<PAGE>
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, 1996
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 office) (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 22, 1996 there were outstanding 8,790,424 shares of common stock, no par
value.
1
<PAGE>
COASTCAST CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996 and December 31,
1995 (Unaudited) 3
Condensed Consolidated Statements of Income
Three Months Ended June 30, 1996 and 1995 (Unaudited) 4
Six Months Ended June 30, 1996 and 1995 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1995 (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 1. Legal Proceedings 11
Item 4. Submission of Matter to a Vote of Securities Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
<PAGE>
COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
ASSETS June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,534,000 $ 9,237,000
Short-term investments, at cost,
which approximates market value 4,630,000 14,718,000
Accounts receivable, net of allowance for doubtful
accounts of $400,000 and $300,000 at June 30,
1996 and December 31, 1995, respectively 18,648,000 7,198,000
Inventories (Note 2) 16,231,000 7,611,000
Prepaid expenses and other current assets 2,439,000 2,743,000
Deferred income taxes 1,240,000 1,240,000
Net current assets of discontinued operations (Note 3) 762,000 697,000
------------ ------------
Total current assets 54,484,000 43,444,000
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization of
$13,722,000 and $12,676,000 at June 30, 1996
and December 31, 1995, respectively 18,821,000 15,214,000
OTHER ASSETS 305,000 250,000
------------ ------------
TOTAL ASSETS $73,610,000 $58,908,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,581,000 $ 3,833,000
Accrued liabilities 7,321,000 4,823,000
------------ ------------
Total current liabilities 13,902,000 8,656,000
LONG TERM DEBT - -
------------ ------------
Total liabilities 13,902,000 8,656,000
------------ ------------
------------ ------------
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; 8,788,499 and 8,734,694 shares
issued and outstanding as of June 30, 1996
and December 31, 1995, respectively 37,970,000 37,036,000
Retained earnings 21,738 000 13,216,000
------------ ------------
Total shareholders' equity 59,708,000 50,252,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $73,610,000 $58,908,000
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Three Months
Ended June 30,
-----------------------------
1996 1995
-----------------------------
Sales $ 42,508,000 $ 23,518,000
Cost of sales 30,933,000 18,249,000
------------- -------------
Gross profit 11,575,000 5,269,0000
Selling, general and administrative expenses 3,188,000 1,759,000
------------- -------------
Income from operations 8,387,000 3,510,000
Other income 240,000 369,000
------------- -------------
Income before provision for income taxes 8,627,000 3,879,000
Provision for income taxes 3,623,000 1,602,000
------------- -------------
Net income $ 5,004,000 $ 2,277,000
------------- -------------
------------- -------------
Net income per share (Note 4) $ .55 $ .25
------------- -------------
Weighted average shares outstanding 9,174,891 9,148,559
See notes to condensed consolidated financial statements.
4
<PAGE>
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Six Months
Ended June 30,
-----------------------------
1996 1995
------------ -----------
Sales $71,852,000 $44,719,000
Cost of sales 52,496,000 35,529,000
----------- -----------
Gross profit 19,356,000 9,190,000
Selling, general and administrative expenses 5,374,000 3,578,000
----------- -----------
Income from operations 13,982,000 5,612,000
Other income 608,000 736,000
----------- -----------
Income before provision for income taxes 14,590,000 6,348,000
Provision for income taxes 6,068,000 2,602,000
----------- -----------
Net income $ 8,522,000 $ 3,746,000
----------- -----------
----------- -----------
Net income per share (Note 4) $ .94 $ .41
----------- -----------
Weighted average shares outstanding 9,052,352 9,151,598
See notes to condensed consolidated financial statements.
5
<PAGE>
COASTCOAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months
Ended June 30,
----------------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,522,000 $ 3,746,000
Adustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization 1,113,000 900,000
Loss on disposal of machinery and equipment 55,000 7,000
Deferred income taxes 50,000 45,000
Changes in operating assets and liabilities:
Accounts receivable (11,450,000) (2,589,000)
Inventories (8,620,000) 834,000
Prepaid expenses and other current asset 210,000 392,000
Income taxes payable 1,783,000 -
Accounts payable and accrued liabilities 3,557,000 1,400,000
Change in accrual for disposal of
aerospace business (115,000) (110,000)
------------ ------------
Net cash (used in) provided by operating
activities (4,895,000) 4,625,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of short-term investments 10,088,000 (5,657,000)
Purchase of property, plant and equipment (4,775,000) (1,806,000)
Proceeds from disposal of machinery and
equipment - -
Other assets (55,000) (173,000)
------------ ------------
Net cash provided by (used in) investing
activities 5,258,000 (7,636,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon
exercise of options net of related tax benefit 806,000 -
Non-employee director stock options 135,000 -
Repurchase of common stock (7,000) -
------------ ------------
Net cash provided by financing activities 934,000 -
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,297,000 (3,011,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 9,237,000 7,188,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 10,534,000 $ 4,177,000
------------ ------------
------------ ------------
See notes to condensed consolidated financial statements.
