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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-21872
ALDILA, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3645590
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12140 Community Road, Poway, California 92064
(Address of principal executive offices)
(858) 513-1801
(Registrant's Telephone No.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
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As of November 11, 1999 there were 15,462,204 shares of the Registrant's
common stock, par value $0.01 per share, outstanding.
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ALDILA, INC.
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1999
<TABLE>
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PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the three
months ended September 30, 1999 and 1998 and the
nine months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
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Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALDILA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
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ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $739 $1,972
Accounts receivable 3,832 3,421
Inventories 13,797 17,326
Deferred tax assets 4,671 5,126
Prepaid expenses and other current assets 921 1,006
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Total current assets 23,960 28,851
PROPERTY, PLANT AND EQUIPMENT 25,264 27,649
TRADEMARKS AND PATENTS 13,942 14,268
GOODWILL 45,127 46,198
DEFERRED FINANCING FEES 288 68
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TOTAL ASSETS $108,581 $117,034
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,421 $3,658
Accrued expenses 2,718 3,897
Income taxes payable 624 1,565
Line of credit 283 -
Long-term debt, current portion 8,000 4,000
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Total current liabilities 14,046 13,120
LONG-TERM LIABILITIES:
Long-term debt 8,000 16,000
Deferred tax liabilities 6,987 7,143
Deferred rent liabilities 427 517
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Total liabilities 29,460 36,780
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized 5,000,000 shares;
no shares issued
Common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding 15,462,204 shares 155 155
Additional paid-in capital 42,627 42,627
Retained earnings 36,339 37,472
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Total stockholders' equity 79,121 80,254
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $108,581 $117,034
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</TABLE>
See notes to consolidated financial statements.
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ALDILA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
NET SALES $10,305 $13,609 $33,480 $53,879
COST OF SALES 9,019 9,498 27,249 37,952
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Gross profit 1,286 4,111 6,231 15,927
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SELLING, GENERAL AND ADMINISTRATIVE 1,598 2,079 5,294 7,566
AMORTIZATION OF GOODWILL 357 357 1,071 1,071
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Operating income (loss) (669) 1,675 (134) 7,290
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OTHER:
Interest expense 346 322 1,024 961
Other expense (income), net 3 (81) 16 (182)
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INCOME (LOSS ) BEFORE INCOME TAXES (1,018) 1,434 (1,174) 6,511
PROVISION (BENEFIT) FOR INCOME TAXES (264) 679 (41) 3,051
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NET INCOME (LOSS) ($754) $755 ($1,133) $3,460
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NET INCOME (LOSS) PER COMMON SHARE - BASIC ($0.05) $0.05 ($0.07) $0.22
------- ------- ------- -------
------- ------- ------- -------
NET INCOME (LOSS) PER COMMON SHARE,
ASSUMING DILUTION ($0.05) $0.05 ($0.07) $0.22
------- ------- ------- -------
------- ------- ------- -------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 15,462 15,462 15,462 15,448
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------- ------- ------- -------
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES 15,462 15,557 15,462 15,654
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to consolidated financial statements.
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ALDILA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($1,133) $3,460
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 4,699 4,315
Loss on disposal of fixed assets 11 253
Changes in assets and liabilities:
Accounts receivable (411) (1,079)
Inventories 3,529 (964)
Prepaid expenses and other current assets 540 (407)
Accounts payable (1,237) 1,572
Accrued expenses (1,179) (91)
Income taxes payable (941) 1,141
Deferred tax liabilities (156) (225)
Deferred rent liabilities (90) (79)
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Net cash provided by operating activities 3,632 7,896
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (878) (4,108)
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Net cash used for investing activities (878) (4,108)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 283 -
Principal payments on long-term debt (4,000) -
Proceeds from issuance of common stock - 156
Other, net (270) 16
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Net cash provided by (used for) financing activities (3,987) 172
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,233) 3,960
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,972 3,046
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CASH AND CASH EQUIVALENTS, END OF PERIOD $739 $7,006
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,277 $1,239
Income taxes $484 $2,119
</TABLE>
See notes to consolidated financial statements.
