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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, 2000
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
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At July 28, 2000 there were outstanding 7,661,872 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 June 30, 2000 (Unaudited) and
December 31, 1999 3
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended June 30, 2000 and 1999 4
Six Months Ended June 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (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
</TABLE>
2
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
--------------------- ---------------------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents $ 42,940,000 $ 42,740,000
Trade accounts receivable, net of allowance for doubtful
accounts of $500,000 at June 30, 2000 and
at December 31, 1999 17,858,000 9,179,000
Inventories (Note 2) 11,951,000 11,059,000
Prepaid expenses and other current assets 1,784,000 2,177,000
Deferred income taxes 1,462,000 1,485,000
--------------------- --------------------
Total current assets 75,995,000 66,640,000
Property, plant and equipment, net 23,901,000 24,170,000
Other assets 1,617,000 1,506,000
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$ 101,513,000 $ 92,316,000
===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,181,000 $ 4,949,000
Accrued liabilities 4,719,000 3,536,000
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Total current liabilities 9,900,000 8,485,000
Deferred compensation 684,000 541,000
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Total liabilities 10,584,000 9,026,000
--------------------- --------------------
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;
7,738,372 and 7,701,571 shares issued and outstanding as of
June 30, 2000 and December 31, 1999, respectively 27,488,000 26,964,000
Retained earnings 63,436,000 56,352,000
Accumulated other comprehensive income 5,000 (26,000)
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Total shareholders' equity 90,929,000 83,290,000
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$ 101,513,000 $ 92,316,000
===================== ====================
</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 JUNE 30,
-----------------------------------------
2000 1999
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<S> <C> <C>
Sales $ 46,705,000 $ 33,582,000
Cost of sales 37,867,000 25,946,000
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Gross profit 8,838,000 7,636,000
Selling, general and administrative expenses 2,324,000 2,169,000
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Income from operations 6,514,000 5,467,000
Other income, net 538,000 329,000
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Income before income taxes 7,052,000 5,796,000
Provision for income taxes 2,920,000 2,434,000
------------------ ------------------
Net income $ 4,132,000 $ 3,362,000
================== ==================
NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 0.54 $ 0.43
================== ==================
Weighted average shares outstanding 7,707,245 7,893,338
================== ==================
Net income per share - diluted $ 0.52 $ 0.42
================== ==================
Weighted average shares outstanding - diluted 7,969,591 7,921,391
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
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FOR THE SIX MONTHS
ENDED JUNE 30,
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2000 1999
------------------ ------------------
<S> <C> <C>
Sales $ 83,935,000 $ 60,673,000
Cost of sales 68,616,000 47,188,000
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Gross profit 15,319,000 13,485,000
Selling, general and administrative expenses 4,259,000 4,381,000
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Income from operations 11,060,000 9,104,000
Other income, net 1,067,000 668,000
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Income before income taxes 12,127,000 9,772,000
Provision for income taxes 5,043,000 4,104,000
------------------ ------------------
Net income $ 7,084,000 $ 5,668,000
================== ==================
NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 0.92 $ 0.71
================== ==================
Weighted average shares outstanding 7,704,408 7,932,912
================== ==================
Net income per share - diluted $ 0.90 $ 0.71
================== ==================
Weighted average shares outstanding - diluted 7,907,715 7,949,499
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,084,000 $ 5,668,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,184,000 2,006,000
Goodwill amortization 14,000 6,000
Loss on disposal of machinery and equipment 16,000 94,000
Deferred compensation 143,000 152,000
Deferred income taxes 54,000 -
Changes in operating assets and liabilities:
Trade accounts receivable (8,679,000) (7,129,000)
Inventories (892,000) (729,000)
Prepaid expenses and other current assets 241,000 4,783,000
Prepaid income taxes 152,000 533,000
Accounts payable and accrued liabilities 1,415,000 3,492,000
----------------- ------------------
Net cash provided by operating activities 1,732,000 8,876,000
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,943,000) (1,388,000)
Proceeds from disposal of machinery and equipment 12,000 62,000
Net surrender of life insurance policies - 843,000
Purchase of investments (20,000) (1,028,000)
Purchase of business - (233,000)
Other assets (105,000) 46,000
----------------- ------------------
Net cash used in investing activities (2,056,000) (1,698,000)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of
options net of related tax benefit 524,000 -
Repurchase of common stock - (1,087,000)
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Net cash provided by (used in) financing activities 524,000 (1,087,000)
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 200,000 6,091,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 42,740,000 27,551,000
----------------- ------------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 42,940,000 $ 33,642,000
================= ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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COASTCAST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 2000, the related
condensed consolidated statements of income for the three and six months and
cash flows for the six months ended June 30, 2000 and 1999 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, 2000 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, 1999 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, 1999. 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, 2000 are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
Raw materials and supplies $ 4,278,000 $ 4,771,000
Tooling 325,000 165,000
Work-in-process 6,871,000 5,698,000
Finished goods 477,000 425,000
----------- ------------
$11,951,000 $ 11,059,000
=========== ============
</TABLE>
7
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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
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COASTCAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales increased 39.0% and 38.2% to $46.7 million and $83.9 million for the three
months and six months ended June 30, 2000, respectively, from $33.6 million and
$60.7 million for the three months and six months ended June 30, 1999,
respectively. The increase was primarily due to increased sales volume in steel
iron and metal wood clubheads and titanium iron clubheads partially offset by a
decrease in sales of titanium metal wood clubheads.
