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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 September 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 October 26, 2000 there were outstanding 7,368,085 shares of common stock, no
par value.
1
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COASTCAST CORPORATION
INDEX
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<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and
December 31, 1999 3
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, 2000 and 1999 4
Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 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 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------------- ---------------------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents $ 48,685,000 $ 42,740,000
Trade accounts receivable, net of allowance for doubtful
accounts of $500,000 at September 30, 2000 and at
December 31, 1999 9,960,000 9,179,000
Inventories (Note 2) 9,104,000 11,059,000
Prepaid expenses and other current assets 2,782,000 2,177,000
Deferred income taxes 1,449,000 1,485,000
--------------------- ---------------------
Total current assets 71,980,000 66,640,000
Property, plant and equipment, net 23,682,000 24,170,000
Other assets 1,648,000 1,506,000
===================== =====================
$ 97,310,000 $ 92,316,000
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,119,000 $ 4,949,000
Accrued liabilities 4,411,000 3,536,000
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Total current liabilities 9,530,000 8,485,000
Deferred compensation 756,000 541,000
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Total liabilities 10,286,000 9,026,000
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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;
7,364,381 and 7,701,571 shares issued and outstanding as of
September 30, 2000 and December 31, 1999, respectively 21,969,000 26,964,000
Retained earnings 65,032,000 56,352,000
Accumulated other comprehensive income 23,000 (26,000)
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Total shareholders' equity 87,024,000 83,290,000
===================== =====================
$ 97,310,000 $ 92,316,000
===================== =====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
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2000 1999
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<S> <C> <C>
Sales $ 32,539,000 $ 31,957,000
Cost of sales 29,149,000 28,181,000
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Gross profit 3,390,000 3,776,000
Selling, general and administrative expenses 1,388,000 1,544,000
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Income from operations 2,002,000 2,232,000
Other income, net 749,000 371,000
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Income before income taxes 2,751,000 2,603,000
Provision for income taxes 1,155,000 1,032,000
------------------ ------------------
Net income $ 1,596,000 $ 1,571,000
================== ==================
NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 0.21 $ 0.20
================== ==================
Weighted average shares outstanding 7,579,377 7,872,939
================== ==================
Net income per share - diluted $ 0.21 $ 0.20
================== ==================
Weighted average shares outstanding - diluted 7,728,275 7,910,221
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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COASTCAST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
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2000 1999
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<S> <C> <C>
Sales $ 116,474,000 $ 92,630,000
Cost of sales 97,765,000 75,369,000
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Gross profit 18,709,000 17,261,000
Selling, general and administrative expenses 5,647,000 5,925,000
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Income from operations 13,062,000 11,336,000
Other income, net 1,816,000 1,039,000
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Income before income taxes 14,878,000 12,375,000
Provision for income taxes 6,198,000 5,136,000
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Net income $ 8,680,000 $ 7,239,000
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NET INCOME PER SHARE (Note 3)
Net income per share - basic $ 1.13 $ 0.91
================== ==================
Weighted average shares outstanding 7,662,427 7,912,701
================== ==================
Net income per share - diluted $ 1.11 $ 0.91
================== ==================
Weighted average shares outstanding - diluted 7,847,597 7,936,186
================== ==================
</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 NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,680,000 $ 7,239,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,289,000 3,020,000
Goodwill amortization 21,000 12,000
Loss on disposal of machinery and equipment 16,000 94,000
Deferred compensation 215,000 222,000
Deferred income taxes 85,000 -
Changes in operating assets and liabilities:
Trade accounts receivable (781,000) (2,507,000)
Inventories 1,955,000 2,718,000
Prepaid expenses and other current assets 342,000 945,000
Prepaid income taxes (947,000) 2,738,000
Accounts payable and accrued liabilities 1,045,000 2,065,000
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Net cash provided by operating activities 13,920,000 16,546,000
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,829,000) (3,488,000)
Proceeds from disposal of machinery and equipment 12,000 62,000
Surrender of life insurance policies - 6,215,000
Purchase of investments (57,000) (965,000)
Purchase of business - (233,000)
Other assets (106,000) 51,000
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Net cash (used in) provided by investing activities (2,980,000) 1,642,000
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of
options net of related tax benefit 548,000 47,000
Repurchase of common stock (5,543,000) (1,087,000)
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Net cash used in financing activities (4,995,000) (1,040,000)
------------------- -------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 5,945,000 17,148,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 42,740,000 27,551,000
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 48,685,000 $ 44,699,000
=================== ===================
</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 September 30, 2000, the related
condensed consolidated statements of income for the three and nine months and
cash flows for the nine months ended September 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 September 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.