5
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ALDILA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. BASIS OF PRESENTATION
The consolidated balance sheet as of September 30, 1999 and the
consolidated statements of income and of cash flows for the three and nine
month periods ended September 30, 1999 and 1998, are unaudited and reflect
all adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of the financial position and
results of operations for the interim periods presented. The consolidated
balance sheet as of December 31, 1998 was derived from the Company's audited
financial statements. Operating results for the interim periods presented
are not necessarily indicative of results to be expected for the fiscal year
ending December 31, 1999. These consolidated financial statements should be
read in conjunction with the Company's December 31, 1998 consolidated
financial statements and notes thereto.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 8,120 $11,210
Work in process 3,837 3,141
Finished goods 1,840 2,975
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Inventories $ 13,797 $17,326
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</TABLE>
3. LONG-TERM DEBT
REVOLVING CREDIT AGREEMENT - On July 9, 1999, Aldila Golf Corp.
("Aldila Golf"), a wholly-owned subsidiary of the Company, entered into a
Loan and Security Agreement (the "Agreement") with a financial institution
which provides Aldila Golf with up to $12.0 million in secured financing.
The Agreement has a three year term and is secured by substantially all of
the assets of Aldila Golf and guaranteed by the Company. Advances under the
Agreement are made based on eligible accounts receivables and inventories of
Aldila Golf and bear interest at the Adjusted Eurodollar rate (as defined)
plus 2.5% or at the bank reference rate at the election of the Company. The
Agreement requires the Company to maintain a minimum level of tangible net
worth (as defined). As of September 30, 1999, the Company was in compliance
with all covenants under the Agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW - BUSINESS CONDITIONS
Aldila, Inc. and subsidiaries (the "Company") is principally engaged
in the business of designing, manufacturing and marketing graphite (carbon
fiber based composite) golf club shafts, with the majority of its net sales
resulting from sales to golf club manufacturers for inclusion in their clubs.
As a result, the Company's operating results are substantially dependent not
only on demand by its customers for the Company's shafts, but also on demand
by consumers for clubs including graphite shafts such as the Company's.
In 1998, the Company established a manufacturing facility in
Evanston, Wyoming for the production of carbon fiber. During 1998 and
through the first nine months of 1999, the Company has used the material from
this facility to satisfy a significant portion of its internal demand for
carbon fiber in the manufacturing of golf club shafts. During 1999, the
Company also produced and sold carbon fiber and chopped fiber from this
facility to other unrelated entities for the manufacture of other
carbon-based products. Through the first nine months of 1999, sales of
carbon fiber and chopped fiber to outside customers from this facility
totaled $3.6 million. The contribution to operating income from these sales
has been minimal.
On October 29, 1999, SGL Technik GmbH ("SGL") purchased a 50%
interest in the Company's carbon fiber manufacturing operation for
approximately $7.0 million in cash. The Company and SGL entered into an
agreement to operate the facility as a limited liability company with equal
ownership interests between the venture partners. The Company and SGL also
entered into supply agreements with the new entity, Carbon Fiber Technology
LLC ("CFT"), for the purchase of carbon fiber at cost plus an agreed mark-up.
Profits and losses of CFT will be shared equally by the partners.
The Company anticipates that the carbon fiber from this facility will
primarily be consumed by the venture partners; however, excess carbon fiber
produced at this facility will be marketed for sale to unrelated third
parties. During the period in which the Company has operated this facility,
the market for carbon fiber products has been soft, which has limited the
Company's ability to take full advantage of the opportunity offered by the
vertical integration of its carbon fiber operation for use in graphite golf
shafts. The Company anticipates that the combined carbon fiber requirements
of the two partners will allow the operation to produce at increased volume
levels resulting in lower carbon fiber production costs, which should help
protect the gross profit margins on its golf shaft and external graphite
prepreg sales. The extent to which the operation will achieve this result is
dependent in part, however, on its ability to increase production to close to
the planned capacity of the facility. If the facility does not do so, the
per pound cost of the fiber produced will likely be higher due to the
substantial fixed costs involved in operating a carbon fiber production
facility. In addition, if the facility is not capable of producing carbon
fiber at sufficient volumes to satisfy the demands of both venture partners,
the Company would be required to acquire additional fiber from third party
suppliers, which is likely to be at higher costs to the Company than fiber
acquired from the venture.
