Successor Company**                                     | ** ** | **Predecessor Company**                                | ** ** | ** **                  | ** ** |
|-------------------|------------|-----------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------|------------|
| ** **        | ** ** | **Period from March 15 to  December 31,  2004** | ** ** | **Period from January 1 to March 14,  2004** | ** ** | **December 31,  2003** | ** ** | **Target** | ** ** |
| Equity securities |       | 59.0                                                      | %          | 52.0                                                   | %          | 52.0                        | %          | 50-70 | % |
| Debt securities   |       | 41.0                                                      | %          | 47.9                                                   | %          | 47.9                        | %          | 30-50 | % |
| Cash and other    |       | 0.0                                                       | %          | 0.1                                                    | %          | 0.1                         | %          | 0 | % |
| Total             |       | 100.0                                                     | %          | 100.0                                                  | %          | 100.0                       | %          | 100.0 | % |

 

In addition to the defined benefit pension plan forhourly employees, the Company also maintains a defined contribution plan whichcovers substantially all employees. Expenses for defined contribution plansamounted to $148 for the period January 1, 2004 through March 14,2004, $575 for the period March 15, 2004 to December 31, 2004, and$779 and $748 for the years ended December 31, 2003 and 2002,respectively.

 

The Company also participates in certain unfundedhealth care plans that provide post-retirement medical, dental, and lifeinsurance to hourly union employees at its Amory, Mississippi plant and tosalaried employees hired prior to January 1, 2000. The post-retirementplans are contributory, and include certain cost-sharing features, such asdeductibles and co-payments.

 

51

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The following table sets forth the benefit obligationof the unfunded post-retirement health plans or the periods January 1,2004 through March 14, 2004, March 15, 2004 to December 31,2004, and for the year ended December 31, 2003:

 
| ** **                               | ** ** | **Successor Company**                                     | ** ** | **Predecessor Company**                                 | ** ** | ** **                  | ** ** |
|------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **Period from March 15 to  December 31,  2004** | ** ** | **Period from January 1 to  March 14,  2004** | ** ** | **December 31,  2003** | ** ** | ** ** | ** ** |
| Reconciliation of  benefit obligation:   |       |                                                      |       |                                                    |       |                        |       |   |   |   |   |   |   |
| Benefit obligation at  beginning of year |       | $                                                         | 3,575      |                                                    | $          | 3,515                       |       | $ | 3,314 |   |   |   |   |
| Service cost                             |       | 78                                                        |       | 20                                                      |       | 85                          |       |   |   |
| Interest cost                            |       | 162                                                       |       | 44                                                      |       | 217                         |       |   |   |
| Participant  contributions               |       | 108                                                       |       | 28                                                      |       | 99                          |       |   |   |
| Plan amendments                          |       | —                                                    |       | —                                                  |       | 28                          |       |   |   |
| Actuarial loss                           |       | 81                                                        |       | 86                                                      |       | 164                         |       |   |   |
| Benefits paid                            |       | (450                                                      | )          | (118                                                    | )          | (392                        | )          |   |   |
| Benefit obligation at  end of year       |       | 3,554                                                     |       | 3,575                                                   |       | 3,515                       |       |   |   |
| Unrecognized prior  service cost         |       | —                                                    |       | —                                                  |       | 228                         |       |   |   |
| Unrecognized net  actuarial loss         |       | (81                                                       | )          | —                                                  |       | (1,208                      | )          |   |   |
| Accrued benefit costs                    |       | $                                                         | 3,473      |                                                    | $          | 3,575                       |       | $ | 2,535 |   |   |   |   |

 

 

The following table provides the components of netperiodic expense for the unfunded post retirement health plans or the periods January 1,2004 through March 14, 2004, March 15, 2004 to December 31,2004, and for the year ended December 31, 2003 and 2002:

 
| ** **                           | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                           | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                           | ** ** | **Period from March 15 to  December 31,** | ** ** | **Period from January 1 to  March 14,** | ** ** | **December 31,** | ** ** |
| ** **                           | ** ** | **2004**                                            | ** ** | **2004**                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
| Service cost                         |       | $                                                   | 78         |                                              | $          | 20 |   | $ | 85 |   | $ | 69 |   |
| Interest cost                        |       | 162                                                 |       | 44                                                |       | 217 |   | 191 |   |
| Amortization of prior  service costs |       | —                                              |       | (7                                                | )          | (37 | ) | (38 | ) |
| Recognized net losses                |       | —                                              |       | 13                                                |       | 54 |   | 35 |   |
| Net periodic cost                    |       | $                                                   | 240        |                                              | $          | 70 |   | $ | 319 |   | $ | 257 |   |
| Purchase accounting  recognition     |       | —                                              |       | 1,060                                             |       | — |   | — |   |
| Total amount recognized              |       | $                                                   | 240        |                                              | $          | 1,130 |   | $ | 319 |   | $ | 257 |   |
| Discount Rate:                       |       |                                                |       |                                              |       |   |   |   |   |
| Benefit obligation                   |       | 6.00                                                | %          | 6.00                                              | %          | 6.25 | % | 6.75 | % |

 

The healthcare cost trend rate used to determine thepost-retirement benefit obligation was 10.0% for 2004. This rate decreasesgradually to an ultimate rate of 5.0% in 2014, and remains at that levelthereafter. While the trend rate can be a significant factor in determining theamounts reported, for the year ended December 31, 2004 a one-percentage-pointincrease or decrease in the trend rate will have only minimal impact due to theclaims costs being close to the employer imposed cap.

 

** (10) COMMITMENTS AND CONTINGENCIES**

 

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

 

The Company is obligated under various non-cancelableleases for office facilities and equipment. These leases generally provide forrenewal options and, in the case of facilities leases, for periodic rateincreases based upon economic factors. All non-cancelable leases with aninitial term greater than one year have been categorized as either capital or operatingleases in conformity with FASB Statement No. 13, *Accounting for Leases*.

 

52

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Future minimum payments under non-cancelable operatingleases with initial terms of one year or more as of December 31, 2004 areas follows: 

 
|                          |   | **Operating Leases** |   |
|-------------------------------|--------|----------------------|--------|
| 2005                          |   | $                    | 1,057  |   |
| 2006                          |   | 738                  |   |
| 2007                          |   | 705                  |   |
| 2008                          |   | 483                  |   |
| 2009                          |   | 13                   |   |
| Total minimum lease  payments |   | $                    | 2,996  |   |

 

Rental expense on operating leases was $210 for theperiod January 1, 2004 through March 14, 2004, $812 for the period March 15,2004 to December 31, 2004, and $1,002 and $870 for the years ended December 31,2003 and 2002, respectively.