6
<PAGE>
COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1996, the related
condensed consolidated statements of income for the three and six months and
cash flows for the six months ended June 30, 1996 and 1995 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, 1996 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, 1995 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, 1995. These condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto contained in that annual report.
The results of operations for the periods ended June 30, 1996 are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
June 30, December 31,
1996 1995
----------- -----------
Raw materials and supplies $5,538,000 $1,546,000
Tooling 246,000 178,000
Work-in-process 8,931,000 4,981,000
Finished goods 1,516,000 906,000
----------- -----------
$16,231,000 $7,611,000
----------- -----------
----------- -----------
3. DISCONTINUED OPERATIONS
The plan adopted in October 1993 to phase out the aerospace business was
essentially completed by June 1994. The net current assets of discontinued
operations as of June 30, 1996 were $762,000, principally
7
<PAGE>
consisting of the estimated net realizable value of the Wallingford, Connecticut
property including the related deferred tax asset.
In connection with the offering for sale of the Wallingford, Connecticut
property, the Company had an environmental assessment performed, which
identified the presence of certain chemicals associated with chlorinated
solvents in groundwater beneath a portion of the property. The Company is
currently conducting further investigation to determine the source and extent of
the contamination. The Company has recorded the net assets associated with its
discontinued operations at the estimated net realizable value. However, since
the precise source and extent of the contamination has not been identified at
this time, no assurances can be given that the proceeds to be realized upon the
sale of this property less the cost of remediation will equal or exceed the
estimated net realizable value.
4. EARNINGS PER SHARE
Net income per share is based on the weighted average number of shares of common
stock outstanding and dilutive common equivalent shares from stock options,
using the treasury stock method.
8
<PAGE>
COASTCAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales increased 80.8% and 60.9% to $42.5 million and $71.9 million for the three
months and six months ended June 30, 1996, respectively, from $23.5 million and
$44.7 million for the three months and six months ended June 30, 1995,
respectively. The increase was primarily due to sales of titanium clubheads,
which have significantly higher unit sales prices than steel-alloy clubheads.
Sales of titanium clubheads more than offset a decrease in sales of steel-alloy
metal wood and iron clubheads.
Gross profit increased 118.9% and 110.9% to $11.6 million and $19.4 million for
the three months and six months ended June 30, 1996, respectively, from $5.3
million and $9.2 million for the three months and six months ended June 30,
1995. Gross profit margins increased to 27.2% and 26.9% for the three months
and six months ended June 30, 1996 respectively, from 22.4% and 20.6% for the
comparable prior year periods, due principally to the shift in production to
titanium clubheads.
Selling, general and administrative expense increased $1.4 million and $1.8
million, or 77.8% and 50.0%, to $3.2 million and $5.4 million for the three
months and six months ended June 30, 1996, respectively, from $1.8 million and
$3.6 million for the comparable prior year periods. The increase was due
primarily to increased legal fees and increased payroll and related bonus
expense.
DISCONTINUED OPERATIONS
The plan adopted in October 1993 to phase out the aerospace business was
essentially completed by June 1994. The net current assets of discontinued
operations as of June 30, 1996 were $762,000, principally consisting of the
estimated net realizable value of the Wallingford, Connecticut property
including the related deferred tax asset.
In connection with the offering for sale of the Wallingford, Connecticut
property, the Company had an environmental assessment performed, which
identified the presence of certain chemicals associated with chlorinated
solvents in groundwater beneath a portion of the property. The Company is
currently conducting further investigation to determine the source and extent of
the contamination. The Company has recorded the net assets associated with its
discontinued operations at the estimated net realizable value. However, since
the precise source and extent of the contamination has not been identified at
this time, no assurances can be given that the proceeds to be realized upon the
sale of this property less the cost of remediation will equal or exceed the
estimated net realizable value.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments position at June
30, 1996 was $15.2 million compared to $23.9 million on December 31, 1995, a
decrease of $8.7 million. Net cash used in operating activities was $4.9
million for the six months ended June 30, 1996. Capital expenditures for the
six months ended June 30, 1996 totaled $4.8 million.
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. For the six months ended June 30, 1996, the
Company purchased and retired 700 shares for $7,000. As of June 30, 1996, there
were 609,500 shares remaining to purchase under this authorization.
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 from financial institutions should be adequate to meet its financing
requirements for the foreseeable future.
