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 March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from to
Commission file number 1-12676
COASTCAST CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3454926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3025 EAST VICTORIA STREET, RANCHO DOMINGUEZ, CA 90221
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310)638-0595
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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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At April 24, 2000 there were outstanding 7,701,571 shares of common stock, no
par value.
1
COASTCAST CORPORATION
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999 3
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
PART II. OTHER INFORMATION:
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
2
COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 37,957,000 $ 42,740,000
Accounts receivable, net of allowance for doubtful
accounts of $500,000 at March 31, 2000 and
December 31, 1999 15,514,000 9,179,000
Inventories (Note 2) 15,860,000 11,059,000
Prepaid expenses and other current assets 1,650,000 2,177,000
Deferred income taxes 1,469,000 1,485,000
------------ ------------
Total current assets 72,450,000 66,640,000
Property, plant and equipment, net 24,121,000 24,170,000
Other assets 1,620,000 1,506,000
------------ ------------
Total assets $ 98,191,000 $ 92,316,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,451,000 $ 4,949,000
Accrued liabilities 5,864,000 3,536,000
------------ ------------
Total current liabilities 11,315,000 8,485,000
Deferred compensation 613,000 541,000
------------ ------------
Total liabilities 11,928,000 9,026,000
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 2,000,000 shares
authorized, none issued and outstanding -- --
Common stock, no par value, 20,000,000 shares
authorized; 7,701,571 shares issued
and outstanding as of March 31, 2000
and December 31, 1999 26,964,000 26,964,000
Retained earnings 59,304,000 56,352,000
Accumulated other comprehensive income (5,000) (26,000)
------------ ------------
Total shareholders' equity 86,263,000 83,290,000
------------ ------------
Total liabilities and shareholders' equity $ 98,191,000 $ 92,316,000
============ ============
See accompanying notes to condensed consolidated financial statements.
3
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------------------
2000 1999
---------------- ----------------
Sales $ 37,230,000 $ 27,091,000
Cost of sales 30,749,000 21,242,000
---------------- ----------------
Gross profit 6,481,000 5,849,000
Selling, general and administrative expenses 1,935,000 2,212,000
---------------- ----------------
Income from operations 4,546,000 3,637,000
Other income, net 529,000 339,000
---------------- ----------------
Income before income taxes 5,075,000 3,976,000
Provision for income taxes 2,123,000 1,670,000
---------------- ----------------
Net income $ 2,952,000 $ 2,306,000
================ ================
NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 0.38 $ 0.29
================ ================
Weighted average shares outstanding 7,701,571 7,972,926
================ ================
Net income per share - diluted $ 0.38 $ 0.29
================ ================
Weighted average shares outstanding - diluted 7,845,839 7,978,046
================ ================
See accompanying notes to condensed consolidated financial statements.
4
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,952,000 $ 2,306,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,082,000 996,000
Goodwill amortization 7,000 --
Loss (gain) on disposal of machinery and equipment 2,000 (17,000)
Deferred compensation 72,000 77,000
Deferred income taxes 37,000 --
Changes in operating assets and liabilities:
Trade accounts receivable (6,335,000) (5,310,000)
Inventories (4,801,000) (1,484,000)
Prepaid expenses and other current assets 527,000 3,934,000
Income taxes payable 1,451,000 --
Accounts payable and accrued liabilities 1,379,000 2,307,000
------------ ------------
Net cash (used in) provided by operating activities (3,627,000) 2,809,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,041,000) (689,000)
Proceeds from disposal of machinery and equipment 6,000 41,000
Other assets (121,000) (37,000)
------------ ------------
Net cash (used in) investing activities (1,156,000) (685,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock -- (449,000)
------------ ------------
Net cash (used in) provided by financing activities -- (449,000)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (4,783,000) 1,675,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 42,740,000 27,551,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 37,957,000 $ 29,226,000
============ ============
See accompanying notes to condensed consolidated financial statements.
5
COASTCAST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of March 31, 2000, the related
condensed consolidated statements of income and cash flows for the three months
ended March 31, 2000 and 1999 have been prepared by Coastcast Corporation (the
"Company") without audit. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) have been made which are
necessary to present fairly the financial position, results of operations and
cash flows of the Company at March 31, 2000, and for the period then ended.
Although the Company believes that the disclosure in the condensed consolidated
financial statements is adequate for a fair presentation thereof, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The December 31, 1999 audited statements were included in
the Company's annual report on Form 10-K under the Securities Exchange Act of
1934 for the year ended December 31, 1999. These condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto contained in that annual report.