 

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

 

The Company generally warrants its products againstcertain manufacturing and other defects. These product warranties are providedfor specific periods of time and/or usage of the product depending on thenature of the product, the geographic location of its sale and other factors.As of December 31, 2004 and 2003, the Company has accrued $152 and $176,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 expensewas $129 for the period January 1, 2004 through March 14, 2004, $527for the period March 15, 2004 to December 31, 2004, and $812 and $540for the years ended December 31, 2003 and 2002, respectively

 

The following table provides the changes in theCompany’s product warranties:

 
| Predecessor:                                                 |   |   |   |
|--------------------------------------------------------------|--------|--------|--------|
| January 1, 2004                                         |   | $      | 176    |   |
| Liabilities accrued for  warranties issued during the period |   | 129    |   |
| Warranty claims paid  during the period                      |   | (91    | )      |
| March 15, 2004                                          |   | $      | 214    |   |
| Successor:                                                   |   |   |   |
| Liabilities accrued for  warranties issued during the period |   | 527    |   |
| Warranty claims paid  during the period                      |   | (588   | )      |
| December 31, 2004                                       |   | $      | 153    |   |

 

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

 

The Company has certain contingent liabilitiesresulting from litigation and claims incident to the ordinary course ofbusiness. Management believes that the probable resolution of suchcontingencies will not materially affect the consolidated financial position orresults of operations of the Company.

 

**(11) RELATED PARTY TRANSACTIONS**

 

On March 15, 2004, True Temper entered into amanagement services agreement with an entity affiliated with Gilbert Global, whichis a related party through its indirect management and ownership interest inTrue Temper Corporation.

 

In accordance with thisagreement, Gilbert Global has agreed to provide:

 

(1)                                  generalmanagement services;

 

53

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(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 Gilbert Global.

 

In exchange for suchservices, Gilbert Global or its nominee receives:

 

(1)                                  anannual advisory fee of $0.5 million payable quarterly, plus reasonable out-of-pocketexpenses;

 

(2)                                  atransaction fee in an amount equal to 1.25% 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.

 

The management services agreement has an initial termof five years, subject to automatic one-year extensions unless the Company orGilbert Global provides written notice of termination. The annual advisory feeof $0.5 million is an obligation of the Company and is also contractuallysubordinated to the Notes and the bank credit facilities.

 

In addition to reimbursing Gilbert Global for out-of-pocketexpenses, the Company paid Gilbert Global $2.8 million in 2004, in accordancewith the agreement.

 

On March 15, 2004, the Company terminated itmanagement services agreement with Cornerstone Equity Investors, LLC, which wasa related party through its indirect management and ownership interest in thepredecessor company.

 

**(12) SEGMENT AND OTHER RELATEDDISCLOSURES**

 

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

 

The Company operates in two reportable businesssegments: golf shafts and performance sports. The Company’s reportable segmentsare based on the type of product manufactured and the application of thatproduct in the marketplace. The golf shaft segment manufactures and sells steeland composite golf shafts for use exclusively in the golf industry. Theperformance sports segment manufactures and sells high strength, tighttolerance tubular components for bicycle, hockey and other recreational sportsmarkets. The accounting policies for these segments are the same as thosedescribed in the summary of significant accounting policies. The Companyevaluates the performance of these segments based on segment sales and grossprofit. The Company has no inter-segment sales. General corporate assets, thatare not allocated down to segments, include: cash, non-trade receivables,deferred tax assets, deferred financing costs, goodwill and other intangibleassets.

 
| ** **            | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                          | ** ** |
|-----------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **            | ** ** | **Period from March 15 to  December 31,** | ** ** | **Period from January 1 to March 14,** | ** ** | **For the Year Ended December 31,** | ** ** |
| ** **            | ** ** | **2004**                                            | ** ** | **2004**                                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net sales:            |       |                                                |       |                                             |       |   |   |   |   |   |   |   |   |
| Golf shafts           |       | $                                                   | 73,274     |                                             | $          | 19,067 |   | $ | 109,754 |   | $ | 102,764 |   |
| Performance sports    |       | 4,846                                               |       | 1,180                                            |       | 6,452 |   | 4,637 |   |
| Total                 |       | $                                                   | 78,120     |                                             | $          | 20,247 |   | $ | 116,206 |   | $ | 107,401 |   |
|                  |       |                                                |       |                                             |       |   |   |   |   |   |   |   |   |
| Gross profit:         |       |                                                |       |                                             |       |   |   |   |   |
| Golf shafts           |       | $                                                   | 17,038     |                                             | $          | 8,080 |   | $ | 45,118 |   | $ | 40,996 |   |
| Performance sports    |       | 978                                                 |       | 296                                              |       | 1,618 |   | 1,244 |   |
| Total                 |       | $                                                   | 18,016     |                                             | $          | 8,376 |   | $ | 46,736 |   | $ | 42,240 |   |
|                  |       |                                                |       |                                             |       |   |   |   |   |   |   |   |   |
| Depreciation Expense: |       |                                                |       |                                             |       |   |   |   |   |
| Golf shafts           |       | $                                                   | 2,098      |                                             | $          | 582 |   | $ | 2,486 |   | $ | 2,802 |   |
| Performance sports    |       | 322                                                 |       | 89                                               |       | 420 |   | 450 |   |
| Total                 |       | $                                                   | 2,420      |                                             | $          | 671 |   | $ | 2,906 |   | $ | 3,252 |   |
|                  |       |                                                |       |                                             |       |   |   |   |   |   |   |   |   |
| Capital Expenditures: |       |                                                |       |                                             |       |   |   |   |   |
| Jointly used assets   |       | $                                                   | 129        |                                             | $          | 22 |   | $ | — |   | $ | — |   |
| Golf shafts           |       | 810                                                 |       | 286                                              |       | 3,112 |   | 700 |   |
| Performance sports    |       | 293                                                 |       | 22                                               |       | 348 |   | 464 |   |
| Total                 |       | $                                                   | 1,232      |                                             | $          | 330 |   | $ | 3,460 |   | $ | 1,164 |   |
|                  |       |                                                |       |                                             |       |   |   |   |   |   |   |   |   |
| Total assets:         |       |                                                |       |                                             |       |   |   |   |   |
| Jointly used assets   |       | $                                                   | 1,291      |                                             | $          | 1,398 |   | $ | 1,333 |   | $ | 1,596 |   |
| Golf shafts           |       | 44,237                                              |       | 42,019                                           |       | 41,087 |   | 39,759 |   |
| Performance sports    |       | 3,333                                               |       | 2,920                                            |       | 2,997 |   | 3,057 |   |
| Total                 |       | $                                                   | 48,861     |                                             | $          | 46,337 |   | $ | 45,417 |   | $ | 44,412 |   |

 

54

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Revenues from two customers of True Temper’s golfshafts segment represented approximately $2,900 or 14.2% and $2,200 or 10.6% ofthe Company’s revenues for the period January 1 to March 14, 2004. Revenuesfrom one customer of True Temper’s golf shafts segment representedapproximately $11,000 or 14.1% of the Company’s revenues for the period March 15to December 31, 2004. Revenues from two customers of True Temper’s golfshafts segment represented approximately $16,000 or 13.7%, and $13,500 or11.6%, respectively, of the Company’s 2003 revenues. Revenues from twocustomers of True Temper’s golf shafts segment represented approximately$14,000 or 12.8%, and $11,000 or 10.1%, respectively, of the Company’s 2002revenues.