10
<PAGE>
COASTCAST CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 24, 1995, the Company announced an agreement for settlement of the
securities class action lawsuits pending against the Company and certain of its
officers and directors in the United States District Court for the Central
District of California. On November 6, 1995 the parties entered into a
Stipulation of Settlement which provides for the creation of a settlement fund
of $6.25 million to be paid by or on behalf of the defendants to class members
who purchased Company common stock during the class period, January 24, 1994 to
August 17, 1994. The Company's officers' and directors' liability insurer has
contributed $4.175 million towards the settlement fund, which has been fully
funded. The Company charged $2.075 million against its operating results for
the year ended December 31, 1995. The $2.075 million was funded in January
1996. On May 6, 1996, the United States District Court granted final approval
of the Company's securities litigation class action settlement.
Item 4. Submission of Matter to a Vote of Securities Holders
The Company held its annual meeting of shareholders on June 12, 1996. The
following matters were voted and approved by the shareholders.
1. Election of Directors to hold office until the 1997 Annual Meeting:
Votes For Votes Withheld
--------- --------------
Hans H. Buehler 7,753,656 111,354
Edward L. White 7,750,606 114,404
Richard W. Mora 7,753,606 111,404
Edwin A. Levy 7,753,806 111,204
Paul A. Novelly 7,754,106 110,904
George L. Graziadio 7,753,306 111,704
Lee E. Mikles 7,749,181 115,829
2. Amendment of the 1993 Amended and Restated Employee Stock Option Plan was
voted upon by the shareholders. The amendment increases the number of shares
covered by the plan by 650,000 shares, extends the expiration date of the plan
by two years, and limits the aggregate number of shares in respect of which
options may be granted in any calendar year to any one person to 450,000 shares.
Holders of 5,070,787 shares voted for the amendment, holders of 763,110 shares
voted against the amendment, and holders of 45,684 shares abstained from voting
on such amendment.
3. Amendment of the Non-Employee Director Stock Option Plan was voted upon by
the shareholders. The amendment increases the number of shares covered by the
plan by 150,000 shares, and increases the number of shares issuable to each
eligible director under the plan. Holders of 4,754,346 shares voted for
11
<PAGE>
the amendment, holders of 1,080,059 shares voted against the amendment, and
holders of 45,176 shares abstained from voting on such amendment.
4. Ratification of Deloitte & Touche LLP as the Company's independent auditors
was a proposal voted upon by the shareholders. Holders of 7,823,350 shares
voted for such ratification, holders of 6,603 shares voted against such
ratification and holders of 35,057 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, 1995, are hereby incorporated by reference as
those 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit:
11.1 Statement re: computation of per share earnings
(b) Reports on Form 8-K:
None
12
<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.
COASTCAST CORPORATION
July 22, 1996 By /s/ Robert C. Bruning
---------------- -------------------------------------
Dated Robert C. Bruning
Chief Financial Officer
(Duly Authorized and Principal
Financial Officer)
13
<PAGE>
COASTCAST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common stock outstanding at beginning of period 8,760,960 9,091,994 8,734,694 9,091,994
Repurchase of common stock - - (700) -
Exercise of options 27,539 - 54,505 -
------------ ------------ ------------ ------------
Common stock outstanding at end of 8,788,499 9,091,994 8,788,499 9,091,994
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares outstanding 8,779,108 9,091,994 8,762,333 9,091,994
Dilutive effect of stock options after application
of treasury stock method 395,783 56,565 290,019 59,604
------------ ------------ ------------ ------------
Total 9,174,891 9,148,559 9,052,352 9,151,598
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income $ 5,004,000 $ 2,277,000 $ 8,522,000 $ 3,746,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common and common
equivalent share $ .55 $ .25 $ .94 $ .41
----- ----- ----- -----
</TABLE>
Exhibit 11.1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,534
<SECURITIES> 4,630
<RECEIVABLES> 19,048
<ALLOWANCES> 400
<INVENTORY> 16,231
<CURRENT-ASSETS> 54,484
<PP&E> 32,543
<DEPRECIATION> 13,722
<TOTAL-ASSETS> 73,610
<CURRENT-LIABILITIES> 13,902
<BONDS> 0
0
0
<COMMON> 37,970
<OTHER-SE> 21,738
<TOTAL-LIABILITY-AND-EQUITY> 73,610
<SALES> 71,852
<TOTAL-REVENUES> 71,852
<CGS> 52,496
<TOTAL-COSTS> 52,496
<OTHER-EXPENSES> 5,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,590
<INCOME-TAX> 6,068
<INCOME-CONTINUING> 8,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,522
<EPS-PRIMARY> .94
<EPS-DILUTED> 0
</TABLE>
