Aldila, Inc. net sales were $17.4 million for the fiscal second quarter ended June 30, 2006 and net income of $2.7 million or 47 cents fully diluted per share. In the comparable 2005 second quarter, the Company had net sales of $21.8 million and net income of $3.6 million, or 66 cents fully diluted per share.
For the six months ended June 30, 2006, net sales decreased by $1.5 million to $38.2 million from the same period in 2005, and net income of $7.0 million remained the same as compared to the same period in 2005.
“In our second quarter 2006, sales of golf and related products were 25% lower than in the comparable quarter of 2005,” said Mr. Peter R. Mathewson, Chairman of the Board and CEO. “Sales of composite prepreg materials in the second quarter of 2006 were up 28% as compared to the 2005 period and represented 15% of consolidated sales in the current quarter. The average selling price of golf shafts decreased 9% quarter on quarter on a 21% decrease in unit sales. Branded golf shaft sales decreased 30% and co-branded sales decreased by 34% versus the 2005 second quarter, and together represented 53% of our golf shaft sales in the current quarter as compared to 56% in the comparable quarter last year. Lower average selling prices for golf shafts sold along with a charge for certain non-branded shaft products totaling $380,000 for inventory reserves and sales returns affected our gross margin, which decreased to 36% for the second quarter of 2006 as compared to 37% in the second quarter of 2005. The Company’s backlog of sales orders at June 30, 2006 of $9.4 million was lower than the $12.7 million at June 30, 2005,” Mr. Mathewson said.
“Our decline in results in the second quarter 2006 versus the second quarter 2005 was attributed to a general lack of new club programs in the golf club market, which resulted in a slowing of our branded sales. Customers indicate several new programs are slated to begin in the late third and fourth quarters of this year, and we believe our OEM customers have slowed their order rate to manage inventories on older product lines. Two of the largest golf club companies are offering one of the most aggressive promotions in recent memory, buy a driver and receive a fairway wood at no charge. This is a sign of a lackluster golf equipment market. NV(TM) shaft sales appear to have peaked, and their sales are likely to decline over time as new products enter the market place. We are optimistic that our VS Proto(TM) ByYou wood shaft and hybrid shaft will help make up the decline in NV(TM) sales. Several of our OEM customers have signed on for programs using this new shaft which has a selling price higher than our NV(TM) shafts. We believe production and sales of these new shafts will increase in the second half of the year. While our sales and our backlog for second quarter 2006 are below levels from last year, our six month sales numbers are only slightly below 2005 and we are pleased with the new programs developing for the second half of the year and the sales potential of our VS Proto(TM) ByYou wood and hybrid shaft model. We believe the use of branded shafts in drivers, fairway woods and hybrids will continue and Aldila will remain a strong force in the branded shaft market,” said Mr. Mathewson.
“Our numbers continue to increase on Tour. The Aldila NV(TM) and VS Proto(TM) ByYou shafts are leading shafts on the PGA and Nationwide Tours. Players using the new VS Proto(TM) have won several tournaments in the first half of 2006, including the 2006 U.S. Open. PGA Tour Professionals have won nearly $15,000,000 during 2006 using drivers featuring Aldila shafts. On the Nationwide Tour, Aldila remains the leading wood and hybrid shaft manufacturer, some weeks having nearly three times as many hybrid shafts in play as compared to our nearest competitor. Aldila shafts remain the top choice at the club professional level as well. During the recent PGA Club Professional Championship, Aldila was the leading wood and hybrid shaft in play. This success on Tour has continued to spur demand for the NV(TM) and NVS wood and hybrid shafts in the market. The Aldila NV(TM) remains the leading shaft sold through major OEMs in their custom upgrade and stock custom offerings. Our market success was underscored in the recently completed Darrell Sun Belt Consumer Survey where Aldila was the overwhelming favorite shaft brand by two to one over our nearest competitor for use in new drivers, hybrid clubs and fairway woods,” Mr. Mathewson said.
“Sales of prepreg composite material continued to grow with a 28% increase in sales versus the second quarter of 2005. Our new resin filmer is now fully operational and our sixth prepreg tape line is scheduled to be installed and operational in the fourth quarter of this year which will increase our production capacity,” Mr. Mathewson said.
“In our hockey business, we are focusing on strengthening Mission/Itech’s pro service business as we both believe this will benefit their retail sales efforts. Plans are being implemented to allow for rapid prototyping of NHL player custom stick orders. Our hockey sales in the quarter were up 93% versus the comparable quarter last year and we feel good about our prospects going forward,” Mr. Mathewson said.
“Carbon Fiber Technology LLC (“CFT”), our joint venture carbon fiber plant, is running smoothly at this time and some of the nagging operating issues have been resolved and we are looking for an increasing level of production. We have an initiative in process to establish additional raw material precursor sources with better quality for the future. Global carbon fiber is still in short supply,” said Mr. Mathewson.
“Our Vietnam venture is progressing well and on schedule, targeted for operation in the first quarter of 2007,” Mr. Mathewson said.
ALDILA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
Three months Six months
ended ended
June 30, June 30,
------------------ ------------------
2006 2005 2006 2005
-------- -------- -------- --------
NET SALES $ 17,397 $ 21,821 $ 38,167 $ 39,629
COST OF SALES 11,211 13,703 22,313 24,076
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Gross profit 6,186 8,118 15,854 15,553
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SELLING, GENERAL AND ADMINISTRATIVE 2,531 2,558 5,392 4,880
-------- -------- -------- --------
Operating income 3,655 5,560 10,462 10,673
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OTHER EXPENSE (INCOME):
Other, net (180) (167) (330) (239)
Equity in earnings of
joint venture (49) (56) (95) (124)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 3,884 5,783 10,887 11,036
PROVISION FOR INCOME TAXES 1,199 2,139 3,860 4,083
-------- -------- -------- --------
NET INCOME $ 2,685 $ 3,644 $ 7,027 $ 6,953
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NET INCOME PER COMMON SHARE $ 0.48 $ 0.70 $ 1.28 $ 1.34
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NET INCOME PER COMMON SHARE,
ASSUMING DILUTION $ 0.47 $ 0.66 $ 1.26 $ 1.28
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,571 5,238 5,490 5,191
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WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 5,653 5,483 5,571 5,421
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