 

Following are reconciliations of total reportablesegment assets to total Company assets, and total reportable segment grossprofit to total Company income before income taxes as of December 31 forthe years indicated:

 
| ** **                                                 | ** ** | ** **                                          | ** ** | **Successor Company**                             | ** ** | **Predecessor Company**                   | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------|------------|------------|------------|
| ** **                                                 | ** ** | ** **                                          | ** ** | **2004**                                          | ** ** | **2003**                                  | ** ** | ** ** | ** ** |
| Total assets:                                              |       |                                                |       |                                              |       |                                      |       |       |       |   |   |   |   |
| Total from reportable  segments                            |       |                                                |       |                                              | $          | 48,861                                    |       | $          | 45,417     |   |   |   |   |
| General corporate and  other unallocated assets            |       |                                                |       | 311,964                                           |       | 134,199                                   |       |       |       |
| Total                                                      |       |                                                |       |                                              | $          | 360,825                                   |       | $          | 179,616    |   |   |   |   |
|                                                       |       |                                                |       |                                              |       |                                      |       |       |       |
| ** **                                                 | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                           | ** ** |
| ** **                                                 | ** ** | **Period from March 15 to  December 31,** | ** ** | **Period from January 1 to  March 14,** | ** ** | **For the Years Ended December 31,** | ** ** |
| ** **                                                 | ** ** | **2004**                                            | ** ** | **2004**                                          | ** ** | **2003**                                  | ** ** | **2002**   | ** ** |
| Total reportable  segment gross profit                     |       | $                                                   | 18,016     |                                              | $          | 8,376                                     |       | $          | 46,736     |   | $ | 42,240 |   |
| Less:                                                      |       |                                                |       |                                              |       |                                      |       |       |       |
| Selling, general and  administrative expenses              |       | 9,520                                               |       | 3,635                                             |       | 14,747                                    |       | 13,578     |       |
| Amortization of intangible  assets                         |       | 10,984                                              |       | —                                            |       | —                                    |       | —     |       |
| Business development,  start-up costs and transition costs |       | 738                                                 |       | 100                                               |       | 869                                       |       | 312        |       |
| Transaction and  reorganization expense                    |       | 25                                                  |       | 5,381                                             |       | —                                    |       | —     |       |
| Loss on early  extinguishment of long-term debt            |       | —                                              |       | 9,217                                             |       | —                                    |       | 777        |       |
| Interest expense                                           |       | 13,491                                              |       | 2,498                                             |       | 13,017                                    |       | 12,236     |       |
| Other expense (income),  net                               |       | 72                                                  |       | (2                                                | )          | 132                                       |       | 93         |       |
| Total Company income  (loss) before income taxes           |       | $                                                   | (16,814    | )                                                 | $          | (12,453                                   | )          | $          | 17,971     |   | $ | 15,244 |   |
|                                                            |            |                                                     |            |                                                   |            |                                           |            |            |            |  |  |  |  |  |

 

55

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

 

The geographic distribution of the Company’s netsales, by location of customer, is summarized as follows: 

 
| ** **    | ** ** | **Successor Company**                               | ** ** | **Predecessor Company**                          | ** ** |
|---------------|------------|-----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **    | ** ** | **Period from March 15 to  December 31,** | ** ** | **Period from January 1 to March 14,** | ** ** | **For the Years Ended December 31,** | ** ** |
| ** **    | ** ** | **2004**                                            | ** ** | **2004**                                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| U.S.          |       | $                                                   | 49,700     |                                             | $          | 12,140 |   | $ | 79,652 |   | $ | 77,137 |   |
| International |       | 28,420                                              |       | 8,107                                            |       | 36,554 |   | 30,264 |   |
| Total         |       | $                                                   | 78,120     |                                             | $          | 20,247 |   | $ | 116,206 |   | $ | 107,401 |   |

 

Revenues generated from sales to Southern China accountedfor approximately $3,300 or 16.4% of True Temper’s total sales for the period January 1to March 14, 2004, $14,200 or 18.2% of True Temper’s total sales for theperiod March 15 to December 31, 2004, and $16,200 or 14.0% and$11,200 or 10.4% for the years ended December 31, 2003 and 2002,respectively.  The sales into SouthernChina are due primarily to our major U.S. based original equipmentmanufacturers shifting a portion of their assembly operations to thatregion.  Assets by location are not disclosed,as assets located outside the U.S. are immaterial.

 

**(13) SELECTED QUARTERLY FINANCIALDATA (UNAUDITED)**

 

The following is a summary of unaudited quarterlyresults of operations for the years ended December 31, 2004 and 2003. 

 
| **Predecessor:** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
| **2004**         |       |               |       |                |       |               |       |                |       |   |   |   |   |
| Net sales        |       | $                  | 20,247     |                | —     |               | —     |                | —     |   |
| Gross profit     |       | 8,376              |       | —              |       | —             |       | —              |       |
| Net income       |       | (9,608             | )          | —              |       | —             |       | —              |       |
|             |       |               |       |                |       |               |       |                |       |
| **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               |       |
|             |       |               |       |                |       |               |       |                |       |
| **Successor:**   | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
| **2004**         | ** ** | ** **         | ** ** | ** **          | ** ** | ** **         | ** ** | ** **          | ** ** |
| Net sales        |       | $                  | 9,964      |                | $          | 25,333             |       | $                   | 21,308     |   | $ | 21,515 |   |
| Gross profit     |       | 3,976              |       | 10,210              |       | 8,379              |       | (4,549              | )          |
| Net income       |       | 1,597              |       | 1,713               |       | 748                |       | (14,522             | )          |
|             |       |               |       |                |       |               |       |                |       |
| **2003**         |       |               |       |                |       |               |       |                |       |
| Net sales        |       | —             |       | —              |       | —             |       | —              |       |
| Gross profit     |       | —             |       | —              |       | —             |       | —              |       |
| Net income       |       | —             |       | —              |       | —             |       | —              |       |

 

 

56

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**Item 9****.  *Changes In andDisagreements with Accountants on Accounting and Financial Disclosures***

 

None

 

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

 

**Evaluation of Disclosure Controls and Procedures**

 

Evaluations required by Rule 13a-15 of theSecurities Exchange Act of 1934 of the effectiveness of the Company’sdisclosure controls and procedures (as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934) as of the end of the period covered bythis Report have been carried out under the supervision and with theparticipation of the Company’s management, including its Chief ExecutiveOfficer and Chief Financial Officer. Based upon such evaluations, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures were effective. There have been no changesin the Company’s internal controls over financial reporting during the periodcovered by this Report that were identified in connection with the evaluationreferred to above that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal controls over financial reporting.

 

**Item 9B****.  *OtherInformation***

 

None.