Certain reclassifications were made to 1999 balances to conform to the 2000
presentation.
The results of operations for the period ended March 31, 2000, are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
Raw materials and supplies $ 4,545,000 $ 4,771,000
Tooling 179,000 165,000
Work-in-process 10,649,000 5,698,000
Finished goods 487,000 425,000
------------ ------------
$ 15,860,000 $ 11,059,000
============ ============
3. EARNINGS PER SHARE
Basic net income per share is based on the weighted average number of shares of
common stock outstanding. Diluted net income per share is based on the weighted
average number of shares of common stock outstanding and dilutive potential
common equivalent shares from stock options (using the treasury stock method).
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COASTCAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999:
Sales increased $10.1 million, or 37.3%, to $37.2 million for the three months
ended March 31, 2000 from $27.1 million for the three months ended March 31,
1999. The increase was primarily due to a substantial increase in both titanium
and steel iron clubhead sales partially offset by a decrease in titanium metal
wood clubhead sales.
Gross profit increased $.6 million, or 10.3%, to $6.4 million for 2000 from $5.8
million for 1999. Gross profit margins decreased to 17.4% in 2000 from 21.6% in
1999. The decrease in gross profit margin was due principally to product mix and
revenue flow which were higher in iron clubheads than metal wood clubheads.
Selling, general and administrative expense decreased $0.3 million, or 13.6%, to
$1.9 million in 2000 from $2.2 million in 1999. The decrease was due primarily
to payroll and related employee benefits, including lower management bonuses and
a decrease in legal expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at March 31, 2000 was $37.9
million compared to $42.7 million on December 31, 1999, a decrease of $4.8
million. Net cash used by operating activities was $3.6 million for the three
months ended March 31, 2000. Net cash used in operating activities was primarily
due to a $11.1 million increase in receivables and inventory partially offset by
net income of $3.0 million, an increase in payables and accrued liabilities of
$2.8 million and depreciation and amortization of $1.1 million. Net cash used in
investing activities of $1.2 million consisted mainly of $1.0 million of net
capital expenditures for the three months ended March 31, 2000.
On October 25, 1995, the Board of Directors authorized the Company to purchase
up to one million shares of Coastcast common stock from time to time in the open
market or negotiated transactions. As of March 31, 2000, there were 164,500
shares remaining to be purchased under this authorization. In addition, in
December 1999, the Board of Directors authorized the repurchase of an additional
one million shares of Coastcast common stock from time to time in the open
market or negotiated transactions.
The Company has no long term debt. The Company believes that its current cash
position, the working capital generated by future operations and the ability to
borrow should be adequate to meet its financing requirements for current
operations and the foreseeable future.
7
COASTCAST CORPORATION
PART II. OTHER INFORMATION
Item 5. Other Information
The following business risks, as disclosed in Part II, Item 5 "Market for
Registrant's Common Equity and Related Stockholder Matters" on Form 10-K for the
fiscal year ended December 31, 1999, are hereby incorporated by reference as
though set forth fully herein:
Customer concentration
Competition
New products
New materials and processes
Manufacturing cost variations
Dependence on polishing and finishing plant in Mexico Hazardous waste
Dependence on discretionary consumer spending
Seasonality; fluctuations in operating results
Reliance on key personnel
Shares eligible for future sale
Fluctuations in Callaway Golf Company share values.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1.1 Articles of Incorporation of the Company, as amended (1)
3.1.2 Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on December
6, 1993 (1)
3.2 Bylaws of the Company (1)
(1) Incorporated by reference to the exhibits to the
Registration Statement on Form S-1 (Registration
No. 33-71294) filed on November 17, 1993,
Amendment No. 2 filed on December 1, 1993, and
Amendment No. 3 filed on December 9, 1993
11 Statement re: computation of per share earnings
27 Financial Data Schedule
99 Pages 11-13 of Registrant's annual report on Form 10-K
for the year ended December 31, 1999 (incorporated by
reference to such Form 10-K filed with the Commission)
(b) Reports on Form 8-K:
None
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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.
COASTCAST CORPORATION
April 24, 2000 By /s/ Norman Fujitaki
- -------------- -----------------------------------
Dated Norman Fujitaki
Chief Financial Officer (Duly Authorized and
Principal Financial Officer)
9