Gross profit increased 15.8% and 13.3% to $8.8 million and $15.3 million for the
three months and six months ended June 30, 2000, respectively, from $7.6 million
and $13.5 million for the three months and six months ended June 30, 1999. Gross
profit margins decreased to 18.9% and 18.3% for the three months and six months
ended June 30, 2000 respectively, from 22.7% and 22.2% for the comparable prior
year periods, due principally to product mix and revenue flow which were higher
in iron clubheads than metal wood clubheads.
OTHER
In May 2000, the company announced that it engaged an investment banking firm to
advise the board of directors on strategic alternatives in connection with
unsolicited acquisition inquiries from unrelated third parties. Following
discussions with several potential acquirors, the company did not receive any
proposal for an acquisition of the company at a price which the board of
directors considered to be attractive. The board will continue to consider and
evaluate all strategic alternatives, as they arise, in an effort to enhance
shareholder value.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission staff (the "Staff") issued Staff
Accounting Bulletin Number 101 - Revenue Recognition in Financial Statements
("SAB 101") in December 1999. SAB 101, as amended, is effective during the
fourth quarter of 2000. The Company has not yet completed its analysis of the
effect of SAB 101 on its financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at June 30, 2000 was $42.9
million compared to $42.7 million on December 31, 1999, an increase of $.2
million. Net cash provided by operating activities was $1.7 million for the six
months ended June 30, 2000. The net cash provided by operating activities
consisted of net income of $7.1 million, depreciation and amortization of $2.2
million, and an increase in accounts payable and accrued liabilities of $1.4
million, partially offset by an increase in trade accounts receivable of $8.7
million. Net cash used in investing activities of $2.1 million consisted mainly
of $1.9
9
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million of net capital expenditures. Net cash provided by financing activities
of $.5 million relates to proceeds from exercise of stock options including
related tax benefits.
The Company maintains an unsecured revolving line of credit which allows the
Company to borrow up to $5 million and which had no outstanding balance at June
30, 2000. This line of credit which expires on May 31, 2001, bears interest at
the bank's prime rate or LIBOR plus 2%.
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, no purchases of
shares were made during the six months ended June 30, 2000. As of June 30, 2000,
there were 164,500 shares remaining to be purchased under this authorization. In
addition, in December 1999, the Board of Directors authorized the repurchase of
an additional one million shares of Coastcast common stock from time to time in
the open market or negotiated transactions.
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
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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 21, 2000. The
following matters were voted on and approved by the shareholders.
1. Election of Directors to hold office until the 2000 Annual Meeting:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Hans H. Buehler 7,127,134 266,223
Robert L. Gates 7,080,597 312,760
Robert H. Goon 7,041,797 351,560
Edwin A. Levy 6,209,997 1,183,360
Lee E. Mikles 6,230,497 1,162,860
Paul A. Novelly 6,230,497 1,162,860
Jonathan P. Vannini 7,355,916 37,441
</TABLE>
2. Ratification of Deloitte & Touche LLP as the Company's independent auditors:
holders of 7,384,966 shares voted for such ratification, holders of 7,041 shares
voted against such ratification and holders of 1,350 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, 1999, 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 share values.
11
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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 Revolving Line of Credit Note, effective
June 1, 2000, 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,
1999 (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
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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
July 28, 2000 By /s/ NORMAN FUJITAKI
------------------- --------------------------------------
Dated Norman Fujitaki
Chief Financial Officer (Duly Authorized
and Principal Financial Officer)
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