 

57

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**PART III**

 

**Item 10****.  *Directors and ExecutiveOfficers of the Registrant***

 

Thedirectors and executive officers of True Temper as of December 31, 2004are as follows:

 
| **Name**                      | ** ** | **Age** | ** ** | **Position**                                                  | ** ** |
|-------------------------------|------------|---------|------------|---------------------------------------------------------------|------------|
| Scott C.  Hennessy            |       | 46      |       | Chief Executive  Officer, President and Director              |
| Fred H. Geyer                 |       | 44      |       | Senior Vice  President, Chief Financial Officer and Treasurer |
| Adrian H. McCall              |       | 47      |       | Senior Vice  President of Global Distribution and Sales       |
| Stephen M. Brown              |       | 39      |       | Vice President  of Human Resources                            |
| Graeme Horwood                |       | 60      |       | Vice President  Engineering, Research and Development         |
| Jason A. Jenne                |       | 35      |       | Vice President  Finance                                       |
| Gene Pierce                   |       | 38      |       | Vice President  of Manufacturing                              |
| Steven J.  Gilbert            |       | 57      |       | Director and  Co-Chairman                                     |
| Steven Kotler                 |       | 57      |       | Director and  Co-Chairman                                     |
| Eric L. Bunting               |       | 38      |       | Director                                                      |
| Richard W.  Gaenzle, Jr. |       | 40      |       | Director                                                      |
| Jeffery W. Johnson            |       | 36      |       | Director                                                      |
| William P.  Lauder            |       | 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 Vice President-Salesand Marketing. From 1980 to 1994, Mr. Hennessy held various managementpositions at Black & Decker in sales, marketing and productdevelopment. Mr. Hennessy sits on the Board of Governors of the NationalGolf Foundation. Mr. Hennessy graduated magna cum laude with a B.S. fromthe 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**has been our Senior Vice President of Global Distribution and Sales since August 2002.From March 1999 to July 2002, Mr. Mc Call served as our VicePresident of International Sales and Marketing since March 1999. From September 1995to March 1999, Mr. McCall served as our Director of InternationalSales and Marketing. From May 1992 to September 1995, Mr. McCallserved as Director of International Operations of The Upper Deck Company, amanufacturer and distributor of baseball cards. Mr. McCall graduated cumlaude with a B.S. from the University of Hartford.

 

**Stephen R. Brown**has been our Vice President of Human Resources since August 2002. From January 1998to July 2002, Mr. Brown has served as our Director of HumanResources. From September 1996 to December 1997, Mr. Brownserved as our Manager-Human Resources. Prior to that, since 1992, Mr. Brownserved in various Human Resource management positions with Emerson ElectricCompany. Mr. Brown received a B.A. from the University of South Carolina.

 

**Graeme Horwood** hasbeen our Vice President of Engineering, Research and Development since June 2001.From April 2000 to May 2001, Mr. Horwood served as our SeniorManager Technical Services. From 1986 to 2000, Mr. Horwood held variousmanagement positions at Apollo Sports Technologies. Mr. Horwood is aChartered Engineer as well as a member of the Institute of Mechanical Engineersboth in the United Kingdom. Mr. Horwood graduated first class honors witha B.S. from Coventry University.

 

**Jason Jenne** hasbeen our Vice President of Finance since August 2003. From 1998 to August 2002,Mr. Jenne served as our Corporate Controller. From September 2002 to August 2003,Mr. Jenne served as our Director

 

58

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of Corporate Finance. From 1993 to 1998, Mr. Jenne served invarious Finance and Accounting positions at Emerson Electric Company. Mr. Jennegraduated magna cum laude with a B.S. from Southern Illinois University.

 

**Gene Pierce** has been our Vice President ofManufacturing since 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.

 

**Steven J.Gilbert** became a member of and Co-Chairman of the board ofdirectors upon consummation of the Gilbert Global Acquisitions.  He is a founder and has served as Chairman ofthe Board of Gilbert Global Equity Partners, L.P. since 1997.  From 1992 to 1997, he was the founder andManaging General Partner of Soros Capital L.P., the principal venture capitaland leveraged transaction entity of Quantum Group of Funds, and a principalAdvisor to Quantum Industrial Holdings Ltd. From 1988 through 1992 he was theManaging Director of Commonwealth Capital Partners, L.P., a private equityinvestment firm.  From 1984 to 1988, Mr. Gilbertwas the Managing General Partner of Chemical Venture Partners (now J.P. MorganPartners), which he founded.  Mr. Gilbertis a Director of LCC International, Inc., Optical Capital Group, Inc.,Montpelier Re Holdings Ltd., Olympus Re Holdings Ltd., CPM Holdings, Inc.,the Asian Infrastructure Fund and J O Hambro Investment Management, Ltd.  Previously, Mr. Gilbert has been adirector of numerous public and private companies.  Mr Gilbert received a B.S. from the WhartonSchool at the University of Pennsylvania, an M.B.A. from the Harvard GraduateSchool of Business Administration, and a J.D. from Harvard Law School.

 

**StevenKotler**became a member of and Co-Chairman of the board ofdirectors upon consummation of the Gilbert Global Acquisition.  He has served as Vice Chairman of GilbertGlobal Equity Partners, L.L.C., the principal investment advisor to GilbertGlobal Equity Partners, L.P. since 2000. Prior to joining Gilbert Global, Mr. Kotler was Co-Chairman, ChiefExecutive Officer and President of Schroder & Co. and it predecessorfirm, Wertheim & Co.  Mr. Kotleris a member of the Board of Directors of Moore Medial Corp., and CPM Holdings, Inc.  Previously, Mr Kotler has served as aGovernor of the American Stock Exchange and a director of numerous public andprivate companies.  Mr. Kotler is agraduate of city College of New York.

 

**Eric L.Bunting** became a member of the board of directors uponconsummation of the Gilbert Global Acquisition. He is a founder and serves asManaging Director of Gilbert Global Equity Partners, L.P. since 1997.  Mr. Bunting was previously with SorosCapital and Airport Group International, a Soros Capital portfoliocompany.  He is a director of CPMHoldings, Inc. and a graduate of Dartmouth College and Stanford GraduateSchool of Business.

 

**RichardW. Gaenzle, Jr.**became a member of the board ofdirectors upon consummation of the Gilbert Global Acquisition. He is a founderand serves as Managing Director of Gilbert Global Equity Partners, L.P. since 1997.  From 1992 to 1997, he was a principal ofSoros Capital L.P., the principal venture capital and leveraged transactionentity of Quantum Group of Funds, and a principal Advisor to Quantum IndustrialHoldings Ltd.  Prior to joining SorosCapital, Mr. Gaenzle held various positions in the investment bankingindustry.  Mr. Gaenzle is ViceChairman of Optical Capital Group, LLC and a Director of CPM Holdings, Inc.  Previously, Mr. Gaenzle has been adirector of numerous companies.  Mr. Gaenzlereceived a B.A. from Hartwick College and an M.B.A. from Fordham University.

