<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 March 31, 1997
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 May 12, 1997 there were outstanding 8,794,334 shares of common stock, no par
value.
1
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COASTCAST CORPORATION
INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1997 (Unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 1997 and 1996
(Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION:
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
2
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,895,000 $ 14,060,000
Trade accounts receivable, net of
allowance for doubtful accounts
of $400,000 at March 31, 1997 and
December 31, 1996 12,770,000 11,783,000
Inventories (Note 2) 29,900,000 21,660,000
Prepaid expenses and other current
assets 3,576,000 4,800,000
Deferred income taxes 864,000 864,000
Net current assets of discontinued
operations (Note 3) 821,000 808,000
------------ ------------
Total current assets 55,826,000 53,975,000
Property, plant and equipment, net 19,951,000 20,171,000
Other assets 1,989,000 1,954,000
------------ ------------
$ 77,766,000 $ 76,100,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,004,000 $ 5,043,000
Accrued liabilities 3,063,000 4,132,000
------------ ------------
Total current liabilities 9,067,000 9,175,000
Deferred compensation 741,000 438,000
------------ ------------
Total liabilities 9,808,000 9,613,000
------------ ------------
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; 8,794,334 and
8,777,890 shares issued and outstanding
as of March 31, 1997 and December 31,
1996, respectively 38,478,000 38,205,000
Retained earnings 29,480,000 28,282,000
------------ ------------
Total shareholders' equity 67,958,000 66,487,000
------------ ------------
$ 77,766,000 $ 76,100,000
------------ ------------
------------ ------------
See accompanying notes to condensed consolidated financial statements.
3
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
1997 1996
------------ ------------
Sales $ 29,001,000 $ 29,344,000
Cost of sales 24,976,000 21,563,000
------------ ------------
Gross profit 4,025,000 7,781,000
Selling, general and administrative expenses 2,184,000 2,186,000
------------ ------------
Income from operations 1,841,000 5,595,000
Other income, net 172,000 368,000
------------ ------------
Income before income taxes 2,013,000 5,963,000
Provision for income taxes 815,000 2,445,000
------------ ------------
Net income $ 1,198,000 $ 3,518,000
------------ ------------
------------ ------------
NET INCOME PER SHARE
Net income (Note 4) $ 0.13 $ 0.39
------------ ------------
------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING 8,971,031 8,929,812
------------ ------------
------------ ------------
See accompanying notes to condensed consolidated financial statements.
4
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,198,000 $ 3,518,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 703,000 527,000
Loss on disposal of machinery and equipment 49,000 35,000
Change in accrual for disposal of aerospace business (22,000) (46,000)
Deferred compensation 303,000 --
Deferred income taxes 9,000 20,000
Changes in operating assets and liabilities:
Trade accounts receivable (987,000) (6,254,000)
Inventories (8,240,000) (5,301,000)
Prepaid expenses and other current assets 1,224,000 1,677,000
Income taxes payable -- 989,000
Accounts payable and accrued liabilities (108,000) 392,000
------------ ------------
Net cash used in operating activities (5,871,000) (4,443,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales of short-term investments -- 6,035,000
Purchase of property, plant and equipment (539,000) (2,119,000)
Proceeds from disposal of machinery and equipment 7,000 --
Other assets (35,000) (32,000)
------------ ------------
Net cash (used in) provided by investing
activities (567,000) 3,884,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Non-employee director compensatory stock options 67,000 --
Proceeds from issuance of common stock upon exercise
of options, including related tax benefit 206,000 216,000
Repurchase of common stock -- (7,000)
------------ ------------
Net cash provided by financing activities 273,000 209,000
------------ ------------
NET DECREASE IN CASH (6,165,000) (350,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,060,000 9,237,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,895,000 $ 8,887,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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COASTCAST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of March 31, 1997, and the
related condensed consolidated statements of income and of cash flows for the
three months ended March 31, 1997 and 1996 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, 1997 and for the three
month 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,
1996 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, 1996. 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 period ended March 31, 1997 are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
March 31, December 31,
1997 1996
------------ ------------
Raw materials and supplies $ 16,373,000 $10,448,000
Tooling 293,000 294,000
Work-in-process 12,111,000 9,792,000
Finished goods 1,123,000 1,126,000
------------ ------------
$29,900,000 $21,660,000
------------ ------------
------------ ------------
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 March 31, 1997 were $821,000, 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
6
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groundwater beneath a portion of the property. The Company is continuing to
conduct further investigations 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.
