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 June 30, 1999
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
----- -----
At July 26, 1999 there were outstanding 7,870,504 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 June 30, 1999 (Unaudited) and
December 31, 1998 3
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended June 30, 1999 and 4
Six Months Ended June 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
PART II. OTHER INFORMATION:
Item 4. Submission of Matter to a Vote of Securities Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
2
COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $33,642,000 $27,551,000
Trade accounts receivable, net of allowance for doubtful
accounts of $600,000 at June 30, 1999 and
at December 31, 1998 14,687,000 7,556,000
Inventories (Note 2) 11,060,000 10,326,000
Prepaid expenses and other current assets 1,610,000 6,389,000
Deferred income taxes 1,131,000 1,131,000
------------ ------------
Total current assets 62,130,000 52,953,000
Property, plant and equipment, net 23,409,000 24,116,000
Other assets 7,089,000 6,604,000
------------ ------------
$92,628,000 $83,673,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,942,000 $ 2,804,000
Accrued liabilities 5,516,000 3,432,000
------------ ------------
Total current liabilities 10,458,000 6,236,000
Deferred compensation 447,000 295,000
------------ ------------
Total liabilities 10,905,000 6,531,000
------------ ------------
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;
7,870,504 and 7,989,404 shares issued and outstanding as of
June 30, 1999 and December 31, 1998, respectively 29,222,000 30,309,000
Retained earnings 52,501,000 46,833,000
------------ ------------
Total shareholders' equity 81,723,000 77,142,000
------------ ------------
$92,628,000 $83,673,000
------------ ------------
------------ ------------
See accompanying notes to condensed consolidated financial statements.
3
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS
ENDED JUNE 30,
--------------------------------
1999 1998
----------- -----------
Sales $33,582,000 $43,588,000
Cost of sales 25,946,000 34,008,000
----------- -----------
Gross profit 7,636,000 9,580,000
Selling, general and administrative expenses 2,169,000 3,105,000
----------- -----------
Income from operations 5,467,000 6,475,000
Other income, net 329,000 428,000
----------- -----------
Income before income taxes 5,796,000 6,903,000
Provision for income taxes 2,434,000 2,899,000
----------- -----------
Net income $ 3,362,000 $ 4,004,000
----------- -----------
----------- -----------
NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 0.43 $ 0.44
----------- -----------
----------- -----------
Weighted average shares outstanding 7,893,338 9,019,682
----------- -----------
----------- -----------
Net income per share - diluted $ 0.42 $ 0.42
----------- -----------
----------- -----------
Weighted average shares outstanding - diluted 7,921,391 9,437,014
----------- -----------
----------- -----------
See accompanying notes to condensed consolidated financial statements.
4
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------------------
1999 1998
----------- -----------
Sales $60,673,000 $88,909,000
Cost of sales 47,188,000 69,680,000
----------- -----------
Gross profit 13,485,000 19,229,000
Selling, general and administrative expenses 4,381,000 6,182,000
----------- -----------
Income from operations 9,104,000 13,047,000
Other income, net 668,000 784,000
----------- -----------
Income before income taxes 9,772,000 13,831,000
Provision for income taxes 4,104,000 5,809,000
----------- -----------
Net income $ 5,668,000 $ 8,022,000
----------- -----------
----------- -----------
NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 0.71 $ 0.90
----------- -----------
----------- -----------
Weighted average shares outstanding 7,932,912 8,956,572
----------- -----------
----------- -----------
Net income per share - diluted $ 0.71 $ 0.86
----------- -----------
----------- -----------
Weighted average shares outstanding - diluted 7,949,499 9,335,671
----------- -----------
----------- -----------
See accompanying notes to condensed consolidated financial statements.
5
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------------------
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,668,000 $ 8,022,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,006,000 1,541,000
Goodwill amortization 6,000 -
Loss on disposal of machinery and equipment 94,000 1,000
Deferred compensation 152,000 724,000
Deferred income taxes - 29,000
Non-employee director compensatory stock options - 135,000
Changes in operating assets and liabilities:
Trade accounts receivable (7,129,000) (2,044,000)
Inventories (729,000) 3,859,000
Prepaid expenses and other current assets 4,783,000 (1,130,000)
Income taxes payable 533,000 (552,000)
Accounts payable and accrued liabilities 3,492,000 509,000
------------ ------------
Net cash provided by operating activities 8,876,000 11,094,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,388,000) (6,485,000)
Proceeds from disposal of machinery and equipment 62,000 22,000
Net surrender (purchase) of life insurance policies 843,000 (974,000)
Purchase of investments (1,028,000) -
Purchase of business (233,000) -
Other assets 46,000 (299,000)
------------ ------------
Net cash used in investing activities (1,698,000) (7,736,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of
options net of related tax benefit - 3,192,000
Repurchase of common stock (1,087,000) -
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 6,091,000 6,550,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 27,551,000 28,187,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 33,642,000 $ 34,737,000
------------ ------------
------------ ------------
See accompanying notes to condensed consolidated financial statements.