 

**JeffreyW. Johnson**became a member of the board of directors uponconsummation of the Gilbert Global Acquisition. He is a founder and serves asManaging Director of Gilbert Global Equity Partners, L.P. since 1997.  Mr. Johnson was previously with Goldman,Sachs & Co. in its mergers and acquisitions department, Hallmark Cards, Inc.and Frank Russell Company.  Mr. Johnsonreceived a B.A. from Claremont McKenna College and an M.B.A. from the HarvardGraduate School of Business Administration.

 

**WilliamP. Lauder**became a member of the board of directors in 2004. InJuly 2004 Mr. Lauder was named the President and Chief ExecutiveOfficer of Estee Lauder Companies, Inc. He joined Estee Lauder Companies in 1986 and held numerous positions ofincreasing responsibility.  Mr. Lauderreceived a B.A. and an M.B.A. from the Wharton School at the University ofPennsylvania.

 

59

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***Codeof Ethics.***

 

The Audit Committee of the Board of Directors hasadopted a Code of Ethics for the Chief Executive Officer, the Chief FinancialOfficer, the Chief Operating Officer, and other senior financial personnel. Acopy of the Code of Ethics is available on the Company’s website atwww.truetemper.com. The Company will disclose any amendments or waivers of theCode of Ethics on the same website.

 

***AuditCommittee.***

* *

The Board of Directors has determined that StevenKotter is an "audit committee financial expert" as defined in the rulesand regulations adopted by the Securities and Exchange Commission.

 

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

 

Thefollowing table sets forth information concerning the annual and long-termcompensation for services in all capacities to True Temper for 2004, 2003 and 2002of those persons who served as (1) the Chief Executive Officer during 2004and (2) the other four most highly compensated executive officers of TrueTemper for 2004 (the “Named Executive Officers”):

 

**SummaryCompensation Table**

 
| ** **                            | ** ** | **Annual Compensation** | ** ** | **Long-Term Compensation** | ** ** |
|---------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                            | ** ** | ** **              | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | **Awards** | ** ** | ** ** | ** ** |
| **Name and Principal Position**       | ** ** | **Year**                | ** ** | **Salary**                 | ** ** | **Bonus Earned** | ** ** | **Other Annual Compensation(1)** | ** ** | **Restricted  Stocks(2)** | ** ** | **All Other Compensation(3)** | ** ** |
| Scott C. Hennessy                     |       | 2004                    |       | $                          | 400,000    |   | $ | — |   | $ | 28,910 |   | $ | 2,603,520 |   | $ | 10,182 |   |
| Chief Executive Officer,              |       | 2003                    |       | $                          | 359,167    |   | $ | 550,000 |   | $ | 28,191 |   | — |   | $ | 9,933 |   |
| President and Director                |       | 2002                    |       | $                          | 321,950    |   | $ | 375,000 |   | $ | 27,125 |   | — |   | $ | 10,000 |   |
|                                  |       |                    |       |                       |       |   |   |   |   |   |   |   |   |
| Fred H. Geyer                         |       | 2004                    |       | $                          | 200,000    |   | $ | — |   | $ | 17,284 |   | $ | 1,139,040 |   | $ | 10,190 |   |
| Senior Vice President,                |       | 2003                    |       | $                          | 185,417    |   | $ | 200,000 |   | $ | 17,699 |   | — |   | $ | 10,000 |   |
| Chief Financial Officer and Treasurer |       | 2002                    |       | $                          | 161,583    |   | $ | 150,000 |   | $ | 9,263 |   | — |   | $ | 9,609 |   |
|                                  |       |                    |       |                       |       |   |   |   |   |   |   |   |   |
| Adrian H. McCall                      |       | 2004                    |       | $                          | 175,000    |   | $ | — |   | $ | 17,917 |   | 813,600 |   | $ | 10,250 |   |
| Senior Vice President of              |       | 2003                    |       | $                          | 166,255    |   | $ | 160,000 |   | $ | 17,765 |   | — |   | $ | 10,000 |   |
| International Sales and Marketing     |       | 2002                    |       | $                          | 148,917    |   | $ | 110,000 |   | $ | 9,243 |   | — |   | $ | 9,478 |   |
|                                  |       |                    |       |                       |       |   |   |   |   |   |   |   |   |
| Graeme P. Horwood                     |       | 2004                    |       | $                          | 130,000    |   | $ | — |   | $ | 23,963 |   | 325,440 |   | $ | 12,480 |   |
| Vice President of Engineering &   |       | 2003                    |       | $                          | 127,079    |   | $ | 60,000 |   | $ | 23,609 |   | — |   | $ | 13,650 |   |
| Research and Development              |       | 2002                    |       | $                          | 120,917    |   | $ | 55,000 |   | $ | 23,569 |   | — |   | $ | 10,336 |   |
|                                  |       |                    |       |                       |       |   |   |   |   |   |   |   |   |
| L. Gene Pierce                        |       | 2004                    |       | $                          | 154,000    |   | $ | — |   | $ | 154 |   | 325,440 |   | $ | 10,250 |   |
| Vice President of Operations          |       | 2003                    |       | $                          | 150,505    |   | $ | 90,000 |   | $ | 28,259 | (4) | — |   | $ | 10,032 |   |
|                                  |       | 2002                    |       | $                          | 143,333    |   | $ | 70,000 |   | $ | 1,999 |   | — |   | $ | 9,167 |   |
|                                       |            |                         |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Includescertain life insurance benefits; and where applicable, country club dues and carallowance.

 

(2)          Theamounts in the table represent the value of the restricted shares based on theprice of $13.56 per share of common stock on the date of grant. Shares of TrueTemper Corporation are not traded on any public exchange, therefore informationregarding the value of the restricted shares as of December 31, 2004 has beenomitted. The restrictions on the shares are lifted, and the restricted stockvests, only with certain future performance goals being achieved. Depending onfuture performance, the restricted shares can have a value ranging from $0 tothe value listed.

 

(3)          Includescompany contributions under our 401(k) plan.

 

(4)          Amountincludes moving and relocation benefits.

 

**PensionPlan**

 

TrueTemper Sports, Inc. sponsors a tax qualified defined benefit pension plan.Only the hourly employees at the Amory, Mississippi manufacturing plant, whoare part of the collective bargaining unit of the United Steel Workers, areeligible to participate in the plan. Benefits are calculated based primarily onyears of service, among other factors. As of December 31, 2004 none ofTrue Temper Corporation’s named executive officers were eligible to participatein the plan.