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Historically, graphite shafts have principally been offered by
manufacturers of higher priced, premium golf clubs, and the Company's sales
have been predominantly of premium graphite shafts. However, in recent years
the Company has offered golf shafts in the value priced segment of the
graphite shaft market. The Company now competes aggressively with primarily
United States based shaft manufacturers for premium graphite shafts and also
against primarily foreign based shaft manufacturers for lower priced value
shaft sales. The Company continues to maintain a broad customer base in the
premium shaft market segment. While the Company's market share in the value
segment is not as great as the premium segment, the Company has advanced
rapidly in securing new customers in this segment in recent years.
Presently, there exists substantial excess graphite shaft manufacturing
capacity both in the United States and in other countries. This has had the
effect, and is expected by management to continue to have the effect for at
least the next several years, of decreasing the selling prices of the
Company's shafts. Although the Company's gross profit margin is being
adversely affected by the reduction in selling prices, the adverse effects on
gross margin should be mitigated to some extent by efforts being taken by the
Company to control costs, including obtaining lower prices for its raw
materials, manufactured in countries with lower labor and overhead costs. In
order to increase its capacity to manufacture shafts in a lower cost
environment, the Company opened a second shaft manufacturing facility in
Zhuhai, China during the first quarter of 1999.
In recent years, the Company's results of operations have been
materially affected on several occasions by dramatic year-to-year changes in
sales to an individual golf club manufacturer customer. Such changes can
result either from decisions by the customer to increase or decrease shaft
purchases from an alternative supplier or from the traditional volatility in
consumer demand for specific clubs. The Company believes that this
volatility is likely to continue in the future, particularly as club
manufacturers seek to gain competitive advantages through an increased rate
of technological innovation in club design. The Company's results will
benefit whenever it has an opportunity to supply shafts for the latest "hot"
club and will be adversely affected whenever sales of clubs containing Aldila
shafts drop dramatically. In particular, in recent years, a significant
portion of the Company's sales has tended to be concentrated in one or two
customers, thereby making the Company's results of operations dependent to a
large extent on continued sales to those customers. In 1998, sales to
Callaway Golf Company and Taylor Made Golf represented 26% and 15%,
respectively, of the Company's total net sales. In 1999, sales to these two
customers, both in dollars and as a percentage of total sales, has declined
significantly as compared to 1998. During the first nine months of 1999, the
combined slaes to these customers represented 25% of total net sales. The
decrease has had an adverse effect on the Company's business and operating
results. The Company believes that while it will often not be possible to
predict, with any certainty, shifts in demand for particular clubs, the
Company's broad range of club manufacturer customers should reduce in some
cases the extent of the impact on the Company's financial results.
8
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RESULTS OF OPERATIONS
THIRD QUARTER 1999 COMPARED TO THIRD QUARTER 1998
NET SALES. Net sales decreased $3.3 million, or 24.3%, to $10.3
million for the third quarter ended September 30, 1999 (the "1999 Period")
from $13.6 million for the third quarter ended September 30, 1998 (the "1998
Period"). The decrease in net sales was attributable to decreased shaft unit
sales to the Company's club manufacturer customers and a decrease in the
average selling price of shafts sold. Shaft unit sales decreased 20% in the
1999 Period as compared to the 1998 Period, and the average selling price of
shafts sold decreased 18%. Sales of other carbon fiber products increased
$1.6 million to $2.0 million, for the 1999 Period as compared to $0.4 million
for the 1998 Period primarily related to increased sales of carbon fiber from
the Company's facility in Evanston, Wyoming.
