Aldila Reports Sharp Drop in Sales, Second Quarter Loss
POWAY, Calif. - Aldila, Inc. (NASDAQ/NMS:ALDA) today reported net sales of $12.6 million for the second quarter ended June 30, 1999, compared to net sales of $21.2 million in the second quarter of 1998. The company reported a net loss of $72,000 for the second quarter of 1999, compared to net income of $1.6 million in the 1998 second quarter (less than $0.01 loss per diluted share for 1999 versus earnings of $0.10 per diluted share in 1998.)
Net sales for the six months ended June 30, 1999 were $23.2 million, compared to $40.3 million in the first six months of 1998. The company's net loss for the six months ended June 30, 1999 was $0.4 million versus net income of $2.7 million in the six months of 1998 ($0.02 loss per diluted share for 1999 versus earnings of $0.17 per diluted share in 1998.)
"While market conditions and the competitive environment continue to impact our shaft sales, we are beginning to see signs of weaker competitors possibly dropping out of the market," said Peter R. Mathewson, President and Chief Operating Officer of Aldila Golf Corp. "Midway through 1999, however, we continue to be cautious in our outlook for the remainder of the year, as we enter the traditionally slower part of the season."
"Aldila Golf however, is particularily well-positioned for a turnaround in the golf market. Operations in Tijuana, Mexico, where premium shafts are manufactured for many of the country's leading club companies, allow Aldila Golf to deliver graphite golf shafts at unmatched prices and service levels," Mr. Mathewson continued. "In China, our new 80,000 square foot facility is running smoothly. Several major customers have visited the plant and are impressed with the excellent quality and low cost of shafts produced."
"In the value segment we see a significant trend toward not only component sourcing, but club assembly as well in China. The close proximity of our plant location to this activity provides us with increasing opportunities to ship our Chinese manufactured shafts directly to nearby club assemblers," Mr. Mathewson added.
Separately, Aldila announced that it has entered into a revolving $12.0 million financing facility for a three year term with Foothill Capital Corporation, a Wells Fargo company. Borrowings against the revolving line of credit are based on Aldila's eligible accounts receivables and inventories and will bear interest at the bank's reference rate or the Eurodollar rate plus 2.5% at Aldila's election. "We are very pleased to have secured this revolving credit line which will provide the working capital required to meet Aldila's needs," said Gary T. Barbera, Chairman and Chief Executive Officer of Aldila, Inc.
Commenting on Aldila's composite materials business, Mr. Barbera said outside customer sales of carbon fiber and composite prepregs increased 300% in the second quarter of 1999 over the second quarter of 1998, with the majority of the increase from carbon fiber sales. On a consolidated basis, materials sales represent 13% of total sales in the first six months of 1999, compared to 2.5% in the same period of 1998.
"Our carbon fiber operation in Evanston, Wyoming is now in its second year of operation and continues making excellent progress," said Mr. Barbera. "The large bundle carbon fiber currently being produced in Evanston exhibits no loss in stiffness when compared to today's small bundle standard modulus fibers and is beginning to give our core golf shaft business the added competitive edge we envisioned."
"The recent announcement of an agreement in principle to form a joint venture between Aldila and SGL Carbon Group offers exciting opportunities for the continued development of our composite materials business," Mr. Barbera continued. "According to the agreement, SGL will acquire a 50% interest in Aldila's carbon fiber manufacturing operation in Evanston, Wyoming. In addition to supporting SGL's existing carbon fiber requirements and Aldila's core golf shaft business and prepreg operation in Poway, California, the joint venture will develop, manufacture and market a variety of carbon fiber products for the recreational, industrial and aerospace markets." The transaction is expected to close in the third quarter of 1999.
SGL Carbon AG is the world's largest producer of carbon and graphite products, with 1998 revenues exceeding $1.2 billion. The company has operations in 13 countries and offices in more than 90 countries
Aldila, Inc. is the world's leading manufacturer of graphite golf shafts used in clubs assembled and marketed throughout the world by leading golf club companies, distributors and custom clubmakers. Through vertical integration the company manufactures carbon fiber and composite prepreg for its golf shaft business and for outside sales to commercial customers
This press release contains forward-looking statements based on our expectations as of the date of this release. These statements necessarily reflect assumptions that we make in evaluating our expectations as to the future. They are also necessarily subject to risks and uncertainties. Our 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:
- risks associated with our proposed joint venture with SGL, including (a) the possibility that we are unable to reach agreement with SGL on the final terms of the joint venture or the joint venture is not formed for any other reason, including the failure to obtain any required third party or governmental consents or a material adverse change in our carbon fiber operation, (b) the possibility that the carbon fiber facility will not produce sufficiently high volumes of high quality carbon fiber at low cost to meet our demands as well as those of SGL,(c) risks relating to difficulties in operating and managing the carbon fiber facility through the joint venture, including the risk of irreconcilable differences between SGL and Aldila as to the management of the joint venture, and (d) the risk that SGL will be unable to meet its financial obligations to the joint venture;
- changes in demand by 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);
- the availability of raw materials (principally carbon fiber and acrylic fiber) for our manufacturing operations, including the carbon fiber facility, at anticipated prices;
- risks resulting from the increasing portion of our 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);
- the ability to develop new customer relationships with non-golf users of graphite prepreg and carbon fiber and changes in demand for carbon fiber and carbon fiber-based products;
- the nature and effectiveness of the competition for our products; and
- the availability of our new line of credit to the extent necessary to meet Aldila's working capital needs, including in connection with principal payments under the company's outstanding senior notes, commencing in September 1999
Our filings with the Securities and Exchange Commission present a more detailed discussion of some of these and other risks related to the forward looking statements in this press release, in particular under "Business Risks" in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 1998 (the "Form 10-K"), "Management's Discussion and Analysis of Financial Condition and Results of Operation" in Part I, Item 7 of the Form 10-K, and "Management's Discussion and Analysis of Financial Condition and Results of Operation" in Item 2 of our Quarterly Report on Form 10-Q for the quarters ended March 31, and June 30, 1999.