 

**EquityIncentive Plan**

 

TheBoard of Directors has adopted an equity incentive plan which provides for thegrant to certain key employees and/or directors of  (i) options to purchase common stock ofTTC that are non-qualified options or

 

60

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incentive stockoptions for federal income tax purposes, and/or (ii) shares of commonstock of TTC restricted stock, restricted stock units or stock appreciationrights. The equity incentive plan is administered by the Compensation Committeeof the Board of Directors. The Compensation Committee has broad powers underthe 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/SARGrants in Last Fiscal Year**

 

Thefollowing table sets forth all True Temper Corporation common stock optionsgranted to Named Executive Officers during 2004.

 
| ** **        | ** ** | ** **     | ** ** | ** **     | ** ** | ** **   | ** ** | ** **     | ** **     | **Potential **      | ** ** |
|-------------------|------------|----------------|------------|----------------|------------|--------------|------------|----------------|----------------|--------------------------|------------|
| ** **        | ** ** | ** **     | ** ** | **% of**       | ** ** | ** **   | ** ** | ** **     | ** **     | **Realized Value of**    | ** ** |
| ** **        | ** ** | **Number of**  | ** ** | **Total**      | ** ** | ** **   | ** ** | ** **     | ** **     | **Assumed Anuual**       | ** ** |
| ** **        | ** ** | **Securities** | ** ** | **Granted to** | ** ** | **Exercise** | ** ** | ** **     | ** **     | **Rates of Stock Price** | ** ** |
| ** **        | ** ** | **Underling**  | ** ** | **Employees**  | ** ** | **or base**  | ** ** | ** **     | ** **     | **Appreciation**         | ** ** |
| ** **        | ** ** | **Options**    | ** ** | **in Fiscal**  | ** ** | **Price**    | ** ** | **Expiration** | ** **     | **For Option Term**      | ** ** |
| **Name**          | ** ** | **Granted**    | ** ** | **Year**       | ** ** | **($/sh)**   | ** ** | **Date**       | ** **     | **5%**                   | ** ** | **10%** | ** ** |
| Scott C. Hennessy |       | 144,000        |       | 26.0%          |       | $            | 13.56      |           | March 15, 2014 |                     | $          | 1,228,005 |   | $ | 3,112,005 |   |
| Fred H. Geyer     |       | 72,000         |       | 13.0%          |       | $            | 13.56      |           | March 15, 2014 |                     | 614,002    |   | 1,556,003 |   |
| Adrian H. McCall  |       | 50,200         |       | 9.1%           |       | $            | 13.56      |           | March 15, 2014 |                     | 428,096    |   | 1,084,880 |   |
| Graeme Horwood    |       | 28,800         |       | 5.2%           |       | $            | 13.56      |           | March 15, 2014 |                     | 245,601    |   | 622,401 |   |
| Gene Pierce       |       | 28,800         |       | 5.2%           |       | $            | 13.56      |           | March 15, 2014 |                     | 245,601    |   | 622,401 |   |
|              |       |           |       |           |       |         |       |           |           |                     |       |   |   |
|                   |            |                |            |                |            |              |            |                |                |                          |            |  |  |  |  |  |

 

Thevalue of the options presented assumes that 100% of the options vest during theoption term. A portion of the underlying options vest based on service, and aportion vest based on company performance. Based on future financialperformance, the ultimate value of the options may be significantly less thanpresented in this table.

 

**Aggregatedoptions / SAR exercises and fiscal year-end option / SAR value table**

 
| **Name of Beneficial Owner** | ** ** | **Shares Acquired on Exercise** | ** ** | **Value Realized** | ** ** | **Number of securities underlying  unexercised options/SARs at FY-end** | ** ** | **Value of unexercised in-the-money  options/SARs** | ** ** |
|------------------------------|------------|--------------------------------------|------------|--------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| Scott C. Hennessy            |       |                                 | 544,340    |               | $          | 7,378,630                                                                    |       |                                                | —     |   |   | — |   |
| Fred H. Geyer                |       |                                 | 109,098    |               | $          | 1,668,979                                                                    |       |                                                | —     |   |   | — |   |
| Adrian H. McCall             |       |                                 | 65,970     |               | $          | 996,934                                                                      |       |                                                | —     |   |   | — |   |
| Graeme Horwood               |       |                                 | 16,055     |               | $          | 257,630                                                                      |       |                                                | —     |   |   | — |   |
| Gene Pierce                  |       |                                 | 27,293     |               | $          | 444,958                                                                      |       |                                                | —     |   |   | — |   |

 

**Compensationof Directors**

 

TrueTemper will reimburse directors for any out-of-pocket expenses incurred by themin connection with services provided in such capacity. In addition, we maycompensate directors for services provided in such capacity.

 

**CompensationCommittee Report on Executive Compensation**

 

Asmembers of the Compensation Committee it is our duty to monitor the performanceand compensation of executive officers and other key employees, and to makeappropriate recommendations and reports to the Board of Directors concerningmatters of executive compensation.

 

TheCompany maintains a compensation program designed to motivate, retain andattract management, with incentives linked to financial performance andenhanced shareholder value. The fundamental philosophy is to relate the amountof compensation for an executive directly to his or her contribution to theCompany’s success in achieving superior performance objectives.

 

TheCompany’s executive compensation program consists of three components: 1) basesalary; 2) potential for annual incentive compensation based on Companyperformance; and 3) the opportunity to earn long-term stock-based incentiveswhich are intended to encourage achievement of superior long-term results andto align executive officer interests with those of the shareholders. The basesalary element is developed based on the performance of the individualexecutives with reference to industry, peer group and national surveys, withthe objective of having the Company’s executive officers receive a level ofbase salary similar to the average base salary of individuals at similarlysized companies, performing comparable duties.

 

61

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Theannual incentive compensation element is based on the Company’s attainment ofcertain levels of profitability. The long-term stock-based element is developedby reference to competitive practices and trends of other companies which usestock options as a component of executive compensation. Long-term stock-basedincentives are to incentivize executive officers to increase shareholder value.Accordingly, the Committee will take into account the amount and value ofoptions held by each of the executive officers when considering new grants toassure that deserving executives have an equity participation in the Company.In determining the stock option grants for each year, the Committee considersthe current stock holdings of each individual, their responsibilities andhistorical and anticipated future contributions to True Temper’s performance.

 

Becauseof the scope of his responsibilities as Chief Executive Officer and President,and given the equity stake he has in the Company, the Compensation Committeeseparately considers the compensation of Mr. Hennessy. His salary, likethat of the other officers, is determined by reference to publishedcompensation surveys, and his salary level is in line with such publishedsalary levels for comparable positions of responsibility. The Committeebelieves a portion of the total annual compensation of Mr. Hennessy shouldbe 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.

 

TheCompensation Committee is of the opinion that the compensation levels for theNamed Executive Officers are reasonable when compared to similar positions ofresponsibility and scope in similar industries and that an appropriate amountof total compensation is based on the performance of the Company, and thereforeprovides sufficient incentive for these individuals to attain improved resultsin the future.