GROSS PROFIT. Gross profit decreased $2.8 million, or 68.7%, to $1.3
million for the 1999 Period from $4.1 million for the 1998 Period principally
as a result of the decrease in net sales. The Company's gross profit margin
decreased to 12.5% in the 1999 Period compared to 30.2% in the 1998 Period as
a result of lower average selling prices for shafts and fixed costs being
spread over reduced operating levels in the 1999 Period. Gross profit margin
was also negatively impacted in the 1999 Period as the early production
quantities of Evanston, Wyoming produced carbon fiber was relieved from
inventories to cost of sales in the form of graphite shaft sales containing
carbon fiber produced at relatively higher production costs.
OPERATING INCOME. Operating income decreased $2.3 million to a $0.7
million operating loss for the 1999 Period from $1.7 million of operating
income for the 1998 Period. Selling, general and administrative expense
decreased $0.5 million, or 23.1%, to $1.6 million for the 1999 Period from
$2.1 million for the 1998 Period, primarily as a result of reduced
administrative expenses in the 1999 Period as compared to the 1998 Period.
INCOME TAXES. The Company recorded a benefit for income taxes of
$264,000 in the 1999 Period primarily as a result of the effect of the
Company's non-deductible amortization of goodwill on the pretax loss. The
Company's effective tax rate in the 1998 Period was 47.3%.
NINE MONTH PERIOD IN 1999 COMPARED TO NINE MONTH PERIOD IN 1998
NET SALES. Net sales decreased $20.4 million, or 37.9%, to $33.5
million for the nine month period ended September 30, 1999 from $53.9 million
for the nine month period ended September 30, 1998. The decrease in net
sales was attributable to decreased shaft unit sales to the Company's club
manufacturer customers and a decrease in the average selling price of shafts
sold. Shaft unit sales decreased 36% in the nine month period ended
September 30, 1999 as compared to the nine month period ended September 30,
1998, and the average selling price of shafts sold decreased 17%. Sales of
other carbon fiber products increased $3.8 million to $5.1 million in the
nine month period ended September 30, 1999 as compared to $1.3 million in the
nine month
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period ended September 30, 1998 primarily related to increased sales of
carbon fiber from the Company's facility in Evanston, Wyoming.
GROSS PROFIT. Gross profit decreased $9.7 million, or 60.9%, to $6.2
million for the nine month period ended September 30, 1999 from $15.9 million
for the nine month period ended September 30, 1998 principally as a result of
the decrease in net sales. The Company's gross profit margin decreased to
18.6% in the nine month period ended September 30, 1999 compared to 29.6% in
the nine month period ended September 30, 1998 as a result of lower average
selling prices for shafts and fixed costs being spread over reduced operating
levels in the nine month period ended September 30, 1999. Gross profit
margin was also negatively impacted in the nine month period ended September
30, 1999 as the early production quantities of Evanston, Wyoming produced
carbon fiber was relieved from inventories to cost of sales in the form of
graphite shaft sales containing carbon fiber produced at relatively higher
production costs.
OPERATING INCOME. Operating income decreased $7.4 million to a $0.1
million operating loss for the nine month period ended September 30, 1999
from $7.3 million in operating income for the nine month period ended
September 30, 1998. Selling, general and administrative expense decreased
$2.3 million, or 30.0%, to $5.3 million for the nine month period ended
September 30, 1999 from $7.6 million for the nine month period ended
September 30, 1998, primarily as a result of reduced advertising and
administrative expenses and incentive compensation accruals in the nine month
period ended September 30, 1999 as compared to the nine month period ended
September 30, 1998 and the absence in the nine month period ended September
30, 1999 of $0.7 million of start-up costs related to the carbon fiber
manufacturing facility recorded in the first quarter of 1998.
