Aldila Reports Fourth Quarter Earnings
POWAY, Calif. - Aldila, Inc. today reported net sales of $8.6 million and net income of $59,000 for the fourth quarter ended December 31, 1998, excluding a one-time charge of $1.2 million (after tax $720,000 or $0.05) related to additional charges for the company's consolidation of its Rancho Bernardo, CA. manufacturing operation into its Poway, CA. facility.
After the charge, the company reported a fourth quarter net loss of $661,000 or ($0.04) per share. In the comparable 1997 quarter, Aldila had net sales of $11.3 million and a net loss of $1.6 million or ($0.10) per share, including plant consolidation charges and start-up expenses related to the carbon fiber operation.
For the year ended December 31, 1998, net sales were up 12% to $62.5 million and net income was up 82% to $2.8 million or $0.18 per share. In 1997, net sales were $55.7 million and net income was $1.5 million or $0.10 per share.
"Lower golf shaft sales in the final 1998 quarter versus the 1997 quarter reflect the continued industry-wide weak demand for graphite golf shafts in all market segments," said Peter R. Mathewson, President and Chief Operating Officer, Aldila Golf. "Despite the weak demand for golf clubs in the second half of 1998, Aldila's total unit growth increased 22% over 1997. As we entered 1999, golf club inventory levels at wholesale and retail remained very high and in the near-term, we believe that Aldila's net sales could decline between 25% to 45% in the first half of 1999 versus 1998."
"The combination of slower club sales and over-capacity in graphite shafts creates an extremely competitive market environment; however, we believe our strategic assets in Mexico and China, combined with our manufacture of prepreg and carbon fiber, provide Aldila with major technological and competitive advantages over the other U.S. based graphite shaft suppliers as shaft prices decrease," Mr. Mathewson said.
"By the end of the first quarter of 1999, Aldila's new 80,000 square foot shaft facility in Zhuhai, China will be operational, greatly expanding the company's options for the manufacture of premium and value shaft products. In addition, we are working diligently to qualify and move premium product lines from Aldila's U.S. plant to its operations in Tijuana, Mexico and China," said Mr. Mathewson.
Aldila said that historically it has not required borrowings to finance its operations or provide working capital and was able to establish its $16 million carbon fiber facility in Evanston, Wyoming from internal cash resources. However, beginning in 1999, the company said borrowings against an available line of credit may be required to meet short-term working capital needs and that discussions are in process with the lender to amend a line of credit facility beyond June 30, 1999.
"We are continuing to execute our growth strategy, although the immediate outlook for Aldila's business sectors presents many challenges," said Gary T. Barbera, Chairman of the Board and Chief Executive Officer, Aldila, Inc. "We met our carbon fiber production targets through the fourth quarter of 1998 and the fiber is being used in the manufacture of golf shafts."
"The market potential for large tow carbon fiber-based products remains largely untapped and we are aggressively seeking opportunities for qualification of Aldila carbon fiber and prepreg in a variety of non-golf sports and industrial applications. These include bicycles, fishing rods, hockey sticks, sailboat masts and wind surfing masts, as well as industrial and oil field applications," Mr. Barbera added. "Several of these markets were served with Aldila fiber in 1998 and the company is being uniquely positioned as a competitive source for superior performance carbon fiber and prepreg for all markets."
"Furthermore, our initiatives of vertical integration, increased utilization of manufacturing operations in areas of lower labor and overhead cost, and aggressive pricing strategies will, over time, strengthen our core golf shaft business as the market improves and enable us to build a strong presence in the emerging opportunities for composite products and materials," said Mr. Barbera.
Aldila designs, manufactures and markets graphite golf shafts used in clubs assembled throughout the world by leading golf club companies, pro shops, club shops and repair shops. Through vertical integration, the company supplies virtually all the graphite prepreg material for its golf shaft business. In 1998, the company began to supply carbon fiber from its new Evanston, Wyoming facility to its prepreg operation and is positioned to become a competitive source for high quality carbon fiber and prepreg for all markets.
This release contains forward-looking statements based on management's expectations as of the date hereof that necessarily contain certain assumptions and are subject to certain risks and uncertainties. The company does not undertake any responsibility to update these statements in the future. The company's actual future performance and results could differ from that contained in or suggested by these forward-looking statements as a result of a variety of factors, including (i) risks associated with the addition of the new facility in China (such as the need to obtain required governmental permits and approvals, potential construction delays, and the need to hire and train additional employees), (ii) the ability to produce high volumes of carbon fiber at lower cost at the Evanston, Wyoming facility, which has been undergoing a "shakedown" period following its commencement of production early in 1998, (iii) changes in demand by the company's customers for graphite golf shafts, graphite prepreg and carbon fiber (due to factors such as changes in consumer demand for products including the company's products, changes in availability or prices for golf shafts, graphite prepreg or carbon fiber, changes in inventory purchasing practices by the company's customers), (iv) the availability of raw materials for the company's manufacturing operations (principally carbon fiber and acrylic fiber) at anticipated prices, (v) the ability of the company to develop new customer relationships with non-golf users of graphite prepreg and carbon fiber, (vi) risks resulting from the increasing portion of the company's manufacturing operations that is conducted in Mexico and China (including the risk of political instability, export/import regulation, currency exchange rate risk, and cultural differences), (vii) the company's ability to vacate and sublease its Rancho Bernardo facility on a timely basis and in the manner anticipated (which in turn depends in part on the market for leased real property of this type in the vicinity of Rancho Bernardo), and (viii) the ability of the company to negotiate successfully an amended line of credit facility on terms that are not burdensome to the company and that provide an adequate source of cash should the company need to borrow against it. The company's filings with the Securities and Exchange Commission present a more detailed discussion of these and other risks related to the forward-looking statements in this press release.