 

COMPENSATIONCOMMITTEE

 

Steven Gilbert –Chairman

Steven Kotler

Jeffrey Johnson

 

**Item 12****.  *Security Ownership ofCertain Beneficial Owners and Management***

 

All ofthe outstanding shares of our capital stock are owned by TTC. The followingtable sets forth information with respect to the beneficial ownership of TTC’scapital stock as of  March 30, 2005by:

 

(1)          allstockholders of TTC that own more than 5% of any class of such votingsecurities,

 

(2)          eachdirector and named executive officer, and

 

(3)          alldirectors and executive officers as a group.

 
| **Name of Beneficial Owner(1)**                                                                        | ** ** | **Number of Common Shares** | ** ** | **Percentage of Outstanding Common  Stock** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------------------|------------|------------|------------|------------|------------|
| TTS Holdings LLC                                                                                       |       | 8,778,919                   |       | 96.8                                        | %          |       |       |       |       |   |   |
| c/o Gilbert Global Equity Capital, LLC.  590 Madison Avenue  40th Floor  New York, New York 10022 |       |                        |       |                                        |       |       |       |       |       |   |   |
| Scott C. Hennessy                                                                                      |       | 167,021                     |       | 1.8                                         | %          |       |       |       |       |   |   |
| Fred H. Geyer                                                                                          |       | 29,509                      |       | *                                           |       |       |       |       |       |   |   |
| Adrian H. McCall                                                                                       |       | 29,509                      |       | *                                           |       |       |       |       |       |   |   |
| Graeme Horwood                                                                                         |       | 2,951                       |       | *                                           |       |       |       |       |       |   |   |
| Gene Pierce                                                                                            |       | 5,533                       |       | *                                           |       |       |       |       |       |   |   |
| All directors and  executive officers as a group (7 persons)                                           |       | 245,589                     |       | 2.7                                         | %          |       |       |       |       |   |   |

----

 *              Less than 1%.

 

(1)          Exceptas otherwise indicated, the address for all persons shown on this table is c/oTrue Temper Sports, Inc., 8275 Tournament Drive, Suite 200, Memphis,TN 38125.

 

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**Item 13****.  *Certain Relationships andRelated Transactions***

 

**StockPurchase Agreement**

 

Inaccordance with the terms of the Purchase Agreement by and among TTS HoldingsLLC, True Temper Corporation, and True Temper Sports, LLC and others dated January 30,2004 (the “Stock Purchase Agreement”), Sellers, as defined in the StockPurchase Agreement, have indemnified TTS Holdings, LLC, the purchaser, againstany and all damages resulting from any misrepresentation or breach of warrantyof Sellers contained in the Stock Purchase Agreement, for claims made within 18months following the closing date, except that claims involving environmentalmatters, tax matters, or employee benefit matters shall survive for a period of36 months following the closing date. The indemnification obligations of theSellers under the Stock Purchase Agreement are generally subject to a $10.0million basket amount and are limited to an aggregate payment of no more thanthe total amount held in escrow.

 

**StockholdersAgreement**

 

Uponthe consummation of the Stock Purchase Agreement, TTC and all of itsstockholders, including TTS Holdings, LLC, entered into a stockholdersagreement. The stockholders agreement:

 

(1)          requiresthat each of the parties vote all of their voting securities of TTC and takeall other necessary or desirable actions to cause the size of the board ofdirectors of TTC to be established at the number of members determined by TTSHoldings, LLC and to cause designees of TTS Holdings, LLC representing amajority of the board of directors to be elected to the board of directors ofTTC;

 

(2)          grantsTTC and TTS Holdings, LLC a right of first refusal on any proposed transfer ofshares of capital stock of TTC held by any of the stockholders;

 

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

 

(4)          requiresthe stockholders to consent to a sale of TTC to an independent third party ifsuch sale is approved by certain holders of the then outstanding shares of thecompany’s voting common stock; and

 

**ManagementServices Agreement**

 

Inconnection with the stock purchase agreement, True Temper entered into amanagement services agreement with Gilbert Global. In accordance with thisagreement, Gilbert Global has agreed to provide:

 

(1)          generalmanagement services;

 

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

 

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

 

(4)          otherservices agreed upon by True Temper and Gilbert Global.

 

Inexchange for such services, Gilbert Global or its nominee receives:

 

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

 

(2)          atransaction fee in an amount equal to 1.25% 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

 

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(3)          aone-time transaction fee of $2.5 million upon the consummation of therecapitalization.

 

The management services agreement has an initial termof five years, subject to automatic one-year extensions unless we or GilbertGlobal provide written notice of termination. The annual advisory fee of $0.5million is an obligation of ours and is also contractually subordinated to theNotes and the senior credit facilities. In addition to reimbursing Gilbert Global for reasonable out-of-pocketexpenses, the Company paid Gilbert Global $2.8 million in 2004, in accordancewith the agreement.

 

**Item 14****.  *Principal Accountants Feesand Services***

 

The followingtable represents aggregate fees billed to the Company for fiscal years ended December 31by KPMG LLP, the Company’s principal accounting firm.

 
| ** **             | ** ** | **Fiscal Years Ended** | ** ** |
|------------------------|------------|------------------------|------------|
| ** **             | ** ** | **2004**               | ** ** | **2003** | ** ** |
| Audit fees             |       | $                      | 159,000    |   | $ | 112,000 |   |
| Audit-related fees (1) |       | 17,500                 |       | 8,300 |   |
| Tax Fees (2)           |       | 40,310                 |       | 40,274 |   |
| All other fees (3)     |       | 130,906                |       | 28,231 |   |
| Total fees (4)         |       | $                      | 347,716    |   | $ | 188,805 |   |

 

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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 AuditCommittee has considered whether performance of services other than auditservices is compatible with maintaining the independence of KPMG LLP.

 

**AuditorFees Pre-approval Policy**

 

In 2003, the AuditCommittee adopted a policy concerning approval of audit and non-audit servicesto be provided by the independent auditor to the Company.  The policy requires that all services KPMGLLP, the Company’s independent auditor, may provide to the Company, includingaudit services and permitted audit-related and non-audit services, excludingcertain designated tax services, must be approved by the Audit Committee.  The Committee approved all audit andnon-audit services provided by KPMG during fiscal 2004.

 

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**PART IV**

 

**Item 15****.  *Exhibits and FinancialStatements Schedule***

 

1.         *Financial Statements.* The following financial statements of True Temper Sports, Inc. havebeen included in part II, item 8 of this report on Form 10-K.

 
| Report  of Independent Registered Public Accounting Firm                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Consolidated  Statements of Operations for the period ended March 14, 2004, the period  ended December 31, 2004 and for the years ended December 31, 2003  and 2002                                         |
| Consolidated Balance Sheets  at December 31, 2004 and 2003                                                                                                                                                            |
| Consolidated Statements of Stockholder’s  Equity and Comprehensive Income for the period ended March 14, 2004, the  period ended December 31, 2004 and for the years ended December 31,  2003 and 2002 |
| Consolidated  Statements of Cash Flows for the period ended March 14, 2004, the period  ended December 31, 2004 and for the years ended December 31, 2003  and 2002                                         |
| Notes to the  Consolidated Financial Statements                                                                                                                                                                            |

 

2.      *Financial Statement 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,  2002 |       | 539                                |       | 220                               |       | —                        |       | (106               | )          | 653 |   |
| Year Ended December 31,  2003 |       | 653                                |       | 256                               |       | —                        |       | (77                | )          | 832 |   |
| Year Ended December 31,  2004 |       | 832                                |       | 109                               |       | —                        |       | (26                | )          | 915 |   |

 

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

 

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

 

3.  Exhibits.

 

     See theIndex to Exhibits.

