<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, 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 April 26, 1999 there were outstanding 7,925,704 shares of common stock, no
par value.
1
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COASTCAST CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
and December 31, 1998 3
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 (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
</TABLE>
2
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,226,000 $ 27,551,000
Accounts receivable, net of allowance for doubtful
accounts of $600,000 at March 31, 1999 and
December 31, 1998 12,866,000 7,556,000
Inventories (Note 2) 11,810,000 10,326,000
Prepaid expenses and other current assets 2,455,000 6,389,000
Deferred income taxes 1,131,000 1,131,000
------------ ------------
Total current assets 57,488,000 52,953,000
Property, plant and equipment, net 23,785,000 24,116,000
Other assets 6,641,000 6,604,000
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Total assets $ 87,914,000 $ 83,673,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,880,000 $ 2,804,000
Accrued liabilities 3,663,000 3,432,000
------------ ------------
Total current liabilities 8,543,000 6,236,000
Deferred compensation 372,000 295,000
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Total liabilities 8,915,000 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; 7,933,204 and 7,989,404 shares
issued and outstanding as of March 31, 1999
and December 31, 1998, respectively 29,860,000 30,309,000
Retained earnings 49,139,000 46,833,000
------------ ------------
Total shareholders' equity 78,999,000 77,142,000
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Total liabilities and shareholders' equity $ 87,914,000 $ 83,673,000
------------ ------------
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</TABLE>
See accompanying 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,
-------------------------------
1999 1998
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<S> <C> <C>
Sales $ 27,091,000 $ 45,321,000
Cost of sales 21,242,000 35,672,000
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Gross profit 5,849,000 9,649,000
Selling, general and administrative expenses 2,212,000 3,077,000
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Income from operations 3,637,000 6,572,000
Other income, net 339,000 356,000
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Income before income taxes 3,976,000 6,928,000
Provision for income taxes 1,670,000 2,910,000
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Net income $ 2,306,000 $ 4,018,000
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NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 0.29 $ 0.45
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Weighted average shares outstanding 7,972,926 8,892,761
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Net income per share - diluted $ 0.29 $ 0.44
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Weighted average shares outstanding - diluted 7,978,046 9,230,982
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</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,
-------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,306,000 $ 4,018,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 996,000 760,000
(Gain) loss on disposal of machinery and equipment (17,000) 4,000
Deferred compensation 77,000 364,000
Deferred income taxes - 5,000
Non-employee director compensatory stock options - 67,000
Changes in operating assets and liabilities:
Trade accounts receivable (5,310,000) (5,092,000)
Inventories (1,484,000) 789,000
Prepaid expenses and other current assets 3,934,000 (677,000)
Accounts payable and accrued liabilities 2,307,000 3,168,000
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Net cash provided by operating activities 2,809,000 3,406,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (689,000) (2,432,000)
Proceeds from disposal of machinery and equipment 41,000 18,000
Other assets (37,000) (183,000)
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Net cash (used in) investing activities (685,000) (2,597,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of
options net of related tax benefit - 1,589,000
Repurchase of common stock (449,000) -
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Net cash (used in) provided by financing activities (449,000) 1,589,000
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,675,000 2,398,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 27,551,000 28,187,000
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 29,226,000 $ 30,585,000
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</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, 1999, the related
condensed consolidated statements of income and cash flows for the three
months ended March 31, 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 March 31, 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 period ended March 31, 1999, are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Raw materials and supplies $ 4,124,000 $ 5,137,000
Tooling 222,000 225,000
Work-in-process 6,926,000 4,019,000
Finished goods 538,000 945,000
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$ 11,810,000 $ 10,326,000
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</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, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998:
Sales decreased $18.2 million, or 40.2%, to $27.1 million for the three
months ended March 31, 1999 from $45.3 million for the three months ended
March 31, 1998. The decrease was primarily due to a significant decrease in
titanium golf clubhead volume.
Gross profit decreased $3.8 million, or 39.6%, to $5.8 million for 1999 from
$9.6 million for 1998. Gross profit margins were almost the same at 21.6% for
1999 from 21.3% in 1998. The decrease in gross profit was primarily related
to the decrease in titanium golf clubhead sales.
Selling, general and administrative expense decreased $0.9 million, or 29.0%,
to $2.2 million in 1999 from $3.1 million in 1998. The decrease was due
primarily to decreased payroll and related expenses, including management
bonus.
YEAR 2000 CONVERSION
The Company has identified issues, developed plans and is working to resolve
the potential impact of the year 2000 on its business operations and the
ability of its computerized information systems to accurately process
information that may be date sensitive. The maintenance and modifications to
programs are not material and are expensed as incurred. The Company has
communicated with others with which it does significant business to determine
their year 2000 compliance readiness and the extent to which the Company is
vulnerable to any third party year 2000 issues. With a response rate of over
75% to date, these inquiries have not revealed any circumstances that would
cause a significant disruption to business operations. Based on the
information collected to date, the Company does not believe that the cost of
addressing the year 2000 issues will have material adverse impact on its
financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at March 31, 1999 was $29.2
million compared to $27.6 million on December 31, 1998, an increase of $1.6
million. Net cash provided by operating activities was $2.8 million for the
three months ended March 31, 1999. The operating activities net cash was
primarily provided by net income of $2.3 million. Net cash used in investing
activities of $0.7 million consisted mainly of $0.7 million of net capital
expenditures for the three months ended March 31, 1999. Net cash used in
financing activities of $0.4 million consisted of repurchase of 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 56,200 shares at a cost of $.4 million for the quarter
ended March 31, 1999. As of March 31, 1999, there were 400,800 shares
remaining to be purchased under this authorization.
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
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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, 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.
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,
1998 (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
April 26, 1999 By /s/ Norman Fujitaki
- -------------- ------------------------------------
Dated Norman Fujitaki
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,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Common stock outstanding at beginning of period 7,989,404 8,849,005
Exercise of options - 110,045
Repurchase of common stock (56,200) -
------------ ------------
------------ ------------
Common stock outstanding at end of period 7,933,204 8,959,050
------------ ------------
------------ ------------
Weighted average shares outstanding, for computation of basic EPS 7,972,926 8,892,761
Dilutive effect of stock options after application of treasury stock method 5,120 338,221
------------ ------------
Total diluted weighted average shares outstanding, for computation of
diluted earnings per share 7,978,046 9,230,982
------------ ------------
------------ ------------
Net income $ 2,306,000 $ 4,018,000
------------ ------------
------------ ------------
Net income per common share - basic $ 0.29 $ 0.45
------------ ------------
------------ ------------
Net income per common and common equivalent share - diluted $ 0.29 $ 0.44
------------ -------------
------------ -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 29,226
<SECURITIES> 0
<RECEIVABLES> 13,466
<ALLOWANCES> 600
<INVENTORY> 11,810
<CURRENT-ASSETS> 57,488
<PP&E> 44,516
<DEPRECIATION> 20,731
<TOTAL-ASSETS> 87,914
<CURRENT-LIABILITIES> 8,543
<BONDS> 0
0
0
<COMMON> 29,860
<OTHER-SE> 49,139
<TOTAL-LIABILITY-AND-EQUITY> 87,914
<SALES> 27,091
<TOTAL-REVENUES> 27,091
<CGS> 21,242
<TOTAL-COSTS> 21,242
<OTHER-EXPENSES> 2,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,976
<INCOME-TAX> 1,670
<INCOME-CONTINUING> 2,306
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,306
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
