Aldila, Inc. reported net sales of $12.4 million for the fourth quarter ended December 31, 2004 as compared to $9.8 million in the same quarter of 2003. The Company reported net income of $1.6 million, or 29 cents per diluted share, for the fourth quarter, compared to a net loss of $1.3 million, or a loss of 26 cents per diluted share, in the same quarter of 2003.
Included in the fourth quarter of 2003 was an impairment charge of $2.2 million (pre-tax) related to the Company’s carrying value of its investment in Carbon Fiber Technology LLC (“CFT”), a joint venture limited liability company. Excluding the impairment charge and related income tax benefit of $183,000, the 2003 fourth quarter net income would have been $762,000 ($0.16 earnings per share).
For the year ended December 31, 2004, net sales were $52.8 million as compared to $37.8 million for the year ended December 31, 2003. The Company reported net income of $9.3 million ($1.77 earnings per share — fully diluted) for 2004 as compared to a net loss of $1.7 million ($0.35 loss per share) in 2003.
As of December 31, 2003, the Company had $2.5 million in deferred tax assets and a 100% valuation allowance against such assets. Based upon the Company’s performance in 2004 and in accordance with general accepted accounting principles, the Company reduced its valuation allowance to zero as of December 31, 2004. That reduction, coupled with a reduction in the Company’s deferred tax assets as of December 31, 2004, resulted in a $2.2 million reduction in its provision for income tax during 2004. Excluding such tax benefit, the Company’s net income for 2004 would have been $7.1 million ($1.35 earnings per share — fully diluted).
The Company’s cash and cash equivalents and marketable securities increased by $9.6 million in 2004 to $16.5 million as of December 31, 2004. The Company repurchased 54,989 shares of common stock during the year at prices ranging between $3.50 and $10.00. These purchases were made pursuant to the Company’s previously announced stock buyback program.
The Company’s backlog of sales orders as of December 31, 2004 was $9.9 million versus $11.0 million as of December 31, 2003. “The Company believes that the lower backlog figure as of December 31, 2004 reflects changing order patterns by our large OEM customers with reliance on shorter lead times,” said Peter R. Mathewson, Chairman and CEO, “Incoming orders through February 28, 2005 of $13.3 million compares favorably to the $7.8 million in the same period for 2004.”
“In the fourth quarter of 2004 we continued to see strong demand for our branded NV product line,” said Mr. Mathewson, “Our branded shaft sales grew by 133% versus the fourth quarter 2003 and 271% for the year versus 2003. Our average shaft selling price increased by 18% for the quarter and 22% for the year. In the fourth quarter we saw golf shaft sales increase 20%, sales of hockey sticks and blades increase 124% and sales of prepreg material increase 81% versus the fourth quarter of 2003. For the year, golf shaft sales increased 35%, sales of hockey sticks and blades increased 13% and sales of prepreg material increased 141%. Consolidated sales increased by 40% versus 2003,” said Mr. Mathewson.
“We think growth opportunities exist for graphite shafts in the golf industry. There is an increasing trend by club companies to use well known branded shafts in their club lines as a way to offer a higher performing product. In our opinion, an increasing emphasis on the shaft is inevitable as metal wood heads have reached the limits mandated by the United States Golf Association (“USGA”) as far as size and COR or trampoline effect,” said Mr. Mathewson.
“The hybrid club segment is the fastest growing segment in the industry. These user-friendly clubs are rapidly replacing the difficult to hit 2, 3 and 4 irons in players bags across the full spectrum of playing abilities. These hybrid clubs are estimated to be 80% graphite and represent the first serious inroad graphite has made on the large iron club shaft segment. Our NV iron shaft line, to be introduced in late spring of this year will take dead aim at this market segment,” said Peter R. Mathewson.
“The Aldila NV and NVS continue to gain momentum as leading shafts on the PGA, Nationwide and European Tours. In 2004, players using the NV Series of shafts won 10 PGA Tour events, 6 events on the Nationwide Tour and multiple times in Europe. Players using Aldila NV Series shafted drivers won nearly $12,000,000 on the PGA Tour in 2004. We will continue to be aggressive with our tour support in 2005.”
“Our fifth prepreg line is installed and operational and provides the additional capacity for continued growth in our prepreg material sales. Our joint venture carbon fiber plant, CFT, is running at full capacity. Globally, the carbon fiber shortage is showing no signs of changing in the foreseeable future. Major commercialization successes for carbon fiber have been announced such as the Airbus A-380 super jumbo and Boeing 7E7 airplanes, wind energy programs and armor programs for our troops in Iraq. We believe carbon fiber capacity additions will lag the increasing global demand for the foreseeable future. CFT will offer the Company what we believe will be a competitive advantage, through an assured supply of certain types of carbon fiber. Outside sales of surplus carbon fiber from CFT have begun with successful qualifications with several customers,” said Mr. Mathewson.
ALDILA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED (In thousands, except per share data) Three months ended Twelve months ended December 31, December 31, 2004 2003 2004 2003 -------- -------- -------- -------- NET SALES $ 12,432 $ 9,785 $ 52,762 $ 37,807 COST OF SALES 9,083 7,709 34,786 30,586 -------- -------- -------- -------- Gross profit 3,349 2,076 17,976 7,221 -------- -------- -------- -------- SELLING, GENERAL AND ADMINISTRATIVE 1,581 1,346 8,237 6,989 -------- -------- -------- -------- Operating income 1,768 730 9,739 232 -------- -------- -------- -------- OTHER EXPENSE (INCOME): Interest expense - 4 - 23 Other, net (56) 5 (60) 48 Impairment of investment in joint venture - 2,220 - 2,220 Equity in earnings of joint venture (37) (41) (246) (150) -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES 1,861 (1,458) 10,045 (1,909) PROVISION (BENEFIT) FOR INCOME TAXES 306 (183) 725 (183) -------- -------- -------- -------- NET INCOME (LOSS) $ 1,555 $ (1,275) $ 9,320 $ (1,726) ======== ======== ======== ======== NET INCOME (LOSS) PER COMMON SHARE $ 0.30 $ (0.26) $ 1.85 $ (0.35) ======== ======== ======== ======== NET INCOME (LOSS) PER COMMON SHARE, ASSUMING DILUTION $ 0.29 $ (0.26) $ 1.77 $ (0.35)