 

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**SIGNATURES**

 

Pursuantto the requirements of section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
| Dated: March 30,  2005 |                          |                                  |
|-----------------------------|-------------------------------|---------------------------------------|
|                        |                          |                                  |
|                        | True Temper Sports, Inc. |                                  |
|                        |                          |                                  |
|                        | By:                           | /s/ SCOTT C. HENNESSY                 |   |
|                        | Name:                         | Scott C. Hennessy                     |   |
|                        | Title:                        | President and Chief Executive Officer |   |
|                             |                               |                                       |  |  |

 

Pursuantto the requirements of section 13 or 15(d) of the Securities ExchangeAct of 1934, this report has been signed below by the following persons onbehalf of the registrant and in the capacities indicated, on March 30, 2005.

 
|   | By:    | /s/   STEVEN  J. GILBERT              |   |
|--------|--------|-------------------------------------------------|--------|
|   | Name:  | Steven J. Gilbert                               |   |
|   | Title: | Director and Co-Chairman                        |   |
|   |   |                                            |
|   | By:    | /s/   STEVEN  KOTLER                  |   |
|   | Name:  | Steven Kotler                                   |   |
|   | Title: | Director and Co-Chairman                        |   |
|   |   |                                            |
|   | By:    | /s/   ERIC L.  BUNTING                |   |
|   | Name:  | Eric L. Bunting                                 |   |
|   | Title: | Director                                        |   |
|   |   |                                            |
|   | By:    | /s/   RICHARD  W GAENZLE, JR.         |   |
|   | Name:  | Richard W. Gaenzle, Jr.                    |   |
|   | Title: | Director                                        |   |
|   |   |                                            |
|   | By:    | /s/   JEFFREY  W. JOHNSON             |   |
|   | Name:  | Jeffrey W. Johnson                              |   |
|   | Title: | Director                                        |   |
|   |   |                                            |
|   | By:    | /s/   WILLIAM  P. LAUDER              |   |
|   | Name:  | William P. Lauder                               |   |
|   | Title: | Director                                        |   |
|   |   |                                            |
|   | By:    | /s/   SCOTT C.  HENNESSY              |   |
|   | Name:  | Scott C. Hennessy                               |   |
|   | Title: | President, Chief Executive Officer and Director |   |
|   |   |                                            |
|   | By:    | /s/   FRED H.  GEYER                  |   |
|   | Name:  | Fred H. Geyer                                   |   |
|   | Title: | Sr. Vice President and Chief Operating Officer  |   |
|   |   |                                            |
|   | By:    | /s/   JASON A.  JENNE                 |   |
|   | Name:  | Jason A. Jenne                                  |   |
|   | Title: | Vice President and Chief Financial Officer      |   |
|        |        |                                                 |        |  |

 

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**INDEX TO EXHIBITS**

 
| 1.1    |   | Purchase  Agreement, dated as of March 3, 2004, among True Temper Sports, Inc.,  Credit Suisse First Boston LLC and Goldman, Sachs & Co. (filed as Exhibit 1.1  to True Temper Sports, Inc.’s Registration Statement on Form S-4,  as filed with the Securities and Exchange Commission on April 13,  2004).*                                                                                                                            |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.1    |   | Indenture,  dated as of March 15, 2004, among True Temper Sports, Inc., the  Guarantors identified therein, and The Bank of New York (filed as Exhibit 4.1  to True Temper Sports, Inc.’s Registration Statement on Form S-4,  as filed with the Securities and Exchange Commission on April 13,  2004).*                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.2    |   | Form of  Senior Subordinated Note due 2011 (filed as Exhibit 4.2 to True Temper  Sports, Inc.’s Registration Statement on Form S-4, as filed  with the Securities and Exchange Commission on April 13, 2004).*                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.3    |   | Registration  Rights Agreement, dated as of March 15, 2004, among True Temper Sports, Inc.,  El Cajon Equipment Corporation, True Temper Sports-PRC Holdings, Inc.,  Credit Suisse First Boston LLC and Goldman, Sachs & Co (filed  as Exhibit 4.3 to True Temper Sports, Inc.’s Registration Statement  on Form S-4, as filed with the Securities and Exchange Commission  on April 13, 2004).*                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1   |   | Management  Services Agreement, dated as of March 15, 2004, between GGEP  Management, L.L.C., GGEP Management (Bermuda) Ltd., and True Temper  Sports, Inc. (filed as Exhibit 10.1 to True Temper Sports, Inc.’s  Registration Statement on Form S-4, as filed with the Securities  and Exchange Commission on April 13, 2004).*                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2   |   | Shareholders  Agreement, dated as of March 15, 2004, by and among True Temper  Corporation, TTS Holdings LLC and the Other Investors identified therein  (filed as Exhibit 10.2 to True Temper Sports, Inc.’s Registration  Statement on Form S-4, as filed with the Securities and Exchange  Commission on April 13, 2004).*                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3   |   | True  Temper Corporation 2004 Equity Incentive Plan, dated as of March 15,  2004 (filed as Exhibit 10.3 to True Temper Sports, Inc.’s  Registration Statement on Form S-4, as filed with the Securities  and Exchange Commission on April 13, 2004).*                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4   |   | Credit  Agreement, dated as of March 15, 2004, by and among True Temper  Corporation, True Temper Sports, Inc, the Lenders identified therein,  Credit Suisse First Boston, Antares Capital Corporation, Goldman Sachs Credit  Partners L.P. and Merrill Lynch Capital (filed as Exhibit 10.4 to  True Temper Sports, Inc.’s Registration Statement on Form S-4,  as filed with the Securities and Exchange Commission on April 13,  2004).* |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5   |   | Tax  Sharing and Administrative Services Agreement, dated as of March 15,  2004, by and among True Temper Corporation, True Temper Sports, Inc., El  Cajon Equipment Corporation and True Temper Sports-PRC Holdings, Inc.  (filed as Exhibit 10.5 to True Temper Sports,                                                                                                                                                                                        |

 

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|   |   | Inc.’s  Registration Statement on Form S-4, as filed with the Securities  and Exchange Commission on April 13, 2004).*                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.6   |   | Employment  Agreement, dated as of January 30, 2004, by and between True Temper  Sports, Inc. and Scott C. Hennessy (filed as Exhibit 10.6 to  True Temper Sports, Inc.’s Registration Statement on Form S-4,  as filed with the Securities and Exchange Commission on April 13,  2004).*                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.7   |   | First  Amendment, dated as of September 24, 2004, to the Credit Agreement,  dated as of March 15, 2004, by and among True Temper Corporation, True  Temper Sports, Inc, the Lenders identified therein, Credit Suisse First Boston,  Antares Capital Corporation, Goldman Sachs Credit Partners L.P. and  Merrill Lynch Capital (filed as Exhibit 10.1 to True Temper Sports, Inc.’s  report on Form 8-K, as filed with the Securities and Exchange  Commission on September 30, 2004).* |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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**                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 32.1   |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 32.2   |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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* Incorporated byreference

** Filed herewith

 

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