Certain reclassifications were made to 1999 balances to conform to the 2000
presentation.
The results of operations for the periods ended September 30, 2000 are not
necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
Raw materials and supplies $3,619,000 $ 4,771,000
Tooling 270,000 165,000
Work-in-process 4,845,000 5,698,000
Finished goods 370,000 425,000
-------------- --------------
$9,104,000 $11,059,000
============== ==============
</TABLE>
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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).
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COASTCAST CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales increased 1.6% and 25.8% to $32.5 million and $116.5 million for the three
months and nine months ended September 30, 2000, respectively, from $32.0
million and $92.6 million for the three months and nine months ended September
30, 1999, respectively. The slight increase in sales in the quarter was
primarily due to an increase in medical and other specialty product sales
partially offset by a slight decrease in golf sales. The increase in sales for
the nine months ended September 30, 2000 was mainly due to increased sales of
irons and steel metal woods partially offset by a decrease in titanium metal
wood and steel putter sales.
Gross profit decreased 10.5% to $3.4 million and increased 8.1% to $18.7 million
for the three months and nine months ended September 30, 2000, respectively,
from $3.8 million and $17.3 million for the three months and nine months ended
September 30, 1999, respectively. Gross profit margins decreased to 10.4% for
the three months ended September 30, 2000 compared to 11.8% for the three months
ended September 30, 1999. Gross profit margins decreased to 16.1% for the nine
months ended September 30, 2000 versus 18.6% for the nine months ended September
30, 1999 primarily due to product mix and revenue flow which were higher in iron
clubheads than metal wood clubheads. The third quarter of 2000 margin of 10.4%
was lower than the nine months ended September 30, 2000 margin of 16.1% mainly
due to higher production costs relating to lower unit volume in the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position at September 30, 2000 was $48.6
million compared to $42.7 million on December 31, 1999, an increase of $5.9
million. Net cash provided by operating activities was $13.9 million for the
nine months ended September 30, 2000. The net cash provided by operating
activities consisted of net income of $8.7 million, depreciation and
amortization of $3.3 million, a decrease in inventories of $2.0 million, an
increase in accounts payables and accrued liabilities of $1.0 million, partially
offset by an increase in accounts receivables of $0.8 million. Net cash used by
investing activities of $3.0 million consisted mainly of net capital
expenditures of $2.8 million. Net cash used by financing activities of $5.0
million consisted of the repurchase of company common stock of $5.5 million
offset by $0.5 million in proceeds from the issuance of common stock upon
exercise of stock options, including related tax benefit.
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
September 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. 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
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market or negotiated transactions. For the nine months ended September 30, 2000,
the Company purchased 375,658 shares at a cost of $5.5 million dollars,
completing the share repurchase under the original authorization, with 788,842
shares remaining to be purchased under the December 1999 authorization.
The Company has no long-term debt. The Company believes that its current cash
position, anticipated working capital generated from future operations and the
ability to borrow should be adequate to meet its financing requirements for the
foreseeable future.
FORWARD LOOKING INFORMATION
Except for the historical information, other statements in this report are
forward-looking statements pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially, including, but not limited to, industry conditions, economic
conditions, competitive factors and pricing pressures, shifts in market demand
and trends, and the costs of product development and production as well as other
risks detailed in the Company's Securities and Exchange Commission filings.
10
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COASTCAST CORPORATION
PART II. OTHER INFORMATION
Item 5. Other Information
1. 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 shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<S> <C>
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 Agreement, dated June 12, 2000, between the Company and United
Steelworkers of America
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)
</TABLE>
--------------------------------
(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
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(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
OCTOBER 26, 2000 By /s/ NORMAN FUJITAKI
------------------ ------------------------------------------
Dated Norman Fujitaki
Chief Financial Officer (Duly Authorized and
Principal Financial Officer)
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