<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, 1998
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 April 30, 1998 there were outstanding 9,003,598 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, 1998
(Unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1998 and 1997 (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
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,585,000 $ 28,187,000
Accounts receivable, net of allowance for doubtful
accounts of $500,000 at March, 1998 and
December 31, 1997 17,985,000 12,893,000
Inventories (Note 2) 20,419,000 21,208,000
Prepaid expenses and other current assets 3,602,000 2,930,000
Deferred income taxes 1,597,000 1,597,000
------------ ------------
Total current assets 74,188,000 66,815,000
Property, plant and equipment, net 20,729,000 19,079,000
Other assets 4,314,000 4,131,000
------------ ------------
Total assets $ 99,231,000 $ 90,025,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,626,000 $ 4,986,000
Accrued liabilities 7,562,000 5,034,000
------------ ------------
Total current liabilities 13,188,000 10,020,000
Deferred compensation 1,978,000 1,614,000
------------ ------------
Total liabilities 15,166,000 11,634,000
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; 8,959,050 and 8,849,005 shares
issued and outstanding as of March 31, 1998
and December 31, 1997, respectively 40,889,000 39,233,000
Retained earnings 43,176 000 39,158,000
------------ ------------
Total shareholders' equity 84,065,000 78,391,000
------------ ------------
Total liabilities and shareholders' equity $99,231,000 $90,025,000
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
3
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
Sales $45,321,000 $29,001,000
Cost of sales 35,672,000 24,976,000
------------ -----------
Gross profit 9,649,000 4,025,000
Selling, general and administrative expenses 3,077,000 2,184,000
------------ -----------
Income from operations 6,572,000 1,841,000
Other income, net 356,000 172,000
------------ -----------
Income before income taxes 6,928,000 2,013,000
Provision for income taxes 2,910,000 815,000
------------ -----------
Net income $ 4,018,000 $ 1,198,000
------------ -----------
------------ -----------
NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 0.45 $ 0.14
------------ -----------
------------ -----------
Weighted average shares outstanding 8,892,760 8,784,181
------------ -----------
------------ -----------
Net income per share - diluted $ 0.44 $ 0.13
------------ -----------
------------ -----------
Weighted average shares outstanding - diluted 9,230,982 8,971,031
------------ -----------
------------ -----------
</TABLE>
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,
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,018,000 $ 1,198,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 760,000 703,000
Loss on disposal of machinery and equipment 4,000 49,000
Deferred compensation 364,000 303,000
Deferred income taxes 5,000 9,000
Non-employee director compensatory stock options 67,000 67,000
Changes in operating assets and liabilities:
Trade accounts receivable (5,092,000) (987,000)
Inventories 789,000 (8,240,000)
Prepaid expenses and other current assets (677,000) 1,202,000
Income taxes payable 1,831,000 -
Accounts payable and accrued liabilities 1,337,000 (108,000)
--------------- ---------------
Net cash provided by operating activities 3,406,000 (5,804,000)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,432,000) (539,000)
Proceeds from disposal of machinery and equipment 18,000 7,000
Other assets (183,000) (35,000)
--------------- ---------------
Net cash used in investing activities (2,597,000) (567,000)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of
options net of related tax benefit 1,589,000 206,000
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,398,000 (6,165,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 28,187,000 14,060,000
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 30,585,000 $ 7,895,000
--------------- ---------------
--------------- ---------------
</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, 1998, the related
condensed consolidated statements of income and cash flows for the three months
ended March 31, 1998 and 1997 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, 1998, 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, 1997 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, 1997. 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 1997 balances to conform to the 1998
presentation.
The results of operations for the period ended March 31, 1998, are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------- ---------------
<S> <C> <C>
Raw materials and supplies $ 6,405,000 $ 7,578,000
Tooling 511,000 540,000
Work-in-process 12,896,000 12,375,000
Finished goods 607,000 715,000
-------------- --------------
$ 20,419,000 $ 21,208,000
-------------- --------------
-------------- --------------
</TABLE>
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).
6
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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, 1998 compared with three months ended March 31,
1997:
Sales increased $16.3 million, or 56.2%, to $45.3 million for the three months
ended March 31, 1998 from $29.0 million for the three months ended March 31,
1997. The increase was primarily due to increased sales volume in titanium iron
clubheads and titanium metal wood clubheads.
Gross profit increased $5.6 million, or 140%, to $9.6 million for 1998 from $4.0
million for 1997. Gross profit margins increased to 21.3% for 1998 from 13.9%,
due principally to increased production volume and improved product mix.
Selling, general and administrative expense increased $0.9 million, or 40.9%, to
$3.1 million in 1998 from $2.2 million in 1997. The increase was due primarily
to increased payroll and related expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at March 31, 1998 was $30.6
million compared to $28.2 million on December 31, 1997, an increase of $2.4
million. Net cash provided by operating activities was $3.4 million for the
three months ended March 31, 1998. The operating activities net cash was
primarily provided by net income of $4.0 million. Net cash used in investing
activities of $2.6 million consisted mainly of $2.4 million of net capital
expenditures for the three months ended March 31, 1998. Net cash provided by
financing activities of $1.6 million consisted 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 should be adequate to meet its financing requirements for current
operations and the foreseeable future.
7
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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, 1997, 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 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
99 Pages 11-13 of Registrant's annual report on Form
10-K for the year ended December 31, 1997 (incorporated by
reference to such Form 10-K filed with the Commission)
(b) Reports on Form 8-K:
None
8
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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 4, 1998 By /s/ Robert C. Bruning
- ----------- ----------------------------
Dated Robert C. Bruning
Chief Financial Officer
(Duly Authorized and Principal
Financial Officer)
9
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EXHIBIT 11
COASTCAST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Common stock outstanding at beginning of period 8,849,005 8,777,890
Exercise of options 110,045 16,444
---------------- ----------------
Common stock outstanding at end of period 8,959,050 8,794,334
---------------- ----------------
---------------- ----------------
Weighted average shares outstanding, for
computation of basic EPS 8,892,761 8,784,181
Dilutive effect of stock options after
application of treasury stock method 338,221 186,850
---------------- ----------------
Total diluted weighted average shares
outstanding, for computation of
diluted earnings per share 9,230,982 8,971,031
---------------- ----------------
---------------- ----------------
Net income $ 4,018,000 $ 1,198,000
---------------- ----------------
---------------- ----------------
Net income per common share - basic $ 0.45 $ 0.14
---------------- ----------------
---------------- ----------------
Net income per common and common equivalent share $ 0.44 $ 0.13
- diluted
---------------- ----------------
---------------- ----------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 30,585
<SECURITIES> 0
<RECEIVABLES> 18,485
<ALLOWANCES> 500
<INVENTORY> 20,419
<CURRENT-ASSETS> 74,188
<PP&E> 38,056
<DEPRECIATION> 17,327
<TOTAL-ASSETS> 99,231
<CURRENT-LIABILITIES> 13,188
<BONDS> 0
0
0
<COMMON> 40,889
<OTHER-SE> 43,176
<TOTAL-LIABILITY-AND-EQUITY> 99,231
<SALES> 45,321
<TOTAL-REVENUES> 45,321
<CGS> 35,672
<TOTAL-COSTS> 35,672
<OTHER-EXPENSES> 3,077
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,928
<INCOME-TAX> 2,910
<INCOME-CONTINUING> 4,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,018
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
</TABLE>