7
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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, 1997 compared with three months ended March 31,
1996:
For the first quarter of 1997 as compared to the same period in 1996, sales
were $29.0 million vs. $29.3 million, net income was $1.2 million vs. $3.5
million, and earnings per share were $0.13 vs. $0.39.
Compared to the first quarter of last year, sales did not change, but the
product mix was different. Titanium woods revenue declined by about
one-third, and steel woods revenue declined by about one-half. In addition,
the Company was in the start-up phase of two major programs--the titanium
irons for Callaway and the newest titanium metal woods for Taylor Made. The
combination of these factors caused earnings to be depressed.
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 March 31, 1997 were $821,000, 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments position at
March 31, 1997 was $7.9 million compared to $14.0 million on December 31,
1996, a decrease of $6.1 million. Net cash used in operating activities was
$5.9 million for the three months ended March 31, 1997. The net cash used in
operating activities consisted primarly of an increase in inventories of $8.2
million and an increase in accounts receivable of $1.0 million, partially
offset by net income of $1.2 million, depreciation and amortization of $0.7
million, and a decrease in prepaid expenses and other current assets of $1.2
million. Cash used in investing activities consisted mainly of $0.5 million
of net capital expenditures for the three months ended March 31, 1997. Net
cash provided by financing activities of $0.3 million consisted primarily of
proceeds from exercise of stock options.
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.
8
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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, 1996, 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.
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 4, 1993, as amended by
Amendment No. 1 filed on November 17, 1993,
Amendment No. 2 filed on December 1, 1993, and
Amendment No. 3 filed on December 9, 1993
11.1 Statement re: computation of per share earnings
(b) Reports on Form 8-K:
None
9
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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
May 12, 1997 By /s/ Robert C. Bruning
- ------------ ---------------------
Dated Robert C. Bruning
Chief Financial Officer and Secretary
(Duly Authorized and Principal
Financial Officer)
10
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COASTCAST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Common stock outstanding at beginning of period 8,777,890 8,734,694
Repurchase of common stock -- (700)
Exercise of options 16,444 26,966
------------ ------------
Common stock outstanding at end of period 8,794,334 8,760,960
------------ ------------
Weighted average shares outstanding 8,784,181 8,745,558
Dilutive effect of stock options after application of
treasury stock method 186,850 184,254
------------ ------------
Total 8,971,031 8,929,812
------------ ------------
------------ ------------
Net income $1,198,000 $3,518,000
------------ ------------
------------ ------------
Net income per common and common equivalent share $ 0.13 $ 0.39
---------- ----------
---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,895
<SECURITIES> 0
<RECEIVABLES> 13,170
<ALLOWANCES> 400
<INVENTORY> 29,900
<CURRENT-ASSETS> 55,826
<PP&E> 34,779
<DEPRECIATION> 14,828
<TOTAL-ASSETS> 77,766
<CURRENT-LIABILITIES> 9,067
<BONDS> 0
0
0
<COMMON> 38,478
<OTHER-SE> 29,480
<TOTAL-LIABILITY-AND-EQUITY> 77,766
<SALES> 29,001
<TOTAL-REVENUES> 29,001
<CGS> 24,976
<TOTAL-COSTS> 24,976
<OTHER-EXPENSES> 2,184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,013
<INCOME-TAX> 815
<INCOME-CONTINUING> 1,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,198
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