INCOME TAXES. The Company recorded a benefit for income taxes of
$41,000 in the nine month period ended September 30, 1999 primarily as a
result of the effect of the Company's non-deductible amortization of goodwill
on the pretax loss. The Company's effective tax rate in the nine month
period ended September 30, 1998 was 46.9%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has in place a $12.0 million revolving credit facility
from a financial institution which is secured by substantially all the assets
of Aldila Golf and guaranteed by the Company. Borrowings under the line of
credit bear interest, at the election of the Company, at the bank reference
rate or at the Adjusted Eurodollar rate plus 2.5%. The Company has $16.0
million in principal amount outstanding of senior notes which bear interest
at 6.13%. Semi-annual principal payments of $4.0 million, plus accrued
interest, are due on March 31 and September 30 through September 30, 2001.
On October 29, 1999, the Company received $7.0 million from the sale
of a 50% interest in its carbon fiber manufacturing operation. These funds
will be utilized for working capital purposes and are available for the
scheduled principal payments due under the senior notes.
10
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Cash (including cash equivalents) provided by operating activities in
the nine months ended September 30, 1999 was $3.6 million compared to $7.9
million provided by operating activities for the nine month period ended
September 30, 1998. This decrease resulted principally from the decrease in
net income in the nine month period ended September 30, 1999 as compared to
the nine month period ended September 30, 1998. The Company used $0.9
million for capital expenditures during the nine month period ended September
30, 1999, primarily related to the completion of construction of the new
shaft manufacturing facility in China. Management anticipates capital
expenditures to approximate $1.0 million for 1999. As a result of the new
venture formed with SGL to operate the Evanston, Wyoming facility, the
Company may incur capital expenditures over the next several years to expand
and enhance its production capacity in order to take advantage of new
opportunities brought to the venture and further reduce production costs for
the carbon fiber acquired by the Company.
SEASONALITY
Because the Company's customers have historically built inventory in
anticipation of purchases by golfers in the spring and summer, the principal
selling season for golf equipment, the Company's operating results have been
affected by seasonal demand for golf clubs, which has generally resulted in
the highest sales occurring in the second quarter.
The Company experienced a substantial shaft unit volume increase in
1998 over the previous year which followed a seasonal pattern where sales
volume peaked in the second quarter of the fiscal year. However, based on
the overall weak demand for golf clubs experienced in the fourth quarter of
1998 and the first half of 1999, the Company has not experienced normal
seasonal trends in 1999 and accordingly, does not anticipate normal seasonal
sales trends for the remainder of 1999.
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by the inability of the Company's information systems and
the information systems of its major customers and suppliers to process data
having dates on or after January 1, 2000 (the "Year 2000" issues).
The Company has evaluated its information technology ("IT") and
non-IT systems, including but not limited to computer hardware and software,
alarm systems, manufacturing equipment and software, and all other mechanical
equipment, to determine areas of exposure to potential Year 2000 issues.
Based on this evaluation, a plan was developed and implemented to identify
and resolve all of the internal Year 2000 issues. The Company has tested its
critical systems and believes them to be Year 2000 compliant.
Included in the company's plan is the evaluation of its external Year
2000 exposure and risks. The Company continues to monitor the progress of
its major external customers and suppliers to determine their Year 2000
readiness and evaluate risk factors associated with them. The possibility
exists that the Company's manufacturing operations could be affected by
external
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suppliers systems that are not Year 2000 compliant. Key risk areas
identified by the Company include energy suppliers to the carbon fiber
facility in Evanston, Wyoming as well as electrical providers to the Company
in Tijuana, Mexico and Zhuhai, China. If one of these providers is not able
to provide the necessary requirements to the Company, there likely would not
be a reasonable alternative available to the Company and as a result the
Company's business could be negatively impacted.
To date, the Company has not spent a significant amount in
identifying and fixing Year 2000 issues and estimates it will not incur a
significant amount for remediation of its remaining Year 2000 issues. Total
expenditures are not expected to exceed $100,000. In addition, based on its
efforts to date, the Company does not anticipate any significant risk of
failure leading to material financial impact resulting from the Year 2000
issue. Contingency plans related to business risks that can be mitigated by
company actions are being developed by management.
There can be no assurance that the Company's efforts to achieve Year
2000 compliance will be successful or that third parties with whom the
Company has material relationships will be Year 2000 compliant by January 1,
2000. An interruption of the Company's ability to conduct its business due
to a Year 2000 problem with a third party, such as those noted above, could
have an adverse effect on the Company.
"Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995
With the exception of historical information (information relating to
the Company's financial condition and results of operations at historical
dates or for historical periods), the matters discussed in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking statements that necessarily are based on certain assumptions
and are subject to certain risks and uncertainties. These forward-looking
statements are 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:
- risks associated with our joint venture with SGL, including (a)
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, (b) 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 (c) 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 and 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);
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- 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;
- the availability of our line of credit facility to the extent
necessary to meet Aldila's working capital needs, including in
connection with principal payments under the Company's outstanding
senior notes, next due in March 2000; and
- the Company's ability to 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).
The Company's Report on Form 10-K for the year ended December 31,
1998 (the "Form 10-K") presents a more detailed discussion of these and other
risks related to the forward looking statements in this 10-Q, in particular
under "Business Risks" in Part I, Item 1 of the Form 10-K and Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Part I, Item 7 of the Form 10-K.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not applicable.
Item 2. CHANGES IN SECURITIES
---------------------
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable
Item 5. OTHER INFORMATION
-----------------
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibit 11.1 - Statement re: Computation of Net
Income per Common Share
(b) Exhibit 27.1 - Financial Data Schedule
(c) Reports on Form 8-K:
During the quarter a report on Form 8-K dated
August 25, 1999 was filed by the Registrant. It was
reported that the Company had received verbal
assurance from the U.S. Department of Justice that
the Company is not at this time a target of the
grand jury investigation into alleged price fixing by
certain producers of carbon fiber and prepreg
material, although it has been subpoenaed as a
subject of the investigation.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: ALDILA, INC.
November 11, 1999 \s\ Robert J. Cierzan
------------------------------------
Robert J. Cierzan
Vice President, Finance
Signing both in his capacity as
Vice President and as Chief
Accounting Officer of the Registrant
15
<PAGE>
<PAGE>
EXHIBIT 11.1
ALDILA, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ---------------------
1999 1998 1999 1998
------- ------ --------- --------
<S> <C> <C> <C> <C>
BASIC:
Net income (loss) $ (754) $ 755 $ (1,133) $ 3,460
Weighted average number of common shares outstanding 15,462 15,462 15,462 15,448
------- ------ --------- --------
Net income (loss) per common share $ (0.05) $ 0.05 $ (0.07) $ 0.22
------- ------ --------- --------
------- ------ --------- --------
ASSUMING DILUTION:
Net income (loss) $ (754) $ 755 $ (1,133) $ 3,460
Weighted average number of common shares outstanding 15,462 15,462 15,462 15,448
The number of shares resulting from the assumed
exercise of stock options reduced by the number
of shares which could have been purchased with
the proceeds from such exercise, using the average
market price during the period - 95 - 206
------- ------ --------- --------
Weighted average number of common and
common equivalent shares 15,462 15,557 15,462 15,654
------- ------ --------- --------
Net income (loss) per common share, assuming dilution $ (0.05) $ 0.05 $ (0.07) $ 0.22
------- ------ --------- --------
------- ------ --------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 739
<SECURITIES> 0
<RECEIVABLES> 3,832
<ALLOWANCES> 0
<INVENTORY> 13,797
<CURRENT-ASSETS> 23,960
<PP&E> 25,264
<DEPRECIATION> 0
<TOTAL-ASSETS> 108,581
<CURRENT-LIABILITIES> 14,046
<BONDS> 8,000
0
0
<COMMON> 155
<OTHER-SE> 78,996
<TOTAL-LIABILITY-AND-EQUITY> 108,581
<SALES> 10,305
<TOTAL-REVENUES> 10,305
<CGS> 9,019
<TOTAL-COSTS> 10,617
<OTHER-EXPENSES> 360<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 346
<INCOME-PRETAX> (1,018)
<INCOME-TAX> (264)
<INCOME-CONTINUING> (754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (754)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
<FN>
<F1>GOODWILL AMORTIZATION
</FN>
</TABLE>