6
COASTCAST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1999, the related
condensed consolidated statements of income for the three and six months and
cash flows for the six months ended June 30, 1999 and 1998 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 June 30, 1999 and for
the periods 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,
1998 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, 1998. 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 1998 balances to conform to the 1999
presentation.
The results of operations for the periods ended June 30, 1999 are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
June 30, December 31,
1999 1998
----------- -----------
Raw materials and supplies $ 3,710,000 $ 5,137,000
Tooling 252,000 225,000
Work-in-process 6,625,000 4,019,000
Finished goods 473,000 945,000
----------- -----------
$11,060,000 $10,326,000
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----------- -----------
7
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).
8
COASTCAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales decreased 22.9% and 31.7% to $33.6 million and $60.7 million for the
three months and six months ended June 30, 1999, respectively, from $43.6
million and $88.9 million for the three months and six months ended June 30,
1998, respectively. The decrease was primarily due to decreased sales volume
in steel and titanium iron clubheads and steel putters partially offset by an
increase in steel metal wood sales.
Gross profit decreased 20.8% and 29.7% to $7.6 million and $13.5 million for
the three months and six months ended June 30, 1999, respectively, from $9.6
million and $19.2 million for the three months and six months ended June 30,
1998. Gross profit margins improved slightly to 22.7% and 22.2% for the three
months and six months ended June 30, 1999 respectively, from 22.0% and 21.6%
for the comparable prior year periods, due principally to cost cutting
efforts during the fourth quarter of 1998 and a higher mix of metal wood
volume.
Selling, general and administrative expense decreased 29.0% and 29.0% to $2.2
million and $4.4 million for the three months and six months ended June 30,
1999, respectively, from $3.1 million and $6.2 million for the three months
and six months ended June 30, 1998, respectively. The decrease was due
primarily to decreased payroll and related expenses including expenses
related to the supplemental executive retirement plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at June 30, 1999 was $33.6
million compared to $27.6 million on December 31, 1998, an increase of $6.0
million. Net cash provided by operating activities was $8.9 million for the
six months ended June 30, 1999. The net cash provided by operating activities
consisted of net income of $5.7 million, depreciation and amortization of
$2.0 million, a decrease in prepaid expenses and other current assets of $4.8
million and an increase in accounts payable and accrued liabilities of $3.5
million, partially offset by an increase in trade accounts receivable of $7.1
million. Net cash used in investing activities of $1.7 million consisted
mainly of $1.4 million of net capital expenditures and purchase of
investments of $1.0 million partially offset by the surrender of cash value
life insurance policies of $0.8 million. Net cash used in financing
activities of $1.1 million relates to the repurchase of company common stock.
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. Under this authorization, the
company purchased 118,900 shares at a cost of $1.1 million for the six months
ended June 30, 1999. As of June 30, 1999, there were 338,100 shares remaining
to be purchased under this authorization.
9
The Company has no long term debt. The Company believes that its current cash
position, working capital generated from future operations and the ability to
borrow should be adequate to meet its financing requirements for the
foreseeable future.
10
COASTCAST CORPORATION
PART II. OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Securities Holders
The Company held its annual meeting of shareholders on June 18, 1999. The
following matters were voted on and approved by the shareholders.
1. Election of Directors to hold office until the 2000 Annual Meeting:
Votes For Votes Withheld
--------- --------------
Hans H. Buehler 6,946,680 327,596
Robert L. Gates 6,948,830 325,446
George L. Graziadio 6,940,280 333,996
Edwin A. Levy 6,948,393 325,946
Lee E. Mikles 6,948,130 326,146
Paul A. Novelly 6,948,130 326,146
Jonathan P. Vannini 7,225,493 48,783
2. Ratification of Deloitte & Touche LLP as the Company's independent
auditors: holders of 6,957,875 shares voted for such ratification, holders of
15,832 shares voted against such ratification and holders of 300,569 shares
abstained from voting on such ratification.
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, 1998, 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 shares.
11
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)
10.1 Stock Purchase Agreement, dated April 22, 1999,
between the Company and the selling shareholders of
California Precision Aluminum Casting, Inc.
10.2 Revolving Line of Credit Note, effective June 1,
1999, between the Company and Imperial Bank
11 Statement re: computation of per share earnings
27 Financial Data Schedule
99.1 Pages 11-13 of Registrant's Annual Report on Form
10-K for the year ended December 31, 1998
(incorporated by reference to such Form 10-K filed
with the Commission)
------------------------------------
(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
(b) Reports on Form 8-K:
None
12
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
July 26, 1999 By /s/ Norman Fujitaki
------------- --------------------------------------------
Dated Norman Fujitaki
Chief Financial Officer (Duly Authorized and
Principal Financial Officer)
13